<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1999
REGISTRATION NO. 333-72343
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TRUE TEMPER SPORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3949 52-2112620
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
8275 TOURNAMENT DRIVE
SUITE 200
MEMPHIS, TENNESSEE 38125
TELEPHONE: (901) 746-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
FRED H. GEYER
8275 TOURNAMENT DRIVE
SUITE 200
MEMPHIS, TENNESSEE 38125
TELEPHONE: (901) 746-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
FREDERICK TANNE, ESQ.
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED APRIL 21, 1999
PROSPECTUS
APRIL 21, 1999
[TRUE TEMPER LOGO]
TRUE TEMPER SPORTS, INC.
OFFER FOR ALL OUTSTANDING 10 7/8% SERIES A
SENIOR SUBORDINATED NOTES DUE 2008 IN EXCHANGE
FOR 10 7/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999,
UNLESS EXTENDED.
We will not receive any proceeds from the exchange of these notes.
THE COMPANY:
- - We design, manufacture and market steel and graphite golf club shafts.
- - True Temper Sports, Inc.
8275 Tournament Drive, Suite 200
Memphis, Tennessee 38125
(901) 746-2000
PROPOSED TRADING FORMAT:
- - The PORTAL market or directly with qualified buyers.
THE EXCHANGE OFFER:
- - Offer for $100,000,000 in principal amount of outstanding 10 7/8% Series A
senior subordinated notes due 2008 in exchange for $100,000,000 in principal
amount of 10 7/8% Series B senior subordinated notes due 2008.
- - The terms of the exchange notes are identical in all material respects to the
terms of the outstanding old notes, except for certain transfer restrictions
and registration rights pertaining to the old notes.
- - This exchange offer will expire at 5 p.m. New York time on , 1999
unless extended.
TERMS OF THE EXCHANGE NOTES:
MATURITY:
December 1, 2008
REDEMPTION:
- - We may redeem the exchange notes at any time on or after December 1, 2003.
- - Before December 1, 2001, we may, subject to certain requirements, redeem up to
35% of the exchange notes so long as 65% remain outstanding immediately after
the redemption. Before December 1, 2003, we may, subject to certain
requirements, redeem all of the exchange notes in the event of a change of
control.
MANDATORY OFFER TO REPURCHASE:
- - If we sell all or substantially all of our assets, or experience specific
kinds of changes in control of our company, we may be required to offer to
repurchase the exchange notes.
SECURITY:
- - The exchange notes are unsecured.
RANKING:
- - These exchange notes rank:
1. behind all of our current and future senior indebtedness, including all
indebtedness under the senior bank facilities;
2. behind any other indebtedness that we are permitted to incur under the
terms of the indenture with the United States Trust Company of New York, as
trustee, unless such indebtedness expressly provides that it is not senior
to the exchange notes; and
3. equal with all of our other current and future senior subordinated
indebtedness.
INTEREST:
- - Fixed annual rate of 10 7/8%.
- - Paid every six months on June 1 and December 1.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of the exchange notes or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<PAGE> 3
THE OLD NOTE OFFERING
OLD NOTES..................... We sold the old notes to Donaldson, Lufkin &
Jenrette ("DLJ"), an investment banking firm,
on November 18, 1998 pursuant to a purchase
agreement. DLJ subsequently resold the old
notes to qualified institutional buyers
pursuant to Rule 144A under the Securities and
Exchange Act and to a limited number of
institutional accredited investors that agreed
to comply with transfer restrictions and other
conditions.
EXCHANGE AND REGISTRATION
RIGHTS AGREEMENT.............. As required in the purchase agreement, we and
DLJ entered into a registration rights
agreement on November 23, 1998. This agreement
grants the holder of the notes exchange and
registration rights. The exchange offer is
intended to satisfy these exchange rights which
terminate upon the consummation of the exchange
offer.
THE EXCHANGE OFFER
SECURITIES OFFERED............ Up to $100,000,000 of Series B 10 7/8% Senior
Notes due 2008. The terms of the exchange notes
and old notes are identical in all material
respects, except for certain transfer
restrictions and registration rights relating
to the old notes.
THE EXCHANGE OFFER............ We are offering to exchange the old notes for
exchange notes that are equal in principal
amount. Old notes may be exchanged only in
integral principal multiples of $1000. The
issuance of the exchange notes is intended to
satisfy our obligations under the registration
rights agreement.
EXPIRATION DATE; WITHDRAWAL OF
TENDER...................... Our exchange offer will expire on 5:00 p.m.,
New York City time, on , 1999, or
such later date and time as we may extend. Your
tender of old notes in accordance with our
exchange offer may be withdrawn at any time
prior to the expiration date. Any old notes not
accepted by us for exchange for any reason will
be returned to you without expense as promptly
as possible after the expiration or termination
of our exchange offer.
CONDITIONS TO THE EXCHANGE
OFFER......................... We believe that the exchange notes issued by us
pursuant to the exchange offer in exchange for
the old notes may be offered for resale, resold
and otherwise transferred by you without
compliance with the registration and prospectus
delivery requirements of the Securities and
Exchange Act. We have based this belief on
letters issued in connection with past
offerings of this kind in which the staff of
the Securities and Exchange Commission has
interpreted the laws and regulations relating
to the resale of notes to the public without
the requirement of further registration under
the Securities Act. Any holder which is our
"affiliate" within the meaning of Rule 405
under the Securities and Exchange Act, however,
may not offer for resale, resell or otherwise
transfer the exchange notes without meeting
these registration and prospectus delivery
requirements.
1
<PAGE> 4
In order for the exchange notes to be offered
for resale, resold or otherwise transferred,
- they must be acquired in the ordinary course
of your business; and
- you must not intend to participate and have
no arrangement or understanding with any
person to participate in the distribution of
such exchange notes.
Our obligation to accept for exchange, or to
issue the exchange notes in exchange for, any
old notes is subject to various conditions
relating to compliance with law, or any
applicable interpretation by any staff of the
Securities and Exchange Commission, or any
order of any governmental agency or court of
law. We currently expect that each of the
conditions will be satisfied and that no
waivers will be necessary.
PROCEDURES FOR TENDERING
NOTES......................... Each holder of old notes wishing to accept the
exchange offer must complete, sign and date the
accompanying letter of transmittal, or a
facsimile thereof, in accordance with the
instructions and mail or otherwise deliver such
letter of transmittal, or such facsimile,
together with the old notes and any other
required documentation to the exchange agent at
the following addresses:
<TABLE>
<S> <C> <C>
By Overnight Courier: By Hand: By Registered or Certified Mail:
United States Trust Company United States Trust Company United States Trust Company
of New York of New York of New York
770 Broadway, 13th Floor 111 Broadway P.O. Box 844
New York, New York 10003 Lower Level Cooper Station
Attn: Corporate Trust Services New York, New York 10006 New York, New York 10276-0844
Attn: Corporate Trust Services Attn: Corporate Trust Services
By Facsimile:
212-780-0592
Attn: Corporate Trust Services
</TABLE>
ACCEPTANCE OF NOTES AND
DELIVERY OF
EXCHANGE NOTES.............. We will accept for exchange any and all notes
which are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time,
on the expiration date. The exchange notes will
be delivered promptly following the expiration
date. See "The Exchange Offer" for a
description of the purpose and effect of the
exchange offer, the expiration date and the
procedures for tendering the old notes.
USE OF PROCEEDS............... We will not receive any cash proceeds from the
exchange of notes pursuant to our exchange
offer.
EXCHANGE AGENT................ United States Trust Company of New York is
serving as the exchange agent in connection
with our exchange offer.
FEDERAL INCOME TAX
CONSEQUENCES.................. The exchange of old notes pursuant to the
exchange offer should not be a taxable event to
you for federal income tax purposes.
2
<PAGE> 5
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The terms of the exchange notes are identical in all material respects to the
terms of the old notes, except that the old notes differed with respect to
certain transfer restrictions and certain registration rights.
ISSUER........................ True Temper Sports, Inc.
TOTAL AMOUNT OF NOTES
OFFERED....................... $100 million in principal amount of 10 7/8%
Series B senior subordinated notes due 2008.
MATURITY...................... December 1, 2008.
INTEREST...................... Annual rate: 10 7/8%.
Payment frequency: every six months on June 1
and December 1.
First payment: June 1, 1999.
OPTIONAL REDEMPTION........... On or after December 1, 2003, we may redeem
some or all of the exchange notes and any
outstanding old notes at any time at the
redemption prices listed in the section
"Description of Notes" under the heading
"Optional Redemption."
Before December 1, 2001, we may, subject to
certain requirements, redeem up to 35% of the
exchange notes and old notes with the proceeds
of certain public offerings of equity in our
company at the price listed in the section
"Description of Notes" under the heading
"Optional Redemption." If less than 65% of
exchange notes and old notes will remain
outstanding immediately after any such
redemption, we cannot effect such redemption.
CHANGE OF CONTROL............. Before December 1, 2003, we may, upon the
occurrence of a specific change of control
event, redeem all of the exchange notes and any
outstanding old notes. We may be required to
offer to repurchase all or a portion of the
exchange notes at a price of 101% of the face
value of the exchange note, plus any accrued
and unpaid interest if:
- prior to December 1, 2003, we do not exercise
our option upon the occurrence of a change of
control event to redeem the exchange notes
and any outstanding old notes, or
- after December 1, 2003, a change of control
event occurs.
RANKING OF THE EXCHANGE
NOTES......................... Like the old notes, these exchange notes will
be senior subordinated debts.
They rank
- behind all of our current and future senior
indebtedness, including all indebtedness
under the senior credit facilities;
- behind any other indebtedness that we are
permitted to incur under the terms of the
indenture with United States Trust Company of
New York, as trustee, unless such
indebtedness expressly provides that it is
not senior to the exchange notes; and
- equal with all of our other senior
subordinated indebtedness.
3
<PAGE> 6
The exchange notes will be subordinate to $37.5
million of senior debt.
BASIC COVENANTS OF THE
INDENTURE................... We will issue the exchange notes under an
indenture with United States Trust Company of
New York, as trustee. The indenture will, among
other things, place certain limitations on our
ability, and the ability of some of our
subsidiaries, to:
- borrow money or make certain restricted
payments,
- change the nature of the business,
- pay dividends on stock or repurchase
stock and certain subordinated
obligations,
- enter into sale and leaseback
transactions,
- make investments,
- enter into transactions with affiliates,
- use assets as security in other
transactions,
- create liens, and
- sell certain assets or merge with or
into other companies.
For a more detailed description of the material
covenants of the indenture, see the section
"Description of Exchange Notes" under the
heading, "Material Covenants" and "Merger,
Consolidation or Sale of Assets."
MARKETABILITY................. The exchange notes are new securities, and
there is currently no established market for
them. We do not intend to list the exchange
notes on any securities exchange.
The address for True Temper is 8275 Tournament Drive, Suite 200, Memphis,
Tennessee 38125 and the telephone number is (901) 746-2000.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary contains basic information about this exchange offer.
It probably does not contain all the information that is important to you. For a
more complete understanding of this exchange offer, we encourage you to read
this entire document and the documents to which we have referred.
TRUE TEMPER SPORTS, INC.
We are the world's leading designer, manufacturer and marketer of golf club
shafts, with a worldwide market share of over 35%. Since the 1930s, we have
manufactured golf club shafts under the widely recognized True Temper brand. We
believe that we have become the market leader in the golf club shaft industry
by:
- capitalizing on our technological leadership and leveraging the True
Temper brand to successfully introduce new products;
- differentiating our products on the basis of quality and performance;
- maintaining long-standing relationships with a highly diverse customer
base; and
- continuously improving the manufacturing process to reduce costs.
Our products include over 1,800 custom and 1,600 standard models of golf
club shafts, including a full range of commercial and premium grade steel shafts
and a full line of premium graphite shafts. We offer approximately 275 lines of
steel shafts and market approximately 75 lines of premium graphite shafts.
Since 1995 we have implemented a new business strategy to:
- develop a customer-driven product segmentation strategy;
- increase research and development spending to design new, higher margin
products with significant performance-enhancing characteristics;
- increase advertising and promotional spending to market our new products
and support the True Temper brand;
- re-engineer the manufacturing process to improve product quality and
reduce costs; and
- increase our market share in under-penetrated international markets.
When we refer to our EBITDA, we are referring to a measure of internal cash
flow combining operating income with non-cash charges for depreciation,
amortization of goodwill, goodwill write-off and recapitalization transaction
expenses. Pro Forma EBITDA represents EBITDA plus corporate expenses and charges
that have historically been allocated to True Temper by Black & Decker, less our
estimate of True Temper's cost as a stand alone entity for the same services
corresponding to such corporate expenses and charges. For the year ended
December 31, 1998, we generated EBITDA and Pro Forma EBITDA of $20.1 million and
$20.6 million, respectively.
When we refer to our Adjusted EBITDA, we mean EBITDA plus restructuring
costs and the management services fee paid to Cornerstone Equity Investors,
L.L.C., the private equity firm whose affiliate is our company's indirect
parent. Pro Forma Adjusted EBITDA represents Adjusted EBITDA plus (i) corporate
expenses and charges that have historically been allocated to True Temper by
Black & Decker, less (ii) our estimate of True Temper's cost as a stand alone
entity for the same services corresponding to such corporate expenses and
charges, plus (iii) EBITDA generated by Grafalloy Corporation, a company that we
acquired on October 26, 1998, for the period from January 1, 1998 to the date of
acquisition (unaudited), plus (iv) the annual cost savings that our management
believes will occur as a result of the integration of Grafalloy operations into
True Temper. For the year ended December 31, 1998, we generated Adjusted EBITDA
and Pro Forma Adjusted EBITDA of $21.6 million and $25.0 million, respectively.
5
<PAGE> 8
We believe that as a result of such strategy, we have increased revenues
and EBITDA, improved operating margins and gained market share. From 1996 to
1998, our revenues and EBITDA grew at compound annual growth rates of 13.0% and
23.4% to $91.5 million and $20.1 million, respectively, and EBITDA margin
increased from 18.4% to 22.0%. For the year ended December 31, 1998, our
revenues and EBITDA increased 10.7% to $91.5 million and 14.8% to $20.1 million,
respectively, over the comparable period in 1997, and EBITDA margin grew from
21.2% to 22.0%.
GOLF INDUSTRY GROWTH
Golf participation in the United States reached record levels in 1998,
representing an approximately % increase over 1997. We believe that this
increase reflects current trends that are driving the overall golf industry in
general, and increased golf equipment sales in particular. Such trends include:
- increased consumer spending since 1990 on recreational activities in
general, and on golf equipment in particular;
- growth in the number of golf courses;
- increased interest in golf by women, junior and minority golfers;
- projected population growth of golfers who are 40 to 60 years old, the
segment of the population that generally plays the most rounds and spends
the most on golf equipment;
- projected population growth of individuals entering their 20s, the age when
golfers generally begin playing golf;
- significant increases in consumer advertising by the golf equipment
industry; and
- the rapid evolution of golf club designs and technology.
THE GOLF CLUB SHAFT INDUSTRY
The golf club shaft market is comprised primarily of steel and graphite
shafts. The worldwide steel shaft market is highly concentrated, with the three
largest competitors comprising an aggregate market share of approximately 96%.
Over the last 60 years, we have continually improved our manufacturing process
to reduce costs and meet the stringent product specifications of our customers.
We believe that our over 60% market share in steel golf club shafts, and our
significant investment in equipment, product design and manufacturing innovation
provide us with a significant advantage as a low cost producer in the steel
shaft market.
The production of graphite shafts is less capital intensive and requires a
less customized manufacturing process than the production of steel shafts. The
graphite shaft industry is highly fragmented and includes over 80 participants,
with the top eight representing approximately 55% of the worldwide market. We
believe that from 1991 to 1995, graphite shafts gained share of the overall
shaft market due to the lightweight, vibration damping characteristics of
graphite shafts, particularly for longer-shafted, larger-headed woods. Since
1995, however, the development of lower weight, higher performance steel shafts
with greater consistency and durability has led to a renewed preference for
steel shafts in the market for irons. We expect that the shift in golfers'
preferences for steel shafted irons will continue as we continue to develop:
- innovative, high performance steel shafts such as Sensicore; and
- lightweight, high performance alternatives to graphite such as metal matrix
composite shafts.
6
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Set forth below is our summary historical and pro forma financial data. The
historical financial data for the four fiscal years ended December 31, 1998 have
been derived from, and should be read in conjunction with, our audited financial
statements and related notes included elsewhere in this prospectus. The pro
forma statement of operations data as of and for the periods presented give
effect to the Transactions as if they were consummated at the beginning of the
period indicated. See "The Transactions," "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Financial Statements and the related notes, and the Pro Forma
Financial Information and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................ $67,531 $71,603 $82,597 $ 91,450
Gross profit..................................... 18,303 21,975 28,711 32,198
Selling, general and administrative expenses..... 9,668 11,145 13,324 13,464
Allocated corporate expenses(1).................. 1,282 668 927 763
Amortization of goodwill......................... 3,775 3,746 3,746 2,505
Goodwill writeoff(2)............................. -- -- -- 40,000
Recapitalization transaction expenses............ -- -- -- 5,698
Restructuring charges(3)......................... 421 492 520 1,150
Operating income (loss).......................... 3,157 5,924 10,194 (31,382)
Net income (loss)................................ $ 486 $ 2,205 $ 4,863 $(37,811)
OTHER FINANCIAL DATA:
EBITDA(4)........................................ $10,501 $13,233 $17,543 $ 20,147
Cash from operating activities................... 7,383 9,582 12,999 4,661
Cash from (used in) investing activities......... 699 (2,784) (2,439) (8,531)
Cash from (used in) financing activities......... (8,154) (6,462) (10,054) 4,836
EBITDA margin(4)................................. 15.5% 18.5% 21.2% 22.0%
Capital expenditures............................. $ 4,123 $ 2,784 $ 2,452 $ 2,366
PRO FORMA DATA:
EBITDA(5)........................................ -- -- -- $ 20,601
EBITDA margin.................................... -- -- -- 22.5%
Cash interest expense(6)......................... -- -- -- $ 13,078
ADJUSTED AND PRO FORMA DATA:
Adjusted EBITDA(7)............................... 10,922 13,725 18,063 21,622
Adjusted EBITDA Margin(7)........................ 16.2% 19.2% 21.9% 23.6%
Pro Forma Adjusted EBITDA(8)..................... -- -- -- 25,011
Pro Forma Adjusted EBITDA Margin(8).............. 27.3%
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
------------
<S> <C>
BALANCE SHEET DATA:
Working capital(9)........................................ $ 8,942
Total assets.............................................. 189,626
Total debt(10)............................................ 137,545
Total stockholder's equity................................ 34,879
</TABLE>
7
<PAGE> 10
- ------------------------------
(1) Prior to the Recapitalization, True Temper received certain services
provided by Black & Decker that included cash management, tax reporting,
risk management and internal audits. Charges for these corporate services
were based upon a general allocation methodology determined by Black &
Decker, and used to allocate all corporate overhead expenses to Black &
Decker's operating divisions and subsidiaries. See Note 11 to the financial
statements included elsewhere in this prospectus for a detailed discussion
of these related party transactions, including management's estimate of the
stand-alone costs for such services.
(2) In connection with Black & Decker's change in accounting policy with
respect to the measurement of goodwill impairment, $40.0 million of
goodwill related to True Temper was written off effective January 1, 1998,
as a change in accounting estimate inseparable from a change in principle.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 13 to the financial statements included
elsewhere in this prospectus.
(3) Reflects severance and other costs related to the consolidation of
manufacturing and administrative facilities. Charges in 1998 are directly
related to the consolidation of True Temper's Olive Branch, Mississippi
composite manufacturing operations into the El Cajon, California facility.
See Note 5 to the financial statements included elsewhere in this
prospectus.
(4) EBITDA represents operating income (loss) plus depreciation, amortization,
and goodwill write-off and recapitalization transaction expenses. EBITDA is
presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles
("GAAP").
(5) Pro forma EBITDA represents EBITDA plus (i) corporate expenses and charges
that historically have been allocated to True Temper, by Black & Decker,
less (ii) True Temper's estimate of its costs as a stand alone entity for
the same services corresponding to such corporate expenses and charges. Pro
forma EBITDA has not been reduced by the management fee payable under the
Management Services Agreement, which is an obligation of True Temper and is
contractually subordinated to all obligations under the notes and the
Senior Credit Facilities.
(6) Cash interest expense excludes amortization of deferred financing fees and
other non-cash interest expenses.
(7) Adjusted EBITDA represents EBITDA, as defined in note (4), plus (i)
restructuring charges totaling $421, $492, $520 and $1,350 (including
amounts recorded in cost of goods sold) for the years ended December 31,
1995, 1996, 1997 and 1998, respectively; and (ii) the Cornerstone
management services fee under the Management Services Agreement totaling
$125 for the fourth quarter of the year ended December 31, 1998.
(8) Pro Forma Adjusted EBITDA for the year ended December 31, 1998 represents
Adjusted EBITDA, as described in note (7) above, plus (i) corporate
expenses and charges that have historically been allocated to True Temper
by Black & Decker, less (ii) our estimate of True Temper's cost as a stand
alone entity for the same services corresponding to such corporate expenses
and charges, plus (iii) $1,229 of EBITDA generated by Grafalloy
Corporation, a company that we acquired on October 26, 1998, for the period
from January 1, 1998 to the date of the acquisition (unaudited), plus (iv)
$1,360 of anticipated net annual cost savings that the company's management
believes will occur as a result of the integration of Grafalloy operations
into True Temper. Such cost savings (i) included costs associated with the
consolidation of redundant sales and manufacturing facilities, headcount
reductions and materials purchasing savings, net of anticipated incremental
on-going costs of integrating Grafalloy; and (ii) exclude the impact of
anticipated one-time restructuring costs.
(9) Working capital excludes cash and cash equivalents.
(10) Total debt includes long-term debt and capital lease obligations.
8
<PAGE> 11
RISK FACTORS
This prospectus includes "forward looking statements" which we believe are
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act including, in particular, the statements about our plans,
strategies, and prospects under the headings "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business". Although we believe that our plans, intentions and expectations
reflected in or suggested by such forward-looking statements are reasonable, we
can give no assurance that such plans, intentions or expectations will be
achieved. Important factors that could cause actual results to differ materially
from the forward looking statements we make in this prospectus are set forth
below and elsewhere in this prospectus. All forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the following cautionary statements.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT THE
FINANCIAL HEALTH OF OUR COMPANY AND PREVENT US FROM FULFILLING OUR OBLIGATIONS
UNDER THESE EXCHANGE NOTES. We have now and, after the exchange offer, will
continue to have a significant amount of indebtedness. The following chart
presents our total indebtedness and our indebtedness senior to the exchange
notes as of December 31, 1998.
<TABLE>
<CAPTION>
<S> <C>
Total indebtedness.......................................... $137.5 million
Indebtedness senior to the exchange notes................... $ 37.5 million
</TABLE>
In 1998, our company recorded a loss before income taxes of $34.9 million. This
loss included a non-cash goodwill write-off of $40.0 million, $5.7 million of
recapitalization transaction expenses, $1.35 million in restructuring costs and
$3.5 million of interest expense.
TP,,,0>Our substantial indebtedness could have important consequences to you.
For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
these exchange notes;
- increase our vulnerability to increases in interest rates (See
"Quantitative and Qualitative Disclosures about Market Risk" under
"Management's Discussion and Analysis of Financial Condition and Results
of Operations");
- limit our ability to fund future working capital, capital expenditures,
research and development costs, acquisitions and other general corporate
requirements;
- require approximately $13.1 million of our annual cash flow from
operations for debt payments, thereby reducing the availability of our
cash flow to fund working capital, capital expenditures, research and
development efforts, acquisitions and other general corporate purposes;
- limit our flexibility to plan for, or react to, changes in our business
and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit our ability to borrow additional funds.
Any of the above listed factors could materially adversely affect us. See
"Description of the Senior Credit Facilities" and "Description of Exchange
Notes" where we describe in more detail the priority afforded to our lenders,
the limitations affecting our company as a result of the agreement we have with
our lenders and the terms and conditions of the exchange notes.
ABILITY TO SERVICE DEBT -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL. Our ability to make payments on and to refinance our
indebtedness, including these exchange notes, and to fund planned capital
expenditures and research and development efforts will depend on our ability to
generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control. Based on our current level of operations, we believe our
cash flow from operations, available cash and available borrowings under our
senior bank facilities will be adequate to meet our future liquidity needs.
9
<PAGE> 12
We cannot assure you, however, that our business will generate sufficient cash
flow from operations, or that future borrowings will be available to us under
our senior bank facilities in an amount sufficient to enable us to pay our
indebtedness, including these exchange notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
these exchange notes on or before maturity. We might not be able to refinance
any of our indebtedness, including the Senior Credit Facilities and these
exchange notes, on commercially reasonable terms or at all.
SUBORDINATION -- YOUR RIGHT TO RECEIVE PAYMENTS ON THESE EXCHANGE NOTES IS
JUNIOR TO ALL OF OUR EXISTING AND FUTURE SENIOR INDEBTEDNESS AND IT IS POSSIBLE
THAT YOU MAY RECEIVE NO COMPENSATION OF ANY KIND IN THE EVENT OF A BANKRUPTCY OR
LIQUIDATION OF OUR COMPANY OR ANY SUCH SIMILAR PROCEEDING AFFECTING US. These
exchange notes rank behind all of our existing and future senior indebtedness,
including all indebtedness under the Senior Credit Facilities, and any other
indebtedness that we are permitted to incur under the terms of the indenture
unless such future indebtedness expressly provides that it ranks equal with, or
subordinated in right of payment to, the exchange notes. As a result, upon any
distribution to our creditors in a bankruptcy or similar proceeding relating to
us, the holders of senior indebtedness of our company will be entitled to be
paid in full in cash before any payment may be made with respect to these
exchange notes. See "Description of Exchange Notes" under the heading
"Subordination" for a more detailed description of the priority afforded to our
lenders and the terms and conditions relating to the rank of the exchange notes.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our company, holders of the exchange notes will
participate with all other holders of subordinated indebtedness of our company
in the assets remaining after we have paid all of the senior debt. Because our
senior debt must be paid first, you may receive less than holders of senior debt
in any such proceeding. In any of these cases, we may not have sufficient funds
to pay all of our creditors, therefore, holders of exchange notes may receive
ratably less than the holders of senior debt.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING -- SALES OF GOLF CLUBS ARE
DEPENDENT ON DISCRETIONARY CONSUMER SPENDING WHICH MAY BE AFFECTED BY GENERAL
ECONOMIC CONDITIONS SUCH AS A DECREASE IN CONSUMER SPENDING ON GOLF EQUIPMENT.
In addition, our future results of operations could be affected adversely by a
number of other factors that influence discretionary consumer spending
including, unseasonal weather patterns, demand for our existing and future
products, new product introductions by our competitors, an overall decline in
participation in golf activities, shifting consumer preferences for graphite,
steel golf club shafts or other materials that we currently do not produce, and
competitive pressures that otherwise result in lower than expected average
selling prices. Any one or more of these factors could result in our failure to
achieve our expectations as to future sales or earnings. Because most operating
expenses are relatively fixed in the short-term, we may be unable to adjust
spending to compensate for any unexpected sales shortfall, which could adversely
affect our results of operations.
NEW PRODUCT INTRODUCTION -- BECAUSE THE INTRODUCTION OF NEW GOLF CLUB SHAFTS
USING STEEL, GRAPHITE OR OTHER COMPOSITE MATERIALS IS CRITICAL TO OUR FUTURE
SUCCESS, OUR CONTINUED GROWTH WILL DEPEND, IN LARGE PART, ON OUR ABILITY TO
SUCCESSFULLY DEVELOP AND INTRODUCE NEW PRODUCTS IN THE MARKETPLACE. There can be
no assurance that we will continue to develop competitive products, develop or
use technology on a timely or competitive basis or otherwise respond to emerging
market trends. Should golf consumers prefer to use golf clubs made from
materials other than steel or graphite, there could be a material adverse effect
on the results of our operations. In addition, the design of new golf clubs is
also greatly influenced by the rules and interpretations of the U.S. Golf
Association ("USGA"). Although the golf equipment standards established by the
USGA generally apply mainly to competitive events sanctioned by that
organization, we believe that it is critical for our future success that our new
shafts comply with USGA standards. No assurance can be given that any new
products will receive USGA approval or that existing USGA standards will not be
altered in ways that adversely affect the sales of our products.
LABOR RELATIONS -- IF ANY LABOR DISRUPTION OR WORK STOPPAGES AFFECT OUR
EMPLOYEES, THE RESULTS OF OUR OPERATION COULD BE ADVERSELY AFFECTED. At March
31, 1999, we employed approximately 815 full-time individuals. Of these,
approximately 378 hourly employees at our Amory, Mississippi facility are
represented by the United Steel Workers of America. Although we believe that
relations with our employees and the union are generally
10
<PAGE> 13
good, there can be no assurance that we will not be subject to work stoppages or
other labor disruption and, if such events were to occur, that there would not
be a material adverse effect on our results of our operations.
NO EXPERIENCE AS A STAND ALONE COMPANY -- SINCE WE HAVE NEVER OPERATED AS AN
INDEPENDENT COMPANY, WE CANNOT ASSURE YOU THAT WE WILL BE SELF-SUFFICIENT IN OUR
NEED FOR GENERAL AND ADMINISTRATIVE SERVICES OR BE ABLE TO OBTAIN THEM AT
FAVORABLE PRICES. IN THE PAST WE HAVE BENEFITED FROM BLACK & DECKER'S PROVISION
OF GENERAL AND ADMINISTRATIVE SERVICES. These services include treasury, tax,
risk management, employee benefits administration, certain legal services,
internal audit and other administrative functions. We have entered into a
transition services agreement with Black & Decker pursuant to which Black &
Decker will continue to provide us with some of these services for up to 12
months after the date on which the notes were originally sold, November 18,
1998.
COMPETITION WITH OTHER GOLF CLUB SHAFT DESIGNERS AND MANUFACTURERS -- WE OPERATE
IN A HIGHLY COMPETITIVE ENVIRONMENT AND COMPETE AGAINST A NUMBER OF ESTABLISHED
GOLF CLUB SHAFT DESIGNERS, MANUFACTURERS AND DISTRIBUTORS. We also compete
indirectly with manufacturers that produce shafts internally and face potential
competition from golf club manufacturers that currently purchase golf club shaft
components from third parties but which may have, develop or acquire the ability
to manufacture shafts internally. Unlike the steel shaft industry, the graphite
shaft industry is highly fragmented. As a result, we compete with many players
involved in the design and manufacture of graphite shafts. See
"Business -- Competition" for a description of the bases on which we compete and
the number of competitors in our industry.
FLUCTUATIONS IN COST AND AVAILABILITY OF RAW MATERIAL -- WE ARE SUBJECT TO PRICE
INCREASES IN RAW MATERIALS USED IN THE MANUFACTURE OF GOLF CLUB SHAFTS AND TO
DELAYS IN RECEIVING SUPPLIES. Golf club shaft raw materials, principally steel
and a graphite fiber composite known as "prepreg", represent a significant
portion of the manufacturing cost of a golf club shaft. Since our company is
dependent upon certain domestic suppliers for steel and graphite prepreg, we are
subject to price increases and delays in receiving supplies which could have a
material adverse effect on our results of operations.
Materials needed to produce our MMC products, which are expected to be
introduced in 1999, are currently obtained from one supplier. There can be no
assurance that we will continue to obtain such materials on favorable terms or
at all. The failure to obtain such materials could have a material adverse
effect on our results of operations. See "Business -- Manufacturing -- Raw
Materials" for a description of the raw materials used in our manufacturing
processes.
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY -- THERE CAN BE NO ASSURANCE
THAT THE PATENTS WE HOLD RELATING TO CERTAIN OF OUR PRODUCTS AND PROPRIETARY
TECHNOLOGIES OFFER COMPLETE PROTECTION. We currently hold 12 U.S. patents
relating to various products and proprietary technologies, including the
Sensicore technology, and have ten patent applications pending. There can be no
assurance, however, as to the degree of protection afforded by these patents or
as to the likelihood that patents will be issued from the pending patent
applications. Moreover, these patents may have limited commercial value or may
not protect our products. Additionally, the U.S. patents that we hold do not
preclude competitors from developing or marketing products similar to our
products in international markets.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS -- WE ARE SUBJECT TO FEDERAL, STATE,
AND LOCAL ENVIRONMENTAL AND WORKPLACE HEALTH AND SAFETY LAWS, REGULATIONS AND
REQUIREMENTS WHICH, IF CONTRAVENED, COULD RESULT IN SIGNIFICANT COSTS TO OUR
COMPANY. Our manufacturing operations involve the use of hazardous substances
and should there be a release of such substances from our facilities, we may be
held liable. Although we believe we are in material compliance with all such
laws, regulations and requirements, instances of noncompliance could occur or be
identified in the future. The penalties or corrective action costs associated
with noncompliance could be material. In addition, we may receive notices of
potential liability pursuant to federal or state laws for cleanup costs
associated with waste recycling or disposal facilities at which wastes
associated with our operations have allegedly come to be located. See
"Business -- Environmental, Health and Safety Matters" for a description of some
of the environmental, health and safety requirements that our company must
satisfy in order to avoid these risks.
11
<PAGE> 14
RESTRICTIONS IMPOSED BY THE SENIOR CREDIT FACILITIES AND THE INDENTURE -- WE ARE
SUBJECT TO RESTRICTIONS CONTAINED IN OUR SENIOR BANK FACILITIES AND IN THE
INDENTURE. FAILURE TO COMPLY WITH ANY OF THE RESTRICTIONS COULD RESULT IN
ACCELERATION OF OUR DEBT. The Senior Credit Facilities and the indenture
restrict our ability to:
- incur additional indebtedness;
- pay dividends and make distributions; and
- make certain investments, loans, or advances.
In the event that we fail to comply with any of these restrictions, we will be
required to pay to our lenders our outstanding debt or we may be subject to
foreclosure on the collateral securing our obligations under the Senior Credit
Facilities. Should any such event of default occur, there would be a materially
adverse result to you.
FINANCING CHANGE OF CONTROL OFFER -- WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE REPURCHASE OPTION CONTAINED IN THE
INDENTURE. Upon the occurrence of certain specific kinds of change of control
events, you will have the right to require us to repurchase all or a portion of
your exchange notes. The repurchase price will be 101% of the face value of the
exchange note, plus any accrued and unpaid interest. However, it is possible
that we will not have sufficient funds at the time of the change of control
event to make the repurchases or that restrictions in our senior bank facilities
will not allow us to make such repurchases. If we are unable to repurchase all
or a portion of your exchange notes in the event of a change of control, we
would be in default of the indenture. If this default is continuing, this
trustee or holders of at least 25% in principal amount of the outstanding notes
may declare all the notes to be due and payable immediately. However, any such
acceleration in the payment of the notes is subject to the prior payment of all
our indebtedness under the Senior Credit Facilities.
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 our assets taken as a whole. There is no precise established definition
of the phrase "all or substantially all." Accordingly, your ability to require
us to repurchase the notes as a result of a sales, lease, conveyance or other
disposition of less than all of our assets taken as a whole may be uncertain. In
addition, certain important corporate events, such as leveraged
recapitalizations that would increase the level of our indebtedness, would not
constitute a "change of control" under the indenture. See "Description of the
Senior Credit Facilities" and "Description of Notes -- Change of Control" for a
more detailed discussion of the priority afforded to our lenders and of the
terms and conditions of the notes that may affect whether you are paid if the
repurchase option is exercised or if there is a change in control.
CONFLICT BETWEEN INTERESTS OF PRINCIPAL STOCKHOLDERS AND INTERESTS OF
NOTEHOLDERS -- FOLLOWING THE OFFERING, CORNERSTONE EQUITY INVESTORS AND EMHART
INDUSTRIES, INC., A SUBSIDIARY OF BLACK & DECKER, WILL BENEFICIALLY OWN
APPROXIMATELY 89% AND 6%, RESPECTIVELY, OF THE VOTING POWER OF THE COMMON STOCK
OF TRUE TEMPER CORPORATION, THE COMPANY THAT HOLDS ALL OF OUR COMPANY'S CAPITAL
STOCK. Acting collectively, these investors will indirectly have the ability to
elect the entire board of directors and control our affairs and policies.
Circumstances may occur in which the interests of these stockholders could be in
conflict with the interests of the holders of the exchange notes. In addition,
Cornerstone Equity Investors and these certain other investors may have an
interest in pursuing acquisitions, divestitures or other transactions that, in
their judgment, could enhance their equity investment, even though such
transactions might involve risks to the holders of the exchange notes. See
"Management," "Security Ownership of Certain Beneficial Owners and Management,"
and "Certain Relationships and Related Transactions" for a description of the
ownership interests that Cornerstone Equity Investors and the other principal
stockholders hold in our company.
DEPENDENCE ON MANUFACTURING CAPABILITIES -- WE OPERATE TWO MANUFACTURING
FACILITIES WHICH WE BELIEVE ARE MORE THAN ADEQUATE TO MEET OUR CURRENT
PRODUCTION DEMANDS. THE LOSS OF ANY ONE OF THESE FACILITIES OR THE INABILITY TO
MEET FUTURE DEMAND, HOWEVER, COULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS. See "Business -- Manufacturing" for a description of the
manufacturing processes used in the production of our steel and graphite shafts.
See "Business -- Properties" for a description of our manufacturing facilities
and their locations.
12
<PAGE> 15
FRAUDULENT TRANSFER -- FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC
CIRCUMSTANCES, TO VOID SUBORDINATE CLAIMS IN RESPECT OF THE NOTES AND REQUIRE
NOTEHOLDERS TO RETURN PAYMENTS RECEIVED. Under the federal bankruptcy law and
comparable provisions of state fraudulent transfer laws, claims in respect of
the exchange notes could be subordinated to all of our other debts if, among
other things:
- We incurred such indebtedness with the intent of hindering, delaying or
defrauding then-existing or future creditors;
- We received less than reasonably equivalent value or fair consideration
for incurring such indebtedness and, at the time of the incurrence of
such indebtedness, we:
1. were insolvent or rendered insolvent by reason of such incurrence;
2. were engaged in a business or transaction for which the assets
remaining with our company constituted unreasonably small capital;
or
3. intended to incur, or believed that we would incur, debts beyond
our ability to pay as they mature; or
The measures of insolvency for purposes of these fraudulent transfer laws will
vary depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, we would be considered
insolvent if:
- the sum of our debts, including contingent liabilities, was greater than
the fair saleable value of all of our assets; or
- if the present fair saleable value of our assets were less than the
amount that would be required to pay the probable liability on our
existing debts, including contingent liabilities, as they become
absolute and mature; or
- we could not pay our debts as they become due.
On the basis of historical financial information, recent operating history and
other factors, we believe that we, will not be insolvent, will not have
unreasonably small capital for the business in which we are engaged and will not
have incurred debts beyond our ability to pay such debts as they mature. There
can be no assurance, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions in this
regard.
NO PRIOR MARKET FOR EXCHANGE NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THESE EXCHANGE NOTES. Prior to this offering, there was
no public market for these exchange notes. In addition, the liquidity of the
trading market in these exchange notes, and the market price quoted for these
exchange notes, may be adversely affected by changes in the overall market for
high yield securities and by changes in our financial performance or prospects,
or in the prospects for companies in our industry generally. As a result, you
cannot be sure that an active trading market will develop for these exchange
notes.
YEAR 2000 ISSUE -- IF OUR COMPUTER SYSTEMS AND SOFTWARE FAIL TO COMPLY WITH YEAR
2000 REQUIREMENTS, THERE COULD BE A MATERIALLY ADVERSE EFFECT ON OUR
COMPANY. The "Year 2000 Issue" refers generally to the problems that some
software may have in determining the correct century for the year. For example,
software with date-sensitive functions that is not Year 2000 compliant may not
be able to distinguish whether "00" means 1900 or 2000, which may result in
failures or the creation of erroneous results. Currently, many computer \systems
and software products are coded to accept only two-digit entries in the date
code field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. If we, or third parties with
which we do business, fail to comply with Year 2000 requirements our company
could be materially adversely impacted.
13
<PAGE> 16
THE RECAPITALIZATION OF TRUE TEMPER CORPORATION
AND THE TRANSACTIONS CONSUMMATED BY
TRUE TEMPER SPORTS, INC. IN CONNECTION
WITH THE FUNDING OF THE RECAPITALIZATION
THE RECAPITALIZATION
On September 29, 1998, True Temper Subsidiary, Inc. changed its name to
True Temper Sports Inc. True Temper Sports, Inc., or "True Temper", is the
operating company and the issuer of the senior subordinated notes to which this
exchange offer relates. Also on September 29, 1998, True Temper Sports, Inc.
changed its name to True Temper Corporation ("TTC"). Prior to changing its name
to TTC, True Temper Sports, Inc. was recapitalized (the "Recapitalization") in
accordance with the terms of a Reorganization, Recapitalization and Stock
Purchase Agreement (the "Recapitalization Agreement") that was executed on June
29, 1998 between True Temper Sports, Inc., The Black & Decker Corporation and
TTSI LLC. Prior to the Recapitalization, Black & Decker, through some of its
subsidiaries, beneficially owned all of the issued and outstanding capital stock
of True Temper Sports, Inc. TTSI LLC, which has since changed its name to True
Temper Sports, LLC, is an investment vehicle affiliated with Cornerstone Equity
Investors, L.L.C. and Goldman Sachs & Co. The Recapitalization, which closed on
September 30, 1998, encompassed the following transactions, all of which are
collectively referred to in this prospectus as the "Transactions":
(1) Black & Decker caused two of its wholly-owned subsidiaries, Emhart
Industries, Inc. and Emhart Inc., to contribute to TTC assets used
exclusively in or relating exclusively to the operations of True Temper as
conducted by Black & Decker and its subsidiaries prior to the
Recapitalization in exchange for shares of TTC's common stock and senior
preferred stock;
(2) prior to the closing of the Recapitalization, Black & Decker
caused some of its other subsidiaries to contribute to TTC certain assets
used exclusively in True Temper's operations in exchange for promissory
notes of TTC payable at closing and the assumption by True Temper of
certain liabilities;
(3) TTC contributed the assets to True Temper as a capital
contribution;
(4) TTC used the net proceeds of the Bridge Note and a Senior
Increasing Rate Discount Note to Emhart Inc. (the "Seller Note") and
borrowings under the Senior Credit Facilities to redeem a portion of the
equity interests held by Emhart Industries, Inc. and Emhart Inc. and to
repay the promissory notes; and
(5) TTS LLC (the "Equity Investor"), purchased a portion of the equity
interests held by Emhart Industries, Inc. and Emhart Inc. (the "Equity
Investor Contribution").
As a result of the Recapitalization and the private placement of the notes, the
Equity Investor and Emhart Industries, Inc. own indirectly securities
representing approximately 89% and 6%, respectively, of the voting power of
TTC's outstanding capital stock. In addition, in connection with the
Recapitalization, our management (the "Management Investors") acquired common
stock representing approximately 5% of the voting power of TTC's outstanding
capital stock (the "Management Contribution").
The transactions contemplated by the Recapitalization Agreement were funded
by:
(1) the net proceeds from the Bridge Note and the Seller Note;
(2) $30.0 million of borrowings by True Temper under the term loan
facilities of the Senior Credit Facilities;
(3) a $58.7 million equity investment by the Equity Investor in TTC;
(4) a management equity investment of $0.4 million; and
(5) equity of TTC held by Emhart Industries, Inc. having an imputed
value of $3.7 million (the "Retained Equity").
14
<PAGE> 17
In addition to serving as the initial purchaser of the old notes, DLJ or
its affiliates were involved in the Transactions as follows:
(1) an affiliate of DLJ financed a portion of the Recapitalization in
exchange for the Bridge Note and customary fees;
(2) DLJ rendered financial advisory services to Black & Decker in
connection with the Transactions, for which it received customary fees; and
(3) DLJ served as arranger and its affiliate served as syndication
agent, both under the Senior Credit Facilities.
THE BRIDGE NOTE AND THE SELLER NOTE
In order to fund a portion of the Recapitalization,
(1) we issued $100.0 million of senior subordinated increasing rate
notes (the "Bridge Note") to True Temper Funding, Inc., an affiliate of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"); and
(2) TTC issued a Seller Note to Emhart Inc.
The Bridge Note was cancelled on November 23, 1998 upon payment by True
Temper of $100.0 million plus accrued interest to True Temper Funding Inc. The
Seller Note bears interest equal to the greater of The Bank of New York's prime
rate as in effect from time to time plus 2.00% or 9.75% per annum as of November
18, 1998. This rate is subject to increase beginning March 31, 1999. Interest on
the Seller Note accrues and is not payable in cash until its maturity date,
September 30, 2009.
SENIOR CREDIT FACILITIES
As part of the Transactions, we entered into a credit agreement (the
"Senior Credit Facilities") with a syndicate of financial institutions for which
DLJ acted as arranger and DLJ Capital Funding, Inc. acted as documentation and
syndication agent. The Senior Credit Facilities are comprised of a
non-amortizing revolving credit facility of up to $20.0 million and term loans
in an aggregate principal amount of $37.5 million, consisting of a $10.0 million
term A loan facility due 2004 and a $27.5 million term B loan facility due 2005.
The borrowings under the Senior Credit Facilities together with the aggregate
gross proceeds from the Bridge Note and the Seller Note, the Equity Investor
Contribution, the Management Contribution and the Retained Equity were used for
the consummation of the Recapitalization and for the acquisition of Grafalloy
and to pay related fees and expenses. In addition, the Senior Credit Facilities
will provide financing for future working capital, capital expenditures and
other general corporate purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Senior Credit Facilities."
15
<PAGE> 18
USE OF PROCEEDS
The exchange offer is intended to satisfy some of our obligations under the
Registration Rights Agreement. We will not receive any cash proceeds from the
issuance of the exchange notes in the exchange offer.
The net proceeds from the sale of the old notes on November 18, 1998, after
deducting expenses of the offering, including discounts to DLJ, were
approximately $96.2 million. The net proceeds, together with borrowings under
the Senior Credit Facilities, were used to repay all amounts outstanding under
the Bridge Note. Gross proceeds from the Bridge Note and borrowings under the
Senior Credit Facilities were distributed to TTC as a cash dividend, and
together with the Equity Investor Contribution, the Seller Note, the Management
Contribution and the Retained Equity, were used to consummate the
Recapitalization, to fund our acquisition of Grafalloy and to pay fees and
expenses in connection with the Transactions and the acquisition of Grafalloy.
The Seller Note which TTC issued to Emhart Inc., an affiliate of Black &
Decker, bears interest equal to the greater of The Bank of New York's prime rate
as in effect from time to time plus 2.00% or 9.75% per annum as of November 18,
1998. This rate is subject to increase beginning March 31, 1999. Interest on the
Seller Note accrues and is not payable in cash until its maturity date,
September 30, 2009.
The following table sets forth the sources and uses of funds in connection
with the Recapitalization (dollars in millions).
<TABLE>
<S> <C>
SOURCES OF FUNDS(1):
Senior Credit Facilities:
Revolving Credit Facility(2).............................. $ --
Term Loans(3)............................................. 30.0
Notes....................................................... 100.0
Seller Note................................................. 25.0
Equity Investment(4)........................................ 62.8
-------
Total sources..................................... $ 217.8
=======
USES OF FUNDS(1):
Recapitalization............................................ $ 206.4
Transaction expenses(5)..................................... 11.4
-------
Total uses........................................ $ 217.8
=======
</TABLE>
- ---------------
(1) Assumes that the notes were issued and borrowings under the Senior Credit
Facilities were made on September 29, 1998 and, accordingly, does not
reflect the issuance of the Bridge Note as a source of funds or the
repayment of the Bridge Note as a use of funds.
(2) Following the Transactions, the revolving credit facility had total
availability of $20.0 million, subject to satisfaction of certain
conditions. See "Description of Senior Credit Facilities" for a description
of the revolving credit facility, as well as of the term loans, under the
Senior Credit Facilities.
(3) Borrowings under the term loans were distributed to TTC in the form of a
cash dividend. Additionally, we borrowed $7.5 million under the term loans
on September 30, 1998 primarily to fund the acquisition of Grafalloy.
(4) Comprised of gross proceeds from the Equity Investor Contribution of $58.7
million, the Management Contribution of $0.4 million and Retained Equity
having an imputed value of $3.7 million.
(5) Reflects fees and expenses related to the Transactions and the offering of
the old notes.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the historical capitalization of True Temper
as of December 31, 1998. This table should be read in conjunction with the
"Selected Historical Financial Data," our financial statements and related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Senior Credit Facilities:
Revolving Credit Facility(1).............................. $ --
Term Loans(2)............................................. 37.3
Notes....................................................... 100.0
Other(3).................................................... 0.2
-------
Total debt........................................ 137.5
Stockholder's equity........................................ 34.9
-------
Total capitalization.............................. $ 172.4
=======
</TABLE>
- ------------------------------
(1) The revolving credit facility, which provides for revolving loans in the
aggregate principal amount of $20.0 million, was undrawn at December 31,
1998.
(2) Borrowings under the term loans were distributed to TTC in the form of a
cash dividend.
(3) Represents capital lease obligations.
17
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
(dollars in thousands)
Set forth below are our selected historical financial and other financial
data for the five fiscal years ended December 31, 1998. The historical financial
data have been derived from, and should be read in conjunction with, our audited
financial statements and related notes included elsewhere in this prospectus.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and the related notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $ 76,505 $ 67,531 $ 71,603 $ 82,597 $91,450
Gross profit.................................... 20,986 18,303 21,975 28,711 32,198
Selling, general and administrative expenses.... 9,998 9,668 11,145 13,324 13,464
Allocated corporate expenses(1)................. 1,445 1,282 668 927 763
Amortization of goodwill........................ 3,775 3,775 3,746 3,746 2,505
Goodwill writeoff(2)............................ -- -- -- -- 40,000
Recapitalization transaction expenses........... -- -- -- -- 5,698
Restructuring charges(3)........................ 2,579 421 492 520 1,150
Operating income (loss)......................... 3,189 3,157 5,924 10,194 (31,382)
Net income (loss)............................... 491 $ 486 $ 2,205 $ 4,863 (37,811)
OTHER FINANCIAL DATA:
EBITDA(4)....................................... $ 10,365 $ 10,501 $ 13,233 $ 17,543 $20,147
Cash from operating activities(5)............... -- 7,383 9,582 12,999 4,661
Cash from (used in) investing activities(5)..... -- 699 (2,784) (2,439) (8,531)
Cash from (used in) financing activities(5)..... -- (8,154) (6,462) (10,054) 4,836
EBITDA margin(4)................................ 13.5% 15.5% 18.5% 21.2% 22.0%
Depreciation and amortization................... $ 7,176 $ 7,344 $ 7,309 $ 7,349 $ 5,831
Capital expenditures............................ 3,370 4,123 2,784 2,452 2,366
Ratio of earnings to fixed charges(6)........... -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(7).............................. $ 616 $ 6,604 $ 6,627 $ 6,418 $ 8,942
Total assets.................................... 188,292 168,533 163,186 160,341 189,626
Total debt(8)................................... -- -- 362 349 137,545
Total stockholder's equity...................... 169,552 158,164 151,907 146,716 34,879
</TABLE>
- ------------------------------
(1) Prior to the Recapitalization, True Temper received certain services
provided by Black & Decker that included cash management, tax reporting,
risk management and internal audits. Charges for these corporate services
were based upon a general allocation methodology determined by Black &
Decker, and used to allocate all corporate overhead expenses to Black &
Decker's operating divisions and subsidiaries. See Note 11 to the financial
statements included elsewhere in this prospectus for a detailed discussion
of these related party transactions, including management's estimate of the
stand-alone costs for such services.
(2) In connection with Black & Decker's change in accounting policy with respect
to the measurement of goodwill impairment, $40.0 million of goodwill related
to True Temper was written off, effective January 1, 1998, as a change in
accounting estimate inseparable from a change in principle. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 13 to the financial statements included elsewhere in
this prospectus.
(3) Reflects severance and other costs related to the consolidation of
manufacturing and administrative facilities. Charges in 1998 are directly
related to the consolidation of True Temper's Olive Branch, Mississippi
composite manufacturing operations into the El Cajon, California facility.
See Note 5 to the financial statements included elsewhere in this
prospectus.
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(4) EBITDA represents operating income (loss) plus depreciation, amortization,
goodwill write-off, and recapitalization transaction expenses. EBITDA is
presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with GAAP.
(5) Financial information relating to cash from operating, investing and
financing activities for 1994 is not readily available and thus has not been
included.
(6) Information relating to the ratio of earnings to fixed charges for 1994
through 1997 has been excluded as the fixed charges were immaterial for each
of those years (less than $200 for each of 1994, 1995, 1996 and 1997).
Earnings were not sufficient to cover fixed charges by $37,811 in 1998, due
to a $40,000 goodwill write-off taken as of January 1, 1998.
(7) Working capital excludes cash and cash equivalents.
(8) Total debt includes long-term debt and capital lease obligations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the more
detailed information in the financial statements and the Unaudited Pro Forma
Financial Information, including the related notes, appearing elsewhere in this
prospectus.
COMPANY OVERVIEW AND PERFORMANCE HIGHLIGHTS
True Temper Sports, Inc. or "True Temper", a wholly owned subsidiary of
True Temper Corporation, is a leading designer, manufacturer and marketer of
both steel and composite graphite golf club shafts for original equipment
manufacturers and distributors in the golf equipment industry. In addition, True
Temper produces and sells a variety of specialty tubing products that offer high
strength and tight tolerance tubular components to the bicycle, automotive and
recreational sports markets. In 1998, golf shaft sales represented 96% of total
revenues, and specialty-tubing sales represented 4%.
On September 30, 1998 True Temper Corporation was recapitalized in a
transaction that was accounted for as a leveraged recapitalization (see the
notes to the financial statements for further details). Prior to this date, True
Temper operated as a wholly owned subsidiary of the Black & Decker Corporation.
For the periods through September 29, 1998, the accompanying financial
statements include all revenues of True Temper, all items of expense directly
incurred by it and expenses charged or allocated to it by Black & Decker in the
ordinary course of business. These allocated corporate expenses are discussed
further in this Management's Discussion and Analysis and the notes to the
financial statements.
On October 26, 1998 True Temper acquired substantially all of the assets of
Grafalloy Corporation, a wholly owned subsidiary of The American Materials &
Technologies Corporation located in El Cajon, California, for approximately $6.2
million in cash. For the purposes of the financial statements, the acquisition
was accounted for as a purchase and, accordingly, Grafalloy's results are
included in the accompanying financial statements as of the date of acquisition.
For the purposes of this discussion, "EBITDA" is defined as operating
income (loss) plus depreciation, amortization of goodwill, goodwill write-off,
and recapitalization transaction expenses. "Adjusted EBITDA" is defined as
EBITDA plus restructuring costs and management fees paid to Cornerstone Equity
Investors.
Since 1995, under the direction of a new senior management team led by
Scott Hennessy, True Temper has implemented a new business strategy to:
(1) develop a customer-driven product strategy;
(2) focus research and development efforts to design new, higher margin
products with significant performance-enhancing characteristics;
(3) target advertising and promotional spending, including television, to
market True Temper's new products and support the True Temper brand;
(4) re-engineer the manufacturing process to improve product quality and
reduce costs; and
(5) increase True Temper's market share in under-penetrated international
markets.
We believe that as a result of these strategies, we have increased net
sales and Adjusted EBITDA, improved operating margins, and gained market share.
From 1996 to 1998, our net sales and Adjusted EBITDA grew at compound annual
growth rates of 13.0% and 25.5%, respectively, and Adjusted EBITDA margin
increased from 19.2% to 23.6%.
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RESULTS OF OPERATIONS
The following table sets forth the components of net income as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of sales.............................................. 64.8 65.2 69.3
Gross profit.......................................... 35.2 34.8 30.7
Selling, general and administrative expenses............... 15.6 17.3 16.5
Amortization of goodwill................................... 2.7 4.5 5.2
Write-off of goodwill...................................... 43.7 0.0 0.0
Restructuring costs........................................ 1.3 0.6 0.7
Recapitalization transaction expenses...................... 6.2 -- --
Operating income (loss)............................... (34.3) 12.3 8.3
Interest expenses.......................................... 3.8 -- --
Other expenses, net........................................ 0.1 0.1 0.1
Earnings (loss) before income taxes................... (38.2) 12.3 8.2
Income taxes............................................... 3.2 6.4 5.1
Net income (loss)..................................... (41.3)% 5.9% 3.1%
EBITDA..................................................... 22.0% 21.2% 18.5%
Adjusted EBITDA............................................ 23.6% 21.9% 19.2%
</TABLE>
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET SALES for 1998 increased $8.9 million, or 10.7%, to $91.5 million from
$82.6 million in 1997. Golf shaft sales increased $10.2 million, or 13.1%, to
$87.5 million in 1998 from $77.3 million in 1997. This increase in sales was
driven by increased unit sales for both the premium and commercial steel shaft
products. Sales of graphite shafts were relatively unchanged between 1997 and
1998. Specialty tubing sales decreased $1.3 million, or (24.2%), to $4.0 million
from $5.3 million. This reduction in tubing sales was driven by declining sales
of bicycle tubing because of softness in the bicycle industry.
Net sales to international customers increased $.7 million, or 4.8%, to
$14.8 million in 1998 from $14.1 million in 1997. Higher unit volumes drove this
increase from market share gains in Japan, offset by reduced sales in the South
Pacific resulting from weak consumer demand and currency devaluation.
GROSS PROFIT for 1998 increased $3.5 million, or 12.1%, to $32.2 million
from $28.7 million in 1997. Gross profit as a percentage of net sales increased
to 35.2% in 1998 from 34.8% in 1997. Gross profit grew with the increased sales
volume and the improvement in gross profit margin. Most of the improvement in
gross profit margin occurred due to an increase in sales from the higher margin
steel shafted product lines. The improvement in gross profit margin is
attributable to the favorable trend in the mix of products sold and was
partially offset by the following factors:
(1) we experienced some unfavorable productivity results in the Olive
Branch production facility in conjunction with our decision to close
the Olive Branch plant and move its operations to El Cajon, California;
(2) gross profit margins were negatively impacted by the two months of
Grafalloy activity that were included in True Temper's fourth quarter
operations; since Grafalloy's sales are slightly more seasonal than
True Temper's core business, its gross profit margins in the second
half of the year are traditionally lower than in the first half of the
year; and
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(3) we recorded a restructuring provision in the fourth quarter of 1998
which included a $0.2 million charge to cost of sales to write-off
inventory that has become obsolete as a result of the restructuring
program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) were $14.2 million in
each of 1998 and 1997, and decreased, as a percentage of net sales, to 15.6% in
1998 from 17.3% in 1997. We spent approximately $0.2 million less in 1998 than
in 1997 for the combined costs of advertising, promotion and research &
development, a savings that was offset by increased spending on several
administrative items.
OPERATING INCOME (LOSS) for 1998 decreased by $41.6 million, to a loss of
$31.4 million from $10.2 million of operating income in 1997. In addition to the
impact on operating income from the gross profit and SG&A items discussed above,
operating income was reduced by the following two primary factors:
(1) effective January 1, 1998 Black & Decker, True Temper's former parent
company, recorded a $40.0 million write-off of True Temper goodwill,
and
(2) we incurred various fees and expenses related to the Recapitalization
that were recorded as period costs in the fourth quarter of 1998.
See a further explanation of these items in the Management's Discussion and
Analysis below as well as in the notes to the financial statements. Excluding
the impact of the goodwill write-off and recapitalization transaction expenses,
operating income increased by $4.1 million, or 40.4%, to $14.3 million in 1998
from $10.2 million in 1997, and operating income as a percentage of net sales
increased to 15.7% from 12.3%.
INTEREST EXPENSES for 1998 increased to $3.5 million from $0 in 1997. As
explained further in the notes to the financial statements, none of Black &
Decker's consolidated indebtedness was directly attributable to the assets of
True Temper and, accordingly, no debt of Black & Decker or related interest
expense was allocated to True Temper. Subsequent to the Recapitalization on
September 30, 1998, we began to record interest expense in the fourth quarter
related to our senior subordinated notes and to the Senior Credit Facilities.
NET INCOME for 1998 decreased by $42.7 million to a net loss of $37.8
million from net income of $4.9 million in 1997. This decrease is reflective of
the profit impact from the items described above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
NET SALES for 1997 increased $11.0 million, or 15.4%, to $82.6 million from
$71.6 million in 1996. Golf shaft sales increased $12.3 million, or 18.9%, to
$77.3 million in 1997 from $65.0 million in 1996. This increase in net sales was
due primarily to our increased sales of commercial steel shafts as well as to
our 1996 introduction of Sensicore, which accounted for a significant portion of
our increased sales of premium golf club shafts during 1997. In 1997, sales of
commercial steel shafts increased 54%, primarily as a result of an increase in
demand for lower priced products, which appeal to the many beginner golfers
taking up the game.
Net sales to international customers increased $3.3 million, or 30.0%, to
$14.1 million in 1997 from $10.8 million in 1996. This improvement is primarily
due to increased marketing and promotion in our international markets,
particularly in Japan.
GROSS PROFIT for 1997 increased $6.7 million, or 30.7%, to $28.7 million
from $22.0 million for 1996. Gross profit as a percentage of net sales increased
to 34.8% in 1997 from 30.7% in 1996. Gross profit increased due to increased
sales from higher margin steel shaft products such as Sensicore, and improved
productivity at our manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) for 1997 increased $2.4
million, or 20.6%, to $14.2 million from $11.8 million in 1996. As a percentage
of net sales, SG&A increased to 17.3% in 1997 from 16.5% in 1996. The increase
in SG&A was driven by a $0.3 million increase in advertising and promotional
spending and a $0.7 million increased investment in research and development
expenditures. In addition, we spent $1.0 million in 1997 to recruit and relocate
key personnel and to invest in the expansion of our international distribution
channels.
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<PAGE> 25
OPERATING INCOME for 1997 increased $4.3 million, or 72.1%, to $10.2
million from $5.9 million for 1996 as a result of the factors described above.
NET INCOME for 1997 increased $2.7 million, or 120.5%, to $4.9 million from
$2.2 million in 1996.
The increase in both operating income and net income was primarily due to
the factors described above.
Other Issues Related to the Results of Operations
CHANGE IN ACCOUNTING FOR GOODWILL: True Temper was a wholly owned
subsidiary of the Black & Decker Corporation up until the effective date of the
Recapitalization on September 30, 1998. The financial statements of True Temper
include goodwill that has been pushed-down from Black & Decker. As more fully
described in the notes to the financial statements, effective January 1, 1998,
Black & Decker elected to change its method of measuring goodwill impairment
from an undiscounted cash flow approach to a discounted cash flow approach. In
connection with Black & Decker's change in accounting policy, $40.0 million of
goodwill related to True Temper was written off through a charge to operations
during the first quarter of 1998 as a change in accounting estimate inseparable
from a change in principle. That write-down represented the amount necessary to
write-down the carrying value of goodwill for True Temper, to Black & Decker's
best estimate, as of January 1, 1998, of True Temper's future discounted cash
flows.
ALLOCATED CORPORATE EXPENSE: Prior to the Recapitalization, Black & Decker
provided us with certain corporate services, including cash management, tax
reporting, risk management and internal audit. Allocated expenses for such
services, amounting to $0.8 million, $0.9 million and $0.7 million for 1998,
1997 and 1996, respectively, have been included in our statements of operating
income under SG&A expenses. Charges for these corporate services were based upon
a general allocation methodology determined by Black & Decker (used to allocate
all corporate overhead expenses to Black & Decker's operating divisions and
subsidiaries), and have not necessarily been allocated on a basis which
approximates our estimated usage of such services as a stand-alone entity. The
corporate expense allocation also includes the allocation of $0.1 million in
1996, which consisted primarily of salaries for additional management personnel.
Management has reviewed the cost it expects to incur as a stand-alone entity
that Black & Decker had previously allocated to us. We estimate that stand alone
costs to replace the services previously provided by Black & Decker's corporate
staff will be approximately $0.5 million annually.
RESTRUCTURING CHARGES: In the fourth quarter of 1998, we purchased
substantially all the assets of Grafalloy Corporation. Among other reasons, we
purchased Grafalloy to provide a complimentary line of premium performance,
ultra lightweight, graphite shafts to our existing graphite product lines. In
addition, the acquisition increases our market share of graphite shafts and
creates more scale for our marketing and manufacturing operations. In
conjunction with the acquisition, we developed a restructuring and integration
plan, and publicly announced our plan to our employees and customers in December
1998.
We are in the process of relocating our production lines and operating
equipment from Olive Branch, Mississippi to El Cajon, California. We expect to
complete the move of the Olive Branch product and equipment to El Cajon by the
end of the second quarter in 1999, and plan to complete all the related actions
under this restructuring program by the end of 1999. We estimate that we will
save approximately $1.4 million annually as a result of this restructuring
program. Management does not expect to realize the full benefits of this savings
until the year 2000, but does expect some incremental savings later in 1999
after the moves are complete and the anticipated labor inefficiencies from the
start-up have subsided.
We developed an estimate for the total restructuring reserve, and in
conjunction with its December announcement, recorded an expense of $1.35 million
in the fourth quarter of 1998 to accrue for the allowable expenses under GAAP
(see the notes to the financial statements). We estimate that approximately $0.4
million of the estimated $1.35 million of restructuring reserve will be cash
expenditures for employee severance and related matters, and we estimate that
the remaining $0.95 million of estimated restructuring charges will be for
non-cash expenses to record the write-down or write-off of capital equipment,
buildings and inventory.
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<PAGE> 26
In addition, we expect to incur costs in 1999 for the following items
related to restructuring:
(1) machinery, equipment and inventory relocation;
(2) employee training;
(3) process re-engineering;
(4) travel and temporary living for the integration team; and
(5) certain capital expenditures.
We estimate that we will spend approximately $1.2 million on these items in
1999, and will recognize these costs as they are incurred during the year.
In 1997 and 1996 we recorded restructuring costs related to various job
eliminations and asset write-offs from the closure of one of our manufacturing
buildings in Olive Branch, Mississippi and the reorganization of various sales,
marketing and engineering functions. The restructuring initiatives from 1997 and
1996 are complete.
INCOME TAXES. For 1998, 1997 and 1996 income taxes were $2.9 million, $5.3
million, and $3.6 million, respectively. The effective tax rate differs from a
federal statutory rate of 34% due primarily to the pre-tax income added back for
the non-deductible portion of the goodwill write-off and goodwill amortization,
and the incremental tax rate for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Historical -- 1997
Historically, Black & Decker financed our operations primarily from
accumulated retained earnings and net invested capital attributable to our
operations. In 1997, our cash provided by operating activities increased by $3.4
million to $13.0 million from $9.6 million in 1996. This increase was generated
from a $2.7 million increase in earnings from operations and a $0.7 million
increase from reduced investments in working capital. Our investments in capital
expenditures for PP&E decreased by $0.3 million to $2.5 million in 1997 from
$2.8 million in 1996. Most of the $10.5 million in net cash provided by
operating and investing activities in 1997 was returned to Black & Decker for
corporate treasury purposes.
Transition Year -- 1998
In 1998, our cash provided by operating activities decreased by $8.3
million to $4.7 million from $13.0 million in 1997. This decrease was generated
from a $6.4 million decrease in earnings from operations and a $1.9 million
decrease from additional working capital demands. Although many factors
influenced the $6.4 million decrease in earnings, the reduction in earnings was
related primarily to the $5.6 million in recapitalization transaction expenses
and the $3.5 million in interest expense. In 1998, we used $6.2 million in cash
for investing activities related to the purchase of Grafalloy. In 1998, our net
financing activities provided $4.8 million of cash that was essentially used to
finance the Recapitalization.
In the past three years our capital expenditures have been relatively
constant. During this time we have spent $2.4, $2.5 and $2.8 million in 1998,
1997 and 1996, respectively. In 1999, we plan to spend about $3.0 million for
capital expenditures.
Following the Recapitalization
In connection with the Transactions, the acquisition of Grafalloy and the
offering of the senior subordinated notes, we have incurred certain amounts of
scheduled debt payments, including interest and principal repayments on the
notes and under the Senior Credit Facilities. In addition to the debt service,
our liquidity needs largely relate to working capital requirements and capital
expenditures. We intend to fund our future working capital, capital expenditures
and debt service requirements through cash flow generated from operations and
borrowings under the Senior Credit Facilities.
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<PAGE> 27
As part of the Transactions and the Grafalloy acquisition, we entered into
the Senior Credit Facilities, which include a $20.0 million non-amortizing
revolving credit facility, none of which was drawn at the closing of the
Recapitalization, a $10.0 million term A loan due 2004, and a $27.5 million term
B loan due 2005. Amounts under the revolving credit facility are available on a
revolving basis during a period that commenced at closing and ending on the
sixth anniversary of the closing. The Senior Credit Facilities contain customary
covenants and events of default, including substantial restrictions on our
ability to declare dividends or make distributions. The term loans are subject
to mandatory prepayments including payments from the net proceeds of certain
asset sales and a portion of our excess cash flow.
Under the terms of the Senior Credit Facilities, we are able to access up
to $20.0 million in a non-amortizing line of credit. We did not draw on this
credit facility at closing on September 30, 1998 or at any time during the 1998
calendar year.
Management believes that the cash flow from operations and available under
the Senior Credit Facilities will provide adequate funds for our expected
working capital needs, planned capital expenditures and debt service obligations
for at least the next three years. Any future acquisitions, joint ventures or
similar transactions will likely require additional capital and there can be no
assurance that any capital will be available to us on terms acceptable to us or
at all. Our ability to fund our working capital needs, planned capital
expenditures, and debt service obligations, to refinance indebtedness and to
comply with all of the financial covenants under our debt agreements, depends on
our 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 our control.
SEASONALITY
In general, the component supplier sales to golf equipment companies are
seasonal, and tend to precede the warm weather golf season. However, there are
exceptions, especially for those suppliers that sell to the high volume opening
price point golf club manufacturers who sell their product through mass retail
channels and generate strong volumes during the holiday gift-giving season.
Although our business does experience seasonal fluctuations, approximately 55%
of our net sales (excluding Grafalloy) are generated in the first half of the
year, and the remaining 45% of net sales are generated in the second half.
INFLATION
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on our results of operations.
DEFERRED TAX ASSETS
In conjunction with the Transactions and the offering of the notes, we have
recognized an increase in our deferred tax assets, since the Recapitalization is
expected to be treated as a taxable business combination for federal and state
income tax purposes. This results in a step-up in our tax basis. This step-up in
tax basis will provide approximately $185.6 million in future tax deductions and
a reduction of approximately $52.9 million in future tax payments over the next
15 years (net of valuation allowance of approximately $17.6 million). We have
elected to make a Section 338(h)(10) election under the Internal Revenue Code
resulting in an anticipated annualized cash tax benefit of approximately $4.7
million, if fully utilized. See the notes to the financial statements for a more
complete discussion of this deferred tax asset and the related valuation
reserve.
MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000
The year 2000 ("Y2K") issue arises out of the fact that many computer
programs were written using two digits to identify the applicable year rather
than four digits. As a result, computer programs with date-sensitive software or
equipment with embedded date-sensitive technology may recognize a two-digit code
for any year in the next century as related to this century. For example, "00",
entered in a date-field for the year "2000" may be interpreted as the year
"1900". This error may result in system or equipment failures or miscalculations
and disruptions of operations including, among other things, an inability to
process transactions or engage in other normal business activities.
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State of Readiness
We have developed an action plan to minimize the impact of Y2K issues in
our business. This plan is designed to address the Y2K issues arising from
systems that are "Internal" and "External" to our business operations. The
Internal systems include:
(1) Business Computer Systems consisting of application software and
hardware used for general accounting and manufacturing operations;
(2) Personal Computer Systems; and
(3) Computer Controlled Manufacturing Systems that we own and/or operate
within True Temper itself.
The External systems include the third party companies (customers,
suppliers and service providers), otherwise known as trading partners, that we
rely upon to conduct normal business activities.
This plan consists of the following phases for both Internal and External
systems:
Phase 1. Assessment -- We prepare a complete inventory of all the various
Internal and External items to consider and evaluate for Y2K compliance;
Phase 2. Test -- We perform tests on our Internal systems to determine if
the identified items are Y2K compliant. For External systems we solicit
information and conduct inquiries of our key trading partners;
Phase 3. Remediation -- We implement the appropriate actions to correct
"mission critical" items within our Internal systems and /or develop
contingency plans for those "mission critical" items in Internal and
External systems that could cause a significant disruption to business
operations if such items experienced Y2K failures. Note: A mission critical
item is defined as an item that must be Y2K compliant to perform its
intended operation or task. For example, the date compliance in the
microprocessor of a machine is not considered "mission critical" if the
machine can still produce good, useable parts in a timely fashion despite
an error in the date code used by the machine; and
Phase 4. Re-Test and Monitor -- We will re-test the items from Internal
systems that failed their initial test to determine if the Remediation
actions were effective. During this phase, we will continue to review the
External systems by monitoring the progress that our key trading partners
are making towards becoming Y2K compliant.
We are substantially complete with the assessment phase (Phase 1) for both
Internal and External systems. We believe that we have prepared a complete
inventory of the items we need to consider, but this inventory remains active as
new Y2K issues surface during the process.
We have completed the testing phase (Phase 2) for a substantial majority of
our Internal business computer systems and determined that they are Y2K
compliant. We expect to complete the testing phase and remediation phase (Phase
3) for the remainder of our Internal business computer systems during the second
quarter of 1999. We have tested and completed remediation, where necessary, for
many of our Internal personal computer systems. We plan to complete testing
during the second quarter of 1999 and expect to complete our remediation efforts
in the third quarter when we plan to replace and upgrade several personal
computers from an operating lease that expires in the third quarter.
Almost all of our Internal business computer systems and personal computer
systems use software that has been purchased from a third party software vendor
(e.g., Oracle, Data Flow, and Microsoft Office products). For most applications,
the software vendors have already certified that their software is Y2K
compliant. In general, we have not re-written or modified the source code of the
application software purchased from these vendors. We make a practice of
updating our systems with the latest version of these software applications and
regularly monitor and install new releases of the Y2K application patches that
the hardware and software vendors periodically issue.
We have completed the testing phase of our Internal computer controlled
manufacturing systems for two of our three plants. Most of the items passed
their tests because they were already Y2K compliant or were not mission
critical. We expect to complete the testing and remediation phases for all three
plants in the second quarter of 1999.
We plan to complete the re-test phase for all our Internal systems during
the third quarter of 1999.
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We have completed the assessment phase for our External systems or trading
partners. We are working with our key trading partners to evaluate their
progress towards Y2K compliance. In addition to soliciting written documentation
about their Y2K status, we are conducting conference calls to exchange
information and evaluate the state of readiness of our trading partners. We plan
to continue regular communication with these key trading partners throughout
1999 in order to monitor their progress and revise our contingency plans
accordingly.
Cost
As noted above, in most cases, we are using the latest version of
application software provided by third parties for our Internal business
computer systems and personal computer systems. In addition, we have not
identified or incurred any significant remediation costs associated with
computer controlled manufacturing systems. Almost all of our efforts to prepare
for the Y2K issue have been performed by existing internal company personnel.
Although True Temper will incur some incremental costs to purchase incidental
software and hardware upgrades, we do not expect these costs to be material, and
in most cases the upgrades would have occurred in the ordinary course of
business.
Risks from Y2K Issues
Management believes that it has an effective plan to address and remediate
the Y2K issues for "Internal" systems of our company. Although we believe that
we will complete all four phases of our action plan for "External" systems by
September, 1999, as noted above, we have not yet completed all the necessary
phases of our Y2K "Internal" systems program.
In the event we do not successfully complete our Internal Y2K program, we
may experience disruptions in our ability to sell, manufacture and distribute
products to our customers. If these disruptions are significant, they could
cause a material adverse effect to the results of our operations. However, based
upon our current assessment of our Internal Y2K program, True Temper does not
expect to experience any significant disruptions to its Internal ability to
conduct normal business activities that would have a material long term affect
on the results of its business operations.
In addition to its own Internal risk factors, True Temper, like most
companies, is subject to a wide variety of External risk factors associated with
the Y2K issue. In the opinion of management, these risk factors are so numerous
and nebulous that management cannot provide a meaningful and quantifiable
estimate of how these External risk factors may impact our company. Although we
have no reason to believe that this will occur, in a "worst case scenario", a
wide scale downturn in the domestic and/or international economies could occur
if Y2K problems caused significant disruptions to banking services, and power
and communication utilities, or shipping and transit systems. If this were to
occur, consumers would probably reduce or eliminate their spending on
recreational products and activities. Should this occur, it would probably have
a material adverse affect on our business operations.
Although we do not subscribe to this "worst case scenario", we could
experience some degree of adverse impact to our business operations if key
customers, suppliers or service providers suffer Y2K problems. True Temper has
several hundred customers, and in 1998 our largest customer accounted for less
than 10% of our sales. With such a diverse customer base, the risk for an
adverse impact on our business operations resulting from the Y2K problems of a
single customer is reduced, but not eliminated. In addition, there can be no
guarantee that several of our key customers will not have Y2K problems despite
their own internal remediation efforts. In addition, the majority of our product
sales are produced with raw materials that we can obtain from several different
suppliers.
In summary, our company may or may not incur a material adverse impact to
its business operations depending on the magnitude and duration of any
disruptions to its Internal systems and/or the systems of its trading partners.
Management believes that the diversity of True Temper's customer and vendor base
reduces the overall exposure and expects that the consequences of any
unsuccessful remediation will not be significant. However, there can be no
assurance that our efforts or those of other entities will be successful, or
that any potential failure would not have a material adverse effect on our
operating results or financial condition.
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Contingency Plans
We are in the process of developing contingency plans and actions for Y2K
issues related to both Internal and External systems. As part of this planning,
our company is evaluating the incremental cost of the contingency alternatives
as compared to the perceived level risk for Y2K problems. In some cases we have
determined that the perceived level of risk does not justify the cost of the
contingency alternative. Such contingency plans involve consideration of a
number of possible actions, including, to the extent necessary or justified, the
selection of alternative suppliers or service providers, temporary increases in
inventory, manual workarounds, and adjustments to staffing strategies. We plan
to continue developing and modifying our contingency plans throughout 1999 as we
monitor and evaluate the progress of our Internal and External Y2K compliance
program.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which establishes standards relating to the reporting
of information by public business enterprises about operating segments in annual
financial statements and related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Accordingly, we have adopted this standard
for the fiscal year ending December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity". SFAS No. 133 is effective for years beginning
after June 15, 1999. Accordingly, we are not required to adopt this standard
until the fiscal year ending December 31, 2000. Our company plans to evaluate
the impact on its financial statements and adopt this accounting standard in
2000.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain "forward-looking statements" that we believe are
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. This entire
disclosure, especially, but not exclusively, those sections entitled "Allocated
Corporate Expense" and "Restructuring Charges", "Liquidity and Capital
Resources" and "Management Information Systems and the Impact of the Year 2000",
include forward-looking statements. Statements about our or our management's
"estimates", "plans", " projections", "forecasts", "expectations",
"predictions", beliefs", "intentions", "hopes", "anticipations", and other
similar phrases, including but not limited to, matters concerning future sales,
costs, expenses, savings, cash spending and receipts, and planning timetables
are forward-looking statements. Forward-looking statements involve risks and
uncertainties, which may cause actual results to differ materially from the
forward-looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The table above provides information about our debt obligations as of
December 31, 1998 that are sensitive to changes in interest rates. The table
presents cash flows and related weighted average interest rates by expected
maturity dates.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------
THERE- FAIR
1999 2000 2001 2002 2003 AFTER TOTAL VALUE
----- ----- ---- ---- ---- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-Term Debt
Fixed Rate $ -- $ -- $ -- $ -- $ -- $ 100.0 $ 100.0 $100.0
Average Interest Rate 10.88% 10.88%
Variable Rate $ 0.9 $ 1.4 $1.9 $2.3 $2.5 $ 28.3 $ 37.3 $ 37.3
Average Interest Rate(a)
</TABLE>
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(a) Variable rate long-term debt is comprised of both term A and term B loans
under the Senior Credit Facility. Senior Credit Facility provides for
interest at our option, at (i) the base rate of the bank acting as
administrative agent plus a margin adder of 1.00% on term A and 1.25% on
term B, or (ii) under a LIBOR option with borrowing spreads of LIBOR plus
0.00% to LIBOR plus 2.25% on term A, depending on our ratio, and LIBOR plus
2.50% for term B.
EXCHANGE RATE SENSITIVITY
We enter into forward-exchange contracts primarily to reduce the impact on
earnings and cash flow from non-functional currency-denominated third-party
receivables. Gains and losses resulting from hedging instruments offset the
losses and gains on the underlying receivable being hedged. Our forward-exchange
contracts generally have maturity dates of 90 to 120 days, and a high
correlation is maintained between the hedges and the underlying receivable. In
most cases, both the exposed transactions and the hedging contracts are marked
to market monthly with gains and losses included in earnings for the period.
Assuming a hypothetical 10% adverse change in all foreign currencies, with
the resulting functional currency gains and losses translated into U.S. dollars
at the spot rate, the loss in fair value of exchange contracts held on December
31, 1998, would be $0.3 million. Those losses would be offset by gains on the
underlying receivables being hedged.
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BUSINESS
GENERAL
True Temper is the world's leading designer, manufacturer and marketer of
golf club shafts, with a worldwide market share of over 35%. Since the 1930s, we
have manufactured golf club shafts under the widely recognized True Temper
brand. In 1997, over 80% of our revenues were generated through the sale of
steel golf club shafts, a market in which we have a worldwide share of over 60%,
more than three times the share of the next largest steel shaft competitor. We
are a major supplier of steel shafts to each of the top 20 golf club designers,
including Callaway, PING, Titleist, Mizuno, Cobra, Wilson and TaylorMade. In
addition, we are one of the leading manufacturers in the highly fragmented
graphite golf club shaft market.
Our products include over 1,800 custom and 1,600 standard models of golf
club shafts, including a full range of commercial and premium grade steel shafts
and a full line of premium graphite shafts. True Temper offers approximately 275
lines of steel shafts, including:
(1) Dynamic Gold, the leading steel shaft on the PGA Tour for the last 20
years;
(2) Sensicore, which utilizes the most innovative steel shaft technology
introduced in the last 20 years; and
(3) co-branded products, including Callaway's Memphis 10, PING's JZ and ZZ
Lite, and Wilson's Fat Shaft.
From 1987 to 1997, our steel shafts were played by 40 of the PGA's 44 major
championship winners, including each of the last 11 Masters champions. We also
design, manufacture and market approximately 75 lines of premium graphite
shafts, including EI-70, Dynamic Gold Graphite, Sensicore Graphite, Assailant,
Regency, Release, Truelite and TT Lite. Our graphite shafts have a strong
presence on the PGA Tour, where they are used by players such as Davis Love III,
David Duval and Justin Leonard, each of whom won a PGA Tour event in 1997 using
True Temper's graphite shafts.
Since 1995, under the direction of a new senior management team led by
Scott Hennessy, we have implemented a new business strategy to:
(1) develop a customer-driven product segmentation strategy;
(2) increase research and development spending to design new, higher margin
products with significant performance-enhancing characteristics;
(3) increase advertising and promotional spending to market our new
products and support the True Temper brand;
(4) re-engineer the manufacturing process to improve product quality and
reduce costs; and
(5) increase our market share in under-penetrated international markets.
On September 30, 1998 our parent company, True Temper Corporation or "TTC",
was recapitalized. Prior to the Recapitalization, we were, since 1989, a
subsidiary of the Black & Decker Corporation. On October 26, 1998, we acquired
substantially all of the assets and assumed certain liabilities of Grafalloy
Corporation, a designer, manufacturer and distributor of composite golf club
shafts located in El Cajon, California. Since 1973, Grafalloy has designed,
manufactured and marketed premium golf shafts, specializing in proprietary,
performance enhancing designs, including its Attacklite, ProLite and SoLite
lines of ultra-lightweight graphite shafts. We believe that our acquisition of
Grafalloy will enhance our presence in the highly fragmented graphite shaft
market.
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COMPETITIVE STRENGTHS
We benefit from a number of significant competitive strengths, including:
- Leading Market Share and Preeminent Brand. We are the leading designer,
manufacturer and marketer of golf club shafts in the world, with over 60%
of the market share for steel shafts, or more than three times that of
its largest steel shaft competitor. True Temper is the only recognized
brand across both the steel and graphite shaft markets. Through our
marketing and promotional programs and the superior performance
characteristics of our products, True Temper has become the preeminent
brand in the golf club shaft industry. Our shafts are the overwhelming
choice of both professional and amateur golfers, and in 1998, have been
used by more professional tournament champions than all other golf club
shafts combined. From 1987 to 1997, True Temper steel shafts were played
by 40 of the PGA's 44 major championship winners, including each of the
last 11 Masters champions. In 1997, more than 65% of 1997 PGA Tour
winners used True Temper shafts. Our product brands include:
(1) Dynamic Gold, the leading steel shaft on the PGA Tour for the last
20 years;
(2) Sensicore steel and graphite shafts; and
(3) EI-70, Assailant, Regency, Dynamic Gold Graphite, Release, Truelite
and TT Lite graphite shafts.
We believe that our reputation for product quality and performance has
established True Temper as the leading brand in the worldwide golf club shaft
market.
- Superior Technological Leadership. We believe that we are a
technological leader in the golf club shaft industry, and that we
invested more in research and development than any of our competitors in
1997. From 1995 to 1997, we increased our research and development
expenditures by approximately 55%, to $2.3 million, or approximately 3%
of revenues. Furthermore, since 1995, True Temper has increased its
engineering staff to approximately 40 professionals dedicated to the
research, development and manufacturing of new products and enhancements.
We believe our emphasis on research and development has enabled us to:
(1) successfully design new products and enhancements of existing
products;
(2) offer customized products to meet the specific performance
requirements of its customers; and
(3) develop the next generation of golf club shaft designs and composite
materials. In 1997, approximately 31% of the our revenues were
derived from products introduced since 1995.
- Long-Standing Relationships with a Highly Diversified Customer Base. We
maintain long-standing relationships with a highly diversified customer
base consisting of the premier golf equipment companies in the world. We
have supplied golf club shafts to each of our top 10 customers since
their respective inception. We are a major supplier of steel shafts to
each of the top 20 golf club designers in the world, including Callaway,
PING, Titleist, Mizuno, Cobra, Wilson and TaylorMade. In 1997, True
Temper had approximately 860 customers, including more than 575 golf club
manufacturers, more than 90 distributors and various custom club
assemblers. In 1997, no single customer accounted for more than 7% of
revenues, and the top 20 customers accounted for approximately 54% of
revenues. Consequently, we believe that we are not dependent on any one
customer.
- Low Cost Producer. We continuously develop manufacturing techniques and
process improvements to meet the demanding product specifications of our
customers. Since 1994, we have significantly improved our cost position
by consolidating manufacturing facilities, reducing production cycle
times, lowering headcount and decreasing scrap levels. As a result of our
manufacturing efficiencies and operating leverage achieved by high
volumes, we believe our cost structure is lower than any of our steel
shaft competitors. Consequently, we offer our customers high performance
products at competitive prices.
- Strong Operating Performance and Significant Cash Flow. For the year
ended December 31, 1998, our revenues and EBITDA increased 10.7% and
14.8%, respectively, over the comparable period in
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1997, and EBITDA margin grew from 21.2% to 22.0%. The strong improvements
in operating results and margins were primarily due to our introduction
of new, higher margin premium shafts and manufacturing cost reduction
initiatives. We expect to continue to generate significant free cash flow
as a result of our strong operating results, low capital expenditures and
minimal future cash tax requirements.
These strengths allow us to remain competitive in the design, manufacture
and marketing of golf club shafts. Notwithstanding our overall leadership
position in the golf club shaft industry, the low barriers to entry into the
graphite shaft industry means that our present level of competitiveness, as it
relates to the graphite golf club shaft market, may be affected by new companies
who are able to manufacture graphite shafts more cost-effectively and therefore
serve the graphite market more competitively. This is largely because, relative
to the steel golf club shaft industry, the design and manufacture of graphite
shafts is far less capital intensive and requires less skilled labor.
BUSINESS STRATEGY
Our objective is to increase revenues and EBITDA by capitalizing on our
position as the leading worldwide designer, manufacturer and marketer of
technologically innovative, performance-oriented golf club shafts. Our business
strategy to achieve this objective consists of the following elements:
- Continue to Increase Share of the Steel and Graphite Shaft Markets. We
intend to continue to increase our share of each of the steel and
graphite shaft markets by leveraging the True Temper brand and continuing
to introduce products and technologies tailored to the specific needs of
golfers. We intend to continue to develop innovative premium steel shafts
with higher than average selling prices and gross margins. We also expect
our lower-priced commercial golf club shaft business to grow due to
increased consumer interest in golf, particularly by women, junior and
minority golfers. We expect to increase our share of the highly
fragmented graphite shaft market by capitalizing on our technological
leadership to introduce new, higher performance premium products. In
addition, we expect to leverage our brand and international distribution
capabilities to increase our share of the growing international market,
which represents approximately one-third of the worldwide golf club shaft
market. From 1995 to 1997, True Temper's international sales increased
approximately 50%, and in 1997 accounted for approximately 17% of
revenues.
- Leverage Technological Leadership to Introduce New Products. We intend
to continue to capitalize on our design expertise and leverage the True
Temper brand to introduce new products through our established
distribution channels. In 1997, approximately 31% of our revenues were
derived from products introduced since 1995. We employ several new shaft
technologies, including filament-winding for the manufacturing of
graphite shafts, advanced molding processes, performance-enhancing
designs and the development of metal matrix composites ("MMCs"), a hybrid
of metal alloy and ceramic materials that are manufactured with a process
similar to that of a steel shaft. In 1996, True Temper developed and
introduced Sensicore, a highly successful line of premium steel shafts
that incorporates our patented vibration damping technology. We believe
the Sensicore technology incorporates the performance characteristics and
consistency of steel with the feel of graphite, while offering the lowest
vibration levels of any steel or graphite shaft on the market. In 1998,
True Temper successfully introduced a Sensicore graphite shaft. In
addition, True Temper expects to introduce a line of MMC shafts in 1999,
which it believes will offer golfers the consistency and performance of
steel with the lightweight and feel characteristics of graphite. We
believe that due to our unique manufacturing and materials fabrication
capabilities, we are currently the only major shaft manufacturer in the
world capable of developing and manufacturing shafts from these new
materials.
- Capitalize on the Favorable Trends Affecting the Golf Equipment
Industry. We expect to continue to benefit from the positive trends
affecting the golf equipment industry. These trends include:
(1) increased consumer spending since 1990 on recreational activities in
general, and on golf equipment in particular;
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(2) growth in the number of golf courses;
(3) increased interest in golf by women, junior and minority golfers;
(4) projected population growth of golfers who are 40 to 60 years old,
the segment of the population which generally plays the most rounds
and spends the most on golf equipment;
(5) projected population growth of individuals entering their 20s, the
age when golfers generally begin playing golf;
(6) significant increases in consumer advertising by the golf equipment
industry; and
(7) the rapid evolution of golf club designs and technology.
- Enhance Long-Term Customer Relationships. We are a major supplier to
each of the top 20 golf club manufacturers. We intend to continue to play
a critical role in designing new shaft technologies to meet the specific
performance requirements of our customers' new products. We utilize a
computer-aided design program that evaluates a new shaft's design with
respect to weight, torque, flex point, tip and butt flexibility, swing
weight and other critical shaft design criteria. In addition, we further
enhance our customer relationships by developing co-branded products,
such as the Memphis 10 for Callaway, the Fat Shaft for Wilson and the JZ
and ZZ Lite for PING, among others.
- Continue to Build the True Temper Brand. We intend to continue to
increase awareness of the True Temper brand and to support our new
product introductions with targeted consumer advertising campaigns. From
1996 to 1998 we increased advertising expenditures by approximately 7% to
$4.2 million, or approximately 4.6% of our 1998 revenues. We are
currently the only golf club shaft manufacturer that consistently
advertises on television. Our marketing programs also include:
(1) advertising in major industry publications and other media channels
both independently and in cooperation with certain of the leading
golf club manufacturers;
(2) hiring Davis Love III as the official spokesperson for our Sensicore
technology;
(3) promoting our products among tour and teaching professionals,
college players, coaches and other leaders in the golf community;
and
(4) maintaining promotional vans to provide technical support to
professional golfers at the major events on each of golf's
professional tours.
We also promote our brands in international markets through its sales and
distribution offices in Australia, and the United Kingdom.
- Continue to Improve Productivity and Operating Margins. Since 1994, we
have significantly lowered our manufacturing costs by closing two
manufacturing facilities, reducing headcount and decreasing scrap levels.
From 1995 to the year ended December 31, 1998, we increased our gross
profit margins from 27.1% to 35.2% and our EBITDA margins from 15.5% to
22.0%, primarily as a result of reducing our cost structure and
introducing higher margin products. Management believes there are
significant opportunities to reduce manufacturing costs through:
(1) process and productivity improvements;
(2) further scrap and waste reduction; and
(3) additional materials cost reductions.
GOLF INDUSTRY GROWTH
We believe that the following industry trends will continue to increase the
demand for golf clubs, in general, and True Temper steel and graphite shafts, in
particular, for the foreseeable future:
Increase in Consumer Spending on Recreational Activities. We believe that
the golf club industry has benefited from an overall increase in disposable
income and recreational spending by American consumers.
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Recreational spending increased by approximately 35% from 1990 to 1995 after
adjustment for inflation. We believe this general increase in recreational
spending coupled with a rising interest in golf has and will continue to result
in increased spending on golf-related equipment. From 1991 to 1997, the
worldwide golf equipment market grew from $2.0 billion to $4.7 billion,
representing a 15% compound annual growth rate.
Increasing Availability of Golf Facilities. According to the National Golf
Foundation, approximately 900 new golf courses are expected to open in the
United States by the year 2000, the vast majority of which will be available for
public use. From 1992 to 1997, the number of public golf course openings
(expressed in terms of 18-hole equivalents) has grown at a CAGR of 8.2%, with
245 golf courses opened in 1997. The growth in golf course development is in
response to increased consumer demand for golf courses in the United States.
From 1996 to 1997, the total number of golfers in the United States grew 7.0% to
26.4 million. For the same period, the total rounds of golf played increased
approximately 15% to an estimated 547 million rounds in 1997. We believe that
the increase in the number of golf courses in the United States will make golf
more accessible and will fuel further growth of golf participation rates and
related sales of golf equipment.
Increasing Interest from Non-Traditional Golfers. Segments of the
population that historically have not been well-represented among golfers are
being increasingly drawn to the sport. We believe that the appeal of young
players on the PGA and Ladies Professional Golf Association ("LPGA") Tours, such
as Tiger Woods and Se Ri Pak, has contributed to record growth in golf
participation among women, minorities and younger individuals. In 1997, the
number of first-time players reached a record high of nearly three million, a
51.2% increase over the nearly two million beginners in 1996. Rounds played by
junior golfers increased approximately 22% between 1996 and 1997. We believe
that the increased interest by non-traditional golfers will continue to have a
positive effect on industry-wide sales of golf equipment.
Favorable Population & Participation Trends. Currently, there are
approximately 78 million "baby boomers" in the United States. According to the
National Golf Foundation, the average golfer in his 40s or 50s plays 32.8% and
93.6% more rounds annually than the average golfer in his 30s, respectively. In
addition, the average golfer in his 60s plays 217.6% more rounds than the
average golfer in his 30s. As a result, we believe that as the "baby boom"
population reaches its "peak" golf-playing age, sales of golf-related equipment
will continue to increase. Similarly, "echo boomers," or the children of the
baby boom generation, who now constitute a large portion of new golfers, will
have a similar impact on the golf equipment industry as they continue to age.
The graph below demonstrates the participation trends for both baby boomers and
echo boomers.
Participation Table in Age Groups
Increased Golf Industry Advertising. Advertising by the golf equipment
industry has grown from approximately $71 million in 1991 to approximately $175
million in 1997. We believe that this advertising trend has led to greater
consumer awareness of golf equipment brands and will lead to increased sales of
golf clubs and True Temper shafts.
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New Product Innovations. In recent years, the golf equipment industry has
made significant advances in product designs and technologies to enhance
golfers' performance and overall enjoyment of the game. We believe that the
evolution of golf clubs with enhanced performance characteristics has
accelerated the rate at which golfers purchase new or additional clubs.
THE GOLF CLUB SHAFT INDUSTRY
The golf club shaft market is comprised primarily of steel and graphite
shafts. The worldwide steel shaft market is highly concentrated, with the three
largest competitors comprising an aggregate market share of approximately 96%.
We believe that this concentration is due in part to the significant capital
investment and customized manufacturing process required for the production of
steel shafts. We have invested significant capital in our manufacturing
facilities and estimate the replacement cost of machinery and equipment at our
steel shaft manufacturing facility to be $50 million to $60 million. In
addition, over the last 60 years, we have continually improved our manufacturing
process to reduce costs and meet the stringent product specifications of our
customers. We believe that our over 60% market share in steel golf club shafts,
and our significant investment in equipment, product design and manufacturing
innovation provide us with a significant advantage as a low cost producer in the
steel shaft market.
The production of graphite shafts is less capital intensive and requires a
less customized manufacturing process than the production of steel shafts. The
graphite shaft industry is highly fragmented and includes over 80 participants,
with the top eight representing approximately 55% of the worldwide market. True
Temper competes primarily in the premium graphite shaft market by leveraging its
brand, design expertise and manufacturing capabilities, including flag-wrapping
and filament-winding. We are one of the few graphite shaft manufacturers that
utilizes a filament-winding manufacturing process, which is more capital
intensive and standardized than the flag-wrapping process used by most graphite
shaft manufacturers. By employing the filament-winding process and proprietary
advanced molding techniques, True Temper can offer more consistent, higher-end
graphite shafts primarily for use in woods.
We believe that from 1991 to 1995, graphite shafts gained share of the
overall shaft market due to the lightweight, vibration damping characteristics
of graphite shafts, particularly for longer-shafted, larger-headed woods. Since
1995, however, the development of lower weight, higher performance steel shafts
with greater consistency and durability has led to a renewed preference for
steel shafts in the market for irons. In addition, steel shafts generally cost
less than graphite shafts, thereby making steel shafted clubs more attractive to
entry level golfers. We estimate that from 1995 to 1997, industry-wide unit
sales of steel shafts increased approximately 18%, while unit sales of graphite
shafts decreased approximately 3%. We expect that the shift in golfers'
preferences for steel shafted irons will continue as we continue to develop:
(1) innovative, high performance steel shafts such as True Temper's
Sensicore; and
(2) lightweight, high performance alternatives to graphite such as metal
matrix composite shafts.
PRODUCTS
We design, manufacture and market steel and composite golf club shafts, as
well as a variety of high strength, high tolerance tubular components for the
bicycle, automotive and recreational sports markets. We manufacture over 1,800
custom and 1,600 standard golf club shafts featuring different combinations of
performance characteristics, including weight, flex, torque and bend profile.
Our custom shafts, which accounted for approximately 31% of revenues in 1997,
are designed, and frequently co-branded in partnership with its customers, to
accommodate specific golf club designs. For example, we recently teamed with
Wilson to create the new Fat Shaft line of golf clubs. Our standard shafts are
typically sold to golf club manufacturers, distributors and various custom club
assemblers, and are used to either assemble new clubs or to replace the shafts
in older clubs. Based on units sold in 1997, approximately 14% of our shafts are
used in woods, 78% in irons and 8% in putters. Our golf club shafts are included
in the woods and irons of club manufacturers, such as PING, Callaway, Golfsmith,
Cobra, Armour Ram, Knight, Mizuno, Wilson, Dunlop, Cleveland and Adams Golf.
Steel Golf Club Shafts. We manufacture approximately 275 lines of steel
golf club shafts, including Sensicore, which is well-recognized as a leading
shaft which combines the performance advantages of steel with the vibration
damping characteristics of graphite, and the Dynamic Gold shaft, which has been
the shaft
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of choice of the PGA Tour for the last 20 years. We have also introduced two new
golf club shafts specifically designed for junior golfers, the Truelite 500 and
the Dynamic Gold J-300, which offer the feel and performance features of
standard length shafts in flexes and lengths which are better suited for junior
players. We have also developed the Scoring Series with Sensicore, a series of
shafts uniquely designed for chipping and putting. Our steel golf club shafts
can be divided into the following two primary product lines: (1) premium steel
shafts, and (2) commercial steel shafts. Premium steel shafts, such as our
Sensicore and Dynamic Gold product lines, are high performance products and
generally generate higher margins than commercial steel shafts. Our commercial
steel shafts, however, are more attractively priced for entry level golfers,
resulting in lower per unit margins coupled with higher production volume and
sales.
Graphite Golf Club Shafts. We manufacture approximately 75 lines of
graphite club shafts, which are offered in a variety of weights, torques and
flexes. Our graphite golf club shafts include the EI-70, which was used in 1997
by Justin Leonard to win the British Open and by Davis Love III to win the PGA
Championship; and the recently introduced Sensicore Graphite shaft, which
utilizes our patented vibration damping technology. Our graphite shafts are also
sold under the True Temper brand and product brands such as Assailant, Regency,
Dynamic Gold Graphite, Release, Truelite and TT Lite.
Specialty Tubing Products. We also manufacture and sell a wide variety of
high performance tubular components for the bicycle, automotive and recreational
sports markets. In 1997, we sold our specialty tubing products to a broad range
of original equipment manufacturers, including Trek Bicycle, Dana Corporation,
Autodyne Manufacturing, Starline Baton, Daisy and Crossman Air Guns.
\CUSTOMERS
We maintain long-standing relationships with a highly diversified customer
base consisting of the premier golf equipment companies in the world. We are a
major supplier of shafts to each of the top 20 golf club designers in the world,
including Callaway, PING, Titleist, Mizuno, Cobra, Wilson and TaylorMade. In
1997, True Temper had approximately 860 customers, including more than 575 golf
club manufacturers and more than 90 distributors. In 1997, no single customer
accounted for more than 7% of revenues, and the top 20 customers accounted for
approximately 54% of revenues. Consequently, we believe that we are not
dependent on any one customer.
We believe that our close customer relationships and responsive service
have been significant elements to our success and that our engineering and
manufacturing expertise provide us with a strong competitive advantage. We
recently opened our West Coast Technical Center in Carlsbad, California, in
proximity to some of the largest golf club manufacturers in order to facilitate
partnerships with our original equipment manufacturer customers. We have
developed and co-branded several proprietary shafts with our customers, which
include customized steel shafts for Callaway, under the Memphis 10 brand, and
for PING, under the JZ and ZZ Lite brands. More recently, we have partnered with
Wilson to produce the Fat Shaft line of clubs.
DESIGN AND DEVELOPMENT
The larger golf club manufacturers require exclusively designed steel and
graphite golf club shafts for their club systems, which require golf club
shafts, heads and grips engineered to work together. We are committed to serving
this market by maintaining our role as a leader in innovative shaft design and
steel and graphite materials technology. Shaft designs and modifications are
frequently the direct result of our combined expertise and efforts and that of
our customers, to develop an exclusive shaft specifically designed for that
customer's clubs. We use a CAD golf club shaft analysis program to evaluate a
new shaft's design with respect to weight, torque, flex point, tip and butt
flexibility, swing weight and other critical shaft design criteria. Our design
research also focuses on improvements in graphite shaft aesthetics since
cosmetic appearance has become increasingly important to customers.
The materials typically used in production of our designs include several
different high strength steel alloys and advanced composite systems of graphite
and glass fibers with thermosetting epoxy resin systems. Other materials such as
MMCs, which combine the durability and consistency of steel with the
lightweight, vibration damping quality of graphite, are being developed to
supplement existing conventional materials. Our design process attempts to
combine a design (geometry, weight, stiffness and feel) with a corresponding
material (steel, graphite and glass) and process (induction-welded strip, taper
press forming, flag wrapping
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<PAGE> 39
and filament winding). Using CAD, we generate a design which is then analyzed by
computer for stiffness and strength properties. Our research and development
efforts focus on technology development as an essential precursor to successful
new product development. In addition, our pursuit of strategic customer
alliances complement its abilities and needs, an approach which allows us to
exploit technical capabilities beyond our own while minimizing the risk and
investment required to enter the market with new products.
MARKETING AND PROMOTION
Our marketing strategy is designed around new product development and
targeted advertising and promotion programs. Through its ability to anticipate
and address consumer trends in the golf equipment market, as well as the
performance demands of professional golfers, we are able to successfully market
its products to golf club manufacturers while strengthening brand awareness.
Since 1995, our marketing efforts through the utilization of a wide variety of
promotional channels, including mass media advertising (print and television),
sponsorship of golf-related events, equipment endorsements and product
demonstrations, have increased our overall exposure in the golf industry.
For example, we have maintained a strong presence among PGA Tour players,
particularly since 1981, when we began sending our PGA Tour van to all major PGA
events. We have recently added a van to follow the Senior PGA Tour, the LPGA
Tour and the NIKE Tour. The Tour van functions as a golf club repair shop on
wheels, visiting over 50 professional tour events during 1997. Typically, the
van is located on the practice tee and lends technical support to the tour
professionals while simultaneously promoting the True Temper brand with OEM
representatives.
We do not pay any professional golfer to play with our shafts in
competition. We believe that the use of our products by professional golfers
enhances our reputation for quality and performance while also promoting the use
of our shafts. Recognizing the influence professional product choices have on
consumer preferences, we also engage in special promotional efforts to encourage
professional golfers to use clubs with True Temper shafts. Similarly, we
contribute shafts to college athletic programs and teaching professionals in
order to expose those who may influence future club purchases to the advantages
of True Temper shafts.
Much of our advertising and promotional spending is dedicated to print and
television advertising, including cooperative advertising with our customers. We
believe we are currently the only golf club shaft manufacturer that consistently
advertises on television. Additional advertising and promotional spending is
allocated to promotional events such as trade shows, consumer golf shows, PGA
Tour activities and celebrity endorsements. In a 1995 New York Times research
poll, True Temper was ranked as the top golf shaft company in terms of brand
awareness and preference. Of those surveyed, 76% recognized the True Temper
brand, while only 13% recognized the brands of two of our largest competitors.
DISTRIBUTION AND SALES
We primarily sell our shafts to golf club manufacturers and distributors.
Typically, distributors resell our products to custom club assemblers, pro shops
and individuals. Sales to golf club manufacturers accounted for approximately
73% of revenues in 1997.
We have one of the most experienced and respected sales staffs in the
industry. Our sales and marketing department includes domestic sales managers,
international sales managers, a customer service group and a team of over 40
design professionals who provide field support to our sales representatives. We
believe that its our international market presence, which comprised
approximately 17% of our total 1997 revenues, provides an opportunity for future
growth. We market our products in Europe and Australia and maintains a sales
office and a sales manager in each region.
MANUFACTURING
We believe that our manufacturing expertise and production capabilities
enable us to respond quickly to customers' orders and provide sufficient
quantities on a timely basis. We believe that our investment in capital
equipment and personnel training has enabled us to establish a reputation as one
of the leading manufacturers of steel and graphite shafts. In the graphite
market, we utilize advanced manufacturing capabilities, including filament
winding, which we believe distinguishes us from the majority of our competitors
that rely on flag wrapping, the industry's standard practice, for the
manufacture of graphite shafts. The filament-winding
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<PAGE> 40
process allows for a more precise placement of graphite material which yields a
more consistent design within the shaft and from shaft to shaft.
Steel Shaft Manufacturing Process. The process of manufacturing a steel
shaft has many distinct phases. Generally, a large steel coil is unrolled and
then formed lengthwise, welded and cut into cylinders. The tubing is then
treated and fitted over a metal rod or "mandrel" that is used to determine the
precise inside diameter of the cylinder as it is drawn. The tubing is stretched,
cut into sections, and then weighed and balanced. Later, through a process that
we pioneered, the sections are then tapered to give each shaft model a
particular flex and frequency. The shafts are cleaned, straightened,
heat-treated and tempered. The shafts are straightened by machines designed and
built by True Temper. The shafts are plated with two layers of nickel to prevent
corrosion and then covered with a fine layer of chrome. Finally, shafts are
dried, polished and inspected for cosmetic flaws before our name and logo is
affixed to the shaft. It takes an average of 15 days to manufacture a True
Temper steel shaft.
Graphite Shaft Manufacturing Process. There are two dominant processes,
both of which we use to manufacture a graphite shaft--flag-wrapping and
filament-winding. The flag-wrapping process uses graphite fiber materials (also
known as prepreg) in sheet form which require refrigeration until use. Each new
roll of prepreg is allowed to reach room temperature before being fed into a
machine for cutting. The material is then cut into pennant-shaped patterns
called flags for each particular shaft design. Layer by layer, various
combinations of prepreg flags are wrapped around mandrels specified for each
particular shaft design. The layered materials are then encased in thin layers
of clear tape for compaction and heated at high temperatures to harden the
material. At the end of the process, the shafts are painted and stylized using a
variety of colors, patterns and designs. The filament-winding process, on the
other hand, begins with a spool, rather than a sheet, of graphite fiber, which
is fed onto the reel of a machine which then wraps the fiber around a mandrel by
turning the mandrel and simultaneously moving the graphite fiber from one of the
mandrels to the other. Once the mandrel is wrapped, the process uses the same
encasing and heating techniques as the flag wrapping process.
Raw Materials. The primary materials used in our golf club shafts are
steel and graphite. Graphite is combined with epoxy resin to produce sheets or
spools of graphite prepreg. We are dependent upon certain domestic suppliers for
steel and graphite prepeg. We believe that there are adequate alternative
suppliers of these materials, and, therefore, we do not feel dependent on any
one supplier. See "Risk Factors --Risk Associated with Fluctuations in Raw
Material Cost and Availability" for risks relating to price increases in raw
materials and to delays in receiving supplies.
COMPETITION
We operate in a highly competitive environment. We believe that we compete
principally on the basis of:
- our ability to provide a broad range of high quality steel and graphite
shafts;
- our ability to deliver customized products in large quantities on a
timely basis; and
- the acceptance of steel and graphite shafts in general, and our shafts in
particular, by professional and other golfers.
Our competitors include a number of established companies. In addition, we
also compete indirectly with golf club manufacturers that produce shafts
internally and face potential competition from golf club manufacturers that
currently purchase golf club shaft components from third parties but which may
have, develop or acquire the ability to manufacture shafts internally.
We estimate that we compete with only two other competitors in the steel
golf club shaft manufacturing industry. The graphite shaft manufacturing
industry, however, is highly fragmented and we estimate the number of our
competitors to range anywhere between sixty and eighty. With our acquisition of
Grafalloy in October of last year, we believe that True Temper ranks within the
five most profitable graphite shaft designers and manufacturers worldwide.
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<PAGE> 41
EMPLOYEES
As of March 31, 1999, we had 815 full-time employees, including 24 in sales
and marketing, 38 in research, development and manufacturing engineering, 723 in
production and the balance in administrative and support roles. The hourly
employees at our steel plant in Amory, Mississippi are represented by the United
Steel Workers of America, and the plant is covered by a labor agreement that
expires in July 2000. We believe that our relationships with the union and our
employees are good. See "Risk Factors -- Labor Relations" for a description of
how our company would be adversely affected in the event of a labor disruption
or work stoppage affecting our employees.
PROPERTIES
Our administrative offices and manufacturing facilities currently occupy
approximately 400,000 square feet. Our shafts are manufactured at two separate
facilities, one located in Amory, Mississippi (steel shafts) and the other
located in Olive Branch, Mississippi (composite shafts). We believe that our
present facilities are adequate to meet our current and projected production
demands. Our executive offices are located in a leased facility in Memphis,
Tennessee. The following table sets forth certain information regarding
significant facilities operated by True Temper as of December 31, 1998:
<TABLE>
<CAPTION>
APPROXIMATE OWNED/ LEASE EXPIRATION
FACILITY LOCATION SQ. FT. LEASED DATE
- ----------------------------- ------------------------- ----------- ------ ----------------
<S> <C> <C> <C> <C>
Corporate Office Memphis, Tennessee 13,500 Leased December 2000
Steel Shafts Amory, Mississippi 335,000 Leased January 2063
Graphite Shafts Olive Branch, Mississippi 45,000 Owned --
Technical Center(1) Carlsbad, California 3,500 Leased May 1999
Graphite Shafts (Grafalloy) El Cajon, California 20,580 Leased September 2003
</TABLE>
- ---------------
(1) The lease for the Technical Center was terminated in January of 1999.
In addition, we promote our products in international markets through sales
offices in Australia, Japan and the United Kingdom.
To the extent that any such properties are leased, we expect to be able to
renew such leases or to lease comparable facilities on terms commercially
acceptable to us.
LEGAL PROCEEDINGS
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against us. While we cannot predict
the outcome of these matters, in the opinion of management, any liability
arising from these matters will not have a material adverse effect on our
business, financial condition or results of operations.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We are subject to federal, state and local environmental and workplace
health and safety laws and regulations, including requirements governing
discharges to the air and water, the handling and disposal of solid and
hazardous wastes, and the remediation of contamination associated with releases
of hazardous substances. Based on a recent review conducted by independent
environmental consultants, we believe that we are currently in material
compliance with environmental and workplace health and safety laws and
regulations. Nevertheless, our manufacturing operations involve the use of
hazardous substances and, as is the case with manufacturers in general, if a
release of hazardous substances occurs or has occurred on or from our
facilities, we may be held liable and may be required to pay the cost of
remedying the condition. The amount of any such liability could be material.
We devote significant resources to maintaining compliance with, and believe
we are in material compliance with, our environmental obligations. Despite such
efforts, the possibility exists that instances of noncompliance could occur or
be identified in the future, the penalties or corrective action costs associated
with which could be material.
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<PAGE> 42
Like any manufacturer, we are subject to the possibility that we may
receive notices of potential liability, pursuant to CERCLA or analogous state
laws, for cleanup costs associated with onsite or offsite waste recycling or
disposal facilities at which waste associated with its operations have allegedly
come to be located. Liability under CERCLA is strict, retroactive, and joint and
several. No such notices are currently pending.
We have made, and will continue to make, capital expenditures to comply
with current and future environmental obligations. Because environmental
requirements are becoming increasingly stringent, our expenditures for
environmental compliance may increase in the future.
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<PAGE> 43
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of True Temper as of March 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- -----------------------------------------
<S> <C> <C>
Scott C. Hennessy........................ 40 Chief Executive Officer, President and
Director
Fred H. Geyer............................ 38 Chief Financial Officer
David N. Hallford........................ 46 Vice President--Sales
Stephen M. Brown......................... 33 Director--Human Resources
Bill R. Beatty........................... 38 Director--Marketing and Tour Operations
Adrian H. McCall......................... 41 Director--International Sales and
Marketing
Mark Rossi............................... 42 Director
Tyler J. Wolfram......................... 32 Director
Robert A. Knox........................... 46 Director
Raymond A. DeVita........................ 62 Director
</TABLE>
Scott C. Hennessy has been President of True Temper since 1996, and Chief
Executive Officer and Director since the closing of the Recapitalization. Mr.
Hennessy joined True Temper in 1994 as Vice President-Sales and Marketing. From
1980 to 1994, Mr. Hennessy held various management positions at Black & Decker
in sales, marketing and product development. Mr. Hennessy sits on the Board of
Governors of the National Golf Foundation. Mr. Hennessy graduated magna cum
laude with a B.S. from the University of Delaware.
Fred H. Geyer has been Chief Financial Officer of True Temper since
February 1998. From 1986 to 1998, Mr. Geyer held various positions at Emerson
Electric Company, including Vice President-Finance in the Air Moving Motor
Division. Prior to that, Mr. Geyer worked at Arthur Andersen LLP as a Senior
Auditor. Mr. Geyer is a Certified Public Accountant in the State of Missouri and
is a member of the American Institute of Certified Public Accountants. Mr. Geyer
graduated magna cum laude with a B.S. from the University of Missouri.
David N. Hallford has been Vice President/Sales and National Sales Manager
of True Temper since 1989. From August 1985 to January 1989, Mr. Hallford held
various positions in sales and customer service at Plough Corporation. Mr.
Hallford worked as an on-course golf professional responsible for management and
retail sales. Mr. Hallford graduated magna cum laude with a B.S. from the
University of Memphis.
Bill R. Beatty has been Director-Marketing and Tour Operations and Sales
Service since 1996. From December 1993 to March 1996, Mr. Beatty was Group
Product Manager and Manager of International Sales and Marketing for Rubbermaid.
Mr. Beatty received a B.S. from Ohio State University and an M.B.A. from
Pepperdine University.
Adrian H. McCall has been Director-International Sales and Marketing of
True Temper since 1995. From May 1992 to September 1995, Mr. McCall served as
Director of International Operations of The Upper Deck Company. Mr. McCall
graduated cum laude with a B.S. from the University of Hartford.
Stephen R. Brown has been the Director-Human Resources since 1997. From
September 1996 to December 1997, Mr. Brown served as Manager-Human Resources.
Prior to that, since 1992, Mr. Brown served as Division Human Resource Manager
for the U.S. Electrical Motors Division of Emerson Electric. Mr. Brown received
a B.A. from the University of South Carolina.
Mark Rossi became a director of True Temper in connection with the
Recapitalization. Mr. Rossi has served as Senior Managing Director of
Cornerstone since December 1996. From 1983 to 1996, Mr. Rossi was affiliated
with the general partners of various private equity funds managed by Prudential.
Mr. Rossi is also a director of Maxwell Technologies, Inc., StorMedia Inc.,
International Manufacturing Services, Inc. and
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<PAGE> 44
several private companies. Mr. Rossi received a B.A. from Saint Vincent College
and an M.B.A. from Northwestern University.
Tyler J. Wolfram became a director of True Temper upon the closing of the
Recapitalization. Since March 1998, Mr. Wolfram has served as a Managing
Director of Cornerstone Equity Investors, L.L.C., a private equity firm that
specializes in buying and building middle-market companies, primarily in the
consumer, health-care, technology and financial services sectors. From 1993 to
March 1998, Mr. Wolfram held various positions in the High Yield Group of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Wolfram received an
A.B. from Brown University and an M.B.A. from The Wharton School of the
University of Pennsylvania.
Robert A. Knox became a director of True Temper in connection with the
Recapitalization. Mr. Knox has served as Senior Managing Director of Cornerstone
Equity Investors, L.L.C. since December 1996. From 1983 to 1996, Mr. Knox was
affiliated with the general partners of various private equity funds managed by
Prudential. Mr. Knox is also a director of Health Management Associates,
Lechters, Inc. and several private companies. Mr. Knox received a B.A. and an
M.B.A. from Boston University.
Raymond A. DeVita became a director of True Temper in connection with the
Recapitalization. Mr. DeVita served as President of True Temper from 1994 to
1996 and Executive Vice President of Black & Decker from 1989 to 1996. Mr.
DeVita retired in 1996. Prior to 1989, Mr. DeVita was Executive Vice President
of Emhart.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to True Temper for 1998 of
those persons who served as (i) the chief executive officer during 1998 and (ii)
the other four most highly compensated executive officers of True Temper or its
predecessor for 1998 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------------------------------
BONUS EARNED OTHER TOTAL
NAME AND PRINCIPAL POSITION YEAR SALARY IN 1998 COMPENSATION(1) COMPENSATION
--------------------------- ---- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Scott C. Hennessy.............. 1998 $250,000 $206,250 $30,671(2) $486,921
Chief Executive Officer,
President and Director
Howard A. Lindsay(3)........... 1998 123,104 45,875 781 170,760
Vice President--Engineering
Adrian H. McCall............... 1998 123,105 46,500 5,699(4) 175,324
Director--International Sales
and Marketing
David N. Hallford.............. 1998 112,000 42,000 18,032(5) 172,032
Vice President--Sales
Fred H. Geyer.................. 1998 $105,000 60,000 54,981(6) 219,981
Chief Financial Officer and
Treasurer
Bill R. Beatty................. 1998 109,063 42,188 3,236 154,487
Director--Marketing and Tour
Operations
</TABLE>
- ------------------------------
(1) Includes country club dues, matching contributions under our 401(k) plan,
use of a company car, and employee move and relocation benefits.
(2) Includes $16,200 attributable to use of company car.
(3) Howard Lindsay left True Temper in February, 1999.
(4) Comprised of matching contribution under True Temper's 401(K) plan.
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<PAGE> 45
(5) Includes $8,640 attributable to use of a company car and a matching
contribution of $5,516 under True Temper's 401(K) plan.
(6) Includes $54,231 for move and relocation benefits.
PENSION PLANS
We maintain tax-qualified and nonqualified defined benefit pension plans
that provide monthly annuities payable at age 65, or after age 55 at actuarially
reduced levels. Under these plans, the amount of the annuity which would be
payable if a participant were to retire at age 65 is the sum of:
(1) one percent of a participant's final average earnings multiplied
by years of benefit service on and after January 1, 1992;
(2) 0.425% of a participant's final average earnings in excess of
social security covered compensation multiplied by years of benefit service
on and after January 1, 1992; and
(3) the participant's adjusted accrued benefit for service prior to
1992 under prior plans, if applicable.
In addition, to the extent that any benefit under the tax-qualified plan is
limited because of restrictions imposed the Internal Revenue Code, the
non-qualified plan will provide the additional benefit which would have been
provided under the qualified plan if such limitations did not exist. The table
below presents the aggregate pension benefit which would be payable under both
plans:
TRUE TEMPER
ANNUAL PENSION BENEFITS AT NORMAL RETIREMENT DATE
<TABLE>
<CAPTION>
YEARS OF SERVICE
ANNUAL ------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30 35
- ------------ ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$125,000 $ 7,400 $15,100 $ 22,900 $ 30,700 $ 38,500 $ 46,300 $ 54,100
$150,000 $ 9,100 $18,500 $ 28,100 $ 37,700 $ 47,300 $ 56,900 $ 66,600
$175,000 $10,700 $21,800 $ 33,200 $ 44,700 $ 56,100 $ 67,600 $ 79,000
$200,000 $12,300 $25,200 $ 38,400 $ 51,700 $ 64,900 $ 78,200 $ 91,500
$225,000 $13,900 $28,500 $ 43,600 $ 58,700 $ 73,800 $ 88,800 $103,900
$250,000 $15,500 $31,900 $ 48,800 $ 65,700 $ 82,600 $ 99,500 $116,400
$300,000 $18,800 $38,600 $ 59,100 $ 79,700 $100,200 $120,700 $141,300
$350,000 $22,000 $45,300 $ 69,500 $ 93,700 $117,800 $142,000 $166,200
$400,000 $25,300 $52,000 $ 79,800 $107,600 $135,500 $163,300 $191,100
$500,000 $31,700 $65,500 $100,500 $135,600 $170,700 $205,800 $240,900
$600,000 $38,200 $78,900 $121,300 $163,600 $206,000 $248,300 $290,700
$700,000 $44,700 $92,300 $142,000 $191,600 $241,200 $290,800 $340,500
</TABLE>
<TABLE>
<CAPTION>
NAME HIRE DATE CREDITED SERVICE
---- --------- ----------------
<S> <C> <C>
Beatty, William............................................ June 10, 1996 2 years
Geyer, Fred................................................ February 16, 1998 1 year
Hallford, David............................................ February 1, 1989 9 years
Hennessy, Scott............................................ June 9, 1980 18 years
Lindsay, Howard............................................ February 12, 1996 2 years
McCall, Adrian............................................. December 11, 1995 3 years
</TABLE>
STOCK OPTION PLAN
The Board of Directors has adopted a stock option plan which provides for
the grant to certain key employees and/or directors of True Temper of stock
options that are non-qualified options for federal income tax purposes. The
stock option plan will be administered by the Compensation Committee of the
Board of Directors. The Compensation Committee will have broad powers under the
stock option plan, including exclusive authority to determine:
(1) who will receive awards;
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<PAGE> 46
(2) the type, size and terms of awards;
(3) the time when awards will be granted; and
(4) vesting criteria, if any, of the awards.
COMPENSATION OF DIRECTORS
True Temper will reimburse directors for any out-of-pocket expenses
incurred by them in connection with services provided in such capacity. In
addition, we may compensate directors for services provided in such capacity.
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<PAGE> 47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
All of our capital stock is owned by True Temper Corporation ("TTC"). The
following table sets forth information with respect to the beneficial ownership
of TTC's capital stock as of December 31, 1998 by:
(1) all stockholders of TTC that own more than 5% of any class of such
voting securities,
(2) each director and named executive officer, and
(3) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF NUMBER OF PERCENTAGE OF OUTSTANDING PERCENTAGE OF
PREFERRED COMMON OUTSTANDING COMMON VOTING CAPITAL
NAME OF BENEFICIAL OWNER SHARES SHARES PREFERRED STOCK STOCK STOCK
------------------------ --------- --------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
TTS LLC(1)................... 11,750,000 8,192,163 94.0% 89.2% 89.2%
c/o Cornerstone Equity
Investors, L.L.C.
717 Fifth Avenue
Suite 1100
New York, New York 10022
EII(2)....................... -- 534,632 6.0% 5.8% 5.8%
c/o The Black & Decker
Corporation
701 East Joppa Road
Towson, Maryland 21286
Scott C. Hennessy............ -- 367,444 -- 4% 4%
Howard A. Lindsay............ -- 22,965 -- * *
Adrian H. McCall............. -- 21,933 -- * *
David N. Hallford............ -- 12,902 -- * *
William R. Beatty............ -- 6,193 -- * *
All directors and executive
officers as a group
(8 persons)(3)............. 0 459,305 0 5.0% 5.0%
</TABLE>
- ------------------------------
* Less than 1%.
(1) Membership interests in TTS LLC are held by Cornerstone Equity Investors IV,
L.P. (73.9%), GS Private Equity Partners, L.P. (17.2%), GS Private Equity
Partners Offshore, L.P. (8.3%) and certain other investors (0.5%).
(2) Emhart Industries, Inc., a wholly-owned subsidiary of Black & Decker.
(3) Includes issuance of management incentive shares. Excludes stock held by
True Temper Sports, LLC, an affiliate of Cornerstone Equity Investors,
L.L.C. ("Cornerstone"), for which the individual directors who are
affiliates of Cornerstone disclaim beneficial ownership.
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<PAGE> 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RECAPITALIZATION AGREEMENT
In accordance with the terms of the Recapitalization Agreement, Black &
Decker has indemnified the Equity Investor against any and all damages resulting
from any misrepresentation or breach of warranty of Black & Decker or TTC
contained in the Recapitalization Agreement, a claim for which is made (in most
cases) the earlier of 18 months following the closing date or the date on which
audited financial statements for the 1999 calender year are delivered. The
indemnification obligations of Black & Decker under the Recapitalization
Agreement are generally subject to a $5.0 million basket amount and limited to
an aggregate payment of no more than 25% of the Adjusted Purchase Price received
by Black & Decker pursuant to the Recapitalization. "Adjusted Purchase Price" is
defined in the Recapitalization Agreement. Black & Decker will indemnify True
Temper for 50% of all environmental liability up to an aggregate amount of $10.0
million and 80% of any environmental liability in excess of $10.0 million.
In addition, Black & Decker has agreed for a period of five years after the
Closing Date not to compete with True Temper in the business of the company as
conducted as of the closing date. Black & Decker has also agreed for a period of
up to 12 months after the closing date of the Recapitalization not to hire or
solicit the employment of certain employees of True Temper.
Pursuant to the Recapitalization Agreement, TTC may pay certain contingent
amounts to Black & Decker. The amount of such payments, if any, will be equal to
25% of the EBIT Contribution derived from TTC's sales to Thiokol pursuant to the
Thiokol Contract (each such term as defined in the Recapitalization Agreement).
Such payments will be made annually during the initial term of the Thiokol
Contract based on the EBIT Contribution derived in each such year.
STOCKHOLDERS AGREEMENT
Upon the consummation of the Recapitalization, TTC and all of its
stockholders, including the Equity Investor and Black & Decker entered into a
stockholders agreement (the "Stockholders Agreement"). The Stockholders
Agreement:
(1) requires that each of the parties thereto vote all of its voting
securities of TTC and take all other necessary or desirable actions to
cause the size of the Board of Directors of TTC to be established at the
number of members determined by the Equity Investor and to cause designees
of the Equity Investor representing a majority of the Board of Directors to
be elected to the Board of Directors of TTC;
(2) grants TTC and the Equity Investor a right of first refusal on any
proposed transfer of shares of capital stock of TTC held by Black & Decker
and any of the other stockholders;
(3) grants tag-along rights on certain transfers of shares of capital
stock of TTC;
(4) requires the stockholders to consent to a sale of TTC to an
independent third party if such sale is approved by certain holders of the
then outstanding shares of voting common stock of TTC; and
(5) except in certain instances, prohibits Black & Decker from
transferring any shares of capital stock of TTC for certain periods
following the consummation of the Recapitalization. Certain of the
foregoing provisions of the Stockholders Agreement will terminate upon the
consummation of an Initial Public Offering, a Qualified Public Offering or
an Approved Sale (as each is defined in the Stockholders Agreement).
EQUITY REGISTRATION RIGHTS AGREEMENT
Upon the consummation of the Recapitalization, TTC and all of its
stockholders, including the Equity Investor and Black & Decker, entered into the
Equity Registration Rights Agreement. Under the Equity Registration Rights
Agreement, the holders of a majority of the TTC Registrable Securities (as
defined in the Equity Registration Rights Agreement) and/or its affiliates have
the right, subject to certain conditions, to require TTC to register any or all
of their shares of common stock of TTC under the Securities Act at TTC's
expense. In addition, all holders of Registrable Securities are entitled to
request the inclusion of any shares of common stock of TTC subject to the Equity
Registration Rights Agreement in any registration statement filed by TTC at
TTC's expense whenever TTC proposes to register any of its common stock under
the Securities
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Act. In connection with all such registrations, TTC has agreed to indemnify all
holders of Registrable Securities against certain liabilities, including
liabilities under the Securities Act.
TRANSITION SERVICES AGREEMENT
In connection with the Recapitalization, True Temper entered into the
Transition Services Agreement with Black & Decker. In accordance with the terms
of the Transition Services Agreement, Black & Decker has agreed to provide a
variety of services, including payroll and financial accounting for True
Temper's foreign operations, among others, at prices set forth in the Transition
Services Agreement for a period of up to 12 months after the closing date.
CORPORATE EXPENSE ALLOCATION
True Temper received certain services provided by Black & Decker that
include cash management, tax reporting, risk management and internal audit.
Allocated expenses for such services, amounting to $1.3 million, $0.7 million
and $0.9 million for 1995, 1996 and 1997, respectively, have been included in
the accompanying statements of operating income. Charges for these corporate
services were based upon a general allocation methodology determined by Black &
Decker and were used to allocate all corporate overhead expenses to Black &
Decker's operating divisions. The charges have not necessarily been allocated on
a basis which approximates True Temper's estimated usage of such services as a
stand-alone entity. The corporate expense allocation also includes the
allocation of $0.4 million and $0.1 million in 1995 and 1996, respectively,
which primarily consisted of salaries for additional management personnel. Group
management was disbanded in early 1996.
CORPORATE PASS-THROUGH CHARGES
Black & Decker provided certain common services for True Temper and other
Black & Decker affiliates, including group self-insurance programs and blanket
insurance coverage. Many of these services represent services provided by third
parties whereby Black & Decker incurred the cost of the service on behalf of
True Temper. Black & Decker charged True Temper for the estimated cost of these
services. The costs for these services and/or expenses have been allocated to
True Temper by Black & Decker based upon certain allocation methodologies
determined by Black & Decker. Accordingly, there is no assurance that the
amounts allocated for such items provided by Black & Decker would be indicative
of the actual amounts that True Temper would have incurred on a stand alone
basis.
MANAGEMENT SERVICES AGREEMENT
In connection with the Recapitalization, True Temper entered into a
Management Services Agreement with Cornerstone. In accordance with this
agreement, Cornerstone has agreed to provide:
(1) general management services;
(2) assistance with the identification, negotiation and analysis of
acquisitions and dispositions;
(3) assistance with the negotiation and analysis of financial alternatives;
and
(4) other services agreed upon by True Temper and Cornerstone.
In exchange for such services, Cornerstone or its nominee receives:
(1) an annual advisory fee of $0.5 million payable quarterly, plus
reasonable out-of-pocket expenses;
(2) a transaction fee in an amount equal to 1.0% of the aggregate
transaction value in connection with the consummation of any material
acquisition, divestiture, financing or refinancing by True Temper or
any of its subsidiaries; and
(3) a one-time transaction fee of $3.0 million upon the consummation of the
Recapitalization.
These terms of the Management Services Agreement are, in our opinion, as
fair and equitable to True Temper as those that could have been obtained from
arms-length negotiations with third parties. The Management Services Agreement
has an initial term of five years, subject to automatic one-year extensions
unless we or Cornerstone provides written notice of termination. The annual
advisory fee of $0.5 million is an obligation of ours and is also contractually
subordinated to the notes and the Senior Credit Facilities.
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<PAGE> 50
DESCRIPTION OF SENIOR CREDIT FACILITIES
As part of the Transactions, we entered into the Senior Credit Facilities
with a syndicate of financial institutions for which Donaldson, Lufkin &
Jenrette Securities Corporation acted as the arranger and DLJ Capital Funding,
Inc. acted as the syndication agent. The following is a summary of the material
terms and conditions of the Senior Credit Facilities and is subject to the
detailed provisions of the Senior Credit Facilities and the various related
documents entered into in connection with it.
Loans; Interest Rates. The Senior Credit Facilities consist of up to a
$20.0 million six-year non-amortizing revolving credit facility and term loans
in an aggregate principal amount of $37.5 million, consisting of a $10.0 million
term A loan due 2004 and a $27.5 million term B loan due 2005. The borrowings
under the Senior Credit Facilities, together with the aggregate gross proceeds
from the Bridge Note and the Seller Note, the Equity Investor Contribution and
the Retained Equity were used to consummate the Recapitalization and the
acquisition of Grafalloy and to pay related fees and expenses. In addition, the
Senior Credit Facilities provide financing for future working capital, capital
expenditures and other general corporate purposes.
The revolving bank facility is available on a revolving basis during the
period commencing on the date of the closing and ending on the date that is six
years after the date of the closing, subject to a borrowing base. True Temper
borrowed $7.5 million under the term loans primarily to fund the acquisition of
Grafalloy. At our option, loans made under the revolving bank facility bear
interest at either
(1) the Alternate Base Rate plus a margin of 1.00%, or
(2) the reserve-adjusted LIBO rate plus a margin of 2.25%.
The entire amount of the term loans was drawn in connection with the
Transactions and the acquisition of Grafalloy; and, at our option, the term
loans bear interest at either
(1) the Alternate Base Rate plus a margin of 1.00% in the case of the term
A loan and 1.25% in the case of the term B loan, or
(2) the reserve-adjusted LIBO rate plus a margin of 2.25% in the case of
the term A loan and 2.50% in the case of the term B loan;
provided that, commencing six months after the closing of the Senior Credit
Facilities, the applicable margins for the revolving credit facility and the
term A loan will be subject to a performance-based grid and may be adjusted
pursuant thereto.
Repayment. Revolving loans may be borrowed, repaid and reborrowed from
time to time until six years after the closing of the Senior Credit Facilities.
The term loan may be repaid at any time but must be repaid in full eight years
after the closing of the Senior Credit Facilities.
Security. The revolving credit facility is secured by a first-priority
lien and the term loan is secured by a second-priority lien on all of our
capital stock and substantially all of property and assets (tangible and
intangible) and each of our U.S. subsidiaries, including, without limitation,
all intercompany indebtedness, and all capital stock (or similar equity
interests) of each of our direct and indirect subsidiaries, whenever acquired
and wherever located; provided, however, that no more than 65% of the capital
stock or similar equity interests of non-U.S. subsidiaries is required to be
pledged as security in the event that a pledge of a greater percentage results
in material increased tax or similar liabilities for us and our subsidiaries on
a consolidated basis or violate applicable law.
Prepayments. In addition, the Senior Credit Facilities provide for
mandatory repayments, subject to certain exceptions, of the term loan, and
reductions in the revolving credit facility, based on certain net asset sales
outside the ordinary course of business of True Temper and its subsidiaries, the
net proceeds of certain debt and equity issuances, and excess cash flow.
Outstanding loans under the Senior Credit Facilities are voluntarily
pre-payable without penalty; provided, however, that LIBO rate breakage costs,
if any, are borne by us.
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Conditions and Covenants. The obligations of the lenders under the Senior
Credit Facilities are subject to the satisfaction of certain conditions
precedent customary for similar bank facilities or otherwise appropriate under
the circumstances. We and each of our subsidiaries are subject to certain
negative covenants contained in the Senior Credit Facilities, including without
limitation covenants that restrict:
(1) the incurrence of additional indebtedness and other obligations and the
granting of additional liens;
(2) mergers, consolidations, amalgamations, liquidations, dissolutions and
dispositions of assets;
(3) investments, loans and advances;
(4) dividends, stock repurchases and redemptions;
(5) prepayment or repurchase of subordinated indebtedness and amendments to
certain agreements governing indebtedness, including the Indenture and
the notes;
(6) engaging in transactions with affiliates; and
(7) sales and leasebacks.
The Senior Credit Facilities also contain customary affirmative covenants,
including compliance with environmental laws, maintenance of corporate existence
and rights, maintenance of insurance, property and interest rate protection,
financial reporting, inspection of property, books and records, and the pledge
of additional collateral and guarantees from new subsidiaries. In addition, the
Senior Credit Facilities require us to maintain a minimum interest coverage
ratio, a minimum fixed charge coverage ratio, minimum EBITDA (as defined
therein) and a maximum leverage ratio. Certain of these financial, negative and
affirmative covenants are more restrictive than those set forth in the
Indenture.
Events of Default. The Senior Credit Facilities also include events of
default that are typical for senior bank facilities and appropriate in the
context of the Transactions, including, without limitation, nonpayment of
principal, interest, fees or reimbursement obligations with respect to letters
of credit, violation of covenants, inaccuracy of representations and warranties
in any material respect, cross default to certain other indebtedness and
agreements, bankruptcy and insolvency events, material judgments and
liabilities, defaults or judgements under ERISA and change of control. The
occurrence of any of such events of default could result in acceleration of our
obligations under the Senior Credit Facilities and foreclosure on the collateral
securing such obligations, which could have material adverse results to holders
of the notes.
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DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions."
We will issue the exchange notes under the terms of the Indenture (the
"Indenture") dated as of November 23, 1998 between us and United States Trust
Company of New York, as trustee (the "Trustee"). The terms of the exchange notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act").
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture and the Registration Rights Agreement because they, and not
this description, define your rights as holders of these exchange notes. The
Indenture and the Registration Rights Agreement are incorporated by reference
into this prospectus.
BRIEF DESCRIPTION OF THE NOTES
THE NOTES
These exchange notes or "notes":
- are general unsecured obligations of True Temper;
- are subordinated in right of payment to all of our Senior Debt; and
- are senior or pari passu in right of payment to all of our existing and
future subordinated Indebtedness.
PRINCIPAL, MATURITY AND INTEREST
We will issue the notes with a maximum aggregate principal amount of $150.0
million, of which $100.0 million has been issued on the date of original
issuance. We will issue the notes in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on December 2008.
Interest on these notes will accrue at the rate of 10.875% per annum and
will be payable semi-annually in arrears on June 1 and December, commencing on
June 1, 1999. We will make each interest payment to the holders of record of
these notes on the immediately preceding May 15 and November 15.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Additional notes may be issued from time to time after the exchange offer,
subject to the provisions of the Indenture described below under the caption
"Material Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock." The notes offered hereby and any additional notes subsequently issued
under the Indenture would be treated as a single class for all purposes under
the Indenture, including, without limitation, waivers, amendments, redemptions
and offers to purchase. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The interest rate on the notes is subject to increase if this registration
statement is not declared effective on a timely basis or if certain other
conditions are not satisfied, all as further described under the caption
"--Registration Rights; Liquidated Damages." All references herein to interest
on the notes shall include any such Liquidated Damages that may be payable.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a Holder has given us wire transfer instructions, we will make all
principal, premium and interest payments on those notes in accordance with those
instructions. All other payments on these notes will be made at the office or
agency of the Paying Agent and Registrar within the City and State of New York
unless we elect to make interest payments by check mailed to the Holders at
their address set forth in the register of Holders.
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PAYING AGENTS AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the Holders of notes, and
we may act as Paying Agent or Registrar.
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 we may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are 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.
SUBORDINATION
The payment of principal of, premium if any, and interest on these notes
will be subordinated to the prior payment in full of all our Senior Debt.
The holders of Senior Debt will be entitled to receive payment in full in
cash of all amounts due or to become due in respect of Senior Debt before the
Holders of notes will be entitled to receive any payment with respect to the
notes (except that Holders of notes may receive Reorganization Securities), in
the event of any distribution to our creditors in any Insolvency or Liquidation
Proceeding with respect to True Temper. Upon any such Insolvency or Liquidation
Proceeding, any payment or distribution of our assets of any kind or character,
whether in cash, property or securities (other than Reorganization Securities),
to which the Holders of the notes or the Trustee would be entitled will be paid
by us or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the Holders of the notes
or by the Trustee if received by them, directly to the holders of Senior Debt
(pro rata to such holders on the basis of the amounts of Senior Debt held by
such holders) or their Representative or Representatives. Any such payment or
distribution will be applied to the payment of the Senior Debt remaining unpaid
until all such Senior Debt has been paid in full in cash, after giving effect to
any concurrent payment, distribution or provision of the Senior Debt to or for
the holders of Senior Debt.
Except in Reorganization Securities, we also may not make any payment in
respect of the notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing;
or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Credit Agent or the holders or the
Representative of any Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of
(a) the date on which such nonpayment default is cured or waived,
(b) 179 days after the date on which the applicable Payment Blockage
Notice is received or
(c) the date on which the Trustee receives written notice from the
Credit Agent or the Representative for such Designated Senior Debt,
as the case may be, rescinding the applicable Payment Blockage
Notice, unless the maturity of any Designated Senior Debt has been
accelerated.
No new Payment Blockage Notice may be delivered unless and until 181 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
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No event of 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.
As a result of the subordination provisions described above, in the event
of a bankruptcy liquidation or reorganization of True Temper, Holders of notes
may recover less ratably than our creditors who are holders of Senior Debt. See
"Risk Factors--Subordination," which describes how the right of Holders to
receive payments on the notes is junior to all of our existing and future
indebtedness. We will be subject to certain financial tests limiting the amount
of additional Indebtedness, including Senior Debt, that we can incur. See
"--Material Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
OPTIONAL REDEMPTION
At any time prior to December 1, 2001, we may on one or more occasions
redeem up to 35% of the aggregate principal amount of notes originally issued
under the Indenture at a redemption price of 110.875% of the principal amount
thereof, plus accrued and unpaid interest to the redemption date, with the net
cash proceeds of one or more Public Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes remains
outstanding immediately after the occurrence of such redemption,
excluding notes held by us; and
(2) the redemption must occur within 90 days of the date of the closing of
such Public Equity Offering.
Except in accordance with to the preceding paragraphs, we will not have the
option of redeeming the notes prior to December 1, 2003.
After December 1, 2003, we may redeem all or a part of these notes, 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 December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003............................................ 105.438%
2004............................................ 103.625%
2005............................................ 101.813%
2006 and thereafter............................. 100.000%
=======
</TABLE>
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the Holder of the note upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
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MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders," we
are not required to make mandatory redemption or sinking fund payments with
respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of notes will have the right to
require us to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's notes pursuant to the Change of Control
Offer. In the Change of Control Offer, we will offer a Change of Control Payment
in cash equal to 101% of the aggregate principal amount of notes repurchased
plus accrued and unpaid interest, if any, to the date of purchase. Within 60
days following any Change of Control, we will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
and offering to repurchase notes on the Change of Control Payment Date, in
accordance with the procedures required by the Indenture and described in such
notice. We will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the Indenture
relating to such Change of Control Offer, we will comply with the applicable
securities laws and regulations and shall not be deemed to have breached our
obligations described in the Indenture.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all notes or portions of notes properly tendered in
accordance with the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all notes or portions of notes so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions of notes that we are purchasing.
The Paying Agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for the 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; on the condition that the new note will be in a principal
amount of $1,000 or an integral multiple of $1,000. We will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The provisions described above that require us to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the notes to require us to repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
We will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer that we have made and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
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 our assets and the assets of our Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of notes to require us to repurchase such
Notes as a result of a sale, lease, transfer, conveyance or other disposition of
less
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than all of our assets and the assets of our Subsidiaries taken as a whole to
another Person or group may be uncertain.
ASSET SALES
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) we or our Restricted Subsidiary, as the case may be, receive
consideration at the time of an Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by our Board of Directors and
evidenced by a resolution of our Board of Directors set forth in an
Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration received by us or by our Restricted
Subsidiary is in the form of cash or Cash Equivalents. For purposes of
this provision, each of the following shall be deemed to be cash:
(a) any of our liabilities as shown on our or our Restricted
Subsidiary's most recent balance sheet, or any liabilities of any of
our Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or any
guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases us or our
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by us or any of
our Restricted Subsidiary from such transferee that we or our
Restricted Subsidiary convert into cash or Cash Equivalents, to the
extent of the cash received in that conversion, within 180 days.
The 75% limitation referred to in clause (3) above will not apply to any
Asset Sale in which the cash or Cash Equivalents portion of the consideration
received, determined in accordance with the preceding proviso, is equal to or
greater than what the after-tax proceeds would have been had such Asset Sale
complied with the 75% limitation.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
we or the Restricted Subsidiary may apply the Net Proceeds:
(1) to repay or repurchase our Senior Debt or that of any Restricted
Subsidiary;
(2) to acquire a controlling interest in another Permitted Business;
(3) to make a capital expenditure in a Permitted Business; or
(4) to acquire other assets in a Permitted Business.
Pending the final application of any such Net Proceeds, we may temporarily
reduce the revolving Indebtedness under the Senior Credit Facilities or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, we will be required
to make an offer to all Holders of notes (an "Asset Sale Offer") to purchase the
maximum principal amount of notes that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
principal amount plus accrued and unpaid interest, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, we may use such Excess Proceeds for general
corporate purposes. If the aggregate principal amount of notes tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall
select the notes to be purchased on a pro rata basis. Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
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MATERIAL COVENANTS
RESTRICTED PAYMENTS
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly make Restricted Payments. The making of a "Restricted
Payments" is any of the following:
(1) the declaration or payment of any dividend or the making of any other
payment or distribution on account of ours or any of our Restricted
Subsidiaries' Equity Interests (including, without limitation, any
payment on such Equity Interests in connection with any merger or
consolidation in which we are involved) or to the direct or indirect
holders of our or any of our Restricted Subsidiaries' Equity Interests
in their capacity as holders of our or any Restricted Subsidiaries
Equity Interests, other than dividends or distributions payable in
Equity Interests, excluding Disqualified Stock, of True Temper;
(2) the purchase, redemption or other acquisition or retirement for value,
including without limitation, in connection with any merger or
consolidation in which we are involved, of any of our Equity Interests
or those of any direct or indirect parent of True Temper, other than
any such Equity Interests that we own or that any of our Restricted
Subsidiary owns;
(3) the making of any payment on or with respect to, or the purchase,
redemption, defeasance or otherwise acquisition or retirement for value
of any Indebtedness that is subordinated to the notes, except scheduled
payments of interest or principal at Stated Maturity thereof; or
(4) the making of any Restricted Investment, unless, at the time of and
after giving effect to such Restricted Payment:
(1) no Default or Event of occurred and be continuing or would occur as
a consequence thereof;
(2) we would, after giving pro forma effect to the Restricted Payment as
if it had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described below under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by us or our Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments
permitted by clauses (1), (2), (3), (4), (8) (other than those
permitted by clause (6) of the definition of "Permitted
Investments") (9), (12), (13), (14), and (15) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of our Consolidated Net Income for the period, taken as one
accounting period, from the beginning of the first full fiscal
quarter commencing after the date of the Indenture to the end of
our most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit, plus
(b) 100% of the aggregate net proceeds received by us as a
contribution to our capital or received by us from the issue or
sale since the date of the Indenture of our Equity Interests
other than Disqualified Stock, or of True Temper's Disqualified
Stock or debt securities that have been converted into such
Equity Interests, other than Equity Interests, Disqualified Stock
or debt securities sold to a Restricted Subsidiary of True
Temper, and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock, plus
(c) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (i) the cash return
of capital with respect to such Restricted Investment less the
cost of disposition, if any, and (ii) the initial amount of such
Restricted Investment, plus
(d) if any Unrestricted Subsidiary (i) is redesignated as a
Restricted Subsidiary, the fair market value of such redesignated
Subsidiary as determined in good faith by the Board of
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Directors as of the date of its redesignation or (ii) pays us or
any of our Restricted Subsidiaries any cash dividends or cash
distributions, 100% of any such cash dividends or cash
distributions made after the date of the Indenture.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration if at the date of declaration such payment would have
complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness or Equity Interests of True Temper in
exchange for, or out of the net cash proceeds of the substantially
concurrent sale or issuance, other than to any of our Restricted
Subsidiaries, of, other Equity Interests of True Temper (other than
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of our
subordinated Indebtedness or that of any Restricted Subsidiary with the
net cash proceeds from an incurrence of Permitted Refinancing
Indebtedness;
(4) the payment of any dividend by any of our Restricted Subsidiaries to
the holders of our Equity Interests on a pro rata basis;
(5) the declaration or payment of dividends to TTC for expenses incurred by
TTC in its capacity as a holding company or for services rendered on
our behalf, including, without limitation,
(a) customary salary, bonus and other benefits payable to officers,
employees and consultants of TTC,
(b) fees and expenses paid to members of the Board of Directors of TTC,
(c) general corporate overhead expenses of TTC,
(d) management, consulting or advisory fees paid to TTC or to permit TTC
to pay management, consulting or advisory fees, in each case, not to
exceed $1.5 million in any fiscal year, and
(e) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of TTC or True Temper held by any
member or former member of TTC's, or by any of our Restricted
Subsidiaries' management pursuant to any management equity
subscription agreement, stockholders agreement or stock option
agreement in effect as of the date of the Indenture.
The declaration or payment of dividends to TTC for its expenses as set
forth in clauses (a) through (e) above is subject to the following conditions:
(a) with respect to clauses (a) through (c) above, the aggregate amount
paid does not exceed $2.0 million in any fiscal year; and
(b) with respect to clause (e) above, the aggregate price paid shall not
exceed (i) $1.0 million in any calendar year (with unused amounts in
any calendar year being carried over to succeeding calendar years
subject to a maximum (without giving effect to clause (ii)) of $2.0
million in any calendar year, plus (ii) the aggregate cash proceeds
received by True Temper from any issuance or reissuance of Equity
Interests by TTC to members of our management and that of our
Restricted Subsidiaries and the proceeds to us of any "key-man" life
insurance policies; provided that the cancellation of Indebtedness
owing to us from members of our management or that of any Restricted
Subsidiary in connection with such repurchase of Equity Interests
will not be deemed to be a Restricted Payment;
(6) Investments in any Person, other than True Temper or a Restricted
Subsidiary, engaged in a Permitted Business in an amount not to exceed
$5.0 million;
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(7) other Investments in Unrestricted Subsidiaries having an aggregate fair
market value, taken together with all other Investments made pursuant
to this clause (7) that are at that time outstanding, not to exceed
$3.0 million;
(8) Permitted Investments;
(9) the declaration or payment of dividends or other payments to TTC
pursuant to any tax sharing agreement or other arrangement among TTC or
other members of the affiliated corporations of which TTC is the common
parent;
(10) other Restricted Payments in an aggregate amount not to exceed $7.5
million;
(11) so long as no Default or Event of Default has occurred and is
continuing, the declaration and payment of dividends on Disqualified
Stock, the incurrence of which satisfied the covenant set forth in
"--Incurrence of Indebtedness and Issuance of Preferred Stock" below;
(12) the declaration or payment of dividends to TTC to satisfy any required
purchase price adjustment payment arising out of the Recapitalization;
(13) the declaration or payment of dividends or other payments to TTC in an
amount not to exceed $1.0 million to satisfy redemption obligations in
respect of Equity Interests of TTC that are held by management of TTC
or True Temper, provided that such amount shall not be applied against
expenses incurred pursuant to clause (5)(e) above;
(14) repurchases of Equity Interests deemed to occur upon the exercise of
stock options if such Equity Interests represent a portion of the
exercise price thereof; and
(15) distributions to TTC to fund the Transactions.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments and those of
our Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated will be deemed to be Restricted Payments at the time of
such designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All such outstanding Investments
will be deemed to constitute Investments in an amount equal to the fair market
value of such Investments at the time of such designation as determined in good
faith by the Board of Directors. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments other than cash shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by us or such Subsidiary, as the case may
be, pursuant to the Restricted Payment. The fair market value of any non-cash
Restricted Payment shall be determined in good faith by the Board of Directors
whose resolution shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, we shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant were
computed, together with a copy of any fairness opinion or appraisal required by
the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to any
Indebtedness including Acquired Debt, and we will not issue any Disqualified
Stock and will not permit any of our Restricted Subsidiaries to issue any shares
of preferred stock; provided, however, that we may incur Indebtedness including
Acquired Debt, or issue Disqualified Stock or preferred stock and our Restricted
Subsidiaries may incur Indebtedness, including Acquired Debt, and issue
Disqualified Stock or preferred stock
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if the Fixed Charge Coverage Ratio for our 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 2 to 1, determined on a
pro forma basis, including a pro forma application of the net proceeds
therefrom, as if the additional Indebtedness had been incurred, or the
Disqualified Stock or preferred stock had been issued, as the case may be, at
the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by us or by any of our Restricted Subsidiaries of
Indebtedness and letters of credit pursuant to the Senior Credit
Facilities;
(2) the incurrence by us and our Restricted Subsidiaries of Existing
Indebtedness;
(3) the incurrence by us of Indebtedness represented by the notes issued on
the issue date;
(4) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in our
business or the business of such Restricted Subsidiary (whether through
the direct purchase of assets or the Capital Stock of any Person owning
such Assets), in an aggregate principal amount or accreted value, as
applicable, not to exceed $110.0 million;
(5) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was incurred by
the prior owner of such assets or such Restricted Subsidiary prior to
such acquisition by us or one of our Subsidiaries and was not incurred
in connection with, or in contemplation of, such acquisition by us or
one of our Subsidiaries; provided further that the principal amount (or
accreted value, as applicable) of such Indebtedness, together with any
other outstanding Indebtedness incurred pursuant to this clause (5),
does not exceed $7.5 million;
(6) the incurrence by us or any of our Restricted Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(7) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our Restricted
Subsidiaries; provided, however, that:
(a) if we are the obligor on such Indebtedness, such Indebtedness must
be expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the notes; and
(b) (i)any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
True Temper or a Restricted Subsidiary and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either
True Temper or a Restricted Subsidiary shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by True
Temper or such Restricted Subsidiary, as the case may be;
(8) the incurrence by us or any of our Restricted Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging:
(a) interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding;
(b) exchange rate risk with respect to any agreement or Indebtedness of
such Person payable in a currency other than U.S. dollars; or
(c) commodities risk relating to commodities agreements, entered into in
the ordinary course of business, for the purchase of raw material
used by us and our Restricted Subsidiaries;
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(9) the Guarantee by us or any of our Restricted Subsidiaries of
Indebtedness of True Temper or a Restricted Subsidiary of True Temper
that was permitted to be incurred by another provision of this
covenant;
(10) the incurrence by our Unrestricted Subsidiaries of Non-Recourse Debt;
provided, however, that if any such Indebtedness ceases to be
Non-Recourse Debt of an Unrestricted Subsidiary, such event will be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of True Temper;
(11) Indebtedness incurred by us or any of our Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of
credit issued in the ordinary course of business, including without
limitation to letters of credit in respect to 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;
(12) Indebtedness arising from our agreements or those of 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, asset or Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition; provided that (a) such
Indebtedness is not reflected on our balance sheet or that of any
Restricted Subsidiary (contingent obligations referred to in a
footnote or footnotes 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 (a)) and (b) the
maximum assumable liability in respect of such Indebtedness shall at
no time exceed the gross proceeds including non-cash proceeds (the
fair market value of such non-cash proceeds being measured at the time
received and without giving effect to any such subsequent changes in
value) actually received by us and/or such Restricted Subsidiary in
connection with such disposition;
(13) obligations in respect of performance and surety bonds and completion
guarantees provided by us or any Restricted Subsidiary in the ordinary
course of business;
(14) guarantees incurred in the ordinary course of business in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
and
(15) the incurrence by us or any of our Restricted Subsidiaries of
additional Indebtedness, including Attributable Debt incurred after
the date of the Indenture, in an aggregate principal amount, or
accreted value, as applicable, at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (15),
not to exceed $10.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, we
will be permitted to classify such item of Indebtedness in any manner that
complies with this covenant. In addition, we may, at any time, change the
classification of an item of Indebtedness (or any portion thereof) to any other
clause or to the first paragraph hereof provided that we would be permitted to
incur such item of Indebtedness (or portion thereof) pursuant to such other
clause or the first paragraph hereof, as the case may be, at such time of
reclassification. Accrual of interest, accretion or amortization of original
issue discount and the accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
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LIENS
We will not, and will not permit any of our Restricted Subsidiaries to,
create, incur, assume or otherwise cause or suffer to exist or become effective
any Lien of any kind securing trade payables or Indebtedness that does not
constitute Senior Debt, other than Permitted Liens, upon any of their property
or assets, now owned or hereafter acquired unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinated or junior in right of payment to the notes, the notes are
secured on a senior basis to the obligations so secured until such time
as such obligations are no longer secured by a Lien; and
(2) in all other cases, the notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are
no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) (a) pay dividends or make any other distributions to True Temper or any
of its Restricted Subsidiaries (i) on its Capital Stock or (ii)
with respect to any other interest or participation in, or measured
by, its profits; or
(b) pay any Indebtedness owed to True Temper or any of its Restricted
Subsidiaries;
(2) make loans or advances to True Temper or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to True Temper or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the Indenture;
(2) the Senior Credit Facilities as in effect as of the date of the
Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole as determined
in the good faith judgment of our Board of Directors, with respect to
such dividend and other payment restrictions than those contained in
the Senior Credit Facilities as in effect on the date of the
Indenture;
(3) the Indenture and the notes;
(4) any applicable law, rule, regulation or order;
(5) any instrument of a Person acquired by us or any of our Restricted
Subsidiaries as in effect at the time of such acquisition, except to
the extent incurred in connection with or in contemplation of such
acquisition, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding
paragraph;
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(8) Permitted Refinancing Indebtedness, provided that the material
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, in the good faith
judgment of our board of directors, taken as a whole, to the Holders
of notes than those contained in the agreements governing the
Indebtedness being refinanced;
(9) 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;
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business; and
(11) other Indebtedness or Disqualified Stock of Restricted Subsidiaries
permitted to be incurred subsequent to the Issue Date pursuant to the
provisions of the covenant described under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock."
MERGER, CONSOLIDATION, OR SALE OF ASSETS
We may not: (1) consolidate or merge with or into another Person, whether
or not we are the surviving corporation; or (2) sell, assign, transfer, convey
or otherwise dispose of all or substantially all of our properties or assets, in
one or more related transactions, to another Person unless:
(1) either: (a) we are the surviving corporation; or (b) the Person formed
by or surviving any such consolidation or merger or to which such sale,
assignment, transfer, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia;
(2) the entity or Person formed by or surviving any such consolidation or
merger or the entity or Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes
all of our obligations under the notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) we or the entity or Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made:
(a) will, after giving pro forma effect to the transaction as if it had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; or
(b) would, together with our Restricted Subsidiaries, have a higher
Fixed Charge Coverage Ratio immediately after such transaction
(after giving pro forma effect to the transaction as if it had
occurred at the beginning of the applicable four-quarter period)
than our Fixed Charge Coverage Ratio and that of our subsidiaries
immediately prior to the transaction.
The preceding clause (4) will not prohibit:
(a) a merger between us and a Wholly Owned Subsidiary; or
(b) a merger between us and an Affiliate incorporated solely for the
purpose of reincorporating us in another state of the United States;
so long as, in each case, the amount of our Indebtedness and the Indebtedness of
our Restricted Subsidiaries is not increased thereby.
In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions, to any
other Person. This "Merger, Consolidation, or Sale of Assets"
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covenant will not be applicable to a sale, assignment, transfer, conveyance or
other disposition of assets between or among us and any of our Wholly Owned
Restricted Subsidiaries.
TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of our
or their 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, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to us
or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by us or such Restricted
Subsidiary with an unrelated Person; and
(2) we deliver to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (1) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the
Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess
of $7.5 million, an opinion as to the fairness to the Holders of
such Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) customary directors' fees, indemnification or similar arrangements or
any employment agreement or other compensation plan or arrangement to
which we or any of our Restricted Subsidiaries is a party in the
ordinary course of business and consistent with our past practice or
that of such Restricted Subsidiary;
(2) transactions between or among us and/or our Restricted Subsidiaries;
(3) Permitted Investments and Restricted Payments that are permitted by the
provisions of the Indenture described above under the caption
"--Restricted Payments";
(4) customary loans, advances, fees and compensation paid to, and indemnity
provided on behalf of our officers, directors, employees or consultants
or those of any of our Restricted Subsidiaries;
(5) transactions pursuant to any contract or agreement in effect on the
date of the Indenture as the same may be amended, modified or replaced
from time to time so long as any such amendment, modification or
replacement is no less favorable to us and our Restricted Subsidiaries
than the contract or agreement as in effect on the Issue Date;
(6) insurance arrangements among TTC and its Subsidiaries that are not less
favorable to us or any of our Subsidiaries than those that are in
effect on the date hereof provided such arrangements are conducted in
the ordinary course of business consistent with past practices;
(7) payments under any tax sharing agreement or other arrangement among TTC
and other members of the affiliated group of corporations of which
either is the common parent; and
(8) payments in connection with the Transactions, including the payment of
fees and expenses.
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ANTI-LAYERING
We will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is both:
(1) subordinate or junior in right of payment to any Senior Debt; and
(2) senior in any respect in right of payment to the notes.
SALE AND LEASEBACK TRANSACTIONS
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into any sale and leaseback transaction; provided that we or any
Restricted Subsidiary may enter into a sale and leaseback transaction if:
(1) we or such Restricted Subsidiary could have (a) incurred Indebtedness
in an amount equal to the Attributable Debt relating to such sale and
leaseback transaction pursuant to the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to
the covenant described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee, of the property that is the subject of such
sale and leaseback transaction; and
(3) the transfer of assets in such sale and leaseback transaction is
permitted by, and we apply the proceeds of such transaction in
compliance with, the covenant described above under the caption
"--Asset Sales."
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
We will not permit any Domestic Restricted Subsidiary, directly or
indirectly, to incur Indebtedness or Guarantee or pledge any assets to secure
the payment of any other Indebtedness of True Temper or any Restricted
Subsidiary unless either such Restricted Subsidiary (1) is a Subsidiary
Guarantor or (2) simultaneously executes and delivers a supplemental indenture
to the Indenture and becomes a Subsidiary Guarantor, which Guarantee shall (a)
with respect to any Guarantee of Senior Debt, be subordinated in right of
payment on the same terms as the notes are subordinated to such Senior Debt and
(b) with respect to any Guarantee of any other Indebtedness, be senior to or
pari passu with such Restricted Subsidiary's other Indebtedness or Guarantee of
or pledge to secure such other Indebtedness.
Notwithstanding the preceding paragraph, any such Guarantee by a Restricted
Subsidiary of the notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of True Temper, of all of
our stock in, or all or substantially all the assets of, such Restricted
Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture.
ADDITIONAL GUARANTEES
If we acquire or create a Domestic Restricted Subsidiary after the date of
the Indenture, or if any of our Subsidiaries becomes a Domestic Restricted
Subsidiary, then such newly acquired or created Domestic Restricted Subsidiary
shall become a Guarantor and execute a Supplemental Indenture and deliver an
opinion of counsel, in accordance with terms of the Indenture.
BUSINESS ACTIVITIES
We will not, and will not permit any Restricted Subsidiary to, engage in
any business other than a Permitted Business, except to such extent as would not
be material to us and our Restricted Subsidiaries taken as a whole.
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REPORTS
Whether or not required by the Commission, so long as any notes are
outstanding, we will furnish to the Holders of notes, within the time periods
specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if we were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by our certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the Commission,
we will file a copy of all the information and reports referred to in clauses
(1) and (2) above with the Commission for public availability within the time
periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, we have
agreed that, for so long as any notes remain outstanding, we will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes
whether or not prohibited by the subordination provisions of the
Indenture;
(2) default in payment when due of the principal of or premium, if any, on
the notes, whether or not prohibited by the subordination provisions of
the Indenture;
(3) our failure to comply with the provisions described under the caption
"--Change of Control";
(4) our failure for 30 days after notice from the Trustee or holders of at
least 25% in principal amount of the notes then outstanding to comply
with the provisions described under the captions "--Asset Sales,"
"--Restricted Payments" or "--Incurrence of Indebtedness and Issuance
of Preferred Stock";
(5) our failure for 60 days after notice from the Trustee or holders of at
least 25% in principal amount of the notes then outstanding voting as a
single class to comply with any of its other agreements in the
Indenture or the notes;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by us or any of our Restricted
Subsidiaries (or the payment of which is guaranteed by us or any of our
Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any, on
such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more;
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(7) our failure or any of our Subsidiaries' failure to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days;
(8) certain events of bankruptcy or insolvency with respect to True Temper
or any of its Restricted Subsidiaries that are Significant
Subsidiaries.
In the event of a declaration of acceleration of the notes because an Event
of Default has occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (6) of the preceding paragraph, the declaration
of acceleration of the notes shall be automatically annulled if the holders of
any Indebtedness described in clause (6) of the preceding paragraph have
rescinded the declaration of acceleration in respect of such Indebtedness within
30 days of the date of such declaration and if:
(1) the annulment of the acceleration of notes would not conflict with any
judgment or decree of a court of competent jurisdiction; and
(2) all existing Events of Default, except nonpayment of principal or
interest on the notes that became due solely because of the
acceleration of the notes, have been cured or waived.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately; provided, that so long
as any Indebtedness permitted to be incurred pursuant to the Senior Credit
Facilities shall be outstanding, such acceleration shall not be effective until
the earlier of:
(1) an acceleration of any such Indebtedness under the Senior Credit
Facilities, or
(2) five business days after receipt by us of written notice of such
acceleration.
Notwithstanding the preceding paragraph, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to True
Temper or any of its Subsidiaries, all outstanding notes will become due and
payable without further action or notice.
Holders of 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 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 or interest) if it determines
that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on our behalf with the intention of
avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the notes pursuant to the optional redemption provisions of
the Indenture, an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law upon the acceleration of the notes.
If an Event of Default occurs prior to December 1, 2003 by reason of any willful
action or inaction taken or not taken by or on our behalf with the intention of
avoiding the prohibition on redemption of the notes prior to December 1, 2003,
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the notes.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
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, or the principal of, the notes.
We are required to deliver to the Trustee annually a statement regarding
compliance with the Indenture. Upon becoming aware of any Default or Event of
Default, we are required 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 True Temper,
or any Guarantor, as such, shall have any liability for any of our obligations
or those of the Guarantors under the notes, the Indenture, the
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Subsidiary Guarantees or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes and all obligations of the
Guarantors discharged with respect to their Subsidiary Guarantees ("Legal
Defeasance") except for:
(1) 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 from the trust referred to below;
(2) our obligations with respect to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen
notes and the maintenance of an office or agency for payment and money
for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
those covenants 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, 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:
(1) we must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of 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 on the outstanding notes on the stated maturity or on
the applicable redemption date, as the case may be, and we must specify
whether the notes are being defeased to maturity or to a particular
redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that (a) we have received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the
date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, subject to
customary assumptions and exclusions, the Holders of the outstanding
notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, we 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 federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
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(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which we or any
of our Subsidiaries is a party or by which we or any of our
Subsidiaries are bound;
(6) we must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by us with the intent of preferring the
Holders of notes over our other creditors with the intent of defeating,
hindering, delaying or defrauding creditors of True Temper or others;
and
(7) we must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, which opinion may be subject to customary assumptions and
exclusions, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
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 we may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are 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
With the consent of the Holders of not less than a majority in principal
amount of the notes at the time outstanding, we and Trustee are permitted to
amend or supplement the Indenture or any supplemental indenture or modify the
rights of the Holders; provided that without the consent of each Holder
affected, no amendment, supplement, modification or waiver may (with respect to
any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of or
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 the notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the Indenture relating to waivers
of past Defaults or the rights of Holders of notes to receive payments
of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders");
(8) make any change in the preceding amendment and waiver provisions; or
(9) release any guarantor from any of its obligations under its guarantee
of the notes or the Indenture, except in accordance with the terms of
the Indenture.
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In addition, any amendment to, or waiver of the provisions of Article 10 of
the Indenture relating to subordination that adversely affects the rights of the
Holders of notes will require the consent of the Holders of at least 75% in
aggregate principal amount of the notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of notes,
we and the Trustee may amend or supplement the Indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations to Holders of notes in
the case of a merger or consolidation or the sale of all or
substantially all of our assets;
(4) 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; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture
Act, to provide for the issuance of Additional Notes in accordance with
the limitations set forth in the Indenture or to allow any Subsidiary
to guarantee the notes.
CONCERNING THE TRUSTEE
If the Trustee, United States Trust Company of New York, becomes a creditor
of True Temper, the Indenture limits the Trustee's right to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man 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 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
Registration Rights Agreement without charge by writing to True Temper Sports,
Inc., 8275 Tournament Drive, Suite 200, Memphis, Tennessee 38125; Attention:
Vice President -- Finance and Administration.
BOOK-ENTRY, DELIVERY AND FORM
The notes sold to Qualified Institutional Buyers initially will be in the
form of one or more registered global notes without interest coupons
(collectively, the "144A Global Notes"). Upon issuance, the 144A Global Notes
will be deposited with the Trustee, as custodian for The Depository Trust
Company ("DTC"), in New York, New York, and registered in the name of DTC or its
nominee for credit to the accounts of DTC's Direct or Indirect Participants (as
defined below).
Beneficial interests in all 144A Global Notes, if any, will be subject to
certain restrictions on transfer and will bear a restrictive legend as described
under "Notice to Investors."
In addition, transfer of beneficial interests in the 144A Global Notes will
be subject to the applicable rules and procedures of DTC and its Direct or
Indirect Participants (including, if applicable, those of Euroclear and CEDEL),
which may change from time to time.
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The 144A Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the 144A Global Notes may be
exchanged for Notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in 144A Global Notes for Certificated Notes."
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised us 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 Direct Participants. The Direct Participants include
securities brokers and dealers (including DLJ), banks, trust companies, clearing
corporations and certain other organizations. 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"). Persons who are not Direct Participants may beneficially own
securities held by or on behalf of DTC only through the Direct Participants or
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Direct Participants and Indirect Participants.
DTC has also advised us that pursuant to procedures established by it:
(1) upon deposit of the 144A Global Notes, DTC will credit the accounts of
Direct Participants designated by DLJ with portions of the principal
amount of 144A Global Notes and
(2) ownership of such interests in the 144A Global Notes will be shown on,
and the transfer ownership thereof will be effected only through,
records maintained by DTC (with respect to Direct Participants) or by
Direct Participants and the Indirect Participants (with respect to
other owners of beneficial interests in the 144A Global Notes).
Investors in the 144A Global Notes may hold their interests therein
directly through DTC or indirectly through organizations such as Euroclear and
CEDEL. All interests in a 144A Global Note, including those held through
Euroclear or CEDEL, may be subject to the procedures and requirements of DTC.
Those interests held by Euroclear or CEDEL may also be subject to the procedures
and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities they own. This may limit or
curtail the ability to transfer beneficial interest in a 144A Global 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 144A Global 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 certificate evidencing such interests. For certain other
restrictions on the transferability of the notes, see "--Book-Entry, Delivery
and Form--Transfer of Interests in 144A Global Notes for Certificated Notes" and
"--Book-Entry, Delivery and Form--Exchanges of 144A Global Notes."
EXCEPT AS DESCRIBED IN "--TRANSFER OF INTERESTS IN 144A GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE 144A GLOBAL NOTES
WILL NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF 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, we and the Trustee will treat the persons
in whose names the notes are registered (including notes represented by 144A
Global Notes) as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Payments in respect of the
principal and premium, if any, and interest on 144A Global 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,
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neither us nor the Trustee, nor any agent of True Temper or the Trustee has or
will have any responsibility or liability for:
(1) any aspect of 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 144A Global 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 144A Global Note, or
(2) any other matter relating to the actions and practices of DTC or any of
its Direct Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the notes is to credit the accounts of the
relevant Direct Participants with the payment on the payment date, in amounts
proportionate to such Direct Participant's respective ownership interests in the
144A Global Notes as shown on DTC's records. Payments by Direct Participants and
Indirect Participants to the beneficial owners of notes will be governed by
standing instructions and customary practices between them and will not be the
responsibility of DTC, the Trustee or True Temper. Neither we nor the Trustee
will be liable for any delay by DTC or its Direct Participants in identifying
the beneficial owners of the notes, and we 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 notes for all purposes.
The 144A Global Notes will 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 who hold interests in the notes
through Euroclear and CEDEL will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described, cross-market transfers between Direct Participants in DTC, on
the one hand, and Indirect Participants, who hold interests in the notes through
Euroclear and CEDEL, on the other hand, will be effected by Euroclear's 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 and within their established deadlines. The established
deadlines are governed by Brussels time for Euroclear and UK time for CEDEL.
Euroclear or CEDEL, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant 144A Global Note in DTC, and making or receiving
payment in accordance with normal procedures for same-day fund settlement
applicable to DTC. Euroclear Participants and CEDEL Participants may not deliver
instructions directly to the depositaries for Euroclear or CEDEL.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds interests in the notes through Euroclear or CEDEL
purchasing an interest in a 144A Global Note from a Direct Participant in DTC
will be credited, and any such crediting will be reported to Euroclear or CEDEL
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 144A Global Note to a DTC Participant until the European business
day for Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised us that it will take any action permitted to be taken by a
Holder of notes only at the direction of one or more Direct Participants to
whose account DTC interests in the 144A Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the notes to which
such Direct Participant or Direct Participants have given direction. However, if
there is an Event of Default under the notes, DTC reserves the right to exchange
144A Global Notes for legended notes in certificated form, and to distribute
such notes to its Direct Participants.
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Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the 144A Global Notes among Direct
Participants, including 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. None of True Temper, DLJ or the Trustee will have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective Direct Participants and Indirect Participants of their respective
obligations under the rules and procedures governing any of their operations.
TRANSFER OF INTERESTS IN 144A GLOBAL NOTES FOR CERTIFICATED NOTES
A 144A Global Note is exchangeable for definitive notes in registered
certificated form if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the 144A Global Note and we thereupon fail to appoint a
successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act,
(2) we, at our option, notify the Trustee in writing that we elect to cause
the issuance of certificated notes, or
(3) there shall have occurred and be continuing to occur a Default or an
Event of Default with respect to the notes.
In addition, beneficial interests in a 144A Global Note may be exchanged
for certificated notes upon request but only upon at least 20 days' prior
written notice given to the Trustee by or on behalf of DTC in accordance with
customary procedures. In all cases, certificated notes delivered in exchange for
any 144A Global Note or beneficial interest therein will be registered in the
names, and issued in any approved denominations, requested by or on behalf of
the depositary in accordance with its customary procedures and will bear, in the
case of the 144A Global Notes, the restrictive legend referred to in "Notice to
Investors" unless we determine otherwise, in compliance with applicable law.
EXCHANGES OF 144A GLOBAL NOTES
Any beneficial interest in one of the 144A Global Notes that is transferred
to a person who takes delivery in the form of an interest in another 144A Global
Note will, upon transfer, cease to be an interest in such 144A Global Note and
become an interest in such other 144A Global Note. Accordingly, such person will
thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interests in such other 144A Global Note for as long as
it remains such an interest.
Transfers involving an exchange of a beneficial interest in a 144A Global
Note for a beneficial interest in another 144A Global Note will be effected by
DTC by means of an instruction originated by the Trustee through the DTC/Deposit
Withdraw at Custodian system. Accordingly, in connection with such transfer,
appropriate adjustments will be made to reflect a decrease in the principal
amount of the one 144A Global Note and a corresponding increase in the principal
amount of the other 144A Global Note, as applicable.
CERTIFICATED NOTES
Any person having a beneficial interest in the 144A Global Note may, upon
request to the Trustee, exchange such beneficial interest for notes in the form
of certificated notes. Upon any such issuance, the Trustee is required to
register such certificated notes in the name of, and cause the same to be
delivered to, such person or persons or the nominee of any such person. All such
certificated notes would be subject to the legend requirements described herein
under "Notice to Investors." In addition, if:
(1) we notify the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary and we are unable to locate a
qualified successor within 90 days, or
(2) we, at our option, notify the Trustee in writing that we elect to cause
the issuance of notes in the form of certificated notes under the
Indenture,
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then, upon surrender by the 144A Global Note Holder of its 144A Global Note,
notes in such form will be issued to each person that the 144A Global Note
Holder and the Depositary identify as being the beneficial owner of the related
notes.
Neither True Temper nor the Trustee will be liable for any delay by the
144A Global Note Holder or the Depositary in identifying the beneficial owners
of notes and we and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the 144A Global Note Holder or the Depositary
for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the notes represented by
the 144A Global Note, including principal, premium, if any, and interest, be
made by wire transfer of immediately available next day funds to the accounts
specified by the 144A Global Note Holder. With respect to certificated notes, we
will make all payments of principal, premium, if any, and interest, 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. We expect that secondary trading in the
certificated notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
We have entered into a Registration Rights Agreement with DLJ, dated as of
November 23, 1998. In the registration rights agreement, we have agreed to file
the exchange offer registration statement with the Commission. Upon the
effectiveness of the exchange offer registration statement, we will offer to the
Holders of Transfer Restricted Securities pursuant to the exchange offer who are
able to make certain representations the opportunity to exchange their Transfer
Restricted Securities for a new issue of our debt securities (the "New Notes").
If:
(1) we are 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 us 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,
(b) that it may not resell the new 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 appropriate or available for such resales, or
(c) that it is a broker-dealer and owns notes acquired directly from us
or any of our affiliates,
we will file with the Commission a Shelf Registration Statement to cover resales
of the notes by the Holders who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
We will use our reasonable best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For the purposes of the registration rights agreement, "Transfer
Restricted Securities" means each:
(1) note, until the earliest to occur of
(a) the date on which such note is exchanged in the exchange offer for a
new note which is 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 and on which purchasers have been
issued new notes, or
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(c) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act, and
(2) new note held by a Broker Dealer until the date on which such new 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 therein.
The registration rights agreement provides that:
(1) we will file an exchange offer registration statement with the
Commission on or prior to 90 days after the Closing Date,
(2) we will use our reasonable best efforts to have the exchange offer
registration statement declared effective by the Commission on or prior
to 180 days after the Closing Date,
(3) unless the exchange offer would not be permitted by applicable law or
Commission policy, we will commence the exchange offer and use our
reasonable 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, new notes in exchange for all
notes tendered before then in the exchange offer, and
(4) if obligated to file the Shelf Registration Statement, we will use our
reasonable best efforts to file the Shelf Registration Statement with
the Commission on or prior to 60 days after such filing obligation
arises and to cause the Shelf Registration to be declared effective by
the Commission on or prior to 180 days after such obligation arises.
If:
(1) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing,
(2) 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"),
(3) we fail to consummate the exchange offer within 30 business days of the
Effectiveness Target Date with respect to the exchange offer
registration statement, or
(4) the Shelf Registration Statement or the exchange offer registration
statement is declared effective but 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 (1) through (4) above a "Registration Default"),
then we will pay Liquidated Damages to each Holder of notes, with respect to the
first 90-day period immediately following the occurrence of the first
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.25 per week
per $1,000 principal amount of notes. All accrued Liquidated Damages will be
paid by us on each Damages Payment Date to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of certificated notes by mailing checks to their registered addresses. Following
the cure of all Registration Defaults, the accrual of Liquidated Damages will
cease.
Holders of notes will be required to make certain representations to us 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 notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
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DEFINITIONS
Set forth below are some 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 for which no definition is provided.
"144A Global Note" means a permanent global note that is deposited with and
registered in the name of the Depositary or its nominee, representing a series
of notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of such specified Person, and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" shall have
correlative meanings.
"Applicable Premium" means, with respect to any note on any Redemption
Date, the greater of
(1) 1.0% of the principal amount of such note or
(2) the excess of (a) the present value at such Redemption Date of the
redemption price of such note at December 1, 2003 (such redemption
price being set forth in the table above under the caption "Optional
Redemption") plus all required interest payments due on such note
through December 1, 2003 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate plus 50 basis
points over (b) the principal amount of such note, if greater.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition (a "Disposition") of
any assets or rights (including, without limitation, by way of a sale
and leaseback) (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of True Temper
and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of the Indenture described above under the caption
"--Change of Control" and/or the provisions described above under the
caption "--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant); and
(2) the issue or sale by True Temper or any of its Restricted Subsidiaries
of Equity Interests of any of the Company's Restricted Subsidiaries, in
the case of either clause (1) or (2), whether in a single transaction
or a series of related transactions:
(a) that have a fair market value in excess of $3.0 million, or
(b) for net proceeds in excess of $3.0 million.
Notwithstanding the preceding, the following items shall not be deemed to
be Asset Sales:
(1) a disposition of assets by True Temper to a Restricted Subsidiary or by
a Restricted Subsidiary to True Temper or to another Restricted
Subsidiary;
(2) an issuance of Equity Interests by a Restricted Subsidiary to True
Temper or to another Restricted Subsidiary;
(3) a Restricted Payment that is permitted by the covenant described above
under the caption "--Restricted Payments";
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(4) a disposition in the ordinary course of business;
(5) the sale and leaseback of any assets within 90 days of the acquisition
thereof;
(6) foreclosures on assets;
(7) any exchange of property pursuant to Section 1031 on the Internal
Revenue Code of 1986, as amended, for use in a Permitted Business; and
(8) the licensing of intellectual property.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) Government Securities having maturities of not more than six months
from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding six months and overnight bank deposits,
in each case with any lender party to the Senior Credit Facilities or
with any domestic commercial bank having capital and surplus in excess
of $500 million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the rating of "P-2" (or higher) from Moody's
Investors Service, Inc. or "A-3" (or higher) from Standard & Poor's
Corporation and in each case maturing within six months after the date
of acquisition; and
(6) any fund investing exclusively in investments of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of True Temper
and its Subsidiaries taken as a whole to any "person" (as such term is
used in
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Section 13(d)(3) of the Exchange Act) other than the Principals or a
Related Party of any of the Principals;
(2) the adoption of a plan relating to the liquidation or dissolution of
True Temper;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly, of more
than 50% of the Voting Stock of True Temper (measured by voting power
rather than number of shares); or
(4) the first day on which a majority of the members of the Board of
Directors of True Temper are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period, plus:
(1) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted
in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for
taxes was deducted in computing such Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net payments, if any,
pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash charges (excluding
any such non-cash charge to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person
and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; plus
(5) expenses and charges of True Temper related to the Transactions which
are paid, taken or otherwise accounted for within 90 days of the
consummation of the Transactions, plus
(6) any non-capitalized transaction costs incurred in connection with
actual or proposed financings, acquisitions or divestitures (including,
but not limited to, financing and refinancing fees and costs incurred
in connection with the Transactions), plus
(7) any extraordinary and non-recurring charges for such period to the
extent that such charges were deducted in computing such Consolidated
Net Income, plus
(8) amounts paid pursuant to the Management Services Agreement to the
extent such amounts were deducted in computing such Consolidated Net
Income.
Notwithstanding the preceding, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that Net Income of such Subsidiary was included in calculating Consolidated Net
Income of such Person.
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"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the interest expense of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with
GAAP (including amortization of original issue discount, non-cash
interest payments, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations;
provided that in no event shall any amortization of deferred financing
costs be included in Consolidated Interest Expense); plus
(2) the consolidated capitalized interest of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued.
Notwithstanding the preceding, the Consolidated Interest Expense with
respect to any Restricted Subsidiary that is not a Wholly Owned Restricted
Subsidiary shall be included only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income.
"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, determined in accordance with GAAP;
provided that
(1) the Net Income (but not loss) of any Person that is not a Restricted
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 paid in cash to the referent Person or a Restricted
Subsidiary thereof;
(2) the Net Income 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 that Net Income is not
at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall
be excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded; and
(5) the Net Income of any Unrestricted Subsidiary shall be excluded,
whether or not distributed to True Temper or one of its Restricted
Subsidiaries for purposes of the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock" and shall
be included for purposes of the covenant described under the caption
"Restricted Payments" only to the extent of the amount of dividends or
distributions paid in cash to True Temper or one of its Restricted
Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of True Temper who:
(1) was a member of such Board of Directors on the date of the Indenture;
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election; or
(3) was nominated by the Principals pursuant to the Stockholders Agreement.
"Credit Agent" means The First National Bank of Chicago, in its capacity as
Administrative Agent for the lenders party to the Senior Credit Facilities, or
any successor thereto or any person otherwise appointed.
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"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 Senior Debt" means:
(1) any Indebtedness outstanding under the Senior Credit Facilities; and
(2) any other Senior Debt permitted under the Indenture the principal
amount of which is $25.0 million or more and that has been designated
by True Temper as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), 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, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would not qualify as Disqualified
Stock but for change of control or asset sale provisions shall not constitute
Disqualified Stock if the provisions are not more favorable to the holders of
such Capital Stock than the provisions described under "--Change of Control"
applicable to the Holders of the notes.
"Domestic Restricted Subsidiary" means, with respect to True Temper, any
Wholly Owned Subsidiary of True Temper that was formed under the laws of the
United States of America.
"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).
"Existing Indebtedness" means Indebtedness of True Temper and its
Subsidiaries (other than Indebtedness under the Senior Credit Facilities) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the Consolidated Interest Expense of such Person for such period; plus
(2) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus
(3) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that True
Temper or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which 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 reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by True Temper or any of its
Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-
quarter reference period or subsequent to such reference period and on
or prior to the Calculation Date shall be calculated to include the
Consolidated Cash Flow of the acquired entities on a pro
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forma basis (to be calculated in accordance with Article 11-02 of
Regulation S-X, as in effect on the Issue Date) after giving effect to
cost savings resulting from employee terminations, facilities
consolidations and closings, standardization of employee benefits and
compensation policies, consolidation of property, casualty and other
insurance coverage and policies, standardization of sales and
distribution methods, reductions in taxes other than income taxes and
other cost savings reasonably expected to be realized from such
acquisition, shall be deemed to have occurred on the first day of the
four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause
(3) of the proviso set forth in the definition of Consolidated Net
Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only
to the extent that the obligations giving rise to such Fixed Charges
will not be obligations of the specified Person or any of its
Restricted Subsidiaries following the Calculation Date.
"Foreign Subsidiary" means any Subsidiary of True Temper that is not
organized under the laws of a state or territory of the United States or the
District of Columbia.
"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 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 date of the Indenture, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to depreciation, amortization or other expenses recorded as a
result of the application of purchase accounting in accordance with Accounting
Principles Board Opinion Nos. 16 and 17.
"Global Notes" means, individually and collectively, each of the Restricted
Global Notes and the Unrestricted Global Notes, issued in accordance with
certain sections of the Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"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.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or currency exchange rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, in respect of:
(1) borrowed money;
(2) indebtedness evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) indebtedness evidenced by bankers' acceptances;
(4) indebtedness evidenced by representing Capital Lease Obligations; or
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(5) the balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person; provided that
Indebtedness shall not include the pledge by True Temper of the Capital Stock of
an Unrestricted Subsidiary of True Temper to secure Non-Recourse Debt of such
Unrestricted Subsidiary.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value, in the case of any Indebtedness that does not
require current payments of interest; and
(2) the principal amount, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
"Insolvency or Liquidation Proceedings" means:
(1) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding,
relative to True Temper or to the creditors of True Temper, as such, or
to the assets of True Temper;
(2) any liquidation, dissolution, reorganization or winding up of True
Temper, whether voluntary or involuntary, and involving insolvency or
bankruptcy; or
(3) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of True Temper.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding 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, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If True Temper or any Restricted Subsidiary of True Temper sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of True Temper such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of True Temper, True Temper
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Restricted Payments."
"Issue Date" means the date on which the initial $100.0 million in
aggregate principal amount of the Notes is originally issued 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.
"Management Services Agreement" means the Management Services Agreement
dated on the date of the Indenture, between True Temper and Cornerstone.
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"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, excluding, however:
(1) any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with:
(a) any Asset Sale; or (b) the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment
of any Indebtedness of such Person or any of its Restricted
Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together with
any related provision for taxes on such extraordinary or nonrecurring
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by True Temper 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
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result of such Asset Sale, taxes paid or payable as a result of
such Asset Sale (after taking into account any available tax credits or
deductions and any tax sharing arrangements), the amounts required to be applied
to the payment of Indebtedness (other than Indebtedness incurred pursuant to the
Senior Credit Facilities) secured by a Lien on the asset or assets that were the
subject of the Asset Sale, and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither True Temper nor any of its Restricted Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders
may have to take enforcement action against an Unrestricted Subsidiary)
would permit upon notice, lapse of time or both any holder of any other
Indebtedness (other than the notes) of True Temper or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they will
not have any recourse to the stock (other than stock of an Unrestricted
Subsidiary pledged by True Temper to secure debt of such Unrestricted
Subsidiary) or assets of True Temper or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any business in which True Temper and its
Restricted Subsidiaries are engaged on the date of the Indenture or any business
reasonably related, incidental or ancillary thereto.
"Permitted Investments" means:
(1) any Investment in True Temper or in a Restricted Subsidiary of True
Temper;
(2) any Investment in Cash Equivalents;
(3) any Investment by True Temper or any Restricted Subsidiary of True
Temper in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of True Temper; or
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(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, True Temper or a Restricted Subsidiary of True
Temper;
(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of True Temper; and
(6) other Investments made after the date of the Indenture in any Person
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to
this clause (6) since the date of the Indenture, not to exceed $7.5
million.
"Permitted Liens" means:
(1) Liens securing Senior Debt (including, without limitation,
Indebtedness under the Senior Credit Facilities) permitted by the
terms of the Indenture to be incurred or other Indebtedness allowed to
be incurred under clause (1) of the second paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock";
(2) Liens in favor of True Temper or any Restricted Subsidiary;
(3) Liens on property of a Person existing at the time such Person is
merged into or consolidated with True Temper or any Restricted
Subsidiary of True Temper, provided that such Liens were not incurred
in contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated
with True Temper or any Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition by True Temper
or any Restricted Subsidiary of True Temper, provided such Liens were
not incurred in contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens existing on the date of the Indenture;
(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made;
(8) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock";
(9) Liens securing Permitted Refinancing Indebtedness where the Liens
securing the Indebtedness being refinanced were permitted under the
Indenture;
(10) Liens incurred in the ordinary course of business of True Temper or
any Restricted Subsidiary of True Temper with respect to obligations
that do not exceed $5.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the
ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair
the use of such property in the operation of business by True Temper
or such Restricted Subsidiary;
(11) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse
Debt of Unrestricted Subsidiaries;
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(12) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects incurred or imposed, as
applicable, in the ordinary course of business and consistent with
industry practices;
(13) any interest or title of a lessor under any Capital Lease Obligation;
(14) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating
to such letters of credit and products and proceeds thereof;
(15) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of True
Temper or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(16) Liens securing Hedging Obligations which Hedging Obligations relate to
Indebtedness that is otherwise permitted under the Indenture;
(17) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of True Temper and its Restricted
Subsidiaries;
(18) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; and
(19) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customer duties in connection with the
importation of goods.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of True Temper or any of its Restricted Subsidiaries;
provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
of (or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith) except, in the case of the Senior Credit Facilities, the
principal amount of such Permitted Refinancing Indebtedness does not
exceed the greater of (i) the principal amount of Indebtedness
permitted (whether or not borrowed) under clause (1) of the covenant
described above under the caption "Incurrence of Indebtedness and
Issuance of Preferred Stock" or (ii) the amount actually borrowed under
the Senior Credit Facilities.
(2) such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of
payment to, the notes on terms at least as favorable to the Holders of
notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means Cornerstone Equity Investors and its affiliates.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of
(1) True Temper or
(2) TTC to the extent the net proceeds are contributed to True Temper as a
capital contribution.
"Regulation S" means Regulation S promulgated under the Securities Act.
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"Regulation S Global Notes" means a global note bearing the global note
legend and the private placement legend and deposited with or on behalf of and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding principal amount of the notes resold in
reliance on Rule 904 of Regulation S.
"Related Party" with respect to any Principal means:
(1) any controlling stockholder or partner, 80% (or more) owned Subsidiary,
or spouse or immediate family member (in the case of an individual) of
such Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a 51% or
more controlling interest of which consist of such Principal and/or
such other Persons referred to in the immediately preceding clause (1).
"Reorganization Securities" means securities distributed to Holders of the
notes in an Insolvency or Liquidation Proceeding pursuant to a plan of
reorganization consented to by each class of the Senior Debt, but only if all of
the terms and conditions of such securities including, without limitation, term,
tenor, interest, amortization, subordination, standstills, covenants and
defaults are at least as favorable (and provide the same relative benefits) to
the holders of Senior Debt and to the holders of any security distributed in
such Insolvency or Liquidation Proceeding on account of any such Senior Debt as
the terms and conditions of the notes and the Indenture are, and provide to the
holders of Senior Debt.
"Representative" means the Trustee, agent or representative for any Senior
Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that is deposited
with and registered in the name of the Depositary or its nominee, representing a
series of notes sold in reliance on Rule 144A.
"Senior Credit Facilities" means the Senior Credit Facilities, dated as of
September 30, 1998 between True Temper and Donaldson, Lufkin & Jenrette
Securities Corporation, as arranger, DLJ Capital Funding, Inc., as syndication
agent and The First National Bank of Chicago, as administrative agent, providing
for revolving credit borrowings and term loans, including any related notes,
guarantees, collateral documents, instruments and agreements and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time
including increases in principal amount.
"Senior Debt" means:
(1) all Indebtedness outstanding under the Senior Credit Facilities,
including any Guarantees and all Hedging Obligations;
(2) any other Indebtedness permitted to be incurred by True Temper under
the terms of the Indenture, unless the instrument under which such
Indebtedness in incurred expressly provides that it is on a parity with
or subordinated in right of payment to the notes; and
(3) all Obligations with respect to the preceding clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing by
True Temper;
(2) any Indebtedness of True Temper to any of its Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) any Indebtedness that is incurred in violation of the Indenture.
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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 Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees is at the time owned or
controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination); and
(2) any partnership or limited liability company (a) the sole general
partner or the managing general partner or managing member of which is
such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of
such Person (or any combination).
"Subsidiary Guarantor" means
(1) any Domestic Restricted Subsidiary that executes a supplemental
indenture providing for the Guarantee of the payment of the notes by
such Domestic Restricted Subsidiary and
(2) any other Subsidiary of True Temper that executes a Guarantee in
accordance with the provisions of the Indenture, and their respective
successors and assigns.
"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, any publicly available source of similar market data)) most
nearly equal to the period from the Redemption Date to December 1, 2003;
provided, however, that if the period from the Redemption Date to December 1,
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.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with True Temper or any Restricted Subsidiary of True Temper unless the
terms of any such agreement, contract, arrangement or understanding are
no less favorable to True Temper or such Restricted Subsidiary than
those that might be obtained at the time from Persons who are not
Affiliates of True Temper;
(3) is a Person with respect to which neither True Temper nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of True Temper or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of True Temper as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was
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permitted by the covenant described above under the caption "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements as an Unrestricted Subsidiary, it
shall cease to be an Unrestricted Subsidiary for purposes of the Indenture and
any Indebtedness of such Subsidiary shall be deemed to be incurred by a
Restricted Subsidiary of True Temper as of such date and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "Incurrence of Indebtedness and Issuance of Preferred Stock,"
True Temper shall be in default of such covenant. The Board of Directors of True
Temper may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of True Temper of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall be
permitted only if:
(1) such Indebtedness is permitted under the covenant described under the
caption "Certain Covenants -- Incurrence of Indebtedness and Issuance
of Preferred Stock;" and
(2) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying: (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all 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 and/or by one or more Wholly Owned Subsidiaries of such Person.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the notes on November 18, 1998 to DLJ pursuant to the
purchase agreement. DLJ subsequently resold the notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act and to a limited number
of institutional accredited investors that agreed to comply with certain
transfer restrictions and other conditions. As a condition to the purchase
agreement, we entered into the Registration Rights Agreement with DLJ pursuant
to which we have agreed to:
(1) file a registration statement within 60 days after the date on which
the notes were issued with respect to registered offers to exchange the
notes for the exchange notes. The exchange notes will have terms
substantially identical in all material respects to the original notes,
except that the exchange notes will not contain terms with respect to
transfer restrictions and
(2) use our best efforts to cause the exchange offer registration statement
to be declared effective under the Securities Act within 150 days after
the date on which the notes were originally issued.
Upon the exchange offer registration statement being declared effective, we
will offer the exchange notes in exchange for surrender of the notes. We will
keep the exchange offer open for not less than 20 business days after the date
notice of the exchange offer is mailed to the holders. For each of the notes
surrendered to us pursuant to the exchange offer, the holder who surrendered
such notes will receive the exchange notes having a principal amount equal to
that of the surrendered notes. Interest on each exchange note will accrue from
the later of
(1) the last interest payment date on which interest was paid on the note
surrendered, or
(2) if the note is surrendered for exchange on a date in a period which
includes the record date for an interest payment date to occur on or
after the date of such exchange and as to which interest will be paid,
the date of such interest payment date or if no interest has been paid
on the notes, from the date on which the notes were originally issued.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the exchange notes will be freely
transferable by holders that are not our affiliates after the exchange offer
without further registration under the Securities Act. However, in order for the
exchange notes to be freely transferable in accordance with the Commission's
no-action letters, each holder that wishes to exchange its notes for exchange
notes will be required to represent the following:
(1) that any exchange note to be received by it will be acquired in the
ordinary course of its business;
(2) that at the time of the commencement of the exchange offer it has no
arrangement or understanding with any person to participate in the
distribution of the exchange notes in violation of the Securities Act;
(3) that it is not our "affiliate" as that term is defined in Rule 405
promulgated under the Securities Act;
(4) if such holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, the distribution of exchange notes; and
(5) if such holder is a broker-dealer that will receive exchange notes for
its own account in exchange for notes that were acquired as a result of
market-making or other trading activities, that it will deliver a
prospectus in connection with any resale of such exchange notes
Upon written notice within 30 days following the completion of the exchange
offer that a broker-dealer has received exchange notes in the exchange offer, we
will agree to make available, during the period required by the Securities Act,
a prospectus meeting the requirements of the Securities Act for use by
broker-dealers and other persons, if any, with similar prospectus delivery
requirements.
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Should any of the circumstances described in (1) to (4) below occur, we
will, at our expense, promptly deliver to the holders and the trustee written
notice,
(x) as promptly as practicable file Shelf Registration Statements covering
resales of the notes,
(y) use their best efforts to cause the Shelf Registration Statements to be
declared effective under the Securities Act and
(z) use their best efforts to keep effective the Shelf Registration
Statements until the earlier of two years after the date on which the
notes were originally issued or such time as all of the applicable
notes covered by the Shelf Registration Statements have been sold:
(1) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, we are not permitted
to effect the exchange offer;
(2) the exchange offer is not consummated within 210 days of the date on
which the notes were originally issued;
(3) in certain circumstances, certain holders of unregistered exchange
notes so request; or
(4) in the case of any holder that participates in the exchange offer,
such holder does not receive exchange notes on the date of the
exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such
holder as our affiliate).
We will, in the event that Shelf Registration Statements are filed, provide
to each holder copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
notes has become effective and take certain other actions as are required to
permit unrestricted resales of the notes. A holder that sells notes pursuant to
the Shelf Registration Statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification rights and obligations).
If we fail to comply with the above provisions or if the exchange offer
registration statement or the Shelf Registration Statement fails to become
effective, then, as liquidated damages, additional interest pursuant to
provisions of the notes, shall become payable in respect of the notes as
follows:
(1) if neither an exchange offer registration statement nor a Shelf
Registration Statement is filed with the Commission on or prior to 60
days after the date on which the notes were originally issued; or
(2) notwithstanding that we have consummated or will consummate an exchange
offer, we are required to file a shelf registration statement which is
not filed on or prior to the date required by the Registration Rights
Agreement,
then commencing on the day after either such required filing date, Additional
Interest shall accrue on the principal amount of the notes at a rate of .25% per
annum for the first 90 days immediately following each such filing date, such
Additional Interest increasing by an additional .25% per annum at the beginning
of each subsequent 90-day period.
If
(1) neither an exchange offer registration statement nor a Shelf
Registration Statement is declared effective by the Commission on or
prior to 150 days after the date on which the notes were originally
issued; or
(2) notwithstanding that we have consummated or will consummate an exchange
offer, we are required to file a Shelf Registration Statement which is
not declared effective by the Commission on or prior to the 90th day
following the date it was filed,
then commencing on the day after the 150th day or after the 90th day, as the
case may be, Additional Interest shall accrue on the principal amount of the
notes at a rate of .25% per annum for the first 90 days immediately
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following each such filing date and will increase by an additional .25% per
annum at the beginning of each subsequent 90-day period.
If
(1) we have not exchanged the applicable exchange notes for all notes
validly tendered in accordance with the terms of the exchange offer on
or prior to the 45th day after the date on which the exchange offer
registration statement was declared effective; or
(2) if applicable, a Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective
at any time prior to the second anniversary of the date on which the
notes were originally issued (other than after such time as all of the
applicable notes have been disposed of),
then additional interest shall accrue on the principal amount of the notes at a
rate of .25% per annum for the first 90 days commencing on the 46th day after
such effective date or the day such Shelf Registration Statement ceases to be
effective, as the case may be, such additional interest increasing by an
additional .25% per annum at the beginning of each subsequent 90-day period;
provided, however, that the rate of Additional Interest that shall accrue on the
notes may not exceed in the aggregate 1.0% per annum; provided, further,
however, that
(1) upon the filing of the applicable exchange offer registration statement
or a Shelf Registration Statement,
(2) upon the effectiveness of the applicable exchange offer registration
statement or a Shelf Registration Statement, or
(3) upon the exchange of applicable exchange notes for all applicable notes
tendered, or
(4) upon the effectiveness of a shelf registration statement which had
ceased to remain effective,
Additional Interest on the applicable notes, as the case may be, shall cease to
accrue or accumulate, as the case may be.
Any amounts of Additional Interest due will be payable in cash, on the same
original interest payment dates as the notes. The amount of Additional Interest
will be determined by multiplying the applicable rate of Additional Interest by
the principal amount of the senior subordinated notes multiplied by a fraction,
the numerator of which is the number of days such rate of Additional Interest
was applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
We shall
(1) make available a prospectus meeting the requirements of the Securities
Act to any broker-dealer for use in connection with any resale of any
such exchange notes and
(2) pay all expenses incident to the exchange offer (including the expense
of one counsel to the holders covered thereby)
(3) and indemnify certain holders of the notes including any broker-dealer
against certain liabilities, including liabilities under the Securities
Act.
A broker-dealer which delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement, including certain indemnification rights and
obligations.
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Each holder of notes who wishes to exchange such notes for exchange notes
in the exchange offer will be required to make the following representations in
the letter of transmittal:
(1) that it is not our "affiliate" within the meaning of Rule 405 of the
Securities Act;
(2) that it is not engaged in and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes to be issued in the exchange offer;
(3) that it is acquiring the exchange notes in its ordinary course of
business; and
(4) that if it is a broker-dealer holding notes acquired for its own
account as a result of market-making activities or other trading
activities, that it acknowledges that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of exchange notes received in respect of such exchange notes
pursuant to the exchange offer.
The Commission has taken the position and we believe that broker-dealers may
fulfill their prospectus delivery requirements with respect to the exchange
notes (other than a resale of an unsold allotment from the original sale of the
Notes) with the prospectus contained in the exchange offer registration
statement. Under the exchange and Registration Rights Agreement, we are required
to allow broker-dealers and other persons, if any, subject to similar prospectus
delivery requirements to use the prospectus contained in the exchange offer
registration statement in connection with the resale of the exchange notes.
If the holder is a broker-dealer, it will be required to include a
representation in its letter of transmittal with respect to the exchange offer
that it has not entered into any arrangement or understanding with us or any of
our affiliates to distribute the exchange notes.
Holders of notes will be required to make certain representations to us 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 in
order to have their notes included in the Shelf Registration Statement and
benefit from the provisions regarding liquidated damages. A Holder who sells
notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement which are
applicable to such a Holder, including certain indemnification obligations.
For so long as the notes are outstanding, we will continue to provide to
Holders of notes and to prospective purchasers of notes the information required
by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Registration Rights Agreement contains a
discussion of all material elements but does not purport to be complete and is
qualified in its entirety by reference to all provisions of the Registration
Rights Agreement. We will provide a copy of the Registration Rights Agreement to
Holders of notes identified to us by DLS upon request.
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 any and all notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
expiration date. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes accepted in the
exchange offer. Holders may tender some or all of their notes pursuant to the
exchange offer. However, notes may be tendered only in integral multiples of
$1,000.
The form and terms of the exchange notes are the same as the form and terms
of the notes except that:
(1) the exchange notes have been registered under the Securities Act and
hence will not bear legends restricting their transfer thereof; and
(3) the holders of the exchange notes will not be entitled to certain
rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the notes
in
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certain circumstances relating to the timing of the exchange offer, all
of which will terminate when the exchange offer is terminated. The
exchange notes will evidence the same debt as the notes and will be
entitled to the benefits of the Indenture.
As of the date of this prospectus, $87.0 million aggregate principal amount
of notes were outstanding. We have fixed the close of business on [ ,
1999] as the record date for the exchange offer for purposes of determining the
persons to whom this prospectus and the letter of transmittal will be mailed
initially.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder.
We shall be deemed to have accepted validly tendered notes when, as and if
we have given oral or written notice to the exchange agent. The exchange agent
will act as agent for the tendering Holders for the purpose of receiving the
exchange notes from the issuers.
If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
expiration date.
Holders who tender 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 notes. We will pay
all charges and expenses, other than transfer taxes in certain circumstances, in
connection with the exchange offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 5:00 p.m., New York City time, on
[ ], 1999, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended. Notwithstanding the foregoing, we will not
extend the expiration date beyond , 1999.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will mail to the registered holders
an announcement thereof, each prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion, to
(1) to delay accepting any notes, to extend the exchange offer or to
terminate the exchange offer if any of the conditions set forth below
under "-- Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the exchange
agent, or
(2) 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 thereof to the
registered holders.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the exchange notes. Such
interest will be paid with the first interest payment on the exchange notes on
June 1, 1999. Interest on the notes accepted for exchange will cease to accrue
upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each May 1 and
November 1, commencing on May 1, 1999.
PROCEDURES FOR TENDERING
Only a Holder of notes may tender such notes in the exchange offer. To
tender in the exchange offer, a Holder must complete, sign and date the letter
of transmittal, or a facsimile thereof, have the signatures
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<PAGE> 94
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver such letter of transmittal or such facsimile, together with the notes
and any other required documents, to the exchange agent prior to 5:00 p.m., New
York City time, on the expiration date. To be tendered effectively, the notes,
letter of transmittal and other required documents must be completed and
received by the exchange agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the expiration date. Delivery
of the notes may be made by book-entry transfer in accordance with the
procedures described below. Confirmation of such book-entry transfer must be
received by the exchange agent prior to the expiration date.
By executing the letter of transmittal, each Holder will make us the
representations set forth above in the eighth paragraph under the heading
"-- Purpose and Effect of the Exchange Offer."
The tender by a Holder and the acceptance of the tender by us will
constitute 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 NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE
HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO US. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose 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 such registered
holder to tender on such beneficial owner's behalf. See "Instruction to
Registered Holder and/or Book-Entry Transfer Facility Participant from Owner"
included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an institution that is a member firm of the
Medallion system unless the notes are tendered as follows:
(1) by a registered holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the
Letter of Transmittal; or
(2) for the account of member firm of the Medallion system.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of the Medallion system.
If the letter of transmittal is signed by a person other than the
registered holder of any notes listed therein, such notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such notes with the signature
guaranteed by an institution that is a member firm of the Medallion System.
If the letter of transmittal or any notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to us of
their authority to so act must be submitted with the letter of transmittal.
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the notes at
the book-entry transfer facility, The Depository Trust Company (DTC), for the
purpose of facilitating the exchange offer, and subject to the establishment
thereof, any financial institution that is a participant in DTC's system may
make book-entry delivery of notes by causing the book-entry transfer facility to
transfer such notes into the exchange agent's account with respect to the notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of
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<PAGE> 95
the notes may be effected through book-entry transfer into the exchange agent's
account at the book-entry transfer facility, an appropriate letter of
transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the exchange agent at its address set forth below
on or prior to the expiration date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the book-entry transfer facility does not
constitute delivery to the exchange agent.
The depositary and DTC have confirmed that the exchange offer is eligible
for the DTC Automated Tender Offer Program (ATOP). Accordingly, DTC participants
may electronically transmit their acceptance of the exchange offer by causing
DTC to transfer notes to the depositary in accordance with DTC's ATOP procedures
for transfer. DTC will then send an "agent's message" to the Depositary.
The term "agent's message" means a message transmitted by DTC, received by
the depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the letter of transmittal and that we may enforce such agreement
against such participant. In the case of an agent's message relating to
guaranteed delivery, the term means a message transmitted by DTC and received by
the depositary, which states that DTC has received an express acknowledgment
from the participant in DTC tendering notes that such participant has received
and agrees to be bound by the notice of guaranteed delivery.
Notwithstanding the foregoing, in order to validly tender in the exchange
offer with respect to securities transferred pursuant to ATOP, a DTC participant
using ATOP must also properly complete and duly execute the applicable letter of
transmittal and deliver it to the depositary. Pursuant to authority granted by
DTC, any DTC participant which has notes credited to its DTC account at any time
(and held of record by DTC's nominee) may directly provide a tender as though it
were the registered holder by so completing, executing and delivering the
applicable letter of transmittal to the depositary. DELIVERY OF DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered notes and withdrawal of tendered notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all notes not properly
tendered or any notes which, if accepted, would, in the opinion of our counsel,
be unlawful. We also reserve the right in our sole discretion to waive any
defects, irregularities or conditions of tender as to particular 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 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
notes, neither us, the exchange agent nor any other person shall incur any
liability for failure to give such notification. Tenders of notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any notes received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their notes and
(1) whose notes are not immediately available;
(2) who cannot deliver their notes, the letter of transmittal or any other
required documents to the exchange agent; or
(3) who cannot complete the procedures for book-entry transfer, prior to
the expiration date,
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<PAGE> 96
may effect a tender if:
(1) the tender is made through an institution that is a member firm of the
Medallion system;
(2) prior to the expiration date, the exchange agent receives from such
firm a properly completed and duly executed notice of guaranteed
delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of
such notes and the principal amount of notes tendered, stating that the
tender is being made and guaranteeing that, within five New York Stock
Exchange trading days after the expiration date, the letter of
transmittal (or facsimile thereof) together with the certificate(s)
representing the notes (or a confirmation of book-entry transfer of
such notes into the exchange agent's account at the book-entry transfer
facility), and any other documents required by the letter of
transmittal will be deposited by the firm with the exchange agent; and
(3) such properly completed and executed letter of transmittal (of
facsimile thereof), as well as the certificate(s) representing all
tendered notes in proper form for transfer (or a confirmation of book-
entry transfer of such notes into the exchange agent's account at the
book-entry transfer facility), and all other documents required by the
letter of transmittal are received by the exchange agent upon five New
York Stock 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 notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the expiration date. To
withdraw a tender of notes in the exchange offer, a telegram, telex, letter or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date. Any such notice of withdrawal must:
(1) specify the name of the person having deposited the notes to be
withdrawn;
(2) identify the notes to be withdrawn (including the certificate number(s)
and principal amount of such notes, or, in the case of notes
transferred by book-entry transfer, the name and number of the account
at the book-entry transfer facility to be credited);
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such notes were tendered (including
any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee with respect to the notes
register the transfer of such notes into the name of the person
withdrawing the tender; and
(4) specify the name in which any such notes are to be registered, if
different from that of the person who deposited the notes.
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. Any notes so withdrawn will be deemed not to have
been validly tendered for purposes of the exchange offer and no exchange notes
will be issued with respect thereto unless the notes so withdrawn are validly
retendered. Any notes which have been tendered but which are not accepted for
exchange will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn notes may be retendered by following one of
the procedures described above under "-- Procedures for Tendering" at any time
prior to the expiration date.
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<PAGE> 97
CONDITIONS
Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange exchange notes for, any notes, and
may terminate or amend the exchange offer as provided herein before the
acceptance of such notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer or any material adverse development has
occurred in any existing action or proceeding with respect to us or any
of our subsidiaries; or
(2)any law, statute, rule, regulation or interpretation by the staff of the
Commission is proposed, adopted or enacted, which, in our sole judgment,
might materially impair our ability to proceed with the exchange offer
or materially impair the contemplated benefits of the exchange offer to
us; or
(3)any governmental approval has not been obtained, which approval we
shall, in our sole discretion, deem necessary for the consummation of
the exchange offer as contemplated hereby.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may
(1) refuse to accept any notes and return all tendered notes to the
tendering holders;
(2) extend the exchange offer and retain all notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such notes; or
(3) waive such unsatisfied conditions with respect to the exchange offer
and accept all properly tendered notes which have not been withdrawn.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as exchange
agent for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal and
requests for notice of guaranteed delivery should be directed to the exchange
agent addressed as follows:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by us. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telecopy, 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 brokers, dealers, or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. Such expenses include fees and expenses of the exchange agent
and trustee, accounting and legal fees and printing costs, among others.
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<PAGE> 98
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
notes, which is face value, as reflected in our accounting records on the date
of exchange. Accordingly, we will recognize no gain or loss for accounting
purposes. The expenses of the exchange offer will be expensed over the term of
the exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, such notes may be
resold only:
(1) to us (upon redemption thereof or otherwise);
(2) so long as the notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes
is a qualified institutional buyer within the meaning of Rule 144A
under the Securities Act in a transaction meeting the requirements of
Rule 144A, in accordance with Rule 144 under the Securities Act, or
pursuant to another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel reasonably
acceptable to us);
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.
RESALES OF THE EXCHANGE NOTES
With respect to resales of exchange notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
we believe that a holder or other person who receives exchange notes, whether or
not such person is the holder (other than a person that is our "affiliate"
within the meaning of Rule 405 under the Securities Act) who receives exchange
notes in exchange for notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
exchange notes, will be allowed to resell the exchange notes to the public
without further registration under the Securities Act and without delivering a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each broker-dealer that
receives exchange notes for its own account in exchange for notes, where such
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
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<PAGE> 99
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of exchange notes received in respect of such notes pursuant to the
exchange offer. This prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of exchange notes received in exchange for notes where such notes were acquired
as a result of market-making activities or other trading activities. We have
agreed to make this prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , 1999, all dealers effecting transactions in the
exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
Participating Broker-Dealers. Exchange notes received by Participating
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 purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such exchange notes. Any Participating Broker-Dealer that resells the
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
meeting the requirements of the Securities Act, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
With respect to resales of exchange notes, we believe that a holder or
other person who receives exchange notes, whether or not such person is the
holder who receives exchange notes in exchange for notes in the ordinary course
of business and who is not participating, does not intend to participate, and
has no arrangement or understanding with person to participate, in the
distribution of the exchange notes, will be allowed to resell the exchange notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the exchange notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. This does not include a
person that is an "affiliate" of the issuer of the notes within the meaning of
Rule 405 under the Securities Act. We have based this belief on several
interpretive letters issued by the staff of the Commission in connection with
other offerings by other parties. These letters are Exxon Capital Holdings
Corporation (available as of May 13, 1988), Morgan Stanley & Co. Incorporated
(available as of June 5, 1991), Mary Kay Cosmetics, Inc. (available as of June
5, 1991), Warnaco, Inc. (available as of October 11, 1991) and Shearman &
Sterling (available as of July 2, 1993). If any holder acquires exchange notes
in the exchange offer for the purpose of distributing or participating in a
distribution of the exchange notes, such holder cannot rely on the position of
the staff of the Commission enunciated in these letters or any similar
interpretive letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Any such secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K under
the Securities Act, unless an exemption from registration is otherwise
available. Further, each Participating Broker-Dealer that receives exchange
notes for its own account in exchange for notes, where such notes were acquired
by such Participating Broker-Dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. True Temper has agreed to
make this prospectus available to any Participating Broker-Dealer for use in
connection with any such resale.
In connection with the Transactions, an affiliate of DLJ, the initial
purchaser of the old notes, has received customary fees in connection with the
agreement by DLJ to finance a portion of the Recapitalization.
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<PAGE> 100
In addition, DLJ received a customary fee for financial advisory services
rendered to Black & Decker in connection with the Transactions.
In the ordinary course of business, DLJ and its affiliates have engaged,
and may in the future engage, in investment banking and commercial banking
transactions with us. DLJ acted as the arranger and DLJ Capital Funding, Inc.
acted as the syndication agent under the Senior Credit Facilities.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
offered hereby will be passed upon for True Temper by Kirkland & Ellis, New
York, New York. Certain partners of Kirkland & Ellis collectively own, through
investment entities, 0.5% of the membership interests of True Temper Sports LLC,
our indirect parent.
EXPERTS
The financial statements of True Temper Sports, Inc. as of and for the year
ended December 31, 1998 have been included herein and in the Registration
Statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of True Temper Sports, Inc. at December 31, 1997
and December 31, 1996, appearing in this prospectus and in the Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon the report given upon the authority of the firm as experts in accounting
and auditing.
Ernst & Young LLP served as the independent accountants of True Temper
Sports, Inc. for the fiscal years ended 1997 and 1996. KPMG LLP was retained on
November 23, 1998 as the company's independent accountants for the purpose of
auditing its financial statements for the year ended 1998. The following
information relates to the dismissal of Ernst & Young LLP and the subsequent
engagement of KPMG LLP:
(1) The report on the financial statements prepared by Ernst & Young LLP
for both 1997 or 1996 did not contain an adverse opinion or a
disclaimer of opinion; nor was it qualified or modified as to
uncertainty, audit scope or accounting principles;
(2) The decision to change accountants was approved by the company's board
of directors before the establishment of an audit committee upon the
recommendation of management and of Cornerstone Equity Investors, LLC,
which holds the majority of membership interests in True Temper Sports,
LLC, the company's indirect parent; and
(3) During the fiscal years of 1997 and 1996 and the interim period
thereafter preceding the dismissal of Ernst & Young LLP, there were no
disagreements with Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement(s), if not resolved to the
satisfaction of Ernst & Young LLP, would have caused it to make
reference to the subject matter of the disagreement(s) in connection
with its report.
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TRUE TEMPER SPORTS, INC.
INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Statement of Operations for
the year ended December 31, 1998.......................... P-3
Notes to Unaudited Pro Forma Condensed Statement of
Operations................................................ P-4
</TABLE>
P-1
<PAGE> 102
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed Statement of Operations of True
Temper has been prepared to give effect to the following transactions as of
January 1, 1998 (together, the "Transactions"): (i) the Recapitalization; (ii)
the offering of the old notes; and (iii) $30.0 million of borrowings by True
Temper under the term loan facilities of the Senior Credit Facilities. The
unaudited pro forma adjustments presented are based upon available information
and certain assumptions that True Temper believes are reasonable under the
circumstances.
The Recapitalization has been accounted for as a leveraged
recapitalization, which had no impact on the historical basis of True Temper's
assets and liabilities. The unaudited pro forma Statement of Operations should
be read in conjunction with "Use of Proceeds," "Selected Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and related notes all included
elsewhere in this prospectus. The Unaudited Pro Forma Statement of Operations
and related notes are provided for informational purposes only and do not
purport to be indicative of True Temper's financial condition or results of
operations that would have actually been obtained had the Transactions been
consummated as of the assumed dates and for the periods presented, nor are they
indicative of True Temper's financial condition or results of operations for any
future period.
P-2
<PAGE> 103
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales............................................... $ 91,450 $ -- $ 91,450
Expenses:
Costs of sales........................................ 59,252 -- 59,252
Selling, general and administrative expenses.......... 14,227 (5,330)(a) 13,773
4,889(b)
(763)(a)
375(b)
375(c)
Amortization of goodwill.............................. 2,505 2,505
Write-off of goodwill................................. 40,000 -- 40,000
Recapitalization transaction expenses................. 5,698 (5,698)(d) --
Restructuring costs................................... 1,150 1,150
-------- -------- --------
Operating loss.......................................... (31,382) 6,152 (25,230)
Interest expense, net................................... 3,462 10,324(e) 13,786
Other expense........................................... 80 80
-------- -------- --------
Earnings (loss) before income taxes..................... (34,924) (4,172) (39,096)
Income taxes............................................ 2,887 (1,579)(f) 1,308
-------- -------- --------
Net loss................................................ $(37,811) $ (2,593) $(40,404)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(g)........................................................................ $ 20,601
EBITDA margin(h)................................................................. 22.5%
Cash interest expense............................................................ $ 13,078
Ratio of EBITDA to cash interest expense......................................... 1.6x
</TABLE>
See accompanying notes.
P-3
<PAGE> 104
NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) To record the elimination of certain Black & Decker allocated corporate
costs and the additional costs associated with corporate pass through costs
prior to the company's recapitalization on September 30, 1998:
<TABLE>
<S> <C>
Allocated corporate costs:
Legal & accounting........................................ $ 251
General & administrative.................................. 362
Human resources........................................... 57
Executive compensation plan............................... 57
Other..................................................... 36
------
Total............................................. $ 763
======
Pass through corporate costs:
Product liability & general insurance..................... 555
Human resources........................................... 2,872
Other..................................................... 1,903
------
Total............................................. $5,330
======
</TABLE>
(b) To record management's estimate of the stand alone costs to replace services
formerly provided by Black & Decker prior to the company's recapitalization
on September 30, 1998:
<TABLE>
<S> <C>
Management's stand alone allocated costs:
Legal & accounting........................................ $ 222
General & administrative.................................. 79
Human resources........................................... 38
Other..................................................... 36
------
Total............................................. $ 375
======
Management's stand alone pass through costs:
Product liability & general insurance..................... 541
Human resources........................................... 2,693
Other..................................................... 1,655
------
Total............................................. $4,889
======
</TABLE>
(c) To record nine months of the Cornerstone management services fee payable by
True Temper, based on $500 per annum.
(d) To record the elimination of fees and expenses associated with the
Transactions.
P-4
<PAGE> 105
NOTES TO UNAUDITED PRO FORMA
CONDENSED STATEMENT OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(e) To record interest expense as if the Recapitalization had occurred on
January 1, 1998:
<TABLE>
<S> <C>
Senior Subordinated Notes(1)................................ $ 8,156
Term Loans:
Term A Loan ($10,000 @ 7.53% per annum)(2)................ 565
Term B Loan ($20,000 @ 7.78% per annum)(2)................ 1,167
Amortization of deferred financing costs.................... 436
-------
Total............................................. $10,324
=======
</TABLE>
- ---------------
(1) Interest expense was calculated at an interest rate of 10.875%.
(2) Represents 3 month LIBOR @ 5.2806% (at December 31, 1998) plus 2.25%
and 2.50% for term A and term B Loans, respectively.
(f) To record the difference between the historical tax expense and unaudited
pro forma tax expense at True Temper's effective rate of 37.85% as follows:
<TABLE>
<S> <C>
Pro forma pretax income (loss).............................. $(39,096)
Goodwill amortization....................................... 2,505
Goodwill writeoff........................................... 40,000
Other permanent differences................................. 46
--------
Taxable income.............................................. 3,455
Effective rate.............................................. 37.85%
--------
Pro forma tax expense....................................... 1,308
Less: historical tax expense................................ 2,887
--------
Adjustment.................................................. $ (1,579)
========
</TABLE>
(g) EBITDA represents operating income (loss) plus depreciation, amortization,
goodwill writeoff and recapitalization transaction expenses. EBITDA is
presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA is not intended to represent cash flows for
the period, nor has it been presented as an alternative to operating income
as an indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles ("GAAP"). Pro forma
EBITDA represents EBITDA plus: (i) corporate expenses and charges that
historically have been allocated to True Temper by Black & Decker; less (ii)
True Temper's estimate of its costs as a stand alone entity for the same
services corresponding to such corporate expenses and charges. Pro forma
EBITDA has not been reduced by the management fee payable under the
Management Services Agreement, which is an obligation of TTC and is
contractually subordinated to all obligations under the notes and the Senior
Credit Facilities.
(h) Unaudited pro forma EBITDA margin represents pro forma EBITDA as a
percentage of net sales.
P-5
<PAGE> 106
TRUE TEMPER SPORTS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Reports of independent auditors............................. F-2
Statements of operations for the years ended December 31,
1998, 1997 and 1996....................................... F-4
Balance sheets as of December 31, 1998 and 1997............. F-5
Statements of changes to stockholder's equity for the years
ended December 31, 1998, 1997 and 1996.................... F-6
Statements of cash flows for the years ended December 31,
1998, 1997 and 1996....................................... F-7
Notes to financial statements............................... F-8
</TABLE>
F-1
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
The Board of Directors
True Temper Sports, Inc.:
We have audited the accompanying balance sheet of True Temper Sports, Inc.
as of December 31, 1998 and the related statements of operations, changes in
stockholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements present fairly, in all
material respects, the financial position of True Temper Sports, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG LLP
Memphis, Tennessee
March 10, 1999
F-2
<PAGE> 108
REPORT OF INDEPENDENT AUDITORS
The Black & Decker Corporation
Towson, Maryland
We have audited the accompanying balance sheets of True Temper Sports as of
December 31, 1996 and 1997, and the related statements of operations, net
invested capital, and cash flows for each of the two years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement based on our audits.
We conducted our audit 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, the financial statements referred to above present fairly,
in all material respects, the financial position of True Temper Sports as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
LOGO
March 6, 1998
Baltimore, Maryland
F-3
<PAGE> 109
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
NET SALES................................................... $ 91,450 $82,597 $71,603
Cost of sales............................................... 59,252 53,886 49,628
-------- ------- -------
GROSS PROFIT.............................................. 32,198 28,711 21,975
Selling, general and administrative expenses................ 14,227 14,251 11,813
Amortization of goodwill.................................... 2,505 3,746 3,746
Write-off of goodwill....................................... 40,000 -- --
Recapitalization transaction expenses....................... 5,698 -- --
Restructuring costs......................................... 1,150 520 492
-------- ------- -------
OPERATING INCOME (LOSS)................................... (31,382) 10,194 5,924
Interest expense............................................ 3,462 -- --
Other expenses, net......................................... 80 54 72
-------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES......................... (34,924) 10,140 5,852
Income taxes................................................ 2,887 5,277 3,647
-------- ------- -------
NET INCOME (LOSS)......................................... $(37,811) $ 4,863 $ 2,205
======== ======= =======
</TABLE>
F-4
<PAGE> 110
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 2,265 $ 1,299
Receivables, net.......................................... 12,591 8,165
Inventories............................................... 10,986 11,373
Deferred financing costs.................................. 587 --
Prepaid expenses and other................................ 1,024 349
-------- --------
Total current assets................................... 27,453 21,186
Property, plant and equipment, net.......................... 21,991 21,701
Goodwill, net............................................... 79,733 117,393
Deferred tax assets......................................... 55,822 --
Deferred financing costs.................................... 4,516 --
Other assets................................................ 111 61
-------- --------
Total assets........................................... $189,626 $160,341
======== ========
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 900 $ --
Current portion of capital lease liability................ 109 193
Accounts payable.......................................... 7,785 7,324
Accrued expenses and other liabilities.................... 7,452 5,952
-------- --------
Total current liabilities.............................. 16,246 13,469
Long-term debt less the current portion..................... 136,406 --
Capital lease liability, net of current portion............. 130 156
Post-retirement medical obligation.......................... 1,965 --
-------- --------
Total liabilities...................................... 154,747 13,625
STOCKHOLDER'S EQUITY
Common stock -- par value $0.01 per share; authorized 1,000
shares; issued and outstanding 100 shares................. -- --
Additional paid in capital................................ 40,326 --
Accumulated deficit....................................... (5,447) --
Net invested capital of former parent company............. -- 146,716
-------- --------
Total stockholder's equity............................. 34,879 146,716
-------- --------
Total liabilities and stockholder's equity............. $189,626 $160,341
======== ========
</TABLE>
F-5
<PAGE> 111
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET INVESTED
COMMON STOCK ADDITIONAL CAPITAL OF
------------------- PAID-IN ACCUMULATED FORMER PARENT
SHARES PAR VALUE CAPITAL DEFICIT COMPANY TOTAL
------ --------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995....................... -- $-- $ -- $ -- $156,164 $156,164
Current year net income.... -- -- -- -- 2,205 2,205
Net financing activities
with former parent
company................. -- -- -- -- (6,462) (6,462)
--- -- ------- ------- -------- --------
BALANCE AT DECEMBER 31,
1996....................... -- -- -- -- 151,907 151,907
Current year net income.... -- -- -- -- 4,863 4,863
Net financing activities
with former parent
company................. -- -- -- -- (10,054) (10,054)
--- -- ------- ------- -------- --------
BALANCE AT DECEMBER 31,
1997....................... -- -- -- -- 146,716 146,716
Issuance of common
shares.................. 100 -- -- -- -- --
Net loss for the period
from January 1, 1998 to
September 29, 1998...... -- -- -- -- (32,364) (32,364)
Net loss for the period
from September 30, 1998
to December 31, 1998.... -- -- -- (5,447) -- (5,447)
Net financing activities
with former parent
company................. -- -- -- -- (7,689) (7,689)
Effect of
recapitalization........ -- -- -- -- (66,337) (66,337)
Transfer to additional paid
in capital on September
30, 1998................ -- -- 40,326 -- (40,326) --
--- -- ------- ------- -------- --------
BALANCE AT DECEMBER 31,
1998....................... 100 $-- $40,326 $(5,447) $ -- $ 34,879
=== == ======= ======= ======== ========
</TABLE>
F-6
<PAGE> 112
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................ $ (37,811) $ 4,863 $ 2,205
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 5,831 7,349 7,309
Amortization of deferred financing costs.............. 109 -- --
Provision for restructuring........................... 1,350 520 492
Write-off of goodwill................................. 40,000 -- --
Loss on disposal of property, plant and equipment..... 89 -- --
Deferred taxes........................................ (2,927) -- --
Changes in assets and liabilities, net of effects from
business acquired:
Receivables, net.................................... (3,747) (1,195) 1,122
Inventories......................................... 1,711 (632) 36
Prepaid expenses and other assets................... (700) (208) 97
Accounts payable.................................... (672) 2,270 (408)
Accrued interest.................................... 1,450 -- --
Other current liabilities........................... (22) 32 (1,271)
--------- -------- -------
Net cash provided by operating activities........... 4,661 12,999 9,582
INVESTING ACTIVITIES
Purchase of property, plant and equipment................ (2,366) (2,452) (2,784)
Proceeds from the sales of property, plant and
equipment............................................. -- 13 --
Purchase of Grafalloy.................................... (6,165) -- --
--------- -------- -------
Net cash used in investing activities................. (8,531) (2,439) (2,784)
FINANCING ACTIVITIES
Proceeds from issuance of long term bank debt............ 37,500 -- --
Proceeds from issuance of senior subordinated notes...... 100,000 -- --
Principal payments on bank debt.......................... (194) -- --
Principal payments on capital leases..................... (187) -- --
Payment of debt issuance costs........................... (5,212) -- --
Other financing activity................................. (185) -- --
Recapitalization......................................... (119,197) -- --
Net proceeds to former parent company.................... (7,689) (10,054) (6,462)
--------- -------- -------
Net cash provided by (used in) financing activities... 4,836 (10,054) (6,462)
Net increase in cash....................................... 966 506 336
Cash at beginning of year.................................. 1,299 793 457
--------- -------- -------
Cash at end of year........................................ $ 2,265 $ 1,299 $ 793
========= ======== =======
</TABLE>
F-7
<PAGE> 113
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS OTHERWISE INDICATED)
1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
True Temper Sports, Inc. (True Temper or the Company) is primarily engaged
in the design, manufacture and sale of steel and composite golf club shafts as
well as a variety of other high strength, high tolerance tubular components for
the bicycle, automotive and recreational sports markets. True Temper's
manufacturing plants and primary related facilities are located in Memphis,
Tennessee, Amory and Olive Branch, Mississippi, and El Cajon, California. The
majority of True Temper's sales are to golf club manufacturers and distributors
primarily located in the United States, Europe, Asia and the South Pacific. True
Temper operates as a wholly-owned operating subsidiary of True Temper
Corporation.
BASIS OF PRESENTATION
On September 30, 1998 True Temper Corporation and the Company completed a
recapitalization transaction accounted for as a leveraged recapitalization, as
further discussed in note 3. Prior to this date the Company operated as a
wholly-owned subsidiary of the Black & Decker Corporation (Black & Decker or
B&D). For the periods through September 29, 1998 the accompanying financial
statements were prepared from the historical accounting records of Black &
Decker. These financial statements included all revenues of True Temper, all
items of expense directly incurred by it and expenses charged or allocated to it
by Black & Decker in the normal course of business.
Under Black & Decker's centralized cash management system, True Temper's
cash requirements were provided directly by Black & Decker; similarly, cash
generated by True Temper was remitted directly to Black & Decker. All charges
and allocations of cost for functions and services provided by Black & Decker
were deemed paid by True Temper, in cash, in the period in which the cost is
recorded in the financial statements. Intercompany balances with Black & Decker,
net of cash, were included in owner's net invested capital. None of Black &
Decker's indebtedness was directly attributable to the assets of True Temper.
Accordingly, no debt of Black & Decker or related interest expense was allocated
to True Temper.
True Temper's results were included in Black & Decker consolidated income
tax returns in the various taxing jurisdictions in which it operates through
September 29, 1998. The amount of taxes payable or receivable due to/from Black
& Decker for 1996, 1997 and January to September 1998 was included as a
component of owner's net invested capital. The provision for income taxes, the
related assets and liabilities, and the related footnote disclosures are
presented as if True Temper had filed separate tax returns for these periods,
and are in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes".
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue is generally recognized as products are shipped to customers.
Liabilities are established for estimated returns, allowances and discounts at
the time revenue is recognized.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements. All of the accounting judgments and estimations used in preparation
of the financial statements are based on assumptions that True Temper management
believes are reasonable under the circumstances.
F-8
<PAGE> 114
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
All of the accounting judgments, estimations and allocations used in
preparation of the Company's financial statements prior to the leveraged
recapitalization on September 30, 1998, are based on assumptions that Black &
Decker management believes are reasonable under the circumstances. However,
these allocations and estimates are not necessarily indicative of the costs that
would have resulted if True Temper had been operated as a separate entity.
TRADE ACCOUNTS RECEIVABLE
Trade receivables are net of allowance for doubtful accounts of $592 and
$268 as of December 31, 1998 and 1997, respectively. Credit risk with respects
to accounts receivable is limited due to the large number of customers
comprising True Temper's customer base and their dispersion across many
geographical areas.
INVENTORIES
Inventories are stated at the lower of cost or market. During 1998, True
Temper adopted the first-in, first-out (FIFO) method to value its domestic
inventories, for which the last-in, last-out (LIFO) method had previously been
utilized for determining cost. The FIFO method will better measure the current
values of such inventories, provide a more appropriate matching of revenues and
expenses, and conform all inventories of True Temper to the same accounting
method. Additionally, the change will enhance the comparability of True Temper's
financial statements by changing to the predominant method utilized in its
industry. This accounting change was not material to the financial statements
and accordingly, no retroactive restatement to the financial statements was
made.
DEFERRED FINANCING COSTS
Costs associated with the issuance of debt are deferred and amortized over
the life of the related debt, and included in interest expense for each
applicable period using a method that approximates the interest method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated on an historical cost basis, net of
accumulated depreciation. Depreciation is provided over the estimated useful
life of each asset, except for leasehold improvements which are amortized over
the shorter of the useful life or the applicable lease term, primarily on the
straight-line basis. In general the estimated useful lives are as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY LIFE
- -------------- -----------
<S> <C>
Computers and related equipment 2-4 years
Furniture and office equipment 10-15 years
Leasehold improvements 5-15 years
Machinery and equipment 8-15 years
Buildings 50 years
</TABLE>
GOODWILL
Acquisition of True Temper Sports, Inc. by Black & Decker:
The excess of purchase price of True Temper by Black & Decker over the fair
value of the net assets acquired was recorded as goodwill. Amortization of
goodwill is recorded on the straight-line method over a period of 40 years.
Accumulated amortization was approximately $35,500 and $33,000 at December 31,
1998
F-9
<PAGE> 115
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and 1997, respectively. Accumulated amortization at December 31, 1998 does not
include a write-off of $40,000, as described in the following paragraph and in
note 13.
On a periodic basis through December 31, 1997, Black & Decker estimated
True Temper's future undiscounted cash flows of the business in order to
determine that the carrying value of goodwill had not been impaired. As more
fully described in Note 13, effective January 1, 1998, Black & Decker changed
its method for measuring and recognizing an impairment of goodwill from an
undiscounted cash flow approach to a discounted cash flow approach.
Acquisition of Grafalloy Corporation by True Temper Sports, Inc.:
The excess of purchase price of Grafalloy over the fair value of the net
assets acquired was recorded as goodwill. Amortization of goodwill is recorded
on the straight-line method over a period of 20 years. Goodwill related to the
Grafalloy acquisition was $4,804, net of accumulated amortization of $41, at
December 31, 1998.
FOREIGN CURRENCIES
Transaction gains and losses that arise from exchange rate changes on
transactions denominated in a currency other than the U.S. Dollar are included
currently in the results of operations as a component of cost of sales. The
total gain/(loss) on foreign currency in the years ended December 31, 1998, 1997
and 1996 was $(111), $(143) and $5, respectively. True Temper hedges its foreign
currency transaction exposure through the use of forward exchange contracts.
Gains and losses on foreign currency transaction hedges are recognized in income
and offset the foreign exchange gains and losses on the underlying transaction.
The following table summarizes the contractual amounts of True Temper's
forward exchange contracts as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pound Sterling............................................ $1,342 $1,834
Yen....................................................... 554 --
Australian dollar......................................... 1,058 1,325
------ ------
Total..................................................... $2,954 $3,159
====== ======
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", True Temper
reviews for impairment whenever events and circumstances indicate that
long-lived assets might be impaired. As more fully described in Note 5, the
Company wrote down the carrying value of its Olive Branch, Mississippi building,
as of December 31, 1998, through the establishment of a restructuring reserve.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are accounted for in accordance with
Statement of Position 93-7 "Reporting on Advertising Costs", which requires that
the cost of producing advertisements be expensed at the time of the first
showing of the advertisement. Advertising and promotional costs primarily
consist of trade show costs, media spots including print, radio and television,
advertising production and agency fees, sponsorships, spokesperson fees and
product and promotional samples. Advertising and promotional expense for the
years ended December 31, 1998, 1997 and 1996 were $4,186, $4,241 and $3,913,
respectively.
F-10
<PAGE> 116
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Costs associated with the development of new products and changes to
existing products are expensed as incurred and are included in selling, general,
and administrative expenses in the accompanying Statements of Operations.
Research and development costs for the years ended December 31, 1998, 1997 and
1996 were $2,155, $2,272 and $1,610, respectively.
POST-RETIREMENT BENEFITS
Substantially all of True Temper's employees are covered by
non-contributory defined benefit plans. The defined benefit plans are funded in
conformity with funding requirements of applicable government regulations.
Generally, benefits are based on age, years of service, and the level of
compensation during the final years of employment. Prior service costs for
defined benefit plans generally are amortized over the estimated remaining
service periods of employees.
Certain employees are covered by defined contribution plans. True Temper's
contribution to these plans is based on a percentage of employee compensation or
employee contribution. These plans are funded on a current basis. In addition to
pension benefits, certain post-retirement medical, dental, and life insurance
benefits are provided.
INCOME TAXES
Prior to September 30, 1998
Prior to the recapitalization on September 30, 1998, True Temper was
included in the consolidated tax return of Black & Decker. Income tax expense
was provided as if True Temper had filed a separate tax return. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes. Income taxes
payable/receivable and deferred tax assets and liabilities were included as a
component of net invested capital.
Subsequent to September 30, 1998
Beginning September 30, 1998, income tax accounting has been completed with
deferred income taxes provided for the differences in the financial statement
and tax bases of assets and liabilities. The tax effect of the temporary
differences created as a result of the leveraged recapitalization, which
resulted in a "step-up" in tax bases (see notes 3 and 10) have been reflected in
stockholder's equity at December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than a forced sale or liquidation. Significant differences can arise
between the fair value and carrying amount of financial instruments that are
recognized at historical cost amounts.
The following methods and assumptions were used by True Temper in
estimating fair value disclosures for financial instruments:
Cash, trade receivables and payables: The amounts reported in the
balance sheets approximate fair value.
Long-term debt: The carrying values of the Company's fixed and
variable debt reasonably approximates their fair value.
F-11
<PAGE> 117
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Foreign currency contracts: The fair value of forward exchange
contracts is estimated using prices established by financial institutions
for comparable instruments and approximates carrying value.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Company adopted the provisions of FASB Statement No.
129, "Disclosure of Information about Capital Structure", which is effective for
fiscal years ending after December 31, 1997. This statement establishes
disclosure requirements regarding capital structure and pertinent rights and
privileges of the various securities outstanding, including the liquidation
preference of preferred stock. The statement requires only additional
disclosures in the financial statements; it does not effect the Company's
financial position, result of operations or cash flows.
In June 1997, FASB Statement No. 130, "Reporting Comprehensive Income", was
issued, effective for those years beginning after December 15, 1997. This
statement established standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Although the Company adopted this standard in 1998, none of the items identified
for presentation under this statement are currently applicable to the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which establishes standards
for the way that public enterprises report information about operating segments
in annual financial statements and related disclosures about products and
services, geographic areas and major customers. Statement No. 131 is effective
for fiscal years beginning after December 15, 1997. The Company's notes to its
financial statements provide segment disclosures and related information for all
periods presented.
In June 1998, FASB Statement 133, "Accounting for Derivative Instruments
and Hedging Activity", was issued, effective for years beginning after June 15,
1999. The Company has only limited involvement with derivative financial
instruments, and does not use them for trading purposes. This new accounting
statement is not expected to have a material impact on the Company's financial
statements.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for income taxes and interest for the years ended December
31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes............................................. $5,814 $5,277 $3,647
Interest................................................. $1,965 -- --
</TABLE>
3) RECAPITALIZATION
On June 29, 1998, Black & Decker Corporation, along with its True Temper
Sports Division, and TTSI LLC (an affiliate of Cornerstone Equity Investors,
LLC), entered into an agreement pursuant to which TTSI LLC acquired, effective
September 30, 1998, an 89% equity interest in True Temper Corporation (TTC)
(collectively referred to as the Recapitalization). True Temper Sports, Inc. was
formed as the operating subsidiary of True Temper Corporation. The
Recapitalization of TTC was accounted for as a leveraged recapitalization, such
that the Company's assets and liabilities remain at their historical bases for
financial reporting purposes; however, for income tax purposes, the transaction
is treated as a taxable business combination, such that the tax basis financial
statements reflect a "step-up" in bases. The following table
F-12
<PAGE> 118
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
summarizes cash paid to, equity retained by, and a note and other investments
made by Black & Decker in connection with the Recapitalization.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Cash paid to Black & Decker at the Recapitalization
closing................................................. $177,700
Cash paid to Black & Decker pursuant to contractual
working capital adjustment.............................. 561
--------
Subtotal -- cash portion of Recapitalization.............. 178,261
Black & Decker Note....................................... 25,000
Black & Decker equity investment retained................. 1,036
Black & Decker investment in Redeemable Preferred Stock... 2,700
--------
Total..................................................... $206,997
========
</TABLE>
The sources and uses of funds for the Recapitalization are summarized as
follows:
<TABLE>
<CAPTION>
TRUE
TEMPER TTC COMBINED
-------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Sources of funds:
Term loan under senior credit facility.............. $ 30,000 $ -- $ 30,000
Senior subordinated notes........................... 100,000 -- 100,000
Black & Decker note................................. -- 25,000 25,000
TTSI LLC equity investment in common stock.......... -- 16,408 16,408
TTSI LLC investment in redeemable preferred stock... -- 42,300 42,300
B&D retained equity investment in common stock...... -- 1,036 1,036
B&D investment in redeemable preferred stock........ -- 2,700 2,700
Company management investment in common stock....... -- 356 356
-------- ------- --------
Total sources of funds.............................. $130,000 $87,800 $217,800
======== ======= ========
Uses of funds:
Recapitalization.................................... $119,197 $87,800 $206,997
Transaction costs................................... 10,803 -- 10,803
-------- ------- --------
Total uses of funds................................. $130,000 $87,800 $217,800
======== ======= ========
</TABLE>
Transaction costs include (i) expenses associated with the
Recapitalization, (ii) financing costs associated with the issuance of the
Senior Subordinated Notes and the Bank Credit Facility (as more fully described
in note 9), and (iii) $3,500 paid to Cornerstone Equity Investors, LLC for
transaction and advisory fees.
F-13
<PAGE> 119
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The initial impact on equity, for both True Temper and its parent company,
TTC, is as follows:
<TABLE>
<CAPTION>
TRUE
TEMPER TTC CONSOLIDATED
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash dividend to TTC from True Temper............. $(125,916) $ 125,916 $ --
Cash paid to Black & Decker pursuant to
contractual working capital adjustment.......... (561) (561)
Establish deferred tax asset, net of valuation
allowance....................................... 52,895 52,895
True Temper liabilities retained by Black &
Decker.......................................... 2,200 2,200
Establishment of certain liabilities.............. (2,050) (2,050)
TTC investment in True Temper..................... 7,095 (7,095) --
Purchase price (excluding working capital
adjustment)..................................... -- (206,436) (206,436)
--------- --------- ---------
Total impact on equity............................ $ (66,337) $ (87,615) $(153,952)
========= ========= =========
</TABLE>
4) ACQUISITION OF GRAFALLOY CORPORATION
On October 26, 1998, True Temper acquired substantially all of the assets
of Grafalloy Corporation (Grafalloy), a wholly-owned subsidiary of The American
Materials & Technologies Corporation, for approximately $6.2 million in cash.
The Company borrowed approximately $7,500 of its Bank Credit Facility to finance
this acquisition, including direct acquisition costs. Grafalloy is located in El
Cajon, California, and is engaged in the design, manufacture and sale of
composite golf club shafts.
For financial statement purposes the acquisition was accounted for as a
purchase and, accordingly, Grafalloy's results are included in the accompanying
financial statements from the date of acquisition. The purchase price has been
allocated to assets acquired and liabilities assumed based on fair market value
at the date of acquisition. The fair value of assets acquired and liabilities
assumed is summarized as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Current assets............................................ $ 2,028
Property, plant and equipment............................. 1,347
Goodwill.................................................. 4,840
Current liabilities....................................... (1,988)
Other long-term liabilities............................... (62)
-------
Purchase price............................................ $ 6,165
=======
</TABLE>
In conjunction with this acquisition, and included in the current
liabilities total of $1,988 above, the Company recorded a liability of $500
primarily to cover severance costs for certain Grafalloy employees. As of
December 31, 1998, charges to this accrual totaled $40.
The following unaudited pro forma results of operations have been prepared
as if Grafalloy had been acquired as of the beginning of the periods presented.
The pro forma results of operations are provided for informational purposes
only, and are not necessarily indicative of what would have occurred had
Grafalloy been acquired on the dates indicated. Additionally, the pro forma
results are not intended to be a projection of future results and do not include
any synergies expected to be realized from the integration of Grafalloy's and
True Temper's composite shaft operations.
F-14
<PAGE> 120
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
PRO FORMA INFORMATION (UNAUDITED) 1998 1997
- --------------------------------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales........................................... $102,390 $92,905
Net income (loss)................................... $(37,852) $ 4,393
</TABLE>
5) RESTRUCTURING
As more fully described in note 4 above, the Company acquired substantially
all of the assets of Grafalloy on October 26, 1998. In December 1998, the
Company announced a restructuring program, the principal component of which is
the consolidation of the Company's Olive Branch, Mississippi composite
manufacturing operations into the El Cajon, California facility. As part of the
consolidation, the El Cajon facility will be expanded by approximately 25,000
square feet. The restructuring program will be completed over a period of
approximately 12 months, and is being undertaken to reduce fixed overhead and
better leverage the fixed investment the Company has in the composite business.
In the fourth quarter of 1998, as part of the restructuring program, an
accrual of $1,350 was established primarily to cover costs associated with
exiting the Olive Branch, Mississippi facility. The accrual is included in
accrued expense and other liabilities at December 31, 1998. As of December 31,
1998, direct charges to this accrual totaled $37. The following table sets forth
the components of the restructuring accrual:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Employee severance........................................ $ 310
Write-down Olive Branch building to fair value, less costs
to sell................................................. 600
Write-down duplicate machinery and equipment to fair
value, less costs to sell............................... 150
Write-off of inventory as a result of the restructuring
program................................................. 200
Other..................................................... 90
------
Total restructuring accrual............................... $1,350
======
</TABLE>
The restructuring expense is identified as a separate line item in the
operating expense section of the statement of operations, with the exception of
the $200 write-off of inventory which is reflected in cost of sales.
6) INVENTORIES
Inventories, as of December 31 of the year indicated, consist of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw materials............................................ $ 2,395 $ 2,045
Work in process.......................................... 2,460 2,349
Finished goods........................................... 6,131 6,979
------- -------
Total.................................................... $10,986 $11,373
======= =======
</TABLE>
F-15
<PAGE> 121
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7) PROPERTY, PLANT & EQUIPMENT
Major classes of property, plant and equipment, as of December 31 of the
year indicated, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land improvements........................................ $ 303 $ 303
Buildings................................................ 6,536 6,208
Furniture and office equipment........................... 795 605
Machinery and equipment.................................. 39,318 37,091
Computer equipment and capitalized software.............. 2,263 2,130
Leasehold improvements................................... 2,155 2,080
Construction in progress................................. 1,128 1,246
------- -------
52,498 49,663
Less accumulated depreciation............................ 30,507 27,962
------- -------
Net property, plant and equipment........................ $21,991 $21,701
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1998, 1997, and 1996,
was $3,326, $3,603, and $3,563, respectively. Total cost of property obtained
under capital leases was $901 and $980 at December 31, 1998 and 1997,
respectively. Accumulated depreciation on assets obtained under capital leases
was $739 and $642 at December 31, 1998 and 1997, respectively. Amortization of
assets acquired under capital leases is included in depreciation expense in all
years presented.
8) OTHER CURRENT LIABILITIES
Other current liabilities, as of December 31 of the year indicated, consist
of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued compensation and related payroll taxes........... $2,406 $1,837
Corporate pass-through charges due to Black & Decker..... -- 1,603
Accrued interest......................................... 1,450 --
Other.................................................... 3,596 2,512
------ ------
Total.................................................... $7,452 $5,952
====== ======
</TABLE>
Corporate pass-through due to Black & Decker includes certain reserves
related to product liability, workers compensation, disability and medical
benefits. In 1998, reserves for items previously covered by corporate
pass-through charges, which are more fully described in note 11, are included in
other.
F-16
<PAGE> 122
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9) BORROWINGS
LONG-TERM DEBT
Long-term debt at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
10.875% Senior Subordinated Notes due 2008................ $100,000
Bank Credit Facility with an average interest rate of
7.55% at December 31, 1998.............................. 37,306
--------
Total debt................................................ 137,306
Less current maturities................................... 900
--------
Long-term debt............................................ $136,406
========
</TABLE>
The 10.875% Senior Subordinated Notes due 2008 (the Notes) were issued in
connection with the Recapitalization. The Notes provide for interest payments,
in arrears, commencing on June 1, 1999. At the option of the Company, up to 35%
of the Notes are redeemable prior to December 1, 2001, at 110.875%, with the net
cash proceeds of one or more public equity offerings. From December 1, 2001 to
November 30, 2003 the Notes may be redeemed, at the option of the Company, in
whole or in part, at a premium, upon the occurrence of a change of control.
Subsequent to November 30, 2003 the Notes may be redeemed, at the option of the
Company, in whole or in part, at a redemption price of 105.438% beginning
December 1, 2003 and declining ratably thereafter to 100.0% on December 1, 2006.
On February 12, 1999 the Company filed a Registration Statement on Form S-4
with the United States Securities and Exchange Commission, seeking to register
the $100 million 10.875% Senior Subordinated Notes.
The loans outstanding under the Bank Credit Facility (the Credit Agreement)
are comprised of $9,875 of Term A and $27,431 of Term B. The Credit Agreement
provides for interest, at the Company's option, at (i) the base rate of the bank
acting as administrative agent plus a margin adder of 1.00% on Term A and 1.25%
on Term B, or (ii) under a LIBOR option with borrowing spreads of LIBOR plus
0.00% to LIBOR plus 2.25% on Term A, depending on the Company's leverage ratio
(as defined in the Credit Agreement), and LIBOR plus 2.50% for Term B. Principal
payments, amounts of which vary over the term of the Credit Agreement, are due
quarterly beginning December 31, 1998 and ending September 30, 2005. Interest is
payable, at a minimum, on a quarterly basis, based on terms set forth in the
Credit Agreement.
The loans under the Credit Agreement are senior to the Notes, and are
secured by substantially all of the Company's assets.
The Credit Agreement and the Notes contain provisions which, among other
things, limit the Company's ability to (i) incur additional indebtedness, (ii)
make acquisitions and capital expenditures, (iii) sell assets, (iv) create liens
or other encumbrances, (v) make certain payments and dividends, or (vi) merge or
consolidate. The bank credit facility also requires the Company to maintain
certain specified financial ratios and tests including, (i) minimum EBITDA
levels, (ii) minimum interest coverage and fixed charge coverage ratios, and
(iii) maximum leverage ratios. At December 31, 1998 the Company was in
compliance with all of the covenants in both the Credit Agreement and the Notes.
F-17
<PAGE> 123
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, future minimum principal payments on long-term debt
were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1999...................................................... $ 900
2000...................................................... 1,400
2001...................................................... 1,900
2002...................................................... 2,275
2003...................................................... 2,525
Thereafter................................................ 128,306
--------
Total..................................................... $137,306
========
</TABLE>
LINE OF CREDIT
The Company may borrow, through September 30, 2004, up to $20,000 under a
revolving credit agreement included in the Bank Credit Facility. Borrowings
under the agreement are subject to the same provisions described in the
long-term debt section of this footnote. Interest rates are floating, but in no
event will be greater than prime plus 1.25% or LIBOR plus 2.50%. The Company has
no outstanding borrowings under this line of credit at December 31, 1998.
10) INCOME TAXES
The provision for income taxes, for the years ended December 31, 1998, 1997
and 1996, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal.................................................. $2,744 $4,707 $3,253
State.................................................... 143 570 394
------ ------ ------
Total.................................................... $2,887 $5,277 $3,647
====== ====== ======
</TABLE>
The actual income tax expense attributable to earnings from continuing
operations differs from the amounts computed by applying the U.S. federal tax
rate of 34% to the pretax earnings from continuing operations as a result of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense........................ $(11,874) $3,448 $1,989
State tax, net of federal benefit...................... (1,397) 405 234
Write-off of goodwill.................................. 15,200 -- --
Amortization of goodwill............................... 952 1,424 1,424
Other.................................................. 6 -- --
-------- ------ ------
Actual income tax expense.............................. $ 2,887 $5,277 $3,647
======== ====== ======
</TABLE>
F-18
<PAGE> 124
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The current and deferred provision for income taxes for the years ended
December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................... $3,514 $4,034 $ 5,319
State................................................. 287 488 644
------ ------ -------
Total current......................................... 3,801 4,522 5,963
Deferred:
Federal (770) 673 (2,066)
State................................................. (144) 82 (250)
------ ------ -------
Total deferred........................................ (914) 755 (2,316)
------ ------ -------
Total................................................... $2,887 $5,277 $ 3,647
====== ====== =======
</TABLE>
For federal and state income tax purposes, the Recapitalization is a
taxable business combination and is a qualified stock purchase. The buyer and
the seller have elected jointly to treat the Recapitalization as an asset
acquisition under section 338(h)(10) of the Internal Revenue Code of 1986, as
amended. A preliminary allocation of the purchase price to the tax basis of
assets and liabilities based on their respective estimated fair values at
September 30, 1998 was made for income tax purposes. In connection with the
Recapitalization, the Company recorded a deferred tax asset of approximately
$52,895, net of a valuation allowance of $17,632, at September 30, 1998 related
to future tax deductions of the net excess of the tax bases of the assets and
liabilities over the financial statement carrying amounts with a corresponding
credit to additional paid-in capital.
Historically the Company has generated operating income and realization of
the deferred tax asset is dependant upon the Company's ability to generate
sufficient future taxable income, which management believes is more likely than
not. The Company anticipates future taxable income sufficient to realize the
recorded deferred tax asset, net of the existing valuation allowance at December
31, 1998. Future taxable income is based on management's forecast of the
operating results of the Company, and there can be no assurance that such
results will be achieved.
Management continually reviews such forecasts in comparison with actual
results and expected trends. In the event management determines that sufficient
future taxable income may not be generated to fully realize the deferred tax
asset, the Company will increase the valuation allowance by a charge to income
tax expense in the period of such determination.
F-19
<PAGE> 125
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities at December 31, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Acquisition costs......................................... $ 1,510 $ --
Goodwill.................................................. 69,279 --
Accrued liabilities....................................... 324 4,303
Net operating loss carryforwards.......................... 2,341 --
-------- ------
Gross deferred tax assets................................. 73,454 4,303
Less valuation allowance............................... (17,632) --
-------- ------
Net deferred tax assets................................... 55,822 4,303
-------- ------
Deferred tax liabilities:
Property, plant and equipment............................. -- 4,067
-------- ------
Net deferred tax asset...................................... $ 55,822 $ 236
======== ======
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $6,000 which expire in
years ending through 2018.
11) RELATED PARTY TRANSACTIONS
Following is a summarization of certain related party transactions:
Prior to September 30, 1998, Black & Decker and its affiliates charged True
Temper for corporate expense allocations, "corporate pass-through charges" and
other shared services. The costs charged to True Temper for such services are
included in the accompanying financial statements, and are based upon various
allocation methodologies determined by Black & Decker and, accordingly, may not
represent the actual cost of providing such services. Furthermore, the amounts
charged for these services may not necessarily be representative of the costs
that would be incurred by True Temper on a stand-alone basis.
Corporate Expense Allocation: Prior to September 30, 1998, True Temper
received certain services provided by Black & Decker that include cash
management, tax reporting, risk management and internal audit. Allocated
expenses for such services, amounting to $763, $927 and $668 for the years ended
December 31, 1998, 1997 and 1996, respectively, have been included in the
accompanying statements of operations. Charges for these corporate services were
based upon a general allocation methodology determined by Black & Decker (used
to allocate all corporate overhead expenses to Black & Decker's operating
divisions and subsidiaries), and have not necessarily been allocated on a basis
which approximates True Temper's estimated usage of such services. Management
believes the estimated stand-alone expenses for such services would have been,
for the nine month period ended September 29, 1998 and the year ended December
31, 1997, $375 and $500, respectively.
Corporate Pass-through Charges: Black & Decker provided certain common
services for True Temper and other Black & Decker affiliates, including group
self-insurance programs and blanket insurance coverage. Many of these services
represent services provided by third parties whereby Black & Decker incurred the
cost of the service on behalf of True Temper. Black & Decker charged True Temper
for the estimated cost of these services. The costs for these services and/or
expenses have been allocated to True Temper by Black & Decker based upon certain
allocation methodologies determined by Black & Decker. Management believes the
estimated stand-alone expenses for such services would have been, for the nine
month period ended September 29, 1998 and the year ended December 31, 1997,
$4,889 and $6,519, respectively.
F-20
<PAGE> 126
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Reflected in the statements of operations are the following pass-through
costs:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Product liability and general insurance.................. $ 555 $ 686 $ 710
Human resources.......................................... 2,872 3,571 3,015
Other.................................................... 1,903 2,341 1,856
------ ------ ------
Total.......................................... $5,330 $6,598 $5,581
====== ====== ======
</TABLE>
Shared Direct Services with Black & Decker Affiliates: Prior to September
30, 1998, True Temper utilized certain direct services provided by other Black &
Decker affiliates mainly in conjunction with the Company's non-domestic sales.
The direct services primarily include payroll and benefit processing, accounts
receivable support, and inventory warehousing. Total charges for these services
for the years ended December 31, 1998, 1997 and 1996 were approximately $47, $62
and $62, respectively.
Net Investment: The net invested capital account includes transactions of
an intercompany nature, related to deferred income taxes, post-retirement
benefits, other intercompany transactions and the residual net investment
balance in True Temper. The following table sets forth the components of the net
investment recognized in True Temper's balance sheet at December 31, 1997.
<TABLE>
<CAPTION>
1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Deferred income taxes........................... $ (236)
Post-retirement benefits........................ 7,456
Residual investment............................. 139,496
--------
Total........................................... $146,716
========
</TABLE>
All transactions between Black & Decker and True Temper have been accounted
for as settled in cash at the time the transactions were recorded by True Temper
for the purposes of the statement of cash flows.
12) EMPLOYEE BENEFIT PLANS
As of December 31, 1998, the Company had not established a qualified
defined benefit pension plan for its hourly and salaried employees. As part of
the Recapitalization agreement, the Company's active hourly and salaried
employees will continue to be covered under the existing Black & Decker defined
benefit plans until such time that the Company establishes its own defined
benefit pension plan. The Company intends to establish such a plan during 1999.
Upon notification to Black & Decker of a favorable determination letter
from the Internal Revenue Service regarding the qualified status of a new
pension plan, Black & Decker will transfer, from the Black & Decker pension
plans to a True Temper pension plan, all of the plan assets and benefit
obligations attributable to the active employees who were participants in the
Black & Decker pension plans as of the date of the Recapitalization.
F-21
<PAGE> 127
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the portion of the
Black & Decker pension plans attributable to True Temper Sports, Inc. as of
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............. $27,761 $23,763 $23,336
Service cost........................................ 631 554 592
Interest cost....................................... 2,030 1,849 1,763
Actuarial (gains)/losses............................ 3,237 2,908 (635)
Benefits paid....................................... (1,393) (1,313) (1,293)
------- ------- -------
Benefit obligation at end of year................... $32,266 $27,761 $23,763
======= ======= =======
Change in plan assets:
Fair value of plan assets at beginning of year...... $31,875 $26,045 $24,900
Actual return on plan assets........................ 2,760 7,299 2,509
Expenses............................................ 138 (156) (71)
Benefits paid....................................... (1,393) (1,313) (1,293)
------- ------- -------
Fair value of plan assets at end of year............ $33,380 $31,875 $26,045
======= ======= =======
Funded status:
Funded status....................................... $ 1,115 $ 4,114 $ 2,282
Unrecognized net actuarial gain..................... (902) (3,580) (1,499)
Unrecognized prior service cost..................... 234 321 408
------- ------- -------
Net amount recognized............................... $ 447 $ 855 $ 1,191
======= ======= =======
</TABLE>
The net periodic benefit cost related to the defined benefit pension plans
included the following components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
The components of the pension cost are as follows:
Service cost of benefits earned during the year..... $ 773 $ 710 $ 707
Interest cost on projected benefit obligation....... 2,030 1,849 1,764
Expected return on plan assets...................... (2,640) (2,391) (2,482)
Amortization of prior service cost.................. 87 87 87
Amortization of net actuarial loss.................. 158 81 260
------- ------- -------
Net periodic pension cost........................... $ 408 $ 336 $ 336
======= ======= =======
Weighted average assumptions:
Discount rate:
Pension cost..................................... 7.50% 8.00% 7.75%
Benefit obligation............................... 6.50% 7.50% 8.00%
Expected return on plan assets...................... 9.75% 9.75% 10.50%
Rate of compensation increase....................... 5.00% 5.00% 5.00%
</TABLE>
F-22
<PAGE> 128
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Assets of the plans consist primarily of investments in equity securities,
debt securities, and cash equivalents. Expenses for defined contribution plans
amounted to $174, $144 and $150 in 1998, 1997 and 1996 respectively.
The Company participates in certain unfunded health care plans that provide
post-retirement medical, dental, and life insurance to most employees. The
post-retirement plans are contributory, and include certain cost-sharing
features, such as deductibles and co-payments.
The following table sets forth the benefit obligation of the unfunded
post-retirement health plans as of December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.............. $ 5,628 $6,263 $ 3,282
Service cost......................................... 64 67 65
Interest cost........................................ 371 470 247
Actuarial (gains)/losses............................. (112) (695) 3,446
Benefits paid........................................ (515) (478) (777)
Retained by Black & Decker........................... (3,471) -- --
------- ------ -------
Benefit obligation at end of year.................... 1,965 5,627 6,263
Unrecognized transition obligation..................... -- 1,761 2,488
Unamortized prior service cost......................... -- 923 1,716
------- ------ -------
Accrued benefit costs.................................. $ 1,965 $8,311 $10,467
======= ====== =======
</TABLE>
The net periodic post-retirement benefit expense included the following
components for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................... $ 64 $ 67 $ 65
Interest cost.............................................. 371 470 247
Amortization of prior service costs........................ (300) (398) (406)
----- ----- -----
Net periodic cost.......................................... $ 135 $ 139 $ (94)
===== ===== =====
Assumed discount rate...................................... 6.50% 7.50% 8.00%
</TABLE>
The healthcare cost trend rate used to determine the post-retirement
benefit obligation was 7.20% for 1999. This rate decreases gradually to an
ultimate rate of 4.41% in 2005, and remains at that level thereafter. The trend
rate is a significant factor in determining the amounts reported. The following
table sets forth the impact of a 1.00% change in the trend rate:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Effect of 1.00% increase in trend rate on:
Net periodic cost......................................... $ 26
Post-retirement benefit obligation........................ $ 108
Effect of 1.00% decrease in trend rate on:
Net periodic cost......................................... $ (29)
Post-retirement benefit obligation........................ $(122)
</TABLE>
F-23
<PAGE> 129
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13) CHANGE IN ACCOUNTING FOR GOODWILL
In 1989 Black & Decker acquired True Temper as part of Black & Decker's
acquisition of Emhart Corporation. In connection with the acquisition, goodwill
was allocated to the Company.
Black & Decker elected to change its method of measuring goodwill
impairment from an undiscounted cash flow approach to a discounted cash flow
approach effective January 1, 1998. On a periodic basis, Black & Decker
estimates future discounted cash flows of the businesses to which goodwill
relates. When such an estimate of the future discounted cash flows, net of the
carrying amount of tangible net assets, is less than the carrying amount of
goodwill, the difference will be charged to operations. For purposes of
determining the future discounted cash flows of the businesses to which goodwill
relates, Black & Decker, based upon historical results, current projections, and
internal earnings targets, determined the projected future operating cash flows,
net of income tax payments, of the individual businesses. These projected future
cash flows are then discounted at a rate corresponding to Black & Decker's
estimated cost of capital, which also is the hurdle rate used by Black & Decker
in making investment decisions. Future discounted cash flows for businesses to
be sold include an estimate of the proceeds from the eventual sale of such
businesses, net of associated selling expenses and taxes. Black & Decker
believed that measurement of the value of goodwill through a discounted cash
approach is preferable in that it facilitates the timely identification of
impairment of the carrying value of investments in businesses and provides a
more current and, with respect to businesses to be sold, more realistic
valuation than the undiscounted approach.
In connection with Black & Decker's change in accounting policy with
respect to measurement of goodwill impairment described above, $40 million of
goodwill related to True Temper has been written off through a charge to
operations during the first quarter of 1998. This is a change in accounting
estimate that is inseparable from a change in principle. That write-down
represents the amount necessary to write-down the carrying value of goodwill for
True Temper, according to Black & Decker's best estimate as of January 1, 1998,
of True Temper's future discounted cash flows using the methodology described in
the preceding paragraph.
14) COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATION
The Company is obligated under various non-cancelable leases for office
facilities and equipment. These leases generally provide for renewal options
and, in the case of facilities leases, for periodic rate increases based upon
economic factors. All non-cancelable leases with an initial term greater than
one year have been categorized as either capital or operating leases in
conformity with FASB Statement No. 13, "Accounting for Leases."
F-24
<PAGE> 130
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under non-cancelable operating and capital leases
with initial terms of one year or more as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1999.................................................... $ 677 $126
2000.................................................... 633 90
2001.................................................... 381 34
2002.................................................... 371 20
2003.................................................... 337 --
Thereafter.............................................. 84 --
Less sublease rentals................................. (68) --
------ ----
Total minimum lease payments............................ $2,415 270
Imputed interest........................................ (31)
----
Present value of net minimum lease payments including
current maturities of $109............................ $239
====
</TABLE>
Rental expense on operating leases, excluding sublease rent received, was
$547, $514, and $463 for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company leases a building with minimum rental payments on this lease of
approximately $100 per year. This lease expires in August 1999. True Temper has
the option to purchase this property. Currently, True Temper does not utilize
this facility and has entered a sublease agreement with a third party, which
expires August 31, 1999 and calls for annual sublease rent of approximately
$104.
LEGAL PROCEEDINGS
The company has certain contingent liabilities resulting from litigation
and claims incident to the ordinary course of business. Management believes that
the probable resolution of such contingencies will not materially affect the
financial position or results of operations of the Company.
15) SEGMENT AND OTHER RELATED DISCLOSURES
SEGMENT REPORTING
The Company operates in two reportable business segments: golf shafts and
specialty tubing. The Company's reportable segments are based on the type of
product manufactured and the application of that product in the marketplace. The
golf shaft segment manufactures and sells steel and composite golf club shafts
for use exclusively in the golf industry. The specialty tubing segment
manufactures and sells high strength, high tolerance tubular components for
bicycle, automotive and recreational sport markets. The accounting policies for
these segments are the same as those described in the summary of significant
accounting policies. The company evaluates the performance of these segments
based on segment sales and gross profit. The Company has no inter-segment sales.
General corporate assets, that are not allocated down to segments, include:
cash, deferred tax assets, deferred financing costs, and goodwill created during
the acquisition of the Company by Black & Decker.
F-25
<PAGE> 131
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Golf shafts............................................... $87,453 $77,327 $65,028
Specialty tubing.......................................... 3,997 5,270 6,575
------- ------- -------
Total..................................................... $91,450 $82,597 $71,603
======= ======= =======
Gross profit:
Golf shafts............................................... $30,907 $26,861 $19,542
Specialty tubing.......................................... 1,291 1,850 2,433
------- ------- -------
Total..................................................... $32,198 $28,711 $21,975
======= ======= =======
Total assets:
Jointly used assets....................................... $ 6,483 $ 6,877 $ 7,234
Golf shafts............................................... 37,559 32,329 31,432
Specialty tubing.......................................... 2,661 2,443 2,588
------- ------- -------
Total..................................................... $46,703 $41,649 $41,254
======= ======= =======
</TABLE>
Following is a reconciliation of total reportable segment assets to total
Company assets:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total assets:
Total from reportable segments $ 46,703 $ 41,649 $ 41,254
General corporate 142,923 118,692 121,932
-------- -------- --------
Total $189,626 $160,341 $163,186
======== ======== ========
</TABLE>
SALES BY GEOGRAPHIC REGION
The geographic distribution of the Company's net sales, by location of
customer, is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S................................................... $76,689 $68,507 $60,758
International......................................... 14,761 14,090 10,845
------- ------- -------
Total................................................. $91,450 $82,597 $71,603
======= ======= =======
</TABLE>
No individual country or geographic area outside the U.S. accounts for 10%
or more of total sales. Assets by location are not disclosed, as assets located
outside the U.S. are immaterial.
F-26
<PAGE> 132
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF , 1999.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Old Note Offering................. 1
Summary of the Offering............... 3
Prospectus Summary.................... 5
Risk Factors.......................... 9
Use of Proceeds....................... 16
Capitalization........................ 17
Selected Historical Financial Data.... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 30
Management............................ 41
Security Ownership of Certain
Beneficial Owners and Management.... 45
Certain Relationships and Related
Transactions........................ 46
Description of Senior Credit
Facilities.......................... 48
Description of Exchange Notes......... 50
The Exchange Offer.................... 87
Plan of Distribution.................. 97
Legal Matters......................... 98
Experts............................... 98
Index to Unaudited Pro Forma Financial
Information......................... P-1
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1999 ([ ] DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
[TRUE TEMPER LOGO]
TRUE TEMPER SPORTS, INC.
$100,000,000
10 7/8% SENIOR SUBORDINATED NOTES
DUE 2008
--------------------
PROSPECTUS
--------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
True Temper is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
The Certificate of Incorporation of True Temper provides for the
indemnification of directors and officers to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as it currently exists or may
hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
True Tempers maintains and has in effect insurance policies covering all of
its respective directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
(a) EXHIBITS
+2.1 -- Reorganization, Recapitalization and Stock Purchase
Agreement dated as of June 29, 1998 by and between The
Black & Decker Corporation, True Temper Sports, Inc. and
TTSI LLC ("Recapitalization Agreement").
+2.2 -- Amendment No. 1 to Recapitalization Agreement dated August
1, 1998.
+2.3 -- Amendment No. 2 to Recapitalization Agreement dated
September 30, 1998.
+2.4 -- Assignment and Assumption Agreement by and between TTC and
True Temper Sports, Inc., dated September 30, 1998.
</TABLE>
II-1
<PAGE> 134
<TABLE>
<C> <S>
+3.1 -- Amended and Restated Certificate of Incorporation of True Temper Sports, Inc., dated September 29, 1988.
+3.2 -- By-laws of True Temper Sports, Inc.
+4.1 -- Indenture, dated as of November 23, 1998 between True Temper Sports, Inc. and United States Trust of New
York.
+4.2 -- Purchase Agreement, dated November 18, 1998 between True Temper Sports, Inc. and Donaldson, Lufkin &
Jenrette.
+4.3 -- Registration Rights Agreement, dated as of November 23, 1998 between True Temper Sports, Inc. and
Donaldson, Lufkin & Jenrette.
+5.1 -- Opinion of Kirkland & Ellis.
+10.1 -- Management Services Agreement, dated as of September 30, 1998 between True Temper Sports, Inc. and
Cornerstone Equity Investors LLC.
+10.2 -- Amendment to Management Services Agreement, dated November 23, 1998.
+10.3 -- Credit Agreement, dated as of September 30, 1998 by and among True Temper Sports, Inc., various financial
institutions, DLJ Capital Funding, Inc. and The First National Bank of Chicago.
+10.4 -- Securities Purchase Agreement, dated as of September 30, 1998 among True Temper Corporation and the
Purchase Party thereto.
12.1 -- Statement of Ratio of Earnings to Fixed Charges.
18.1 -- Letter re change in accounting principles.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Letter re change in accountants.
+23.4 -- Consent of Kirkland & Ellis (included in Exhibit 5.1).
+24.1 -- Powers of Attorney (included in Signature page).
+25.1 -- Statement of Eligibility of Trustee on Form T-1.
27.1 -- Financial Data Schedule.
+99.1 -- Form of Letter of Transmittal.
+99.2 -- Form of Letter of Notice of Guaranteed Delivery.
+99.3 -- Form of Tender Instructions.
</TABLE>
- ---------------
+ Previously Filed.
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules are omitted because of the absence of the
conditions under which they are required or because the required information is
included in the financial statements or the notes thereto.
ITEM 22. UNDERTAKINGS.
Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-2
<PAGE> 135
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described under
Item 20 or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Each undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
Each undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Memphis, State of Tennessee, on April , 1999.
Time Temper Sports, Inc.
By: /s/ SCOTT C. HENNESSY
------------------------------------
Name: Scott C. Hennessy
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated on April , 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ SCOTT C. HENNESSY Chief Executive Officer and Director
- -------------------------------------------------------- (principal executive officer)
Scott C. Hennessy
/s/ FRED H. GEYER Vice President, Finance -- Chief Financial
- -------------------------------------------------------- Officer, (principal financial officer and
Fred H. Geyer accounting officer)
/s/ ROBERT A. KNOX Director
- --------------------------------------------------------
Robert A. Knox
/s/ RAYMOND A. DEVITA Director
- --------------------------------------------------------
Raymond A. Devita
/s/ MARK ROSSI Director
- --------------------------------------------------------
Mark Rossi
/s/ TYLER J. WOLFMAN Director
- --------------------------------------------------------
Tyler J. Wolfman
</TABLE>
II-4
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------- ----------- ------------
<C> <C> <S> <C>
+2.1 -- Reorganization, Recapitalization and Stock Purchase
Agreement dated as of June 29, 1998 by and between The
Black & Decker Corporation, True Temper Sports, Inc. and
TTSI LLC ("Recapitalization Agreement").
+2.2 -- Amendment No. 1 to Recapitalization Agreement dated August
1, 1998.
+2.3 -- Amendment No. 2 to Recapitalization Agreement dated
September 30, 1998.
+2.4 -- Assignment and Assumption Agreement by and between TTC and
True Temper Sports, Inc. dated September 30, 1998.
+3.1 -- Amended and Restated Certificate of Incorporation of True
Temper Sports, Inc., dated September 29, 1988.
+3.2 -- By-laws of the Company.
+4.1 -- Indenture dated as of November 23, 1998 between True Temper
Sports, Inc. and United States Trust of New York.
+4.2 -- Purchase Agreement dated November 18, 1998 between True
Temper Sports, Inc. and Donaldson, Lufkin & Jenrette.
+4.3 -- Registration Rights Agreement dated as of November 23, 1998
between True Temper Sports, Inc. and Donaldson, Lufkin &
Jenrette.
+5.1 -- Opinion of Kirkland & Ellis.
+10.1 -- Management Services Agreement dated as of September 30, 1998
between True Temper Sports, Inc. and Cornerstone Equity
Investors, LLC.
+10.2 -- Amendment to Management Services Agreement dated November
23, 1998.
+10.3 -- Credit Agreement dated as of September 30, 1998 by and among
True Temper Sports, Inc., various financial institutions,
DLJ Capital Funding, Inc. and The First National Bank of
Chicago.
+10.4 -- Securities Purchase Agreement dated as of September 30, 1998
among True Temper Corporation and the Purchase Party
thereto.
12.1 -- Statement of Ratio of Earnings to Fixed Charges.
18.1 -- Letter re change in accounting principles.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Ernst & Young LLP
23.3 -- Letter re change in accountants.
+23.4 -- Consent of Kirkland & Ellis (included in Exhibit 5.1).
+24.1 -- Powers of Attorney (included in Signature page).
+25.1 -- Statement of Eligibility of Trustee on Form T-1.
27.1 -- Financial Data Schedule.
+99.1 -- Form of Letter of Transmittal.
+99.2 -- Form of Letter of Notice of Guaranteed Delivery.
+99.3 -- Form of Tender Instructions.
</TABLE>
- ---------------
+ Previously filed.
<PAGE> 1
TRUE TEMPER SPORTS
Exhibit 12.1 Data - Statement of Ratio of Earnings To Fixed Charges
- ---------------------------------------------------------------------------
For Year Ended December 31,
---------------------------
Pro Forma
1998 1998
EARNINGS
Net Income Before Taxes................................ (37,811) (40,395)
FIXED CHARGES
Interest Expense....................................... 3,545 13,855
Interest Factor of Operating Rents..................... 182 182
------ -------
Total Fixed Charges.................................... 3,727 14,037
EARNINGS, AS ADJUSTED.................................... (34,084) (26,358)
RATIO OF EARNINGS TO FIXED CHARGES(1).................... -- --
AMOUNT BY WHICH EARNINGS WERE INSUFFICIENT TO COVER FIXED
CHARGES(2).............................................. 37,811 40,395
(1) Information relating to the ratio of earnings to fixed charges for 1994
through 1998 has been excluded as the fixed charges were immaterial for
each of those years (less than $200 for each of 1994, 1995, 1996 and 1997).
(2) Earnings were not sufficient to cover fixed charges in 1998 primarily due
to a $40.0 million dollar goodwill write-off taken by Black & Decker
effective January 1, 1999.
<PAGE> 1
Exhibit 18.1
True Temper Sports, Inc.
Memphis, Tennessee
April 13, 1999
Gentlemen:
We have audited the balance sheet of True Temper Sports, Inc. as of December 31,
1998 and the related statements of operations, changes in stockholder's equity
and cash flows for the year ended December 31, 1998, and have reported thereon
under date of March 10, 1999. The aforementioned financial statements and our
audit report thereon are included in the prospectus in the Company's
Registration Statement on Form S-4. As disclosed in Note 2, the Company changed
its method of accounting for its domestic inventories from the
last-in-first-out (LIFO) method to the first-in-first-out (FIFO) method and
indicated that the newly adopted accounting principle is preferable in the
circumstances because it better measures the current value of such inventories,
provides a more appropriate matching of revenue and expenses and conforms all
inventories of the Company to the same accounting method. Additionally, the
Company believes that the change will enhance the comparability of the
Company's financial statements by changing to the predominant method utilized
in its industry. The Company believes that the impact of this change is not
material to the financial statements and therefore has not restated its
financial statements as otherwise called for by paragraph 27 of Accounting
Principles Board Opinion No. 20. However, pursuant to paragraph 28 of
Accounting Principles Board Opinion No. 20, the Company has disclosed in the
aforementioned financial statements the nature and justification of this change.
In accordance with your request, we have reviewed and discussed with Company
officials the circumstances and business judgment and planning upon which the
decision to make this change in the method of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes of
True Temper Sports, Inc.'s compliance with the requirements of the Securities
and Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG LLP
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
True Temper Sports, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Memphis, Tennessee
April 16, 1999
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 6, 1998, with respect to the financial statements
of True Temper Sports, Inc. included in the Registration Statement (Form S-4)
and related Prospectus of True Temper Sports, Inc. for the registration of
10 7/8% Senior Subordinated Notes in the amount of $100,000,000 due 2008.
/s/ Ernst & Young LLP
April 16, 1999
Baltimore, Maryland
<PAGE> 1
Exhibit 23.3
April 16, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the section entitled "Experts" under Item 14 of Form S-4 dated
April 16, 1999, of True Temper Sports, Inc. and are in agreement with the
statements contained in paragraphs (1) and (3) therein relating to the change in
accountants. We have no basis to agree or disagree with other statements of the
registrant contained therein.
/s/ Ernst & Young LLP
Baltimore, Maryland
[/R]
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