REGISTRATION NO. 333-118990
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM F-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MAAX CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
NOVA SCOTIA 6719 NONE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation Classification Code Number) Identification No.)
or organization)
</Table>
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FOR INFORMATION REGARDING ADDITIONAL REGISTRANTS, SEE FOOTNOTE (2) BELOW AND
THE "TABLE OF ADDITIONAL REGISTRANTS"
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1010 SHERBROOKE STREET WEST, SUITE 1610
MONTREAL, QUEBEC
CANADA H3A 2R7
(514) 844-4155
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
ANDRE HEROUX
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAAX CORPORATION
1010 SHERBROOKE STREET WEST, SUITE 1610
MONTREAL, QUEBEC
CANADA H3A 2R7
(514) 844-4155
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
STEPHEN C. KOVAL, ESQ.
KAYE SCHOLER LLP
425 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 836-8019
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
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TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE
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9.75% Senior Subordinated
Notes due 2012............... US$150,000,000 100% US$150,000,000(1)
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Guarantees of 9.75% Senior
Subordinated Notes due
2012(2)...................... US$150,000,000 100% US$150,000,000
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<Caption>
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TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
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9.75% Senior Subordinated
Notes due 2012............... US$19,005
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Guarantees of 9.75% Senior
Subordinated Notes due
2012(2)...................... (3)
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</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) The following co-registrants have guaranteed the notes that will be
registered under this registration statement: 4200217 Canada Inc., 9022-3751
Quebec Inc., Aker Plastics Company Inc., Beauceland Corporation, Cuisine
Expert -- C.E. Cabinets Inc., MAAX Canada Inc., MAAX Holding Co., MAAX-Hydro
Swirl Manufacturing Corp., MAAX-KSD Corporation, MAAX LLC, MAAX Midwest,
Inc., MAAX Spas (Arizona), Inc., MAAX Spas (B.C.) Inc., MAAX Spas (Ontario)
Inc., Pearl Baths, Inc.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guarantees of the notes being registered.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
Set forth below is certain information regarding each of the additional
registrants.
<Table>
<Caption>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
EXACT NAME OF REGISTRANT INCORPORATION CLASSIFICATION I.R.S. EMPLOYER
AS SPECIFIED IN ITS CHARTER OR ORGANIZATION CODE NUMBER IDENTIFICATION NO.
- --------------------------- --------------- ---------------- ------------------
4200217 Canada Inc.(1)....................... Canada 6719 None
9022-3751 Quebec Inc.(1)..................... Quebec 3088 None
Aker Plastics Company Inc.(2)................ Indiana 3088 35-1179106
Beauceland Corporation(1).................... Nova Scotia 6719 None
Cuisine Expert -- C.E. Cabinets Inc.(1)...... Canada 3088 98-0353819
MAAX Canada Inc.(1).......................... Canada 3088 98-0353816
MAAX Holding Co.(2).......................... Delaware 6719 41-1775598
MAAX-Hydro Swirl Manufacturing Corp.(2)...... Washington 3088 91-1699988
MAAX-KSD Corporation(2)...................... Pennsylvania 3088 23-2952989
MAAX LLC(2).................................. Delaware 6719 None
MAAX Midwest, Inc.(2)........................ Indiana 3088 35-1482750
MAAX Spas (Arizona), Inc.(2)................. California 3088 95-3076078
MAAX Spas (B.C.) Inc.(1)..................... Canada 6719 98-0374148
MAAX Spas (Ontario) Inc.(1).................. Canada 3088 None
Pearl Baths, Inc.(2)......................... Minnesota 3088 41-1337304
</Table>
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(1) For each such registrant, its principal executive office is 1010 Sherbrooke
Street West, Suite 1610, Montreal, Quebec, Canada H3A 2R7 and its telephone
number is (514) 844-4155.
(2) For each such registrant, its principal executive office is located at 9224
73rd Avenue North, Brooklyn Park, Minnesota 55428 and its telephone number
is (800) 328-2531.
PROSPECTUS
[MAAX CORPORATION LOGO]
MAAX CORPORATION
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OFFER TO EXCHANGE
9.75% SENIOR SUBORDINATED NOTES DUE 2012
FOR
9.75% SENIOR SUBORDINATED EXCHANGE NOTES DUE 2012,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
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We are offering to exchange all of our $150,000,000 in outstanding 9.75%
senior subordinated notes due 2012, which we refer to as the original notes, for
$150,000,000 in registered 9.75% senior subordinated notes due 2012, which we
refer to as the exchange notes. The original notes and the exchange notes are
collectively referred to as the notes. The original notes were issued on June 4,
2004. The terms of the exchange notes are identical to the terms of the original
notes except that the exchange notes are registered under the Securities Act of
1933, and therefore are freely transferable, subject to certain conditions. The
exchange notes evidence the same indebtedness as the original notes.
You should consider the following:
- INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 16 OF THIS PROSPECTUS.
- Our offer to exchange original notes for exchange notes will be open
until 10:00 a.m., New York City time, on [ ], 2005, unless we
extend the offer.
- No public market currently exists for the exchange notes. We do not
intend to apply for listing of the exchange notes on any securities
exchange or for inclusion of the exchange notes in any automated
quotation system.
The notes bear interest at the rate of 9.75% per year. We will pay interest
on the notes on June 15 and December 15 of each year. The first such payment
will be made on December 15, 2004. The notes will mature on June 15, 2012. We
have the option to redeem all or a portion of the notes at any time before June
15, 2008 at a "make-whole" premium and thereafter at the redemption prices set
forth in this prospectus. In addition, on or before June 15, 2007, we may, at
our option, use the net proceeds from one or more qualified equity offerings to
redeem up to 35% of the aggregate principal amount of the notes issued under the
indenture at 109.750% of their principal amount, plus accrued and unpaid
interest to the redemption date. We also have the right to redeem all of the
notes at 100% of their principal amount, plus accrued and unpaid interest to the
redemption date, if at any time Canadian or U.S. law changes to require us to
withhold taxes from payments on the notes. Notes will be issued only in
registered book-entry form, in denominations of $1,000 and integral multiples of
$1,000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER SECURITIES
COMMISSION OR SIMILAR AUTHORITY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2004
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 16
Notice to Investors......................................... 29
Market and Industry Data.................................... 29
Trademarks and Trade Names.................................. 29
Special Note Regarding Forward-Looking Statements........... 29
Presentation of Financial and Other Information............. 30
Exchange Rate Data.......................................... 30
The Exchange Offer.......................................... 32
Use of Proceeds............................................. 43
Unaudited Pro Forma Financial Data.......................... 44
Selected Historical Financial Data.......................... 49
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 51
Business.................................................... 63
Management.................................................. 78
Security Ownership of Certain Beneficial Owners and
Management................................................ 83
Certain Relationships and Related Party Transactions........ 86
Description of New Senior Secured Credit Facility........... 88
Description of Notes........................................ 91
Income Tax Considerations................................... 140
Plan of Distribution........................................ 145
Legal Matters............................................... 147
Experts..................................................... 147
Where You Can Find More Information......................... 148
Index to Financial Statements............................... F-1
</Table>
THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT US THAT IS NOT INCLUDED OR DELIVERED WITH THIS PROSPECTUS. WE WILL PROVIDE
THIS INFORMATION TO YOU AT NO CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED TO
DENIS AUBIN, MAAX CORPORATION, 1010 SHERBROOKE STREET WEST, SUITE 1610,
MONTREAL, QUEBEC, CANADA H3A 2R7, TELEPHONE NUMBER (514) 844-4155. IN ORDER TO
ENSURE TIMELY DELIVERY OF THIS INFORMATION, ANY REQUEST SHOULD BE MADE BY
[ ], 2005, FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER.
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this prospectus in
connection with the exchange offer. If given or made, such information or
representations must not be relied upon as having been authorized by us. Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implications that there has not been any change in the
facts set forth in this prospectus or in our affairs since the date hereof.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal accompanying this prospectus states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933, as amended,
or the Securities Act. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
the exchange notes received in exchange for original notes where such original
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for a period of 180
days after the expiration of the exchange offer, we will make this prospectus
available to any broker-dealer for use in connection with any such resales. See
"Plan of Distribution."
i
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in our notes. You should read the entire
prospectus carefully, including the financial data and related notes included
herein, before making an investment decision. This prospectus contains forward-
looking statements, which involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in "Risk
Factors" and elsewhere in this prospectus. In this prospectus, the terms "we,"
"us," "our," "our company" and MAAX refer to MAAX Corporation and its
consolidated subsidiaries after giving effect to the transactions described in
this prospectus or the businesses of MAAX Inc. and its consolidated
subsidiaries, prior to the consummation of the transactions, as applicable, in
each case, unless otherwise expressly stated or the context otherwise requires.
References to "fiscal year" refer to the results of operations for the 12-month
period ended February 28 or 29 of the applicable year. In this prospectus,
except where we indicate otherwise, all dollar amounts are expressed in U.S.
dollars, references to "$" or "dollars" are to U.S. dollars and references to
"C$" and "Canadian dollars" are to Canadian dollars. "EBITDA" and other
financial terms have the meanings set forth under "-- Summary Historical and Pro
Forma Consolidated Financial Data." The term "offering" refers to the offering
of the original notes and the issuance of such notes on June 4, 2004.
OUR COMPANY
We are a leading North American manufacturer and distributor of bathroom
fixtures, with the number one market share in Canada and the number three market
share in the U.S. within the bathtub and shower fixtures market. We sell a broad
range of bathroom fixture products, including acrylic, gelcoat and thermoplastic
bathtubs, showers, whirlpools and bathtub/shower surrounds, as well as shower
doors and medicine cabinets. By leveraging our relationships with our bathroom
customers, we have also emerged as a leading manufacturer of spas in North
America and have a growing presence in the semi-custom kitchen cabinetry market.
Founded in 1970, we focus on marketing stylish, innovative products at mid- to
high-end retail price points primarily under the MAAX(R) brand name. Through our
extensive manufacturing footprint and unique multi-channel distribution
strategy, we estimate that we currently serve over 3,500 customers.
We compete in the largest and fastest growing major segment of the bathroom
fixtures industry. We focus almost exclusively on the residential housing
market, in which approximately 65% of total U.S. bathroom fixture sales in 2003
were generated in the more stable and more profitable remodeling segment as
opposed to new home construction. Bathroom remodeling, our particular focus, is
one of the most common residential remodeling projects. We target our bathroom
products primarily at the bathtub and shower fixtures market, which is expected
to grow in the U.S. at a compound annual growth rate, or CAGR, of 3.4% from 2003
to 2013, as compared to 2.5% for all other bathroom fixture products. Our
bathtubs and showers are manufactured primarily from acrylic and gelcoat, which
are the most common and fastest growing bathroom fixture materials due to their
durability, appearance, value and relative ease of installation. U.S. sales of
acrylic and gelcoat bathtubs are expected to grow at a CAGR of 3.1% and 3.0%,
respectively, from 2003 to 2013, as compared to a CAGR of 2.5% for bathtubs
manufactured from all other materials over the same period. We also focus on the
fast growing kitchen remodeling segment. Sales in the U.S. of semi-custom
kitchen cabinets, the niche in which we compete, grew at a CAGR of 6.5% from
1996 to 2001.
We sell our products through a diverse set of distribution channels across
the U.S. and Canada, including wholesalers, showrooms, specialty retailers and
home centers. In fiscal year 2004, approximately 50% of our net sales were to
wholesalers and showrooms, approximately 15% were to specialty retailers and
approximately 35% were to home centers. In each of our distribution channels we
sell a distinct set of sub-brands differentiated by styles, features and price
points. Our multi-
channel distribution network, complemented by our disciplined channel-specific
product offering, allows us to operate under a unique go-to-market strategy. We
believe this strategy has enabled us to maximize our profits as well as those of
our customers, which in turn has further strengthened our customer
relationships.
We currently operate 23 strategically located manufacturing facilities,
including 13 in the U.S., nine in Canada and one in the Netherlands. This makes
us one of only two manufacturers of acrylic and gelcoat bathroom products with a
footprint that extends across North America. We believe that our extensive North
American footprint gives us a significant advantage vis-a-vis our other
competitors by enabling us to service both national and regional customers while
reducing delivery times, lowering inventory investment, decreasing shipping
costs and enhancing customer service.
Over the past six years, we have experienced significant growth, both
internally and through acquisitions. Since 1993, we have completed 15
acquisitions. Our largest acquisition was Aker Plastics Company Inc., or Aker,
which we acquired in October 2002 for $80.4 million. At the time of the
acquisition, Aker was reportedly the third largest manufacturer of gelcoat
bathroom products in the U.S., focused exclusively on the wholesaler and
showroom channels. This acquisition enhanced our growing market position in the
U.S. by allowing us to solidify our relationships in the higher margin
wholesaler and showroom channels and expand our U.S. manufacturing and
distribution capabilities.
The following table provides a brief overview of our primary products,
distribution channels and brands.
<Table>
<Caption>
PRODUCT FISCAL 2004 NET
CATEGORY SALES (% OF TOTAL) DISTRIBUTION CHANNELS KEY BRANDS BY CHANNEL
-------- ------------------ --------------------- ---------------------------------------
Bathroom $401 million Wholesalers MAAX Aker(R), MAAX Villa(R)
(81%)
Showrooms MAAX Collection(TM), MAAX Genna(R),
MAAX Pearl(R), MAAX(R) Tub & Shower
Doors, MAAX(R) Medicine Cabinets
Home Centers Advanta by MAAX(R), Keystone by
MAAX(R), Premium by MAAX(R)
Europe Saninova(R) by MAAX
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Kitchen $41 million Kitchen Dealers MAAX Collection(TM)
Cabinetry (8%)
Home Centers Cuisine Expert(R) by MAAX, Express
Kitchen(R)
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Spas $54 million Specialty Retailers Coleman Spas(R) by MAAX,
(11%) Elite Spas(R) by MAAX
Home Centers Savannah Spas, Nahanni(TM) Spas
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</Table>
THE TRANSACTIONS
On March 10, 2004, certain entities formed by J.W. Childs Equity Partners
Ill, L.P. and certain of its affiliates, or JWC Fund III, Borealis Private
Equity Limited Partnership and Borealis (QLP) Private Equity Limited
Partnership, or Borealis, and Ontario Municipal Employees Retirement Board, or
OMERS, which we refer to collectively as our Sponsors, entered into a merger
agreement to acquire MAAX Inc. and its subsidiaries. On June 4, 2004,
concurrently with the consummation of the transactions contemplated by the
merger agreement, our Sponsors, certain consultants and members of our
management made an investment in our indirect parent, MAAX Holdings, Inc., or
MAAX Holdings, of approximately $133.7 million in cash, which investment was
contributed as common equity to MAAX Corporation. In addition, certain members
of our management exchanged a
2
portion of their MAAX Inc. stock options into stock options of MAAX Holdings
with a fair value as of the closing date of approximately $2.7 million,
including a one-time option grant to Mr. Heroux to purchase shares of MAAX
Holdings' series A preferred stock. We also entered into a new senior secured
credit facility, consummated the offering of the original notes and refinanced
substantially all indebtedness of MAAX Inc. and its subsidiaries.
The consummation of the transactions contemplated by the merger agreement,
the cash investment by our Sponsors, certain consultants and members of our
management, the rollover by certain members of our management of a portion of
their MAAX Inc. stock options into stock options of MAAX Holdings, the one-time
option grant to Mr. Heroux, the financing under our new senior secured credit
facility, the refinancing of existing indebtedness, the offering of the original
notes and the payment of all related fees and expenses are collectively referred
to in this prospectus as the "transactions."
For a more complete description of the transactions, see the sections
entitled "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- History -- Impact of the Transactions"
and "Description of New Senior Secured Credit Facility."
RECENT EVENTS
On December 10, 2004, MAAX Holdings sold $170,689,000 principal amount at
maturity of 11.25% senior discount notes due 2012 and used the net proceeds of
approximately $104.8 million to repurchase shares of MAAX Holdings' common stock
and redeem rollover options exercisable into shares of MAAX Holdings' common
stock from our Sponsors, members of our management and certain consultants. In
addition, MAAX Holdings canceled options exercisable into shares of MAAX
Holdings' common stock held by certain members of our management, employees and
a non-employee director. An additional $2.0 million in the aggregate was paid to
certain members of our management in connection with the issuance of the senior
discount notes. Our Sponsors sold to MAAX Holdings shares of common stock
constituting approximately 60% of MAAX Holdings' outstanding shares of common
stock. The senior discount notes are the obligation of MAAX Holdings, are not
guaranteed and are not secured by any of our assets.
3
CORPORATE STRUCTURE
The following chart illustrates the relationship among us, our parent
companies and certain of our principal subsidiaries, which are 100% owned.
[Corporate Structure Chart]
4
SPONSORS
J.W. Childs Associates, L.P., or JWC, is a leading private equity firm
based in Boston, Massachusetts specializing in leveraged buyouts and
recapitalizations of middle-market growth companies in partnership with company
management through JWC Fund III and other funds it sponsors. Since 1995, the
firm has invested in 34 transactions with a total value of over $7.8 billion.
JWC presently manages $3.4 billion of equity capital from leading financial
institutions, pension funds, insurance companies and university endowments. Its
principal executive offices are located at 111 Huntington Avenue, Suite 2900,
Boston, Massachusetts 02199. Each of JWC and JWC Fund III is a Delaware limited
partnership.
Borealis was established in 2001 as an investment vehicle to generate
long-term returns primarily through private equity investment in Canadian
companies in partnership with management. Borealis has committed capital of
C$375 million and currently holds interests in a number of mid-sized Canadian
enterprises in the following sectors: specialty retail (optical), educational
publishing, investment counseling services, consulting engineering, specialty
hockey skate manufacturing and distributing and management of long-term care
facilities. Its principal executive offices are located at 1 Adelaide Street
East, Suite 2800, Box 198, Toronto, Ontario M5C 2V9. Each of Borealis Private
Equity Limited Partnership and Borealis (QLP) Private Equity Limited Partnership
is a limited partnership formed under the laws of the Province of Ontario.
Recently, Borealis Capital Corporation, or BCC, the manager of Borealis, became
a subsidiary of OMERS. OMERS is a significant investor in Borealis Private
Equity Limited Partnership.
Established in 1962, Ontario Municipal Employees Retirement System is a
multi-employer pension plan established under the Ontario Municipal Employees
Retirement System Act and Regulations made thereunder, or the OMERS Act, which
is managed and administered by OMERS, a corporation established under the OMERS
Act. OMERS Capital Partners is the private equity subsidiary of the C$34 billion
Ontario Municipal Employees Retirement System. With a portfolio of over C$1.4
billion, OMERS Capital Partners is one of Canada's largest private equity
investors. OMERS provides pensions for various groups including, but not limited
to, employees of Ontario municipalities, local boards, public utilities and
school boards (non-teaching staff). OMERS is a contributory defined benefit
pension plan financed by equal contributions from participating employers and
employees and by its investment earnings. Its principal executive offices are
located at One University Avenue, Suite 700, Toronto, Ontario M5J 2P1.
---------------------
MAAX Corporation is an unlimited company incorporated under the laws of
Nova Scotia, Canada in 2004 and operates under the Companies Act (Nova Scotia).
Our executive offices are located at 1010 Sherbrooke Street West, Suite 1610,
Montreal, Quebec, Canada H3A 2R7, telephone number (514) 844-4155. MAAX Inc.,
the predecessor entity, commenced operations in 1970.
5
SUMMARY OF THE EXCHANGE OFFER
On June 4, 2004, we completed the private offering of $150,000,000 of 9.75%
senior subordinated notes due 2012. We and the guarantors entered into a
registration rights agreement pursuant to which we and the guarantors agreed,
among other things:
(1) to file with the SEC, within 150 days following the closing date of
the offering, the registration statement of which this prospectus forms a
part under the Securities Act relating to an exchange offer pursuant to
which exchange notes substantially identical to the original notes (except
that such exchange notes will not contain terms with respect to the special
interest payments described below or transfer restrictions) would be
offered in exchange for the then outstanding original notes; and
(2) to use commercially reasonable efforts to cause the registration
statement of which this prospectus forms a part to become effective within
300 days following the closing date of the offering.
We agreed further to commence the exchange offer within 30 days after the
registration statement of which this prospectus forms a part has become
effective, hold the offer open for at least 30 days, and exchange notes for all
original notes validly tendered and not withdrawn before the expiration of the
offer.
Under existing SEC interpretations, the exchange notes would in general be
freely transferable after the exchange offer without further registration under
the Securities Act, except that broker-dealers receiving exchange notes in the
exchange offer will be subject to a prospectus delivery requirement with respect
to resales of those exchange notes. The SEC has taken the position that
broker-dealers may fulfill their prospectus delivery requirements with respect
to the exchange notes (other than a resale of an unsold allotment from the
original sale of the original notes) by delivery of this prospectus. Under the
registration rights agreement, we will be required to allow broker-dealers and
other persons, if any, subject to similar prospectus delivery requirements to
use this prospectus in connection with the resale of such exchange notes. The
registration statement of which this prospectus forms a part will be kept
effective until the earlier of 180 days after the exchange offer has been
consummated or until such time as such broker-dealers are no longer required to
comply with such prospectus delivery requirements in order to permit resales of
exchange notes acquired by broker-dealers in after-market transactions. Each
Holder of original notes (other than certain specified holders) who wishes to
exchange such original notes for exchange notes in the exchange offer will be
required to represent that any exchange notes to be received by it will be
acquired in the ordinary course of its business, that at the time of the
commencement of the exchange offer it has no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
the exchange notes and that it is not an affiliate of ours. In addition, each
such holder will be required to make any additional representations that in the
written opinion of our counsel are necessary under existing rules or regulations
(or interpretations thereof) of the SEC in order for the registration statement
of which this prospectus forms a part to be declared effective.
However, if:
(1) on or before the date of consummation of the exchange offer, the
existing SEC interpretations are changed such that the exchange notes would
not in general be freely transferable in such manner on such date; or
(2) the exchange offer is not available to any holder of the original
notes,
we will, in lieu of (or, in the case of clause (2), in addition to) effecting
registration of exchange notes, file within 150 days and use our commercially
reasonable efforts to cause a registration statement under the Securities Act
relating to a shelf registration of the original notes for resale by holders or,
in the case of clause (2), of the original notes held by the initial purchasers
for resale by the initial purchasers (the "RESALE REGISTRATION") to become
effective within 300 days and to
6
remain effective until two years following the effective date of such
registration statement or such shorter period that will terminate when all the
securities covered by the shelf registration statement have been sold pursuant
to the shelf registration statement.
We will, in the event of the Resale Registration, provide to the holder or
holders of the applicable original notes copies of the prospectus that is a part
of the shelf registration statement, notify such holder or holders when the
Resale Registration for the applicable original notes has become effective and
take certain other actions as are required to permit unrestricted resales of the
applicable original notes. A holder of original notes that sells such original
notes pursuant to the Resale Registration generally would be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement that are applicable
to such a holder (including certain indemnification obligations).
In the event that:
(1) we have not filed the registration statement relating to the
exchange offer (or, if applicable, the Resale Registration) within 150 days
following the closing date of the offering; or
(2) such registration statement has not become effective within 300
days following the closing date of the offering; or
(3) the exchange offer has not been consummated within 30 days
following the date the registration statement becomes effective; or
(4) any registration statement required by the registration rights
agreement is filed and declared effective but shall thereafter cease to be
effective (except as specifically permitted therein) without being
succeeded immediately by an additional registration statement filed and
declared effective (any such event referred to in clauses (1) through (4),
the "REGISTRATION DEFAULT"),
then we will pay to the holders, as liquidated damages, for the period from the
occurrence of the Registration Default (but only with respect to one
Registration Default at any particular time) until such time as no Registration
Default is in effect an amount per annum equal to 0.25% of the aggregate
principal amount of original notes during the first 90-day period following the
occurrence of such Registration Default which rate shall increase by an
additional 0.25% during each subsequent 90-day period, up to a maximum of 2.0%.
Liquidated damages shall be paid on interest payment dates to the holders of
record for the payment of interest. References to interest on the original notes
shall mean such interest plus liquidated damages, if any.
Under certain circumstances, we and the guarantors may allow any shelf
registration statement to cease to become effective and usable for a period of
no more than 90 days during any 12-month period.
The summary herein of certain provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the registration rights
agreement, a copy of which is incorporated by reference as an exhibit to the
registration statement of which this prospectus forms a part.
7
The following summarizes the terms of this exchange offer. You should read
the discussion under the heading "The Exchange Offer" for further information
regarding this exchange offer and resale of the exchange notes.
Securities to be Exchanged.... On June 4, 2004, we issued $150.0 million in
aggregate principal amount of original notes to
the initial purchasers in a transaction exempt
from the registration requirements of the
Securities Act. The terms of the exchange notes
and the original notes are substantially
identical in all material respects, except that
the exchange notes will be freely transferable
by the holders except as otherwise provided in
this prospectus. See "Description of the
Notes."
The Exchange Offer............ For each original note surrendered to us
pursuant to the exchange offer, the holder of
such original note will receive an exchange
note having a principal amount equal to that of
the surrendered original note. Exchange notes
will only be issued in denominations of $1,000
and integral multiples of $1,000. The form and
terms of the exchange notes will be
substantially the same as the form and terms of
the surrendered original notes. The exchange
notes will evidence the same indebtedness as
the original notes, and will replace the
original notes tendered in exchange therefor
and will be issued pursuant to, and entitled to
the benefits of, the indenture governing the
original notes. As of the date of this
prospectus, original notes representing $150.0
million aggregate principal amount are
outstanding.
Under existing SEC interpretations, the
exchange notes would in general be freely
transferable after the exchange offer without
further registration under the Securities Act;
provided that, in the case of broker-dealers
that will receive exchange notes for their own
accounts in exchange for original notes that
were acquired as a result of market-making
activities or other trading activities, and our
affiliates, a prospectus meeting the
requirements of the Securities Act is delivered
as required. We have agreed to use all
commercially reasonable efforts to keep the
registration statement of which this prospectus
forms a part effective for a period beginning
when exchange notes are first issued in the
exchange offer and ending upon the earlier of
the expiration of the 180th day after the
exchange offer has been completed and such time
as broker-dealers are no longer required to
comply with the prospectus delivery
requirements in connection with offers and
sales of exchange notes.
Each holder of original notes that wishes to
exchange such original notes for exchange notes
in the exchange offer will be required to make
certain representations, including
representations that:
- any exchange notes to be received by it will
be acquired in the ordinary course of its
business;
- it has no arrangement or understanding with
any person to participate in the distribution
of the exchange notes; and
8
- it is not an "affiliate," as defined in Rule
405 of the Securities Act, of ours or of any
of the guarantors of the notes.
In addition, each such holder will be required
to make any additional representations that in
the written opinion of our counsel are
necessary under existing rules or regulations
(or interpretations thereof) of the SEC in
order for the registration statement of which
this prospectus forms a part to be declared
effective.
Registration Rights
Agreement..................... We sold the original notes on June 4, 2004, in
a private offering in reliance on Section 4(2)
of the Securities Act. The original notes were
immediately resold by the initial purchasers in
reliance on Rule 144A under the Securities Act.
In connection with the sale, we and the
guarantors entered into the registration rights
agreement with the initial purchasers requiring
us to make this exchange offer. See "The
Exchange Offer."
Expiration Date............... This exchange offer will expire at 10:00 a.m.,
New York City time, on [ ], 2005, or a
later date and time if we extend it.
Withdrawal.................... The tender of the original notes pursuant to
this exchange offer may be withdrawn at any
time prior to 10:00 a.m., New York City time,
on the expiration date. Any original notes not
accepted for exchange for any reason will be
returned without expense promptly after the
expiration or termination of this exchange
offer.
Interest on the Exchange Notes
and the Original Notes........ We will pay interest on the exchange notes
twice a year, on each June 15 and December 15,
beginning December 15, 2004. No additional
interest will be paid on original notes
tendered and accepted for exchange.
Conditions of this Exchange
Offer......................... This exchange offer is subject to certain
customary conditions, certain of which may be
waived by us. See "The Exchange
Offer -- Conditions of the Exchange Offer."
Procedures for Tendering
Original Notes................ Each holder of the original notes wishing to
accept this exchange offer must complete, sign
and date the letter of transmittal, or a copy
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver the letter of transmittal, or
the copy, together with the original notes and
any other required documentation, to the
exchange agent at the address set forth herein.
Persons holding the original notes through the
Depository Trust Company, or the DTC, and
wishing to accept this exchange offer must do
so pursuant to DTC's Automated Tender Offer
Program, by which each tendering participant
will agree to be bound by the letter of
transmittal. By executing or agreeing to be
bound by the letter of
9
transmittal, each holder will represent to us
that, among other things:
- any exchange notes to be received by it will
be acquired in the ordinary course of its
business;
- it has no arrangement or understanding with
any person to participate in the distribution
of the exchange notes; and
- it is not an "affiliate," as defined in Rule
405 of the Securities Act, of ours or of any
of the guarantors of the notes.
In addition, each such holder will be required
to make any additional representations that in
the written opinion of our counsel are
necessary under existing rules or regulations
(or interpretations thereof) of the SEC in
order for the registration statement of which
this prospectus forms a part to be declared
effective.
We will accept for exchange any and all
original notes which are properly tendered and
not withdrawn in this exchange offer prior to
the expiration date. The exchange notes will be
delivered promptly following the expiration
date. See "The Exchange Offer -- Terms of the
Exchange Offer."
Exchange Agent................ U.S. Bank Trust National Association is serving
as exchange agent in connection with this
exchange offer.
Income Tax Consequences....... The exchange of original notes for exchange
notes will not be a taxable exchange for U.S.
federal income tax purposes or for Canadian
federal income tax purposes, and holders will
not recognize any taxable gain or loss or any
interest income as a result of the exchange of
original notes for exchange notes pursuant to
the exchange offer. See "Income Tax
Considerations."
Effect of Not Tendering....... Original notes that are not tendered or that
are tendered but not accepted will, following
the completion of this exchange offer, continue
to be subject to the existing restrictions upon
transfer. We will have no further obligation to
provide for the registration under the
Securities Act of the original notes.
10
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
Issuer........................ MAAX Corporation.
Notes Offered................. $150 million aggregate principal amount of
9.75% Senior Subordinated Notes due 2012.
Maturity...................... June 15, 2012.
Interest Payment Dates........ June 15 and December 15 of each year,
commencing on December 15, 2004. Interest will
accrue from the issue date of the original
notes.
Optional Redemption........... We may redeem the exchange notes, in whole or
in part, at our option at any time before June
15, 2008 at a "make-whole" premium and
thereafter at the redemption prices listed in
the "Description of Notes -- Optional
Redemption."
In addition, on or before June 15, 2007, we may
use the net proceeds from one or more qualified
equity offerings to redeem up to 35% of the
aggregate principal amount of the exchange
notes issued under the indenture at 109.750% of
their face amount, plus accrued and unpaid
interest. See "Description of Notes -- Optional
Redemption."
Tax Redemption................ If we become obligated to pay withholding taxes
related to payments on the exchange notes as a
result of changes affecting Canadian or U.S.
withholding taxes, we may redeem all, but not
less than all, of the exchange notes at 100% of
their principal amount plus accrued interest to
the date of redemption. See "Description of
Notes -- Redemption for Changes in Canadian
Withholding Taxes."
Additional Amounts............ All payments with respect to the exchange notes
will be made without withholding or deduction
for Canadian taxes unless required by law or
the interpretation or administration thereof,
in which case we will pay such withholding or
deduction as may be necessary so that the net
amount received by the holders after such
withholding or deduction will not be less than
the amount that would have been received in the
absence of such withholding or deduction. See
"Description of Notes -- Additional Amounts."
Sinking Fund.................. None.
Subordination and
Guarantees.................... The exchange notes and the guarantees will rank
junior to all of our existing and future senior
debt, will rank pari passu with any future
senior subordinated debt, and will rank senior
to any future debt that is expressly
subordinated to the exchange notes. See
"Description of Notes -- Subordination."
Our parent company, Beauceland Corporation, and
all of our existing and future restricted
subsidiaries that guarantee any credit facility
will guarantee our obligation to pay principal,
premium, if any, and interest on the exchange
notes. The guarantees, if any, will rank junior
to all existing and future senior debt of these
subsidiaries, will rank pari passu with
11
any future senior subordinated debt of these
subsidiaries, and will rank senior to any
future debt of these subsidiaries that is
expressly subordinated to the guarantees. See
"Description of Notes -- Guarantees."
As of August 31, 2004, the exchange notes and
the guarantees were subordinated in right of
payment to approximately $214 million of senior
debt.
Change of Control............. If we experience a change of control, we will
be required to make an offer to purchase the
exchange notes at 101% of their face amount,
plus accrued and unpaid interest. See
"Description of Notes -- Change of Control."
Basic Covenants of the
Indenture..................... The indenture governing the exchange notes
contains certain covenants that, among other
things, limit our ability and ability of our
restricted subsidiaries to:
- incur additional debt,
- declare or pay dividends, redeem stock or
make other distributions to shareholders,
- make investments,
- enter into transactions with affiliates,
- sell assets,
- create liens, and
- consolidate or merge.
These covenants are subject to a number of
important qualifications and limitations. See
"Description of Notes."
Absence of a Public Market.... There is no public market for the exchange
notes. We do not intend to apply for the
exchange notes to be listed on any securities
exchange or to arrange for any quotation system
to quote them. The initial purchasers have
advised us that they intend to make a market
for the exchange notes, but they are not
obligated to do so. The initial purchasers may
discontinue any market-making in the exchange
notes at any time in their sole discretion.
Accordingly, if an active public market does
not develop, the market price and liquidity of
the exchange notes may be adversely affected.
Risk Factors.................. Investing in the exchange notes involves
substantial risks. See "Risk Factors" for a
description of certain of the risks you should
consider before investing in the exchange
notes.
For more information about the exchange notes, see "Description of Notes."
12
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
Set forth below is a summary of certain of our historical consolidated
financial data for the periods and at the date indicated. Our summary historical
consolidated financial data for the fiscal years ended February 28, 2002 and
2003 and February 29, 2004 have been derived from our predecessor's, MAAX
Inc.'s, audited consolidated financial statements included elsewhere in the
prospectus, and these financial data as of August 31, 2004 and for the six-month
period ended August 31, 2003 and the 89-day period ended August 31, 2004 have
been derived from our unaudited consolidated financial statements and MAAX
Inc.'s unaudited consolidated financial statements for the six months ended
August 31, 2003 included elsewhere in the prospectus. The consolidated financial
data as of February 28, 2002 has been derived from MAAX Inc.'s audited
consolidated financial statements not included herein. The summary historical
financial data for the six-month period ended August 31, 2003, the 95-day period
from March 1 to June 3, 2004 and the 89-day period from June 4 to August 31,
2004 and as of August 31, 2004 are derived from unaudited interim financial
statements which, in the opinion of management, include all normal, recurring
adjustments necessary to state fairly the data included therein in accordance
with U.S. GAAP for interim financial information. Also set forth below is
certain unaudited pro forma consolidated financial information for the six
months ended August 31, 2004 for Beauceland Corporation, our parent, which gives
pro forma effect to the transactions. The pro forma consolidated financial
information does not purport to represent what the results of operations or
financial position would have been had the transactions occurred on the dates
indicated above or to project results of operations or financial position for
any future period or at any future date.
You should read the summary consolidated financial data set forth below in
conjunction with "Unaudited Pro Forma Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements and the related notes included elsewhere in
this prospectus.
13
<Table>
<Caption>
BEAUCELAND
PREDECESSOR CORPORATION
------------------------------------------------------------------ -----------
PERIOD PERIOD
SIX FROM FROM
FISCAL YEAR ENDED MONTHS MARCH 1 JUNE 4
------------------------------------------ ENDED TO TO
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31, JUNE 3, AUGUST 31,
2002 2003 2004 2003 2004 2004(1)
------------ ------------ ------------ ---------- -------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales:
Bathroom and kitchen............ $304,126 $359,901 $441,518 $221,996 $128,630 $ 112,400
Spas............................ 50,811 62,291 54,219 31,999 15,206 16,026
-------- -------- -------- -------- -------- ----------
Net sales..................... 354,937 422,192 495,737 253,995 143,836 128,426
Cost of goods sold................ 246,207 287,762 344,431 175,386 98,490 88,011
Selling, general and
administrative expenses......... 68,125 76,746 80,061 37,104 36,670 17,361
Depreciation and amortization..... 13,690 12,595 15,638 7,392 3,987 3,837
Interest expense.................. 4,291 3,965 4,898 2,378 1,321 6,342
Impairment of goodwill............ -- -- 4,511 -- -- --
-------- -------- -------- -------- -------- ----------
Income before income taxes........ 22,624 41,124 46,198 31,735 3,368 12,875
Income taxes...................... 8,034 15,699 14,247 10,318 1,572 1,537
-------- -------- -------- -------- -------- ----------
Income before cumulative effect of
a change in accounting
principles...................... 14,590 25,425 31,951 21,417 1,796 11,338
Cumulative effect of a change in
accounting principles related to
impairment of goodwill.......... -- (11,312) -- -- -- --
-------- -------- -------- -------- -------- ----------
Net income........................ $ 14,590 $ 14,113 $ 31,951 $ 21,417 $ 1,796 $ 11,338
======== ======== ======== ======== ======== ==========
OTHER FINANCIAL DATA:
EBITDA(2)(3)...................... $ 40,605 $ 57,684 $ 71,245 $ 41,505 $ 8,676 $ 23,054
Net cash provided by operating
activities...................... 29,974 38,379 62,787 26,657 (4,892) 10,780
Net cash provided by (used in)
investing activities............ (12,771) (68,824) (17,136) (6,629) (5,139) (451,204)
Net cash provided by (used in)
financing activities............ (16,411) 33,177 (43,797) (8,514) (49,196) 497,364
Capital expenditures(4)........... 13,595 11,132 18,765 6,911 2,988 13,939
Ratio of earnings to fixed
charges(5)...................... 4.9x 8.4x 7.5x 10.1x 2.8x 3.0x
</Table>
<Table>
<Caption>
AS OF
AUGUST 31,
2004
-----------
(DOLLARS IN
THOUSANDS)
BALANCE SHEET DATA:
Cash........................................................ $ 2,099
Working capital(6).......................................... 72,144
Total assets................................................ 589,127
Total debt.................................................. 364,514
Total shareholders' equity.................................. 151,065
</Table>
- ---------------
(1) On March 10, 2004, certain entities formed by our Sponsors entered into a
merger agreement to acquire MAAX Inc., pursuant to which two of our
wholly-owned subsidiaries amalgamated with MAAX Inc. on June 4, 2004. Upon
consummation of the amalgamation, MAAX Corporation acquired MAAX Inc. and
its direct and indirect subsidiaries. Neither MAAX Corporation nor its
parent, Beauceland Corporation, had any
14
operating activities prior to June 4, 2004. As a result of the acquisition,
the consolidated financial data for the period after the acquisition are
presented on a different cost basis than that for the periods before the
acquisition and therefore are not comparable.
(2) Management believes that the presentation of EBITDA included in this
prospectus provides useful information to investors regarding our results of
operations because such presentation assists in analyzing the operating
performance of our business and our ability to service debt. Although we use
EBITDA as a financial measure to assess the performance of our business, the
use of EBITDA is limited because it does not include certain material costs,
such as interest and taxes, necessary to operate our business. The
presentation of EBITDA included in this prospectus should be considered in
addition to, and not as a substitute for, net income in accordance with U.S.
GAAP as a measure of performance or net cash provided by operating
activities as determined in accordance with U.S. GAAP as a measure of
liquidity.
(3) "EBITDA" is defined as income before cumulative effect of a change in
accounting principles plus interest expense, depreciation, amortization,
income taxes and impairment of goodwill. Other companies may define EBITDA
differently and, as a result, our measure of EBITDA may not be directly
comparable to EBITDA of other companies.
The following table sets forth a reconciliation of EBITDA to net income:
<Table>
<Caption>
PREDECESSOR PREDECESSOR
------------------------------------------ ------------------------ BEAUCELAND
ACTUAL PRO FORMA ACTUAL CORPORATION
------------------------------------------ ------------ ------------------------ -----------
PERIOD
FISCAL YEAR ENDED SIX MONTHS FROM PERIOD FROM
--------------------------------------------------------- ENDED MARCH 1 TO JUNE 4 TO
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 29, AUGUST 31, JUNE 3, AUGUST 31,
2002 2003 2004 2004 2003 2004 2004
------------ ------------ ------------ ------------ ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
Income before cumulative
effect of a change in
accounting
principles............ $14,590 $25,425 $31,951 $20,757 $21,417 $1,796 $11,338
Interest expense........ 4,291 3,965 4,898 25,753 2,378 1,321 6,342
Depreciation and
amortization.......... 13,690 12,595 15,638 15,638 7,392 3,987 3,837
Income taxes............ 8,034 15,699 14,247 8,807 10,318 1,572 1,537
Impairment of
goodwill.............. -- -- 4,511 4,511 -- -- --
------- ------- ------- ------- ------- ------ -------
EBITDA.................. $40,605 $57,684 $71,245 $75,466 $41,505 $8,676 $23,054
======= ======= ======= ======= ======= ====== =======
<Caption>
PRO FORMA
----------
SIX MONTHS
ENDED
AUGUST 31,
2004
----------
Income before cumulative
effect of a change in
accounting
principles............ $17,701
Interest expense........ 13,348
Depreciation and
amortization.......... 7,824
Income taxes............ 2,352
Impairment of
goodwill.............. --
-------
EBITDA.................. $41,225
=======
</Table>
(4) Capital expenditures are defined as additions to property, plant and
equipment and other assets.
(5) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and before cumulative
effect of a change in accounting principles plus fixed charges. Fixed
charges consist of interest expensed or capitalized and the portion of
rental expense we believe is representative of the interest component of
rental expenses. For the year ended February 29, 2004 and the six months
ended August 31, 2004, on a pro forma basis after giving effect to the
transactions as if they had occurred on March 1, 2003, the ratio of earnings
to fixed charges would have been 2.1x and 2.3x, respectively.
(6) Working capital is defined as current assets less current liabilities.
15
RISK FACTORS
You should carefully consider the following risks and the other information
in this prospectus in evaluating the exchange offer. Any of the following risks
could cause the value of the notes to decline and, accordingly, you could lose
all or a portion of your investment.
RISKS RELATED TO OUR BUSINESS
WE OPERATE IN A VERY COMPETITIVE BUSINESS ENVIRONMENT.
The home improvement products business is highly competitive. We compete
against large international and national players, as well as many regional
competitors. Some of our principal competitors may be less highly leveraged than
we are and have greater financial, marketing and distribution resources than we
do. Accordingly, these competitors may be better able to withstand changes in
conditions within the industries in which we operate, including increased
competition from imported products, and may have significantly greater operating
and financial flexibility than we do. These competitors could increase their
market share and cause us to lose business from our customers.
As a result of this competitive environment, we face and will continue to
face pressure on sales prices of our products from competitors, as well as from
large customers. As a result of these pricing pressures, we may in the future
experience reductions in our profit margins, revenues or sales, and may be
unable to pass on future raw material price or labor cost increases to our
customers which would also reduce profit margins. In addition, we will need to
invest continuously in manufacturing, customer service and support, marketing
and our sales force. We cannot assure you that we will be able to maintain or
increase either current market share of our products or our price and operating
margins successfully in the future.
DOWNWARD TRENDS IN THE HOUSING SECTOR AND IN GENERAL ECONOMIC CONDITIONS COULD
NEGATIVELY IMPACT OUR FINANCIAL PERFORMANCE.
Trends in the housing sector directly impact our financial performance
because demand for bathroom products, kitchen cabinetry products and, to a
lesser extent, spas is influenced by the level of repair and remodeling activity
in existing homes and new home construction activity. Accordingly, the strength
of the U.S. and Canadian economies, the age of existing home stock, housing
sales, job growth, interest rates, consumer confidence, gross domestic product
levels, employment rates and the availability of consumer credit, as well as
demographic factors such as immigration into North America and migration of the
population within North America have a direct impact on our business. Cyclical
declines in new housing starts, housing sales or demand for replacement home
improvement products may result in certain products falling out of favor, in
homeowners delaying home improvements and in potential new home buyers delaying
the purchase or construction of a new home, all of which could result in
decreased demand for our products and reductions in our profitability, product
margins and revenues. There can be no assurance that any such reductions would
not be material and would not continue for an indeterminate period of time.
INCREASES IN INTEREST RATES AND THE REDUCED AVAILABILITY OF FINANCING FOR HOME
IMPROVEMENTS COULD HAVE A MATERIAL ADVERSE IMPACT ON US.
In general, demand for home improvement products may be adversely affected
by increases in interest rates and the reduced availability of financing. If
interest rates increase and, consequently, the ability of prospective buyers to
finance purchases of home improvement products is adversely affected, our
business, financial condition and results of operations may also be adversely
impacted and the impact may be material.
16
BECAUSE WE DEPEND ON A CORE GROUP OF SIGNIFICANT CUSTOMERS, OUR SALES, CASH
FLOWS FROM OPERATIONS AND RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED IF
OUR KEY CUSTOMERS REDUCE THE AMOUNT OF PRODUCTS THEY PURCHASE FROM US.
Our customers consist mainly of wholesalers, showrooms, specialty retailers
and home centers. Based upon Canadian GAAP, our top 12 major customers together
accounted for approximately 44% of our consolidated net sales in fiscal year
2004, while our largest customer, The Home Depot, accounted for approximately
24% of our consolidated net sales in fiscal year 2004. We expect this percentage
to decrease in fiscal year 2005 as we continue to grow our wholesale and
specialty retail distribution channels. The decision to stop supplying gelcoat
bathtubs and certain other products to U.S. Home Depot stores, which took effect
in June 2004, is expected to also decrease this percentage. We expect that a
small number of customers will continue to account for a substantial portion of
our net sales for the foreseeable future. We do not have long-term contracts
with any of our customers and they may not continue to purchase our products.
The loss of, or a diminution in, our relationship with The Home Depot or
any other major customer could have a material adverse effect on us. In fiscal
year 2004, we discontinued our spa business with U.S. Home Depot stores,
primarily as a result of The Home Depot's decision to switch from stocking spas
in stores to making them available by special order only, which we believed
would not be a profitable proposition for us. Our competitors may adopt more
aggressive sales policies and devote greater resources to the development,
promotion and sale of their products than we do, which could result in a loss of
customers. The loss of, or a reduction in orders from, any significant
customers, losses arising from customer disputes regarding shipments, fees,
merchandise condition or related matters, or our inability to collect accounts
receivable from any major customer, could have a material adverse effect on us.
In addition, revenue from customers that have accounted for significant revenue
in past periods, individually or as a group, may not continue, or if continued,
may not reach or exceed historical levels in any period.
WE ARE EXPOSED TO POLITICAL, ECONOMIC AND OTHER RISKS THAT ARISE FROM OPERATING
A MULTINATIONAL BUSINESS.
We have operations in the U.S., Canada and, to a lesser extent, Europe.
Further, certain of our businesses obtain raw materials and finished goods from
foreign suppliers. Accordingly, our business is subject to political, economic
and other risks that are inherent in operating in numerous countries. These
risks include:
- the difficulty of enforcing agreements and collecting receivables through
foreign legal systems;
- trade protection measures and import or export licensing requirements;
- tax rates in foreign countries and the imposition of withholding
requirements on foreign earnings;
- the imposition of tariffs or other restrictions;
- difficulty in staffing and managing widespread operations and the
application of foreign labor regulations;
- required compliance with a variety of foreign laws and regulations; and
- changes in general economic and political conditions in countries where
we operate.
Our business success depends in part on our ability to anticipate and
effectively manage these and other risks. We cannot assure you that these and
other factors will not have a material adverse effect on our international
operations or on our business as a whole.
17
ENVIRONMENTAL REQUIREMENTS MAY IMPOSE SIGNIFICANT ENVIRONMENTAL COMPLIANCE COSTS
AND LIABILITIES ON US.
Our operations are subject to numerous Canadian (federal, provincial and
local), U.S. (federal, state and local) and foreign laws and regulations
relating to pollution and the protection of the environment, including those
governing emissions to air, discharges to water, storage, treatment and disposal
of waste, releases of contaminants or hazardous or toxic substances, remediation
of contaminated sites and protection of worker health and safety. From time to
time, our facilities are subject to investigation by governmental regulators.
Our efforts to comply with environmental requirements do not remove the risk
that we may be subject to civil, administrative or criminal enforcement actions
and as a result be held liable, be subject to an order or incur costs, fines or
penalties, and that the amount of liabilities, costs, fines or penalties may be
material, for, among other things, releases of contaminants or hazardous or
toxic substances occurring on or emanating from current or formerly owned or
operated properties or any associated offsite disposal location, or for
contamination discovered at any of our properties from activities conducted by
us or by previous occupants.
We do not believe we will be required under existing environmental laws and
enforcement policies to expend amounts that will have a material adverse effect
on our results of operations or financial condition. The requirements of such
laws and enforcement policies, however, have generally become more stringent
over time. Changes in environmental laws and regulations, including any new
legislation that might arise as a result of the government of Canada's
ratification of the Kyoto Protocol, or their enforcement or the discovery of
previously unknown contamination or other non-compliance with environmental laws
and regulations relating to our properties and operations could result in
significant environmental liabilities or costs which could adversely affect our
business. In addition, we might incur increased operating and maintenance costs
and capital expenditures and other costs to comply with increasingly stringent
air emission control laws or other future requirements, for example, as
applicable to our styrene emissions, which would decrease the cash flow
available to service our indebtedness. Also, discovery of currently unknown
conditions could require responses that would result in significant liabilities
and costs. Accordingly, we are unable to predict the ultimate costs of
compliance with or liability under environmental laws.
FLUCTUATING EXCHANGE RATES COULD ADVERSELY AFFECT OUR PROFITABILITY AND
REVENUES.
Our profitability and revenues may be adversely affected by fluctuating
exchange rates. We are subject to currency exchange rate risk to the extent that
some of our costs are denominated in currencies other than those in which we
earn revenues. In addition, since our financial statements are denominated in
U.S. dollars, changes in currency exchange rates between the U.S. dollar and
other currencies have had, and will continue to have, an impact on our financial
results. An appreciation in the Canadian dollar could result in lower earnings
or higher selling prices for our products that are manufactured in Canada and
sold in the U.S. market and possibly a decrease in sales. We cannot assure you
that currency exchange rate fluctuations will not adversely affect our results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Quantitative and Qualitative
Disclosures About Market Risk -- Currency Exchange Risk."
CHANGES IN CONSUMER PREFERENCES COULD ADVERSELY AFFECT OUR BUSINESS.
Our business in general is subject to changing consumer and industry
trends, demands and preferences. Our continued success depends largely on the
introduction and acceptance by our customers of new product lines and
improvements to existing product lines that respond to such trends, demands and
preferences. Trends within the industry change often and our failure to
anticipate, identify or react to changes in these trends could lead to, among
other things, rejection of a new product line and reduced demand and price
reductions for our products, and could materially adversely affect us. In
addition, we may not have sufficient resources to make necessary
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investments or we may be unable to make the investments necessary to develop new
products or improve our existing products to maintain our market position.
CONSOLIDATION OF OUR CUSTOMERS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
We believe that there is a trend among our customers to increase in size
and market power. If this trend continues, they may be able to exert pressure on
us to reduce prices and create price competition. If our customer base were to
consolidate, competition for the business of fewer customers would intensify. If
we do not provide product offerings and price points that meet the needs of our
customers, or if we lose a substantial amount of our customer base, our
profitability, margins and revenues could decrease.
WE RELY ON INDEPENDENT SALES REPRESENTATIVES.
In the U.S., we depend on the services of independent sales representatives
to sell the majority of our products and to provide services and aftermarket
support to our customers. The sales representative agreements are typically
cancelable by the sales representative or us at any time or after a short notice
period. The loss of a substantial number of these relationships, or our failure
to maintain good relationships with these sales representatives, could
materially reduce our sales and profits.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS.
We face an inherent business risk of exposure to product liability claims
in the event that the use of any of our products results in personal injury or
property damage. In the event that any of our products proves to be defective,
we may be required to recall, redesign or retrofit such products. No assurance
can be given that coverage under our insurance policies will be adequate to
cover existing or future product liability claims against us. Liability
insurance in our industry is expensive, difficult to maintain and may be
unobtainable in the future on acceptable terms or at all. Furthermore, any
significant claims made against us could result in negative publicity against
us, which could adversely affect our sales and increase our costs.
INTERRUPTIONS IN DELIVERIES OF RAW MATERIALS OR FINISHED GOODS AND/OR INCREASED
PRICES FOR RAW MATERIALS OR FINISHED GOODS USED IN OUR PRODUCTS COULD ADVERSELY
AFFECT OUR PROFITABILITY, MARGINS AND REVENUES.
We require a regular supply of resin, polyester, fiberglass, acrylic,
thermoplastic, aluminum, steel, tempered glass, wood and particleboard, oil,
pumps, accessories and packaging materials. Our dependency upon regular
deliveries from particular suppliers means that interruptions or stoppages in
such deliveries could adversely affect our operations until arrangements with
alternate suppliers could be made. If any of our suppliers were unable to
deliver materials to us for an extended period of time, or if we were unable to
negotiate acceptable terms for the supply of materials with these or alternative
suppliers, our business could suffer. We may not be able to find acceptable
alternatives, and any such alternatives could result in increased costs for us.
Even if acceptable alternatives are found, the process of locating and securing
such alternatives might be disruptive to our business.
In addition, our profitability is affected by the prices of the raw
materials and finished goods used in the manufacture of our products. These
prices may fluctuate based on a number of factors beyond our control, including,
among others, world oil prices, changes in supply and demand, general economic
conditions, labor costs, competition, import duties, tariffs, currency exchange
rates and, in some cases, government regulation. We have a few long-term supply
contracts for certain of the raw materials and finished goods used in the
manufacture of our products. These contracts provide for periodic review of
prices and some provide a pricing calculation method dependent upon variables in
the market. This means that we are subject to changes in the prices charged by
our suppliers. The commodities we use may undergo major price fluctuations and
there is no certainty that we will be able to pass these costs through to our
customers. Significant increases in the prices
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of raw materials or finished goods are more difficult to pass through to
customers in a short period of time and may negatively impact our short term
profitability, margins and revenues. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Quantitative and Qualitative
Disclosures About Market Risk -- Commodity Price Risk."
WE MAY NOT BE ABLE TO IDENTIFY ATTRACTIVE ACQUISITION CANDIDATES, SUCCESSFULLY
INTEGRATE ANY ACQUIRED OPERATIONS OR REALIZE THE INTENDED BENEFITS OF ANY
ACQUISITIONS.
Part of our strategy is to capitalize on the fragmented market for bathroom
products by making selective strategic acquisitions. We continuously evaluate
potential acquisitions and are engaged in discussions with sizable and smaller
acquisition candidates. There can be no assurance that suitable acquisition
candidates will be identified and acquired in the future, that the financing or
necessary consents for any such acquisitions will be available on satisfactory
terms or at all or that we will be able to accomplish our strategic objectives
in making any such acquisition. Nor can we assure you that our acquisition
strategy will be successfully received by customers or achieve its intended
benefits.
Our future performance will depend heavily on our ability to integrate the
businesses that we may acquire in the future. To integrate any newly acquired
businesses into our business, we will need to integrate manufacturing facilities
and extend our financial and management controls and operating, administrative
and information systems in a timely manner and on satisfactory terms and
conditions. We may not be able to successfully integrate the businesses or
realize projected cost savings and synergies in connection with any such
acquisitions on the timetable contemplated or at all.
Furthermore, the costs of businesses that we may acquire could
significantly impact our short-term operating results. Those costs could include
expenses associated with a change of control, as well as acquisition costs
including accounting and legal fees, investment banking fees, recognition of
transaction-related obligations and various other acquisition-related costs.
The integration of any acquired companies may also lead to a diversion of
management's attention from other ongoing business concerns. In addition, we may
need to recruit additional managers to supplement the incumbent management of
acquired companies, but we may not be successful in recruiting additional
managers with the skills necessary to enhance the management of the acquired
companies.
We may also be subject to unexpected claims and liabilities arising from
acquisitions we have made or may make in the future. These claims and
liabilities could be costly to defend, could be material in amount and may
exceed the limitations of any applicable indemnification provisions, the
financial resources of the indemnifying parties or coverage under our insurance
policies.
INCREASES IN LABOR COSTS, POTENTIAL LABOR DISPUTES AND WORK STOPPAGES AT OUR
FACILITIES OR THE FACILITIES OF OUR SUPPLIERS COULD MATERIALLY ADVERSELY AFFECT
OUR FINANCIAL PERFORMANCE.
Our financial performance is affected by the availability of qualified
personnel and the cost of labor. We employ approximately 3,760 full-time
employees. Approximately 1,200 of our production line employees, located
primarily in Canada, are unionized through affiliations with Confederation des
syndicats nationaux, Centrale des syndicats democratiques or the Teamsters
Union. Employees represented by these unions are subject to ten collective
bargaining agreements and work at nine of our manufacturing facilities with a
separate union at each location, two of which agreements are with local unions
in the U.S. and the remaining eight are in Canada. One collective bargaining
agreement is expected to expire in December 2004 (covering approximately 367
employees). If we are unable to enter into new, satisfactory labor agreements
with our unionized employees upon expiration of their collective bargaining
agreements, or if our workers were to engage in a strike, work stoppage or other
slowdown, we could experience a significant disruption of our operations, which
could cause us to be unable to deliver products to customers on a timely basis.
This could result in a loss of
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business and an increase in our operating expenses, which could reduce our
profit margins. In addition, our non-unionized labor force may become subject to
labor union organizing efforts, which could cause us to incur additional labor
costs and increase the related risks that we now face.
Many of our direct and indirect suppliers and customers have unionized
workforces. Strikes, work stoppages or slowdowns experienced by these suppliers
and customers could result in slowdowns or closures of facilities where
components of our products are manufactured or delivered. Any interruption in
the production or delivery of our products could reduce sales, increase costs
and have a material adverse affect on us.
IF WE ARE UNABLE TO MEET FUTURE CAPITAL REQUIREMENTS, OUR BUSINESS MAY BE
ADVERSELY AFFECTED.
We make capital investments to, among other things, maintain and upgrade
our facilities and enhance our production processes and information systems. In
particular, we have implemented in Canada and are in the process of implementing
in the U.S. a management network utilizing the SAP(R) management information
system for our bathroom fixture products. As we grow our businesses, we may have
to incur significant capital expenditures. Our new senior secured credit
facility contains limitations that restrict our ability to make capital
expenditures. We cannot assure you that we will have, or be able to obtain,
adequate funds to make all necessary capital expenditures when required, or that
the amount of future capital expenditures will not be materially in excess of
our current or anticipated expenditures. If we are unable to make necessary
capital expenditures, our product offering may become dated, our productivity
may be decreased and the quality of our products may be adversely affected,
which, in turn, could reduce our profitability and revenues.
WE MAY BE REQUIRED TO ENFORCE OUR INTELLECTUAL PROPERTY OR DEFEND OUR
INTELLECTUAL PROPERTY FROM INFRINGEMENT CLAIMS AND WE MAY INCUR SUBSTANTIAL
COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT OR
TRADEMARK RIGHTS.
We rely on a combination of U.S., Canadian and, to a lesser extent,
European and Asian patent, trademark, copyright, trade secret laws and licenses
to protect certain aspects of our business. We have registered trademarks,
patents and copyrights, and trademark and patent registrations pending in the
U.S., Canada and abroad. However, we have selectively pursued patent and
trademark protection, and in some instances we may not have perfected important
patent and trademark rights in these and other countries. The failure to obtain
worldwide patent protection may result in other companies copying and marketing
products based upon our protected technologies outside our protected markets.
This could impede our growth in existing markets and into new markets, and
result in a greater supply of similar products that could erode our pricing
power.
Our success depends in part on our ability to protect our patents,
trademarks, copyrights, trade secrets and licensed intellectual property from
unauthorized use by others. We cannot be sure that the patents we have obtained,
or other protections such as confidentiality, trade secrets and copyrights, will
be adequate to prevent imitation of our products by others. If we are unable to
protect our products through the enforcement of intellectual property rights,
our ability to compete based on our current market advantages may be harmed. If
we fail to prevent substantial unauthorized use of our trade secrets, we risk
the loss of intellectual property rights and our competitive advantage.
Although we are not aware that any of our intellectual property rights
infringe upon the proprietary rights of third parties, third parties may accuse
us of infringement of their patents, trademarks, copyrights, trade secrets and
licenses. Third parties may also challenge our trademark rights and branding
practices in the future. We may be required to institute or defend litigation to
defend ourselves from such accusations and enforce our patent, trademark and
copyright rights, which, regardless of the outcome, could result in substantial
costs and diversion of resources and could negatively affect our competitive
position, sales, profitability and reputation. If we lose a patent
21
infringement suit, we may be liable for money damages and be enjoined from
selling the infringing product, which could negatively affect our profitability.
If we lose the use of a product name, our efforts spent building that brand may
be lost and we will have to rebuild a brand for that product, which we may or
may not be able to do.
We have a license that expires in October 2008 from The Coleman Company
Inc. for use of the name Coleman(R) and certain other trademarks for marketing
our spa products. We believe that use of this license is of great value and the
loss of this license or failure to renew upon expiration would have a material
adverse effect on our spa business.
MANUFACTURING OR ASSEMBLY REALIGNMENTS MAY RESULT IN A DECREASE IN OUR NEAR-TERM
EARNINGS AND CASH FLOWS.
We continuously review our manufacturing and assembly operations and
sourcing capabilities. Effects of periodic manufacturing realignments and cost
savings programs could result in a decrease in our near-term earnings and cash
flows until the expected cost reductions are achieved. Such programs may include
the consolidation and integration of facilities, functions, systems and
procedures. Certain products may also be shifted from one manufacturing or
assembly facility to another. Such actions may not be accomplished as quickly as
anticipated and the expected cost reductions may not be achieved.
OUR BUSINESS WILL SUFFER IF CERTAIN KEY OFFICERS OR EMPLOYEES DISCONTINUE
EMPLOYMENT WITH US OR IF WE ARE UNABLE TO RECRUIT AND RETAIN HIGHLY SKILLED
STAFF.
The success of our business is materially dependent upon the skills,
experience and efforts of our President and Chief Executive Officer, Andre
Heroux, and certain of our other key officers and employees. The loss of Mr.
Heroux or other key personnel could have a material adverse effect on our
business, operating results or financial condition. Our business also depends on
our ability to continue to recruit, train and retain skilled employees,
particularly skilled sales personnel. The market for these resources is highly
competitive. We may be unsuccessful in attracting and retaining the resources we
need to generate sales and to expand our operations successfully, and, in such
event, our business could be materially and adversely affected. The loss of the
services of any key personnel, or our inability to hire new personnel with the
requisite skills, could impair our ability to develop new products or enhance
existing products, sell products to our customers or manage our business
effectively. In addition, certain key officers of MAAX Inc. resigned upon
consummation of the transactions, which could have a material adverse effect on
our business, operating results or financial condition. Even though we entered
into non-competition agreements with certain former key officers of MAAX Inc.,
we cannot assure you that a court will find such agreements enforceable under
applicable law.
OUR BUSINESS IS SUBJECT TO SOME SEASONALITY AND WEATHER MAY IMPACT OUR SALES,
CASH FLOWS FROM OPERATIONS AND RESULTS OF OPERATIONS.
Our spas business, and to a lesser extent, our other businesses experience
seasonal business swings, which correspond to the North American seasons.
Unusually prolonged periods of cold, rain, blizzards, hurricanes or other severe
weather patterns could delay or halt renovation and construction activity. For
example, an unusually severe winter can lead to reduced construction activity
and magnify the seasonal decline in our sales, cash flows from operations and
results of operations during the winter months. Generally, sales in each of the
first three quarters of our fiscal year generate a significantly greater
percentage of our total annual sales as compared to the fourth quarter of our
fiscal year. This seasonality requires that we manage our cash flows over the
course of the year. If sales were to fall substantially below what we would
normally expect during certain periods, our annual financial results would be
adversely impacted and our ability to service our debt may also be adversely
affected.
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IF OUR LEASES TERMINATE OR ARE NOT RENEWED UPON EXPIRATION, WE COULD BE REQUIRED
TO MAKE SIGNIFICANT CAPITAL EXPENDITURES TO RELOCATE OUR FACILITIES.
Certain of our manufacturing facilities and warehouses are leased. There
can be no assurance that upon termination or expiration of these leases we will
be able to renew them on acceptable terms or at all. If we are unable to renew
such leases, we could be required to make significant capital expenditures to
relocate our facilities.
WE EXTEND TRADE CREDIT AND FLOOR PLAN FINANCING TO CERTAIN OF OUR CUSTOMERS AND
THEY MAY NOT PAY US PROMPTLY OR IN FULL.
We extend trade credit to certain of our customers and floor plan financing
to a few of our spa customers to facilitate the purchase of our products. We
rely on the creditworthiness of such customers. The failure of such customers to
pay us promptly or in full under the terms of the trade credit or floor plan
financing we extend to them could have a material adverse effect on our
financial condition.
WE HAVE AGREED TO CERTAIN UNDERTAKINGS WITH THE MINISTER RESPONSIBLE FOR THE
INVESTMENT CANADA ACT WHICH IMPOSE RESTRICTIONS ON OUR BUSINESS FOR THREE YEARS.
In connection with the transactions, we agreed to certain undertakings with
the Minister responsible for the Investment Canada Act which require us to,
among other things, maintain certain levels of management control, investment
and employment in Quebec and Canada for three years after consummation of the
transactions. These undertakings may affect our ability to operate our business
and may limit our ability to take advantage of potential business opportunities
during this period. In addition, our ability to comply with these undertakings
may be affected by events beyond our control, including prevailing economic,
financial and industry conditions. Although the Minister responsible may waive
non-compliance with an undertaking, no assurance can be given that the Minister
will do so in the event that we fail to comply with any of our undertakings.
WE MAY BE EXPOSED TO POTENTIAL RISKS RESULTING FROM NEW REQUIREMENTS THAT WE
EVALUATE OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING UNDER SECTION 404 OF THE
SARBANES-OXLEY ACT OF 2002.
We may be required to comply with the requirements of Section 404 of the
Sarbanes-Oxley Act in our fiscal year ending 2006, which requires annual
management assessments of the effectiveness of our internal controls over
financial reporting and a report by our independent auditors addressing these
assessments. We may not be able to assess our current internal controls and
comply with these requirements in due time. If we are able to proceed with a
complete assessment in a timely manner, we may identify deficiencies which we
may not be able to remediate, may identify deficiencies which will demand
significant resources to remediate or may be unable to identify deficiencies at
all. In addition, if we fail to achieve and maintain the adequacy of our
internal controls, as such regulations are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective
internal controls, particularly those related to revenue recognition, are
necessary for us to produce reliable financial reports and are important to
helping prevent financial fraud. If we cannot provide reliable financial reports
or prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information and the trading
price of our notes could drop significantly.
The indenture does not require us to file annual, quarterly or current
reports with the SEC. Therefore, following the year in which the registration
statement for the exchange offer for the notes becomes effective, we may cease
filing such reports with the SEC. Without regard as to whether we are required
to file reports with the SEC, we will make such information available on our
website.
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This information may not include the officer certifications required to be
included with the SEC reports.
TERRORIST ATTACKS AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE MARKETS IN
WHICH WE OPERATE AND OUR PROFITABILITY AND CASH FLOW.
Terrorist attacks or other acts of violence or war may negatively affect
our operations and your investment. These attacks may directly impact our
suppliers' or customers' physical facilities. Furthermore, these attacks may
make travel and the transportation of our supplies and products more difficult
and more expensive and ultimately affect our operating results. The U.S. has
entered into, and may enter into additional, armed conflicts which could have a
further impact on our sales and our ability to deliver product to our customers
in the U.S. and elsewhere. Political and economic instability in some regions of
the world may also result and could negatively impact our business. The
consequences of any of these armed conflicts are unpredictable, and we may not
be able to foresee events that could have an adverse effect on our business or
your investment. More generally, any of these events could cause consumer
confidence and spending to decrease or result in increased volatility in the
U.S. and worldwide financial markets and economy. They could also result in
economic recession in the U.S. or abroad. Any of these occurrences could have a
significant impact on our operating results.
THE INTERESTS OF MAAX HOLDINGS' MAJOR STOCKHOLDERS MAY CONFLICT WITH THE
INTERESTS OF THE HOLDERS OF THE NOTES.
JWC Fund III, Borealis and OMERS beneficially own shares representing
approximately 99.0% of MAAX Holdings' equity prior to dilution for options.
Accordingly, these stockholders have the power to elect our board of directors,
appoint new management and approve any action requiring a stockholder vote,
including amendments to our certificate of incorporation and mergers or sales of
substantially all of our assets. The directors so elected have the authority to
make decisions affecting our capital structure, including the issuance of
additional indebtedness and the declaration of dividends. Circumstances may
occur in which the interests of equity holders could be in conflict with the
interests of holders of the notes. In addition, these equity holders may have an
interest in pursuing acquisitions, divestitures or other transactions that, in
their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of notes. See "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Party Transactions."
RISKS RELATED TO OUR INDEBTEDNESS
WE HAVE SUBSTANTIAL DEBT AND HAVE THE ABILITY TO INCUR ADDITIONAL DEBT. THE
PRINCIPAL AND INTEREST PAYMENT OBLIGATIONS OF SUCH DEBT MAY RESTRICT OUR FUTURE
OPERATIONS AND IMPAIR OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE NOTES.
As of August 31, 2004, we and our subsidiaries had approximately $364.5
million of outstanding debt (excluding $2 million of undrawn letters of credit).
In addition, the indenture governing the notes permits us to incur additional
debt.
Our substantial levels of debt may have important consequences to you. For
instance, it could:
- make it more difficult for us to satisfy our financial obligations,
including those relating to the notes;
- require us to dedicate a substantial portion of any cash flow from
operations to the payment of interest and principal due under our debt,
including the notes, which will reduce funds available for other business
purposes;
- increase our vulnerability to general adverse economic and industry
conditions;
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- limit our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate;
- place us at a competitive disadvantage compared with some of our
competitors that have less debt; and
- limit our ability to obtain additional financing required to fund working
capital and capital expenditures and for other general corporate
purposes.
Our ability to satisfy our obligations and to reduce our total debt depends
on our future operating performance and on economic, financial, competitive and
other factors, many of which are beyond our control. Our business may not
generate sufficient cash flow, and future financings may not be available to
provide sufficient net proceeds, to meet these obligations or to successfully
execute our business strategy.
THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER DEBT IMPOSE RESTRICTIONS ON OUR
BUSINESS.
The indenture governing the notes and our new senior secured credit
facility contain, and other agreements we may enter into in the future may
contain, covenants imposing significant restrictions on our business. These
restrictions may affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as they arise.
These covenants place restrictions on our ability to, among other things:
- incur additional debt,
- declare or pay dividends, redeem stock or make other distributions to
shareholders,
- create liens,
- make investments,
- enter into transactions with affiliates,
- sell assets, and
- consolidate or merge.
Our new senior secured credit facility also requires us to meet a number of
financial ratios and tests.
Our ability to comply with these covenants may be affected by events beyond
our control, including prevailing economic, financial and industry conditions.
The breach of any of these covenants or restrictions could result in a default
under the indenture or the new senior secured credit facility. An event of
default under our debt agreements would permit some of our lenders to declare
all amounts borrowed from them to be due and payable, together with accrued and
unpaid interest and the commitments of the senior lenders to make further
extensions of credit under the new senior secured credit facility could be
terminated. If we were unable to repay debt to our senior lenders, these lenders
could proceed against the collateral securing that debt. In addition,
acceleration of our other debt may cause us to be unable to make interest
payments on the notes and repay the principal amount of the notes or may cause
the subsidiary guarantors to be unable to make payments under the guarantees.
OUR ABILITY TO MAKE PAYMENTS UNDER THE NOTES AND SERVICE OUR OTHER DEBT
SUBSTANTIALLY DEPENDS ON CASH FLOW FROM OUR SUBSIDIARIES.
In addition to any cash flow that we may generate, we will substantially
depend on distributions or other intercompany transfers from our subsidiaries to
make payments under the notes and service our other debt. Distributions and
intercompany transfers to us from our subsidiaries will depend on:
- our subsidiaries' earnings;
- covenants contained in our and their debt agreements, including our new
senior secured credit facility and the notes;
25
- covenants contained in other agreements to which we or our subsidiaries
are or may become subject;
- business and tax considerations; and
- applicable law, including laws regarding the payment of dividends and
distributions.
The operating results of our subsidiaries at any given time may not be
sufficient to make distributions or other payments to us and any distributions
and/or payments may not be adequate to pay any amounts due under the notes or
our other indebtedness.
RISKS RELATED TO THE NOTES
THE NOTES ARE UNSECURED AND SUBORDINATED TO OUR SENIOR DEBT.
The notes rank junior to all of our existing and future senior debt. Our
senior debt includes all debt that is not expressly subordinated to or that
ranks pari passu in right of payment with the notes, subject to certain
exceptions. The notes are guaranteed on an unsecured senior subordinated basis
by our direct parent company and our direct and indirect restricted subsidiaries
that guarantee any of our credit facilities, and are subordinated to all
existing and future obligations and liabilities of the guarantors that rank
senior to the guarantees. In addition, the notes are not secured by any of our
assets or the guarantors' assets. As a result, the notes are effectively
subordinated to all of our and the guarantors' secured debt to the extent of the
value of the assets securing such debt. As of August 31, 2004, the notes and the
guarantees were subordinated in right of payment to approximately $214 million
of senior debt and up to an additional approximately $39.6 million of senior
debt was available, subject to meeting certain borrowing conditions, to be
borrowed under our new senior secured credit facility.
You may not be fully repaid on your notes if we or a guarantor is declared
bankrupt, becomes insolvent, is liquidated or reorganized, defaults on payment
under senior debt or commits a default causing the acceleration of the maturity
of our debt. In such a case, holders of any debt that ranks senior to the notes
will be entitled to be paid in full from our assets and the assets of our
subsidiaries before any payment may be made with respect to the notes or the
guarantees. As a result, we may not have sufficient assets to fully repay the
notes. An event of default under our senior debt also may prohibit us and the
guarantors of the notes from paying the obligations under the notes or the
guarantees.
WE MAY BE UNABLE TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon the occurrence of a change of control, as defined in the indenture, we
will be required to make an offer to purchase the notes in cash at a price equal
to 101% of the principal amount of the notes, plus accrued interest. A change of
control may constitute an event of default and may trigger similar rights under
our other debt then outstanding. In the event of a change of control, we may not
have sufficient funds to purchase all of the notes and to repay the amounts
outstanding under our new senior secured credit facility or other debt. Further,
payment of the purchase price of the notes is subordinated to the prior payment
of our senior debt.
A COURT COULD VOID THE SUBSIDIARY GUARANTEES UNDER FRAUDULENT TRANSFER LAWS.
Although the subsidiary guarantees provide you with a direct claim against
the subsidiary guarantors, under the U.S. federal or state law, applicable
Canadian federal or provincial law or applicable laws of other relevant
jurisdictions and countries, a subsidiary guarantee could be voided, or claims
with respect to a subsidiary guarantee could be subordinated to all other debts
of that subsidiary guarantor. In addition, a court could void (i.e., cancel) any
payments by that subsidiary guarantor pursuant to its subsidiary guarantee and
require those payments to be returned to the subsidiary guarantor or to a fund
for the benefit of the other creditors of the subsidiary guarantor.
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The court might take these actions if it found, among other things, that
when a subsidiary guarantor executed its subsidiary guarantee (or, in some
jurisdictions, when it became obligated to make payments under its subsidiary
guarantee):
- such subsidiary guarantor issued its subsidiary guarantee to delay,
hinder or defraud present or future creditors; or
- such subsidiary guarantor received less than reasonably equivalent value
or fair consideration for the incurrence of its subsidiary guarantee and
such subsidiary guarantor:
- was (or was rendered) insolvent by the incurrence of the debt;
- was engaged or about to engage in a business or transaction for which
its assets constituted unreasonably small capital;
- intended to incur, or believed that it would incur, obligations beyond
its ability to pay as those obligations matured; or
- was a defendant in an action for money damages, or had a judgment for
money damages docketed against it and, in either case, after final
judgment, the judgment was unsatisfied.
A court would likely find that a subsidiary guarantor received less than
fair consideration or reasonably equivalent value for its subsidiary guarantee
to the extent that it did not receive direct or indirect benefit from the
issuance of the notes. A court could also void a subsidiary guarantee if it
found that the subsidiary issued its subsidiary guarantee with actual intent to
hinder, delay, or defraud creditors.
Although courts in different jurisdictions measure solvency differently, in
general, an entity would be deemed insolvent if the sum of its debts, including
contingent and unliquidated debts, exceeds the fair value of its assets, or if
the present fair salable value of its assets is less than the amount that would
be required to pay the expected liability on its debts, including contingent and
unliquidated debts, as they become due.
If a court voided a subsidiary guarantee, it could require that noteholders
return any amounts previously paid under such subsidiary guarantee. If any
subsidiary guarantee were voided, noteholders would retain their rights against
us and any other subsidiary guarantors, although there is no assurance that
those entities' assets would be sufficient to pay the notes in full.
THERE IS NO PUBLIC MARKET FOR THE NOTES, AND WE CANNOT BE SURE THAT A MARKET FOR
THE NOTES WILL DEVELOP.
The notes are a new issue of securities for which there is no active
trading market. The original notes are, and the exchange notes, when issued will
be, eligible for trading in The PORTAL Market of the National Association of
Securities Dealers, Inc. If any of the notes are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities and
other factors, including general economic conditions, our financial condition,
performance and prospects and prospects for companies in our industry generally.
In addition, the liquidity of the trading market in the notes and the market
prices quoted for the notes may be adversely affected by changes in the overall
market for high-yield securities.
The initial purchasers have advised us that they presently intend to make a
market in the exchange notes as permitted by applicable law. The initial
purchasers are not obligated, however, to make a market in the notes and any
such market-making may be discontinued at any time at the sole discretion of the
initial purchasers. As a result, you cannot be sure that an active trading
market will develop for the notes.
27
VOLATILE TRADING PRICES MAY REQUIRE YOU TO HOLD THE NOTES FOR AN INDEFINITE
PERIOD OF TIME.
If a market develops for the notes, the notes might trade at prices higher
or lower than their initial offering price. The trading price would depend on
many factors, such as prevailing interest rates, the market for similar
securities, general economic conditions and our financial condition, performance
and prospects. Historically, the market for non-investment grade debt has been
subject to disruptions that have caused substantial fluctuation in the prices of
these securities. The market for the notes may be subject to such disruptions,
which could have an adverse effect on the price of the notes. You should be
aware that you may be required to bear the financial risk of an investment in
the notes for an indefinite period of time.
BECAUSE SEVERAL OF OUR DIRECTORS AND OFFICERS RESIDE IN CANADA, YOU MAY NOT BE
ABLE TO EFFECT SERVICE OF PROCESS UPON THEM OR US, OR ENFORCE CIVIL LIABILITIES
AGAINST THEM OR US, UNDER THE U.S. FEDERAL SECURITIES LAWS.
We are an unlimited company incorporated under the laws of Nova Scotia.
Some of our directors and officers and some of the experts named in this
prospectus are residents of Canada or other jurisdictions outside of the U.S.
and all or a substantial portion of their assets and a substantial portion of
our assets are located outside of the U.S. As a result, it may be difficult for
holders of notes to effect service of process upon us or such persons within the
U.S. or to enforce against us or them in the U.S. judgments of courts of the
U.S. predicated upon the civil liability provisions of the U.S. federal
securities laws or other laws of the U.S. In addition, we have been advised by
our Nova Scotia counsel that there is doubt as to the enforceability in Canada
of liabilities predicated solely upon U.S. federal securities law against us,
our directors, controlling persons and officers and the experts named in this
prospectus who are not residents of the U.S., in original actions or in actions
for enforcements of judgments of U.S. courts.
YOU MAY HAVE DIFFICULTY ENFORCING U.S. BANKRUPTCY LAWS, AND YOUR RIGHTS AS A
CREDITOR MAY BE LIMITED UNDER THE BANKRUPTCY LAWS OF CANADA OR OTHER
JURISDICTIONS.
Under bankruptcy laws in the U.S., courts have jurisdiction over a debtor's
property wherever it is located, including property situated in other countries.
However, courts outside of the U.S. may not recognize the U.S. bankruptcy
court's jurisdiction. Accordingly, you may have difficulty administering a U.S.
bankruptcy case involving us, because we have property located outside of the
U.S. Any orders or judgments of a bankruptcy court in the U.S. may not be
enforceable against us with respect to our property located outside the U.S.
Similar difficulties may arise in administering bankruptcy cases in foreign
jurisdictions.
Under the indenture governing the notes, the rights of the trustee to
enforce remedies may be significantly impaired if we seek the benefit of the
restructuring provisions of applicable Canadian federal bankruptcy, insolvency
and other restructuring legislation. For example, both the Bankruptcy and
Insolvency Act (Canada) and the Companies' Creditors Arrangement Act (Canada)
contain provisions enabling an "insolvent person" to obtain a stay of
proceedings against its creditors and others and to prepare and file a proposal
or plan of compromise or arrangement for consideration by all or some of its
creditors to be voted on by the various classes of its creditors. The
restructuring plan or proposal, if accepted by the requisite majorities of
creditors and if approved by the court, may permit the insolvent debtor to
retain possession and administration of its property, even though it may be in
default under the applicable debt instrument.
The powers of the courts under the Bankruptcy and Insolvency Act (Canada)
and particularly under the Companies' Creditors Arrangement Act (Canada) have
been exercised broadly to protect a restructuring entity from actions taken by
creditors and other parties. Accordingly, we cannot predict whether payments
under the notes would be made following commencement of or during such a
proceeding, whether or when the trustees could exercise its rights under the
indenture governing the notes, whether your claims could be compromised or
extinguished under such a proceeding or whether and to what extent holders of
the notes would be compensated for delays in payment, if any, of principal and
interest.
28
NOTICE TO INVESTORS
This prospectus contains summaries of the terms of certain agreements that
we believe to be accurate in all material respects. However, we refer you to the
actual agreements for complete information relating to those agreements. All
summaries of such agreements contained in this prospectus are qualified in their
entirety by this reference. We will make copies of such agreements available
without charge to you upon request.
MARKET AND INDUSTRY DATA
Market and industry data used throughout this prospectus, including
information relating to our relative position in the industries in which we
operate, are based on the good faith estimates of management, which estimates
are based upon their review of internal surveys, discussions with customers and
independent industry publications, reports or other available information.
Although we believe that these sources are reliable, we do not guarantee the
accuracy or completeness of this information, and we have not independently
verified this information.
TRADEMARKS AND TRADE NAMES
We own or have rights to trademarks, service marks, copyrights and trade
names that we use in conjunction with the operation of our business including,
without limitation, MAAX. This prospectus also includes trademarks, service
marks and trade names of other companies.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements," as defined by
federal securities laws, with respect to our financial condition, results of
operations and business and our expectations or beliefs concerning future
events. Words such as, but not limited to, "believe," "expect," "anticipate,"
"estimate," "intend," "plan," "targets," "likely," "will," "would," "could" and
similar expressions or phrases identify forward-looking statements.
All forward-looking statements involve risks and uncertainties. The
occurrence of the events described, and the achievement of the expected results,
depend on many events, some or all of which are not predictable or within our
control. Actual results may differ materially from expected results.
Factors that may cause actual results to differ from expected results
include, among others:
- our highly competitive business environment;
- the availability and price of raw materials;
- the level of residential construction and remodeling activity in our
markets;
- changes in consumer confidence and preferences;
- our failure to protect our trademarks, patents and other intellectual
property rights;
- our ability to retain and attract employees;
- our ability to introduce new products and improve existing products;
- changes in foreign currency valuations, exchange rates and economic and
political conditions in the countries where we do business;
- current and future litigation, including product liability claims;
- costs of environmental compliance; and
- the effects of past and potential future acts of terrorism, bioterrorism,
violence or war.
All future written and verbal forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or
29
referred to in this section. We undertake no obligation, and specifically
decline any obligation, to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
See the Section entitled "Risk Factors" for a more complete discussion of
these risks and uncertainties and for other risks and uncertainties. These
factors and the other risk factors described in this prospectus are not
necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could harm our results.
Consequently, there can be no assurance that the actual results or developments
anticipated by us will be realized or, even if substantially realized, that they
will have the expected consequences to, or effects on, us. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Our functional currency is the Canadian dollar, but we present our
financial statements in U.S. dollars. In this prospectus, except where we
indicate otherwise, all dollar amounts are expressed in U.S. dollars, references
to "$" or "dollars" are to U.S. dollars and references to "C$" and "Canadian
dollars" are to Canadian dollars. See "Exchange Rate Data" below for information
about the rates of exchange between Canadian dollars and U.S. dollars for the
past five fiscal years and for the six month period ended August 31, 2004.
Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States, or U.S. GAAP. We also refer
in this prospectus to accounting principles generally accepted in Canada, or
Canadian GAAP.
EXCHANGE RATE DATA
The following table sets forth, for each period indicated, the low and high
exchange rates for Canadian dollars expressed in U.S. dollars, the exchange rate
at the end of such period and the average of such exchange rates on the last day
of each month during such period, based on the inverse of the noon buying rate
in the City of New York for cable transfers in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York. The exchange rates set
forth below demonstrate trends in exchange rates, but the actual exchange rates
used throughout this prospectus may vary.
<Table>
<Caption>
SIX
MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ ----------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31,
2000 2001 2002 2003 2004 2004
------------ ------------ ------------ ------------ ------------ ----------
High................. 0.6542 0.6410 0.6200 0.6252 0.6709 0.7155
Low.................. 0.6969 0.6911 0.6622 0.6720 0.7880 0.7713
Period End........... 0.6894 0.6527 0.6231 0.6720 0.7460 0.7580
Average Rate......... 0.6932 0.6687 0.6425 0.6414 0.7346 0.7463
</Table>
The following table sets forth, for each of the last six months, the low
and high exchange rates for Canadian dollars expressed in U.S. dollars and the
exchange rate at the end of the month based on the inverse of the noon buying
rate as described above:
<Table>
<Caption>
LAST SIX MONTHS
---------------------------------------------------------
JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER
------ ------ ------ --------- ------- --------
High...................... 0.7260 0.7485 0.7507 0.7650 0.7851 0.8153
Low....................... 0.7450 0.7642 0.7713 0.7901 0.8203 0.8495
End of Month.............. 0.7450 0.7523 0.7579 0.7901 0.8200 0.8420
</Table>
30
On December 7, 2004, the inverse of the noon buying rate was C$1.2085 =
$1.00.
Canada has no system of exchange controls. There are no Canadian exchange
restrictions affecting the remittance of dividends, interest, royalties or
similar payments to non-resident holders of our securities, except as described
under "Income Tax Considerations -- Canadian Federal Income Tax Considerations."
31
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
EXCHANGE OFFER
We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and the accompanying letter of transmittal, to exchange up to
$150,000,000 aggregate principal amount of original notes properly tendered on
or prior to the expiration date and not withdrawn as permitted pursuant to the
procedures described below. The exchange offer is being made with respect to any
and all of the original notes.
As of the date of this prospectus, $150,000,000 aggregate principal amount
of the original notes is outstanding. This prospectus, together with the
accompanying letter of transmittal, is first being sent on or about
[ ], 2005 to all holders of original notes registered on our note
register. Our obligation to accept original notes for exchange pursuant to the
exchange offer is subject to certain conditions set forth under "-- Conditions
of the Exchange Offer" below. We currently expect that each of the conditions
will be satisfied and that no waivers will be necessary.
PURPOSE AND EFFECT
We sold the original notes on June 4, 2004 to Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and RBC Capital Markets Corporation,
as the initial purchasers pursuant to a purchase agreement in a transaction
exempt from the registration requirements of the Securities Act. Accordingly,
the original notes may not be reoffered, resold or otherwise transferred unless
so registered or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available. The initial
purchasers subsequently resold the original notes under Rule 144A and Regulation
S under the Securities Act. As part of the offering of the original notes, we
and the guarantors entered into a registration rights agreement with the initial
purchasers. The registration rights agreement requires, unless the exchange
offer is not permitted by applicable law or SEC policy, that we and the
guarantors:
- within 150 days after the closing of the offering, file the registration
statement of which this prospectus forms a part with the SEC with respect
to the exchange offer;
- within 300 days after the closing of the offering, use our commercially
reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act; and
- keep the exchange offer open for at least 30 days and exchange the
exchange notes for all original notes validly tendered and not withdrawn
before the expiration of the offer.
Except as provided below, upon the completion of the exchange offer, our
obligations with respect to the registration of the original notes and the
exchange notes will terminate. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
forms a part. Following the completion of the exchange offer (except as set
forth in the paragraph immediately below), holders of original notes not
tendered will not have any further registration rights and those original notes
will continue to be subject to the restrictions on transfer described above.
Accordingly, the liquidity of the market for the original notes could be
adversely affected upon consummation of the exchange offer.
However, if:
(1) on or before the date of consummation of the exchange offer, the
existing SEC interpretations are changed such that the exchange notes would
not in general be freely transferable in such manner on such date; or
(2) the exchange offer is not available to any holder of the original
notes,
32
we will, in lieu of (or, in the case of clause (2), in addition to) effecting
registration of exchange notes, file within 150 days and use our commercially
reasonable efforts to cause a registration statement under the Securities Act
relating to a shelf registration of the original notes for resale by holders or,
in the case of clause (2), of the original notes held by the initial purchasers
for resale by the initial purchasers (the "RESALE REGISTRATION") to become
effective within 300 days and to remain effective until two years following the
effective date of such registration statement or such shorter period that will
terminate when all the securities covered by the shelf registration statement
have been sold pursuant to the shelf registration statement.
We will, in the event of the Resale Registration, provide to the holder or
holders of the applicable original notes copies of the prospectus that is a part
of the shelf registration statement, notify such holder or holders when the
Resale Registration for the applicable original notes has become effective and
take certain other actions as are required to permit unrestricted resales of the
applicable original notes. A holder of original notes that sells such original
notes pursuant to the Resale Registration generally would be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement that are applicable
to such a holder (including certain indemnification obligations).
In the event that:
(1) we have not filed the registration statement relating to the
exchange offer (or, if applicable, the Resale Registration) within 150 days
following the closing date of the offering; or
(2) such registration statement has not become effective within 300
days following the closing date of the offering; or
(3) the exchange offer has not been consummated within 30 days
following the date the registration statement becomes effective; or
(4) any registration statement required by the registration rights
agreement is filed and declared effective but shall thereafter cease to be
effective (except as specifically permitted therein) without being
succeeded immediately by an additional registration statement filed and
declared effective (any such event referred to in clauses (1) through (4),
the "REGISTRATION DEFAULT"),
then we will pay to the holders, as liquidated damages, for the period from the
occurrence of the Registration Default (but only with respect to one
Registration Default at any particular time) until such time as no Registration
Default is in effect an amount per annum equal to 0.25% of the aggregate
principal amount of original notes during the first 90-day period following the
occurrence of such Registration Default which rate shall increase by an
additional 0.25% during each subsequent 90-day period, up to a maximum of 2.0%.
Liquidated damages shall be paid on interest payment dates to the holders of
record for the payment of interest. References to interest on the original notes
shall mean such interest plus liquidated damages, if any.
Under certain circumstances, we and the guarantors may allow any shelf
registration statement to cease to become effective and usable for a period of
no more than 90 days during any 12-month period.
In order to participate in the exchange offer, a holder must represent to
us, among other things, that:
- any exchange notes to be received by it will be acquired in the ordinary
course of its business;
- it has no arrangement or understanding with any person to participate in
the distribution of the exchange notes; and
33
- it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of ours or of any of the guarantors of the notes.
In addition, each such holder will be required to make any additional
representations that in the written opinion of our counsel are necessary under
existing rules or regulations (or interpretations thereof) of the SEC in order
for the registration statement of which this prospectus forms a part to be
declared effective.
Based on an interpretation by the SEC's staff set forth in no-action
letters issued to third parties unrelated to us, we believe that, with the
exceptions set forth below, exchange notes issued pursuant to the exchange offer
in exchange for original notes may be offered for resale, resold and otherwise
transferred by holders thereof, other than any holder which is our affiliate
within the meaning of Rule 405 promulgated under the Securities Act, or a
broker-dealer who purchased original notes directly from us to resell pursuant
to Rule 144A or any other available exemption promulgated under the Securities
Act, without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the exchange notes are acquired in the
ordinary course of business of the holder and the holder is not participating,
does not intend to participate and does not have an arrangement or understanding
with any person to participate in the distribution of such exchange notes. Any
holder who tenders in the exchange offer for the purpose, or with the intention,
of participating in a distribution of the exchange notes, or who is our
affiliate, cannot rely on this interpretation by the SEC's staff and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction and such secondary resale
transaction must be covered by an effective registration statement under the
Securities Act containing the selling securityholder's information required by
Regulation S-K under the Securities Act, unless an exemption from registration
is otherwise available. The foregoing is based on existing interpretations of
the Securities Act by the SEC. We do not intend to seek our own no-action
letter, and there is no assurance that the SEC staff would make a similar
determination with respect to the exchange notes. If this interpretation is
inapplicable, and you transfer any exchange note without delivering a prospectus
meeting the requirements of the Securities Act or without an exemption from such
requirements, you may incur liability under the Securities Act. We do not
assume, or indemnify holders of notes against, any such liability.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where such original notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such exchange notes. See "Plan of Distribution."
Broker-dealers who acquired original notes directly from us and not as a result
of market-making activities or other trading activities may not rely on the
staff's interpretations discussed above or participate in the exchange offer and
must comply with the registration and prospectus delivery requirements of the
Securities Act in order to sell the original notes.
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
Following the completion of the exchange offer, holders of original notes
who did not tender their original notes, or who did not properly tender their
original notes, will not have any further registration rights and such original
notes will continue to be subject to restrictions on transfer. Accordingly, the
liquidity of the market for a holder's original notes could be adversely
affected upon expiration of the exchange offer if such holder elects to not
participate in the exchange offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
and all original notes that are validly tendered on or prior to 10:00 a.m. New
York City time, on the expiration date. For each
34
original note surrendered to us pursuant to the exchange offer, the holder of
such original note will receive an exchange note having a principal amount equal
to that of the surrendered note. We will issue $1,000 principal amount of
exchange notes for each $1,000 principal amount of outstanding original notes
accepted in the exchange offer. Holders who have tendered their original notes
may withdraw their tender of original notes at any time prior to 10:00 a.m., New
York City time, on the expiration date. The exchange offer is not conditioned
upon any minimum principal amount of original notes being tendered for exchange.
However, the exchange offer is subject to the terms and provisions of the
registration rights agreement. See "-- Conditions of the Exchange Offer."
The form and terms of the exchange notes are substantially the same as the
form and terms of the original notes, except that the exchange notes have been
registered under the Securities Act and will not bear legends restricting their
transfer. The exchange notes will evidence the same debt as the original notes
and will be issued pursuant to, and entitled to the benefits of, the indenture
pursuant to which the original notes were issued.
As of the date of this prospectus, $150.0 million in aggregate principal
amount of the original notes is outstanding. Only a holder of the original
notes, or such holder's legal representative or attorney-in-fact, may
participate in the exchange offer. We will not fix a record date for determining
holders of the original notes entitled to participate in the exchange offer.
We will be deemed to have accepted validly tendered original notes when, as
and if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders of original notes and
for the purpose of receiving the exchange notes from us.
If any tendered original notes are not accepted for exchange because of an
invalid tender, the occurrence of other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted original notes will be
returned, without expense, to the tendering holder promptly after the expiration
date.
Holders who tender original notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
original notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date shall be [ ], 2005, at 10:00 a.m., New York
City time, unless we, in our sole discretion, extend the exchange offer, in
which case the expiration date shall be the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by written notice and will make a public announcement thereof,
each prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. This public announcement will also
disclose the approximate aggregate principal amount of original notes tendered
to date.
We reserve the right, in our sole discretion, if any of the conditions set
forth below under "-- Conditions of the Exchange Offer" shall not have been
satisfied:
- to delay accepting any original notes;
- to extend the exchange offer;
- to terminate the exchange offer;
in each case by giving written notice of such delay, extension or termination to
the exchange agent; and
- to amend the terms of the exchange offer in any manner.
35
If we amend the exchange offer in a manner we determine to constitute a
material change, we will promptly disclose such amendments by means of a
prospectus supplement that we will distribute to the registered holders of the
original notes. Modification of the exchange offer, including, but not limited
to:
- extension of the period during which the exchange offer is open; and
- waiver of satisfaction of the conditions set forth below under "--
Conditions of the Exchange Offer"
may require that at least five business days remain in the exchange offer.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we are not required
to accept for exchange, or to exchange the exchange notes for, any original
notes not previously accepted for exchange, and we may terminate or amend the
exchange offer as provided herein before the expiration of the exchange offer,
if any of the following events shall occur:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency which would be reasonably likely to
materially impair our ability to proceed with the exchange offer, or
there shall have occurred any material adverse development in any
existing action or proceeding with respect to us or any of our
subsidiaries; or
- the exchange offer shall violate any applicable law, rule, regulation or
interpretation of the staff of the SEC; or
- any governmental approval which we shall deem necessary for the
consummation of the exchange offer as contemplated by this prospectus
shall not have been obtained.
If we determine in our reasonable discretion that any of these conditions
are not satisfied (or any of such events shall have occurred), we may (1) refuse
to accept any original notes and return all tendered original notes to the
tendering holders and/or terminate the exchange offer, (2) extend the exchange
offer and retain all original notes tendered prior to the expiration of the
exchange offer, subject, however, to the rights of holders to withdraw such
original notes as described in
"-- Withdrawal Rights" or (3) waive such unsatisfied conditions with respect to
the exchange offer and accept all properly tendered original notes which have
not been withdrawn. If such waiver constitutes a material change to the exchange
offer, we will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered holders of the original notes, and we
will extend the exchange offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the exchange offer would otherwise expire during such
five to ten business day period.
Holders may have certain rights and remedies against us under the
registration rights agreement should we fail to consummate the exchange offer,
notwithstanding a failure of the conditions stated above. Such conditions are
not intended to modify those rights or remedies in any respect.
The foregoing conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to such conditions or we may waive
them in whole or in part at any time and from time to time in our reasonable
discretion; provided, that, all conditions to the exchange offer other than
those dependent upon receipt of necessary government approvals must be satisfied
or waived by us before the exchange offer expires. If we decide to waive any of
the foregoing conditions, we will expressly announce the decision in a manner
reasonably calculated to inform holders of the waiver. Any failure by us at any
time to exercise the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
36
INTEREST
The exchange notes will bear interest at a rate equal to 9.75% per annum.
We will pay interest on the notes twice a year, on each June 15 and December 15,
beginning December 15, 2004. See "Description of the Notes."
PROCEDURES FOR TENDERING ORIGINAL NOTES
Only a holder of original notes may tender the original notes in the
exchange offer. Except as set forth under "-- Book Entry Transfer," to tender in
the exchange offer, a holder must complete, sign and date the letter of
transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the letter of transmittal, and mail or otherwise deliver the letter
of transmittal or copy to the exchange agent prior to the expiration date. In
addition, (1) certificates for the original notes must be received by the
exchange agent along with the letter of transmittal prior to the expiration
date, (2) a timely confirmation of a book-entry transfer of such original notes,
if that procedure is available, into the exchange agent's account at DTC
pursuant to the procedure for book-entry transfer described below, must be
received by the exchange agent prior to the expiration date or (3) the holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the letter of transmittal and other required documents
must be received by the exchange agent at the address set forth under "-- The
Exchange Agent; Assistance" prior to the expiration date.
The tender by a holder that is not withdrawn before the expiration date
will constitute an agreement between that holder and us in accordance with the
terms and subject to the conditions set forth herein and in the letter of
transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO US. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUSTS COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose original notes are registered in the name of a
broker-dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the registered
holder to tender on the beneficial owner's behalf. If the beneficial owner
wishes to tender on the owner's own behalf, the owner must, prior to completing
and executing the letter of transmittal and delivering the owner's original
notes, either make appropriate arrangements to register ownership of the
original notes in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible guarantor institution that is a
member of or participant in the Securities Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Program or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, unless original notes tendered pursuant thereto are
tendered (1) by a registered holder who has not completed the box entitled
"Special Registration Instructions" or "Special Delivery Instructions" in the
letter of transmittal or (2) for the account of such an eligible guarantor
institution. If signatures on a letter of transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, the guarantee must be by an
eligible guarantor institution.
37
If the letter of transmittal is signed by a person other than the
registered holder of any original notes listed therein, the original notes must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the original
notes.
If the letter of transmittal or any original notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal unless waived by us.
We will determine all questions as to the validity, form, eligibility,
including time of receipt, acceptance and withdrawal of tendered original notes
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all original notes not properly
tendered or any original notes our acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular original notes, but if
we waive any condition of the exchange offer, we will waive that condition for
all holders. Our interpretation of the terms and conditions of the exchange
offer, including the instructions in the letter of transmittal, will be final
and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
original notes must be cured within such time as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
original notes, neither we nor the exchange agent nor any other person shall
incur any liability for failure to give such notification. Tenders of original
notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any original notes received by the exchange agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned by the exchange agent to the
tendering holders, unless otherwise provided in the letter of transmittal,
promptly following the expiration date.
In addition, we reserve the right in our sole discretion to purchase or
make offers for any original notes that remain outstanding after the expiration
date or to terminate the exchange offer and, to the extent permitted by
applicable law, to purchase original notes in the open market, in privately
negotiated transactions, or otherwise. The terms of any such purchases or offers
could differ from the terms of the exchange offer.
By tendering, each holder will represent to us that, among other things:
- any exchange notes to be received by it will be acquired in the ordinary
course of its business;
- it has no arrangement or understanding with any person to participate in
the distribution of the exchange notes; and
- it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of ours or of any of the guarantors of the notes.
In addition, each such holder will be required to make any additional
representations that in the written opinion of our counsel are necessary under
existing rules or regulations (or interpretations thereof) of the SEC in order
for the registration statement of which this prospectus forms a part to be
declared effective.
In all cases, issuance of exchange notes for original notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for such original notes or
a timely confirmation of a book-entry transfer of such original notes into the
exchange agent's account at DTC, a properly completed and duly executed letter
of transmittal (or, with respect to DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of an
agreement to be bound by the letter of transmittal), and all
38
other required documents. If any tendered original notes are not accepted for
any reason set forth in the terms and conditions of the exchange offer or if
original notes are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged original notes will be
returned without expense to the tendering holder thereof, or, in the case of
original notes tendered by book-entry transfer into the exchange agent's account
at DTC pursuant to the book-entry transfer procedures described below, such
nonexchanged original notes will be credited to an account maintained with DTC,
promptly after the expiration or termination of the exchange offer.
Each broker-dealer that receives exchange notes for its own account in
exchange for original notes, where such original notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the original notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus, and any financial institution
that is a participant in DTC's systems may make book-entry delivery of original
notes being tendered by causing DTC to transfer such original notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of original notes may be effected through
book-entry transfer at DTC, the letter of transmittal or copy thereof, with any
required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the exchange agent at the address set forth under "-- The Exchange
Agent; Assistance" on or prior to the expiration date or the guaranteed delivery
procedures described below must be complied with.
Alternatively, participants may use DTC's Automated Tender Offer Program,
or ATOP, to process exchange offers through DTC. To accept the exchange offer
through ATOP, participants in DTC must send electronic instructions to DTC
through DTC's communication system in lieu of sending a signed, hard copy letter
of transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender original notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the exchange agent must
reflect that the participant acknowledges its receipt of and agrees to be bound
by the letter of transmittal.
GUARANTEED DELIVERY PROCEDURES
Other than holders whose original notes are held through DTC, holders who
wish to tender their original notes and whose original notes are not immediately
available, or who cannot deliver their original notes or any other documents
required by the letter of transmittal to the exchange agent prior to the
expiration date, may tender their original notes according to the guaranteed
delivery procedures set forth in the letter of transmittal. Pursuant to such
procedures:
- the holder tenders through an eligible guarantor institution and signs a
notice of guaranteed delivery;
- on or prior to the expiration date, the exchange agent receives from the
holder and the eligible guarantor institution a written or facsimile copy
of a properly completed and duly executed notice of guaranteed delivery,
substantially in the form provided by us, setting forth the name and
address of the holder, the certificate number or numbers of the tendered
original notes, and the principal amount of tendered original notes,
stating that the tender is being made thereby and guaranteeing that,
within five business days after the date of delivery of the notice of
guaranteed delivery, the tendered original notes, a duly executed letter
of transmittal and any other required documents will be deposited by the
eligible guarantor institution with the exchange agent; and
39
- such properly completed and executed documents required by the letter of
transmittal and the tendered original notes in proper form for transfer
are received by the exchange agent within five business days after the
expiration date.
Any holder who wishes to tender original notes pursuant to the guaranteed
delivery procedures described above must ensure that the exchange agent receives
the notice of guaranteed delivery and letter of transmittal relating to such
original notes prior to 10:00 a.m., New York City time, on the expiration date.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept any and all original notes that are properly tendered in the
exchange offer prior to 10:00 a.m., New York City time, on the expiration date.
The exchange notes issued pursuant to the exchange offer will be delivered
promptly after expiration of the exchange offer. For purposes of the exchange
offer, we shall be deemed to have accepted validly tendered original notes,
when, as, and if we have given oral or written notice thereof to the exchange
agent.
In all cases, issuances of exchange notes for original notes that are
accepted for exchange pursuant to the exchange offer will be made only after the
exchange agent timely receives such original notes, a properly completed and
duly executed letter of transmittal and all other required documents; provided,
however, we reserve the absolute right to waive any defects or irregularities in
the tender or conditions of the exchange offer. If we do not accept any tendered
original notes for any reason, we will return such unaccepted original notes
without expense to the tendering holder thereof promptly after the expiration or
termination of the exchange offer.
WITHDRAWAL RIGHTS
Holders may withdraw tenders of original notes at any time prior to 10:00
a.m., New York City time, on the expiration date. For the withdrawal to be
effective, the exchange agent must receive a written notice of withdrawal at its
address set forth under "-- The Exchange Agent; Assistance." The notice of
withdrawal must:
- specify the name of the person who tendered the original notes to be
withdrawn;
- identify the original notes to be withdrawn, including the certificate
number or numbers and principal amount of withdrawn original notes;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such original notes were tendered,
including any required signature guarantees, or be accompanied by a bond
power in the name of the person withdrawing the tender, in satisfactory
form as determined by us in our sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an eligible
guarantor institution together with the other documents required upon
transfer by the indenture; and
- specify the name in which such original notes are to be registered, if
different from the person who deposited the original notes, pursuant to
such documents of transfer.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such withdrawal notices in our sole discretion.
The original notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any original notes which have
been tendered for exchange but which are withdrawn will be returned to their
holder without cost to such holder promptly after withdrawal. Properly withdrawn
original notes may be retendered by following one of the procedures described
under "-- Procedures for Tendering Original Notes" at any time on or prior to
the expiration date.
40
THE EXCHANGE AGENT; ASSISTANCE
U.S. Bank Trust National Association is the exchange agent. All tendered
original notes, executed letters of transmittal and other related documents
should be directed to the exchange agent. Questions and requests for assistance
and requests for additional copies of this prospectus, the letter of transmittal
and other related documents should be addressed to the exchange agent as
follows:
BY REGISTERED OR CERTIFIED MAIL:
U.S. BANK TRUST NATIONAL ASSOCIATION
CORPORATE TRUST SERVICES
EP-MN-WS-2N
60 LIVINGSTON AVENUE
ST. PAUL, MINNESOTA 55107
ATTENTION: SPECIALIZED FINANCE
BY HAND OR OVERNIGHT COURIER:
U.S. BANK TRUST NATIONAL ASSOCIATION
CORPORATE TRUST SERVICES
EP-MN-WS-2N
100 WALL STREET
60 LIVINGSTON AVENUE
ST. PAUL, MINNESOTA 55107
ATTENTION: SPECIALIZED FINANCE
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
U.S. BANK TRUST NATIONAL ASSOCIATION
ATTENTION: SPECIALIZED FINANCE
(651) 495-8158
CONFIRM FACSIMILE BY TELEPHONE OR FOR INFORMATION CALL: (800) 934-6802
FEES AND EXPENSES
We will bear all expenses incident to the consummation of the exchange
offer and compliance with the registration rights agreement, including, without
limitation:
- all registration and filing fees, including fees and expenses of
compliance with state securities or blue sky laws;
- printing expenses, including expenses of printing certificates for the
exchange notes in a form eligible for deposit with DTC and of printing
prospectuses;
- messenger, telephone and delivery expenses;
- fees and disbursements of our counsel;
- fees and disbursements of independent public accountants;
- rating agency fees;
- our internal expenses, including all salaries and expenses of our
officers and employees performing legal or accounting duties; and
41
- fees and expenses, if any, incurred in connection with the listing of the
exchange notes on a securities exchange.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay all transfer taxes, if any, applicable to the exchange of
original notes pursuant to the exchange offer. If, however, a transfer tax is
imposed for any reason other than the exchange of original notes pursuant to the
exchange offer, then the amount of any such transfer taxes, whether imposed on
the registered holder or any other person, will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
We will record the exchange notes at the same carrying value as the
original notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize expenses of the exchange offer over the term of the
exchange notes.
42
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement. We will not receive any cash proceeds or incur
any additional indebtedness as a result of the issuance of the exchange notes
pursuant to the exchange offer.
We used the proceeds from the sale of the original notes, together with the
initial borrowings under our new senior secured credit facility and the cash
investment by our Sponsors, certain consultants and members of our management,
to consummate the transactions.
43
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma consolidated financial statements present the
consolidated results of operations resulting from the acquisition and financing
transactions whereby Beauceland Corporation has acquired MAAX Inc. as at and for
the six months ended August 31, 2004 and for the year ended February 29, 2004.
Beauceland Corporation, our parent company, is the guarantor of the notes
and, consequently, the pro forma consolidated financial statements that are
presented are those of Beauceland Corporation.
The pro forma consolidated financial statements are based on (a) for the
statement of income for the six month period ended August 31, 2004, the
unaudited historical consolidated financial statements of MAAX Inc. up to the
date of acquisition on June 4, 2004 and the unaudited historical consolidated
financial statements of Beauceland Corporation for the period since the
acquisition was completed on June 4, 2004 and (b) for the statement of income
for the year ended February 29, 2004, the audited historical consolidated
financial statements of MAAX Inc., which are included elsewhere in this
prospectus, adjusted to give pro forma effect to the following transactions, all
of which occurred concurrently June 4, 2004:
- The issuance of common shares by Beauceland Corporation in the amount of
$133.7 million(a);
- The creation of new indebtedness by MAAX, a wholly-owned subsidiary of
Beauceland Corporation consisting of(b):
- a term loan A facility of $96.3 (C$130.0 million);
- a term loan B facility of $115.0 million; and
- an authorized revolving credit of C$50.0 million, of which $12.0 million
(C$16.2 million) was borrowed at the acquisition date.
- The issuance of $150.0 million of senior subordinated notes by MAAX(c);
- The acquisition of all outstanding shares for cash and the acquisition of
the outstanding share purchase options of MAAX Inc., either for cash or
stock options of the acquirer;
- The repayment of the outstanding long-term debt of MAAX Inc.(d); and
- The payment of transaction costs amounting to $38.3 million.
The pro forma consolidated statement of income for the periods ending
August 31, 2004 and February 29, 2004 give effect to the transactions set forth
above as if they had occurred on March 1, 2003. The transactions set forth above
and the related adjustments are more fully described in the accompanying notes.
The pro forma adjustments are based upon available information and assumptions
that management believes are reasonable. All tax amounts (including taxable and
deductible pro forma adjustments) are based on the statutory tax rate prevailing
during each of the periods presented which was 32.7%. Interest rates applied are
historical rates for current debt and assumed rates for our senior subordinated
notes and senior secured credit facility.
The pro forma consolidated statements of income do not purport to represent
what the results of operations or financial position would have been had the
items set forth above in fact occurred on the dates indicated above or to
project results of operations or financial position for any future period or at
any future date. Management has used certain estimates in preparing the pro
forma financial data. These estimates do not include the final allocation of
fair value of identifiable tangible and intangible assets and accordingly, the
excess of the purchase price over the carrying value of the net assets acquired
is recorded as goodwill, and no amortization is recorded in the pro forma
consolidated statements of income. When the allocation of purchase price is
finalized, the appropriate amortization related to the allocated assets will be
included in the results of operations.
44
In preparing the pro forma consolidated statements of income, no
adjustments have been made to reflect the additional costs or savings that could
result from the acquisition of MAAX Inc.
The pro forma consolidated financial statements are prepared on the basis
of U.S. GAAP.
All references in this pro forma to "dollars" or "$" are to United States
dollars, and all references in this pro forma to "C dollars" and "C$" are to
Canadian dollars.
The pro forma consolidated financial statements are based on an August 31,
2004 exchange rate of C$1.3130 per $1.00.
45
BEAUCELAND CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
SIX MONTH PERIOD ENDED AUGUST 31, 2004
<Table>
<Caption>
BEAUCELAND PRO FORMA PRO FORMA,
CORPORATION(1) MAAX INC. ADJUSTMENTS AS ADJUSTED
-------------- --------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Net sales................................. $128,426 $143,836 $ -- $272,262
Expenses:
Cost of goods sold...................... 88,011 98,490 -- 186,501
Selling, general, and administrative.... 17,361 36,670 (9,495)(e) 44,536
Depreciation and amortization........... 3,837 3,987 -- 7,824
Interest expense........................ 6,342 1,321 5,685(e) 13,348
-------- -------- ------- --------
115,551 140,468 (3,810) 252,209
-------- -------- ------- --------
Income before income taxes................ 12,875 3,368 3,810 20,053
Income taxes.............................. 1,537 1,572 (757) 2,352
-------- -------- ------- --------
Net income................................ $ 11,338 $ 1,796 $ 4,567 $ 17,701
======== ======== ======= ========
</Table>
- ---------------
(1) On March 10, 2004, certain entities formed by our Sponsors entered into a
merger agreement to acquire MAAX Inc., pursuant to which two of our
wholly-owned subsidiaries amalgamated with MAAX Inc. on June 4, 2004. Upon
consummation of the amalgamation, MAAX Corporation acquired MAAX Inc. and
its direct and indirect subsidiaries. Neither MAAX Corporation nor its
parent, Beauceland Corporation, had any operating activities prior to June
4, 2004.
YEAR ENDED FEBRUARY 29, 2004
<Table>
<Caption>
BEAUCELAND PRO FORMA PRO FORMA,
CORPORATION(1) MAAX INC. ADJUSTMENTS AS ADJUSTED
-------------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
Net sales................................. $-- $495,737 $ -- $495,737
Expenses:
Cost of goods sold...................... -- 344,431 -- 344,431
Selling, general, and administrative.... -- 80,061 (4,221)(e) 75,840
Depreciation and amortization........... -- 15,638 -- 15,638
Financial expenses...................... -- 4,898 20,855(e) 25,753
Goodwill impairment loss................ -- 4,511 -- 4,511
-- -------- ---------- --------
-- 449,539 16,634 466,173
-- -------- ---------- --------
Income before income taxes................ -- 46,198 (16,634) 29,564
Income taxes.............................. -- 14,247 (5,440) 8,807
-- -------- ---------- --------
Net income................................ $-- $ 31,951 $ (11,194) $ 20,757
== ======== ========== ========
</Table>
- ---------------
(1) Beauceland Corporation was incorporated for purposes of the acquisition and,
consequently, had no operations prior to June 4, 2004 when it became our
holding company.
46
ASSUMPTIONS UNDERLYING THE PRO FORMA CONSOLIDATED STATEMENTS OF INCOME:
(A) SUBSCRIPTION FOR CAPITAL STOCK OF THE PARENT OF BEAUCELAND CORPORATION BY
THE SPONSORS, CERTAIN CONSULTANTS AND MEMBERS OF OUR MANAGEMENT
Concurrently with the acquisition, the Sponsors, certain consultants and
members of our management made an investment in the parent of Beauceland
Corporation in the amount of $133.7 million.
(B) ADDITIONAL INDEBTEDNESS PURSUANT TO TERM LOAN A FACILITY, TERM LOAN B
FACILITY AND REVOLVING LOAN FACILITY
Concurrently with the acquisition, we entered into a term loan A facility
of $96.3 million (C$130.0 million), a term loan B facility of $115.0 million and
a revolving loan facility of an authorized amount of $37.0 million (C$50.0
million). The term loan A facility bears interest at a Canadian bankers'
acceptance rate plus 2.5% and is payable in increasing quarterly installments
beginning on December 31, 2004 and will mature in 2009. The term loan B facility
bears interest at LIBOR plus 2.75% and is payable in increasing quarterly
installments beginning on September 30, 2004 and will mature in 2011. The
revolving loan facility bears interest at a Canadian bankers' acceptance rate
plus 2.5% and will mature in 2009. At the acquisition date, an amount of $12.0
million was drawn from the revolving credit facility. Unused line fees
calculated at a rate of 0.5% apply on the unused amount of the revolving loan
facility. See "Description of New Senior Secured Credit Facility."
(C) ISSUANCE OF SENIOR SUBORDINATED NOTES
Concurrently with the acquisition, we issued Senior Subordinated Notes in
the amount of $150.0 million. These notes bear interest at a rate of 9.75%
payable semiannually and will mature in 2012.
(D) REPAYMENT OF THE OUTSTANDING LONG-TERM DEBT OF MAAX INC.
Concurrently with the acquisition, we refinanced substantially all of the
outstanding long-term debt of MAAX Inc., comprised of a revolving credit of
$10.0 million and senior unsecured notes in the amount of $45.5 million. The
note payable resulting from a previous business acquisition amounting to $9.3
million was also repaid. The remaining long-term debt of MAAX Inc. was assumed
by our company.
As a result of the debt repayment described above, deferred financing costs
of MAAX Inc., as at June 4, 2004 in an amount equal to $1.1 million, were
written off.
(E) EXPENSES (DOLLARS IN THOUSANDS):
SIX MONTHS ENDED AUGUST 31, 2004
<Table>
Adjustments to the expenses:
Interest expenses, unused line fees on the new
financing(b), (c) and amortization of new deferred
financing fees(b), (c)................................. $6,860
Reversal of the interest expenses on the old
financing(d)........................................... (1,056)
Reversal of amortization of the old deferred financing
fees(d)................................................ (119) $ 5,685
------
Reversal of one-time transaction costs.................... (9,737)
Management fees to Sponsors............................... 242 (9,495)
------ --------
(3,810)
Total expenses of Beauceland Corporation and MAAX Inc. ..... 256,019
--------
Total expenses on pro forma basis........................... $252,209
========
</Table>
47
ASSUMPTIONS UNDERLYING THE PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED):
YEAR ENDED FEBRUARY 29, 2004
<Table>
Adjustments to the expenses:
Interest expenses, unused line fees on the new
financing(b), (c) and amortization of new deferred
financing fees(b), (c)................................. $25,753
Reversal of the interest expenses on the old
financing(d)........................................... (4,380)
Reversal of amortization of the old deferred financing
fees(d)................................................ (518) $ 20,855
-------
Reversal of one-time transaction costs.................... (3,756)
Reversal of Gestion Camada management fee contract........ (2,784)
Estimated costs to replace Gestion Camada................. 1,685
Management fees to Sponsors............................... 634 (4,221)
------- --------
16,634
Total expenses of MAAX Inc. ................................ 449,539
--------
Total expenses on pro forma basis........................... $466,173
========
</Table>
(F) OTHER INCOME STATEMENT ADJUSTMENTS TO BE RECORDED:
The entire amount of the excess purchase price over the carrying value of
net assets acquired is recorded in our unaudited pro forma financial data as
goodwill. We are currently assisted by external advisors to allocate the
purchase price to the various assets acquired and liabilities assumed. We
intend to finalize the allocation of the purchase price before the end of
February 2005, our fiscal year-end, and expect to have a preliminary
allocation recorded in our unaudited interim consolidated financial
statements as at and for the quarter ending November 30, 2004. Once the fair
value of tangible and intangible assets becomes known, a portion of the
value attributed to goodwill will be reallocated to tangible and intangible
assets. These intangible assets may include, among others, customers lists,
customers relationships, trademarks, distribution networks and intellectual
property. As a result, we expect to incur an incremental depreciation
expense for our property, plant and equipment, as well as an additional
amortization expense for the intangible assets acquired that have finite
useful lives. Accordingly, any additional depreciation and amortization
expense will have a negative impact on our results of operations; we are
unable at this moment to provide any estimate of this impact, but the amount
could be significant.
48
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data presented below at February 28, 2003 and
February 29, 2004 and for the three-year period ended February 29, 2004 are
derived from MAAX Inc.'s audited consolidated financial statements included
elsewhere in this prospectus. The selected financial data presented below as at
February 29, 2000, February 28, 2001 and 2002 and for each of the years in the
two-year period ended February 28, 2001 are based on MAAX Inc.'s audited
consolidated financial statements prepared under Canadian GAAP which have been
reconciled to U.S. GAAP. The selected financial data presented below for and as
of the end of the six month period ended August 31, 2003 and the 89-day period
ended August 31, 2004 have been derived from our unaudited consolidated
financial statements and MAAX Inc.'s unaudited consolidated financial statements
for the six months ended August 31, 2003 included elsewhere in this prospectus.
The selected historical financial data for the six-month period ended August 31,
2003, the 95-day period from March 1 to June 3, 2004 and the 89-day period from
June 4 to August 31, 2004 and as of August 31, 2004 are derived from unaudited
interim financial statements which, in the opinion of management, include all
normal, recurring adjustments necessary to state fairly the data included
therein in accordance with U.S. GAAP for interim financial information. The
selected financial data presented below are qualified in their entirety by, and
should be read in conjunction with, the financial statements and notes thereto
and other financial and statistical information included in this prospectus,
including the information contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<Table>
<Caption>
PREDECESSOR
------------------------------------------------------------------------
FISCAL YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 2001 2002 2003 2004
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales:
Bathroom and kitchen.................. $270,573 $292,859 $304,126 $359,901 $441,518
Spas.................................. 43,297 50,215 50,811 62,291 54,219
-------- -------- -------- -------- --------
Net sales........................... 313,870 343,074 354,937 422,192 495,737
Cost of goods sold..................... 221,729 239,820 246,207 287,762 344,431
Selling, general and administrative
expenses.............................. 55,044 66,116 68,125 76,746 80,061
Depreciation and amortization.......... 10,730 13,652 13,690 12,595 15,638
Interest expense....................... 2,937 5,996 4,291 3,965 4,898
Impairment of goodwill................. -- -- -- -- 4,511
-------- -------- -------- -------- --------
Income before income taxes............. 23,430 17,490 22,624 41,124 46,198
Income taxes........................... 7,402 5,672 8,034 15,699 14,247
-------- -------- -------- -------- --------
Income before cumulative effect of a
change in accounting principles....... 16,028 11,818 14,590 25,425 31,951
Cumulative effect of a change in
accounting principles related to
impairment of goodwill................ -- -- -- (11,312) --
-------- -------- -------- -------- --------
Net income............................. $ 16,028 $ 11,818 $ 14,590 $ 14,113 $ 31,951
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(2)(3)........................... $ 37,097 $ 37,139 $ 40,605 $ 57,684 $ 71,245
Net cash provided by operating
activities............................ 11,658 35,929 29,974 38,379 62,787
Net cash provided by (used in)
investing activities.................. (61,531) (21,484) (12,771) (68,824) (17,136)
Net cash provided by (used in)
financing activities.................. 44,712 (11,849) (16,411) 33,177 (43,797)
Capital expenditures(4)................ 24,335 20,926 13,595 11,132 18,765
Ratio of earnings to fixed
charges(5)............................ 6.8x 3.4x 4.9x 8.4x 7.5x
<Caption>
BEAUCELAND
PREDECESSOR CORPORATION
--------------------- -----------
PERIOD PERIOD
SIX FROM FROM
MONTHS MARCH 1 JUNE 4
ENDED TO TO
AUGUST 31, JUNE 3, AUGUST 31,
2003 2004 2004(1)
---------- -------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales:
Bathroom and kitchen.................. $221,996 $128,630 $ 112,400
Spas.................................. 31,999 15,206 16,026
-------- -------- ---------
Net sales........................... 253,995 143,836 128,426
Cost of goods sold..................... 175,386 98,490 88,011
Selling, general and administrative
expenses.............................. 37,104 36,670 17,361
Depreciation and amortization.......... 7,392 3,987 3,837
Interest expense....................... 2,378 1,321 6,342
Impairment of goodwill................. -- -- --
-------- -------- ---------
Income before income taxes............. 31,735 3,368 12,875
Income taxes........................... 10,318 1,572 1,537
-------- -------- ---------
Income before cumulative effect of a
change in accounting principles....... 21,417 1,796 11,338
Cumulative effect of a change in
accounting principles related to
impairment of goodwill................ -- -- --
-------- -------- ---------
Net income............................. $ 21,417 $ 1,796 $ 11,338
======== ======== =========
OTHER FINANCIAL DATA:
EBITDA(2)(3)........................... $ 41,505 $ 8,676 $ 23,054
Net cash provided by operating
activities............................ 26,657 (4,892) 10,780
Net cash provided by (used in)
investing activities.................. (6,629) (5,139) (451,204)
Net cash provided by (used in)
financing activities.................. (8,514) (49,196) 497,364
Capital expenditures(4)................ 6,911 2,988 13,939
Ratio of earnings to fixed
charges(5)............................ 10.1x 2.8x 3.0x
</Table>
<Table>
<Caption>
PREDECESSOR
------------------------------------------------------------------------------------- BEAUCELAND
AS OF CORPORATION
------------------------------------------------------------------------------------- -----------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31, AUGUST 31,
2000 2001 2002 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents... $ (3,095) $ (419) $ 810 $ 2,668 $ 4,467 $ 13,452 $ 2,099
Working capital(6).......... 57,895 55,109 57,966 68,159 55,173 78,425 72,144
Total assets................ 275,573 265,472 263,024 344,189 365,587 382,708 589,127
Total debt.................. 77,517 64,839 51,843 100,662 57,444 90,461 364,514
Total shareholders'
equity..................... 149,741 155,726 164,031 187,747 231,399 217,130 151,065
</Table>
49
- ---------------
(1) On March 10, 2004, certain entities formed by our Sponsors entered into a
merger agreement to acquire MAAX Inc., pursuant to which two of our
wholly-owned subsidiaries amalgamated with MAAX Inc. on June 4, 2004. Upon
consummation of the amalgamation, MAAX Corporation acquired MAAX Inc. and
its direct and indirect subsidiaries. Neither MAAX Corporation nor its
parent, Beauceland Corporation, had any operating activities prior to June
4, 2004. As a result of the acquisition, the consolidated financial data for
the period after the acquisition are presented on a different cost basis
than that for the periods before the acquisition and therefore are not
comparable.
(2) Management believes that the presentation of EBITDA included in this
prospectus provides useful information to investors regarding our results of
operations because such presentation assists in analyzing the operating
performance of our business and our ability to service debt. Although we use
EBITDA as a financial measure to assess the performance of our business, the
use of EBITDA is limited because it does not include certain material costs,
such as interest and taxes, necessary to operate our business. The
presentation of EBITDA included in this prospectus should be considered in
addition to, and not as a substitute for, net income in accordance with U.S.
GAAP as a measure of performance or net cash provided by operating
activities as determined in accordance with U.S. GAAP as a measure of
liquidity.
(3) "EBITDA" is defined as income before cumulative effect of a change in
accounting principles plus interest expense, depreciation, amortization,
income taxes and impairment of goodwill. Other companies may define EBITDA
differently and, as a result, our measure of EBITDA may not be directly
comparable to EBITDA of other companies.
The following table sets forth a reconciliation of EBITDA to net income:
<Table>
<Caption>
PREDECESSOR
------------------------------------------------------------------------
FISCAL YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 2001 2002 2003 2004
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Income before cumulative
effect of a change in
accounting principles..... $16,028 $11,818 $14,590 $25,425 $31,951
Interest expense............ 2,937 5,996 4,291 3,965 4,898
Depreciation and
amortization.............. 10,730 13,652 13,690 12,595 15,638
Income taxes................ 7,402 5,673 8,034 15,699 14,247
Impairment of goodwill...... -- -- -- -- 4,511
------- ------- ------- ------- -------
EBITDA...................... $37,097 $37,139 $40,605 $57,684 $71,245
======= ======= ======= ======= =======
<Caption>
BEAUCELAND
PREDECESSOR CORPORATION
--------------------- -----------
PERIOD PERIOD
SIX FROM FROM
MONTHS MARCH 1 JUNE 4
ENDED TO TO
AUGUST 31, JUNE 3, AUGUST 31,
2003 2004 2004
---------- -------- -----------
(DOLLARS IN THOUSANDS)
Income before cumulative
effect of a change in
accounting principles..... $21,417 $1,796 $11,338
Interest expense............ 2,378 1,321 6,342
Depreciation and
amortization.............. 7,392 3,987 3,837
Income taxes................ 10,318 1,572 1,537
Impairment of goodwill...... -- -- --
------- ------ -------
EBITDA...................... $41,505 $8,676 $23,054
======= ====== =======
</Table>
(4) Capital expenditures are defined as additions to property, plant and
equipment and other assets.
(5) For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of earnings before income taxes and before cumulative
effect of a change in accounting principles plus fixed charges. Fixed
charges consist of interest expensed or capitalized and the portion of
rental expense we believe is representative of the interest component of
rental expenses. For the year ended February 29, 2004 and the six months
ended August 31, 2004, on a pro forma basis after giving effect to the
transactions as if they had occurred on March 1, 2003, the ratio of earnings
to fixed charges would have been 2.1x and 2.3x, respectively.
(6) Working capital is defined as current assets less current liabilities.
50
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and the notes thereto appearing elsewhere in this prospectus.
OVERVIEW
We are a leading North American manufacturer and distributor of bathroom
fixtures. Our revenues are derived primarily from the manufacture and sale of
bathroom fixtures, kitchen cabinetry and spas for the residential housing market
in North America. We currently operate 23 strategically located manufacturing
facilities, including 13 in the U.S., nine in Canada and one in the Netherlands.
We sell our products through a diverse set of distribution channels across the
U.S. and Canada, including wholesalers, showrooms, specialty retailers and home
centers. We manufacture and sell, primarily in the U.S. and Canada, with a small
presence in Europe, Asia and the Middle East, a broad range of products,
including a wide selection of bathtubs, whirlpools, showers, kitchen cabinetry
and spas.
HISTORY
IMPACT OF THE TRANSACTIONS
On March 10, 2004, certain entities formed by our Sponsors entered into a
merger agreement to acquire MAAX Inc., pursuant to which two of our wholly-owned
subsidiaries amalgamated with MAAX Inc. on June 4, 2004. In connection with the
amalgamation, excluding acquisition costs amounting to approximately $30
million, the shareholders and optionholders of MAAX Inc. received an aggregate
of approximately $410.0 million. In addition, certain assets and liabilities of
MAAX Inc. were reorganized and consolidated into several direct and indirect
subsidiaries. Upon consummation of the amalgamation, MAAX Corporation acquired
MAAX Inc. and its direct and indirect subsidiaries. Neither MAAX Corporation nor
its parent, Beauceland Corporation, had any operating activities prior to June
4, 2004.
Concurrently with the consummation of the transactions, our Sponsors,
certain consultants and members of our management made a cash investment in MAAX
Holdings of approximately $133.7 million. In addition, certain members of our
management exchanged a portion of their MAAX Inc. stock options for stock
options of MAAX Holdings, with a fair value of approximately $2.7 million as of
the closing date. We also entered into a new senior secured credit facility,
consummated the offering of the original notes and refinanced substantially all
existing indebtedness of MAAX Inc. and its subsidiaries in the amount of
approximately $373.8 million.
As a result of the consummation of the transactions, our aggregate level of
debt increased significantly and therefore our interest expense and the
amortization of deferred financing costs will have a negative impact on our
future results of operations. The impact of such increased interest expense and
amortization of deferred financing costs on a pro forma basis for certain
historical periods is reflected in our unaudited pro forma financial data. The
entire amount of the excess purchase price over the carrying value of net assets
acquired is recorded in our unaudited pro forma financial data as goodwill. We
are currently assisted by external advisors to allocate the purchase price to
the various assets acquired and liabilities assumed. We intend to finalize the
allocation of the purchase price before the end of February 2005, our fiscal
year-end, and expect to have a preliminary allocation and the effect thereof on
our results of operations recorded in our unaudited interim consolidated
financial statements as at and for the quarter ending November 30, 2004. Once
the fair value of tangible and intangible assets becomes known, a portion of the
value attributed to goodwill will be reallocated to tangible and intangible
assets. These intangible assets may include, among others, customers lists,
customers relationships, trademarks, distribution networks and intellectual
property. As a result, we expect to incur an incremental depreciation expense
for our
51
property, plant and equipment, as well as an additional amortization expense for
the intangible assets acquired that have finite useful lives. Accordingly, any
additional depreciation and amortization expense will have a negative impact on
our results of operations; we are unable at this moment to provide any estimate
of this impact, but the amount could be significant.
Our financial statements are presented in U.S. dollars. Our predecessor
company prepared its financial statements in Canadian dollars. Beginning with
our 2005 fiscal year, MAAX adopted the U.S. dollar as its financial reporting
currency. Accordingly, financial statements are presented in U.S. dollars and
the reporting currency of previous years has been changed.
Prior to the consummation of the transactions, MAAX Inc. had two operating
segments: (1) bathroom and kitchen and (2) spas. Beginning as of March 1, 2004,
we assessed our business activities in three operating segments: bathroom,
kitchen and spas.
AKER ACQUISITION
In October 2002, we acquired all of the outstanding capital stock of Aker
for an aggregate purchase price of $80.4 million, including $66.4 million paid
in cash and $14 million paid in notes bearing interest at a rate of 3%, payable
over a three-year period. The notes were prepaid on June 3, 2004. We have
remaining payments for deferred compensation of approximately $0.5 million. At
the time Aker was acquired, it was reportedly the third largest manufacturer of
gelcoat bathroom products in the U.S. with sales of approximately $77 million
for the twelve months ended September 2002, generated from three manufacturing
facilities and a distribution network consisting exclusively of wholesaler and
showroom channels.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Consequently, actual results could differ from these
estimates. We believe that the following are some of the more critical areas
requiring the use of management estimates.
GOODWILL
We evaluate goodwill for impairment on at least an annual basis and
whenever events or circumstances indicate that the carrying amount may be less
than the fair value. Impairment testing of goodwill is performed at our bathroom
and kitchen and spas business unit levels. The test involves two steps, the
first of which is comparing the reporting unit's carrying amount, including
goodwill, to the fair value of the reporting unit, which we establish based on
projected discounted future cash flows of the unit using a discount rate
reflecting our average cost of funds. If the carrying amount of the reporting
unit exceeds its fair value, a second test is performed to measure the amount of
the impairment. The second test to measure the impairment of goodwill allocates
the fair value determined in the first step to all assets and liabilities of the
reporting unit and establishes the residual value of goodwill which is then
compared to the carrying value. Any excess of carrying value of the goodwill
over the "fair value" is considered impaired and written-off.
In our determination of the impairment of goodwill, we base our estimates
used in preparing the discounted cash flows on historical operations and a
projection of future operations that includes various assumptions that we
believe to be reasonable under the circumstances. The assumptions made by
management require a high degree of judgment and are inherently imprecise as
such assumptions relate to future facts. Actual results may differ from these
estimates. Furthermore, under different economic conditions, management would
likely make different assumptions which could result in a different fair value
estimate.
52
WARRANTIES
Products sold are generally covered by a warranty for periods ranging from
one to ten years. At the time of sale, we accrue a warranty reserve for
estimated costs to provide parts or services to satisfy warranty obligations.
Our estimate of costs to service warranty obligations is based on our own
historical experience and our expectation of future conditions. To the extent we
experience changes in warranty claim activity or costs associated with servicing
these claims, our warranty accrual will be adjusted accordingly.
INCOME TAXES
We record a valuation allowance to reduce our deferred tax assets to the
amount that we believe is more likely than not to be realized. We consider
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance. Upon determination that we
will not be able to realize all or part of our net deferred tax assets in the
future, a corresponding charge to income is accounted for in the period such
determination is made. Likewise, should we determine that we will be able to
realize our deferred tax assets for an amount in the future in excess of our net
recorded amount, an adjustment to decrease the valuation allowance is recorded
which would increase net income in the period such determination is made. The
evaluation of the need for a valuation allowance against the deferred tax asset
requires significant judgment on the part of management, particularly as it
relates to future sources of taxable income.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We estimate the net collectability of accounts receivable, considering both
historical and anticipated trends of trade deductions and returns taken by our
customers and the possibility of non-collection due to the financial position of
our customers. We regularly monitor credit risk exposure of our customers and
take steps to mitigate the risk of loss.
PROVISION FOR OBSOLETE INVENTORY
We try to manage our inventory level taking into account anticipated sales
and current market trends. We set up adequate provisions when we believe that we
will not be able to realize the value of our inventory.
CHANGE IN ACCOUNTING POLICIES
During the year ended February 29, 2004, we adopted the following new
accounting policy:
FIN 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others
In November 2002, the Financial Accounting Standard Board issued the
above-named interpretation that requires the initial recognition and initial
measurement of a liability at the inception of certain guarantees and additional
disclosures for most guarantees. The interpretation requires that a guarantor
disclose significant information about most types of guarantees that require
payments contingent on specified future events, without regard to the
probability that it will have to make any payments under the guarantees.
Disclosures include the nature of the guarantee, how it arose, the events or
circumstances that would trigger performance under the guarantee, the maximum
potential future payments under the guarantee, the carrying amount of the
related liability and information about recourse or collateral.
The provisions related to recognizing a liability at inception of the
guarantees for the fair value of the guarantor's obligations would not apply to
product warranties or guarantees accounted for as derivatives. We adopted this
standard on March 1, 2003 with no material impact on our consolidated financial
statements.
53
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the periods
indicated and the percentage of net sales represented by the respective
financial line items.
<Table>
<Caption>
PREDECESSOR
-----------------------------------------------------------------------------
FISCAL YEAR ENDED SIX MONTHS
--------------------------------------------------------- ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31,
2002 2003 2004 2003
----------------- ----------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
Net sales.................. $354.9 100.0% $422.2 100.0% $495.7 100.0% $254.0 100.0%
Cost of goods sold......... 246.2 69.3% 287.8 68.2% 344.4 69.5% 175.4 69.1%
Selling, general and
administrative expenses... 68.1 19.2% 76.7 18.2% 80.1 16.2% 37.1 14.6%
Depreciation and
amortization.............. 13.7 3.9% 12.6 3.0% 15.6 3.1% 7.4 2.9%
Interest expense........... 4.3 1.2% 4.0 0.9% 4.9 1.0% 2.4 0.9%
Impairment of goodwill..... -- -- -- -- 4.5 0.9% -- --
------ ----- ------ ----- ------ ----- ------ -----
Income before income
taxes..................... 22.6 6.4% 41.1 9.7% 46.2 9.3% 31.7 12.5%
Income taxes............... 8.0 2.3% 15.7 3.7% 14.2 2.9% 10.3 4.1%
------ ----- ------ ----- ------ ----- ------ -----
Income before cumulative
effect of a change in
accounting principles..... 14.6 4.1% 25.4 6.0% 32.0 6.4% 21.4 8.4%
Cumulative effect of a
change in accounting
principles related to
impairment of goodwill.... -- -- (11.3) (2.7)% -- -- -- --
------ ----- ------ ----- ------ ----- ------ -----
Net income................. $ 14.6 4.1% $ 14.1 3.3% $ 32.0 6.4% $ 21.4 8.4%
====== ===== ====== ===== ====== ===== ====== =====
<Caption>
BEAUCELAND
PREDECESSOR CORPORATION
----------------- -----------------
PERIOD FROM PERIOD FROM
MARCH 1 TO JUNE 4 TO
JUNE 3, AUGUST 31,
2004 2004
----------------- -----------------
(DOLLARS IN MILLIONS)
Net sales.................. $143.8 100.0% $128.4 100.0%
Cost of goods sold......... 98.5 68.4% 88.0 68.5%
Selling, general and
administrative expenses... 36.6 25.5% 17.4 13.5%
Depreciation and
amortization.............. 4.0 2.8% 3.8 3.0%
Interest expense........... 1.3 0.9% 6.3 4.9%
Impairment of goodwill..... -- -- -- --
------ ----- ------ -----
Income before income
taxes..................... 3.4 2.4% 12.9 10.0%
Income taxes............... 1.6 1.1% 1.5 1.2%
------ ----- ------ -----
Income before cumulative
effect of a change in
accounting principles..... 1.8 1.3% 11.4 8.9%
Cumulative effect of a
change in accounting
principles related to
impairment of goodwill.... -- -- -- --
------ ----- ------ -----
Net income................. $ 1.8 1.3% $ 11.4 8.9%
====== ===== ====== =====
</Table>
SIX MONTHS ENDED AUGUST 31, 2004 COMPARED TO SIX MONTHS ENDED AUGUST 31, 2003
The interim financial statements for the six month period ended August 31,
2004 include the financial data of MAAX Inc. and all of its subsidiaries from
March 1, 2004 through June 3, 2004 and those of Beauceland Corporation and all
of its subsidiaries from June 4, 2004 through August 31, 2004. The consolidated
financial statements for the periods after the June 4 acquisition are presented
on a different cost basis than the periods prior to the acquisition, and
therefore, the two periods are not comparable.
Net Sales. Net sales increased from $254.0 million for the six months
ended August 31, 2003 to $272.3 million for the six months ended August 31,
2004, an increase of $18.3 million, or 7.2%. This increase in overall net sales
was due to an increase of 8.8% in the bathroom sector and 6.3% in the kitchen
sector offset by a 2.4% decrease in the spas sector. The bathroom sector results
were impacted by the loss of some of the U.S. gelcoat business in home
improvement centers. The decrease in our spas sector was a result of last year's
decision to withdraw such products from home improvement centers in the United
States. Excluding the impact of fluctuations in the U.S. dollar in relation to
the Canadian dollar and the loss of some of the U.S. gelcoat and spas business
in home improvement centers, consolidated net sales were up 9.6% for the six
months ended August 31, 2004 over the six months ended August 31, 2003.
Bathroom. Net sales for the bathroom sector increased from $201.8 million
for the six months ended August 31, 2003 to $219.6 million for the six months
ended August 31, 2004, an increase of $17.8 million, or 8.8%. This increase was
due to organic growth adjusted for currency of 9.4%, offset by the discontinued
U.S. gelcoat business in U.S. Home Depot stores. The bathroom sector posted a
profit margin of 10.1% for the six months ended August 31, 2004, down from 14.6%
for the six months ended August 31, 2003 due to costs of $9.9 million related to
the sale of MAAX Inc., offset in part by a positive change in the fair value of
derivative financial instruments and foreign exchange gains.
54
Kitchen. Net sales for the kitchen sector increased from $20.2 million for
the six months ended August 31, 2003 to $21.5 million for the six months ended
August 31, 2004, an increase of $1.3 million, or 6.3%. This increase was due to
an increase in volume due to new customers. The kitchen sector posted a profit
margin of 0.9% for the six months ended August 31, 2004, down from a profit
margin of 20.9% for the same period in 2003. This decrease was due to a positive
change in the fair value of derivative financial instruments in 2003, foreign
exchange gains and an overall decrease in factory productivity.
Spas. Net sales for the spas sector decreased from $32.0 million for the
six months ended August 31, 2003 to $31.2 million for the six months ended
August 31, 2004, a decrease of $0.8 million, or 2.4%. This decrease was due to
last year's decision to withdraw our spa products from U.S. Home Depot stores.
See "Risk Factors -- Because we depend on a core group of significant customers,
our sales, cash flows from operations and results of operations may be
negatively affected if our key customers reduce the amount of products they
purchase from us." The spas sector posted a profit margin of 5.2% for the six
months ended August 31, 2004, up from a profit margin of 1.3% for the six months
ended August 31, 2003. The results for the six months ended August 31, 2003 were
negatively impacted by the withdrawal of the spa products from the U.S. Home
Depot stores.
Cost of Goods Sold. Cost of goods sold increased from $175.4 million, or
69.1% of net sales for the six months ended August 31, 2003 to $186.5 million,
or 68.5% of net sales, for the six months ended August 31, 2004, an overall
increase of $11.1 million or 6.3%. This increase was due to volume growth. The
results for the six months ended August 31, 2003 were negatively impacted by the
withdrawal of the spa products from the U.S. Home Depot stores.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $37.1 million for the six months ended
August 31, 2003 to $54.0 million for the same period in 2004, an increase of
$16.9 million, or 45.6%. Selling, general and administrative expenses as a
percentage of net sales increased from 14.6% for the six months ended August 31,
2003 to 19.9% for the same period in 2004. The August 31, 2004 results include
costs of $9.9 million related to the transactions, exchange gains of $4.4
million and a $1.7 million gain on the change in fair value of derivative
financial instruments compared to exchange gains of $0.1 million and a $9.6
million gain in the fair value of derivative financial instruments for the same
period in 2003.
Depreciation and Amortization. Depreciation and amortization increased
from $7.4 million for the six months ended August 31, 2003 to $7.8 million for
the six months ended August 31, 2004, an increase of $0.4 million, or 5.8%.
Depreciation and amortization as a percentage of net sales remained stable at
2.9% for the six months ended August 31, 2003 and 2004.
Interest Expense. Interest expense increased from $2.4 million for the six
months ended August 31, 2003 to $7.7 million for the six months ended August 31,
2004, an increase of $5.3 million. This increase was due to the company's
increased indebtedness following the consummation of the transactions on June 4,
2004.
Income Before Income Taxes. Income before income taxes decreased from
$31.7 million for the six months ended August 31, 2003 to $16.3 million for the
six months ended August 31, 2004, a decrease of $15.4 million, or 49.0%. Income
before income taxes as a percentage of net sales decreased from 12.5% for the
six months ended August 31, 2003 to 6.0% for the six months ended August 31,
2004, principally due to the factors described above, including the transaction
costs incurred in connection with the transactions.
Income Taxes. Income taxes decreased from $10.3 million for the six months
ended August 31, 2003 to $3.1 million for the same period in 2004 as a result of
reduced profitability and our implementation of tax planning strategies which
resulted in an overall lower tax rate for us.
55
Net Income. Net income decreased from $21.4 million for the six months
ended August 31, 2003 to $13.2 million for the same period in 2004, a decrease
of $8.2 million. This decrease was a result of the items described above.
FISCAL YEAR ENDED FEBRUARY 29, 2004 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
2003
Net Sales. Net sales increased from $422.2 million for the year ended
February 28, 2003 to $495.7 million for the year ended February 29, 2004, an
increase of $73.5 million, or 17.4%. This increase was due to inclusion of a
full year of contribution by Aker and organic growth, positive impact of $15.5
million from currency fluctuation, offset in part by reduced sales from the
withdrawal of our spa products from U.S. Home Depot stores and our exit from the
less profitable mobile home business. On a geographical basis, U.S. net sales
rose 17.7% to $347.0 million and accounted for 70.0% of consolidated sales for
fiscal year 2004. Canadian sales increased by 13.1% to $131.5 million and
accounted for 26.5% of total sales, supported by the 14.0% decline in the U.S.
dollar, despite the negative impact of SARS, the war in Iraq and adverse weather
conditions.
Bathroom and Kitchen. Net sales for the bathroom and kitchen sector
increased from $359.9 million for the year ended February 28, 2003 to $441.5
million for the year ended February 29, 2004, an increase of $81.6 million, or
22.7%. This increase was due to the inclusion of a full year of contribution by
Aker and higher organic sales and the positive impact of currency fluctuations.
The bathroom and kitchen sector posted a profit margin of 12.3%, up from 11.2%
in fiscal year 2003.
Spas. Net sales for the spas sector decreased from $62.3 million for the
year ended February 28, 2003 to $54.2 million for the year ended February 29,
2004, a decrease of $8.1 million, or 13.0%. This decrease was due to the
withdrawal of our spa products from U.S. Home Depot stores offset by the
positive impact of currency fluctuations. The spas sector posted a loss margin
of (15.3)%, down from a profit margin of 1.2% in fiscal year 2003.
Cost of Goods Sold. Cost of goods sold increased from $287.8 million, or
68.2% of net sales for the year ended February 28, 2003 to $344.4 million, or
69.5% of net sales, for the year ended February 29, 2004, an increase of $56.6
million or 19.7%. This increase was due principally to costs associated with the
December 2003 shutdown of our Langley, British Columbia facility, the withdrawal
of our spa products from U.S. Home Depot stores, the retrofitting of our Marion
and Valdosta plants to produce Aker products, as well as volume growth and the
negative impact of currency fluctuations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $76.7 million for the year ended February
28, 2003 to $80.1 million for the same period in 2004, an increase of $3.4
million, or 4.4%. Selling, general and administrative expenses as a percentage
of net sales decreased from 18.2% for the year ended February 28, 2003 to 16.2%
for the same period in 2004. We recorded expenses related to the December 2003
shutdown of our Langley, British Columbia facility and the withdrawal of our spa
products from U.S. Home Depot stores. Selling, general and administrative
expenses were impacted negatively by currency fluctuations and positively by the
gain recorded on the mark to market of our foreign exchange forward contracts.
Depreciation and Amortization. Depreciation and amortization increased
from $12.6 million for the year ended February 28, 2003 to $15.6 million for the
year ended February 29, 2004, an increase of $3.0 million, or 23.8%. This
increase was primarily a result of Aker being included in our financial
statements for a full year. Depreciation and amortization as a percentage of net
sales increased from 3.0% for the year ended February 28, 2003 to 3.1% for the
same period in 2004.
Interest Expense. Interest expense increased from $4.0 million for the
year ended February 28, 2003 to $4.9 million for the year ended February 29,
2004, an increase of $0.9 million, or 22.5%. These increases were the result of
increased debt incurred to finance the Aker acquisition.
56
Impairment of Goodwill. We incurred an impairment of goodwill charge
related to our spa sector of $4.5 million for the year ended February 29, 2004
as determined in our annual test of goodwill impairment.
Income Before Income Taxes. Income before income taxes increased from
$41.1 million for the year ended February 28, 2003 to $46.2 million for the year
ended February 29, 2004, an increase of $5.1 million, or 12.4%. Income before
income taxes as a percentage of net sales decreased from 9.7% for the year ended
February 28, 2003 to 9.3% for the same period in 2004, principally due to the
factors described above.
Income Taxes. Income taxes decreased from $15.7 million for the year ended
February 28, 2003, to $14.2 million for the same period in 2004. This decrease
was primarily due to the write-off of the deferred tax asset of our European
subsidiary in fiscal year 2003 for which management had previously estimated
that it was more likely than not that such amount would be realized.
Income Before Cumulative Effect of a Change in Accounting
Principles. Income before cumulative effect of a change in accounting
principles increased from $25.4 million for the year ended February 28, 2003, to
$32.0 million for the same period in 2004. This increase was primarily due to
the factors described above.
Cumulative Effect of a Change in Accounting Principles Related to
Impairment of Goodwill. We recorded a cumulative effect of a change in
accounting principles related to the initial adoption of the accounting standard
on the impairment of goodwill of $11.3 million for the year ended February 28,
2003. The change in accounting policy related to the write-off of the goodwill
of our European subsidiary.
Net Income. Net income increased from $14.1 million for the year ended
February 28, 2003 to $32.0 million for the same period in 2004, an increase of
$17.9 million. This increase was a result of the items described above.
FISCAL YEAR ENDED FEBRUARY 28, 2003 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
2002
Net Sales. Net sales increased from $354.9 million for the year ended
February 28, 2002 to $422.2 million for the year ended February 28, 2003, an
increase of $67.3 million, or 19.0%. This increase was principally due to
internal growth of approximately 12.0% and a $23.2 million contribution by Aker,
the third largest U.S. manufacturer of gelcoat bathroom products, which we
acquired in October 2002. In fiscal year 2003, Canadian currency remained at
substantially the same level as fiscal year 2002.
On a geographical basis, U.S. sales were driven by the contribution of
Aker, as well as internal growth. U.S. sales rose 21.6% to $294.8 million and
accounted for 69.8% of consolidated sales for fiscal year 2003, while Canadian
sales grew by 14.6% to reach $116.3 million and accounted for 27.5% of total
sales. We also benefited from a favorable trend in interest rates and the
continuing growth in the home improvement and new construction industries.
Bathroom and Kitchen. Net sales for the bathroom and kitchen sector
increased from $304.1 million for the year ended February 28, 2002 to $359.9
million for the year ended February 28, 2003, an increase of $55.8 million, or
18.3%. The increase in the bathroom and kitchen sector was due principally to
internal growth of approximately 11% and to the contribution by Aker.
Additionally, we benefited from a favorable trend in interest rates and the
continuing growth in the home improvement and new construction industries. The
bathroom and kitchen sector posted a profit margin of 11.2%, up from 9.1% in
fiscal year 2002.
Spas. Net sales for the spas sector increased from $50.8 million for the
year ended February 28, 2002 to $62.3 million for the year ended February 28,
2003, an increase of $11.5 million, or 22.6%. This increase was principally due
to sales growth in the retail market. The spas sector posted a profit margin of
1.2%, up from a loss margin of (5.3)% in fiscal year 2002.
57
Cost of Goods Sold. Cost of goods sold increased from $246.2 million for
the year ended February 28, 2002 to $287.8 million for the year ended February
28, 2003, an increase of $41.6 million or 16.9%. This increase was due
principally to volume growth. Cost of goods sold as a percentage of net sales
decreased from 69.3% for the year ended February 28, 2002 to 68.2% for the year
ended February 28, 2003. This decrease was due principally to leveraging our
fixed costs basis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $68.1 million for the year ended February
28, 2002 to $76.7 million for the same period in 2003, an increase of $8.6
million, or 12.6%. Selling, general and administrative expenses as a percentage
of net sales decreased from 19.2% for the year ended February 28, 2002 to 18.2%
for the same period in 2003. This decrease was primarily the result of
leveraging our fixed costs basis.
Depreciation and Amortization. Depreciation and amortization decreased
from $13.7 million for the year ended February 28, 2002 to $12.6 million for the
year ended February 28, 2003, a decrease of $1.1 million, or 8.0%. This decrease
was primarily a result of goodwill not being depreciated in 2003. Depreciation
and amortization as a percentage of net sales decreased from 3.9% for the year
ended February 28, 2002 to 3.0% for the same period in 2003.
Interest Expense. Interest expense decreased from $4.3 million for the
year ended February 28, 2002 to $4.0 million for the year ended February 28,
2003, a decrease of $0.3 million, or 7.0%. This decrease was the result of more
favorable interest rates.
Income Before Income Taxes. Income before income taxes increased from
$22.6 million for the year ended February 28, 2002 to $41.1 million for the year
ended February 28, 2003, an increase of $18.5 million, or 81.9%. Income before
income taxes as a percentage of net sales increased from 6.4% for the year ended
February 28, 2002 to 9.7% for the same period in 2003, principally due to the
factors described above.
Income Taxes. Income taxes increased from $8.0 million for the year ended
February 28, 2002, to $15.7 million for the same period in 2003. This increase
was primarily due to the $1.9 million write-off of the future tax assets of our
European subsidiary.
Income Before Cumulative Effect of a Change in Accounting
Principles. Income before cumulative effect of a change in accounting
principles increased from $14.6 million for the year ended February 28, 2002, to
$25.4 million for the same period in 2003. This increase was primarily due to an
impairment recorded for our bathroom operations in Europe in 2003.
Cumulative Effect of a Change in Accounting Principles Related to
Impairment of Goodwill. Cumulative effect of a change in accounting principles
related to impairment of goodwill increased from $0 for the year ended February
28, 2002, to $11.3 million for the same period in 2003. This increase was
primarily due to an impairment recorded for our bathroom operations in Europe in
2003 as a result of the initial application of Statement of Financial Accounting
Standards No. 142 on the impairment of goodwill which the company determined as
of March 1, 2002.
Net Income. Net income decreased from $14.6 million for the year ended
February 28, 2002 to net income of $14.1 million for the same period in 2003, a
decrease of $0.5 million. This decrease was primarily due to the items described
above.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
We require capital primarily to fund capital expenditures related to
purchases of plant and equipment, provide working capital, meet debt service
requirements and finance our strategic plans.
58
Based on our current level of operations, we believe our cash flow from
operations, available cash and available borrowings under our new senior secured
credit facility will be adequate to meet our future operating liquidity needs
for at least the next few years. However, our business may not generate
sufficient cash flow from operations, currently anticipated cost savings and
operating improvements may not be realized on schedule, and future borrowings
may not be available to us in an amount sufficient to enable us to pay our
indebtedness, including the notes, or to fund our other liquidity needs. See
"Risk Factors -- Risks Related to Our Indebtedness -- We have substantial debt
and have the ability to incur additional debt. The principal and interest
payment obligations of such debt may restrict our future operations and impair
our ability to meet our obligations under the notes."
Our growth and acquisition strategy may require substantial capital,
sufficient funding for such acquisitions may not be available under our existing
revolving credit facility, and we may not be able to raise any necessary
additional funds through bank financing or the issuance of debt securities on
terms acceptable to us, if at all. See "Risk Factors -- Risks Related to Our
Business -- We may not be able to identify attractive acquisition candidates,
successfully integrate our acquired operations or realize the intended benefits
of our acquisitions."
We expect general and administrative expenses to increase in future periods
as we continue to maintain the resources needed to establish internal controls
in accordance with Section 404 of the Sarbanes-Oxley Act.
CASH FLOWS
Operating Activities. Cash flows from operating activities during the six
months ended August 31, 2004 were $5.9 million compared with $26.7 million for
the six months ended August 31, 2003. This decrease of $20.8 million was due to
a seasonal build up of working capital to accommodate the higher sales volume
achieved and the outlay of non-recurring transaction expenses in an amount of
$10.4 million.
Cash flows from operating activities during the year ended February 29,
2004 were $62.8 million compared with $38.4 million for the same period of 2003.
This increase of $24.4 million was due to our increased profitability and a
reduction in working capital through an increase of our inventory turnover.
Cash flows from operating activities during the year ended February 28,
2003 were $38.4 million compared with $30.0 million for the same period of 2002.
This increase of $8.4 million was due to our increased profitability.
Investing Activities. Cash flows used in investing activities were $456.3
million for the six months ended August 31, 2004 compared with $6.6 million for
the six months ended August 31, 2003, of which $453.4 million relates to the
acquisition of MAAX Inc.
Cash flows used in investing activities were $17.1 million in fiscal year
2004 compared with $69.1 million in fiscal year 2003. The decrease of $52.0
million was due to the fact that we completed our acquisition of Aker in fiscal
year 2003. Excluding Aker, our capital expenditures increased from $11.1 million
to $18.8 million from activities related to building improvements and the
retrofitting of two of our manufacturing facilities to manufacture Aker
products.
Cash flows used in investing activities were $69.1 million in fiscal year
2003 compared with $12.8 million in fiscal year 2002. The increase of $56.3
million was due to the fact that we acquired Aker in fiscal year 2003.
Financing Activities. Cash flows from financing activities for the six
months ended August 31, 2004 were $448.2 million compared with a cash outflow of
$8.5 million for the six months ended August 31, 2003. The increase was due
mainly to the consummation of the transactions.
59
Cash flows used for financing activities for the year ended February 29,
2004 were $43.8 million compared with a $33.2 million inflow for the same period
of 2003. The decrease of $77.0 million was primarily due to repayment of
long-term debt assumed in fiscal year 2003 in connection with the Aker
acquisition.
Cash flows from financing activities for the year ended February 28, 2003
were $33.2 million compared with a $16.4 million outflow for the same period of
2002. The increase of $49.6 million was primarily due to an increase of long
term debt related to completion of the Aker acquisition in fiscal year 2003.
Net Debt Position. Net debt, consisting of total debt less cash, amounted
to $362.4 million as of August 31, 2004 compared to $369.1 million as of June 4,
2004, for a $6.7 million reduction since the consummation of the transactions on
June 4, 2004. This decrease resulted from our use of cash flows from operating
activities to repay debt.
CAPITAL EXPENDITURES
Capital expenditures were $4.2 million for the six months ended August 31,
2004 compared to $6.7 million for the six months ended August 31, 2003. The
greater expenditures in 2003 were primarily attributable to the retrofitting of
two of our manufacturing facilities to manufacture Aker products and the
expansion of one of our plants in Western Canada.
Capital expenditures increased $7.7 million from $11.1 million for the year
ended February 28, 2003 to $18.8 million for the same period of 2004. The
increase was primarily attributable to building improvements in fiscal year 2004
and the retrofitting of two of our manufacturing facilities to manufacture Aker
products.
Capital expenditures decreased $2.5 million from $13.6 million for the year
ended February 28, 2002 to $11.1 million for the same period of 2003.
Expenditures in 2003 were primarily attributable to the expansion of one of our
facilities, purchase of new production equipment for such facility, rollout of
our new management information system and our ongoing plant automation program.
We expect to spend approximately $16 million in capital expenditures in
fiscal year 2005 primarily in connection with the maintenance of our fixed
assets, the implementation of SAP(R) management information system in the U.S.
and continued investment in plant automation and consolidation.
NEW SENIOR SECURED CREDIT FACILITY
Concurrently with the closing of the offering, on June 4, 2004, and as a
condition thereof, we entered into our new senior secured credit facility. Our
new senior secured credit facility provides us with up to C$50 million in
available revolving borrowings. We borrowed $12 million of such amount at the
closing of the offering and utilized approximately $1.6 million of availability
for the issuance of letters of credit to replace or "backstop" letters of credit
and letters of guarantee which were outstanding prior to the consummation of the
transactions. This borrowing of $12 million was fully repaid as of August 31,
2004. Our new senior secured credit facility contains financial covenants and
maintenance tests, including a total leverage ratio test, an interest coverage
ratio test, a fixed charge coverage ratio test and restrictive covenants,
including restrictions on our ability to make capital expenditures. For a more
complete description of our new senior secured credit facility, see "Description
of New Senior Secured Credit Facility."
FACTORING AGREEMENT
We are party to a Factoring Agreement with two divisions of the National
Bank of Canada that allows them, in their sole discretion, to discount accounts
receivable of certain of our customers with credit ranging from C$1,000,000 to
$8,000,000, depending upon the customer. The discount for each account
receivable is equal to the sum of (1) the financing rate set forth in a
financing letter
60
executed in connection with each discount, multiplied by the amount of the
account receivable, multiplied by the number of days that the account receivable
remains outstanding, divided by 360 days (for $) or 365 days (for C$) and (2)
all fees set forth in the applicable financing letter. These discounts generally
range from 2.1% to 3.3%. These sales of accounts receivable amounted to
$42,035,721 in 2002, $42,701,233 in 2003 and $47,941,637 in 2004.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
The following table summarizes our contractual obligations as of August 31,
2004 that require us to make future cash payments. Actual amounts may vary,
depending on exchange rate fluctuations and other factors.
<Table>
<Caption>
FISCAL YEAR ENDED
------------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
CONTRACTUAL OBLIGATIONS 2005 2006 2007 2008 2009 THEREAFTER TOTAL
- ----------------------- ------------ ------------ ------------ ------------ ------------ ---------- --------
(DOLLARS IN THOUSANDS)
Long-Term Debt
Obligations......... $1,862 $7,380 $12,331 $17,278 $28,414 $297,247 $364,512
Capital Lease
Obligations......... 2 -- -- -- -- -- 2
Operating Lease
Obligations......... 2,971 5,090 4,152 2,588 1,500 1,460 17,761
</Table>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board, or FASB, recently issued FASB
Statement No. 132, Employers' Disclosure about Pensions and Other Postretirement
Benefits. Statement 132 (revised) revises employers' disclosures about pension
plans and other post-retirement benefit plans. It does not change the
measurement or recognition of those plans. It requires additional disclosures
about the assets, obligations, cash flows and net periodic benefit cost of
defined benefit pension plans and other post-retirement benefit plans. The new
annual disclosure requirements for all retirement plans of nonpublic entities
and for foreign retirement plans of publicly traded entities apply to fiscal
years ending after June 15, 2004.
Other statements and interpretations recently issued by the FASB that are
applicable to us have little or no immediate effect. These statements included
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity and FASB Interpretation No. 46, Consolidation of
Variable Interest Entities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CURRENCY EXCHANGE RISK
We are subject to inherent risks attributable to operating in a global
economy. Our practice is to utilize financial instruments to manage foreign
currency exchange rate risks. We purchase financial instruments, primarily
forward contracts, to reduce foreign exchange volatility. We purchased $42.0
million of forward contracts at a rate of approximately $1.54 per U.S. dollar in
each of fiscal year 2004, 2005 and 2006, divided equally by month. We are
currently 100% protected against volatility and our objective is to be
approximately 60% to 80% protected against volatility in our projected net cash
flows at the beginning of fiscal year 2005. We may modify our hedging activities
in the future. We view derivative financial instruments as a risk management
tool and do not use them for speculative trading purposes.
We are exposed to credit loss in the event of non-performance by the other
party to the derivative financial instruments. We limit this exposure by
entering into agreements directly with a number of major financial institutions
that meet our credit standards and that are expected to satisfy fully their
obligations under the contracts.
61
We estimate that with our currency risk management program, at August 31,
2004, every $0.01 depreciation (appreciation) in the U.S. dollar to Canadian
dollar exchange rate results in approximately $0.7 million annual increase
(decrease) in net earnings. For fiscal year 2004, we hedged substantially all of
our U.S. dollar denominated net cash flows at $1.54 per U.S. dollar. For fiscal
year 2005, we have currently hedged 100% of the projected U.S. dollar
denominated net cash flows at $1.55 per U.S. dollar. We also intend to pursue
operating strategies to create natural hedges to this foreign exchange exposure.
INTEREST RATE RISK
We are subject to interest rate risk in connection with our long-term debt.
Our principal interest rate exposure relates to our new senior secured credit
facility. We have outstanding a C$130 million term loan A facility and a $115
million term loan B facility, bearing interest at variable rates. Each quarter
point change in interest rates would result in a C$0.5 million change in
interest expense on our new term loans. We also have a new revolving loan
facility which provides for borrowings of up to C$50 million which bear interest
at variable rates. Our new senior secured credit facility requires that at least
50% of our total debt outstanding on June 4, 2004 be either fixed rate debt or
subject to interest rate protection agreements, in each case for a period of not
less than three years. We have capped our exposure to variable interest rates
with an interest rate agreement that provides a maximum floating LIBOR rate of
6% on a notional amount of $40 million through June 2007. These amounts are in
addition to the notes with a fixed interest rate. In addition, in the future, we
may enter into interest rate swaps or other derivative financial instruments to
reduce interest rate volatility.
COMMODITY PRICE RISK
We require a regular supply of resin, polyester, fiberglass, acrylic,
thermoplastic, aluminum, steel, tempered glass, wood and particleboard, oil,
pumps, accessories and packaging materials. We purchase resin and polyester from
various suppliers in both Canada and the U.S. Some resins are used to
manufacture thermoplastic sheets. Fiberglass is purchased from a single
supplier, but other suppliers are available. Two U.S. manufacturers supply us
with acrylic sheets. There are multiple suppliers of pumps, which are
manufactured in the U.S. and distributed by Canadian suppliers. Aluminum, steel
and tempered glass are purchased from Canadian, U.S. and Asian suppliers. Wood
is purchased primarily from local suppliers. Packaging materials are supplied
locally.
We have never encountered difficulties obtaining raw materials in the past
and do not expect to experience difficulties in the foreseeable future. Our
current suppliers have the capacity to serve all of our divisions and
subsidiaries in the U.S. and Canada. Negotiations with suppliers for all of our
divisions and subsidiaries are effected through our principal executive office
to ensure economies of scale. Suppliers are selected according to our strict
qualification standards.
The prices of raw materials are subject to fluctuations in the prices of
the underlying commodities. Those commodities may undergo major price
fluctuations and there is no certainty that we will be able to increase our
selling prices proportionately, if necessary. In recent years, we have reacted
to increases in raw material prices by seeking to identify supply alternatives
in other geographical regions, substitute raw materials or impose a
corresponding increase of our prices.
62
BUSINESS
The following should be read in conjunction with our consolidated financial
statements and the related notes contained elsewhere in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements.
GENERAL
We are a leading North American manufacturer and distributor of bathroom
fixtures, with the number one market share in Canada and the number three market
share in the U.S. within the bathtub and shower fixtures market. We sell a broad
range of bathroom fixture products, including acrylic, gelcoat and thermoplastic
bathtubs, showers, whirlpools and bathtub/shower surrounds, as well as shower
doors and medicine cabinets. By leveraging our relationships with our bathroom
customers, we have also emerged as a leading manufacturer of spas in North
America and have a growing presence in the semi-custom kitchen cabinetry market.
Founded in 1970, we focus on marketing stylish, innovative products at mid- to
high-end retail price points primarily under the MAAX(R) brand name. Through our
extensive manufacturing footprint and unique multi-channel distribution
strategy, we estimate that we currently serve over 3,500 customers.
We compete in the largest and fastest growing major segment of the bathroom
fixtures industry. We focus almost exclusively on the residential housing
market, in which approximately 65% of total U.S. bathroom fixture sales in 2003
were generated in the more stable and more profitable remodeling segment as
opposed to new home construction. Bathroom remodeling, our particular focus, is
one of the most common residential remodeling projects. We target our bathroom
products primarily at the bathtub and shower fixtures market, which is expected
to grow in the U.S. at a CAGR of 3.4% from 2003 to 2013, as compared to 2.5% for
all other bathroom fixture products. Our bathtubs and showers are manufactured
primarily from acrylic and gelcoat, which are the most common and fastest
growing bathroom fixture materials due to their durability, appearance, value
and relative ease of installation. U.S. sales of acrylic and gelcoat bathtubs
grew at a CAGR of 4.5% and 6.1%, respectively, from 1993 to 2003, and are
expected to grow at a CAGR of 3.1% and 3.0%, respectively, from 2003 to 2013, as
compared to a CAGR of 2.5% for bathtubs manufactured from all other materials
from 2003 to 2013. We also focus on the fast growing kitchen remodeling segment.
Sales in the U.S. of semi-custom kitchen cabinets, the niche in which we
compete, grew at a CAGR of 6.5% from 1996 to 2001.
We sell our products through a diverse set of distribution channels across
the U.S. and Canada, including wholesalers, showrooms, specialty retailers and
home centers. In fiscal year 2004, approximately 50% of our net sales were to
wholesalers and showrooms, approximately 15% were to specialty retailers and
approximately 35% were to home centers. In each of our distribution channels we
sell a distinct set of sub-brands differentiated by styles, features and price
points. Our multi-channel distribution network, complemented by our disciplined
channel-specific product offering, allows us to operate under a unique
go-to-market strategy. We believe this strategy has enabled us to maximize our
profits as well as those of our customers, which in turn has further
strengthened our customer relationships.
We currently operate 23 strategically located manufacturing facilities,
including 13 in the U.S., nine in Canada and one in the Netherlands. This makes
us one of only two manufacturers of acrylic and gelcoat bathroom products with a
footprint that extends across North America. We believe that our extensive North
American footprint gives us a significant advantage vis-a-vis our other
competitors by enabling us to service both national and regional customers while
reducing delivery times, lowering inventory investment, decreasing shipping
costs and enhancing customer service.
Over the past six years, we have experienced significant growth, both
internally and through acquisitions. From 1998 to 2004, our net revenue
increased at a CAGR of 24%, supported by organic revenue growth averaging 11%
over the same period. Since 1993, we have completed 15
63
acquisitions. Our largest acquisition was Aker which we acquired in October 2002
for $80.4 million. At the time of the acquisition, Aker was reportedly the third
largest manufacturer of gelcoat bathroom products in the U.S., focused
exclusively on the wholesaler and showroom channels. This acquisition enhanced
our growing market position in the U.S. by allowing us to solidify our
relationships in the higher margin wholesaler and showroom channels and expand
our U.S. manufacturing and distribution capabilities.
The following table provides a brief overview of our primary products,
distribution channels and brands.
<Table>
<Caption>
FISCAL 2004
PRODUCT NET SALES
CATEGORY (% OF TOTAL) DISTRIBUTION CHANNELS KEY BRANDS BY CHANNEL
- -------- ------------ --------------------- -----------------------------------------------
Bathroom $401 million Wholesalers MAAX Aker(R), MAAX Villa(R)
(81%)
Showrooms MAAX Collection(TM), MAAX Genna(R), MAAX
Pearl(R), MAAX(R) Tub & Shower Doors, MAAX(R)
Medicine Cabinets
Home Centers Advanta by MAAX(R), Keystone by MAAX(R),
Premium by MAAX(R)
Europe Saninova(R) by MAAX
- -------------------------------------------------------------------------------------------------
Kitchen $41 million Kitchen Dealers MAAX Collection(TM)
Cabinetry (8%)
Home Centers Cuisine Expert(R) by MAAX, Express Kitchen(R)
- -------------------------------------------------------------------------------------------------
Spas $54 million Specialty Retailers Coleman Spas(R) by MAAX, Elite Spas(R) by MAAX
(11%)
Home Centers Savannah Spas, Nahanni(TM) Spas
- -------------------------------------------------------------------------------------------------
</Table>
INDUSTRY OVERVIEW
BATHROOM FIXTURES INDUSTRY
The U.S. bathroom fixtures industry, which is comprised of bathtubs,
showers, whirlpools, sinks, toilets and other fixtures, grew at a CAGR of 2.6%
from 1998 to 2003. The bathtub and shower segment (bathtubs, showers, whirlpools
and bathtub/shower surrounds) of the bathroom fixtures market, the segment in
which we primarily compete, is the largest and fastest growing major segment of
the market. In 2003, this segment generated approximately $1.6 billion of sales,
or 40% of total bathroom fixture sales, in the U.S. The U.S. bathtub and shower
fixtures market grew at a 4.9% CAGR from 1993 to 2003 and is expected to grow at
a 3.4% CAGR from 2003 to 2013, as compared to 2.5% for all other bathroom
fixture products for the 2003 through 2013 period. Within the U.S. bathtub
market, the fastest growing segments by material have been acrylic and gelcoat,
the product categories in which we compete. Acrylic and gelcoat bathtubs grew at
a 4.5% and 6.1% CAGR, respectively, from 1993 to 2003, and are expected to grow
at a CAGR of 3.1% and 3.0%, respectively, from 2003 to 2013, as compared to a
CAGR of 2.5% for bathtubs manufactured from all other materials from 2003 to
2013. We estimate that the Canadian bathroom fixtures industry is approximately
10% of the size of the U.S. industry and has experienced similar trends.
KITCHEN CABINETRY INDUSTRY
The U.S. kitchen cabinetry industry grew at a CAGR of 6.1% from $6.5
billion of sales in 1996 to $8.7 billion in 2001. The U.S. kitchen cabinetry
industry is expected to experience similar attractive growth in the future
fueled by an increasing demand for larger remodeled kitchens, with an estimated
CAGR of 6.5% from $8.7 billion of sales in 2001 to $11.9 billion in 2006. U.S.
sales of semi-custom kitchen cabinetry, the market in which we primarily
compete, grew at a CAGR of 6.5%
64
from $1.4 billion of sales in 1996 to $1.9 billion in 2001. The semi-custom
cabinet market is expected to grow at a CAGR of 6.7% from 2001 to 2006.
SPA INDUSTRY
According to our estimates, the combined U.S. and Canadian spa industry had
approximately $730 million of sales in 2002, up from $675 million in 1998,
representing a CAGR of approximately 2.0%. In 2003, the industry experienced a
14.3% decline in sales due in part to the U.S. involvement in the war with Iraq,
a decrease in consumer discretionary spending and poor weather conditions. We
expect consumer trends and demographics to drive future growth in the spa
industry of 3-5% annually.
GENERAL INDUSTRY DRIVERS
The broad drivers of demand for the bathroom fixture and kitchen cabinetry
industries in the U.S. and Canada include consumer confidence, availability of
credit, housing sales, new housing starts and general economic cycles.
Historically, demand for remodeling products has typically been less sensitive
to these factors than new home construction. Demand for bathroom and kitchen
remodeling and new construction projects is driven by a number of favorable
trends, including (1) the increasing size of new U.S. homes from an average of
1,785 square feet in 1985 to an average of 2,330 square feet in 2003, and the
trend towards a greater number of bathrooms per home and increased kitchen size;
(2) the aging of the domestic housing stock, with the median home age in the
U.S. increasing from 23 years in 1985 to 32 years in 2002; and (3) the overall
growth in disposable income among the aging baby boomer population that favors
"cocooning" at home, which is a trend that also drives spending on home
renovations and demand for new spa purchases.
OUR COMPETITIVE STRENGTHS
We believe that our competitive strengths include the following:
LEADING MARKET POSITIONS
We estimate that we are the number one manufacturer and distributor of
bathtubs and showers in Canada and the third largest in the U.S. In the combined
U.S. and Canadian bathtub and shower fixtures market, we estimate that our
market share for our core product categories (bathtubs, whirlpools, showers and
bathtub/shower surrounds) was approximately 15% in fiscal year 2004. Based on
our estimates, this would make us the second largest player in our product
categories in a generally fragmented industry. In Canada, we estimate having a
current market share of approximately 40% in our core product categories. We are
also a leading North American spa producer.
We believe that we face limited exposure to imports due to the high
shipping costs associated with the bulky dimensions of our products, the short
lead times demanded by our customers, the semi-custom nature of our products and
the relatively low domestic labor content associated with their production.
Furthermore, as a result of environmental legislation, new permits to produce
gelcoat and acrylic products have become increasingly difficult to obtain, thus
benefiting established gelcoat and acrylic bathtub manufacturers such as our
company.
POSITIONED IN THE MOST ATTRACTIVE MARKET SEGMENTS
We focus almost exclusively on the residential housing market, in which
approximately 65% of total U.S. bathroom fixture sales in 2003 were generated.
Historically, approximately 65% of industry-wide sales have been generated from
the remodeling market, which has generally been the most stable segment of the
residential housing market. In this respect, we believe that our net sales are
generally consistent with those of the industry and, as a result, we believe our
sales are more resistant to economic swings and cycles than sales associated
with new home construction. Our
65
products are primarily in the bathtub and shower fixtures category, which is
expected to grow in the U.S. at a CAGR of 3.4% from 2003 to 2013, as compared to
2.5% for all other bathroom fixture products. Specifically, our products compete
in the acrylic and gelcoat bathtub and shower fixtures segments. Acrylic and
gelcoat bathtub sales are expected to grow at a CAGR of 3.1% and 3.0%,
respectively, from 2003 to 2013, as compared to a CAGR of 2.5% for all other
bathtub materials over the same period.
NORTH AMERICAN MANUFACTURING FOOTPRINT AND STRONG FOCUS ON LOGISTICS
With 22 manufacturing facilities strategically located in the U.S. and
Canada, we are one of only two manufacturers capable of producing both acrylic
and gelcoat bathroom fixture products across North America. Given the fragmented
nature of the bathroom fixtures industry, our broad footprint allows us the
opportunity to compete and gain share from regional players by leveraging our
scale and established relationships with our larger customer accounts in the
U.S. and Canada. With such a broad footprint, we are also able to optimize our
logistics. Because of the bulky nature of our products, transportation costs
(approximately 7% of our gross sales in fiscal year 2004) and delivery times are
important factors that affect profitability, pricing and customer service. As a
result, we operate under a "circle of profitability" philosophy, whereby the
parameters for distribution are determined by the distance and resulting freight
costs involved, as well as the dimensions of the particular product being
shipped. We believe our emphasis on logistics, our just-in-time manufacturing
strategy and our footprint across North America enable us to lower shipping
costs, reduce required inventory investment and increase the quality and
consistency of our service. Our recent success in reducing our overall delivery
time to an estimated average of five business days for bathroom fixture sales
exemplifies our commitment to efficiency and customer service.
BROAD, INNOVATIVE PRODUCT OFFERING
We manufacture and distribute a broad range of bathroom fixtures, kitchen
cabinetry and spas, including the widest offering of bathtubs, whirlpools and
showers in the industry. We believe we have differentiated ourselves from our
competitors by introducing products with attractive and distinctive features,
including a strong focus on quality, comfort and ergonomic design. This emphasis
is reflected in such products as the Moonlight(R) bathtub, the Stamina(R)
shower, Signature Kitchen Cabinets by Jean-Claude Poitras(TM), Opulence(TM)
shower doors and medicine cabinets, and MAAXIM Series(TM) spas with powerful
jets. In addition, our ability to consistently develop new, innovative products
has enabled us to both strengthen our product line in existing categories and
enter new business segments. Examples of unique product innovations include the
only True Whirlpool(R) bathtub, the Galvalume(R) Steel sub structure, and an
Integrated Energizing System for our high-end shower line. To ensure that these
new products meet customer needs and internal profitability thresholds under our
new product development initiative, teams of product managers, designers,
engineers, sales managers and communication specialists track a project from
idea to market. In addition, our research and development department runs one of
the few laboratories in North America that is UL(R) compliant, which allows for
in-house testing under UL(R) and thus enables product introductions within a
shorter timeframe than many of our competitors can achieve.
MULTI-CHANNEL DISTRIBUTION NETWORK COMPLEMENTED BY A CHANNEL-SPECIFIC PRODUCT
OFFERING
Our broad distribution network of over 3,500 customers encompasses
wholesalers, showrooms and specialty retailers (approximately 65% of net sales
in fiscal year 2004) and home centers (approximately 35% of net sales in fiscal
year 2004). Sales to our extensive wholesaler, showroom and specialty retailer
distribution network, including companies such as Ferguson (Wolseley) and EMCO,
are driven by our diverse, high quality product offerings and our commitment to
customer service. Our home center channel, which includes such customers as Home
Depot and Menards, thrives on a broad product offering that features style,
affordability and ease of installation. Each of our distribution channels is
targeted with distinct sub-brands and high quality, value-added products
66
at appropriate price points. By offering a differentiated set of products in
each distribution channel, we enable our customers to enjoy higher margins since
their customers cannot readily compare products across channels. This has helped
us build strong customer loyalty. As testament to this strategy, our
relationships with each of our top 10 customers average a decade or more, with
some, including our relationship with Home Depot, extending more than 15 years.
DEMONSTRATED GROWTH AND CASH FLOW GENERATION
We have demonstrated consistently strong growth in revenue, cash flow and
earnings. Historically, net sales have grown at a CAGR of 24% over the past six
fiscal years. With generally low working capital requirements, we expect to
continue generating considerable cash flow that can be used to service debt. In
addition, we invested over $110 million in our three business lines in the form
of capital expenditures from 1998 to 2004. As a result, we have increasingly
benefited from operating leverage and expect to continue to do so as we grow
organically in the future.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM
We have built a strong, results-oriented and talented senior management
team. Our management is led by Andre Heroux, President and Chief Executive
Officer of MAAX. Mr. Heroux joined MAAX Inc. in 1999 as Vice President,
Operations and was promoted to Chief Operating Officer later that year. He
became our President and Chief Executive Officer in 2001. Our management team is
comprised of senior managers with many years of experience building the
business, augmented by highly qualified personnel who have been recruited
selectively in recent years to strengthen the team. Management has a strong
track record of execution, including transforming MAAX into a market-driven
organization that is focused on developing new opportunities for increased cash
flow generation and growth. Furthermore, our management owns approximately 7% of
MAAX Holdings' equity interests, including fully vested rollover options, with
the opportunity to significantly increase this ownership stake through MAAX
Holdings' stock option plan.
OUR STRATEGY
INCREASE MARKET SHARE AND IMPROVE PRODUCT MIX
We seek to increase our market share across all of our geographic markets.
With an estimated current market share of approximately 40% in our core product
categories in Canada, we intend to continue as the market leader by leveraging
our brand and scale. In North America, we intend to grow share by (1) leveraging
our experience and deep relationships in the Canadian market, (2) utilizing our
recently expanded wholesale and showroom distribution platform, our extensive
manufacturing footprint and our national sales capabilities in the U.S. and
Canada to increase sales of our higher end products, and (3) continuing to
enhance our customer service capabilities by using our large fleet of trucks and
our just-in-time manufacturing strategy to improve delivery times and overall
customer satisfaction. In addition, we seek to improve our product mix by
continuing to develop innovative, value-added and high margin products for our
customers. Finally, we plan to complete in the next six months our
"One-Stop-Shop" approach in Canada, which will enable customers to order a full
bathroom product line from one distribution center location with a single
purchase order, delivery and invoice. In the U.S., we are gradually implementing
the same "One-Stop-Shop" approach is gradually being implemented and we expect
it to be completed in 2006. This unique One-Stop-Shop approach is expected to
provide our customers with cost savings and improved efficiency, and increase
our market share.
CONTINUE TO PURSUE OPERATIONAL EFFICIENCIES AND MAINTAIN LOW COST BASE
We intend to continue to pursue operational efficiencies by leveraging the
enhanced scale provided by our past acquisitions, which has already led to
improved purchasing terms, greater sourcing of less expensive foreign raw
materials and increased use of automation and robotics for
67
certain manufacturing facilities. Under our Quality Control Program, we have
implemented a structure to standardize the procedures for each of our product
lines in accordance with the standards established for each of our distribution
networks. By increasing uniformity and adherence to best practices at each
production facility, we have already achieved an improvement in our gross
margins and intend to realize further improvement. Helping to guide these
efforts is Arthur Byrne, our non-executive Chairman of the Board and an
Operating Partner of J.W. Childs Associates, L.P., who is a renowned expert in
lean manufacturing.
LEVERAGE MAAX BRAND
We have adopted a master branding strategy based on the MAAX(R) name and
its reputation for high quality, innovation and style. We have focused on
creating a recognizable "brand name" that serves as an umbrella for a variety of
sub-brands within each of our product lines and each distribution network that
caters to specific consumer preferences. As part of this initiative, certain
brands have been eliminated and our overall product offering has been
streamlined to better target and penetrate our core market segments. We aim to
further leverage the strength of the MAAX(R) brand to sell our products in new
markets and facilitate new product introductions.
GROW PROFITABLY THROUGH SELECTIVE ACQUISITIONS
Given the fragmented nature of the markets in which we operate, as well as
our proven track record of integrating businesses, we may continue to supplement
our internal growth with selective strategic acquisitions. An area of focus may
be expansion of our bathroom product line into certain geographic regions in the
U.S., enabling us to pursue further opportunities to build scale.
BATHROOM PRODUCTS
Our bathroom products include bathtubs, showers, whirlpools and
bathtub/shower surrounds as well as bathtub and shower doors and bathroom
furniture, including medicine cabinets and mirrors. These bathroom fixture
products are positioned primarily towards the mid- to high-end of the market.
Our bathtubs and showers are available with air jets, whirlpool massage systems
and/or steam systems. Other available features include the patented
Thermo-Acoustic system, which reduces noise and vibration normally associated
with bathing massage systems, and the Audiomax(R) music system. We are also one
of the few manufacturers to offer an optional "pre-plumb" shower system,
marketed under the name MAAX IES(R).
Our bathtub, shower and whirlpool product lines are manufactured using
acrylic, gelcoat or thermoplastic products. Our whirlpool massage systems are
factory assembled with most parts supplied by third parties. Our bathtub and
shower doors are manufactured using tempered glass and aluminum, which are
increasingly being imported from sources in China. Our medicine cabinets are
made from steel, aluminum, mirrors and glass and our bathroom furniture is
manufactured using the same raw materials as our kitchen cabinetry products, as
described below. As part of our recent streamlining initiative towards a single
MAAX-focused branding strategy, all of our bathroom fixture products are sold
under the MAAX(R) brand name, with sub-brands supporting the particular products
sold to customers within each distribution network. See "-- Sales, Marketing and
Distribution" for a full list of bathroom fixture brand names.
KITCHEN CABINETRY
Our cabinetry products are primarily "semi-custom" and produced on a
"made-to-order," "just-in-time" basis using wood and particleboard. Significant
price differentiation is evidenced by the price of "stock" cabinets, which can
cost as little as one-third of the cost of "semi-custom" products. "Semi-custom"
products have a broader selection of door and drawer styles, sizes, finishes and
accessories than "stock" cabinets, while fully "customized" cabinetry is made to
customer specifications. Cabinets are also divided into face frame and frameless
categories across all levels of
68
customization. Face frame cabinets, which are more common in the U.S. market,
have door hinges attached to a rectangular frame in front of the cabinet box. On
frameless cabinets, the focus of our business, the door hinges are mounted
inside the cabinet box. Frameless cabinets, which are generally considered to be
more European in style, are popular in Canada and primarily serve a niche,
high-end market in the U.S. Frameless cabinets have shorter lead times for
production than face frame cabinets.
Our cabinet products are marketed under three brand names: MAAX
Collection(TM), Cuisine Expert(R) by MAAX and Express Kitchen(R). The MAAX
Collection(TM) products are mid- to high-end "semi-custom" kitchen cabinets and
bathroom vanities. The Cuisine Expert(R) by MAAX line consists of mid- to
high-end "semi-custom" kitchen cabinets and Express Kitchen(R) provides our
"stock" cabinet offering.
SPAS
Our spa products category encompasses all operations related to the
manufacture of spas and uses the same basic raw materials as our bathroom
fixture products. Our spa products are marketed under the names Coleman Spas(R)
by MAAX, Elite Spas(R) by MAAX, Nahanni(TM) Spas and Savannah Spas(R). The
Coleman Spas(R) by MAAX line consists of mid- to high-end products produced by
us under a license from The Coleman Company Inc. for the use of the trademark
Coleman(R) and certain other trademarks. The Elite Spas(R) by MAAX sub-brand
produces low- to high-priced spas, the Nahanni(TM) Spas sub-brand produces low-
to mid-priced spas and the Savannah Spas(R) sub-brand produces low-priced spas.
NET SALES PRODUCT CATEGORY(1)
<Table>
<Caption>
2002 2003 2004
PRODUCT -------------------------- -------------------------- --------------------------
CATEGORY U.S. CANADA OVERSEAS U.S. CANADA OVERSEAS U.S. CANADA OVERSEAS
- -------- ------ ------ -------- ------ ------ -------- ------ ------ --------
(DOLLARS IN MILLIONS)
Bathroom Products........... $185.6 $75.9 $10.6 $222.2 $92.5 $10.7 $278.5 $105.9 $16.3
Kitchen Cabinetry........... 21.5 10.4 0.1 24.1 10.4 -- 28.5 12.3 --
Spas........................ 35.4 15.1 0.3 48.6 13.3 0.4 39.9 13.3 1.0
------ ------ ----- ------ ------ ----- ------ ------ -----
Total..................... $242.5 $101.4 $11.0 $294.9 $116.2 $11.1 $346.9 $131.5 $17.3
====== ====== ===== ====== ====== ===== ====== ====== =====
</Table>
- ---------------
(1) Net sales by product category and geographic regions set forth above are
based on management's calculations derived from our audited financial
statements.
MANUFACTURING
Our manufacturing strategy is based on parameters for distribution, which
are determined by the shipping distance, freight costs and the product being
shipped. We operate 13 plants in the U.S., nine plants in Canada and one plant
in the Netherlands. The Aker acquisition provided us with additional flexibility
to reallocate production according to demand, thereby enabling us to improve
reaction and delivery times, while reducing freight costs. Further, to satisfy
demand for value-added products from Aker's wholesale distribution network, we
converted two of our existing manufacturing facilities to produce Aker products
under the MAAX Aker(R) name.
We have also adopted other manufacturing strategies, including increased
plant automation and robotics, cost-effective foreign sourcing of certain raw
materials and a quality control program designed to ensure product and process
standardization for each of our product lines and all distribution networks. In
addition, we have implemented in Canada and are in the process of implementing
in the U.S. a management network utilizing the SAP(R) management information
system for our bathroom fixture products. By increasing uniformity and adherence
to our set standards at
69
each production facility, we believe we will increasingly be able to produce
uniform products from the various plants and continue to realize improved gross
margins per plant.
Critical to the manufacture of high quality products is the collaboration
of our research and development team with external suppliers to develop raw
materials with characteristics yielding products meeting the highest standards
of resistance, durability and finish. Raw materials required to manufacture our
products include resin, polyester, fiberglass, acrylic, thermoplastic, aluminum,
steel, tempered glass, wood and particleboard, oil, pumps, accessories and
packaging materials. We purchase resin and polyester from various suppliers in
both Canada and the U.S. Some resins are used to manufacture thermoplastic
sheets. Fiberglass is purchased from a single supplier, but other suppliers are
available. Two U.S. manufacturers supply us with acrylic sheets. There are
multiple suppliers of pumps, which are manufactured in the U.S. and distributed
by Canadian suppliers. Aluminum, steel and tempered glass are purchased from
Canadian, U.S. and Asian suppliers. Wood is purchased primarily from local
suppliers. Packaging materials are supplied locally.
SALES, MARKETING AND DISTRIBUTION
The marketing and sales teams within each of our three business categories
focus on specified distribution networks and MAAX sub-brands.
Our bathroom fixture products are distributed to customers through three
distribution networks -- wholesalers, showrooms and home centers. The customers
in these three distribution networks tend to demand a different yet overlapping
selection of our products, which are marketed under eleven different MAAX(R)
sub-brands to target the particular customer segment.
PRODUCT AND CUSTOMER SUMMARY
<Table>
<Caption>
DISTRIBUTION CHANNELS/
MAAX SUB-BRAND PRODUCTS CUSTOMERS POSITIONING
- -------------- --------------------- ---------------------- ---------------------
MAAX COLLECTION(TM) Bathtubs, showers, Wholesalers with High-end bathroom
whirlpool and shower showrooms and solutions for
systems independent showrooms professional
remodeling
MAAX PEARL(R) Whirlpool bathtubs Wholesalers with Wellness bathware for
and shower systems showrooms and active people
independent showrooms
MAAX GENNA(R) Whirlpool bathtubs Wholesalers with Mid-range affordable
and shower systems showrooms and acrylic products for
independent showrooms younger home owners
(in Eastern Canada
only)
MAAX AKER(R) Bathtubs, showers, Wholesalers, Premium builder line
tub showers, contractors, building for new home
whirlpool tubs, air contractors construction
pools (acrylic and
gelcoat)
MAAX VILLA(R) Bathtubs, showers, Wholesalers, Competitive builder
tub showers, contractors, building line for new home
whirlpool tubs contractors construction
(acrylic and gelcoat)
MAAX(R) TUB & SHOWER Tub doors, shower Wholesalers with Mid- to high-end
DOORS doors, shower shields showrooms and
independent showrooms,
glass shops
</Table>
70
<Table>
<Caption>
DISTRIBUTION CHANNELS/
MAAX SUB-BRAND PRODUCTS CUSTOMERS POSITIONING
- -------------- --------------------- ---------------------- ---------------------
MAAX(R) MEDICINE Medicine cabinets, Wholesalers with Mid- to high-end
CABINETS mirrors, lights showrooms and
independent showrooms
PREMIUM BY MAAX(R) Bathtubs, showers, Home Depot Do It Yourself
whirlpools, tub Renovation
surrounds, shower
kits, laundry tubs
ADVANTA BY MAAX(R) Bathtubs, showers, Home centers other Do It Yourself
whirlpools, tub than Home Depot Renovation
surrounds, shower
kits, laundry tubs
KEYSTONE BY MAAX(R) Shower doors and Home Depot and Do It Yourself
medicine cabinets builders Renovation
(approximately 10% of
Keystone sales)
SANINOVA(R) BY MAAX Whirlpools, steam Home centers, OEMs (in Do It Yourself
cabins, shower bases Europe only) Renovation
</Table>
We are currently focused on the implementation of a "One-Stop-Shop" supply
chain approach for bathroom fixture customers in each of our distribution
channels. This entails implementing a logistics and inventory management system
that will provide customers with the ability to order multiple products from one
distribution center location with a single purchase order. Our sales force is
being realigned with a national orientation in the U.S. and Canada and is being
trained to offer our complete product offering.
An ongoing initiative is to augment Aker's gelcoat products with our
acrylic lines to create a MAAX Aker(R) wholesale brand in the U.S. for
distribution through Aker's wholesale and showroom network. Aker's top tier
wholesale network is being utilized to sell our higher margin product
categories, such as Collection(TM) bathtub units, Pearl(R) whirlpools, MAAX(R)
shower doors and MAAX(R) medicine cabinets and provides us with a cross-selling
opportunity.
To enhance our market coverage and leverage our brand equity, we market our
cabinet products under three brand names: MAAX Collection(TM), Cuisine Expert(R)
by MAAX and Express Kitchen(R). The MAAX Collection(TM) products are sold to
kitchen dealers. The Cuisine Expert(R) by MAAX line is sold to Home Depot in
Canada and Express Kitchen(R) is sold to other home centers in Canada. We
estimate that 70% of our sales are to specialty kitchen cabinet distributors and
kitchen dealers and the balance of our kitchen cabinetry products are sold to
home centers, including Home Depot in Canada and Reno Depot, and to building
contractors for large commercial projects.
Our spa products are marketed under our Coleman Spas(R) by MAAX, Elite
Spas(R) by MAAX, Nahanni (TM) Spas and Savannah Spas(R) brand names and
primarily distributed through a network of spa and pool retailers and home
improvement centers. Coleman Spas(R) by MAAX are sold through backyard, pool and
spa specialty retailers in the U.S., Canada and Europe. The Elite Spas(R) by
MAAX sub-brand is distributed to backyard, pool and spa specialty stores and
showrooms throughout North America. Primary customers of this brand are Spa
Depot in the U.S. and Club Piscine and Pioneer Pools in Canada. Nahanni (TM)
Spas are sold through Home Depot in Canada and are targeted toward first-time
and price conscious spa purchasers.
Our spas business, and to a lesser extent, our other businesses experience
seasonal business swings, which correspond to the North American seasons.
Unusually prolonged periods of cold, rain, blizzards, hurricanes or other severe
weather patterns could delay or halt renovation and construction activity.
Generally, sales in each of the first three quarters of our fiscal year generate
a
71
significantly greater percentage of our total annual sales as compared to the
fourth quarter of our fiscal year. This seasonality requires that we manage our
cash flows over the course of the year.
Our marketing unit is comprised of approximately 30 employees. Individual
marketing teams within the marketing unit prepare and review annual marketing
plans by channel of distribution with objectives and an action plan for each
brand. Each team operates autonomously with support from corporate marketing,
which assists in defining our global marketing strategies and direction. Each
marketing team oversees market analysis, sector strategies and new product
planning, and develops sales programs and monitors profitability with our sales
force.
In conjunction with our brand consolidation initiative, we have completed a
consolidation of our sales force to provide national sales coverage in the U.S.
and Canada through our own sales force and a combination of external agency
sales representatives. Our sales representatives have been placed in most key
regions in the U.S. and Canada, based on customer demand, and have been trained
to market to their customers our full product offering. Business plans are
prepared by region, distribution network and major customer.
Our products are sold by our sales force or by external agency sales
representatives, depending upon the region of distribution. We distribute our
products through our own sales force in most provinces of Canada, including
Quebec, Ontario, the Atlantic Provinces, Alberta and British Columbia. In the
U.S., sales agencies are used within each of the business sectors. Generally,
these sales agencies employ 5-10 representatives, each of whom is responsible
for covering two or three states. These sales agencies are not permitted to sell
products that compete directly with our products.
<Table>
<Caption>
SALES FORCE BREAKDOWN BY PRODUCT CATEGORY AS OF AUGUST 31, 2004
---------------------------------------------------------------------
BATHROOM CABINETRY SPAS
--------------------- --------------------- ---------------------
U.S. CANADA TOTAL U.S. CANADA TOTAL U.S. CANADA TOTAL
---- ------ ----- ---- ------ ----- ---- ------ -----
MAAX Sales Managers.................... 18 6 25(2) 2 3 5 2 2 4
MAAX Sales Representatives............. -- 23 23 1 8 9 4 1 5
Sales Agencies......................... 48 7 55 6 -- 6 3 4 7
Agency Representatives................. 490 16(1) 507(2) 10 -- 10 6 23 29
</Table>
- ---------------
(1) Agency representatives for provinces of Newfoundland, Manitoba and
Saskatchewan.
(2) One sales manager and one agency representative are in Europe.
Our sales representatives are compensated through a base salary and
potential bonus, based upon achievement of certain sales growth, product mix and
margin targets. Sales agency representatives receive commission-based
compensation.
RAW MATERIALS AND SUPPLIERS
We purchase a broad range of raw materials and components throughout the
world in connection with our manufacturing activities. Major raw materials and
components include resin, polyester, fiberglass, acrylic, thermoplastic,
aluminum, steel, tempered glass, wood and particleboard, oil, pumps, accessories
and packaging materials. Our policy is to maintain, wherever possible, alternate
sources of supply for our important raw materials and components and,
consequently, we are not dependent on a single supply source for any raw
material or component. The raw materials and components required for our
manufacturing operations have been generally readily available.
COMPETITION
BATHROOM
We are a leading player in the North American bathtub and shower segment,
with a leadership position in the Canadian market and a number three position in
the U.S. In the combined U.S. and
72
Canadian bathtub and shower fixtures market, we estimate that our market share
for our core product categories (bathtubs, whirlpools, showers and
bathtub/shower surrounds) was approximately 15% in fiscal year 2004. This made
us the second largest player in these product categories in a generally
fragmented industry. Our share of fiscal year 2004 Canadian sales in our core
product categories is estimated to be approximately 40%. Our market shares are
higher in the geographic regions where we have had a longer historical presence.
We compete against a large number of companies in the bathroom industry
including several multinationals, such as Kohler, American Standard, Jacuzzi
Brands, Lasco (a division of Tomkins Plc) and the Aquaglass, Mirolin and ASB
divisions of Masco. We believe that our innovative product design, the
efficiency of our distribution network and our high level of customer service
set us apart from our competitors. In addition, through our broad North American
footprint, we offer a full range of bathroom fixture products, kitchen cabinetry
and spas to our customers. Our customers are able to enjoy the convenience of
coordinating with a single supplier.
We believe that the quality, price and value of our products, their design,
our development of new technologies through research and development, and our
strategic expansion across the U.S. and Canada provide us with a competitive
edge in the bathroom fixtures market. Market trends indicate sustained growth in
demand for our core products, and we believe our broad, innovative product
offering will enable us to take advantage of this projected increase in demand.
CABINETRY
In the highly fragmented U.S. cabinet industry, there are several large and
hundreds of smaller competitors, with the top four participants, Masco, Fortune
Brands (MasterBrand Cabinets, Omega, Schrock), American Woodmark and Elkay,
accounting for approximately 40% of industry sales. Other competitors include
Kohler, American Standard, Jacuzzi Brands and Lasco (a division of Tomkins Plc).
Kitchen and Bath Business estimates that we are the 25th largest cabinet
manufacturer in North America with a 0.3% share of overall industry sales in
2003.
The cabinet industry's largest players made numerous acquisitions in recent
years in order to serve larger accounts, broaden product lines and price points
and expand and diversify distribution networks. Consolidation is expected to
continue given the largely fragmented nature of the industry.
Competition in the cabinet sector focuses on service, product styling and
performance, quality and delivery times. Customers tend to be less sensitive to
price, resulting in strong margins in the sector. Brand awareness and loyalty
play a key role given the high degree of product differentiation among
manufacturers. We believe our focus on delivering high quality, innovative
products, manufactured at our automated Laval, Quebec facility and marketed
through our broad, well-located dealer network will allow for continued growth
by capturing increased regional demand.
SPAS
We are a leading North American spa manufacturer with an estimated 5% share
of industry sales in the combined U.S. and Canadian spa market. The industry
remains highly fragmented with over 100 spa manufacturers in North America. The
majority of our competitors are small regional suppliers who individually hold
less than 2% of the spa market. Our leading competitors are Jacuzzi Brands,
Watkins Manufacturing (a division of Masco) and Cal Spas. We produce and market
Coleman Spas(R) by MAAX, under a license from The Coleman Company Inc., and
Elite Spas(R) by MAAX to specialty retailers, as well as Nahanni (TM) Spas to
Home Depot. We manufacture spas out of two strategically located facilities in
Beamsville, Ontario and Chandler, Arizona.
RESEARCH AND DEVELOPMENT
Our research and development team focuses on the manufacturing process and
product design in order to develop innovative products using the latest
technology. We also work with our suppliers
73
to develop raw materials with characteristics meeting the highest standards of
resistance, durability and finish. In addition, we have implemented an
automation program for certain manufacturing plants.
We operate five research and development centers, the largest located in
Sainte-Marie, Quebec. We have a product development team dedicated exclusively
to designing and developing our product lines. These employees work in
collaboration with the sales and marketing departments to develop new products
and products that are complementary to existing product lines.
In recent years, we have developed several new products, including
whirlpools, showers, spas and kitchen cabinetry models. We spend approximately
0.5% of our consolidated net sales on research and development annually. In
April 2004, we launched the Urban(R) minimalist bathroom series, a full product
line including bathtubs, showers, massage systems, medicine cabinets and
lighting with uptown style and ultra-modern design.
All of our bathtubs, showers, whirlpools and spas are certified by at least
one of the following certification organizations: CSA(R), UL(R), IAPMO(R),
ANSI(R), ASME(R). We are one of the few laboratories in North America that is
Underwriters Laboratories Inc. compliant, which allows for in-house testing
under UL(R) and thus enables product introductions within a shorter time-frame
than many of our competitors.
INTELLECTUAL PROPERTY
We use a broad range of trademarks, of which approximately 130 are
registered or pending registration in the U.S., Canada, Europe, Taiwan and
Thailand. We believe that certain trademarks including MAAX(R) are of material
importance to our product lines. We also own approximately 50 patents and
industrial designs, registered or pending registration in the U.S., Canada and
Europe. Although protection of our patents and related technologies is an
important component of our business strategy, none of the individual patents is
material to our business.
In addition, we have a license from The Coleman Company Inc. for use of the
mark Coleman(R) and certain other trademarks in association with our spa and
related products that expires in October 2008. We believe that use of this
license is of great value and the loss of this license or failure to renew upon
expiration would have a material adverse effect on our spa business. We also
have a license from Altura Leiden Holding B.V. for use of a shower enclosure
patent, which expires in September 2006.
74
PROPERTIES
The location, primary use, approximate square footage and ownership status
of our principal properties as of November 17, 2004 are set forth below:
<Table>
<Caption>
APPROXIMATE PRODUCT
LOCATION PRINCIPAL USE SQUARE FOOTAGE OWNED/LEASED CATEGORY
- -------- ------------- -------------- ------------ --------
CANADA
Montreal, Quebec.................... Principal Office 8,000 Leased Corporate
Anjou, Quebec....................... Warehouse/Factory/Offices 110,000 Leased Bathroom
Sainte-Marie, Quebec................ Warehouse/Factory/Offices 262,015* Owned** Bathroom
Tring-Jonction, Quebec.............. Warehouse/Factory/Offices 142,350 Owned**/Leased Bathroom
Lachine, Quebec..................... Warehouse/Factory/Offices 170,000 Leased Bathroom
Airdrie, Alberta.................... Factory/Offices 40,220 Owned** Bathroom
Armstrong, British Columbia......... Warehouse/Factory/Offices 65,131 Owned** Bathroom
Beamsville, Ontario................. Factory/Offices 78,800 Leased Spas
Surrey, British Columbia............ Offices 794 Leased Bathroom
Laval, Quebec....................... Warehouse/Factory/Offices 236,950 Owned** Kitchen Cabinetry
Cookshire, Quebec................... Warehouse/Factory/Offices 35,700 Owned Kitchen Cabinetry
EUROPE
Heinenoord, Netherlands............. Warehouse/Factory/Offices 183,920 Owned Bathroom
UNITED STATES
Valdosta, Georgia................... Warehouse/Factory/Offices 142,700* Owned**/Leased Bathroom
Bremen, Indiana..................... Warehouse/Factory/Offices 132,870* Owned** Bathroom
Marion, Iowa........................ Warehouse/Factory/Offices 42,850 Owned/Leased Bathroom
Minneapolis, Minnesota.............. Warehouse/Factory/Offices 146,100* Owned**/Leased Bathroom
Bellingham, Washington.............. Warehouse/Factory/Offices 65,000 Owned** Bathroom
Plymouth, Indiana (2 plants)........ Warehouse/Factory/Offices 238,000 Owned**/Leased Bathroom
Martinsburg, West Virginia.......... Warehouse/Factory 180,000* Owned** Bathroom
Riviera Beach, Florida.............. Warehouse/Factory/Offices 41,000 Leased Bathroom
Ontario, California................. Warehouse/Factory/Offices 124,800* Leased Bathroom
Warminster, Pennsylvania............ Warehouse/Factory/Offices 58,000 Leased Bathroom
Southampton, Pennsylvania........... Factory/Offices 61,800 Leased Bathroom
Bensalem, Pennsylvania***......... Warehouse 12,000 Leased Bathroom
East Hanover, New Jersey***....... Warehouse 3,200 Leased Bathroom
Lakewood, New Jersey***........... Warehouse 5,400 Leased Bathroom
Claymont, Delaware***............. Warehouse 3,200 Leased Bathroom
Chandler, Arizona................... Factory/Offices 83,100 Owned** Spas
DISTRIBUTION CENTERS
Airdrie, Alberta.................... Warehouse/Offices 39,800 Leased
West Berlin, New Jersey............. Warehouse/Offices 21,000 Leased
Elk Grove, California............... Warehouse/Offices 20,600 Leased
</Table>
- ---------------
* Includes a distribution center.
** Property mortgaged under our new senior secured credit facility.
*** Part of the Southampton, Pennsylvania facility.
75
ENVIRONMENTAL MATTERS
Our operations are subject to extensive Canadian (federal, provincial and
local), U.S. (federal, state and local) and foreign environmental laws and
regulations relating to, among other things, the generation, storage, handling,
emission, transportation and discharge of contaminants or regulated materials or
substances into the environment. Permits are required for certain of our
operations, and these permits are subject to revocation, modification and
renewal by issuing authorities. Non-compliance with applicable requirements may
result in civil, administrative or criminal enforcement action that may entail
damages, fines, costs or the entry of injunctions, or all of the preceding. For
example, we have received a summons from the Ontario Court of Justice alleging
violation of permitting and air emission requirements, relating to styrene and
odors, under the Environmental Protection Act (Ontario) and regulations adopted
thereunder at our facility in Beamsville, Ontario. We have resolved this matter
and agreed to pay a fine equal to C$37,500. Aside from this matter, which is
settled and closed, we believe we are in substantial compliance with applicable
environmental requirements.
We may also incur liability and costs for investigation and clean-up of
soil or groundwater contamination on or emanating from currently or formerly
owned and operated properties, or at offsite locations at which we have disposed
or arranged for disposal of contaminants or regulated materials where we are
identified as a responsible party. For example, an investigation conducted at
our facility in Tring-Jonction, Quebec, revealed soil and groundwater impacts
relating to former gasoline and heating oil tanks onsite. Although no assurance
may be made, and the investigation is not complete, we do not expect the soil
and groundwater impacts at Tring-Jonction, which we are in the process of
addressing, to require expenditures that will have a material adverse effect on
our results of operation or financial condition. We also do not expect the costs
to comply with existing environmental laws and enforcement policies to be
material. However, the requirements of such laws and enforcement policies have
generally become more stringent over time. We might incur significant capital
and other costs to comply with increasingly stringent air emission control laws,
such as the federal regulation that will become applicable to styrene air
emissions at U.S. facilities, which may decrease our cash flow. Also discovery
of currently unknown conditions could require responses that would result in
significant liabilities and costs. Accordingly, we are unable to predict the
ultimate costs of compliance with or liability under environmental laws.
EMPLOYEES
We had approximately 3,760 employees as of October 31, 2004, including
1,955 in Canada, 1,710 in the U.S. and 95 in Europe.
Currently, approximately 1,200 of our production line employees, located
primarily in Canada, are unionized through affiliations with Confederation des
syndicats nationaux, Centrale des syndicats democratiques or the Teamsters
Union. Employees represented by these unions are subject to ten collective
bargaining agreements and work at nine of our manufacturing facilities with a
separate union at each location, two of which agreements are with local unions
in the U.S. and the remaining eight are in Canada. One collective bargaining
agreement is expected to expire in December 2004 (covering approximately 367
employees). We have not experienced any significant work stoppages in the last
ten years, and we believe that our relations with our employees and our unions
are good.
LEGAL MATTERS
During the ordinary course of business, we have been and may in the future
become subject to pending and threatened legal actions and proceedings. All of
the current legal actions and proceedings that we are party to are of an
ordinary or routine nature incidental to our past or current operations,
including product liability claims, the resolution of which should not have a
material adverse effect on our financial condition and results of operations.
The product liability claims are
76
generally covered by insurance, but there can be no assurance that our insurance
coverage will be adequate to cover any such liability.
On October 27, 2000, one of our suppliers, American Faucet, Inc., or
American Faucet, made a claim against our predecessor, MAAX Inc., in an amount
of approximately $582,000 for unpaid supplies. We denied this claim and
counterclaimed for a total amount of $2,510,000 for breach of a contract.
American Faucet added a demand to its claim of approximately $10,412,000 for
breach of that same contract. In accordance with the terms of that contract,
this matter was submitted to arbitration, though a hearing has not yet been
scheduled. We believe that the claims are without merit and are vigorously
defending the claims.
77
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers and
directors following the consummation of the transactions:
<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------
Arthur Byrne......................... 59 Non-Executive Chairman of the Board of Directors
Andre Heroux......................... 46 President, Chief Executive Officer and Director
Denis Aubin.......................... 45 Executive Vice President, Chief Financial Officer and
Secretary
Benoit Boutet........................ 41 Vice President and Corporate Controller
Patrice Henaire...................... 44 Corporate Vice President, Marketing and R&D
Jean Rochette........................ 43 Vice President and General Manager, Bathroom Products
Sector
Guy Berard........................... 48 Vice President and General Manager, Cabinetry Sector
Terry Rake........................... 53 Vice President and General Manager, Spas Sector
Daniel Stewart....................... 43 Vice President and General Manager, MAAX Home Depot
Michael Graham....................... 38 Director
Andre LaForge........................ 44 Director
James Rhee........................... 33 Director
Steven Segal......................... 44 Director
</Table>
Arthur Byrne is the non-executive Chairman of our Board. He is an Operating
Partner of J.W. Childs Associates, L.P., and has been at JWC since 2002.
Previously, he was Chairman, President and Chief Executive Officer of The
Wiremold Company from 1991 to 2002. Prior to that time, he was a Group Executive
with the Danaher Corporation responsible for half its business from 1985 through
1991. At both Danaher and Wiremold, he was responsible for introducing and
implementing "Lean Management" practices that resulted in strong gains at both
companies. He is also non-executive Chairman of the Advisory Board at Esselte
Group Holdings AB.
Andre Heroux is our President and Chief Executive Officer and a director.
Mr. Heroux joined MAAX Inc. in April 1999 as Vice President, Operations. In
September 1999, he was named Chief Operating Officer of MAAX Inc. and, in July
2001, he became the President and Chief Executive Officer of MAAX Inc. Prior to
April 1999, Mr. Heroux was President and Chief Executive Officer of CDM Lamines
Inc. Mr. Heroux was President and Chief Executive Officer of CDM Papier Decor
from 1996 to 1999. Between 1994 and 1996, Mr. Heroux was Vice President and
General Manager of Domtar's decorative panel division.
Denis Aubin is our Executive Vice President, Chief Financial Officer and
Secretary. Mr. Aubin joined MAAX Inc. in 2004 as Executive Vice President and
Chief Financial Officer. Prior to joining MAAX Inc., Mr. Aubin was Senior Vice
President Finance of Quebecor World Inc. from 2000 to 2004. From 1997 to 2000
Mr. Aubin was Vice President and Treasurer of Cambior Inc.
Benoit Boutet is our Vice President and Corporate Controller. Benoit Boutet
joined MAAX Inc. in 2000 as Director of Finance and was promoted to his current
position in March 2003. Prior to joining MAAX Inc., he was Director of Finance
at Groupe Brochu Lafleur from 1997 to 2000, and from 1994 to 1997, he was Vice
President Finance at Culinar.
Patrice Henaire is our Corporate Vice President, Marketing, Sales and
Research and Development. Mr. Henaire joined MAAX Inc. in 2000 as Corporate Vice
President Marketing and assumed responsibilities for R&D in 2001. Prior to
joining MAAX Inc., he was Senior Vice President
78
Marketing and Sales at Broan Nutone, from 1995 to 2000, and previously with
Venmar as Marketing Manager for seven years.
Jean Rochette is our Vice President and General Manager, Bathroom Sector,
Wholesale Showroom. Mr. Rochette joined MAAX Inc. in 2000 as General Manager of
MAAX Anjou. He was promoted to Vice President, General Manager-Bathroom Products
Sector Canada in 2001 and Vice President, General Manager for all MAAX Bathroom
Sectors in 2003. Prior to joining MAAX Inc., he was President and General
Manager with Ralston Purina in France from 1996 to 2000.
Guy Berard is our Vice President and General Manager, Cabinetry Sector. Mr.
Berard joined MAAX Inc. in 2002 as Vice President, General Manager MAAX
Cabinetry Sector. Prior to joining MAAX Inc., he was President and General
Manager of Arborite, a division of Illinois Tool Works, for eight years.
Terry Rake is our Vice President and General Manager, Spas Sector. Mr. Rake
joined MAAX Inc. in 2000 as General Manager of MAAX Coleman Spas in Chandler,
Arizona. He was promoted to Vice President, General Manager-MAAX Spas Sector in
2001. Prior to joining MAAX Inc., he was President and Chief Executive Officer
for LA Spas from 1996 to 1999.
Daniel Stewart is our Vice President and General Manager, Bathroom Sector,
Retail. Mr. Stewart joined MAAX Inc. in 1998 as General Manager of MAAX
Keystone. In 2001, he was promoted to his current position. Prior to joining
MAAX Inc., he was Plant Manager of a shower door manufacturing plant in Florida
for five years. He was also a General Contractor for ten years.
Michael Graham has been a director since March 2004. He is a Portfolio
Manager of OMERS Capital Partners and has been at OMERS since 2003. Previously,
he was a Vice President, Investments with Working Ventures Canadian Fund Inc.
from 1996 to 2003. From 1993 to 1996 Mr. Graham was employed by the National
Bank of Canada and from 1989 to 1993 by HSBC Bank Canada. He is also a director
of Papier Masson Ltd.
Andre LaForge has been a director since March 2004. He is a Senior Vice
President of Borealis Capital Corporation and has been at Borealis Capital
Corporation since September 2001. Previously, Mr. LaForge was a Senior Partner
with KPMG Corporate Finance for ten years. From 1988 to 1990, Mr. LaForge was a
Vice President and Principal with Canadian Corporate Funding Limited, a
privately held Canadian merchant bank. Prior to 1988, Mr. LaForge was employed
by the Royal Bank of Canada for five years. He is also a director of Cheneliere
Education, Generale de Services Sante, Greiche & Scaff and Coastal Value Fund.
James Rhee has been a director since March 2004. Mr. Rhee was our Secretary
from March 2004 through June 4, 2004 and was a Vice President from June 2004
through December 1, 2004. He is a Vice President of J.W. Childs Associates, L.P.
and has been at JWC since 2000. Previously, he was an Associate in the Mergers
and Acquisitions Department of Merrill Lynch from 1998 to 2000. He is also a
director of Murray's Discount Auto Stores, Inc.
Steven Segal has been a director since March 2004. Mr. Segal was our
President from March 2004 through June 4, 2004 and was a Vice President from
June 2004 through December 1, 2004. He is a founding Partner of J.W. Childs
Associates, L.P. and has been at JWC since 1995. Prior to that time, he was an
executive at Thomas H. Lee Company from 1987, most recently holding the position
of Managing Director. He is also a director of Jillian's Entertainment Corp.,
Insight Health Services Corp., Universal Hospital Services, Inc. and The
NutraSweet Company.
COMPENSATION
The aggregate compensation for our directors and members of our
administrative, supervisory or management bodies for the fiscal year ended
February 29, 2004, including retention bonuses paid in connection with the
transactions and severance compensation was $4.6 million.
79
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Andre Heroux, which will
continue indefinitely unless terminated by either party. Mr. Heroux is our
President and Chief Executive Officer and is entitled to an annual base salary
of C$500,000, subject to annual review by the board of directors, and certain
fringe benefits. In addition to his annual base salary, Mr. Heroux is entitled
to a bonus of up to 100% of his annual base salary, based on the achievement of
certain targets as jointly determined by the board of directors and Mr. Heroux,
and Mr. Heroux participates in the MAAX Holdings 2004 stock option plan. Mr.
Heroux also rolled over a portion of his MAAX Inc. stock options into stock
options of MAAX Holdings with a value of approximately C$1.5 million. In
addition, Mr. Heroux received a one-time grant of stock options to purchase
shares of MAAX Holdings series A preferred stock. Under certain circumstances,
Mr. Heroux will be entitled to receive severance upon termination for up to 18
months. In addition, his employment agreement contains confidentiality
restrictions during and after the term of the agreement and noncompetition,
nonsolicitation and nondisparagement provisions during the term of the agreement
and for 18 months thereafter.
We entered into an employment agreement with Daniel Stewart, which expires
on February 28, 2007, subject to renewal or termination 90 days prior to the
scheduled expiration date. Under the employment agreement, Mr. Stewart is
entitled to an annual base salary of $195,000 and certain fringe benefits. In
addition to the annual base salary, Mr. Stewart is entitled to a bonus, payable
on a quarterly basis, equal to 1.25% of MAAX-KSD Corporation's EBITDA based on
the achievement by MAAX-KSD Corporation of certain EBITDA targets. For the year
ended February 29, 2004, Mr. Stewart was paid an annual bonus of $160,035. Under
certain circumstances, Mr. Stewart will be entitled to receive severance upon
termination for a period ranging from 90 days to 12 months. In addition, his
employment agreement contains confidentiality restrictions during and after the
term of the agreement and nonsolicitation and noninterference provisions during
the term of the agreement and for 2 years thereafter.
Each of Denis Aubin, Benoit Boutet, Patrice Henaire, Jean Rochette, Guy
Berard and Terry Rake has an employment agreement with us, which will continue
indefinitely unless terminated by either party. Under the employment agreements,
Messrs. Aubin, Boutet, Henaire, Rochette, Berard and Rake, respectively, are
each entitled to an annual base salary of C$300,000, C$175,000, C$182,250,
C$300,000, C$185,000 and $160,000, respectively, and certain fringe benefits. In
addition to the annual base salary paid to each executive, each executive is
entitled to a bonus up to 50% of his annual base salary based on the achievement
of certain performance targets and entitled to participate in the MAAX Holdings
2004 stock option plan. Messrs. Boutet, Henaire, Rochette, Berard and Rake also
rolled over their MAAX Inc. stock options into stock options of MAAX Holdings
with a value of approximately C$1.0 million. If any of Messrs. Aubin, Boutet,
Henaire, Rochette, Berard and Rake is terminated without cause, such executive
will be entitled to continued payments of salary and bonus for one year. For the
year ended February 29, 2004, Messrs. Boutet, Henaire, Rochette, Berard and Rake
were paid annual bonuses of C$105,062, C$51,765, C$93,750, C$13,875 and $17,600,
respectively.
GESTION CAMADA AGREEMENT
Under a management agreement, entered into on January 10, 2001, amended on
November 1, 2001 and October 20, 2003 and terminated on February 29, 2004,
between Gestion Camada Inc., or Gestion Camada, a holding company controlled by
Placide Poulin and his family, and MAAX Inc., Gestion Camada was responsible for
the general management of MAAX Inc. Pursuant to the agreement, Gestion Camada
agreed to provide MAAX Inc. with the services of five qualified managers:
Placide Poulin, Chairman of the Board; Andre Heroux, President and Chief
Executive Officer; Richard Garneau, Executive Vice President and Chief Financial
Officer; Marie-France Poulin, Executive Vice President, Sales; and David Poulin,
Vice President, Operations, Bathroom Products Sector (Eastern Canada). In
exchange for the services of these five individuals, MAAX Inc. paid to
80
Gestion Camada an annual fee of C$1,096,704, adjusted annually in relation to
the Canadian Consumer Price Index published by Statistics Canada for the region
of Montreal, payable in weekly installments, a performance bonus equal to 4.3%
of MAAX Inc.'s earnings before taxes and performance bonuses and theoretical
amortization of C$3,484,100 of the goodwill of MAAX Inc., payable in quarterly
installments, and certain fringe benefits. For the year ended February 29, 2004,
MAAX Inc. paid to Gestion Camada an aggregate of C$3,832,725, comprised of the
annual fee and performance bonus. MAAX Inc. also paid to Gestion Camada a fee of
C$3,744,637 for the non-renewal of this agreement, of which C$3,311,077 was paid
on March 2, 2004 and the remaining balance of C$433,560 was paid on April 28,
2004.
CONSULTING AGREEMENTS
As of March 1, 2004, MAAX Inc. entered into consulting agreements with each
of Messrs. Richard Garneau and David Poulin and Ms. Marie-France Poulin for a
three month period from March 1, 2004 through June 1, 2004, subject to
extension. The consulting agreements were terminated upon the consummation of
the offering of the original notes. Under the consulting agreements, each of
Messrs. Richard Garneau and David Poulin and Ms. Marie-France Poulin provided
certain consulting services to MAAX Inc. as independent contractors, working up
to a maximum of 20 working days during such three month period and were each
entitled to compensation of C$20,000 and certain fringe benefits. MAAX Inc. also
provided an indemnity payment to each of these consultants for prior service to
MAAX Inc. equal to C$630,000 for each individual. Placide Poulin received
certain fringe benefits through June 30, 2004.
Each of Messrs. Placide Poulin, Richard Garneau and David Poulin and Ms.
Marie-France Poulin entered into an agreement with MAAX Inc. that contains
confidentiality restrictions and noncompetition, nonsolicitation and
nondisparagement provisions covering North America for a period of five years
from the closing.
BENEFIT PLANS
MAAX HOLDINGS 2004 STOCK OPTION PLAN
All of the outstanding options previously issued under the MAAX Inc. Senior
Executives and Management stock option plan were either exercised, or, with
respect to certain members of our management, converted into options exercisable
for shares under the MAAX Holdings 2004 stock option plan. Under the MAAX
Holdings 2004 stock option plan, MAAX Holdings has available for grant options
to purchase approximately 9% of its common stock on a fully-diluted basis in
addition to approximately $2.7 million of rollover option fair value as of the
closing date to certain members of management, including a one-time option grant
to Mr. Heroux to purchase shares of its series A preferred stock. The plan
provides for the grant of nonqualified stock options to any of our full or
part-time employees, including officers and directors, consultants and
independent contractors. The exercise price of options granted under the plan is
generally equal to the fair market value of MAAX Holdings' common stock on the
date such options are granted, as determined by its board of directors, however,
the board has discretion to issue options at exercise prices lower or higher
than fair market value. The plan is administered by MAAX Holdings' board of
directors or by a committee appointed by the board of directors.
While the terms of the options granted under this plan are determined at
the time of grant, the stock options will expire ten years after grant. New
stock options are comprised of two general types: (1) options with fixed vesting
schedules and (2) options that vest upon the achievement of established
performance targets. Upon a holders' termination from employment, all options
terminate immediately, except in the case of termination by us without cause (as
defined in the option agreement) or upon the holders' death or disability or by
the holder for good reason (as defined in the option agreement), in which case
vested options remain exercisable for a period of time after termination.
81
STOCK OPTIONS
The following table summarizes option grants as of November 30, 2004 to the
Chief Executive Officer and the members of our administrative, supervisory or
management bodies. Other than as noted below, all options are exercisable for
shares of MAAX Holdings common stock. The stock options expire on June 4, 2014.
OPTION GRANTS AS OF NOVEMBER 30, 2004
<Table>
<Caption>
NAME OPTION GRANT EXERCISE PRICE
---- ------------ --------------
Arthur Byrne................................................ 90,370 $16.56
Andre Heroux................................................ 68,475 C$0.01
289,183 $16.56
42,995(1) C$0.01
42,995 $16.56
Denis Aubin................................................. 72,296 $16.56
Benoit Boutet............................................... 5,892 C$0.01
28,918 $16.56
Patrice Henaire............................................. 5,892 C$0.01
36,148 $16.56
Jean Rochette............................................... 19,020 C$0.01
72,296 $16.56
Guy Berard.................................................. 1,779 C$0.01
14,459 $16.56
Terry Rake.................................................. 14,508 $ 6.75
14,459 $16.56
Daniel Stewart.............................................. 6,127 $ 6.75
50,607 $16.56
</Table>
- ---------------
(1) This option grant is exercisable by Mr. Heroux for shares of MAAX Holdings
series A preferred stock.
In connection with the issuance by MAAX Holdings of senior discount notes in
December 2004, MAAX Holdings repurchased and canceled a portion of these options
so that, on a fully-diluted basis, options exercisable into approximately 9% of
MAAX Holdings' capital stock will be available to certain members of our
management, consultants and employees and a non-employee director. See
"Summary -- Recent Events."
82
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We are an indirect wholly-owned subsidiary of MAAX Holdings. The capital
stock of MAAX Holdings consists of common stock, par value $0.01 per share and
series A preferred stock, par value $0.01 per share. The common stock of MAAX
Holdings consists of common stock and class A common stock which are identical
in all respects, except that the class A common stock is not entitled to vote in
the election of directors. The only stockholder of MAAX Holdings that holds
class A common stock is OMERS. The series A preferred stock is redeemable under
certain circumstances, does not have voting rights, no shares of series A
preferred stock have been issued by MAAX Holdings and Mr. Heroux is the only
stockholder of MAAX Holdings who has options to purchase the series A preferred
stock.
JWC Fund Ill, Borealis and OMERS beneficially hold approximately 99.0% of
the outstanding common stock of MAAX Holdings prior to dilution for options.
MAAX Holdings has made options exercisable into approximately 9% of its capital
stock available to certain consultants, members of our management team and one
of our directors on a fully-diluted basis through its 2004 stock option plan, in
addition to approximately $2.7 million of rollover option fair value as of the
closing date to certain members of our management, including a one-time option
grant to Mr. Heroux to purchase shares of its series A preferred stock.
The following table sets forth certain information regarding the beneficial
ownership of MAAX Holdings' capital stock (assuming the transactions described
under the caption "Summary -- Recent Events" had occurred on August 31, 2004) by
(a) JWC Fund Ill, Borealis and OMERS, (b) our directors and named executive
officers, and (c) all directors and executive officers described above as a
group. Except as otherwise noted under "Certain Relationships and Related Party
Transactions," we know of no agreements among our or MAAX Holdings' stockholders
which relate to voting or investment power over capital stock of us or MAAX
Holdings or any arrangement the operation of which may at a subsequent date
result in a change of control of us or MAAX Holdings. For purposes of the table,
all shares of common stock refer to MAAX Holdings' common stock.
Beneficial ownership is determined in accordance with the rules of the SEC,
and includes direct and indirect voting power and/or investment power with
respect to securities. Shares of capital stock subject to options which are
exercisable within 60 days of November 30, 2004, are deemed outstanding for
purposes of computing the beneficial ownership of the person holding such
options, but are not deemed outstanding for purposes of computing the beneficial
ownership of any other person. Except as otherwise noted, the persons or
entities named have sole voting and investment power with respect to the shares
shown as beneficially owned by them. Unless otherwise indicated, the principal
address of each of the stockholders below is c/o MAAX Corporation, 1010
Sherbrooke Street West, Suite 1610, Montreal (Quebec), Canada H3A 2R7.
<Table>
<Caption>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ---------------- ------------------ -------------------
Andre Heroux(1).................................. 154,465 4.8%
Denis Aubin...................................... 6,667 *
Benoit Boutet(2)................................. 7,225 *
Patrice Henaire(3)............................... 8,892 *
Jean Rochette(4)................................. 24,576 *
Guy Berard(5).................................... 6,070 *
Terry Rake(6).................................... 5,540 *
Daniel Stewart(7)................................ 15,183 *
Arthur Byrne(8)(9)............................... 1,738,782 56.2%
Michael Graham(10)(11)........................... 1,321,164 42.7%
Andre LaForge(12)(13)............................ 660,582 21.4%
</Table>
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<Table>
<Caption>
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY
BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ---------------- ------------------ -------------------
James Rhee(9)(14)................................ 1,738,782 56.2%
Steven Segal(9)(15).............................. 1,738,782 56.2%
Borealis Private Equity Limited
Partnership(13)................................ 528,466 17.1%
Borealis (QLP) Private Equity Limited
Partnership(13)................................ 132,116 4.3%
J.W. Childs Equity Partners III, L.P.(9)......... 1,702,494 55.1%
JWC Fund III Co-Invest LLC(9).................... 36,288 1.2%
Ontario Municipal Employees Retirement
Board(11)...................................... 1,321,164 42.7%
All executive officers and directors as a group
(13 persons)................................... 3,297,457 99.9%
</Table>
- ---------------
* Amount represents less than 1% of our capital stock.
(1) Includes (i) 111,470 shares of common stock issuable upon exercise of
options and (ii) 42,995 shares of preferred stock issuable upon exercise of
options.
(2) Includes (i) 1,333 shares of common stock and (ii) 5,892 shares of common
stock issuable upon exercise of options.
(3) Includes (i) 3,000 shares of common stock and (ii) 5,892 shares of common
stock issuable upon exercise of options.
(4) Includes (i) 5,556 shares of common stock and (ii) 19,020 shares of common
stock issuable upon exercise of options.
(5) Includes (i) 4,291 shares of common stock and (ii) 1,779 shares of common
stock issuable upon exercise of options.
(6) Includes 5,540 shares of common stock issuable upon exercise of options.
(7) Includes (i) 9,056 shares of common stock and (ii) 6,127 shares of common
stock issuable upon exercise of options.
(8) Includes 1,702,494 shares of common stock held by J.W. Childs Equity
Partners III, L.P. and its affiliates and 36,288 shares of common stock
held by JWC Fund III Co-Invest LLC which Mr. Byrne may be deemed to
beneficially own by virtue of his position as an Operating Partner of J.W.
Childs Associates, L.P., which manages J.W. Childs Equity Partners III,
L.P. and its affiliates. Mr. Byrne disclaims beneficial ownership of the
shares held by J.W. Childs Equity Partners Ill, L.P. and JWC Fund III
Co-Invest LLC.
(9) The address for these stockholders is c/o J.W. Childs Associates, L.P., 111
Huntington Avenue, Suite 2900, Boston, Massachusetts 02199-7610.
(10) Includes (i) 360,582 shares of common stock and (ii) 300,000 shares of
class A common stock held by Ontario Municipal Employees Retirement Board,
528,466 shares of common stock held by Borealis Private Equity Limited
Partnership and 132,116 shares of common stock held by Borealis (QLP)
Private Equity Limited Partnership which Mr. Graham may be deemed to
beneficially own by virtue of his position as a Portfolio Manager of OMERS
Capital Partners. Mr. Graham disclaims beneficial ownership of the shares
held by Ontario Municipal Employees Retirement Board, Borealis Private
Equity Limited Partnership and Borealis (QLP) Private Equity Limited
Partnership.
(11) Includes (i) 360,582 shares of common stock and (ii) 300,000 shares of
class A common stock held by Ontario Municipal Employees Retirement Board,
528,466 shares of common stock held by Borealis Private Equity Limited
Partnership and 132,116 shares of common stock held by Borealis (QLP)
Private Equity Limited Partnership. The address for these stockholders is
c/o OMERS, One University Avenue, Suite 700, Toronto, Ontario M5J 2P1.
OMERS does not
84
exercise investment control over the funds managed by Borealis Capital
Corporation and disclaims beneficial ownership of the shares held by such
funds.
(12) Includes 528,466 shares of common stock held by Borealis Private Equity
Limited Partnership and Borealis (QLP) Private Equity Limited Partnership
which Mr. LaForge may be deemed to beneficially own by virtue of his
position as a Senior Vice President of Borealis Capital Corporation. Mr.
LaForge disclaims beneficial ownership of the shares held by Borealis
Private Equity Limited Partnership and Borealis (QLP) Private Equity
Limited Partnership.
(13) The address for these stockholders is c/o Borealis Capital Corporation, 1
Adelaide Street East, Suite 2800, Box 198, Toronto, Ontario M5C 2V9.
Borealis Capital Corporation, the manager of Borealis Private Equity
Limited Partnership and Borealis (QLP) Private Equity Limited Partnership,
is a subsidiary of OMERS. OMERS does not exercise investment control over
the funds managed by Borealis Capital Corporation and disclaims beneficial
ownership of the shares held by such funds.
(14) Includes 1,702,494 shares of common stock held by J.W. Childs Equity
Partners III, L.P. and its affiliates and 36,288 shares of common stock
held by JWC Fund Ill Co-Invest LLC which Mr. Rhee may be deemed to
beneficially own by virtue of his position as a Vice President of J.W.
Childs Associates, L.P., which manages J.W. Childs Equity Partners III,
L.P. and its affiliates. Mr. Rhee disclaims beneficial ownership of the
shares held by J.W. Childs Equity Partners III, L.P. and JWC Fund III
Co-Invest LLC.
(15) Includes 1,702,494 shares of common stock held by J.W. Childs Equity
Partners Ill, L.P. and its affiliates and 36,288 shares of common stock
held by JWC Fund Ill Co-Invest LLC which Mr. Segal may be deemed to
beneficially own by virtue of his position as a Partner of J.W. Childs
Associates, L.P., which manages J.W. Childs Equity Partners III, L.P. and
its affiliates. Mr. Segal disclaims beneficial ownership of the shares held
by J.W. Childs Equity Partners Ill, L.P. and JWC Fund III Co-Invest LLC.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
STOCKHOLDERS AGREEMENT
Upon consummation of the transactions, our Sponsors, MAAX Holdings and all
of MAAX Holdings' stockholders, including each of our executive officers and
directors who own capital stock or stock options of MAAX Holdings and the
stockholders affiliated with the Sponsors, entered into a stockholders agreement
governing certain aspects of the relationship among the parties and their
ownership of MAAX Holdings' capital stock. The stockholders agreement includes
provisions relating to restrictions on issue or transfer of shares, call rights,
put rights, tag-along rights, drag-along rights, pre-emptive rights, rights of
first offer, rights of first refusal, registration rights, other special
corporate governance provisions (including the right of our Sponsors to veto
various corporate actions) and the election of directors (including our
company). In the event of the termination of employment of a stockholder who is
a member of management, MAAX Holdings, or another person designated by MAAX
Holdings, may purchase the shares of stock held by the terminated employee. If
neither MAAX Holdings nor MAAX Holdings' designee purchases the shares of stock
held by the terminated employee, the Sponsors will be entitled to do so on a pro
rata basis. If no such person elects to purchase the shares held by the
terminated employee, the employee may force MAAX Holdings or MAAX Holdings'
designee to purchase the shares of stock held by the employee.
MANAGEMENT AGREEMENT
Upon consummation of the transactions, we and MAAX Holdings entered into a
Management Agreement with the Sponsors under which we paid a one-time closing
fee equal to approximately $4.6 million to be shared pro rata among the
Sponsors. In exchange for providing financial and strategic corporate planning
consulting services, the Sponsors will receive consulting fees of an aggregate
of approximately $54,000 per month, plus out-of-pocket expenses.
MERGER AGREEMENT
Certain of our subsidiaries entered into a merger agreement with MAAX Inc.
and such merger agreement is described in this prospectus under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- History -- Impact of the Transactions."
EMPLOYMENT AGREEMENTS
We entered into employment agreements with Messrs. Heroux, Aubin, Boutet,
Henaire, Rochette, Berard, Rake and Stewart, all of which are described in this
prospectus under the caption "Management -- Employment Agreements," that became
effective upon consummation of the transactions.
DIRECTOR COMPENSATION
Other than Mr. Byrne, who received options to purchase 90,370 shares of
common stock of MAAX Holdings, no member of the board of directors receives
compensation for service on the board, other than expense reimbursement. In
connection with the transactions described under "Summary -- Recent Events," we
canceled a portion of the options issued to Mr. Byrne (assuming the transactions
had occurred on August 31, 2004).
LOANS TO EXECUTIVE OFFICERS
On January 26, 2001, MAAX Inc. made a loan to Mr. Heroux, in an aggregate
principal amount of C$917,274 in connection with his purchase of 100,000 common
shares of MAAX Inc. One half of the principal amount of the loan was payable in
three equal installments in the amount of C$152,879
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on February 28 in each of 2002, 2003 and 2004 and bore interest at the legal
interest rate. Upon payment of all such amounts, the remaining balance was
canceled.
SEVERANCE AND RETENTION ARRANGEMENTS
In September 2003, MAAX Inc. entered into severance and retention
agreements with each of Messrs. Patrice Henaire, Jean Rochette, Guy Berard,
Terry Rake, Daniel Stewart and Benoit Boutet. Each of Messrs. Henaire, Rochette,
Berard, Rake, Stewart and Boutet received a retention bonus upon consummation of
the transactions payable in a lump sum of C$30,000, C$88,000, C$37,000,
C$42,000, C$47,000 and C$13,000, respectively. These agreements provide that
each executive is also entitled to receive an amount equal to one year of his
annual base salary plus annual bonus if the executive is terminated as a result
of consummation of the transactions.
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DESCRIPTION OF NEW SENIOR SECURED CREDIT FACILITY
We and all of our Canadian and U.S. subsidiaries entered into a facility on
June 4, 2004 consisting of a term loan B facility, a term loan A facility and a
revolving credit facility. Goldman Sachs Credit Partners L.P. acted as a joint
lead arranger for the entire facility, a joint bookrunner of the term loan B
facility and as the syndication agent. Royal Bank of Canada, acting through its
business group, RBC Capital Markets Corporation, acted as a joint lead arranger
for the entire facility, sole bookrunner for the term loan A facility and the
revolving credit facility and Royal Bank of Canada acted as the administrative
and collateral agent. Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated acted as a joint lead arranger for the entire facility, a joint
bookrunner of the term loan B facility and as the documentation agent. The
following is a description of the principal terms of the facility.
Structure. Our facility provides for a $115.0 million term loan B facility
with a maturity of seven years, and a C$130.0 million term loan A facility and a
C$50.0 million revolving credit facility, which may be borrowed in either
Canadian or U.S. dollars, each with a maturity of five years and three months.
The revolving credit facility includes a sublimit for the issuance of letters of
credit and a sublimit for swing line loans. Proceeds of the term loans were
used, and $12.0 million of the revolving facility were used, on the closing date
in connection with the transactions. In addition, $1.6 million of the revolving
credit facility was drawn on the closing date to replace or backstop former
letters of credit and letters of guarantee. Proceeds of the revolving facility
will be used to provide financing for working capital and general corporate
purposes. The new senior secured credit facility permits us to incur, from time
to time, up to $50.0 million in one or more additional series of term loans
which will have the benefit of the security and the guarantees described below.
Such an increase in the term loans will occur at our option if certain
conditions are satisfied, including being in compliance with our financial
covenants on a pro forma basis and receipt of commitments from lenders for such
additional amount.
Security/Guarantees. Beauceland Corporation and all existing and future,
direct and indirect Canadian and U.S. subsidiaries of Beauceland Corporation,
subject to certain exceptions agreed to in the loan documents, unconditionally
guarantee our obligations under the facility. In addition, our obligations under
the facility and the obligations of the guarantors under the guarantees are
secured by substantially all of our assets, and each guarantor's assets,
including:
- a first priority perfected security interest in all of the capital stock
of each of Beauceland Corporation's direct and indirect Canadian and U.S.
subsidiaries and 65% of the capital stock of each other subsidiary
directly or indirectly owned by Beauceland Corporation or any of its
Canadian or U.S. subsidiaries; and
- a first priority perfected security interest in substantially all of our
and the guarantors' other present and future assets and properties,
including, without limitation, accounts receivable, inventory, real
property, machinery, equipment, contracts, intellectual property, license
rights and general intangibles.
Amortization. We are required to repay the amounts borrowed under each of
the term loan facilities in installments on March 31, June 30, September 30 and
December 31 of each loan year and on the maturity date of the applicable
facility. Installment payments under the term loan B facility began on September
30, 2004 and equal 0.25% of the initial principal amount of such facility for
each of the first 24 installment payments and 23.50% for each of the final four
installment payments. Installment payments under the term loan A facility begin
on December 31, 2004 and equal 1.25% of the initial principal amount of such
facility for each of the first four installment payments, 2.50% of such amount
for each of installment payments 5 through 8, 3.75% of such amount for each of
installment payments 9 through 12, 5.00% of such amount for each of installment
payments 13 through 16, and 12.50% of such amount for each of installment
payments 16 through 20.
88
Interest. The Canadian dollar amounts outstanding under the facility bear
interest at a rate per annum equal to the Prime Rate (which is the greater of
(x) the administrative agent's reference rate of interest for commercial
customers and (y) the yield rate for one month bankers' acceptances displayed on
the Reuters CDOR Page, plus 1%) plus an applicable margin or, at our option, the
BA Discount Rate (which (a) in the case of Schedule I lenders is determined by
reference to the British Bankers Association Interest Settlement Rate and (b) in
the case of all other lenders is determined largely by reference to the Reuters
CDOR page yield rate for a bankers' acceptance of the applicable maturity) plus
an applicable margin. The U.S. dollar amounts outstanding under the facility
bear interest at a rate per annum equal to the Base Rate (which is equal to the
greater of (i) (x) in the case of loans made by lenders out of Canada only, the
administrative agent's reference rate of interest for loans in U.S. dollars to
its Canadian borrowers and (y) in all other cases, the administrative agent's
reference rate of interest for commercial loans quoted by its New York branch
and (ii) the federal funds effective rate as published by the Federal Reserve
Bank of New York plus 0.50%) plus an applicable margin or, at our option, the
Adjusted Eurodollar Rate (which is determined by reference to the British
Bankers Association Interest Settlement Rate) plus an applicable margin. Each
outstanding swing line loan bears interest at (i) if denominated in U.S.
dollars, the Base Rate plus the applicable margin and (ii) if denominated in
Canadian dollars, the Prime Rate plus the applicable margin. Commencing with the
delivery of our financial statements for the second fiscal quarter commencing
after the closing date, the applicable margins for the loans will be determined
pursuant to a grid based on our total leverage ratio. Interest on amounts not
paid when due will accrue at a rate equal to the rate on loans bearing interest
at the rate determined by reference to the Base Rate or Prime Rate, as
applicable, plus an applicable margin.
Optional Prepayments. Loans (other than bankers' acceptances) may be
prepaid at any time by giving prior written notice thereof, in each case,
without premium or penalty (except LIBOR breakage costs). Bankers' acceptances
may only be prepaid at the end of the applicable interest period.
Mandatory Prepayments or Offers to Prepay. Subject to exceptions, our
facility must be prepaid, or we must make an offer to prepay, in an amount equal
to:
- 100% of the net cash proceeds of all asset sales by Beauceland
Corporation or any of its subsidiaries (including sales or issuances of
stock of subsidiaries);
- 100% of all casualty and condemnation net cash proceeds received by
Beauceland Corporation or any of its subsidiaries;
- 50% of the net cash proceeds from the issuance of equity by, or equity
contributions to, any parent company of us;
- 100% of the net cash proceeds from the issuance of any debt (other than
permitted debt) by Beauceland Corporation or any of its subsidiaries; and
- 75% of our excess cash flow (subject to reduction to a lower percentage
based upon our total leverage ratio).
Prior to 5 years from the closing date, we are not required to make
amortization payments of the term loan B or mandatory prepayments under the term
loan B facilities in respect of equity issuances or excess cash flow in an
aggregate amount of more than 25% of the original principal amount of the term
loan B. We will be required to make any amortization payments or mandatory
prepayments not made due to the foregoing sentence five years and one day after
the closing date.
Fees. We are required to pay the following fees under our facility:
- a commitment fee of 0.50% per annum, payable quarterly in arrears,
calculated on the unused portion of the revolving credit facility;
provided that, commencing with the delivery of our quarterly financial
statements for the second fiscal quarter ending after the closing date
the commitment fee percentage is subject to reduction to 0.40% per annum
if our total
89
leverage ratio is less than or equal to 3.5x but greater than 2.5x and to
0.35% per annum if our total leverage ratio is less than or equal to
2.5x;
- a letter of credit fee equal to the applicable margin for Eurodollar Rate
revolving loans, with respect to U.S. dollar denominated letters of
credit and bankers' acceptances, with respect to Canadian dollar
denominated letters of credit multiplied by the average daily aggregate
amount available to be drawn under all letters of credit, payable
quarterly in arrears;
- customary fronting fees in connection with the issuances of letters of
credit;
- an annual fee to the administrative agent; and
- certain expenses of the lenders and agents.
Financial Covenants. Our facility contains financial covenants that
require Beauceland Corporation and its subsidiaries to comply with certain
financial ratios and tests, including a minimum fixed charge coverage ratio, a
minimum interest coverage ratio, a maximum capital expenditure amount and a
maximum total leverage ratio.
Our facility also contains operational covenants and other restrictions
that, among other things, subject to certain exceptions and baskets, restrict
Beauceland Corporation's ability and the ability of its subsidiaries to:
- incur additional indebtedness and guarantee obligations;
- create liens on assets;
- make investments;
- pay dividends, redeem stock and prepay and/or redeem other indebtedness;
- engage in mergers, consolidations and sales of assets; and
- engage in transactions with affiliates.
Events of Default. Our facility contains the following events of default:
- payment defaults;
- defaults under other debt;
- breach or non-performance of covenants;
- breach of representations and warranties;
- certain events of bankruptcy and insolvency;
- the entering of judgments in excess of specified amounts against us;
- ERISA defaults;
- the actual or asserted invalidity of any security interest in collateral
or any guarantees; and
- change of control.
On December 3, 2004, our senior secured credit facility was amended to
permit the offering of the senior discount notes described under the caption
"Summary -- Recent Events" and to permit dividends or distributions by us or
Beauceland Corporation to MAAX Holdings in amounts sufficient for MAAX Holdings
to satisfy its mandatory redemption obligation and service cash interest on the
senior discount notes when they become due so long as we are in pro forma
compliance with our financial covenants and no event of default or default under
certain specified provisions of our senior secured credit facility exists or
would occur as a result of such dividend or distribution.
90
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "-- Certain Definitions." In this description, the word
"Issuer" refers only to MAAX Corporation and not to any of its subsidiaries, and
the word "Holdings" refers to Beauceland Corporation and not to any of its
subsidiaries.
The Issuer issued the original notes and will issue the exchange notes
under an indenture among itself, the Guarantors and U.S. Bank Trust National
Association, as trustee, a copy of which is incorporated by reference as an
exhibit to the registration statement of which this prospectus forms a part. The
terms of the notes include those stated in the indenture and those made part of
the indenture by reference to the U.S. Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as holders of these notes in addition to those rights you have under
the federal securities laws. Copies of the indenture and registration rights
agreement are incorporated by reference and filed as exhibits to the
registration statement of which this prospectus forms a part and are available
as set forth below under " -- Additional Information."
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
The notes are:
- general unsecured obligation of the Issuer;
- subordinated in right of payment to all existing and future Senior Debt
of the Issuer;
- equal in right of payment to any future unsecured Indebtedness of the
Issuer that is subordinated in right of payment to any other Indebtedness
of the Issuer;
- senior in right of payment to any future Indebtedness of the Issuer that
expressly provides that it is junior in right of payment to the notes;
and
- unconditionally guaranteed by the Guarantors.
The notes are guaranteed by Holdings and each of its existing and future
Restricted Subsidiaries that guarantee any Credit Facility.
The Guarantee by each Guarantor is:
- a general unsecured obligations of such Guarantor;
- subordinated in right of payment to all existing and future Senior Debt
of such Guarantor;
- equal in right of payment with any future unsecured Indebtedness of such
Guarantor that is subordinated in right of payment to any other
Indebtedness of such Guarantor; and
- senior in right of payment to any future Indebtedness of such Guarantor
that expressly provides that it is junior in right of payment to the
Guarantee of such Guarantor.
As of August 31, 2004, the Issuer and the Guarantors had total Senior Debt
of approximately $214 million and up to an additional approximately $39.6
million of Senior Debt was available, subject to meeting certain borrowing
conditions, to be borrowed under the Credit Agreement. As indicated above and as
discussed in detail below under the subheading "-- Subordination," payments on
the notes and under the Guarantees are subordinated to the payment of Senior
Debt. The indenture permits us and the Guarantors to incur additional Senior
Debt.
91
As of the date of the indenture, all of Holdings' subsidiaries were
"Restricted Subsidiaries." However, under the circumstances described below
under "-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," Holdings is permitted to designate certain of its subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
the restrictive covenants in the indenture, but transactions between Holdings
and/or any of the Restricted Subsidiaries on the one hand and any of the
Unrestricted Subsidiaries on the other hand will be subject to certain
restrictive covenants.
The European Subsidiaries are not Guarantors and any Unrestricted
Subsidiaries will not be Guarantors. The notes are structurally subordinated to
the Indebtedness and other obligations (including trade payables) of the
European Subsidiaries. The notes will be structurally subordinated to the
Indebtedness and other obligations (including trade payables) of the
Unrestricted Subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
In the offering, the Issuer issued $150.0 million in aggregate principal
amount of notes. The indenture provides that the Issuer may issue additional
notes from time to time. Any issuance of additional notes is subject to all of
the covenants in the indenture, including the covenant described below under the
caption "-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock." The notes and any additional notes subsequently issued under
the indenture will be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. The Issuer issued the original notes and will issue the
exchange notes in denominations of $1,000 and integral multiples of $1,000. The
notes will mature on June 15, 2012.
Interest on the notes will accrue at the rate of 9.75% per annum and will
be payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 2004. Interest on overdue principal and interest and Special
Interest will accrue at the then applicable interest rate on the notes. The
Issuer will make each interest payment to the holders of record on the
immediately preceding June 1 and December 1.
Interest on the notes will accrue from the date of original issuance of the
original notes or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of notes owning at least $5.0 million in principal amount of
notes has given wire transfer instructions to the Issuer, the Issuer will pay
all principal, interest and premium and Special Interest, if any, on that
holder's notes in accordance with those instructions. All other payments on the
notes will be made at the office or agency of the paying agent and registrar
within the City and State of New York unless the Issuer elects to make interest
payments by check mailed to the holders of notes at their address set forth in
the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. The Issuer
may change the paying agent or registrar without prior notice to the holders of
the notes, and Holdings or any of its Subsidiaries may act as paying agent or
registrar other than in connection with the discharge or defeasance provisions
of the indenture.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the provisions
of the indenture. The registrar and the trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents in
connection with a transfer of notes. Holders will be
92
required to pay all taxes due on transfer. The Issuer is not required to
transfer or exchange any note selected for redemption. Also, the Issuer is not
required to transfer or exchange any note for a period of 15 days before a
selection of notes to be redeemed.
GUARANTEES
The Guarantors jointly and severally, fully and unconditionally, guarantee
the Issuer's obligations under the notes. The Guarantee of each Guarantor is
subordinated to the prior payment in full in cash or cash equivalents of all
Senior Debt of that Guarantor to the same extent that the notes are subordinated
to Senior Debt of the Issuer. The obligations of each Subsidiary Guarantor under
its Guarantee are limited as necessary to prevent that Guarantee from
constituting a fraudulent conveyance under applicable law.
SUBORDINATION
The payment of all Obligations on or relating to the notes is subordinated
in right of payment to the prior payment in full in cash or cash equivalents of
all Obligations on Senior Debt of the Issuer (including all Obligations with
respect to any Credit Facility, whether outstanding on the Issue Date or
thereafter incurred). Notwithstanding the foregoing, payments and distributions
made from a trust established pursuant to the provisions described under
"-- Satisfaction and Discharge" or "-- Legal Defeasance and Covenant Defeasance"
shall not be so subordinated in right of payment so long as the payments into
the trust were made in accordance with the requirements described under
"-- Satisfaction and Discharge" or "-- Legal Defeasance and Covenant
Defeasance," as the case may be, and did not violate the subordination
provisions when they were made.
The holders of Senior Debt will be entitled to receive payment in full in
cash or cash equivalents of all Obligations due in respect of Senior Debt before
the holders of notes will be entitled to receive any payment or distribution of
any kind or character with respect to any Obligations on, or relating to, the
notes (other than payments or distributions of Permitted Junior Securities or
payments and distributions from a trust established pursuant to the provisions
described under "-- Satisfaction and Discharge" or "-- Legal Defeasance and
Covenant Defeasance" so long as the payments into the trust were made in
accordance with the requirements described under "-- Satisfaction and Discharge"
or "-- Legal Defeasance and Covenant Defeasance," as the case may be, and did
not violate the subordination provisions when they were made) in the event of
any distribution to creditors of the Issuer:
(1) in a total or partial liquidation, dissolution or winding-up of the
Issuer;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Issuer or its assets;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of the Issuer's assets and liabilities.
The Issuer also may not make any payment or distribution of any kind or
character with respect to any Obligations on, or relating to, the notes or
acquire any notes for cash or assets or otherwise, other than payments or
distributions of Permitted Junior Securities and payments and distributions made
from a trust established pursuant to the provisions described under
"-- Satisfaction and Discharge" or "-- Legal Defeasance and Covenant Defeasance"
so long as the payments into the trust were made in accordance with the
requirements described under "-- Satisfaction and Discharge" or "-- Legal
Defeasance and Covenant Defeasance," as the case may be, and did not violate the
subordination provisions when they were made, if:
(1) a payment default on any Senior Debt occurs and is continuing
beyond the applicable grace period, if any; or
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(2) any other default occurs and is continuing on Designated Senior
Debt that permits holders of the Designated Senior Debt to accelerate its
maturity and the trustee receives a notice of such default (a "PAYMENT
BLOCKAGE NOTICE") from the Representative of any Designated Senior Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which all
payment defaults are cured or waived; and
(2) in case of a nonpayment default, the earliest of (x) the date on
which all such nonpayment defaults are cured or waived, (y) 179 days after
the date on which the applicable Payment Blockage Notice is received or (z)
the date on which the trustee receives notice from the Representative for
such Designated Senior Debt rescinding the Payment Blockage Notice, unless
the maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period ending after the date of delivery of such initial Payment
Blockage Notice that in either case would give rise to a default pursuant to any
provisions under which a default previously existed or was continuing shall
constitute a new default for this purpose).
The Issuer must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Issuer, holders of the
notes may recover less ratably than creditors of the Issuer who are holders of
Senior Debt. See "Risk Factors -- Risks Related to the Notes -- The notes will
be unsecured and subordinated to our senior debt."
ADDITIONAL AMOUNTS
All amounts paid or credited by the Issuer under or with respect to the
notes, or by any Guarantor pursuant to the Guarantees, will be made free and
clear of and without withholding or deduction for or on account of any present
or future tax, duty, levy, impost, assessment or other governmental charge
(including penalties, interest and other liabilities or expenses related
thereto) (hereinafter, "TAXES") imposed or levied by or on behalf of the
Government of Canada or the United States or of any province, territory, state
or other political subdivision thereof or by any authority or agency therein or
thereof having power to tax (each, a "RELEVANT TAXING JURISDICTION"), unless the
Issuer or such Guarantor, as the case may be, is required to withhold or deduct
any amount for or on account of Taxes by law or by the interpretation or
administration thereof. If the Issuer or any Guarantor is required to withhold
or deduct any amount for or on account of any such Taxes from any amount paid or
credited under or with respect to the notes or the Guarantees, the Issuer or
such Guarantor will pay such additional amounts (the "ADDITIONAL AMOUNTS") as
may be necessary so that the net amount received by each owner of a beneficial
interest in the notes (an "owner" for the purposes of this "Additional Amounts"
section) (including Additional Amounts) after such withholding or deduction
(including any withholding or deduction in respect of Additional Amounts) will
not be less than the amount such owner would have received if such Taxes had not
been withheld or deducted; provided, however, that Additional Amounts will not
be payable to an owner or
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holder of notes with respect to any Taxes to the extent such Taxes ("EXCLUDED
TAXES") would not have been imposed but for such owner or holder being an owner
or holder:
(1) in the case of Canadian Taxes, with which the Issuer or such
Guarantor does not deal at arm's length (within the meaning of the Income
Tax Act (Canada)) at the time of making a payment;
(2) which is subject to such Taxes by reason of such owner or holder
being connected with the Relevant Taxing Jurisdiction other than solely by
reason of the mere acquisition or holding of notes, the receipt of payments
thereunder or the enforcement of the holder's or owner's rights thereunder;
(3) which failed to duly and timely comply with a timely request of the
Issuer to provide information, documents, certification or other evidence
concerning such owner's or holder's nationality, residence, entitlement to
treaty benefits, identity or connection with a Relevant Taxing Authority,
but only if such owner or holder is legally entitled to comply with such
request and only to the extent that due and timely compliance with such
request would have resulted in the reduction or elimination of the Taxes in
question;
(4) in the case of United States Taxes, which do not qualify for the
"portfolio interest exception" contained in Sections 871(h) and 881(c) of
the U.S. Internal Revenue Code of 1986, as amended; or
(5) which is a fiduciary, a partnership or not the beneficial owner of
a note, if and to the extent that any beneficiary or settlor of such
fiduciary, any partner in such partnership or the beneficial owner of such
note (as the case may be) would not have been entitled to receive
Additional Amounts with respect to the payment in question if such
beneficiary, settlor, partner or beneficial owner had been the holder of
such note (but only if there is no material cost or expense associated with
transferring such note to such beneficiary, settlor, partner or beneficial
owner and no restriction on such transfer that is outside the control of
such beneficiary, settlor, partner or beneficial owner).
The Issuer or such Guarantor will also (a) make such withholding or deduction
and (b) remit the full amount deducted or withheld to the relevant authority in
accordance with and in the time required under applicable law.
The Issuer or the Guarantor will furnish the holders of the notes, within
30 days after the date the payment of any Taxes is due pursuant to applicable
law, evidence of such payment by the Issuer or such Guarantor. The Issuer and
the Guarantors will indemnify and hold harmless each holder and owner from and
against (x) any Taxes (other than Excluded Taxes) levied or imposed on such
holder or owner as a result of payments or credits made under or with respect to
the notes or the Guarantees, and (y) any Taxes (other than Excluded Taxes) so
levied or imposed with respect to any indemnification payments under the
foregoing clause (x) or this clause (y) such that the net amount received by
such holder or owner after such indemnification payments will not be less than
the net amount the holder or owner would have received if the Taxes described in
clauses (x) and (y) above had not been imposed.
At least 30 days prior to each date on which any payment under or with
respect to the notes is due and payable, if the Issuer or any Guarantor will be
obligated to pay Additional Amounts with respect to such payment, the Issuer or
such Guarantor will deliver to the trustee an officers' certificate stating the
fact that such Additional Amounts will be payable and the amounts so payable and
will set forth such other information necessary to enable the trustee to pay
such Additional Amounts to holders or owners on the payment date. Whenever in
the indenture or in this "Description of Notes" there is mentioned, in any
context, the payment of principal, premium, if any, redemption price, Change of
Control Payment, Asset Sale Offer purchase price, interest or any other amount
payable under or with respect to any note, such mention shall be deemed to
include mention
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of the payment of Additional Amounts or indemnification payments to the extent
that, in such context, Additional Amounts or indemnification payments are, were
or would be payable in respect thereof.
The Issuer and the Guarantors will pay any present or future stamp, court,
documentary or other excise or property Taxes, charges or similar levies that
arise in any Relevant Taxing Jurisdiction from the execution, delivery or
registration of, or enforcement of rights under, the notes, the indenture, any
Guarantee or any related document ("DOCUMENTARY TAXES").
The obligation to pay any Additional Amounts (and any associated
indemnification payments) and Documentary Taxes under the terms and conditions
described above will survive any termination, defeasance or discharge of the
indenture.
OPTIONAL REDEMPTION
On or after June 15, 2008 (the "FOURTH ANNIVERSARY"), the Issuer may on any
one or more occasions redeem all or a part of the notes at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Special Interest, if any, on the notes redeemed to the
redemption date, if redeemed during the twelve-month period beginning on June 15
of the years indicated below, subject to the rights of holders of notes on the
relevant record date to receive interest on the relevant interest payment date:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2008........................................................ 104.875%
2009........................................................ 102.438%
2010 and thereafter......................................... 100.000%
</Table>
REDEMPTION AT MAKE-WHOLE PREMIUM
At any time prior to the Fourth Anniversary, the Issuer may on any one or
more occasions redeem all or a part of the notes, at a redemption price equal to
100% of the principal amount thereof plus the Applicable Premium, plus accrued
and unpaid interest and Special Interest, if any, on the notes to be redeemed to
the date of redemption, subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date; provided that in the case of any redemption in part, at least 50% of the
aggregate principal amount of notes issued under the indenture (including any
additional notes) remains outstanding after giving effect to such redemption.
"APPLICABLE PREMIUM" means, with respect to a note at any redemption date,
the greater of:
(1) 1.0% of the principal amount of such Note; and
(2) the excess of:
(a) the present value at such redemption date of (1) the
redemption price of such note on the Fourth Anniversary set forth in
the first paragraph of this "-- Optional Redemption" section plus (2)
all required remaining scheduled interest payments due on such note
through the Fourth Anniversary, other than accrued interest to such
redemption date, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, discounted on a semi-annual bond equivalent
basis, over
(b) the principal amount of such Note on such redemption date.
Calculation of the Applicable Premium will be made by the Issuer or on behalf of
the Issuer by such Person as the Issuer shall designate; provided, however, that
such calculation shall not be a duty or obligation of the trustee.
"TREASURY RATE" means, with respect to a redemption date, the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled and
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published in the most recent Federal Reserve Statistical Release H.15(519) that
has become publicly available at least two Business Days prior to such
redemption date (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the
period from such redemption date to the Fourth Anniversary; provided, however,
that if the period from such redemption date to the Fourth Anniversary is not
equal to the constant maturity of the United States Treasury security for which
a weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from such redemption date to the Fourth
Anniversary is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
REDEMPTION WITH PROCEEDS OF EQUITY OFFERINGS
At any time prior to June 15, 2007, the Issuer may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture (including any additional notes) at a redemption price of
109.750% of the principal amount, plus accrued and unpaid interest and Special
Interest, if any, on the notes to be redeemed to the redemption date, with the
net cash proceeds of one or more Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes issued
under the indenture (including any additional notes, but excluding notes
held by the Issuer or any of its Affiliates) remains outstanding
immediately after the occurrence of such redemption; and
(2) the redemption occurs within 90 days of the date of the closing of
such Equity Offering.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The Issuer may redeem all, but not less than all, of the notes at any time,
upon not less than 30 nor more than 60 days' notice, at 100% of the aggregate
principal amount of the notes, together with accrued and unpaid interest and
Special Interest, if any, to the redemption date, if the Issuer has become or
would become obligated to pay, on the next date on which any amount would be
payable with respect to the notes, any Additional Amounts as a result of a
change in the laws (including any regulations promulgated thereunder) of a
Relevant Taxing Jurisdiction, or any change in any official position of any
governmental agency, taxing authority or regulatory authority regarding the
application or interpretation of such laws or regulations, which change is
announced on or after the date of the offering (a "CHANGE IN LAW"), and the
Issuer cannot avoid such obligation by taking reasonable measures available to
it.
Before the Issuer publishes or mails notice of redemption of the notes as
described above, the Issuer will deliver to the trustee an officers' certificate
to the effect that it cannot avoid its obligation to pay Additional Amounts by
taking reasonable measures available to it and an opinion of independent legal
counsel of recognized standing stating that the Issuer would be obligated to pay
Additional Amounts as a result of a Change in Law. No such notice of redemption
may be given more than 60 days before or more than 90 days after the Issuer
first becomes aware of its liability to pay any Additional Amounts as a result
of a Change in Law.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
97
(2) if the notes are not listed on any national securities exchange, on
a pro rata basis, by lot or by such method as the trustee deems fair and
appropriate;
provided that if a partial redemption is made pursuant to the provisions
described under "-- Redemption with Proceeds from Equity Offerings," selection
of the notes or portions thereof for redemption shall be made by the trustee
only on a pro rata basis or on as nearly a pro rata basis as is practicable
(subject to the procedures of The Depository Trust Company), unless that method
is otherwise prohibited.
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notices of redemption
may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption, unless the
Issuer defaults in the payment of the redemption price.
The Issuer may acquire notes by means other than a redemption, whether
pursuant to a tender offer, open market purchase, negotiated transaction or
otherwise, so long as such acquisition does not otherwise violate the terms of
the indenture.
MANDATORY REDEMPTION
Except as described below under "-- Offer to Purchase," the Issuer is not
required to make mandatory redemption or sinking fund payments with respect to
the notes.
OFFER TO PURCHASE
CHANGE OF CONTROL
If a Change of Control occurs, the Issuer will be required to make an offer
to purchase all notes as described below (the "CHANGE OF CONTROL OFFER") on the
terms set forth in the indenture. In the Change of Control Offer, the Issuer
will offer a payment in cash ("CHANGE OF CONTROL PAYMENT") equal to 101% of the
aggregate principal amount of notes repurchased plus accrued and unpaid interest
and Special Interest, if any, on the notes purchased, to the date of purchase,
subject to the rights of holders of notes on the relevant record date to receive
interest due on the relevant interest payment date. Within thirty days following
any Change of Control, the Issuer will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase notes on the Change of Control Payment Date specified in
the notice, which date will be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, pursuant to the procedures required by the
indenture and described in such notice.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions of the indenture, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the indenture by virtue of
such compliance.
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On the Change of Control Payment Date, the Issuer will, to the extent
lawful:
(1) accept for payment all notes or portions of notes in minimum
amounts equal to $1,000 or an integral multiple of $1,000 in excess
thereof, properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by the
Issuer.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
The Issuer will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Issuer to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that require the Issuer to redeem or offer to purchase the notes in the event of
a takeover, recapitalization or similar transaction.
The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if (1) a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Issuer and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer or (2) notice of redemption has been given pursuant to the
indenture as described above under the caption "-- Optional Redemption," unless
and until there is a default in payment of the applicable redemption price.
Notwithstanding the foregoing, the Issuer will not be required to make a
Change of Control Offer, as provided above, if, in connection with or in
contemplation of any Change of Control, it or a third party has made an offer to
purchase (an "ALTERNATE OFFER") any and all notes validly tendered at a cash
price equal to or higher than the Change of Control Payment and has purchased
all notes properly tendered in accordance with the terms of such Alternate
Offer.
The definition of "Change of Control" includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of Holdings and the
Restricted Subsidiaries taken as a whole. Although there is a limited body of
case law interpreting the phrase "substantially all," there is no precise
established definition of the phrase under applicable law. Accordingly the
requirement that the Issuer make a Change of Control Offer as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Holdings and the Restricted Subsidiaries taken as a whole to another
Person or group may be uncertain.
99
ASSET SALES
Holdings will not, and will not permit any Restricted Subsidiary to,
consummate an Asset Sale unless:
(1) Holdings (or a Restricted Subsidiary) receives consideration at the
time of the Asset Sale at least equal to the Fair Market Value of the
assets or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration received in the Asset Sale by
Holdings or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following will be
deemed to be cash:
(a) any liabilities, as shown on Holdings' most recent
consolidated balance sheet, of Holdings or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated to the
notes or any Guarantee) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases
Holdings or such Restricted Subsidiary from such liabilities;
(b) any securities, notes or other obligations received by
Holdings or any such Restricted Subsidiary from such transferee that
are, within 180 days of the Asset Sale, converted by Holdings or such
Restricted Subsidiary into cash or Cash Equivalents, to the extent of
the cash or Cash Equivalents received in that conversion; and
(c) any stock or assets of the kind referred to in clause (2) or
(4) of the next paragraph of this covenant.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Holdings (or a Restricted Subsidiary) may apply those Net Proceeds at its
option:
(1) to repay any Senior Debt and, if the Indebtedness repaid is
revolving credit Indebtedness, to correspondingly reduce commitments with
respect thereto;
(2) to acquire all or substantially all of the assets of, or any
Capital Stock of, a Person engaged in a Permitted Business; provided that
in the case of acquisition of Capital Stock of any Person, such acquisition
is permitted by the covenant described below under the caption "-- Certain
Covenants -- Restricted Payments" (without giving effect to clause (4) of
the definition of "Permitted Investments");
(3) to make a capital expenditure; or
(4) to acquire other assets that are not classified as current assets
under GAAP and that are used or useful in a Permitted Business.
Pending the final application of any Net Proceeds, Holdings (or a
Restricted Subsidiary) may temporarily reduce revolving credit borrowings or
otherwise invest the Net Proceeds in any manner that is not prohibited by the
indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the second paragraph of this covenant will constitute "EXCESS
PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
the Issuer will make an offer to purchase (an "ASSET SALE OFFER"), to all
holders of notes and all holders of other Indebtedness that is pari passu with
the notes containing provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets,
the maximum principal amount of notes and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds. The offer price for the notes
in any Asset Sale Offer will be equal to 100% of principal amount of the notes
plus accrued and unpaid interest and Special Interest thereon, if any, to the
date of purchase, and will be payable in cash, and the offer or redemption price
for such pari passu Indebtedness shall be as set forth in the related
documentation governing such Indebtedness. If any Excess Proceeds
100
remain after consummation of an Asset Sale Offer, the Issuer may use those
Excess Proceeds for any purpose not otherwise prohibited by the indenture. If
the aggregate principal amount of notes and other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
trustee will select the notes and such other pari passu Indebtedness to be
purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds will be reset at zero.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
compliance.
The Credit Agreement will contain prohibitions on the ability of the Issuer
to voluntarily repurchase, redeem or prepay certain of its indebtedness,
including the notes, and limitations on the Issuer's ability to engage in Asset
Sales, and provides that any Change of Control under the indenture governing the
notes constitutes an event of default under the Credit Agreement. Additionally,
future agreements may contain prohibitions of certain events, including events
that would constitute a Change of Control or an Asset Sale and including
repurchases of or other prepayments in respect of the notes. The acceptance by
the holders of the notes of an offer to repurchase made by the Issuer upon a
Change of Control or an Asset Sale could cause a default under these other
agreements, even if the Change of Control or Asset Sale itself does not, due to
the financial effect of such repurchases on the Issuer. In the event a Change of
Control or Asset Sale occurs at a time when the Issuer is prohibited from
purchasing notes, the Issuer could seek the consent of its other lenders to the
purchase of notes or could attempt to refinance the borrowings that contain such
prohibition. If the Issuer does not obtain a consent or repay those borrowings,
the Issuer will remain prohibited from purchasing notes. In that case, the
Issuer's failure to purchase tendered notes would constitute an Event of Default
under the indenture which, in turn, may constitute a default under the other
indebtedness. In such circumstances the subordination provisions in the
indenture would likely restrict payments to the holders of the notes. Finally,
the Issuer's ability to pay cash to the holders of notes upon a repurchase may
be limited by the Issuer's then existing financial resources. See "Risk
Factors -- Risks Relating to the Notes -- We may be unable to purchase the notes
upon a change of control."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Equity Interests of Holdings or any
Restricted Subsidiary (including, without limitation, any payment in
connection with any merger, amalgamation or consolidation involving
Holdings or any Restricted Subsidiary) or to the direct or indirect holders
of the Equity Interests of Holdings or any Restricted Subsidiary in their
capacity as such (other than (A) dividends or distributions payable in
Qualified Equity Interests, (B) dividends or distributions payable to
Holdings or any Restricted Subsidiary and (C) any dividend, payment or
distribution made on the Issue Date in connection with the amalgamation as
described in this prospectus under the caption "Use of Proceeds");
(ii) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger, amalgamation
or consolidation involving Holdings) any Equity Interests of Holdings or
any Parent Company;
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(iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness of the
Issuer or any Guarantor that is contractually subordinated to the notes or
any Guarantee (excluding any Indebtedness owed to and held by Holdings or
any Restricted Subsidiary), other than (x) payments of interest or
principal at the Stated Maturity thereof and (y) payments, purchases,
redemptions, defeasances or other acquisitions or retirements for value in
anticipation of satisfying a scheduled maturity, sinking fund or
amortization or other installment obligation or mandatory redemption, in
each case, due within one year of the Stated Maturity thereof; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of
and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment;
(2) Holdings would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holdings and the Restricted Subsidiaries
since the date of the indenture (excluding Restricted Payments permitted by
clauses (2), (3), (4), (5), (6), (7), (8), (9) and (10) of the next
succeeding paragraph), is not greater than the sum, without duplication,
of:
(a) 50% of the Consolidated Net Income of Holdings for the period
(taken as one accounting period) from the beginning of the fiscal
quarter in which the Issue Date occurs to the end of Holdings' most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit); plus
(b) 100% of the aggregate net cash proceeds received by Holdings,
and 100% of the Fair Market Value at the time of receipt of assets
other than cash, if any, received by Holdings, after the date of the
indenture as a contribution to its common equity capital or from the
issue or sale of Qualified Equity Interests or from the issue or sale
(other than to a Subsidiary of Holdings) of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities of
Holdings that have been converted into or exchanged for Qualified
Equity Interests; plus
(c) to the extent that any Restricted Investment that was made
after the date of the indenture is sold for cash or Holdings or a
Restricted Subsidiary otherwise receives Cash Equivalents therefor, the
return of capital in cash or Cash Equivalents with respect to such
Restricted Investment (less the cost of disposition, if any); plus
(d) to the extent that any Unrestricted Subsidiary is
redesignated as a Restricted Subsidiary after the date of the
indenture, the Fair Market Value of the Investment of Holdings and the
Restricted Subsidiaries in such Subsidiary as of the date of such
redesignation.
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The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the dividend
payment would have complied with the provisions of the indenture;
(2) the making of any Restricted Payment in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of Holdings) of, Qualified Equity Interests or from the
substantially concurrent contribution of common equity capital to Holdings;
provided that the amount of any such net cash proceeds that is utilized for
any such Restricted Payment will be excluded from clause (3)(b) of the
preceding paragraph;
(3) the payment, defeasance, redemption, repurchase or other
acquisition or retirement for value of Indebtedness of the Issuer or any
Guarantor that is contractually subordinated to the notes or to any
Guarantee with the net cash proceeds from a substantially concurrent
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend (or, in the case of any partnership,
limited liability company or unlimited company, any similar distribution)
by a Restricted Subsidiary of Holdings to the holders of its Equity
Interests on a pro rata basis taking into account the relative preferences,
if any, of the various classes of equity interests in such Restricted
Subsidiary;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Holdings or any Restricted Subsidiary, or
payments by Holdings to any Parent Company to permit, and which are used
by, any Parent Company to repurchase, redeem or otherwise acquire or retire
for value any Equity Interests of any Parent Company, in each case, held by
any current or former officer, director, consultant or employee of Holdings
or any Restricted Subsidiary (or permitted transferees, assigns, estates or
heirs of any of the foregoing); provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests may
not exceed $5.0 million in any calendar year (excluding for purposes of
calculating such amount the purchase price of Equity Interests repurchased,
redeemed, acquired or retired with the proceeds from the repayment of loans
by Holdings or a Restricted Subsidiary made for the purpose of purchasing
such Equity Interests), with unused amounts being available to be used in
the following calendar year, but not in any succeeding calendar year;
(6) the repurchase of Equity Interests deemed to occur upon the
exercise of stock options to the extent such Equity Interests represent a
portion of the exercise price of those stock options;
(7) the declaration and payment of dividends on Designated Preferred
Stock in accordance with the certificate of designations therefor; provided
that at the time of issuance of such Designated Preferred Stock, Holdings
would, after giving pro forma effect thereto as if such issuance had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(8) payments made to purchase, redeem, defease or otherwise acquire or
retire for value any Equity Interests of Holdings or any Restricted
Subsidiary or any Indebtedness of the Issuer or any Guarantor that is
contractually subordinated to the notes or to any Guarantee, in each case,
pursuant to provisions requiring such Person to offer to purchase, redeem,
defease or otherwise acquire or retire for value such Equity Interests or
subordinated Indebtedness upon the occurrence of a "change of control" or
with the proceeds of "asset sales" as defined in the charter provisions,
agreements or instruments governing such Equity Interests or subordinated
Indebtedness; provided, however, that a Change of Control Offer or Asset
Sale Offer, as
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applicable, has been made and the Issuer has purchased all notes validly
tendered in connection with that Change of Control Offer or Asset Sale
Offer;
(9) payments pursuant to clause (4), (8) or (10) of the covenant
described under "-- Transactions with Affiliates"; and
(10) other Restricted Payments in an aggregate amount not to exceed
$20.0 million since the date of the indenture;
provided that in the case of clause (5), (7), (8) or (10), no Default shall have
occurred and be continuing.
The amount of all Restricted Payments (other than cash) will be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Holdings or such Restricted Subsidiary,
as the case may be, pursuant to the Restricted Payment.
For purposes of determining compliance with this covenant, if a Restricted
Payment meets the criteria of more than one of the exceptions described in
clauses (1) through (10) above or is entitled to be made according to the first
paragraph of this covenant, Holdings may, in its sole discretion, classify the
Restricted Payment in any manner that complies with this covenant.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "INCUR") any Indebtedness (including Acquired Debt), and Holdings
will not issue any Disqualified Stock and will not permit any Restricted
Subsidiary to issue any shares of preferred stock; provided, however, that
Holdings may incur Indebtedness (including Acquired Debt) or issue Disqualified
Stock, and any Subsidiary Guarantor may incur Indebtedness (including Acquired
Debt) or issue preferred stock, if the Fixed Charge Coverage Ratio of Holdings
for its most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued, as the case may be, would have been at least 2.0 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred or the
Disqualified Stock or the preferred stock had been issued, as the case may be,
at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "PERMITTED DEBT"):
(1) the incurrence by the Issuer and any Guarantor of Indebtedness and
letters of credit under Credit Facilities in an aggregate amount at any
time outstanding under this clause (1) (with letters of credit being deemed
to have an amount equal to the maximum potential liability of Holdings and
the Restricted Subsidiaries thereunder) not to exceed the greater of (a)
the sum of (x) $165.0 million and (y) C$180.0 million (including the
Canadian Dollar Equivalent of any amount under this clause (y) denominated
in U.S. dollars) less the aggregate amount of all Net Proceeds of Asset
Sales applied by Holdings or any Restricted Subsidiary since the date of
the indenture to repay any term Indebtedness under a Credit Facility or to
repay any revolving credit Indebtedness under a Credit Facility and effect
a corresponding commitment reduction thereunder pursuant to the covenant
described above under the caption "-- Offer to Purchase -- Asset Sales" and
(b) the amount that is 2.5 times Consolidated Cash Flow of Holdings for its
most recently ended four full fiscal quarters for which internal financial
statements are available;
(2) the incurrence by Holdings and the Restricted Subsidiaries of the
Existing Indebtedness;
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(3) the incurrence of the notes on the Issue Date, the Guarantees and
the exchange notes to be issued pursuant to the registration rights
agreement;
(4) the incurrence by Holdings or any Restricted Subsidiary of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of design,
construction, installation or improvement of property, plant or equipment
used or useful in the business of Holdings or any Restricted Subsidiary,
and refinancings thereof, in an aggregate amount not to exceed $10.0
million at any time outstanding;
(5) the incurrence by Holdings or any Restricted Subsidiary of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance, replace, defease or discharge,
Indebtedness (other than intercompany Indebtedness) that was permitted by
the indenture to be incurred under the first paragraph of this covenant or
clause (2), (3) or (5) of this paragraph;
(6) the incurrence by Holdings or any Restricted Subsidiary of
intercompany Indebtedness between or among Holdings and/or any Restricted
Subsidiary; provided, however, that:
(a) if the Issuer or any Guarantor is the obligor on such
Indebtedness and the payee is not the Issuer or a Guarantor, such
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations then due with respect to the notes, in
the case of the Issuer, or the Guarantee, in the case of a Guarantor;
and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Holdings or a Restricted Subsidiary and (ii) any sale or other transfer
of any such Indebtedness to a Person that is neither Holdings nor a
Restricted Subsidiary will be deemed, in each case, to constitute an
incurrence of such Indebtedness by Holdings or such Restricted
Subsidiary, as the case may be, that is not permitted by this clause
(6);
(7) the issuance by any of the Restricted Subsidiaries to Holdings or
to any Restricted Subsidiary of preferred stock; provided, however, that
(a) any subsequent issuance or transfer of Equity Interests that results in
any such preferred stock being held by a Person other than Holdings or a
Restricted Subsidiary and (b) any sale or other transfer of any such
preferred stock to a Person that is neither Holdings nor a Restricted
Subsidiary will be deemed, in each case, to constitute an issuance of such
preferred stock by such Restricted Subsidiary that is not permitted by this
clause 7);
(8) the incurrence by Holdings or any Restricted Subsidiary of Hedging
Obligations in the ordinary course of business;
(9) the guarantee by the Issuer or any Guarantor of Indebtedness of
Holdings or a Restricted Subsidiary that was permitted to be incurred by
another provision of this covenant; provided that if the Indebtedness being
guaranteed is subordinated to the notes or the Guarantees, then the
guarantee shall be subordinated to the same extent as the Indebtedness
guaranteed;
(10) the incurrence by Holdings or any Restricted Subsidiary of
Indebtedness in respect of workers' compensation claims, self-insurance
obligations, indemnities, bankers' acceptances, performance, completion and
surety bonds or guarantees, and similar types of obligations in the
ordinary course of business;
(11) the incurrence by Holdings or any Restricted Subsidiary of
Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds, so long as such Indebtedness is covered within
five business days;
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(12) the incurrence by Holdings or any Restricted Subsidiary of
Indebtedness consisting of guarantees, earn-outs, indemnities or
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets, including, without limitation, shares
of Capital Stock; provided that the maximum aggregate liability in respect
of all such obligations outstanding under this clause (12) shall at no time
exceed (a) in the case of an acquisition, $10.0 million (provided that the
amount of such liability shall be deemed to be the amount thereof, if any,
reflected on the consolidated balance sheet of Holdings (e.g., the amount
of such liability shall be deemed to be zero if no amount is reflected on
such balance sheet)) and (b) in the case of a disposition, the gross
proceeds actually received by Holdings and the Restricted Subsidiaries in
connection with such disposition;
(13) Daylight Loans incurred by Holdings from time to time;
(14) Indebtedness in respect of Permitted Factoring Arrangements; and
(15) the incurrence by Holdings or any Restricted Subsidiary of
additional Indebtedness in an aggregate amount at any time outstanding,
including all Indebtedness incurred to refund, refinance, replace, defease
or discharge any Indebtedness incurred pursuant to this clause (15), not to
exceed $25.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Issuer will be permitted to classify such item of Indebtedness on the date of
its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant. Indebtedness under
Credit Facilities outstanding on the Issue Date will initially be deemed to have
been incurred on such date in reliance on the exception provided by clause (1)
above.
The accrual of interest, the accrual of dividends, the accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of Holdings as accrued. Notwithstanding any other provision of this
covenant, the maximum amount of Indebtedness that Holdings or any Restricted
Subsidiary may incur pursuant to this covenant shall not be deemed to be
exceeded solely as a result of fluctuations in exchange rates or currency
values.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other
Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on
the assets of the specified Person, the lesser of:
(A) the Fair Market Value of such assets at the date of
determination; and
(B) the amount of the Indebtedness of the other Person that is
secured by such assets.
NO LAYERING OF DEBT
The Issuer will not, directly or indirectly, incur any Indebtedness that
is, or purports to be by its terms (or by the terms of any agreement governing
such Indebtedness), subordinate or junior in right of payment to any Senior Debt
of the Issuer and senior in any respect in right of payment to the
106
notes. No Guarantor will, directly or indirectly, incur any Indebtedness that
is, or purports to be by its terms (or by the terms of any agreement governing
such Indebtedness), subordinate or junior in right of payment to any Senior Debt
of such Guarantor and senior in any respect in right of payment to such
Guarantor's Guarantee. For purposes hereof, unsecured Indebtedness shall not be
deemed to be subordinate or junior to secured Indebtedness solely because it is
unsecured, and Indebtedness that is not guaranteed by a particular Person shall
not be deemed to be subordinate or junior to Indebtedness solely because it is
not so guaranteed.
LIENS
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind on any asset now owned or hereafter acquired, except Permitted Liens, which
Lien secures Indebtedness or trade payables, unless contemporaneously therewith:
(1) in the case of any Lien securing an obligation that ranks pari
passu with the notes or a Guarantee, effective provision is made to secure
the notes or such Guarantee, as the case may be, at least equally and
ratably with or prior to such obligation with a Lien on the same
collateral; and
(2) in the case of any Lien securing an obligation that is subordinated
in right of payment to the notes or a Guarantee, effective provision is
made to secure the notes or such Guarantee, as the case may be, with a Lien
on the same collateral that is prior to the Lien securing such subordinated
obligation,
in each case, for so long as such obligation is secured by such Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Holdings or any Restricted Subsidiary, or with respect to any other
interest or participation in, or measured by, its profits, or pay any
Indebtedness owed to Holdings or any Restricted Subsidiary;
(2) make loans or advances to Holdings or any Restricted Subsidiary; or
(3) transfer any of its properties or assets to Holdings or any
Restricted Subsidiary.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as
in effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings of those agreements; provided that the amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive, taken as a whole,
with respect to such dividend and other payment restrictions than those
contained in those agreements on the date of the indenture;
(2) the indenture, the notes and the Guarantees;
(3) applicable law, rule, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Holdings or any Restricted Subsidiary as in effect at the time
of such acquisition (except to the extent such Indebtedness or Capital
Stock was incurred in connection with or in contemplation
107
of such acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired; provided
that, in the case of Indebtedness, such Indebtedness was permitted by the
terms of the indenture to be incurred;
(5) customary non-assignment provisions in contracts and licenses
entered into in the ordinary course of business;
(6) purchase money obligations for property acquired in the ordinary
course of business and Capital Lease Obligations that impose restrictions
on the property purchased or leased of the nature described in clause (3)
of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary or an asset that restricts distributions by that Restricted
Subsidiary or transfers of such asset pending the sale or other
disposition;
(8) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens permitted to be incurred under the provisions of the covenant
described above under the caption "-- Liens" that limit the right of the
debtor to dispose of the assets subject to such Liens;
(10) provisions limiting the disposition or distribution of assets or
property in joint venture agreements, partnership agreements, limited
liability company operating agreements, asset sale agreements,
sale-leaseback agreements, stock sale agreements and other similar
agreements entered into with the approval of the Board of Directors of
Holdings, which limitation is applicable only to the assets that are the
subject of such agreements;
(11) restrictions on cash or other deposits or net worth imposed under
contracts entered into in the ordinary course of business;
(12) restrictions under Permitted Factoring Arrangements on the
disposition of accounts receivable subject to Permitted Factoring
Arrangements; and
(13) agreements governing Indebtedness permitted to be incurred
pursuant to the covenant described under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; provided that the provisions relating to such
encumbrance or restriction contained in such Indebtedness, taken as a
whole, are not materially more restrictive to the Issuer or Holdings, as
applicable, as determined by the Board of Directors of the Issuer or
Holdings, as applicable, in its reasonable and good faith judgment, than
the provisions contained in the Credit Agreement or the indenture as in
effect on the date of the indenture.
TRANSACTIONS WITH AFFILIATES
Holdings will not, and will not permit any Restricted Subsidiary to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate of Holdings
(each, an "AFFILIATE TRANSACTION"), unless:
(1) the Affiliate Transaction is on terms that are not materially less
favorable to Holdings or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by Holdings or such
Restricted Subsidiary with an unrelated Person; and
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(2) Holdings delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, a resolution of the Board of Directors of
Holdings set forth in an officers' certificate certifying that such
Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority of the
disinterested members of such Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $20.0 million, an opinion as to the fairness to Holdings or
such Restricted Subsidiary of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing in the United States or
Canada.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) reasonable director, officer, consultant and employee compensation,
benefit and indemnification agreements, plans and arrangements entered into
by Holdings or any Restricted Subsidiary in the ordinary course of business
and payments pursuant thereto;
(2) transactions between or among Holdings and/or the Restricted
Subsidiaries;
(3) transactions with a Person (other than an Unrestricted Subsidiary
of Holdings) that is an Affiliate of Holdings solely because Holdings owns,
directly or through a Restricted Subsidiary, an Equity Interest in, or
controls, such Person;
(4) to the extent that Holdings or one or more of the Restricted
Subsidiaries are members of a consolidated, combined or similar income tax
group of which a direct or indirect parent of Holdings is the common
parent, payment of dividends or other distributions by Holdings or one or
more of the Restricted Subsidiaries pursuant to a tax sharing agreement or
otherwise to the extent necessary to pay, and which are used to pay, any
income taxes of such tax group that are attributable to Holdings and/or the
Restricted Subsidiaries (or would be attributable to Holdings if Holdings
were a U.S. corporation) and are not payable directly by Holdings and/or
the Restricted Subsidiaries; provided that the amount of any such dividends
or distributions (plus any such taxes payable directly by Holdings and/or
the Restricted Subsidiaries) shall not exceed the amount of such taxes that
would have been payable directly by Holdings and/or the Restricted
Subsidiaries had Holdings been the U.S. common parent of a separate tax
group that included only Holdings and the Restricted Subsidiaries;
(5) any issuance of Qualified Equity Interests (and the exercise of any
warrants, options or other rights to acquire Qualified Equity Interests);
(6) Restricted Payments that do not violate the provisions of the
indenture described above under the caption "-- Restricted Payments";
(7) loans or advances to employees of Holdings or any Restricted
Subsidiary (x) in the ordinary course of business in an aggregate amount
not to exceed $5.0 million at any time outstanding or (y) in connection
with the purchase by such Persons of Equity Interests of Holdings or any
Parent Company so long as the cash proceeds of such purchase received by
any Parent Company are contemporaneously contributed to the common equity
capital of Holdings;
(8) payments by Holdings to or on behalf of any Parent Company in an
amount sufficient to pay out-of-pocket legal, accounting and filing and
other general corporate overhead costs of such Parent Company and franchise
taxes and other fees required to maintain its existence actually incurred
by such Parent Company, in any case in an aggregate amount not to exceed
$1.0 million in any calendar year;
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(9) the agreements described in this prospectus under the caption
"Certain Relationships and Related Party Transactions," as in effect on the
date of the indenture or as amended thereafter (so long as the amended
agreement is not more disadvantageous to the holders of the notes, taken as
a whole, in any material respect than such agreement immediately prior to
such amendment) or any transaction contemplated thereby (other than payment
of management fees referred to in clause (10) below); and
(10) so long as no Event of Default exists, the existence or
performance by Holdings or any Restricted Subsidiary of the provisions of
the Management Agreement described in this prospectus under "Certain
Relationships and Related Party Transactions" or any amendment thereto or
replacement agreement therefor or any transaction contemplated thereby so
long as such amendment or replacement is not more disadvantageous to the
holders of the notes, taken as a whole, in any material respect than the
original agreements as in effect on the date of the indenture.
MERGER, CONSOLIDATION OR SALE OF ASSETS
(a) The Issuer may not, directly or indirectly: (1) consolidate, amalgamate
or merge with or into another Person (whether or not the Issuer is the surviving
Person); or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of the Issuer and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person, unless:
(1) either: (a) the Issuer is the surviving Person; or (b) the Person
formed by or surviving any such consolidation, amalgamation or merger (if
other than the Issuer) or to which such sale, assignment, transfer,
conveyance or other disposition has been made (x) is a Nova Scotia
unlimited company or a corporation, limited liability company or limited
partnership organized or existing under the laws of Canada, any province or
territory thereof, the United States, any state of the United States or the
District of Columbia and (y) assumes all the obligations of the Issuer
under the notes, the indenture and the registration rights agreement
pursuant to agreements reasonably satisfactory to the trustee;
(2) immediately after such transaction, no Default or Event of Default
exists; and
(3) either (a) the Issuer or the Person formed by or surviving any such
consolidation, amalgamation or merger (if other than the Issuer), or to
which such sale, assignment, transfer, conveyance or other disposition has
been made, will, on the date of such transaction after giving pro forma
effect thereto and to any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" or (b) the Fixed Charge
Coverage Ratio of Holdings or the Person formed by or surviving any such
consolidation, amalgamation or merger (if other than the Issuer), or to
which such sale, assignment, transfer, conveyance or other disposition has
been made, after giving effect to the transaction and any related
financings, would not be less than the Fixed Charge Coverage Ratio of
Holdings immediately prior to such transaction.
In addition, the Issuer may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Equity Interests of which constitute all or substantially all
of the properties and assets of the Issuer, will be deemed to be the transfer of
all or substantially all of the properties and assets of the Issuer.
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(b) Holdings may not, directly or indirectly: (1) consolidate, amalgamate
or merge with or into another Person (whether or not Holdings is the surviving
Person); or (2) sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of Holdings and the Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person, unless:
(1) either: (a) Holdings is the surviving Person; or (b) the Person
formed by or surviving any such consolidation, amalgamation or merger (if
other than Holdings) or to which such sale, assignment, transfer,
conveyance or other disposition has been made (x) is a Nova Scotia
unlimited company or a corporation, limited liability company or limited
partnership organized or existing under the laws of Canada, any province or
territory thereof, the United States, any state of the United States or the
District of Columbia and (y) assumes all the obligations of Holdings under
the Guarantee, the indenture and the registration rights agreement pursuant
to agreements reasonably satisfactory to the trustee;
(2) immediately after such transaction, no Default or Event of Default
exists; and
(3) either (a) Holdings or the Person formed by or surviving any such
consolidation, amalgamation or merger (if other than Holdings), or to which
such sale, assignment, transfer, conveyance or other disposition has been
made will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had occurred
at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock" or (b) the Fixed Charge Coverage Ratio of
Holdings or the Person formed by or surviving any such consolidation,
amalgamation or merger (if other than Holdings), or to which such sale,
assignment, transfer, conveyance or other disposition has been made, after
giving effect to the transaction and any related financings, would not be
less than the Fixed Charge Coverage Ratio of Holdings immediately prior to
such transaction.
In addition, Holdings may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Equity Interests of which constitute all or substantially all
of the properties and assets of Holdings, will be deemed to be the transfer of
all or substantially all of the properties and assets of Holdings.
(c) This "Merger, Consolidation or Sale of Assets" covenant will not apply
to a merger of the Issuer or a Guarantor with an Affiliate solely for the
purpose, and with the effect, of reincorporating the Issuer or such Guarantor,
as the case may be, in another jurisdiction of the United States or Canada. In
addition, nothing in this "Merger, Consolidation or Sale of Assets" will
prohibit any Restricted Subsidiary from consolidating or amalgamating with,
merging with or into or conveying, transferring or leasing, in one transaction
or a series of transactions, all or substantially all of its assets to Holdings
or another Restricted Subsidiary.
BUSINESS ACTIVITIES
Holdings will not, and will not permit any Restricted Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to the Issuer and its Restricted Subsidiaries taken as a whole.
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DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of Holdings may designate any Restricted Subsidiary
to be an Unrestricted Subsidiary if that designation would not cause a Default.
If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate Fair Market Value of all outstanding Investments owned by Holdings and
the Restricted Subsidiaries in the Subsidiary designated as an Unrestricted
Subsidiary will be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted Payments under
the covenant described above under the caption "-- Restricted Payments" or under
one or more clauses of the definition of "Permitted Investments," as determined
by Holdings. That designation will only be permitted if the Investment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors of Holdings may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that
redesignation would not cause a Default.
SUBSIDIARY GUARANTEES
If any Restricted Subsidiary (including any newly formed or newly acquired
Restricted Subsidiary) guarantees any Indebtedness under any Credit Facility,
then within 30 days of the date on which it guaranteed such Indebtedness, the
Issuer shall:
(1) execute and deliver to the trustee a supplemental indenture in form
reasonably satisfactory to the trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuer's obligations
under the notes and the indenture on the terms set forth in the indenture
and
(2) deliver to the trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a valid and legally binding and
enforceable obligation of such Restricted Subsidiary, subject to customary
exceptions.
Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for
all purposes of the indenture.
The Issuer will not permit any Subsidiary Guarantor to, directly or
indirectly, consolidate, amalgamate or merge with or into another Person
(whether or not such Guarantor is the surviving Person) unless:
(1) such Guarantor is the surviving Person or the Person formed by or
surviving any such consolidation, amalgamation or merger (if other than a
Guarantor or the Issuer) expressly assumes all the obligations of such
Guarantor under the Guarantee of such Guarantor, the indenture and the
registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee; and
(2) immediately after such transaction, no Default or Event of Default
exists.
Notwithstanding the foregoing, the Guarantee of a Subsidiary Guarantor will
automatically and unconditionally be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) Holdings or any Restricted Subsidiary,
if the sale or other disposition does not violate the "Asset Sale"
provisions of the indenture;
(2) in connection with any sale or other disposition of all of the
Capital Stock of that Guarantor to a Person that is not (either before or
after giving effect to such transaction) Holdings or any Restricted
Subsidiary, if the sale or other disposition does not violate the "Asset
Sale" provisions of the indenture;
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(3) if Holdings designates such Subsidiary Guarantor to be an
Unrestricted Subsidiary in accordance with the applicable provisions of the
indenture;
(4) upon legal defeasance or satisfaction and discharge of the notes as
provided below under the caption "-- Legal Defeasance and Covenant
Defeasance" or "-- Satisfaction and Discharge"; or
(5) if such Subsidiary Guarantor shall not guarantee any Indebtedness
under any Credit Facility (other than if such Subsidiary Guarantor no
longer guarantees any Indebtedness under any Credit Facility as a result of
payment under any guarantee of any such Indebtedness by any Subsidiary
Guarantor); provided that a Subsidiary Guarantor shall not be permitted to
be released from its Guarantee if it is an obligor with respect to
Indebtedness that would not, under "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," be permitted to be incurred
by a Restricted Subsidiary that is not a Guarantor.
See "-- Offer to Purchase -- Asset Sales."
The form of the Guarantee is attached as an exhibit to the indenture.
PAYMENTS FOR CONSENT
Holdings will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid or is paid to all holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
REPORTS
So long as any notes are outstanding, the Issuer will furnish to the
holders of notes or cause the trustee to furnish to the holders of notes, within
the time periods that such information would have otherwise been required to
have been provided to the Commission if the rules and regulations applicable to
the filing of such information were applicable to the Issuer:
(1) all quarterly and annual information that would be required to be
filed with the Commission on (a) if the Issuer is a domestic issuer, Forms
10-Q and 10-K if the Issuer were required to file such reports or (b) if
the Issuer is a foreign private issuer, on Form 6-K and Form 20-F or Form
40-F (if eligible) if the Issuer were required to file such forms; and
(2) all current reports that would be required to be (a) filed if the
Issuer is a domestic issuer with the Commission on Form 8-K if the Issuer
were required to file such reports or (b) furnished if the Issuer is a
foreign private issuer, to the Commission on Form 6-K if the Issuer were
required to furnish such reports.
The availability of the foregoing materials on either the Commission's
EDGAR service or on the Issuer's website shall be deemed to satisfy the Issuer's
delivery obligation.
All such reports will be prepared in all material respects in accordance
with all of the rules and regulations applicable to such reports. Each annual
report will include a report on the Issuer's consolidated financial statements
by the Issuer's certified independent accountants. In addition, the Issuer will
cause a copy of all of the information and reports referred to in clauses (1)
and (2) above to be posted no later than the date such information is required
to be furnished to registered holders of Notes, on the website of the Issuer
(and remain there for a period of one year from the date of such posting). The
Issuer will also agree that, for so long as any Notes remain outstanding, if at
any time the Issuer and the Guarantors are not required to file reports under
the Exchange Act with the Commission, the Issuer will furnish to the holders of
Notes and to securities analysts and prospective investors, upon their request,
the information required to be delivered pursuant to
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Rule 144A(d)(4) under the Securities Act. If any Parent Company has complied
with the reporting requirements of Section 13 or 15(d) of the Exchange Act, if
applicable, or has furnished the holders of notes or posted on its or the
Issuer's website the reports described herein with respect to such Parent
Company (including any consolidating financial information required by
Regulation S-X relating to the Issuer and the Guarantors), the Issuer shall be
deemed to be in compliance with the provisions of this covenant.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on, or
Special Interest with respect to, the notes (whether or not such payment is
prohibited by the subordination provision of the indenture);
(2) default in payment when due of the principal of, or premium, if
any, on the notes (whether or not such payment is prohibited by the
subordination provision of the indenture);
(3) failure by Holdings or any Restricted Subsidiary to comply (a) for
30 days after written notice with the provisions described under the
captions "-- Offer to Purchase -- Change of Control" and "-- Offer to
Purchase -- Asset Sales" or (b) with the provisions under "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets";
(4) failure by Holdings or any Restricted Subsidiary for 60 days after
written notice has been given to the Issuer by the trustee or to the Issuer
and the trustee by the holders of at least 25% in aggregate principal
amount of the notes then outstanding to comply with any of the other
agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Holdings or any Restricted Subsidiary
(or the payment of which is guaranteed by Holdings or any Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is
created after the date of the indenture, if that default:
(a) is caused by a failure to pay any such Indebtedness at its
stated final maturity after giving effect to any applicable grace
periods (a "PAYMENT DEFAULT"); or
(b) results in the acceleration of such Indebtedness prior to its
stated final maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $20.0 million or more;
(6) failure by Holdings or any Restricted Subsidiary to pay final
judgments aggregating in excess of $20.0 million in excess of amounts that
are covered by insurance, which judgments are not paid, discharged or
stayed for a period of 60 days;
(7) except as permitted by the indenture, the Guarantee of Holdings or
any Restricted Subsidiary that is a Significant Subsidiary shall be held in
any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations
under its Guarantee;
(8) certain events of bankruptcy or insolvency described in the
indenture with respect to Holdings, the Issuer or any of Holdings'
Restricted Subsidiaries that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary; and
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(9) the amalgamation contemplated by the merger agreement described
under "Summary -- The Transactions" is not consummated on or before June 7,
2004.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Holdings, the Issuer, any Restricted
Subsidiary that is a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary, or
an Event of Default described in clause (9) of the immediately preceding
paragraph, all outstanding notes will become due and payable immediately without
further action or notice. If any other Event of Default occurs and is
continuing, the trustee or the holders of at least 25% in principal amount of
the then outstanding notes may declare (an "ACCELERATION DECLARATION") all the
notes to be due and payable. Upon an acceleration declaration, the aggregate
principal of and accrued and unpaid interest on the outstanding notes shall
become due and payable immediately without further action or notice (a) if there
is no Indebtedness outstanding under any Credit Facility at such time,
immediately and (b) if otherwise, upon the earlier of (x) the final maturity
(after giving effect to any applicable grace period or extensions thereof) or an
acceleration of any Indebtedness under any Credit Facility prior to the express
final stated maturity thereof and (y) five business days after the
Representative under each Credit Facility receives the acceleration declaration,
but, in the case of this clause (b) only, if such Event of Default is then
continuing; provided, however, that after such acceleration, but before a
judgment or decree based on acceleration, the holders of a majority in aggregate
principal amount of such outstanding notes may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal and interest, have been cured or waived as
provided in the indenture.
In addition, in the event of an acceleration declaration because an Event
of Default has occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (5) of the second preceding paragraph, the
acceleration declaration shall be automatically annulled if the holders of any
Indebtedness described in clause (5) have rescinded the declaration of
acceleration in respect of such Indebtedness and if (a) the annulment of the
acceleration of the notes would not conflict with any judgment or decree of a
court of competent jurisdiction and (b) all existing Events of Default, except
nonpayment of principal or interest on the notes that became due solely because
of the acceleration of the notes, have been cured or waived.
Subject to certain limitations, holders of a majority in principal amount
of the then outstanding notes may direct the trustee in its exercise of any
trust or power. The trustee may withhold from holders of the notes notice of any
continuing Default or Event of Default if it determines that withholding notice
is in their interest, except a Default or Event of Default relating to the
payment of principal or interest or Special Interest.
Except to enforce the right to receive payment of principal, premium, if
any, or interest when due, no holder of a note may pursue any remedy with
respect to the indenture or the notes unless:
(1) such holder has previously given the trustee written notice that an
Event of Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the
outstanding notes have requested in writing the trustee to pursue the
remedy;
(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the trustee has not complied with such request within 60 days after
the receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in aggregate principal amount of the
outstanding notes have not given the trustee a written direction
inconsistent with such request within such 60-day period.
The holders of a majority in aggregate principal amount of the notes then
outstanding by written notice to the trustee may, on behalf of the holders of
all of the notes, rescind an acceleration
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or waive any existing Default or Event of Default and its consequences under the
indenture except a continuing Default or Event of Default in the payment of
interest or premium or Special Interest on, or the principal of, the notes.
The Issuer will be required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the Issuer will be required to deliver to the trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator, member or shareholder of the
Issuer or any Guarantor, as such, will have any liability for any obligations of
the Issuer or the Guarantors under the notes, the indenture, the Guarantees or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of notes by accepting a note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Guarantees ("LEGAL
DEFEASANCE") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium and Special Interest,
if any, on such notes when such payments are due from the trust referred to
below;
(2) the Issuer's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and the Issuer's and the Guarantor's obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Issuer may, at its option and at any time, elect to have
the obligations of the Issuer and the Guarantors released with respect to
certain covenants (including its obligation to make Change of Control Offers and
Asset Sale Offers) in the indenture ("COVENANT DEFEASANCE") and thereafter any
omission to comply with those covenants will not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "-- Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuer must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts as will be sufficient,
without consideration of any reinvestment of interest, in the opinion of an
investment bank, appraisal firm or firm of independent public accountants
nationally recognized in the United States to pay the principal of, or
interest and premium and Special Interest, if any, on the outstanding notes
on the Stated Maturity or on the applicable redemption date, as the case
may be, and the Issuer must specify whether the notes are being defeased to
maturity or to a particular redemption date;
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(2) in the case of Legal Defeasance, the Issuer must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) the Issuer has received from, or there has been
published by, the U.S. Internal Revenue Service a ruling or (b) since the
date of the indenture, there has been a change in the applicable U.S.
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel will confirm that, the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance
had not occurred;
(3) in the case of Covenant Defeasance, the Issuer must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of
such Covenant Defeasance and will be subject to U.S. federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) in the case of Legal Defeasance or Covenant Defeasance, the Issuer
must deliver to the trustee an opinion of counsel reasonably acceptable to
the trustee confirming that the holders and beneficial owners of the
outstanding notes will not recognize income, gain or loss for Canadian
federal, provincial, territorial income tax or other tax purposes as a
result of such Legal Defeasance or Covenant Defeasance, as applicable, and
will be subject to Canadian federal, provincial or territorial income tax
and other tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance or Covenant
Defeasance, as the case may be, had not occurred (which condition may not
be waived by any holder of outstanding notes or the trustee);
(5) no Default or Event of Default has occurred and is continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(6) such Legal, Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Holdings, the
Issuer or any of Holdings' Restricted Subsidiaries that are Significant
Subsidiaries is a party or by which Holdings, the Issuer or any of
Holdings' Restricted Subsidiaries that are Significant Subsidiaries is
bound;
(7) the Issuer must deliver to the trustee an officers' certificate
stating that the deposit was not made by the Issuer with the intent of
preferring the holders of notes over the other creditors of the Issuer with
the intent of defeating, hindering, delaying or defrauding creditors of the
Issuer or others; and
(8) the Issuer must deliver to the trustee an officers' certificate and
an opinion of counsel, each to the effect that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to the
Issuer or discharged from the trust, have been delivered to the trustee
for cancellation; or
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(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of a
notice of redemption or otherwise, will become due and payable within
one year or have been called for redemption pursuant to the provisions
described under "-- Optional Redemption" and the Issuer or any Guarantor
has irrevocably deposited or caused to be deposited with the trustee as
trust funds in trust solely for the benefit of the holders, cash in U.S.
dollars, non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in amounts as will
be sufficient, without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the notes not delivered to
the trustee for cancellation for principal, premium and Special
Interest, if any, and accrued interest to the date of maturity or
redemption;
(2) the Issuer or any Guarantor has paid or caused to be paid all sums
payable by it under the indenture; and
(3) the Issuer has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or the redemption date, as the case may be.
In addition, the Issuer must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture,
the notes or the Guarantees may be amended or supplemented with the consent of
the holders of at least a majority in principal amount of the notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, notes), and any existing
Default or Event of Default or compliance with any provision of the indenture or
the notes or the Guarantees may be waived with the consent of the holders of a
majority in principal amount of the then outstanding notes (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, notes).
Without the consent of each holder of notes affected, an amendment,
supplement or waiver may not (with respect to any notes held by a non-consenting
holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (it being
understood that this clause (2) does not apply to provisions relating to
the covenants described above under the caption "-- Offer to Purchase");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, or Special Interest, if any, on the notes (except a
rescission of acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the then outstanding notes in
accordance with the provisions of the indenture and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of, or interest or premium or Special Interest, if
any, on the notes;
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(7) waive a redemption payment with respect to any note (it being
understood that this clause (7) does not apply to a payment required by one
of the covenants described above under the caption "-- Offer to Purchase");
(8) release Holdings or any other Guarantor that is a Significant
Subsidiary from any of its obligations under its Guarantee or the
indenture, except in accordance with the terms of the indenture;
(9) in the event that the obligation to make a Change of Control Offer
or an Asset Sale Offer has arisen, amend, change or modify in any material
respect the obligation of the Issuer to make and consummate such Change of
Control Offer or such Asset Sale Offer, as the case may be;
(10) modify or change any provision of the indenture or the related
definitions affecting the subordination of the notes or any Guarantee in a
manner that adversely affects the holders of notes; or
(11) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
the Issuer, the Guarantors and the trustee may amend or supplement the
indenture, the notes or the Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Issuer's or a Guarantor's
obligations to holders of notes and Guarantees in the case of a merger or
consolidation or sale of all or substantially all of the Issuer's or such
Guarantor's assets, as applicable;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not materially adversely
affect the legal rights under the indenture of any such holder;
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act;
(6) to allow any Guarantor to execute a supplemental indenture and a
Guarantee with respect to the notes; or
(7) to evidence and provide for the acceptance of appointment under the
indenture by a successor trustee.
No amendment of, or supplement or waiver to, the indenture shall adversely
affect the rights of any holder of Senior Debt under the subordination
provisions of the indenture, without the consent of such holder or, in
accordance with the terms of such Senior Debt, the consent of the agent or
representative of such holder or the requisite holders of such Senior Debt.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of the Issuer or any Guarantor, the
indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue (if the
indenture has been qualified under the Trust Indenture Act) or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
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occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of such
person's own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of notes, unless such holder has offered to the trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to MAAX Corporation,
1010 Sherbrooke Street West, Suite 1610, Montreal (Quebec), Canada H3A 2R7,
Attention: Secretary.
ENFORCEABILITY OF JUDGMENTS
Since a substantial portion of the Issuer's assets are outside the United
States, any judgment obtained in the United States against the Issuer, including
judgments with respect to the payment of principal, premium, if any, or interest
on the notes, may not be collectible within the United States.
The Issuer has been informed by its Nova Scotia counsel, McInnes Cooper,
that the laws of the Province of Nova Scotia and the federal laws of Canada
applicable therein permit an action to be brought against the Issuer in a court
of competent jurisdiction in such Province on any final and conclusive judgment
in personam of any federal or state court located in the Borough of Manhattan in
The City of New York ("NEW YORK COURT") with respect to the indenture or the
notes that has not been stayed and is not impeachable as void or voidable under
the internal laws of the State of New York and that is for a sum certain if (1)
the New York Court rendering such judgment had jurisdiction over the judgment
debtor, as recognized by the courts of the Province of Nova Scotia (and
submission by the Issuer in the indenture to the jurisdiction of the New York
Court will be sufficient for that purpose); (2) such judgment was not obtained
by fraud or in a manner contrary to natural justice and the enforcement thereof
would not be inconsistent with public policy, as such term is understood under
the laws of the Province of Nova Scotia, for example because that would be
contrary to any order made by the Attorney General of Canada under the Foreign
Extraterritorial Measures Act (Canada), or the enforcement of such judgment
would constitute, directly or indirectly, the enforcement of foreign revenue,
expropriatory or penal laws; (3) there is no manifest error on the face of the
judgment; and (4) the action to enforce such judgment is commenced within the
applicable limitation period. The Issuer has been advised by such counsel that
they do not know of any reason under present laws of the Province of Nova Scotia
and the federal laws of Canada applicable therein for avoiding enforcement of
such judgments of New York Courts under either the indenture or the notes based
upon public policy.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with or
into, or becoming a Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of
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this definition, "control," as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets
other than in the ordinary course of business; provided that the sale,
conveyance or other disposition of all or substantially all of the assets
of Holdings and the Restricted Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above under the
caption "-- Offer to Purchase -- Change of Control" and/or the provisions
described above under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance of Equity Interests in any of the Restricted
Subsidiaries or the sale of Equity Interests in any of the Restricted
Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed
to be an Asset Sale:
(1) any single transaction or series of related transactions that
involves assets having a Fair Market Value of less than $2.5 million;
(2) a transfer of assets between or among Holdings and/or the
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Holdings or to another Restricted Subsidiary or the issuance of Equity
Interests by a Restricted Subsidiary in which Holdings' percentage interest
(direct and indirect) in the Equity Interests of such Restricted
Subsidiary, after giving effect to such issuance, is at least equal to its
percentage interest prior thereto;
(4) the sale, lease, conveyance or other disposition of assets in the
ordinary course of business and any sale or other disposition of damaged,
worn-out or obsolete assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment that does not violate the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments" or a
Permitted Investment;
(7) sales of accounts receivable pursuant to Permitted Factoring
Arrangements;
(8) the licensing or sublicensing of intellectual property or other
general intangibles and licenses, leases or subleases of other property in
the ordinary course of business which do not materially interfere with the
business of Holdings and the Restricted Subsidiaries; and
(9) the sale of Permitted Investments (other than sales of Equity
Interests of any of the Restricted Subsidiaries) made by Holdings or any
Restricted Subsidiary after the date of the indenture, if such Permitted
Investments were (a) received in exchange for, or purchased out of the net
cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of Holdings) of, Equity Interests of Holdings (other than
Disqualified Stock) or (b) received in the form of, or were purchased from
the proceeds of, a substantially concurrent contribution of common equity
capital to Holdings.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
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exercisable only after the passage of time. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation or, other than for purposes of the definition of "Change of
Control" and "Continuing Directors," any committee thereof duly authorized
to act on behalf of such board; and
(2) with respect to any other Person, the functional equivalent of a
board of directors of a corporation or, other than for purposes of the
definition of "Change of Control" and "Continuing Directors," any committee
thereof duly authorized to act on behalf thereof.
"CANADIAN DOLLAR EQUIVALENT" means, as to any amount denominated in U.S.
Dollars as of any date of determination, the amount of Canadian Dollars which
would be required to purchase such amount of U.S. Dollars at the Bank of Canada
noon (Toronto time) spot rate on such date or, if such date of determination is
not a Business Day, on the Business Day immediately preceding such date of
determination.
"CANADIAN HOLDING COMPANY" means Maax Canada Inc., a Canada corporation
governed by the Canada Business Corporations Act, and its predecessors.
"CAPITAL LEASE OBLIGATION" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation or unlimited company, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests;
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, but excluding from all of the foregoing any
debt securities convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
"CASH EQUIVALENTS" means, as at any date of determination, (1) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest
and principal by the United States or Canada and maturing within one year of the
date of acquisition thereof or (b) issued by any agency of the United States or
Canada the obligations of which are backed by the full faith and credit of the
United States or Canada, in each case maturing within one year after the date of
acquisition thereof; (2) marketable direct obligations issued by any state of
the United States of America or province of Canada or any political subdivision
of any such state or province or any public instrumentality thereof, in each
case maturing within one year after the date of acquisition thereof and having a
rating of at least A-2 from Standard & Poor's Rating Services ("S&P") or at
least P-2 from Moody's Investors Service, Inc. ("MOODY'S"); (3) commercial paper
maturing no more than one year from the date of acquisition thereof and having a
rating of at least A-2 from S&P, at least P-2 from Moody's or at least R-2
(high) from Dominion Bond Rating Services Limited; (4) certificates of deposit,
time deposits or bankers' acceptances maturing within one year after the date of
acquisition thereof and issued or accepted by any lender under any Credit
Facility or by any commercial bank organized under the laws of the United States
of America or any state thereof or the District of Columbia that is at least
"adequately capitalized" (as defined in the regulations of its primary Federal
banking regulator) and has Tier 1 capital (as defined in such regulations) of
not less than $100.0 million; (5) financial instruments maturing within one year
after the date of acquisition
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thereof and issued by any Canadian chartered bank which has a long-term debt
rating of at least A+ by S&P, A2 by Moody's or A (high) by Dominion Bond Rating
Services Limited; (6) repurchase agreements with a term of not more than 30 days
for underlying securities of the types described in clause (1) or (2) entered
into with any bank meeting the qualifications specified in clause (4) or (5),
which repurchase obligations are secured by a perfected first priority security
interest in the underlying securities; (7) shares of any money market mutual
fund that (a) has substantially all of its assets invested continuously in the
types of investments referred to in clauses (1) and (5) above, (b) has net
assets of not less than $500.0 million and (c) has the highest rating obtainable
from either S&P or Moody's; and (8) in the case of any European Subsidiary,
investments made locally of a type comparable to those described in clauses (1)
through (7) of this definition.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger, amalgamation or consolidation),
in one or a series of related transactions, of all or substantially all of
the properties or assets of Holdings and its Subsidiaries taken as a whole
to any "person" (as that term is used in Section 13(d) of the Exchange Act)
other than an Equity Sponsor or a Control Investment Affiliate of an Equity
Sponsor;
(2) the adoption of a plan relating to the liquidation or dissolution
of Holdings or the Issuer (other than a transaction that complies with the
provisions described under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets");
(3) the consummation of any transaction (including, without limitation,
any merger, amalgamation or consolidation), the result of which is that any
"person" (as defined in clause (1) above) other than an Equity Sponsor or a
Control Investment Affiliate of an Equity Sponsor becomes the Beneficial
Owner, directly or indirectly, of Voting Stock of Holdings representing 50%
or more of the total voting power of the Voting Stock of Holdings; provided
that this clause (3) shall not be deemed to be triggered by any Person that
is deemed to be a Beneficial Owner of Voting Stock of the Issuer by virtue
of its relationship with (other than ownership directly or indirectly of
Capital Stock of) an Equity Sponsor or a Control Investment Affiliate of an
Equity Sponsor;
(4) after an initial public offering of Holdings or any Parent Company,
the first day on which a majority of the members of the Board of Directors
of Holdings are not Continuing Directors; provided, however, that the
Equity Sponsor and their Control Investment Affiliates do not, at such
time, in the aggregate, (a) Beneficially Own, directly or indirectly,
Voting Stock of Holdings representing more than 50% of the total voting
power of the Voting Stock of Holdings or (b) have the right or ability by
voting power, contract or otherwise to elect or designate a majority of the
Board of Directors of Holdings; or
(5) Holdings shall cease to Beneficially Own all of the Equity
Interests of the Issuer.
"CONSOLIDATED CASH FLOW" means, for any period, for any Person, an amount
determined for such Person and its Restricted Subsidiaries on a consolidated
basis equal to
(i) Consolidated Net Income for such period plus
(ii) the sum, without duplication, of the amounts for such Person and
its Restricted Subsidiaries for such period (in each case to the extent
reducing such Consolidated Net Income) of
(a) Fixed Charges;
(b) provision for taxes based on income;
(c) total depreciation expenses;
(d) total amortization expenses;
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(e) other non-cash items reducing such Consolidated Net Income
(excluding any such non-cash item to the extent that it represents an
accrual or reserve for potential cash items in any future period or
amortization of a prepaid cash item that was paid in a prior period);
(f) relocation costs and expenses incurred to move the headquarters
of Holdings and its Subsidiaries from Sainte-Marie, Canada to Montreal,
Canada;
(g) costs and expenses incurred on or prior to the Issue Date
during the fiscal year ending February 28, 2005 in connection with the
transactions described under "Use of Proceeds" in this prospectus;
(h) Restructuring Expenses in an aggregate amount not to exceed
$5.0 million in any four-quarter period;
(i) other non-recurring, non-operating losses in an aggregate
amount not to exceed $5.0 million in any four-quarter period;
(j) cash gains realized under Hedging Obligations relating to
currency exchange rates; and
(k) minority interest (if negative) with respect to any Subsidiary
Guarantor; minus
(iii) the sum, without duplication, of the amounts for such period (in
each case to the extent increasing such Consolidated Net Income) of
(a) non-cash items increasing such Consolidated Net Income
(excluding any such non-cash item to the extent it represents the
reversal of an accrual or reserve for potential cash item in any prior
period);
(b) non-recurring, non-operating gains;
(c) cash losses realized under Hedging Obligations relating to
currency exchange rates; and
(d) minority interest (if positive) with respect to any
Subsidiary Guarantor; plus or minus
(iv) without duplication of any amounts referred to above or in the
definition of Consolidated Net Income, with respect to any part of a
four-quarter period that is part of the fiscal year ended February 29,
2004, the pro forma adjustments to net income set forth in the section
"Unaudited Pro Forma Financial Data" in this prospectus and the adjustments
to net income to derive "EBITDA" and to "EBITDA" to derive "Adjusted
EBITDA" set forth in the section "Summary -- Summary Historical and Pro
Forma Consolidated Financial Data";
provided that the items listed in clauses (ii)(a) through (e) of a Restricted
Subsidiary will be included in Consolidated Cash Flow only to the extent (and in
the same proportion) that the net income of such Subsidiary was included in
calculating Consolidated Net Income for such period.
"CONSOLIDATED NET INCOME" means, for any period, the net income (or net
loss) of Holdings and the Restricted Subsidiaries for such period as determined
on a consolidated basis in accordance with GAAP, adjusted to the extent included
in calculating such net income or loss by excluding:
(1) any net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto);
(2) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, dispositions of securities
or returned surplus assets of any pension plan,
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(3) the net income (but not the net loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting, except to the extent of the amount of dividends or other
distributions actually paid to Holdings or any Restricted Subsidiary in
cash during such period;
(4) the net income (but not the net loss) of any Restricted Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is at the date of determination
prohibited, directly or indirectly, except to the extent that such net
income is actually paid to Holdings or any Restricted Subsidiary by loans,
advances, intercompany transfers, principal repayments or otherwise; and
(5) the cumulative effect of a change in accounting principles;
provided, further, that Consolidated Net Income shall be reduced by (A) the
product of (x) the amount of all dividends on Designated Preferred Stock (other
than dividends paid in Qualified Equity Interests) paid, accrued or scheduled to
be paid or accrued during such period times (y) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state, provincial and local statutory tax rate of Holdings and its
Subsidiaries, expressed as a decimal, and (B) payments made to any Parent
Company pursuant to clause (8) of the covenant described under "-- Transactions
with Affiliates."
"CONSOLIDATED NET TANGIBLE ASSETS" means the aggregate amount of assets of
Holdings (less applicable reserves and other properly deductible items) after
deducting therefrom (to the extent otherwise included therein) (a) all current
liabilities (other than the obligations under the indenture or current
maturities of long-term Indebtedness), and (b) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the books and records of Holdings and the
Restricted Subsidiaries on a consolidated basis and in accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of Holdings who:
(1) was a member of such Board of Directors on the Issue Date;
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or
election; or
(3) was nominated by one or more of the Equity Sponsors or their
Control Investment Affiliates.
"CONTROL INVESTMENT AFFILIATE" means, as to any Person, any other Person
which directly or indirectly is in control of, is controlled by, or is under
common control with such Person and is organized by such Person (or any Person
controlling such Person) primarily for making equity or debt investments in
portfolio companies.
"CREDIT AGREEMENT" means that certain credit agreement, on or about the
Issue Date, by and among Holdings, the Issuer, certain subsidiaries of the
Issuer, Goldman Sachs Credit Partners L.P., Royal Bank of Canada and Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and certain of
their affiliates and the lenders from time to time party thereto, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case, as amended, restated,
modified, renewed, refunded, replaced (whether upon termination or otherwise) or
refinanced (including by means of sales of debt securities to institutional
investors) in whole or in part from time to time.
"CREDIT FACILITIES" means one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case,
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of
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receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced
(including by means of sales of debt securities to institutional investors) in
whole or in part from time to time.
"DAYLIGHT LOANS" means Indebtedness owed by Holdings to a third party;
provided that, on the date of incurrence of such Indebtedness, (i) Holdings
shall use all of the proceeds of such Indebtedness to purchase Capital Stock
issued and sold by Canadian Holding Company, (ii) Canadian Holding Company shall
use all of the proceeds of such issuance and sale to make payments to the Issuer
in respect of the Special Intercompany Note, (iii) the Issuer shall dividend or
otherwise distribute (whether by an interest-free advance or otherwise) to
Holdings all of such payments received by it and (iv) Holdings shall use such
dividend or other distribution to repay all Indebtedness owed by it referred to
in this definition.
"DEFAULT" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"DESIGNATED PREFERRED STOCK" means preferred stock (including, without
limitation, Disqualified Stock) issued and sold for cash in a bona fide
financing transaction that is designated as Designated Preferred Stock pursuant
to an officers' certificate on the issuance date thereof, the net cash proceeds
of which are excluded from the calculation set forth in clause (3) of the first
paragraph of the "-- Restricted Payments" covenant and are not used for purposes
of clause (b) of the second paragraph thereof.
"DESIGNATED SENIOR DEBT" means (1) the Credit Facility and all Hedging
Obligations with respect thereto and (2) any other Senior Debt permitted under
the indenture (a) the principal amount of which is $25.0 million or more and (b)
that has been designated by the Issuer as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case, at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require the
issuer to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock if the asset
sale or change of control provisions applicable to such Capital Stock provide
that the issuer may not repurchase or redeem any such Capital Stock pursuant to
such provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
The amount of Disqualified Stock deemed to be outstanding at any time for
purposes of the indenture will be the maximum amount that Holdings and the
Restricted Subsidiaries may become obligated to pay upon the maturity of, or
pursuant to any mandatory redemption provisions of, such Disqualified Stock.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means (i) any issuance and sale by Holdings of its
Qualified Equity Interests or by any Parent Company of its Equity Interests;
provided, however, that in the case of an issuance and sale of Equity Interests
of any Parent Company, cash proceeds therefrom equal to not less than 100% of
the aggregate principal amount of any notes to be redeemed are received by
Holdings as a contribution to its common equity capital or consideration for the
issuance and sale of Qualified Equity Interests immediately prior to such
redemption or (ii) any issuance and sale by Holdings of its Qualified Equity
Interests in connection with the conversion of Holdings to an income trust or by
any
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Parent Company or any Affiliate of Holdings (other than any of its Subsidiaries)
of its Equity Interests in connection with the conversion of such Parent Company
or Affiliate to an income trust; provided, however, that in the case of an
issuance and sale of Equity Interests of such Parent Company or Affiliate, cash
proceeds therefrom equal to not less than 100% of the aggregate principal amount
of any notes to be redeemed are received by Holdings as a contribution to its
common equity capital or consideration for the issuance and sale of Qualified
Equity Interests immediately prior to such redemption.
"EQUITY SPONSORS" means John W. Childs, J.W. Childs Equity Funding III,
L.P., Borealis Private Equity Limited Partnership, Borealis (QLP) Private Equity
Limited Partnership and Ontario Municipal Employees Retirement Board.
"EUROPEAN SUBSIDIARIES" means any Subsidiary of the Issuer which was not
formed under the laws of the United States or any state of the United States or
the District of Columbia or under the laws of Canada or any province or
territory thereof.
"EXISTING INDEBTEDNESS" means Indebtedness of the Issuer and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the indenture after giving effect to the issuance of the notes
and the borrowing under the Credit Agreement on the Issue Date and the use of
proceeds therefrom, until such amounts are repaid.
"FAIR MARKET VALUE" means the value that would be paid by a willing buyer
to an unaffiliated willing seller in a transaction not involving distress or
necessity of either party, determined in good faith by the Board of Directors of
the Issuer.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any Restricted Subsidiary incurs, assumes, guarantees,
repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness
(other than ordinary working capital borrowings) or issues, repurchases or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated and on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made occurred (the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio
will be calculated giving pro forma effect to such incurrence, assumption,
guarantee, repayment, repurchase, redemption, defeasance or other discharge of
Indebtedness, or such issuance, repurchase or redemption of preferred stock, and
the use of the proceeds therefrom, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any
Restricted Subsidiary, including through mergers or consolidations, or any
Person or any Restricted Subsidiary acquired by the specified Person or any
Restricted Subsidiary, and including any related financing transactions and
including increases in ownership of Restricted Subsidiaries, during the
four-quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date will be given pro forma effect (in
accordance with Regulation S-X under the Securities Act but giving effect
to Pro Forma Cost Savings) as if they had occurred on the first day of the
four-quarter reference period;
(2) the Consolidated Cash Flow attributable to operations or businesses
(and ownership interests therein) disposed of prior to the Calculation Date
will be excluded;
(3) the Fixed Charges attributable to operations or businesses (and
ownership interests therein) disposed of prior to the Calculation Date will
be excluded, but only to the extent that the obligations giving rise to
such Fixed Charges will not be obligations of the specified Person or any
Restricted Subsidiary following the Calculation Date;
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(4) any Person that is a Restricted Subsidiary on the Calculation Date
(or would become a Restricted Subsidiary on such Calculation Date in
connection with the transaction requiring determination of such
Consolidated Cash Flow) will be deemed to have been a Restricted Subsidiary
at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Calculation
Date (or would cease to be a Restricted Subsidiary on such Calculation Date
in connection with the transaction requiring determination of such
Consolidated Cash Flow) will be deemed not to have been a Restricted
Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest, the interest
expense on such Indebtedness will be calculated as if the rate in effect on
the Calculation Date had been the applicable rate for the entire period
(taking into account any Hedging Obligation applicable to such Indebtedness
if such Hedging Obligation has a remaining term as at the Calculation Date
in excess of 12 months).
"FIXED CHARGES" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations in respect of interest rates; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest accruing on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its Restricted Subsidiaries,
whether or not such guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any Restricted Subsidiary, other than dividends on Equity Interests payable
solely in Equity Interests of the Issuer (other than Disqualified Stock) or
to the Issuer or a Restricted Subsidiary of the Issuer, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate
of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United States
of America, as set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as have been approved by a
significant segment of the accounting profession which are in effect from time
to time.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep well, to purchase assets,
goods, securities or services, to take or pay or to maintain financial statement
condition or otherwise).
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"GUARANTEE" means the guarantee by each Guarantor of the Issuer's
obligations under the indenture and on the notes, executed pursuant to the
provisions of the indenture.
"GUARANTORS" means Holdings and the Subsidiary Guarantors.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
under swap, cap, collar, forward purchase or similar agreements or arrangements
dealing with interest rates, currency exchange rates or commodity prices, either
generally or under specific contingencies.
"HOLDINGS" means Beauceland Corporation, a Nova Scotia unlimited company.
"INDEBTEDNESS" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of bankers' acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price
of any property or services due more than six months after such property is
acquired or such services are completed, except any such balance that
represents an accrued expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person), but only to the extent that the aggregate amount of such
Indebtedness does not exceed the Fair Market Value of the asset, and, to the
extent not otherwise included, the guarantee by the specified Person of any
Indebtedness of any other Person. In no event will obligations or liabilities in
respect of any Capital Stock constitute Indebtedness hereunder.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including guarantees or other obligations), advances or capital
contributions, purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If Holdings or any Restricted Subsidiary sells or
otherwise disposes of any Equity Interests of any Restricted Subsidiary such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary, Holdings will be deemed to have made an
Investment on the date of any such sale or disposition equal to the Fair Market
Value of Holdings' Investments in such Restricted Subsidiary that were not sold
or disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments." The acquisition by Holdings or any Restricted Subsidiary of a Person
that holds an Investment in a third Person will be deemed to be an Investment by
Holdings or such Restricted Subsidiary in such third Person in an amount equal
to the Fair Market Value of the Investments held by the acquired Person in such
third Person in an amount determined as provided in the final paragraph of the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments." Except as otherwise provided in the indenture, the amount of an
Investment will be determined at the time the Investment is made and without
giving effect to subsequent changes in value. Notwithstanding the foregoing,
Restricted Payments of the type described in clause (iii) of the definition
thereof will not be deemed to be Investments.
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"ISSUE DATE" means the date on which the notes are first issued under the
indenture.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, hypothec or encumbrance of any kind in respect of
such asset, whether or not filed, recorded, registered or otherwise perfected
under applicable law, including any conditional sale or other title retention
agreement; provided that in no event shall an operating lease that is not a
Capital Lease Obligation be deemed to constitute a Lien.
"NET PROCEEDS" means the aggregate cash proceeds received by Holdings or
any Restricted Subsidiary in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, (a) fees and expenses related to
such Asset Sale (including legal, accounting and investment banking fees and
discounts, and sales and brokerage commissions, and any relocation expenses
incurred as a result of the Asset Sale), (b) taxes paid or payable as a result
of the Asset Sale, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, (c) amounts required to
be applied to the repayment of Indebtedness, other than Indebtedness under a
Credit Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale, (d) any reserve in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the seller after
such Asset Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale and (e) cash
escrows (until released from escrow to the seller).
"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Holdings nor any Restricted Subsidiary (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which would permit upon notice, lapse of
time or both any holder of any Indebtedness of Holdings or any Restricted
Subsidiary to declare a default on such Indebtedness or cause the payment
of the Indebtedness to be accelerated or payable prior to its Stated
Maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of Holdings or any
Restricted Subsidiary.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PARENT COMPANIES" means MAAX Holdings, Inc., a Delaware corporation, and
any of its Subsidiaries that directly or indirectly owns Equity Interests of
Holdings.
"PERMITTED BUSINESS" means any business conducted by Holdings or any
Restricted Subsidiary on the Issue Date and any businesses that, in the good
faith judgment of the Board of Directors of Holdings, are reasonably related,
ancillary or complementary thereto, or reasonable extensions thereof.
"PERMITTED FACTORING ARRANGEMENTS" means the Sodex Factoring Agreement, as
amended from time to time, and other factoring agreements on similar terms that,
in each case, are not materially less favorable to Holdings and the Restricted
Subsidiaries, taken as a whole, than the arrangements contained in the Sodex
Factoring Agreement, as in effect on the Issue Date.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Cash Equivalents;
(2) any Investment in Holdings or in a Restricted Subsidiary;
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(3) any Investment by Holdings or any Restricted Subsidiary in a
Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Holdings or a Restricted Subsidiary;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Offer to
Purchase -- Asset Sales";
(5) any Investment made for consideration consisting of Qualified
Equity Interests;
(6) any Investment received in compromise or resolution of (A)
obligations of trade creditors or customers that were incurred in the
ordinary course of business of Holdings or any Restricted Subsidiary,
including pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of any trade creditor or customer; or (B)
litigation, arbitration or other disputes with Persons that are not
Affiliates;
(7) Investments represented by Hedging Obligations permitted under the
indenture;
(8) loans or advances to employees of Holdings or any of its
Subsidiaries (x) in the ordinary course of business in an aggregate amount
not to exceed $5.0 million at any time outstanding or (y) in connection
with the purchase by such Persons of Equity Interests of Holdings or any
Parent Company so long as the cash proceeds of such purchase received by
any Parent Company are contemporaneously contributed to the common equity
capital of Holdings;
(9) Investments in existence on the Issue Date;
(10) Investments in prepaid expenses, negotiable instruments held for
collection and lease, endorsements for deposit or collection in the
ordinary course of business, utility or workers compensation, performance
and similar deposits entered into as a result of the operations of the
business in the ordinary course of business;
(11) pledges or deposits permitted under clause (6) of the definition
of Permitted Liens;
(12) receivables owing to Holdings or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms as Holdings or such
Restricted Subsidiary deems reasonable under the circumstances; and
(13) other Investments in any Person having an aggregate Fair Market
Value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (13) that are at the time
outstanding, not to exceed the greater of (x) $20.0 million and (y) 7.0% of
Consolidated Net Tangible Assets at such time.
"PERMITTED JUNIOR SECURITIES" means: (1) Equity Interests in Holdings or
any of its Subsidiaries; or (2) debt securities of the Issuer or any Guarantor
that are subordinated to all Senior Debt and any debt securities issued in a
confirmed plan of reorganization in exchange for Senior Debt to substantially
the same extent as, or to a greater extent than, the notes and the Guarantees
are subordinated to Senior Debt pursuant to the provisions of the indenture.
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"PERMITTED LIENS" means:
(1) Liens securing Senior Debt;
(2) Liens on assets of the Issuer or any Guarantor securing
Indebtedness and other Obligations under Credit Facilities and/or securing
Hedging Obligations;
(3) Liens in favor of Holdings or any Restricted Subsidiary;
(4) Liens on property (including Capital Stock) of a Person existing
at the time such Person is merged with or into or consolidated with
Holdings or any Subsidiary of Holdings; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with Holdings or the Subsidiary;
(5) Liens on property (including Capital Stock) existing at the time
of acquisition of the property by Holdings or any Subsidiary of Holdings;
provided that such Liens were in existence prior to, such acquisition, and
not incurred in contemplation of, such acquisition;
(6) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(7) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with or financed by such
Indebtedness;
(8) Liens existing on the date of the indenture;
(9) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent more than 30 days or that are being contested
in good faith by appropriate proceedings promptly instituted and diligently
concluded; provided that any reserve or other appropriate provision as is
required in conformity with GAAP has been made therefor;
(10) Liens imposed by law, such as carriers', warehousemen's,
landlords', suppliers' and mechanics' Liens, in each case, incurred in the
ordinary course of business;
(11) survey exceptions, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real property that were not incurred in connection with
Indebtedness and that do not in the aggregate materially adversely affect
the operation of the business of the Issuer and its Restricted
Subsidiaries, taken as a whole;
(12) Liens created for the benefit of (or to secure) the notes (or the
Guarantees) or payment obligations to the trustee;
(13) Liens to secure any Permitted Refinancing Indebtedness permitted
to be incurred under the indenture; provided, however, that the new Lien
shall be limited to all or part of the same property and assets that
secured or, under the written agreements pursuant to which the original
Lien arose, could secure the original Lien (plus improvements and
accessions to such property or proceeds or distributions thereof);
(14) judgment Liens not giving rise to an Event of Default;
(15) Liens and rights of setoff in favor of a bank imposed by law and
incurred in the ordinary course of business on deposit accounts maintained
with such bank and cash and Cash Equivalents in such accounts;
(16) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the
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account of such Person to facilitate the purchase, shipment or storage of
such inventory or other goods;
(17) pledges or deposits by a Person under worker's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent,
in each case incurred in the ordinary course of business;
(18) Liens securing obligations under Permitted Factoring Arrangements
on the accounts receivable subject to Permitted Factoring Arrangements; and
(19) Liens incurred in the ordinary course of business of Holdings or
any Restricted Subsidiary with respect to obligations that do not exceed
$7.5 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Holdings or
any Restricted Subsidiary issued in exchange for, or the net proceeds of which
are used to refund, refinance, replace, defease or discharge, other Indebtedness
of Holdings or any Restricted Subsidiary; provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness extended, refinanced,
renewed, replaced, defeased or refunded (plus all accrued interest on the
Indebtedness and the amount of all expenses and premiums incurred in
connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
not earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to,
the notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Holdings or by the
Restricted Subsidiary that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, unlimited company or government or other entity.
"PRO FORMA COST SAVINGS" means, with respect to any period, the reductions
in costs that occurred during the four-quarter period that are (1) directly
attributable to an asset acquisition and calculated on a basis that is
consistent with Article 11 of Regulation S-X under the Securities Act or (2)
implemented, committed to be implemented or the commencement of implementation
of which was begun in good faith by the business that was the subject of any
such asset acquisition within six months of the date of the asset acquisition
and that are supportable and quantifiable by the underlying records of such
business, as if, in the case of each of clauses (1) and (2), all such reductions
in costs had been effected as of the beginning of such period, decreased by any
incremental expenses incurred or to be incurred during the four-quarter period
in order to achieve such reduction in costs.
"QUALIFIED EQUITY INTERESTS" means Equity Interests of Holdings other than
Disqualified Stock.
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"REGISTRATION RIGHTS AGREEMENT" means (i) the Exchange and Registration
Rights Agreement dated as of the Issue Date among the Issuer, the Guarantors and
the initial purchasers of the notes issued on the Issue Date and (ii) any other
exchange and registration rights agreement entered into in connection with an
issuance of additional notes in a private offering after the Issue Date.
"RELATED AGREEMENTS" means (i) the merger agreement and the amalgamation
agreement described in "Summary -- The Transactions"; and (ii) the purchase
agreement and registration rights agreement entered into in connection with the
issuance of notes on the Issue Date and any other purchase or similar agreement
and registration rights agreement entered into in connection with the issuance
of additional notes.
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary. Unless otherwise indicated,
references to Restricted Subsidiaries shall be deemed to be to Restricted
Subsidiaries of Holdings, including the Issuer.
"RESTRUCTURING EXPENSES" means losses, expenses and charges incurred in
connection with restructuring by Holdings and/or one or more of the Restricted
Subsidiaries, including in connection with integration of acquired businesses or
persons, disposition of one or more Restricted Subsidiaries or businesses,
exiting of one or more lines of business and relocation or consolidation of
facilities, including severance, lease termination and other
non-ordinary-course, non-operating costs and expenses in connection therewith.
"SENIOR DEBT" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Issuer or any Guarantor, whether outstanding on the Issue
Date or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes or the
Guarantee of such Guarantor.
Without limiting the generality of the foregoing, "Senior Debt" shall
include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of:
(1) all monetary obligations of every nature under, or with respect to,
the Credit Facilities, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit,
fees, expenses and indemnities (and guarantees thereof); and
(2) all Hedging Obligations in respect of the Credit Facilities;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness owed to any Parent Company or any of its
Subsidiaries;
(2) obligations to trade creditors and other amounts incurred (but not
under the Credit Facilities) in connection with obtaining goods, materials
or services;
(3) any liability for taxes owed or owing by the Issuer or any
Guarantor;
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(4) that portion of any Indebtedness incurred in violation of the
covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" (but, as to any such
obligation, no such violation shall be deemed to exist for purposes of this
clause (4) if the holder(s) of such obligation or their representative
shall have received an officers' certificate of the Issuer to the effect
that the incurrence of such Indebtedness does not (or, in the case of
revolving credit Indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is
made would not) violate such provisions of the indenture);
(5) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Issuer or any Guarantor; and
(6) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Issuer or any Guarantor.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary of Holdings that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of the indenture.
"SODEX FACTORING AGREEMENT" means that certain factoring agreement, dated
as of February 24, 2004, among MAAX Inc., MAAX Canada Inc., MAAX Spas (Ontario)
Inc., MAAX Westco Inc., MAAX Spas (BC) Inc., MAAX-KSD Corporation, MAAX
Southeast Inc., Pearl Baths, Inc., MAAX-Hydro Swirl Manufacturing Corp., MAAX
Midwest Inc., MAAX Spas (Arizona), Inc., Cuisine Expert -- C.E. Cabinets, Inc.,
9022-3751 Quebec Inc., Aker Plastics Company, Inc. and NatExport and Sodex, both
divisions of the National Bank of Canada.
"SPECIAL INTERCOMPANY NOTE" means that certain note, dated on or about the
date of the indenture, made by the Canadian Holding Company in favor of the
Issuer, as such note may be amended, restated, supplemented or otherwise
modified from time to time.
"SPECIAL INTEREST" means (i) "Special Interest" as defined in the
registration rights agreement with respect to the notes issued on the Issue Date
and (ii) "Special Interest", "Additional Interest", "Liquidated Damages" or any
similar term as such term is defined in any registration rights agreement with
respect to additional notes issued after the Issue Date.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness as of the date of the indenture, and will not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, company, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency and after
giving effect to any voting agreement or stockholders' agreement that
effectively transfers voting power) to vote in the election of directors,
managers or trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
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"SUBSIDIARY GUARANTOR" means each Subsidiary of the Issuer that executes a
Guarantee in accordance with the provisions of the indenture and its successors
and assigns, until such Subsidiary is released from its Guarantee in accordance
with the provisions of the indenture.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Holdings (other than the
Issuer) that is designated by the Board of Directors of Holdings as an
Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent
that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above under the
caption "-- Certain Covenants -- Affiliate Transactions," is not party to
any agreement, contract, arrangement or understanding with Holdings or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Holdings or such
Restricted Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of Holdings;
(3) is a Person with respect to which neither Holdings nor any
Restricted Subsidiary has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Holdings or any Restricted
Subsidiary.
Any designation of a Subsidiary of Holdings as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary will be deemed
to be incurred by a Restricted Subsidiary as of such date and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," Holdings will be in default of such covenant.
The Board of Directors of Holdings may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation will be
deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
will only be permitted if (1) such Indebtedness is permitted under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"U.S. DOLLAR EQUIVALENT" means, as to any amount denominated in Canadian
Dollars as of any date of determination, the amount of U.S. Dollars which would
be required to purchase such amount of Canadian Dollars at the Bank of Canada
noon (Toronto time) spot rate on such date or, if such date of determination is
not a Business Day, on the Business Day immediately preceding such date of
determination.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal,
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including payment at final maturity, in respect of the Indebtedness, by (b)
the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
GLOBAL NOTES
Exchange notes will be represented by one or more Notes in registered,
global form without interest coupons (collectively, the "GLOBAL NOTES"). We will
deposit the Global Notes upon issuance with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and register the Global
Notes in the name of DTC or its nominee, in each case for credit to an account
of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. You may not exchange your beneficial interest in the Global Notes for
Notes in certificated form except in the limited circumstances described below
under "-- Exchanges of Book-Entry Notes for Certificated Notes." In addition,
you may not exchange your beneficial interests in the Restricted Global Note for
beneficial interests in the Regulation S Global Note or vice versa.
EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
You may not exchange your beneficial interest in a Global Note for a Note
in certificated form unless:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depository for the Global Note or (b) has ceased to be a clearing agency
registered under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and in either case we thereupon fail to appoint a
successor depository; or
(2) an Event of Default shall have occurred and be continuing with
respect to the Notes.
In all cases, certificated Notes delivered in exchange for any Global Note
or beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depository (in
accordance with its customary procedures). Any certificated Notes issued in
exchange for an interest in a Global Note will bear the legend restricting
transfers that is borne by such Global Note. Any such exchange will be effected
through the DTC Deposit/Withdraw at Custodian ("DWAC") system and an appropriate
adjustment will be made in the records of the Security Registrar to reflect a
decrease in the principal amount of the relevant Global Note.
CERTAIN BOOK ENTRY PROCEDURES
The description of the operations and procedures of DTC, Euroclear Bank
S.A./N.V. (as operator of the Euroclear system, "EUROCLEAR") or Clearstream
Banking Luxembourg ("CLEARSTREAM") that follows is provided solely as a matter
of convenience. These operations and procedures are solely within their control
and are subject to changes by them from time to time. We take no responsibility
for these operations and procedures and urge you to contact the system or their
participants directly to discuss these matters.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants ("PARTICIPANTS") and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
137
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("INDIRECT PARTICIPANTS").
DTC has advised us that its current practice, upon the issuance of the
Global Notes, is to credit, on its internal system, the respective principal
amount of the individual beneficial interests represented by such Global Notes
to the accounts with DTC of the participants through which such interests are to
be held. Ownership of beneficial interests in the Global Notes will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominees (with respect to interests of participants).
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE GOVERNING THE NOTES AND THE NOTES. Except in the limited
circumstances described above under "-- Exchanges of Book-Entry Notes for
Certificated Notes," you will not be entitled to have any portions of a Global
Note registered in your name, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owner or Holder of a Global Note (or any Note represented thereby) under the
indenture governing the Notes or the Notes.
You may hold your interests in the Global Notes directly through DTC, if
you are participants in such system, or indirectly through organizations
(including Euroclear and Clearstream) which are participants in such system. The
depositories, in turn, will hold such interests in such Global Note in
customers' securities accounts in the depositories' names on the books of DTC.
All interests in a Global Note, including those held through Euroclear or
Clearstream, will be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Clearstream will also be subject to the
procedures and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, your ability to
transfer your beneficial interests in a Global Note to such persons may be
limited to that extent. Because DTC can act only on behalf of its participants,
which in turn act on behalf of indirect participants and certain banks, your
ability to pledge your interests in a Global Note to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests.
We will make payments of the principal of, premium, if any, and interest on
Global Notes to DTC or its nominee as the registered owner thereof. Neither we
nor the Trustee nor any of our or their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Note representing any Notes held by it or its
nominee, will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Note for such Notes as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in such Global Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name." Such
payment will be the responsibility of such participants.
Except for trades involving only Euroclear and Clearstream participants,
interests in the Global Note will trade in DTC's settlement system, and
secondary market trading activity in such interests will therefore settle in
immediately available funds, subject in all cases to the rules and procedures of
DTC and its participants. Transfers between participants in DTC will be effected
in accordance with
138
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Cross-market transfers between DTC participants, on the one hand, and
Euroclear or Clearstream participants, on the other hand, will be effected by
DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the
case may be, by its respective depository; however, such cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depository to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositories for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the DTC settlement date. Cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Note by or through a
Euroclear or Clearstream participant to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant Euroclear
or Clearstream cash account only as of the business day for Euroclear or
Clearstream following the DTC settlement date.
DTC has advised us that DTC will take any action permitted to be taken by a
Holder of Notes (including the presentation of Notes for exchange as described
below and the conversion of Notes) only at the direction of one or more
participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such participant or participants has or have given such
direction. However, if there is an Event of Default under the Notes, the Global
Notes will be exchanged for legended Notes in certificated form, and distributed
to DTC's participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of beneficial ownership interests in
the Global Notes among participants of DTC, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. None of we, the Trustee or any of our or their
respective agents will have any responsibility for the performance by DTC,
Euroclear and Clearstream, their participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Notes.
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INCOME TAX CONSIDERATIONS
U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a general discussion of certain material United States
federal income tax considerations generally applicable to purchasers of the
notes, who purchased the original notes pursuant to the offering at the initial
offering price. The federal income tax considerations set forth below are based
upon currently existing provisions of the Internal Revenue Code of 1986, as
amended, or the Code, applicable permanent, temporary and proposed United States
Treasury Regulations, or Treasury Regulations, judicial authority, and current
administrative rulings and pronouncements of the Internal Revenue Service, or
IRS. There can be no assurance that the IRS will not take a contrary view, and
no ruling from the IRS has been, or will be, sought on the issues discussed
herein. Legislative, judicial, or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be retroactive
and could affect the tax consequences discussed below.
The summary is not a complete analysis or description of all potential
federal income tax considerations that may be relevant to, or of the actual tax
effect that any of the matters described herein will have on, particular U.S.
Holders, and does not address foreign, state, local or other tax consequences.
This summary does not purport to address special classes of taxpayers (such as
partnerships or other pass-through entities, S corporations, mutual funds,
insurance companies, financial institutions, small business investment
companies, regulated investment companies, expatriates, broker-dealers and
tax-exempt organizations) who are subject to special treatment under the federal
income tax laws, or persons that hold notes that are a hedge against, or that
are hedged against, currency risk or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar. This
discussion assumes that the notes will be held as capital assets within the
meaning of section 1221 of the Code. Furthermore, estate and gift tax
consequences are not discussed herein. No opinion of counsel will be requested
with respect to any of the matters discussed herein.
As used herein, the term "U.S. Holder" means (i) a citizen or resident of
the United States for U.S. federal income tax purposes, (ii) a corporation, or
other entity treated as a corporation for U.S. federal income tax purposes, that
was created or organized under the laws of the United States or any political
subdivision thereof, (iii) an estate, the income of which is includible in gross
income for U.S. federal income tax purposes regardless of its source, or (iv) a
trust if (a) a U.S. court can exercise primary supervision over the
administration of such trust and one or more U.S. fiduciaries has the authority
to control all of the substantial decisions of such trust or (b) such trust has
a valid election in place to be treated as a U.S. person. As used herein, the
term "Non-U.S. Holder" means a beneficial holder of notes that is a nonresident
alien or a corporation, estate or trust that is not a U.S. Holder.
A partnership for U.S. federal income tax purposes is not subject to income
tax on income derived from holding the notes. A partner of the partnership may
be subject to tax on such income under rules similar to the rules for U.S.
Holders or Non-U.S. Holders depending on whether (i) the partner is a U.S. or a
non-U.S. person, and (ii) the partnership is or is not engaged in a U.S. trade
or business to which income or gain from the notes is effectively connected. If
you are a partner of a partnership acquiring the notes, you should consult your
tax advisor about the U.S. tax consequences of holding and disposing of the
notes.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE PURCHASER OF
THE NOTES IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT
TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY FEDERAL, FOREIGN, STATE,
LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY
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POSSIBLE CHANGES IN TAX LAW) AFFECTING THE PURCHASE, HOLDING AND DISPOSITION OF
THE NOTES.
TAX CHARACTERIZATION OF THE ISSUER
The U.S. federal income tax consequences to persons purchasing the notes
depend in part on who is treated as the issuer of the notes for U.S. federal
income tax purposes. Because MAAX Corporation (i) is incorporated as a Nova
Scotia unlimited company (ii) is wholly owned by another Nova Scotia unlimited
company, Beauceland Corporation, which is wholly-owned by MAAX Holdings, which
is a U.S. corporation, and (iii) neither MAAX Corporation nor Beauceland
Corporation has made an election to be treated as other than a "disregarded
entity" for U.S. federal income tax purposes, MAAX Holdings will be treated as
the issuer of the notes for U.S. federal income tax purposes. If the IRS were to
successfully challenge this treatment, the tax consequences to persons holding
the notes may be different than those described herein. Prospective investors
should consult their own tax advisors concerning those potential different
consequences. The remainder of this discussion assumes that MAAX Holdings will
be treated as the issuer of the notes for U.S. federal income tax purposes.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
This section describes certain U.S. federal income tax consequences to U.S.
Holders. Non-U.S. Holders should see the discussion under the heading "Federal
Income Tax Consequences to Non-U.S. Holders" for a discussion of certain tax
consequences applicable to them.
INTEREST. Interest on the notes will be taxable to a U.S. Holder as
ordinary interest income at the time such amounts are accrued or received, in
accordance with the U.S. Holder's method of accounting for U.S. federal income
tax purposes.
EXCHANGE OFFER. The exchange of the notes for the exchange notes will not
constitute a taxable exchange. See "The Exchange Offer." As a result, (1) a U.S.
Holder will not recognize taxable gain or loss as a result of exchanging such
holder's notes; (2) the holding period of the exchange notes received will be
the same as the holding period of the notes exchanged therefor; and (3) the
adjusted tax basis of the exchange notes received will be the same as the
adjusted tax basis of the notes exchanged therefor immediately before such
exchange.
DISPOSITION OF THE NOTES. Unless a nonrecognition provision applies, the
sale, exchange (other than pursuant to the Exchange Offer), redemption
(including pursuant to an offer by the company) or other disposition of a note,
will be a taxable event for U.S. federal income tax purposes. In such event, a
U.S. Holder of notes will generally recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of property
received (except to the extent attributable to accrued interest on the notes
which will be treated as interest as described above) and (ii) the U.S. Holder's
tax basis in the notes. A U.S. Holder's tax basis in a note will generally equal
its cost therefor. Any such gain or loss generally will be long-term capital
gain or loss, provided the notes have been held for more than one year. The
deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING. Under section 3406 of the Code and applicable Treasury
Regulations, a noncorporate holder of the notes may be subject to backup
withholding at the current rate of 28 percent (subject to future adjustment)
with respect to "reportable payments," which include interest paid on the notes
or the proceeds of a sale, exchange or redemption of the notes. The payor will
be required to deduct and withhold the prescribed amounts if (i) the payee fails
to furnish a TIN to the payor in the manner required, (ii) the IRS notifies the
payor that the TIN furnished by the payee is incorrect, (iii) there has been a
"notified payee under reporting" described in section 3406(c) of the Code or
(iv) there has been a failure of the payee to certify under penalty of perjury
that the payee is not subject to withholding under section 3406(a)(1)(C) of the
Code. Amounts paid as backup withholding do not constitute an additional tax and
will be refunded or
141
credited against the holder's federal income tax liabilities, so long as the
required information is timely provided to the IRS.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following information describes the U.S. federal income tax treatment
of "Non-U.S. Holders."
EFFECTIVELY CONNECTED INCOME. If the income or gain on the notes is
"effectively connected with the conduct of a trade or business within the United
States" by a Non-U.S. Holder, such income or gain will generally be subject to
U.S. federal income tax essentially in the same manner as if the notes were held
by a U.S. Holder, as described above, unless an applicable tax treaty provides
otherwise, and in the case of a Non-U.S. Holder that is a corporation, may also
be subject to U.S. branch profits tax. Such Non-U.S. Holder will not be subject
to withholding taxes, however, if it provides a properly executed Form W-8ECI.
INTEREST. Interest on the notes held by Non-U.S. Holders that is not
effectively connected with the conduct of a U.S. trade or business may be
subject to withholding of up to 30 percent of each payment made to the holders
or other payee unless the "portfolio interest exemption" applies. The interest
paid on the notes generally should qualify for the portfolio interest exemption.
Accordingly, interest paid on the notes to a Non-U.S. Holder should not be
subject to withholding if (1) the Non-U.S. Holder provides a statement signed
under penalties of perjury, certifying that such owner is not a U.S. person on
IRS Form W-8BEN (or successor form), or an alternative method of satisfying the
certification requirement is met; (2) such Non-U.S. Holder does not actually or
constructively own 10 percent or more of the total combined voting power of all
classes of stock in MAAX Holdings; (3) such Non-U.S. Holder is not a "controlled
foreign corporation" (within the meaning of section 957 of the Code) related to
MAAX Holdings; and (4) the Non-U.S. Holder is not a foreign "bank" receiving the
interest on an extension of credit pursuant to a loan agreement entered into in
the ordinary course of its trade or business.
If you do not claim, or do not qualify for, the benefit of the portfolio
interest exemption, you may be subject to a 30 percent withholding tax on
interest payments on the notes. However, you may be able to claim the benefit of
a reduced withholding tax rate under an applicable income tax treaty. The
required information for claiming treaty benefits is generally submitted, under
current regulations, on Form W-8BEN.
SALE OR OTHER DISPOSITION OF THE NOTES. A Non-U.S. Holder will generally
not be subject to U.S. federal income tax or withholding tax on gain recognized
on a sale, exchange, redemption, retirement, or other disposition of the notes.
A Non-U.S. Holder may, however, be subject to U.S. federal income tax on such
gain if: (1) it is a nonresident alien individual who was present in the United
States for 183 days or more in the taxable year of the disposition and certain
other conditions are met or (2) the gain is effectively connected with the
conduct of a U.S. trade or business (and, if a tax treaty applies, is
attributable to a permanent establishment in the United States), as provided in
applicable U.S. tax rules.
BACKUP WITHHOLDING AND INFORMATION REPORTING. We must report annually to
the IRS and to each Non-U.S. Holder any interest that is subject to U.S.
withholding taxes or that is exempt from U.S. withholding taxes pursuant to an
income tax treaty or certain provisions of the Code. Copies of these information
returns may also be made available under the provisions of a specific tax treaty
or agreement with the tax authorities of the country in which the Non-U.S.
Holder resides. Furthermore, payments of interest, principal or sales proceeds
may be subject to both backup withholding at the current rate of 28 percent
(subject to future adjustment) and additional information reporting. Backup
withholding and information reporting generally will not apply to payments on
the notes if the Non-U.S. Holder certifies, on a Form W-8BEN, or successor form,
that it is not a U.S. person. Any amounts withheld under the backup withholding
rules may be refunded or credited against the
142
Non-U.S. Holder's U.S. federal income tax liability, if any, provided that the
required information is timely furnished to the IRS.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY AND
DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS OR HER PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. PROSPECTIVE INVESTORS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO ANY TAX CONSEQUENCES TO THEM FROM THE
PURCHASE, OWNERSHIP, AND DISPOSITION OF NOTES, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal Canadian federal income tax
considerations applicable to purchasers of the notes, who purchased the original
notes pursuant to the offering at the initial offering price and who hold such
notes as capital property for purposes of the Income Tax Act (Canada), or the
Tax Act. Generally, the notes will be considered capital property to a holder
provided the holder does not hold the notes in the course of carrying on a
business and has not acquired the notes in one or more transactions considered
to be an adventure in the nature of trade. This summary is based on the
Canada-United States Income Tax Convention (1980), as amended, or the
Convention, the relevant provisions of the Tax Act and the regulations
thereunder, or the Regulations, as in effect on the date hereof, and on the
current published administrative practices of the Canada Revenue Agency. It
assumes that the specific proposals to amend the Tax Act and the Regulations
publicly announced by the Minister of Finance of Canada prior to the date of the
offering will be enacted in their present form, but the Tax Act or the
Regulations may not be amended as proposed or at all. This summary does not
otherwise take into account or anticipate any changes in law or administrative
or assessing practice whether by legislative, regulatory, administrative or
judicial action. This summary is not a complete analysis of all potential
Canadian federal income tax considerations that may be relevant to, or of the
actual tax effect that any of the matters described herein will have on a
particular holder, and does not address provincial or territorial income tax
considerations nor does it address the income tax considerations of countries
other than Canada. Changes in the law or administrative practices or future
court decisions may affect your tax treatment. No opinion of counsel will be
requested with respect to any of the matters discussed herein.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES TO NON-RESIDENT HOLDERS
The following commentary is generally applicable to a holder who we refer
to as a "Non-Resident Holder" who, at all times for purposes of the Tax Act,
deals at arm's length with us and who, for the purposes of the Convention and
the Tax Act, is not and is not deemed to be a resident of Canada during any
taxation year in which it owns the notes and does not use or hold, and is not
deemed to use or hold, the notes in the course of carrying on a business in
Canada nor does the commentary apply to an insurer or an authorized foreign
bank, within the meaning of the Tax Act, carrying on an insurance business or a
bank business in Canada.
INTEREST PAYMENTS
A Non-Resident Holder will not be subject to tax (including withholding
tax) under the Tax Act on a payment of either interest or the principal amount
of the notes.
DISPOSITIONS
Gains realized on the disposition or deemed disposition of a note by a
Non-Resident Holder will not be subject to tax under the Tax Act.
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EXCHANGE OF NOTES INTO REGISTERED NOTES
The exchange of a note for a registered note by a Non-Resident Holder as
described in the section entitled "The Exchange Offer" will not constitute a
taxable transaction for the purposes of the Tax Act.
THE PRECEDING DISCUSSION OF CANADIAN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT LEGAL OR TAX ADVICE. ACCORDINGLY,
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THEIR
PARTICULAR TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, PROVINCIAL, LOCAL OR
FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
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PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the original notes. We do not intend to apply for the listing of the
notes on a national securities exchange or for their quotation through The
Nasdaq Stock Market. The original notes are eligible for trading in The
PORTAL(SM) Market, an electronic screen-based system which permits the trading
of eligible privately placed securities by certain qualified institutional
investors which is regulated by the National Association of Securities Dealers,
Inc. We have been advised by the initial purchasers that, following consummation
of the exchange offer, the initial purchasers intend to make a market in the
exchange notes; however, any market making may be discontinued at any time
without notice. If an active public market does not develop, the market price
and liquidity of the exchange notes may be adversely affected.
If a trading market develops for the original notes or the exchange notes,
future trading prices of such securities will depend on many factors, including,
among other things, prevailing interest rates, our results of operations and the
market for similar securities. Depending on such factors, such securities may
trade at a discount from their offering price.
With respect to resale of exchange notes, based on an interpretation by the
staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder (other than a person that is an affiliate of ours within
the meaning of Rule 405 under the Securities Act or "broker" or "dealer"
registered under the Exchange Act) who exchanges original notes for exchange
notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the exchange notes, will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 thereof. However, if
any holder acquires exchange notes in the exchange offer for the purpose of
distributing or participating in a distribution of the exchange notes, such
holder cannot rely on the position of the staff of the SEC enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988) or similar no-action or
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, and such secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K if the resales are of
exchange notes obtained by such holder in exchange for original notes acquired
by such holder directly from us or an affiliate of ours, unless an exemption
from registration is otherwise available.
As contemplated by the above-referenced no-action letters and the
registration rights agreement, each holder accepting the exchange offer is
required to represent to us in the letter of transmittal that:
- any exchange notes to be received by it will be acquired in the ordinary
course of its business;
- it has no arrangement or understanding with any person to participate in
the distribution of the exchange notes; and
- it is not an "affiliate," as defined in the Securities Act, of ours or of
any of the guarantors of the notes.
In addition, each such holder will be required to make any additional
representations that in the written opinion of our counsel are necessary under
existing rules or regulations (or interpretations thereof) of the SEC in order
for the registration statement of which this prospectus forms a part to be
declared effective.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer
145
that will receive exchange notes for its own account in exchange for original
notes that were acquired as a result of market-making activities or other
trading activities, it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
Any broker or dealer registered under the Exchange Act who holds original
notes that were acquired for its own account as a result of market-making
activities or other trading activities (other than original notes acquired
directly from us) may exchange such original notes for exchange notes pursuant
to the exchange offer; however, such broker-dealer may be deemed an underwriter
within the meaning of the Securities Act and, therefore, must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of the exchange notes received by it in the exchange offer, which
prospectus delivery requirement may be satisfied by the delivery by such
broker-dealer of this prospectus. We have agreed to use all commercially
reasonable efforts to keep the registration statement of which this prospectus
forms a part effective for a period beginning when exchange notes are first
issued in the exchange offer and ending upon the earlier of the expiration of
the 180th day after the exchange offer has been completed and such time as
broker-dealers are no longer required to comply with the prospectus delivery
requirements in connection with offers and sales of exchange notes.
A broker-dealer that delivers such a prospectus to purchasers in connection
with such resales will be subject to certain of the civil liability provisions
under the Securities Act, and will be bound by the provisions of the
registration rights agreement (including certain indemnification rights and
obligations).
The information described above concerning interpretations of, and
positions taken by, the SEC is not intended to constitute legal advice, and
broker-dealers should consult their own legal advisors with respect to these
matters.
We will not receive any proceeds from any sale of exchange notes by anyone,
including broker-dealers. Exchange notes received by broker-dealers for their
own account pursuant to the exchange offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to a purchaser or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes.
We have agreed to pay expenses incident to the exchange offer. See "The
Exchange Offer -- Fees and Expenses."
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LEGAL MATTERS
The validity of the exchange notes and certain legal matters will be passed
upon for us by Kaye Scholer LLP, New York, New York.
EXPERTS
The balance sheet of Beauceland Corporation as of May 31, 2004 and the
financial statements of MAAX Inc. as of February 29, 2004 and February 28, 2003
and for each of the three years in the period ended February 29, 2004, included
in this prospectus, have been audited by KPMG LLP, an independent registered
public accounting firm, as stated in their report appearing herein. The
financial statements of Aker Plastics Company Inc. as of October 31, 2002 and
for its predecessor as of and for the period from October 1, 2002 to October 25,
2002 and as of the years ended September 30, 2002 and 2001 included in this
prospectus have been audited by Crowe Chizek and Company LLC, independent
registered public accounting firm, as stated in their report appearing herein,
and are included in reliance upon the reports of this form given upon their
authority as an expert in accounting and auditing.
147
WHERE YOU CAN FIND MORE INFORMATION
This prospectus forms a part of a registration statement that we filed with
the SEC on Form F-4 under the Securities Act in connection with the offering of
the exchange notes. This prospectus does not contain all the information
contained in the registration statement, including its exhibits and schedules.
You should refer to the registration statement, including the exhibits and
schedules, for further information about us and the exchange notes. The
registration statement, including exhibits and schedules, is on file at the
offices of the SEC and may be inspected without charge.
Under the terms of the indenture that governs the notes, we have agreed
that, whether or not required by the rules and regulations of the SEC, so long
as any original notes or exchange notes are outstanding, we will furnish to the
holders of the original notes or exchange notes (i) all information that would
be required to be contained in a filing with the SEC on Forms 20-F and 6-K, if
we were required to file such Forms and, with respect to the annual information
only, a report thereon by our independent auditors and (ii) all current reports
that would be required to be filed with the SEC on Form 6-K, if we were required
to file such reports. In addition, we will post all reports on our website no
later than the date such information is required to be furnished to holders and
keep all such reports available on our website for a period of one year from the
date of such posting. In addition, we have agreed that, for so long as any
original notes or exchange notes remain outstanding, we will furnish to the
holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Upon effectiveness of the registration statement of which this prospectus
is a part, we will become subject to the periodic reporting and to the
informational requirements of the Exchange Act and during the fiscal year in
which the registration statement becomes effective we will file information with
the SEC, including annual and current reports. You may read and copy any
document we file with the SEC at the SEC's public reference room at the
following address:
PUBLIC REFERENCE ROOM
450 FIFTH STREET, N.W.
ROOM 1024
WASHINGTON, D.C. 20549
Please call the SEC at 1-800-SEC-0330 for further information on the
operations of the public reference rooms.
Our SEC filings are also available at the SEC's website at
http://www.sec.gov and at our own website at http://www.maax.com. You can also
obtain a copy of any of our filings, at no cost, by writing to or telephoning us
at the following address:
MAAX Corporation
1010 Sherbrooke Street West, Suite 1610
Montreal, Quebec
Canada H3A 2R7
(514) 844-4155
148
INDEX TO FINANCIAL STATEMENTS
<Table>
BALANCE SHEET OF BEAUCELAND CORPORATION AS OF MAY 31, 2004
Report of Independent Registered Public Accounting Firm...
F-2
Balance Sheet.............................................
F-3
Note to Balance Sheet.....................................
F-4
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF BEAUCELAND
CORPORATION AND PREDECESSOR MAAX INC. FOR THE SIX-MONTH
PERIOD ENDED AUGUST 31, 2004
Consolidated Balance Sheets as of February 29, 2004 and
August 31, 2004........................................
F-5
Consolidated Statements of Income for the six months ended
August 31, 2003 and August 31, 2004....................
F-6
Consolidated Statement of Shareholders' Equity for the six
months ended August 31, 2004...........................
F-7
Consolidated Statements of Cash Flows for the six months
ended August 31, 2003 and August 31, 2004..............
F-8
Notes to Consolidated Financial Statements................
F-9
CONSOLIDATED FINANCIAL STATEMENTS OF MAAX INC. FOR THE YEARS
ENDED FEBRUARY 28, 2002, FEBRUARY 28, 2003 AND FEBRUARY
29, 2004
Report of Independent Registered Public Accounting Firm...
F-22
Consolidated Balance Sheets as of February 28, 2003 and
February 29, 2004......................................
F-23
Consolidated Statements of Income for the years ended
February 28, 2002 and 2003 and February 29, 2004.......
F-24
Consolidated Statements of Shareholders' Equity and Other
Comprehensive Income for the years ended February 28,
2002 and 2003 and February 29, 2004....................
F-25
Consolidated Statements of Cash Flows for the years ended
February 28, 2002 and 2003 and February 29, 2004.......
F-26
Notes to Consolidated Financial Statements................
F-27
AKER PLASTICS COMPANY, INC. AND PREDECESSOR FINANCIAL
STATEMENTS (OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND
SEPTEMBER 30, 2001)
Report of Independent Registered Public Accounting Firm...
F-56
Statements of Income and Retained Earnings................
F-57
Balance Sheets............................................
F-58
Statements of Cash Flows..................................
F-59
Notes to Financial Statements.............................
F-61
</Table>
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors of Beauceland Corporation
We have audited the balance sheet of Beauceland Corporation as of May 31,
2004. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the Company as of May 31,
2004 in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
--------------------------------------
Chartered Accountants
Montreal, Canada
June 3, 2004
F-2
BEAUCELAND CORPORATION
BALANCE SHEET
MAY 31, 2004
(IN US DOLLARS)
<Table>
ASSETS
Cash...................................................... $1,000
======
SHAREHOLDER'S EQUITY
Capital stock:
100,000 common shares authorized, without par value.....
1,000 common shares issued and paid..................... $1,000
======
</Table>
See accompanying Note to Balance Sheet.
F-3
BEAUCELAND CORPORATION
NOTE TO BALANCE SHEET
MAY 31, 2004
The Company is incorporated under the laws of Nova Scotia, Canada.
The Company will acquire on June 4, 2004 all the outstanding shares of MAAX
Inc. through an amalgamation between two wholly-owned indirect subsidiaries of
the Company and MAAX Inc. MAAX Inc. is a significant designer, developer,
manufacturer and distributor of bathroom and kitchen products and spas.
F-4
BEAUCELAND CORPORATION AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS)
<Table>
<Caption>
THE COMPANY PREDECESSOR
----------- ------------
AUGUST 31, FEBRUARY 29,
2004 2004
---------- ------------
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,099 $ 4,467
Accounts receivables, less allowance for doubtful
accounts............................................... 74,984 64,012
Income taxes receivable................................... 2,508 --
Inventories (note 3)...................................... 47,213 45,684
Prepaid expenses.......................................... 2,955 3,293
Assets held-for-sale...................................... 1,440 --
Deferred income taxes..................................... 3,371 3,542
-------- --------
Total current assets...................................... 134,570 120,998
Property, plant and equipment............................... 97,390 100,615
Intangible assets........................................... 15,539 16,388
Goodwill.................................................... 314,829 112,519
Derivative financial instruments............................ 10,651 11,627
Other assets................................................ 12,251 1,678
Deferred income taxes....................................... 3,897 1,762
-------- --------
Total assets................................................ $589,127 $365,587
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 54,077 $ 52,454
Income taxes payable...................................... -- 4,765
Deferred income taxes..................................... 3,427 3,824
Current portion of long-term debt......................... 4,922 4,782
-------- --------
Total current liabilities................................. 62,426 65,825
Long-term debt (note 4)..................................... 359,592 52,662
Deferred income taxes....................................... 16,044 15,701
-------- --------
Total liabilities........................................... 438,062 134,188
Shareholders' equity
Capital Stock............................................. 133,688 105,044
Additional paid-in capital................................ 2,690 232
Retained earnings......................................... 11,338 115,647
Accumulated other comprehensive income.................... 3,349 10,476
-------- --------
Total shareholders' equity................................ 151,065 231,399
-------- --------
Total liabilities and shareholders' equity.................. $589,127 $365,587
======== ========
</Table>
F-5
BEAUCELAND CORPORATION AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF US DOLLARS)
<Table>
<Caption>
PREDECESSOR
--------------- PREDECESSOR THE COMPANY
SIX-MONTH --------------- ---------------
PERIOD ENDED MARCH 1, 2004 JUNE 4, 2004 TO
AUGUST 31, 2003 TO JUNE 3, 2004 AUGUST 31, 2004
--------------- --------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales............................. $253,995 $143,836 $128,426
Operating costs and expenses
Cost of goods sold.................. 175,386 98,490 88,011
Selling, general and administrative
expenses (note 5)................ 37,104 36,670 17,361
Depreciation and amortization....... 7,392 3,987 3,837
-------- -------- --------
219,882 139,147 109,209
Operating income...................... 34,113 4,689 19,217
Interest expense.................... 2,378 1,321 6,342
-------- -------- --------
Income before income taxes............ 31,735 3,368 12,875
Income taxes
Current............................. 6,167 3,922 1,341
Deferred............................ 4,151 (2,350) 196
-------- -------- --------
10,318 1,572 1,537
Net income............................ $ 21,417 $ 1,796 $ 11,338
======== ======== ========
</Table>
F-6
BEAUCELAND CORPORATION AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS OF US DOLLARS)
(UNAUDITED)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL OTHER COMPRE-
COMMON PAID-IN RETAINED COMPREHENSIVE HENSIVE
STOCK CAPITAL EARNINGS INCOME INCOME
------ ---------- -------- ------------- -------
Predecessor
Balance as at February 29, 2004....................... $ 105,044 $ 232 $ 115,647 $10,476 $
Net income............................................ -- -- 1,796 -- 1,796
Foreign currency translation.......................... -- -- -- (2,811) (2,811)
-------
Total comprehensive income............................ -- -- -- -- $(1,015)
=======
Dividends paid........................................ -- -- (1,266) --
Stock based-compensation.............................. -- 2,714 -- --
Tax benefit associated with stock options............. -- 219 -- --
Issuance of common shares............................. 11,809 -- -- --
--------- ------- --------- -------
Balance, as at June 3, 2004........................... $ 116,853 $ 3,165 $ 116,177 $ 7,665
--------- ------- --------- -------
Merger transaction.................................... (116,853) (3,165) (116,177) (7,665)
The Company
Net Income............................................ -- -- 11,338 -- 11,338
Foreign currency translation.......................... -- -- -- 3,349 3,349
-------
Total comprehensive income............................ -- -- -- -- $14,687
=======
Stock options from MAAX Inc. stock-option plan
rolled-over......................................... -- 2,690 -- --
Issuance of common shares............................. 133,688 -- -- --
--------- ------- --------- -------
Balance, as of August 31, 2004........................ $ 133,688 $ 2,690 $ 11,338 $ 3,349
========= ======= ========= =======
</Table>
F-7
BEAUCELAND CORPORATION AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF US DOLLARS)
<Table>
<Caption>
MAAX INC. BEAUCELAND
SIX-MONTH MAAX INC. CORPORATION
PERIOD ENDED MARCH 1, 2004 JUNE 4, 2004 TO
AUGUST 31, 2003 TO JUNE 3, 2004 AUGUST 31, 2004
--------------- --------------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash flows related to operating activities:
Net income.................................... $21,417 $ 1,796 $ 11,338
Items not affecting cash:
Depreciation and amortization............... 7,392 3,987 3,837
Amortization of financial expenses.......... 234 121 447
Change in fair value of derivative financial
instruments............................... (7,692) 2,679 (1,219)
Stock-based compensation.................... -- 2,714 --
Deferred income taxes....................... 4,151 (2,350) 196
Net change in non-cash balances related to
operations.................................. 1,154 (13,839) (3,819)
------- -------- ---------
26,656 (4,892) 10,780
Cash flows related to financing activities:
Proceeds from issuance of long-term debt...... -- 34,000 375,319
Repayment of long-term debt................... (7,789) (81,963) (23,415)
Proceeds from issuance of shares.............. 447 33 133,688
Decrease in notes receivable related to the
exercise of stock options................... -- -- 11,772
Interest, net of income taxes, from a share
purchase loan............................... 5 -- --
Dividends paid................................ (1,177) (1,266) --
------- -------- ---------
(8,514) (49,196) 497,364
Cash flows related to investing activities:
Business acquisition.......................... (4) (3,762) (437,332)
Additions to property, plant and equipment.... (6,748) (2,563) (1,636)
Proceeds from disposal of property, plant and
equipment................................... 286 110 67
Other assets.................................. (163) 1,076 (12,303)
------- -------- ---------
(6,629) (5,139) (451,204)
------- -------- ---------
Net increase (decrease) in cash................. 11,513 (59,227) 56,940
Translation adjustment on cash denominated in
foreign currencies............................ (729) (84) 3
Cash (bank overdraft), beginning of period...... 2,668 4,467 (54,844)
------- -------- ---------
Cash (bank overdraft), end of period............ $13,452 $(54,844) $ 2,099
======= ======== =========
</Table>
F-8
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF US DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring items, considered necessary for
a fair presentation of financial data have been included. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. The consolidated financial statements
should be read in conjunction with the consolidated financial statements and
accompanying notes included in MAAX Inc. annual financial statements for the
year ended February 29, 2004. On June 4, 2004, Beauceland Corporation acquired
all the outstanding shares of MAAX Inc. (MAAX or the predecessor) and its direct
and indirect subsidiaries in a business combination accounted for as a purchase
as described in note 2.
CONSOLIDATION
The consolidated financial statements, expressed in US dollars, include the
accounts of MAAX and all its subsidiaries through June 3, 2004 and the accounts
of Beauceland Corporation and all its subsidiaries (the Company) beginning June
4, 2004. All significant intercompany balances and transactions have been
eliminated in connection with the consolidation.
REPORTING CURRENCY
The functional and reporting currency of the Company is the U.S. dollar.
The functional currency of MAAX is the Canadian dollar. However, the Company has
adopted, as for MAAX Inc., the predecessor company, the US dollar as its
reporting currency. The functional currency of MAAX is the Canadian dollar.
However, MAAX adopted the US dollar as its reporting currency. The financial
statements are translated into the reporting currency using the current rate
method. Under this method, the financial statements are translated into the
reporting currency as follows: assets and liabilities are translated at the
exchange rate in effect at the date of the balance sheet, while revenues and
expenses are translated at the annual year-to-date average exchange rate. All
gains and losses resulting from the translation of the financial statements into
the reporting currency are included in the accumulated other comprehensive
income in shareholders' equity.
ASSETS HELD-FOR-SALE
During the quarter ended August 31, 2004, the Company decided to sell one
commercial building and adjacent land that were identified as excess assets
since the Company moved its headquarters to Montreal. These assets are reported
on the Company's consolidated balance sheet at August 31, 2004 as "assets
held-for-sale" at the lesser of their cost or their net realizable value. As of
the date of this report, the Company signed a letter of intent to sell these
assets.
2. BUSINESS ACQUISITION
On June 4, 2004, the Company acquired all common shares outstanding of MAAX
Inc., a Canadian publicly traded company operating in the Bathroom, Kitchen and
Spas sectors, for an amount in cash of C$22.50 per share. The transaction was
funded by a cash investment by J.W.
F-9
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Childs Associates, L.P., Borealis Private Equity Limited Partnership, Borealis
(QLP) Private Equity Limited Partnership, Ontario Municipal Employees Retirement
Board, certain consultants and members of our management in the amount of
$133,688,000 and by the issuance of long-term debt in the amount of
$373,282,000.
The Company has not yet allocated the excess of the purchase price over the
book value of the acquired company and the whole amount has been included as
goodwill in the financial statements. The Company estimates that a preliminary
allocation will be made for the end of the third quarter of its fiscal year 2005
and the final allocation will be made for its fiscal year end on February 28,
2005. The Company appointed an independent consulting firm to value its
intangible assets, namely trademarks, non-competition agreements and
distribution networks. Upon completion of this allocation, the results of
operation of the Company will change and the financial statements will be
adjusted to reflect these changes.
The fair value of the net assets acquired is summarized as follows:
<Table>
Net working capital excluding cash.......................... 83,620
Fixed assets................................................ 98,888
Intangible assets........................................... 15,833
Goodwill.................................................... 312,006
Other long-term assets...................................... 13,235
-------
523,582
-------
Bank overdraft.............................................. (54,846)
Long-term debt.............................................. (9,851)
Other long-term liability................................... (18,863)
-------
440,022
=======
Consideration
Cash...................................................... 437,332
Stock options from MAAX Inc. stock-option plan
rolled-over............................................ 2,690
-------
440,022
=======
</Table>
3. INVENTORIES
<Table>
<Caption>
THE COMPANY PREDECESSOR
----------- ------------
AUGUST 31, FEBRUARY 29,
2004 2004
----------- ------------
(AUDITED)
Raw material........................................ $27,915 $25,091
Work in progress and finished goods................. 19,298 20,593
------- -------
$47,213 $45,684
======= =======
</Table>
F-10
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
<Table>
<Caption>
THE COMPANY PREDECESSOR
EFFECTIVE INTEREST ----------- ------------
RATE AS AT YEARS OF AUGUST 31, FEBRUARY 29,
AUGUST 31, 2004 MATURITY 2004 2004
------------------ --------- ----------- ------------
(AUDITED)
Term loan A (C$130,000,000)... 3.80% 2010 99,010 --
Term loan B................... 4.32% 2012 115,000 --
Senior unsecured notes........ 9.75% 2013 150,000 --
Other......................... Various 2004-2014 504 611
Revolving credit.............. 1.9% 2006 -- 2,000
Senior unsecured notes,....... 6.7% 2009 -- 45,500
Notes payables on a business
acquisition, unsecured...... 3.0% 2004-2006 -- 9,333
------- --------- -------- -------
364,514 57,444
Current portion of long-term
debt........................ 4,922 4,782
-------- -------
Long-term debt................ $359,592 $52,662
======== =======
</Table>
The Company has a revolving credit facility of an authorized amount of C$50
million or its equivalent in US dollars, bearing interest at LIBOR plus 2.5% or
prime rate plus 1.75%.
The term loan A facility bears interest at a Canadian banker's acceptance
rate or LIBOR plus 2.5% and the term loan B facility bears interest at LIBOR
plus 2.75%.
The revolving credit facility, term loan A facility and term loan B
facility are guaranteed by all existing and future, direct and indirect Canadian
and U.S. subsidiaries of the Company, subject to certain exceptions agreed to in
the loan documents. In addition, the Company's obligations under the facility
and the obligations of the subsidiary guarantors under the guarantees are
secured by substantially all of the assets of the Company and each of the
subsidiary guarantors. The agreement governing these credit facilities contain
certain covenants including the obligation to maintain certain financial ratios.
The senior unsecured notes bear interest at a rate of 9.75% and are fully
redeemable upon maturity in June 2012. The agreement governing these notes
contain certain covenants including the obligation to maintain certain financial
ratios.
5. STOCK-BASED COMPENSATION
Prior to June 4, 2004, MAAX had a stock-based compensation plan, which is
described in note 12 to the annual financial statements of MAAX for the year
ended February 29, 2004. MAAX accounted for this plan under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), and related Interpretations. Compensation cost was not
recorded because the option exercise price was equal to the market value of the
underlying common stock on the date of grant.
F-11
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table illustrates the effect on net income and earnings per
share if MAAX had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation prior to June 4, 2004.
<Table>
<Caption>
PREDECESSOR
---------------
MARCH 1, 2004
TO JUNE 3, 2004
---------------
Net income, as reported..................................... $ 1,796
Deduct: Total stock-based compensation expense determined
under fair value based method............................. (1,281)
-------
Pro-forma net income........................................ $ 515
=======
</Table>
On June 4, 2004, the Company established a stock option plan for members of
its management group and for one of its non-employee directors. The Company
accounts for the plan under the fair value method as described in SFAS Statement
No. 123 "Accounting for Stock-Based Compensation." Under these plans, 30% of the
options vest based on time and 70% based on performance over five years. The
options expire ten years after their grant date.
Furthermore, 101,058 stock options issued by MAAX Inc. were rolled-over
into Beauceland Corporation. The fair value of these options has been considered
as part of the purchase price.
6. WARRANTIES AND GUARANTEES
Products sold by the Company are covered by a basic limited warranty with
terms and conditions that vary depending upon the product and country in which
it was sold. The Company estimated the costs that may be incurred under its
warranty obligations and records a liability in the amount of such costs at the
time product revenue is recognized. Factors that affect the Company's warranty
liability include the number of units sold, historical and anticipated rates of
warranty claims, and cost per claim. At least once a quarter, the Company
assesses the adequacy of its recorded warranty liabilities and adjusts the
amount as necessary.
The Company has guaranteed a portion of the residual values of certain
assets under operating leases with expiry dates between 2005 and 2011, for the
benefit of the lessor. If the fair value of the assets, at the end of their
respective lease term, is less than the residual value guaranteed, then the
Company must, under certain conditions, compensate the lessor for a portion of
the shortfall. The maximum exposure in respect of these guarantees is $184,000.
The Company has not recorded any liability associated with these guarantees.
F-12
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. SEGMENTED INFORMATION
Reconciliation with the financial statements of revenues and assets by
business segment are as follows:
<Table>
<Caption>
PREDECESSOR THE COMPANY
--------------- PREDECESSOR ---------------
SIX-MONTH --------------- JUNE 4, 2004 TO
PERIOD ENDED MARCH 1, 2004 AUGUST 31,
AUGUST 31, 2003 TO JUNE 3, 2004 2004
--------------- --------------- ---------------
Net sales:
Bathroom................... $201,797 $117,985 $101,570
Kitchen.................... 20,199 10,645 10,830
Spas....................... 31,999 15,206 16,026
-------- -------- --------
$253,995 $143,836 $128,426
======== ======== ========
</Table>
<Table>
<Caption>
PREDECESSOR THE COMPANY
--------------- PREDECESSOR ---------------
SIX-MONTH --------------- JUNE 4, 2004 TO
PERIOD ENDED MARCH 1, 2004 AUGUST 31,
AUGUST 31, 2003 TO JUNE 3, 2004 2004
--------------- --------------- ---------------
Operating income:
Bathroom................... $29,466 $5,053 $17,041
Kitchen.................... 4,216 (333) 519
Spas....................... 431 (31) 1,657
------- ------ -------
$34,113 $4,689 $19,217
======= ====== =======
</Table>
<Table>
<Caption>
PREDECESSOR THE COMPANY
--------------- PREDECESSOR ---------------
SIX-MONTH --------------- JUNE 4, 2004 TO
PERIOD ENDED MARCH 1, 2004 AUGUST 31,
AUGUST 31, 2003 TO JUNE 3, 2004 2004
--------------- --------------- ---------------
Depreciation and
amortization:
Bathroom................... $5,849 $3,308 $3,226
Kitchen.................... 853 445 423
Spas....................... 690 234 188
------ ------ ------
$7,392 $3,987 $3,837
====== ====== ======
</Table>
<Table>
<Caption>
PREDECESSOR THE COMPANY
--------------- PREDECESSOR ---------------
SIX-MONTH --------------- JUNE 4, 2004 TO
PERIOD ENDED MARCH 1, 2004 AUGUST 31,
AUGUST 31, 2003 TO JUNE 3, 2004 2004
--------------- --------------- ---------------
Additions to property, plant
and equipment:
Bathroom................... $6,164 $2,048 $1,232
Kitchen.................... 318 349 300
Spas....................... 266 166 104
------ ------ ------
$6,748 $2,563 $1,636
====== ====== ======
</Table>
F-13
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
The following presents the condensed consolidating financial statements of
MAAX Inc., the acquired entity, on the same basis as that established as a
result of the issuance of MAAX Corporation's 9.75% Senior Subordinated Notes due
2012 that designated the various entities making up the consolidated group as
either guarantors or non-guarantors in the indenture dated June 4, 2004. The
following condensed consolidating financial statements present the financial
information of MAAX Inc., the subsidiaries that are guarantors of the notes and
the subsidiaries that are non-guarantors at February 29, 2004 and August 31,
2004 and for the six-month period ended August 31, 2003, the 95-day period ended
June 3, 2004 and the 89-day period ended August 31, 2004. MAAX Corporation is
100% owned by its parent, Beauceland Corporation. Each of the subsidiary
guarantors is 100% owned, directly or indirectly, by MAAX Corporation, and the
guarantee of each such subsidiary guarantor and the parent guarantor is full and
unconditional and joint and several with the guarantees of the other subsidiary
guarantors and the parent guarantor.
COMBINED BALANCE SHEET
AS AT FEBRUARY 29, 2004
<Table>
<Caption>
PREDECESSOR
----------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
ASSETS
Current assets
Cash (overdraft)...................... $ 17,292 $(13,288) $ 463 $ -- $ 4,467
Accounts receivables.................. 1,099 68,480 3,296 (8,863) 64,012
Inventories........................... -- 43,772 1,912 -- 45,684
Prepaid expenses...................... 267 2,860 166 -- 3,293
Deferred income taxes................. 254 3,288 -- -- 3,542
-------- -------- -------- --------- --------
Total current assets.................. 18,912 105,112 5,837 (8,863) 120,998
Property, plant and equipment........... 4,545 88,657 7,413 -- 100,615
Intangible assets....................... 9,304 7,084 -- -- 16,388
Goodwill................................ -- 89,055 -- 23,464 112,519
Derivative financial instruments........ (452) 12,079 -- -- 11,627
Other assets............................ 1,151 527 -- -- 1,678
Investments............................. 472,107 231,714 -- (703,821) --
Deferred income taxes................... 15 1,747 -- -- 1,762
-------- -------- -------- --------- --------
Total assets............................ $505,582 $535,975 $ 13,250 $(689,220) $365,587
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities......................... $ 11,795 $ 41,287 $ 8,524 $ (9,152) $ 52,454
Income taxes payable.................. 483 4,179 103 -- 4,765
Deferred income taxes................. -- 3,824 -- -- 3,824
Current portion of long-term debt..... 16 4,751 15 -- 4,782
-------- -------- -------- --------- --------
Total current liabilities............. 12,294 54,041 8,642 (9,152) 65,825
Long term debt.......................... 258,597 203,742 28,284 (437,961) 52,662
Deferred income taxes................... 3,292 12,388 -- 21 15,701
-------- -------- -------- --------- --------
Total liabilities....................... 274,183 270,171 36,926 (447,092) 134,188
Shareholders' equity
Capital stock......................... 105,044 212,923 23 (212,946) 105,044
Other elements of shareholders'
equity.............................. 126,355 52,881 (23,699) (29,182) 126,355
-------- -------- -------- --------- --------
Total shareholders' equity............ 231,399 265,804 (23,676) (242,128) 231,399
-------- -------- -------- --------- --------
Total liabilities and shareholders'
equity................................ $505,582 $535,975 $ 13,250 $(689,220) $365,587
======== ======== ======== ========= ========
</Table>
F-14
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF INCOME
FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 2003
<Table>
<Caption>
PREDECESSOR
----------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Net sales.................... $ -- $247,234 $6,810 $ (49) $253,995
Expenses
Cost of goods sold......... -- 170,149 5,286 (49) 175,386
Selling, general and
administrative.......... 731 35,146 1,227 -- 37,104
Depreciation and
amortization............ 615 6,437 340 -- 7,392
Financial expenses......... (614) 2,226 766 -- 2,378
------- -------- ------ -------- --------
Income before the
undernoted................. (732) 33,276 (809) -- 31,735
Income taxes................. (57) 10,308 67 -- 10,318
------- -------- ------ -------- --------
(675) 22,968 (876) -- 21,417
Equity in earnings of
investees.................. 22,092 -- -- (22,092) --
------- -------- ------ -------- --------
Net income................... $21,417 $ 22,968 $ (876) $(22,092) $ 21,417
======= ======== ====== ======== ========
</Table>
F-15
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED AUGUST 31, 2003
<Table>
<Caption>
PREDECESSOR
----------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Cash flows related to operating activities
Net income................................ $21,417 $ 22,968 $(876) $(22,092) $21,417
Items not affecting cash
Depreciation and amortization............. 615 6,437 340 -- 7,392
Amortization of financial expenses........ 231 3 -- -- 234
Deferred income taxes..................... 171 3,980 -- -- 4,151
Change in fair value of derivative
financial instruments................... 177 (7,869) -- -- (7,692)
Equity in earnings of investees........... (22,092) -- -- 22,092 --
Net change in non-cash balances related to
operations.............................. 9,148 (8,351) 357 -- 1,154
------- -------- ----- -------- -------
9,667 17,168 (179) -- 26,656
Cash flows related to financing activities
Proceeds from issuance of long-term
debt.................................... 20,000 -- -- (20,000) --
Repayment of long-term debt............... (7,707) (63) (19) -- (7,789)
Proceeds from issuance of shares.......... 447 -- -- -- 447
Interests received on share purchase
loan.................................... 5 -- -- -- 5
Dividends paid............................ (1,177) -- -- -- (1,177)
------- -------- ----- -------- -------
11,568 (63) (19) (20,000) (8,514)
Cash flows related to investing activities
Business acquisitions..................... -- (4) -- -- (4)
Additions to property, plant and
equipment............................... (730) (5,923) (95) -- (6,748)
Proceeds from disposal of property, plant
and equipment........................... 32 254 -- -- 286
Decrease (increase) in investments........ -- (20,000) -- 20,000 --
Other assets.............................. (141) (22) -- -- (163)
------- -------- ----- -------- -------
(839) (25,695) (95) 20,000 (6,629)
Net increase (decrease) in cash........... 20,396 (8,590) (293) -- 11,513
Translation adjustment on cash denominated
in foreign currencies................... 1,791 (2,534) 14 -- (729)
Cash, beginning of year................... 21,150 (18,932) 450 -- 2,668
------- -------- ----- -------- -------
Cash, end of year......................... $43,337 $(30,056) $ 171 $ -- $13,452
======= ======== ===== ======== =======
</Table>
F-16
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED BALANCE SHEET
AS AT AUGUST 31, 2004
<Table>
<Caption>
THE COMPANY
--------------------------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
BEAUCELAND MAAX GUARANTOR NON-GUARANTOR AND
CORPORATION CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------- ------------ ------------
ASSETS
Current assets
Cash (overdraft)........... $ -- $ 3,061 $ (1,888) $ 926 $ -- $ 2,099
Accounts receivables....... -- 55,030 78,817 3,209 (62,072) 74,984
Income taxes receivable.... -- 541 2,360 (393) -- 2,508
Inventories................ -- -- 45,556 1,657 -- 47,213
Prepaid expenses........... -- 267 2,575 113 -- 2,955
Assets held for sale....... -- -- 1,440 -- -- 1,440
Deferred income taxes...... -- -- 3,371 -- -- 3,371
-------- -------- -------- ------- --------- --------
Total current assets....... -- 58,899 132,231 5,512 (62,072) 134,570
Property, plant and
equipment.................. -- -- 90,460 6,930 -- 97,390
Intangible assets............ -- -- 15,539 -- -- 15,539
Goodwill..................... -- -- 212,629 -- 102,200 314,829
Derivative financial
instruments................ -- -- 10,651 -- -- 10,651
Other assets................. -- 11,816 435 -- -- 12,251
Investments.................. 151,065 449,296 9,619 -- (609,980) --
Deferred income taxes........ -- -- 3,897 -- -- 3,897
-------- -------- -------- ------- --------- --------
Total assets................. $151,065 $520,011 $475,461 $12,442 $(569,852) $589,127
======== ======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable and
accrued liabilities...... $ -- $ 4,936 $ 63,147 $ 8,888 $ (22,894) $ 54,077
Deferred income taxes...... -- -- 3,427 -- -- 3,427
Current portion of
long-term debt........... -- 4,863 57 2 -- 4,922
-------- -------- -------- ------- --------- --------
Total current
liabilities.............. -- 9,799 66,631 8,890 (22,894) 62,426
Long term debt............... -- 359,147 264,017 27,304 (290,876) 359,592
Deferred income taxes........ -- -- 16,044 -- -- 16,044
-------- -------- -------- ------- --------- --------
Total liabilities............ -- 368,946 346,692 36,194 (313,770) 438,062
Shareholders' equity
Capital stock.............. 133,688 133,688 1 22 (133,711) 133,688
Other elements of
shareholders' equity..... 17,377 17,377 128,768 (23,774) (122,371) 17,377
-------- -------- -------- ------- --------- --------
Total shareholders'
equity................... 151,065 151,065 128,769 (23,752) (256,082) 151,065
Total liabilities and
shareholders' equity....... $151,065 $520,011 $475,461 $12,442 $(569,852) $589,127
======== ======== ======== ======= ========= ========
</Table>
F-17
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF INCOME
FOR THE 95-DAY PERIOD ENDED JUNE 3, 2004
<Table>
<Caption>
PREDECESSOR
----------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Net sales.................... $ -- $138,970 $4,866 $ -- $143,836
Expenses
Cost of goods sold......... -- 94,580 3,910 -- 98,490
Selling, general and
administrative.......... 4,762 31,335 573 -- 36,670
Depreciation and
amortization............ 334 3,468 185 -- 3,987
Financial expenses......... 695 226 400 -- 1,321
------- -------- ------ ------- --------
Income before the
undernoted................. (5,791) 9,361 (202) -- 3,368
Income taxes................. (1,333) 2,863 42 -- 1,572
------- -------- ------ ------- --------
(4,458) 6,498 (244) -- 1,796
Equity in earnings of
investees.................. 6,254 -- -- (6,254) --
------- -------- ------ ------- --------
Net income................... $ 1,796 $ 6,498 $ (244) $(6,254) $ 1,796
======= ======== ====== ======= ========
</Table>
F-18
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF INCOME
FOR THE 89-DAY PERIOD ENDED AUGUST 31, 2004
<Table>
<Caption>
THE COMPANY
--------------------------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
BEAUCELAND MAAX GUARANTOR NON-GUARANTOR AND
CORPORATION CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------- ------------ ------------
Net sales............ $ -- $ -- $124,279 $4,147 $ -- $128,426
Expenses
Cost of goods
sold............ -- -- 84,492 3,519 -- 88,011
Selling, general
and
administrative... -- (1,712) 18,636 437 -- 17,361
Depreciation and
amortization.... -- -- 3,666 171 -- 3,837
Financial
expenses........ -- 170 5,862 310 -- 6,342
------- ------- -------- ------ -------- --------
Income before the
undernoted......... -- 1,542 11,623 (290) -- 12,875
Income taxes......... -- (541) 2,040 38 -- 1,537
------- ------- -------- ------ -------- --------
-- 2,083 9,583 (328) -- 11,338
Equity in earnings of
investees.......... 11,338 9,255 (328) -- (20,265) --
------- ------- -------- ------ -------- --------
Net income........... $11,338 $11,338 $ 9,255 $ (328) $(20,265) $ 11,338
======= ======= ======== ====== ======== ========
</Table>
F-19
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
FOR THE 95-DAY PERIOD ENDED JUNE 3, 2004
<Table>
<Caption>
PREDECESSOR
----------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Cash flows related to operating activities
Net income................................ $ 1,796 $ 6,498 $(244) $(6,254) $ 1,796
Items not affecting cash
Depreciation and amortization............. 334 3,468 185 -- 3,987
Amortization of financial expenses........ 118 3 -- -- 121
Deferred income taxes..................... (1,419) (931) -- -- (2,350)
Change in fair value of derivative
financial instruments................... (23) 2,702 -- -- 2,679
Stock-based compensation.................. 2,714 -- -- -- 2,714
Equity in earnings of investees........... (6,254) -- -- 6,254 --
Net change in non-cash balances related to
operations.............................. (4,289) (9,758) 208 -- (13,839)
-------- -------- ----- ------- --------
(7,023) 1,982 149 -- (4,892)
Cash flows related to financing activities
Proceeds from issuance of long-term
debt.................................... 34,000 -- -- -- 34,000
Repayment of long-term debt............... (81,869) (63) (31) -- (81,963)
Proceeds from issuance of shares.......... 33 17,653 -- (17,653) 33
Dividends paid............................ (1,266) -- -- -- (1,266)
-------- -------- ----- ------- --------
(49,102) 17,590 (31) (17,653) (49,196)
Cash flows related to investing activities
Business acquisitions..................... (3,762) -- -- -- (3,762)
Additions to property, plant and
equipment............................... (113) (2,436) (14) -- (2,563)
Proceeds from disposal of property, plant
and equipment........................... 83 27 -- -- 110
Decrease (increase) in investments........ 6,039 (23,692) -- 17,653 --
Other assets.............................. 934 142 -- -- 1,076
-------- -------- ----- ------- --------
3,181 (25,959) (14) 17,653 (5,139)
Net increase (decrease) in cash........... (52,944) (6,387) 104 -- (59,227)
Translation adjustment on cash denominated
in foreign currencies................... (166) 89 (7) -- (84)
Cash, beginning of year................... 17,292 (13,288) 463 -- 4,467
-------- -------- ----- ------- --------
Cash, end of year......................... $(35,818) $(19,586) $ 560 $ -- $(54,844)
======== ======== ===== ======= ========
</Table>
F-20
BEAUCELAND CORPORATION
AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
FOR THE 89-DAY PERIOD ENDED AUGUST 31, 2004
<Table>
<Caption>
THE COMPANY
--------------------------------------------------------------------------------------
COMBINED COMBINED ADJUSTMENTS
BEAUCELAND MAAX GUARANTOR NON-GUARANTOR AND
CORPORATION CORPORATION SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------- ------------ ------------
Cash flows related to operating
activities
Net income...................... $ 11,338 $ 11,338 $ 9,255 $(328) $(20,265) $ 11,338
Items not affecting cash........
Depreciation and amortization... -- -- 3,666 171 -- 3,837
Amortization of financial
expenses...................... -- 447 -- -- -- 447
Deferred income taxes........... -- -- 196 -- -- 196
Change in fair value of
derivative financial
instruments................... -- -- (1,219) -- -- (1,219)
Equity in earnings of
investees..................... (11,338) (9,255) 328 -- 20,265 --
Net change in non-cash balances
related to operations......... -- (44,838) 40,118 901 -- (3,819)
--------- --------- -------- ----- -------- ---------
-- (42,308) 52,344 744 -- 10,780
Cash flows related to financing
activities
Proceeds from issuance of long-
term debt..................... -- 375,317 -- 2 -- 375,319
Repayment of long-term debt..... -- (14,019) (9,396) (364) 364 (23,415)
Proceeds from issuance of
shares........................ 133,688 133,688 -- -- (133,688) 133,688
Interests received on share
purchase loan................. -- -- 11,772 -- -- 11,772
Dividends paid.................. -- -- -- -- -- --
--------- --------- -------- ----- -------- ---------
133,688 494,986 2,376 (362) (133,324) 497,364
Cash flows related to investing
activities
Business acquisitions........... -- (437,332) -- -- -- (437,332)
Additions to property, plant and
equipment..................... -- -- (1,619) (17) -- (1,636)
Proceeds from disposal of
property, plant and
equipment..................... -- 67 -- -- 67
Decrease (increase) in
investments................... (133,688) -- 364 -- 133,324 --
Other assets.................... -- (12,263) (40) -- -- (12,303)
--------- --------- -------- ----- -------- ---------
(133,688) (449,595) (1,228) (17) 133,324 (451,204)
Net increase (decrease) in
cash.......................... -- 3,083 53,492 365 -- 56,940
Translation adjustment on cash
denominated in foreign
currencies.................... -- (22) 24 1 -- 3
Cash, beginning of year......... -- -- (55,404) 560 -- (54,844)
--------- --------- -------- ----- -------- ---------
Cash, end of year............... $ -- $ 3,061 $ (1,888) $ 926 $ -- $ 2,099
========= ========= ======== ===== ======== =========
</Table>
F-21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors of MAAX Inc.
We have audited the consolidated balance sheets of MAAX Inc. and its
subsidiaries as of February 28, 2003 and February 29, 2004 and the related
consolidated statements of income, shareholders' equity and cash flows for the
years ended February 28, 2002 and 2003, and February 29, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and its subsidiaries as of February 28, 2003 and February 29, 2004 and the
results of their operations and their cash flows for the years ended February
28, 2002 and 2003, and February 29, 2004 in conformity with U.S. generally
accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Montreal, Canada
April 9, 2004, except as to note 21 (g) which is dated June 4, 2004
F-22
MAAX INC.
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2003 AND FEBRUARY 29, 2004
(IN THOUSANDS OF US DOLLARS)
<Table>
<Caption>
2003 2004
---- ----
ASSETS
Current assets:
Cash...................................................... $ 2,668 $ 4,467
Accounts receivable, less allowance for doubtful accounts
of $3,383 in 2003 and $3,025 in 2004.................... 57,060 64,012
Inventories (note 4)...................................... 51,370 45,684
Prepaid expenses.......................................... 3,441 3,293
Deferred income taxes (note 10)........................... 3,121 3,542
-------- --------
Total current assets...................................... 117,660 120,998
Property, plant and equipment (note 5)...................... 92,552 100,615
Intangible assets (note 6).................................. 16,816 16,388
Goodwill (notes 1 (c) and 7)................................ 112,762 112,519
Derivative financial instruments (note 17).................. 1,994 11,627
Other assets, net of accumulated amortization............... 1,236 1,678
Deferred income taxes (note 10)............................. 1,169 1,762
-------- --------
Total assets................................................ $344,189 $365,587
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loan (note 8)........................................ $ 2,451 $ --
Accounts payable.......................................... 23,410 25,717
Accrued liabilities....................................... 16,677 26,737
Income taxes payable...................................... 420 4,765
Deferred income taxes (note 10)........................... 1,262 3,824
Current portion of long-term debt (note 9)................ 5,281 4,782
-------- --------
Total current liabilities................................. 49,501 65,825
Long-term debt (note 9)..................................... 92,930 52,662
Deferred income taxes (note 10)............................. 14,011 15,701
-------- --------
Total liabilities........................................... 156,442 134,188
Shareholders' equity (note 11):
Common shares, without par value. Authorized in an
unlimited number; issued and outstanding: 24,144,159
shares in 2003 and 24,395,459 shares in 2004............ 103,057 105,044
Share purchase loan (note 11)............................. (409) --
Additional paid-in capital (note 12)...................... 185 232
Retained earnings......................................... 86,176 115,647
Accumulated other comprehensive (loss) income............. (1,262) 10,476
-------- --------
Total shareholders' equity................................ 187,747 231,399
Commitments and contingencies (note 21)
-------- --------
Total liabilities and shareholders' equity.................. $344,189 $365,587
======== ========
</Table>
See accompanying Notes to Consolidated Financial Statements.
F-23
MAAX INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED FEBRUARY 28, 2002, 2003 AND FEBRUARY 29, 2004
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Net sales.................................................. $354,937 $422,192 $495,737
Expenses:
Cost of goods sold....................................... 246,207 287,762 344,431
Selling, general and administrative (note 13)............ 68,125 76,746 80,061
Depreciation and amortization (note 13).................. 13,690 12,595 15,638
Financial expenses (note 13)............................. 4,291 3,965 4,898
Impairment of goodwill (note 7).......................... -- -- 4,511
-------- -------- --------
332,313 381,068 449,539
-------- -------- --------
Income before income taxes and cumulative effect of a
change in accounting principles.......................... 22,624 41,124 46,198
Income taxes (note 10)..................................... 8,034 15,699 14,247
-------- -------- --------
Income before cumulative effect of a change in accounting
principles............................................... 14,590 25,425 31,951
Cumulative effect of a change in accounting principles
related to impairment of goodwill (note 1(c))............ -- (11,312) --
-------- -------- --------
Net income................................................. $ 14,590 $ 14,113 $ 31,951
======== ======== ========
Earnings per common share (note 14):
Basic:
Before cumulative effect of a change in accounting
principles.......................................... $ 0.61 $ 1.06 $ 1.32
Cumulative effect of a change in accounting
principles.......................................... -- (0.47) --
-------- -------- --------
Net income................................................. $ 0.61 $ 0.59 $ 1.32
======== ======== ========
Diluted:
Before cumulative effect of a change in accounting
principles.......................................... $ 0.61 $ 1.03 $ 1.29
Cumulative effect of a change in accounting
principles.......................................... -- (0.46) --
-------- -------- --------
Net income................................................. $ 0.61 $ 0.57 $ 1.29
======== ======== ========
</Table>
See accompanying Notes to Consolidated Financial Statements.
F-24
MAAX INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 2002, 2003 AND FEBRUARY 29, 2004
(IN THOUSANDS OF US DOLLARS)
<Table>
<Caption>
ACCUMULATED
SHARE ADDITIONAL OTHER COMPRE-
COMMON PURCHASE PAID-IN RETAINED COMPREHENSIVE HENSIVE
STOCK LOAN CAPITAL EARNINGS INCOME INCOME
------ -------- ---------- -------- ------------- -------
Balance, as at February 28, 2001....... $100,734 $(613) $ -- $61,738 $ 33,667
Net income............................. -- -- -- 14,590 -- $ 14,590
Cumulative translation adjustment...... -- -- -- -- (4,867) (4,867)
--------
Total comprehensive income............. -- -- -- -- -- $ 9,723
========
Issuance of common shares on exercise
of stock options (note 12)........... 319 -- -- -- --
Issuance of common shares on business
acquisition (note 11)................ 154 -- -- -- --
Reimbursement of the share purchase
loan (note 11)....................... -- 102 -- -- --
Interests, net of $10 of income taxes,
from a share purchase loan (note
11).................................. -- -- -- 19 --
Dividends on common shares ($0.09)..... -- -- -- (2,130) --
-------- ----- ---- -------- --------
Balance, as at February 28, 2002....... 101,207 (511) -- 74,217 28,800
Net income............................. -- -- -- 14,113 -- $ 14,113
Cumulative translation adjustment...... -- -- -- -- (30,062) (30,062)
--------
Total comprehensive income (loss)...... -- -- -- -- -- $(15,949)
========
Issuance of common shares on exercise
of stock options (note 12)........... 1,696 -- -- -- --
Issuance of common shares on business
acquisition (note 11)................ 154 -- -- -- --
Tax deduction on stock options
exercised (note 12).................. -- -- 185 -- --
Reimbursement of the share purchase
loan (note 11)....................... -- 102 -- -- --
Interest, net of $4 of income taxes
from a share purchase loan (note
11).................................. -- -- -- 9 --
Dividends on common shares ($0.09)..... -- -- -- (2,163) --
-------- ----- ---- -------- --------
Balance, as at February 28, 2003....... 103,057 (409) 185 86,176 (1,262)
Net income............................. -- -- -- 31,951 -- $ 31,951
Cumulative translation adjustment...... -- -- -- -- 11,738 11,738
--------
Total comprehensive income............. -- -- -- -- -- $ 43,689
========
Issuance of common shares on exercise
of stock options (note 12)........... 1,636 -- -- -- --
Issuance of common shares on business
acquisition (note 11)................ 351 -- -- -- --
Tax deduction on stock options
exercised (note 12).................. -- -- 47 -- --
Interest, net of $6 of income taxes
from a share purchase loan (note
11).................................. -- -- -- 9 --
Reimbursement of the share purchase
loan (note 11)....................... -- 102 -- -- --
Forgiveness of share purchase loan
(note 11)............................ -- 307 -- -- --
Dividends on common shares ($0.10)..... -- -- -- (2,489) --
-------- ----- ---- -------- --------
Balance, as at February 29, 2004....... $105,044 $ -- $232 $115,647 $ 10,476
======== ===== ==== ======== ========
</Table>
See accompanying Notes to Consolidated Financial Statements.
F-25
MAAX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 2002, 2003 AND FEBRUARY 29, 2004
(IN THOUSANDS OF US DOLLARS)
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Cash flows related to operating activities:
Net income................................................ $ 14,590 $ 14,113 $ 31,951
Items not affecting cash:
Impairment of goodwill................................. -- 11,312 4,511
Depreciation and amortization (note 13)................ 13,690 12,595 15,638
Amortization of financial expenses..................... 416 418 518
Deferred income taxes (note 10)........................ 242 5,325 2,415
Change in fair value of derivative financial
instruments.......................................... (806) (2,723) (9,210)
Net change in non-cash balances related to operations
(note 15).............................................. 1,842 (2,661) 16,964
-------- -------- --------
29,974 38,379 62,787
Cash flows related to financing activities:
Decrease in bank overdraft................................ (412) -- --
Decrease in bank loan..................................... (600) (741) (2,637)
Proceeds from issuance of long-term debt.................. 46,695 64,425 --
Repayment of long-term debt............................... (60,410) (30,151) (40,434)
Proceeds from issuance of shares.......................... 417 1,794 1,748
Interests received on share purchase loan................. 29 13 15
Dividends paid............................................ (2,130) (2,163) (2,489)
-------- -------- --------
(16,411) 33,177 (43,797)
Cash flows related to investing activities:
Business acquisitions (notes 3 and 21 (b))................ (128) (59,143) (122)
Additions to property, plant and equipment................ (12,761) (10,785) (17,851)
Proceeds from disposal of property, plant and equipment... 952 1,451 1,751
Other assets.............................................. (834) (347) (914)
-------- -------- --------
(12,771) (68,824) (17,136)
-------- -------- --------
Net increase in cash........................................ 792 2,732 1,854
Translation adjustment on cash denominated in foreign
currencies................................................ 18 (874) (55)
Cash, beginning of year..................................... -- 810 2,668
-------- -------- --------
Cash, end of year........................................... $ 810 $ 2,668 $ 4,467
======== ======== ========
Interest paid............................................... $ 3,460 $ 3,438 $ 4,511
Income taxes paid........................................... 4,499 11,068 7,875
======== ======== ========
</Table>
See accompanying Notes to Consolidated Financial Statements.
F-26
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 2002, 2003 AND FEBRUARY 29, 2004
(TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF US DOLLARS)
The Company is incorporated under the Quebec Companies Act. Its principal
business activity is to design, develop, manufacture and distribute bathroom and
kitchen products and spas.
1. SIGNIFICANT ACCOUNTING POLICIES:
(a) CONSOLIDATION:
The consolidated financial statements, expressed in United States dollars,
include the accounts of MAAX Inc. and all its subsidiaries (the "Company"), and
are prepared in accordance with accounting principles generally accepted in the
United States of America. All significant intercompany balances and transactions
have been eliminated on consolidation.
(b) GUARANTEES:
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which requires that certain disclosures be
made by a guarantor about its obligations under guarantees in its interim and
annual consolidated financial statements for interim periods ending after
December 15, 2002 and that guarantees initially entered into or modified after
January 1, 2003 be measured and recognized.
A guarantee is a contract or an indemnification agreement that contingently
requires the Company to make payments to the other party to the contract or
agreement, based on changes in an underlying that is related to an asset, a
liability or an equity security of the other party, or based on a third party
failure to perform under an obligating agreement. It could be also an indirect
guarantee of the indebtedness of another party, even though the payment to the
other party may not be based on changes in an underlying that is related to an
asset, a liability or an equity security of the other party.
A liability is recorded when the Company considers probable that a payment
relating to a guarantee will have to be made to the other party of the contract
or agreement, considering recourse against any third party. A liability is also
required to be recognized for the fair value of the obligation undertaken in
issuing the guarantee at the inception of the guaranty.
In the normal course of business, the Company enters into agreements
containing features that meet Interpretation No. 45 criteria for a guarantee
including the following:
OPERATING LEASES:
The Company has guaranteed a portion of the residual values of certain
assets under operating leases with expiry dates between 2005 and 2011, for the
benefit of the lessor. If the fair value of the assets, at the end of their
respective lease terms, is less than the residual value guaranteed, then the
Company must, under certain conditions, compensate the lessor for a portion of
the shortfall. The maximum exposure in respect of these guarantees is $185,000.
The Company did not record any liability associated with these guarantees.
LONG-TERM DEBT:
Under the terms of its credit agreements, the Company has agreed to
indemnify its American lenders against changes in withholding taxes. These
indemnifications extend for the term of the indebtedness and do not provide any
limit on the maximum potential liability. The nature of the indemnification
agreement prevents the Company from estimating the maximum potential liability
it
F-27
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
could be required to pay to lenders. Accordingly, no amount has been accrued in
the consolidated financial statements with respect to these indemnifications.
DIRECTORS AND OFFICERS INDEMNIFICATION AGREEMENTS:
Under the law, the Company indemnifies its directors and officers, former
directors and officers and individuals who act or who have acted at the
Company's request to be a director or officer of an entity in which it is a
shareholder or creditor, to the extent permitted by law, against any and all
charges, costs, expenses, amounts paid in settlement and damages incurred by the
directors and officers as a result of any lawsuit, or any judicial,
administrative or investigative proceeding in which the directors and officers
are sued as a result of their service. These indemnification claims are subject
to any statutory or other legal limitation period. The nature of the
indemnification provided in the agreements prevents the Company from making a
reasonable estimate of the maximum potential amount it could be required to pay
to counterparties.
The Company has purchased directors' and officers' liability insurance,
without any deductible. To the knowledge of management, there is no such claim.
No amount has been accrued in the consolidated balance sheet with respect to
these indemnifications.
(c) GOODWILL AND OTHER INTANGIBLE ASSETS:
On March 1, 2002, Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" became effective. In accordance with
SFAS No. 142, the Company no longer records amortization expense related to
goodwill and other indefinite-lived intangible assets. The Company provides
hereafter supplemental disclosure for adjusted net income and adjusted earnings
per common share for the years ended February 28, 2002 and 2003, and February
29, 2004, excluding goodwill amortization expense.
Prior to the adoption of SFAS 142, goodwill was amortized over a period of
up to 40 years.
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Net income, as reported..................................... $14,590 $14,113 $31,951
Goodwill amortization, net of income taxes.................. 1,803 -- --
------- ------- -------
Net income after restatement................................ $16,393 $14,113 $31,951
======= ======= =======
Adjusted earnings per common share:
Basic..................................................... $ 0.69 $ 0.59 $ 1.32
Diluted................................................... 0.68 0.57 1.29
</Table>
In accordance with the transitional provision of SFAS 142, an impairment
loss, resulting from the initial application of the recommendations, is
recognized as the effect of a change in accounting policy and charged to income
in the year of application. During the year ended February 28, 2003, the Company
recorded a goodwill impairment loss for each of its reporting units having a
carrying amount exceeding its fair value. Accordingly, goodwill and net income
were reduced by $11,312,000 on March 1, 2002. Prior to the implementation of
SFAS 142, for its year ended February 28, 2002, the Company measured its
impairment of goodwill based on undiscounted cash flows.
Under the provision of SFAS 142, goodwill is tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset might be impaired. The impairment test is carried out in two steps. In
the first step, the carrying amount of the reporting unit is compared with its
fair value. When the fair value of a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is considered not to be impaired and the second
step of the impairment test is not
F-28
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required. The second step is carried out when the carrying amount of a reporting
unit exceeds its fair value, in which case the implied fair value of the
reporting unit's goodwill is compared with its carrying amount to measure the
amount of the impairment loss, if any. When the carrying amount of the reporting
unit's goodwill exceeds the implied fair value of the goodwill, an impairment
loss is recognized in an amount equal to the excess and is presented as a
separate line item in the income statement.
Intangible assets acquired in business combinations and intangible assets
acquired individually or with a group of other assets, which have indefinite
lives, are also tested for impairment annually, or more frequently if events or
changes in circumstances indicate that the asset might be impaired. The
impairment test compares the carrying amount of the intangible asset with its
fair value, and an impairment loss is recognized in the statement of income for
the excess of the carrying value over its fair value, if any. Intangible assets
with definite useful lives are amortized over their useful life.
(d) STOCK-BASED COMPENSATION:
The Company offers stock-based compensation plans, which are described in
note 12.
The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, to account for its
fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. FASB Statement No. 123, Accounting for Stock-Based
Compensation and FASB Statement No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123, established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. As permitted
by existing accounting standards, the Company has elected to continue to apply
the intrinsic-value-based method of accounting described above, and has adopted
only the disclosure requirements of Statement 123, as amended. The following
table illustrates the effect on net income if the fair-value-based method had
been applied to all outstanding and unvested awards in each period.
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Net income, as reported..................................... $14,590 $14,113 $31,951
Add stock-based employee compensation expense included in
reported net income....................................... -- -- --
Deduct stock-based employee compensation expense determined
under the fair value method for all awards................ (1,197) (963) (979)
------- ------- -------
Pro forma net income........................................ $13,393 $13,150 $30,972
======= ======= =======
</Table>
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Pro forma earnings per common share:
Basic -- as reported...................................... $0.61 $0.59 $1.32
Basic -- pro forma........................................ 0.56 0.55 1.27
Diluted -- as reported.................................... 0.61 0.57 1.29
Diluted -- pro forma...................................... 0.56 0.54 1.25
</Table>
F-29
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) TRADE RECEIVABLES:
The Company provides an allowance for doubtful accounts on its trade
receivables based on management's judgment of the credit risk related to
specific accounts. Gains or losses on the sale of trade receivables are
calculated by comparing the carrying amount of the trade receivables sold with
the total of the cash proceeds from the sale. Costs related to the sale are
recognized in income as incurred and are included in selling, general and
administrative expenses.
(f) INVENTORIES:
Raw materials are valued at the lower of cost and replacement cost. Work in
progress and finished goods are valued at the lower of cost and net realizable
value.
Cost is determined using the first-in, first-out basis.
(g) PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost including capitalized
interests of $250,000 in 2002, nil in 2003 and 2004, net of government grants
and investment tax credits. Depreciation is calculated mainly using the
following methods, rates and periods:
<Table>
<Caption>
ASSET METHOD RATE/PERIOD
----- ------ -----------
Paving....................................... Declining balance 4%
Buildings.................................... Straight-line 40 years
Moulds and dies.............................. Straight-line 2 to 7 years
Furniture and equipment...................... Declining balance 10% and 20%
Data processing system....................... Declining balance or straight-line 15% and 30%
Automotive equipment......................... Declining balance 20% and 30%
</Table>
Repair and maintenance expenditures are expensed as incurred.
(h) INTANGIBLE ASSETS:
Intangible assets with definite lives are stated at cost. Amortization is
calculated using the straight-line method over the following periods:
<Table>
<Caption>
ASSET PERIOD
----- ------
Enterprise Resource Planning System......................... 15 years
Trademarks.................................................. 5 years
Distribution network........................................ 30 years
Non-compete agreement....................................... 5 years
</Table>
(i) OTHER ASSETS:
Deferred costs including deferred financing charges, stated at cost less
accumulated amortization, are amortized using the interest method over the term
of the loan.
(j) REVENUE RECOGNITION:
Sales are recognized upon the delivery of the products and at the date the
transfer of ownership risks and benefits to the customers occurs. Net sales
represent gross sales less volume rebates and vendors' discounts given to the
customers. Shipping costs are generally billed to
F-30
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
customers and are included in sales; costs incurred by the Company are included
in the cost of goods sold.
(k) INCOME TAXES:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credits carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(l) FOREIGN CURRENCY TRANSLATION:
The Company's functional currency is the Canadian dollars, but it uses the
U.S. dollar as its reporting currency.
U.S. AND NETHERLANDS SUBSIDIARIES:
The financial statements of the Company's subsidiaries are measured in U.S.
dollars and Euros, their functional currencies, and are translated in Canadian
dollars as follows: assets and liabilities of these subsidiaries are translated
at exchange rates at the balance sheet date. Revenues and expenses are
translated at the average exchange rate in effect during the year. The resulting
cumulative translation adjustments are recorded in other comprehensive income.
OTHER FOREIGN SUBSIDIARIES AND FOREIGN CURRENCY TRANSACTIONS:
Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at the exchange rate prevailing at the end of
the year. Other assets and liabilities are translated at exchange rates
prevailing at the respective transaction dates. Exchange gains or losses are
included in income. Items affecting income are translated at the average
exchange rate for the period.
LONG-TERM DEBT DENOMINATED IN US DOLLARS AND HEDGE RELATIONSHIP:
A portion of the Company's long-term debt denominated in US dollars is
designated as a hedge against the net investment in U.S. subsidiaries. Any
exchange gain or loss on the hedge would be recorded against the exchange loss
or gain arising on translation of the financial statements of the U.S.
subsidiaries included in the cumulative translation adjustment account in
accumulated other comprehensive income in the shareholders' equity. Exchange
gains or losses on the remaining debt denominated in US dollars are included in
the current year's income.
If the hedge relationship was terminated or became ineffective, the amounts
included in accumulated other comprehensive income would remain in this account;
gains and losses on the debt, subsequent to the termination of the hedging
relationship, would be included in income.
(m) COMPREHENSIVE INCOME:
Comprehensive income consists of net income and foreign currency
translation adjustments, and is presented in the consolidated statement of
shareholders' equity.
F-31
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) EARNINGS PER COMMON SHARE:
Basic earnings per common share is computed using the weighted average
number of common shares outstanding (see note 14).
(o) DERIVATIVE FINANCIAL INSTRUMENTS:
The Company accounts for derivatives in accordance with SFAS No. 133
"Accounting for Derivative Instruments and Certain Hedging Activities", as
amended, which requires that all derivative instruments be recorded on the
balance sheet at their respective fair values. The foreign exchange forward
contracts and the interest rate swaps used by the Company have not been
designated as hedges and, accordingly, changes in fair value of the derivatives
are accounted for in income.
(p) ADVERTISING EXPENSES:
The cost of advertising is expensed as incurred. The advertising expenses
incurred by the Company amounted to $152,000 in 2002, $321,000 in 2003 and
$485,000 in 2004.
(q) ENVIRONMENTAL EXPENDITURES:
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and which are not expected to contribute to current or
future operations are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are likely, and when the costs, based on a
specific plan of action in terms of the technology to be used and the extent of
the corrective action required, can be reasonably estimated.
(r) PRODUCT WARRANTY:
The Company establishes a provision for product warranties based on
management's judgement and its historical experience with such warranty costs.
The provision is recorded as the revenue is recognized and is presented in the
accrued liabilities on the balance sheet. Changes in the warranty reserve are as
follows:
<Table>
<Caption>
2003 2004
---- ----
Beginning balance........................................... $ 1,836 $ 2,913
Warranty accrual............................................ 6,626 7,430
Cash payments............................................... (5,628) (7,152)
Translation adjustment...................................... 79 144
------- -------
Ending balance.............................................. $ 2,913 $ 3,335
======= =======
</Table>
(s) USE OF ESTIMATES:
The preparation of financial statements in conformity with United States of
America generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses. Significant areas requiring the use of
management estimates relate to the useful life of assets for amortization and
evaluation of net recoverable amount, the determination of the fair value of
assets acquired and liabilities assumed in business
F-32
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
combinations, implied fair value of goodwill, provisions for doubtful accounts,
obsolete inventories, warranties and income taxes. Accordingly, actual results
could differ from these estimates.
2. EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
The Financial Accounting Standards Board ("FASB") has recently issued
several new Statements and Interpretations. The Company has adopted the
provisions of Statement No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. Other Statements and Interpretations recently issued by the
FASB that are applicable to the Company have had little or no immediate effect
on the Company. Those statements included No. 143, Accounting for Asset
Retirement Obligations; No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets; No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 (leases), and Technical Corrections; No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities; and
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity.
3. BUSINESS ACQUISITION:
There was no business acquisition during the years ended February 28, 2002
and February 29, 2004. On October 24, 2002, the Company acquired all outstanding
shares of Aker Plastics Company, Inc., an important manufacturer of fibreglass
bathroom equipment in the United States. The purchase price totalled $80.4
million, including $66.4 million paid cash and $14 million in notes bearing
interest at a rate of 3% and payable over a three-year period.
Management is of the opinion that this acquisition has contributed to its
business volume and profitability through a better positioning at plumbing
wholesalers, an integration of a brand with an outstanding reputation and the
acceleration of the Company's expansion in the United States.
This business acquisition has been accounted for using the purchase method
and the results are consolidated from the date of acquisition. The fair value of
the net assets acquired is summarized as follows:
<Table>
<Caption>
AKER PLASTICS
COMPANY, INC.
-------------
Net working capital excluding cash.......................... $ 6,523
Property, plant and equipment............................... 16,828
Trademark................................................... 5,615
Distribution network........................................ 2,708
Non-compete agreement....................................... 572
Goodwill (attributed value and tax base).................... 41,317
Cash........................................................ 7,389
-------
80,952
Long-term debt.............................................. (548)
-------
Net assets acquired at fair value........................... $80,404
=======
Consideration:
Cash...................................................... $66,404
Notes payable............................................. 14,000
-------
$80,404
=======
</Table>
F-33
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma condensed financial information reflects
the consolidated results of operations of the Company as if the acquisition of
Aker Plastics Company, Inc. had taken place at the beginning of the respective
periods. The pro forma information includes adjustments for interest expense
that would have been incurred to finance the acquisition and depreciation and
amortization adjustments pursuant to the purchase price allocation. The pro
forma results do not reflect synergies and, accordingly, do not account for any
potential increase in operating income, any estimated cost savings or
adjustments to conform to accounting practices. The pro forma financial
information is not necessarily indicative of the results of the operations as
they would have been, if the transaction had been effected on the assumed dates.
Pro forma condensed financial information:
<Table>
<Caption>
2002 2003
---- ----
(UNAUDITED) (UNAUDITED)
Net sales............................................... $404,396 $452,530
Net income.............................................. 15,117 16,143
Earnings per common share:
Basic................................................. 0.64 0.67
Diluted............................................... 0.63 0.65
</Table>
4. INVENTORIES:
<Table>
<Caption>
2003 2004
---- ----
Raw materials............................................... $29,646 $25,091
Work in progress............................................ 2,094 2,891
Finished goods.............................................. 19,630 17,702
------- -------
$51,370 $45,684
======= =======
</Table>
5. PROPERTY, PLANT AND EQUIPMENT:
<Table>
<Caption>
2003
----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---- ------------ --------
Land.................................................. $ 6,660 $ -- $ 6,660
Buildings and paving.................................. 53,036 8,845 44,191
Moulds and dies....................................... 17,146 10,643 6,503
Furniture and equipment............................... 59,045 29,133 29,912
Data processing system................................ 9,208 5,871 3,337
Automotive equipment.................................. 4,831 2,882 1,949
-------- ------- -------
$149,926 $57,374 $92,552
======== ======= =======
</Table>
F-34
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2004
----------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
---- ------------ --------
Land.................................................. $ 6,985 $ -- $ 6,985
Buildings and paving.................................. 60,681 11,059 49,622
Moulds and dies....................................... 19,626 13,001 6,625
Furniture and equipment............................... 64,506 33,141 31,365
Data processing system................................ 10,498 6,698 3,800
Automotive equipment.................................. 5,315 3,097 2,218
-------- ------- --------
$167,611 $66,996 $100,615
======== ======= ========
</Table>
6. INTANGIBLE ASSETS:
<Table>
<Caption>
2003
---------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---- ------------ --------
Enterprise Resource Planning system.................... $ 9,239 $ 831 $ 8,408
Trademarks............................................. 5,600 391 5,209
Distribution network................................... 2,700 32 2,668
Non-compete agreement.................................. 570 39 531
------- ------ -------
$18,109 $1,293 $16,816
======= ====== =======
</Table>
<Table>
<Caption>
2004
---------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---- ------------ --------
Enterprise Resource Planning system.................... $11,006 $1,702 $ 9,304
Trademarks............................................. 5,600 1,512 4,088
Distribution network................................... 2,700 122 2,578
Non-compete agreement.................................. 570 152 418
------- ------ -------
$19,876 $3,488 $16,388
======= ====== =======
</Table>
The aggregate amortization expense for existing intangible assets at
February 29, 2004, over the next five years, is $8,625,000.
F-35
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. GOODWILL:
For the years ended February 28, 2003 and February 29, 2004, the changes in
the carrying amount of goodwill are as follows:
<Table>
<Caption>
BATHROOM AND
KITCHEN SPAS TOTAL
------------ ---- -----
Balance as at March 1, 2002........................... $ 67,087 $12,431 $ 79,518
Impairment of goodwill (note 1 (c))................... (11,312) -- (11,312)
Goodwill acquired (note 3)............................ 41,519 -- 41,519
Contingent consideration based on earnings of a
business acquired during a previous year (note 20
(b))................................................ 128 -- 128
Translation adjustment................................ 2,657 252 2,909
-------- ------- --------
Balance as at February 28, 2003....................... 100,079 12,683 112,762
Impairment of goodwill................................ -- (4,511) (4,511)
Goodwill acquired..................................... 4 -- 4
Contingent consideration based on earnings of a
business acquired during a previous year (note 20
(b))................................................ 117 -- 117
Translation adjustment................................ 3,866 281 4,147
-------- ------- --------
Balance as at February 29, 2004....................... $104,066 $ 8,453 $112,519
======== ======= ========
</Table>
As of February 29, 2004, the Company completed the 2004 annual goodwill
test for impairment and recorded an impairment loss of $4,511,000 for its Spas
reporting unit as the carrying amount of goodwill exceeded its fair value. The
fair value of the Spas reporting unit was established based on discounted
projected cash flows.
8. BANK LOAN:
The bank loan, of an authorized amount of $2,451,000 (E2,269,000) as of
February 28, 2003 was repaid and terminated in full in the year 2004. The
interest was at bank prime rate plus 1%. At February 28, 2003, the interest rate
was 3.9%.
F-36
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT:
<Table>
<Caption>
EFFECTIVE INTEREST
RATES AS AT YEARS OF
FEBRUARY 29, 2004 MATURITY 2003 2004
------------------ -------- ---- ----
Revolving credit(a).................... 1.9% 2006 $37,500 $ 2,000
Senior unsecured notes, $45,500(b)..... 6.7% 2009 45,500 45,500
Notes payable on a business
acquisition, unsecured, $9,333
($14,000 in 2003).................... 3.0% 2004-2006 14,000 9,333
Notes payable.......................... 8.0% 2005 485 16
Other.................................. various 2004-2014 726 595
------- -------
98,211 57,444
Current portion of long-term debt...... 5,281 4,782
------- -------
$92,930 $52,662
======= =======
</Table>
- ---------------
(a) The Company has a revolving credit in an amount of $112,300,000 to finance
its current operations, capital expenditures and business acquisitions. The
revolving credit may be extended annually subject to the approval of the
lender. In the case of non-renewal, the revolving credit will become a term
loan payable after two years. The agreement governing this credit contains
certain covenants including the obligation to maintain certain financial
ratios. The unused revolving credit facility at year-end was $74,800,000 in
2003 and $110,300,000 in 2004.
The revolving credit bears interest at variable rates based on banker's
acceptance rate, bank prime rate or LIBOR. The weighted average interest rate
was 4.3% at February 28, 2003.
(b) Senior unsecured notes in an amount of $45,500,000. These notes bear
interest at the annual rate of 6.7% and are fully redeemable upon maturity
in October 2008.
The agreement governing these notes contains certain covenants including the
obligation to maintain certain financial ratios.
As at February 29, 2004, the Company was not in default on any debt
covenants.
The principal repayments on long-term debt, excluding the revolving credit,
for each of the next five years are as follows:
<Table>
2005........................................................ $ 4,782
2006........................................................ 4,740
2007........................................................ 54
2008........................................................ 49
2009........................................................ 45,548
</Table>
F-37
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
The Canadian and foreign components on income before income taxes and the
applicable provision for income taxes are as follows:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Canada................................................ $12,619 $23,095 $23,564
Foreign............................................... 10,005 18,029 22,634
------- ------- -------
Income before income taxes............................ $22,624 $41,124 $46,198
======= ======= =======
</Table>
Total provision for income tax attributable to income consists of:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Current:
Canada............................................... $3,002 $ 4,755 $ 4,082
Foreign.............................................. 4,790 5,619 7,750
------ ------- -------
7,792 10,374 11,832
Deferred:
Canada............................................... 1,030 3,142 3,181
Foreign.............................................. (788) 2,183 (766)
------ ------- -------
242 5,325 2,415
------ ------- -------
Total provision................................... $8,034 $15,699 $14,247
====== ======= =======
</Table>
Total provision for income taxes is allocated to different accounts in the
statements of income as follows:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Income taxes........................................... $8,452 $15,699 $14,247
Amortization of goodwill............................... (418) -- --
------ ------- -------
$8,034 $15,699 $14,247
====== ======= =======
</Table>
F-38
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation between income tax expense calculated using combined
statutory and effective tax rates is as follows:
<Table>
<Caption>
2002 2003 2004
------------- -------------- --------------
Income tax expense calculated using
statutory rates......................... $8,416 37.2% $14,352 34.9% $15,106 32.7%
Add (deduct) tax effect of the following:
Credit for manufacturing and processing
profits.............................. (512) (2.3) (697) (1.7) (165) (0.4)
Effect of non-deductible charges and/or
resulting from tax rate changes...... (2) -- 78 0.2 383 0.8
Valuation allowance on future tax assets
of the European subsidiary........... -- -- 1,857 4.5 -- --
Change in tax rate related to foreign
income and other differences......... 132 0.6 109 0.3 (1,077) (2.3)
------ ---- ------- ---- ------- ----
(382) (1.7) 1,347 3.3 (859) (1.9)
------ ---- ------- ---- ------- ----
$8,034 35.5% $15,699 38.2% $14,247 30.8%
====== ==== ======= ==== ======= ====
</Table>
The tax effects of significant items comprising the Company's net deferred
tax liabilities are as follows:
<Table>
<Caption>
2003 2004
---- ----
Operating losses carried forward............................ $ 4,728 $ 3,472
Difference in accounting and tax basis for:
Current assets and liabilities............................ 2,296 (258)
Property, plant and equipment............................. (8,608) (9,605)
Deductible goodwill....................................... (5,422) (5,357)
Other assets.............................................. (37) (415)
Other....................................................... (439) 37
Valuation allowance on operating losses carry forward....... (3,501) (2,095)
-------- --------
Deferred income taxes....................................... $(10,983) $(14,221)
======== ========
</Table>
The valuation allowance increased (decreased) by $369,000 in 2002,
$3,066,000 in 2003 and ($1,406,000) in 2004.
<Table>
<Caption>
2003 2004
---- ----
Deferred income taxes are as follows:
Deferred income tax asset -- current portion.............. $ 3,121 $ 3,542
Deferred income tax asset -- long-term portion............ 1,169 1,762
Deferred income tax liability -- current portion.......... (1,262) (3,824)
Deferred income tax liability -- long-term portion........ (14,011) (15,701)
-------- --------
Deferred income taxes....................................... $(10,983) $(14,221)
======== ========
</Table>
The Company has not recognized a deferred tax liability for the
undistributed earnings of its subsidiaries in the current and prior years
because the Company currently does not expect those undistributed earnings to
reverse and to become taxable in the foreseeable future. A deferred tax
liability will be recognized when the Company expects that it will recover those
undistributed
F-39
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
earnings in a taxable manner, such as sale of the investment or through receipt
of dividends. Such liability is not reasonably determinable at the present time.
Management believes that it is more likely than not that the amount of
deferred income tax assets for which it has not provided a valuation allowance
will be realized through the future operations of the Company.
TAX LOSSES CARRIED FORWARD:
The losses carried forward for tax purposes available to reduce future
income taxes amount to $20,597,000. The Company can apply these losses against
future taxable income within the following delays:
<Table>
<Caption>
CANADA EUROPE TOTAL
------ ------ -----
2007........................................................ $ 340 $ -- $ 340
2008........................................................ 657 -- 657
2009........................................................ 1,842 -- 1,842
2010........................................................ 5,608 -- 5,608
Indefinitely................................................ -- 12,150 12,150
------- ------- -------
8,447 12,150 20,597
Tax losses on which a tax benefit has been accounted for as
a deferred tax asset...................................... (4,586) -- (4,586)
------- ------- -------
Tax losses on which no tax benefit has been accounted for as
a deferred tax asset...................................... $3,861 $12,150 $16,011
======= ======= =======
</Table>
11. CAPITAL STOCK:
AUTHORIZED IN UNLIMITED NUMBER AND WITHOUT PAR VALUE:
Class A and Class B preferred shares, non-participating and non-voting. The
Company's statutes authorize the issuance of Class A and Class B preferred
shares in one or several series and allow directors to determine the quantity
and designation of each series of shares and their attributes, without requiring
the approval of the shareholders.
SHARE PURCHASE LOAN:
In January 2001, a loan of $613,000, recorded as a reduction of capital
stock was granted to a senior executive for the purchase of 100,000 common
shares of the Company. This loan was payable over three years and interest was
payable quarterly, at the Company's borrowing rate. Reimbursements amounted to
$102,000 in 2002, $102,000 in 2003 and $102,000 in 2004. The contract provided
that, after the period of three years, the outstanding balance of the loan would
be forgiven under certain conditions. These conditions were met in the year 2004
and the outstanding balance of the loan, amounting to $307,000 was forgiven. The
expense related to the forgiveness was recorded in operations over the past
three years.
F-40
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHARES ISSUED ON BUSINESS ACQUISITION:
The Company had initially reserved 75,000 common shares at $11 per share,
in connection with a purchase price balance payable in shares related to a
business acquisition in 2000.
<Table>
<Caption>
Common shares reserved...................................... 75,000
Common shares issued in:
2001...................................................... (15,000)
2002...................................................... (15,000)
2003...................................................... (15,000)
2004...................................................... (30,000)
-------
--
=======
</Table>
12. STOCK-BASED COMPENSATION:
STOCK OPTION PURCHASE PLAN:
Under the 1987 stock option purchase plan for the benefit of senior
executives and management of the Company, 3,572,980 common shares were reserved.
The exercise price of each option granted is based on the closing price on the
Toronto Stock Exchange on the day preceding the grant. The plan provides for a
maximum option term of ten years, or earlier in cases of termination of
employment, retirement or death. The holder may exercise these options, subject
to an annual limit of 20%, such limit being cumulative during the first five
years.
A summary of the status of the stock option purchase plan as at February
28, 2003 and February 29, 2004 and changes during the years ended on those dates
is presented below:
<Table>
<Caption>
2003 2004
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- -------- ------- --------
Outstanding at beginning of year............. 1,650,000 $ 7.78 1,523,700 $ 9.40
Granted...................................... 175,000 11.23 125,000 13.57
Exercised.................................... (286,300) 6.22 (221,200) 7.55
Cancelled.................................... (15,000) 8.29 (15,000) 13.02
--------- ------ --------- ------
Outstanding at end of year................... 1,523,700 $ 8.46 1,412,500 $10.01
========= ====== ========= ======
Vested options at end of year................ 942,700 $ 8.25 909,500 $ 9.67
========= ====== ========= ======
</Table>
In accordance with the plan, the Company grants stock options to certain
employees of its US subsidiaries. Under the current US tax rules, the exercise
of these stock options gives rise to a tax deduction. This tax deduction is
considered to be an equity transaction and is therefore recorded as a credit to
the additional paid-in capital.
F-41
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information on outstanding stock options as
at February 28, 2003 and February 29, 2004:
<Table>
<Caption>
2003
----------------------------------------------------------
OPTIONS OUTSTANDING VESTED OPTIONS
------------------------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF AVERAGE EXERCISE EXERCISE
EXERCISE PRICE NUMBER REMAINING LIFE PRICE NUMBER PRICE
-------------- ------ -------------- -------- ------ --------
$3.03 to $ 4.18.............. 181,700 2.5 years $ 3.43 181,700 $ 3.43
$6.23 to $ 8.76.............. 744,000 6.7 years 7.40 393,000 7.45
$9.97 to $13.57.............. 598,000 6.8 years 11.31 368,000 11.48
--------- --------- ------ ------- ------
$3.03 to $13.57.............. 1,523,700 6.6 years $ 8.46 942,700 $ 8.25
========= ========= ====== ======= ======
</Table>
<Table>
<Caption>
2004
----------------------------------------------------------
OPTIONS OUTSTANDING VESTED OPTIONS
------------------------------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF AVERAGE EXERCISE EXERCISE
EXERCISE PRICE NUMBER REMAINING LIFE PRICE NUMBER PRICE
-------------- ------ -------------- -------- ------ --------
$ 3.89 to $ 4.64............. 79,500 2.2 years $ 3.94 79,500 $ 3.94
$ 6.93 to $ 9.73............. 692,000 5.8 years 8.22 458,000 8.27
$11.08 to $15.08............. 641,000 6.6 years 12.71 372,000 12.61
--------- --------- ------ ------- ------
$ 3.89 to $15.08............. 1,412,500 6.0 years $10.01 909,500 $ 9.67
========= ========= ====== ======= ======
</Table>
Under this plan, 247,580 stock options may still be granted at the end of
the year.
The weighted average fair value of stock options granted was $2.20 in 2002,
$5.02 in 2003 and $7.79 in 2004. The fair value of each option granted was
determined using the Black-Scholes option pricing model and the following
weighted average assumptions:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Risk free interest rate..................................... 5.36% 4.96% 4.41%
Expected option life........................................ 8 years 8 years 8 years
Expected volatility......................................... 25% 33% 53%
Expected dividend yield..................................... $ 0.09 $ 0.09 $ 0.10
</Table>
STOCK COMPENSATION PLAN:
The Company has established a stock compensation plan for certain of its
employees through a private utility trust. The trust will purchase on the open
market, common shares from the capital stock of the Company. These shares must
be purchased for the benefit of the participants through annual contributions
made by the Company at its own discretion.
Bonuses amounting to $254,000 (nil in 2004) have been declared and
accounted for in the results of the year ended February 28, 2003. The net
proceeds from these bonuses after income taxes have been used to acquire 11,700
shares under the stock compensation plan.
F-42
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED COMPENSATION PLAN FOR DIRECTORS:
The Company has established a deferred compensation plan for its directors
that is effective since May 1, 2003. Under the terms of this plan, deferred
share units of the Company are granted. Each deferred share unit gives the right
to its holder to receive a payment in cash, upon termination of his services to
the Board, equivalent to the fair market value of the shares at the payment
date.
This plan has been terminated by a decision of the Board of Directors on
March 10, 2004.
13. INFORMATION ON THE CONSOLIDATED STATEMENTS OF INCOME:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Other expenses included in selling, general and
administrative expenses:
Interest income........................................... $ (134) $ (124) $ (355)
Foreign exchange (gains) losses........................... 1,777 1,925 (7,289)
Change in fair value of derivative financial
instruments............................................ (806) (2,723) (9,210)
Other financial expenses.................................. 1,438 3,057 3,770
------- ------- --------
$ 2,275 $ 2,135 $(13,084)
======= ======= ========
Depreciation and amortization:
Property, plant and equipment............................. $10,341 $11,502 $ 13,488
Intangible assets......................................... 342 910 2,068
Deferred costs............................................ 785 183 82
Goodwill.................................................. 2,222 -- --
------- ------- --------
$13,690 $12,595 $ 15,638
======= ======= ========
Financial expenses:
Interest on long-term debt................................ $ 3,500 $ 3,267 $ 3,808
Interest on bank loan..................................... 375 280 572
Amortization of deferred financing charges................ 416 418 518
------- ------- --------
$ 4,291 $ 3,965 $ 4,898
======= ======= ========
</Table>
14. EARNINGS PER COMMON SHARE:
Basic earnings per share are calculated by dividing net income attributable
to common shareholders by the weighted daily average number of common shares
outstanding during the year, excluding the shares held as a guarantee.
Diluted earnings per share are calculated by using the weighted average
number of common shares outstanding adjusted to include potentially dilutive
effect of the share purchase loan, the exercise of stock options, the balance
payable in shares on business acquisition and the stock compensation plan.
<Table>
<Caption>
2002 2003 2004
---- ---- ----
(IN THOUSANDS)
Weighted average number of common shares outstanding........ 23,711 23,994 24,261
Potentially dilutive effect................................. 356 603 534
------ ------ ------
Weighted average number of common shares and dilutive common
shares.................................................... 24,067 24,597 24,795
====== ====== ======
</Table>
F-43
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUPPLEMENTAL CASH FLOW INFORMATION:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Net change in non-cash balances related to operations:
Accounts receivable....................................... $(11,888) $ 2,782 $(5,846)
Inventories............................................... 5,156 (4,454) 8,089
Prepaid expenses.......................................... 586 (315) 316
Accounts payable and accrued liabilities.................. 4,768 (339) 10,303
Income taxes payable...................................... 3,220 (335) 4,102
-------- ------- -------
$ 1,842 $(2,661) $16,964
======== ======= =======
</Table>
16. PENSION PLANS:
The Company maintains defined contribution pension plans for certain
employees. The pension expenses related to those pension plans amounted to
$559,000 in 2002, $1,253,000 in 2003 and $1,028,000 in 2004.
17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:
The Company operates and sells its products internationally and is
therefore exposed to risks related to foreign exchange fluctuations and credit
risk. The Company is also exposed to interest rate fluctuations.
FOREIGN EXCHANGE RISK MANAGEMENT:
The Company is exposed to risks related to foreign exchange fluctuations on
its exports of goods manufactured in Canada. These risks are partially mitigated
by the Company's purchases in the same foreign currency, its debt service and
its foreign exchange forward contracts. The notional amounts of derivative
financial instruments shown in the following table represent the volume of
outstanding transactions and do not represent the potential gain or loss
associated with market or credit risk of such instruments. The notional amounts
represent the amounts to which an exchange rate will be applied to determine the
amount of cash flows to be exchanged. None of these instruments is held or
issued for speculative purposes.
Foreign exchange forward contracts in US dollars:
<Table>
<Caption>
2003 2004
------------------ ------------------
NOTIONAL AVERAGE NOTIONAL AVERAGE
MATURITY AMOUNTS RATE AMOUNTS RATE
-------- -------- ------- -------- -------
2004............................................ $42,000 1.5422 $ -- --
2005............................................ 30,000 1.5533 42,000 1.5454
2006............................................ -- -- 42,000 1.5439
</Table>
INTEREST RATE RISK MANAGEMENT:
The Company has entered into interest rate swaps by which it is committed
to exchange, at specific intervals, the difference between fixed and floating
interest rates calculated by reference to the notional amounts.
During the year 2002, the Company entered into an interest rate swap on its
senior unsecured notes, for an amount of $45,500,000, maturing in December 2003.
The swap converts the fixed interest rate into a variable interest rate based on
the three-month LIBOR rate.
F-44
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the year 2003, the Company entered into an interest rate swap on its
US dollars denominated debt, for a notional amount of $30,000,000, maturing in
September 2005. The swap converts the variable interest rate into a fixed
interest rate of 3.48%.
CREDIT RISK MANAGEMENT:
The Company is exposed to credit risk on the accounts receivable from its
customers. In order to reduce its credit risk, the Company monitors the
financial condition of its customers on a regular basis and establishes the
credit rating of all new customers. An allowance for doubtful accounts is
established based on the specific credit risk of its customers, historical
trends and economic circumstances. The Company does not believe that it is
exposed to an unusual level of credit risk.
The Company sells on a quarterly basis a portion of its accounts receivable
under the terms of securitization agreements. Accounts receivable amounting to
$42,035,721 in 2002, $42,701,233 in 2003 and $47,941,637 in 2004 were sold under
the terms of these agreements. Accounts receivable amounting to $10,489,000 as
at February 28, 2002, $11,001,000 as at February 28, 2003 and $12,819,000 as at
February 29, 2004 were sold under the terms of these agreements.
The Company has retained the responsibility for servicing, administering
and collecting trade receivables sold. There is no recourse under the
securitization agreements on the Company's other assets for failure of debtors
to pay the trade receivables on due date.
Expenses related to these agreements amounting to $184,000 in 2002,
$164,000 in 2003 and $211,000 in 2004 have been recorded in the selling, general
and administrative expenses.
The Company believes that the diversity of its customer base, by product
and by region, reduces its credit risk and the impact of abrupt fluctuations in
product demand.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash, accounts receivable, bank loans, accounts
payable and accrued liabilities approximates their fair value as these items
will be realized or paid within one year.
The financial instruments' carrying values and fair values as at February
28, 2003 and February 29, 2004 are as follows:
<Table>
<Caption>
2003 2004
-------------------- -------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
Long-term debt(1).............................. $(98,211) $(103,361) $(57,444) $(61,704)
Interest rate swaps............................ 390 390 (451) (451)
Foreign exchange forward contracts............. 1,604 1,604 12,078 12,078
</Table>
- ---------------
(1) Including current portion
The fair values of the financial liabilities are estimated based on
discounted cash flows using year-end market yields or market value of similar
instruments having the same maturity. The fair values of the derivative
financial instruments are estimated using year-end market rates, and reflect the
amount that the Company would receive or pay if the instruments were closed out
at these dates.
F-45
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SEGMENTED INFORMATION:
The Company designs, develops, manufactures and distributes products in two
business segments, these being: bathroom and kitchen, and spas. The bathroom and
kitchen segment includes sales of bathtubs and showers made of acrylic,
fibreglass and ABS, as well as shower doors and medicine and kitchen cabinets.
The business segments are managed separately because each business requires
different technologies and marketing strategies. The management of the Company
evaluates the performance of each segment based on income before income taxes.
Operations are located in Canada, United States and Europe.
The accounting policies used in these business segments are the same as
those described in the significant accounting policies. Intersegment sales are
recorded at the exchange value, which is the amount agreed to by the parties.
Approximately 29% in 2002, 29% in 2003 and 24% in 2004 of total net sales
originate from one client.
Reconciliations with the financial statements of revenues and assets by
business segment and geographic segment are:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
By business segment:
Net sales:
Bathroom and kitchen..................................... $304,126 $359,901 $441,518
Spas..................................................... 50,830 62,364 54,296
Intersegment -- Spas..................................... (19) (73) (77)
-------- -------- --------
50,811 62,291 54,219
-------- -------- --------
$354,937 $422,192 $495,737
======== ======== ========
</Table>
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Income before income taxes and amortization of goodwill:
Bathroom and kitchen..................................... $ 27,561 $ 40,380 $ 54,472
Spas..................................................... (2,715) 744 (8,274)
-------- -------- --------
$ 24,846 $ 41,124 $ 46,198
======== ======== ========
</Table>
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Depreciation of property, plant and equipment and
amortization of intangible assets and goodwill:
Bathroom and kitchen..................................... $ 11,367 $ 11,149 $ 14,200
Spas..................................................... 1,538 1,263 1,356
-------- -------- --------
$ 12,905 $ 12,412 $ 15,556
======== ======== ========
</Table>
F-46
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Assets:
Bathroom and kitchen..................................... $227,263 $316,697 $348,346
Spas..................................................... 35,761 27,492 17,241
-------- -------- --------
$263,024 $344,189 $365,587
======== ======== ========
</Table>
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Additions to property, plant and equipment and goodwill:
Bathroom and kitchen..................................... $ 11,608 $ 10,303 $ 17,215
Spas..................................................... 1,281 610 758
-------- -------- --------
$ 12,889 $ 10,913 $ 17,973
======== ======== ========
</Table>
<Table>
<Caption>
2002 2003 2004
---- ---- ----
By geographic segment:
Net sales, from Canadian facilities:
Canada................................................... $101,468 $116,123 $131,245
United States............................................ 78,164 93,905 89,467
Overseas................................................. 1,518 1,564 1,258
-------- -------- --------
181,150 211,592 221,970
======== ======== ========
Net sales, from American facilities:
Canada................................................... -- 153 249
United States............................................ 164,333 200,937 257,535
Overseas................................................. 231 535 990
-------- -------- --------
164,564 201,625 258,774
Net sales, from European facilities:
Overseas................................................. 9,223 8,975 14,993
-------- -------- --------
$354,937 $422,192 $495,737
======== ======== ========
</Table>
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Property, plant and equipment, intangible assets and
goodwill:
Canada................................................... $ 89,523 $ 95,992 $105,307
United States............................................ 53,986 119,226 116,799
Europe................................................... 16,937 6,912 7,416
-------- -------- --------
$160,446 $222,130 $229,522
======== ======== ========
</Table>
19. SUPPLEMENTAL JOINT ISSUER AND GUARANTOR FINANCIAL INFORMATION
The following presents the condensed consolidating financial statements of
MAAX Inc., the acquired entity, on the same basis as that established as a
result of the issuance of MAAX Corporation's 9.75% Senior Subordinated Notes due
2012 that designated the various entities making up the consolidated group as
either guarantors or non-guarantors in the indenture dated June 4, 2004. The
following condensed consolidating financial statements present the financial
information of MAAX Inc., the subsidiaries that are guarantors of the notes and
the subsidiaries that are non-guarantors at February 28, 2003 and February 29,
2004 and for each of the years ended
F-47
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
February 28, 2003 and February 29, 2004. Each of the subsidiary guarantors is
100% owned, directly or indirectly, by MAAX Corporation, and the guarantee of
each such subsidiary guarantor is full and unconditional and joint and several
with the guarantees of the other subsidiary guarantors.
COMBINED BALANCE SHEET
AS AT FEBRUARY 28, 2003
<Table>
<Caption>
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
ASSETS
Current assets
Cash (overdraft)........... $ 21,150 $(18,932) $ 450 $ -- $ 2,668
Accounts receivables....... 5,581 64,130 2,097 (14,748) 57,060
Inventories................ 166 49,504 1,696 4 51,370
Prepaid expenses........... 667 2,602 172 -- 3,441
Deferred income taxes...... 199 2,922 -- -- 3,121
-------- -------- -------- --------- --------
Total current assets....... 27,763 100,226 4,415 (14,744) 117,660
Property, plant and
equipment.................. 3,299 82,345 6,908 -- 92,552
Intangible assets............ 8,408 8,408 -- -- 16,816
Goodwill..................... -- 90,302 -- 22,460 112,762
Derivative financial
instruments................ 390 1,604 -- -- 1,994
Other assets................. 940 296 -- -- 1,236
Investments.................. 239,715 18,747 -- (258,462) --
Deferred income taxes........ -- 1,169 -- -- 1,169
-------- -------- -------- --------- --------
Total assets................. $280,515 $303,097 $ 11,323 $(250,746) $344,189
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Bank loan.................. $ -- $ -- $ 2,451 $ -- $ 2,451
Accounts payable and
accrued liabilities..... 6,889 42,004 6,774 (15,580) 40,087
Income taxes payable....... (608) 1,062 (34) -- 420
Deferred income taxes...... 181 1,081 -- -- 1,262
Current portion of
long-term debt.......... 485 4,770 26 -- 5,281
-------- -------- -------- --------- --------
Total current
liabilities............. 6,947 48,917 9,217 (15,580) 49,501
Long term debt............... 83,000 87,999 21,163 (99,232) 92,930
Deferred income taxes........ 2,821 11,172 -- 18 14,011
-------- -------- -------- --------- --------
Total liabilities............ 92,768 148,088 30,380 (114,794) 156,442
Shareholders' equity
Capital stock.............. 103,057 52,502 20 (52,522) 103,057
Other element of
shareholders' equity.... 84,690 102,507 (19,077) (83,430) 84,690
Total shareholders'
equity.................. 187,747 155,009 (19,057) (135,952) 187,747
-------- -------- -------- --------- --------
Total liabilities and
shareholders' equity....... $280,515 $303,097 $ 11,323 $(250,746) $344,189
======== ======== ======== ========= ========
</Table>
F-48
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED FEBRUARY 28, 2003
<Table>
<Caption>
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Net sales.................... $ -- $412,990 $ 9,268 $ (66) $422,192
Expenses
Cost of goods sold......... -- 279,696 8,132 (66) 287,762
Selling, general and
administrative.......... 496 73,796 2,454 -- 76,746
Depreciation and
amortization............ 993 11,008 594 -- 12,595
Financial expenses......... (3,322) 5,961 1,326 -- 3,965
------- -------- -------- -------- --------
Income before the
undernoted................. 1,833 42,529 (3,238) -- 41,124
Income taxes................. 975 13,442 1,282 -- 15,699
------- -------- -------- -------- --------
858 29,087 (4,520) -- 25,425
Equity in earnings of
investees.................. 24,567 -- -- (24,567) --
------- -------- -------- -------- --------
Income before cumulative
effect of a change in
accounting principles...... 25,425 29,087 (4,520) (24,567) 25,425
Cumulative effect of a change
in accounting principles
related to impairment of
goodwill................... -- -- (11,312) -- (11,312)
------- -------- -------- -------- --------
Net income................... $25,425 $ 29,087 $(15,832) $(24,567) $ 14,113
======= ======== ======== ======== ========
</Table>
F-49
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 28, 2003
<Table>
<Caption>
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Cash flows related to operating
activities
Net income............................ $ 25,425 $ 29,087 $(15,832) $(24,567) $ 14,113
Items not affecting cash
Impairment of goodwill.............. -- -- 11,312 -- 11,312
Depreciation and amortization....... 993 11,008 594 -- 12,595
Amortization of financial
expenses.......................... 414 4 -- -- 418
Deferred income taxes............... 1,178 2,951 1,196 -- 5,325
Change in fair value of derivative
financial instruments............. 5 (2,728) -- -- (2,723)
Equity in earnings of investees..... (24,567) -- -- 24,567 --
Net change in non-cash balances
related to operations............... (3,966) (1,738) 3,043 -- (2,661)
-------- -------- -------- -------- --------
(518) 38,584 313 -- 38,379
Cash flows related to financing
activities
Decrease in bank loan................. -- (741) -- -- (741)
Proceeds from issuance of long-term
debt................................ 64,425 64,497 2,748 (67,245) 64,425
Repayment of long-term debt........... (26,385) (3,200) (2,737) 2,171 (30,151)
Proceeds from issuance of shares...... 1,794 2,644 18 (2,662) 1,794
Interests received on share purchase
loan................................ 13 -- -- -- 13
Dividends paid........................ (2,163) (6,675) -- 6,675 (2,163)
-------- -------- -------- -------- --------
37,684 56,525 29 (61,061) 33,177
Cash flows related to investing
activities
Business acquisitions................. (128) (59,015) -- -- (59,143)
Additions to property, plant and
equipment........................... (2,845) (7,769) (171) -- (10,785)
Proceeds from disposal of property,
plant and equipment................. 67 1,384 -- -- 1,451
Decrease (increase) in investments.... (65,453) (2,283) -- 67,736 --
Dividends received from
subsidiaries........................ 6,675 -- -- (6,675) --
Other assets.......................... (256) (91) -- -- (347)
-------- -------- -------- -------- --------
(61,940) (67,774) (171) 61,061 (68,824)
Net increase (decrease) in cash....... (24,774) 27,335 171 -- 2,732
Translation adjustment on cash
denominated in foreign currencies... 2,234 (3,177) 69 -- (874)
Cash, beginning of year............... 43,690 (43,090) 210 -- 810
-------- -------- -------- -------- --------
Cash, end of year..................... $ 21,150 $(18,932) $ 450 $ -- $ 2,668
======== ======== ======== ======== ========
</Table>
F-50
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED BALANCE SHEET
AS AT FEBRUARY 29, 2004
<Table>
<Caption>
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
ASSETS
Current assets
Cash (overdraft)........... $ 17,292 $(13,288) $ 463 $ -- $ 4,467
Accounts receivables....... 1,099 68,480 3,296 (8,863) 64,012
Inventories................ -- 43,772 1,912 -- 45,684
Prepaid expenses........... 267 2,860 166 -- 3,293
Deferred income taxes...... 254 3,288 -- -- 3,542
-------- -------- -------- --------- --------
Total current assets....... 18,912 105,112 5,837 (8,863) 120,998
Property, plant and
equipment.................. 4,545 88,657 7,413 -- 100,615
Intangible assets............ 9,304 7,084 -- -- 16,388
Goodwill..................... -- 89,055 -- 23,464 112,519
Derivative financial
instruments................ (452) 12,079 -- -- 11,627
Other assets................. 1,151 527 -- -- 1,678
Investments.................. 472,107 231,714 -- (703,821) --
Deferred income taxes........ 15 1,747 -- -- 1,762
-------- -------- -------- --------- --------
Total assets................. $505,582 $535,975 $ 13,250 $(689,220) $365,587
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable and
accrued liabilities..... $ 11,795 $ 41,287 $ 8,524 $ (9,152) $ 52,454
Income taxes payable....... 483 4,179 103 -- 4,765
Deferred income taxes...... -- 3,824 -- -- 3,824
Current portion of
long-term debt.......... 16 4,751 15 -- 4,782
-------- -------- -------- --------- --------
Total current
liabilities............. 12,294 54,041 8,642 (9,152) 65,825
Long term debt............... 258,597 203,742 28,284 (437,961) 52,662
Deferred income taxes........ 3,292 12,388 -- 21 15,701
-------- -------- -------- --------- --------
Total liabilities............ 274,183 270,171 36,926 (447,092) 134,188
Shareholders' equity
Capital stock.............. 105,044 208,291 23 (208,314) 105,044
Other element of
shareholders' equity.... 126,355 57,513 (23,699) (33,814) 126,355
Total shareholders'
equity.................. 231,399 265,804 (23,676) (242,128) 231,399
-------- -------- -------- --------- --------
Total liabilities and
shareholders' equity....... $505,582 $535,975 $ 13,250 $(689,220) $365,587
======== ======== ======== ========= ========
</Table>
F-51
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED FEBRUARY 29, 2004
<Table>
<Caption>
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Net sales.................... $ -- $480,541 $15,273 $ (77) $495,737
Expenses
Cost of goods sold......... -- 332,806 11,702 (77) 344,431
Selling, general and
administrative.......... 3,042 74,259 2,760 -- 80,061
Depreciation and
amortization............ 1,279 13,680 679 -- 15,638
Financial expenses......... (4,668) 8,027 1,539 -- 4,898
Impairment of goodwill..... 1,575 2,936 -- -- 4,511
------- -------- ------- -------- --------
Income before the
undernoted................. (1,228) 48,833 (1,407) -- 46,198
Income taxes................. (32) 14,147 132 -- 14,247
------- -------- ------- -------- --------
(1,196) 34,686 (1,539) -- 31,951
Equity in earnings of
investees.................. 33,147 -- -- (33,147) --
------- -------- ------- -------- --------
Net income................... $31,951 $ 34,686 $(1,539) $(33,147) $ 31,951
======= ======== ======= ======== ========
</Table>
F-52
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 29, 2004
<Table>
<Caption>
COMBINED COMBINED ADJUSTMENTS
GUARANTOR NON-GUARANTOR AND
MAAX INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
Cash flows related to operating
activities
Net income.................... $ 31,951 $ 34,686 $(1,539) $ (33,147) $ 31,951
Items not affecting cash
Impairment of goodwill..... 1,575 2,936 -- -- 4,511
Depreciation and
amortization............. 1,279 13,680 679 -- 15,638
Amortization of financial
expenses................. 513 5 -- -- 518
Deferred income taxes...... (90) 2,505 -- -- 2,415
Change in fair value of
derivative financial
instruments.............. 866 (10,076) -- -- (9,210)
Equity in earnings of
investees................ (33,147) -- -- 33,147 --
Net change in non-cash
balances related to
operations................. 11,167 5,754 43 -- 16,964
--------- --------- ------- --------- --------
14,114 49,490 (817) -- 62,787
Cash flows related to financing
activities
Decrease in bank loan......... -- -- (2,637) -- (2,637)
Proceeds from issuance of
long-term debt............. 206,197 26,615 3,588 (236,400) --
Repayment of long-term debt... (35,961) (4,435) (38) -- (40,434)
Proceeds from issuance of
shares..................... 1,748 161,553 -- (161,553) 1,748
Interests received on share
purchase loan.............. 15 -- -- -- 15
Dividends paid................ (2,489) -- -- -- (2,489)
--------- --------- ------- --------- --------
169,510 183,733 913 (397,953) (43,797)
Cash flows related to investing
activities
Business acquisitions......... (117) (5) -- -- (122)
Additions to property, plant
and equipment.............. (2,135) (15,567) (149) -- (17,851)
Proceeds from disposal of
property, plant and
equipment.................. 34 1,717 -- -- 1,751
Decrease (increase) in
investments................ (186,854) (211,099) -- 397,953 --
Dividends received from
subsidiaries............... -- -- -- -- --
Other assets.................. (625) (289) -- -- (914)
--------- --------- ------- --------- --------
(189,697) (225,243) (149) 397,953 (17,136)
Net increase (decrease) in
cash....................... (6,073) 7,980 (53) -- 1,854
Translation adjustment on cash
denominated in foreign
currencies................. 2,215 (2,336) 66 -- (55)
Cash, beginning of year....... 21,150 (18,932) 450 -- 2,668
--------- --------- ------- --------- --------
Cash, end of year............. $ 17,292 $ (13,288) $ 463 $ -- $ 4,467
========= ========= ======= ========= ========
</Table>
F-53
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. RELATED PARTY TRANSACTIONS:
Under an agreement signed with a shareholder company, the Company was
committed to pay, on an annual basis, management fees and a 4.3% bonus
calculated on consolidated income before bonus and income taxes determined using
Canadian generally accepted accounting principles. This agreement expired on
February 29, 2004.
Under this agreement, the Company recorded during the following years the
following transactions at their exchange value:
<Table>
<Caption>
2002 2003 2004
---- ---- ----
Management fees.......................................... $ 715 $ 755 $ 868
Bonus.................................................... 1,022 1,652 1,927
Non-renewal indemnity.................................... -- -- 2,760
------ ------ ------
$1,737 $2,407 $5,555
====== ====== ======
</Table>
21. COMMITMENTS AND CONTINGENCIES:
(a) CLAIM SETTLEMENT:
During the year ended February 28, 2003, the Company paid and recorded an
expense of an amount of $375,000 in final settlement to the sellers of an
acquired business now inoperative.
(b) CONTINGENT PAYMENT:
A business purchase agreement provides for a remaining contingent payment
of a maximum amount of $120,000 (CAN$160,000) based on the future income of an
acquired business for its fiscal year 2005. Contingent payments amounted to
$128,000 in 2003 and to $117,000 in 2004.
During the year, the Company paid contingent consideration based on
earnings to the seller of this acquired business amounting to $120,000 ($135,000
in 2003 and $125,000 in 2002).
(c) OPERATING LEASES:
The Company rents fixed assets under operating leases whose rentals total
$20,869,000. Annual rentals under these leases for each of the next five years
and thereafter are as follows:
<Table>
2005........................................................ $5,919
2006........................................................ 5,090
2007........................................................ 4,184
2008........................................................ 2,656
2009........................................................ 1,561
Thereafter.................................................. 1,459
</Table>
In addition, the Company must pay, for certain leases, its share of the
annual operating expenses.
Furthermore, the Company has purchase options on two buildings, for which
the exercise price is $2,620,000 and $2,995,000, respectively, expiring in July
and December 2006.
F-54
MAAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) ROYALTIES:
In connection with the purchase of Coleman Spas, Inc., the parties entered
into a ten-year licensing agreement to use the Coleman Spas trademark and
associated logos. As defined in the licensing agreement, the Company is required
to make royalty payments equal to 1.5% of net sales up to September 30, 2004 and
beginning October 1, 2004 through September 30, 2008, the royalty payments will
increase to 3% of net sales. The royalty payments made by the Company were
$101,640 in 2002, $321,425 in 2003 and $397,029 in 2004.
(e) ENVIRONMENT:
The Company is subject to various laws, regulations and government policies
relating to health and safety, to the production, storage, transportation,
disposal and environment emissions of various substances, and to the protection
of the environment in general. The Company believes it is in compliance with
such laws, regulations and government policies, in all-material respects.
Furthermore, the Company does not anticipate that compliance with such
environmental statutes will have a material adverse effect upon its competitive
or consolidated financial position.
(f) PRODUCT RECALL:
Due to a defective electrical component manufactured by a supplier of the
Company and integrated in some products manufactured by the Spas sector, the
supplier is replacing at its own costs this component. The total cost of this
operation is estimated at $1,900,000. The Company believes that the entire
responsibility of the replacement rests with the supplier of this component.
Should the supplier become in default in the replacement of this component, the
Company may be liable and would have to replace this part. At the date of the
financial statements, the Company cannot predict the outcome of this contingency
and, accordingly, no liability has been recorded in the Company's books.
(g) AMALGAMATION OF THE COMPANY:
On March 10, 2004, the Board of Directors decided to recommend the
amalgamation of the Company with companies formed by a group of investors. This
amalgamation was subject to specific conditions, including shareholders'
approval at a special shareholders' meeting held on May 7, 2004. The
shareholders have approved the amalgamation which took place on June 4, 2004.
(h) CONTINGENCIES:
A number of legal proceedings against the Company and its subsidiaries are
still outstanding. In the opinion of the management of the Company and its
subsidiaries, the outcome of these proceedings is not expected to have a
material adverse effect on the Company's results or its financial position.
22. COMPARATIVE FIGURES:
Certain comparative figures have been reclassified to conform to the
financial statement presentation adopted in the current year.
F-55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Aker Plastics Company, Inc.
Plymouth, Indiana
We have audited the accompanying balance sheet of Aker Plastics Company,
Inc. as of October 31, 2002, and the related statements of income and retained
earnings and cash flows for the period from October 26, 2002 to October 31,
2002, and balance sheets of the predecessor as of September 30, 2002 and 2001,
and the related statements of income and retained earnings and cash flows for
the period from October 1, 2002 to October 25, 2002 and for the years ended
September 30, 2002 and 2001. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Aker Plastics Company, Inc.
as of October 31, 2002, and the results of its operations and its cash flows for
the period from October 26, 2002 to October 31, 2002 and the financial position
of the predecessor as of September 30, 2002 and 2001, and the results of its
operations and its cash flows for the period from October 1, 2002 to October 25,
2002 and for the years ended September 30, 2002 and 2001, in conformity with
U.S. generally accepted accounting principles.
/s/ Crowe Chizek and Company LLC
Elkhart, Indiana
May 7, 2004
F-56
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
STATEMENTS OF INCOME AND RETAINED EARNINGS
<Table>
<Caption>
THE COMPANY PREDECESSOR
------------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
OCTOBER 26, 2002 TO OCTOBER 1, 2002 TO SEPTEMBER 30, SEPTEMBER 30,
OCTOBER 31, 2002 OCTOBER 25, 2002 2002 2001
------------------- ------------------ ------------- -------------
NET SALES...................... $1,312,021 $ 6,025,908 $77,409,686 $69,074,181
Cost of sales.................. 873,857 4,057,475 56,031,827 54,717,387
---------- ----------- ----------- -----------
GROSS PROFIT................... 438,164 1,968,433 21,377,859 14,356,794
Operating expenses............. 191,583 986,913 10,277,169 9,197,722
---------- ----------- ----------- -----------
INCOME BEFORE OTHER INCOME AND
EXPENSE...................... 246,581 981,520 11,100,690 5,159,072
Other income (expense)
Interest income.............. 990 4,547 45,145 64,405
Interest expense............. (74,330) (1,513) (33,777) (247,648)
Gain (loss) on sale of
assets..................... -- -- 411,202 (33,626)
Other income................. -- -- 8,494 15,649
---------- ----------- ----------- -----------
(73,340) 3,034 431,064 (201,220)
---------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES..... 173,241 984,554 11,531,754 4,957,852
Income taxes (Note 2).......... 69,000 -- -- --
---------- ----------- ----------- -----------
NET INCOME..................... 104,241 984,554 11,531,754 4,957,852
Retained earnings at beginning
of period.................... -- 21,349,679 18,903,250 16,481,665
Dividends declared............. -- -- (9,085,325) (2,536,267)
---------- ----------- ----------- -----------
Retained earnings at end of
period....................... $ 104,241 $22,334,233 $21,349,679 $18,903,250
========== =========== =========== ===========
Earnings per share (basic and
diluted)..................... $ 104 $ 9,201 $ 107,773 $ 46,335
Shares used in the computation
of earnings per share........ 1,000 107 107 107
</Table>
See accompanying notes to financial statements.
F-57
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
BALANCE SHEETS
<Table>
<Caption>
THE COMPANY PREDECESSOR
----------- -----------------------------
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2002 2001
----------- ------------- -------------
ASSETS
Current assets
Cash and cash equivalents................ $5,672,960 $ 2,731,555 $ 2,422,323
Accounts receivable (less allowance for
doubtful accounts of $70,255 at
October 31, 2002, $69,254 in 2002 and
$57,263 in 2001)...................... 8,184,846 8,119,600 7,228,080
Inventories (Note 3)..................... 3,373,935 3,245,386 3,216,442
Shareholder receivables (Note 4)......... -- 2,375,985 3,792
Federal income tax deposit (Note 7)...... 511,724 -- --
Other current assets..................... 336,030 125,240 106,575
----------- ----------- -----------
Total current assets.................. 18,079,495 16,597,766 12,977,212
Property, plant and equipment (Note 5)..... 16,804,946 9,736,817 11,558,917
Goodwill (Note 6).......................... 38,954,718 -- --
Intangibles (Note 6)....................... 8,870,600 -- --
Federal income tax deposit (Note 7)........ -- 511,724 515,376
----------- ----------- -----------
47,825,318 511,724 515,376
----------- ----------- -----------
$82,709,759 $26,846,307 $25,051,505
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable......................... $1,931,974 $ 2,742,738 $ 2,446,316
Current portion of long-term debt (Note
9).................................... 38,737 38,737 582,718
Accrued payroll.......................... 1,005,201 871,877 596,452
Accrued insurance (Note 11).............. 654,692 769,930 702,173
Taxes payable............................ 356,274 305,886 442,382
Other current liabilities................ 111,255 209,905 181,930
----------- ----------- -----------
Total current liabilities............. 4,098,133 4,939,073 4,951,971
Long-term debt (Note 9).................... 59,007,285 510,454 1,149,183
Shareholders' equity
Common stock (Note 12)................... 1 47,101 47,101
Additional paid-in capital............... 19,500,099 -- --
Retained earnings........................ 104,241 21,349,679 18,903,250
----------- ----------- -----------
19,604,341 21,396,780 18,950,351
----------- ----------- -----------
$82,709,759 $26,846,307 $25,051,505
=========== =========== ===========
</Table>
F-58
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
THE COMPANY PREDECESSOR
------------------- ------------------
PERIOD FROM PERIOD FROM
OCTOBER 26, 2002 TO OCTOBER 1, 2002 TO
OCTOBER 31, 2002 OCTOBER 25, 2002
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 104,241 $ 984,554
Adjustments to reconcile net income to net cash
from operating activities
Depreciation................................. 31,020 139,954
Change in assets and liabilities
Accounts receivable........................ (1,254,006) 1,188,760
Inventories................................ (61,969) (66,580)
Other current assets....................... 9,436 (220,535)
Accounts payable........................... (1,040,846) 230,082
Accrued payroll............................ 218,898 (85,574)
Accrued insurance.......................... (108,946) 245,708
Taxes payable.............................. 69,000 (18,612)
Other current liabilities.................. (41,806) (56,535)
------------ ----------
Net cash from operating activities...... (2,074,978) 2,341,222
CASH FLOWS FROM INVESTING ACTIVITIES
Shareholder receivables......................... -- 2,375,985
Purchase of fixed assets........................ (53,450) (56,453)
Purchase stock of predecessor -- net of cash
acquired..................................... (70,198,712) --
------------ ----------
Net cash from investing activities........... (70,252,162) 2,319,532
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on long-term debt.................... 58,500,000 --
Proceeds from issuance of common stock.......... 19,500,100 --
Payments of long-term debt...................... -- (3,169)
------------ ----------
Net cash from financing activities........... 78,000,100 (3,169)
------------ ----------
Net change in cash and cash equivalents........... 5,672,960 4,657,585
Cash and cash equivalents at beginning of
period.......................................... -- 2,731,555
------------ ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 5,672,960 $7,389,140
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid................................... $ 330 $ 1,513
</Table>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the acquisition of the predecessor company on October 25,
2002, liabilities totaling approximately $5,142,000 were assumed.
F-59
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2002 AND 2001
<Table>
<Caption>
PREDECESSOR
--------------------------
2002 2001
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 11,531,754 $ 4,957,852
Adjustments to reconcile net income to net cash from
operating activities
Loss (gain) on sale of assets.......................... (411,202) 33,626
Depreciation........................................... 2,109,239 2,228,362
Change in assets and liabilities
Accounts receivable.................................. (891,520) 119,648
Inventories.......................................... (28,944) 98,767
Other current assets................................. (18,665) 17,878
Accounts payable..................................... 296,422 88,615
Accrued payroll...................................... 275,425 39,886
Accrued insurance.................................... 67,757 172,640
Taxes payable........................................ (136,496) 198,467
Other current liabilities............................ 27,975 (15,564)
------------ -----------
Net cash from operating activities.............. 12,821,745 7,940,177
CASH FLOWS FROM INVESTING ACTIVITIES
Shareholder receivables................................... (2,372,193) 34,130
Proceeds from fixed asset sales........................... 1,287,559 17,507
Purchase of fixed assets.................................. (1,163,497) (1,262,582)
Federal tax deposit refunded.............................. 3,652 187,241
------------ -----------
Net cash from investing activities..................... (2,244,479) (1,023,704)
CASH FLOWS FROM FINANCING ACTIVITIES
Net line of credit activity............................... -- (2,000,000)
Payments of long-term debt................................ (1,182,709) (929,686)
Dividends paid............................................ (9,085,325) (2,536,267)
------------ -----------
Net cash from financing activities..................... (10,268,034) (5,465,953)
------------ -----------
Net change in cash and cash equivalents..................... 309,232 1,450,520
Cash and cash equivalents at beginning of year.............. 2,422,323 971,803
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 2,731,555 $ 2,422,323
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................. $ 37,351 $ 264,191
</Table>
See accompanying notes to financial statements.
F-60
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: On October 25, 2002, all of the outstanding stock
of Aker Plastics Company, Inc. was acquired by MAAX -- AKER ACQUISITION, INC.
for $78,000,000. This transaction was accounted for as a purchase. The purchase
price exceeded the fair value of the net assets acquired by approximately
$48,000,000. Subsequently MAAX -- AKER ACQUISITION, INC. was merged with Aker
Plastics Company, Inc. with Aker Plastics Company, Inc. surviving. The Company
is wholly owned by MAAX Capital, Co. The following amounts were assigned to the
balance sheet accounts on the date of purchase.
<Table>
Cash and cash equivalents................................... $ 7,389,040
Accounts receivable......................................... 6,933,359
Inventory................................................... 3,311,966
Other current assets........................................ 854,980
Property, plant and equipment............................... 16,828,263
Goodwill.................................................... 38,954,718
Intangibles................................................. 8,870,000
Liabilities assumed......................................... (5,142,326)
-----------
Total purchase price...................................... $78,000,000
===========
</Table>
The Company made an election to treat the stock acquisition as an asset
purchase for tax purposes pursuant to IRC Section 338(h)(10). This election will
allow the Company to amortize the Goodwill acquired for tax purposes.
The financial statements for the period from October 1, 2002 to October 25,
2002 and for the years ended September 30, 2002 and 2001 included the operations
of the predecessor company. The financial statements for the period October 26,
2002 through October 31, 2002 represent the results of operations of the
successor company.
NATURE OF BUSINESS: Aker Plastics Company, Inc. (Company) manufactures
fiberglass tub-shower and whirlpool units which are distributed through
wholesale plumbing supply companies.
CASH AND CASH EQUIVALENTS: All temporary cash investments purchased with a
maturity of three months or less are classified as cash equivalents. The Company
maintains cash deposits in excess of federally insured limits at a local bank.
ACCOUNTS RECEIVABLE: The Company accounts for trade receivables based on
amount billed to customers. Past due receivables are determined based on
contractual terms. The Company does not accrue interest on any of its trade
receivables.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The allowance for doubtful accounts is
determined by management based on the Company's historical losses, specific
customer circumstances and general economic conditions. Periodically, management
reviews accounts receivable and adjusts the allowance based on current
circumstances and charges off uncollectible receivables against the allowance
when all attempts to collect the receivable have failed.
REVENUE RECOGNITION: Revenue from product sales is recognized at time of
shipment.
INVENTORIES: Inventories are stated at the lower of cost or market using
the FIFO (first-in, first-out) method.
F-61
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Costs of maintenance and repairs are
charged to expense when incurred. The Company is depreciating buildings and
improvements over periods of 30 years, machinery and equipment over periods of 5
to 7 years, computers and software over periods of 3 to 5 years, and vehicles
over periods of 3 to 7 years.
USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. An estimate that is more susceptible to change in the near
term is the liability for group health insurance and the continued value of
intangible assets.
EVALUATION OF IMPAIRMENT OF LONG-LIVED ASSETS: In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Impairment or
Disposal of Long-Lived Assets", the Company evaluates the carrying value of
long-lived assets whenever significant events or changes in circumstances
indicate the carrying value of these assets may be impaired. The Company
evaluates potential impairment of long-lived assets by comparing the carrying
value of the assets to the expected net future cash flows resulting from the use
of the assets. Management believes no material impairment of long-lived assets
exists.
EARNINGS PER SHARE: Basic and diluted earnings per share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period.
SEGMENT INFORMATION: The Company follows the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Based
upon definitions contained in SFAS No. 131, the Company has determined that it
operates in one segment and has no international operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The Company estimates that the fair
value of all financial instruments approximates the carrying amounts. Because of
the short-term maturity of cash and accounts receivable, their carrying amounts
approximate fair value. The carrying value of long-term debt approximates fair
value based upon the Company's effective borrowing rate.
GOODWILL AND INTANGIBLE ASSETS: Goodwill resulted from the acquisition of
the Company by MAAX AKER-ACQUISITION, INC. on October 25, 2002 and represents
the excess of the purchase price over the fair value of acquired tangible assets
and liabilities and identifiable intangible assets. Goodwill is assessed at
least annually for impairment and any such impairment will be recognized in the
period identified.
The intangible assets consist of the Aker tradename, distribution network
and a noncompete agreement entered into as part of the acquisition. The
intangibles are initially measured at fair value and are being amortized on a
straight line basis over their estimated useful lives, which range from 5 to 30
years.
INCOME TAXES: The Company is a member of a consolidated group for the
period from October 26, 2002 to October 31, 2002 and will be included in a
consolidated federal income tax return. The predecessor was an S Corporation and
had elected to have its income taxed under Section 1362 of the Internal Revenue
Code and similar sections of the state income tax laws which
F-62
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
provide that, in lieu of corporate income taxes, the shareholders are taxed on
the Company's taxable income. Federal income tax expense is allocated to the
Company as if the Company filed a separate return. Deferred income tax assets
and liabilities are computed based upon differences between the financial
statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
The Company has a tax allocation agreement in place with the Parent Company.
NEW ACCOUNTING PRONOUNCEMENTS: In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities ("VIEs"), an interpretation of APB No. 50," ("FIN
46"). FIN 46 requires certain variable interest entities to be consolidated by
the primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46, as amended
in December 2003, is effective for the Company in the first quarter of 2004. The
adoption of FIN 46 will not have any effect on the Company's financial position,
results of operations or financial disclosures as the Company has no VIEs.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The Company's adoption of SFAS No. 149 effective July 1, 2003 had no
impact on the Company's results of operations, financial position or financial
statement disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that certain financial instruments be classified as liabilities
that were previously considered equity. SFAS No. 150 is effective for the
Company in the first quarter of 2004. Management anticipates the adoption of
this statement will not have a significant effect on the Company's financial
statements.
RECLASSIFICATION: Certain prior year amounts have been reclassified to
conform to the current year presentation.
NOTE 2 - INCOME TAXES
The provision for income taxes for the Company from October 26, 2002 to
October 31, 2002 is as follows:
<Table>
Current income taxes........................................ $69,000
=======
</Table>
F-63
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
NOTE 3 - INVENTORIES
Inventories at October 31, 2002, September 30, 2002 and 2001 consist of the
following:
<Table>
<Caption>
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2002 2001
----------- ------------- -------------
Raw materials...................... $2,033,346 $1,954,329 $2,149,167
Work in process.................... 142,593 135,905 91,983
Finished goods..................... 1,197,996 1,155,152 975,292
---------- ---------- ----------
Total inventories............. $3,373,935 $3,245,386 $3,216,442
========== ========== ==========
</Table>
NOTE 4 - SHAREHOLDER RECEIVABLES
The shareholder receivables were due on demand and non interest bearing.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<Table>
<Caption>
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2002 2001
----------- ------------- -------------
Land............................... $1,033,000 $ 244,514 $ 244,514
Buildings and improvements......... 6,739,200 9,305,041 9,319,125
Machinery and equipment............ 3,050,044 3,709,875 3,617,270
Vehicles and trailers.............. 854,490 2,678,891 3,243,188
Airplanes.......................... -- -- 1,529,415
Furniture and equipment............ 795,769 2,071,808 1,974,755
Molds, patterns and dies........... 1,371,553 2,883,293 2,378,986
Environmental equipment............ 2,991,910 4,101,752 4,101,752
----------- ----------- -----------
16,835,966 24,995,174 26,409,005
Accumulated depreciation........... 31,020 15,258,357 14,850,088
----------- ----------- -----------
$16,804,946 $ 9,736,817 $11,558,917
=========== =========== ===========
</Table>
NOTE 6 - GOODWILL AND INTANGIBLES
INTANGIBLES: The components of intangibles (all acquired on October 25,
2002) as of October 31, 2002 are as follows:
<Table>
<Caption>
GROSS CARRYING
AMOUNT
--------------
Intangibles:
Aker tradename............................................ $5,600,000
Distribution network...................................... 2,700,000
Noncompete agreement...................................... 570,000
Other..................................................... 600
----------
$8,870,600
==========
</Table>
F-64
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
Intangibles are being amortized using the straight-line method over 5 years
for the Aker tradename, 30 years for the distribution network and 5 years for
the noncompete agreement. The weighted-average amortization period for all
intangibles acquired on October 25, 2002 is 13.33 years, with amortization
expense aggregating an immaterial amount for the period from October 26, 2002 to
October 31, 2002.
Estimated aggregate annual amortization expense for each of the next five
years is $1,324,000 per year.
GOODWILL: There was no change in the value of goodwill from October 25,
2002 to October 31, 2002. The fair market value of goodwill at October 31, 2002
was $38,954,718.
NOTE 7 - FEDERAL INCOME TAX DEPOSIT TO RETAIN FISCAL YEAR
The predecessor used a September 30 year end for filing its federal tax
returns. In order to maintain that year end, the predecessor was required to
make a deposit with the Internal Revenue Service. This deposit is adjusted
annually on May 15 of the calendar year following the calendar year in which the
fiscal year ends. The federal income tax deposit was $511,724 at October 31,
2002 and September 30, 2002, it was $515,376 at September 30, 2001. This
represents the required deposit adjusted for amounts expected to be payable to
or due from the Internal Revenue Service on May 15. The entire deposit will be
refunded to the Company due to the termination of the S corporation election as
a result of the October 25, 2002 transaction.
NOTE 8 - SHORT-TERM NOTE
As of September 30, 2002 and 2001 the Company maintained a revolving
promissory note with a bank that provided for borrowings up to $3,000,000 at .5%
below the current prime rate. Borrowings were secured by the equipment,
inventory, and accounts receivable. As of September 30, 2002 and 2001 there were
no borrowings under the agreement.
F-65
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
NOTE 9 - LONG-TERM DEBT
Long-term debt at October 31, 2002, September 30, 2002 and 2001 consists of
the following:
<Table>
<Caption>
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2002 2001
----------- ------------- -------------
7.7% note payable to Maax Hungary Services
Limited Liability Company dated October 25,
2002; due in one installment of $38,000,000
on December 31, 2008. Payment of interest on
the outstanding principal amounts are due
quarterly.................................... $38,000,000 $ -- $ --
7.7% note payable to Maax Hungary Services
Limited Liability Company dated October 25,
2002; due in one installment of $10,000,000
on December 31, 2008. Payment of interest on
the outstanding principal amounts are due
quarterly.................................... 10,000,000 -- --
7.7% note payable to MAAX Canada, Inc. dated
October 25, 2002; due in one installment of
$10,500,000 due on December 31, 2008. Payment
of interest on the outstanding principal
amounts are due quarterly.................... 10,500,000 -- --
..5% under prime note payable to bank, dated
September 2000; due in monthly installments
of $16,667 plus interest through September
12, 2005; secured by equipment, inventory,
and accounts receivable...................... -- -- 799,996
Deferred compensation agreement due in
monthly installments of $5,000 through
February 26, 2014 (Note 10).................. 546,022 549,191 586,412
7.85% note payable to bank, dated February
20, 1997; due in monthly installments of
$62,635 including interest through February
15, 2002; secured by equipment, inventory and
accounts receivable.......................... -- -- 345,493
----------- -------- ----------
59,046,022 549,191 1,731,901
Current maturities........................... 38,737 38,737 582,718
----------- -------- ----------
$59,007,285 $510,454 $1,149,183
=========== ======== ==========
</Table>
Long-term debt is due over the next five years as follows:
<Table>
2003........................................................ $38,737
2004........................................................ 40,316
2005........................................................ 41,958
2006........................................................ 43,668
2007........................................................ 45,500
</Table>
F-66
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
Maax Hungary Services Limited Liability Company and MAAX Canada, Inc. are
affiliated through a common parent company. The notes payable to Maax Hungary
Services Limited Liability Company are guaranteed by MAAX Holding Co. affiliated
through a common parent company. Interest expense to these affiliates was
$74,000 for the period ended October 31, 2002.
NOTE 10 - NON-QUALIFIED DEFERRED COMPENSATION
The Company has a non-qualified deferred compensation agreement with the
retired president which provides for monthly payments of $5,000 over a period of
20 years through February 2014.
The liability is unfunded and accrued for based upon the net present value
of those payments remaining assuming a discount rate of 4% (Note 9).
NOTE 11 - SELF INSURANCE
The Company is responsible for health costs of substantially all of its
employees. The Company has a stop loss policy for claims of individual employee
families over $100,00 and in the aggregate of approximately $3,000,000. At
October 31, 2002, management has estimated the amount of pending claims on this
date. Future operating results could be affected should actual claims differ
from management's current estimate.
NOTE 12 - COMMON STOCK
Common stock, with no par value, consisted of the following:
<Table>
<Caption>
OCTOBER 31, SEPTEMBER 30, SEPTEMBER 30,
2002 2002 2001
----------- ------------- -------------
Shares issued and outstanding...... 1,000 107 107
Shares authorized.................. 1,000 1,000 1,000
</Table>
NOTE 13 - LEASES
The Company rents office and warehouse facilities on a month to month basis
from a former stockholder of the predecessor for $12,000 a month. Rental expense
charged to operations amounted to $144,000 for each of the years ended September
30, 2002 and 2001 and $12,000 for the period from October 1, 2002 to October 31,
2002.
The Company leases its semi-tractors and other equipment under operating
leases expiring in various periods through 2008. The Company is obligated to buy
the semi-tractors if it should terminate any lease prior to the expiration of
the lease term.
The total future minimum rental commitments under operating leases that
have noncancelable lease terms in excess of one year are as follows:
<Table>
2003........................................................ $ 729,411
2004........................................................ 662,280
2005........................................................ 608,280
2006........................................................ 446,280
2007........................................................ 397,480
2008........................................................ 191,006
----------
$3,034,737
==========
</Table>
F-67
AKER PLASTICS COMPANY, INC.
AND PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2002, SEPTEMBER 30, 2002 AND 2001
Total equipment lease expense from October 26, 2002 to October 31, 2002 was
$22,283 from October 1, 2002 to October 25, 2002 it was $99,301 and for the
years ended September 30, 2002 and 2001 it was $1,290,700 and $1,220,416,
respectively.
NOTE 14 - EMPLOYEE PROFIT SHARING PLAN
The Company has a qualified 401(k) profit sharing plan covering all
employees meeting the necessary eligibility requirements. The contribution to
the plan is at the discretion of the Company's Board of Directors and is limited
to the amount deductible for federal income tax purposes. The profit sharing
expense from October 26, 2002 to October 31, 2002 was $2,555 from October 1,
2002 to October 25, 2002 it was $4,485 and for the years ended September 30,
2002 and 2001 it was $117,653 and $140,282, respectively.
F-68
------------------------------------------------------
------------------------------------------------------
UNTIL [ ], 2005, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
MAAX CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
9.75% SENIOR SUBORDINATED NOTES
DUE 2012 FOR
9.75% SENIOR SUBORDINATED NOTES
DUE 2012 THAT HAVE BEEN
REGISTERED UNDER
THE SECURITIES ACT OF 1933
[MAAX CORPORATION LOGO]
---------------------
------------------------------------------------------
------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Association contain provisions that require indemnification
of every director and officer who acts in such capacity against any costs,
losses and expenses which any director or officer may incur or become liable by
reason of any act with respect to the discharge of his duties. The Companies Act
(Nova Scotia) contains no provisions that authorize or restrict the power of
MAAX to indemnify directors or officers or others.
Our Stockholders Agreement requires us to obtain and maintain directors'
and officers' liability insurance. We are also required to provide contractual
indemnities to our officers and directors having such terms and in such amounts
as are determined appropriate by a majority of each of the JWC Fund III,
Borealis and OMERS stockholders of MAAX Holdings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, the registrant has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
2.1 Merger Agreement, dated as of March 10, 2004, among 3087052
Nova Scotia Company, 3087053 Nova Scotia Company, 9139-4460
Quebec Inc., 9139-7158 Quebec Inc. and MAAX Inc.*
2.2 Amalgamation Agreement, dated as of March 10, 2004, among
9139-4460 Quebec Inc., 9139-7158 Quebec Inc., 3087053 Nova
Scotia Company and MAAX Inc.*
3.1 Charter of MAAX Corporation (f/k/a 3087229 Nova Scotia
Company).*
3.2 Bylaws of MAAX Corporation (f/k/a 3087229 Nova Scotia
Company).*
3.3 Charter of 4200217 Canada Inc.*
3.4 Bylaws of 4200217 Canada Inc.*
3.5 Charter of 9022-3751 Quebec Inc. (unofficial English
translation).*
3.6 Bylaws of 9022-3751 Quebec Inc. (unofficial English
translation).*
3.7 Charter of Aker Plastics Company, Inc.*
3.8 Bylaws of MAAX-Aker Acquisition, Co. (adopted by Aker
Plastics Company, Inc. pursuant to Articles of Merger dated
October 25, 2002).*
3.9 Charter of Beauceland Corporation (f/k/a 3081946 Nova Scotia
Company).*
3.10 Bylaws of Beauceland Corporation (f/k/a 3081946 Nova Scotia
Company).*
3.11 Charter of Cuisine Expert -- C.E. Cabinets Inc. (unofficial
English translation).*
3.12 Bylaws of Cuisine Expert -- C.E. Cabinets Inc. (unofficial
English translation).*
3.13 Charter of MAAX Canada Inc. (unofficial English
translation).*
3.14 Bylaws of MAAX Canada Inc.*
3.15 Charter of MAAX Holding Co.*
3.16 Bylaws of MAAX Holding Co.*
3.17 Charter of MAAX-Hydro Swirl Manufacturing Corp.*
3.18 Bylaws of MAAX-Hydro Swirl Manufacturing Corp.*
3.19 Charter of MAAX-KSD Corporation.*
3.20 Bylaws of MAAX-KSD Corporation.*
3.21 Charter of MAAX LLC.*
</Table>
II-1
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
3.22 Limited Liability Company Agreement of MAAX LLC.*
3.23 Charter of MAAX Midwest, Inc. (f/k/a Bremen Glas, Inc.).*
3.24 Bylaws of MAAX Midwest, Inc. (f/k/a Bremen Glas, Inc.).*
3.25 Charter of MAAX Spas (Arizona), Inc. (f/k/a Coleman Spas,
Inc. and California Cooperage).*
3.26 Bylaws of MAAX Spas (Arizona), Inc. (f/k/a Coleman Spas,
Inc. and California Cooperage).*
3.27 Charter of MAAX Spas (B.C.) Inc. (f/k/a 508696 B.C. Ltd.).*
3.28 Charter of MAAX Spas (Ontario) Inc. (f/k/a Acryx Industries
Inc. and 2850290 Canada Inc.).*
3.29 Bylaws of MAAX Spas (Ontario) Inc. (f/k/a Acryx Industries
Inc. and 2850290 Canada Inc.).*
3.30 Charter of Pearl Baths, Inc.*
3.31 Restated Bylaws of Pearl Baths, Inc.*
4.1 Indenture, dated as of June 4, 2004, among MAAX Corporation,
the Guarantors named therein and U.S. Bank Trust National
Association, as Trustee.*
4.2 Exchange and Registration Rights Agreement, dated as of June
4, 2004, among MAAX Corporation, the Guarantors named
therein, Goldman, Sachs & Co., Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the several Purchasers.*
4.3 Form of 9.75% Senior Subordinated Note due 2012 (included in
Exhibit 4.1).*
4.4 Guarantee, dated as of June 4, 2004, executed by the
Guarantors identified therein.*
5.1 Opinion of Kaye Scholer LLP.*
5.2 Opinion of Fasken Martineau DuMoulin LLP.*
5.3 Opinion of McInnes Cooper.*
5.4 Opinion of Dorsey & Whitney LLP.*
5.5 Opinion of Saul Ewing LLP.*
5.6 Opinion of Beers Mallers Backs & Salin, LLP.*
5.7 Opinion of Foster Pepper & Shefelman PLLC.*
8.1 Opinion of Kaye Scholer LLP as to certain tax matters.*
10.1 Management Agreement, dated as of June 4, 2004, among J.W.
Childs Associates, L.P., Borealis Capital Corporation,
Ontario Municipal Employees Retirement Board, MAAX Holdings,
Inc. and MAAX Corporation.*
10.2 Employment Agreement, dated as of June 4, 2004, among MAAX
Corporation, MAAX Canada Inc. and Andre Heroux.*
10.3 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Denis Aubin.*
10.4 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Benoit Boutet.*
10.5 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Patrice Henaire.*
10.6 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Jean Rochette.*
10.7 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Guy Berard.*
10.8 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Terry Rake.*
10.9 Employment Agreement, dated as of December 1, 2003, among
MAAX-KSD Corporation, MAAX Inc. and Daniel Stewart.*
</Table>
II-2
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
10.10 Management Agreement, dated as of January 10, 2001, between
Gestion Camada Inc. and MAAX Inc., as amended (unofficial
English translation).*
10.11 Form of Consulting Agreement, dated as of March 1, 2004,
between MAAX Inc. and each of Richard Garneau, David Poulin
and Marie-France Poulin.*
10.12 Form of Non-Competition Agreement, dated as of June 4, 2004,
between MAAX Corporation and each of Placide Poulin, Richard
Garneau, David Poulin and Marie-France Poulin.*
10.13 Credit and Guaranty Agreement, dated as of June 4, 2004,
among MAAX Corporation, Beauceland Corporation ("Holdings"),
the subsidiaries of Holdings party thereto as Guarantors,
the lenders party thereto, and Goldman Sachs Credit
Partners, L.P., Royal Bank of Canada and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
agents and arrangers.*
10.14 Sodex Factoring Agreement, dated as of February 24, 2004,
among MAAX Inc., MAAX Canada Inc., MAAX Spas (Ontario) Inc.,
MAAX Westco Inc., MAAX Spas (BC) Inc., MAAX-KSD Corporation,
MAAX Southeast Inc., Pearl Baths, Inc., MAAX-Hydro Swirl
Manufacturing Corp., MAAX Midwest Inc., MAAX Spas (Arizona),
Inc., Cuisine Expert -- C.E. Cabinets, Inc., 9022-3751
Quebec Inc., Aker Plastics Company, Inc. and NatExport and
Sodex, both divisions of the National Bank of Canada.*
10.15 Form of Retention Package for each of the persons listed in
Exhibit 99.3.*
10.16 Purchase Agreement, dated as of May 27, 2004, among MAAX
Corporation, the Guarantors named therein, Goldman, Sachs &
Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as representatives of the several
Purchasers.*
10.17 Amendment No. 1 to the Credit and Guaranty Agreement, dated
as of October 6, 2004, among MAAX Corporation, Beauceland
Corporation ("Holdings"), the subsidiaries of Holdings party
thereto as Guarantors, the lenders party thereto, and
Goldman Sachs Credit Partners, L.P., Royal Bank of Canada
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as agents and arrangers.*
10.18 Amendment No. 2 to the Credit and Guaranty Agreement, dated
as of December 3, 2004, among MAAX Corporation, Beauceland
Corporation ("Holdings"), the subsidiaries of Holdings party
thereto as Guarantors, the lenders party thereto, and
Goldman Sachs Credit Partners, L.P., Royal Bank of Canada
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as agents and arrangers.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of Registrant.*
23.1 Consents of KPMG LLP.
23.2 Consent of Crowe Chizek and Company LLC.
23.3 Consent of Kaye Scholer LLP (included in Exhibit 5.1).*
23.4 Consent of Fasken Martineau DuMoulin LLP (included in
Exhibit 5.2).*
23.5 Consent of McInnes Cooper (included in Exhibit 5.3).*
23.6 Consent of Dorsey & Whitney LLP (included in Exhibit 5.4).*
23.7 Consent of Saul Ewing LLP (included in Exhibit 5.5).*
23.8 Consent of Beers Mallers Backs & Salin, LLP (included in
Exhibit 5.6).*
23.9 Consent of Foster Pepper & Shefelman PLLC (included in
Exhibit 5.7).*
23.10 Consent of Kaye Scholer LLP (included in Exhibit 8.1).*
24.1 Power of Attorney for MAAX Corporation.*
24.2 Power of Attorney for 4200217 Canada Inc.*
24.3 Power of Attorney for 9022-3751 Quebec Inc.*
24.4 Power of Attorney for Aker Plastics Company, Inc.*
24.5 Power of Attorney for Beauceland Corporation.*
</Table>
II-3
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
24.6 Power of Attorney for Cuisine Expert -- C.E. Cabinets Inc.*
24.7 Power of Attorney for MAAX Canada Inc.*
24.8 Power of Attorney for MAAX Holding Co.*
24.9 Power of Attorney for MAAX-Hydro Swirl Manufacturing Corp.*
24.10 Power of Attorney for MAAX-KSD Corporation.*
24.11 Power of Attorney for MAAX LLC.*
24.12 Power of Attorney for MAAX Midwest, Inc.*
24.13 Power of Attorney for MAAX Spas (Arizona), Inc.*
24.14 Power of Attorney for MAAX Spas (B.C.) Inc.*
24.15 Power of Attorney for MAAX Spas (Ontario) Inc.*
24.16 Power of Attorney for Pearl Baths, Inc.*
25.1 Statement of Eligibility on Form T-1 of Trustee under the
Indenture, dated as of September 1, 2004 among MAAX
Corporation, the Guarantors named therein and U.S. Bank
Trust National Association, as Trustee.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 List of parties to the form of agreement in Exhibit 10.15.*
</Table>
- ---------------
* Previously filed.
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
II-4
(d) To file a post-effective amendment to the registration statement
to include any financial statements required by Item 8.A of Form
20-F at the start of any delayed offering or throughout a
continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph 1(d) and other
information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial
statements.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
3. The undersigned registrant hereby undertakes: (i) to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in the
U.S. for the purpose of responding to such requests. The undertaking in
subparagraph (i) above includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
4. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX CORPORATION
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Executive Vice President,
Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Non-Executive Chairman of the December 14, 2004
------------------------------------------ Board of Directors
Arthur Byrne
* President and Chief Executive December 14, 2004
------------------------------------------ Officer and Director
Andre Heroux (principal executive officer)
/s/ DENIS AUBIN Executive Vice President, December 14, 2004
------------------------------------------ Chief Financial Officer and
Denis Aubin Secretary (principal financial
and accounting officer)
* Vice President and December 14, 2004
------------------------------------------ Corporate Controller
Benoit Boutet
* Director December 14, 2004
------------------------------------------
Michael Graham
* Director December 14, 2004
------------------------------------------
Andre LaForge
* Vice President and December 14, 2004
------------------------------------------ Director
James Rhee
* Vice President and December 14, 2004
------------------------------------------ Director
Steven Segal
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
4200217 CANADA INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Andre Heroux
/s/ DENIS AUBIN Vice President and Secretary December 14, 2004
------------------------------------------ and Director (principal
Denis Aubin financial and accounting
officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
9022-3751 QUEBEC INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Andre Heroux
/s/ DENIS AUBIN Vice President and Secretary December 14, 2004
------------------------------------------ and Director (principal
Denis Aubin financial and accounting
officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
AKER PLASTICS COMPANY, INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
BEAUCELAND CORPORATION
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Executive Vice President,
Chief Financial Officer
and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Non-Executive Chairman of the December 14, 2004
------------------------------------------ Board of Directors
Arthur Byrne
* President and Chief Executive December 14, 2004
------------------------------------------ Officer and Director
Andre Heroux (principal executive officer)
/s/ DENIS AUBIN Executive Vice President and December 14, 2004
------------------------------------------ Chief Financial Officer and
Denis Aubin Secretary (principal
financial and accounting
officer)
* Vice President and December 14, 2004
------------------------------------------ Corporate Controller
Benoit Boutet
* Director December 14, 2004
------------------------------------------
Michael Graham
* Director December 14, 2004
------------------------------------------
Andre LaForge
* Director December 14, 2004
------------------------------------------
James Rhee
* Director December 14, 2004
------------------------------------------
Steven Segal
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
CUISINE EXPERT -- C.E. CABINETS INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Andre Heroux
/s/ DENIS AUBIN Vice President and Secretary December 14, 2004
------------------------------------------ and Director (principal
Denis Aubin financial and accounting
officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX CANADA INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Andre Heroux
/s/ DENIS AUBIN Vice President and Secretary December 14, 2004
------------------------------------------ and Director (principal
Denis Aubin financial and accounting
officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX HOLDING CO.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX-HYDRO SWIRL MANUFACTURING CORP.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX-KSD CORPORATION
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX LLC
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX MIDWEST, INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX SPAS (ARIZONA), INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX SPAS (B.C.) INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Andre Heroux
/s/ DENIS AUBIN Vice President and Secretary December 14, 2004
------------------------------------------ and Director (principal
Denis Aubin financial and accounting
officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
MAAX SPAS (ONTARIO) INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Andre Heroux
/s/ DENIS AUBIN Vice President and Secretary December 14, 2004
------------------------------------------ and Director (principal
Denis Aubin financial and accounting
officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada
on December 14, 2004.
PEARL BATHS, INC.
By: /s/ DENIS AUBIN
------------------------------------
Name: Denis Aubin
Title: Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director December 14, 2004
------------------------------------------ (principal executive officer)
Hiram Rivera
/s/ DENIS AUBIN Treasurer and Secretary and December 14, 2004
------------------------------------------ Director (principal financial
Denis Aubin and accounting officer)
* Vice President and Director December 14, 2004
------------------------------------------
Benoit Boutet
* Vice President and Director December 14, 2004
------------------------------------------
Robert Martin
* Vice President and Director December 14, 2004
------------------------------------------
Keith R. Ruck
*By: /s/ DENIS AUBIN
------------------------------------------
Name: Denis Aubin
Attorney-in-Fact
</Table>
II-21
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
2.1 Merger Agreement, dated as of March 10, 2004, among 3087052
Nova Scotia Company, 3087053 Nova Scotia Company, 9139-4460
Quebec Inc., 9139-7158 Quebec Inc. and MAAX Inc.*
2.2 Amalgamation Agreement, dated as of March 10, 2004, among
9139-4460 Quebec Inc., 9139-7158 Quebec Inc., 3087053 Nova
Scotia Company and MAAX Inc.*
3.1 Charter of MAAX Corporation (f/k/a 3087229 Nova Scotia
Company).*
3.2 Bylaws of MAAX Corporation (f/k/a 3087229 Nova Scotia
Company).*
3.3 Charter of 4200217 Canada Inc.*
3.4 Bylaws of 4200217 Canada Inc.*
3.5 Charter of 9022-3751 Quebec Inc. (unofficial English
translation).*
3.6 Bylaws of 9022-3751 Quebec Inc. (unofficial English
translation).*
3.7 Charter of Aker Plastics Company, Inc.*
3.8 Bylaws of MAAX-Aker Acquisition, Co. (adopted by Aker
Plastics Company, Inc. pursuant to Articles of Merger dated
October 25, 2002).*
3.9 Charter of Beauceland Corporation (f/k/a 3081946 Nova Scotia
Company).*
3.10 Bylaws of Beauceland Corporation (f/k/a 3081946 Nova Scotia
Company).*
3.11 Charter of Cuisine Expert -- C.E. Cabinets Inc. (unofficial
English translation).*
3.12 Bylaws of Cuisine Expert -- C.E. Cabinets Inc. (unofficial
English translation).*
3.13 Charter of MAAX Canada Inc. (unofficial English
translation).*
3.14 Bylaws of MAAX Canada Inc.*
3.15 Charter of MAAX Holding Co.*
3.16 Bylaws of MAAX Holding Co.*
3.17 Charter of MAAX-Hydro Swirl Manufacturing Corp.*
3.18 Bylaws of MAAX-Hydro Swirl Manufacturing Corp.*
3.19 Charter of MAAX-KSD Corporation.*
3.20 Bylaws of MAAX-KSD Corporation.*
3.21 Charter of MAAX LLC.*
3.22 Limited Liability Company Agreement of MAAX LLC.*
3.23 Charter of MAAX Midwest, Inc. (f/k/a Bremen Glas, Inc.).*
3.24 Bylaws of MAAX Midwest, Inc. (f/k/a Bremen Glas, Inc.).*
3.25 Charter of MAAX Spas (Arizona), Inc. (f/k/a Coleman Spas,
Inc. and California Cooperage).*
3.26 Bylaws of MAAX Spas (Arizona), Inc. (f/k/a Coleman Spas,
Inc. and California Cooperage).*
3.27 Charter of MAAX Spas (B.C.) Inc. (f/k/a 508696 B.C. Ltd.).*
3.28 Charter of MAAX Spas (Ontario) Inc. (f/k/a Acryx Industries
Inc. and 2850290 Canada Inc.).*
3.29 Bylaws of MAAX Spas (Ontario) Inc. (f/k/a Acryx Industries
Inc. and 2850290 Canada Inc.).*
3.30 Charter of Pearl Baths, Inc.*
3.31 Restated Bylaws of Pearl Baths, Inc.*
4.1 Indenture, dated as of June 4, 2004, among MAAX Corporation,
the Guarantors named therein and U.S. Bank Trust National
Association, as Trustee.*
4.2 Exchange and Registration Rights Agreement, dated as of June
4, 2004, among MAAX Corporation, the Guarantors named
therein, Goldman, Sachs & Co., Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the several Purchasers.*
</Table>
II-22
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
4.3 Form of 9.75% Senior Subordinated Note due 2012 (included in
Exhibit 4.1).*
4.4 Guarantee, dated as of June 4, 2004, executed by the
Guarantors identified therein.*
5.1 Opinion of Kaye Scholer LLP.*
5.2 Opinion of Fasken Martineau DuMoulin LLP.*
5.3 Opinion of McInnes Cooper.*
5.4 Opinion of Dorsey & Whitney LLP.*
5.5 Opinion of Saul Ewing LLP.*
5.6 Opinion of Beers Mallers Backs & Salin, LLP.*
5.7 Opinion of Foster Pepper & Shefelman PLLC.*
8.1 Opinion of Kaye Scholer LLP as to certain tax matters.*
10.1 Management Agreement, dated as of June 4, 2004, among J.W.
Childs Associates, L.P., Borealis Capital Corporation,
Ontario Municipal Employees Retirement Board, MAAX Holdings,
Inc. and MAAX Corporation.*
10.2 Employment Agreement, dated as of June 4, 2004, among MAAX
Corporation, MAAX Canada, Inc. and Andre Heroux.*
10.3 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Denis Aubin.*
10.4 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Benoit Boutet.*
10.5 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Patrice Henaire.*
10.6 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Jean Rochette.*
10.7 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Guy Berard.*
10.8 Employment Agreement, dated as of June 4, 2004, between MAAX
Inc. and Terry Rake.*
10.9 Employment Agreement, dated as of December 1, 2003, among
MAAX-KSD Corporation, MAAX Inc. and Daniel Stewart.*
10.10 Management Agreement, dated as of January 10, 2001, between
Gestion Camada Inc. and MAAX Inc., as amended (unofficial
English translation).*
10.11 Form of Consulting Agreement, dated as of March 1, 2004,
between MAAX Inc. and each of Richard Garneau, David Poulin
and Marie-France Poulin.*
10.12 Form of Non-Competition Agreement, dated as of June 4, 2004,
between MAAX Corporation and each of Placide Poulin, Richard
Garneau, David Poulin and Marie-France Poulin.*
10.13 Credit and Guaranty Agreement, dated as of June 4, 2004,
among MAAX Corporation, Beauceland Corporation ("Holdings"),
the subsidiaries of Holdings party thereto as Guarantors,
the lenders party thereto, and Goldman Sachs Credit
Partners, L.P., Royal Bank of Canada and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
agents and arrangers.*
10.14 Sodex Factoring Agreement, dated as of February 24, 2004,
among MAAX Inc., MAAX Canada Inc., MAAX Spas (Ontario) Inc.,
MAAX Westco Inc., MAAX Spas (BC) Inc., MAAX-KSD Corporation,
MAAX Southeast Inc., Pearl Baths, Inc., MAAX-Hydro Swirl
Manufacturing Corp., MAAX Midwest Inc., MAAX Spas (Arizona),
Inc., Cuisine Expert -- C.E. Cabinets, Inc., 9022-3751
Quebec Inc., Aker Plastics Company, Inc. and NatExport and
Sodex, both divisions of the National Bank of Canada.*
10.15 Form of Retention Package for each of the persons listed in
Exhibit 99.3.*
10.16 Purchase Agreement, dated as of May 27, 2004, among MAAX
Corporation, the Guarantors named therein, Goldman, Sachs &
Co., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as representatives of the several
Purchasers.*
</Table>
II-23
<Table>
<Caption>
EXHIBIT NO. EXHIBIT
- ----------- -------
10.17 Amendment No. 1 to the Credit and Guaranty Agreement, dated
as of October 6, 2004, among MAAX Corporation, Beauceland
Corporation ("Holdings"), the subsidiaries of Holdings party
thereto as Guarantors, the lenders party thereto, and
Goldman Sachs Credit Partners, L.P., Royal Bank of Canada
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as agents and arrangers.*
10.18 Amendment No. 2 to the Credit and Guaranty Agreement, dated
as of December 3, 2004, among MAAX Corporation, Beauceland
Corporation ("Holdings"), the subsidiaries of Holdings party
thereto as Guarantors, the lenders party thereto, and
Goldman Sachs Credit Partners, L.P., Royal Bank of Canada
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as agents and arrangers.*
12.1 Computation of Ratio of Earnings to Fixed Charges.*
21.1 Subsidiaries of Registrant.*
23.1 Consents of KPMG LLP.
23.2 Consent of Crowe Chizek and Company LLC.
23.3 Consent of Kaye Scholer LLP (included in Exhibit 5.1).*
23.4 Consent of Fasken Martineau DuMoulin LLP (included in
Exhibit 5.2).*
23.5 Consent of McInnes Cooper (included in Exhibit 5.3).*
23.6 Consent of Dorsey & Whitney LLP (included in Exhibit 5.4).*
23.7 Consent of Saul Ewing LLP (included in Exhibit 5.5).*
23.8 Consent of Beers Mallers Backs & Salin, LLP (included in
Exhibit 5.6).*
23.9 Consent of Foster Pepper & Shefelman PLLC (included in
Exhibit 5.7).*
23.10 Consent of Kaye Scholer LLP (included in Exhibit 8.1).*
24.1 Power of Attorney for MAAX Corporation.*
24.2 Power of Attorney for 4200217 Canada Inc.*
24.3 Power of Attorney for 9022-3751 Quebec Inc.*
24.4 Power of Attorney for Aker Plastics Company, Inc.*
24.5 Power of Attorney for Beauceland Corporation.*
24.6 Power of Attorney for Cuisine Expert -- C.E. Cabinets Inc.*
24.7 Power of Attorney for MAAX Canada Inc.*
24.8 Power of Attorney for MAAX Holding Co.*
24.9 Power of Attorney for MAAX-Hydro Swirl Manufacturing Corp.*
24.10 Power of Attorney for MAAX-KSD Corporation.*
24.11 Power of Attorney for MAAX LLC.*
24.12 Power of Attorney for MAAX Midwest, Inc.*
24.13 Power of Attorney for MAAX Spas (Arizona), Inc.*
24.14 Power of Attorney for MAAX Spas (B.C.) Inc.*
24.15 Power of Attorney for MAAX Spas (Ontario) Inc.*
24.16 Power of Attorney for Pearl Baths, Inc.*
25.1 Statement of Eligibility on Form T-1 of Trustee under the
Indenture, dated as of September 1, 2004 among MAAX
Corporation, the Guarantors named therein and U.S. Bank
Trust National Association, as Trustee.*
99.1 Form of Letter of Transmittal. *
99.2 Form of Notice of Guaranteed Delivery.*
99.3 List of parties to the form of agreement in Exhibit 10.15.*
</Table>
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* Previously filed.
II-24