Schutt Sports files bankruptcy to stop patent infringement injunction

By Caroline Salls

Pittsburgh, Sept. 7 - Schutt Sports, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware to explore "strategic options to maximize value and recoveries for all stakeholders," according to a company news release.

The company said it is exploring strategic options to maintain long-term health, including selling some or all of its businesses or raising additional equity.

In addition, Schutt has received a proposal for a plan of reorganization funded by a rights offering, backstopped by a group of investors.

Riddell, Inc., which filed a patent infringement lawsuit against the company that in part prompted the Chapter 11 filing, would not be given the opportunity to invest in the rights offering, according to the release.

Schutt said in court documents that a combination of declining revenues, litigation costs, pre-bankruptcy credit agreement defaults and an inability to generate cash flow to meet its loan obligations led to the bankruptcy filing.

The company said the proposed plan would also provide for a significant deleveraging of Schutt's balance sheet.

Schutt said it is considering this proposal, while it also seeks other equity sponsors and buyers. If one of these transactions were to materialize, it would be implemented via a plan or auction transaction.

"This process will allow us to continue operating our business as usual and to continue servicing our customers without disruption," president and chief executive officer Robert Erb said in the release.

"We have the support of our bank, a great brand and look forward to strengthening our balance sheet and serving our customers for many years to come."

DIP financing

In conjunction with the filing, the company has obtained a commitment for $34 million in debtor-in-possession financing from Bank of America, NA, which Schutt said will give it enough funds to continue its normal business operations.

The facility will mature on the earliest of Dec. 31, payment in full in cash of the company's secured debt, the effective date of a plan of reorganization, upon completion of a sale of the company's assets, upon approval of a sale or plan not approved by the lenders and upon conversion or dismissal of the bankruptcy case.

Interest will be Base rate plus 425 basis points.

Riddell lawsuit

The company said it will continue its appeal of a judgment entered against it in favor of Riddell, Inc. during the bankruptcy process.

Schutt said Riddell, its biggest rival, filed the patent infringement lawsuit in 2008. On Aug. 5, a jury found that Schutt's "DNA" and "ION" football helmet models infringed Riddell's "Football Helmet" and "Sports Helmet" patents.

Riddell agreed in August to hold off on its motion to keep Schutt from manufacturing and selling the helmets in question, postponing the hearing to Sept. 6.

However, Schutt asked the bankruptcy court on Sept. 6 to rule that the automatic stay imposed by the bankruptcy filing keeps Riddell from enforcing the helmet injunction.

Debt details

According to court documents, Schutt has $50 million to $100 million in both assets and debt.

The company's largest unsecured creditors include:

• Riddell, Inc. of Elyria, Ohio, with a $29 million litigation claim;

• Windjammer Capital Investors of Waltham, Mass., with a $17.4 million subordinated debt claim;

• Ponderosa Int'l Ltd. of Taipei, Taiwan, with a $2.6 million trade debt claim;

• Genn Shang Ind. Co., Ltd. of MA Tou Kow Tainan Hsien, with a $2.15 million trade debt claim; and

• Ropes & Gray, LLP of Boston, with a $1.99 million professional service claim.

The company is 100% owned by Schutt Holdings, Inc.

Schutt is being represented by Greenberg Traurig, LLP.

Schutt is a Litchfield, Ill.-based sports equipment manufacturer. The Chapter 11 case number is 10-12795.

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