Spirit of Manitoba Limited Partnership
CONFIDENTIAL INFORMATION CIRCULAR
This Information Circular is confidential and
for the use of the Agents, the Sub-Agents and their respective clients only. The contents
are not to be reproduced or distributed without the express consent of one of the
Agents or the Sub-Agents. This Circular should be read in conjunction with the
Offering Memorandum to be dated subsequent to the date hereof. The information contained
herein, while obtained from sources which are believed to be reliable, is not
guaranteed as to accuracy or completeness. This Circular is for information only and does
not constitute an offer to sell or a solicitation to buy the securities referred to
herein other than to those persons to whom these securities may be lawfully offered for
sale. To the extent that there is any conflict or inconsistency between the terms or
disclosure of this Information Circular and the terms or disclosure of the Offering
Memorandum, such conflict or inconsistencies will be resolved in favour of the Offering
Memorandum and the terms of the Offering Memorandum will prevail.
This Information Circular is not, and under no
circumstances is to be construed as a prospectus or an advertisement for an offering of
the securities described herein in any jurisdiction where they may not be lawfully offered
NO SECURITIES COMMISSION OR SIMILAR AUTHORITY
IN CANADA OR ELSEWHERE HAS IN ANY WAY PASSED UPON THE MERITS OF THE SECURITIES
REFERRED TO HEREIN OR REVIEWED OR WILL REVIEW THE INFORMATION CIRCULAR AND ANY
REPRESENTATION TO THE CONTRARY IS AN OFFENCE.
July 24, 1995
SPIRIT OF MANITOBA LIMITED
50,000 Limited Partnership Units
$1,000 per Unit Payable on Closing
$5,000 (5 Units) Payable on Closing
Secure the existence of a National Hockey League
franchise in Manitoba and provide a catalyst for the construction of a state of the art
Direct ownership of the Winnipeg Jets National
Hockey League franchise.
Tax deductions for the full Subscription Price
will be available over three (3) years (see "Analysis of Prospective Returns to
5% cumulative annual distribution from Net
Distributable Cash Flow of the Partnership commencing January 1, 1998 (see
"Distributable Cash Flow of the Partnership").
Participation in the distribution of Net Sale
Proceeds in the event of a sale of the Winnipeg Jets National Hockey League franchise (see
"Net Proceeds of the Partnership From Sale of the Franchise").
MEC Facilities Ltd. will contribute towards the
operating costs of the Complex (see "Facility Co." and "Endowco and The
Investors acquiring 100 or more Units ($100,000+)
will be licenced to use the slogan "Proud to be an Owner of the Winnipeg Jets"
for business purposes.
TAX SHELTER IDENTIFICATION NO.
The Identification Number issued for this Tax
Shelter shall be included in any income tax return filed by the investor. Issuance of the
identification number is for administrative purposes only and does not, in any way,
confirm the entitlement of an investor to claim any tax benefits associated with the tax
INVESTMENT IN AN NHL HOCKEY
FRANCHISE IS HIGHLY SPECULATIVE
There is no market through which the Units
described herein may be sold and there is no assurance that a market will develop.
Accordingly, investors who acquire Units may not be able to resell them. There are certain
risk factors associated with investing in the Units. In certian circumstances, the
proteciton of the limited liability may not be available or may be lost. Investors should
consult their own professional advisors to assess the income tax, legal and other aspects
of the investment. See "Risk Factors" and "Canadian Federal Income Tax
SUMMARY OF THE OFFERING
Spirit of Manitoba Limited Partnership (the
Spirit of Manitoba Incorporated
$50,000,000 (50,000 Units)
$ 1,000 per Unit.
Five Units ($5,000). Subscriptions in excess of
the minimum subscription may be made in multiples of one Unit ($1,000).
Acquisition of Franchise:
The Partnership is expected to acquire on August
15, 1995 the units of the partnership which currently owns the Winnipeg Jets National
Hockey League ("NHL") franchise (the "Franchise").
Use of Proceeds:
To acquire the Franchise through the purchase of
the units of the partnership which currently owns the Franchise, retire certain
liabilities of the Franchise and provide for future operating losses of the Partnership
for the years 1995-96 and 1996-97 (see "Partnership Sources and Uses of Funds Prior
to Completion of the Complex").
Business of Partnership:
The primary business of the Partnership will be
to acquire, own and operate the Franchise. In addition, upon completion the Partnership
will manage the Manitoba Entertainment Complex (the "Complex"). The Partnership
will also market luxury suites, club seats, and general seasons tickets, as well as
advertising, sponsorships and concessions in the Complex. In addition, the Partnership
will manage, at cost, the existing facilities owned by Winnipeg Enterprises Corporation
("WEC"), including the Winnipeg Arena (see "The Partnership").
Management of Partnership:
Spirit will manage the Partnership and will
engage the services of professional managers to operate the Franchise, to manage the
operation of the Complex and to manage the WEC facilities. The Partnership intends to
retain hockey operations personnel presently under contract to manage the hockey
operations of the Franchise, as well as employees of WEC in respect of the WEC facilities
(see "General Partner" and "Management of the Franchise, the Complex and
Canadian Federal Income Tax Considerations:
Partners will be allocated income and losses for
tax purposes as at December 31 of each year. It is expected that losses will result for
the first three years to the extent of the aggregate subscription proceeds. Any losses in
excess of the initial subscription proceeds will be carried forward to offset against
future income from the Partnership.
Distributions to Limited Partners in excess of
their adjusted cost base will be taxable as a capital gain. It is expected that the first
five years of distributions will be taxable.
An advance income tax ruling will be obtained to
confirm various income tax matters related to the offering (see "Canadian Federal
Income Tax Considerations").
Commission to Agents and Sub-Agents:
1% of the aggregate subscription proceeds
obtained as a result of securing the allocation of monies previously pledged to the
"Save the Jets Campaign" to the purchase of Units and 4% of the aggregate
subscription proceeds obtained as a result of any other sales of Units.
Risks of Investment in Units:
An investment in Units is subject to numerous
risks, including those associated with hockey operations, NHL obligations, reliance on the
Endowment Fund, loss of limited liability, control over the team prior to Closing, foreign
currency fluctuations, conflict of interest, failure to complete construction of the
Complex and others (see "Risk Factors").
How to Subscribe:
Investors must be Canadian residents for the
purposes of the Income Tax Act (Canada). An investor who wishes to subscribe for Units
must obtain a Subscription and Power of Attorney Form from Richardson Greenshields of
Canada Limited or Wellington West Capital Inc. (the "Agents"), or such other
registered dealer as may be authorized by the Agents (collectively, the
"Sub-Agents") and forward the following to one of the Agents or Sub-Agents BEFORE
(i) a Subscription and Power of Attorney Form
duly executed and completed; and
(ii) a cheque in the aggregate amount of $1,000
for each Unit subscribed (minimum 5 Units - $5,000) dated the date of subscription.
Cheques should be made payable to Montreal
Trust Company of Canada in trust for Spirit of Manitoba Limited Partnership.
INVESTORS WHO ACQUIRE UNITS WHO HAVE ALSO MADE
OR INTEND TO MAKE A CONTRIBUTION TO THE CAMPAIGN TO RAISE CAPITAL FOR THE FUND (THE
"ENDOWMENT FUND") TO BE MAINTAINED BY A CORPORATION TO BE INCORPORATED
("ENDOWCO") MAY ADVERSELY AFFECT THE TAX DEDUCTIONS AVAILABLE TO THEM IN RESPECT
OF THEIR CONTRIBUTION TO THE ENDOWMENT FUND.
INVESTORS WHO SUBSCRIBE FOR UNITS AND WHO
TENDER THE SUBSCRIPTION AND POWER OF ATTORNEY FORM AND CHEQUE NOTED ABOVE MAY WITHDRAW
FROM THE AGREEMENT OF PURCHASE AND SALE RESULTING THEREFROM WITHIN 48 HOURS OF THE RECEIPT
OR DEEMED RECEIPT BY THE INVESTOR OF THE OFFERING MEMORANDUM.
The Partnership was formed to own and operate the
Franchise and, on completion of the Complex, to manage and operate the Complex under a
long term lease agreement with Facility Co. The Partnership will also manage the existing
facilities of WEC, including the Winnipeg Arena pursuant to an agreement to be entered
into between WEC and the Partnership. Through its operations of the Franchise and
subsequently the control over the management of the Complex, the Partnership will derive
income from various sources, including the sale of tickets to all events in the Complex,
rental and parking income from the Complex, the licensing of television and radio rights,
the sale of Team merchandise and all revenue accruing to members of an NHL franchise. The
Partnership will also be entitled to all on-going advertising, sponsorship and concession
payments. The Partnership anticipates that the Complex will be substantially complete
prior to the 1997-1998 regular hockey season. The Complex is expected to have a
significant beneficial impact on the financial performance of the Partnership (see
"Endowco and The Endowment Fund").
Spirit is the general partner of the Partnership.
Spirit has no assets and no financial interest in the Partnership other than Spirit's
entitlement to .0001 % of the net income (loss), tax income (loss) and the net assets of
the Partnership upon its liquidation, dissolution or winding up. The General Partner will
manage the Partnership and the business conducted by the Partnership, including the
operation of the Franchise and the Complex.
Spirit will also, on its own behalf, negotiate
contracts and supervise the construction of the Complex for Facility Co.
The Board of Directors of Spirit shall be
comprised of the members of the Executive Committee, four persons nominated by Endowco,
persons contributing over $1 million but less than $5 million to the Partnership or the
City of Winnipeg pursuant to the campaign to raise capital for the Endowment Fund (or
their nominee) and persons nominated by the Executive Committee. Presently, the Board of
Directors is comprised of the following individuals:
Mr. Mal Anderson
Chief Executive Officer, Credit Union Central of
Mr. Gerry Gray
Retired, Former owner of Blackwoods Beverages
Mr. Alan Sweatman
Partner Emeritus, Thompson Dorfman Sweatman
Mr. Charlie Spiring
President, Wellington West Capital Inc.
Mr. Hartley T. Richardson
President, James Richardson & Sons, Limited
Mr. Julian Benson
Secretary to Treasury Board, Government of the
Province of Manitoba
Mr. Rick Frost
Chief Commissioner, Board of Commissioners, City
Mr. John Loewen
President, Comcheq Services Ltd.
Mr. Arni C. Thorsteinson
President, Shelter Canadian Properties, Ltd.
Mr. Ross Robinson
President, B.A. Robinson Co. Ltd.
Mr. Steve Bannatyne
Manager, Finance and Administration, Powell
Mr. Paul Robson
Chief Executive Officer, Red River Exhibition
An Executive Committee shall exercise all the
power of and be vested with all the authority of the Board of Directors of Spirit. The
Executive Committee shall consist of persons (who shall also be members of the Board of
Spirit) who contribute $5 million or more to the Partnership or the City of Winnipeg
pursuant to the campaign to raise capital for the Endowment Fund. Such persons will be
entitled to nominate to the Executive Committee and the Board of Directors of Spirit that
number of persons equal to that person's contribution divided by $5 million. Other members
of the Executive Committee will include one person nominated by each of the Province of
Manitoba and the City of Winnipeg, one person nominated by Endowco and four
members-at-large chosen by the Board.
MANAGEMENT OF THE FRANCHISE,
THE COMPLEX AND WEC FACILITIES
The Partnership will engage the services of
professional management to operate the Franchise. As well, the Partnership will retain
personnel presently under contract to manage the hockey operations of the Franchise and
perform the same functions on behalf of the Partnership. The Partnership will also engage
professional management to manage the operation of the Complex and the WEC facilities.
Endowco will be consulted with respect to the choice of such management. Operation of
existing WEC facilities by the Partnership will be undertaken at cost utilizing former
employees of WEC which the Partnership has agreed to hire.
Facility Co. has been formed by the City of
Winnipeg and the Province of Manitoba to construct and own the Complex. The shares of
Facility Co. are beneficially owned equally by the City of Winnipeg and the Province of
Mantioba. Facility Co., as tenant, has entered into a lease with the City of Winnipeg, as
landlord, in relation to the land upon which the Complex will be constructed and has also,
as landlord, entered into a sub-lease (the "Sub-Lease") of the Complex with the
Partnership as tenant. The Sub-Lease will provide, among other things, that the
Partnership will lease and operate the Complex for a period of approximately 50 years on
certain terms and will be entitled to derive all available revenues from such operations.
Pursuant to the Sub-Lease, the Partnership will be obligated to pay a "base"
rent plus, in certain circumstances, "additional" rent and
"termination" rent for the use of the Complex (see "Distributable Cash Flow
of the Partnership" and "Net Proceeds of the Partnership From Sale of the
Franchise"). Facility Co. will be responsible for all operating costs of the Complex
in each fiscal year up to the lesser of (a) the amount of income available from the
Endowment Fund resulting from the acquisition of shares of Endowco by Facility Co. and (b)
the amount of such costs. The Partnership will be responsible for all excess operating
costs of the Complex (see "Facility Co." and "Endowco and The Endowment
ENDOWCO AND THE ENDOWMENT FUND
Endowco is a not-for-profit corporation to be
incorporated as a wholly-owned subsidiary of Facility Co. Endowco's mandate will be to
promote the widest use of the Complex, including non-hockey events. A fundraising campaign
will be undertaken at the same time as the offering of Units of the Partnership to secure
contributions to the City of Winnipeg for funding the acquisition of shares of Endowco by
Facility Co. to provide capital for the Endowment Fund. Facility Co. will provide capital
for the Endowment Fund, in addition to the capital raised by the campaign, by acquiring
additional shares of Endowco with user advances (projected at $7 million). These advances
include certain of the payments payable under contracts entered into by or on behalf of
Facility Co. for the naming of the Complex, advertising space on the arena clock
(scoreboard) or in other areas of the Complex, and the build out or development of luxury
suites and concessions in the Complex. As well, Facility Co. will use 50% of the base and
termination rent and 100% of the additional rent it receives from the Partnership pursuant
to the Sub-Lease to acquire additional shares of Endowco to provide additional capital for
the Endowment Fund. The capital and/or income of the Endowment Fund will be used for the
1 . Assist Facility Co., if so required, with
funding any short fall in the construction costs of $1 11 million of the Complex up to a
maximum amount equal to the amount Endowco receives from Facility Co. as share capital as
a consequence of Facility Co. receiving user advances (other than user advances in respect
of luxury suites which are estimated to total $2 million in the aggregate);
2. Fund Facility Co. in an amount equal to the
lesser of operating costs of the Complex and income earned from an amount equal to that
part of the capital of the Endowment Fund resulting from the acquisition of shares of
Endowco by Facility Co.;
3. Promote the widest possible use of and access
to the Complex by the citizens of Manitoba on a long term basis by investing in or making
loans to tenants and prospective tenants of the Complex, by payment of subsidies to
tenants in order to obtain lower admission prices for patrons of the event staged by the
tenant, by purchasing and distributing admission tickets for events staged by tenants and
by such other means as Endowco deems advisable;
4. Assume the liability of the City of Winnipeg
and the Province of Manitoba with respect to their guarantee of promissory notes (the
"Jets Private Sector Notes") issued in respect of the 1991 interim agreement
with the present majority owners of the partnership which currently owns the Franchise
(approximately $7.8 million).
Endowco and Spirit will work together to
establish appropriate arrangements in respect of the sharing of rent, parking and
concession revenues generated from non-profit events which Endowco sponsors in the Complex
on dates which do not conflict with revenue generating events arranged by the Partnership
in the Complex.
Facility Co. and Endowco will agree as to how the
Board of Directors of Endowco will be chosen. Initial Board members will be chosen from
major contributors. Thereafter, a nominating procedure will be adopted which will ensure
that the Board is made up of public spirited citizens with good business judgement.
Endowco shall, on a year to year basis, enter
into a standby loan arrangement with the Partnership in return for a standby fee of . 1 %.
The amount of the standby facility, which will be determined at the beginning of each
fiscal year, shall not exceed the lesser of $30 million and 25 % of the estimated fair
market value of the Franchise if it were to be sold outside of Winnipeg. Loans shall
incorporate usual commercial provisions with respect to term and interest. Payment of
interest and, unless otherwise agreed, repayment of all principal shall occur prior to any
use of cash flow to pay rent to Facility Co. or pay the cumulative annual distributions to
the Limited Partners. After June 30, 2002, Endowco will review the status of the standby
facility arrangement on an annual basis. While the standby facility is in place, the
Partnership's budget for the operation of the Franchise will be subject to terms and
conditions imposed by Endowco, which will be similar to those typically imposed by
financial institutions providing a credit facility.
Facility Co. will have a security interest in the
Partnership assets excluding season ticket deposits and amounts to which the Partnership
is entitled to receive as its share of fees paid to the NHL in respect of the issue of new
franchises or the transfer of existing franchises ("Expansion or Transfer
Revenue"). Endowco will have a security interest in the Partnership assets excluding
season ticket deposits.
PARTNERSHIP SOURCES AND USES OF
PRIOR TO COMPLETION OF THE
|Proceeds of issue of Units
|User grants and advances relating to season
tickets and club seats (2)
|Bank line of credit
|Acquisition price for a 64% interest in the
|Retiring outstanding liabilities of the
|Provision for losses for 1995-96 and 1996-97
|Administration, marketing, interim financing and
(1) Excludes gift from Facility Co. of 36%
interest in the Franchise.
(2) Anticipated to be secured prior to the
completion of the Complex.
VARIATIONS WILL OCCUR IN
CERTAIN OF THE FOREGOING COMPONENTS AND SUCH VARIATIONS MAY BE MATERIAL (SEE "RISK
DISTRIBUTABLE CASH FLOW OF THE
Net Income from Operations of the Partnership is
defined as the aggregate revenues of the Partnership generated by the operations of the
Franchise and the Complex, less:
(a) the operating expenses of the Franchise;
(b) the operating expenses of the Complex for
which the Partnership is responsible, ifany, being those operating expenses not covered by
Facility Co. with funds contributed by Endowco from income available
from the Endowment Fund resulting from the
acquisition of shares of Endowco by Facility Co.; and
(c) Expansion or Transfer Revenues to the extent
that unearned revenue from season ticket sales plus outstanding third party debt exceeds
season ticket advance deposits on hand.
Gross Distributable Cash Flow ("GDCF")
of the Partnership is defined as Net income From Operations less any amounts due to
Endowco under the standby loan arrangement. On commencement of operations in the Complex
(scheduled for the 1997/98 regular hockey season) Facility Co. will be entitled to Base
Rent calculated as 50 percent of GDCF.
Net Distributable Cash Flow ("NDCF") is
defined as GDCF less Base Rent. Commencing January 1, 1998, the Limited Partners will be
entitled to receive the lesser of NDCF and a cumulative annual return equal to 5 percent
of the capital contributed to the Partnership, including arrears thereof, if any.
Residual Cash Flow ("RCF") is defined
as NDCF less cumulative annual returns distributed to the Limited Partners. Facility Co.
will be entitled to Additional Rent equal to the lesser of RCF and the amount of operating
costs paid by Facility Co. in the fiscal year less 50 percent of the Base Rent in that
year. Any undistributed RCF remaining will be available to the Partnership to be dealt
with in accordance with the Partnership Agreement.
NET PROCEEDS OF THE PARTNERSHIP FROM SALE OF
The City of Winnipeg and the Province of Manitoba
have certain rights to restrict the ability of the Partnership to sell the Franchise.
However, in the event of a sale of the Franchise, the sales proceeds, after taking into
account NHL transfer fees, if any, and termination costs of the Partnership, will be
distributed in the following order:
1. To retire any third party liabilities;
2. To retire any balances owing to Endowco under
the standby loan arrangement;
3. To pay all outstanding 50/o cumulative annual
return arrears accrued from January 1, 1998 on capital contributed by Limited Partners;
4. To pay a 5 To annual return on capital
contributed by Limited Partners in respect of the period from August 15, 1995 to December
5. Where Net Sale Proceeds (as defined below)
exceed an amount equal to 50% of the Total Equity (as defined below), the amount
determined pursuant to the following formula shall be paid as Termination Rent and the
balance remaining shall be paid to the Limited Partners:
Termination Rent = $9 million + 50% [NSP - 0.5
Total Equity ("TE") = $18 million plus
total capital contributed to the Partnership which remains outstanding
Net Sale Proceeds ("NSP") = net sale
proceeds from the sale of the Franchise, after taking into account NHL transfer fees, if
any, and termination costs of the Partnership, and after paying all amounts provided for
in 1-4 above.
6. Where Net Sale Proceeds do not exceed an
amount equal to 50% of Total Equity (each as defined in paragraph 5 above), the amount
determined pursuant to the following formula shall be paid as Termination Rent and the
balance remaining shall be paid to the Limited Partners:
Termination Rent = $18 million x NSP
where NSP and TE are each defined as provided for
in paragraph 5 above.
ANALYSIS OF PROSPECTIVE RETURNS
TO LIMITED PARTNERS
Readers should refer to the Offering Memorandum
relating to this offering which will contain a more extensive discussion of the
assumptions used in this illustration. The following information is provided by Spirit
for illustrative purposes only and should not be construed as a forecast or
projection. The following prospective financial information has been prepared by
Spirit and is based on assumptions considered reasonable when prepared, but which is
inherently subject to uncertainty and variations depending on evolving events and which
may prove to be incorrect. There is absolutely no representation that the prospective
results will be realized in whole or in part. Further, the degree of uncertainty
associated with future-oriented financial information generally increases with the time
periods covered. Since this prospective financial information is based upon assumptions
regarding future events, actual results will vary from the information presented, even if
the assumptions are realized, and such variations may be material.
Statement of Prospective
Revenues and Expenses - Franchise and Complex ($000's)
For the Years Ending June 30
|Franchise Revenue (2)
|Complex Revenue (3)
|Player Costs (4)
|Other Franchise Expenses (5)
|Complex Expenses (6)
|Facility Co. Expenses Funded by Endowco(7)
|Net income (Loss) From Operations
Assumptions Underlying the Prospective
- Combined net losses for 1995/96 and 1996/97 of
about $29.6 million
- Except where specifically noted, future growth in
revenues and expenses are based on annual inflation of 3 percent.
- Operation of the Complex commences September 1,
1997 with fiscal years ending June 30th.
- Average attendance of 14,300 for 41 regular season
and 4 exhibition hockey games.
- Average attendance of 5,600 for 70 other events,
including concerts and family shows.
- Excludes potential revenues from playoff games,
Expansion or Transfer Revenue and the possibility of future NHL currency protection or
revenue sharing arrangements.
(2) Franchise Revenue - 1998
- Ticket revenue from luxury suites, club seating
and season tickets of $20.8 million representing approximately 10,000 seats (excluding
user advances of $2.0 million on luxury suites, $8.6 million on club seats and $4.5
million on season tickets).
- Ticket revenue from walk-ups of approximately $5.2
million per year.
- Broadcast rights revenue of $8.1 million from both
local contracts and NHL revenue sharing, inclusive of future growth in accordance with
- League revenue sharing from merchandise and other
rights of approximately $1.7 million. -
- Program and local merchandising revenues of
approximately $725,000 per year.
(3) Complex Revenue - 1998
- All luxury suites, except one complimentary suite,
are assumed to be fully leased generating approximately $1.4 million in annual suite
licence fees (exclusive of $1.5 million transferred to the Franchise as the cost of the
game tickets and $ 1 00,000 as the cost for parking and other event tickets attributable
to occupants of the suites). No increase in luxury suite licence fees between 1997/98 and
- All 2,649 club seats are assumed to be fully
subscribed for generating annual licence fees of approximately $2.4 million (excluding the
cost of tickets to hockey games and other events). No increase in annual license fee
revenues between 1997/98 and 1999/2000.
- Initial parking revenue of $550,000 from proposed
revenue sharing agreements with public and private parking lot operators.
- Net concessions, restaurant and catering revenues
of $2.2 million per year.
- Sponsorships, advertising and annual revenues from
building naming rights of $2.0 million (excluding $700,000 attributed to the Franchise)
net of user advances.
- Building and miscellaneous equipment rentals for
non-hockey events of $750,000 excluding promoter reimbursements of direct event costs.
Building rents are a function of gate receipts from non-hockey events.
- Other event merchandising revenue of $140,000 per
(4) Player Costs
Player costs include player base salaries,
bonuses and other player related costs and the net cost of the farm team. The player costs
for 1995/96 are consistent with current team management budgets. Notwithstanding
historical increases in player costs, it is assumed that player costs will remain
relatively constant. Spirit believes that the player costs can be managed effectively to
the specified amounts, without materially adversely affecting hockey revenues.
(5) Other Franchise Expenses - 1998
Other hockey operations include costs of $4.9
million, NHL dues and assessments of $1.2 million, general and administration of $2.5
million and other expenses of $2 million.
(6) Complex Expenses - 1998
Operating costs of $3.4 million include wages and
benefits of $1.4 million, utilities costs of $725,000, operating and maintenance of
$400,000 and marketing costs of $300,000.
(7) Facility Co. Complex Operating Expense
Endowco's Endowment Fund is assumed to sustain
sufficient assets derived from share capital to generate adequate income to fully fund
Facility Co. in an amount equal to the operating expenses of the Complex. It is assumed
that the Endowment Fund will have a balance of approximately $40-$45 million, in September
1997. inclusive of interest earned.
Summary of Prospective Cash
For the Years Ending June 30
|Net Income From Operations
|Principal and Interest to Endowco
|Gross Distributable Cash Flow
|Base Rent to Facility Co.
|Net Distributable Cash Flow
|Cumulative Annual 5% Return Distributed to
|Residual Cash Flow
|Additional Rent to Facility Co.
|Undistributed Residual Cash Flow
Prospective Statement of Income
for Income Tax Purposes
For the Years Ending December
|Operations of the Franchise and Complex
|Net income (loss) From Operations
|Rent to Facility Co. (2)
|Revenue From User Advances (2) (3)
|Amortization of Player Contracts (4)
|Amortization of Issue Expenses (4)
|Other Marketing and Administration
|Partnership Income (Loss)
(1) Calendar year 1995 assumes one half of
operations for the Franchise and Complex for the year ending June 30, 1996.
(2) Calendar year 1997 assumes one half of
operations for the Partnership for the yearending June 30, 1998. Includes both Base Rent
and Additional Rent.
(3) User Advances are allocated over the term
of the underlying contracts.
(4) Calendar year 1995 assumes four months of
amortized expenses attributed to the Partnership.
Prospective Income Tax
Deductions and Cash Flow
Per Minimum Subscription of 5
for the Years Ending December
|Taxable Income (Net of Partnership Loss Carry
|Income Tax Deductions
|Tax Savings (50.4% of Income Tax Deductions)
|Cash Distributions (Net of 37.8% Capital Gains
|Net Cash (Invested) Returned
|Cumulative Net Cash Invested
CANADIAN FEDERAL INCOME TAX
The Partnership is not a taxable entity. The
Partnership will calculate income (loss) for tax purposes and this income (or loss) will
be allocated to the Limited Partners and Spirit, as general partner. The income (loss) of
the Partnership will be allocated on a December 31st year end.
It is expected that for the first four taxation
year ends of the Partnership, a loss will result for income tax purposes. This loss will
be from three sources:
(a) operating losses prior to the opening of the
(b) amortization of player contract and
negotiation rights over three years (estimated); and
(c) amortization of issue expenses over five
Once the Complex is in operation, the Partnership
is expected to have income for tax purposes. This income will be from operations including
the amortization of revenue from the up front user advances on club seats and season
tickets. A sale of the Franchise will also result in income for tax purposes. Any income
of the Partnership will be allocated to the Limited Partners and to Spirit as general
A Limited Partner will be entitled to deduct
allocated losses to the extent of the "at risk" amount which will initially be
equal to the Subscription Price paid. If allocated losses exceed the "at risk"
amount, which is expected, these losses will be carried forward as Partnership losses and
be deductible against future income allocated from the Partnership.
All losses allocated to Limited Partners will be
subject to inclusion in taxable income for purpose of alternative minimum tax.
A Limited Partner will be required to include in
income for tax purposes a capital gain related to distributions from the Partnership if
the Limited Partner has a "negative adjusted cost base". This capital gain will
be income in the year following the distribution. It is expected that a Limited Partner
will have a negative adjusted cost base when Partnership distributions begin in 1998,
which will continue for at least 5 years.
All Limited Partners must be Canadian residents
for income tax purposes. If any Limited Partner is not, the amortization of player
contract and negotiation rights will not be available to any of the Limited Partners.
A Limited Partner must not borrow a limited
recourse amount for income tax purposes to acquire Units. If any Limited Partner does so,
it may affect the deductions available in the Partnership. Limited recourse amounts for
purposes of the Income Tax Act (Canada) include any indebtedness for which recourse is
limited, either immediately or in the future and either absolutely or contingently.
Indebtedness will also be a limited recourse amount unless bona fide arrangements are made
for the repayment of debt and interest in a period less than ten years and interest on the
indebtedness is paid no later than thirty days after the end of each taxation year at a
rate that is equal to or greater than the prescribed rate at the time of the indebtedness.
The prescribed rate existing as at August 15, 1995 will be 9%.
An advance income tax ruling is being sought to
confirm various aspects of the income tax consequences related to the Partnership
including the eligibility to amortize the player contract and negotiation rights. The
ruling cannot deal with the actual amount allocated to player contract and negotiation
rights nor the amortization period, since that is a question of fact. The amount allocated
to the player contract and negotiation rights is limited to the lesser of the cost and
fair market value. The amortization period is the average term of the player contracts.
CONDITIONS OF CLOSING
It is expected that the Closing will take place
on or about August 14, 1995, provided a minimum of 50,000 Units ($50 million) have been
subscribed for. The proceeds of the Offering will be held in escrow by Montreal Trust
Company of Canada (the "Escrow Agent") and will be released from escrow only if,
among other matters, the following conditions precedent are satisfied on or before August
- Attainment of $30 million capitalization of
Endowco for allocation to the Endowment Fund, inclusive of the amount of Jets Private
Sector Notes gifted to the City of Winnipeg and the Province of Manitoba.
- Receipt of an advance tax ruling respecting
deductions from the amortization of player contract and negotiation rights and other
matters satisfactory to Spirit.
- Receipt of an advance tax ruling respecting
deductibility of contributions made to the City of Winnipeg for payment to Endowco and
allocation to the Endowment Fund.
- Consent of the NHL with respect to the transfer of
the ownership of the Franchise to the Partnership.
- Documentation relating to arrangements between the
Partnership, Facility Co., Spirit and Endowco as it relates, among other things, to the
construction of the Complex, the responsibility for the operating costs of the Complex,
the sharing of Gross Distributable Cash Flow and the distribution of user grants and
- In connection with the acquisition of the
Franchise by the Partnership, all of the documents relating to the acquisition by the
Partnership of all the outstanding units of the partnership that currently owns the
Franchise shall have been duly executed and delivered and the ownership of such units by
the Partnership shall have been consummated or shall be consummated simultaneously with
If all of the conditions of closing or of release
from escrow are not satisfied by August 15, 1995, the subscription
proceeds shall be forthwith returned to
subscribers without interest or deduction.
Subscribers should review an investment in Units
with their legal, tax and financial advisors and consider a number
of risk factors before investing in the
Partnership, including those discussed below.
The Franchise will account for a significant
percentage of the revenues of the Partnership. There are a number of risks involved in the
operation of an NHL franchise in general, and the Franchise, in particular, which include,
but are not limited to, the following:
Sales of Club Seats and Luxury Suites: The
success of the Franchise is dependent to a large extent on the ability of the Partnership
to market luxury suites and club seats. To date, 40 of the 48 luxury suites and
approximately 1,1 00 of a total of 2,649 club seats have been sold. Inability of the
Partnership to sell the remaining club seats will significantly adversely affect the gate
revenue anticipated to be generated by the Franchise. In addition, the $8 million user
advances anticipated to be received by the Partnership from the sale of club seats will be
reduced, which will adversely impact on the ability of the Partnership to fund its
obligations without further borrowings. There is no assurance that the remaining club
seats and luxury suites will be sold.
Sales of Season Tickets: Certain season
tickets will require the payment of a user advance fee, which is a departure from past
practice for the Franchise. If the $4.5 million user advances anticipated to be generated
from the sale of these season tickets is not obtained, the capital available to the
Partnership will be reduced and the ability of the Partnership to fund its obligations
without further borrowings will be adversely affected. There is no assurance that all such
season tickets will be sold.
Attendance: The Partnership will suffer if
interest in the Franchise diminishes and attendance declines. The Partnership is relying
on attendance increasing notwithstanding a significant increase in ticket prices. To the
extent that there is declining interest in attending the games or resistance to the
increase in ticket prices, the anticipated attendance of 14,300 fans per game may not be
achieved. Reduced attendance will adversely affect gate and concession revenues in the
short term and may adversely affect advertising and broadcast revenue in the long term.
Advertising: Spirit anticipates being able
to secure advertising revenue significantly greater than that generated in the Winnipeg
Arena. While Spirit believes annual advertising revenue of $2.3 million is achievable, no
contracts have, to date, been negotiated. Accordingly, there is no assurance that expected
Partnership advertising revenues will be realized.
Broadcast Rights: Spirit anticipates
broadcast revenues to continue in accordance with existing contracts. Contract rights
representing a significant portion of current revenue will expire prior to the completion
of the Complex. There is no assurance that replacement contracts can be negotiated or that
similar revenues can be obtained.
Player Costs: Player costs comprise
approximately 75% of anticipated total cost of operating the Franchise. The player costs
for 1995/96 are consistent with current team management budgets. The increase in Jets
actual player costs for 1991/92 to budgeted player costs in 1995 /96 averaged
approximately 25 % per year, although the annual increase varied from year-to-year during
that period. Nothwithstanding such past increases, Spirit believes that player costs can
be managed effectively with nominal increases over the next 5 years without materially
adversely affecting hockey revenues. There is no assurance that player costs can be
maintained at such levels. To the extent that player costs increase more than proposed,
the Partnership's Net Income From Operations may be substantially reduced, if not offset
by increases in revenues.
As a franchises member of the NHL, the
Partnership will be jointly and severally liable for the debts and obligations of the NHL
but not the debts and obligations of other franchisee members. In accordance with
restrictions placed upon franchises members by the NHL, the Partnership may be prevented
from transferring the Franchise under certain conditions or may be obligated to pay a
transfer fee in an amount to be determined in the discretion of the NHL, which may be
Collective Bargaining Agreement:
A new collective bargaining agreement
("CBA") was entered into between the NHL and the Players Association in January,
1995. The full effect the CBA will have on player costs is not presently known. The CBA is
open for renegotiation in February, 1998, shortly after the Complex is scheduled to be
completed. Any form of player action at that time would adversely affect the ability of
the Franchise to generate the revenue expected. In addition, player costs and the ability
to manage such costs may be affected by the terms of the CBA when renegotiated.
Reliance on the Endowment Fund:
Spirit is anticipating that the operating costs
of the Complex will be funded by the investment income generated by the Endowment Fund.
Spirit is also anticipating that the Endowment Fund will have sufficient capital to
provide the Partnership with loans under the standby loan arrangement with Endowco to fund
operating losses of the Franchise in respect of which no other funds may be available. As
a result, the operations of the Partnership will be impacted by both the level of capital
in the Endowment Fund and the rate of return the Endowment Fund generates on its capital.
Reliance on Management:
Spirit, as a general partner, has exclusive and
complete discretion to manage the Partnership. Spirit has no experience in the operation
of an NHL Franchise and no experience in the management or operation of an entertainment
facility like the Complex. Similarly, Spirit has no experience in supervising the
construction of an entertainment facility like the Complex. The lack of relevant
experience by Spirit will be addressed by retaining professional management and by
Loss of Limited Liability:
Limited liability may be lost under certain
circumstances and may be unavailable under the laws of certain jurisdictions.
There is currently no market through which the
Units may be sold and there may be restrictions on their transfer under applicable
securities legislation and the NHL constitution, bylaws and rules.
Control Over Team Prior to Closing:
The control of the Franchise continues to rest
with the present majority owners until the Clos-
ing of this offering and the Franchise being
acquired by the Partnership. The decisions made by the current management in the interim
period could have a material impact on the profitability and value of the Franchise and
the adequacy and sufficiency of the funds available to the Partnership.
Failure to Complete Complex Construction:
In the event that the construction of the Complex
is not 50% completed by January 1, 1997, the present majority owners, pursuant to the
agreement to sell their units in the partnership that presently owns the Franchise to the
Partnership, are deemed to be appointed as agents of the Partnership for the purposes of
selling the Franchise prior to June 1, 1998. In that event, the Partnership will be
entitled to receive approximately $32 million, plus certain expenses, from the sale
proceeds. Such funds will be insufficient to allow the Partnership to repay capital to the
Limited Partners equal to the Subscription Price paid by Limited Partners. Further, after
payment of third party liabilities and amounts owed to Endowco, including loans advanced
under the standby loan facility, it is unlikely that Limited Partners will receive any
return of the capital.
Foreign Currency Fluctuations:
Certain revenues and expenses of the Franchise
are denominated in US dollars and will be subject to fluctuations in the U.S.-Canada
exchange rate. Such fluctuations could have a negative impact on the income of the
Pursuant to the arrangements between the
Partnership and WEC, the Partnership may become liable to indemnify WEC for claims arising
after the opening of the Complex, from the operation of the WEC facilities or from WEC
Conflicts of Interest:
Certain conflicts of interest may exist as a
result of the officers and directors of Spirit being also, from time to time, officers
and/or directors of Facility Co. and/or Endowco. As well, additional conflicts of interest
may arise as a result of Spirit acting as agent for and on behalf of Facility Co. in
connection with the negotiation of certain contractual rights associated with the Complex
and the arrangement for payment of one time user advances to Facility Co. and annual user
licence fees to the Partnership. The total amount payable in respect of any such rights
will be allocated as between one time user fees and annual user licence fees by Spirit.
Accordingly, a conflict of interest will arise in connection with the determination by
Spirit of the allocation of the aggregate amount payable as between the one time user fee
payable to Facility Co. and the annual user licence fee payable to the Partnership.
The Partnership will, upon acquiring the Franchise, become liable for damages in connecton with a judgment obtained in connection with a pension dispute with former NHL players. Although the amount of such damages has not yet been determined, the damages may be significant and may be material to the Partnership.
RESTRICTIONS ON INVESTORS ACQUIRING UNITS
Only investors who are Canadian residents for the purposes of the Income Tax Act (Canada) will be eligible to purchase Units.
Only investors who are prepared to warrant and covenant that any borrowings incurred for the purposes of acquiring Units shall not be limited recourse amounts for the purposes of the Income Tax Act shall be eligible to purchase Units. Limited recourse amounts for purposes of the Income Tax Act include any indebtedness for which recourse is limited, either immediately or in the future and either absolutely or contingently. Indebtedness will also be a limited recourse amount unless bona ride arrangements are made for the repayment of debt and interest in a period less than ten years and interest on the indebtedness is paid no later than 30 days after the end of each taxation year at a rate that is equal to or greater than the prescribed rate at the time of the indebtedness. The prescribed rate existing as at August 15, 1995 will be 9 %.
Officers, umpires, referees, linesman and other employees of the NHL and players and employees of Members (franchisees) of the NHL are not eligible to purchase or hold Units. Units acquired in violation of these restrictions will not be entitled to vote. In addition, under the NHL constitution and by-laws, any transfer of a controlling ownership interest in a Member must be approved by three-fourths of the (franchises) Members.
NATIONAL HOCKEY LEAGUE PARTICIPATION IN INFORMATION CIRCULAR
THE NHL HAS NOT PARTICIPATED IN THE PREPARATION OF THIS DOCUMENT, HAS NOT APPROVED ITS CONTENTS AND IS NOT RESPONSIBLE FOR ANY OF THE CONTENTS THEREOF OR ANY STATEMENTS OR COMMITMENTS CONTAINED HEREIN. IN NO EVENT SHALL THE NHL BE LIABLE IN ANY WAY, DIRECTLY OR INDIRECTLY, FOR ANY LEGAL CAUSES OF ACTION OR GOVERNMENTAL PENALTIES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS DOCUMENT.