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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-79647
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PROSPECTUS
JUNE 21, 1999
[LOGO]
THE BOYDS COLLECTION, LTD.
$99,000,000
9% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
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THE EXCHANGE OFFER:
- - We are offering to exchange all of our outstanding 9% Senior Subordinated
Notes due 2008 that are validly tendered and not validly withdrawn for an
equal principal amount of 9% Series B Senior Subordinated Notes due 2008,
which have been registered under the Securities Act of 1933.
- - The exchange offer expires at 5:00 p.m., New York City time, on July 22, 1999,
unless we extend the offer. We do not currently intend to extend the
expiration date.
- - You may withdraw your tender of our outstanding notes at any time prior to the
expiration of the exchange offer.
- - The exchange of outstanding notes for exchange notes will not be a taxable
event for U.S. federal income tax purposes.
- - We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES:
- - The terms of the exchange notes are substantially identical to the terms of
the outstanding notes, except that the exchange notes are freely tradeable.
- - The exchange notes are being offered to satisfy our obligation under the
registration rights agreement entered into in connection with the original
sale of the outstanding notes.
MARKET FOR THE EXCHANGE NOTES:
- - The exchange notes may be sold in the over-the-counter market, in negotiated
transactions or through a combination of these methods. We do not plan to list
the exchange notes on any national market.
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 15.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PROSPECTUS SUMMARY
THE FOLLOWING SECTION HIGHLIGHTS THE KEY INFORMATION CONTAINED IN THIS
PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE "RISK FACTORS,"
AND THE FINANCIAL STATEMENTS AND ALL NOTES.
THE BOYDS COLLECTION, LTD.
We are a designer, importer and distributor of premier branded,
high-quality, hand-crafted collectibles and other specialty giftware products.
We have successfully developed a strong niche and brand identity in our markets
because of our affordably priced, high-quality, "Folksy With Attitude(SM)"
collectibles. For our fiscal year 1998, we had net sales of $197.8 million and
earnings before interest expense, interest income, income taxes and depreciation
and amortization expense, or EBITDA, of $117.9 million.
Our products, which include resin figurines, plush animals, porcelain dolls
and boxes and related clothing and accessories, incorporate year-round themes.
Our three major resin figurine lines are THE BEARSTONE
COLLECTION-REGISTERED TRADEMARK-, THE DOLLSTONE COLLECTION-TM- and THE FOLKSTONE
COLLECTION-REGISTERED TRADEMARK-, which together encompass over 420 different
items. Each of our resin figurines is inscribed with Boyds' distinctive symbol
of authenticity, a hidden bear paw and a bottom stamp indicating the name,
edition and piece number of the figurine. Many of our resin figurines also
contain famous quotes, which help customers identify with the piece. Our plush
animal lines include dressed and non-dressed bears and other animals, which are
made of assorted materials and incorporate varying, whimsical themes. Most of
our plush animals are fully jointed with sewn-in joints for arms, legs and
heads. Our plush line has grown to encompass over 430 different items ranging
from 2 1/2" miniatures to 21" large animals.
The following chart provides additional information about our products:
<TABLE>
<CAPTION>
APPROXIMATE
PRODUCT % OF FISCAL 1998 NET WEIGHTED AVERAGE MAJOR PRODUCT LINES
CATEGORIES PRODUCT SALES RETAIL PRICE (YEAR INTRODUCED)
- ----------------- ----------------------- ----------------- ------------------------------------
<S> <C> <C> <C>
Resin Figurines 44.6% $ 16.00 THE BEARSTONE COLLECTION (1993)
THE FOLKSTONE COLLECTION (1994)
THE DOLLSTONE COLLECTION (1995)
Plush Animals 52.0% $ 14.50 Original non-dressed plush (1982)
J.B. BEAN & ASSOCIATES(TM) (1987)
Custom designed plush (1990)
T.J.'S BEST DRESSED(TM) (1992)
Other Products 3.4% $ 11.50 BEAR NECESSITIES(TM) (1992)
<CAPTION>
RECENT PRODUCT
PRODUCT LINE INTRODUCTIONS
CATEGORIES (YEAR INTRODUCED)
- ----------------- ------------------------------------
<S> <C>
Resin Figurines WEE FOLKSTONES(TM) (1997)
Porcelain Dolls (1997)
LE BEARMOGE(TM) (1998)
CARVERS CHOICE(TM) (1998)
DESKANIMALS(TM) (1998)
GLASSSMITH ORNAMENTS(TM) (1998)
Plush Animals MOHAIR BEARS(TM) (1997)
T.F. WUZZIES(TM) (1997)
Other Products BEARWARE POTTERYWORKS(TM) (1997)
</TABLE>
Our net sales and EBITDA have grown rapidly from fiscal 1993 to fiscal 1998
at compound annual growth rates of approximately 61% and 64%, respectively.
During this time, we steadily increased our operating income margins from 54.3%
in fiscal 1993 to 61.1% in fiscal 1998. Our growth and high operating margins
have resulted from our competitive strengths, which include:
- the establishment of Boyds as a premier collectibles brand name
- the development of strong relationships with our large distribution
network of dealers
- our process for developing, designing, sourcing and marketing high-quality
and affordable products
- our experience in expanding existing product lines and identifying new
product categories and trends
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- the creation of well-established sourcing relationships with our suppliers
- our focus on maintaining low selling, marketing and overhead costs
We believe that the way we operate our business results in operating margins
which are approximately 25% to 45% higher than those of giftware and
collectibles companies of similar or larger size.
We sell our products through a large and diverse network including
independent gift and collectibles retailers, premier department stores and
selected catalogue retailers. This distribution network includes approximately
19,950 independent gift and collectibles accounts, representing approximately
26,000 individual retail outlets. We selectively choose our resin figurine
dealers and require them to meet annual performance criteria to retain
dealership status. There is currently a waiting list of over 5,500 retailers,
consisting primarily of our plush-only dealers, that have expressed an interest
in carrying our resin figurines.
We also sell both resin figurines and plush animals through approximately
150 major accounts, including department stores, catalogue retailers and QVC, a
television and electronic retailer.
Our nationwide dealer network is currently divided into five major
categories: three PAW(SM) designations, which include GOLD, SILVER and BRONZE,
other resin and plush dealers and plush-only dealers. We encourage our resin
figurine dealers to obtain the highest PAW qualification because it affords them
additional benefits including priority delivery of our products and special
consideration when ordering limited editions, new product offerings and items in
particularly high demand. Differences in PAW designations are based primarily on
annual order volume.
The following chart provides additional detail about our distribution
network:
<TABLE>
<CAPTION>
APPROXIMATE % OF FISCAL 1998
TYPE NUMBER NET PRODUCT SALES
- ------------------------------------------------------------- ------------- ---------------------
<S> <C> <C>
Paw Dealers.................................................. 2,250 48%
Other Resin and Plush Dealers................................ 3,750 21
Major Accounts............................................... 150 15
------ ---
Resin and Plush Dealers.................................. 6,150 84
Plush-Only Dealers........................................... 13,800 17
------ ---
Total Dealers............................................ 19,950 100%
------ ---
------ ---
</TABLE>
UNITY MARKETING, a market research firm which specializes in the
collectibles industry and is not affiliated with Boyds, estimates that consumer
sales of collectibles in the United States in 1997 totaled $10.0 billion.
Figurines, which represented approximately 45% of our net product sales in
fiscal 1998, are estimated by UNITY MARKETING to represent the largest segment
of the U.S. collectibles industry, with an estimated $3.9 billion in total sales
in 1997. UNITY MARKETING currently estimates that women between the ages of 35
and 64 encompass the majority of collectors. This group, which we believe
constitutes a substantial portion of our collectors, is projected by the U.S.
Census Bureau to grow approximately 12% from 1998 to 2005. UNITY MARKETING
expects that growth in the collectibles industry will be driven by the increased
number of middle-aged female collectors and higher spending habits of the baby
boom generation.
Our operating and growth strategy consists of the following elements:
- We plan to increase sales to our existing accounts
- We plan to expand sales to new accounts
- We plan to penetrate new distribution channels
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- We plan to increase licensing and international sales
- We strive to continually develop and introduce new products
- We plan to pursue strategic acquisitions
In addition, we continually develop and introduce new products and product
lines. Our recently introduced products include the following:
- CARVERS CHOICE, a line of resin figurines, picture frames and accessories
resembling hand-carved and painted wooden sculptures
- GLASSSMITH ORNAMENTS, blown glass antique-style ornaments based on popular
Boyds themes
- Porcelain Dolls, a line of traditional high-quality porcelain dolls
- LE BEARMOGE, small porcelain figurines, based on popular Boyds resin
characters, placed decoratively atop an ornamental box containing a
miniature porcelain figurine
For fiscal year 1999, we have introduced the following new product lines:
- UPTOWN BEARS, upscale dressed bears
- PURRSTONES, a new line of resin figurines
- BABYBOYDS, plush animals targeted for the children's market
- THE BEATRICE COLLECTION-TM-, fine porcelain hinged boxes with designs
reproduced from original works of art made exclusively for Boyds
For more information on our operating and growth strategy, please see
"Business" beginning on page 34 of this prospectus.
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Our principal executive offices are located at 350 South Street,
McSherrystown, Pennsylvania 17334, and our main telephone number is (717)
633-9898.
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THE RECAPITALIZATION AND SUBSEQUENT TRANSACTIONS
On April 21, 1998, our stockholders prior to such time and Bear Acquisition,
Inc. together completed a recapitalization of our company. Bear Acquisition was
an affiliate of Kohlberg Kravis Roberts & Co. L.P. Investment funds controlled
by an affiliate of KKR, which include KKR 1996 Fund L.P. and KKR Partners II,
L.P., owned a substantial majority of Bear Acquisition's common stock. The
recapitalization consisted of the purchase by Bear Acquisition of 41,327,007
shares of our common stock held by our original stockholders for approximately
$184 million and the redemption of 106,237,360 shares of common stock held by
our original stockholders for approximately $473 million. We financed the
redemption with $325.0 million of bank borrowings and the issuance of $165.0
million principal amount of our 9% senior subordinated notes. Immediately after
the recapitalization, Bear Acquisition owned approximately 80% of the common
stock and the original stockholders retained approximately 20% of the common
stock. On April 22, 1998, Bear Acquisition acquired 843,385 additional shares of
newly-issued common stock for $3.8 million with the proceeds from the sale of
Bear Acquisition common stock. At March 4, 1999, Bear Acquisition and the
original stockholders owned approximately 81% and 19%, respectively, of the
outstanding common stock.
After the recapitalization, we transferred substantially all of our assets
to The Boyds Collection, Ltd., L.P., or Boyd's L.P., a Delaware limited
partnership wholly owned by us. We are the sole limited partner of Boyds L.P.
The sole general partner of Boyds L.P. is Boyds Operations, Inc., a Delaware
corporation and our direct wholly owned subsidiary.
On March 1, 1999 our stockholders at that time transferred all of their
shares of our common stock to us in exchange for newly-issued shares of our
common stock. Each old share of our common stock was exchanged for 1.1230165 new
shares of our common stock. After receiving its newly-issued shares, Bear
Acquisition distributed these shares in liquidation to its stockholders. Bear
Acquisition's only asset was its investment in our common stock. As a result,
KKR 1996 Fund and KKR Partners II, collectively owned approximately 79% and the
original stockholders retained approximately 19%, respectively, of our
outstanding common stock immediately after the share exchange.
On March 10, 1999, we completed the initial public offering of our common
stock. In the offering, we issued and sold 9,250,000 shares and KKR 1996 Fund
and KKR Partners II, collectively, sold 6,750,000 shares. The proceeds of the
offering were used to repay a portion of our outstanding bank debt and to redeem
$66.0 million principal amount of the 9% senior subordinated notes, leaving
$99.0 million principal amount currently outstanding, which are the outstanding
notes referred to in this prospectus. After the offering, KKR 1996 Fund and KKR
Partners II, collectively, owned approximately 56% of our common stock.
On May 28, 1999, our Board of Directors approved the repurchase of up to 3
million shares of our common stock. As of June 15, 1999, we had repurchased
737,000 shares of our common stock pursuant to this stock repurchase program for
an aggregate amount of approximately $9.5 million. We financed these repurchases
out of our operating cash flow and approximately $4.0 million of borrowings
under our revolving credit facility.
6
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer.............. We are offering to exchange up to $99 million aggregate
principal amount of our 9% Series B Senior Subordinate
Notes due 2008, which we refer to in this prospectus as
the exchange notes, for up to $99 million aggregate
principal amount of 9% Senior Subordinated Notes due 2008,
which we refer to in this prospectus as the outstanding
notes. The exchange notes are identical in all material
respects to the outstanding notes, including principal
amount, interest and maturity, except that the exchange
notes will not bear legends restricting their transfer and
will not provide for an increase in interest rates under
the circumstances described in the registration rights
agreement between us and the initial purchaser of the
outstanding notes.
Resale.......................... Based on an interpretation by the staff of the Securities
and Exchange Commission in no-action letters issued to
third parties, unless you are an "affiliate" of Boyds
within the meaning of Rule 405 under the Securities Act,
we believe that the exchange notes issued pursuant to this
exchange offer in exchange for the outstanding notes may
be offered for resale, resold and otherwise transferred by
you without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that you are acquiring the exchange notes in the
ordinary course of your business and that you have not
engaged in, do not intend to engage in, and have no
arrangement or understanding with any person to
participate in the distribution of the exchange notes.
Each participating broker-dealer that receives exchange
notes for its own account pursuant to the exchange offer
in exchange for shares of the outstanding notes that were
acquired as a result of market-making or other trading
activity must acknowledge that it will deliver a
prospectus in connection with any resale of the exchange
notes. See "Plan of Distribution."
A holder of the outstanding notes cannot rely on the
position of the staff of the Commission enunciated in
Exxon Capital Holdings Corporation, Morgan Stanley & Co.
Incorporated or similar no-action letters if such holder
falls under any of the following categories:
- the holder is an affiliate of Boyds
- the holder does not acquire exchange notes in the
ordinary course of its business
- the holder tenders in the exchange offer with the
intention to participate, or for the purpose of
participating, in a distribution of exchange notes
Such holders must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with the resale of the exchange notes, unless
an exemption from these requirements is available.
</TABLE>
7
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<TABLE>
<S> <C>
Expiration Date; Withdrawal of
Tender........................ The expiration date for the exchange offer is 5:00 p.m.,
New York city time, on July 22, 1999, or any later date
and time to which we extend the offer. You may withdraw
your tender of outstanding notes pursuant to the exchange
offer at any time prior to the expiration date.
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary conditions,
which we may waive. Please read the section in this
prospectus captioned "The Exchange Offer--Conditions to
the Exchange Offer" for more information regarding the
conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes............. If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal, or a facsimile of the letter of transmittal,
according to the instructions contained in this prospectus
and the letter of transmittal. You must also mail or
otherwise deliver the letter of transmittal, or a
facsimile of the letter of transmittal, together with the
outstanding notes and any other required documents to the
exchange agent at the address on the cover page of the
letter of transmittal. If you hold outstanding notes
through The Depository Trust Company and wish to
participate in the exchange offer, you must comply with
the Automated Tender Offer Program procedures of DTC, by
which you will agree to be bound by the letter of
transmittal.
By signing, or agreeing to be bound by, the letter of
transmittal, you will represent each of the following to
us:
- any exchange notes that you receive will be acquired
in the ordinary course of your business
- you have no arrangement or understanding with any
person or entity to participate in the distribution
of the exchange notes
- if you are a broker-dealer that will receive
exchange notes for your own account in exchange for
outstanding notes that were acquired as a result of
market-making or other trading activities, that you
will deliver a prospectus, as required by law, in
connection with any resale of the exchange notes
- you are not an "affiliate," as defined in Rule 405
of the Securities Act, of Boyds
Special Procedures for
Beneficial Owners............. If you are a beneficial owner of outstanding notes that
are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee, and you wish to
tender such outstanding notes in the exchange offer, you
should contact such registered holder promptly and
instruct such registered holder to tender on your behalf.
</TABLE>
8
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<TABLE>
<S> <C>
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding notes and your
outstanding notes are not immediately available, or prior
to the expiration date you cannot (1) deliver your
outstanding notes, the letter of transmittal or any other
documents required by the letter of transmittal or (2)
comply with the applicable procedures under DTC's
Automated Tender Offer Program, then you must tender your
outstanding notes according to the guaranteed delivery
procedures set forth in this prospectus under "The
Exchange Offer--Guaranteed Delivery Procedures."
U.S. Federal Income Tax
Considerations................ The exchange of the outstanding notes for the exchange
notes in the exchange offer will not be a taxable event
for U.S. federal income tax purposes. See "U.S. Federal
Tax Consequences of the Exchange of Notes."
Use of Proceeds................. We will not receive any cash proceeds from the issuance of
the exchange notes pursuant to the exchange offer.
Effect on Holders of Outstanding
Notes......................... As a result of the making of, and upon acceptance for
exchange of all validly tendered outstanding notes
pursuant to the terms of the exchange offer, we will have
fulfilled a covenant contained in the registration rights
agreement and, accordingly, there will not be an increase
in the interest rate on the outstanding notes under the
circumstances described in the registration rights
agreement. If you are a holder of outstanding notes and
you do not tender your outstanding notes in the exchange
offer, you will continue to hold such outstanding notes
and be entitled to all the rights and limitations
applicable to the outstanding notes in the indenture,
except for any rights under the registration rights
agreement that by their terms terminate upon the
consummation of the exchange offer.
To the extent that outstanding notes are tendered and
accepted in this exchange offer, the trading market for
the outstanding notes could be adversely affected.
Consequences of Failure to
Exchange...................... All untendered outstanding notes will continue to be
subject to the restrictions on transfer provided for in
the outstanding notes and in the indenture. In general,
unless registered under the Securities Act, the
outstanding notes may not be offered or sold, except
pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state
securities laws. Other than in connection with the
exchange offer, we do not currently anticipate that we
will register the outstanding notes under the Securities
Act.
Exchange Agent.................. The Bank of New York is the exchange agent for the
exchange offer. The address and telephone number of the
exchange agent are set forth in the section captioned
"Exchange Offer-- Exchange Agent" of this prospectus.
</TABLE>
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SUMMARY OF TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered.............. $99,000,000 aggregate principal amount of 9% Series B
Senior Subordinated Notes due 2008, which are referred to
in this prospectus as the exchange notes.
Maturity Date................... May 15, 2008.
Interest Payment Dates.......... Interest on the exchange notes will accrue at the rate of
9% per year, payable semi-annually in cash in arrears on
May 15 and November 15 of each year.
Optional Redemption............. At any time on or after May 15, 2003, Boyds may redeem the
exchange notes, in whole or in part, at the redemption
prices set forth on the exchange notes, plus accrued and
unpaid interest to the date of redemption. Notwithstanding
the prior sentence, at any time on or prior to May 15,
2001, Boyds may redeem, at its option, up to 40% of the
aggregate principal amount of the outstanding notes and
the exchange notes originally issued, in the aggregate, at
a redemption price equal to 109% of the principal amount
of such notes, plus accrued and unpaid interest, if any,
to the date of redemption with the net proceeds of one or
more equity offerings; PROVIDED that at least 60% in
aggregate principal amount of the outstanding notes and
the exchange notes originally issued, in the aggregate,
remains outstanding after each such redemption. On April
12, 1999, Boyds used the proceeds of its initial public
offering of its common stock to redeem 40% of the
aggregate principal amount of outstanding notes originally
issued. See "--The Recapitalization and Subsequent
Transactions" and "Description of the Exchange
Notes--Optional Redemption."
Ranking......................... The exchange notes will be general unsecured obligations
of Boyds, subordinated in right of payment to all existing
and future senior indebtedness of Boyds, including
indebtedness under the credit facility, and will be
effectively subordinated to all obligations of the
subsidiaries of Boyds, including Boyds L.P. The exchange
notes will rank evenly with any future senior subordinated
indebtedness of Boyds and will rank senior to all
subordinated indebtedness of Boyds. As of March 31, 1999,
the aggregate principal amount of senior indebtedness of
Boyds was approximately $175.0 million and Boyds had no
senior subordinated indebtedness outstanding other than
the outstanding notes. In addition, Boyds had additional
borrowing availability under its revolving credit facility
of approximately $40.0 million as of March 31, 1999,
subject to limitations. The Indenture will permit Boyds
and its subsidiaries to incur additional indebtedness,
including senior indebtedness, subject to limitations. See
"Description of the Notes--Certain Covenants" and
"Description of the Credit Facility."
</TABLE>
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<TABLE>
<S> <C>
Change of Control............... Upon the occurrence of a change of control, as defined in
the indenture, Boyds will have the option, at any time on
or prior to May 15, 2003, to redeem the exchange notes, in
whole but not in part, at a redemption price equal to 100%
of the aggregate principal amount of the exchange notes
plus the applicable premium, together with accrued and
unpaid interest, if any, to the date of redemption. Upon
the occurrence of a change of control, if Boyds does not
so redeem the exchange notes or if a change of control
occurs after May 15, 2003, Boyds will be required to make
an offer to purchase all of the outstanding exchange notes
at a price equal to 101% of the principal amount of the
exchange notes plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of the
Exchange Notes--Repurchase at the Option of
Holders--Change of Control."
Covenants....................... The indenture will contain covenants that, among other
things, will limit the ability of Boyds and its restricted
subsidiaries, as defined in the indenture, to:
- incur additional indebtedness
- repay other indebtedness
- pay dividends or make certain other distributions
- repurchase equity interests
- consummate asset sales
- enter into transactions with affiliates
- enter into sale and leaseback transactions
- incur liens
- merge or consolidate with any other person
- enter into guarantees of indebtedness
- sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the assets of
Boyds or a restricted subsidiary
See "Description of the Notes--Certain Covenants." In
addition, under certain circumstances, Boyds will be
required to make an offer to purchase the notes at a price
equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase, with
the proceeds of asset sales specified in the indenture.
See "Description of the Exchange Notes--Repurchase at the
Option of Holders--Asset Sales."
</TABLE>
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<TABLE>
<S> <C>
Absence of Public Market for the
Exchange Notes................ The exchange notes generally will be freely tradeable.
However, the exchange notes are new securities for which
there will not initially be a market. We can make no
assurances as to the development or liquidity of any
market for the exchange notes. We do not intend to list
the exchange notes on any national market. Although the
initial purchaser in the private offering of the
outstanding notes has advised us that it currently intends
to make a market in the exchange notes, it is not
obligated to do so, and any market making for the exchange
notes may be discontinued without notice.
</TABLE>
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the summary consolidated financial and other data below in
conjunction with the Consolidated Financial Statements and the Unaudited Pro
Forma Consolidated Condensed Financial Statements and the accompanying notes to
each, which are contained later in this prospectus. You should also read the
Selected Financial and Other Data and the accompanying Management's Discussion
and Analysis of Financial Condition and Results of Operations, also contained
later in this prospectus. The historical financial data for the three years
ended December 31, 1998 have been derived from the audited Consolidated
Financial Statements and the accompanying notes, which are contained later in
this prospectus. The historical financial data for the year ended December 31,
1995 have been derived from audited financial statements for such period, which
are not contained in this prospectus. The historical financial data for the year
ended December 31, 1994 have been derived from unaudited financial statements,
which are also not contained in this prospectus. The historical financial data
as of March 31, 1999 and for the three months ended March 31, 1998 and March 31,
1999 (a) have been derived from Unaudited Consolidated Financial Statements and
the accompanying notes, which are contained later in this prospectus and (b)
contain all normal recurring adjustments deemed necessary by our management. The
financial information for the three months ended March 31, 1999 is not
necessarily indicative of the results that can be expected for the full year.
The pro forma data as adjusted for the recapitalization and the initial public
offering have been derived from the Unaudited Pro Forma Consolidated Condensed
Financial Statements and the accompanying notes, which are contained later in
this prospectus.
Prior to the recapitalization on April 21, 1998, Boyds was operated as an S
Corporation for federal and state income tax purposes. As a result, Boyds'
taxable earnings were taxed directly to its then-existing stockholders. After
the recapitalization, Boyds became subject to federal and state income taxes.
The pro forma provision for income taxes, pro forma net income and pro forma
statement of income data assume that Boyds was subject to federal and state
income taxes and was taxed as a C Corporation at the effective tax rates that
would have applied for all periods. Pro forma statement of income data, as
adjusted for the recapitalization and the offering, also gives effect to the
recapitalization and the initial public offering as if they had occurred on
January 1, 1998. The balance sheet data, as adjusted for the initial offering,
give effect to the offering as if it had occurred on December 31, 1998.
In this prospectus, "EBITDA" represents earnings before interest expense,
interest income, income taxes and depreciation and amortization expense. EBITDA
is not intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be used as an alternative to net
income as an indicator of our operating performance or to cash flow as a measure
of liquidity. EBITDA margin represents EBITDA divided by net sales. EBITDA is
included in the prospectus as it is a basis upon which we assess our financial
performance, and covenants in our borrowing arrangements will be tied to similar
measures. EBITDA, EBITDA margin, the ratio of EBITDA to cash interest expense
and the ratio of EBITDA less capital expenditures to cash interest expense, each
as presented, represent useful measures of assessing our ongoing operating
activities without the impact of financing activities. While EBITDA is
frequently used as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to the potential inconsistencies in the method
of calculation.
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................................... $ 34,833 $ 70,147 $ 98,365 $ 129,841 $ 197,806
Cost of goods sold................................................ 12,450 24,221 33,022 43,278 63,852
--------- --------- --------- --------- ---------
Gross profit...................................................... 22,383 45,926 65,343 86,563 133,954
Selling, general and administrative expenses...................... 2,675 4,332 6,314 8,528 14,446
Other operating income, net....................................... 78 31 387 1,171 1,280
--------- --------- --------- --------- ---------
Income from operations............................................ 19,786 41,625 59,416 79,206 120,788
Interest expense.................................................. (39) (89) (187) (242) (29,618)
Other income (expense), net including $3,248 of other expenses in
1998 related to the recapitalization............................ 88 578 868 166 (2,885)
--------- --------- --------- --------- ---------
Income before provision for income taxes and extraordinary item... 19,835 42,114 60,097 79,130 88,285
Provision for income taxes........................................ -- -- -- -- 22,007
--------- --------- --------- --------- ---------
Income before extraordinary item.................................. 19,835 42,114 60,097 79,130 66,278
Extraordinary item--write off of deferred debt issuance
costs (net of $776 net tax benefit)............................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net income........................................................ $ 19,835 $ 42,114 $ 60,097 $ 79,130 $ 66,278
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma basic earnings per common share (1)..................... $ 0.07 $ 0.16 $ 0.22 $ 0.29 $ 0.64
Pro forma diluted earnings per common share (1)................... 0.07 0.16 0.22 0.29 0.63
PRO FORMA DATA, AS ADJUSTED FOR THE CHANGE TO A C CORPORATION
Historical income before income taxes and extraordinary item...... $ 19,835 $ 42,114 $ 60,097 $ 79,130 $ 88,285
Pro forma provision for income taxes.............................. 8,033 17,455 25,045 33,152 34,732
--------- --------- --------- --------- ---------
Pro forma income before extraordinary item........................ 11,802 24,659 35,052 45,978 53,553
Extraordinary item--write off of deferred debt issuance costs..... -- -- -- -- --
--------- --------- --------- --------- ---------
Pro forma net income.............................................. $ 11,802 $ 24,659 $ 35,052 $ 45,978 $ 53,553
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER DATA:
Cash flows from operating activities.............................. $ 17,637 $ 34,405 $ 60,030 $ 69,768 $ 82,624
Cash flows from investing activities.............................. (132) (505) (269) (292) (4,743)
Cash flows from financing activities.............................. (16,715) (31,249 (58,222) (64,349) (77,485)
EBITDA............................................................ 19,880 42,814 60,296 79,212 117,910
EBITDA margin..................................................... 57.1% 60.1% 61.3% 61.0% 59.6%
Gross profit margin............................................... 64.3% 65.5% 66.4% 66.7% 67.7%
Operating income margin........................................... 56.8% 59.3% 60.4% 61.0% 61.1%
Depreciation and amortization..................................... $ 46 $ 131 $ 221 $ 254 $ 2,260
Capital expenditures.............................................. 132 545 269 367 1,247
Ratio of earnings to fixed charges................................ 360.45 320.05 226.93 238.63 3.96
Ratio of EBITDA to cash interest expense.......................... 509.74 479.36 322.44 327.32 3.98
Ratio of EBITDA less capital expenditures to cash interest
expense......................................................... 506.36 473.17 321.00 325.81 3.94
PRO FORMA DATA, AS ADJUSTED FOR THE RECAPITALIZATION
AND THE INITIAL PUBLIC OFFERING:
Net income before extraordinary item.............................. $ 55,060
Interest expense.................................................. 26,740
Basic earnings per common share (1)............................... $ 0.90
Diluted earnings per common share (1)............................. 0.89
Ratio of earnings to fixed charges................................ 4.37
Ratio of EBITDA to cash interest expense.......................... 4.40
Ratio of EBITDA less capital expenditures to cash interest
expense......................................................... 4.36
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1999
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................................... $ 49,336 $ 57,185
Cost of goods sold................................................ 15,751 18,676
--------- ---------
Gross profit...................................................... 33,585 38,509
Selling, general and administrative expenses...................... 2,785 4,319
Other operating income, net....................................... 434 316
--------- ---------
Income from operations............................................ 31,234 34,506
Interest expense.................................................. (311) (8,242)
Other income (expense), net including $3,248 of other expenses in
1998 related to the recapitalization............................ 118 162
--------- ---------
Income before provision for income taxes and extraordinary item... 31,041 26,426
Provision for income taxes........................................ -- 9,513
--------- ---------
Income before extraordinary item.................................. 31,041 16,913
Extraordinary item--write off of deferred debt issuance
costs (net of $776 net tax benefit)............................. -- 1,380
--------- ---------
Net income........................................................ $ 31,041 $ 15,533
--------- ---------
--------- ---------
Pro forma basic earnings per common share (1)..................... $ 0.12 $ 0.28
Pro forma diluted earnings per common share (1)................... 0.12 0.28
PRO FORMA DATA, AS ADJUSTED FOR THE CHANGE TO A C CORPORATION
Historical income before income taxes and extraordinary item...... $ 31,041 $ 26,426
Pro forma provision for income taxes.............................. 12,845 9,513
--------- ---------
Pro forma income before extraordinary item........................ 18,196 16,913
Extraordinary item--write off of deferred debt issuance costs..... -- 1,380
--------- ---------
Pro forma net income.............................................. $ 18,196 $ 15,533
--------- ---------
--------- ---------
OTHER DATA:
Cash flows from operating activities.............................. $ 31,067 $ 21,925
Cash flows from investing activities.............................. (387) (742)
Cash flows from financing activities.............................. (30,000) 51,340
EBITDA............................................................ 31,297 34,611
EBITDA margin..................................................... 63.4% 60.5%
Gross profit margin............................................... 68.1% 67.3%
Operating income margin........................................... 63.3% 60.3%
Depreciation and amortization..................................... $ 63 $ 2,484
Capital expenditures.............................................. 387 742
Ratio of earnings to fixed charges................................ 89.18 4.19
Ratio of EBITDA to cash interest expense.......................... 100.63 4.20
Ratio of EBITDA less capital expenditures to cash interest
expense......................................................... 99.39 4.11
PRO FORMA DATA, AS ADJUSTED FOR THE RECAPITALIZATION
AND THE INITIAL PUBLIC OFFERING:
Net income before extraordinary item.............................. $ 18,631
Interest expense.................................................. 5,557
Basic earnings per common share (1)............................... $ 0.30
Diluted earnings per common share (1)............................. 0.30
Ratio of earnings to fixed charges................................ 6.21
Ratio of EBITDA to cash interest expense.......................... 6.23
Ratio of EBITDA less capital expenditures to cash interest
expense......................................................... 6.09
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................................................. $ 84,129
Working capital (excluding cash and cash equivalents).................................................. 22,453
Total assets........................................................................................... 371,923
Total debt............................................................................................. 340,000
Total stockholders' equity............................................................................. 11,107
</TABLE>
- ----------------------------------
(1) Pro forma basic earnings per common share is calculated based on weighted
average common shares outstanding of 157,671,516 for the four fiscal years
ended December 31, 1997 and the three months ended March 31, 1998,
84,142,163 for the fiscal year ended December 31, 1998 and 55,363,246 for
the three months ended March 31, 1999. Pro forma diluted earnings per common
share is calculated based on weighted average diluted shares outstanding of
84,484,571 for the year ended December 31, 1998 and 56,039,746 for the three
months ended March 31, 1999. Pro forma basic and diluted earnings per common
share, as adjusted for the recapitalization and the offering, is calculated
based on weighted average basic and diluted shares outstanding of 61,375,424
and 61,717,832, respectively, as of December 31, 1998, and 61,838,246 and
62,514,746, respectively, for the three months ended March 31, 1999.
14
<PAGE>
RISK FACTORS
BEFORE YOU DECIDE WHETHER TO TENDER OUTSTANDING NOTES FOR EXCHANGE NOTES,
YOU SHOULD BE AWARE OF VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU
SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE NOTES, THEN YOU WILL
REMAIN SUBJECT TO THE TRANSFER RESTRICTIONS ON THE OUTSTANDING NOTES.
If you do not exchange your outstanding notes for exchange notes under the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes as set forth in the offering memorandum
distributed in connection with the offering of the outstanding notes. In
general, the outstanding notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act. You should refer to "Prospectus Summary--Summary of Terms of the
Exchange Offer" and "The Exchange Offer" for information about how to tender
your outstanding notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE OUTSTANDING NOTES OR THE
EXCHANGE NOTES.
We now have, and after the exchange offering will continue to have, a
significant amount of indebtedness. As of March 31, 1999, we had approximately
$340.0 million of consolidated indebtedness, approximately $11.1 million of
consolidated stockholders' equity and $40.0 million available for additional
borrowings under our revolving credit facility. In addition, subject to the
applicable limitations in our credit facility and the indenture, we may incur
other indebtedness in the future.
Our substantial indebtedness could have important consequences to you,
including each of the following:
- increasing the difficulty of satisfying our obligations with respect to
the outstanding notes or the exchange notes
- limiting our flexibility to adjust to changing economic and market
conditions and make us more vulnerable to a downturn in our business or
industry or the economy in general
- requiring the dedication of a substantial portion of our cash flow from
operations to payment of the principal and interest on our indebtedness,
which reduces the availability of funds for our other general corporate
purposes
- placing us at a competitive disadvantage as compared to our competitors
that have less debt
- impairing our ability to borrow additional funds in the future for
acquisitions, working capital, capital expenditures or other purposes
- limiting the discretion of our management as a result of financial and
operating covenants in the instruments governing our indebtedness
- a significant portion of our indebtedness is, and will continue to be, at
variable rates of interest, which will expose us to the risk of higher
interest rates and could exacerbate the consequences of our leveraged
capital structure
In addition, all of the indebtedness under our credit facility will become
due prior to the payment of any principal amounts on the outstanding notes or
the exchange notes. For additional information regarding our indebtedness, see
"Prospectus Summary--Summary of Terms of the Exchange Notes," "Description of
the Credit Facility" and "Description of the Exchange Notes."
15
<PAGE>
IF WE ARE UNABLE TO GENERATE THE SIGNIFICANT AMOUNTS OF CASH REQUIRED TO SERVICE
OUR INDEBTEDNESS, OUR FINANCIAL CONDITION MAY BE IMPAIRED.
Our ability to make scheduled payments on our indebtedness will depend on
our future business performance and ability to generate significant amounts of
cash flow from our operations, which is subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond our control. We
cannot assure you that our business will generate sufficient cash flows to
service our substantial indebtedness or that future borrowings under our credit
facility will be available to enable the payment of our debt obligations,
including the outstanding notes or the exchange notes, or to fund our operating
expenses. Accordingly, we may need to refinance all or a portion of our
indebtedness prior to its maturity, restructure our business or sell assets.
However, such refinancings, restructurings, or sales may not be available on
commercially reasonable terms or at all.
BECAUSE YOUR RIGHT TO RECEIVE PAYMENTS ON THE OUTSTANDING NOTES AND THE EXCHANGE
NOTES IS JUNIOR TO OUR EXISTING INDEBTEDNESS AND POSSIBLY ALL FUTURE BORROWINGS,
YOU COULD RANK BEHIND MANY OF OUR OTHER CREDITORS IN ANY POTENTIAL BANKRUPTCY
PROCEEDINGS.
The outstanding notes and the exchange notes will rank behind all of our
existing indebtedness, other than trade payables, and all of our future
borrowings, other than trade payables, except any future indebtedness that
expressly provides that it ranks equal with, or subordinated in right of payment
to, such notes. As a result, upon any distribution to our creditors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or our property, the holders of our senior debt will be entitled to be paid in
full in cash before any payment may be made with respect to the outstanding
notes and the exchange notes.
In addition, all payments on the outstanding notes and the exchange notes
will be blocked in the event of a payment default on our senior debt and may be
blocked for up to 179 of 365 consecutive days in the event of specified
non-payment defaults on our senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us, holders of the outstanding notes and the exchange
notes will participate with trade creditors and all other holders of our
subordinated indebtedness in the assets remaining after we have paid all of our
senior debt. However, because the indenture requires that amounts otherwise
payable to holders of the outstanding notes and the exchange notes in a
bankruptcy or similar proceeding be paid to holders of senior debt instead,
holders of the outstanding notes and the exchange notes may receive less,
ratably, than holders of trade payables in any such proceeding. In any of these
cases, we may not have sufficient funds to pay all of our creditors and holders
of the outstanding notes and the exchange notes may receive less, ratably, than
the holders of our senior debt.
As of March 31, 1999, the aggregate amount of debt that ranks ahead of the
outstanding notes and the exchange notes, including borrowings under our credit
facility, was approximately $175.0 million. Our indenture and our credit
facility will permit us to incur substantial additional debt, including debt
that ranks ahead of the outstanding notes and the exchange notes. If new debt is
added to our current debt levels, the related risks that we now face could
intensify.
BECAUSE WE ARE A HOLDING COMPANY, YOUR RIGHT TO RECEIVE PAYMENT ON THE
OUTSTANDING NOTES AND THE EXCHANGE NOTES IS DEPENDENT UPON OUR ABILITY TO
RECEIVE DIVIDENDS AND DISTRIBUTIONS FROM OUR SUBSIDIARIES.
We are a holding company with no significant assets other than our
investments in our subsidiaries. Accordingly, we must rely entirely upon
distributions from our subsidiaries to generate the funds necessary to meet our
obligations, including the payment of principal and interest on the outstanding
notes and the exchange notes. Their ability to make distributions to us will
depend upon their operating results. In addition, none of our subsidiaries has
guaranteed our obligations to make
16
<PAGE>
payments on the outstanding notes and the exchange notes. In the event of a
bankruptcy, liquidation or reorganization of any of our subsidiaries, their
creditors will generally be entitled to payment of their claims from the assets
of such subsidiaries before any assets are made available for a distribution to
us for any purpose, including payments on the exchange notes. Also in the event
of a bankruptcy, liquidation or reorganization of any of our subsidiaries, we
and our creditors, including the holders of the outstanding notes and the
exchange notes, and stockholders will have no right to proceed against the
assets of our subsidiaries or to cause the liquidation or bankruptcy of such
subsidiaries under federal bankruptcy laws.
BECAUSE THE SENIOR LENDERS HAVE A SECURITY INTEREST IN THE CAPITAL STOCK OF OUR
PRIMARY OPERATING SUBSIDIARY, THE INTERESTS OF THE HOLDERS OF THE OUTSTANDING
NOTES AND THE EXCHANGE NOTES IN THIS SUBSIDIARY'S ASSETS WILL BE JUNIOR TO THE
SENIOR LENDERS' INTEREST AS SECURED CREDITORS.
The outstanding notes and the exchange notes will not be secured by any of
our assets. However, our obligations under our credit facility are secured by a
first priority security interest in the capital stock of The Boyds Collection,
Ltd., L.P., our primary operating subsidiary. If we become insolvent or are
liquidated, or if payment under our credit facility is accelerated, the lenders
under our credit facility would be entitled to exercise the remedies available
to a secured lender. Accordingly, these lenders will have a prior claim on the
assets of Boyds L.P. In any such event, because the outstanding notes and the
exchange notes will not be secured by any of our assets, it is possible that
there would be no assets remaining from which claims of the holders of the
outstanding notes and the exchange notes could be satisfied or, if any assets
remained, they might be insufficient to satisfy such claims fully.
IF WE EXPERIENCE A CHANGE IN CONTROL, WE MAY NOT HAVE THE ABILITY TO FUND OR
UNDERTAKE THE CHANGE OF CONTROL OFFER FOR THE OUTSTANDING NOTES AND THE
EXCHANGES NOTES THAT IS REQUIRED IN THE INDENTURE OR MAKE OTHER PAYMENTS TO THE
HOLDERS OF THE OUTSTANDING NOTES AND THE EXCHANGE NOTES.
Upon a change in our control, unless we elect to redeem the outstanding
notes and the exchange notes prior to 2003, we will be required to offer to
repurchase all outstanding exchange notes and outstanding notes at 101% of the
principal amount of such notes plus accrued and unpaid interest to the date of
repurchase. However, our credit facility prohibits us from repurchasing the
outstanding notes and the exchange notes under specified circumstances without
the consent of the lenders under this facility, and any future senior debt
facility we may enter into could contain similar restrictions. We cannot assure
you that we would be able to obtain the consent of our senior lenders to the
repurchase of the outstanding notes and the exchange notes. In addition, a
change of control may cause an event of default under our credit facility, in
which case the subordination provisions of the Indenture may restrict payments
to the holders of the outstanding notes and the exchange notes. In any event, we
also cannot assure you that we will have sufficient funds at the time of any
change of control to make any required repurchase of the outstanding notes and
the exchange notes.
FEDERAL BANKRUPTCY LAWS AND STATE FRAUDULENT TRANSFER LAWS COULD ALLOW A FEDERAL
OR STATE COURT TO LIMIT PAYMENTS TO HOLDERS OF THE OUTSTANDING NOTES AND THE
EXCHANGE NOTES OR FURTHER SUBORDINATE OUR OBLIGATIONS TO SUCH HOLDERS.
Under applicable provisions of the United States Bankruptcy code or
comparable provisions of state fraudulent transfer or conveyance law, a federal
or state court could significantly limit our obligations to the holders of the
outstanding notes and the exchange notes if the court determines we did either
of the following when we issued the outstanding notes or the exchange notes:
- incurred the indebtedness associated with the outstanding notes and the
exchange notes to hinder, delay or defraud our creditors
17
<PAGE>
- received less than a reasonably equivalent value or fair consideration for
the outstanding notes and the exchange notes and any of the following
applied: (1) we were insolvent at the time of incurring the indebtedness
associated with the outstanding notes and the exchange notes, (2) we were
rendered insolvent by the incurrence of the outstanding notes or the
exchange notes indebtedness, (3) we were engaged in a business or
transaction in which our remaining assets constituted unreasonably small
capital to carry on our business or (4) we intended to incur debts beyond
our ability to pay such debts as they matured.
If the court determined that the circumstances discussed above were present,
then the court could void, in whole or in part, our obligations to the holders
of the outstanding notes and the exchange notes or subordinate our obligations
to such holders to other of our existing or future indebtedness. Our management
believes that the indebtedness represented by the outstanding notes and the
exchange notes was and is being incurred for proper purposes and in good faith,
and that, based upon present forecasts, asset valuations and other financial
information, we were and will be solvent after issuing the outstanding notes and
the exchange notes, respectively, and will have sufficient capital for carrying
on our business and paying off our debts as they mature.
IF WE ARE NOT ABLE TO GROW OUR BUSINESS AS PLANNED, OUR SALES GROWTH AND
EARNINGS COULD BE DIMINISHED.
We intend to continue to pursue a business strategy of increasing sales and
earnings by expanding our existing brands and distribution channels. Our ability
to implement this growth strategy successfully will be in part dependent on
factors beyond our control. These factors include prevailing economic
conditions, changes in consumer preferences and changes in our competitive
environment.
Our ability to anticipate changes in the collectibles market and identify
industry trends will be a critical factor in our ability to grow and remain
competitive. We will also need to successfully develop and introduce new
products on a timely basis. Our new products may not be completed on a timely
basis and may not enjoy market acceptance following their introduction. In
addition, we may not be able to accurately predict the anticipated development
schedules for new or refreshed products and product lines.
THE LOSS OF EITHER OF OUR TWO INDEPENDENT BUYING AGENCIES OR ANY OF OUR
MANUFACTURING SOURCES COULD DISRUPT OUR BUSINESS.
Substantially all of the products that we sell are purchased through two
independent buying agencies. One buying agency is located in Hong Kong, and the
other buying agency is located in the United States. These two buying agencies,
which contract with a total of 19 independent manufacturers, account for
approximately 91% of our total imports. These two buying agencies also perform a
number of functions for us, including collaborating in our product design and
development process. As a result, we are substantially dependent on these buying
agencies and the manufacturers with which they contract. We do not have
long-term contracts with either of our primary buying agencies. We believe that
the loss of either of our primary buying agencies would:
- have a material adverse effect on our financial condition and results of
operations
- cause disruptions in our orders
- affect the quality of our products
- possibly require us to select alternative manufacturers
BECAUSE ALL OF OUR SIGNIFICANT MANUFACTURERS ARE LOCATED IN CHINA, OUR BUSINESS
IS EXPOSED TO POTENTIAL ECONOMIC AND POLITICAL RISKS.
All of our significant manufacturers are located in China. Although we have
identified alternate manufacturers which could meet our quality and reliability
standards at similar costs in China and in other countries, the loss of any one
or more of our manufacturers could have a material adverse effect on our
business.
18
<PAGE>
Because we rely primarily on Chinese manufacturers, we are subject to the
following risks that could restrict our manufacturers' ability to make our
products or increase our manufacturing costs:
- economic and political instability in China
- transportation delays
- restrictive actions by the Chinese government
- the laws and policies of the United States affecting importation of goods,
including duties, quotas and taxes
- Chinese trade and tax laws
In particular, we could be adversely affected if the Chinese renminbi
appreciates significantly relative to the United States dollar. This is because
the cost of our products fluctuates with the value of the Chinese renminbi.
BECAUSE WE ARE CONTROLLED BY KKR, OTHER STOCKHOLDERS HAVE A REDUCED ABILITY TO
INFLUENCE OUR BUSINESS.
At May 28, 1999, KKR 1996 Fund L.P. and KKR Partners II, L.P. together owned
approximately 56% of our outstanding common stock on a fully diluted basis.
These affiliates of KKR currently control us and are able to:
- elect our entire Board of Directors
- control our management and policies
- determine, without the consent of our other stockholders, the outcome of
any corporate transaction or other matter submitted to our stockholders
for approval, including mergers, consolidations and the sale of all or
substantially all of our assets
Affiliates of KKR are able to prevent or cause a change in control of us and
will be able to amend our bylaws at any time. The interests of KKR may also
conflict with the interests of the holders of the outstanding notes and the
exchange notes.
BECAUSE WE IMPORT SUBSTANTIALLY ALL OF OUR PRODUCTS, OUR BUSINESS IS SUBJECT TO
POTENTIAL ADVERSE TRADE REGULATIONS AND RESTRICTIONS.
We do not own or operate any manufacturing facilities. Instead, we import
substantially all of our retail products from independent foreign manufacturers,
located primarily in China. As a result, substantially all of our products are
subject to United States Customs Service duties and regulations. These
regulations include requirements that we disclose information regarding the
country of origin on our products, such as "Handmade in China." Within its
discretion, the United States Customs Service may also set new regulations
regarding the amount of duty to be paid, the value of merchandise to be reported
or other customs regulations relating to our imported products. Failure to
comply with these regulations may result in the imposition of additional duties
or penalties or forfeiture of merchandise.
The countries in which our products are manufactured may impose new quotas,
duties, tariffs or other charges or restrictions. This could adversely affect
our financial condition, results of operations or our ability to continue to
import products at current or increased levels. In particular, our costs could
increase, or the mix of countries from which we import our products may be
changed, if the Generalized System of Preferences program is not renewed or
extended each year. The Generalized System of Preferences allows selected
products of beneficiary countries to enter the United States duty free. In
addition, if countries that are currently accorded "Most Favored Nation" status
by the United States, such as China, cease to have such status, we could be
adversely affected. We cannot predict
19
<PAGE>
what regulatory changes may occur or the type or amount of any financial impact
these changes may have on us in the future.
IF CONSUMERS DO NOT ACCEPT OUR NEW PRODUCTS, OUR RESULTS OF OPERATIONS MAY BE
IMPAIRED.
The demand for our products may be quickly affected by changing consumer
tastes and interests. Our results of operations depend substantially upon our
ability to continue to conceive, design, source and market new pieces and upon
continuing market acceptance of our existing and future product lines. If we
fail or are significantly delayed in introducing new pieces to our existing
product lines or creating new product line concepts or if our new products do
not meet with market acceptance, our results of operations may be impaired. A
number of companies who participate in the giftware and collectibles industries
are part of large, diversified companies that have greater financial resources
than us and offer a wider range of products and may be less affected by changing
consumer tastes.
THE LOSS OF ANY MEMBER OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR
BUSINESS.
Our success is substantially dependent upon the retention of our executive
officers, including Gary M. Lowenthal, our founder, chairman and chief executive
officer. We believe that each of our executive officers is a key employee for
our business. However, we do not have employment agreements with any of our
executive officers. If any of our executive officers becomes unable or unwilling
to participate in our business and operations, our future business and
operations could be materially and adversely affected.
BECAUSE WE BELIEVE OUR INTELLECTUAL PROPERTY IS MATERIAL TO OUR SUCCESS,
INFRINGEMENT OR LEGAL ACTIONS RELATED TO OUR INTELLECTUAL PROPERTY COULD
ADVERSELY IMPACT OUR FINANCIAL CONDITION.
We believe that our trademarks and other proprietary rights are material to
our success and competitive position. Accordingly, we devote resources to the
establishment and protection of our intellectual property on a worldwide basis.
The actions we take to establish and protect our trademarks and other
proprietary rights may not be adequate to protect our intellectual property or
to prevent imitation of our products by others. Moreover, while we have not
experienced any proprietary license infringements or legal actions that have had
a material impact on our financial condition or results of operations, other
persons have and will likely in the future assert rights in, or ownership of,
our trademarks and other proprietary rights. We may not be able to successfully
resolve such conflicts. In addition, the laws of foreign countries may not
always protect intellectual property to the same extent as do the laws of the
United States. See "Business--Boyds' Intellectual Property."
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE EXCHANGE
NOTES.
We do not intend to apply for a listing of the exchange notes on a
securities exchange. There is currently no established market for the exchange
notes, and we cannot assure you of any of the following:
- the liquidity of any market that may develop for the exchange notes
- the ability of holders of exchange notes to sell their exchange notes
- the price at which holders of exchange notes will be able to sell their
exchange notes
Although the initial purchaser of the outstanding notes has advised us that
it currently intends to make a market for the exchange notes, the initial
purchaser is not obligated to do so, and it may discontinue its market making at
any time without notice to the holders of the exchange notes. If a market for
the exchange notes does develop, prevailing interest rates, the markets for
similar securities and other factors could cause the exchange notes to trade at
prices lower than their initial market values or reduce the liquidity of the
exchange notes.
20
<PAGE>
WE MAY BE ADVERSELY AFFECTED BY THE YEAR 2000 PROBLEM.
We believe we have replaced all of our systems that are not Year 2000
compliant. However, if any of our systems are not compliant or if our customers,
buying agencies, manufacturers or shippers fail to achieve Year 2000 compliance,
we may experience the following adverse consequences:
- We may be unable to receive our products due to failures by our
manufacturers, buying agencies or shippers
- Our customers may be unable to place orders with us due either to our
system failures or those of our customers
- We may be unable to deliver our products on a timely basis
For a description of our Year 2000 compliance efforts you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS WHICH COULD DIFFER FROM
ACTUAL FUTURE RESULTS.
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Unaudited Pro Forma Consolidated Financial Statements" and elsewhere
in this prospectus include forward-looking statements. Statements that are
predictive in nature, that depend upon or refer to future events or conditions
or that include words such as "expects," "anticipates," "intends," "plans,"
"believes," "estimates" and similar expressions are forward-looking statements.
Although we believe that these statements are based upon reasonable assumptions,
we can give no assurance that our goals will be achieved. These forward-looking
statements are made as of the date of this prospectus, and we assume no
obligation to update them or the reasons why actual results may differ.
21
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the issuance of the exchange notes in
exchange for the outstanding notes tendered pursuant to the exchange offer. In
consideration for the issuance of the exchange notes as contemplated by this
prospectus, we will receive in exchange an identical principal amount of
outstanding notes, which have terms substantially identical to the exchange
notes. We will retire and cancel all of the outstanding notes surrendered in
exchange for the exchange notes, and such outstanding notes may not be reissued.
We used the $165.0 million principal amount of proceeds from the issuance of
the outstanding notes, together with borrowings under our revolving credit
facility, to redeem shares of our common stock in the recapitalization and pay
related transaction fees and expenses. See "Prospectus Summary-- The
Recapitalization and Subsequent Transactions."
CAPITALIZATION
The following table sets forth our debt and capitalization at March 31, 1999
and should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements and the accompanying notes to each, which are contained
later in this prospectus:
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Total debt:
Revolver.................................................................................. $ --(1)
Term Loan A............................................................................... 88,250
Term Loan B............................................................................... 86,750(2)
9% Senior Subordinated Notes.............................................................. 165,000(3)
--------
Total debt.............................................................................. $ 340,000
Total stockholders' equity (deficit)........................................................ 11,107(4)
--------
Total capitalization.................................................................... $ 351,107
--------
--------
</TABLE>
- ------------------------
(1) As of June 15, 1999, we had drawn approximately $4,000 in connection with
the share repurchase program approved by our Board of Directors on May 28,
1999.
(2) On April 21, 1999 we repaid $10,000 of Term Loan B.
(3) We redeemed $66,000 principal amount of the 9% Senior Subordinated Notes on
April 12, 1999.
(4) As of June 15, 1999, we had repurchased 737,000 shares of our common stock
pursuant to our stock repurchase program for an aggregate amount of
approximately $9,500.
22
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected historical financial and other data
about us. The historical financial data as of December 31, 1997 and 1998 and for
the three years ended December 31, 1998 have been derived from, and should be
read in conjunction with, the audited Consolidated Financial Statements and the
accompanying notes, which are contained later in this prospectus. The historical
financial data as of December 31, 1995 and 1996 and for the year ended December
31, 1995 have been derived from audited financial statements for such periods,
which are not contained in this prospectus. The historical data as of and for
the year ended December 31, 1994 have been derived from unaudited financial
statements which are not contained in this prospectus. The historical financial
data as of March 31, 1999 and for the three months ended March 31, 1998 and
March 31, 1999 (a) have been derived from Unaudited Consolidated Financial
Statements and the accompanying notes, which are contained later in this
prospectus and (b) contain all normal recurring adjustments deemed necessary by
our management. The financial information for the three months ended March 31,
1999 is not necessarily indicative of the results that can be expected for the
full year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and the
accompanying notes, which are contained later in this prospectus.
Prior to the recapitalization on April 21, 1998, we were operated as an S
Corporation for federal and state income tax purposes. As a result, our taxable
earnings were taxed directly to our then-existing stockholders. After the
recapitalization, we became subject to federal and state income taxes. The pro
forma provision for income taxes and pro forma net income assume that we were
subject to federal and state income taxes and were taxed as a C Corporation at
the effective tax rates that would have applied for all periods.
In this prospectus, "EBITDA" represents earnings before interest expense,
interest income, income taxes, and depreciation and amortization expense. EBITDA
is not intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be used as an alternative to net
income as an indicator of our operating performance or to cash flow as a measure
of liquidity. EBITDA margin represents EBITDA divided by net sales. EBITDA is
included in the prospectus as it is a basis upon which we assess our financial
performance, and covenants in our borrowing arrangements will be tied to similar
measures. EBITDA and EBITDA margin, the ratio of EBITDA to cash interest expense
and the ratio of EBITDA less capital expenditures to cash interest expense, each
as presented, represent useful measures of assessing our ongoing operating
activities without the impact of financing activities. While EBITDA is
frequently used as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to the potential inconsistencies in the method
of calculation.
23
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................................... $ 34,833 $ 70,147 $ 98,365 $ 129,841 $ 197,806 $ 49,336 $ 57,185
Cost of goods sold................................ 12,450 24,221 33,022 43,278 63,852 15,751 18,676
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 22,383 45,926 65,343 86,563 133,954 33,585 38,509
Selling, general and administrative expenses...... 2,675 4,332 6,314 8,528 14,446 2,785 4,319
Other operating income, net....................... 78 31 387 1,171 1,280 434 316
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................ 19,786 41,625 59,416 79,206 120,788 31,234 34,506
Interest expense.................................. (39) (89) (187) (242) (29,618) (311) (8,242)
Other income (expense), net including $3,248 of
other expenses in 1998 related to the
recapitalization................................ 88 578 868 166 (2,885) 118 162
--------- --------- --------- --------- --------- --------- ---------
Income before provision for income taxes and
extraordinary item.............................. 19,835 42,114 60,097 79,130 88,285 31,041 26,426
Provision for income taxes........................ -- -- -- -- 22,007 -- 9,513
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item.................. 19,835 42,114 60,097 79,130 66,278 31,041 16,913
Extraordinary item--write off of deferred debt
issuance costs (net of $776 net tax benefit).... -- -- -- -- -- -- 1,380
--------- --------- --------- --------- --------- --------- ---------
Net income........................................ $ 19,835 $ 42,114 $ 60,097 $ 79,130 $ 66,278 $ 31,041 $ 15,533
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma basic earnings per common share (1)..... $ 0.07 $ 0.16 $ 0.22 $ 0.29 $ 0.64 $ 0.12 $ 0.28
Pro forma diluted earnings per common
share (1)....................................... 0.07 0.16 0.22 0.29 0.63 0.12 0.28
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA DATA, AS ADJUSTED FOR THE CHANGE
TO A C CORPORATION:
Historical income before income taxes and
extraordinary item.............................. $ 19,835 $ 42,114 $ 60,097 $ 79,130 $ 88,285 $ 31,041 $ 26,426
Pro forma provision for income taxes.............. 8,033 17,455 25,045 33,152 34,732 12,845 9,513
--------- --------- --------- --------- --------- --------- ---------
Pro forma income before extraordinary item........ 11,802 24,659 35,052 45,978 53,553 18,196 16,913
Extraordinary item--write off of deferred debt
issuance costs.................................. -- -- -- -- -- -- 1,380
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income.............................. $ 11,802 $ 24,659 $ 35,052 $ 45,978 $ 53,553 $ 18,196 $ 15,533
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Cash flows from operating activities.............. $ 17,637 $ 34,405 $ 60,030 $ 69,768 $ 82,624 $ 31,067 $ 21,925
Cash flows from investing activities.............. (132) (505) (269) (292) (4,743) (387) (142)
Cash flows from financing activities.............. (16,715) (31,249) (58,222) (64,349) (77,485) (30,000) 51,340
EBITDA............................................ 19,880 42,184 60,296 79,212 117,910 31,297 34,611
EBITDA margin..................................... 57.1% 60.1% 61.3% 61.0% 59.6% 63.4% 60.5%
Gross profit margin............................... 64.3% 65.5% 66.4% 66.7% 67.7% 68.1% 67.3%
Operating income margin........................... 56.8% 59.3% 60.4% 61.0% 61.1% 63.3% 60.3%
Depreciation and amortization..................... $ 46 $ 131 $ 221 $ 254 $ 2,260 $ 63 $ 2,484
Capital expenditures.............................. 132 545 269 367 1,247 387 742
Ratio of earnings to fixed charges................ 360.45 320.05 226.93 238.63 3.96 89.18 4.19
Ratio of EBITDA to cash interest expense.......... 509.74 479.36 322.44 327.32 3.98 100.63 4.20
Ratio of EBITDA less capital expenditures to cash
interest expense................................ 506.36 473.17 321.00 325.81 3.94 99.39 4.11
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 1,700 $ 4,279 $ 6,083 $ 11,210 $ 11,606
Working capital (excluding cash and cash equivalents)....................... 5,856 13,384 13,250 23,398 22,262
Total assets................................................................ 8,526 19,943 22,582 38,936 298,410
Total debt.................................................................. 7,500 17,700 19,300 30,000 443,000
Total stockholders' equity (deficit)........................................ 250 916 1,191 5,272 (158,766)
<CAPTION>
AS OF MARCH
31,
-----------
1999
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 84,129
Working capital (excluding cash and cash equivalents)....................... 22,453
Total assets................................................................ 371,923
Total debt.................................................................. 340,000
Total stockholders' equity (deficit)........................................ 11,107
</TABLE>
- ------------------------------
(1) Pro forma basic earnings per common share is calculated based on weighted
average common shares outstanding of 157,671,516 for the four fiscal years
ended December 31, 1997 and the three months ended March 31, 1998,
84,142,163 for the fiscal year ended December 31, 1998 and 55,363,246 for
the three months ended March 31, 1999. Pro forma diluted earnings per common
share is calculated based on weighted average diluted shares outstanding of
84,484,571 for the year ended December 31, 1998 and 56,039,746 for the three
months ended March 31, 1999. Pro forma basic and diluted earnings per common
share, as adjusted for the recapitalization and the offering, is calculated
based on weighted average basic and diluted shares outstanding of 61,375,424
and 61,717,832, respectively, as of December 31, 1998, and 61,838,246 and
62,514,746, respectively, for the three months ended March 31, 1999.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Boyds has grown significantly to become a leading domestic designer,
importer and distributor of branded, high-quality, hand-crafted collectibles and
other specialty giftware products. Boyds' products include resin figurines,
plush animals, porcelain dolls and boxes and related clothing and accessories.
Boyds sells its products through an extensive network of approximately 19,950
accounts comprised of independent gift and collectibles retailers, premier
department stores, selected catalogue retailers and other electronic and retail
channels.
Boyds' resin figurine and plush animal sales accounted for 86.5% of first
quarter 1999 net sales with other product sales, freight sales, collectors club
sales and distributor sales comprising the remainder. Freight sales represent
shipping and handling charges assessed on each order based on order size.
Collectors club sales are generated from annual dues collected directly from
consumers who become members of Boyds' collectors club, THE LOYAL ORDER OF
FRIENDS OF BOYDS, which began in July 1996 and currently has approximately
120,000 paying members. Distributor sales represent sales of Boyds' products to
independent distributors in other countries and to certain accounts in the U.S.,
which are shipped directly from overseas suppliers.
Selling, general and administrative expenses are comprised of overhead,
selling and marketing costs, administration, professional fees and Pennsylvania
capital stock taxes. Boyds exhibits its products at many national and regional
tradeshows where orders are taken by Boyds' employees and part-time help. Boyds
operates almost exclusively out of a leased office/distribution facility in
McSherrystown, Pennsylvania where it believes both labor and rental costs are
attractive. These factors, combined with Boyds' access to low-cost manufacturing
sources located primarily in China, have resulted in an operating income margin
that Boyds believes is among the highest in the industry.
Boyds licenses its product designs to other companies for products including
stationery, greeting cards and home textiles. Boyds believes such licensing, in
addition to providing royalty income, helps to increase consumer awareness of
Boyds' designs and brand image. Boyds reports royalty income as other operating
income.
Boyds' operating income margins have increased from 56.8% in fiscal 1994 to
61.1% for fiscal 1998, and its EBITDA margins have increased from 57.1% in
fiscal 1994 to 59.6% for fiscal 1998. Historically, Boyds has funded its cash
needs from operations and has not found it necessary to make substantial capital
investments.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the components of net income and earnings
before interest expense, interest income, income taxes and depreciation and
amortization expense, or EBITDA, as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........................................................ 66.4 66.7 67.7 68.1 67.3
Selling, general and administrative expenses........................ 6.4 6.6 7.3 5.7 7.6
Other operating income.............................................. 0.4 0.9 0.7 0.9 0.6
--------- --------- --------- --------- ---------
Income from operations............................................ 60.4 61.0 61.1 63.3 60.3
--------- --------- --------- --------- ---------
Other income........................................................ 0.9 0.1 (0.1) 0.2 0.3
Interest expense.................................................... (0.2) (0.2) 15.0 0.6 14.4
Expenses related to the recapitalization............................ -- -- 1.6 -- --
Provision for income taxes.......................................... -- -- 11.1 -- 16.6
--------- --------- --------- --------- ---------
Income before extraordinary item.................................. 61.1 60.9 33.5 62.9 29.6
--------- --------- --------- --------- ---------
Extraordinary item (net of $776 tax benefit)........................ -- -- -- -- 2.4
--------- --------- --------- --------- ---------
Net income........................................................ 61.1% 60.9% 33.5% 62.9% 27.2%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EBITDA............................................................ 61.3% 61.0% 59.6% 63.4% 60.5%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 VS. THREE MONTHS ENDED MARCH 31, 1998
NET SALES. Net sales increased $7.8 million or 15.9% to $57.2 million in
the first quarter of 1999 from $49.3 million for the first quarter of 1998.
Sales of Boyds' resin figurines increased $0.9 million, or 4.0%, while sales of
plush products increased $5.4 million, or 26.1%, in a quarter-over-quarter
comparison. Resin figurines and plush products represented 41% and 46%,
respectively, of Boyds' net sales during the first quarter of 1999. The variance
between plush and resin product sales growth is primarily attributable to timing
differences in merchandise available to ship. First quarter 1998 sales of resin
were unusually high and plush was below normal. First quarter 1999 sales of
resin and plush categories more closely reflect the full year product mix Boyds
generated in 1998.
GROSS PROFIT. Gross profit increased $4.9 million, or 14.7%, to $38.5
million in the first quarter of 1999 from $33.6 million for the first quarter of
1998. Gross profit as a percent of sales decreased to 67.3% for the period from
68.1% for the same period in 1998. The dollar increase in gross profit was
primarily attributable to the increase in sales volume. The decrease in gross
profit as a percent of sales was primarily attributable to increased warehousing
costs due to higher inventory levels needed to satisfy customer demand.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased $1.5
million, or 55.1%, to $4.3 million in the first quarter of 1999 from $2.8
million for the first quarter of 1998. SG&A expenses as a percent of sales
increased to 7.6% for the period from 5.7% for the same period in 1998. The
dollar increase in SG&A expenses, and the increase in SG&A expenses as a percent
of sales, was primarily attributable to increased administrative costs,
including increased wages incurred by adding additional management and the cost
of additional directors and officers insurance as a result of the initial public
offering.
INCOME FROM OPERATIONS. Income from operations increased $3.3 million, or
10.5%, to $34.5 million in the first quarter of 1999 from $31.2 million for the
first quarter of 1998. The operating income margin decreased to 60.3% for the
period from 63.3% for the same period in 1998. The dollar increase in income
from operations was primarily attributable to the increase in net sales for the
26
<PAGE>
period. The decrease in operating income margin was due to a decrease in gross
profit margin and an increase in SG&A expenses as a percent of sales for the
period.
INTEREST EXPENSE. Interest expense increased to $8.2 million in the first
quarter of 1999 from $0.3 million in the first quarter of 1998. This increase
was due to the debt incurred in connection with the Recapitalization which took
place in April, 1998.
INCOME TAXES. The $9.5 million charge for the first quarter of 1999
compares with zero for the first quarter of 1998, reflecting the change in
Boyds' tax status from an S Corporation to a C Corporation.
EXTRAORDINARY ITEM. An extraordinary item of $1.4 million, net of tax, for
the amortization of deferred debt issuance costs related to the early paydown of
$82.5 million of long term debt with the proceeds of the I.P.O. was incurred in
the first quarter of 1999.
NET INCOME. Net income decreased 50.0% to $15.5 million in the first
quarter of 1999 from $31.0 million in the first quarter of 1998. The decrease in
net income was attributable to $19.0 million of additional costs in 1999 that
did not occur in 1998, including:
- interest expense of $7.9 million
- income tax expense of $8.7 million due to Boyds becoming a tax paying
entity
- $2.3 million of expenses related to the amortization of deferred debt
issuance costs relating to the early paydown of $82.5 million of long-term
debt from the proceeds of the I.P.O.
The net income margin decreased to 27.2% in the first quarter of 1999 from 62.9%
in the first quarter of 1998. The decrease in net income margin was attributable
to the tax and interest expenses as discussed above.
EBITDA. EBITDA increased $3.3 million, or 10.6%, to $34.6 million in the
first quarter of 1999 from $31.3 million for the first quarter of 1998. The
EBITDA margin decreased to 60.5% for the period from 63.4% for the same period
in 1998. The dollar increase in EBITDA was primarily attributable to the
increase in net sales for the period. The decrease in EBITDA margin was due to a
decrease in gross profit margin and an increase in SG&A expenses as a percent of
sales for the period.
FISCAL YEAR ENDED DECEMBER 31, 1998 VS. FISCAL YEAR ENDED DECEMBER 31, 1997
NET SALES. Net sales increased 52.4% to $197.8 million in fiscal 1998 from
$129.8 million in fiscal 1997. Net sales of resin figurines were $80.2 million
in fiscal 1998, an increase of 46.1% as compared to resin figurine net sales of
$54.9 million in fiscal 1997. The increase in net sales of resin figurines was
primarily attributable to increased sales of BEARSTONES, FOLKSTONES and
Porcelain Dolls, which resulted from strong consumer and retailer demand, and
the introduction of CARVERS CHOICE. Net sales of plush animals were $93.4
million in fiscal 1998, an increase of 60.8% as compared to plush animal net
sales of $58.1 million in fiscal 1997. The increase in net sales of plush
animals was primarily attributable to increased sales of T.J.'S BEST DRESSED,
along with sales of T.F. WUZZIES mini-bears and MOHAIR BEARS, which were
introduced in the fall of 1997.
GROSS PROFIT. Gross profit increased 54.7% to $134 million in fiscal 1998
from $86.6 million in fiscal 1997. Gross profit as a percent of sales increased
to 67.7% for fiscal 1998 from 66.7% for fiscal 1997. The increase in gross
profit was primarily attributable to the increase in sales for both the plush
animal and resin figurine categories for fiscal 1998 as compared to fiscal 1997.
SG&A. SG&A expenses increased 69.4% to $14.4 million in fiscal 1998 from
$8.5 million in fiscal 1997. SG&A expenses as a percent of net sales increased
to 7.3% in fiscal 1998 from 6.6% in fiscal 1997. The increase in SG&A expenses
was primarily attributable to increased administrative costs due to Boyds' net
sales increase during the periods. The increase in SG&A expenses as a percent of
net
27
<PAGE>
sales was attributable to increased wages of $750,000 incurred due to an
increased provision for Boyds' employee incentive program and an increase in
professional fees of $1.5 million.
INCOME FROM OPERATIONS. Income from operations increased 52.5% to $120.8
million in fiscal 1998 from $79.2 million in fiscal 1997. The operating income
margin increased to 61.1% in fiscal 1998 from 61.0% in fiscal 1997. The increase
in operating income margin was due to an increase in net sales for the period.
The increase in income from operations was primarily attributable to the
increase in net sales for the period.
INTEREST EXPENSE. Interest expense increased to $29.6 million in fiscal
1998 from $242,000 in fiscal 1997. The increase in interest expense was due to
indebtedness incurred in connection with the recapitalization.
EXPENSES RELATED TO THE RECAPITALIZATION. Transaction costs for fiscal 1998
were $3.2 million, representing 1.6% of net sales. Transaction costs consisted
of non-recurring bonuses paid to key employees in connection with the
recapitalization.
NET INCOME. Net income decreased 16.2% to $66.3 million in fiscal 1998 from
$79.1 million in fiscal 1997. The decrease in net income was attributable to
$54.6 million of additional costs in 1998 that did not occur in 1997, including:
- interest expense of $29.4 million
- income tax expense of $22.0 million due to Boyds becoming a tax paying
entity
- expenses related to the recapitalization of $3.2 million
The net income margin decreased to 33.5% in fiscal 1998 from 60.9% in fiscal
1997. The decrease in net income margin was attributable to the tax and interest
expenses as discussed above.
EBITDA. EBITDA increased 48.9% to $117.9 million in fiscal 1998 from $79.2
million in fiscal 1997. The EBITDA margin decreased to 59.6% in fiscal 1998 from
61.0% in fiscal 1997. The increase in EBITDA was primarily attributable to the
increase in net sales for the period. The decrease in EBITDA margin was due to
expenses related to the recapitalization.
FISCAL YEAR ENDED DECEMBER 31, 1997 VS. FISCAL YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased 31.9% to $129.8 million in fiscal 1997 from
$98.4 million in fiscal 1996. Net sales of resin figurines were $54.9 million in
fiscal 1997, an increase of 30.4% as compared to resin figurine net sales of
$42.1 million in fiscal 1996. The increase in net sales of resin figurines was
primarily attributable to increased sales of BEARSTONES and FOLKSTONES, which
resulted from strong consumer and retailer demand. Net sales of plush animals
were $58.1 million in fiscal 1997, an increase of 25.2% as compared to plush
animal net sales of $46.4 million in fiscal 1996. The increase in net sales of
plush animals was primarily attributable to increased sales of T.J.'S BEST
DRESSED, as well as increased sales of other specialty dressed plush animals.
GROSS PROFIT. Gross profit increased 32.6% to $86.6 million in fiscal 1997
from $65.3 million in fiscal 1996. Gross profit as a percent of net sales
increased slightly to 66.7% in fiscal 1997 from 66.4% in fiscal 1996. The
increase in gross profit was primarily attributable to the increase in sales for
both the plush animal and resin figurine categories for fiscal 1997 as compared
to fiscal 1996.
SG&A. SG&A expenses increased 34.9% to $8.5 million in fiscal 1997 from
$6.3 million in fiscal 1996. SG&A expenses as a percent of net sales increased
to 6.6% in fiscal 1997 from 6.4% in fiscal 1996. The increase in SG&A expenses
as a percent of net sales in fiscal 1997 as compared to fiscal 1996 was
primarily due to an increase in Boyds' capital stock tax. In general, SG&A
expenses grew in line with Boyds' net sales increase for fiscal 1997 as compared
to fiscal 1996.
28
<PAGE>
INCOME FROM OPERATIONS. Income from operations increased 33.3% to $79.2
million in fiscal 1997 from $59.4 million in fiscal 1996. The operating income
margin also increased to 61.0% in fiscal 1997 from 60.4% in fiscal 1996
primarily due to the increase in royalty income reflected in other operating
income.
INTEREST EXPENSE. There was no material change in interest expense between
fiscal 1997 and fiscal 1996.
NET INCOME. Net income increased 31.6% to $79.1 million in fiscal 1997 from
$60.1 million in fiscal 1996. The increase in net income was primarily
attributable to the increase in net sales. The net income margin decreased
slightly to 60.9% in fiscal 1997 from 61.1% in fiscal 1996. The slight decrease
in net income margin was attributable to increased SG&A expenses.
EBITDA. EBITDA increased 31.4% to $79.2 million in fiscal 1997 from $60.3
million in fiscal 1996. However, the EBITDA margin decreased to 61.0% in fiscal
1997 from 61.3% in fiscal 1996. The decrease in EBITDA margin is primarily
attributable to an increase in the Pennsylvania capital stock tax in fiscal 1997
which Boyds includes in its SG&A expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Boyds utilized its operating cash flow to support working
capital and ongoing capital expenditures. Cash flow from operations decreased
29.4% to $21.9 million for the three months ended March 31, 1999 from $31.1
million for the three months ended March 31, 1998. The cash flow decrease was
primarily attributable to the decrease in net income and the increase in
accounts receivable and inventory, partially offset by increases in interest
payable and accrued taxes. Net cash received from financing activities was $51.3
million for the three months ended March 31, 1999, while for the three months
ended March 31, 1998, net cash used in financing activities was $30.0 million.
The funds obtained were realized from the sale of Boyds' common stock, partially
reduced by the repayment of outstanding debt and the fees and expenses related
to the stock sale.
Boyds' primary sources of liquidity are cash flow from operations and
borrowings under its credit agreement, which includes a revolving credit
facility. Boyds' primary uses of cash are to fund working capital and to service
debt.
In connection with the recapitalization, Boyds issued 9% Senior Subordinated
Notes due 2008 in an amount of $165.0 million and entered into the credit
agreement. On April 12, 1999, Boyds repaid $66.0 million of the notes, leaving a
balance outstanding of $99.0 million. Boyds has repaid $150.0 million of the
$325.0 million of term loans under the credit agreement through March 31, 1999,
and a further $10.0 million was repaid on April 21, 1999, leaving a balance
outstanding of $165.0 million.
The revolving credit facility provides for loans in an aggregate amount of
up to $40.0 million. On May 28, 1999, Boyds' Board of Directors approved the
repurchase of up to 3 million shares of Boyds common stock. As of June 15, 1999,
Boyds had repurchased 737,000 shares for an aggregate amount of approximately
$9.5 million. These repurchases were financed out of Boyds' operating cash flow
and approximately $4.0 million of borrowings under Boyds' revolving credit
facility. The remaining amount available under the revolving credit facility
will be available to fund the working capital requirements of Boyds.
Borrowings under the credit agreement bear interest at a rate per annum,
equal to a margin over either a base rate or LIBOR, at Boyds' option. The
revolving credit facility commitment will terminate seven years after the date
of the initial funding of the credit agreement. The term loans will be amortized
over an eight-year period with no amortization in the first two years. The
credit agreement contains customary covenants and events of default, including
substantial restrictions on Boyds' ability
29
<PAGE>
to declare dividends or make distributions. The term loans are subject to
mandatory prepayment with the proceeds of certain asset sales and a portion of
Boyds' excess cash flow, as defined in the credit agreement.
Boyds does not expect to incur significant capital expenditures for the
foreseeable future. Boyds does not incur significant capital expenditures due to
its sourcing arrangements with suppliers.
Management believes that cash flow from operations and availability under
the revolving loan will provide adequate funds for Boyds' foreseeable working
capital needs, planned capital expenditures and debt service obligations. Any
future acquisitions, joint ventures or other similar transactions may require
additional capital and there can be no assurance that any such capital will be
available to Boyds on acceptable terms or at all. Boyds' ability to fund its
working capital needs, planned capital expenditures and scheduled debt payments,
to refinance indebtedness and to comply with all of the financial covenants
under its debt agreements, depends on its future operating performance and cash
flow, which in turn are subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond Boyds' control.
SEASONALITY
Boyds does not have significant seasonal variation in its orders. Boyds
receives orders throughout the year and generally ships merchandise out on a
first-in, first-out basis. Approximately 40% of orders are taken between
November and April while approximately 60% of orders are placed between May and
October in anticipation of the holiday season. Boyds does not build a large
receivables balance relative to sales because it typically does not offer its
customers long payment terms or dating programs.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Comprehensive income includes net income and several other items that current
accounting standards require to be recognized outside of net income. This
standard requires enterprises to display comprehensive income and its components
in financial statements, to classify items of comprehensive income by their
nature in financial statements, and to display the accumulated balances of other
comprehensive income in stockholders' equity separately from retained earnings
and additional paid-in capital. Boyds adopted SFAS No. 130 for the year ended
December 31, 1998. There were no items of other comprehensive income for all
periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement is effective for fiscal
years beginning after December 15, 1997. As provided by SFAS No. 131,
disclosures are not required for interim periods of the initial year of
application, but comparative information will be reported in financial
statements for interim periods during the second year of application. Management
has determined that Boyds operates in a single industry segment.
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for periods beginning
after June 15, 1999. Boyds is currently evaluating the impact, if any, of this
statement.
FOREIGN EXCHANGE
The dollar value of Boyds' assets abroad is not significant. Boyds' sales
are denominated in United States dollars and, as a result, are not subject to
changes in exchange rates.
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Boyds imports most of its products from manufacturers in China. Boyds' costs
could be adversely affected on a short-term basis if the Chinese renminbi
appreciates significantly relative to the United States dollar. Conversely, its
costs would be favorably affected on a short-term basis if the Chinese renminbi
depreciates significantly relative to the United States dollar. Although Boyds
generally pays for its products in United States dollars, the cost of such
products fluctuates with the value of the Chinese renminbi. In the future Boyds
may, from time to time, enter into foreign exchange contracts or prepay
inventory purchases as a partial hedge against currency fluctuations.
Differences between the amounts of such contracts and costs of specific material
purchases are included in inventory and cost of sales. Boyds intends to manage
foreign exchange risks to the extent appropriate.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written to use
two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failure or miscalculations causing
disruptions of operations. Boyds currently uses information technology for
processing orders and tracking inventory.
Management believes that Boyds' systems are Year 2000 compliant. Boyds has
purchased Year 2000 compliant software and currently has Year 2000 compliance
certificates from its key software suppliers. In addition, Boyds has
substantially completed the internal testing of its information technology
systems and will continue to monitor such systems through the summer of 1999.
Boyds has also specifically addressed internally its non-information technology
related systems and believes that there will be no significant operational
problems relating to the Year 2000 issue. Boyds has not obtained, and does not
intend to obtain, an independent verification and validation of its Year 2000
compliance.
Other than system replacements due to planned upgrades, Boyds has not
replaced any of its information technology or non-information technology systems
as a result of the Year 2000 issue.
Boyds depends heavily on its relationships with customers, buying agencies,
manufacturers and shippers. It is communicating with customers, buying agencies,
manufacturers and shippers to determine the extent to which these third parties
are moving toward Year 2000 compliance. To assess Year 2000 compliance and any
potential exposure to the Year 2000 problem, Boyds is in the process of sending
surveys to such third parties. Boyds is also seeking Year 2000 compliance
certificates from third parties it has identified as "critical" to its
operations, which include all of its buying agencies and manufacturers and its
most important customers and shippers. To date, all of these critical third
parties have been contacted, and Boyds has not been made aware of any Year 2000
compliance problems.
Boyds believes that any adverse effect on its relationship with customers,
buying agencies, manufacturers and shippers due to the Year 2000 problem will be
lessened by the fact that it does not share information technology. However,
failure of any of these parties to have their systems timely converted may have
a material adverse effect on Boyds' business and operations.
Boyds believes it has substantially completed its Year 2000 project. Boyds
did not incur significant incremental costs specifically in connection with
seeking to achieve Year 2000 compliance and all upgrades and system replacements
made in connection with its Year 2000 project were part of previously planned
software and hardware upgrades. Furthermore, in order to achieve Year 2000
compliance, Boyds has needed, and expects that it will continue to need, only
existing employees who otherwise have been assigned to the planned upgrade of
Boyds' software and hardware.
Notwithstanding Boyds' progress to date, there are several ways in which its
systems could still be affected by the Year 2000 problem. First, the software
code Boyds uses in its information systems may not in fact be Year 2000
compliant in all instances. Second, Boyds may be unable to complete the
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remaining upgrades to its information technology systems by the Year 2000.
Third, even if Boyds completes the system upgrade by the Year 2000, it may be
unable to fully test and monitor the upgrades, making it difficult for Boyds to
identify and remedy any problems that might exist. Fourth, Boyds' customers,
buying agencies, independent manufacturers and shippers may be unable to achieve
Year 2000 compliance in time.
The most reasonably likely worst-case scenario resulting from Boyds'
inability, or the inability of its customers, buying agencies, manufacturers or
shippers, to become Year 2000 compliant, includes the following adverse effects:
- SUPPLY PROBLEMS. Boyds would be unable to receive products due to year
2000-related failures on the part of its manufacturers and suppliers
causing Boyds to be unable to fulfill the orders of many of its customers
for Boyds' products.
- ORDER DIFFICULTIES. Boyds' customers would be unable to place their orders
with Boyds because of its own system failures or those of its customers
resulting in delayed or potentially lost orders for Boyds' products.
- DELIVERY DELAYS. Boyds would be unable to deliver ordered products to its
customers on a timely basis due to a system failure at Boyds or at one of
its product shippers leading to delays in arrival of Boyds' products and
possibly dissatisfied customers.
Boyds has not developed, and does not intend to develop, contingency plans
relating to the Year 2000 problem unless Boyds becomes aware of a Year 2000
compliance problem in its own systems or those of its manufacturers, buying
agencies, customers or shippers.
Boyds' assessment of its Year 2000 compliance is based on numerous
assumptions about future events, including third party modification plans and
other factors. However, there can be no guarantee that this assessment is
correct and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes and similar
uncertainties.
INFLATION
Boyds does not believe that inflation has had a material impact on its
operations.
CHANGE IN ACCOUNTANTS
On April 21, 1998, Boyds dismissed Stambaugh Ness, P.C. as its independent
accountants. The report of Stambaugh Ness for fiscal year 1997 contained no
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principle. Boyds' Board of Directors
participated in and approved the decision to change independent auditors.
In connection with its audit for fiscal year 1997 and through April 21,
1998, there were no disagreements with Stambaugh Ness on any matter of
accounting principle or practice, financial statements disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Stambaugh Ness, would have caused them to make reference in their report on the
financial statements for such periods.
Boyds engaged Deloitte & Touche LLP as its new independent accountants as of
July 6, 1998. During fiscal year 1997 and through April 21, 1998, Boyds had not
consulted with Deloitte & Touche LLP on items which concerned the subject matter
of a disagreement or reportable event with the former auditor, as described in
Item 304(a)(2) of Regulation S-K.
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QUARTERLY RESULTS
The following tables present summarized unaudited quarterly results of
operations for Boyds for fiscal 1998 and 1997 and the first quarter of fiscal
1999. Boyds believes all necessary adjustments have been included in the amounts
stated below to present fairly the following selected information when read in
conjunction with the Consolidated Financial Statements and the related notes and
the Unaudited Condensed Consolidated Financial Statements and the related notes,
each included elsewhere in this prospectus. Future quarterly operating results
may fluctuate depending on a number of factors. Results of operations for any
particular quarter are not necessarily indicative of results of operations for a
full year or any other quarter.
<TABLE>
<CAPTION>
FISCAL YEAR 1999 QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................................. $ 57,185 -- -- --
Gross profit.......................................................... 38,509 -- -- --
Income before extraordinary item...................................... 16,913 -- -- --
Net income............................................................ 15,533 -- -- --
Net income per share before extraordinary item--basic and diluted..... $ 0.30 -- -- --
Net income per share--basic and diluted............................... 0.28 -- -- --
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1998 QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............................................................. $ 49,336 $ 38,394 $ 52,235 $ 57,841
Gross profit.......................................................... 33,621 25,498 36,032 38,803
Net income............................................................ 31,042 6,839 13,477 14,920
Pro forma net income.................................................. 18,197 6,959 13,477 14,920
Pro forma net income per share--basic................................. $ 0.12 $ 0.09 $ 0.25 $ 0.28
Pro forma net income per share--diluted............................... 0.12 0.09 0.26 0.28
<CAPTION>
FISCAL YEAR 1997 QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............................................................. $ 30,334 $ 21,776 $ 38,617 $ 39,114
Gross profit.......................................................... 20,257 14,583 25,849 25,874
Net income............................................................ 18,477 13,216 24,256 23,181
Pro forma net income.................................................. 10,876 8,016 14,149 12,937
Pro forma net income per share--basic and diluted..................... $ 0.07 $ 0.05 $ 0.09 $ 0.08
</TABLE>
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BUSINESS
HISTORY OF BOYDS
Boyds was founded in 1979 by Gary and Justina Lowenthal as a small antique
business in Boyds, Maryland. By 1984, Boyds had begun to reproduce and sell
miniature houses, duck decoys and merino wool teddy bears to selected retail
outlets. In 1984, Boyds also introduced its first major plush product, a unique,
fully-jointed wool teddy bear named MATTHEW-TM-, and the GNOMES HOMES-TM-, a
small collection of hand-sculpted miniature cast resin houses. Boyds relocated
from Maryland to southern Pennsylvania in 1987 in order to take advantage of
more favorable labor markets. The product line was expanded to include other
plush animals and related accessories including miniature clothes, furniture and
ornaments. Boyds began distributing its plush animal lines to department stores
and gift retailers, opting against selling to mass merchandisers, major discount
stores and toy chains. This strategy strengthened Boyds' relationship with its
retailers, a competitive advantage which exists today. In 1993, Boyds began
selling cast resin figurines with the introduction of its BEARSTONES line.
THE COLLECTIBLES INDUSTRY
UNITY MARKETING, an independent market research firm which specializes in
the collectibles industry and is not affiliated with Boyds, estimates that
consumer sales of collectibles in the United States in 1997 totaled $10.0
billion. The industry grew at a compound annual growth rate of approximately 11%
from 1993 to 1997. Figurines, which represent approximately 45% of Boyds' net
product sales, are estimated by UNITY MARKETING to represent the largest
category within the U.S. collectibles industry with an estimated $3.9 billion in
total sales in 1997. Within the collectibles industry, figurine sales have grown
at a compound annual growth rate of approximately 10% since 1993, though
management believes that low- to mid-priced figurines have grown at a faster
rate. According to UNITY MARKETING, women between the ages of 35 and 64
encompass the majority of collectors. Boyds also believes that this group
constitutes a substantial portion of its collectors. The U.S. Census Bureau
reports that the number of women in this age group is expected to grow
approximately 12% by the year 2005. UNITY MARKETING expects that strong growth
in the collectibles industry will be driven by the increased number of
middle-aged female collectors and higher spending habits of the baby boom
generation.
The following chart illustrates the strong historical growth of the
collectibles market:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. CONSUMER SALES OF COLLECTIBLES, 1993-1997(1)
<S> <C>
(in billions)
11% COMPOUND ANNUAL GROWTH
1993 $6.6
1994 $7.2
1995 $8.2
1996 $9.1
1997 $10.0
(1) Source: UNITY MARKETING
</TABLE>
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BOYDS' PRODUCT LINES
Boyds' success is largely due to the established strength of the Boyds brand
name, which Boyds has built among retailers and customers through consistently
offering affordably priced, high-quality collectibles. Boyds brand name is
associated with consistent product quality and Boyds' distinctive, award-winning
"Folksy With Attitude" product design and craftsmanship. Boyds' recognized brand
name makes it easier to successfully introduce new products.
Since 1982, Boyds' product lines have expanded from plush bears to include
other plush animals such as hares, moose and cats, resin figurines, porcelain
dolls and boxes and related clothing and accessories. Boyds' continuous new
product development efforts incorporating traditional, enduring concepts have
resulted in strong brand awareness and broad appeal for Boyds' products. Boyds'
products have been consistently recognized for excellence in product design.
Boyds' industry and consumer awards include Toby awards, Golden Teddy awards,
Collectors Jubilee awards and National Association of Limited Edition Dealers
awards.
One of Boyds' strategies for maintaining the demand for and collectibility
of its existing resin figurine and plush animal product lines is to constantly
develop and introduce new designs and themes while selectively retiring others.
There are independently published price guides printed each year that report the
secondary market value of Boyds products, which show that many of Boyds'
products trade at prices substantially higher than their original retail prices.
While Boyds does not participate in this market, Boyds believes the existence of
this market reinforces the demand for its products.
In further building existing product lines, Boyds applies its formula of
developing high-quality, whimsical in nature products to new animals and
concepts, such as the introduction of dressed animals in the case of the plush
lines and to new situations and concepts in the case of the resin figurines.
Boyds is able to keep the categories familiar, yet fresh, with new ideas by
keeping annual product turnover near 40%, further strengthening the image and
collectibility of its products.
In addition, Boyds has developed a successful process for identifying,
designing and marketing unique products for its target markets. Boyds'
development process includes researching, developing and effectively
merchandising and packaging its products in a manner consistent with its product
image. Boyds enhances its product development process by giving careful
attention to design and price points and through its proven method of testing
new products with selected retailers and consumers prior to introduction. Boyds
believes that its close relationships with its suppliers, retailers and
customers allow it to quickly introduce new products, accurately estimate
consumer demand, promptly identify both new product categories and trends
regarding existing lines, and substantially reduce development costs.
RESIN FIGURINES
Net product sales of resin figurines for fiscal 1998 were $80.2 million,
representing 44.6% of net product sales. Pieces in the resin figurine category
are generally priced between $9 and $60 at retail. Each figurine is inscribed
with Boyds' distinctive symbol of authenticity, a hidden bear paw, and a bottom
stamp indicating the name, edition and piece number. Many figurines contain
famous quotes which help the customers identify with the piece. The items are
packaged individually with a certificate of authenticity describing the product.
Boyds' resin figurine category currently consists of three main collections,
BEARSTONES, FOLKSTONES and DOLLSTONES, and two sub-collections, SHOEBOX
BEARS-TM- and WEE FOLKSTONES. Together, these categories include over 420 styles
of finely detailed, hand-painted miniature cast resin bears, other animals and
people.
Boyds introduced the BEARSTONES in 1993 with ten different styles. Since its
introduction, Boyds has expanded the offerings to include additional figurines,
resin jewelry, ornaments, waterballs, SHOEBOX
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BEARS, votive holders, ceramics, picture frames and wooden clocks. The ceramics,
frames and clocks were introduced in 1997.
Boyds also produces a collection of ceramic pieces which it is expanding and
currently considers part of its BEARSTONES family of products. The ceramic line,
entitled BEARWARE POTTERYWORKS, was introduced in the fall of 1997 and includes
ceramic cookie jars and salt and pepper shakers.
The FOLKSTONES line of products, introduced in 1994, includes
non-traditional, whimsical figurines of traditional folk art themes, other
figurines, jewelry, ornaments, waterballs, WEE FOLKSTONES and votive holders.
The votive holders and WEE FOLKSTONES, depicting faeries, angels, elves and
other characters, were introduced in 1997.
The DOLLSTONES line of products, introduced in 1995, is based on nostalgic
themes and includes figurines of children depicted with animals, waterballs,
votive holders and musicals. In the fall of 1997, Boyds introduced two limited
edition porcelain dolls within the DOLLSTONES product category. Due to the
success of this introduction, several more limited edition porcelain dolls were
introduced during 1998 and Boyds has expanded this category in 1999.
PLUSH ANIMALS
Net product sales of plush animals for fiscal 1998 were $93.4 million,
representing 52.0% of net product sales. Retail prices for the plush animals
generally range from $4 to $95. The plush animal category consists of both
dressed and non-dressed animals which are made of various materials. The outer
covering ranges from acrylic plush to custom-dyed chenille and wool; the
interior is filled with plastic pellets for the beanbag animals or 100% acrylic
fiberfill for the other animals. Most of the animals are fully jointed with
sewn-in joints for arms, legs and heads. Boyds began selling its plush animals
in 1982. Today the plush animal category has grown to encompass over 430
different items ranging from 2 1/2" miniatures to 21" large animals.
Introduced in 1992, the popularity of Boyds' T.J.'S BEST DRESSED line,
characterized by fully jointed bears, cats, moose and other animals dressed in
stylish, hand-sewn outfits, has helped create additional brand awareness for
Boyds.
Boyds' non-dressed plush animal lines include the BEARS IN THE ATTIC, the
ARTISAN SERIES-TM-, J.B. BEAN & ASSOCIATES, the ARCHIVE COLLECTION and ANGELS
AND FRIENDS-TM- ornaments. The largest revenue-generating line in this plush
category is Boyds' J.B. BEAN & ASSOCIATES, featuring fully-jointed bears, hares,
moose, lambs and other animals.
In the fall of 1997, Boyds introduced MOHAIR BEARS, which are fully-jointed,
high-quality bears with mohair bodies, suede paws and hand-embroidered paws and
faces. Boyds believes its MOHAIR BEARS are comparable in quality to bears
manufactured by its competitors, but at wholesale prices which are significantly
lower.
OTHER PRODUCTS
In addition to Boyds' resin figurine and plush animal lines, Boyds sells
over 150 additional items which generally generate margins comparable to its
resin figurine and plush animal lines. The majority of the revenues generated by
these products are from the sale of Boyds' BEAR NECESSITIES line that includes
miniature knit clothing, miniature furniture, wooden accessories, glasses, cast
iron products and resin accessories. Boyds also sells various printed and
promotional materials to support its product lines.
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NEW PRODUCT INTRODUCTIONS
To maintain the demand for and collectibility of its products, Boyds
continually develops and introduces new products and product line concepts. For
example, its MOHAIR BEARS, introduced in the fall of 1997, represent an
important new plush animal line. In 1998, the MOHAIR BEARS line was expanded to
include other animals. In addition, in late 1997 Boyds introduced its first line
of porcelain dolls under the DOLLSTONES line. The demand for Boyds' first
editions of porcelain dolls was high and the dolls sold out almost immediately.
This successful entry into the porcelain doll category extends the Boyds brand
name into the doll segment of the collectibles and giftware markets. Boyds has
expanded its Porcelain Doll line in 1999. Also in late 1997, Boyds introduced
BEARWARE POTTERYWORKS under the BEARSTONES line.
Boyds introduced four new product lines for sale in 1998: CARVERS CHOICE,
GLASSSMITH ORNAMENTS, DESKANIMALS and LE BEARMOGE. CARVERS CHOICE is a new line
of resin figures, picture frames and related accessories based on hand-carved
wooden sculptures. These items capture the same whimsical spirit Boyds has
become known for in the giftware and collectibles industries. GLASSSMITH
ORNAMENTS is a new category consisting of three blown glass antique-style
ornaments that are based on some of Boyds' most popular themes. DESKANIMALS is a
new concept in resin sculptures containing multiple piece depictions of animals
that can be placed on a desk or other flat surface and appear to go under the
surface and reappear as though they were swimming in water. LE BEARMOGE is a new
category consisting of ornamental porcelain boxes. Each box is adorned with a
porcelain figurine based on popular Boyds' characters and contains a miniature
porcelain figurine.
Boyds continually evaluates new product line ideas and plans to regularly
introduce new product lines over the next several years that maintain Boyds'
whimsical and "Folksy with Attitude" themes. For fiscal 1999, Boyds' has
expanded its resin and plush product lines that have been successfully
introduced in the last two years, including Porcelain Dolls, LE BEARMOGE and
MOHAIR BEARS. Also in fiscal 1999, Boyds has introduced the following new lines:
- UPTOWN BEARS, upscale dressed bears
- PURRSTONES, a new line of resin figurines
- BABYBOYDS, plush animals targeted for the children's market
- THE BEATRICE COLLECTION-TM-, fine porcelain hinged boxes with designs
reproduced from original works of art made exclusively for Boyds
PRODUCT DESIGN AND DEVELOPMENT
Boyds has developed a process of designing and sourcing which has enabled it
to:
- consistently develop award-winning designs prized by collectors
- maintain demand for Boyds' products without compromising high quality
standards
- maintain high gross margins due to Boyds' established sourcing network
Although elements of Boyds' design process are proprietary, Boyds typically
includes the following actions in the process:
- researches the general giftware and collectibles markets to identify
specific product areas that are large or have the potential to grow due to
evolving consumer trends
- focuses on developing a specific niche within the identified product area
- develops several items that are tested in the marketplace
- tailors the product line to properly position it with retailers if market
reception is positive
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The time-to-market for a new product within an existing line, from idea
generation to shipping, can be as short as five months, but typically takes one
year. New product line concepts normally take one to two years to fully develop
for market entry.
Boyds' in-house creative design team consists of seven full-time, salaried
design professionals and senior management. Once a design has been created,
Boyds, together with its buying agencies, works with outside artists and
sculptors, primarily in China, who are responsible for creating a prototype and
refining the product's appearance for review by Boyds. Boyds also works with its
buying agencies and manufacturers in order to ensure the product can be produced
at an acceptable cost per unit, without compromising quality, given a certain
level of production. A product will not be produced unless the Boyds formula for
high quality and affordability can be maintained.
Boyds' resin figurines are developed into designs and clay models by artists
and modelmakers overseas under the guidance and direction of Boyds' creative
design team. Whether designed and/or conceptualized in-house or externally,
Boyds strives for an overall "Boyds image" to achieve product consistency.
LICENSING OF BOYDS' IMAGES AND PRODUCT DESIGNS
Due to Boyds' popularity, it has begun to license its images for other
products including stationery, afghans, throw pillows, rubber stamps and
clothing. For example, Boyds currently licenses certain product images to
Interart Holding Corporation, a subsidiary of Hallmark Cards, to produce gift
cards, package wrap and other assorted paper items. Interart Holding
Corporation's Boyds line is expected to consist of over 150 SKUs; each SKU, or
Stock Keeping Unit, is a designation for a distinct product. Though Boyds'
royalty income is currently small relative to its net sales, Boyds expects to
increase the number of its licensed products through additional licensing
arrangements in the future. Boyds will also seek to increase international
sales, which currently represent approximately 2% of Boyds' net sales. Boyds
believes that Asia, Europe and Canada offer significant long-term potential for
its products.
BOYDS' INTELLECTUAL PROPERTY
TRADEMARKS. Boyds has obtained 17 U.S. trademark registrations for
trademarks and logos related to its resin figurines and plush animals. These
registrations allow Boyds to use on an exclusive basis these trademarks and
logos in the United States in connection with its products. If Boyds continues
to use such trademarks and logos and makes timely filings with, and pays all
required fees to, the U.S. Patent and Trademark Office, its trademark
registrations can exist in perpetuity. Boyds also has common-law trademark
rights to the extent it uses unregistered names and logos on its various
products. The strength and scope of these rights is determined by the geographic
extent and duration of their use. Additionally, to the extent that the packaging
and overall visual impact of Boyds' products is inherently distinctive or has
acquired distinctiveness through sales in the marketplace, Boyds has proprietary
rights in such "trade dress" of its products.
COPYRIGHTS. Boyds has secured more than 300 copyright registrations for its
products with the U.S. Copyright Office. Boyds may enforce these rights in U.S.
courts with regard to infringements occurring in the United States and also, to
varying extents, in foreign jurisdictions with regard to infringements occurring
outside the United States. In addition, Boyds has copyrights in the original
expression contained in other products that it has created, whether or not those
copyrights have been registered. In all events, Boyds' copyright in its products
is limited in scope to the original, creative expression embodied in them and
does not extend to elements drawn from public sources or to functional elements.
For all products created by or on behalf of Boyds since its founding date, the
U.S. copyright currently runs for a term of 95 years from the date of their
creation.
Notwithstanding Boyds' proprietary rights in its intellectual property,
Boyds remains subject to both infringement of its intellectual property and
claims of infringement by other parties. However, Boyds protects its
intellectual property rights, both through policing any potential infringement
by third parties and registering such rights, when appropriate, with applicable
government authorities.
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SPECIALTY PRODUCTS FOR BOYDS' CORPORATE AND RETAIL PARTNERS
Boyds is continuing to pursue corporate and retail partners as an expanded
distribution channel. These corporate arrangements provide the client with a
customized or co-branded product for exclusive distribution by the corporate
partner. Each product has the potential to enhance Boyds brand recognition while
maintaining the same degree of quality found in traditional Boyds products. For
example, Boyds produced co-branded plush ornaments of well-known animated
characters under an agreement with a large media conglomerate. Boyds believes
this relationship may result in the introduction of additional co-branded
products in the future. Boyds is also working with other major corporations in
the stationery, toy and entertainment industries to develop long-term
co-branding relationships for Boyds products. Boyds has also produced customized
products for Barnes & Noble and San Francisco Music Box stores, QVC and several
of its larger resin dealers. Boyds believes that these efforts increase Boyds'
brand recognition while maintaining its emphasis on quality.
SOURCING OF BOYDS' PRODUCTS
Boyds coordinates its production and cooperative development efforts
primarily through two buying agencies with whom it has established long-term
business relationships. These buying agencies perform a number of functions for
Boyds, including collaborating in its product design and development process,
identifying suitable manufacturers for its products and supervising its
manufacturers to assure the proper quality and timing of Boyds' orders. Each of
Boyds' two primary buying agencies is responsible for assisting Boyds in the
design and production of one of its two major product categories, resin
figurines and plush animals. Boyds and its plush animal buying agency have
collaborated for over 15 years while Boyds and its resin figurine buying agency
have collaborated since 1993, the first year in which Boyds' resin figurines
were offered. Boyds' two primary buying agencies, which contract with a number
of manufacturers, represent approximately 91% of its total imports.
Although Boyds believes that the loss of either of its two primary buying
agencies would have a short-term material adverse effect on its financial
condition and results of operations, it believes that alternative buying
agencies would be available in the long-term and such alternative buying
agencies would be able to work directly with Boyds' manufacturers.
In conjunction with Boyds' buying agencies, Boyds sources most of its
merchandise from a select group of 19 independently-owned manufacturers in
China, which allows Boyds to offer detailed, high-quality products at a low
cost.
Boyds believes that its relationships with its buying agencies and foreign
manufacturers have allowed Boyds to provide quality craftsmanship at a
relatively low cost. Boyds represents the vast majority of orders of both of its
primary buying agencies and the majority of orders of its manufacturers. Boyds
is therefore able to significantly influence the schedule, quality and timing of
its orders.
Boyds' domestic products are shipped by ocean freight to the United States
and then by truck to Boyds' 209,000 square-foot distribution center in
McSherrystown, Pennsylvania. Boyds ships the majority of its products to its
nationwide retailer network via United Parcel Service.
BOYDS' DISTRIBUTION NETWORK AND CUSTOMERS
Boyds' has a large national distribution network, which includes
approximately 19,950 independent retail gift and collectibles accounts, high-end
department stores and selected catalogue retailers, representing approximately
26,000 individual retail outlets. Boyds' products generally sell quickly, which
enhances store traffic and allows for substantial mark-ups by Boyds'
distributors.
The largest portion of Boyds' net sales are generated by a specially
selected resin dealer network of approximately 6,000 accounts which include card
and gift shops, country stores and specialty
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collectibles stores which are authorized to carry Boyds' resin figurine
products. Most resin figurine dealers also carry Boyds' plush animals. These
resin dealers accounted for approximately 69% of net product sales in fiscal
1998. Resin figurine dealers are selectively chosen by Boyds and must meet
annual performance criteria to retain dealership status. There is currently a
waiting list of over 5,500 retailers, consisting primarily of Boyds' plush-only
dealers, that have expressed interest in carrying Boyds' resin figurines. In
total, approximately 13,800 retail accounts, which are not resin figurine
dealers, carry Boyds' plush animals and other non-resin products and accounted
for approximately 17% of net product sales in fiscal 1998.
Boyds also sells both resin figurines and plush animals through
approximately 150 major accounts, including department stores, catalogue
retailers and QVC, a television and electronic retailer. Sales to these accounts
comprised approximately 15% of net product sales in fiscal 1998. No single
customer account represented more than 6% of net product sales in fiscal 1998.
The top ten accounts comprised approximately 17% of net product sales during the
same period.
Boyds plans to increase sales volume in its existing accounts by increasing
sales support,
implementing additional telemarketing to its retail accounts, expanding product
offerings within existing lines and introducing new product lines. Many of
Boyds' resin dealers carry BEARSTONES but may not carry Boyds' other resin lines
such as FOLKSTONES, DOLLSTONES, WEE FOLKSTONES and CARVERS CHOICE. Based on its
experience, Boyds believes that retailers who expand their product and product
line offerings experience significant revenue growth in Boyds products. For
example, Boyds' GOLD PAW-TM- dealers, who carry a broad selection of Boyds'
resin and plush product lines and receive the greatest level of sales support,
sell on average five times more than Boyds' other resin dealers. Boyds also
plans to selectively expand its resin dealer network while maintaining the high
quality and affordability of its products. Boyds believes it can continue to
selectively add additional retail channels such as collectible doll stores,
high-end toy stores, stores located on military bases and other select specialty
retailers as part of a managed retail expansion plan.
To build dealer trust and loyalty and minimize dealer turnover, Boyds does
not sell to mass merchandisers or discount chains other than an occasional
disposal of obsolescent merchandise, which Boyds estimates to be less than 1% of
total inventory.
Boyds believes it has very low annual customer account turnover among its
resin dealers and normal turnover for its other dealers. Turnover among
non-resin dealers occurs primarily in small accounts, which become inactive due
to ownership changes, poor credit, or lack of commitment to Boyds' products.
Accounts which became inactive in fiscal 1998 represented approximately 2% of
Boyds' fiscal 1997 net sales. Boyds generally does not offer dating terms or
volume discounts.
PAW DEALERS
Boyds' nationwide resin figurine dealer network is divided into four major
categories, GOLD, SILVER and BRONZE PAW distinctions and other resin dealers,
which are primarily based upon the amount of merchandise ordered annually from
Boyds. Boyds encourages resin dealers to obtain the highest PAW qualification
because it affords them additional benefits including priority delivery of Boyds
products and special consideration when ordering limited editions, certain new
product offerings and items in particularly high demand. Each PAW dealer, among
other things, must consistently meet stringent credit criteria, designate a
Boyds in-store "specialist," offer pieces from each resin figurine line and a
significant portion of the plush animal lines of Boyds, actively solicit members
for Boyds' collectors club, THE LOYAL ORDER OF FRIENDS OF BOYDS, and promote the
brand name by sponsoring at least one Boyds event annually.
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<PAGE>
THE LOYAL ORDER OF FRIENDS OF BOYDS
Boyds' collectors club, THE LOYAL ORDER OF FRIENDS OF BOYDS, has gained
strong popularity among Boyds' growing customer base and helped strengthen
Boyds' brand-name recognition. Formed in July 1996 to further enhance consumer
awareness and loyalty, the club currently has approximately 120,000 paying
members.
Upon payment of the annual membership fee, which is currently $32.50,
members receive a special product kit typically containing a resin figurine, a
plush animal and a resin pin. These items are limited edition pieces, are not
available in stores and, taken together, would retail for more than the
membership fee. In addition, certain of Boyds' products are limited editions
offered exclusively to members.
SALES & MARKETING OF BOYDS' PRODUCTS
Boyds sends catalogues and promotional mailings to all retailers twice a
year for its spring and fall product offerings. Boyds generates its order volume
through its team of telemarketers and internal sales personnel, catalogue
mailings to its retailers and from trade show sales. Boyds leases showroom space
in Atlanta, Chicago, Dallas, Denver, Los Angeles and New York. Approximately 40%
of orders are taken between November and April, while approximately 60% of
orders are placed between May and October in anticipation of the holiday season.
Each major segment of Boyds' account base, including resin figurine dealers,
department stores, catalogue retailers and general accounts, is managed by a
different group of sales professionals. Boyds' showrooms, with the exception of
Chicago, are staffed with full-time employees.
All Boyds sales personnel are paid an annual base salary and a
performance-based bonus. Because Boyds does not generally rely on external
commissioned sales personnel, Boyds believes its sales expenses are lower than
its competitors of similar or larger size.
COMPETITION WITH PRODUCERS OF COLLECTIBLES, GIFTWARE AND HOME DECORATIVE
PRODUCTS
Boyds competes generally for the disposable income of consumers and, in
particular, with other producers of fine quality collectibles, specialty
giftware and home decorative accessory products. The collectibles area, in
particular, is affected by changing consumer tastes and interests. The giftware
and collectibles industries are highly competitive, with a large number of both
large and small participants. Boyds' competitors distribute their products
through independent gift retailers, department stores, mass merchandisers and
catalogue retailers or through direct response marketing. Boyds believes the
principal elements of competition in the giftware and collectibles industries
are product design and quality, product and brand name loyalty, product display
and price. Boyds believes its competitive position is enhanced by a variety of
factors, including the innovativeness, quality and enduring themes of Boyds'
products, its reputation among retailers and consumers, its in-house design
expertise, its sourcing and marketing capabilities and the pricing of its
products. Some of Boyds' competitors, however, are part of large, diversified
companies having greater financial resources and a wider range of products than
Boyds.
STRATEGIC ACQUISITIONS
While Boyds has historically grown primarily through internal expansion,
Boyds believes that the collectibles industry is highly fragmented. Because
other giftware and collectibles companies typically realize margins
significantly lower than Boyds does, Boyds believes that its successful business
model can, in many cases, be transferred to other giftware and collectibles
companies and product lines. For example, in November 1998 Boyds completed the
acquisition of H.C. Accents & Associates, Inc., a
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<PAGE>
company without an extensive distribution network whose product lines complement
those of Boyds. H.C. Accents was acquired for approximately $4 million,
including the forgiveness of debt.
CURRENT EMPLOYEES AND HIRING PROGRAM
Boyds currently employs a total of 220 full time individuals, 203 of whom
are located in McSherrystown, Pennsylvania. Seven employees are located at
Boyds' showrooms. In addition, ten Boyds employees work at the office of H.C.
Accents, which is located in Illinois. All of these employees are non-union.
Boyds also uses contract labor to work at the various trade shows around the
nation.
To better manage the anticipated growth in Boyds' product lines, Boyds is
currently conducting a hiring program to supplement its existing staff with
individuals having specialized design, marketing and operational skills.
WAREHOUSING, DISTRIBUTION AND SHOWROOM FACILITIES
Boyds leases approximately 209,000 square feet of distribution and warehouse
space in McSherrystown, Pennsylvania. Boyds' existing distribution center
includes two loading docks, two automated conveyor systems and 184,000 square
feet of storage area. Boyds' lease expires in 2009. Attached to the warehouse
area is Boyds' 12,000 square-foot corporate headquarters which is subject to the
same lease provisions. Boyds also leases office space for H.C. Accents in
Illinois and showroom space in Atlanta, Chicago, Dallas, Denver, Los Angeles and
New York. Boyds redesigned and upgraded its entire distribution system in 1995
with the addition of physical equipment and computer hardware and software to
allow for continued growth of Boyds. Management anticipates that its current
facilities, after the current warehouse expansion is completed, should be
adequate for Boyds' planned growth needs for the next several years, and vacant
land is available on-site for additional expansion should it be necessary.
DEVELOPMENT AND UPGRADES OF BOYDS' MANAGEMENT INFORMATION SYSTEMS
Boyds' management information systems have been developed through the
modification of off-the-shelf software programs to serve Boyds' current needs.
Boyds has recently upgraded its computer systems to automate its credit approval
system and to aid in the management of Boyds' newly automated warehouse system.
Future upgrades will include a system to assist the telemarketers with their
accounts, the enhancement of the ordering systems and other improvements. Boyds
believes that its internal information systems are Year 2000 compliant. See
"Risk Factors--We May Be Adversely Affected By the Year 2000 Problem" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
LEGAL PROCEEDINGS INVOLVING BOYDS
Boyds does not believe that there are any pending or threatened legal
proceedings that, if adversely determined, would have a material adverse effect
on Boyds.
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<PAGE>
MANAGEMENT
BOYDS' DIRECTORS AND EXECUTIVE OFFICERS
The bylaws of Boyds provide that the directors will be elected annually. All
directors of Boyds hold office until the election and qualification of their
successors. Executive officers of Boyds are chosen by the board of directors of
Boyds and serve at its discretion. The following sets forth certain information
regarding the executive officers and directors of Boyds:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Gary M. Lowenthal.................................... 50 Chairman and Chief Executive Officer
Robert T. Coccoluto.................................. 56 President and Director
Christine L. Bell.................................... 43 Chief Operating Officer and Controller
Elizabeth E. Smith................................... 53 Vice President--Product Development
Peter H. Frost....................................... 52 Vice President--Finance
David Miller......................................... 33 Vice President--Marketing
Henry R. Kravis...................................... 55 Director
George R. Roberts.................................... 55 Director
Scott M. Stuart...................................... 39 Director
Marc S. Lipschultz................................... 30 Director
Timothy Brady........................................ 30 Director
</TABLE>
GARY M. LOWENTHAL has been a director and the chief executive officer since
founding Boyds with his wife, Justina, in 1979. Mr. Lowenthal oversees the
executive management of Boyds and collaborates in the design and marketing of
Boyds products.
ROBERT T. COCCOLUTO has been the president since December 1998 and a
director of Boyds since April 1998. Prior to his current role as president, Mr.
Coccoluto had been an outside strategic advisor to Boyds since September 1997.
He has also been the owner and president of Advanced Design Group LLC since
January 1995. Prior to such time, he was an officer of Department 56, Inc. from
December 1989 through December 1994, where he held various positions including
executive vice president, chief financial officer and director.
CHRISTINE L. BELL has been the chief operating officer and controller since
joining Boyds in 1992.
ELIZABETH E. SMITH has been the vice president of product development since
1996. Ms. Smith joined Boyds in 1990. Prior to her current role, Ms. Smith ran
the Company's import division and coordinated the product development process.
PETER H. FROST has been the vice president of finance since April 1999.
Prior to such time, Mr. Frost had been Corporate Controller for Enesco
Corporation since 1992.
DAVID MILLER has been the vice president of marketing since April 1999.
Prior to such time, Mr. Miller had been the group publisher of the Collectibles
Group for Primedia Special Interest Publications since February 1998. Prior to
such time, Mr. Miller was the group publisher of the Collectibles Group for
Cowles Magazine and the founding publisher of Figures & Collectibles Magazine.
HENRY R. KRAVIS has been a director of Boyds since April 1998. He is a
managing member of KKR & Co. L.L.C., the limited liability company which serves
as the general partner of KKR. He is also a director of Accuride Corporation,
Amphenol Corporation, Borden, Inc., BRW Acquisition, Inc., Evenflo Company,
Inc., The Gillette Company, IDEX Corporation, KinderCare Learning Centers, Inc.,
KSL Recreation Corporation, MedCath Incorporated, Newsquest plc, Neway Anchorlok
International Inc., Owens-Illinois, Inc., PRIMEDIA, Inc., Randall's Food
Markets, Inc., Regal
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Cinemas, Inc., Safeway Inc., Sotheby's Holdings Inc., Spalding Holdings
Corporation, Trinity Acquisition plc, which is the parent company of Willis
Corroon Group Limited, and U.S. Natural Resources Inc.
GEORGE R. ROBERTS has been a director of Boyds since April 1998. He is a
managing member of KKR & Co. L.L.C., the limited liability company which serves
as the general partner of KKR. He is also a director of Accuride Corporation,
Amphenol Corporation, Borden, Inc., BRW Acquisition, Inc., Evenflo Company,
Inc., IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation
Corporation, Neway Anchorlok International Inc., Owens-Illinois, Inc., PRIMEDIA,
Inc., Randall's Food Markets, Inc., Regal Cinemas, Inc., Safeway Inc., Spalding
Holdings Corporation, Trinity Acquisition plc, which is the parent company of
Willis Carroon Group Limited, and U.S. Natural Resources, Inc.
SCOTT M. STUART has been a director of Boyds since April 1998. He is a
member of KKR & Co. L.L.C., the limited liability company which serves as the
general partner of KKR. He is also a director of Borden, Inc., KSL Recreation
Group, Inc., Newsquest Capital plc and World Color Press, Inc.
MARC S. LIPSCHULTZ has been a director of Boyds since April 1998. He has
been an executive at KKR since 1995. Prior thereto, he was an investment banker
with Goldman, Sachs & Co. He is also a director of Amphenol Corporation, Evenflo
Company, Inc. and Spalding Holdings Corporation.
TIMOTHY BRADY has been a director of Boyds since January 1999. He has been
the executive producer and vice president of production of Yahoo! Inc. since
April 1995. Prior to such time, Mr. Brady was a product marketing manager with
Motorola, Inc. in Tokyo.
Messrs. Kravis and Roberts are first cousins.
The Board of Directors intends to appoint one additional director who is not
affiliated with Boyds or KKR during the one year period after the initial public
offering of Boyds' common stock. The additional director has not yet been
identified.
COMMITTEES OF BOYDS' BOARD OF DIRECTORS
The Board of Directors of Boyds has three standing committees: (1) an audit
committee, (2) a compensation committee and (3) an executive committee. Messrs.
Kravis, Stuart, Lipschultz and Lowenthal comprise the executive committee of the
Board of Directors. Currently, the audit committee consists of Mr. Brady. Boyds
intends to appoint to the audit committee only persons who qualify as an
"independent" director for purposes of the rules and regulations of the NYSE.
The Audit Committee will select and engage, on behalf of Boyds, the independent
public accountants to audit Boyds' annual financial statements, and will review
and approve the planned scope of the annual audit. Messrs. Stuart and Lipschultz
serve as members of the compensation committee. The compensation committee will
establish remuneration levels for officers of Boyds and will perform such
functions as provided under Boyds' employee benefit programs and executive
compensation programs.
COMPENSATION OF BOYDS' DIRECTORS
Directors of Boyds receive no remuneration for serving as directors. All
directors are reimbursed for reasonable expenses incurred to attend director and
committee meetings.
BOYDS' STOCK OPTION PLAN
Boyds adopted the 1998 Option Plan for Key Employees of The Boyds
Collection, Ltd., or the 1998 Stock Option Plan, at the closing of the
recapitalization, which provides for the grant of Non-Qualified Stock Options to
purchase shares of authorized but unissued or reacquired shares of common stock,
subject to adjustment to reflect certain events such as stock dividends, stock
splits,
44
<PAGE>
recapitalizations, mergers or reorganizations of or by Boyds. The 1998 Stock
Option Plan is intended to assist Boyds in attracting and retaining employees of
outstanding ability and to promote the identification of their interests with
those of the stockholders of Boyds. A total of 2,246,033 shares of common stock
have been authorized for issuance under the 1998 Stock Option Plan. Unless
sooner terminated by Boyds' board of directors, the 1998 Stock Option Plan will
expire in April 2008. Such termination will not affect the validity of any grant
outstanding on the date of termination.
The compensation committee of the board of directors administers the 1998
Stock Option Plan, including, without limitation, the determination of the
employees to whom grants will be made, the number of shares of common stock
subject to each grant, and the various terms of such grants, including the
period for vesting. The compensation committee of the board of directors may
from time to time amend the terms of any grant, but, except for adjustments made
upon a change in the common stock of Boyds by reason of a stock split, spin-off,
stock dividend, stock combination or reclassification, recapitalization,
reorganization, consolidation, change of control, or similar event, such action
shall not adversely affect the rights of any participant under the 1998 Stock
Option Plan with respect to the options without such participant's consent. The
board of directors retains the right to amend, suspend or terminate the 1998
Stock Option Plan.
LIMITATIONS ON LIABILITY OF BOYDS' DIRECTORS AND OFFICERS AND INDEMNIFICATION BY
BOYDS
Boyds' charter provides that to the fullest extent permitted by the Maryland
General Corporation Law, directors and officers of Boyds shall not be liable to
Boyds or its stockholders for monetary damages for breach of fiduciary duty as a
director or an officer. Under Maryland law, however, these provisions do not
eliminate or limit the personal liability of a director or an officer in either
of the following cases:
- to the extent that it is proved that the director or officer actually
received an improper benefit or profit
- if a judgment or other financial adjudication is entered in a proceeding
based on a finding that the director's or officer's action, or failure to
act, was the result of active and deliberate dishonesty and was material
to the cause of action adjudicated in such proceeding
These provisions also do not affect the ability of Boyds or its stockholders
to obtain equitable relief, such as an injunction or rescission.
As permitted by the MGCL, Boyds' charter obligates Boyds to indemnify its
directors and officers and to pay or reimburse expenses for such individuals in
advance of the final disposition of a proceeding to the maximum extent permitted
by Maryland law. Boyds' bylaws contain indemnification procedures which
implement the obligations of its charter. The MGCL permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities, unless any of the following is
established:
- the act or omission of the director of officer was material to the matter
giving rise to such proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty
- the director or officer actually received an improper benefit in money,
property or services
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the action or omission was unlawful
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Boyds
pursuant to the foregoing provisions, Boyds has been
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<PAGE>
informed 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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded or paid to, or
earned by, the chief executive officer of Boyds and Boyds' other four most
highly compensated executive officers (the "Named Executive Officers") during
fiscal 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
- --------------------------------------------------------------------------- --------- ---------- -------------
<S> <C> <C> <C>
Gary M. Lowenthal.......................................................... 220,800 -- 44,921
Chief Executive Officer
Robert T. Coccoluto(1)..................................................... -- -- 381,826
President
Christine L. Bell.......................................................... 122,229 1,815,000 --
Chief Operating Officer and Controller
Elizabeth E. Smith......................................................... 81,486 1,026,000 --
Vice President of Product Development
Peter H. Frost(2).......................................................... -- -- --
Vice President--Finance
</TABLE>
- ------------------------
(1) Mr. Coccoluto became an employee of Boyds on December 31, 1998 and will be
paid a base salary of $450,000 for fiscal 1999.
(2) Mr. Frost became an employee of Boyds on April 5, 1999 and will be paid a
base salary of $140,000 for fiscal 1999.
During fiscal 1998, Boyds did not pay any other forms of compensation,
whether annual, long-term or otherwise, to its Named Executive Officers.
STOCK OPTION GRANTS IN FISCAL 1998
The following table sets forth information concerning individual grants of
stock options made by Boyds during fiscal 1998 to each of the Named Executive
Officers. All of these options, which were granted pursuant to the 1998 Stock
Option Plan, were non-qualified, were granted at exercise prices not less than
fair value on the date of grant and have a term of ten years. Any outstanding
options will become immediately exercisable upon a change of control of Boyds.
The stock options expiring in July 2008 vested immediately upon their granting,
and the options expiring in December 2008 vest ratably over a five year period.
We recommend caution in interpreting the financial significance of the figures
representing the potential realizable value of the stock options. They are
calculated by multiplying the number of options granted by the difference
between a future hypothetical stock price and the option exercise price and are
shown pursuant to rules of the Securities and Exchange Commission. They assume
the fair value of common stock, which was $4.45 at the date of issuance,
appreciates 5% or 10% each year, compounded annually, for ten years (the life of
each option). They are not intended to forecast possible future appreciation, if
any, of such stock price or to establish a
46
<PAGE>
present value of options. Also, if appreciation does occur at the 5% or 10% per
year rate, the amounts shown would not be realized by the recipients until the
year 2008. Depending on inflation rates, these amounts may be worth
significantly less in 2008, in real terms, than their value today.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED IN 1998 ($/SHARE) DATE 5% 10%
- ------------------------- ----------- ----------------- ----------- ---------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary M. Lowenthal........ 44,921 4% $ 4.45 July 21, 2008 $ 125,779 $ 318,748
Robert T. Coccoluto...... 44,921 4% 4.45 July 21, 2008 125,779 318,748
336,905 30% 13.36 December 31, 2008 0 0
</TABLE>
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<PAGE>
RELATIONSHIPS AND TRANSACTIONS RELATED TO BOYDS
KKR 1996 Fund GP L.L.C. and Strata L.L.C., each affiliates of Kohlberg
Kravis Roberts & Co., at May 28, 1999 beneficially owned in the aggregate
approximately 56% of Boyds' outstanding shares of common stock on a fully
diluted basis. Accordingly, affiliates of KKR are able to elect the entire board
of directors of Boyds, control the management and policies of Boyds and, in
general, determine without the consent of Boyds' other stockholders the outcome
of any corporate transaction or other matter submitted to the stockholders for
approval, including mergers, consolidations and the sale of all or substantially
all of Boyds' assets. Affiliates of KKR are also able to prevent or cause a
change in control of Boyds and to amend Boyds' bylaws at any time. The members
of each of KKR 1996 GP L.L.C. and Strata L.L.C. are Messrs. Henry R. Kravis,
George R. Roberts, Messrs. Paul E. Raether, Michael W. Michelson, James H.
Greene, Jr., Michael T. Tokarz, Clifton S. Robbins, Edward A. Gilhuly, Perry
Golkin, Scott M. Stuart and Robert I. MacDonnell. Messrs. Kravis and Roberts
comprise the executive committee of each of KKR 1996 Fund GP L.L.C. and Strata
L.L.C. Messrs. Kravis, Roberts and Stuart are also directors of Boyds, as is
Marc S. Lipschultz, who is a limited partner of KKR Associates (Strata) L.P. and
an executive of KKR.
KKR received a cash fee of $6.0 million from Boyds for negotiating the
recapitalization and arranging the related financing, plus the reimbursement of
its associated expenses. In addition, KKR has agreed to render management,
consulting and financial services to Boyds for an annual fee of $375,000 plus
expenses, payable quarterly. During fiscal 1998, Boyds paid $251,367 to KKR for
such services and for reimbursement of expenses. During the first quarter ended
March 31, 1999, Boyds paid $134,000 to KKR for such services and reimbursements
of expenses.
In connection with the recapitalization, Bear Acquisition entered into a
registration rights agreement, dated April 21, 1998 with Boyds. Pursuant to such
agreement, Bear Acquisition has the right to require Boyds to register under the
Securities Act of 1933 shares of common stock held by Bear Acquisition. In
addition, the registration rights agreement also provides the KKR partnerships
with certain piggyback registration rights. The registration rights agreement
provides, among other things, that Boyds will pay all expenses in connection
with the first ten demand registrations requested by Bear Acquisition and in
connection with any registration in which Bear Acquisition participates through
piggyback registration rights granted under such agreement. Upon the liquidation
of Bear Acquisition, rights and obligations of Bear Acquisition under the
registration rights agreement with respect to demand registrations were
transferred to the KKR partnerships and with respect to piggyback registrations
were transferred to all the former stockholders of Bear Acquisition, including
the KKR partnerships.
Prior to the recapitalization, all shares of Boyds' common stock were
beneficially owned by Gary and Justina Lowenthal, a portion of which were
redeemed pursuant to the recapitalization. In connection with the
recapitalization, Boyds and Mr. Lowenthal entered into a registration rights
agreement granting Mr. Lowenthal piggyback registration rights with respect to
shares of common stock currently owned by him.
Advanced Design Group LLC has in the past rendered strategic consulting
services to Boyds. Robert T. Coccoluto, who is the president and a director of
Boyds, is owner and president of Advanced Design Group LLC. In addition, in
connection with the recapitalization, Mr. Coccoluto received $1.7 million in
payment for advisory services rendered to Boyds. Boyds does not expect that
Advanced Design Group LLC will render any future services to Boyds. See
"Management--Boyds' Directors and Executive Officers."
Boyds believes that the material terms of each of the transactions described
above are no more favorable than those that would have been agreed to by third
parties on an arm's length basis.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of Boyds' common stock as of March 31, 1999 by each of the following:
- each person who is known by Boyds to beneficially own more than 5% of
Boyds' common stock
- each of Boyds' directors
- each of the Named Executive Officers
- all directors and executive officers as a group
Unless otherwise indicated, the address of each person named in the table
below is The Boyds Collection, Ltd., 350 South Street, McSherrystown,
Pennsylvania 17344. The amounts and percentage of common stock beneficially
owned are reported on the basis of regulations of the Securities and Exchange
Commission governing the determination of beneficial ownership of securities.
Under the rules of the Commission, a person is deemed to be a "beneficial owner"
of a security if that person has or shares "voting power," which includes the
power to vote or to direct the voting of such security, or "investment power,"
which includes the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities of
which that person has a right to acquire beneficial ownership within 60 days.
Under these rules, more than one person may be deemed a beneficial owner of the
same securities and a person may be deemed to be a beneficial owner of
securities as to which such person has no economic interest.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF CLASS
NAME AND ADDRESS OWNED OUTSTANDING
- --------------------------------------------------------------------------------- ------------ -------------------
<S> <C> <C>
KKR 1996 GP L.L.C. and affiliates (1)............................................ 34,577,007 55.7%
c/o Kohlberg Kravis Roberts & Co. L.P.
9 West 57(th) Street
New York, New York 10019
The GJL L.L.C. (2)............................................................... 4,492,066 7.2
Gary M. Lowenthal................................................................ 5,682,463 9.2
Robert T. Coccoluto.............................................................. 112,302 *
Henry R. Kravis.................................................................. 217,381 *
George R. Roberts................................................................ 67,381 *
Scott M. Stuart.................................................................. 67,381 *
Marc S. Lipschultz (3)........................................................... 67,381 *
Timothy Brady.................................................................... -- --
Christine L. Bell................................................................ 212,250 *
Elizabeth E. Smith............................................................... 121,286 *
Peter H. Frost................................................................... -- --
All executive officers and directors as a group (11 individuals)................. 6,608,468 10.6
</TABLE>
- ------------------------
* Percentage of shares of common stock beneficially owned does not exceed one
percent.
(1) KKR 1996 GP L.L.C. is the sole general partner of KKR Associates 1996, L.P.,
which is the sole general partner of KKR 1996 Fund L.P.. KKR 1996 GP L.L.C.
beneficially owns 53.3% of the common stock. KKR 1996 GP L.L.C. is a limited
liability company, the members of which are Messrs. Henry R. Kravis, George
R. Roberts, Paul E. Raether, Michael W. Michelson, James H. Greene, Jr.,
Michael T. Tokarz, Clifton S. Robbins, Edward A. Gilhuly, Perry Golkin,
Scott M. Stuart and Robert I. MacDonnell. Messrs. Kravis and Roberts are
members of the executive committee of KKR 1996 GP L.L.C. Messrs. Kravis,
Roberts and Stuart are directors of Boyds. Each of the individuals who are
the members of KKR 1996 GP L.L.C. may be deemed to share
49
<PAGE>
beneficial ownership of any shares beneficially owned by KKR 1996 GP L.L.C.
Each of such individuals disclaims beneficial ownership of such shares.
Strata L.L.C., an affiliate of KKR 1996 GP L.L.C., beneficially owns 2.4% of
the common stock.
(2) Gary Lowenthal is the sole managing member of The GJL L.L.C., the other
member of which is Justina Lowenthal.
(3) Mr. Marc S. Lipschultz is a director of Boyds and is also an executive of
KKR and a limited partner of KKR Associates (Strata) L.P., which is an
affiliate of Strata L.L.C. Mr. Lipschultz disclaims beneficial ownership of
any shares beneficially owned by KKR Associates (Strata) L.P.
50
<PAGE>
DESCRIPTION OF THE CREDIT FACILITY
In April 1998, in connection with the recapitalization, Boyds entered into
the credit facility with a syndicate of banks and other financial institutions
led by DLJ Capital Funding, Inc., as arranger and syndication agent, Fleet
National Bank as administrative agent and The Fuji Bank, Limited, New York
Branch as documentation agent. The credit facility consists of the $325.0
million of loans under the term loan facility and the $40.0 million revolving
credit facility. The term loans are comprised of the $100.0 million Term Loan A,
which matures on April 21, 2005, and the $225.0 million Term Loan B, which
matures on April 21, 2006.
All of the term loans and the loans under the revolving credit facility bear
interest, at Boyds' option, at either of the following rates:
- the administrative agent's alternative base rate plus
-- in the case of Term Loan A and loans under the revolving credit
facility, a debt to EBITDA-dependent rate ranging from 0.00% to 1.00%
per year
-- in the case of Term Loan B, a debt to EBITDA-dependent rate ranging
from 0.75% to 1.25% per year
- a LIBOR rate plus
-- in the case of Term Loan A and loans under the revolving credit
facility, a debt to EBITDA-dependent rate ranging from 0.625% to
2.25% per year
-- in the case of Term Loan B, a debt to EBITDA-dependent rate ranging
from 2.00% to 2.50% per year
At March 31, 1999, the weighted average interest rate on the term loans was
6.848%.
Boyds also pays a commitment fee calculated at a debt to EBITDA--dependent
rate ranging from 0.25% to 0.50% per year of the available daily average unused
commitment under the credit facility. Such fee is payable quarterly in arrears
and upon the final maturity of the revolving credit facility.
In addition, Boyds pays a letter of credit fee calculated at the rate per
year of the face amount of each letter of credit then applicable to loans under
the revolving credit facility bearing interest based on LIBOR, less a fronting
fee calculated at a rate equal to 0.125% per year of the face amount of each
letter of credit. Such fees are payable quarterly in arrears. In addition, Boyds
will pay customary transaction charges in connection with any letters of credit.
Beginning April 21, 2000, term loans under the credit facility will amortize
in annual installments in the following percentages of aggregate amounts
outstanding:
<TABLE>
<CAPTION>
DATE TERM LOAN A TERM LOAN B
- ------------------------------------------------------------------------------------- ----------------- -----------------
<S> <C> <C>
April 21, 2000....................................................................... 7% 1%
April 21, 2001....................................................................... 11 1
April 21, 2002....................................................................... 14 1
April 21, 2003....................................................................... 17 1
April 21, 2004....................................................................... 23 1
April 21, 2005....................................................................... 28 1
April 21, 2006....................................................................... -- 94
</TABLE>
The term loans will be subject to mandatory prepayment with the proceeds of
certain asset sales and on an annual basis with 50% of Boyds' excess cash flow
if the ratio of Boyds' total debt to EBITDA is greater than 4.0:1.0 on the last
day of any fiscal year.
The credit facility contains covenants and provisions that restrict, among
other things, Boyds' ability to change its business, declare dividends, grant
liens, incur additional indebtedness, exceed a leverage ratio, fall below a
minimum interest coverage ratio and make certain capital expenditures. Boyds was
in compliance with these covenants as of March 31, 1999. The credit facility is
secured by a pledge of the limited partnership interests of, and is guaranteed
by, Boyds L.P.
51
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We have entered into a registration rights agreement with the initial
purchaser of the outstanding notes in which we agreed, under the circumstances
discussed in such agreement, to file a registration statement relating to an
offer to exchange the outstanding notes for exchange notes on or prior to 540
days after the issuance of the outstanding notes and to use our best efforts to
cause such registration statement to become effective no later than 75 days
after such 540(th) day. The exchange notes will have terms substantially
identical to the outstanding notes except that the exchange notes will not
contain terms with respect to transfer restrictions and provision relating to
the payment of liquidated damages. The outstanding notes were issued on April
21, 1998.
Under the circumstances set forth below, we will use our best efforts to
cause the Commission to declare effective a shelf registration statement with
respect to the resale of the outstanding notes and keep the statement effective
for up to two years after the effective date of the shelf registration statement
or such shorter period, which shall terminate when all the outstanding notes
covered by such registration statement have been sold pursuant to such
registration statement. These circumstances include each of the following:
- if the exchange offer is not permitted by applicable law or applicable
interpretation of the staff of the Commission
- if any holder of outstanding notes, other than a holder who has received
such notes pursuant to a Rule 144 sale, notifies us between 30 and 50 days
after the date that the exchange offer registration statement is declared
effective that any of the following apply:
(a) such holder was prohibited by law or Commission policy from
participating in the exchange offer
(b) such holder is unable to resell the exchange notes to the public
without delivering a prospectus and the prospectus in the exchange
offer registration statement is not available
(c) such holder is a broker-dealer under the Securities Exchange Act of
1934 and holds outstanding notes acquired directly from Boyds or any
of its affiliates
If we fail to comply with specified obligations under the registration
rights agreement, we will be required to pay additional interest to holders of
the outstanding notes. Please see "Description of the Exchange
Notes--Registration Rights; Liquidated Damages" for more details regarding the
registration rights agreement.
Each holder of outstanding notes that wishes to exchange such outstanding
notes for transferable exchange notes in the exchange offer will be required to
make each of the following representations:
- any exchange notes will be acquired in the ordinary course of its business
- such holder has no arrangement or understanding with any person to
participate in the distribution of the exchange notes
- such holder is not our "affiliate," as defined in Rule 405 of the
Securities Act of 1933, or, if it is our affiliate, that it will comply
with applicable registration and prospectus delivery requirements of the
Securities Act
RESALE OF EXCHANGE NOTES
Based on interpretations of the Commission staff in no action letters issued
to unrelated third parties, we believe that exchange notes issued under the
exchange offer in exchange for outstanding
52
<PAGE>
notes may be offered for resale, resold and otherwise transferred by any
exchange note holder without compliance with the registration and prospectus
delivery provisions of the Securities Act, if each of the following apply:
- such holder is not our "affiliate" within the meaning of Rule 405 under
the Securities Act
- such exchange notes are acquired in the ordinary course of the holder's
business
- the holder does not intend to participate in the distribution of such
exchange notes.
See "K-III Communications Corporation," SEC No-Action Letter (available May
14, 1993); "Mary Kay Cosmetics, Inc." SEC No-Action Letter (available June 5,
1991); "Morgan Stanley & Co., Incorporated," SEC No-Action Letter (available
June 5, 1991); and "Exxon Capital Holdings Corporation," SEC No-Action Letter
(available May 13, 1998).
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the exchange notes cannot rely
on the position of the staff of the Commission enunciated in "Exxon Capital
Holdings Corporation" or similar interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, resale or other
retransfer of exchange notes only as specifically discussed in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the outstanding
notes as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives exchange
notes for its own account in exchange for outstanding notes, where such
outstanding 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 the exchange notes.
Please see "Plan of Distribution" for more details regarding the transfer of
exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
notes properly tendered and not withdrawn prior to the expiration date. We will
issue $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only in integral multiples of $1,000.
The form and terms of the exchange notes will be substantially identical to
the form and terms of the outstanding notes except the exchange notes will be
registered under the Securities Act, will not bear legends restricting their
transfer and will not provide for any additional interest upon our failure to
fulfill our obligations under the registration rights agreement to file, and
cause to be effective, a registration statement. The exchange notes will
evidence the same debt as the outstanding notes. The exchange notes will be
issued under and entitled to the benefits of the same indenture that authorized
the issuance of the outstanding notes. Consequently, both series will be treated
as a single class of debt securities under that indenture. For a description of
the indenture, see "Description of the Exchange Notes."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
As of the date of this prospectus, $99 million aggregate principal amount of
the outstanding notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of outstanding notes. There
will be no fixed record date for determining registered holders of outstanding
notes entitled to participate in the exchange offer.
53
<PAGE>
We intend to conduct the exchange offer in accordance with the provisions of
the registration rights agreement, the applicable requirements of the Securities
Act and the Securities Exchange Act of 1934 and the rules and regulations of the
Commission. Outstanding notes that are not tendered for exchange in the exchange
offer will remain outstanding and continue to accrue interest and will be
entitled to the rights and benefits such holders have under the indenture
relating to the outstanding notes.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent. The exchange agent will act as agent for the tendering
holders for the purposes of receiving the exchange notes from us and delivering
exchange notes to such holders. Subject to the terms of the registration rights
agreement, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any outstanding notes not previously
accepted for exchange, upon the occurrence of any of the conditions specified
below under the caption "--Conditions to the Exchange Offer."
Holders who tender outstanding 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
outstanding notes. We will pay all charges and expenses, other than applicable
taxes described below, in connection with the exchange offer. It is important
that you read the section labeled "--Fees and Expenses" below for more details
regarding fees and expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on July 22,
1999, unless in our sole discretion, we extend it.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion to do any of the following:
- delay accepting for exchange any outstanding notes
- extend the exchange offer or to terminate the exchange offer and to refuse
to accept outstanding notes not previously accepted if any of the
conditions set forth below under "--Conditions to the Exchange Offer" have
not been satisfied, by giving oral or written notice of such delay,
extension or termination to the exchange agent
- subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice of such event to
the registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of outstanding notes of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
54
<PAGE>
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange if in our reasonable judgment any
of the following apply:
- the exchange notes to be received will not be tradeable by the holder,
without restriction under the Securities Act, the Securities Exchange Act
of 1934 and without material restrictions under the blue sky or securities
laws of substantially all of the states of the United States
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the Commission
- any action or proceeding has been instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
that, in our judgment, would reasonably be expected to impair our ability
to proceed with the exchange offer
In addition, we will not be obligated to accept for exchange the outstanding
notes of any holder that has not made to us (1) the representations described
under "--Purpose and Effect of the Exchange Offer," "--Procedures for Tendering"
and "Plan of Distribution" and (2) such other representations as may be
reasonably necessary under applicable Commission rules, regulations or
interpretations to make available to us an appropriate form for registration of
the exchange notes under the Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any outstanding notes by giving oral or written notice of
such extension to their holders. During any such extensions, all outstanding
notes previously tendered will remain subject to the exchange offer, and we may
accept them for exchange. We will return any outstanding notes that we do not
accept for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. In the case of any extension, such notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the rights discussed above, this failure will not constitute
a waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes tendered,
and will not issue exchange notes in exchange for any such outstanding notes, if
at such time any stop order will be threatened or in effect with respect to (1)
the registration statement of which this prospectus constitutes a part or (2)
the qualification of the indenture under the Trust Indenture Act of 1939.
55
<PAGE>
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must do either of the
following:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to the
expiration date
- comply with DTC's Automated Tender Offer Program procedures described
below
In addition, one of the following must occur:
- the exchange agent must receive outstanding notes along with the letter of
transmittal
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such outstanding notes into the
exchange agent's account at DTC according to the procedure for book-entry
transfer described below or a properly transmitted agent's message
- the holder must comply with the guaranteed delivery procedures described
below
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "--Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of outstanding notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or outstanding notes to
us. Holders may request their respective brokers, dealers, commercial banks,
trust companies or other nominees to effect the above transactions for them.
Any beneficial owner whose outstanding 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 it to
tender on the owner's behalf.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or the National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the United States or
another "eligible institution" within the meaning of Rule 17Ad-15 under the
Exchange Act, unless the outstanding notes tendered pursuant to the letter of
transmittal or notice of withdrawal are tendered in either of the following
manners:
- by a registered holder who has not competed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal
- for the account of an eligible institution
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed on the outstanding notes, such
outstanding notes must be endorsed or accompanied by a properly completed bond
power. The bond power must be signed by the registered
56
<PAGE>
holder as the registered holder's name appears on the outstanding notes and an
eligible institution must guarantee the signature on the bond power.
If the letter of transmittal or any outstanding 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. Unless waived by us,
they should also submit evidence satisfactory to us of their authority to
deliver the letter of transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the outstanding notes to the exchange
agent in accordance with its procedures for transfer. DTC will then send an
agent's message to the exchange agent. The term "agent's message" means a
message transmitted by DTC, received by the exchange agent and forming part of
the book-entry confirmation, to the effect that each of the following apply:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering outstanding notes that
are the subject of such book-entry confirmation
- such participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery
- the agreement may be enforced against such participant
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance of tendered outstanding
notes and withdrawal of tendered outstanding notes. Our determination will be
final and binding. We reserve the absolute right to reject any outstanding notes
not properly tendered or any outstanding 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 outstanding
notes. 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 outstanding 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 outstanding notes, neither we, the
exchange agent nor any other person will incur any liability for failure to give
such notification. Tenders of outstanding notes will not be deemed made until
such defects or irregularities have been cured or waived. Any outstanding 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 to
the exchange agent without cost to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
57
<PAGE>
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange under the exchange offer only after the exchange
agent timely receives both of the following:
- outstanding notes or a timely book-entry confirmation of such outstanding
notes into the exchange agent's account at DTC
- a properly completed and duly executed letter of transmittal and all other
required documents or a properly transmitted agent's message
By signing the letter of transmittal, each tendering holder of outstanding
notes will represent to us that, among other things:
- any exchange notes that the holder receives will be acquired in the
ordinary course of its business
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the exchange notes
- if the holder is not a broker-dealer, 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 that will receive exchange notes for its
own account in exchange for outstanding notes that were acquired as a
result of market-making activities, that it will deliver a prospectus, as
required by law, in connection with any resale of such exchange notes
- the holder is not our "affiliate," as defined in Rule 405 of the
Securities Act of 1933, or, if the holder is our affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus; and any financial institution participating
in DTC's system may make book-entry delivery of outstanding notes by causing DTC
to transfer such outstanding notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. Holders of outstanding notes who
are unable to deliver confirmation of the book-entry tender of their outstanding
notes into the exchange agent's account at DTC or all other documents required
by the letter of transmittal to the exchange agent on or prior to the expiration
date must tender their outstanding notes according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their outstanding notes but whose outstanding
notes are not immediately available or who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent or comply with the applicable procedures under DTC's Automated Tender
Offer Program prior to the expiration date may tender if each of the following
occurs:
- the tender is made through an eligible institution
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery, by facsimile transmission, mail or hand delivery,
or a properly transmitted agent's message and notice of guaranteed
delivery complying with each of the following:
(1) setting forth the name and address of the holder, the registered
number(s) of such outstanding notes and the principal amount of
outstanding notes tendered
(2) stating that the tender is being made by such notice of guaranteed
delivery
(3) guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal, or facsimile of
such letter of transmittal, together with the outstanding notes or a
book-entry confirmation, and any other documents
58
<PAGE>
required by the letter of transmittal will be deposited by the
eligible institution with the exchange agent
- the exchange agent receives such properly completed and executed letter of
transmittal, or facsimile of such letter of transmittal, as well as all
tendered outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three New York State Exchange trading days after the
expiration date
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of outstanding
notes may withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective, either of the following must be done:
- the exchange agent must receive a written notice, which may be by
telegram, telex, facsimile transmission or letter, of withdrawal at one of
the addresses set forth below under "--Exchange Agent"
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system
Any such notice of withdrawal must indicate each of the following:
- the name of the person who tendered the outstanding notes to be withdrawn
- the identity of the outstanding notes to be withdrawn, including the
principal amount of such outstanding notes
- where certificates for outstanding notes have been transmitted, the name
in which such outstanding notes were registered, if different from that of
the withdrawing holder
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit both of the following:
- the serial numbers of the particular certificates to be withdrawn
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn
outstanding notes and otherwise comply with the procedures of such facility. We
will determine all questions as to the validity, form and eligibility, including
time of receipt, of such notices, and our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have validly tendered for exchange for purposes of the exchange offer. Any
outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be (1) returned to their holder without cost to
the holder or (2) in the case of outstanding notes tendered by book-entry
transfer into the exchange agent's account at DTC according to the procedures
described above, such outstanding notes will be credited to an account
maintained with DTC for outstanding notes, as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn outstanding notes may be retendered by following one of the procedures
described under "--Procedures for Tendering" above at any time on or prior to
the expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the
59
<PAGE>
letter of transmittal and requests for the notice of guaranteed delivery to the
exchange agent addressed as follows:
<TABLE>
<CAPTION>
BY HAND DELIVERY: BY MAIL:
<S> <C>
The Bank of New York (INSURED OR REGISTERED RECOMMENDED)
101 Barclay Street The Bank of New York
New York, New York 10286 101 Barclay Street
Attn: Santino Gincchietti, New York, New York 10286
Corporate Trust Operations, 7E Attn: Santino Gincchietti,
Corporate Trust Operations, 7E
<CAPTION>
BY OVERNIGHT COURIER: BY FACSIMILE:
<S> <C>
The Bank of New York The Bank of New York
101 Barclay Street (212) 815-4699 Attn: Santino Gincchietti,
New York, New York 10286 Corporate Trust Operations, 7E
Attn: Santino Gincchietti, CONFIRM BY TELEPHONE:
Corporate Trust Operations, 7E (212) 815-2963
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer, which are estimated in the aggregate to be approximately $200,000. They
include the following:
- registration fees under the Securities Act
- fees and expenses of the exchange agent and trustee
- accounting and legal fees and printing costs
- related fees and expenses
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, in each of the following cases:
- certificates representing outstanding notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes under the exchange offer.
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If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of outstanding notes who do not exchange their outstanding notes for
exchange notes under the exchange offer will remain subject to each of the
following restrictions on transfer of such outstanding notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the outstanding notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws
- otherwise set forth in the offering memorandum distributed in connection
with the private offering of the outstanding notes.
In general, you may not offer or sell the outstanding notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the outstanding notes under the Securities Act. Based on
interpretations of the Commission staff, exchange notes issued pursuant to the
exchange offer may be offered for resale, resold or otherwise transferred by
their holders, other than any such holder that is our "affiliate" within the
meaning of Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holders acquired the exchange notes in the ordinary course of the
holders' business and the holders have no arrangement or understanding with
respect to the distribution of the exchange notes to be acquired in the exchange
offer. Any holder who tenders in the exchange offer for the purpose of
participating in a distribution of the exchange notes could not rely on the
applicable interpretations of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
ACCOUNTING TREATMENT
We will record the exchange notes in our accounting records at the same
carrying value as the outstanding notes, which is the aggregate principal
amount, as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes in
connection with the exchange offer. We will record the expenses of the exchange
offer as incurred.
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DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The outstanding Notes were issued, and the exchange Notes will be issued,
pursuant to an Indenture (the "INDENTURE") between Boyds and The Bank of New
York, as trustee (the "TRUSTEE"), in a private transaction that was not subject
to the registration requirements of the Securities Act. Upon the issuance of the
exchange Notes, if any, or the effectiveness of the Shelf Registration
Statement, the Indenture will be subject to and governed by The Trust Indenture
Act of 1939, as amended (the "TRUST INDENTURE ACT"). The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders of Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summarizes the material provisions of the
Indenture and is qualified in its entirety by reference to the provisions of the
Indenture, including the definitions therein of certain terms used below. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions." For purposes of this summary, the term "NOTES"
refers to the 9% Senior Subordinated Notes due 2008, together with the 9% Series
B Senior Subordinated Notes due 2008. For purposes of this summary, the term
"BOYDS" refers only to The Boyds Collection, Ltd. and not to any of its
Subsidiaries.
The outstanding Notes are, and the exchange Notes will be, general unsecured
obligations of Boyds and are or will be subordinated in right of payment to all
existing and future Senior Indebtedness of Boyds, including Indebtedness
pursuant to the Credit Facility. As of March 31, 1999, the aggregate amount of
Boyds' outstanding Senior Indebtedness was approximately $175.0 million. In
addition, Boyds had additional borrowing availability of approximately $40.0
million as of March 31, 1999, subject to certain limitations, and all of such
additional borrowings may be senior to the Notes. The outstanding Notes also
are, and the exchange Notes will also be, effectively subordinated to all
Indebtedness and other obligations (including trade payables) of Boyds'
Subsidiaries, including The Boyds Collection, Ltd., L.P. Any right of Boyds to
receive assets of any of its Subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
that Subsidiary's creditors. Also, substantially all of the operations of Boyds
are conducted through The Boyds Collection, Ltd., L.P. and, therefore, Boyds is
dependent upon the cash flow of The Boyds Collection, Ltd., L.P. to meet its
obligations, including its obligations under the Notes. The Indenture will
permit Boyds to incur additional indebtedness, including Senior Indebtedness,
subject to certain limitations. See "Risk Factors--Our substantial indebtedness
could adversely affect our financial health and prevent us from fulfilling our
obligations under the outstanding notes and the exchange notes," "--Because your
right to receive payments on the outstanding notes and the exchange notes is
junior to our existing indebtedness and possibly all future borrowings, you
could rank behind many of our creditors in any potential bankruptcy proceedings"
and "--Because we are a holding company, your right to receive payment on the
outstanding notes and the exchange notes is dependent upon our ability to
receive dividends and distributions from our subsidiaries."
Under certain circumstances, Boyds will be able to designate future
Subsidiaries as Unrestricted Subsidiaries or Restricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture.
SUBORDINATION
The payment of the Subordinated Note Obligations will be subordinated in
right of payment, as set forth in the Indenture, to the prior payment in full in
cash equivalents of all Senior Indebtedness, whether outstanding on the date of
the Indenture or thereafter incurred. Upon any distribution to creditors of
Boyds in a liquidation or dissolution of Boyds or in a bankruptcy,
reorganization,
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insolvency, receivership or similar proceeding relating to Boyds or its
property, an assignment for the benefit of creditors or any marshalling of
Boyds' assets and liabilities, the holders of Senior Indebtedness will be
entitled to receive payment in full in cash equivalents of such Senior
Indebtedness before the Holders will be entitled to receive any payment with
respect to the Subordinated Note Obligations, and until all Senior Indebtedness
is paid in full in cash equivalents, any distribution to which the Holders would
be entitled shall be made to the holders of Senior Indebtedness (except that
Holders may receive (i) shares of stock and any debt securities that are
subordinated at least to the same extent as the Notes to (a) Senior Indebtedness
and (b) any securities issued in exchange for Senior Indebtedness and (ii)
payments made from the trusts described under "--Legal Defeasance and Covenant
Defeasance").
Boyds also may not make any payment upon or in respect of the Subordinated
Note Obligations (except in such subordinated securities or from the trust
described under "--Legal Defeasance and Covenant Defeasance") if (i) a default
in the payment of the principal of, premium, if any, or interest on, or of
unreimbursed amounts under drawn letters of credit or in respect of bankers'
acceptances or fees relating to letters of credit or bankers' acceptances
constituting, Designated Senior Indebtedness occurs and is continuing beyond any
applicable period of grace (a "PAYMENT DEFAULT") or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity (a "NON-PAYMENT DEFAULT") and the Trustee
receives a notice of such default (a "PAYMENT BLOCKAGE NOTICE") from a
representative of holders of such Designated Senior Indebtedness. Payments on
the Notes, including any missed payments, may and shall be resumed (a) in the
case of a payment default, upon the date on which such default is cured or
waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full in cash equivalents and (b) in case
of a nonpayment default, the earlier of (x) the date on which such nonpayment
default is cured or waived, (y) 179 days after the date on which the applicable
Payment Blockage Notice is received (each such period, the "PAYMENT BLOCKAGE
PERIOD") or (z) the date such Payment Blockage Period shall be terminated by
written notice to the Trustee from the requisite holders of such Designated
Senior Indebtedness necessary to terminate such period or from their
representative. No new period of payment blockage may be commenced unless and
until 365 days have elapsed since the effectiveness of the immediately preceding
Payment Blockage Notice. However, if any Payment Blockage Notice within such
365-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the credit facility), the agent under
the credit facility may give another Payment Blockage Notice within such period.
In no event, however, may the total number of days during which any Payment
Blockage Period or Periods is in effect exceed 179 days in the aggregate during
any 365 consecutive day period. 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
days.
If Boyds fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders to accelerate the maturity
thereof.
The Indenture will further require that Boyds promptly notify holders of
Senior Indebtedness 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
insolvency, bankruptcy, administration, reorganization, receivership or similar
proceedings relating to Boyds, Holders may recover less ratably than creditors
of Boyds who are holders of Senior Indebtedness. At March 31, 1999, Boyds had
approximately $175.0 million of Senior Indebtedness outstanding. In addition,
Boyds had additional borrowing availability of approximately $40.0 million as of
March 31, 1999, subject to
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certain limitations. In addition, the Notes are structurally subordinated to the
liabilities of Subsidiaries of Boyds, including The Boyds Collection, Ltd., L.P.
Although the Indenture contains limitations on the amount of additional
Indebtedness that Boyds and its Subsidiaries may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "--Certain
Covenants--Limitations on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
"Designated Senior Indebtedness" means (i) Senior Indebtedness under the
Credit Facility and (ii) any other Senior Indebtedness permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by Boyds as Designated Senior Indebtedness.
"Senior Indebtedness" means (i) the Obligations under the credit facility
and (ii) any other Indebtedness permitted to be incurred by Boyds under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in right
of payment to the Notes, including, with respect to (i) and (ii), interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition for bankruptcy, whether or not such interest is an
allowable claim in such bankruptcy proceeding. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (1) any
liability for federal, state, local or other taxes owed or owing by Boyds, (2)
any obligation of Boyds to any of its Subsidiaries, (3) any accounts payable or
trade liabilities arising in the ordinary course of business (including
instruments evidencing such liabilities) other than obligations in respect of
bankers' acceptances and letters of credit under the credit facility, (4) any
Indebtedness that is incurred in violation 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 Boyds, (6) any
Indebtedness, guarantee or obligation of Boyds which is subordinate or junior to
any other Indebtedness, guarantee or obligation of Boyds, (7) Indebtedness
evidenced by the Notes and (8) Capital Stock of Boyds.
"Subordinated Note Obligations" means any principal of, premium, if any, and
interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, together with and including any amounts received upon the exercise
of rights of rescission or other rights of action (including claims for damages)
or otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal, premium, if any, or interest on the
Notes.
The outstanding Notes rank, and the exchange Notes will rank, senior in
right of payment to all Subordinated Indebtedness of Boyds. Currently, Boyds has
no Subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $99.0 million and
will mature on May 15, 2008. Interest on the Notes accrues at the rate of 9% per
annum and is payable semi-annually in arrears on May 15 and November 15 to
Holders of record on the immediately preceding May 1 and November 1. Interest on
the Notes accrues from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes is payable at the
office or agency of Boyds maintained for such purpose within the City and State
of New York or at such office or agency of Boyds as may be maintained for such
purpose or, at the option of Boyds, payment of interest may be made by check
mailed to the Holders of the Notes at their respective addresses set forth in
the register of Holders; PROVIDED that all payments of principal, premium, if
any, and interest with respect to Notes the Holders of which have given wire
transfer instructions to Boyds will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by Boyds, Boyds' office or agency in New York will be
the office of the Trustee maintained for such purpose. The Notes are issued in
denominations of $1,000 and integral multiples thereof.
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MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," Boyds
is not required to make mandatory redemption or sinking fund payments with
respect to the Notes.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable at Boyds' option
prior to May 15, 2003. From and after May 15, 2003, the Notes will be subject to
redemption at any time at the option of Boyds, in whole or in part, upon not
less than 30 nor more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below, plus accrued and unpaid
interest, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on May 15 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- -----------------
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2003........................................................................ 104.5%
2004........................................................................ 103.0
2005........................................................................ 101.5
2006 and thereafter......................................................... 100.0%
</TABLE>
In addition, at any time or from time to time, on or prior to May 15, 2001,
Boyds may, at its option, redeem up to 40% of the aggregate principal amount of
Notes originally issued under the Indenture on the Issuance Date at a redemption
price equal to 109% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the redemption date, with the net cash
proceeds of one or more Equity Offerings; PROVIDED that at least 60% of the
aggregate principal amount of Notes originally issued under the Indenture on the
Issuance Date remains outstanding immediately after the occurrence of each such
redemption; PROVIDED FURTHER that each such redemption occurs within 60 days of
the date of closing of each such Equity Offering. The Trustee shall select the
Notes to be purchased in the manner described under "Repurchase at the Option of
Holders-- Selection and Notice." On April 12, 1999, Boyds used the proceeds of
its initial public offering of its common stock to redeem 40% of the aggregate
principal amount of Notes originally issued. See "Prospectus Summary--The
Recapitalization and Subsequent Transactions."
At any time on or prior to May 15, 2003, the Notes may also be redeemed, in
whole but not in part, at the option of Boyds upon the occurrence of a Change of
Control, upon not less than 30 nor more than 60 days prior notice (but in no
event more than 90 days after the occurrence of such Change of Control or
transfer event) mailed by first-class mail to each Holder's registered address,
at a redemption price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued and unpaid interest to, the date of
redemption (the "Redemption Date") (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date).
"Applicable Premium" means, with respect to any Note on any Redemption Date,
the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess
of (A) the present value at such Redemption Date of (1) the redemption price of
such Note at May 15, 2003 (such redemption price being set forth in the table
above) plus (2) all required interest payments due on such Note through May 15,
2003 (excluding accrued but unpaid interest), computed using a discount rate
equal to the Treasury Rate on such Redemption Date plus 75 basis points over (B)
the principal amount of such Note.
"Treasury Rate" means, as of any Redemption Date, the yield to maturity as
of such Redemption Date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to the Redemption Date (or, if such Statistical Release is
no longer published,
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any publicly available source of similar market data)) most nearly equal to the
period from the Redemption Date to May 15, 2003; PROVIDED, HOWEVER, that if the
period from the Redemption Date to May 15, 2003 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.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
unless Boyds has elected to redeem the Notes in connection with such Change of
Control, Boyds will make an offer to purchase all or any part (equal to $1,000
or an integral multiple thereof) of the Notes pursuant to the offer described
below (the "CHANGE OF CONTROL OFFER") at a price in cash (the "CHANGE OF CONTROL
PAYMENT") equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase. The Indenture provides
that within 30 days following any Change of Control, Boyds will mail a notice to
each Holder of Notes issued under the Indenture, with a copy to the Trustee,
with the following information: (1) a Change of Control Offer is being made
pursuant to the covenant entitled "Offer to Repurchase Upon Change of Control,"
and that all Notes properly tendered pursuant to such Change of Control Offer
will be accepted for payment; (2) the purchase price and the purchase date,
which will be no earlier than 30 days nor later than 60 days from the date such
notice is mailed, except as may be otherwise required by applicable law (the
"CHANGE OF CONTROL PAYMENT DATE"); (3) any Note not properly tendered will
remain outstanding and continue to accrue interest; (4) unless Boyds defaults in
the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer will cease to accrue interest on the
Change of Control Payment Date; (5) Holders electing to have any Notes purchased
pursuant to a Change of Control Offer will be required to surrender the Notes,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Notes completed, to the paying agent specified in the notice at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) Holders will be entitled to
withdraw their tendered Notes and their election to require Boyds to purchase
such Notes, PROVIDED that the paying agent receives, not later than the close of
business on the last day of the Offer Period (as defined in the Indenture), a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Notes tendered for purchase, and a statement
that such Holder is withdrawing his tendered Notes and his election to have such
Notes purchased; and (7) that Holders whose Notes are being purchased only in
part will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof.
The Indenture provides that, prior to complying with the provisions of this
covenant, but in any event within 30 days following a Change of Control, Boyds
will either repay all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under any outstanding Senior Indebtedness to permit the
repurchase of the Notes required by this covenant.
Boyds will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
or regulations are applicable in connection with the repurchase of the Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Indenture,
Boyds will comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations described in the Indenture by
virtue thereof.
The Indenture provides that on the Change of Control Payment Date, Boyds
will, to the extent permitted by law, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of Control Offer, (2)
deposit with the paying agent an amount equal to the aggregate Change of Control
Payment in respect of all Notes or portions thereof so tendered and (3) deliver,
or
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cause to be delivered, to the Trustee for cancellation the Notes so accepted
together with an Officers' Certificate stating that such Notes or portions
thereof have been tendered to and purchased by Boyds. The Indenture provides
that the paying agent will promptly mail to each Holder of Notes 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 such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. Boyds 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 credit facility prohibits, and future credit agreements or other
agreements relating to Senior Indebtedness to which Boyds becomes a party may
prohibit, Boyds from purchasing any Notes as a result of a Change of Control
and/or provide that certain change of control events with respect to Boyds would
constitute a default thereunder. In the event a Change of Control occurs at a
time when Boyds is prohibited from purchasing the Notes, Boyds could seek the
consent of its lenders to the purchase of the Notes or could attempt to
refinance the borrowings that contain such prohibition. If Boyds does not obtain
such a consent or repay such borrowings, Boyds will remain prohibited from
purchasing the Notes. In such case, Boyds' failure to purchase tendered Notes
would constitute an Event of Default under the Indenture. If, as a result
thereof, a default occurs with respect to any Senior Indebtedness, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of the Notes.
The existence of a Holder's right to require Boyds to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire Boyds in a transaction that would constitute a
Change of Control.
ASSET SALES
The Indenture provides that Boyds will not, and will not permit any of its
Restricted Subsidiaries to, cause, make or suffer to exist an Asset Sale, unless
(x) Boyds, or its Restricted Subsidiaries, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by Boyds) of the assets sold or otherwise
disposed of and (y) at least 75% of the consideration therefor received by
Boyds, or such Restricted Subsidiary, as the case may be, is in the form of cash
or Cash Equivalents; PROVIDED that the amount of (a) any liabilities (as shown
on Boyds' or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of Boyds or any Restricted Subsidiary (other than liabilities
that are by their terms subordinated to the Notes), that are assumed by the
transferee of any such assets, (b) any notes or other obligations received by
Boyds or such Restricted Subsidiary from such transferee that are converted by
Boyds or such Restricted Subsidiary into cash (to the extent of the cash
received) within 180 days following the closing of such Asset Sale and (c) any
Designated Noncash Consideration received by Boyds or any of its Restricted
Subsidiaries in such Asset Sale having an aggregate fair market value, taken
together with all other Designated Noncash Consideration received pursuant to
this clause (c) that is at that time outstanding, not to exceed the greater of
(x) $35.0 million or (y) 15% of Total Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the time received and without
giving effect to subsequent changes in value), shall be deemed to be cash for
purposes of this provision and for no other purpose.
Within 365 days after Boyds' or any Restricted Subsidiary's receipt of the
Net Proceeds of any Asset Sale, Boyds or such Restricted Subsidiary may apply
the Net Proceeds from such Asset Sale, at its option, (i) to permanently reduce
Obligations under the credit facility (and to correspondingly reduce commitments
with respect thereto) or other Senior Indebtedness or Pari Passu Indebtedness
(PROVIDED that if Boyds shall so reduce Obligations under Pari Passu
Indebtedness, it will equally and ratably reduce Obligations under the Notes if
the Notes are then prepayable or, if the Notes may not
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be then prepaid, Boyds shall make an offer (in accordance with the procedures
set forth below for an Asset Sale Offer) to all Holders to purchase at 100% of
the principal amount thereof the amount of Notes that would otherwise be
prepaid), (ii) to an investment in any one or more businesses, capital
expenditures or acquisitions of other assets in each case, used or useful in a
Similar Business and/or (iii) to make an investment in properties or assets that
replace the properties and assets that are the subject of such Asset Sale.
Pending the final application of any such Net Proceeds, Boyds or such Restricted
Subsidiary may temporarily reduce Indebtedness under a revolving credit
facility, if any, or otherwise invest such Net Proceeds in Cash Equivalents or
Investment Grade Securities. The Indenture provides that any Net Proceeds from
the Asset Sale that are not invested as provided and within the time period set
forth in the first sentence of this paragraph will be deemed to constitute
"EXCESS PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $15.0
million, Boyds shall make an offer to all Holders of Notes (an "ASSET SALE
OFFER") to purchase the maximum principal amount of Notes, that is an integral
multiple of $1,000, that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, to the date fixed for the closing of such offer, in
accordance with the procedures set forth in the Indenture. Boyds will commence
an Asset Sale Offer with respect to Excess Proceeds within ten Business Days
after the date that Excess Proceeds exceeds $15.0 million by mailing the notice
required pursuant to the terms of the Indenture, with a copy to the Trustee. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, Boyds may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased in the manner described under the
caption "Selection and Notice" below. Upon completion of any such Asset Sale
Offer, the amount of Excess Proceeds shall be reset at zero.
Boyds will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
or regulations are applicable in connection with the repurchase of the Notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Indenture,
Boyds will comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations described in the Indenture by
virtue thereof.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time or if more
Notes are tendered pursuant to an Asset Sale Offer than Boyds is required to
purchase, selection of such Notes for redemption or purchase, as the case may
be, will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or, if such Notes are not so listed, on a pro rata basis, by lot or by such
other method as the Trustee shall deem fair and appropriate (and in such manner
as complies with applicable legal requirements); PROVIDED that no Notes of
$1,000 or less shall be purchased or redeemed in part.
Notices of purchase or redemption shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase or
redemption date to each Holder of Notes to be purchased or redeemed at such
Holder's registered address. If any Note is to be purchased or redeemed in part
only, any notice of purchase or redemption that relates to such Note shall state
the portion of the principal amount thereof that has been or is to be purchased
or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date unless Boyds defaults in payment of the purchase or
redemption price, interest shall cease to accrue on Notes or portions thereof
purchased or called for redemption.
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CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that Boyds will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any distribution on account of Boyds' or any of its Restricted
Subsidiaries' Equity Interests, including any dividend or distribution payable
in connection with any merger or consolidation (other than (A) dividends or
distributions by Boyds payable in Equity Interests (other than Disqualified
Stock) of Boyds or (B) dividends or distributions by a Restricted Subsidiary so
long as, in the case of any dividend or distribution payable on or in respect of
any class or series of securities issued by a Subsidiary other than a Wholly
Owned Subsidiary, Boyds or a Restricted Subsidiary receives at least its PRO
RATA share of such dividend or distribution in accordance with its Equity
Interests in such class or series of securities); (ii) purchase, redeem, defease
or otherwise acquire or retire for value any Equity Interests of Boyds or any
direct or indirect parent of Boyds; (iii) make any principal payment on, or
redeem, repurchase, defease or otherwise acquire or retire for value in each
case, prior to any scheduled repayment, or maturity, any Subordinated
Indebtedness (other than Indebtedness permitted under clauses (g) and (i) of the
covenant described under "Limitations on Incurrence of Indebtedness and Issuance
of Disqualified Stock"); 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 such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, Boyds could incur $1.00 of additional
Indebtedness under the provisions of the first paragraph of "--Limitations
on Incurrence of Indebtedness and Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Boyds and its Restricted Subsidiaries
after the Issuance Date (including Restricted Payments permitted by clauses
(i), (ii) (with respect to the payment of dividends on Refunding Capital
Stock pursuant to clause (b) thereof), (v) (only to the extent that amounts
paid pursuant to such clause are greater than amounts that would have been
paid pursuant to such clause if $3.75 million and $7.50 million were
substituted in such clause for $7.50 million and $15.0 million,
respectively), (vi), (ix) and (x) of the next succeeding paragraph, but
excluding all other Restricted Payments permitted by the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net Income
of Boyds for the period (taken as one accounting period) from the fiscal
quarter that first begins after the Issuance Date to the end of Boyds' most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, in the case such
Consolidated Net Income for such period is a deficit, minus 100% of such
deficit), PLUS (ii) 100% of the aggregate net cash proceeds and the fair
market value, as determined in good faith by the Board of Directors, of
marketable securities received by Boyds since immediately after the closing
of the Recapitalization from the issue or sale of Equity Interests of Boyds
(including Refunding Capital Stock (as defined below), but excluding cash
proceeds and marketable securities received from the sale of Equity
Interests to members of management, directors or consultants of Boyds and
its Subsidiaries after the Issuance Date to the extent such amounts have
been applied to Restricted Payments in accordance with clause (v) of the
next succeeding paragraph and excluding Excluded Contributions) or debt
securities of Boyds that have been converted into such Equity Interests of
Boyds (other than Refunding Capital Stock (as defined below) or Equity
Interests or convertible debt securities of Boyds sold to a Restricted
Subsidiary of Boyds and other than Disqualified Stock or debt securities
that have been converted
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into Disqualified Stock), PLUS (iii) 100% of the aggregate amount of cash
and marketable securities contributed to the capital of Boyds following the
Issuance Date (excluding Excluded Contributions), PLUS (iv) 100% of the
aggregate amount received in cash and the fair market value of marketable
securities (other than Restricted Investments) received from (A) the sale or
other disposition (other than to Boyds or a Restricted Subsidiary) of
Restricted Investments made by Boyds and its Restricted Subsidiaries or (B)
a dividend from, or the sale (other than to Boyds or a Restricted
Subsidiary) of the stock of, an Unrestricted Subsidiary (other than an
Unrestricted Subsidiary the Investment in which was made by Boyds or a
Restricted Subsidiary pursuant to clauses (vii) or (xi) below).
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) (a) the redemption, repurchase, retirement or other acquisition of
any Equity Interests (the "RETIRED CAPITAL STOCK") or Subordinated
Indebtedness of Boyds in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Restricted Subsidiary) of,
Equity Interests of Boyds (other than any Disqualified Stock) (the
"REFUNDING CAPITAL STOCK"), and (b) if immediately prior to the retirement
of Retired Capital Stock, the declaration and payment of dividends thereon
was permitted under clause (vi) of this paragraph, the declaration and
payment of dividends on the Refunding Capital Stock in an aggregate amount
per year no greater than the aggregate amount of dividends per annum that
was declarable and payable on such Retired Capital Stock immediately prior
to such retirement; PROVIDED, HOWEVER, that at the time of the declaration
of any such dividends, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(iii) distributions or payments of Receivables Fees;
(iv) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of Boyds made by exchange for, or out of the
proceeds of the substantially concurrent sale of, new Indebtedness of Boyds
so long as (A) the principal amount of such new Indebtedness does not exceed
the principal amount of the Subordinated Indebtedness being so redeemed,
repurchased, acquired or retired for value (plus the amount of any premium
required to be paid under the terms of the instrument governing the
Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired), (B) such Indebtedness is subordinated to the Senior Indebtedness
and the Notes at least to the same extent as such Subordinated Indebtedness
so purchased, exchanged, redeemed, repurchased, acquired or retired for
value, (C) such Indebtedness has a final scheduled maturity date equal to or
later than the final scheduled maturity date of the Subordinated
Indebtedness being so redeemed, repurchased, acquired or retired and (D)
such Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the
Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired;
(v) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of common Equity Interests of Boyds held
by any future, present or former employee, director or consultant of Boyds
or any Subsidiary pursuant to any management equity plan or stock option
plan or any other management or employee benefit plan or agreement;
PROVIDED, HOWEVER, that the aggregate Restricted Payments made under this
clause (v) does not exceed in any calendar year $7.5 million (with unused
amounts in any calendar year being carried over to succeeding calendar years
subject to a maximum (without giving effect to the following proviso) of
$15.0 million in any calendar year); PROVIDED FURTHER that such amount in
any calendar year may be increased by an amount not to exceed (i) the cash
proceeds from the sale of Equity Interests of Boyds to members of
management, directors or consultants of Boyds and its
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Subsidiaries that occurs after the Issuance Date (to the extent the cash
proceeds from the sale of such Equity Interest have not otherwise been
applied to the payment of Restricted Payments by virtue of the preceding
paragraph (c)) plus (ii) the cash proceeds of key man life insurance
policies received by Boyds and its Restricted Subsidiaries after the
Issuance Date less (iii) the amount of any Restricted Payments previously
made pursuant to clauses (i) and (ii) of this subparagraph (v); and PROVIDED
FURTHER that cancellation of Indebtedness owing to Boyds from members of
management of Boyds or any of its Restricted Subsidiaries in connection with
a repurchase of Equity Interests of Boyds will not be deemed to constitute a
Restricted Payment for purposes of this covenant or any other provision of
the Indenture;
(vi) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Stock) issued
after the Issuance Date (including, without limitation, the declaration and
payment of dividends on Refunding Capital Stock in excess of the dividends
declarable and payable thereon pursuant to clause (ii)); PROVIDED, HOWEVER,
that for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of issuance of such Designated Preferred Stock, after giving effect to such
issuance on a pro forma basis, Boyds and its Restricted Subsidiaries would
have had a Fixed Charge Coverage Ratio of at least 1.75 to 1.00;
(vii) Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant to
this clause (vii) that are at that time outstanding, not to exceed $25.0
million at the time of such Investment (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value);
(viii) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
(ix) the payment of dividends on Boyds' Common Stock, following the
first public offering of Boyds' Common Stock after the Issuance Date, of up
to 6% per annum of the net proceeds received by Boyds in such public
offering, other than public offerings with respect to Boyds' Common Stock
registered on Form S-8;
(x) a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of Equity Interests of Boyds which are
not held by KKR or any of its affiliates (including any Equity Interests
issued in respect of such Equity Interests as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but
excluding any management equity plan or stock option plan or similar
agreement), provided that the aggregate Restricted Payments made under this
clause (x) shall not exceed $25 million, PROVIDED FURTHER that prior to the
first anniversary of the consummation of the Recapitalization, no Restricted
Payments may be made under this clause (x) PROVIDED FURTHER that
notwithstanding the foregoing proviso, Boyds shall be permitted to make
Restricted Payments under this clause (x) only if after giving effect
thereto, Boyds would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first sentence of the covenant described under "--Limitations on
Incurrence of Indebtedness and Issuance of Disqualified Stock";
(xi) Investments in Unrestricted Subsidiaries that are made with
Excluded Contributions;
(xii) the payment of dividends on Disqualified Stock which is issued in
accordance with the covenant described under "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock;
(xiii) other Restricted Payments in an aggregate amount not to exceed
$20.0 million; PROVIDED, HOWEVER, that at the time of, and after giving
effect to, any Restricted Payment permitted under clauses (iv), (v), (vi),
(vii), (viii), (ix), (x), (xi), (xii) and (xiii), no Default or Event of
Default shall
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have occurred and be continuing or would occur as a consequence thereof; and
PROVIDED FURTHER that for purposes of determining the aggregate amount
expended for Restricted Payments in accordance with clause (c) of the
immediately preceding paragraph, only the amounts expended under clauses
(i), (ii) (with respect to the payment of dividends on Refunding Capital
Stock pursuant to clause (b) thereof), (v) (only to the extent that amounts
paid pursuant to such clause are greater than amounts that would have been
paid pursuant to such clause if $3.75 million and $7.50 million were
substituted in such clause for $7.50 million and $15.0 million,
respectively), (vi), (ix) and (x) shall be included; and
(xiv) the Asset Transfer.
In the future, Boyds will not permit any Unrestricted Subsidiary to become a
Restricted Subsidiary except pursuant to the second to last sentence of the
definition of "Unrestricted Subsidiary." For purposes of designating any
Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments
by Boyds and its Restricted Subsidiaries (except to the extent repaid) in the
Subsidiary so designated will be deemed to be Restricted Payments in an amount
determined as set forth in the last sentence of the definition of "Investments."
Such designation will only be permitted if a Restricted Payment in such amount
would be permitted at such time (whether pursuant to the first paragraph of this
covenant or under clause (vii) or (xi)) and if such Subsidiary otherwise meets
the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries will not
be subject to any of the restrictive covenants set forth in the Indenture.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that Boyds will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR" and
collectively, an "INCURRENCE") any Indebtedness (including Acquired
Indebtedness) and that Boyds will not issue any shares of Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; PROVIDED, HOWEVER, that Boyds may incur Indebtedness (including
Acquired Indebtedness) or issue shares of Disqualified Stock if the Fixed Charge
Coverage Ratio for Boyds' and the Restricted Subsidiaries' 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 is issued would have been at least 1.75 to 1.00,
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 had been issued, as the case may be, and the application of
proceeds therefrom had occurred at the beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence by Boyds or its Restricted Subsidiaries of
Indebtedness under Credit Facilities and the issuance and creation of
letters of credit and banker's acceptances thereunder (with letters of
credit and banker's acceptances being deemed to have a principal amount
equal to the face amount thereof) up to an aggregate principal amount of
$415.0 million outstanding at any one time; PROVIDED, HOWEVER that
Indebtedness incurred by Restricted Subsidiaries pursuant to this clause (a)
does not exceed $50.0 million (or the equivalent thereof in any other
currency) at any one time outstanding;
(b) the incurrence by Boyds of Indebtedness represented by the Notes;
(c) the Existing Indebtedness (other than Indebtedness described in
clauses (a) and (b));
(d) Indebtedness (including Capitalized Lease Obligations) incurred by
Boyds or any of its Restricted Subsidiaries, to finance the purchase, lease
or improvement of property (real or personal) or equipment (whether through
the direct purchase of assets or the Capital Stock of any
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Person owning such assets) in an aggregate principal amount which, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (d) and including all
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (d), does not exceed the
greater of (x) $30.0 million or (y) 10% of Total Assets;
(e) Indebtedness incurred by Boyds or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including without limitation
letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; PROVIDED, HOWEVER, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(f) Indebtedness arising from agreements of Boyds or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; PROVIDED, HOWEVER, that (i) such Indebtedness is
not reflected on the balance sheet of Boyds or any Restricted Subsidiary
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (i)) and (ii)
the maximum assumable liability in respect of all such Indebtedness shall at
no time exceed the gross proceeds including noncash proceeds (the fair
market value of such noncash proceeds being measured at the time received
and without giving effect to any subsequent changes in value) actually
received by Boyds and its Restricted Subsidiaries in connection with such
disposition;
(g) Indebtedness of Boyds to a Restricted Subsidiary; provided that any
such Indebtedness is made pursuant to an intercompany note and is
subordinated in right of payment to the Notes; PROVIDED FURTHER that any
subsequent issuance or transfer of any Capital Stock or any other event
which will result in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such
Indebtedness (except to Boyds or another Restricted Subsidiary) shall be
deemed, in each case to be an incurrence of such Indebtedness;
(h) shares of preferred stock of a Restricted Subsidiary issued to Boyds
or another Restricted Subsidiary; PROVIDED that any subsequent issuance or
transfer of any Capital Stock or any other event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other
subsequent transfer of any such shares of preferred stock (except to Boyds
or another Restricted Subsidiary) shall be deemed, in each case to be an
issuance of shares of preferred stock;
(i) Indebtedness of a Restricted Subsidiary to Boyds or another
Restricted Subsidiary; PROVIDED that (i) any such Indebtedness is made
pursuant to an intercompany note and (ii) if a Guarantor incurs such
Indebtedness from a Restricted Subsidiary that is not a Guarantor such
Indebtedness is subordinated in right of payment to the Guarantee of such
Guarantor; PROVIDED FURTHER that any subsequent transfer of any such
Indebtedness (except to Boyds or another Restricted Subsidiary) shall be
deemed, in each case to be an incurrence of such Indebtedness;
(j) Hedging Obligations that are incurred in the ordinary course of
business (1) for the purpose of fixing or hedging interest rate risk with
respect to any Indebtedness that is permitted by the terms of the Indenture
to be outstanding or (2) for the purpose of fixing or hedging currency
exchange rate risk with respect to any currency exchanges;
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(k) obligations in respect of performance and surety bonds and
completion guarantees provided by Boyds or any Restricted Subsidiary in the
ordinary course of business;
(l) Indebtedness of any Guarantor in respect of such Guarantor's
Guarantee;
(m) Indebtedness of Boyds and any of its Restricted Subsidiaries not
otherwise permitted hereunder in an aggregate principal amount, which when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (m), does not exceed $75.0
million at any one time outstanding; PROVIDED, HOWEVER, that (i)
Indebtedness of Foreign Subsidiaries, which when aggregated with the
principal amount of all other Indebtedness of Foreign Subsidiaries then
outstanding and incurred pursuant to this clause (m), does not exceed $50.0
million (or the equivalent thereof in any other currency) at any one time
outstanding and (ii) Indebtedness of a Restricted Subsidiary organized under
the laws of the United States, any state thereof, the District of Columbia
or any territory thereof, which when aggregated with the principal amount of
all other Indebtedness of such Restricted Subsidiaries then outstanding and
incurred pursuant to this clause (m), does not exceed $50.0 million at any
one time outstanding;
(n) (i) any guarantee by Boyds of Indebtedness or other obligations of
any of its Restricted Subsidiaries so long as the incurrence of such
Indebtedness incurred by such Restricted Subsidiary is permitted under the
terms of the Indenture and (ii) any Excluded Guarantee (as defined below
under "--Limitation on Guarantees of Indebtedness by Restricted
Subsidiaries") of a Restricted Subsidiary;
(o) the incurrence by Boyds or any of its Restricted Subsidiaries of
Indebtedness which serves to refund, refinance or restructure any
Indebtedness incurred as permitted under the first paragraph of this
covenant and clauses (b) and (c) above, or any Indebtedness issued to so
refund, refinance or restructure such Indebtedness including additional
Indebtedness incurred to pay premiums and fees in connection therewith (the
"REFINANCING INDEBTEDNESS") prior to its respective maturity; PROVIDED,
HOWEVER, that such Refinancing Indebtedness (i) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of
Indebtedness being refunded or refinanced, (ii) to the extent such
Refinancing Indebtedness refinances Indebtedness subordinated or PARI PASSU
to the Notes, such Refinancing Indebtedness is subordinated or PARI PASSU to
the Notes at least to the same extent as the Indebtedness being refinanced
or refunded and (iii) shall not include (x) Indebtedness of a Subsidiary
that refinances Indebtedness of Boyds or (y) Indebtedness of Boyds or a
Restricted Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary; and PROVIDED FURTHER that subclauses (i) and (ii) of this clause
(o) will not apply to any refunding or refinancing of any Senior
Indebtedness;
(p) Indebtedness or Disqualified Stock of Persons that are acquired by
Boyds or any of its Restricted Subsidiaries or merged into a Restricted
Subsidiary in accordance with the terms of the Indenture; provided that such
Indebtedness or Disqualified Stock is not incurred in contemplation of such
acquisition or merger; and provided further that after giving effect to such
acquisition, either (i) Boyds would be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first sentence of this covenant or (ii) the Fixed Charge
Coverage Ratio is greater than immediately prior to such acquisition; and
(q) The incurrence by Boyds of Indebtedness represented by the
Subordinated Notes.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories of
permitted Indebtedness described in clauses (a) through (q) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, Boyds shall, in
its sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness will not be
deemed to be an incurrence of Indebtedness for purposes of this covenant.
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LIENS
The Indenture provides that Boyds will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien that secures obligations under any Pari Passu
Indebtedness or Subordinated Indebtedness on any asset or property of Boyds or
such Restricted Subsidiary, or any income or profits therefrom, or assign or
convey any right to receive income therefrom, unless the Notes are equally and
ratably secured with the obligations so secured or until such time as such
obligations are no longer secured by a Lien.
The Indenture will provide that no Guarantor will directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations under
any Pari Passu Indebtedness or Subordinated Indebtedness of such Guarantor on
any asset or property of such Guarantor or any income or profits therefrom, or
assign or convey any right to receive income therefrom, unless the Guarantee of
such Guarantor is equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
Any Lien created, incurred or existing in respect of unfunded pension
obligations or any similar obligations of Boyds or any of its Restricted
Subsidiaries or any Guarantor shall not be deemed to give rise to any obligation
under the terms of this covenant.
MERGER, CONSOLIDATION, OR SALE OF ALL OR SUBSTANTIALLY ALL ASSETS
The Indenture provides that Boyds may not consolidate or merge with or into
or wind up into (whether or not Boyds is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to any Person
unless (i) Boyds is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than Boyds) or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (Boyds or such Person, as the case may be, being herein called the
"SUCCESSOR COMPANY"); (ii) the Successor Company (if other than Boyds) expressly
assumes all the obligations of Boyds under the Indenture and the Notes pursuant
to a supplemental indenture or other documents or instruments in form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no Default
or Event of Default shall have occurred and be continuing; (iv) immediately
after giving pro forma effect to such transaction, as if such transaction had
occurred at the beginning of the applicable four-quarter period, (A) the
Successor Company would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first sentence of the covenant described under "--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" or (B) the Fixed Charge
Coverage Ratio for the Successor Company and its Restricted Subsidiaries would
be greater than such Ratio for Boyds and its Restricted Subsidiaries immediately
prior to such transaction; (v) each Guarantor, if any, unless it is the other
party to the transactions described above, shall have by supplemental indenture
confirmed that its Guarantee shall apply to such Person's obligations under the
Indenture and the Notes; and (vi) Boyds shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. The Successor Company will succeed to, and be
substituted for, Boyds under the Indenture and the Notes. Notwithstanding the
foregoing clause (iv), (a) any Restricted Subsidiary may consolidate with, merge
into or transfer all or part of its properties and assets to Boyds and (b) Boyds
may merge with an Affiliate incorporated solely for the purpose of
reincorporating Boyds in another State of the United States so long as the
amount of Indebtedness of Boyds and its Restricted Subsidiaries is not increased
thereby. In addition, notwithstanding the foregoing provisions, Boyds may effect
the Asset Transfer.
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Each Guarantor, if any, shall not, and Boyds will not permit a Guarantor to,
consolidate or merge with or into or wind up into (whether or not such Guarantor
is the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions to, any Person unless (i) such Guarantor is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been made
is a corporation organized or existing under the laws of the United States, any
state thereof, the District of Columbia, or any territory thereof (such
Guarantor or such Person, as the case may be, being herein called the "SUCCESSOR
GUARANTOR"); (ii) the Successor Guarantor (if other than such Guarantor)
expressly assumes all the obligations of such Guarantor under the Indenture and
such Guarantor's Guarantee pursuant to a supplemental indenture or other
documents or instruments in form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default shall have
occurred and be continuing; and (iv) the Guarantor shall have delivered or
caused to be delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. The Successor
Guarantor will succeed to, and be substituted for, such Guarantor under the
Indenture and such Guarantor's Guarantee.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that Boyds will not, and will not permit any of its
Restricted Subsidiaries 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 (each of the foregoing, an "AFFILIATE TRANSACTION")
involving aggregate consideration in excess of $5.0 million, unless (a) such
Affiliate Transaction is on terms that are not materially less favorable to
Boyds or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by Boyds or such Restricted Subsidiary with
an unrelated Person and (b) Boyds delivers to the Trustee with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, a resolution adopted by the
majority of the Board of Directors of Boyds approving such Affiliate Transaction
and set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above.
The foregoing provisions will not apply to the following: (i) transactions
between or among Boyds and/or any of its Restricted Subsidiaries; (ii)
Restricted Payments permitted by the provisions of the Indenture described above
under the covenant "--Limitation on Restricted Payments"; (iii) the payment of
customary annual management, consulting and advisory fees and related expenses
to KKR and its Affiliates; (iv) the payment of reasonable and customary fees
paid to, and indemnity provided on behalf of, officers, directors, employees or
consultants of Boyds or any Restricted Subsidiary; (v) payments by Boyds or any
of its Restricted Subsidiaries to KKR and its Affiliates made for any financial
advisory, financing, underwriting or placement services or in respect of other
investment banking activities, including, without limitation, in connection with
acquisitions or divestitures which payments are approved by a majority of the
Board of Directors of Boyds in good faith; (vi) transactions in which Boyds or
any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee
a letter from an Independent Financial Advisor stating that such transaction is
fair to Boyds or such Restricted Subsidiary from a financial point of view or
meets the requirements of clause (a) of the preceding paragraph; (vii) payments
or loans to employees or consultants which are approved by a majority of the
Board of Directors of Boyds in good faith; (viii) any agreement as in effect as
of the Issuance Date or any amendment thereto (so long as any such amendment is
not disadvantageous to the holders of the Notes in any material respect) or any
transaction contemplated thereby; (ix) the existence of, or the performance by
Boyds or any of its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration rights agreement or
purchase agreement related
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thereto) to which it is a party as of the Issuance Date and any similar
agreements which it may enter into thereafter; PROVIDED, HOWEVER, that the
existence of, or the performance by Boyds or any of its Restricted Subsidiaries
of obligations under any future amendment to any such existing agreement or
under any similar agreement entered into after the Issuance Date shall only be
permitted by this clause (ix) to the extent that the terms of any such amendment
or new agreement are not otherwise disadvantageous to the Holders of the Notes
in any material respect; (x) the payment of all fees and expenses related to the
Recapitalization; (xi) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary course
of business and otherwise in compliance with the terms of the Indenture which
are fair to Boyds or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors of Boyds or the senior management
thereof, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party; (xii) sales of accounts
receivable, or participations therein, in connection with any Receivables
Facility; and (xiii) the Asset Transfer.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that Boyds will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any Restricted Subsidiary to:
(a) (i) pay dividends or make any other distributions to Boyds or any of
its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to
any other interest or participation in, or measured by, its profits, or (ii)
pay any Indebtedness owed to Boyds or any of its Restricted Subsidiaries;
(b) make loans or advances to Boyds or any of its Restricted
Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to Boyds or
any of its Restricted Subsidiaries; except (in each case) for such
encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the
Issuance Date, including pursuant to the Credit Facility and its related
documentation;
(2) the Indenture and the Notes;
(3) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(4) applicable law or any applicable rule, regulation or order;
(5) any agreement or other instrument of a Person acquired by Boyds
or any Restricted Subsidiary in existence at the time of such acquisition
(but not created in contemplation thereof), 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;
(6) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Subsidiary pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock or assets of such Subsidiary;
(7) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" and "Liens" that limit
the right of the debtor to dispose of the assets securing such
Indebtedness;
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(8) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(9) other Indebtedness of Restricted Subsidiaries permitted to be
incurred subsequent to the Issuance Date pursuant to the provisions of
the covenant described under "--Limitations on Incurrence of Indebtedness
and Issuance of Disqualified Stock";
(10) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(11) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
(12) restrictions created in connection with any Receivables Facility
that, in the good faith determination of the Board of Directors of Boyds,
are necessary or advisable to effect such Receivables Facility; or
(13) any encumbrances or restrictions of the type referred to in
clauses (a), (b) and (c) above imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (1) through (12) above, provided that such amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment
of Boyds' Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
LIMITATION ON GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
(a) The Indenture provides that Boyds will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of Boyds or any
Indebtedness of any other Restricted Subsidiary unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a Guarantee of payment of the Notes by such Restricted
Subsidiary except that (A) if the Notes are subordinated in right of payment to
such Indebtedness, the Guarantee under the supplemental indenture shall be
subordinated to such Restricted Subsidiary's guarantee with respect to such
Indebtedness substantially to the same extent as the Notes are subordinated to
such Indebtedness under the Indenture and (B) if such Indebtedness is by its
express terms subordinated in right of payment to the Notes, any such guarantee
of such Restricted Subsidiary with respect to such Indebtedness shall be
subordinated in right of payment to such Restricted Subsidiary's Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against Boyds or
any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Guarantee; and (iii) such Restricted Subsidiary shall
deliver to the Trustee an opinion of counsel to the effect that (A) such
Guarantee of the Notes has been duly executed and authorized and (B) such
Guarantee of the Notes constitutes a valid, binding and enforceable obligation
of such Restricted Subsidiary, except insofar as enforcement thereof may be
limited by bankruptcy, insolvency or similar laws (including, without
limitation, all laws relating to fraudulent transfers) and except insofar as
enforcement thereof is subject to general principles of equity; PROVIDED that
this paragraph (a) shall not be applicable to any guarantee of any Restricted
Subsidiary (x) that (A) existed at the time such Person became a Restricted
Subsidiary of Boyds and (B) was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary of Boyds or (y)
that guarantees the payment of Obligations of Boyds or any Restricted Subsidiary
under the credit facility or any other bank facility which is designated as
Senior Indebtedness and any refunding,
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refinancing or replacement thereof, in whole or in part, PROVIDED that such
refunding, refinancing or replacement thereof constitutes Senior Indebtedness
and is not incurred pursuant to a registered offering of securities under the
Securities Act or a private placement of securities (including under Rule 144A)
pursuant to an exemption from the registration requirements of the Securities
Act, which private placement provides for registration rights under the
Securities Act (any guarantee excluded by operations of this clause (y) being an
"EXCLUDED GUARANTEE").
(b) Notwithstanding the foregoing and the other provisions of the Indenture,
any Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of Boyds, of
all of Boyds' Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the guarantee which resulted in
the creation of such Guarantee, except a discharge or release by or as a result
of payment under such guarantee.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS
The Indenture provides that Boyds will not, and will not permit any
Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of
Boyds or any Indebtedness of any Guarantor, as the case may be, unless such
Indebtedness is either (a) PARI PASSU in right of payment with the Notes or such
Guarantor's Guarantee, as the case may be or (b) subordinate in right of payment
to the Notes, or such Guarantor's Guarantee, as the case may be, in the same
manner and at least to the same extent as the Notes are subordinate to Senior
Indebtedness or such Guarantor's Guarantee is subordinate to such Guarantor's
Senior Indebtedness, as the case may be.
REPORTS AND OTHER INFORMATION
The Indenture provides that whether or not Boyds is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, Boyds shall deliver to
the Trustee and to each Holder and to prospective purchasers of Notes identified
to Boyds by the Initial Purchaser, within 15 days after it is or would have been
required to file such with the Commission, annual and quarterly financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the Commission, if Boyds were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with respect
to annual information only, a report thereon by Boyds' certified independent
public accountants as such would be required in such reports to the Commission,
and, in each case, together with a management's discussion and analysis of
financial condition and results of operations which would be so required.
EVENTS OF DEFAULT AND REMEDIES
The following events constitute Events of Default under the Indenture:
(i) default in payment when due and payable, upon redemption,
acceleration or otherwise, of principal of, or premium on, if any, the Notes
whether or not such payment shall be prohibited by the subordination
provisions relating to the Notes;
(ii) default for 30 days or more in the payment when due of interest on
the Notes whether or not such payment shall be prohibited by the
subordination provisions relating to the Notes;
(iii) failure by Boyds or any Guarantor for 30 days after receipt of
written notice given by the Trustee or the holders of at least 30% in
principal amount of the Notes then outstanding to comply with any of its
other agreements in the Indenture or the Notes;
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(iv) default under any mortgage, indenture or instrument under which
there is issued or by which there is secured or evidenced any Indebtedness
for money borrowed by Boyds or any of its Restricted Subsidiaries or the
payment of which is guaranteed by Boyds or any of its Restricted
Subsidiaries (other than Indebtedness owed to Boyds or a Restricted
Subsidiary), whether such Indebtedness or guarantee now exists or is created
after the Issuance Date, if both (A) such default either (1) results from
the failure to pay any such Indebtedness at its stated final maturity (after
giving effect to any applicable grace periods) or (2) relates to an
obligation other than the obligation to pay principal of any such
Indebtedness at its stated final maturity and results in the holder or
holders of such Indebtedness causing such Indebtedness to become due prior
to its stated maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity (after giving effect
to any applicable grace periods), or the maturity of which has been so
accelerated, aggregate $20.0 million or more at any one time outstanding;
(v) failure by Boyds or any of its Significant Subsidiaries to pay final
judgments aggregating in excess of $20.0 million, which final judgments
remain unpaid, undischarged and unstayed for a period of more than 60 days
after such judgment becomes final, and in the event such judgment is covered
by insurance, an enforcement proceeding has been commenced by any creditor
upon such judgment or decree which is not promptly stayed;
(vi) certain events of bankruptcy or insolvency with respect to Boyds or
any of its Significant Subsidiaries; or
(vii) any Guarantee shall for any reason cease to be in full force and
effect or be declared null and void or any responsible officer of Boyds or
any Guarantor denies that it has any further liability under any Guarantee
or gives notice to such effect (other than by reason of the termination of
the Indenture or the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than of a type specified in clause (vi)
above) occurs and is continuing under the Indenture, the Trustee or the Holders
of at least 30% in principal amount of the then outstanding Notes may declare
the principal, premium, if any, interest and any other monetary obligations on
all the then outstanding Notes to be due and payable immediately; PROVIDED,
HOWEVER that, so long as any Indebtedness permitted to be incurred pursuant to
the credit facility shall be outstanding, no such acceleration shall be
effective until the earlier of (i) acceleration of any such Indebtedness under
the credit facility or (ii) five business days after the giving of written
notice to Boyds and the administrative agent under the credit facility of such
acceleration. Upon the effectiveness of such declaration, such principal and
interest will be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising under clause (vi) of the first paragraph
of this section, all outstanding Notes will become due and payable without
further action or notice. Holders of the Notes may not enforce the Indenture or
the Notes except as provided in the Indenture. 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 Indenture provides
that the Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium, if any, or interest) if it determines that
withholding notice is in their interest.
The Indenture provides that the Holders of a majority in aggregate principal
amount of the then outstanding Notes issued thereunder by notice to the Trustee
may on behalf of the Holders of all of such Notes 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 on, premium, if any, or
the principal of any such Note held by a non-consenting Holder. In the event of
any Event of Default specified in clause (iv) above, such Event of Default and
all consequences thereof (including without
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limitation any acceleration or resulting payment default) shall be annulled,
waived and rescinded, automatically and without any action by the Trustee or the
Holders of the Notes, if within 20 days after such Event of Default arose (x)
the Indebtedness or guarantee that is the basis for such Event of Default has
been discharged, or (y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such Event of
Default, or (z) if the default that is the basis for such Event of Default has
been cured.
The Indenture provides that Boyds is required to deliver to the Trustee
annually a statement regarding compliance with the Indenture, and Boyds is
required, within five Business Days, upon becoming aware of any Default or Event
of Default or any default under any document, instrument or agreement
representing Indebtedness of Boyds or any Guarantor, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Boyds or any
Guarantor, shall have any liability for any obligations of Boyds or the
Guarantors under the Notes, the Guarantees or the Indenture or for any claim
based on, in respect of, or by reason of such obligations or their creation.
Each Holder 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.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of Boyds and the Guarantors, if any, under the Indenture
will terminate (other than certain obligations) and will be released upon
payment in full of all of the Notes. Boyds may, at its option and at any time,
elect to have all of its obligations discharged with respect to the outstanding
Notes and have each Guarantor's obligation discharged with respect to its
Guarantee ("LEGAL DEFEASANCE") and cure all then existing Events of Default
except for (i) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due solely out of the trust created pursuant to the Indenture,
(ii) Boyds' obligations with respect to Notes concerning issuing temporary
Notes, registration of such 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, (iii) the rights, powers, trusts, duties and immunities
of the Trustee, and Boyds' obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, Boyds may, at its
option and at any time, elect to have the obligations of Boyds and each
Guarantor released with respect to certain covenants that are described in the
Indenture ("COVENANT DEFEASANCE") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment on other indebtedness, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the Notes:
(i) Boyds 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 thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest,
if any, due on the outstanding Notes on the stated maturity date or on the
applicable redemption date, as the case may be, of such principal of, or
premium, if any, or interest on, the outstanding Notes;
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(ii) in the case of Legal Defeasance, Boyds shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that, subject to customary assumptions and
exclusions, (A) Boyds has received from, or there has been published by, the
United States Internal Revenue Service a ruling or (B) since the Issuance
Date, 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
in the United States shall confirm that, subject to customary assumptions
and exclusions, 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 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;
(iii) in the case of Covenant Defeasance, Boyds shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that, subject to customary assumptions and
exclusions, 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 such 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;
(iv) no Default or Event of Default shall have occurred and be
continuing with respect to certain Events of Default on the date of such
deposit;
(v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to which, Boyds or any
Guarantor is a party or by which Boyds or any Guarantor is bound;
(vi) Boyds shall have delivered to the Trustee an opinion of counsel to
the effect that, as of the date of such opinion and subject to customary
assumptions and exclusions following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally under
any applicable U.S. federal or state law, and that the Trustee has a
perfected security interest in such trust funds for the ratable benefit of
the Holders;
(vii) Boyds shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by Boyds with the intent of defeating,
hindering, delaying or defrauding any creditors of Boyds or any Guarantor or
others; and
(viii) Boyds shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel in the United States (which opinion of
counsel may be subject to customary assumptions and exclusions) each stating
that all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance, as the case may be, 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 (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to Boyds) have been delivered to the
Trustee for cancellation; or (ii) all such Notes not theretofore delivered to
such Trustee for cancellation have become due and payable by reason of the
making of a notice of redemption or otherwise or will become due and payable
within one year and Boyds or any Guarantor has irrevocably deposited or caused
to be deposited with such 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 thereof, in such amounts as will be sufficient without consideration
of any reinvestment of interest, to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation for
principal,
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premium, if any, and accrued interest, if any, to the date of maturity or
redemption; (b) no Default or Event of Default with respect to the Indenture or
the Notes shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other instrument to
which Boyds or any Guarantor is a party or by which Boyds or any Guarantor is
bound; (c) Boyds or any Guarantor has paid or caused to be paid all sums payable
by it under such Indenture; and (d) Boyds has delivered irrevocable instructions
to the Trustee under such Indenture to apply the deposited money toward the
payment of such Notes at maturity or the redemption date, as the case may be. In
addition, Boyds 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.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and Boyds may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
Boyds is not required to transfer or exchange any Note selected for redemption.
Also, Boyds is not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture, any
Guarantee and the Notes issued thereunder 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 compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes (including consents obtained in
connection with a tender offer or exchange offer for Notes).
The Indenture provides that without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder of the Notes): (i) reduce the principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver, (ii) reduce the principal of
or change the fixed maturity of any such Note or alter or waive the provisions
with respect to the redemption of the Notes (other than provisions relating to
the covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of such Notes and a waiver of the payment default that resulted
from such acceleration), or in respect of a covenant or provision contained in
the Indenture or any Guarantee which cannot be amended or modified without the
consent of all Holders, (v) make any Note payable in money other than that
stated in such Notes, (vi) 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 premium, if any, or interest on the Notes,
(vii) make any change in the foregoing amendment and waiver provisions, (viii)
impair the right of any Holder of the Notes to receive payment of principal of,
or interest on, such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes or (ix) make any change in the subordination provisions of the
Indenture that would adversely affect the Holders of the Notes.
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The Indenture provides that, notwithstanding the foregoing, without the
consent of any Holder of Notes, Boyds, any Guarantor (with respect to a
Guarantee or the Indenture to which it is a party) and the Trustee may amend or
supplement the Indenture, any Guarantee or the Notes (i) to cure any ambiguity,
defect or inconsistency, (ii) to provide for uncertificated Notes in addition to
or in place of certificated Notes, (iii) to comply with the covenant relating to
mergers, consolidations and sales of assets, (iv) to provide for the assumption
of Boyds' or any Guarantor's obligations to Holders of such Notes, (v) to make
any change that would provide any additional rights or benefits to the Holders
of Notes or that does not adversely affect the legal rights under the Indenture
of any such Holder, (vi) to add covenants for the benefit of the Holders or to
surrender any right or power conferred upon Boyds, (vii) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act, (viii) to evidence and provide
for the acceptance of appointment under the Indenture by a successor Trustee
pursuant to the requirements thereof, or (ix) to add a Guarantor under the
Indenture.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of Boyds, 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, or resign.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Notes issued thereunder 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 will
provide that in case an Event of Default shall occur (which shall not be cured),
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 his 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 such Notes,
unless such Holder shall have 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
the Registration Rights Agreement without charge by writing to Boyds at 350
South Street, McSherrystown, Pennsylvania 17334, Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will be issued in registered, global
form in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof. Exchange Notes initially will be represented by one or more
exchange Notes in registered, global form without interest coupons
(collectively, the "GLOBAL EXCHANGE NOTES"). The Global Exchange Notes will be
deposited with the Trustee as custodian for DTC in New York, New York, and
registered in the name of DTC or its nominee (a "NOMINEE"), in each case, for
credit to an account of a direct or indirect participant in DTC as described
below.
The Global Exchange 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 in certain
limited circumstances. Beneficial interests in the Global Exchange Notes may be
exchanged for exchange Notes in certificated form in certain limited
circumstances. See "--Transfer of Interests in Global Exchange Notes for
Certificated Exchange Notes."
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Initially, the Trustee will act as Paying Agent and Registrar. The exchange
Notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised Boyds that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "DIRECT
PARTICIPANTS") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations, including Euroclear and Cedel. Access to DTC's system is
also available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"INDIRECT PARTICIPANTS"). DTC may hold securities beneficially owned by other
persons only through the Direct Participants or Indirect Participants and such
other persons' ownership interest and transfer of ownership interest will be
recorded only on the records of the Direct Participant and/or Indirect
Participant, and not on the records maintained by DTC.
DTC has also advised Boyds that, pursuant to DTC's procedures, (i) upon
deposit of the Global Exchange Notes, DTC will credit the accounts of the Direct
Participants with portions of the principal amount of the Global Exchange Notes,
and (ii) DTC will maintain records of the ownership interests of such Direct
Participants in the Global Notes and the transfer of ownership interests by and
between Direct Participants. DTC will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, Indirect
Participants or other owners of beneficial interests in the Global Exchange
Notes. Direct Participants and Indirect Participants must maintain their own
records of the ownership interests of, and the transfer of ownership interests
by and between, Indirect Participants and other owners of beneficial interests
in the Global Exchange Notes.
Investors in the Global Exchange Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. All ownership
interests in any Global Exchange Notes, including those of customers' securities
accounts held through Euroclear or CEDEL, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or CEDEL may also be
subject to the procedures and requirements of such systems.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a Global Exchange Note
to such persons. Because DTC can act only on behalf of Direct Participants,
which in turn act on behalf of Indirect Participants and others, the ability of
a person having a beneficial interest in a Global Exchange Note to pledge such
interest to persons or entities that are not Direct Participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the lack
of physical certificates evidencing such interests.
EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL EXCHANGE NOTES FOR
CERTIFICATED EXCHANGE NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL
EXCHANGE NOTES WILL NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the Indenture, Boyds and the Trustee will treat the
persons in whose names the exchange Notes are registered (including exchange
Notes represented by Global Exchange Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, if any, and interest on Global
Exchange Notes registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee as the registered holder under the Indenture.
Consequently, neither Boyds, the Trustee nor any agent of Boyds or the Trustee
has or will have any responsibility or liability for (i) any aspect of
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DTC's records or any Direct Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Exchange Notes or for maintaining, supervising or reviewing any of DTC's
records or any Direct Participant's or Indirect Participant's records relating
to the beneficial ownership interests in any Global Note or (ii) any other
matter relating to the actions and practices of DTC or any of its Direct
Participants or Indirect Participants.
DTC has advised Boyds that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the
exchange Notes is to credit the accounts of the relevant Direct Participants
with such payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Exchange Notes as
shown on DTC's records. Payments by Direct Participants and Indirect
Participants to the beneficial owners of the exchange Notes will be governed by
standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or Boyds. Neither Boyds nor the Trustee will
be liable for any delay by DTC or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the exchange Notes, and
Boyds and the Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee as the registered owner of the exchange
Notes for all purposes.
Except for trades involving only Euroclear or CEDEL participants, interests
in the Global Exchange Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and, therefore, transfers between Direct
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in immediately available funds. Transfers between Indirect
Participants (other than Indirect Participants who hold an interest in the
exchange Notes through Euroclear or CEDEL) who hold an interest through a Direct
Participant will be effected in accordance with the procedures of such Direct
Participant but generally will settle in immediately available funds. Transfers
between and among Indirect Participants who hold interests in the exchange Notes
through Euroclear and CEDEL will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
Cross-market transfers between Direct Participants in DTC, on the one hand,
and Indirect Participants who hold interests in the exchange Notes through
Euroclear or CEDEL, on the other hand, will be effected by Euroclear or CEDEL's
respective Nominee through DTC in accordance with DTC's rules on behalf of
Euroclear or CEDEL; HOWEVER, delivery of instructions relating to cross-market
transactions must be made directly to Euroclear or CEDEL, as the case may be, by
the counterparty in accordance with the rules and procedures of Euroclear or
CEDEL, as the case may be, and within their established deadlines (Brussels time
for Euroclear and UK time for CEDEL). Indirect Participants who hold interest in
the exchange Notes through Euroclear and CEDEL may not deliver instructions
directly to Euroclear's or CEDEL's Nominee. Euroclear or CEDEL will, if the
transaction meets its settlement requirements, deliver instructions to its
respective Nominee to deliver or receive interests on Euroclear's or CEDEL's
behalf in the relevant Global Exchange Note in DTC, and make or receive payment
in accordance with normal procedures for same-day fund settlement applicable to
DTC.
Because of time zone differences, the securities account of an Indirect
Participant who holds an interest in the exchange Notes through Euroclear or
CEDEL purchasing an interest in a Global Exchange Note from a Direct Participant
in DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or CEDEL Direct Participant during the European business day
immediately following the settlement date of DTC in New York. Although recorded
in DTC's accounting records as of DTC's settlement date in New York, Euroclear
and CEDEL customers will not have access to the cash amount credited to their
accounts as a result of a sale of an interest in a Global Exchange Note to a DTC
Participant until the European business day for Euroclear or CEDEL immediately
following DTC's settlement date.
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DTC has advised Boyds that it will take any action permitted to be taken by
a holder of exchange Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Exchange Notes are
credited and only in respect of such portion of the aggregate principal amount
of the exchange Notes as to which such Direct Participant or Direct Participants
has or have given direction. However, if there is an Event of Default under the
exchange notes, DTC reserves the right to exchange Global Exchange Notes
(without the direction of one or more of its Direct Participants) for legended
exchange Notes in certificated form, and to distribute such certificated forms
of exchange Notes to its Direct Participants. See "--Transfers of Interests in
Global Exchange Notes for Certificated Exchange Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Exchange Notes among Direct
Participants, Euroclear and CEDEL, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither Boyds nor the Trustee will have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective Direct and Indirect
Participants of their respective obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that Boyds believes to
be reliable, but Boyds takes no responsibility for the accuracy thereof.
TRANSFERS OF INTERESTS IN GLOBAL EXCHANGE NOTES FOR CERTIFICATED EXCHANGE NOTES
An entire Global Exchange Note may be exchanged for definitive exchange
Notes in registered, certificated form without interest coupons ("CERTIFICATED
EXCHANGE NOTES") if (i) DTC (x) notifies Boyds that it is unwilling or unable to
continue as depositary for the Global Exchange Notes and Boyds thereupon fails
to appoint a successor depositary within 90 days or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) Boyds, at its option,
notifies the Trustee in writing that it elects to cause the issuance of
Certificated Exchange Notes or (iii) there shall have occurred and be continuing
a Default or an Event of Default with respect to the exchange notes. In any such
case, Boyds will notify the Trustee in writing that, upon surrender by the
Direct and Indirect Participants of their interest in such Global Exchange Note,
Certificated Exchange Notes will be issued to each person that such Direct and
Indirect Participants and DTC identify as being the beneficial owner of the
related exchange Notes.
Beneficial interests in Global Exchange Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Exchange Notes upon request to
DTC, by such Direct Participant (for itself or on behalf of an Indirect
Participant), but only upon at least 20 days' prior written notice given to the
Trustee by or on behalf of DTC in accordance with customary DTC procedures.
Certificated Exchange Notes delivered in exchange for any beneficial interest in
any Global Exchange Note will be registered in the names, and issued in any
approved denominations, requested by DTC on behalf of such Direct or Indirect
Participants (in accordance with DTC's customary procedures).
Neither Boyds nor the Trustee will be liable for any delay by the holder of
the Global Exchange Notes or the DTC in identifying the beneficial owners of
exchange Notes, and Boyds and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Exchange
Note or the DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the exchange Notes
represented by the Global Exchange Notes (including principal, premium, if any,
and interest, if any) be made by wire transfer of immediately available funds to
the accounts specified by the holder of such Global Exchange Note. With respect
to Certificated Exchange Notes, Boyds will make all payments of principal,
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premium, if any, and interest, if any, by wire transfer of immediately available
funds to the accounts specified by the holders thereof or, if no such account is
specified, by mailing a check to each such holder's registered address. Boyds
expects that secondary trading in the Certificated Exchange Notes will also be
settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, Boyds agreed to file the
exchange offer registration statement on the appropriate form under the
Securities Act with the Commission with respect to the exchange Notes. Upon the
effectiveness of the exchange offer registration statement, Boyds will offer to
the Holders of Transfer Restricted Securities (as defined) pursuant to the
exchange offer who are able to make certain representations the opportunity to
exchange their Transfer Restricted Securities for exchange Notes. If (1) Boyds
is not required to file the exchange offer registration statement or permitted
to consummate the exchange offer because the exchange offer is not permitted by
applicable law or Commission policy or (2) any Holder of Transfer Restricted
Securities notifies Boyds prior to the 20th day following consummation of the
exchange offer that (A) it is prohibited by law or Commission policy from
participating in the exchange offer or (B) that it may not resell the exchange
Notes acquired by it in the exchange offer to the public without delivering a
prospectus and the prospectus contained in the exchange offer registration
statement is not available for such resales or (C) that it is a broker-dealer
and owns outstanding Notes acquired directly from Boyds or an affiliate of
Boyds, Boyds will file with the Commission a shelf registration statement
pursuant to Rule 415 under the Securities Act (a "SHELF REGISTRATION STATEMENT")
to cover resales of the outstanding Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. Boyds will use its reasonable best efforts to
cause the applicable registration statement to be declared effective as promptly
as possible by the Commission. For purposes of the foregoing, "TRANSFER
RESTRICTED SECURITIES" means each outstanding Note until earliest to occur of
(a) the date on which such Note is exchanged in the exchange offer and entitled
to be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Securities Act (b) the date on which
such Note has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Note is distributed to the public pursuant
to Rule 144 under the Securities Act or (d) the date on which such Note is
disposed of by a broker-dealer pursuant to the "Plan of distribution"
contemplated by the exchange offer registration statement, including the
delivery of the prospectus contained in the exchange offer registration
statement.
The Registration Rights Agreement provides that (i) Boyds will file an
exchange offer registration statement with the Commission on or prior to 540
days after the closing date of the recapitalization, (ii) Boyds will use its
best efforts to have the exchange offer registration statement declared
effective by the Commission on or prior to 75 days after such filing, (iii)
unless the exchange offer would not be permitted by applicable law or Commission
policy, Boyds will commence the exchange offer and use its best efforts to issue
on or prior to 30 business days after the date on which the exchange offer
registration statement was declared effective by the Commission, exchange Notes
in exchange for all outstanding Notes tendered prior thereto in the exchange
offer and (iv) if obligated to file the Shelf Registration Statement, Boyds will
use its best reasonable efforts to file the Shelf Registration Statement with
the Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration Statement to be declared effective by the
Commission on or prior to 75 days after such filings. If (a) Boyds fails to file
any of the registration statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such registration
statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "EFFECTIVENESS TARGET DATE"), (c) Boyds
fails to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to the exchange offer registration
statement or (d) the Shelf Registration Statement or the exchange offer
registration statement is
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declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "REGISTRATION DEFAULT"), then Boyds will pay liquidated
damages to each Holder of outstanding Notes ("LIQUIDATED DAMAGES"). Liquidated
Damages will accrue, at an annual rate of 0.25% of the aggregate principal
amount of the outstanding Notes on the date of such Registration Default,
payable in cash semi-annually in arrears on each interest payment date,
commencing on the date of such Registration Default. All accrued Liquidated
Damages will be paid by Boyds on each interest payment date to the global
outstanding Note Holder by wire transfer of immediately available funds and to
Holders of certificated outstanding Notes by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
Holders of outstanding Notes will be required to make certain
representations to Boyds (as described in the Registration Rights Agreement) in
order to participate in the exchange offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Registration Rights Agreement in order to have their
outstanding Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Liquidated Damages set forth above.
The Registration Rights Agreement will provide that the Liquidated Damages
specified above will be the exclusive remedy available to Holders of Transfer
Restricted Securities for any failure by Boyds to comply with the registration
requirements of the Registration Rights Agreement.
The summary in this prospectus 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, all of the provisions of the Registration Rights
Agreement.
GOVERNING LAW
The Indenture, the Notes and the Guarantees, if any, will be, subject to
certain exceptions, governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of law rules
thereof.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided. For
purposes of the Indenture, unless otherwise specifically indicated, the term
"consolidated" with respect to any Person refers to such Person consolidated
with its Restricted Subsidiaries, and excludes from such consolidation any
Unrestricted Subsidiary as if such Unrestricted Subsidiary were not an Affiliate
of such Person.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i)
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,
including, without limitation, Indebtedness 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 (ii) 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 this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession,
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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; PROVIDED, HOWEVER, that beneficial
ownership of 10% or more of the voting securities of a Person shall be deemed to
be control.
"ASSET SALE" means (i) the sale, conveyance, transfer or other disposition
(whether in a single transaction or a series of related transactions) of
property or assets (including by way of a sale and leaseback) of Boyds or any
Restricted Subsidiary (each referred to in this definition as a "DISPOSITION"),
other than the Asset Transfer or (ii) the issuance or sale of Equity Interests
of any Restricted Subsidiary (whether in a single transaction or a series of
related transactions), in each case, other than: (a) a disposition of Cash
Equivalents or Investment Grade Securities or obsolete equipment in the ordinary
course of business; (b) the disposition of all or substantially all of the
assets of Boyds in a manner permitted pursuant to the provisions described above
under "--Merger, Consolidation or Sale of All or Substantially All Assets" or
any disposition that constitutes a Change of Control pursuant to the Indenture;
(c) any Restricted Payment that is permitted to be made, and is made, under the
first paragraph of the covenant described above under "Limitation on Restricted
Payments;" (d) any disposition of assets with an aggregate fair market value of
less than $1.0 million; (e) any disposition of property or assets by a
Restricted Subsidiary to Boyds or by Boyds or a Restricted Subsidiary to a
Wholly Owned Restricted Subsidiary; (f) any exchange of like property pursuant
to Section 1031 of the Internal Revenue Code of 1986, as amended, for use in a
Similar Business; (g) any financing transaction with respect to property built
or acquired by Boyds or any Restricted Subsidiary after the Issuance Date
including, without limitation, sale-leasebacks and asset securitizations; (h)
foreclosures on assets; (i) sales of accounts receivable, or participations
therein, in connection with any Receivables Facility; and (j) any sale of Equity
Interests in, or Indebtedness or other securities of, an Unrestricted
Subsidiary.
"ASSET TRANSFER" means the transfer of all of the assets of Boyds to a
newly-formed Wholly Owned Subsidiary.
"CAPITALIZED LEASE OBLIGATION" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability on
a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) 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.
"CASH EQUIVALENTS" means (i) U.S. dollars, (ii) securities issued or
directly and fully guaranteed or insured by the U.S. Government or any agency or
instrumentality thereof, (iii) certificates of deposit, time deposits and
eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any commercial bank having capital
and surplus in excess of $500.0 million, (iv) repurchase obligations for
underlying securities of the types described in clauses (ii) and (iii) entered
into with any financial institution meeting the qualifications specified in
clause (iii) above, (v) commercial paper rated A-1 or the equivalent thereof by
Moody's or S&P and in each case maturing within one year after the date of
acquisition, (vi) investment funds investing 95% of their assets in securities
of the types described in clauses (i)-(v) above, (vii) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's or S&P and (viii) Indebtedness or preferred stock issued by
Persons with a rating of "A" or higher from S&P or "A2" or higher from Moody's.
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"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of the assets of Boyds and its
Subsidiaries, taken as a whole; or
(ii) Boyds becomes aware of (by way of a report or any other filing
pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice
or otherwise) the acquisition by any Person or group (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor
provision), including any group acting for the purpose of acquiring, holding
or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than the Permitted Holders and their Related Parties,
in a single transaction or in a related series of transactions, by way of
merger, consolidation or other business combination or purchase of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act, or any successor provision) of 50% or more of the total voting power of
the Voting Stock of Boyds.
Notwithstanding the foregoing provisions, the Asset Transfer shall not be
deemed to constitute a Change of Control.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Boyds and its Subsidiaries (determined on a consolidated
basis). Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
Boyds to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Boyds and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means with respect to
any Person for any period, the total amount of depreciation and amortization
expense of such Person and its Restricted Subsidiaries for such period on a
consolidated basis and otherwise determined in accordance with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any period, the sum,
without duplication, of: (a) consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, to the extent such expense was
deducted in computing Consolidated Net Income (including amortization of
original issue discount, non-cash interest payments, the interest component of
Capitalized Lease Obligations, and net payments and receipts (if any) pursuant
to Hedging Obligations to the extent included in Consolidated Interest Expense,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued; PROVIDED, HOWEVER, that Receivables Fees shall
be deemed not to constitute Consolidated Interest Expense.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income, of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, and otherwise determined in accordance
with GAAP; PROVIDED, HOWEVER, that (i) any net after-tax extraordinary gains or
losses (less all fees and expenses relating thereto) shall be excluded, (ii) the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period, (iii) any net after-tax income
(loss) from discontinued operations and any net after-tax gains or losses on
disposal of discontinued operations shall be excluded, (iv) any net after-tax
gains or losses (less all fees and expenses relating thereto) attributable to
asset dispositions other than in the ordinary course of business (as determined
in good faith by the Board of Directors of Boyds) shall be excluded, (v) the Net
Income for such period of any Person that is not a Subsidiary, or is an
Unrestricted Subsidiary, or that is accounted for by the equity method of
accounting, shall be included only to the extent of the amount of dividends or
distributions or other payments paid in cash (or to the extent converted into
cash) to the referent Person or a Wholly Owned Restricted Subsidiary thereof in
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respect of such period, (vi) the Net Income of any Person acquired in a pooling
of interests transaction shall not be included for any period prior to the date
of such acquisition and (vii) the Net Income for such period of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of its Net
Income is not at the date of determination permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule, or governmental regulation applicable to
that Restricted Subsidiary or its stockholders, unless such restriction with
respect to the payment of dividends or in similar distributions has been legally
waived.
"CONTINGENT OBLIGATIONS" means, with respect to any Person, any obligation
of such Person guaranteeing any leases, dividends or other obligations that do
not constitute Indebtedness ("PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation against loss in respect thereof.
"CREDIT FACILITIES" means, with respect to Boyds, one or more debt
facilities (including, without limitation, the credit facility) or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables financing (including through the
sale of 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
in whole or in part from time to time.
"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 NONCASH CONSIDERATION" means the fair market value of noncash
consideration received by Boyds or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of Boyds, less the amount of cash or Cash Equivalents received
in connection with a sale of such Designated Noncash Consideration.
"DESIGNATED PREFERRED STOCK" means preferred stock of Boyds (other than
Disqualified Stock) that is issued for cash (other than to a Restricted
Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an
Officers' Certificate executed by the principal executive officer and the
principal financial officer of Boyds, on the issuance date thereof, the cash
proceeds of which are excluded from the calculation set forth in clause (c) of
the covenant described under "Limitation on Restricted Payments."
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
of such Person which, by its terms (or by the terms of any security into which
it is convertible or for which it is putable or exchangeable), 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
thereof, in whole or in part, in each case prior to the date 91 days after the
maturity date of the Notes; PROVIDED, HOWEVER, that if such Capital Stock is
issued to any employee or to any plan for the benefit of employees of Boyds or
its Subsidiaries or by any such plan to such employees, such Capital Stock shall
not constitute Disqualified Stock solely because it may be required to be
repurchased by Boyds in order to satisfy
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applicable statutory or regulatory obligations, PROVIDED, further, that any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof (or of any security into which it is convertible or for which it
is exchangeable) have the right to require the issuer to repurchase such Capital
Stock (or such security into which it is convertible or for which it is
exchangeable) upon the occurrence of any of the events constituting an Asset
Sale or a Change of Control shall not constitute Disqualified Stock if such
Capital Stock (and all such securities into which it is convertible or for which
it is exchangeable) provides that the issuer thereof will not repurchase or
redeem any such Capital Stock (or any such security into which it is convertible
or for which it is exchangeable) pursuant to such provisions prior to compliance
by Boyds with the provisions of the Indenture described under the caption
"Repurchase at the Option of Holders--Change of Control" or "Repurchase at the
Option of Holders--Asset Sales," as the case may be.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (a) provision for taxes based on
income or profits of such Person for such period deducted in computing
Consolidated Net Income, plus (b) Consolidated Interest Expense of such Person
for such period and any Receivables Fees paid by such Person or any of its
Restricted Subsidiaries during such period, in each case to the extent the same
was deducted in calculating such Consolidated Net Income, plus (c) Consolidated
Depreciation and Amortization Expense of such Person for such period to the
extent such depreciation and amortization were deducted in computing
Consolidated Net Income, plus (d) any expenses or charges related to any Equity
Offering, Permitted Investment or Indebtedness permitted to be incurred by the
Indenture (including such expenses or charges related to the Recapitalization)
or any costs incurred in the cancellation of stock options and, in each case,
deducted in such period in computing Consolidated Net Income, plus (e) the
amount of any restructuring charge deducted in such period in computing
Consolidated Net Income, plus (f) without duplication, any other non-cash
charges reducing Consolidated Net Income for such period (excluding any such
charge which requires an accrual of a cash reserve for anticipated cash charges
for any future period), plus (g) the amount of any minority interest expense
deducted in calculating Consolidated Net Income, less, without duplication (h)
non-cash items increasing Consolidated Net Income of such Person for such period
(excluding any items which represent the reversal of any accrual of, or cash
reserve for, anticipated cash charges in any prior period).
"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 any public or private sale of common stock or
preferred stock of Boyds (excluding Disqualified Stock), other than (i) public
offerings with respect to Boyds' Common Stock registered on Form S-8 and (ii)
any such public or private sale that constitutes an Excluded Contribution.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXCLUDED CONTRIBUTIONS" means the net cash proceeds received by Boyds after
the closing of the Recapitalization from (a) contributions to its equity capital
other than contributions from the issuance of Disqualified Stock and (b) the
sale (other than to a Subsidiary or to any Boyds or Subsidiary management equity
plan or stock option plan or any other management or employee benefit plan or
agreement) of Capital Stock (other than Disqualified Stock) of Boyds, in each
case designated as Excluded Contributions pursuant to an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of Boyds on the date such capital contributions are made or the date such Equity
Interests are sold, as the case may be, the cash proceeds of which are excluded
from the calculation set forth in paragraph (c) of the "Limitation on Restricted
Payments" covenant.
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"EXISTING INDEBTEDNESS" means Indebtedness of Boyds or its Restricted
Subsidiaries in existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes as described in
this Prospectus.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of EBITDA of such Person for such period to the Fixed Charges
of such Person for such period. In the event that Boyds or any of its Restricted
Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than
in the case of revolving credit borrowings, in which case interest expense shall
be computed based upon the average daily balance of such Indebtedness during the
applicable period) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge Coverage
Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter period. For purposes of making the computation
referred to above, Investments, acquisitions, dispositions, mergers,
consolidations and discontinued operations (as determined in accordance with
GAAP) that have been made by Boyds or any of its Restricted Subsidiaries during
the four-quarter reference period or subsequent to such reference period and on
or prior to or simultaneously with the Calculation Date shall be calculated on a
pro forma basis assuming that all such Investments, acquisitions, dispositions,
discontinued operations, mergers and consolidations (and the reduction of any
associated fixed charge obligations and the change in EBITDA resulting
therefrom) had occurred on the first day of the four-quarter reference period.
If since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into Boyds or any Restricted
Subsidiary since the beginning of such period) shall have made any Investment,
acquisition, disposition, discontinued operation, merger or consolidation that
would have required adjustment pursuant to this definition, then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect thereto for
such period as if such Investment, acquisition, disposition, discontinued
operation, merger or consolidation had occurred at the beginning of the
applicable four-quarter period. For purposes of this definition, whenever pro
forma effect is to be given to a transaction, the pro forma calculations shall
be made in good faith by a responsible financial or accounting officer of Boyds.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall 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 Obligations applicable to such
Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by a responsible financial or
accounting officer of Boyds to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP. For purposes of making the
computation referred to above, interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
Interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as Boyds may
designate.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person for such period and (b) all
cash dividend payments (excluding items eliminated in consolidation) on any
series of preferred stock of such Person.
"FOREIGN SUBSIDIARY" means a Restricted Subsidiary not organized or existing
under the laws of the United States, any State thereof, the District of
Columbia, or any territory thereof.
"GAAP" means generally accepted accounting principles 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
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such other statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in effect on the
Issuance Date. For the purposes of the Indenture, the term "consolidated" with
respect to any Person shall mean such Person consolidated with its Restricted
Subsidiaries, and shall not include any Unrestricted Subsidiary.
"GOVERNMENT SECURITIES" means securities that are (a) direct obligations of
the United States of America for the timely payment of which its full faith and
credit is pledged or (b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such Government Securities
or a specific payment of principal of or interest on any such Government
Securities held by such custodian for the account of the holder of such
depository receipt; PROVIDED that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Securities or the specific payment of principal of or interest on
the Government Securities evidenced by such depository receipt.
"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, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness or other obligations.
"GUARANTEE" means any guarantee of the obligations of Boyds under the
Indenture and the Notes by any Person in accordance with the provisions of the
Indenture. When used as a verb, "Guarantee" shall have a corresponding meaning.
No Guarantees were issued in connection with the initial offering and sale of
the outstanding Notes or will be issued in connection with the issuance of the
exchange Notes.
"GUARANTOR" means any Person that incurs a Guarantee; PROVIDED that upon the
release and discharge of such Person from its Guarantee in accordance with the
Indenture, such Person shall cease to be a Guarantor. No Guarantees will be
issued in connection with the initial offering and sale of the outstanding Notes
or will be issued in connection with the issuance of the exchange Notes.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange or
interest rates.
"HOLDER" means a holder of the Notes.
"INDEBTEDNESS" means, with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or bankers' acceptances (or, without double counting, reimbursement
agreements in respect thereof), (iii) representing the balance deferred and
unpaid of the purchase price of any property (including Capitalized Lease
Obligations), except any such balance that constitutes a trade payable or
similar obligation to a trade creditor, in each case accrued in the ordinary
course of business or (iv) representing any Hedging Obligations, if and to the
extent of any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) that would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP, (b) to the extent not otherwise included, any obligation by such Person to
be liable for, or to pay, as obligor, guarantor or otherwise, on the
Indebtedness of another Person (other than by
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endorsement of negotiable instruments for collection in the ordinary course of
business) and (c) to the extent not otherwise included, Indebtedness of another
Person secured by a Lien on any asset owned by such Person (whether or not such
Indebtedness is assumed by such Person); PROVIDED, HOWEVER, that Contingent
Obligations incurred in the ordinary course of business shall be deemed not to
constitute Indebtedness and obligations under or in respect of Receivables
Facilities shall not be deemed to constitute Indebtedness of a Person.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in Similar Businesses of
nationally recognized standing that is, in the judgment of Boyds' Board of
Directors, as evidenced by a board resolution, qualified to perform the task for
which it has been engaged.
"INVESTMENT GRADE SECURITIES" means (i) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such rating by such rating organization, or, if no
rating of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized securities rating agency, but excluding any debt
securities or instruments constituting loans or advances among Boyds and its
Subsidiaries, and (iii) investments in any fund that invests exclusively in
investments of the type described in clauses (i) and (ii) which fund may also
hold immaterial amounts of cash pending investment and/or distribution.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding advances to customers,
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities issued by any other Person
and investments that are required by GAAP to be classified on the balance sheet
(excluding the footnotes thereto) of Boyds in the same manner as the other
investments included in this definition to the extent such transactions involve
the transfer of cash or other property. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments," (i) "Investments" shall include
the portion (proportionate to Boyds' equity interest in such Subsidiary) of the
fair market value of the net assets of a Subsidiary of Boyds at the time that
such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, Boyds
shall be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) Boyds' "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to Boyds' equity interest in such Subsidiary) of the fair market
value of the net assets of such Subsidiary at the time of such redesignation;
and (ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
"ISSUANCE DATE" means the closing date for the sale and original issuance of
the outstanding Notes under the Indenture.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction); provided that in
no event shall an operating lease be deemed to constitute a Lien.
"MANAGEMENT GROUP" means the group consisting of the Officers of Boyds.
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"MOODY'S" means Moody's Investors Service, Inc.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"NET PROCEEDS" means the aggregate cash proceeds received by Boyds or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any
Designated Noncash Consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale and the sale or disposition of such Designated
Noncash Consideration (including, without limitation, legal, accounting and
investment banking fees, and brokerage and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements related thereto), amounts required
to be applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of the second paragraph
of "--Repurchase at the Option of Holders--Asset Sales") to be paid as a result
of such transaction and any deduction of appropriate amounts to be provided by
Boyds as a reserve in accordance with GAAP against any liabilities associated
with the asset disposed of in such transaction and retained by Boyds after such
sale or other disposition thereof, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
such transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements (including, without limitation, reimbursement
obligations with respect to letters of credit and banker's acceptances), damages
and other liabilities payable under the documentation governing any
Indebtedness.
"OFFICER" means the Chairman of the Board, the President, any Executive Vice
President, Senior Vice President or Vice President, the Treasurer or the
Secretary of Boyds.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of Boyds by two
officers of Boyds, one of whom must be the principal executive officer, the
principal financial officer, the treasurer or the principal accounting officer
of Boyds that meets the requirements set forth in the Indenture.
"PARI PASSU INDEBTEDNESS" means (a) with respect to the Notes, Indebtedness
which ranks PARI PASSU in right of payment to the Notes and (b) with respect to
any Guarantee, Indebtedness which ranks PARI PASSU in right of payment to such
Guarantee.
"PERMITTED HOLDERS" means KKR and any of its Affiliates and the Management
Group.
"PERMITTED INVESTMENTS" means (a) any Investment in Boyds or any Restricted
Subsidiary; (b) any Investment in cash and Cash Equivalents or Investment Grade
Securities; (c) any Investment by Boyds or any Restricted Subsidiary of Boyds in
a Person that is a Similar Business if as a result of such Investment (i) such
Person becomes a Restricted Subsidiary or (ii) such Person, in one transaction
or a series of related transactions, is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Boyds or a Restricted Subsidiary; (d) any Investment in
securities or other assets not constituting cash or Cash Equivalents and
received in connection with an Asset Sale made pursuant to the provisions of
"--Repurchase at the Option of Holders--Asset Sales" or any other disposition of
assets not constituting an Asset Sale; (e) any Investment existing on the
Issuance Date; (f) advances to employees not in excess of $10.0 million
outstanding at any one time, in the aggregate; (g) any Investment acquired by
Boyds or any of its Restricted Subsidiaries (i) in exchange for any other
Investment or accounts receivable held by Boyds or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment or
accounts receivable or (ii) as a result of a foreclosure by Boyds or any of its
Restricted Subsidiaries with respect to any secured Investment or other transfer
of title with respect to any secured Investment in default; (h) Hedging
Obligations permitted under clause (j) of the "Limitation of Incurrence of
Indebtedness and Issuance of Disqualified Stock" covenant; (i) loans and
advances to officers, directors and employees for business-related travel
expenses, moving expenses and other similar expenses, in each
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case incurred in the ordinary course of business; (j) any Investment in a
Similar Business (other than an Investment in an Unrestricted Subsidiary) having
an aggregate fair market value, taken together with all other Investments made
pursuant to this clause (j) that are at that time outstanding, not to exceed the
greater of (x) $50.0 million or (y) 15% of Total Assets at the time of such
Investment (with the fair market value of each Investment being measured at the
time made and without giving effect to subsequent changes in value); (k)
Investments the payment for which consists of Equity Interests of Boyds
(exclusive of Disqualified Stock); PROVIDED, HOWEVER, that such Equity Interests
will not increase the amount available for Restricted Payments under clause (c)
of the "Limitation on Restricted Payments" covenant; (l) additional Investments
having an aggregate fair market value, taken together with all other Investments
made pursuant to this clause (l) that are at that time outstanding, not to
exceed the greater of (x) $30.0 million or (y) 10% of Total Assets at the time
of such Investment (with the fair market value of each Investment being measured
at the time made and without giving effect to subsequent changes in value); (m)
any transaction to the extent it constitutes an investment that is permitted by
and made in accordance with the provisions of the second paragraph of the
covenant described under "--Certain Covenants--Transactions with Affiliates"
(except transactions described in clauses (ii) and (vi) of such paragraph); (n)
any Investment by Restricted Subsidiaries in other Restricted Subsidiaries and
Investments by Subsidiaries that are not Restricted Subsidiaries in other
Subsidiaries that are not Restricted Subsidiaries; and (o) Investments relating
to any special purpose Wholly Owned Subsidiary of Boyds organized in connection
with a Receivables Facility that, in the good faith determination of the Board
of Directors of Boyds, are necessary or advisable to effect such Receivables
Facility.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PREFERRED STOCK" means any Equity Interest with preferential right of
payment of dividends or upon liquidation, dissolution, or winding up.
"RECAPITALIZATION" means the consummation on the Issuance Date of the series
of transactions contemplated by the Recapitalization and Stock Purchase
Agreement dated as of March 6, 1998, among Boyds, Bear Acquisition, Inc. and the
existing stockholders of Boyds at such time.
"RECEIVABLES FACILITY" means one or more receivables financing facilities,
as amended from time to time, pursuant to which Boyds and/or any of its
Restricted Subsidiaries sells its accounts receivable to a Person that is not a
Restricted Subsidiary.
"RECEIVABLES FEES" means distributions or payments made directly or by means
of discounts with respect to any participation interests issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.
"RELATED PARTIES" means any Person controlled by a Permitted Holder,
including any partnership of which a Permitted Holder or its Affiliates is the
general partner.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means, at any time, any direct or indirect
Subsidiary of Boyds that is not then an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon the occurrence of an Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
"Restricted Subsidiary."
"S&P" means Standard and Poor's Ratings Group.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
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"SIGNIFICANT SUBSIDIARY" means any Subsidiary 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
hereof.
"SIMILAR BUSINESS" means a business, the majority of whose revenues are
derived from the design, manufacture, import and/or distribution of collectibles
and/or other specialty giftware products or whose revenues are derived from the
licensing of the Boyds name, or any business or activity that is reasonably
similar thereto or a reasonable extension, development or expansion thereof or
ancillary thereto.
"SUBORDINATED INDEBTEDNESS" means (a) with respect to the Notes, any
Indebtedness of Boyds which is by its terms subordinated in right of payment to
the Notes and (b) with respect to any Guarantee, any Indebtedness of the
applicable Guarantor which is by its terms subordinated in right of payment to
such Guarantee.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than 50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of determination owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof and (ii) any partnership,
joint venture, limited liability company or similar entity of which (x) more
than 50% of the capital accounts, distribution rights, total equity and voting
interests or general or limited partnership interests, as applicable, are owned
or controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person or a combination thereof whether in the form
of membership, general, special or limited partnership or otherwise and (y) such
Person or any Wholly Owned Restricted Subsidiary of such Person is a controlling
general partner or otherwise controls such entity.
"TOTAL ASSETS" means the total consolidated assets of Boyds and its
Restricted Subsidiaries, as shown on the most recent balance sheet (excluding
the footnotes thereto) of Boyds.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of Boyds which at the
time of determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of Boyds, as provided below) and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of Boyds may designate any
Subsidiary of Boyds (including any existing Subsidiary and any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
or any of its Subsidiaries owns any Equity Interests of, or owns, or holds any
Lien on, any property of, Boyds or any Subsidiary of Boyds (other than any
Subsidiary of the Subsidiary to be so designated), PROVIDED that (a) any
Unrestricted Subsidiary must be an entity of which shares of the capital stock
or other equity interests (including partnership interests) entitled to cast at
least a majority of the votes that may be cast by all shares or equity interests
having ordinary voting power for the election of directors or other governing
body are owned, directly or indirectly, by Boyds, (b) Boyds certifies that such
designation complies with the covenants described under "--Certain
Covenants--Limitation on Restricted Payments" and (c) each of (I) the Subsidiary
to be so designated and (II) its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Indebtedness
pursuant to which the lender has recourse to any of the assets of Boyds or any
of its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that,
immediately after giving effect to such designation, (i) Boyds could incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test described under "--Certain Covenants--Limitations on Incurrence of
Indebtedness and Issuance of Disqualified Stock" or (ii) the Fixed Charge
Coverage Ratio for Boyds and its Restricted Subsidiaries would be greater than
such ratio for Boyds and its Restricted Subsidiaries immediately prior to such
designation, in each case on a pro forma basis taking into
99
<PAGE>
account such designation. Any such designation by the Board of Directors shall
be notified by Boyds to the Trustee by promptly filing with the Trustee a copy
of the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"VOTING STOCK" 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
or Disqualified Stock, as the case may be, at any date, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the date of each successive scheduled principal payment of such
Indebtedness or redemption or similar payment with respect to such Disqualified
Stock multiplied by the amount of such payment, by (ii) the sum of all such
payments.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned Subsidiary that is
a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
100% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
100
<PAGE>
U.S. FEDERAL TAX CONSEQUENCES OF THE EXCHANGE OF NOTES
The following describes the material United States federal income tax
consequences of the exchange of outstanding notes for exchange notes pursuant to
the exchange offer. The following is based upon the provision of the Internal
Revenue Code of 1986, and the related regulations, rulings and judicial
decisions, as of the date of this prospectus.
The exchange of outstanding notes for exchange notes in the exchange offer
will not constitute a taxable event to holders. Consequently, no gain or loss
will be recognized by a holder upon receipt of an exchange note, the holding
period of the exchange note will include the holding period of the outstanding
note and the basis of the exchange note will be the same as the basis of the
outstanding note immediately before the exchange.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF OUTSTANDING NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. PERSONS
The following is a summary of U.S. federal income tax considerations for
beneficial owners of the exchange notes that are "non-U.S. persons" under the
Interal Revenue Code. Under the Code, a "non-U.S. person" means a person that is
not any of the following:
- a citizen or resident of the United States
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision of the U.S.
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source
- a trust which is either subject to the supervision of a court within the
United States and the control of one or more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person
This summary is based on current law which is subject to change, perhaps
retroactively, is for general purposes only and should not be considered tax
advice. This summary does not represent a detailed description of the federal
income tax consequences to you in light of your particular circumstances. In
addition, it does not represent a detailed description of the U.S. federal
income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws, including if you are a
"controlled foreign corporation," "passive foreign investment company" or
"foreign personal holding company." We cannot assure you that a change in law
will not alter significantly the tax considerations that we describe in this
summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE PARTICULAR U.S.
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE EXCHANGE NOTES,
AS WELL AS THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest on the exchange notes provided that each of the following
apply:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury regulations
- you are not a controlled foreign corporation that is related to us through
stock ownership
101
<PAGE>
- you are not a bank whose receipt of interest on the exchange notes is
described in the Code
- (a) you provide your name and address on an IRS Form W-8, and certify,
under penalty of perjury, that you are not a U.S. person or (b) a
financial institution holding the exchange notes on your behalf certifies,
under penalty of perjury, that it has received an IRS Form W-8 from the
beneficial owner and provides us with a copy
If you cannot satisfy the requirements described above, payments of premium,
and interest made to you will be subject to the 30% U.S. federal withholding
tax, unless you provide us with a properly executed (1) IRS Form 1001 claiming
an exemption from or reduction in withholding under the benefit of a tax treaty
or (2) IRS Form 4224 stating that interest paid on the exchange note is not
subject to withholding tax because it is effectively connected with your conduct
of a trade or business in the United States.
The 30% U.S. federal withholding tax will not apply to any gain or income
that you realize on the sale, exchange, retirement or other disposition of the
exchange notes.
U.S. FEDERAL ESTATE TAX
Your estate will not be subject to U.S. federal estate tax on exchange notes
of a series beneficially owned by you at the time of your death, provided that
(1) you do not own 10% or more of the total combined voting power of all classes
of our voting stock, within the meaning of the Code and the U.S. Treasury
Regulations, and (2) interest on that exchange note would not have been, if
received at the time of your death, effectively connected with the conduct by
you of a trade or business in the United States.
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
on the exchange notes is effectively connected with the conduct of that trade or
business, although exempt from the 30% withholding tax, you will be subject to
U.S. federal income tax on that interest on a net income basis in the same
manner as if you were a U.S. person, as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30%, or lower applicable treaty rate, of your earnings and profits for the
taxable year, subject to adjustments that are effectively connected with the
conduct by you of a trade or business in the United States. For this purpose,
interest on exchange notes will be included in earnings and profits.
Any gain or income realized on the disposition of an exchange note generally
will not be subject to U.S. federal income tax unless (1) that gain or income is
effectively connected with the conduct of a trade or business in the United
States by you, or (2) you are an individual who is present in the United States
for 183 days or more in the taxable year of that disposition, and other
conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, you will not be required to provide information reporting and
backup withholding regarding payments that we make to you provided that we do
not have actual knowledge that you are a U.S. person and we have received from
you the statement described above under "U.S. Federal Withholding Tax."
In addition, you will not be required to pay backup withholding and provide
information reporting regarding the proceeds of the sale of an exchange note
within the United States or conducted through specified U.S.-related financial
intermediaries, if the payor receives the statement described above and does not
have actual knowledge that you are a U.S. person, as defined under the Code, or
you otherwise establish an exemption.
102
<PAGE>
U.S. Treasury regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to specified
payments made after December 31, 2000. In general, the new U.S. Treasury
regulations would not significantly alter the present rules discussed above,
except in special situations.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
103
<PAGE>
PLAN OF DISTRIBUTION
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. This prospectus, as it may be
amended or supplemented, may be used by a broker-dealer in connection with
resales of exchange notes received in exchange for outstanding notes only where
such outstanding notes were acquired as a result of market-making activities or
other trading activities. We have agreed that we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period of 180 days from the date on which the
exchange offer is consummated, or such shorter period as will terminate when all
outstanding notes acquired by broker-dealers for their own accounts as a result
of market-making activities or other trading activities have been exchanged for
exchange notes and such exchange notes have been resold by such broker-dealers.
We will not receive any proceeds from any sale of exchange notes by
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 purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such exchange notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of exchange notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date on which the exchange offer is
consummated, or such shorter period as will terminate when all outstanding notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for exchange notes
and such exchange notes have been resold by such broker-dealers, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer other than commissions or concessions of any brokers or dealers
and the fees of any counsel or other advisors or experts retained by the holders
of outstanding notes, except as expressly set forth in the registration rights
agreement, and will indemnify the holders of outstanding notes, including any
broker-dealers, against specified liabilities, including liabilities under the
Securities Act.
104
<PAGE>
LEGAL MATTERS
The validity of the exchange notes offered by this prospectus will be passed
upon for Boyds by Simpson Thacher & Bartlett, New York, New York. Partners of
Simpson Thacher & Bartlett, members of their families, related persons and
others, have an indirect interest, through limited partnerships, who are
investors in KKR 1996 Fund L.P., in less than 1% of the common stock.
EXPERTS
The consolidated financial statements of Boyds as of December 31, 1997 and
1998 and for the years ended December 31, 1996, 1997 and 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing in this prospectus, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
AVAILABLE INFORMATION
Boyds has filed with the Securities and Exchange Commission a registration
statement on Form S-4, which includes amendments, exhibits, schedules and
supplements, under the Securities Act of 1933 and the rules and regulations
under the Securities Act, for the registration of the exchange notes offered by
this prospectus. Although this prospectus, which forms a part of the
registration statement, contains all material information included in the
registration statement, parts of the registration statement have been omitted
from this prospectus as permitted by the rules and regulations of the
Commission. For further information with respect to Boyds and the common stock
offered by this prospectus, please refer to the registration statement.
Statements contained in this prospectus as to the contents of any contracts or
other document referred to in this prospectus are not necessarily complete and,
where such contract or other document is an exhibit to the registration
statement, each such statement is qualified in all respects by the provisions of
such exhibit, to which reference is now made.
In conjunction with the initial public offering of Boyds' common stock in
March 1999, Boyds filed a registration statement on Form S-1, which included
amendments and exhibits, under the Securities Act and the rules and regulations
under the Securities Act. As a result of the filing of the registration
statement on Form S-1, Boyds is currently subject to the information
requirements of the Securities Exchange Act of 1934 and files reports and other
information required by the Securities Exchange Act.
The registration statement on Form S-4, as well as any other registration
statements or reports publicly filed by Boyds, can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13(th) Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The public may obtain information regarding
the Washington, D.C. Public Reference Room by calling the Commission at
1-800-SEC-0330. In addition, such public filings are publicly available through
the Commission's site on the Internet's World Wide Web, located at
"http://www.sec.gov" and available for inspection at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
105
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE BOYDS COLLECTION, LTD. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Condensed Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998............... F-2
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1999 and
1998................................................................................................... F-3
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31,
1999................................................................................................... F-4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and
1998................................................................................................... F-5
Notes to Unaudited Condensed Consolidated Financial Statements........................................... F-6
THE BOYDS COLLECTION, LTD. CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................................................. F-10
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................. F-11
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998................... F-12
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998..... F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998............... F-14
Notes to Consolidated Financial Statements............................................................... F-15
</TABLE>
F-1
<PAGE>
THE BOYDS COLLECTION, LTD.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................ $ 84,129 $ 11,606
Accounts receivable, less allowance for doubtful accounts of $180 in 1999 and 1998,
respectively....................................................................... 30,977 24,355
Inventory--primarily finished goods.................................................. 10,505 8,440
Inventory in transit................................................................. 952 3,116
Other current assets................................................................. 835 527
---------- ------------
Total current assets............................................................. 127,398 48,044
FURNITURE AND EQUIPMENT:
Furniture and equipment.............................................................. 3,404 2,662
Less--accumulated depreciation....................................................... (1,248) (1,143)
---------- ------------
Total furniture and equipment.................................................... 2,156 1,519
OTHER ASSETS:
Deferred debt issuance costs......................................................... 9,640 12,019
Deferred tax asset................................................................... 230,305 234,403
Other assets......................................................................... 2,424 2,425
---------- ------------
Total other assets............................................................... 242,369 248,847
---------- ------------
TOTAL ASSETS........................................................................... $ 371,923 $ 298,410
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................................... $ 2,374 $ 1,513
Accrued taxes........................................................................ 7,781 5,364
Accrued expenses..................................................................... 1,682 1,767
Interest payable..................................................................... 8,201 5,501
Deferred income...................................................................... 778 31
---------- ------------
Total current liabilities........................................................ 20,816 14,176
LONG-TERM DEBT......................................................................... 340,000 443,000
COMMITMENTS AND CONTINGENCIES (Notes 4 and 8)
STOCKHOLDERS' EQUITY (DEFICIT):
Capital stock (61,838 and 52,588 issued and outstanding at March 31, 1999 and
December 31, 1998, respectively) and paid-in capital in excess of par.............. (38,703) (193,043)
Retained earnings.................................................................... 49,810 34,277
---------- ------------
Total stockholders' equity (deficit)............................................. 11,107 (158,766)
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)................................... $ 371,923 $ 298,410
---------- ------------
---------- ------------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-2
<PAGE>
THE BOYDS COLLECTION, LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1999 1998
--------- ---------
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
NET SALES.................................................................................. $ 57,185 $ 49,336
COST OF GOODS SOLD......................................................................... 18,676 15,751
--------- ---------
Gross profit........................................................................... 38,509 33,585
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............................................... 4,319 2,785
OTHER OPERATING INCOME..................................................................... 316 434
--------- ---------
INCOME FROM OPERATIONS..................................................................... 34,506 31,234
--------- ---------
OTHER INCOME:
Interest and dividend income............................................................. 162 118
--------- ---------
INTEREST EXPENSE:
Interest expense......................................................................... 8,019 311
Amortization of deferred debt issuance costs............................................. 223 --
--------- ---------
TOTAL INTEREST EXPENSE..................................................................... 8,242 311
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY ITEM............................ 26,426 31,041
PROVISION FOR INCOME TAXES................................................................. 9,513 --
--------- ---------
INCOME BEFORE EXTRAORDINARY ITEM........................................................... $ 16,913 $ 31,041
EXTRAORDINARY ITEM--WRITE OFF OF DEFERRED DEBT ISSUANCE COSTS (NET OF $776 TAX BENEFIT).... 1,380 --
--------- ---------
NET INCOME................................................................................. $ 15,533 $ 31,041
--------- ---------
--------- ---------
PRO FORMA DATA:
HISTORICAL INCOME BEFORE EXTRAORDINARY ITEM................................................ $ 16,913 $ 31,041
PRO FORMA PROVISION FOR INCOME TAXES....................................................... -- 12,845
--------- ---------
PRO FORMA INCOME BEFORE EXTRAORDINARY ITEM................................................. 16,913 18,196
EXTRAORDINARY ITEM--WRITE OFF OF DEFERRED DEBT ISSUANCE COSTS.............................. 1,380 --
--------- ---------
PRO FORMA NET INCOME....................................................................... $ 15,533 $ 18,196
--------- ---------
--------- ---------
PRO FORMA EARNINGS PER SHARE:
Basic and Diluted Earnings Per Share
Income Before Extraordinary Item....................................................... $ 0.30 $ 0.12
Extraordinary Item--Write Off of Deferred Debt Issuance Costs.......................... (0.02) --
--------- ---------
Net Income............................................................................. $ 0.28 $ 0.12
--------- ---------
--------- ---------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
THE BOYDS COLLECTION, LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
AND PAID-IN
CAPITAL
NUMBER OF IN EXCESS RETAINED
SHARES OF PAR EARNINGS
----------- -------------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE, JANUARY 1, 1999................................................... 52,588 $ (193,043) $ 34,277
Sale of common stock (net of related fees and expenses).................. 9,250 154,340 --
Net income............................................................... -- -- 15,533
----------- -------------- ---------
BALANCE, MARCH 31, 1999.................................................... 61,838 $ (38,703) $ 49,810
----------- -------------- ---------
----------- -------------- ---------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
THE BOYDS COLLECTION, LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................. $ 15,533 $ 31,041
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation......................................................................... 105 63
Amortization and write off of deferred debt issuance costs........................... 2,379 --
Amortization of deferred tax asset................................................... 4,098 --
Changes in assets and liabilities:
Accounts receivable--net........................................................... (6,622) (2,906)
Inventory.......................................................................... (2,065) 505
Inventory in transit............................................................... 2,164 1,857
Other current assets............................................................... (308) (9)
Other assets....................................................................... 1 --
Accounts payable................................................................... 861 (39)
Accrued taxes...................................................................... 2,417 411
Accrued expenses................................................................... (85) (389)
Interest payable................................................................... 2,700 (23)
Deferred revenue................................................................... 747 556
----------- ----------
Net cash provided by operating activities........................................ 21,925 31,067
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.................................................................. (742) (387)
----------- ----------
Net cash used in investing activities............................................ (742) (387)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable--stockholders................................................ -- (30,000)
Repayment of debt...................................................................... (103,000) --
Sale of common stock (net of related fees and expenses)................................ 154,340 --
----------- ----------
Net cash used in financing activities............................................ 51,340 (30,000)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................ 72,523 680
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................... 11,606 11,210
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................. $ 84,129 $ 11,890
----------- ----------
----------- ----------
CASH PAID DURING THE PERIOD FOR INTEREST................................................. $ 5,300 $ 333
----------- ----------
----------- ----------
CASH PAID DURING THE PERIOD FOR INCOME TAXES............................................. $ 2,103 $ --
----------- ----------
----------- ----------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-5
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. INTERIM FINANCIAL STATEMENTS
Boyds is a wholesaler and importer of giftware and imports substantially all
of its products from foreign suppliers, primarily located in The People's
Republic of China. The condensed consolidated balance sheet, as of March 31,
1999, the related condensed consolidated statements of income for the three
months ended March 31, 1999 and 1998, the changes in stockholders' equity for
the three months ended March 31, 1999 and the cash flows for the three months
ended March 31, 1999 and 1998 are unaudited. In the opinion of management all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such interim financial statements have been included. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the financial statements
and notes included in Boyds' 1998 Financial Statements, which are included in
the Registration Statement on Form S-1 (File No. 333-69535) filed with the
Securities and Exchange Commission on March 4, 1999.
2. INITIAL PUBLIC OFFERING
On March 5, 1999, Boyds issued and sold 9,250,000 shares of common stock at
$18 per share in an initial public offering and listed its stock on the New York
Stock Exchange. The proceeds to Boyds, after deducting the underwriting discount
and attorney fees, were approximately $154.3 million. On March 12, 1999, $82.5
million of indebtedness under the credit facility with DLJ Capital Funding, Inc.
and other lenders was repaid from the proceeds (see also Note 10).
3. RECAPITALIZATION AND FINANCINGS
On March 6, 1998, Boyds entered into a Recapitalization and Stock Purchase
Agreement with Bear Acquisition, Inc. ("Bear"). Bear was a subsidiary of KKR
1996 Fund L.P., a limited partnership formed at the direction of Kohlberg Kravis
Roberts & Co. L.P. ("KKR"). In connection with the closing of the
Recapitalization on April 21, 1998, Boyds used approximately $490 million of
aggregate proceeds from certain financings described below (the "Financings")
and approximately $8 million of existing cash balances of Boyds to: (i) redeem
(the "Redemption") a portion of Boyds' common stock held by the existing
stockholders (the "Stockholders") for approximately $473 million and (ii) pay
transaction fees and expenses of approximately $25 million. In addition, Bear
acquired shares of common stock from the Stockholders for approximately $184
million (the "Stock Purchase"). The Stock Purchase, Redemption and Financings
and related transactions have been recorded as a recapitalization (the
"Recapitalization"). Upon completion of the Recapitalization, Bear owned
approximately 80% of the Common Stock and the Stockholders retained
approximately 20% of the Common Stock.
The Financings consisted of: (i) an aggregate of approximately $325 million
of bank borrowings by Boyds under senior secured term loans (the "Term Loans")
and (ii) $165 million aggregate principal amount of senior subordinated notes
(the "Notes"). In addition, Boyds entered into a $40 million senior secured
revolving credit facility, which is available for Boyds' working capital
requirements and to support trade letters of credit. Boyds does not have any
borrowings under the revolving credit facility.
Financing costs of approximately $13,800 were classified as deferred debt
issuance costs and will be amortized over the lives of the related debt
facilities. In addition, Boyds incurred approximately $11,800 of costs
associated with the Redemption, which were charged to paid-in capital in excess
of par. Fees in the amount of $6,000 were paid to KKR in connection with the
recapitalization.
F-6
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At March 31, 1999 and at December 31, 1998, Boyds had letters of credit
outstanding under bank credit agreements amounting to $3,426 and $11,172,
respectively. These letters of credit represent Boyds' commitment to purchase
inventory which is to be produced and/or shipped.
5. RELATED PARTY TRANSACTIONS AND NOTE PAYABLE--STOCKHOLDERS
The stockholders loaned $30,000 to Boyds at December 31, 1997, at an
interest rate of 5.0%. These notes payable were repaid in 1998. Interest
amounting to $333 was paid to the stockholders during the three months ended
March 31, 1998.
For the first quarter ended March 31, 1999, Boyds paid to KKR approximately
$134 for management fees and related expenses.
6. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
9% Senior Subordinated Notes due May 15, 2008.......................................... $ 165,000 $ 165,000
Credit Agreement:
Secured Tranche A Term Loans due April 2005. Interest based on LIBOR or base rate as
defined............................................................................ 88,250 88,250
Secured Tranche B Term Loans due April 2006. Interest based on LIBOR or base rate as
defined............................................................................ 86,750 189,750
Secured revolving loan commitment of $40,000. Interest based on LIBOR or base rate as
defined............................................................................ -- --
---------- ------------
$ 340,000 $ 443,000
---------- ------------
---------- ------------
</TABLE>
At March 31, 1999, the weighted average interest rate in effect for the Term
Loans was 6.848%.
The Notes have an optional redemption feature any time after May 15, 2003.
Interest on the Notes is payable semiannually on May 15 and November 15.
The Credit Agreement contains certain covenants, including the requirement
of a minimum interest coverage ratio as defined in the agreement and substantial
restrictions as to dividends and distributions. The agreement also provides that
the Term Loans and revolving loan commitment be secured by the capital stock of
Boyds' future subsidiaries. In connection with the transfer of Boyds' assets to
its wholly owned subsidiary, The Boyds Collection Ltd. L.P. ("Boyds L.P.") in
1998, Boyds pledged its interests in Boyds L.P. In addition, the Term Loans are
subject to mandatory prepayment with the proceeds of certain asset sales and a
portion of Boyds' excess cash flow as defined in the credit agreement. Boyds has
the option of selecting its own interest period at one, two, three, six, nine or
twelve month periods.
F-7
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The scheduled maturities of the long-term debt are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ --
2000.............................................................. --
2001.............................................................. 6,250
2002.............................................................. 14,000
2003.............................................................. 17,000
Thereafter........................................................ 302,750
</TABLE>
7. INCOME TAXES
Prior to April 21, 1998, Boyds had elected to be treated as an S Corporation
for federal and state income tax purposes. Boyds subsequently elected to change
its tax status from an S Corporation to a C Corporation. The income statement
reflects a provision for income taxes for the period Boyds was a C Corporation.
Pro forma income statement data reflects pro forma income tax information as if
Boyds was a C Corporation for the entire periods presented.
For federal income tax purposes, Boyds has elected to treat the
Recapitalization and Stock Purchase as an asset acquisition by making a Section
338 Section (h)(10) election. As a result, there is a difference between the
financial reporting and tax basis of Boyds' assets. The difference creates
deductible goodwill for tax purposes, which creates a deferred tax asset for
financial reporting purposes. The deferred tax asset will be realized as the
goodwill is amortized over a period of fifteen years. In the opinion of
management, Boyds believes it will have sufficient profits in the future to
realize the deferred tax asset.
8. CONTINGENCIES
Boyds is engaged in various lawsuits, either as plaintiff or defendant,
involving alleged patent infringement and breaches of contract. In the opinion
of management, based upon advice of counsel, the ultimate outcome of these
lawsuits will not have a material impact on Boyds' financial statements.
9. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Pro forma net income...................................................................... $ 15,533 $ 18,196
--------- ---------
--------- ---------
Denominator:
Denominator for basic earnings per share--weighted average shares......................... 55,363 157,672
Effect of dilutive securities:
Effect of shares issuable under stock option plans based on treasury stock method......... 677 --
--------- ---------
Denominator for diluted earnings per share--weighted average shares......................... 56,040 157,672
--------- ---------
--------- ---------
</TABLE>
F-8
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS
On April 12, 1999, Boyds paid $71.9 million to the holders of the senior
subordinated notes, leaving a balance outstanding of $99.0 million. The payment
comprised $5.9 million of redemption premium and $66.0 million of principal.
On April 21, 1999, Boyds repaid a further $10.0 million of the tranche B
term loans, leaving a balance outstanding of $76.75 million.
As a consequence of these repayments total long term debt decreased from
$340.0 million at March 31, 1999 to $264.0 million at April 21, 1999.
On May 28, 1999, our Board of Directors approved the repurchase of up to 3
million shares of our common stock. As of June 15, 1999, we had repurchased
737,000 shares of our common stock pursuant to this stock repurchase program for
an aggregate amount of approximately $9.5 million. We financed these repurchases
out of our operating cash flow and approximately $4.0 million of borrowings
under our revolving credit facility.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
The Boyds Collection, Ltd.
McSherrystown, Pennsylvania
We have audited the accompanying consolidated balance sheets of The Boyds
Collection, Ltd. ("Boyds") as of December 31, 1997 and 1998 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of Boyds' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Boyds at December 31, 1997 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
New York, New York
January 28, 1999 (March 2, 1999, as to the exchange of common stock discussed in
Note 13)
F-10
<PAGE>
THE BOYDS COLLECTION, LTD.
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 11,210 $ 11,606
Accounts receivable, less allowance for doubtful accounts of $150,000 and $180,000 in
1997 and 1998, respectively........................................................... 19,796 24,355
Inventory--primarily finished goods..................................................... 3,403 8,440
Inventory in transit.................................................................... 3,438 3,116
Other current assets.................................................................... 425 527
--------- -----------
Total current assets................................................................ 38,272 48,044
FURNITURE AND EQUIPMENT:
Furniture and equipment................................................................. 1,321 2,662
Less accumulated depreciation........................................................... (680) (1,143)
--------- -----------
Total furniture and equipment........................................................... 641 1,519
OTHER ASSETS:
Deferred debt issuance costs............................................................ -- 12,019
Deferred tax asset...................................................................... -- 234,403
Other assets............................................................................ 23 2,425
--------- -----------
Total other assets.................................................................. 23 248,847
--------- -----------
TOTAL ASSETS.............................................................................. $ 38,936 $ 298,410
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................................ $ 748 $ 1,513
Accrued taxes........................................................................... 1,481 5,364
Accrued expenses........................................................................ 1,412 1,798
Interest payable........................................................................ 23 5,501
--------- -----------
Total current liabilities........................................................... 3,664 14,176
NOTES PAYABLE--Stockholders............................................................... 30,000 --
LONG TERM DEBT............................................................................ -- 443,000
COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 11)
STOCKHOLDERS' EQUITY:
Capital stock (157,671,516 and 52,588,246 issued and outstanding at December 31, 1997
and 1998, respectively) and paid-in capital in excess of par.......................... 48 (193,043)
Retained earnings....................................................................... 5,224 34,277
--------- -----------
Total stockholders' equity (deficit)................................................ 5,272 (158,766)
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................ $ 38,936 $ 298,410
--------- -----------
--------- -----------
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
THE BOYDS COLLECTION, LTD.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
-------------- -------------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C> <C>
NET SALES........................................................ $ 98,365 $ 129,841 $ 197,806
COST OF GOODS SOLD............................................... 33,022 43,278 63,852
-------------- -------------- -------------
Gross profit................................................. 65,343 86,563 133,954
GENERAL AND ADMINISTRATIVE EXPENSES.............................. 6,314 8,528 14,446
OTHER OPERATING INCOME........................................... 387 1,171 1,280
-------------- -------------- -------------
INCOME FROM OPERATIONS........................................... 59,416 79,206 120,788
-------------- -------------- -------------
OTHER INCOME (EXPENSE):
Interest and dividend income................................... 208 414 399
Other income, (expense)........................................ 660 (248) (36)
Expenses related to recapitalization........................... -- -- (3,248)
-------------- -------------- -------------
Net other income (expense)................................... 868 166 (2,885)
-------------- -------------- -------------
INTEREST EXPENSE:
Interest expense............................................... 187 242 27,764
Amortization of deferred debt issuance costs................... -- -- 1,854
-------------- -------------- -------------
TOTAL INTEREST EXPENSE........................................... 187 242 29,618
-------------- -------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES......................... 60,097 79,130 88,285
PROVISION FOR INCOME TAXES....................................... -- -- 22,007
-------------- -------------- -------------
NET INCOME....................................................... 60,097 79,130 66,278
PRO FORMA INFORMATION
(Unaudited):
HISTORICAL INCOME BEFORE PROVISION FOR INCOME TAXES.............. $ 60,097 $ 79,130 $ 88,285
PRO FORMA PROVISION FOR INCOME TAXES............................. 25,045 33,152 34,732
-------------- -------------- -------------
PRO FORMA NET INCOME............................................. $ 35,052 $ 45,978 $ 53,553
-------------- -------------- -------------
-------------- -------------- -------------
PRO FORMA BASIC EARNINGS PER SHARE............................... $ .22 $ .29 $ .64
-------------- -------------- -------------
-------------- -------------- -------------
PRO FORMA DILUTED EARNINGS PER SHARE............................. $ .22 $ .29 $ .63
-------------- -------------- -------------
-------------- -------------- -------------
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING........................ 157,671,516 157,671,516 84,142,163
-------------- -------------- -------------
-------------- -------------- -------------
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING...................... 157,671,516 157,671,516 84,484,571
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
THE BOYDS COLLECTION, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
AND PAID-IN
CAPITAL
NUMBER OF IN EXCESS RETAINED
SHARES OF PAR EARNINGS
-------------- -------------- ----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1995............................................ 157,671,516 48 868
Net income.......................................................... -- -- 60,097
Distributions to stockholders'...................................... -- -- (59,822)
-------------- -------------- ----------
BALANCE, DECEMBER 31, 1996............................................ 157,671,516 48 1,143
Net income.......................................................... -- -- 79,130
Distributions to stockholders'...................................... -- -- (75,049)
-------------- -------------- ----------
BALANCE, DECEMBER 31, 1997............................................ 157,671,516 48 5,224
Net income.......................................................... -- -- 66,278
Capital contribution from stockholder............................... -- 3,500 --
Transfer of retained earnings to additional paid in capital at
termination of sub-S election..................................... -- 37,225 (37,225)
Recognition of deferred tax asset................................... -- 245,854 --
Redemption and retirement of common stock........................... (106,237,360) (484,809) --
Issuance of common stock............................................ 1,154,090 5,139 --
-------------- -------------- ----------
BALANCE, DECEMBER 31, 1998............................................ 52,588,246 $ (193,043) $ 34,277
-------------- -------------- ----------
-------------- -------------- ----------
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
THE BOYDS COLLECTION, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 60,097 $ 79,130 $ 66,278
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation................................................................... 221 254 406
Amortization of deferred debt issuance costs................................... -- -- 1,854
Deferred taxes................................................................. -- -- 11,451
Loss on sale of equipment...................................................... -- 38 36
Changes in assets and liabilities (net of acquisition):
Accounts receivable--net..................................................... (1,211) (9,030) (3,869)
Inventory.................................................................... (580) (162) (4,008)
Inventory in transit......................................................... 909 (2,195) 322
Other assets................................................................. (170) 160 (298)
Accounts payable............................................................. 140 122 702
Accrued taxes................................................................ 409 539 3,873
Accrued expenses............................................................. 215 912 410
Interest payable............................................................. -- -- 5,467
--------- --------- ---------
Net cash provided by operating activities.................................. 60,030 69,768 82,624
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment............................................................ (269) (367) (1,247)
Dividend distributions from investment in
The Boyds Collection (Hong Kong) Ltd........................................... -- 320 --
Proceeds from sales of equipment................................................. -- 5 --
Issuance of notes receivable..................................................... -- (250) (1,296)
Purchase of business--net of cash acquired....................................... -- -- (2,200)
--------- --------- ---------
Net cash used in investing activities...................................... (269) (292) (4,743)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of note payable--stockholders........................................... 26,000 34,000 --
Repayment of note payable--stockholders.......................................... (24,400) (23,300) (30,000)
Distributions to stockholders.................................................... (59,822) (75,049) --
Issuance of debt................................................................. -- -- 490,000)
Repayment of debt................................................................ -- -- (47,360)
Redemption of common stock....................................................... -- -- (484,809)
Sale of common stock............................................................. -- -- 5,056
Capital contribution............................................................. -- -- 3,500
Deferred debt issuance cost...................................................... -- -- (13,872)
--------- --------- ---------
Net cash used in financing activities...................................... (58,222) (64,349) (77,485)
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 1,539 5,127 396
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................... 4,544 6,083 11,210
--------- --------- ---------
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................... $ 6,083 $ 11,210 $ 11,606
--------- --------- ---------
--------- --------- ---------
CASH PAID DURING THE PERIOD FOR INTEREST........................................... $ 183 $ 227 $ 22,208
--------- --------- ---------
--------- --------- ---------
CASH PAID DURING THE PERIOD FOR INCOME TAXES....................................... $ -- $ -- $ 7,886
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL NON-CASH ACTIVITIES:
Pro forma income taxes........................................................... $ 25,045 $ 33,152 $ 34,732
Common stock issued as part of purchase price of business acquired............... 83
Forgiveness of notes receivable in exchange for net assets acquired.............. 1,469
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. HISTORY, RECAPITALIZATION AND FINANCING
The Boyds Collection, Ltd. ("Boyds") is a primary wholesaler and importer of
resin figurines and plush animals that are distributed to retail operations
primarily throughout the United States. Substantially all of its products are
sourced from foreign manufacturers in China through buying agencies. The two
largest buying agencies each represent approximately 46% of Boyds' total
imports.
On March 5, 1998, Boyds entered into a Recapitalization and Stock Purchase
Agreement with Bear Acquisition, Inc. ("Bear Acquisition"). Bear Acquisition is
a subsidiary of KKR 1996 Fund L.P., a limited partnership formed at the
direction of Kohlberg Kravis Roberts & Co. LP ("KKR"). In connection with the
closing of the Recapitalization on April 21, 1998, Boyds used approximately
$490.0 million of aggregate proceeds from certain financing described below (the
"Financing") and approximately $8.0 million of existing cash balances of Boyds
to: (i) redeem (the "Redemption") a portion of Boyds' common stock, par value
$0.0001 per share, held by the original stockholders (the "Original
Stockholders") for approximately $473.0 million and (ii) pay transaction fees
and expenses of approximately $25.0 million. In addition, Bear Acquisition
acquired shares of common stock from the Original Stockholders for approximately
$184.0 million (the "Stock Purchase," and together with the Redemption, the
"Recapitalization"). Upon completion of the Recapitalization, Bear Acquisition
owned approximately 80% of the common stock and the Original Stockholders
retained approximately 20% of the common stock.
The Financing consisted of: (i) an aggregate of $325.0 million of bank
borrowings by Boyds under senior secured term loans (the "Term Loans") and (ii)
$165.0 million aggregate principal amount of senior subordinated notes (the
"Notes"). In addition, Boyds entered into a $40.0 million senior secured
revolving credit facility which is available for Boyds' working capital
requirements and to support trade letters of credit (the "Revolver" and,
together with the Term Loans, the "Credit Facility"). Boyds did not have any
borrowings under the Revolver to consummate the Recapitalization.
In connection with the Recapitalization, Boyds had nonrecurring transaction
related bonuses (including the related payroll taxes) of $3.2 million which was
used by certain key employees to purchase Bear Acquisition common stock. These
transaction related bonuses were paid from the proceeds of capital contributions
from the Original Stockholders. Financing costs of approximately $13.8 million
were classified as deferred debt issuance costs and will be amortized using the
effective interest rate method over the lives of the related debt facilities. In
addition, Boyds incurred approximately $11.8 million of costs associated with
the Redemption, which were charged to paid-in capital in excess of par.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of Boyds and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS--Boyds considers all short-term interest-bearing
investments with original maturities of three months or less to be cash
equivalents.
INVENTORIES--Inventories are stated at the lower of cost or market. Cost is
determined under the first-in, first out method of accounting. Inventory
in-transit consists of purchases from foreign suppliers for which title has
passed to Boyds.
F-15
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FURNITURE, EQUIPMENT AND DEPRECIATION--Furniture and equipment is stated at
cost. Depreciation is computed using the declining balance method over the
estimated useful lives of the various assets. The estimated useful lives of
furniture and fixtures range from five to seven years and the estimated useful
lives of equipment range from three to seven years. The estimated useful lives
of leasehold improvements is the lesser of the estimated life of the improvement
or the term of the lease.
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY--Boyds had a 30% investment in The
Boyds Collection (Hong Kong) Ltd. until such investment was liquidated in 1997.
This investment was accounted for under the equity method of accounting and the
amounts included in the financial statements were not material for any period
presented.
DEFERRED DEBT ISSUANCE COSTS--Boyds amortizes deferred debt issuance costs
using the interest method over the life of debt. Amortization of deferred debt
issuance costs includes amounts charged as a result of prepayments.
IMPAIRMENT ACCOUNTING--Boyds reviews the recoverability of its long-lived
assets, when events or changes in circumstances occur that indicate that the
carrying value of the assets may not be recoverable. The measurement of possible
impairment is based on Boyds' ability to recover the carrying value of the asset
from the expected future undiscounted cash flows generated. The measurement of
impairment requires management to use estimates of expected future cash flows.
If an impairment loss existed, the amount of the loss would be recorded in the
consolidated statements of operations. It is possible that future events or
circumstances could cause these estimates to change.
PRO FORMA ADJUSTMENTS--Boyds had elected to be treated as an S Corporation
for Federal and state income tax purposes. Under this election, income is not
taxed at the corporate level, but is taxed to the stockholders at the individual
level.
On April 21, 1998, Boyds elected to change its tax status from an S
Corporation to a C Corporation. The income statement reflects a provision for
income taxes for the period Boyds was a C Corporation. The objective of the pro
forma financial information is to show what the significant effects on the
historical financial information might have been had Boyds not been treated as
an S Corporation during 1996, 1997 and the portion of 1998 prior to April 21.
INCOME TAXES--Effective April 21, 1998, Boyds accounts for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
ACCOUNTING FOR INCOME TAXES, which requires an asset and liability approach to
accounting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to periods in which
the differences are expected to affect taxable income. Income taxes/benefit is
the tax payable/receivable for the period plus or minus the change during the
period in deferred income tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Management considers that the carrying
amount of financial instruments, including cash, accounts receivable, accounts
payable and accrued expenses, approximates fair value. Interest on long-term
bank debt is payable at variable rates which approximates fair market value. The
fair value of the Notes, face value of $165.0 million, was $176.6 million at
December 31, 1998 and was determined based on the market price on that date as
quoted by Bridge Fixed Income Services.
REVENUE RECOGNITION--Sales revenue is recognized upon shipment of the items,
when title passes to the customer.
F-16
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ADVERTISING--Boyds expenses the costs of advertising as they are incurred.
Advertising expense was $133,001, $179,559 and $199,882 for the years ended
1996, 1997 and 1998, respectively.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS--Certain 1996 and 1997 financial statement amounts have
been reclassified to conform to the 1998 presentation.
NEW ACCOUNTING STANDARDS--In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
130, REPORTING COMPREHENSIVE INCOME. Comprehensive income includes net income
and several other items that current accounting standards require to be
recognized outside of net income. This standard requires enterprises to display
comprehensive income and its components in financial statements, to classify
items of comprehensive income by their nature in financial statements, and to
display the accumulated balances of other comprehensive income in stockholders'
equity separately from retained earnings and additional paid-in capital. Boyds
adopted SFAS No. 130 for the year ended December 31, 1998. There were no items
of other comprehensive income for all periods presented.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, replacing SFAS No. 14 and its amendments.
This standard requires enterprises to report certain information about products
and services, activities in different geographic areas, and reliance on major
customers and to disclose certain segment information in their interim financial
statements. The basis for determining an enterprise's operating segments is the
manner in which financial information is used internally by the enterprise's
chief operating decision maker. Boyds adopted SFAS No. 131 for the year ended
December 31, 1998. Boyds has determined that it operates in one segment,
collectibles. In addition, less than 2% of total revenue is derived from
customers outside the United States and all long lived assets are located in the
United States. No customer represents more than 10% of total revenue.
During 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for periods beginning
after June 15, 1999. Boyds is currently evaluating the impact, if any, of this
statement.
3. FURNITURE AND EQUIPMENT
The components of property, plant and equipment at December 31, 1997 and
1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Equipment................................................................... $ 833 $ 997
Furniture and fixtures...................................................... 478 1,399
Leasehold improvements...................................................... 10 266
--------- ---------
Total................................................................... 1,321 2,662
--------- ---------
Less accumulated depreciation and amortization.............................. (680) (1,143)
--------- ---------
$ 641 1,519
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACQUISITIONS
In September 1998, Boyds agreed in principal with the stockholders of H.C.
Accents & Associates, Inc. to acquire all of the issued and outstanding shares
of capital stock of H.C. Accents, an Illinois corporation. H.C. Accents is a
designer, importer and distributor of collectibles and other specialty giftware
products. The transaction was consummated on November 3, 1998. The aggregate
purchase price was approximately $4.0 million, consisting of $2.3 million cash
paid, the forgiveness of notes receivable due to Boyds of approximately $1.5
million and 18,721 shares of common stock issued valued at $83,000. The purchase
price was assigned to the acquired assets, primarily inventory and accounts
receivable, based on their fair market values. In addition, Boyds has recorded
goodwill of approximately $2.4 million, included in other assets, related to the
excess of the purchase price over the fair value of assets acquired which it
will amortize using the straight line method over 20 years. The results of
operations and net assets acquired are not material to Boyds. The purchase
agreement requires future contingent payments through 2002 provided H.C. Accents
achieves minimum levels of EBITDA. Such payments will range from 1.0 to 1.6
times threshold H.C. Accents' EBITDA amounts, and will be recorded as additional
purchase costs if and when H.C. Accents achieves the minimum EBITDA thresholds.
5. CONCENTRATION OF CREDIT RISK
Boyds maintains cash balances at several financial institutions located in
Pennsylvania. Accounts at each institution are secured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances aggregated $9.4 million
and $11.2 million at December 31, 1997 and 1998, respectively.
6. LEASE COMMITMENTS
Boyds conducts its operations and warehouses inventory in a leased facility
classified as an operating lease. In May 1996, Boyds signed an addendum to its
original lease agreement dated March 1, 1995. The addendum permitted Boyds to
lease additional space, increasing the monthly payment from $13,211 to $22,735.
Effective January 1, 1998, Boyds also has exercised an option to lease the
remaining space of the warehouse for an additional monthly payment of $8,717.
The term of this lease expires in December 2009. The future minimum annual lease
commitments for the facilities are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1999........................................................................... $ 379
2000........................................................................... 379
2001........................................................................... 377
2002........................................................................... 377
2003........................................................................... 377
Thereafter..................................................................... 2,265
------
$ 4,154
------
------
</TABLE>
Rent expense amounted to $238,059, $273,220 and $497,158 for 1996, 1997 and
1998, respectively.
F-18
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At December 31, 1998, Boyds had letters of credit outstanding under the
Credit Facility, amounting to $11.2 million. See Notes 1 and 9. At December 31,
1997, Boyds had letters of credit outstanding under a line of credit of $6.4
million, which expired on April 21, 1998. These letters of credit represent
Boyds' commitment to purchase inventory, which is to be produced and/or shipped.
8. RELATED PARTY TRANSACTIONS AND NOTES PAYABLE - STOCKHOLDERS
The stockholders loaned $30.0 million to Boyds at December 31, 1997, at an
interest rate of 5.0%. These notes payable were repaid in 1998. Interest
amounting to $182,705, $226,616 and $310,237 was paid to the stockholders during
the years ended 1996, 1997 and 1998, respectively. The stockholders' notes
payable was subordinated to the line of credit described in Note 7.
During 1998, Boyds paid fees in the amount of $6.0 million and $1.7 million
to KKR and a director, respectively, for consulting services in connection with
the Recapitalization which are included in transaction-related expenses charged
directly to paid-in capital in excess of par. In addition, the director was paid
$140,000 of consulting fees which are included in expenses. KKR has also agreed
to render management, consulting and financial services to Boyds for an annual
fee of $375,000 plus expenses. During the year ended December 31, 1998, Boyds
paid $251,367 to KKR for such services.
9. LONG-TERM DEBT
In connection with the Recapitalization, on April 21, 1998 Boyds issued
$165.0 million principal of senior subordinated notes. In addition, on April 21,
1998 Boyds entered into a Credit Facility with a syndicate of banks and other
financial institutions, consisting of $325.0 million in Term Loans and a $40.0
million Revolver. Net proceeds to Boyds after deducting $13.8 million of
deferred debt issuance costs, were $476.2 million.
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-----------------
<S> <C>
(IN THOUSANDS)
9% Senior Subordinated Notes due May 15, 2008.............................. $ 165,000
Credit Facility:
Secured Tranche A Term Loans due April 2005. Interest based on LIBOR or
base rate as defined................................................... 88,250
Secured Tranche B Term Loans due April 2006. Interest based on LIBOR or
base rate as defined................................................... 189,750
Secured revolving loan commitment of $40,000,000. Interest based on LIBOR
or base rate as defined................................................ --
--------
$ 443,000
--------
--------
</TABLE>
At December 31, 1998, the weighted average interest rate in effect for the
Term Loans was 7.38%.
The Notes have an optional redemption feature exercisable by Boyds any time
on or after May 15, 2003. Boyds may also redeem up to 40% of the Notes with the
proceeds of one or more equity offerings at any time on or prior to May 15,
2001. Interest on the Notes is payable semiannually on May 15 and November 15.
F-19
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Credit Facility contains certain covenants, including the requirement of
a minimum interest coverage ratio as defined in the agreement (effective for the
first quarter of 1999) and substantial restrictions as to dividends and
distributions. Boyds is in compliance with all applicable covenants as of
December 31, 1998. The Credit Facility also provides that the Term Loans and
Revolver will be secured by the capital stock of Boyds' future subsidiaries. In
addition, the Term Loans are subject to mandatory prepayment with the proceeds
of certain asset sales and a portion of Boyds' excess cash flow as defined in
the Credit Facility. Boyds has the option of selecting its own interest period
at one, two, three, six, nine or twelve month periods.
The scheduled maturities of the long-term debt are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1999............................................................................... $ --
2000............................................................................... --
2001............................................................................... 6,250
2002............................................................................... 14,000
2003............................................................................... 17,000
Thereafter......................................................................... 405,750
</TABLE>
10. PROVISION FOR INCOME TAXES
Prior to April 21, 1998 Boyds had elected to be treated as an S Corporation
for federal and state income tax purposes. Therefore, there is no income tax
provision for 1996 and 1997.
The 1998 income tax expense consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------
<S> <C>
(IN
THOUSANDS)
Federal:
Current...................................................................... $ 8,879
Deferred..................................................................... 9,237
-------------
Total Federal.................................................................. 18,116
State:
Current...................................................................... 1,677
Deferred..................................................................... 2,214
-------------
Total State.................................................................... 3,891
-------------
Total Income Tax Provision..................................................... $ 22,007
-------------
-------------
</TABLE>
For federal income tax purposes, Boyds has elected to treat the
Recapitalization and Stock Purchase as an asset acquisition by making a Section
338(h)(10) election. As a result, there is a difference between the financial
reporting and tax bases of Boyds' assets. The difference creates deductible
goodwill for tax purposes, which creates a deferred tax asset for financial
reporting purposes. The deferred tax asset will be realized as the tax goodwill
is deducted over a period of fifteen years. In the opinion of management, Boyds
believes it will have sufficient profits in the future to realize the deferred
tax asset.
F-20
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the statutory federal income tax rate and the effective
rate of the provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
---------------
<S> <C>
Statutory federal income tax rate............................................... 35.0%
State income taxes--net of federal income tax benefit........................... 2.8
Sub-chapter S income............................................................ (12.8)
-----
Effective income tax rate....................................................... 25.0%
-----
-----
</TABLE>
11. CONTINGENCIES
Boyds is engaged in various lawsuits, either as plaintiff or defendant,
involving alleged patent infringement and breaches of contract. In the opinion
of management, based upon advice of counsel, the ultimate outcome of these
lawsuits will not have a material impact on Boyds' financial condition or
results of operations.
12. STOCKHOLDERS' EQUITY
CAPITAL STOCK--As of December 31, 1997 and 1998 Boyds had 351 million, and
100 million shares of capital stock (par value $.0001), respectively, authorized
and 157.7 million and 52.6 million, respectively, shares issued as common stock.
The Board of Directors is authorized to issue the unissued portion of the
authorized shares in another class or series of stock, including preferred
stock.
During 1998, the Original Stockholders made capital contributions of $3.5
million. In connection with the Recapitalization, Boyds redeemed, and
subsequently retired, 106,237,360 shares of common stock from the original
stockholders (see Note 1). Boyds issued 1,154,090 shares of common stock, of
which 18,721 shares were issued in connection with the acquisition of H.C.
Accents.
STOCK OPTION PLAN--On April 21, 1998, Boyds implemented an incentive stock
plan (the "1998 Stock Option Plan") which provides for the granting to certain
employees and directors of options to acquire Boyds' common stock. The option
prices of stock which may be purchased under the incentive stock plan are not
less than the fair value of common stock on the dates of the grants.
Outstanding options issued to employees during 1998 vest and become
exercisable over a five-year period from the date of grant. The outstanding
options expire ten years from the date of grant or upon an employee's retirement
or termination from Boyds, and are contingent upon continued employment during
the applicable five-year period.
On July 21, 1998, Boyds issued 44,921 options to each of its six directors.
These options vested immediately, expire 10 years from the date of grant and the
option prices of the stock which may be purchased were not less than the fair
value of common stock on the dates of the grants.
Boyds has reserved a total of 2,246,033 shares for issuance under the 1998
Stock Option Plan, of which 1,112,909 remains reserved at December 31, 1998 for
future issuances.
Effective with the adoption of the 1998 Stock Option Plan, Boyds adopted
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS 123 establishes a
fair value based method of accounting for stock-based employee compensation
plans; however, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO
F-21
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EMPLOYEES. Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. Boyds has elected to continue to account
for its employee compensation plans under APB Opinion No. 25 with pro forma
disclosures of net earnings and earnings per share, as if the fair value based
method of accounting defined in SFAS No. 123 had been applied.
If compensation cost for stock option grants had been determined based on
the fair value on the grant dates for the year ended December 31, 1998
consistent with the method prescribed by SFAS No. 123, Boyds' pro forma net
earnings and diluted earnings per share would have been $53.2 million and $.63,
respectively.
Under FASB No. 123, the fair value of each option grant is estimated on the
date of grant. The following weighted average assumptions were used for grants
under the 1998 Stock Option Plan in 1998: volatility of 10%, dividend yield of
0%, risk-free interest rate of 6.1%, and expected lives of 6.5 years.
A summary of the status of stock option grants as of December 31, 1998 and
changes during the period ending on that date is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
PRICE
OPTIONS PER SHARE
---------- -----------
<S> <C> <C>
Outstanding at December 31, 1997...................................... -- --
Granted............................................................... 1,133,124 $ 7.10
Forfeited............................................................. -- --
---------- -----
Outstanding at December 31, 1998...................................... 1,133,124 $ 7.10
---------- -----
---------- -----
</TABLE>
The fair value of options granted during 1998 was $1.0 million for options
issued with an exercise price of $4.45 and $.3 million for options issued with
an exercise price of $13.36.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE OPTIONS OPTIONS AVERAGE
PRICE OUTSTANDING EXERCISABLE REMAINING LIFE
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
$ 4.45 796,219 269,524 9.4
$ 13.36 336,905 -- 10.0
</TABLE>
EARNINGS PER SHARE--In March 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE. This Statement establishes
standards for computing and presenting earnings per share ("EPS") and applies to
all entities with publicly held common stock or potential common stock. This
Statement replaces the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes
dilution and is computed by dividing earnings available to common stockholders
by the weighted average number of common shares outstanding for the period.
Similar to fully diluted EPS, diluted EPS reflects the potential dilution of
securities that could share in the earnings.
F-22
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the income and net income
available to common stockholders.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1996 1997 1998
------------- ------------- -------------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Pro forma net income available to common stockholders............. $ 35,052 $ 45,978 $ 53,553
Denominator:
Denominator for basic earnings per share--weighted average
shares.......................................................... 157,671,516 157,671,516 84,142,163
Effect of dilutive securities:
Effect of shares issuable under stock option plans based on
treasury stock method......................................... -- -- 342,408
------------- ------------- -------------
Dilutive potential common shares.................................... -- -- 342,408
------------- ------------- -------------
Denominator for diluted earnings per share--weighted average
shares............................................................ 157,671,516 157,671,516 84,484,571
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
13. SUBSEQUENT EVENTS
On February 25, 1999, the Board of Directors authorized a 1.1230165 for 1
exchange of Boyds' common stock to be effected prior to the effectiveness of the
Offering. All share and per share amounts have been restated to give effect to
this exchange.
* * * * * *
F-23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Condensed Financial
Statements have been derived by the application of pro forma adjustments to
Boyds' historical financial statements included elsewhere in this prospectus.
The Unaudited Pro Forma Consolidated Condensed Statement of Income for the year
ended December 31, 1998 presented give effect to the recapitalization and
related transactions and the offering as if such transactions were consummated
as of January 1, 1998. The Unaudited Pro Forma Consolidated Condensed Statement
of Income for the three month period ended March 31, 1999 presented gives effect
to the offering as if it was consummated as of January 1, 1999. The adjustments
are described in the accompanying Notes to the Unaudited Pro Forma Consolidated
Condensed Balance Sheet and to the Unaudited Pro Forma Consolidated Condensed
Statements of Income. The Unaudited Pro Forma Consolidated Condensed Financial
Statements should not be considered indicative of actual results that would have
been achieved had the recapitalization and related transactions and the offering
been consummated on the dates or for the periods indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Unaudited Pro Forma Consolidated Condensed Financial
Statements should be read in conjunction with Boyds' historical financial
statements and the notes thereto included elsewhere in this prospectus.
P-1
<PAGE>
THE BOYDS COLLECTION, LTD.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............................................................. $ 197,806 $ 197,806
Cost of goods sold.................................................... 63,852 63,852
------------- ------ -------------
Gross profit........................................................ 133,954 133,954
General and administrative expenses................................... 14,446 124(1) 14,570
Other operating income................................................ 1,280 1,280
------------- ------ -------------
Income from operations.............................................. 120,788 (124) 120,664
------------- ------ -------------
Interest and dividend income...................................... 399 (399)(2) --
Other income (expense)............................................ (36) (36)
Expenses related to the Recapitalization.......................... (3,248) (3,248)
------------- ------ -------------
Net other income (expense)............................................ (2,885) (399) (3,284)
------------- ------ -------------
Interest expense.................................................... (27,764) 1,905(3) (25,859)
Amortization and write off of deferred debt issuance costs.......... (1,854) 973(4) (881)
------------- ------ -------------
Total interest expense................................................ (29,618) 2,878 (26,740)
------------- ------ -------------
Income before provision for income taxes and extraordinary item....... $ 88,285 $ 2,355 $ 90,640
------------- ------ -------------
------------- ------ -------------
Income before provision for income taxes and extraordinary item....... $ 88,285 $ 2,355 $ 90,640
Pro forma provision for income taxes.................................. 34,732 848(5) 35,580
------------- ------ -------------
Pro forma net income before extraordinary item...................... $ 53,553 $ 1,507 $ 55,060
------------- ------ -------------
------------- ------ -------------
Basic earnings (loss) per common share:
Pro forma net income before extraordinary item.................... $ 0.64 $ 0.90
------------- -------------
------------- -------------
Diluted earnings (loss) per common share:
Pro forma net income before extraordinary item.................... $ 0.63 $ 0.89
------------- -------------
------------- -------------
Weighted average basic shares outstanding............................. 84,142,163 61,375,424
------------- -------------
------------- -------------
Weighted average diluted shares outstanding........................... 84,484,571 61,717,832
------------- -------------
------------- -------------
Ratio of earnings to fixed charges.................................... 3.96 4.37
------------- -------------
------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Statements of Income
P-2
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF
INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
The pro forma financial data have been derived by the application of pro
forma adjustments to Boyds' historical financial statements for the period ended
December 31, 1998. The historical basis of Boyds' assets and liabilities will
not be impacted by the Recapitalization.
(1) The adjustment relates to management, consulting and financial services
rendered by KKR for an annual fee of $375. The adjustment is reduced by $251
which is recorded in the historical financial statements.
(2) The adjustment eliminates historical interest and dividend income on cash
and short-term investments not expected to be received after the
Recapitalization and related transactions and the Offering.
(3) The adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Interest expense with respect to the Notes and Credit Facility giving effect to the
Recapitalization and related transactions as if they occurred as of January 1, 1998 at an
assumed weighted average interest rate of 8.06%............................................... $ 38,307
Reduction of interest expense related to the redemption of $66,000 of Notes and repayment of
$82,570 under the Credit Facility giving effect to the Offering as if they occurred as of
January 1, 1998 at an assumed weighted average interest rate of 8.38%....................... (12,448)
-------
Pro forma interest expense...................................................................... 25,859
Historical interest expense..................................................................... (27,764)
-------
Total adjustment................................................................................ $ 1,905
-------
-------
</TABLE>
A 0.125% increase or decrease in the assumed weighted average interest rate
would change pro forma interest expense with respect to the Credit Facility by
$284. The pro forma net income would change by $182.
(4) The adjustment to amortization and write off of deferred debt issuance
costs reflects the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Amortization and write off of deferred debt issuance costs giving effect to the Recapitalization
and related transactions and the Offering as if they occurred as of January 1, 1998.............. $ 881
Historical amortization and write off of deferred debt issuance costs.............................. (1,854)
------
Total adjustment................................................................................... $ (973)
------
------
</TABLE>
(5) The adjustment reflects the tax effect of the pro forma adjustments at a
36% statutory income tax rate.
(6) The pro forma net income before extraordinary item amounts are before, and
do not include, an extraordinary loss of approximately $6,650. The total loss of
$10,391 includes the $5,940 premium on the redemption of the Notes and the write
off of $4,451 of deferred financing costs related to the redemption of the Notes
and the repayment under the Credit Facility. The loss has been reduced by the
related income tax benefit.
P-3
<PAGE>
THE BOYDS COLLECTION, LTD.
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE PERIOD ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
ACTUAL ADJUSTMENTS PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............................................................. $ 57,185 $ $ 57,185
Cost of goods sold.................................................... 18,676 18,676
------------- ------ -------------
Gross profit........................................................ 38,509 38,509
General and administrative expenses................................... 4,319 4,319
Other operating income................................................ 316 316
------------- ------ -------------
Income from operations................................................ 34,506 34,506
------------- ------ -------------
Interest and dividend income.......................................... 162 162
Interest expense.................................................... (8,019) 2,685(1) (5,334)
Amortization and write off of deferred debt issuance costs.......... (223) (223)
------------- ------ -------------
Total interest expense................................................ (8,242) 2,685 (5,557)
------------- ------ -------------
Income before provision for income taxes and extraordinary item....... $ 26,426 $ 2,685 $ 29,111
------------- ------ -------------
------------- ------ -------------
Income before provision for income taxes and extraordinary item....... $ 26,426 $ 2,685 $ 29,111
Pro forma provision for income taxes................................ 9,513 967(2) 10,480
------------- ------ -------------
Pro forma net income before extraordinary item...................... $ 16,913 $ 1,718 $ 18,631
------------- ------ -------------
------------- ------ -------------
Basic earnings (loss) per common share:
Pro forma net income before extraordinary item...................... $ 0.31 $ 0.30
------------- -------------
------------- -------------
Diluted earnings (loss) per common share:
Pro forma net income before extraordinary item........................ $ 0.30 $ 0.30
------------- -------------
------------- -------------
Weighted average basic shares outstanding............................. 55,363,246 61,838,246
------------- -------------
------------- -------------
Weighted average diluted shares outstanding........................... 56,039,746 62,514,746
------------- -------------
------------- -------------
Ratio of earnings to fixed charges.................................... 4.19 6.21
------------- -------------
------------- -------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Condensed Statements of Income
P-4
<PAGE>
THE BOYDS COLLECTION, LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF INCOME FOR THE PERIOD ENDED MARCH 31, 1999
The pro forma financial data have been derived by the application of pro
forma adjustments to Boyds' historical financial statements for the period ended
March 31, 1999. The historical basis of Boyds' assets and liabilities will not
be impacted by the Recapitalization.
(1) The adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Reduction of interest expense related to the redemption of $66,000 of Notes and repayment of
$82,570 under the Credit Facility giving effect to the Offering as if they occurred as of
January 1, 1999 at an assumed weighted average interest rate of 7.51%...................... 2,685
</TABLE>
(2) The adjustment reflects the tax effect of the pro forma adjustments at a 36%
statutory income tax rate.
(3) The pro forma net income before extraordinary item amounts are before, and
do not include, an extraordinary loss of approximately $5,435. The total
loss of $8,492 includes the $5,940 premium on the redemption of the Notes
and the write off of $2,552 of deferred financing costs related to the
redemption of the Notes. The loss has been reduced by the related income tax
benefit.
P-5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BOYDS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE EXCHANGE
NOTES BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE UNDER THIS PROSPECTUS SHALL CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF BOYDS SINCE THE DATE OF THIS PROSPECTUS OR THAT
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 15
Use of Proceeds.................................. 22
Capitalization................................... 22
Selected Financial and Other Data................ 23
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 25
Business......................................... 34
Management....................................... 43
Relationships and Transactions Related to
Boyds.......................................... 48
Principal Stockholders........................... 49
Description of the Credit Facility............... 51
The Exchange Offer............................... 52
Description of the Exchange Notes................ 62
U.S. Federal Tax Consequences of the Exchange of
Notes.......................................... 101
U.S. Federal Income Tax Consequences to Non-U.S.
Persons........................................ 101
Plan of Distribution............................. 104
Legal Matters.................................... 105
Experts.......................................... 105
Available Information............................ 105
Index to Consolidated Financial
Statements..................................... F-1
Unaudited Pro Forma Consolidated Condensed
Financial Statements........................... P-1
</TABLE>
$99,000,000
[LOGO]
THE BOYDS COLLECTION, LTD.
9% SERIES B SENIOR SUBORDINATED NOTES
DUE 2008
---------------------
PROSPECTUS
---------------------
June 21, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
