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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-72343
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TRUE TEMPER SPORTS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3949 52-2112620
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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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)
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Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ].
Indicate by checkmark if disclosure by delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 30, 2000 the Registrant had 100 shares of Common Stock, $0.01 par
value per share, outstanding. All of the Registrant's outstanding shares were
held by True Temper Corporation, the Registrant's parent company, as of
March 30, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Part IV incorporates certain information by reference from the Registrant's
Registration Statement on Form S-4, as filed with the Securities & Exchange
Commission on June 7, 1999, and declared effective on June 10, 1999.
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TRUE TEMPER SPORTS, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 1999
INDEX
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PART I
Item 1 Business 1
Item 2 Properties 12
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 14
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 26
Item 8 Financial Statements and Supplementary Data 28
Item 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures 55
PART III
Item 10 Directors and Executive Officers of the Registrant 55
Item 11 Executive Compensation 57
Item 12 Security Ownership of Certain Beneficial Owners and Management 60
Item 13 Certain Relationships and Related Transactions 60
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 63
SIGNATURES 65
EXHIBIT INDEX 66
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PART I
ITEM 1. BUSINESS
GENERAL
We are the world's leading designer, manufacturer and marketer of golf club
shafts. Since the 1930's we have manufactured golf club shafts under the widely
recognized True Temper brand. In 1999, over 70% 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%. We are a major supplier of steel shafts to each of
the top 20 golf club designers and distributors, including Callaway, PING,
Titleist, Mizuno, Wilson, Cleveland, Adams, Orlimar, TaylorMade and Golfsmith.
In addition, we are one of the leading manufacturers in the highly fragmented
graphite golf club shaft market.
Our products include over 1,800 proprietary (models that have our
customers brand name, label or trademark affixed to the shaft) and 1,600 branded
(models that have the True Temper and/or Grafalloy brand name, label or
trademark affixed to the shaft) 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, a leading steel shaft on the PGA Tour for the last 20
years;
(2) Sensicore and Sensicore Gold, which utilize patented vibration damping
technology, to combine the feel of graphite with the consistency of
steel;
(3) Tri-Gold, which utilizes an innovative design and weighting
technology; and
(4) co-branded products, including Callaway's Memphis 10, PING's JZ and ZZ
Lite and Wilson's Fat Shaft.
From 1990 to 1999, our steel shafts were played by over 82% of the PGA's
major championship winners, including 9 of the last 10 Masters champions.
We also design, manufacture and market approximately 75 lines of premium
graphite (carbon fiber based composite) shafts under the True Temper and
Grafalloy brand names, including EI-70, Dynamic Gold Graphite, Sensicore
Graphite, TT Lite, Tri-Gold Graphite, ProLite, ProLogic and AttackLite. Our
graphite shafts also have a strong presence on the PGA Tour, where they have
been used by players such as Davis Love III, David Duval and Justin Leonard,
each of whom have won PGA Tour events during the past three years playing our
graphite shafts.
In addition, we manufacture a variety of high strength, high tolerance
tubular components for the bicycle, automotive and recreational sports markets.
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 branded, performance enhancing designs, including its
Attacklite, ProLite and ProLogic lines of ultra-lightweight and performance
graphite shafts. We believe that our acquisition of Grafalloy has enhanced our
presence in the highly fragmented graphite shaft market.
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THE GOLF CLUB SHAFT INDUSTRY
Golf clubs are assembled using shafts that are made from two primary
materials. Steel shafts are used to produce most of the iron products sold
today, some of the driver and fairway woods, and almost all of the putters.
Graphite shafts are used to produce most of the driver and fairway woods, as
well as some of the iron products.
We estimate that in recent years steel shafts represented close to 60% of
the total worldwide unit sales, and graphite represented the remainder. We
believe new product innovations and consumer preferences indicate the trend
toward steel shafts is growing.
The steel shaft market is highly concentrated, with only a few
manufacturers worldwide. 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 in the range of $50
million to $60 million.
Unlike steel, the graphite shaft market is characterized by many smaller
manufacturers who require limited capital investment to produce graphite shafts
in quantity. Although there are a few graphite shaft suppliers with scale, none
of them have a majority share in the graphite market. Typically the graphite
manufacturers have a highly concentrated customer base with most of their sales
going to only a few customers.
Like most golf shaft manufacturers we sell shafts to both original
equipment manufacturers ("OEM's") like Callaway, Titleist, PING and others, as
well as to golf equipment distributors like Golfsmith. OEM's purchase both
proprietary/uniquely designed products as well as True Temper/Grafalloy branded
product offerings. Distributors, who service custom club builders and pro shops,
prefer to purchase brand name shafts that have a high degree of consumer
recognition.
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BUSINESS STRATEGY
Our goal is to increase revenues and operating performance 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 goal consists of the following objectives:
- CONTINUE TO INCREASE SHARE OF THE STEEL AND GRAPHITE SHAFT MARKETS. We
intend to continue to increase our share of the steel and graphite
shaft markets by leveraging the True Temper and Grafalloy brands and
continuing to introduce new products and technologies tailored to the
specific needs of golfers. Our plans are to continue to develop
innovative premium steel shafts with performance characteristics and
features that support 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 under the True Temper and Grafalloy
brands. 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.
- LEVERAGE TECHNOLOGICAL LEADERSHIP TO INTRODUCE NEW PRODUCTS. We intend
to capitalize on our design expertise and couple our internal
resources with our supplier partnerships to continue to develop and
introduce new products for the future as we have in the past. In 1999,
over 30% of our revenues were derived from products introduced during
the past 3 years. 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 expanded the patented Sensicore
technology into graphite shafts. During 1999 we continued the product
line development with the launch of Sensicore Gold, with variable
damping technology, and Tri-Gold, which utilizes new ascending mass
technology.
- 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;
(2) growth in the number of golf courses;
(3) increased interest in golf by woman, 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 increase in consumer advertising by the golf
equipment industry; and
(7) the rapid evolution of golf club designs and technology.
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- 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, the JZ and ZZ Lite for PING and the EI-70+ for Orlimar,
among others.
- CONTINUE TO BUILD THE TRUE TEMPER AND GRAFALLOY BRANDS. We intend to
continue to increase awareness of the True Temper and Grafalloy brands
and to support our new product introductions with targeted consumer
advertising campaigns. From 1997 to 1999 we increased advertising
expenditures by approximately 7.7% to $4.6 million, or approximately
5.0% of our 1999 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) promoting our products among tour and teaching professionals,
college players, coaches and other leaders in the golf community;
and
(3) 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 our sales
and distribution offices in Japan, Australia and the United Kingdom.
- CONTINUE TO IMPROVE PRODUCTIVITY AND OPERATING MARGINS. From 1997 to
the year ended December 31, 1999, we increased our gross profit margins
from 34.8% to 39.2% and our adjusted EBITDA (as defined in Section 7 of
this annual report) margins from 21.9% to 27.2%, primarily as a result
of reducing our cost structure and increasing sales of new higher
margin products. Management believes there are opportunities to improve
future gross profit margins through:
(1) new product introductions;
(2) productivity improvements from enhanced manufacturing processes
and work flow designs; and
(3) reduced scrap and product waste expenses from improved quality
standards and processes.
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PRODUCTS
We design, manufacture and market steel and graphite 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 (proprietary) shafts, which accounted for approximately 36% of
revenues in 1999, are designed, and frequently co-branded in partnership with
our customers, to accommodate specific golf club designs. Our branded products
with the True Temper and Grafalloy names and designs 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.
STEEL GOLF CLUB SHAFTS. We manufacture approximately 275 lines of steel
golf club shafts, including shafts with the Sensicore and Sensicore Gold insert,
which are well-recognized as the leading shafts to combine the performance
advantages of steel with the vibration damping characteristics of graphite; the
Dynamic Gold shaft, which has been one of the most widely used shafts on the PGA
Tour for the last 20 years; and the recently introduced Tri-Gold shaft, which
utilizes new ascending mass technology.
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, Dynamic Gold and Tri-Gold
product lines, are high performance products and generally yield higher profit
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 golf 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 by
the winners of the 1997 British Open and PGA Championship; the Sensicore
Graphite shaft, which utilizes our patented vibration damping technology, and
the Grafalloy ProLite, which is the winningest ultralight graphite shaft on
tour. Our graphite shafts are also sold under the True Temper and Grafalloy
product brands such as, Dynamic Gold Graphite, TT Lite, ProLogic, Attacklite and
SoLite.
PERFORMANCE TUBING PRODUCTS. We also manufacture and sell a wide variety of
high performance tubular components for the bicycle, automotive and recreational
sports markets. In 1999, we sold our performance tubing products to a broad
range of original equipment manufacturers, including Trek Bicycle, Dana
Corporation, Autodyne Manufacturing and Starline Baton.
CUSTOMERS
We maintain long-standing relationships with a highly diversified customer
base consisting of the premier golf club manufacturers and distributors 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, Wilson,
Cleveland, Adams, Orlimar, TaylorMade and Golfsmith. In 1999, True Temper had in
excess of 800 customers, including more than 575 golf club manufacturers and
more than 90 distributors.
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 have
developed and co-branded several proprietary shafts with our customers, which
include customized steel shafts for Callaway, under the Memphis 10 brand; for
PING, under the JZ and ZZ Lite brands; for Wilson to produce the Fat Shaft line
of clubs; and more recently for Orlimar, under the EI-70+ brand.
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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 at competitive prices;
- our ability to deliver customized products in large quantities on a
timely basis;
- the acceptance of steel and graphite shafts in general, and our shafts
in particular, by professional and other golfers;
- our ability to develop and produce innovative new products that
provide performance features that benefit golfers of all skill levels.
We estimate that we have over 60% of the worldwide steel shaft market, and
that our next largest steel competitor has about one third of our volume. Until
recently, we estimated that we competed with four other steel golf shaft
manufacturers: Royal Precision, Inc., a domestic based steel shaft manufacturer,
two smaller manufacturers located in Far East Asia, and Coyote Sports Inc., the
owner of the Apollo Sports steel shaft brand. However, late in 1999, Coyote
Sports Inc. filed for bankruptcy, and a creditor placed its steel shaft
subsidiary, Apollo, into Receivership under the laws in the United Kingdom. In
early 2000, the Apollo shaft manufacturing operations were shut down and the
majority of its steel shaft manufacturing equipment was purchased by True
Temper.
Unlike steel, the graphite shaft manufacturing industry is highly
fragmented with a large number of suppliers selling to only a few customers. We
believe there are anywhere from fifty to eighty graphite shaft manufacturers
worldwide. Many of these companies are located in North America and Far East
Asia. We do not believe that there are currently any graphite suppliers with a
market share in graphite that is in any way comparable to the market share True
Temper has in steel. In addition to True Temper, we believe the larger graphite
suppliers include Aldila, HST, Fujikura, Rapport and UST. With the addition of
Grafalloy in October of 1998, we believe that True Temper ranks within the top
five highest volume graphite shaft producers in the world.
True Temper is the only major shaft supplier that produces both steel and
graphite shafts for the OEM and distributor markets.
DESIGN & DEVELOPMENT
We design and develop products for both proprietary/co-branded market
applications and for the True Temper/Grafalloy branded product names.
The larger golf club manufacturers often request exclusively designed
proprietary or co-branded 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 designs for both steel and graphite materials
technology. Shaft designs and modifications are frequently the direct result of
our combined efforts with that of our customers to develop an exclusive shaft
specifically designed for that customer's clubs. We use a computer aided design
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.
In addition to our proprietary/co-branded product applications, we are very
active in designing and developing new products under the True Temper and
Grafalloy brand names that meet the performance needs of golfers of all ages and
skill levels. We develop these branded products based upon our internal research
and evaluation of consumer needs and preferences.
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.
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Using computer aided design, we generate a design which is then analyzed
by computer for stiffness and strength properties. Our research and development
efforts focus on technology development and new materials as an essential
precursor to successful new product development. Our design research focuses on
improvements in graphite shaft asthetics since cosmetic appearance has become
increasingly important to customers. In addition, our pursuit of strategic
vendor alliances complement our 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.
Research and development costs for the years ended December 31, 1999, 1998
and 1997 were $1.8 million, $2.2 million and $2.3 million, respectively.
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.
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 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 10 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 or
"prepreg" in sheet form which requires refrigeration until use. Each new roll of
prepreg is allowed to reach room temperature before the material is 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 end of the mandrel to the other. Once the
mandrel is wrapped, the process uses the same encasing and heating techniques as
the flag wrapping process.
RAW MATERIALS. We use several raw materials to produce steel golf shafts,
including several steel alloys sourced from two or three primary vendors, nickel
and plating chemicals, Sensicore inserts and various sundry supplies, boxes and
labels. Graphite shafts are produced with a variety of graphite fiber materials
in both sheet and spool form that we source from several different vendors. In
addition, graphite shafts are finished with a wide variety of paints and inks.
We believe that there are adequate alternative suppliers of these materials,
and, therefore, we do not believe that we are dependent on any one supplier. See
"Business Risks--Risk Associated with Fluctuations in Raw Material Cost and
Availability" and "Qualitative and Quantitative Disclosures About Market
Risk--Commodity Risk" for risks relating to price increases in raw materials
and to delays in receiving supplies.
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MARKETING & PROMOTION
Our marketing strategy is designed around new product development and
targeted advertising and promotion programs. Through our 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
our products to golf club manufacturers while strengthening brand awareness.
During the last several years, 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. The Tour van functions as a golf club repair shop on wheels, visiting
over 50 professional tour events during 1999. Typically, the van is located on
the practice tee and lends technical support to the tour professionals while
simultaneously promoting the True Temper and Grafalloy brands with
representatives of original equipment manufacturers. In addition, we provide
technical support to the players on the Senior PGA Tour, the LPGA Tour, and the
Buy.Com Tour (formerly the Nike Tour).
Although we do not pay any professional golfer to play 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 golfer's product
choices have on consumer preferences, we also engage in special promotional
efforts to encourage professional golfers to use clubs with our 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 and Grafalloy 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 and PGA
Tour activities. In a 1998 New York Times research poll, True Temper was ranked
as the top golf shaft company in terms of brand familiarity. Of those surveyed,
93% recognized the True Temper brand.
Advertising and promotional costs for the years ended December 31, 1999,
1998 and 1997 were $4.6 million, $4.2 million and $4.2 million, respectively.
DISTRIBUTION & 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
70% of revenues in 1999.
We believe that 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 design professionals who provide field support to our sales
representatives. We believe that our international market presence, which
comprised approximately 15% of our total 1999 revenues, provides an opportunity
for future growth. We market our products in Japan, Europe and Southeast Asia
and maintain a sales office and a distribution operation in each region.
EMPLOYEES
As of December 31, 1999, we had 603 full-time employees, including 24 in
sales and marketing, 34 in research, development and manufacturing engineering,
513 in production and the balance in administrative and support roles. In
addition, as of December 31, 1999, we had 109 individuals working in production
at our El Cajon facility through a temporary employment agency. The El Cajon
plant has historically used a certain portion of temporary workers in order to
more effectively match the workforce level with the required production level at
various times of the year.
The hourly employees at our steel plant in Amory, Mississippi are
represented by the United Steel Workers of America. In May 1999, the United
Steel Workers union at our Amory, Mississippi facility voted to accept a new
collective bargaining agreement that covers a four year period beginning in May
1999 and expiring in July 2003. This new agreement supercedes the existing
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agreement that was due to expire 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.
INTELLECTUAL PROPERTY
We currently hold 29 U.S. patents relating to various products and
proprietary technologies, including the Sensicore technology, and have 16 patent
applications pending. We also hold numerous trademarks related to, among other
things, our True Temper and Grafalloy branded products.
While we consider our patents and trademarks to be valuable assets, we do
not believe that our competitive position is dependent solely on patent or
trademark protection, or that our operations are dependent on any individual
patent or trademark.
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.
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 our 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.
BUSINESS RISKS
This annual report on Form 10-K includes "forward looking statements"
including, in particular, the statements about our plans, strategies, and
prospects under the headings "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 report are set forth below and elsewhere in this report. All
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the following cautionary
statements.
9
<PAGE> 12
SUBSTANTIAL LEVERAGE--Our substantial indebtedness could adversely affect the
financial health of our company. For example, it could:
- make it more difficult for us to satisfy our obligations with respect
to our Senior Subordinated Notes;
- increase our vulnerability to increases in interest rates because our
secured credit facility, under which our indebtedness was $36.4
million as of December 31, 1999, is subject to a variable interest
rate;
- limit our ability to fund future working capital, capital
expenditures, research and development costs, acquisitions and other
general corporate requirements;
- require a substantial amount of our annual cash flow from operations
for debt service, 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.
ABILITY TO SERVICE DEBT--Due largely to factors beyond our control, we may not
in the future be able to generate the cash we need to service our indebtedness.
Our ability to make payments on and to refinance our indebtedness, 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.
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, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness on or before maturity. We might not be able to
refinance any of our indebtedness on commercially reasonable terms or at all.
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--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. 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. 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 current or future
products.
10
<PAGE> 13
LABOR RELATIONS--If any labor disruption or work stoppages affect our employees,
the results of our operation could be adversely affected. At December 31, 1999,
we employed approximately 603 full-time individuals. Of these, approximately 384
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 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 operations.
LIMITED EXPERIENCE AS A STAND ALONE COMPANY--Since we have operated as an
independent company for only the past 15 months, we cannot assure you that we
will continue to be self-sufficient in our need for general and administrative
services or be able to continue 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 entered into a transition services agreement with
Black & Decker pursuant to which Black & Decker agreed to continue providing us
with some of these services, specifically related to our foreign operations, for
up to 12 months after the date on which the recapitalization occurred, September
30, 1998. Upon the expiration of this agreement on September 30, 1999 we began
obtaining these services through internal and external sources apart from Black
& Decker.
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.
INDUSTRY CONSOLIDATION--As of December 31, 1999 we do not have any one customer
that represents a significant portion of our annual revenues. However, if the
industry and customer base continues to consolidate, then it is possible a
consolidation of several of our existing customers into one company could
represent a significant portion of our annual revenues. If this were to occur,
and this customer switched to an alternative shaft supplier, it could have a
material adverse effect on our results of operations.
FLUCTUATIONS IN COST AND AVAILABILITY OF RAW MATERIAL--Since our company is
dependent upon certain suppliers for steel, nickel, graphite prepreg and other
materials, we are subject to price increases and delays in receiving materials
which could have a significant adverse effect on our results of operations. 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.
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY--There can be no assurance that
the patents we hold relating to certain of our products and technologies offer
complete protection against infringement of our proprietary rights by others. We
currently hold 29 U.S. patents relating to various products and proprietary
technologies, including the Sensicore technology, and have 16 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.
11
<PAGE> 14
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.
RESTRICTIONS IMPOSED BY OUR SENIOR CREDIT FACILITIES AND THE INDENTURE FOR OUR
10 7/8% SENIOR SUBORDINATED NOTES DUE 2008 (the "Notes")--As more fully
described in Note 9 to the financial statements located elsewhere in this annual
report, 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 (including acquisitions).
In the event that we fail to comply with any of these restrictions, or
receive a waiver from compliance, 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.
ITEM 2. PROPERTIES
Our administrative offices and manufacturing facilities currently occupy
approximately 400,000 square feet. Our shafts are manufactured at two separate
facilities, a steel shaft facility located in Amory, Mississippi and a composite
shaft facility located in El Cajon, California. 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, 1999:
<TABLE>
<CAPTION>
LEASE
APPROX. OWNED/ EXPIRATION
FACILITY LOCATION SQ. FT. LEASED DATE
- -------- -------- ------- ------ ----
<S> <C> <C> <C> <C>
Corporate Offices Memphis, Tennessee 13,500 Leased December 2000
Steel Shaft/Tubing Mfg. Amory, Mississippi 335,000 Leased January 2063(2)
Composite Shaft Mfg. El Cajon, California 45,907 Leased March 2004
Building (1) Olive Branch, Mississippi 45,000 Owned --
</TABLE>
(1) In connection with the acquisition of Grafalloy in October 1998, and the
subsequent consolidation of our composite manufacturing operations into the
El Cajon, California plant, we have idled our Olive Branch, Mississippi
facility. The final phase of our composite manufacturing consolidation plan
involves the sale of the Olive Branch building, which is currently on the
market for sale.
(2) The Amory, Mississippi lease is structured in 5 year automatically
renewable terms, extending through January 2063.
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.
12
<PAGE> 15
]ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1999.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for the Company's equity securities. All of the
Company's capital stock is owned by True Temper Corporation.
The Company has not declared any dividends on its shares of common
stock during fiscal years 1999 or 1998.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are our selected historical financial data for the five
fiscal years ended December 31, 1999. The historical financial data have been
derived from our audited financial statements and the notes thereto, for which
the December 31, 1999 and 1998 financial statements are included herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(Dollars in thousands)
-----------------------------------------------------------------------------
1999 1998(1) 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................. $ 92,215 $ 91,450 $ 82,597 $ 71,603 $ 67,531
Gross profit .............................. 36,131 32,198 28,711 21,975 18,303
Selling, general and
administrative expenses ................ 15,156 13,464 13,324 11,145 9,668
Allocated corporate expenses(2) ........... -- 763 927 668 1,282
Amortization of goodwill .................. 2,701 2,505 3,746 3,746 3,775
Goodwill writeoff(3) ...................... -- 40,000 -- -- --
Recapitalization transaction expenses ..... -- 5,698 -- -- --
Restructuring charges(4) .................. 622 1,150 520 492 421
Operating income (loss) ................... 17,652 (31,382) 10,194 5,924 3,157
Net income (loss) ......................... $ 1,002 $ (37,811) $ 4,863 $ 2,205 $ 486
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(5) ........................ $ 11,200 $ 8,942 $ 6,418 $ 6,627 $ 6,604
Total assets .............................. 187,646 189,626 160,341 163,186 168,533
Total debt(6) ............................. 136,522 137,545 349 362 --
Total stockholder's equity ................ $ 35,881 $ 34,879 $ 146,716 $ 151,907 $ 158,164
OTHER FINANCIAL DATA:
EBITDA(7) ................................. $ 23,857 $ 14,449 $ 17,543 $ 13,233 $ 10,501
EBITDA margin ............................. 25.9% 15.8% 21.2% 18.5% 15.5%
Adjusted EBITDA(7) ........................ $ 25,087 $ 21,622 $ 18,063 $ 13,725 $ 10,922
Adjusted EBITDA Margin(7) ................. 27.2% 23.6% 21.9% 19.2% 16.2%
Cash from operating activities ............ $ 7,619 $ 4,661 $ 12,999 $ 9,582 $ 7,383
Cash from (used in) investing activities .. (1,572) (8,531) (2,439) (2,784) 699
Cash from (used in) financing activities .. (1,885) 4,836 (10,054) (6,462) (8,154)
Depreciation and amortization ............. 6,205 5,831 7,349 7,309 7,344
Capital expenditures ...................... $ 1,620 $ 2,366 $ 2,452 $ 2,784 $ 4,123
Ratio of earnings to fixed charges(8) ..... 1.2x -- -- -- --
</TABLE>
(1) On June 29, 1998, Black & Decker Corporation, along with its True
Temper Sports Division, and True Temper Sports LLC (an affiliate
of Cornerstone Equity Investors LLC), entered into an agreement
pursuant to which TTSI LLC acquired, effective on September 30,
1998, an 89% equity interest in True Temper Corporation, our
parent company (collectively referred to as the
"Recapitalization"). The Recapitalization was accounted for as a
leveraged recapitalization, and accordingly our assets and
liabilities remained at their historical bases for financial
reporting purposes; however, for income tax purposes the
transaction was treated as a taxable business combination.
(2) 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 filing, for a detailed discussion of these related
party transactions, including management's estimate of the stand-alone
costs for such services.
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<PAGE> 17
(3) 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 annual report.
(4) Reflects severance and other costs related to the consolidation of
manufacturing and administrative facilities. Charges in 1998 and 1999
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 annual report.
(5) Working capital excludes cash and cash equivalents.
(6) Total debt includes long-term debt and capital lease obligations.
(7) EBITDA represents operating income or loss plus depreciation,
amortization and goodwill write-off. Adjusted EBITDA represents EBITDA
plus recapitalization transaction expenses, restructuring charges,
management services fee and the union ratification bonus; less the
pension curtailment gain. 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.
(8) Information relating to the ratio of earnings to fixed charge for 1995
through 1997 has been excluded as the fixed charges were less than
$200 for each of 1995, 1996 and 1997 and thus immaterial for each of
those years. Earnings were not sufficient to cover fixed charges by
$34,924 in 1998, due to a $40,000 goodwill write-off taken as of
January 1, 1998.
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<PAGE> 18
ITEM 7. 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 AUDITED FINANCIAL STATEMENTS, INCLUDING THE RELATED NOTES,
APPEARING ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.
COMPANY OVERVIEW
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 performance tubing products that offer
high strength and tight tolerance tubular components to the bicycle, automotive
and recreational sports markets. In 1999, golf shaft sales represented 96% of
total revenues, and performance-tubing sales represented 4%.
On September 30, 1998 True Temper Corporation was recapitalized in a
transaction that was accounted for as a leveraged recapitalization. For a more
detailed discussion of the accounting treatment of this transaction, see the
notes to the financial statements appearing elsewhere in this document. Prior
to this date, True Temper 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 information includes 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,
and assume certain liabilities, 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
information as of the date of acquisition.
YEAR IN REVIEW - 1999
The golf equipment industry entered 1999 in the midst of sluggish sales
that began during the second half of 1998. We believe this lack of momentum was
driven by some softness at the retail level, but was primarily the effect of an
inventory buildup in both the OEM and distributor channels. Our revenue for the
first half of 1999 reflected this buildup, as we experienced a decrease in sales
of 4.4% compared to the first six months of 1998. We believe, however, that a
turnaround in the industry occurred during mid 1999, as evidenced by increased
retail sales, and similar improvements in our sales which increased 8.0% from
the corresponding six month period in 1998.
This apparent turnaround was driven by several factors. Not only did retail
sales improve during the second half of 1999, but unit shipments at wholesale
also increased, according to data provided by the National Golf Foundation.
Based upon this data we believe that the inventory "bubble" has worked its way
through the supply chain, and is evidenced by increases to our incoming order
rate over the past several months.
In addition, we have introduced new products which we believe have and
will continue to contribute to our sales and marketshare growth. During the
second half of 1999 we introduced two new products which we believe are
significant: Tri-Gold and Sensicore Gold. Tri-Gold shafts, which are available
in both steel and graphite, are designed to help golfers hit more accurate and
consistent shots with every club in their bag. They incorporate three
complementary features to improve distance, scoring and accuracy: Ascending
Weight Technology, progressive flex, and the unique Tri-Step design pattern.
Sensicore Gold shafts employ Variable Feel Technology, which eliminates most
unwanted vibration in tougher to hit long irons, while preserving valuable
feedback in short irons. Sales from these and other new products introduced in
1999 represented in excess of 10% of total revenue for the year.
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<PAGE> 19
We continue to maintain a strong presence and successful record on the four
major U.S. professional golf tours: the PGA Tour, the Senior PGA Tour, the LPGA
Tour and the Buy.Com Tour. During 1999 players using True Temper and/or
Grafalloy shafts won over 68% of all tournament events, including the men's U.S.
Open, British Open and the PGA Championship. We feel this performance, combined
with our recent new product introductions described above, will add to True
Temper's position as the number one golf shaft on tour.
1999 was a very active year for us from an operations standpoint,
highlighted by the successful integration and consolidation of our Olive Branch
graphite shaft manufacturing operations into our El Cajon, California facility,
which we acquired with the Grafalloy acquisition in late 1998. This integration
included an expansion of floor-space in El Cajon of approximately 25,000 square
feet, or a virtual doubling of its original size, and the idling of our Olive
Branch, Mississippi plant. The integration was planned and implemented with no
major disruptions to our customers, and has resulted in production efficiencies
and overhead cost reductions consistent with our expectations. The final phase
of the integration involves the sale of the Olive Branch plant, which is
currently on the market.
17
<PAGE> 20
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,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of sales.................................................... 60.8 64.8 65.2
Gross profit................................................. 39.2 35.2 34.8
Selling, general and administrative expenses..................... 16.4 15.6 17.3
Amortization of goodwill......................................... 2.9 2.7 4.5
Write-off of goodwill............................................ 0.0 43.7 0.0
Restructuring costs.............................................. 0.7 1.3 0.6
Recapitalization transaction expenses............................ 0.0 6.2 0.0
Operating income (loss)...................................... 19.1 (34.3) 12.3
Interest expenses................................................ 15.6 3.8 0.0
Other expenses, net.............................................. 0.0 0.1 0.1
Earnings (loss) before income taxes.......................... 3.6 (38.2) 12.3
Income taxes..................................................... 2.5 3.2 6.4
Net income (loss)............................................ 1.1% (41.3)% 5.9%
EBITDA........................................................... 25.9% 15.8% 21.2%
Adjusted EBITDA.................................................. 27.2% 23.6% 21.9%
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
NET SALES. Net sales for 1999 increased $0.8 million, or 0.8%, to $92.2
million from $91.5 million in 1998. This increase was driven primarily by golf
shaft sales, as our performance tubing sales were consistent between 1999 and
1998. This increase in golf shaft sales was driven by the incremental composite
shaft volume from the purchase of Grafalloy, offset somewhat by decreased unit
sales for commercial steel shaft products. We attribute this decline in
commercial steel shaft sales to the general softness in the entire golf
equipment industry experienced during most of 1999, as well as the effect of the
gradual decrease of inventory in the supply chain, which had built up during
previous periods.
Net sales to international customers decreased $0.5 million, or 3.6%, to
$14.2 million in 1999 from $14.8 million in 1998. This decrease was driven
primarily by lower sales in the United Kingdom, as they experienced the same
general softness in the golf industry during the first half of 1999 that was
apparent in the US, partially offset by increased sales in Japan and Asia, where
we continue to grow our business.
While 1999 total sales increased only modestly over 1998, we are encouraged
by the quarterly trends experienced during 1999. Net sales for the first quarter
of 1999 decreased $1.8 million, or 7.2%, from the same period in 1998; while net
sales for the second quarter of 1999 decreased only $.5 million, or 1.8%, from
the same period in 1998; net sales for the third quarter of 1999 increased $1.5
million, or 7.8%, from the same period in 1998; and net sales for the fourth
quarter of 1999 increased $1.6 million, or 8.2%, from the same period in 1998.
No assurance can be given, however, that this trend will continue in 2000.
GROSS PROFIT. Gross profit for 1999 increased $3.9 million, or 12.2%, to
$36.1 million from $32.2 million in 1998. Gross profit as a percentage of net
sales increased to 39.2% in 1999 from 35.2% in 1998. This improvement in gross
profit as a percentage of net sales was driven by several factors. Although
total net sales increased only 0.8% in 1999, the mix of product sold to achieve
those sales shifted between 1998 and 1999. In 1999 sales of commercial grade
steel shafts, which have a lower than average profit margin, decreased while
sales of our premium steel product remained relatively flat. This shift in mix
resulted in a higher average sales price per steel unit sold during 1999, and
subsequently, higher gross margins.
18
<PAGE> 21
In addition, gross profit improved with our ongoing cost reduction and
productivity improvement efforts and the savings from consolidating our
graphite shaft manufacturing operations into our El Cajon facility.
In the fourth quarter of 1998 we recorded an expense of $0.2 million to
cost of sales, related to the consolidation of our graphite manufacturing
operations in El Cajon. In the second quarter of 1999 we paid a ratification
bonus of $0.4 million to the union members at our steel golf shaft plant in
Mississippi. This ratification bonus was paid in conjunction with a new
four-year collective bargaining agreement that expires in June 2003.
Additionally, in the fourth quarter of 1999 we recorded a pension curtailment
gain of $0.3 million associated with the closure of our Olive Branch facility.
Excluding the 1998 impact of the restructuring costs, and the 1999 impact
of the ratification bonus and pension curtailment gain, gross profit for 1999
would have increased $3.8 million, or 11.9%, to $36.2 million from $32.4 million
in 1998, and gross profit as a percentage of net sales would have increased to
39.3% from 35.4%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses (SG&A) increased approximately $0.9 million, or 6.5%,
to $15.2 million in 1999 from $14.2 million in 1998. SG&A as a percentage of
net sales increased to 16.4% in 1999 from 15.6% in 1998. The increase in SG&A
spending reflects the impact of adding the Grafalloy operations, offset
primarily by the cost savings from restructuring and integration programs.
OPERATING INCOME (LOSS). Operating income for 1999 increased by
approximately $49.0 million, to operating income of $17.7 million from an
operating loss of $31.4 million in 1998. In addition to the impact on operating
income from the gross profit and SG&A items discussed above, our 1998 operating
income was negatively impacted by a $40.0 million write-off of True Temper's
goodwill, and $5.7 million in expenses associated with the leveraged
recapitalization. The goodwill write-off was recorded in January 1998 by
Black & Decker (our former parent company), while the recapitalization expenses
were recorded during the fourth quarter of 1998. Also, the 1999 and 1998
operating income was negatively impacted by restructuring costs of $0.6 million
and $1.2 million, respectively, related to the consolidation of our graphite
manufacturing operations.
Excluding the impact of the 1998 goodwill write-off and recapitalization
expenses, the 1999 union ratification bonus and pension curtailment gain
(discussed above), and the restructuring costs in both years, operating income
would have increased $2.7 million, or 17.3%, to $18.4 million from $15.7 million
in 1998, and operating income as a percentage of net sales would have increased
to 19.9% from 17.1%.
INTEREST EXPENSES. Interest expense for 1999 increased to $14.3 million
from $3.5 in 1998. 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 senior
credit facilities. In 1999 we recorded a full year's worth of interest expense
related to this debt.
NET INCOME (LOSS). Net Income for 1999 increased by $38.8 million to net
income of $1.0 million from a net loss of $37.8 million in 1998. Excluding the
impact of the 1998 goodwill write-off and recapitalization expenses, the 1999
union ratification bonus and pension curtailment gain, and the restructuring
costs in both years, net income would have decreased by $5.1 million to $1.5
million in 1999 from $6.6 million in 1998. This decrease is the result of
increased SG&A spending and the additional $10.9 million in interest expense in
1999, offset by the gross profit improvements described above.
19
<PAGE> 22
EBITDA & ADJUSTED EBITDA. EBITDA, which is a financial measurement used
by some to gauge our operating performance, represents operating income plus
depreciation, amortization of goodwill and goodwill write-off. Adjusted EBITDA
represents EBITDA plus recapitalization costs, restructuring costs, management
services fee, and the union ratification bonus; less the pension curtailment
gain.
EBITDA and Adjusted EBITDA for 1999 and 1998 are calculated as follows:
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
Operating income (loss) $17,652 $(31,382)
Plus:
Depreciation 3,504 3,326
Amortization of goodwill 2,701 2,505
Goodwill write-off -- 40,000
------- --------
EBITDA 23,857 14,449
Plus:
Recapitalization costs -- 5,698
Restructuring costs 622 1,350
Management services fee 500 125
Union ratification bonus 400 --
Less:
Pension curtailment gain 292 --
------- --------
Adjusted EBITDA $25,087 $ 21,622
======= ========
</TABLE>
The increase in adjusted EBITDA of $3.5 million, or 16.0% is reflective of
the profit impact of the operating income (loss) items described above as well
as the impact of the items identified in the table above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
NET SALES. 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. Performance 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 $0.7 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. 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. The
improvement in gross profit margin is attributable to our success in selling a
greater percentage of products with a higher profit margin 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
(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.
20
<PAGE> 23
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. 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). Net 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. Interest expense 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 senior
credit facilities.
NET INCOME (LOSS). Net income (loss) 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.
EBITDA & ADJUSTED EBITDA. EBITDA, which is a financial measurement used
by some to gauge our operating performance, represents operating income plus
depreciation, amortization of goodwill and goodwill write-off. Adjusted EBITDA
represents EBITDA plus recapitalization costs, restructuring costs, management
services fee, and the union ratification bonus; less the pension curtailment
gain.
EBITDA and Adjusted EBITDA for 1998 and 1997 are calculated as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating income (loss) $(31,382) $10,194
Plus:
Depreciation 3,326 3,603
Amortization of goodwill 2,505 3,746
Goodwill write-off 40,000 --
------- -------
EBITDA 14,449 17,543
Plus:
Recapitalization costs 5,698 --
Restructuring costs 1,350 520
Management services fee 125 --
------- -------
Adjusted EBITDA $21,622 $18,063
======= =======
</TABLE>
The increase in adjusted EBITDA of $3.6 million, or 19.7% is reflective of
the profit impact of the operating income (loss) items described above as well
as the impact of the items identified in the table above.
21
<PAGE> 24
OTHER ISSUES RELATED TO 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.
See Note 13 to the financial statements, "Changes In Accounting for
Goodwill", included elsewhere in this filing, for further discussion of the
write-down of goodwill.
ALLOCATED CORPORATE EXPENSES. 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 and $0.9 million for 1998 and 1997,
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 that was used to allocate
all corporate overhead expenses to Black & Decker's operating divisions and
subsidiaries. These charges have not necessarily been allocated on a basis which
approximates our estimated usage of such services as a stand-alone entity.
Management has reviewed, and continues to monitor, the costs we are incurring as
a stand-alone entity that Black & Decker had previously allocated to us. We
originally estimated that stand alone costs to replace the services previously
provided by Black & Decker's corporate staff would be approximately $0.5 million
annually. Our actual experience through 1999 is substantially consistent with
our original estimates.
See Note 11 to the financial statements, "Related Party Transactions",
included elsewhere in this filing, for further discussion of the allocated
corporate expenses.
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 increased our market share of graphite shafts and
created 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.
As of December 31, 1999, we have completed all but the final phase of the
restructuring. All production of graphite shafts has been transitioned to our El
Cajon facility, and the Olive Branch facility has been idled. The final phase of
the restructuring involves the sale of the Olive Branch building, which we own.
We have listed the property and building with a real estate professional. At
December 31, 1999 we had no serious buyers.
We had developed an estimate for the total restructuring reserve, and in
conjunction with our December 1998 announcement, recorded an expense of $1.35
million in the fourth quarter of 1998 to accrue for the allowable expenses under
GAAP. We had estimated that approximately $0.4 million of the estimated $1.35
million of restructuring reserve would be cash expenditures for employee
severance and related matters, and we estimated that the remaining $0.95 million
of estimated restructuring charges would be for non-cash expenses to record the
write-down or write-off of capital equipment, buildings and inventory.
22
<PAGE> 25
As of December 31, 1999 $0.7 million of actual cash and non-cash expenses
had been charged to the original accrual, leaving a balance of $0.7 million at
December 31, 1999. Actual charges incurred have been consistent with our
original estimates. The remaining reserves relates primarily to the disposition
of equipment remaining at Olive Branch, and a loss on the sale of the Olive
Branch building.
In addition, we incurred 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 spent $1.1 million on these items in 1999, with $0.6 million recognized
as period costs throughout 1999, and $0.5 million capitalized as property, plant
and equipment.
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.
See Note 5 to the financial statements, "Restructuring", included
elsewhere in this filing, for further discussion of the restructuring charges
and reserve activity.
INCOME TAXES. For 1999, 1998 and 1997 income taxes were $2.3 million, $2.9
million, and $5.3 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,
the incremental tax rate for state income taxes and the effect of foreign taxes.
See Note 10 to the financial statements, "Income Taxes", included
elsewhere in this filing, for further discussion of income taxes.
LIQUIDITY & CAPITAL RESOURCES
GENERAL
As part of the leveraged recapitalization and the acquisition of
Grafalloy, we established a senior credit facility, which includes 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 the closing
of the leveraged recapitalization, September 30, 1998, and ending on the sixth
anniversary of the closing.
23
<PAGE> 26
In addition, as part of the leveraged recapitalization, we issued $100.0
million in 10 7/8% Senior Subordinated Notes Due 2008 (the "Notes"). The Notes
require cash interest payments each June 1 and December 1, beginning June 1,
1999. The Notes are redeemable, under certain circumstances and at certain
redemption prices, beginning December 1, 2001.
Both the credit facility and the Notes contain customary covenants and
events of default, including substantial restrictions and provisions which,
among other things, limit our ability to incur additional indebtedness, make
acquisitions and capital expenditures, sell assets, create liens or other
encumbrances, make certain payments and dividends, or merge or consolidate. The
bank credit facility also requires us to maintain certain specified financial
ratios and tests including minimum EBITDA levels, minimum interest coverage and
fixed charge coverage ratios, and maximum leverage ratios. At December 31, 1999
we were in compliance with all of the covenants in both the credit facility and
the Notes. Furthermore, the credit facility requires certain mandatory
prepayments including payments from the net proceeds of certain asset sales and
a portion of our excess cash flow.
YEAR ENDED DECEMBER 31, 1999
In calendar 1999, our cash provided by operating activities increased by
$3.0 million to $7.6 million from $4.7 million in 1998. This increase was driven
primarily by an increase in earnings from operations, as the increase in cash
required for working capital needs during 1999 was consistent with the increase
in 1998.
The $7.6 million of cash provided from operations during 1999 was
generated from $10.0 million in earnings from operations offset by $2.4 million
in increased working capital levels. While the $4.7 million of cash provided
from operations during 1998 was generated from $6.6 million in earnings from
operations offset by $2.0 million in additional working capital needs.
In addition, we used $1.6 million of cash to invest in property, plant
and equipment in 1999, compared to the $2.4 million we spent in 1998. We also
repaid $0.9 million of the principal on our senior credit facility during 1999,
compared to $0.2 million repaid during 1998.
Currently, our intention is to use existing cash and cash provided from
future operations, if any, to repay our senior credit facilities and/or to make
additional investments in the business for growth. In fact, in February of 2000
we repaid $2.4 million of our senior credit facilities in accordance with the
mandatory repayment provisions of our credit agreement.
In addition to the debt service obligation created by the credit facility
and the Notes described above, our liquidity needs largely relate to working
capital requirements and capital expenditures for machinery and equipment. We
intend to fund our current and long terms working capital, capital expenditures
and debt service requirements through cash flow generated from operations.
However, since there can be no assurance of future performance, as of December
31, 1999 we have the full amount of the $20.0 million revolving credit facility
available for future cash requirements.
24
<PAGE> 27
Any future acquisitions, joint ventures or similar transactions will
likely require capital expenditures in excess of cash provided by operations,
and potentially in excess of cash available under the revolving credit facility.
There can be no assurance that any capital will be available to us on terms
acceptable to us, or at all.
SEASONALITY
In general, the component supplier sales to golf equipment companies and
distributors 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,
in general approximately 55% of our net sales 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 ASSET
In conjunction with the leveraged recapitalization and the issuance of the
Senior Subordinated Notes, we have recognized an increase in our deferred tax
assets, since the recapitalization was 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 15 year period beginning with 1998, net of a valuation
reserve 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 Notes 4 and 10 to the financial statements, "Recapitalization" and
"Income Taxes", included elsewhere in this filing, for a more complete
discussion of this deferred tax asset and the related valuation reserve.
MANAGEMENT INFORMATION SYSTEMS AND THE IMPACT OF YEAR 2000 ISSUES
During 1999 we completed all phases of an action plan designed to minimize
the impact of the year 2000 ("Y2K") issue. As of March 30, 2000 we have
experienced no internal or external business disruptions associated with the Y2K
issue. There can be, however, no assurance that future unforeseen Y2K problems
will not cause disruptions to our internal business systems, or those of our
trading partners. In the event that these disruptions are significant, they
could have a material adverse effect on the results of our operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, FASB Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities", as amended by FASB Statement No. 137, was
issued and shall be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. We have only limited involvement with derivative
financial instruments, and do not use them for trading purposes. This new
accounting statement is not expected to have a material impact on our financial
statements.
25
<PAGE> 28
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
The Private Securities Litigation Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by our Company. This document may
include forward-looking statements. All statements which address operating
performance, events or developments that we expect, plan, believe, hope,
wish, forecast, predict, intend, or anticipate will occur in the future are
forward looking statements within the meaning of the Act.
The forward-looking statements are based on management's current views and
assumptions regarding future events and operating performance. However there are
many risk factors, including but not limited to, the general state of the
economy, the Company's ability to execute its plans, competitive factors, and
other risks that could cause the actual results to differ materially from the
estimates or predictions contained in our Company's forward-looking statements.
Additional information concerning the Company's risk factors is contained in the
"BUSINESS" section of this report on Form 10-K, as well as, from time to time,
in the Company's Securities and Exchange Commission (the "SEC") filings;
including but not limited to Amendment No. 4 to the Company's Form S-4
Registration Statement filed with the SEC on June 7, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
The table below provides information about our debt obligations as of
December 31, 1999 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
2000 2001 2002 2003 2004 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 $ 1.4 $ 1.9 $ 2.3 $ 2.5 $ 8.9 $ 19.4 $ 36.4 $ 36.4
Average Interest Rate(a)
</TABLE>
(a) Variable rate long-term debt is comprised of both term A and term B loans
under the senior credit facility. The senior credit facility provides for
interest at our option, at (1) 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 (2) under a LIBOR option with borrowing spreads of LIBOR plus
0.00% to LIBOR plus 2.25% on term A, depending on our leverage ratio, and
LIBOR plus 2.50% on term B.
26
<PAGE> 29
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, 1999, would be $0.4 million. Those losses would be offset by gains on the
underlying receivables being hedged.
COMMODITY RISK
We have some exposure to risks associated with fluctuations in prices for
commodities used to manufacture our products, primarily for nickel, which is
used in the plating of steel golf shafts. In order to mitigate this commodity
risk we do, from time to time, enter into forward purchase contracts with our
major nickel suppliers.
27
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors
True Temper Sports, Inc.
We have audited the accompanying balance sheets of True Temper Sports, Inc. as
of December 31, 1999 and 1998 and the related statements of operations, changes
in stockholder's equity, and cash flows for the years then ended. In connection
with our audit of the financial statements we also have audited the accompanying
financial statement schedule. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of True Temper Sports, Inc. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Memphis, Tennessee
March 3, 2000
28
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Black & Decker Corporation
Towson, Maryland
We have audited the accompanying statements of operations, net invested
capital, and cash flows of True Temper Sports for the year in the period ended
December 31, 1997. Our audit also included the financial statement schedule
listed at Schedule II. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows for the
year ended December 31, 1997, in conformity with accounting principles
generally accepted in the United States. Also, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
March 6, 1998
Baltimore, Maryland
29
<PAGE> 32
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,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
NET SALES .................................. $ 92,215 $ 91,450 $ 82,597
Cost of sales .............................. 56,084 59,252 53,886
-------- -------- --------
GROSS PROFIT ............................ 36,131 32,198 28,711
Selling, general and administrative expenses 15,156 14,227 14,251
Amortization of goodwill ................... 2,701 2,505 3,746
Write-off of goodwill ...................... -- 40,000 --
Recapitalization transaction expenses ...... -- 5,698 --
Restructuring costs ........................ 622 1,150 520
-------- -------- --------
OPERATING INCOME (LOSS) ................. 17,652 (31,382) 10,194
Interest expense ........................... 14,341 3,462 --
Other expenses, net ........................ (9) 80 54
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES ....... 3,320 (34,924) 10,140
Income taxes ............................... 2,318 2,887 5,277
-------- -------- --------
NET INCOME (LOSS) ....................... $ 1,002 $(37,811) $ 4,863
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 33
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................... $ 6,427 $ 2,265
Receivables, net ............................................. 13,086 12,591
Inventories .................................................. 11,371 10,986
Deferred financing costs ..................................... 607 587
Prepaid expenses and other ................................... 706 1,024
--------- ---------
Total current assets ...................................... 32,197 27,453
Property, plant and equipment, net .............................. 19,963 21,991
Goodwill, net ................................................... 77,032 79,733
Deferred tax assets ............................................. 53,626 55,822
Deferred financing costs ........................................ 4,376 4,516
Other assets .................................................... 452 111
--------- ---------
Total assets .............................................. $ 187,646 $ 189,626
========= =========
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt ............................ $ 1,400 $ 900
Current portion of capital lease liability ................... 89 109
Accounts payable ............................................. 5,280 7,785
Accrued expenses and other liabilities ....................... 7,801 7,452
--------- ---------
Total current liabilities ............................... 14,570 16,246
Long-term debt less the current portion ......................... 135,005 136,406
Capital lease liability, net of current portion ................. 28 130
Post-retirement medical obligation .............................. 2,162 1,965
--------- ---------
Total liabilities ....................................... 151,765 154,747
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 40,326
Accumulated deficit ............................................. (4,445) (5,447)
--------- ---------
Total stockholder's equity ................................ 35,881 34,879
--------- ---------
Total liabilities and stockholder's equity ................ $ 187,646 $ 189,626
========= =========
</TABLE>
See accompanying notes to financial statements.
31
<PAGE> 34
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
ADDITIONAL CAPITAL OF
COMMON STOCK PAID-IN ACCUMULATED FORMER PARENT
SHARES PAR VALUE CAPITAL DEFICIT COMPANY TOTAL
------ --------- ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 .... -- $ -- $ -- $ -- $ 151,907 $ 151,907
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
Net income ................... -- -- -- 1,002 -- 1,002
--------- ------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1999 .... 100 $ -- $ 40,326 $ (4,445) $ -- $ 35,881
========= ======= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 35
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,
--------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ......................................... $ 1,002 $ (37,811) $ 4,863
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization .......................... 6,205 5,831 7,349
Amortization of deferred financing costs ............... 592 109 --
Provision for restructuring ............................ -- 1,350 520
Write-off of goodwill .................................. -- 40,000 --
Gain (loss) on disposal of property, plant and equipment (9) 89 --
Deferred taxes ......................................... 2,196 (2,927) --
Changes in assets and liabilities, net of effects
from business acquired in 1998:
Receivables, net ..................................... (495) (3,747) (1,195)
Inventories .......................................... (385) 1,711 (632)
Prepaid expenses and other assets .................... 365 (700) (208)
Accounts payable ..................................... (2,460) (672) 2,270
Accrued interest ..................................... (360) 1,450 --
Other liabilities .................................... 968 (22) 32
--------- --------- ---------
Net cash provided by operating activities ............ 7,619 4,661 12,999
INVESTING ACTIVITIES
Purchase of property, plant and equipment ................. (1,620) (2,366) (2,452)
Proceeds from the sales of property, plant and equipment .. 48 -- 13
Purchase of Grafalloy ..................................... -- (6,165) --
--------- --------- ---------
Net cash used in investing activities .................. (1,572) (8,531) (2,439)
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 ........................... (900) (194) --
Principal payments on capital leases ...................... (122) (187) --
Payment of debt issuance costs ............................ (472) (5,212) --
Other financing activity .................................. (391) (185) --
Recapitalization .......................................... -- (119,197) --
Net proceeds to former parent company ..................... -- (7,689) (10,054)
--------- --------- ---------
Net cash provided by (used in) financing activities .... (1,885) 4,836 (10,054)
Net increase in cash ......................................... 4,162 966 506
Cash at beginning of year .................................... 2,265 1,299 793
--------- --------- ---------
Cash at end of year .......................................... $ 6,427 $ 2,265 $ 1,299
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 36
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
(a) 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 related facilities are located in Memphis, Tennessee,
Amory, 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.
(b) 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 that 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's
consolidated income tax returns in the various taxing
jurisdictions in which it operates through September 29, 1998. The
amount of income tax payable or receivable due to/from Black &
Decker for 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
(a) 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.
34
<PAGE> 37
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(b) 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.
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.
(c) TRADE ACCOUNTS RECEIVABLE
Trade receivables are net of allowance for doubtful accounts of
$499 and $592 as of December 31, 1999 and 1998, respectively.
Credit risk with respect 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.
(d) 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 of the financial
statements was made.
(e) DEFERRED FINANCING COSTS
Costs associated with the issuance of debt are initially deferred
and amortized as a component of interest expense over the life
of the related debt, using a method that approximates the
interest method.
35
<PAGE> 38
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated on a historical cost
basis, net of accumulated depreciation. Depreciation is provided
over the estimated useful life of each asset using the
straight-line method. Leasehold improvements are amortized over
the shorter of the useful life or the applicable lease term. 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 15-40 years
</TABLE>
(g) 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 $38,000 and $35,500 at December 31, 1999 and 1998,
respectively. Accumulated amortization at December 31, 1999 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 if the carrying value of goodwill
had been impaired. As more fully described in Note 13, effective
January 1, 1998, Black & Decker changed its method for measuring
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
$4,563, net of accumulated amortization of $277, at December 31,
1999.
(h) 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 loss on foreign currency in the
years ended December 31, 1999, 1998 and 1997 was $326, $111 and
$143, 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.
36
<PAGE> 39
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
The following table summarizes the contractual amounts of True
Temper's forward exchange contracts as of December 31, 1999 and
1998:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
--------------------------------------------------------------------
<S> <C> <C>
Pound Sterling $1,396 $1,342
Yen 1,014 554
Australian dollar 1,557 1,058
------- -------
Total $3,967 $2,954
======= =======
</TABLE>
(i) 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.
(j) 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 1999, 1998 and 1997 were $4,568, $4,186
and $4,241 respectively.
(k) 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. Research and
development costs for the 1999, 1998 and 1997 were $1,757, $2,155
and $2,272 respectively.
(l) POST-RETIREMENT BENEFITS
The majority 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.
In addition, substantially all 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.
37
<PAGE> 40
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(m) 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 on 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) has been reflected in stockholder's equity at
December 31, 1998.
(n) 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 variable
rate debt approximates fair value. The estimated fair value of
the Company's fixed rate debt is based upon interest rates
available for the issuance of debt with similar terms and
remaining maturities. The Company's Senior Subordinated Notes
have an estimated fair value of $95 million.
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.
38
<PAGE> 41
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(o) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, FASB Statement 137, "Accounting for Derivative
Instruments and Hedging Activity - Deferral of the Effective Date
of FASB Statement 133", was issued. This statement shall be
effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. 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.
(p) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for income taxes and interest for the years ended
December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes -- $5,814 $5,277
Interest $14,334 $1,965 --
</TABLE>
39
<PAGE> 42
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(3) RECAPITALIZATION
On June 29, 1998, Black & Decker Corporation, along with its True Temper
Sports Division, and True Temper Sports 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
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
(DOLLARS IN THOUSANDS) TEMPER TTC COMBINED
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sources of funds:
Term loan under senior credit facility .......... $ 30,000(1) $ -- $ 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>
(1) Excludes $7.5 million of incremental borrowing that was added to the
Senior Credit Facility to finance the Grafalloy acquisition.
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.
40
<PAGE> 43
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
The initial impact on equity, for both True Temper and its parent
company, TTC, is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) TRUE TEMPER TTC CONSOLIDATED
--------------------------------------------------------------------------------------------------------------
<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, and assumed certain liabilities, 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 under its Bank Credit Facility
primarily 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 the Company recorded a liability of
$500 primarily to cover severance costs for certain Grafalloy employees.
As of December 31, 1999 and 1998, charges to this accrual totaled $289
and $40, respectively.
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.
41
<PAGE> 44
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
PRO FORMA INFORMATION (UNAUDITED) DECEMBER 31,
(DOLLARS IN THOUSANDS) 1998 1997
----------------------------------------------------------------------------------
<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 was the consolidation of the Company's Olive
Branch, Mississippi composite manufacturing operations into the El Cajon,
California facility. In the second quarter of 1999 the Company completed
its shutdown of the Olive Branch facility and its expansion of the El
Cajon facility. The remainder of the restructuring program, which was
undertaken to reduce overhead and better leverage the investment the
Company has in the composite business, was substantially completed during
the third quarter of 1999. The final phase of the restructuring involves
the sale of the Olive Branch plant. The Company has listed the facility
with a real estate agency, but at present no formal offers have been
received to purchase the building.
In the fourth quarter of 1998, as part of the restructuring program, an
accrual of $1,350 was established, in accordance with EITF 94-3,
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, 1999 and 1998. As of December 31, 1999,
charges to this accrual totaled $667, of which $630 was recorded during
1999. The following table sets forth the components of the original
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 recorded in 1998 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.
As of December 31, 1999, the Company believes the components of the
original restructuring accrual, as described above, remain accurate. No
material changes in cost assumptions have been made.
In addition to the restructuring reserve, the Company recorded
restructuring expenses of $622 during 1999, related to compensation,
moving and other integration costs incurred as a result of the transition
of manufacturing operations from the Olive Branch facility to the El
Cajon facility.
42
<PAGE> 45
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(6) INVENTORIES
Inventories, as of December 31 of the year indicated, consist of the
following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,345 $ 2,395
Work in process 2,042 2,460
Finished goods 7,984 6,131
-------- --------
Total $ 11,371 $ 10,986
======== ========
</TABLE>
(7) PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment, as of December 31 of the
year indicated, are summarized as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C>
Land improvements $ 332 $ 303
Buildings 6,778 6,536
Furniture and office equipment 747 795
Machinery and equipment 40,267 39,318
Computer equipment and capitalized software 2,184 2,263
Leasehold improvements 2,746 2,155
Construction in progress 449 1,128
--------- ---------
53,503 52,498
Less accumulated depreciation 33,540 30,507
--------- ---------
Net property, plant and equipment $ 19,963 $ 21,991
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1999, 1998 and
1997, was $3,504, $3,326, and $3,603, respectively. Total cost of
property obtained under capital leases was $996 at both December 31,
1999 and 1998, respectively. Accumulated depreciation on assets obtained
under capital leases was $929 and $834 at December 31, 1999 and 1998,
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>
(DOLLARS IN THOUSANDS) 1999 1998
------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation, benefits and related payroll taxes $ 3,293 $ 2,406
Accrued interest 1,090 1,450
Other 3,418 3,596
-------- --------
Total $ 7,801 $ 7,452
======== ========
</TABLE>
43
<PAGE> 46
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(9) BORROWINGS
(a) LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
--------------------------------------------------------- ---------- ----------
<S> <C> <C>
10.875% Senior Subordinated Notes due 2008 $ 100,000 $100,000
Bank Credit Facility with an average interest rate of
8.45% at December 31, 1999 36,405 37,306
---------- ----------
Total debt 136,405 137,306
Less current maturities 1,400 900
---------- ----------
Long-term debt $ 135,005 $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.
The loans outstanding under the Bank Credit Facility (the Credit
Agreement) are comprised of $9,250 of Term A and $27,155 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.
Scheduled minimum 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. The Credit
Agreement also requires annual mandatory prepayments of principal,
in an amount equal to 50% of Excess Cash Flow, as defined in the
Credit Agreement. 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,
44
<PAGE> 47
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(i) minimum EBITDA levels, (ii) minimum interest coverage and
fixed charge coverage ratios, and (iii) maximum leverage ratios.
At December 31, 1999 the Company was in compliance with all of
the covenants in both the Credit Agreement and the Notes.
At December 31, 1999, future minimum principal payments on
long-term debt were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
------------------------------
<S> <C>
2000 $ 1,400
2001 1,900
2002 2,275
2003 2,525
2004 8,919
Thereafter 119,386
---------
Total $ 136,405
=========
</TABLE>
(b) 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, 1999.
(10) INCOME TAXES
The current and deferred provision for income taxes, for the years ended
December 31, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ -- $ 4,896 $ 4,034
State -- 918 488
Foreign 122 -- --
Total current ------- ------- -------
122 5,814 4,522
Deferred:
Federal 1,849 (2,464) 673
State 347 (463) 82
------- ------- -------
Total deferred 2,196 (2,927) 755
------- ------- -------
Total $ 2,318 $ 2,887 $ 5,277
======= ======= =======
</TABLE>
45
<PAGE> 48
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
The actual income tax expense differs from the amounts computed by
applying the U.S. federal tax rate of 34% to the pretax earnings as a
result of the following:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998 1997
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 1,129 $ (11,874) $ 3,448
State tax, net of federal benefit 229 (1,397) 405
Write-off of goodwill -- 15,200 --
Amortization of goodwill 838 952 1,424
Foreign taxes 122 - -
Other -- 6 --
--------- --------- -------
Actual income tax expense $ 2,318 $ 2,887 $ 5,277
========= ========= =======
</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. An 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, 1999. 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.
46
<PAGE> 49
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
The components of deferred tax assets and liabilities at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Acquisition costs $ 1,192 $ 1,510
Goodwill 64,582 69,279
Accrued liabilities 799 324
Net operating loss carryforwards 4,712 2,341
Other 28 --
------- -------
Gross deferred tax assets 71,313 73,454
Less valuation allowance (17,632) (17,632)
------- -------
Net deferred tax assets 53,681 55,822
------- -------
Deferred tax liabilities - Property, plant and
equipment (55) --
------- -------
Net deferred tax asset $ 53,626 $55,822
======= ========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $ 12,400
which expire in 2018 and 2019.
(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 and $927 for the years
ended December 31, 1998 and 1997, 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
47
<PAGE> 50
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
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.
Reflected in the statements of operations are the following pass-through
costs:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C>
Product liability and general insurance $ 555 $ 686
Human resources 2,872 3,571
Other 1,903 2,341
------- -------
Total $ 5,330 $ 6,598
======= =======
</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 nine
month period ended September 29, 1998 and the year ended December 31,
1997, were $47 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 reflected in the Statement of
Changes In Stockholder's Equity:
<TABLE>
<CAPTION>
(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, 1999, 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 2000.
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
48
<PAGE> 51
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
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.
The following table sets forth the funded status of the portion of the
Black & Decker pension plans attributable to True Temper as of December
31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 13,336 $ 10,463
Service cost 683 572
Interest cost 864 785
Actuarial (gains) losses (2,172) 1,516
Curtailments (324) --
-------- --------
Benefit obligation at end of year $ 12,387 $ 13,336
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year $ 14,609 $ 13,589
Actual return on plan assets 1,096 1,020
-------- --------
Fair value of plan assets at end of year $ 15,705 $ 14,609
======== ========
Funded status:
Funded status $ 3,318 $ 1,273
Unrecognized net actuarial gain (3,612) (1,432)
-------- --------
Net amount recognized $ (294) $ (159)
======== ========
</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>
(DOLLARS IN THOUSANDS) 1999 1998
--------------------------------------------------------------------------------------
<S> <C> <C>
The components of the pension cost are as follows:
Service cost of benefits earned during the year $ 683 $ 572
Interest cost on projected benefit obligation 864 785
Expected return on plan assets (1,101) (1,020)
Recognized net gains (44) (88)
Recognized curtailment gain (267) --
-------- ----------
Net periodic pension cost $ 135 $ 249
======== ==========
Weighted average assumptions:
Discount rate:
Pension cost 6.50% 7.50%
Benefit obligation 7.75% 6.50%
Expected return on plan assets 7.50% 7.50%
Rate of compensation increase 5.00% 5.00%
</TABLE>
During 1999, True Temper recognized a curtailment gain totaling $292,
$267 of which related to the defined benefit pension plan and $25
related to the post-retirement health plan, associated with the closure
of its Olive Branch, Mississippi manufacturing facility.
49
<PAGE> 52
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
Assets of the plans consist primarily of investments in equity
securities, debt securities, and cash equivalents. Expenses for defined
contribution plans amounted to $247, $174 and $144 in 1999, 1998 and
1997 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>
(DOLLARS IN THOUSANDS) 1999 1998
----------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $1,965 $ 5,628
Service cost 92 64
Interest cost 130 371
Actuarial gains (133) (112)
Benefits paid (2) (515)
Retained by Black & Decker -- (3,471)
Curtailments (32) --
------- -------
Benefit obligation at end of year 2,020 1,965
Unrecognized net actuarial loss 142 --
Accrued benefit costs $2,162 $ 1,965
======= =======
</TABLE>
The net periodic post-retirement benefit expense included the following
components for the years ended December 31:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1999 1998
------------------------------------------------------------------------------------
<S> <C> <C>
Service cost $92 $64
Interest cost 130 371
Amortization of prior service costs -- (300)
Recognized curtailment gain (25) --
---------- ---------
Net periodic cost $197 $135
========== =========
Discount Rate:
Pension cost 6.50% 7.50%
Benefit obligation 7.75% 6.50%
</TABLE>
50
<PAGE> 53
TRUE TEMPER SPORTS, INC.
(A wholly-owned subsidiary of True Temper Corporation)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
The healthcare cost trend rate used to determine the post-retirement
benefit obligation was 9.5% for 2000. This rate decreases gradually to
an ultimate rate of 5.0% in 2009, 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:
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------
Effect of 1.00% increase in trend rate on:
Net periodic cost $ 27
Post-retirement benefit obligation $ 111
Effect of 1.00% decrease in trend rate on:
Net periodic cost $ (23)
Post-retirement benefit obligation $(105)
(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.
51
<PAGE> 54
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(14) COMMITMENTS AND CONTINGENCIES
(a) 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."
Future minimum payments under non-cancelable operating and capital
leases with initial terms of one year or more as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(DOLLARS IN THOUSANDS) LEASES LEASES
--------------------------------------------------------------------------------
<S> <C> <C>
2000 89 869
2001 29 541
2002 21 419
2003 -- 360
2004 -- 85
Thereafter -- --
----- -----
Total minimum lease payments 139 2,274
Less: amount representing interest (22) =====
-----
Present value of net minimum capital lease payments 117
=====
</TABLE>
Rental expense on operating leases, excluding sublease rent
received, was $845, $547, and $514 for 1999, 1998 and 1997,
respectively.
(b) 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.
52
<PAGE> 55
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
(15) SEGMENT AND OTHER RELATED DISCLOSURES
(a) 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, non-trade receivables, deferred tax
assets, deferred financing costs and goodwill created during the
acquisition of the Company by Black & Decker.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Golf shafts $88,204 $87,399 $77,327
Specialty tubing 4,011 4,051 5,270
------- ------- -------
Total $92,215 $91,450 $82,597
======= ======= =======
Gross profit:
Golf shafts $35,213 $30,869 $26,861
Specialty tubing 918 1,329 1,850
------- ------- -------
Total $36,131 $32,198 $28,711
======= ======= =======
Total assets:
Jointly used assets $ 5,955 $ 6,483 $ 6,877
Golf shafts 37,425 38,054 32,329
Specialty tubing 1,978 2,166 2,443
------- ------- -------
Total $45,358 $46,703 $41,649
======= ======= =======
Revenues from one customer of True Temper's golf shafts segment
represent approximately $12,000 of the Company's consolidated
revenues.
</TABLE>
53
<PAGE> 56
TRUE TEMPER SPORTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF TRUE TEMPER CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands unless otherwise indicated)
Following are reconciliations of total reportable segment assets to total
Company assets, and total reportable segment gross profit to total
Company income(loss) before income taxes:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets:
Total from reportable segments $ 45,358 $ 46,703 $ 41,649
General corporate 142,288 142,923 118,692
-------- -------- --------
Total $187,646 $189,626 $160,341
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total reportable segment gross profit $ 36,131 $ 32,198 $ 28,711
Less:
Selling, general and administrative
expenses 15,156 14,227 14,251
Amortization of goodwill 2,701 2,505 3,746
Write-off of goodwill -- 40,000 --
Recapitalization transaction
expenses -- 5,698 --
Restructuring costs 622 1,150 520
Interest expense 14,341 3,462 --
Other expense (income), net (9) 80 54
======== ======== ========
Total Company income (loss) before
income taxes $ 3,320 $(34,924) $ 10,140
======== ======== ========
</TABLE>
(b) 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,
-------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $77,984 $76,689 $68,507
International 14,231 14,761 14,090
------- ------- -------
Total $92,215 $91,450 $82,597
======= ======= =======
</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.
54
<PAGE> 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of True Temper as of December 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 39 Vice President, Chief Financial Officer and Treasurer
Raymond Johnson 43 Vice President of Operations and Engineering
David N. Hallford 47 Vice President of Sales/Golf Products
Stephen M. Brown 34 Director of Human Resources
Bill R. Beatty 39 Director of Marketing
Adrian H. McCall 41 Vice President of International Sales and Marketing
Andy York 35 Director and General Manager of Performance Tubing
Mark Rossi 43 Director
Tyler J. Wolfram 33 Director
Robert A. Knox 47 Director
Raymond A. DeVita 63 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 1985 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 at
St. Louis.
Raymond Johnson has been Vice President of Operations and Engineering of
True Temper since July 1999. From August 1998 to July 1999 Mr. Johnson was Vice
President and General Manager of the Diversified Products Division of
Technimark. From 1983 to 1998 Mr. Johnson held various management positions at
Black & Decker in engineering and operations. Mr. Johnson received a B.A.
from the University of North Carolina at Chapel Hill.
David N. Hallford has been Vice President Sales/Golf Products 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 has
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.
Stephen R. Brown has been the Director of 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 in various Human Resource
management positions with Emerson Electric Company. Mr. Brown received a B.A.
from the University of South Carolina.
Bill R. Beatty has been Director of Marketing 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.
55
<PAGE> 58
Adrian H. McCall has been Vice President of International Sales and
Marketing since March 1999. From September 1995 to March 1999 Mr. McCall served
as Director of International Sales and Marketing. From May 1992 to September
1995, Mr. McCall served as Director of International Operations of The Upper
Deck Company, a manufacturer and distributor of baseball cards. Mr. McCall
graduated cum laude with a B.S. from the University of Hartford.
Andy York has been the Director and General Manager of Performance Tubing
since May 1999. From June 1996 to May 1999 Mr. York was Vice President of
Marketing at Nicklaus Golf Equipment Company. Prior to that he was Brand
Manager-Instant Cameras at Polaroid Corporation. Mr. York received a B.S. and an
MBA from Babson College in Wellesley, Massachusetts.
Mark Rossi became a director of True Temper in connection with the
Recapitalization. Mr. Rossi has served as Senior Managing Director of
Cornerstone Equity Investors L.L.C. 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, and
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. From 1993 to March 1998, Mr.
Wolfram held various positions in the High Yield Group of Donaldson, Lufkin &
Jenrette Securities Corporation. Mr. Wolfram received a B.A. 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.
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<PAGE> 59
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to True Temper for 1999
and 1998 of those persons who served as (1) the Chief Executive Officer during
1999 and (2) the other four most highly compensated executive officers of True
Temper or its predecessor for 1999 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER
BONUS ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY EARNED COMPENSATION(1) COMPENSATION(2)
- --------------------------- ---- ------ --------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Scott C. Hennessy
Chief Executive Officer, 1999 $261,458 $358,000(5) $ 27,995 $6,109
President and Director 1998 $250,000 $206,250 $556,183(3) $6,363
Fred H. Geyer 1999 $131,000 $ 55,000 $ 136 $4,268
Vice President,Chief 1998 $105,000 $ 60,000 $ 54,231(4) $ 750
Financial Officer and
Treasurer
Adrian H. McCall
Vice President of 1999 $129,958 $ 38,000 $ 182 $4,248
International 1998 $123,125 $ 46,500 $ -- $5,699
Sales and Marketing
David N. Hallford 1999 $116,583 $ 30,000 $ 9,150 $3,813
Vice President of Sales 1998 $112,000 $ 42,000 $ 12,456 $5,576
/Golf Products
Bill R. Beatty
Director of Marketing 1999 $115,708 $ 25,000 $ 113 $3,788
1998 $109,063 $ 42,188 $ -- $3,236
</TABLE>
(1) Includes certain life insurance benefits; and where applicable, country
club dues and use of company car.
(2) Includes matching contributions under our 401(k) plan.
(3) Includes the dollar value of the difference between the price paid for
common stock of True Temper Corporation and the fair market value of such
stock at the time of purchase.
(4) Represents moving and relocation benefits.
(5) This amount includes a $175,000 performance bonus and a service payment
of $183,000. The service payment represents the first of two expected
payments pursuant to an agreement that was made with Mr. Hennessy in
conjunction with the Recapitalization agreement between Black & Decker
and True Temper Sports LLC.
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 by 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
following table presents the aggregate pension benefit which would be payable
under both plans:
57
<PAGE> 60
TRUE TEMPER
ANNUAL PENSION BENEFITS AT NORMAL RETIREMENT DATE
<TABLE>
<CAPTION>
ANNUAL YEARS OF SERVICE
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>
CREDITED
NAME HIRE DATE SERVICE
---- --------- -------
<S> <C> <C>
Hennessy, Scott............................................... June 9, 1980 19 years
Geyer, Fred................................................... February 16, 1998 1 year
McCall, Adrian................................................ December 11, 1995 4 years
Hallford, David............................................... February 1, 1989 10 years
Beatty, Bill.................................................. June 10, 1996 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 in True Temper Corporation 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;
(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.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth all options granted To Named Executive
Officers during 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
% OF POTENTIAL
TOTAL REALIZED VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO EXERCISE RATES OF STOCK PRICE
UNDERLYING EMPLOYEES OR BASE APPRECIATION
OPTIONS IN FISCAL PRICE EXPIRATION FOR OPTION TERM
NAME GRANTED YEAR ($/SH) DATE 5% 10%
---- ------- ---- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Hennessy, Scott -- -- -- -- -- --
Geyer, Fred 25,695 13.0% 1.94 November 1, 2009 $31,349 $79,445
McCall, Adrian -- -- -- --
Hallford, David -- -- -- -- -- --
Beatty, Bill -- -- -- -- -- --
</TABLE>
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> 61
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
As members of the Compensation Committee it is our duty to monitor the
performance and compensation of executive officers and other key employees, and
to make appropriate recommendations and reports to the Board of Directors
concerning matters of executive compensation.
The Company maintains a compensation program designed to motivate, retain
and attract management, with incentives linked to financial performance and
enhanced shareholder value. The fundamental philosophy is to relate the amount
of compensation for an executive directly to his or her contribution to the
Company's success in achieving superior performance objectives.
The Company's executive compensation program consists of three components:
1) base salary; 2) potential for annual incentive compensation based on Company
performance; and, 3) the opportunity to earn long-term stock-based incentives
which are intended to encourage achievement of superior long-term results and to
align executive officer interests with those of the shareholders. The base
salary element is developed based on the performance of the individual
executives with reference to industry, peer group and national surveys, with the
objective of having the Company's executive officers receive a level of base
salary similar to the average base salary of individuals at similarly sized
companies, performing comparable duties.
The annual incentive compensation element is based on the Company's
attainment of certain levels of profitability. The long-term stock-based element
is developed by reference to competitive practices and trends of other companies
which use stock options as a component of executive compensation. Long-term
stock-based incentives are to incentivize executive officers to increase
shareholder value. Accordingly, the Committee has taken into account the amount
and value of options held by each of the executive officers when considering new
grants to assure that deserving executives have an equity participation in the
Company. In fixing the stock option grants for fiscal 1999, the Committee
considered the current stock holdings of each individual, their responsibilities
and historical and anticipated future contributions to True Temper's
performance.
Because of the scope of his responsibilities as Chief Executive Officer and
President, and given the equity stake he has in the Company, the Compensation
Committee separately considers the compensation of Mr. Hennessy. His salary,
like that of the other officers, is determined by reference to published
compensation surveys, and his salary level is in line with such published salary
levels for comparable positions of responsibility. The Committee believes a
portion of the total annual compensation of Mr. Hennessy should be directly tied
to the Company's performance. Accordingly, Mr. Hennessy also earns a cash bonus
based on the True Temper's operating performance during the current fiscal year.
In fixing the stock option grants for fiscal 1999, the Committee considered
the current stock holdings of each individual, their responsibilities and
historical and anticipated future contributions to True Temper's performance.
The Compensation Committee is of the opinion that the compensation levels
for the Named Executive Officers are reasonable when compared to similar
positions of responsibility and scope in similar industries and that an
appropriate amount of total compensation is based on the performance of the
Company, and therefore provides sufficient incentive for these individuals to
attain improved results in the future.
COMPENSATION COMMITTEE
Raymond A. DeVita
Scott C. Hennessy
Robert A. Knox
Tyler J. Wolfram
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<PAGE> 62
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding shares of our capital stock are owned by True
Temper Corporation. The following table sets forth information with respect
to the beneficial ownership of True Temper Corporation's capital stock as of
March 30, 2000 by:
(1) all stockholders of True Temper Corporation 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>
True Temper Sports LLC(1)....... 11,750,000 8,192,163 94.0% 88.2% 88.2%
c/o Cornerstone Equity
Investors, L.L.C.
717 Fifth Avenue
Suite 1100
New York, New York 10022
EII(2) ........................ 750,000 534,632 6.0% 5.8% 5.8%
c/o The Black & Decker
Corporation
701 East Joppa Road
Towson, Maryland 21286
Scott C. Hennessy............... -- 452,501 -- 4.9% 4.9%
Fred H. Geyer................... -- 28,848 -- * *
Adrian H. McCall................ -- 29,078 -- * *
David N. Hallford............... -- 17,665 -- * *
Bill R. Beatty.................. -- 9,766 -- * *
Raymond A. DeVita............... -- 4,792 -- * *
All directors and executive
officers as a group
(9 persons)(3)............... -- 558,982 -- 6.0% 6.0%
</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 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 IV,
LP, for which the individual directors who are affiliates of Cornerstone
disclaim beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RECAPITALIZATION AGREEMENT
In accordance with the terms of the recapitalization agreement, Black &
Decker has indemnified True Temper Sports, LLC, the equity investor, against any
and all damages resulting from any misrepresentation or breach of warranty of
Black & Decker or of True Temper Corporation contained in the recapitalization
60
<PAGE> 63
agreement, a claim which is typically made the earlier of 18 months following
the closing date or the date on which audited financial statements for the 1999
calendar 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. 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.
As provided in the recapitalization agreement, True Temper Corporation may
pay contingent amounts to Black & Decker. The amount of such payments, if any,
will be equal to 25% of the EBIT contribution derived from True Temper
Corporation's sales to Thiokol. These sales will be in accordance with the
Thiokol contract which is 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, True Temper Corporation and
all of its stockholders, including True Temper Sports, LLC and Black & Decker,
entered into a stockholders agreement. The stockholders agreement:
(1) requires that each of the parties vote all of their voting securities
of True Temper Corporation and take all other necessary or desirable
actions to cause the size of the board of directors of True Temper
Corporation to be established at the number of members determined by
True Temper Sports, LLC and to cause designees of True Temper Sports,
LLC representing a majority of the board of directors to be elected to
the board of directors of True Temper Corporation;
(2) grants True Temper Corporation and True Temper Sports, LLC a right of
first refusal on any proposed transfer of shares of capital stock of
True Temper Corporation held by Black & Decker and any of the other
stockholders;
(3) grants tag-along rights on certain transfers of shares of capital
stock of True Temper Corporation;
(4) requires the stockholders to consent to a sale of True Temper
Corporation to an independent third party if such sale is approved by
certain holders of the then outstanding shares of the company's voting
common stock; and
(5) except in certain instances, prohibits Black & Decker from
transferring any shares of capital stock of True Temper Corporation
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.
EQUITY REGISTRATION RIGHTS AGREEMENT
Upon the consummation of the recapitalization, True Temper Corporation and
all of its stockholders, including True Temper Sports, LLC and Black & Decker,
entered into the equity registration rights agreement. Under the equity
registration rights agreement, the holders of a majority of the True Temper
Corporation registrable securities and/or its affiliates have the right to
require True Temper Corporation to register any or all of their shares of common
stock of True Temper Corporation under the Securities Act at the company's
expense. In addition, all holders of registrable securities are entitled to
request the inclusion of any shares of common stock of True Temper Corporation
subject to the equity registration rights agreement in any registration
statement filed by True Temper Corporation at its expense whenever the company
proposes to register any of its common stock under the Securities Act. In
connection with all such registrations, True Temper Corporation has agreed to
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<PAGE> 64
indemnify all holders of registrable securities against those liabilities
described in the stockholders agreement, 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 of the
recapitalization.
CORPORATE EXPENSE ALLOCATION
True Temper received general administrative services provided by Black &
Decker that include cash management, tax reporting, risk management and internal
audit. Allocated expenses for such services, amounting to $0.9 million and $0.7
million for 1997 and 1998, 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.
CORPORATE PASS-THROUGH CHARGES
Black & Decker provided 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
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<PAGE> 65
unless we or Cornerstone provide 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULE, AND REPORTS ON FORM 8K
(a) Documents filed as part of this report:
1. Financial Statements. The following financial statements of True Temper
Sports, Inc. have been included in part II, item 8 of this report on
Form 10-K.
Reports of Independent Accountants
Statements of Operations for the three years ended December 31, 1999
Balance Sheets at December 31, 1999 and 1998
Statements of Changes in Stockholder's Equity for the three years
ended December 31, 1999
Statements of Cash Flows for the three years ended December 31, 1999
Notes to Financial Statements
2. Financial Statement Schedule.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ENDED
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(3) OF PERIOD
----------- ---------- ---------- ---------- ------------- ----------
DOLLARS IN THOUSANDS
(DEBIT)/CREDIT
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 31, 1997.......... 266 54 (8) (44) 268
Year Ended December 31, 1998.......... 268 69 284(1) (29) 592
Year Ended December 31, 1999.......... 592 173 -- (266) 499
ALLOWANCE FOR LOST MARGIN
Year Ended December 31, 1997.......... 283 827 -- (982) 128
Year Ended December 31, 1998.......... 128 1,272 -- (1,267) 133
Year Ended December 31, 1999.......... 133 1,359 -- (1,220) 272
ALLOWANCE FOR OBSOLETE INVENTORY
Year Ended December 31, 1997.......... 1,004 264 -- (936)(4) 332
Year Ended December 31, 1998.......... 332 307 234(2) (178) 695
Year Ended December 31, 1999.......... 695 396 -- (475) 616
RESTRUCTURING RESERVES
Year Ended December 31, 1997.......... 281 520 -- (626) 175(5)
Year Ended December 31, 1998.......... 175 1,350 -- (37) 1,488
Year Ended December 31, 1999.......... 1,488 -- -- (645) 843
</TABLE>
(1) Represents (i) $136 from the acquisition of Grafalloy Corporation
and (ii) $148 to reclassify outstanding credit memos.
(2) From the acquisition of Grafalloy Corporation.
(3) Deductions represent (i) uncollectible accounts charged against the
allowance for doubtful accounts, (ii) actual lost margin on sales
returns, (iii) the cost of obsolete inventory disposed of and (iv)
actual costs incurred for restructuring activities.
(4) Represents (i) $558 in obsolete inventory disposals and (ii) a
change in accounting estimate of $378.
(5) Represents costs associated with exiting the Company's Seneca,
South Carolina production facility.
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<PAGE> 66
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. Exhibits.
See the Index to Exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
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<PAGE> 67
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 30, 2000
True Temper Sports, Inc.
By: /s/ Scott C. Hennessy
-----------------------------------
Name: Scott C. Hennessy
Title: President and
Chief Executive Officer
By: /s/ Fred H. Geyer
-----------------------------------
Name: Fred H. Geyer
Title: Vice President,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated, on March 30, 2000.
By: /s/ Robert A. Knox
-----------------------------------
Name: Robert A. Knox
Title: Director
By: /s/ Mark Rossi
-----------------------------------
Name: Mark Rossi
Title: Director
By: /s/ Tyler J. Wolfram
-----------------------------------
Name: Tyler J. Wolfram
Title: Director
By: /s/ Raymond A. DeVita
-----------------------------------
Name: Raymond A. DeVita
Title: Director
65
<PAGE> 68
INDEX TO EXHIBITS
EXHIBIT
-------
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")
(filed as exhibit 2.1 to the Company's Registration
Statement on Form S-4 (No. 333-72343), as filed with the
Securities and Exchange Commission (the "SEC") on
February 12, 1999 (the "Form S-4"), and incorporated
herein by this reference).*
2.2 Amendment No. 1 to Recapitalization Agreement
dated August 1, 1998 (filed as exhibit 2.2 to
Form S-4, and incorporated herein by this reference).*
2.3 Amendment No. 2 to Recapitalization Agreement
dated September 30, 1998 (filed as exhibit 2.3
to Form S-4, and incorporated herein by this
reference).*
2.4 Assignment and Assumption Agreement by and
between True Temper Corporation ("TTC") and
the Company dated September 30, 1998 (filed as
exhibit 2.4 to Form S-4, and incorporated
herein by this reference).*
3.1 Amended and Restated Certificate of
Incorporation of the Company, dated September
29, 1988 (filed as Exhibit 3.1 to Form S-4,
and incorporated herein by this reference).*
3.2 By-laws of the Company (filed as Exhibit 3.2
to Form S-4, and incorporated herein by this
reference).*
4.1 Indenture dated November 23, 1998 between the
Company United States Trust of New York (filed
as Exhibit 4.1 to Form S-4, and incorporated
herein by this reference).*
4.2 Purchase Agreement dated November 18, 1998
between the Company and Donaldson, Lufkin and
Jenrette (filed as Exhibit 4.2 to Form S-4,
and incorporated herein by this reference).*
4.3 Registration Rights Agreement dated as of
November 23, 1998 between the Company and
Donaldson, Lufkin and Jenrette (filed as
Exhibit 4.3 to Form S-4, and incorporated
herein by this reference).*
10.1 Management Services Agreement dated as of
September 30, 1998 between the Company and
Cornerstone Equity Investors, LLC ("Management
Services Agreement") (filed as Exhibit 10.1 to
Form S-4, and incorporated herein by this
reference).*
10.2 Amendment to Management Services Agreement
dated November 23, 1998 (filed as Exhibit 10.2
to Form S-4, and incorporated herein by this
reference.)*
66
<PAGE> 69
10.3 Credit Agreement dated as of September 30,
1998 among the Company, various financial institutions,
DLJ Capital Funding, Inc. and The First National Bank of
Chicago (filed as Exhibit 10.3 to Form S-4, and
incorporated herein by this reference).*
10.4 Securities Purchase Agreement dated as of
September 30, 1998 among TTC and the Purchase
Party thereto (filed as Exhibit 10.4 to Form
S-4, and incorporated herein by this reference).*
10.5 Amendment No. 1 to Credit Agreement dated
September 30, 1998.
10.6 True Temper Corporation 1998 Stock Option Plan.
10.7 Shareholders Agreement dated as of September 30, 1998.
12.1 Computation of Ratio of Earnings To Fixed Charges
27.1 Financial Data Schedule
- --------------------------------------------------
* Incorporated by reference
67
<PAGE> 1
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT (this "Amendment No. 1"),
dated as of June 11, 1999, is among True Temper Sports, Inc., a Delaware
corporation (the "Borrower"), the various financial institutions from time to
time parties thereto (collectively, the "Lenders"), DLJ Capital Funding, Inc.,
as syndication agent (the "Syndication Agent") for the Lenders, The First
National Bank of Chicago, as administrative agent (the "Administrative Agent")
for the Lenders, and Donaldson, Lufkin & Jenrette Securities Corporation, as
lead arranger (the "Arranger").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Syndication Agent, the
Administrative Agent and the Arranger are parties to a Credit Agreement, dated
as of September 30, 1998 (as heretofore modified and supplemented and in effect
from time to time, the "Credit Agreement");
WHEREAS, the Borrower has requested the Lenders to amend the Credit
Agreement to provide for the issuance under the Credit Agreement of Letters of
Credit in selected foreign currencies;
WHEREAS, all Loans and Obligations shall continue to be and shall be
fully guaranteed pursuant to, and fully secured by, the Holdco Guaranty and
Pledge Agreement and the Borrower Security Agreement; and
WHEREAS, the Borrower desires, and the Lenders are willing, on the
terms and subject to the conditions hereinafter set forth, to amend the Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the agreements herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or
the context otherwise requires, terms used in this Amendment No. 1, including
its preamble and recitals, have the following meanings (such meanings to be
equally applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
"Amendment No. 1" is defined in the preamble.
"Amendment No. 1 Effective Date" is defined in Subpart 3.1.
"Arranger" is defined in the preamble.
"Borrower" is defined in the preamble.
"Credit Agreement" is defined in the first recital.
"Lenders" is defined in the preamble.
"Syndication Agent" is defined in the preamble.
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment No. 1, including its
preamble and recitals, have the meanings ascribed thereto in the Credit
Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and
each other similar reference and each reference to "this Agreement" and each
other similar reference contained in the Credit Agreement shall from and after
the Amendment No. 1 Effective Date refer to the Credit Agreement, as amended
hereby.
PART II
AMENDMENTS TO CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 1
Effective Date, the Credit Agreement is amended in accordance with this Part II.
Except to the extent amended by this Amendment No. 1, the Credit Agreement is
and shall continue to be in full force and effect and is hereby ratified and
confirmed in all respects.
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<PAGE> 3
SUBPART 2.1. Amendments to Article I. Article I of the Credit Agreement
is amended as set forth in this Subpart 2.1.
SUBPART 2.1.1. Amendments to Section 1.1.
(a) Section 1.1 of the Credit Agreement is hereby amended by inserting
the following definitions in their alphabetically appropriate places:
"Australian Dollars" means the lawful currency of Australia.
"Available Currency" means Dollars and, with the consent of
the Administrative Agent, Foreign Currency.
"Dollar Equivalent" means, with respect to any Foreign
Currency on any date of determination, the equivalent amount in Dollars
of such Foreign Currency, determined by reference to the New York
foreign exchange selling rates, as published in The Wall Street Journal
on such date of determination for the immediately preceding Business
Day, or, if such rate is not available, such equivalent amount shall be
determined by the Administrative Agent (in accordance with its standard
practices) by using the quoted spot rate offered to the Administrative
Agent in the New York foreign exchange market for such Foreign Currency
at approximately 11:00 a.m. (New York time) on such date of
determination.
"Foreign Currency" means Pounds Sterling, Australian Dollars
and Japanese Yen.
"Foreign Currency Letter of Credit" means a Letter of Credit
denominated in a Foreign Currency.
"Foreign Guaranty" means a guaranty denominated in a Foreign
Currency issued by a foreign branch or Affiliate of the Issuer.
"Japanese Yen" means the lawful currency of Japan.
"Pounds Sterling" means the lawful currency of the United
Kingdom.
"U.S. Dollar Letter of Credit" means a Letter of Credit
denominated in Dollars.
(b) The following definitions appearing in Section 1.1 of the Credit
Agreement are hereby amended in their entirety to read as set forth below:
"Business Day" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to
be closed in Memphis, Tennessee, New York, New York or Chicago,
Illinois and, (i) with respect to Borrowings of, Interest
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<PAGE> 4
Periods with respect to, payments of principal and interest in respect
of, and conversions of Base Rate Loans into, Eurodollar Loans, on which
dealings in Dollars are carried on in the London interbank market, and
(ii) with respect to Reimbursement Obligations in respect of Foreign
Currency Letters of Credit, on which banks are generally open for
business in the principal financial center of the jurisdiction of such
Foreign Currency.
"Issuer" means the Administrative Agent, in its capacity as
Issuer of Letters of Credit, any other Lender as may be designated by
the Borrower (and consented to by the Administrative Agent and such
Lender, such consent by the Administrative Agent not to be unreasonably
withheld) and any foreign branch or Affiliate of the Administrative
Agent or such Lender, in its capacity as Issuer of Letters of Credit.
"Letter of Credit" means (i) a standby or commercial letter of
credit denominated in an Available Currency for the account of the
Borrower, and (ii) a Foreign Guaranty.
"Letter of Credit Commitment Amount" means, on any date, with
respect to U.S. Dollar Letters of Credit and Foreign Currency Letters
of Credit collectively, a maximum amount (calculated, in the case of
Foreign Currency Letters of Credit, at the Dollar Equivalent thereof on
such date) of $10,000,000, as such amount may be reduced from time to
time pursuant to Section 2.2.
"Letter of Credit Outstandings" means, on any date, an amount
equal to the sum (without duplication) of
(a) the then aggregate amount which is undrawn and
available under all issued and outstanding U.S. Dollar Letters
of Credit (whether or not the conditions to drawing thereunder
could be satisfied on such date);
plus
(b) the Dollar Equivalent of the then aggregate
amount which is undrawn and available under all issued and
outstanding Foreign Currency Letters of Credit (whether or not
the conditions to drawing thereunder could be satisfied on
such date);
plus
(c) the then aggregate amount of all unpaid and
outstanding Reimbursement Obligations (calculated, in the case
of Foreign Currency Letters of Credit, at the Dollar
Equivalent thereof on such date) in respect of such U.S.
Dollar Letters of Credit and Foreign Currency Letters of
Credit.
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<PAGE> 5
SUBPART 2.2. Amendments to Article II. Article II of the Credit
Agreement is hereby amended as set forth in this Subpart 2.2.
SUBPART 2.2.1. Amendment to Section 2.1. Clause (b) of Section 2.1 of
the Credit Agreement is hereby amended in its entirety to read as set forth
below:
"(b) the Issuer agrees that it will issue Letters of Credit
pursuant to Section 2.1.3, and each other Lender that has a Revolving
Loan Commitment severally agrees that it will purchase participation
interests in such Letters of Credit, or, in the case of Foreign
Guaranties, purchase participation interests or deem Disbursements to
be Revolving Loans, pursuant to Section 2.6.1. Any term or provision of
this Agreement or any other Loan Document (including this Article II or
Article III hereof) to the contrary notwithstanding, (i) each Foreign
Currency Letter of Credit and each Foreign Guaranty shall be issued,
and all Reimbursement Obligations in respect of such Foreign Currency
Letter of Credit shall be paid, in the applicable Foreign Currency;
(ii) all participation, reimbursement and other interests and
obligations of the Lenders (other than the Issuer) with respect to each
Foreign Currency Letter of Credit and each Foreign Guaranty shall be
calculated and paid in the Dollar Equivalent of such Foreign Currency;
and (iii) each Issuer of a Foreign Currency Letter of Credit or a
Foreign Guaranty shall be a "Qualified Business Unit", as defined in
Section 989(a) of the Code, which maintains an office in the
jurisdiction in which the requested Foreign Currency Letter of Credit
or Foreign Guaranty is to be issued."
SUBPART 2.2.2. Amendment to Section 2.1.3. Section 2.1.3 of the Credit
Agreement is hereby amended in its entirety to read as set forth below:
"SECTION 2.1.3. Letter of Credit Commitment. Subject to
compliance by the Borrower with the terms of Sections 2.1.5, 5.1 and
5.2, from time to time on any Business Day occurring after the Closing
Date but prior to the Revolving Loan Commitment Termination Date, the
Issuer will (i) issue one or more Letters of Credit denominated in the
relevant Available Currency for the account of the Borrower in the
Stated Amount requested by the Borrower on such day, or (ii) extend the
Stated Expiry Date of an existing Letter of Credit previously issued
hereunder to a date not later than the earlier of (x) the sixth
anniversary of the Closing Date and (y) one year from the date of such
extension, subject to the proviso in the penultimate sentence of
Section 2.6."
SUBPART 2.2.3. Amendment to Section 2.1.5. Section 2.1.5 of the Credit
Agreement is hereby amended in its entirety to read as set forth below:
"SECTION 2.1.5. Issuer Not Required to Issue Letters of
Credit. (a) No Issuer shall be required to issue any Letter of Credit
if, after giving effect thereto, (i) the aggregate amount of all Letter
of Credit Outstandings would exceed the Letter of Credit Commitment
Amount or (ii) the sum of the aggregate amount of all Letter of Credit
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<PAGE> 6
Outstandings plus the aggregate principal amount of all Revolving Loans
and Swing Line Loans then outstanding would exceed the Revolving Loan
Commitment Amount.
(b) No Issuer shall be permitted or required to issue any
Foreign Currency Letter of Credit or Foreign Guaranty if the
Administrative Agent has not consented to the issuance pursuant to
Section 2.6 or such Issuer is not a "Qualified Business Unit", as
defined in Section 989(a) of the Code, which maintains an office in the
jurisdiction in which the requested Foreign Currency Letter of Credit
or Foreign Guaranty is to be issued.
(c) No Issuer shall be required to issue any Foreign Guaranty
if any Lender that has a Revolving Loan Commitment is prohibited by law
from participating in such Foreign Guaranty."
SUBPART 2.2.4. Amendment to Section 2.6. Section 2.6 of the Credit
Agreement is hereby amended in its entirety to read as set forth below:
"SECTION 2.6. Issuance Procedures. (a) By delivering to the
Administrative Agent an Issuance Request on or before 12:00 noon,
Chicago time, on a Business Day, the Borrower may, from time to time
irrevocably request, on not less than three nor more than ten Business
Days' notice (or such shorter or longer notice as may be acceptable to
the Issuer), in the case of an initial issuance of a Letter of Credit,
and not less than three nor more than ten Business Days' notice (unless
a shorter or longer notice period is acceptable to the Issuer) prior to
the then existing Stated Expiry Date of a Letter of Credit, in the case
of a request for the extension of the Stated Expiry Date of a Letter of
Credit, that the Issuer issue, or extend the Stated Expiry Date of, as
the case may be, an irrevocable Letter of Credit on behalf of the
Borrower denominated in the applicable Available Currency (whether
issued for the account of or on behalf of the Borrower or any of its
Subsidiaries) in such form as may be requested by the Borrower and
approved by the Issuer, for the purposes described in clause (b) of
Section 7.1.9. Notwithstanding anything to the contrary contained
herein or in any separate application for any Letter of Credit, the
Borrower hereby acknowledges and agrees that it shall be obligated to
reimburse the Issuer upon each Disbursement paid under a Letter of
Credit, and it shall be deemed to be the obligor for purposes of each
such Letter of Credit issued hereunder (whether the account party on
such Letter of Credit is the Borrower or a Subsidiary of the Borrower).
(b) Upon receipt of an Issuance Request which requests the
issuance of a Foreign Currency Letter of Credit, the Administrative
Agent shall promptly notify the Borrower either that the requested
currency is acceptable to the Administrative Agent, in which case such
Foreign Currency Letter of Credit shall be issued, or that the
requested currency is not acceptable to the Administrative Agent (in
its reasonable determination), in which case such Foreign Currency
Letter of Credit shall not be issued.
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<PAGE> 7
(c) Upon receipt of an Issuance Request which requests the
issuance of a Foreign Guaranty, the Administrative Agent shall promptly
notify the Borrower (i) that the requested currency is acceptable to
the Administrative Agent and no Lender that has a Revolving Loan
Commitment is prohibited by law from participating in such Foreign
Guaranty, in which case such Foreign Guaranty shall be issued, or (ii)
that the requested currency is acceptable to the Administrative Agent
and, although one or more Lenders that have a Revolving Loan Commitment
are prohibited by law from participating in such Foreign Guaranty, the
Issuer has determined (in its sole and absolute discretion) to issue
such Foreign Guaranty, or (iii) that the requested currency is not
acceptable to the Administrative Agent (in its reasonable
determination), in which case such Foreign Guaranty shall not be
issued, or (iv) that any Lender that has a Revolving Loan Commitment is
prohibited by law from participating in such Foreign Guaranty and, as a
result, the Issuer has determined (in its sole and absolute discretion)
not to issue such Foreign Guaranty.
(d) Upon receipt of an Issuance Request, and following any
determination required by this Section 2.6, the Administrative Agent
shall promptly notify the Issuer and each Lender thereof. Each Letter
of Credit shall by its terms be stated to expire on a date (its "Stated
Expiry Date") no later than the earlier to occur of (i) the Revolving
Loan Commitment Termination Date or (ii) one year from the date of its
issuance; provided, notwithstanding the terms of clause (ii) above,
that a Letter of Credit may, if required by the beneficiary thereof,
contain "evergreen" provisions pursuant to which the Stated Expiry Date
shall be automatically extended (in each case, to the date no later
than the earlier to occur of (x) the Revolving Loan Commitment
Termination Date or (y) one year from the date of such automatic
extension), unless notice to the contrary shall have been given to the
beneficiary by the Issuer or the account party more than a specified
period prior to the then existing Stated Expiry Date. The Issuer will
make available to the beneficiary thereof the original of each Letter
of Credit which it issues hereunder."
SUBPART 2.2.5. Amendment to Section 2.6.1. Section 2.6.1 of the Credit
Agreement is hereby amended in its entirety to read as set forth below:
"SECTION 2.6.1. Other Lenders' Participation. (a) Upon the
issuance of each U.S. Dollar Letter of Credit or Foreign Currency
Letter of Credit issued by the Issuer pursuant hereto, and without
further action, each Lender (other than the Issuer) that has a
Revolving Loan Commitment shall be deemed to have irrevocably purchased
from the Issuer, to the extent of its Percentage in respect of
Revolving Loans, and the Issuer shall be deemed to have irrevocably
granted and sold to such Lender a participation interest in such U.S.
Dollar Letter of Credit or Foreign Currency Letter of Credit, as the
case may be (including the Contingent Liability and any Reimbursement
Obligation and all rights with respect thereto).
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<PAGE> 8
(b) Upon the issuance of each Foreign Guaranty issued by the
Issuer pursuant hereto, each Lender (other than the Issuer) that has a
Revolving Loan Commitment shall, unless prohibited by law, be deemed to
have irrevocably purchased from the Issuer, to the extent of its
Percentage in respect of Revolving Loans, and the Issuer shall be
deemed to have irrevocably granted and sold to such Lender a
participation interest in such Foreign Guaranty (including the
Contingent Liability and any Reimbursement Obligation and all rights
with respect thereto). If any Lender that has a Revolving Loan
Commitment is prohibited by law from participating in such Foreign
Guaranty, such Lender shall (i) promptly notify the Administrative
Agent in writing that it is prohibited by law from participating in
such Foreign Guaranty, and (ii) deem each Disbursement under such
Foreign Guaranty, without further action, to be a Revolving Loan and,
to the extent that the Borrower does not reimburse the Administrative
Agent for such Disbursement pursuant to Section 2.6.2, such Lender, on
or before 12:00 noon, Chicago time, on the Business Day following the
Disbursement Due Date (unless such Disbursement is converted into a
Base Rate Loan on the Disbursement Due Date), shall deposit with the
Administrative Agent same day funds in an amount equal to the Dollar
Equivalent of such Lender's Percentage of such Disbursement. Each
Lender's obligation under this Section 2.6.1(b) shall be absolute and
unconditional under any and all circumstances and irrespective of any
Default or Event of Default under this Agreement or any other Loan
Document.
(c) Each Lender (other than the Issuer) shall, to the extent
of its Percentage in respect of Revolving Loans, be responsible for
reimbursing promptly (and in any event within one Business Day) the
Issuer for Reimbursement Obligations which have not been reimbursed by
the Borrower in accordance with Section 2.6.3. In addition, such Lender
shall, to the extent of its Percentage in respect of Revolving Loans,
be entitled to promptly receive a ratable portion of the Letter of
Credit fees payable pursuant to Section 3.3.3 with respect to each
Letter of Credit and of interest payable pursuant to Section 2.6.2 with
respect to any Reimbursement Obligation. To the extent that any Lender
has reimbursed the Issuer for a Disbursement as required by this
Section, such Lender shall be entitled to receive its ratable portion
of any amounts subsequently received (from the Borrower or otherwise)
in respect of such Disbursement."
SUBPART 2.2.6. Amendment to Section 2.6.2. Section 2.6.2 of the Credit
Agreement is hereby amended by deleting the proviso at the end thereof and
inserting in lieu thereof the following proviso:
"provided, however, that, if no Default shall have then occurred and be
continuing, unless the Borrower has notified the Administrative Agent
no later than one Business Day prior to the Disbursement Due Date that
it will reimburse the Issuer for the applicable Disbursement, then the
amount of the Disbursement, or, if the Disbursement was in a Foreign
Currency, the Dollar Equivalent of the amount of the Disbursement,
shall be deemed to be a Borrowing of Revolving Loans constituting Base
Rate Loans and
-8-
<PAGE> 9
following the giving of notice thereof by the Administrative Agent to
the Lenders, each Lender with a Revolving Loan Commitment (other than
the Issuer) will deliver to the Issuer on the Disbursement Due Date
immediately available funds in an amount equal to such Lender's
Percentage of such Borrowing. Each conversion of Disbursement amounts
into Revolving Loans shall constitute a representation and warranty by
the Borrower that on the date of the making of such Revolving Loans all
of the statements set forth in Section 5.2.1 are true and correct."
SUBPART 2.3. Amendments to Article III. Article III of the Credit
Agreement is hereby amended as set forth in this Subpart 2.3.
SUBPART 2.3.1. Amendment to Section 3.3.3. Section 3.3.3 of the Credit
Agreement is hereby amended in its entirety to read as set forth below:
"SECTION 3.3.3. Letter of Credit Fees. The Borrower agrees to
pay to the Administrative Agent, for the pro rata account of the Issuer
and each other Lender that has a Percentage of the Revolving Loan
Commitment Amount of greater than zero, a Letter of Credit fee for each
day on which there shall be any Letters of Credit outstanding, at a
rate per annum equal to (i) with respect to each standby Letter of
Credit and each Foreign Guaranty, the then Applicable Margin for
Revolving Loans maintained as Eurodollar Loans, multiplied by the
Stated Amount of each such Letter of Credit, and (ii) with respect to
each documentary Letter of Credit, 1.25% per annum multiplied by the
Stated Amount of each such Letter of Credit, such fees to be payable in
the currency in which such Letter of Credit is denominated by the
Borrower quarterly in arrears on each Quarterly Payment Date and on the
Revolving Loan Commitment Termination Date for any period then ending
for which such fees shall not theretofore have been paid. The Borrower
further agrees to pay to the Issuer for its own account, quarterly in
arrears on each Quarterly Payment Date, a fronting fee equal to 1/4 of
1% per annum, multiplied by the Stated Amount of the applicable Letter
of Credit payable in the currency in which such Letter of Credit is
denominated. In addition, customary issuance costs, fees and expenses
shall be payable to the Issuer for its own account."
SUBPART 2.4. Amendment to Article X. Article X of the Credit Agreement
is hereby amended as set forth in this Subpart 2.4.
SUBPART 2.4.1. New Section 10.16. A new Section 10.16 is hereby added
to the end of Article X of the Credit Agreement to read in its entirety as set
forth below:
"SECTION 10.16. Judgment Currency. (a) If, for the purpose of
obtaining judgment in any court, it is necessary to convert a sum due
hereunder, under any Note or under any other Loan Document in another
currency into Dollars or into a Foreign Currency, as the case may be,
the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at
which, in accordance with
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<PAGE> 10
normal banking procedures, the applicable Secured Party could purchase
such other currency with Dollars or with such Foreign Currency, as the
case may be, in New York City, at the close of business on the Business
Day immediately preceding the day on which final judgment is given,
together with any premiums and costs of exchange payable in connection
with such purchase.
(b) The obligation of the Borrower in respect of any sum due
from it to any Agent, any Lender or any other Secured Party hereunder,
under any Note or under any other Loan Document shall, notwithstanding
any judgment in a currency other than Dollars or a Foreign Currency, as
the case may be, be discharged only to the extent that on the Business
Day next succeeding receipt by such Agent, such Lender or such other
Secured Party of any sum adjudged to be so due in such other currency,
such Agent, such Lender or such other Secured Party may, in accordance
with normal banking procedures, purchase Dollars or such Foreign
Currency, as the case may be, with such other currency. If the Dollars
or such Foreign Currency so purchased are less than the sum originally
due to such Agent, such Lender or such other Secured Party in Dollars
or in such Foreign Currency, the Borrower agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify such
Agent, such Lender or such other Secured Party against such loss."
SUBPART 2.5. Amendment to Issuance Request. The Issuance Request
attached as Exhibit B-2 to the Credit Agreement shall be amended in its entirety
to read as set forth on Annex I hereto.
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Effective Date. This Amendment No. 1 shall become
effective as of the date (the "Amendment No. 1 Effective Date") when all of the
conditions set forth in this Subpart 3.1 shall have been satisfied.
SUBPART 3.1.1. Execution of Counterparts. The Administrative Agent
shall have received counterparts of this Amendment No. 1 duly executed by the
Borrower, the Administrative Agent, the Issuer and the Required Lenders (or
evidence thereof satisfactory to the Administrative Agent). The delivery of an
executed counterpart hereof by the Borrower shall constitute a representation
and warranty by the Borrower that, on the Amendment No. 1 Effective Date, after
giving effect to this Amendment No. 1, all statements set forth in Section 5.2.1
of the Credit Agreement, as amended by Amendment No. 1, are true and correct as
of such date, except to the extent that such statement expressly relates to an
earlier date (in which case such statement shall be true and correct on and as
of such earlier date).
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SUBPART 3.1.2. Affirmation and Consent. The Administrative Agent shall
have received executed counterparts of the Affirmation and Consent to Amendment
No. 1 to Credit Agreement, dated the Amendment No. 1 Effective Date,
substantially in the form of Annex II hereto, duly executed and delivered by the
parties thereto.
SUBPART 3III.1.3. Payment of Fees and Expenses. The Borrower hereby
agrees to pay and reimburse the Administrative Agent for all its reasonable fees
and expenses incurred in connection with the negotiation, preparation, execution
and delivery of this Amendment No. 1 and related documents, including all
reasonable fees and disbursements of counsel to the Administrative Agent.
SUBPART 3.1.4. Legal Details, etc. The Administrative Agent and its
counsel shall have received all information, and such counterpart originals or
such certified or other copies of such materials, as the Administrative Agent or
its counsel may reasonably request, and all legal matters incident to the
transactions contemplated by this Amendment No. 1 shall be reasonably
satisfactory to the Administrative Agent and its counsel. All documents executed
or submitted pursuant hereto or in connection herewith shall be reasonably
satisfactory in form and substance to the Administrative Agent and its counsel.
SUBPART 3.2. Limitation. Except as expressly provided hereby, all of
the representations, warranties, terms, covenants and conditions of the Credit
Agreement and each other Loan Document shall remain unamended and unwaived and
shall continue to be, and shall remain, in full force and effect in accordance
with their respective terms. The amendments, modifications and consents set
forth herein shall be limited precisely as provided for herein, and shall not be
deemed to be a waiver of, amendment of, consent to or modification of any other
term or provision of the Credit Agreement or of any term or provision of any
other Loan Document or other instrument referred to therein or herein, or of any
transaction or further or future action on the part of the Borrower or any other
Person which would require the consent of the Administrative Agent, the Issuer
or any of the Lenders under the Credit Agreement or any such other Loan Document
or instrument.
PART IV
MISCELLANEOUS
SUBPART 4.1. Cross-References. References in this Amendment No. 1 to
any Part or Subpart are, unless otherwise specified, to such Part or Subpart of
this Amendment No. 1. References in this Amendment No. 1 to any Article or
Section are, unless otherwise specified, to such Article or Section of the
Credit Agreement.
SUBPART 4.2. Loan Document Pursuant to Credit Agreement. This Amendment
No. 1 is a Loan Document executed pursuant to the Credit Agreement and shall
(unless otherwise
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<PAGE> 12
expressly indicated therein) be construed, administered and applied in
accordance with the terms and provisions of the Credit Agreement, as amended
hereby, including Article X thereof.
SUBPART 4.3. Counterparts, etc. This Amendment No. 1 may be executed by
the parties hereto in several counterparts, each of which shall be deemed to be
an original and all of which shall constitute together but one and the same
Agreement.
SUBPART 4.4. Governing Law. THIS AMENDMENT NO. 1 SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SUBPART 4.5. Successors and Assigns. This Amendment No. 1 shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed by their respective officers hereunto duly authorized as of the
day and year first above written.
TRUE TEMPER SPORTS, INC.
By:____________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent, Issuer and as a Lender
By:____________________________
Title:
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent and as a Lender
By:____________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as Arranger
By:____________________________
Title:
<PAGE> 14
SUMMIT BANK,
as a Lender
By:____________________________
Title:
THE PROVIDENT BANK,
as a Lender
By:____________________________
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender
By:____________________________
Title:
VAN KAMPEN AMERICAN CAPITAL
SENIOR FLOATING RATE FUND,
as a Lender
By:____________________________
Title:
KZH HIGHLAND-2 LLC,
as a Lender
By:____________________________
Title:
<PAGE> 15
ANNEX I
EXHIBIT B-2
ISSUANCE REQUEST
The First National Bank of Chicago,
as Administrative Agent
One First National Plaza
Chicago, IL 60670-0286
Attention: Dawn Sodaro
Re: Credit Agreement, dated as of September 30, 1998 (as amended,
supplemented, amended and restated or otherwise modified from time
to time, the "Credit Agreement"), among True Temper Sports, Inc., a
Delaware corporation (the "Borrower"), the various financial
institutions as are or may from time to time thereafter become
parties thereto (the "Lenders"), DLJ Capital Funding, Inc., as the
Syndication Agent, and The First National Bank of Chicago, as the
Administrative Agent.
Ladies and Gentlemen:
This Issuance Request is delivered to you pursuant to Section 2.6 of the
Credit Agreement. Unless otherwise defined herein, terms used herein have the
meanings assigned to them in the Credit Agreement.
The Borrower hereby requests that on ________ __, ____ (the "Date of
Issuance") _______________ (the "Issuer") [issue a [U.S. Dollar Letter of
Credit][Foreign Currency Letter of Credit][Foreign Guaranty] in the initial
Stated Amount of _______________* with a Stated Expiry Date (as defined therein)
of ________ __, ____] [extend the Stated Expiry Date (as defined under
Irrevocable Standby Letter of Credit No.__, issued on ________ __, ____, in the
initial Stated Amount of ______________*) to a revised Stated Expiry Date (as
defined therein) of ________ __, ____] and containing the further terms and
conditions set forth in the attached Letter of Credit application.
The beneficiary of the requested Letter of Credit will be _______________,
and such Letter of Credit will be in support of
________________________________.
- --------
* Insert amount in appropriate currency.
<PAGE> 16
The Borrower hereby acknowledges that, pursuant to Section 5.2.2 of the
Credit Agreement, each of the delivery of this Issuance Request and the
[issuance][extension] of the Letter of Credit requested hereby constitutes a
representation and warranty by the Borrower that, on such date of [issuance]
[extension] all statements set forth in Section 5.2.1 are true and correct.
The Borrower agrees that if, prior to the time of the [issuance]
[extension] of the Letter of Credit requested hereby, any matter certified to
herein by it will not be true and correct at such time as if then made, it will
immediately so notify the Administrative Agent. Except to the extent, if any,
that prior to the time of the issuance or extension requested hereby the
Administrative Agent shall receive written notice to the contrary from the
Borrower, each matter certified to herein shall be deemed to be so certified at
the date of such issuance or extension.
IN WITNESS WHEREOF, the Borrower has caused this request to be executed and
delivered by its Authorized Officer this ____ day of ________, ____.
TRUE TEMPER SPORTS, INC.
By:____________________________
Title:
<PAGE> 17
ANNEX II
AFFIRMATION AND CONSENT
June 11, 1999
The Lenders (as defined below) and
The First National Bank of Chicago,
as Administrative Agent for the Lenders
One First National Plaza
Chicago, Illinois 60670-0286
Attention: Dawn Sodaro
True Temper Sports, Inc.
Gentlemen and Ladies:
This affirmation and consent is delivered to the Administrative Agent
and the Lenders pursuant to Subpart 3.1.2 of Amendment No. 1 to Credit
Agreement, dated as of the date hereof ("Amendment No. 1"), among True Temper
Sports, Inc., a Delaware corporation (the "Borrower"), the financial
institutions parties thereto (collectively, the "Lenders"), DLJ Capital Funding,
Inc. ("DLJ"), as syndication agent (the "Syndication Agent") for the Lenders,
The First National Bank of Chicago ("First Chicago"), as administrative agent
(the "Administrative Agent") for the Lenders and Donaldson, Lufkin & Jenrette
Securities Corporation, as Lead Arranger (the "Arranger"). Reference is also
made to the Credit Agreement, dated as of September 30, 1998 (as amended or
otherwise modified through the date hereof, the "Credit Agreement"), among the
Borrower, the Lenders, the Agents and the Arranger. Unless otherwise defined
herein or the context otherwise requires, terms used herein have the meanings
provided in the Credit Agreement.
By its signature below, the undersigned hereby acknowledges and
consents to Amendment No. 1 and the Credit Agreement as amended thereby. The
undersigned hereby reaffirms as of the Amendment No. 1 Effective Date (as
defined in Amendment No. 1), its covenants and agreements contained in each Loan
Document to which it is a party, including, in each case, as such covenants and
agreements may be modified by Amendment No. 1. The undersigned hereby further
certifies that, as of the date hereof (both before and after giving effect to
the effectiveness of Amendment No. 1), its representations and warranties
contained in the Loan Documents to which it is a party are true and correct with
the same effect as if made on the
<PAGE> 18
date hereof, except to the extent any thereof refer or pertain solely to a date
prior to the date hereof. The undersigned further confirms that each Loan
Document to which it is a party is and shall continue to be in full force and
effect and the same are hereby ratified and confirmed in all respects, except
that upon the occurrence of the Amendment No. 1 Effective Date, all references
in such Loan Documents to the "Credit Agreement", "Loan Documents",
"thereunder", "thereof", or words of like import shall mean the Credit Agreement
and the Loan Documents, as the case may be, as in effect, as amended by
Amendment No. 1.
-2-
<PAGE> 19
IN WITNESS WHEREOF, the party hereto has executed and delivered this
Affirmation and Consent as of the date first above written.
TRUE TEMPER CORPORATION
By:___________________________
Title:
<PAGE> 1
Exhibit 10.6
TRUE TEMPER CORPORATION
1998 STOCK OPTION PLAN
<PAGE> 2
TRUE TEMPER CORPORATION
1998 STOCK OPTION PLAN
1 ARTICLE
PURPOSE OF PLAN
The 1998 Stock Option Plan (the "Plan") of True Temper Corporation (the
"Company"), adopted by the Board of Directors and shareholders of the Company
effective September 30, 1998, is intended to advance the best interests of the
Company by providing executives and other key employees of the Company or any
Subsidiary (as defined below) who have substantial responsibility for the
management and growth of the Company or any Subsidiary with additional
incentives by allowing such employees to acquire an ownership interest in the
Company. The Plan is a compensatory benefit plan within the meaning of Rule
701 under the Securities Act of 1933, as amended (the "Securities Act") and,
unless and until the Common Stock (as defined below) is publicly traded, the
issuance of stock purchase options ("Options") and Common Stock pursuant to the
Plan is intended to qualify for the exemption from registration under the
Securities Act provided by Rule 701.
1 ARTICLE
DEFINITIONS
For purposes of the Plan the following terms have the indicated meanings:
"Authorization Date" has the meaning ascribed thereto in Section 5.9(a)
hereof.
"Affiliate" means, with respect to any specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such specified Person. For
purposes of this definition, "control" (including the terms "controlled by" and
"under common control with"), with respect to the relationship between or among
two or more Persons, means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs of
such Person.
2
<PAGE> 3
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Committee" means the Compensation Committee or such other committee of
the Board as the Board may designate to administer the Plan or, if for any
reason the Board has not designated such a committee, the Board. The
Committee, if other than the Board, shall be composed of two or more directors
as appointed from time to time by the Board.
"Common Stock" means the Common Stock, $0.01 par value per share, of the
Company.
"Election Notice" has the meaning ascribed thereto in Section 5.9(b)
hereof.
"Fair Market Value" The term "Fair Market Value" of each share of Common
Stock shall mean the average of the closing prices of the sales of Common Stock
on all securities exchanges on which the Common Stock may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the NASDAQ System
as of 4:00 PM, Eastern Time, or, if on any day the Common Stock is not quoted
in the NASDAQ System, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
the Fair Market Value is being determined and the 20 consecutive trading days
prior to such day. If at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the Fair Market Value shall be the fair value of the Common Stock
determined in good faith by the Board of Directors based on such factors as it
determines, whether on its own or in consultation with its advisors, to be
relevant to determining the valuation of the Common Stock (but in any event,
without taking into account the lack of liquidity and minority position of the
Common Stock subject to repurchase).
"Measurement Date" means the date on which any taxable income resulting
from the exercise of an Option is determined under applicable federal income
tax law.
"Option Agreement" has the meaning set forth in Section 6.1 hereof.
"Option Shares" shall mean (i) all shares of Common Stock issued or
issuable upon the exercise of an Option and (ii) all shares of Common Stock
issued with respect to the Common Stock referred to in clause (i) above by way
of stock dividend or stock split or in connection with any conversion, merger,
consolidation or recapitalization or other reorganization affecting the Common
Stock. Unless provided otherwise herein or in the Participant's Option
3
<PAGE> 4
Agreement, Option Shares will continue to be Option Shares in the hands of any
holder other than the Participant (except for the Company), and each such
transferee thereof will succeed to the rights and obligations of a holder of
Option Shares hereunder.
"Options" has the meaning set forth in the preamble hereof.
"Participant" means any executive or other key employee of the Company or
any Subsidiary who has been selected to participate in the Plan by the
Committee or the Board.
"Permitted Transferee" means those persons to whom the Participant is
authorized (1) pursuant to Section 5.9, to transfer Option Shares, or (2)
pursuant to Section 6.3, to transfer Options.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity.
"Plan" has the meaning set forth in the preamble hereof.
"Qualified Initial Public Offering" means an initial public offering of
shares of the Common Stock underwritten by an investment banking firm or firms
of national reputation (i) providing aggregate gross proceeds (before deducting
underwriting discounts, commissions and expenses) to the Company of at least
$50,000,000 and (ii) at a public offering price that represents an aggregate
valuation of the fully-diluted Common Stock immediately prior to such offering
of at least $100,000,000.
"Repurchase Notice" has the meaning ascribed thereto in Section 5.8(b)
hereof.
"Repurchase Option" has the meaning ascribed thereto in Section 5.8(a)
hereof.
"Right of First Refusal" has the meaning ascribed thereto in Section
5.9(b) hereof.
"Sale Notice" has the meaning ascribed thereto in Section 5.9(a) hereof.
"Sale of the Company" means the sale of the Company to any Third Party or
Third Parties pursuant to which such party or parties acquire (i) capital
stock of the Company possessing the voting power under normal circumstances to
elect a majority of the Board (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or substantially all of
the Company's assets determined on a consolidated basis.
"Securities Act" has the meaning ascribed thereto in Article 1 hereof.
4
<PAGE> 5
"Shareholders Agreement" means the Shareholders Agreement dated as of
September 30, 1998 by and among the Company, True Temper Sports LLC, Emhart
Industries, Inc. and other holders of the Company's capital stock.
"Subsidiary" means any subsidiary corporation (as such term is defined in
Section 424(f) of the Code) of the Company.
"Termination Date" shall mean the date upon which such Participant's
employment with the Company and all of its Subsidiaries terminated.
"Third Party" means any Person which is not an Affiliate of the Company.
"Withholding Amount" has the meaning ascribed thereto in Section 5.4(a)
hereof.
1 ARTICLE
ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the
limitations of the Plan, the Committee shall have the sole and complete
authority to: (i) select Participants, (ii) grant Options to Participants in
such forms and amounts as it shall determine, (iii) impose such limitations,
restrictions and conditions upon such Options as it shall deem appropriate,
(iv) interpret the Plan and adopt, amend and rescind administrative guidelines
and other rules and regulations relating to the Plan, (v) correct any defect or
omission or reconcile any inconsistency in the Plan or in any Options granted
under the Plan and (vi) make all other determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan. The Committee's determinations on matters within its authority shall be
conclusive and binding upon the Participants, the Company and all other
persons. All expenses associated with the administration of the Plan shall be
borne by the Company. The Committee may, as approved by the Board and to the
extent permissible by law, delegate any of its authority hereunder to such
persons or entities as it deems appropriate.
5
<PAGE> 6
1 ARTICLE
LIMITATION ON AGGREGATE SHARES
The number of shares of Common Stock with respect to which Options may be
granted under the Plan shall not exceed, in the aggregate, 1,020,679 shares,
subject to adjustment in accordance with Section 6.4. To the extent any
Options expire unexercised or are canceled, terminated or forfeited in any
manner without the issuance of Common Stock thereunder, such shares shall again
be available under the Plan. The shares of Common Stock available under the
Plan may consist of authorized and unissued shares, treasury shares or a
combination thereof, as the Committee shall determine.
1 ARTICLE
AWARDS
1.1 GRANT OF OPTIONS. The Committee may grant Options to Participants from
time to time in accordance with this Article V. Options granted under the Plan
may be nonqualified stock options or "incentive stock options" within the
meaning of Section 422 of the Code or any successor provision as specified by
the Committee; provided, however, that no incentive stock option may be granted
to any Participant who, at the time of grant, owns stock of the Company (or any
Subsidiary) representing more than 10% of the total combined voting power of
all classes of stock of the Company (or any Subsidiary), unless such incentive
stock option shall at the time of grant (a) have a termination date not later
than the fifth anniversary of the issuance date and (b) have an exercise price
per share equal to at least 110% of the Fair Market Value of a share of Common
Stock on the date of grant. The exercise price per share of Common Stock under
each Option shall be determined by the Committee or the Board at the time of
grant; provided, however, that the exercise price per share of Common Stock
under each incentive stock option shall be fixed by the Committee at the time
of grant of the Option and shall equal at least 100% of the Fair Market Value
of a share of Common Stock on the date of grant, but not less than the par
value per share (as adjusted pursuant to Section 6.4). Subject to Section 5.6,
Options shall be exercisable at such time or times as the Committee shall
determine; provided, however, that any option intended to be an incentive stock
option shall be treated as an incentive stock option only to the extent that
the aggregate Fair Market Value of the Common Stock (determined as of the date
of Option grant) with respect to which incentive stock options (but not
nonqualified options) are exercisable for the first time by any Participant
during any calendar year (under all stock option plans of the Company and its
Subsidiaries) does not exceed $100,000. The Committee shall determine the term
of each Option, which term shall not exceed ten years from the date of grant of
the Option.
6
<PAGE> 7
1.1 EXERCISE PROCEDURE. Options shall be exercisable, to the extent they are
vested, by written notice to the Company (to the attention of the Company's
Secretary) accompanied by payment in full of the applicable exercise price.
Payment of such exercise price may be made (i) in cash (including check, bank
draft, money order or wire transfer of immediately available funds), (ii) if
approved by the Committee prior to exercise (or in the case of an incentive
stock option, if approved by the Committee in the Option Agreement) by delivery
of a full recourse promissory note of the Participant bearing interest at a
rate not less than the applicable federal rate determined pursuant to Section
1274 of the Code, (iii) in shares of Common Stock valued at their Fair Market
Value as of the date of exercise as provided in Section 5.3 below provided the
Participant has held such Common Stock at least six months prior to exercise of
the Option, or (iv) in a combination of the foregoing.
1.2
1.3 EXCHANGE OF PREVIOUSLY ACQUIRED STOCK. The Committee, in its discretion
and subject to such conditions as the Committee may determine, may permit the
exercise price for the shares being acquired upon the exercise of an Option to
be paid, in full or in part, by the delivery to the Company of Common Stock.
Any Common Stock so delivered shall be treated as the payment of cash equal to
the aggregate Fair Market Value on the date of delivery of such Common Stock.
In the case of incentive stock options, the Committee shall specify in the
Option Agreement whether the option holder may satisfy the exercise price with
respect to shares of Common Stock purchased upon exercise of such Option by
delivering to the Company shares of previously acquired Common Stock.
1.4
1.5 WITHHOLDING TAX REQUIREMENTS.
1.6
(a) AMOUNT OF WITHHOLDING. It shall be a condition of the exercise of any
Option that the Participant exercising the Option make appropriate payment or
other provision acceptable to the Company with respect to any withholding tax
requirement arising from such exercise. The amount of withholding tax
required, if any, with respect to any Option exercise (the "Withholding
Amount") shall be determined by the Treasurer or other appropriate officer of
the Company, and the Participant shall furnish such information and make such
representations as such officer requires to make such determination.
(b)
(c) WITHHOLDING PROCEDURE. If the Company determines that withholding tax is
required with respect to any Option exercise, the Company shall notify the
Participant of the Withholding Amount, and the Participant shall pay to the
Company an amount not less than the Withholding Amount. In lieu of making such
payment, the Participant may elect to pay the Withholding Amount by either (i)
delivering to the Company a number of shares of Common Stock having an
aggregate Fair Market Value as of the Measurement Date not less than the
Withholding Amount or (ii) directing the Company to withhold (and not to
deliver or issue to the Participant) a number of shares of Common Stock,
otherwise issuable upon the exercise of an Option, having an aggregate Fair
Market Value as of the Measurement Date not less than the Withholding Amount.
In addition, if the Committee approves, a Participant may elect pursuant to the
prior sentence to deliver or direct the withholding of shares of Common Stock
having an aggregate Fair Market
7
<PAGE> 8
Value in excess of the minimum Withholding Amount but not in excess of the
Participant's applicable highest marginal combined federal income and state
income tax rate, as estimated in good faith by such Participant. Any
fractional share interests resulting from the delivery or withholding of shares
of Common Stock to meet withholding tax requirements shall be settled in cash.
All amounts paid to or withheld by the Company and the value of all shares of
Common Stock delivered to or withheld by the Company pursuant to this Section
5.4 shall be deposited in accordance with applicable law by the Company as
withholding tax for the Participant's account. If the Treasurer or other
appropriate officer of the Company determines that no withholding tax is
required with respect to the exercise of any Option (because such option is an
incentive stock option or otherwise), but subsequently it is determined that
the exercise resulted in taxable income as to which withholding is required (as
a result of a disposition of shares or otherwise), the Participant shall
promptly, upon being notified of the withholding requirement, pay to the
Company, by means acceptable to the Company, the amount required to be
withheld; and at its election the Company may condition the transfer of any
shares issued upon exercise of an incentive stock option upon receipt of such
payment.
(d)
1.7 NOTIFICATION OF INQUIRIES AND AGREEMENTS. Each Participant and each
Permitted Transferee shall notify the Company in writing within 10 days after
the date such Participant or Permitted Transferee (i) first obtains knowledge
of any Internal Revenue Service inquiry, audit, assertion, determination,
investigation, or question relating in any manner to the value of Options
granted hereunder; (ii) includes or agrees (including, without limitation, in
any settlement, closing or other similar agreement) to include in gross income
with respect to any Option granted under this Plan (A) any amount in excess of
the amount reported on Form 1099 or Form W-2 to such Participant by the
Company, or (B) if no such Form was received, any amount; and/or (iii)
exercises, sells, disposes of, or otherwise transfers (other than to a
Permitted Transferee) an Option acquired pursuant to this Plan. Upon request,
a Participant or Permitted Transferee shall provide to the Company any
information or document relating to any event described in the preceding
sentence which the Company (in its sole discretion) requires in order to
calculate and substantiate any change in the Company's tax liability as a
result of such event.
1.8
1.9 CONDITIONS AND LIMITATIONS ON EXERCISE. At the discretion of the
Committee, exercised at the time of grant, Options may vest, in one or more
installments, upon (i) the fulfilment of certain conditions, (ii) the passage
of a specified period of time, (iii) the occurrence of certain events and/or
(iv) the achievement by the Company or any Subsidiary of certain performance
goals. In the event of a Sale of the Company, the Committee may provide, in
its discretion, that the Options shall become immediately vested and that such
Options shall terminate if not exercised as of the date of the Sale of the
Company or any other designated date (the "Designated Date") or that such
Options shall thereafter represent only the right to receive the excess of the
consideration per share of Common Stock offered in such Sale of the Company
over the exercise price of such Options. The Company shall give all
Participants notice of an impending Sale of the Company at least 15 days prior
to the date of such Sale of the Company or the Designated Date, whichever is
earlier.
1.10
8
<PAGE> 9
1.11 EXPIRATION OF OPTIONS.
1.12
(a) NORMAL EXPIRATION. In no event shall any part of any Option be exercisable
after the stated date of expiration thereof.
(a) EARLY EXPIRATION UPON TERMINATION OF EMPLOYMENT. Any part of any Option
that was not vested on a Participant's Termination Date shall expire and be
forfeited on such date, and any part of any Option that was vested on the
Termination Date shall also expire and be forfeited to the extent not
theretofore exercised on the thirtieth (30th) day (one year, if termination is
caused by the Participant's death or disability) following the Termination
Date, but in no event after the stated date of expiration thereof.
1.1 RIGHT TO PURCHASE OPTION SHARES UPON TERMINATION OF EMPLOYMENT.
1.2
(a) REPURCHASE RIGHT. In the event a Participant's employment with the
Company is terminated for any reason, the Option Shares (whether held by such
Participant or one or more transferees and including any Option Shares acquired
subsequent to such termination of employment) will be subject to repurchase by
the Company pursuant to the terms and conditions set forth in this Section 5.8
(the "Repurchase Option") at a price per share equal to the Fair Market Value
thereof determined as of the Termination Date.
(b) REPURCHASE NOTICE. The Board may elect to purchase all or any portion
of the Option Shares by delivery of written notice (the "Repurchase Notice") to
the holder or holders of the Option Shares within 180 days after the
Termination Date (or if termination is caused by the Participant's death or
disability, 180 days after the expiration of the Options held by such
Participant). The Repurchase Notice will set forth the number of Option Shares
to be acquired from such holder, the aggregate consideration to be paid for
such shares and the time and place for the closing of the transaction.
(c) CLOSING OF REPURCHASE. The closing of the repurchase transaction will
take place on the date designated by the Company in the Repurchase Notice,
which date will not be more than 45 days nor less than 10 days after the
delivery of such notice. The Company will pay for the Option Shares to be
purchased pursuant to the Repurchase Option by delivering, at the option of the
Company to such Participant and/or the other holder(s), (1) a check in the
amount of the aggregate sale price of the Option Shares to be repurchased or
(2) if the aggregate consideration to be paid to such holder(s) of Option
Shares exceeds $50,000, a check in the amount of 20% of the aggregate sale
price of the Option Shares to be repurchased and a subordinated promissory note
in a principal amount equal to the remainder of the aggregate sale price,
bearing interest at a floating rate of interest equal to the prime rate as
stated from time to time by Chemical Bank or any successor thereto, and
payable, as to principal and interest, in four equal annual installments on the
first four anniversaries of the closing of such repurchase; provided that if
the Company determines that withholding tax is required with respect to the
exercise of a Repurchase Option, the Company shall withhold an amount equal to
such
9
<PAGE> 10
withholding tax from the purchase price. At the closing, the Participant and
each other seller will deliver the certificates representing the Option Shares
to be sold duly endorsed in form for transfer to the Company or its designee,
and the Company will be entitled to receive customary representations and
warranties from the Participant and the other sellers regarding title to the
Option Shares.
1.1 RESTRICTIONS ON TRANSFER.
1.2
(a) RESTRICTIONS. A Participant may not sell, pledge or otherwise transfer any
interest in any Option Shares except pursuant to the provisions of this Section
5.9. At least 60 days prior to making any transfer, the Participant proposing
such transfer shall deliver a written notice (the "Sale Notice") to the
Company. The Sale Notice will disclose in reasonable detail the identity of
the prospective transferee(s) and the terms and conditions of the proposed
transfer. Such Participant (and such Participant's transferees) shall not
consummate any such transfer until 60 days after the Sale Notice has been
delivered to the Company, unless the Company has notified such Participant in
writing that it will not exercise its rights under this Section 5.9. (The date
of the first to occur of such events is referred to herein as the
"Authorization Date").
(b) REPURCHASE OPTION. The Company may elect to purchase all or any
portion of the Option Shares to be transferred upon the same terms and
conditions as those set forth in the Sale Notice (the "Right of First Refusal")
by delivering a written notice of such election to such Participant within 30
days after the receipt of the Sale Notice by the Company (the "Election
Notice"). If the Company has not elected to purchase all of the Option Shares
specified in the Sale Notice, such Participant may transfer the Option Shares
not purchased by the Company to the prospective transferee(s) as specified in
the Sale Notice at a price and on terms no more favorable to the transferee(s)
thereof than specified in the Sale Notice during the 60-day period immediately
following the Authorization Date. Any Option Shares not so transferred within
such 60-day period must be reoffered to the Company in accordance with the
provisions of this Section 5.9 in connection with any subsequent proposed
transfer.
(c) EXCEPTIONS. The restrictions contained in this Section 5.9 will not
apply with respect to transfers of Option Shares pursuant to applicable laws of
descent and distribution; provided that the restrictions contained in this
paragraph will continue to be applicable to the Option Shares after any such
transfer and the transferees of such Option Shares have agreed in writing to be
bound by the terms and provisions of this Plan and the Option grant, as amended
from time to time.
1.1 TERMINATION OF RESTRICTIONS. The rights and obligations set forth in
Sections 5.8 and 5.9 hereof will terminate upon the earlier of (A) the
consummation by the Company of a Qualified Initial Public Offering or (B) the
sale of Option Shares in accordance with the terms and conditions of Section
5.9 (except for a transfer pursuant to Section 5.9 (c)); provided that with
respect to clause (B) above, such rights and obligations shall terminate only
with respect to those Option Shares sold.
10
<PAGE> 11
1.2
1 ARTICLE
2
GENERAL PROVISIONS
1.1 WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied in a
written agreement (the "Option Agreement") which shall be signed by the
Participant to whom the Option is granted and shall be subject to the terms and
conditions set forth herein.
1.1 LISTING, REGISTRATION AND LEGAL COMPLIANCE. If at any time the Committee
determines, in its discretion, that the listing, registration or qualification
of the shares subject to Options upon any securities exchange or under any
state or federal securities or other law or regulation, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to or in connection with the granting of Options or the purchase or
issuance of shares thereunder, no Options may be granted or exercised, in whole
or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee. The holders of such Options will supply the
Company with such certificates, representations and information as the Company
shall request and shall otherwise cooperate with the Company in obtaining such
listing, registration, qualification, consent or approval. In the case of
officers and other persons subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended, the Committee may at any time impose any limitations
upon the exercise of Options that, in the Committee's discretion, are necessary
or desirable in order to comply with such Section 16(b) and the rules and
regulations thereunder. If the Company, as part of an offering of securities
or otherwise, finds it desirable because of federal or state regulatory
requirements to reduce the period during which any Options may be exercised,
the Committee may, in its discretion and without the Participant's consent, so
reduce such period on not less than 15 days' written notice to the holders
thereof.
1.2
1.3 OPTIONS NOT TRANSFERRABLE. Options may not be transferred other than by
will or the laws of descent and distribution and, during the lifetime of the
Participant to whom they were granted, may be exercised only by such
Participant (or, if such Participant is incapacitated, by such Participant's
legal guardian or legal representative). In the event of the death of a
Participant, Options which are not vested on the date of death shall terminate;
exercise of Options granted hereunder to such Participant, which are vested as
of the date of death, may be made only by the executor or administrator of such
Participant's estate or the person or persons to whom such Participant's rights
under the Options will pass by will or the laws of descent and distribution.
11
<PAGE> 12
1.1 ADJUSTMENTS. In the event of a reorganization, recapitalization, stock
dividend or stock split, or combination or other change in the shares of Common
Stock, the Board or the Committee may, in order to prevent the dilution or
enlargement of rights under the Plan or outstanding Options, adjust (1) the
number and type of shares as to which options may be granted under the Plan,
(2) the number and type of shares covered by outstanding Options, (3) the
exercise prices specified therein and (4) other provisions of this Plan which
specify a number of shares, all as such Board or Committee determines to be
appropriate and equitable.
1.1 RIGHTS OF PARTICIPANTS. Nothing in the Plan shall interfere with or limit
in any way the right of the Company or any Subsidiary to terminate any
Participant's employment at any time (with or without cause), or confer upon
any Participant any right to continue in the employ of the Company or any
Subsidiary for any period of time or to continue to receive such Participant's
current (or other) rate of compensation. No employee shall have a right to be
selected as a Participant or, having been so selected, to be selected again as
a Participant.
1.2
1.3 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board or the Committee
may suspend or terminate the Plan or any portion thereof at any time and may
amend it from time to time in such respects as the Board or the Committee may
deem advisable; provided, however, that no such amendment shall be made without
shareholder approval to the extent such approval is required by law, agreement
or the rules of any exchange upon which the Common Stock is listed, and no such
amendment, suspension or termination shall impair the rights of Participants
under outstanding Options without the consent of the Participants affected
thereby, except as provided below. No Options shall be granted hereunder after
the tenth anniversary of the adoption of the Plan.
1.4
1.5 AMENDMENT OF OUTSTANDING OPTIONS. The Committee may amend or modify any
Option in any manner to the extent that the Committee would have had the
authority under the Plan initially to grant such Option; provided that, except
as expressly contemplated elsewhere herein or in any agreement evidencing such
Option, no such amendment or modification shall impair the rights of any
Participant under any outstanding Option without the consent of such
Participant provided further, that the Committee may accelerate the expiration
of any outstanding option if the Committee determines that such modification is
necessary or desirable in order to facilitate the sale of the Company and any
such acceleration provides the participant reasonable time to exercise
outstanding Options prior to such expiration.
1.6
1.7 INDEMNIFICATION. In addition to such other rights of indemnification as
they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against (i) all costs and
expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Option
granted under the Plan, and (ii) all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a
12
<PAGE> 13
judgment in any such action, suit or proceeding; provided, however, that any
such Committee member shall be entitled to the indemnification rights set forth
in this Section 6.9 only if such member (1) acted in good faith and in a manner
that such member reasonably believed to be in, and not opposed to, the best
interests of the Company, and (2) with respect to any criminal action or
proceeding, (A) had no reasonable cause to believe that such conduct was
unlawful, and (B) upon the institution of any such action, suit or proceeding a
Committee member shall give the Company written notice thereof and an
opportunity to handle and defend the same before such Committee member
undertakes to handle and defend it on his own behalf.
1.8
1.9 RESTRICTED SECURITIES. All Common Stock issued pursuant to the terms of
this Plan shall constitute "restricted securities," as that term is defined in
Rule 144 promulgated by the Securities and Exchange Commission pursuant to the
Securities Act, and may not be transferred except in compliance with the
registration requirements of the Securities Act or an exemption therefrom.
1.10
1.11
* * * * *
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<PAGE> 1
Exhibit 10.7
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (the "Agreement") is dated as of September
30, 1998, by and among True Temper Corporation, a Delaware corporation (the
"Company"), True Temper Sports LLC, a Delaware limited liability company
("TTSLLC"), Emhart Industries, Inc., a Connecticut corporation ("EII"), and the
other investors listed in Schedule I hereto.
As of the date hereof, TTSLLC, EII and the Other Investors each own the
number of shares of the Company's Common Stock and Senior Preferred Stock set
forth opposite their names on Schedule I hereto.
The Company and the Stockholders (as defined below) desire to enter
into this Agreement for the purposes, among others, of (i) establishing the
composition of the Board (as defined below), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which the Stockholder Shares (as defined below) may be Transferred (as
defined below).
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" means, when used with reference to a specified Person, any
Person that, directly or indirectly, controls or is controlled by or is under
common control with the specified Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise). With respect to any Person who is an individual, "Affiliates" shall
also include, without limitation, any member of such individual's Family Group.
"Board" means the Company's board of directors.
"Business Day" means any day other than a Saturday or Sunday and any
day on which banks in the city of New York, New York are authorized or required
by law or other governmental action to close.
"Common Stock" means the Company's Common Stock, par value $0.01 per
share, and any other common stock authorized by the Company.
"EII Holder" means any of EII and its Permitted Transferees.
"EII Shares" means all Stockholder Shares issued or issuable to any EII
Holder.
"Family Group" means, with respect to any Person who is an individual,
(i) such Person's spouse, former spouse, ancestors and descendants (whether
natural or adopted), parents and
<PAGE> 2
their descendants and any spouse of the foregoing persons (collectively,
"relatives") or (ii) the trustee, fiduciary or personal representative of such
Person or any trust solely for the benefit of such Person and/or such Person's
relatives.
"Investor" means any of the Investors.
"Investors" means collectively the TTSLLC Investors and the Other
Investors.
"Investor Shares" means all Stockholder Shares issued or issuable to
any Investor.
"Other Investors" means collectively any of the other investors listed
in Schedule I hereto or any of their Permitted Transferees.
"Other Investor Shares" means all Stockholder Shares issued or issuable
to any Other Investor.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof or any other entity or
organization.
"Preferred Stock" means the Company's Senior Preferred Stock, par value
$0.01 per share.
"Public Offering" means an underwritten public offering and sale of the
Common Stock pursuant to an effective registration statement under the
Securities Act; provided that a Public Offering shall not include an offering
made in connection with a business acquisition or combination pursuant to a
registration statement on Form S-4 or any similar form, or an employee benefit
plan pursuant to a registration statement on Form S-8 or any similar form.
"Public Sale" means any sale of Stockholder Shares to the public
pursuant to an offering registered under the Securities Act or to the public
pursuant to the provisions of Rule 144 (or any similar rule or rules then in
effect) under the Securities Act.
"Qualified Public Offering" means any offering by the Corporation of
its Common Stock to the public pursuant to an effective registration statement
under the Securities Act or any comparable statement under any similar federal
statute then in force pursuant to which the public offering price results in
aggregate gross cash proceeds to the Corporation and the selling stockholders,
if any, of at least $50,000,000 (before deduction of underwriting discounts and
expenses) and represents an implied aggregate equity value for the fully diluted
Common Stock of at least $100,000,000.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholder Shares" means (i) all shares of Common Stock held,
directly or indirectly, by the Stockholders, (ii) all shares of Preferred Stock
held, directly or indirectly, by the
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<PAGE> 3
Stockholders, and (iii) all equity securities issued or issuable directly or
indirectly with respect to any Common Stock referred to in clause (i) above or
with respect to any Preferred Stock referred to in clause (ii) above, in each
case, by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, share exchange
or other reorganization. As to any particular shares constituting Stockholder
Shares, such shares will cease to be Stockholder Shares when they have been
Transferred in a Public Sale.
"Stockholders" means collectively the Investors and the EII Holders.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is at the time owned or controlled, directly
or indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, a majority of the partnership or
other similar ownership interests thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof. For purposes hereof, a Person or Persons shall
be deemed to have a majority ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons shall be allocated a majority of partnership, limited liability company,
association or other business entity gains or losses or shall be or control the
managing director, managing member, manager or a general partner of such
partnership, limited liability company, association or other business entity.
"TTSLLC Investor" means any of TTSLLC or any of its Permitted
Transferees.
"TTSLLC Shares" means all Stockholder Shares issued or issuable to any
TTSLLC Investor.
"Transfer" means any voluntary or involuntary, direct or indirect sale,
transfer, conveyance, assignment, pledge, hypothecation, gift, delivery or other
disposition, and "Transferred" means any change in ownership by means of a
Transfer.
"Unaffiliated Third Party" means any Person who, immediately prior to
the contemplated transaction, (i) is not a Person who directly or indirectly
owns in excess of 5% of the outstanding shares of Common Stock on a
fully-diluted basis (a "5% Owner"), (ii) is not controlling, controlled by or
under common control with any such 5% Owner and (iii) is not the spouse or
descendent (by birth or adoption) of any such 5% Owner or a trust for the
benefit of such 5% Owner and/or such other Persons. As used in this definition,
"control" (including, with its correlative meanings, "controlled by" and "under
common control with") shall mean possession, directly or indirectly, of power to
significantly direct management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise).
2. Board of Directors.
(a) To the extent permitted by law, each Stockholder shall vote all
voting securities of the Company over which such Stockholder has voting control,
and shall take all other reasonably necessary or desirable actions within such
Stockholder's control (whether in such
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<PAGE> 4
Stockholder's capacity as a stockholder, director, member of a board committee
or officer of the Company or otherwise, and including, without limitation,
attendance at meetings in person or by proxy for purposes of obtaining a quorum
and execution of written consents in lieu of meetings), and the Company shall
take all necessary and desirable actions within its control (including, without
limitation, calling special board and shareholder meetings):
(i) so that the authorized number of directors of the Board shall be
five or such other number as determined by TTSLLC;
(ii) (A) for the election to the Board of three directors designated
by the holders of record of a majority of the TTSLLC Shares entitled to
vote for directors of the Board (each a "TTSLLC Director") (the three
TTSLLC Directors shall initially be Robert Knox, Mark Rossi and Tyler
Wolfram);
(B) for the election of the Chief Executive Officer of the
Company to the Board for so long as he or she may serve in such capacity;
and
(C) for the election of one director designated by the holders of
a majority of the outstanding Common Stock who will initially be Raymond
DeVita;
(iii) any director designated pursuant to clause (ii) (A) above shall
be removed from the Board or any committee thereof (with or without cause)
at the written request of the holders of a majority of the TTSLLC Shares
entitled to vote for the election of directors, but only upon such written
request and under no other circumstances and, in the case of the Chief
Executive Officer, such person shall be removed from the Board at such
times as any such person ceases to hold such office, or if earlier, at the
request of the holders of a majority of Stockholder Shares entitled to vote
for the election of directors;
(iv) in the event that any director designated hereunder for any
reason ceases to serve as a member of the Board or any committee thereof
during such director's term of office, the resulting vacancy on the Board
or committee shall be filled by a director designated in a manner
consistent with clause (ii) above; and
(v) at the Board's election, the composition of the board of directors
(or any similar governing body) of any of the Company's Subsidiaries shall
be the same as that of the Board.
(b) In addition, the holders of a majority of the TTSLLC Shares shall have
the right to designate one individual to attend each meeting of the Board and
each meeting of any committee thereof as an observer who shall not be a member
of the Board and who shall have no voting rights. Such person shall be entitled
to receive all notices and all information delivered to directors in connection
with meetings of the Board and shall have the same right to reimbursement of
expenses pursuant to clause (c) below as directors of the Board.
(c) To the extent permitted by law, the Company shall reimburse the
directors of the Board for all reasonable out-of-pocket expenses borne by such
directors in connection with the performance of their duties as directors of the
Company and as members of any committee of the Board.
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<PAGE> 5
(d) If any party fails to designate in writing a representative to fill a
director position pursuant to the terms of this Section 2, the election of an
individual to such director position shall be accomplished in accordance with
the Company's Certificate of Incorporation and Bylaws and applicable law. In the
event that, at any time, any provision of the Company's Certificate of
Incorporation or Bylaws is inconsistent with the requirements of any provision
of this Section 2, the Stockholders shall take such action as may be necessary
to amend any such provision in the Company's Certificate of Incorporation or
Bylaws, as the case may be, to conform with such requirements.
(e) The committees of the Board shall include an Audit Committee and a
Compensation Committee. The Audit Committee shall consist of three members, all
of which shall be directors who are not members of the management of the
Company, who shall initially be Mark Rossi, Tyler Wolfram and Raymond DeVita.
The Compensation Committee shall consist of four members, three of which shall
be directors who are not members of the management of the Company, who shall
initially be Scott Hennessy, Robert Knox, Tyler Wolfram and Raymond DeVita.
(f) The provisions of this Section 2 shall terminate on the date that
TTSLLC and/or its members fail to collectively own at least 50% of the shares of
the Common Stock held by TTSLLC as of the date hereof.
3. Conflicting Agreements. Each Stockholder represents that such
Stockholder has not granted and is not a party to any proxy, voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement, and no holder of Stockholder Shares shall grant any proxy or
become party to any voting trust or other agreement which is inconsistent with
or conflicts with the provisions of this Agreement.
4. Restrictions on Transfer of Stockholder Shares.
(a) General Restrictions.
(i) Prior to the earlier of (x) the first day after the period
commencing on the date hereof and ending on the day the Company's financial
statements are filed with the SEC for the first full fiscal quarter after
the Company consummates a registered offering of its equity or debt
securities, and (y) the date that is two years after the date hereof, and
subject to Section 7 hereof, an EII Holder may Transfer shares of Preferred
Stock only (A) if such EII Holder is exercising a tag-along right granted
to such EII Holder pursuant to Section 4(c), subject to the requirements of
Section 4(d)(ii), or (B) pursuant to the terms of Section 5.
(ii) The EII Holders may not Transfer any shares of Common Stock until
the earlier of (x) the date on which the Company consummates its initial
Public Offering, (y) the date that is two years following the date hereof
and (z) the date on which any TTSLLC Holder sells any of its shares of
Common Stock to any Person who is not an Affiliate of any TTSLLC Holder
following the date that is six months following the date hereof, provided
that EII may only effectuate any such sales (A) in Public Sales, (B) if
such EII Holder has complied with the terms and requirements of Section
4(b) or if such EII Holder is exercising a tag-along right granted to such
EII Holder pursuant to Section 4(c), subject to the requirements of Section
4(d)(ii), or (C) pursuant to the terms of Section 5. Notwithstanding
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<PAGE> 6
the foregoing, at such time as the provisions of Section 4(b) have
terminated in respect of the EII holders, any EII holder may Transfer any
share of Common Stock following the earlier of the dates specified in
clauses (x), (y) and (z) of the preceding sentence subject only to
compliance with the provisions of Section 7(b).
(iii) Subject to Section 7 hereof, an Investor may Transfer
Stockholder Shares only (A) in Public Sales, (B) if such Investor has
complied with the terms and requirements of Sections 4(b) and 4(c), to the
extent applicable, or if such Investor is exercising a tag-along right
granted to such Investor pursuant to Section 4(c), subject to the
requirements of Section 4(d)(ii), or (C) pursuant to the terms of Section
5.
(b) Right of First Offer Granted to the Company and the TTSLLC
Investors. Subject to Section 4(d)(i) (all terms defined in this Section 4(b)
shall be for purposes of this Section 4(b) only):
(i) If at any time any Stockholder other than a TTSLLC Investor (a
"Selling Holder") proposes to Transfer any Stockholder Shares (other than
pursuant to a Public Sale, pursuant to the terms of Section 5, or if such
Selling Holder is exercising a tag-along right granted to such Selling
Holder pursuant to Section 4(c)), then such Selling Holder will, not fewer
than twenty-five (25) business days prior to making such Transfer, give
notice (the "Transfer Notice") to the TTSLLC Investors and to the Company
specifying (x) the Stockholder Shares proposed to be Transferred (the
"Offered Shares"), and (y) the price (the "Offered Price") and the other
terms and conditions upon which such Selling Holder proposes to Transfer
such Offered Shares, and (z) if known at the time the Transfer Notice is
given, the proposed Transferee(s).
(ii) Subject to the provisions of Section 4(b)(v), the Transfer Notice
will constitute an irrevocable offer (for the time periods set forth in
items (iii) and (iv) below) to Transfer any of the Offered Shares to the
Company and the TTSLLC Investors at the Offered Price and on the terms
specified in the Transfer Notice (the "Offer to Sell"), except that if the
proposed Transfer is to be wholly or partly for consideration other than
cash, then the Offer to Sell will constitute an offer to Transfer the
Offered Shares to the Company and the TTSLLC Investors for a cash purchase
price equal to the amount of cash (if any) specified in the Transfer
Notice, plus the fair market value determined in the good faith judgement
of the Board, at the date of the Transfer Notice, of such non-cash
consideration.
(iii) The Company will have ten (10) business days after its receipt
of the Transfer Notice (the "Company Exercise Period") during which to
notify the Selling Holder and the TTSLLC Investors in writing of its
election to purchase all or any portion of the Offered Shares (an
"Acceptance Notice").
(iv) If the Company has not elected to purchase all of the Offered
Shares, the TTSLLC Investors will have ten (10) business days after its
receipt of the Transfer Notice (the "TTSLLC Exercise Period") during which
to notify the Selling Holder and the Company in writing of its election to
purchase all or a portion of the Offered Shares which the Company has not
elected to purchase (such shares, the "TTSLLC Offered Shares") (such
written notice, also an "Acceptance Notice"). Any TTSLLC Investor who
delivers an Acceptance Notice shall be referred to herein as a "Purchasing
TTSLLC Investor". If the
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<PAGE> 7
Purchasing TTSLLC Investors elect to purchase in the aggregate more than
the TTSLLC Offered Shares, then the TTSLLC Offered Shares shall be sold
among the Purchasing TTSLLC Investors pro rata based upon the number of
Stockholder Shares then owned by such Purchasing TTSLLC Investors or in
such other manner as the Purchasing TTSLLC Investors may agree.
(v) In the event that following the expiration of the Company Exercise
Period and the TTSLLC Exercise Period the Company and the TTSLLC Investors
have elected to purchase some but not all of the Offered Shares, the
Selling Holder, within ten (10) business days after the expiration of the
TTSLLC Exercise Period may elect to cancel the Transfer Notice in which
case the offer to Transfer Offered Shares to the Company and the TTSLLC
Investors at the Offered Price shall be void and of no force and effect.
Assuming that the Selling Holder does not cancel the Transfer Notice in
accordance with the preceding sentence, upon the delivery of the Acceptance
Notice(s), the Company and/or the Purchasing TTSLLC Investor(s), as the
case may be, and the Selling Holder shall be firmly bound to consummate the
purchase and sale of the applicable Offered Shares in accordance with the
Transfer Notice, the Acceptance Notice(s) and the terms hereof. Subject to
the provisions hereof, within thirty (30) days after the Selling Holder's
receipt of the last Acceptance Notice, the Company and/or the Purchasing
TTSLLC Investor(s), as the case may be, shall purchase and the Selling
Holder shall sell the applicable Offered Shares at a mutually agreeable
time and place (the "Offered Shares Closing").
(vi) At the Offered Shares Closing, the Selling Holder shall deliver
to the Company and/or the Purchasing TTSLLC Investor(s), as the case may
be, certificates representing the Offered Shares (which Offered Shares
shall be free and clear of any liens or encumbrances) to be purchased by
the Company and/or the Purchasing TTSLLC Investor(s), as the case may be,
and the Company and/or the Purchasing TTSLLC Investor(s), as the case may
be, shall deliver to the Selling Holder the applicable purchase price for
such Offered Shares by wire transfer of immediately available funds to an
account(s) designated by such Selling Holder.
(vii) If the Company and the TTSLLC Investors collectively do not
elect to purchase any or all of the Offered Shares in accordance with
Section 4(b)(iii) and 4(b)(iv), then, provided the Selling Holder also has
complied with the provisions of Section 4(c), if applicable, and no
Transferee is an Affiliate of the Selling Holder, the Selling Holder may
Transfer any or all of such Offered Shares (unless reduced pursuant to the
exercise of rights granted to other Stockholders in Section 4(c)), at a
price which is not less than the price specified in the Transfer Notice and
on other terms and conditions which are not materially more favorable in
the aggregate to any Transferee thereof than those specified in the
Transfer Notice, to any Person(s) (whether or not identified as a potential
Transferee in the Transfer Notice), but only to the extent that a binding
purchase and sale agreement has been executed between such Selling Holder
and such Transferee within one hundred twenty (120) days after expiration
of the TTSLLC Exercise Period. Any Stockholder Shares not Transferred
pursuant to such an agreement within such 120-day period will be subject to
the provisions of this Section 4(b) upon subsequent Transfer.
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<PAGE> 8
(viii) The provisions of this Section 4(b) shall terminate upon the
consummation of a Qualified Public Offering; provided, that with respect to
any EII Holder, the provisions of this Section 4(b) shall terminate upon
the consummation of an initial Public Offering.
(c) Tag Along Rights.
(i) Tag Along Rights in the event of certain Transfers by the TTSLLC
Investors. Subject to Section 4(d)(i), at least ten (10) business days prior to
the Transfer by any of the TTSLLC Investors (collectively, the "TTSLLC
Transferring Stockholder") of any TTSLLC Shares to a Person that is not an
Affiliate of any TTSLLC Investor (other than pursuant to a Public Sale, pursuant
to the terms of Section 5 or any Transfer consummated prior to the date that is
six months following the date hereof), the TTSLLC Transferring Stockholder shall
deliver a written notice (the "TTSLLC Sale Notice") to EII and the Other
Investors (collectively, the "Tagging Investors") and to the Company, specifying
in reasonable detail the identity of the prospective transferee(s), the class
and the number of the Stockholder Shares to be Transferred, and the other
material terms and conditions of such contemplated Transfer. Any of the Tagging
Investors may elect to participate in such contemplated Transfer by delivering
written notice to the TTSLLC Transferring Stockholder within ten (10) business
days after its receipt of the TTSLLC Sale Notice. If any of the Tagging
Investors elects to participate in such Transfer, each of the Tagging Investors
shall be entitled to sell in such contemplated Transfer, at the same price and
on the same terms, up to a number of each class of Stockholder Shares to be
Transferred equal to the product of (I) a fraction, the numerator of which is
the number of Stockholder Shares held by such Tagging Investor and the
denominator of which is the aggregate number of Stockholder Shares owned by the
TTSLLC Transferring Stockholder and all Tagging Investors immediately prior to
such Transfer, multiplied by (II) the total number of Stockholder Shares to be
sold in connection with such Transfer. Each Stockholder who is Transferring any
Stockholder Shares pursuant to this Section 4(c)(i) shall pay its pro rata share
(based on the number of Stockholder Shares to be sold) of the expenses incurred
by the Stockholders in connection with such Transfer and shall take all
necessary and desirable actions as reasonably directed by the TTSLLC
Transferring Stockholder in connection with the consummation of such Transfer,
including without limitation executing the applicable purchase agreement. The
TTSLLC Transferring Stockholder shall cause all applicable transferee(s) to
execute a joinder to this Agreement with respect to all Stockholder Shares
Transferred pursuant to this Section 4(c)(i). Any Transfer made by a TTSLLC
Transferring Stockholder pursuant to this Section 4(c)(i) or pursuant to Section
4(c)(ii) shall satisfy the following conditions, (i) upon the consummation of
such Transfer, each Stockholder participating in such Transfer will be entitled
to receive (x) the same form and amount (on a share-for-share basis) of
consideration, with respect to each share of Common Stock sold in such Transfer
and (y) the same form and amount (on a share-for-share basis) of consideration,
with respect to each shares of Preferred Stock in such Transfer and (ii) if any
holder of a Common Stock or Preferred Stock is given the option as to the form
and amount of consideration to be received in connection with such Transfer,
then each holder of Common Stock or Preferred Stock, as the case may be, shall
be given the same option. In connection with any Transfer made pursuant to this
Section 4(c) EII and each Other Investor shall be entitled to receive, and the
Company and/or the TTSLLC Transferring Stockholder shall deliver all information
relating to the Company and its Subsidiaries as EII or such Other Investor shall
reasonably request. The TTSLLC Transferring Stockholder shall deliver to EII and
each Other Investor a copy of the acquisition agreement (and related documents)
relating to any Transfer subject to this Section 4(c) in a reasonably timely
manner to allow for adequate review by EII and each of the Other Investors and
shall include in the disclosure schedules attached thereto any information
reasonably requested
-8-
<PAGE> 9
to be included therein by EII and such Other Investor. The right of the EII
Investors to participate in a Transfer pursuant to this Section 4(c) shall not
be contingent upon such Investor providing any indemnity in connection with any
such Transfer, unless the TTSLLC Transferring Stockholder and all other sellers
provide such an indemnity, and in the event that all sellers are required to
provide an indemnity in connection with such Transfer, all parties hereto agree
to enter into a contribution agreement among themselves which provides that no
Investor shall be liable for more than the lesser of (A) its pro rata shares of
any such indemnification payments (based upon the total consideration received
by such Investor divided by the total consideration received by all sellers in
such Transfer) and (B) the net proceeds actually received by such Investor as
consideration for its shares of Common Stock in such Transfer.
(ii) The provisions of Sections 4(c)(i) shall terminate upon the
consummation of a Qualified Public Offering.
(d) Permitted Transfers.
(i) The restrictions contained in Sections 4(a), 4(b) and 4(c) shall
not apply with respect to any Transfer of Stockholder Shares by any
Stockholder (A) in the case of an individual Stockholder, pursuant to
applicable laws of descent and distribution or to any member of such
Stockholder's Family Group, (B) in the case of a non-individual
Stockholder, to its employees or Affiliates, (C) in the case of TTSLLC, to
its members or any subsequent transfer by such member to its
securityholders in connection with a distribution by TTSLLC of Stockholder
Shares held by it; provided, in each case, that any such transferee shall
have complied with the requirements of Section 4(d)(ii).
(ii) Prior to any proposed transferee's acquisition of Stockholder
Shares pursuant to a Transfer permitted by Section 4(a)(i)(A), 4(a)(ii)(B)
or 4(a)(iii)(B) or Section 4(d)(i), such proposed transferee must agree to
take such Stockholder Shares subject to and to be fully bound by the terms
of this Agreement applicable to such Stockholder Shares by executing a
joinder to this Agreement substantially in the form attached hereto as
Exhibit A and delivering such executed joinder to the Secretary of the
Company prior to the effectiveness of such Transfer (unless such Transfer
is pursuant to applicable laws of descent and distribution, in which case,
such executed joinder shall be delivered to the Secretary of the Company as
soon as reasonably possible after such Transfer). All transferees acquiring
Stockholder Shares and executing a joinder in compliance with this Section
4(d)(ii) are collectively referred to herein as "Permitted Transferees".
(e) If (i) any event occurs pursuant to which The Black & Decker
Corporation ceases to beneficially own, directly or indirectly, the EII Shares,
(ii) any Transfer of a majority interest in the residual equity securities of a
Stockholder owning Stockholder Shares occurs other than a Transfer to an
Affiliate of the transferring Stockholder, or (iii) any Stockholder Transfers
Stockholder Shares to an Affiliate and an event occurs which causes such
Affiliate to cease to be an Affiliate of such Stockholder, such event or
Transfer shall be deemed a Transfer of Stockholder Shares subject to all of the
restrictions on Transfers of Stockholder Shares set forth in this Agreement,
including without limitation, this Section 4.
5 Approved Sale.
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<PAGE> 10
(a) If the holders of a majority of the shares of voting Stockholder
Shares then outstanding, voting together as if a single class, (the "Approving
Stockholders") approve a sale of all or substantially all of the Company's
assets determined on a consolidated basis or a sale of all (or, for accounting,
tax or other reasons, substantially all) of the Company's outstanding capital
stock (other than capital stock which is not Common Stock or convertible into
Common Stock) (whether by merger, recapitalization, consolidation, share
exchange, reorganization, combination or otherwise) to an Unaffiliated Third
Party or group of Unaffiliated Third Parties (each such sale, an "Approved
Sale"), then each holder of Stockholder Shares will vote for, consent to and
raise no objections against such Approved Sale subject to the terms set forth
below. In connection with any Stockholders exercising their rights under this
Section 5(a), such Stockholders shall send a written notice at least ten (10)
business days prior to any Approved Sale to all other Stockholders setting forth
the principal terms of the proposed Approved Sale. If the Approved Sale is
structured as (i) a merger, share exchange or consolidation, each holder of
Stockholder Shares will waive any dissenters' rights, appraisal rights or
similar rights in connection with such merger, share exchange or consolidation
or (ii) a sale of stock, each holder of Stockholder Shares will agree to sell
all of its Stockholder Shares and rights to acquire Stockholder Shares on the
same terms and conditions as applicable to all of the Stockholder Shares held by
the Approving Stockholders. Each holder of Stockholder Shares will take all
reasonably necessary or desirable actions in connection with the consummation of
the Approved Sale as reasonably requested by the Stockholders approving such
Approved Sale including without limitation (but subject to Section 5(c))
executing any applicable purchase agreement.
(b) Each Stockholder will bear their pro-rata share (based upon the
number of Stockholder Shares sold) of the costs of any sale of Stockholder
Shares pursuant to an Approved Sale to the extent such costs are incurred for
the benefit of all holders of Stockholder Shares and are not otherwise paid by
the Company or the acquiring party. Costs incurred by any Stockholder on their
own behalf will not be considered costs of the transaction hereunder.
(c) The obligations of the Stockholders with respect to any Approved
Sale are subject to the satisfaction of the following conditions: (i) in
connection with the consummation of such Approved Sale, each Stockholder will be
entitled to receive (x) the same form and amount (on a share-for-share basis) of
consideration, with respect to each share of Common Stock sold in such Approved
Sale and (y) the same form and amount (on a share-for-share basis) of
consideration, with respect to each share of Preferred Stock sold in such
Approved Sale, (ii) if any holder of Common Stock or Preferred Stock is given
the option as to the form and amount of consideration to be received in
connection with such Approved Sale, then each holder of Common Stock or
Preferred Stock, as the case may be, shall be given the same option, (iii) if
TTSLLC or any Affiliate of TTSLLC owns directly or indirectly more than 5% of
any class of capital stock of any of the Third Parties involved in such Approved
Sale, then such Approved Sale shall have been approved by the holders of a
majority of the shares of Common Stock of the Company held, directly or
indirectly, by persons who do not own more than 5% of any class of capital stock
of any such Third Party and the Board shall have received a fairness opinion
from a nationally recognized investment banking firm with respect to the terms
of such Approved Sale, and (iv) no Stockholder shall be required to provide an
indemnity in connection with any Approved Sale, unless all sellers in such
Approved Sale provide such an indemnity, and in the event that all sellers are
required to provide an indemnity in connection with the Approved Sale, all
parties hereto agree to enter into a contribution agreement among themselves
which provides that no Stockholder shall be liable for more than the lesser of
(A) its pro rata share of such indemnification payments (based upon the total
consideration received by
-10-
<PAGE> 11
such holder divided by the total consideration received by all Sellers in such
Approved Sale) and (B) the net proceeds actually received by such holder as
consideration for its shares of proceeds actually received by such holder as a
consideration for its shares of capital stock of the Company in such Approved
Sale. In connection with any Approved Sale, each Stockholder shall be entitled
to receive, and the Company shall deliver all information relating to the
Company and its Subsidiaries as such Stockholder shall reasonably request. The
Company shall deliver to each Stockholder a copy of the acquisition agreement
(and related documents) relating to any Approved Sale in a reasonably timely
manner to allow for adequate review by the Stockholders and shall include in the
disclosure schedules attached thereto any information reasonably requested to be
included therein by such Stockholder. Notwithstanding anything contained herein
to the contrary, the term "consideration" as used in this subsection (c) shall
not include any management, advisory, closing, legal or similar fees received by
any Stockholder or any Affiliate of any Stockholder in connection with an
Approved Sale.
(d) The provisions of this Section 5 will terminate upon the occurrence of
the consummation of a Qualified Public Offering.
6 Financial Statements and Access to Information.
(a) Financial Statements(a) Financial Statements. The Company shall
deliver to each Stockholder who holds more than 5% of the then outstanding
shares of Common Stock and to EII so long as EII and its Affiliates continue to
own all of the shares of Common Stock and Preferred Stock listed on Schedule I
as owned by EII:
(i) within 60 days after the end of each quarterly accounting
period in each fiscal year of the Company, unaudited consolidated statements of
income and cash flows of the Company and its Subsidiaries for such quarterly
period and unaudited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarterly period. Such financial statements
shall be prepared in accordance with generally accepted accounting principles,
consistently applied, subject to the absence of footnote disclosures and to
normal year-end adjustments; and
(ii) within 120 days after the end of each fiscal year of the
Company, audited consolidated statements of income and cash flows of the Company
and its Subsidiaries for such fiscal year, and audited consolidated balance
sheets of the Company and its Subsidiaries as of the end of such fiscal year.
Such financial statement shall be prepared in accordance with generally accepted
accounting principles, consistently applied.
(b) Access to Information(b) Access to Information. The Company shall
permit any Stockholder who holds more than 10% of the then outstanding shares of
Common Stock and its representatives (including, without limitation, its legal
counsel, accountants and governmental authorities to which it is subject) and
EII so long as EII and its Affiliates continue to own all of the shares of
Common Stock and Preferred Stock listed on Schedule I as owned by EII, during
normal business hours and such other times as any such holder may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
discuss the affairs, finances and accounts of any such entities with any of the
executive officers of the Company.
-11-
<PAGE> 12
7 Legend; Additional Restriction on Transfer.
(a) Each certificate or instrument evidencing Stockholder Shares and
each certificate or instrument issued in exchange for or upon the Transfer of
any Stockholder Shares (if such securities remain Stockholder Shares (as defined
herein) after such Transfer) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF
SEPTEMBER 30, 1998, AS MAY BE AMENDED FROM TIME TO TIME, BY AND AMONG
THE ISSUER AND CERTAIN OF THE ISSUER'S STOCKHOLDERS. A COPY OF SUCH
SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER
TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
The legend set forth above regarding the Shareholders Agreement shall be removed
from the certificates evidencing any securities which cease to be Stockholder
Shares. Upon the request of any holder of Stockholder Shares, the Company shall
remove the Securities Act legend set forth above from the certificate or
certificates for such Stockholder Shares; provided, that such Stockholder Shares
are eligible for sale pursuant to Rule 144(k) (or any similar rule or rules then
in effect) under the Securities Act.
(b) Unless waived by the Company, no Stockholder may Transfer any
Stockholder Shares (except pursuant to an effective registration statement under
the Securities Act) without first delivering to the Company an opinion of
counsel reasonably acceptable in form and substance to the Company (which
counsel will be reasonably acceptable to the Company) that registration under
the Securities Act is not required in connection with such Transfer.
8 Transfers in Violation of Agreement. Any Transfer or attempted Transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be null and void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Stockholder Shares as the owner of such
securities for any purpose.
9 Preemptive Rights.
(a) If at any time prior to the consummation of a Qualified Public
Offering the Company wishes to issue any Common Stock or any options, warrants
or other rights to acquire Common Stock or any notes or other securities
convertible or exchangeable into Common Stock (all such Common Stock and other
rights and securities, collectively, the "Equity Equivalents") to any Person or
Persons, the Company shall promptly deliver a notice of intention to sell (the
"Company's Notice of Intention to Sell") to each Stockholder setting forth a
description
-12-
<PAGE> 13
and the number of the Equity Equivalents proposed to be issued and the proposed
purchase price and terms of sale. Upon receipt of the Company's Notice of
Intention to Sell, each Stockholder shall have the right to elect to purchase,
at the price and on the terms stated in the Company's Notice of Intention to
Sell, a number of the Equity Equivalents equal to the product of (i) such
Stockholder's proportionate ownership of the outstanding shares of Common Stock
(calculated on a fully-diluted basis assuming all holders of then outstanding
warrants, options and convertible securities of the Company which are in the
money had converted such convertible securities or exercised such warrants or
options immediately prior to the taking of the record of the holders of Common
Stock for the purpose of determining whether they are entitled to receive such
offer) held by all Persons multiplied by (ii) the number of Equity Equivalents
proposed to be issued (as described in the applicable Company's Notice of
Intention to Sell). Such election shall be made by the electing Stockholder by
written notice to the Company within fifteen (15) business days after receipt by
such Stockholder of the Company's Notice of Intention to Sell (the "Acceptance
Period"). In the event that any Equity Equivalents proposed to be issued at any
time as contemplated by this Section 9 are either voting securities or
securities which are convertible, exercisable or exchangeable for voting
securities and for any reason one or more of the Stockholders determines in its
sole discretion that it would be detrimental to such Stockholder or its
Affiliates to purchase such Equity Equivalents as provided hereby, then the
Company shall make available to any such Stockholder an amount of alternative
securities equal to the amount of such Equity Equivalents as such Stockholder
has elected to purchase pursuant to the terms hereof which are identical to such
Equity Equivalents in all respects except for the fact that such alternate
securities shall be non-voting securities or convertible, exercisable or
otherwise exchangeable for non-voting securities (the "Alternative Securities")
upon such terms and conditions as such Stockholder may request.
(b) To the extent an effective election to purchase has not been
received from a Stockholder pursuant to subsection (a) above in respect of the
Equity Equivalents proposed to be issued pursuant to the applicable Company's
Notice of Intention to Sell, the Company may, at its election, during a period
of one hundred and twenty (120) days following the expiration of the applicable
Acceptance Period, issue and sell the remaining Equity Equivalents to be issued
and sold to any Person at a price and upon terms not more favorable to such
Person than those stated in the applicable Company's Notice of Intention to
Sell; provided, however, that failure by a Stockholder to exercise its option to
purchase with respect to one issuance and sale of Equity Equivalents shall not
affect its option to purchase Equity Equivalents in any subsequent offering,
sale and purchase. In the event the Company has not sold any Equity Equivalents
covered by a Company's Notice of Intention to Sell, or entered into a binding
agreement to sell such Equity Equivalents, within such one hundred and twenty
(120) day period, the Company shall not thereafter issue or sell such Equity
Equivalents, without first offering such Equity Equivalents to each Stockholder
in the manner provided in this Section 9.
(c) If a Stockholder gives the Company notice, pursuant to the
provisions of this Section 9, that such Stockholder desires to purchase any
Equity Equivalents or Alternative Securities, payment therefor shall be by check
or wire transfer of immediately available funds, against delivery of the
securities (which securities shall be issued free and clear of any liens or
encumbrances) at the executive offices of the Company at the closing date fixed
by the Company for the sale of all such Equity Equivalents. In the event that
any proposed sale is for a consideration other than cash, such Stockholders may
pay cash in lieu of all (but not part) of such other consideration, in the
amount determined reasonably and in good faith by the Board to represent the
fair value of such consideration other than cash.
-13-
<PAGE> 14
(d) The preemptive rights contained in this Section 9 shall not apply
to (i) the issuance of shares or units of Equity Equivalents as a stock dividend
or upon any subdivision, split or combination of the outstanding shares of
Common Stock; (ii) the issuance of Equity Equivalents upon conversion, exchange
or redemption of any outstanding convertible or exchangeable securities; (iii)
the issuance of Equity Equivalents upon exercise of any then outstanding options
or warrants; (iv) the issuance of Equity Equivalents to any employee or director
of the Company or any of its subsidiaries in his or her capacity as such; or (v)
the issuance of warrants and the issuance of Common Stock issued pursuant to
such warrants issued in connection with the Securities Purchase Agreement
between the Company and Emhart Inc. dated as of the date hereof and the
Securities Purchase Agreement between True Temper Sports, Inc. and DLJ Bridge
Financing, Inc. dated as of the date hereof.
(e) The provisions of this Section 9 shall terminate upon the
consummation of a Qualified Public Offering.
10 Amendment and Waiver. No modification, amendment or waiver of any
provision of this Agreement shall be effective against the Company or the
Stockholders unless such modification, amendment or waiver is approved in
writing by, respectively, the Company or the holders of at least a majority of
the Stockholder Shares; provided, that no amendment shall be effective without
the consent of a Stockholder to the extent that such amendment would adversely
affect the rights or obligations of such Stockholder hereunder. The failure of
any party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms. Each Stockholder shall remain a party to this
Agreement only so long as such person is the holder of record of Stockholder
Shares.
11 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12 Entire Agreement. Except as otherwise expressly set forth herein, this
document embodies the complete agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes and preempts any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13 Termination. This Agreement will automatically terminate and be of no
further force or effect immediately after the consummation of an Approved Sale.
14 Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and
-14-
<PAGE> 15
the respective successors, heirs and permitted assigns of each of them, so long
as they hold Stockholder Shares.
15 Counterparts. This Agreement may be executed in separate counterparts
each of which shall be an original and all of which taken together shall
constitute one and the same agreement.
16 Remedies. The parties hereto shall be entitled to enforce their rights
under this Agreement specifically to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights existing in
their favor. The parties hereto agree and acknowledge that money damages may not
be an adequate remedy for any breach of the provisions of this Agreement and
that the Company and any Stockholder may in his, hers, or its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief (without posting a bond or other security)
in order to enforce or prevent any violation of the provisions of this
Agreement.
17 Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered if delivered
personally, sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient, or if sent by certified or registered mail, return
receipt requested, will be deemed to have been given two business days
thereafter. Such notices, demands and other communications will be sent to the
address indicated below:
To the Company:
True Temper Corporation
8275 Tournament Drive, Suite 200
Memphis, TN 38125
Attention: President
Telecopy No.: (901) 746-2162
With a copy, which shall not constitute notice, to:
True Temper Sports LLC
c/o Cornerstone Equity Investors, LLC
717 Fifth Avenue, Suite 1100
New York, NY 10022
Attention: Mark Rossi
Tyler Wolfram
Telecopy No.: (212) 826-6798
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Frederick Tanne, Esq.
Telecopy No.: (212) 446-4900
-15-
<PAGE> 16
To EII:
Emhart Industries, Inc.
c/o The Black & Decker Corporation
701 East Joppa Road
Towson, MD 21286
Attention: Senior Vice President and
Chief Financial Officer
Telecopy No.: (401) 716-3318
With a copy, which shall not constitute notice, to:
Miles & Stockbridge P.C.
10 Light Street
Baltimore, MD 21202
Attention: Glenn C. Campbell
Telecopy No.: (410) 385-3700
To TTSLLC:
True Temper Sports LLC
c/o Cornerstone Equity Investors, LLC
717 Fifth Avenue, Suite 1100
New York, NY 10022
Attention: Mark Rossi
Tyler Wolfram
Telecopy No.: (212) 826-6798
With a copy, which shall not constitute notice, to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Frederick Tanne, Esq.
Telecopy No.: (212) 446-4900
If to any Other Stockholder to the address set forth opposite such Person's name
on Schedule I attached hereto or, in any such case, such other address or to the
attention of such other person as the recipient party shall have specified by
prior written notice to the sending party.
18 GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE WILL GOVERN
ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
-16-
<PAGE> 17
19 Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
* * * * *
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TRUE TEMPER CORPORATION
By:
Name:
Title:
TRUE TEMPER SPORTS LLC
By: Cornerstone Equity Investors IV, L.P.
Its: Authorized Member
By: Cornerstone IV, LLC
Its: General Partner
By:
Name:
Title:
EMHART INDUSTRIES, INC.
By:
Name:
Title:
----------------------------------------
Scott Hennessy
----------------------------------------
William R. Beatty
<PAGE> 19
----------------------------------------
Stephen M. Brown
----------------------------------------
James T. Davidson, III
----------------------------------------
David N. Hallford
----------------------------------------
Fred Geyer
----------------------------------------
Howard A. Lindsay
----------------------------------------
Adrian H. McCall
<PAGE> 20
SCHEDULE I
<TABLE>
<CAPTION>
NAME ADDRESS COMMON STOCK PREFERRED STOCK
<S> <C> <C> <C>
Scott Hennessy 9580 Fox Hill Circle 367,444 0
Memphis, TN 38139
Howard A. Lindsay 2176 Gallina Circle 22,965 0
Collierville, TN 37017
Adrian H. McCall 2156 Johnson Street 21,933 0
Germantown, TN 38139
Fred Geyer 935 Turnberry Cove 15,482 0
Collierville, TN 38017
David Hallford 9189 Bluff Top Cove 12,902 0
Cordova, TN 38018
James T. Davidson, III 314 11th Avenue North 6,709 0
Amory, MS 38821
William R. Beatty 1876 Newton, Nook 6,193 0
Collierville, TN 38017
Stephen M. Brown 6981 Hearth Side Cove 5,677 0
Memphis, TN 38119
</TABLE>
<PAGE> 21
EXHIBIT A
FORM OF JOINDER TO
SHAREHOLDERS AGREEMENT
This JOINDER TO SHAREHOLDERS AGREEMENT (the "Joinder") dated as of ,
by and among True Temper Corporation, a Delaware corporation (the "Company"),
and certain stockholders of the Company (the "Agreement"), is made and entered
into as of _________ by and between the Company and _________________
("Holder"). Capitalized terms used herein but not otherwise defined shall have
the meanings set forth in the Agreement.
WHEREAS, Holder has acquired certain Stockholder Shares and the Agreement
and the Company require Holder, as a holder of such Stockholder Shares, to
become a party to the Agreement, and Holder agrees to do so in accordance with
the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1 Agreement to be Bound. Holder hereby agrees that upon execution of this
Joinder, it shall become a party to the Agreement and shall be fully bound by,
and subject to, all of the covenants, terms and conditions of the Agreement as
though an original party thereto and shall be deemed a [TTSLLC INVESTOR/EII
INVESTOR/OTHER INVESTOR] and a Stockholder for all purposes thereof. In
addition, Holder hereby agrees that all Common Stock and Preferred Stock held by
Holder shall be deemed [TTSLLC/EII/OTHER INVESTORS] Shares and Stockholder
Shares for all purposes of the Agreement.
2 Successors and Assigns. Except as otherwise provided herein, this Joinder
shall bind and inure to the benefit of and be enforceable by the Company and its
successors, heirs and assigns and Holder and any subsequent holders of
Stockholder Shares and the respective successors, heirs and permitted assigns of
each of them, so long as they hold any Stockholder Shares.
3 Counterparts. This Joinder may be executed in separate counterparts each
of which shall be an original and all of which taken together shall constitute
one and the same agreement.
4 Notices. For purposes of Section 17 of the Agreement, all notices,
demands or other communications to the Holder shall be directed to:
[NAME]
[ADDRESS]
[FACSIMILE NUMBER]
5 GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE SHALL GOVERN
ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS.
ALL OTHER
<PAGE> 22
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
JOINDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT
OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
6 DESCRIPTIVE HEADINGS. The descriptive headings of this Joinder are
inserted for convenience only and do not constitute a part of this Joinder.
* * * * *
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the
date first above written.
TRUE TEMPER CORPORATION
By:
Name:
Title:
[HOLDER]
By:
Name:
Title:
<PAGE> 1
Exhibit 12.1 Computation of Ratio of Earnings To Fixed Charges
For the Years ended December 31,
1999 1998 1997 1996 1995
------------------------------------------
Net income (loss) Before Taxes 3,320 (34,924) 10,140 5,852 3,098
Fixed Charges:
Interest Expense 14,566 3,545 -- -- --
Interest Factor of Operating Rents 281 182 171 154 130
------------------------------------------
Total Fixed Charges 14,847 3,727 171 154 130
------------------------------------------
------------------------------------------
Adjusted Earnings 18,167 (31,197) 10,311 6,006 3,228
------------------------------------------
Ratio of Earnings to Fixed Charges 1.2 (a) (b) (b) (b)
(a): Earnings were not sufficient to cover fixed charges by $34,924
in 1998.
(b): The ratio of earning to fixed charges has been excluded for
the years ended December 31, 1997, 1996 and 1995 as fixed
charges were less than $200 in each of those years.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,427
<SECURITIES> 0
<RECEIVABLES> 13,582
<ALLOWANCES> 499
<INVENTORY> 11,371
<CURRENT-ASSETS> 32,197
<PP&E> 53,503
<DEPRECIATION> 33,540
<TOTAL-ASSETS> 187,646
<CURRENT-LIABILITIES> 14,570
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> 35,881
<TOTAL-LIABILITY-AND-EQUITY> 187,646
<SALES> 92,215
<TOTAL-REVENUES> 92,215
<CGS> 56,084
<TOTAL-COSTS> 74,563
<OTHER-EXPENSES> (9)
<LOSS-PROVISION> 173
<INTEREST-EXPENSE> 14,341
<INCOME-PRETAX> 3,320
<INCOME-TAX> 2,318
<INCOME-CONTINUING> 1,002
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
