Any Lien created for the benefit of the Holders of the Notes pursuant to the immediately preceding paragraph shall automatically and unconditionally be released and discharged upon the release and discharge of the Primary Lien, without any further action on the part of any Person.
The issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to the issuer or any of its Restricted Subsidiaries or pay any liabilities owed to the issuer or any of its Restricted Subsidiaries;
(2) make loans or advances to the issuer or any of its Restricted Subsidiaries; or
(3) transfer any of its properties or assets to the issuer or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) Existing Indebtedness and the Credit Agreement as in effect on the date of the Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such encumbrances than those contained in such Existing Indebtedness and the Credit Agreement, as in effect on the date of the Indenture;
(2) the Indenture, the Notes and any Note Guarantees or by other Indebtedness of the issuer or of a Subsidiary Guarantor which is pari passu in right of payment with the Notes or Note Guarantees, as applicable, incurred under an indenture pursuant to the covenant described above under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock"; provided that the encumbrances and restrictions are no more restrictive, taken as a whole, than those contained in the Indenture;
(4) any agreements or instrument governing Indebtedness or Equity Interests of a Person acquired by the issuer or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was or Equity Interests were incurred or issued in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred;
(5) customary non-assignment provisions in contracts, licenses, leases and other agreements entered into in the ordinary course of business;
(6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property so acquired of the nature described in clause (3) of the preceding paragraph;
(7) an agreement entered into for the sale or disposition of Equity Interests or assets of a Restricted Subsidiary or an agreement entered into for the sale of specified assets (in either case, so long as such encumbrance or restriction, by its terms, terminates on the earlier of the termination of such agreement or the consummation of such agreement and so long as such restriction applies only to the Equity Interests or assets to be sold);
(9) Permitted Liens securing Indebtedness that limit the right of the debtor to dispose of the assets subject to such Lien;
(10) customary limitations on the disposition or distribution of assets or property in joint venture agreements, partnership agreements, limited liability company operating agreements, asset or stock sale agreements, and other similar agreements entered into (a) in the ordinary course of business or (b) with the approval of the Board of Directors; provided, however, that, with respect to clause (b) only, the Board of Directors shall have determined in good faith that such limitations will not impair the ability of the issuer to satisfy its payment obligations with respect to the Notes;
(11) cash or other deposits or net worth requirements imposed by customers or agreements entered into in the ordinary course of business;
(12) in the case of clause (3) of the first paragraph of this covenant:
(a) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset,
(b) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the issuer or any of its Restricted Subsidiaries not otherwise prohibited by the Indenture, or
(c) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the issuer or any of its Restricted Subsidiaries in any manner material to the issuer or any of its Restricted Subsidiaries;
(13) provisions in agreements or instruments that prohibit the payment of dividends or the making of other distributions with respect to any Capital Stock of a Person other than on a pro rata basis; and
(14) restrictions in other Indebtedness incurred in compliance with the covenant described under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock"; provided that such restrictions, taken as a whole, are, in the good faith judgment of the issuer's Board of Directors, no more materially restrictive with respect to such encumbrances and restrictions than those contained in the existing agreements referenced in clauses (1) and (2) above.
Merger, Consolidation or Sale of Assets
The issuer will not, directly or indirectly, consolidate or merge with or into another Person (whether or not the issuer is the surviving corporation), and the issuer will not, and will not cause or permit any Restricted Subsidiary to, sell, assign, transfer, convey (not including any conveyance, if any, resulting solely from the creation of any Lien) or otherwise dispose of all or substantially all of the properties or assets of the issuer and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person (including by way of consolidation or merger), unless:
(1) either: (a) the issuer is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the issuer) or to which such sale, assignment, transfer, conveyance or other disposition shall have been made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof or the District of Columbia; provided that, in the case such Person is a limited liability company or a partnership, a co-obligor of the Notes is a corporation;
(2) the Person formed by or surviving any such consolidation or merger (if other than the issuer) or the Person to which such sale, assignment, transfer, conveyance or other disposition shall have been made assumes all the obligations of the issuer under the Notes, the Indenture and the Registration Rights Agreement, in each case pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction and any related financing transactions, no Default or Event of Default exists;
(4) the issuer or the Person formed by or surviving any such consolidation or merger (if other than the issuer), or to which such sale, assignment, transfer, conveyance or other disposition shall have
88
been made, will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock," or if not, the Fixed Charge Coverage Ratio on such basis is equal to or higher than the Fixed Charge Coverage Ratio immediately prior to such transactions; and
(5) each Guarantor, unless such Guarantor is the Person with which the issuer has entered into a transaction under this covenant, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of the issuer or the surviving Person in accordance with the Notes and the Indenture.
In addition, neither the issuer nor any Restricted Subsidiary may, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. This "Merger, Consolidation or Sale of Assets" covenant will not apply to the Transactions. In addition, clause (4) of this "Merger, Consolidation or Sale of Assets" covenant will not apply to (x) a merger, consolidation, amalgamation, sale, assignment, transfer, conveyance or other disposition of assets between or among the issuer and any of its Restricted Subsidiaries or (y) any such transaction where the sole purpose and effect is to reincorporate the issuer or any of its Restricted Subsidiaries in another jurisdiction of the United States.
Transactions with Affiliates
The issuer will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate on or after the Issue Date (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to the issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm's length transaction by the issuer or such Restricted Subsidiary with an unrelated Person; and
(2) the issuer delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $3.0 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the issuer or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any reasonable consulting or employment agreement or arrangement, incentive compensation plan, benefit arrangement or plan, severance or expense reimbursement arrangement entered into by the issuer or any of its Restricted Subsidiaries in the ordinary course of business and approved by a majority of the members of the Board of Directors of the issuer;
(2) transactions between or among the issuer and/or its Restricted Subsidiaries;
(3) payment of reasonable directors fees to directors of the issuer and the Parent or any Restricted Subsidiary of the issuer and the provision of customary indemnification to directors, officers and employees of the issuer and the Parent or any Restricted Subsidiary of the issuer;
89
(4) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the issuer;
(5) Restricted Payments that are permitted by the provisions of the Indenture described above under the caption "—Restricted Payments" or any Permitted Investment, and agreements or arrangements solely related to the disbursement or distribution of such Restricted Payment or Permitted Investment;
(6) the payment (directly or through the Parent) of annual management, consulting, monitoring and advising fees and related expenses to the Equity Sponsor and its respective Affiliates pursuant to management agreements as in effect on the date of the Indenture and as described in this offering memorandum and any amendment, modification or supplement thereto or replacement thereof, as long as such amendment, modification, supplement or replacement taken as a whole is not more disadvantageous to the issuer and its Restricted Subsidiaries;
(7) loans to officers and employees that are approved in good faith by a majority of the Board of Directors of the issuer in an amount not to exceed $1.0 million outstanding at any time and advances and expense reimbursements to employees in the ordinary course of business;
(8) transactions with a joint venture engaged in a Permitted Business; provided that all the outstanding ownership interests of such joint venture are owned only by the issuer, its Restricted Subsidiaries and Persons that are not Affiliates of the issuer;
(9) transactions with a Person (other than an Unrestricted Subsidiary) that is an Affiliate of the issuer solely because the issuer owns, directly or through a Subsidiary, an Equity Interest in, or controls, such Person;
(10) transactions pursuant to the Management Agreement and other agreements or arrangements in each case in effect on the date of the Indenture and as described in this offering memorandum, or any amendment, modification or supplement thereto or any replacement thereof, as long as such agreement or arrangement as so amended, modified, supplemented or replaced, taken as a whole, is not materially more disadvantageous to the issuer and its Restricted Subsidiaries than the original agreement or arrangement as in effect on the date of the Indenture; and
(11) the granting or performance of registration rights under a written registration rights agreement approved by the Board of Directors of the issuer.
Guarantees
If the issuer or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary on or after the date of the Indenture, then that newly acquired or created Domestic Subsidiary must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within ten (10) Business Days of such acquisition or creation; provided that no Domestic Subsidiary shall be required to become a Guarantor solely as a result of the foregoing sentence so long as the total assets of all Domestic Subsidiaries (other than Ames True Temper Properties Inc.) that are not Guarantors, as reflected on their most recent balance sheets prepared in accordance with GAAP, do not in the aggregate at any time exceed $2.0 million. In addition, in the event that (i) a Default or Event of Default has occurred or (ii) Ames True Temper Properties, Inc.'s total assets at any time exceed $5.0 million, as reflected on its most recent balance sheet prepared in accordance with GAAP, then, in either event, Ames True Temper Properties, Inc. must become a Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel to the Trustee within five Business Days of the date of such Default or Event of Default or the date of completion of such balance sheet, as applicable.
The issuer will not permit any of its Restricted Subsidiaries (other than Ames True Temper Properties, Inc.), directly or indirectly, to guarantee any other Indebtedness of the issuer or any Restricted Subsidiary thereof unless such Restricted Subsidiary is a Subsidiary Guarantor or simultaneously executes and delivers a supplemental indenture providing for the guarantee of the payment of the Notes by such Restricted Subsidiary; provided, however, that the foregoing shall not apply to any Foreign Restricted Subsidiary solely as a result of such Foreign Restricted Subsidiary
90
guaranteeing Indebtedness of any other Foreign Restricted Subsidiary. Such Note Guarantee shall be senior to or pari passu with such Subsidiary's Guarantee of such other Indebtedness unless such other Indebtedness is Senior Debt, in which case the guarantee of the Notes may be subordinated to the guarantee of such Senior Debt to the same extent as the Notes are subordinated to such Senior Debt. The form of the Note Guarantee will be attached as an exhibit to the Indenture.
A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than the issuer or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or Event of Default exists;
and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) assumes all the obligations of that Guarantor under the Indenture, its Note Guarantee and, if applicable, the Registration Rights Agreement pursuant to a supplemental indenture satisfactory to the Trustee; or
(b) in the case of a Subsidiary Guarantor, such sale or other disposition or consolidation or merger complies with the covenant described above under the caption "—Repurchase at the Option of Holders—Asset Sales."
The Note Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of Capital Stock of such Subsidiary Guarantor to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of the issuer where, after giving effect to such sale or other disposition, such Subsidiary Guarantor would no longer constitute a Subsidiary of the issuer, if such sale of Capital Stock complies with the covenant described above under the caption "—Repurchase at the Option of Holders—Asset Sales";
(2) if the issuer properly designates any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary under the Indenture; or
(3) solely in the case of a Note Guarantee created pursuant to the second paragraph of this covenant, upon the release or discharge of the Subsidiary Guarantee which resulted in the creation of such Note Guarantee pursuant to this covenant, except a discharge or release by or as a result of payment under such Guarantee.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the issuer may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default; provided that in no event shall there be any Unrestricted Subsidiaries on or immediately following the date of the Indenture. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the issuer and its Restricted Subsidiaries in the Subsidiary so designated (after giving effect to any sale of Equity Interests of such Subsidiary in connection with such designation) will be deemed to be a Restricted Investment made as of the time of such designation and will either reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "—Restricted Payments" or reduce the amount available for future Investments under one or more clauses of the definition of "Permitted Investments." That designation will only be permitted if such Investment would be permitted at that time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of the issuer may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the issuer of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (1) such Indebtedness is
91
permitted under the covenant described under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
Business Activities
The issuer will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the issuer and its Restricted Subsidiaries, taken as a whole.
Payments for Consent
The issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the SEC, so long as any Notes are outstanding, the issuer will furnish, upon request, to the Trustee on behalf of the Holders of Notes, within the time periods specified in the SEC's rules and regulations (together with any extensions granted by the SEC):
(1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the issuer were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the issuer's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on Form 8-K if the issuer were required to file such reports;
provided, however, that (x) if the SEC will accept the filings of the issuer as provided in the next succeeding paragraph, the issuer need not furnish such reports to the Trustee and (y) the issuer will not be required to furnish financial information for the period ended June 26, 2004 prior to September 30, 2004.
In addition, following the date by which the issuer is required to consummate the exchange offer contemplated by the Registration Rights Agreement, whether or not required by the SEC, the issuer will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, the issuer and the Parent Guarantor have agreed that, for so long as any Notes (but not the Exchange Notes) remain outstanding, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
If the issuer has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the financial condition and results of operations of the issuer and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the issuer.
Notwithstanding the foregoing, so long as the Parent Guarantor is a Guarantor, the reports, information and other documents required to be filed and provided as described above will be those
92
of the Parent Guarantor, rather than those of the issuer, so long as such filings would satisfy the SEC's requirements. In such event, the quarterly and annual financial information required by this covenant shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the financial condition and results of operations of the issuer and its Restricted Subsidiaries separate from the financial condition and results of operations of both (x) any Unrestricted Subsidiaries of the issuer and (y) any Subsidiaries of the Parent Guarantor (other than the issuer) that are not Subsidiaries of the issuer.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Liquidated Damages with respect to, the Notes whether or not prohibited by the subordination provisions of the Indenture;
(2) default in payment when due of the principal of, or premium, if any, on the Notes, whether or not prohibited by the subordination provisions of the Indenture;
(3) failure by the issuer or any of its Restricted Subsidiaries to comply with the provisions described under the captions "—Repurchase at the Option of Holders—Change of Control," "—Repurchase at the Option of Holders—Asset Sales," or "—Certain Covenants—Merger, Consolidation or Sale of Assets" or the provisions described in the third paragraph under the caption "—Certain Covenants—Guarantees";
(4) failure by the issuer or any of its Restricted Subsidiaries for 45 days after notice by the Trustee or by Holders of at least 25% in principal amount of the then outstanding Notes to comply with any of the other agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the issuer, any of its Restricted Subsidiaries that would constitute Significant Subsidiaries (or any group of Restricted Subsidiaries that together would constitute a Significant Subsidiary of the issuer) or any Subsidiary Guarantor, or the payment of which is guaranteed by the issuer or any of its Significant Subsidiaries (or any group of Restricted Subsidiaries that together would constitute a Significant Subsidiary of the issuer) or any Subsidiary Guarantor, whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default:
(a) is caused by a failure to make any payment when due at the final maturity of such Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express maturity;
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10.0 million or more;
(6) failure by the issuer, any of its Significant Subsidiaries (or any group of Restricted Subsidiaries that together would constitute a Significant Subsidiary of the issuer) or any Subsidiary Guarantor to pay final judgments (to the extent such judgments are not paid or covered by an insurance carrier that has acknowledged coverage in writing) aggregating in excess of $10.0 million, which judgments are not paid, discharged or stayed for a period of 60 days after such judgments have become final and non-appealable;
(7) except as permitted by the Indenture, any Note Guarantee of a Guarantor shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to the issuer or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary.
93
In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary), all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately by notice in writing to the issuer specifying the respective Event of Default; provided, however, that so long as any Indebtedness permitted to be incurred pursuant to the Credit Agreement shall be outstanding, that acceleration shall not be effective until the earlier of (1) an acceleration of Indebtedness under the Credit Agreement; or (2) five business days after receipt by the issuer and the Agent under the Credit Agreement of written notice of the acceleration of the Notes. If any Designated Senior Debt is outstanding, the issuer may only pay amounts due on the Notes if otherwise permitted by the provisions described under the caption "Subordination" above.
Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture and the Trust Indenture Act. Subject to certain limitations to be set forth in the Indenture, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages) if it determines that withholding notice is in their interest. The Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to the provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee.
The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Liquidated Damages on, or the principal of, the Notes. In the event of a declaration of acceleration of the Notes because an Event of Default described in clause (5) has occurred and is continuing, the declaration of acceleration of the Notes shall be automatically annulled if the event of default or payment default triggering such Event of Default pursuant to clause (5) shall be remedied or cured by the issuer or a Restricted Subsidiary of the issuer or waived by the holders of the relevant Indebtedness within 20 days after the declaration of acceleration with respect thereto and if (i) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction and (ii) all existing Events of Default, except nonpayment of principal, premium or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived.
The issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, the issuer is required to deliver to the Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No past, present or future director, officer, employee, manager, incorporator, stockholder, agent or member (or Person forming any limited liability company) of the issuer or any Guarantor, as such, shall have any liability for any obligations of the issuer or any Guarantors under the Notes, the Indenture, any Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note and a Note Guarantee waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes and the Note Guarantee. The waiver may not be effective to waive liabilities under the federal securities laws.
94
Legal Defeasance and Covenant Defeasance
The issuer may, at its option and at any time, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of any Guarantors discharged with respect to their Note Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such Notes when such payments are due from the trust referred to below;
(2) the issuer's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the issuer's and the Guarantors' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the issuer may, at its option and at any time, elect to have the obligations of the issuer and any Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including nonpayment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default and Remedies" will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the issuer must specify whether the Notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, the issuer shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case, to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the issuer shall have delivered to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from, or arising in connection with, the borrowing of funds to be applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument to which the issuer or any of its Subsidiaries is a party or by which the issuer or any of its Subsidiaries is bound, including the Credit Agreement;
95
(6) the issuer must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the issuer with the intent of preferring the Holders of Notes over the other creditors of the issuer with the intent of defeating, hindering, delaying or defrauding creditors of the issuer or others;
(7) if the Notes are to be redeemed prior to their Stated Maturity, the issuer must deliver to the Trustee irrevocable instructions to redeem all of the Notes on the specified redemption date; and
(8) the issuer must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or the Notes may be amended or supplemented with the consent of the issuer and the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and, subject to certain limitations, any existing default or noncompliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of the issuer and each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions, or waive any payment, with respect to the redemption of the Notes (other than payment provisions relating to the covenant described under the caption "—Repurchase at Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any Note;
(4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than U.S. dollars;
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the Notes;
(7) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture;
(8) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes or any Note Guarantees; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the Indenture relating to subordination that adversely affects the rights of the Holders of the Notes will require the consent of the Holders of at least 75% in aggregate principal amount of Notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of Notes, the issuer, the Guarantors and the Trustee may amend or supplement the Indenture or the Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;
96
(3) to provide for the assumption of the issuer's or any Guarantor's obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the issuer's or such Guarantor's assets;
(4) to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect in any material respect the legal rights under the Indenture of any such Holder;
(5) to comply with requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act;
(6) to provide for the issuance of Additional Notes in accordance with the Indenture;
(7) to add Guarantors with respect to the Notes or to secure the Notes;
(8) to comply with the rules of any applicable securities depositary;
(9) to provide for a successor trustee in accordance with the terms of the Indenture or to otherwise comply with any requirement of the Indenture; or
(10) to conform the text of the Indenture or the Notes to any provision of the Description of Notes to the extent that such provision was intended to be a verbatim recitation of the text of this Description of Notes.
The consent of the Holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment, waiver or consent. It is sufficient if the consent approves the substance of the proposed amendment, waiver or consent.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when the issuer or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture and either:
(1) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the issuer) have been delivered to the Trustee for cancellation; or
(2) (a) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year, including as a result of a redemption notice properly given pursuant to the Indenture, and the issuer or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption; (b) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the issuer or any Guarantor is a party or by which the issuer or any Guarantor is bound; and (c) the issuer has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be.
In addition, the issuer must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the issuer or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any
97
such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict within 90 days or apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions to be specified in the Indenture. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the Indenture and Registration Rights Agreement without charge by contacting the issuer in the manner described in this prospectus under the caption "Where You Can Find More Information."
Governing Law
The Indenture and the Notes will be governed by, and construed in accordance with, the laws of the State of New York.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings.
"Asset Acquisition" means (a) an Investment by the issuer or any of its Restricted Subsidiaries in any other Person if, as a result of such Investment, such Person shall become a Restricted Subsidiary of the issuer, or shall be merged with or into the issuer or any Restricted Subsidiary of the issuer, or (b) the acquisition by the issuer or any Restricted Subsidiary of the issuer of all or substantially all of the assets of any other Person or any division or line of business of any other Person.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the issuer and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption "—Repurchase at the Option of Holders—Change of Control" and/or the
98
provisions described above under the caption "—Certain Covenants—Merger, Consolidation or Sale of Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance or sale of Equity Interests by any of the issuer's Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries, other than directors' qualifying shares or shares required by applicable law to be held by a person other than the issuer or a Restricted Subsidiary.
Notwithstanding the preceding, the following items shall not be deemed to be Asset Sales:
(1) any single transaction or series of related transactions that involves assets having a fair market value of less than $2.0 million;
(2) a transfer of assets between or among the issuer and its Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to the issuer or to another Restricted Subsidiary thereof;
(4) the sale, lease, sub-lease, license, sub-license or consignment of accounts receivable, equipment, inventory or other assets in the ordinary course of business, including leases with a duration of no greater than 24 months with respect to facilities which are temporarily not in use or pending their disposition;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) the creation of a Permitted Lien;
(7) a Restricted Payment that is permitted by the covenant described above under the caption "—Certain Covenants—Restricted Payments" or a Permitted Investment;
(8) the licensing of intellectual property or other general intangibles to third persons on customary terms as determined by the Board of Directors in good faith;
(9) any sale, replacement, abandonment or disposition of any property or equipment that has become damaged, worn-out, obsolete, condemned, given over in lieu of deed or otherwise unsuitable or not required for the ordinary course of the business of the issuer and its Restricted Subsidiaries;
(10) leases or subleases to third persons not interfering in any material respect with the business of the issuer or any of its Restricted Subsidiaries;
(11) the good faith surrender or waiver of contract rights or the settlement, release or surrender of claims of any kind;
(12) proceeds from the sale of property pursuant to that certain Purchase Agreement, dated as of January 13, 2004, by and between Ames True Temper, Inc. and Sirnaik Holdings of WV, LLC;
(13) Payment remittances due from the U.S. Government pending settlement on the payment remittance structure of the Byrd Amendment related to anti-dumping tariff payment paid to ATT Holding Co. or any of its Subsidiaries as a domestic manufacturer of striking tools;
(14) Cigna insurance claims in the amount of approximately $875,000, relating to the lawsuit captioned Ames True Temper v. Connecticut General Life Insurance Company, et al., No. 1:CV-03-1320, pending in the United States District Court for the Middle District of Pennsylvania; and
(15) nonrecourse transfers (other than with respect to customary recourse for customary breach of representations and warranties) of accounts receivable to a commercial finance company in the ordinary course of business of the issuer or any of its Restricted Subsidiaries in exchange for the fair market value thereof, including cash in an amount at least equal to 75% of the book value thereof.
"Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.
99
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation or a committee thereof authorized to exercise the power of the board of directors of such corporation;
(2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person serving a similar function.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than 360 days from the date of acquisition, unless such securities are deposited to defease any Indebtedness;
(3) securities issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having one of the two highest ratings obtainable from either Standard & Poor's Rating Services or Moody's Investors Service, Inc.;
(4) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any foreign country recognized by the United States of America and having capital and surplus at the time of acquisition thereof, in excess of $500.0 million (or the foreign currency equivalent thereof) and a rating at the time of acquisition thereof of P-1 or better from Moody's Investors Service, Inc. or A-1 or better from Standard & Poor's Rating Services;
(5) repurchase obligations for underlying securities of the types described in clauses (2) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above;
100
(6) commercial paper having at the time of acquisition the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within nine months after the date of acquisition;
(7) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition; and
(8) in the case of any Foreign Restricted Subsidiary, local currency held by such Foreign Restricted Subsidiary from time to time in the ordinary course of business.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Parent Guarantor and its subsidiaries or the issuer and its Restricted Subsidiaries, in each case, taken as a whole, to any "person" (as that term is used in Section l3(d)(3) of the Exchange Act) other than the Principals or Related Parties of the Principals;
(2) the adoption of a plan relating to the liquidation or dissolution of the issuer;
(3) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the voting power of the Voting Stock of the issuer or the Parent Guarantor, as the case may be;
(4) the first day on which a majority of the members of the Board of Directors of the Parent Guarantor or the issuer are not Continuing Directors; or
(5) the Parent Guarantor or the issuer consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Parent Guarantor or the issuer, in any such event pursuant to a transaction in which any of the outstanding Voting Stock of the Parent Guarantor, the issuer or such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where (A) the Voting Stock of the Parent Guarantor or the issuer outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) and (B) immediately after such transaction, no "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than the Principals and their Related Parties, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the voting power of the Voting Stock of the surviving or transferee person.
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period and, without duplication, plus:
(1) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(2) Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that any such Fixed Charges were deducted in computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expense was deducted in computing such Consolidated Net Income; plus
(4) any management fees paid by the issuer to Castle Harlan, Inc. or any of its Affiliates in such period pursuant to the terms of the Management Agreement as in effect on the date of the Indenture
101
and as described in this offering memorandum, to the extent that any such management fees were deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such period, excluding any such items to the extent they represent (a) the reversal in such period of an accrual of, or cash reserve for, cash expenses in a prior period, to the extent such accrual or reserve did not increase Consolidated Cash Flow in a prior period, (b) the amortization of income that was paid in a prior period or (c) the accrual of revenue or income consistent with past practice;
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or profits of, the Fixed Charges of and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of the issuer shall be added to Consolidated Net Income to compute Consolidated Cash Flow of the issuer only to the extent that a corresponding amount would be permitted at the date of determination to be dividended or distributed to the issuer by such Restricted Subsidiary without prior governmental approval (or to the extent such approval has been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary of the specified Person or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary thereof;
(2) solely for the purposes of calculating Consolidated Net Income to determine the amount of Restricted Payments permitted under the covenant described under the caption "—Certain Covenants—Restricted Payments," the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income (or loss) of any Person acquired during the specified period for any period prior to the date of such acquisition shall be excluded;
(4) the cumulative effect of a change in accounting principles shall be excluded;
(5) non-cash charges relating to employee benefit or other management compensation plans of the Parent Guarantor (to the extent such non-cash charges relate to plans of the Parent Guarantor for the benefit of members of the Board of Directors of the issuer (in their capacity as such) or employees of the issuer and its Restricted Subsidiaries), the issuer or any of its Restricted Subsidiaries or any non-cash compensation charge arising from any grant of stock, stock options or other equity-based awards of any Parent (to the extent such non-cash charges relate to plans of any Parent for the benefit of members of the Board of Directors of the issuer (in their capacity as such) or employees of the issuer and its Restricted Subsidiaries), the issuer or any of its Restricted Subsidiaries (excluding in each case any non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense incurred in a prior period) in each case, to the extent that such non-cash charges are deducted in computing such Consolidated Net Income shall be excluded;
(6) any goodwill impairment charges shall be excluded;
(7) the amortization of the consideration for any non-competition agreements entered into in connection with the Transactions shall be excluded;
102
(8) any non-cash charges from the application of the purchase method of accounting in connection with the Transactions or any future acquisition, to the extent that any such charges are deducted in computing such Consolidated Net Income, shall be excluded; and
(9) any unrealized non-cash gains or losses in respect of Hedging Obligations (including those resulting from the application of FAS 133), to the extent that such non-cash gains or losses are deducted in computing such Consolidated Net Income, shall be excluded.
"Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the issuer or any Parent, as the case may be, who:
(1) was a member of such Board of Directors on the date of the Indenture; or
(2) was nominated for election or elected to such Board of Directors by one or more of the Principals or with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election.
"Credit Agreement" means the Credit Agreement, to be dated as of the date of the Indenture, by and among the issuer, Bank of America, N.A., as Administrative Agent, and the other agents and lenders named therein providing for up to $140.0 million in term loan borrowings and $75.0 million of revolving credit borrowings, including, in each case, any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced, restated, substituted or refinanced in whole or in part from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings or letters of credit thereunder or adding Subsidiaries of the issuer as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders.
"Credit Facilities" means one or more debt facilities (including, without limitation, the Credit Agreement), commercial paper facilities or indentures, in each case with banks or other lenders or a trustee providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables), letters of credit or issuances of notes, in each case as amended, modified, renewed, refunded, replaced, restated, substituted or refinanced in whole or in part from time to time.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash consideration received by the issuer or any of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of such Designated Noncash Consideration.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of the issuer or any of its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the issuer or such Subsidiary in order to satisfy applicable statutory or regulatory obligations; and provided further that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require the issuer to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the issuer may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under
103
the caption "—Certain Covenants—Restricted Payments." The term "Disqualified Stock" shall also include any options, warrants or other rights that are convertible into Disqualified Stock or that are redeemable at the option of the holder, or required to be redeemed, prior to the date that is one year after the date on which the Notes mature.
"Domestic Borrowing Base" means, as of any date, an amount equal to the sum of (i) 80% of the book value of all accounts receivable owned by the issuer or any Domestic Subsidiaries of the issuer (excluding any accounts receivable that are more than 90 days past due) as of the most recent fiscal quarter for which internal financial statements are available and (ii) 50% of the net book value of all inventory owned by the issuer or any Domestic Subsidiaries of the issuer as of the most recent fiscal quarter for which internal financial statements are available, all calculated on a consolidated basis and in accordance with GAAP.
"Domestic Subsidiary" means any Restricted Subsidiary that was formed under the laws of the United States or any state thereof or the District of Columbia.
"Earn-out Obligation" means any purchase price adjustment or contingent consideration based on future operating performance of the acquired entity or assets, payable following the consummation of an acquisition based on criteria set forth in the documentation governing or relating to such acquisition.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering (including in a private placement) of the Equity Interests (other than Disqualified Stock) of the issuer or any Parent, other than public offerings with respect to the Equity Interests registered on Form S-8.
"Equity Sponsor" means (i) Castle Harlan Partners, IV, L.P., a Delaware limited partnership or any Affiliate thereof or any fund or account controlled or managed by or under common control with Castle Harlan Partners IV, L.P. or any Affiliate thereof, and (ii) Castle Harlan, Inc. and its employees and directors.
"Existing Indebtedness" means Indebtedness outstanding on the date of the Indenture, other than under the Credit Agreement and the Indenture.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases or redeems any Indebtedness or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) the Transactions, acquisitions, dispositions, mergers, consolidations and discontinued operations (as determined in accordance with GAAP) that have been made by the issuer or any Restricted Subsidiary of the issuer during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis including Pro Forma Cost Savings assuming that the Transactions and all such acquisitions, dispositions, mergers, consolidations and discontinued operations (and the change in any associated fixed charge obligations and the change in Consolidated Cash Flow resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary of the issuer or was merged with
104
or into the issuer or any Restricted Subsidiary of the issuer since the beginning of such period) shall have made any acquisition, disposition, merger, consolidation or discontinued operation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such acquisition, disposition, merger, consolidation or discontinued operation had occurred at the beginning of the applicable four-quarter period; and
(2) in calculating Fixed Charges attributable to interest on any Indebtedness computed on a pro forma basis, (a) interest on outstanding Indebtedness determined on a fluctuating basis as of the Calculation Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Calculation Date; (b) if interest on any Indebtedness actually incurred on the Calculation Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the Calculation Date will be deemed to have been in effect during the four-quarter period; and (c) notwithstanding clause (a) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to interest rate swaps, caps or collars, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreement.
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends and distributions, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock of such Person or any Disqualified Stock or preferred stock of any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the issuer (other than Disqualified Stock) or to the issuer or a Restricted Subsidiary of the issuer, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"Foreign Borrowing Base" means, as of any date, an amount equal to the sum of (i) 80% of the book value of all accounts receivable owned by Foreign Restricted Subsidiaries of the issuer (excluding any accounts receivable that are more than 90 days past due), as of the most recent fiscal quarter for which internal financial statements are available, and (ii) 50% of the net book value of all inventory owned by Foreign Restricted Subsidiaries of the issuer as of the most recent fiscal quarter for which internal financial statements are available, all calculated on a combined and consolidated basis and in accordance with GAAP.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the issuer incorporated in any jurisdiction outside the United States.
"GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public
105
Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture.
"Government Securities" means securities that are direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged.
"guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.
"Guarantors" means:
(1) the Parent Guarantor; and
(2) the Subsidiary Guarantors.
"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements designed for the purpose of fixing, hedging or swapping interest rate risk;
(2) commodity swap agreements, commodity option agreements, forward contracts and other agreements or arrangements designed for the purpose of fixing, hedging or swapping commodity price risk; and
(3) foreign exchange contracts, currency swap agreements and other agreements or arrangements designed for the purpose of fixing, hedging or swapping foreign currency exchange rate risk.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent (without duplication):
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments;
(3) evidenced by letters of credit (or reimbursement agreements in respect thereof), but excluding obligations with respect to letters of credit (including trade letters of credit) and reimbursement agreements in respect thereof to the extent that any such letter of credit secures obligations (other than obligations described in clause (1) or (2) above or clause (5), (6) or (7) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement;
(4) in respect of banker's acceptances;
(5) in respect of Capital Lease Obligations;
(6) in respect of the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or
(7) representing Hedging Obligations.
if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person to the extent of such guarantee of such Indebtedness provided by
106
such Person. Notwithstanding the foregoing, Indebtedness shall at any time include all Earn-out Obligations for which the conditions for payment have been met pursuant to the terms governing such Earn-out Obligations, to the extent that all such Earn-out Obligations then outstanding, in the aggregate, exceed $15.0 million.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with original issue discount;
(2) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness;
(3) with respect to Indebtedness of another Person secured by a Lien on the assets of the issuer or any of its Restricted Subsidiaries, the lesser of the fair market value of the property secured or the amount of the secured Indebtedness;
(4) with respect to Indebtedness of others supported by a guarantee of the issuer or a Restricted Subsidiary, the lesser of the amount of the primary indebtedness and any stated limit on recourse under the guarantee; and
(5) the amount of the Indebtedness in respect of any Hedging Obligations at any time shall be equal to the amount payable as a result of the termination of such Hedging Obligations at such time.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans or other extensions of credit (including guarantees but excluding extensions of credit to customers or advances, deposits and payment to or with suppliers, lessors or utilities or for workers' compensation, in each case, in the ordinary course of business that are recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of such Person prepared in accordance with GAAP), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made consistent with past practices), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the issuer or any Restricted Subsidiary of the issuer sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the issuer such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of the issuer, the issuer shall be deemed to have made a Restricted Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments." The acquisition by the issuer or any Restricted Subsidiary of the issuer of a Person that holds an Investment in a third Person shall be deemed to be an Investment by the issuer or such Restricted Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments."
"Legal Holiday" means a Saturday, Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, and any unconditional agreement to grant a security interest in such asset.
"Management Agreement" means the Management Agreement, dated as of the date of the Indenture, by and among Castle Harlan, Inc., the Parent Guarantor, the issuer and CHATT Holdings LLC.
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
107
(1) any gain (or loss), together with any related provision for taxes on such gain (or loss), realized in connection with: (a) any Asset Sale (without reference to the $2.0 million limitation) or abandonments or reserves relating thereto; or (b) the disposition of any other assets by such Person or any of its Restricted Subsidiaries (other than in the ordinary course of business) or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries;
(2) any extraordinary or nonrecurring gain, loss, income or expense (including nonrecurring gains, losses, income or expense of the issuer and its Subsidiaries incurred in connection with the Transactions (including, without limitation, any one-time non-cash charges or expenses associated with the write off of deferred debt issuance costs) and any future acquisitions), together with any related provision for taxes on such extraordinary or nonrecurring gain, loss, income or expense; and
(3) any gain (or loss) due solely to fluctuations in currency values and the related tax effects in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the issuer or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale or disposition of non-cash consideration, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness (other than revolving credit Indebtedness, unless there is a required reduction in commitments) secured by a Lien on the asset or assets that were the subject of such Asset Sale, or required to be paid as a result of such sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and any reserve or payment with respect to any liabilities associated with such asset or assets and retained by the issuer after such sale or other disposition thereof, including, without limitation, severance costs, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the issuer nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; and
(2) as to which either (a) the explicit terms provide that there is no recourse against any of the assets of the issuer or any Restricted Subsidiary thereof or (b) the lenders have been notified in writing that they will not have any recourse to the stock or assets of the issuer or any of its Restricted Subsidiaries.
"Note Guarantee" means a Guarantee of the Notes pursuant to the Indenture.
"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages, costs, expenses and other liabilities payable under the documentation governing any Indebtedness.
"Parent" means any direct or indirect parent company of the issuer.
"Parent Guarantor" means ATT Holding Co., a Delaware corporation.
"Permitted Business" means any business conducted or proposed to be conducted (as described in this offering memorandum) by the issuer and its Restricted Subsidiaries on the date of the Indenture and other businesses reasonably related or ancillary thereto.
"Permitted Investments" means:
(1) any Investment in the issuer or in a Restricted Subsidiary of the issuer;
(2) any Investment in Cash Equivalents;
(3) any Investment by the issuer or any Restricted Subsidiary of the issuer in a Person, if as a result of such Investment:
108
(a) such Person becomes a Restricted Subsidiary of the issuer; or
(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the issuer or a Restricted Subsidiary of the issuer;
(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale or other sale of assets that was made pursuant to and in compliance with the covenant described above under the caption "—Repurchase at the Option of Holders—Asset Sales";
(5) any Investment the payment for which consists of Equity interests (other than Disqualified Stock) of the issuer or any Parent (which Investment, in the case of any Parent, is contributed to the common equity capital of the issuer; provided that any such contribution shall be excluded from clause 3(b) of the first paragraph of the covenant described under the caption "—Certain Covenants—Restricted Payments");
(6) Hedging Obligations;
(7) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (7) since the date of the Indenture, not to exceed $5.0 million;
(8) any Investment of the issuer or any of its Restricted Subsidiaries existing on the date of the Indenture;
(9) loans to officers and employees that are, or are extended pursuant to a plan, approved in good faith by a majority of the Board of Directors of the issuer in an amount not to exceed $1.0 million outstanding at any time;
(10) any Investment acquired by the issuer or any of its Restricted Subsidiaries:
(a) in exchange for any other Investment or accounts receivable held by the issuer or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of a Person or the good faith settlement of delinquent obligations of a Person, or
(b) as a result of a foreclosure by the issuer or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
(11) Investments consisting of the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(12) Investments in Chengde Greenlife Houseware Co., Ltd, Dalian Greenlife Tools Co., Ltd. and Fujian Greenlife Tools of Garden Co., Ltd. having an aggregate value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (12) since the date of the Indenture, not to exceed $15.0 million;
(13) Investments in joint ventures engaged in a Permitted Business having an aggregate value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) since the date of the Indenture, not to exceed $10.0 million; and
(14) Investments in the Notes.
"Permitted Liens" means:
(1) Liens on the assets and property of the issuer and any Guarantor securing Senior Debt that was permitted by the terms of the Indenture to be incurred;
(2) Liens in favor of the issuer or any Restricted Subsidiary of the issuer;
109
(3) Liens on assets and property of a Person existing at the time such Person is merged with or into or consolidated or amalgamated with the issuer or any Restricted Subsidiary of the issuer; provided that such Liens were in existence prior to, and were not incurred in connection with or in contemplation of, such merger, consolidation or amalgamation and do not extend to any assets other than those of the Person merged into or consolidated with the issuer or the Restricted Subsidiary;
(4) Liens on assets and property existing at the time of acquisition thereof by the issuer or any Restricted Subsidiary of the issuer; provided that such Liens were in existence prior to, and not incurred in connection with or in contemplation of, such acquisition and do not extend to any property other than the property so acquired by the issuer or the Restricted Subsidiary;
(5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock", covering only the assets acquired with such Indebtedness;
(6) Liens of the issuer and its Restricted Subsidiaries existing on the date of the Indenture;
(7) Liens incurred in the ordinary course of business of the issuer or any Restricted Subsidiary of the issuer with respect to Indebtedness and other obligations that do not exceed $10.0 million at any one time outstanding;
(8) Liens to secure the performance of statutory obligations, surety or appeal bonds, completion guarantees, performance or bid bonds or other similar obligations (exclusive of obligations for the payment of borrowed money) incurred in the ordinary course of business, including letters of credit issued pursuant to the request of and for the account of the issuer or any Restricted Subsidiary of the issuer in respect of the foregoing in the ordinary course of business;
(9) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(10) Liens incurred or pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith;
(11) Liens to secure Indebtedness of any Foreign Restricted Subsidiary permitted to be incurred under the covenant entitled "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the assets of such Foreign Restricted Subsidiary;
(12) Liens securing Hedging Obligations permitted by clause (7) of the second paragraph of the covenant entitled "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(13) Liens on Equity Interests in Unrestricted Subsidiaries that secure Non-Recourse Debt.
"Permitted Refinancing Indebtedness" means:
(A) any Indebtedness of the issuer or any of its Restricted Subsidiaries (other than Disqualified Stock) issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the issuer or any of its Restricted Subsidiaries (other than Disqualified Stock and intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest thereon and the amount of any reasonably determined premium and other amounts necessary to accomplish such refinancing and such reasonable fees and expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date equal to or later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
110
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or the Note Guarantees, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(4) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is pari passu in right of payment with the Notes or any Note Guarantees, such Permitted Refinancing Indebtedness is pari passu in right of payment with, or subordinated in right of payment to, the Notes or such Note Guarantees; and
(5) such Indebtedness is incurred either by the issuer or by the Restricted Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(B) any Disqualified Stock of the issuer or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace or refund other Indebtedness or Disqualified Stock of the issuer or any of its Restricted Subsidiaries (other than Indebtedness or Disqualified Stock held by the issuer or any of its Restricted Subsidiaries); provided that:
(1) the liquidation or face value of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness, or the liquidation or face value of the Disqualified Stock, as applicable, so extended, refinanced, renewed, replaced or refunded (plus all accrued interest or dividends thereon and the amount of any reasonably determined premium and other amounts necessary to accomplish such refinancing and such reasonable fees and expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final redemption date equal to or later than the final maturity or redemption date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded;
(3) such Permitted Refinancing Indebtedness has a final redemption date equal to or later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded;
(4) such Permitted Refinancing Indebtedness is not redeemable at the option of the holder thereof or mandatorily redeemable prior to the final maturity or redemption date of the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded; and
(5) such Disqualified Stock is issued either by the issuer or by the Restricted Subsidiary who is the issuer of the Indebtedness or Disqualified Stock being extended, refinanced, renewed, replaced or refunded.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock issuer, trust, unincorporated organization, limited liability issuer or government or other entity.
"Principals" means (1) the Equity Sponsor, (2) Richard Dell, (3) Duane Greenly and (4) Judy Schuchart.
"Pro Forma Cost Savings" means, with respect to any period, the reduction in net costs and related adjustments that (i) were directly attributable to an Asset Acquisition that occurred during the four-quarter period or after the end of the four-quarter period and on or prior to the Calculation Date and calculated on a basis that is consistent with Regulation S-X under the Securities Act as in effect and applied as of the date of the Indenture, (ii) were actually implemented by the business that was the subject of any such Asset Acquisition within six months after the date of the Asset Acquisition
111
and prior to the Calculation Date that are supportable and quantifiable by the underlying accounting records of such business or (iii) relate to the business that is the subject of any such Asset Acquisition and that the issuer reasonably determines are probable based upon specifically identifiable actions to be taken within six months of the date of the Asset Acquisition and, in the case of each of (i), (ii) and (iii), are described, as provided below, in an Officers' Certificate, as if all such reductions in costs had been effected as of the beginning of such period. Pro Forma Cost Savings described above shall be accompanied by a certificate delivered to the Trustee from the issuer's Chief Financial Officer that outlines the specific actions taken or to be taken, the net cost savings achieved or to be achieved from each such action and that, in the case of clause (iii) above, such savings have been determined to be probable.
"Related Party" means:
(1) any controlling stockholder, partner, member, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; or
(2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause.
"Replacement Assets" means (1) assets that will be used or useful in a Permitted Business, (2) all or substantially all of the assets of a Permitted Business or a majority of the Voting Stock of any Person engaged in a Permitted Business that will become on the date of acquisition thereof a Restricted Subsidiary or (3) a Permitted Investment under clauses (12) or (13) of the definition of Permitted Investment that is otherwise permitted under the Indenture.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person that is not an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article I, Rule 1-02(w) of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture.
"Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated as of June 1, 2004, by and among ATT Holding Co., the shareholders of ATT Holding Co., the warrant holders of ATT Holding Co., Wind Point Investors V, L.P., as sellers' representative, CHATT Holdings LLC, as buyer parent and CHATT Holdings Inc., as buyer.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means any Restricted Subsidiary of the issuer that executes a Guarantee in accordance with the provisions of the Indenture and its respective successors and assigns.
112
"Total Tangible Assets" means the total consolidated assets, less applicable depreciation, amortization and other valuation reserves and less all goodwill and intangibles, of the issuer and its Restricted Subsidiaries, as shown on the most recent balance sheet of the issuer prepared in conformity with GAAP.
"Transactions" means the transactions described in this offering memorandum under the caption "Summary—The Transactions."
"Unrestricted Subsidiary" means any Subsidiary of the issuer that is designated by the Board of Directors of the issuer as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding with the issuer or any Restricted Subsidiary of the issuer unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the issuer or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the issuer;
(3) is a Person with respect to which neither the issuer nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) is not a guarantor or otherwise directly or indirectly provides credit support for any Indebtedness of the issuer or any of its Restricted Subsidiaries at the time of such designation unless such guarantee or credit support is released upon such designation.
Any designation of a Restricted Subsidiary of the issuer as an Unrestricted Subsidiary shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption "—Certain Covenants—Restricted Payments." The amount of the Investment deemed made in such Subsidiary at the time it is designated as an Unrestricted Subsidiary shall be the fair market value of the net assets of such Subsidiary at the time of such designation or, if less, the amount of the issuer's Investment in such Subsidiary when made. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the issuer as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock," the issuer shall be in default of such covenant.
"Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Stock at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal or liquidation or face value, including payment at final maturity or redemption, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2) the then outstanding principal or liquidation or face value amount of such Indebtedness or Disqualified Stock.
113
MATERIAL U.S. FEDERAL
INCOME AND ESTATE TAX CONSIDERATIONS
General
The following is a general discussion of certain material United States federal income and estate tax considerations relating to the exchange of the Original Notes for New Notes and the, ownership and disposition of the New Notes by an initial beneficial owner of the Original Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury Regulations, and judicial decisions and administrative interpretations thereunder, as of the date hereof, all of which are subject to change, possibly with retroactive effect, or are subject to different interpretations. We cannot assure you that the Internal Revenue Service (the "IRS") will not challenge one or more of the tax considerations described below. We have not obtained and do not intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the United States federal tax considerations resulting from the exchange of Original Notes for New Notes or from holding or disposing of the Notes. References to "Notes" in this section refer to both the Original Notes and the New Notes.
In this discussion, we do not purport to address all tax considerations that may be important to a particular holder in light of the holder's circumstances, or to certain categories of investors that may be subject to special rules (such as financial institutions, insurance companies, tax-exempt organizations, dealers in securities, persons who hold Notes through partnerships or other pass-through entities, U.S. expatriates, or persons who hold the Notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction). This discussion is limited to initial holders who purchased the Original Notes for cash at the initial offering at the original offering price and who hold the Original Notes, and will hold the New Notes, as capital assets (generally, property held for investment). This discussion also does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSIDERATIONS TO YOU OF THE EXCHANGE OF ORIGINAL NOTES FOR THE NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX LAWS OR ANY TAX TREATY.
U.S. Holders
As used herein, the term "U.S. holder" means a beneficial owner of a note that is for United States federal income tax purposes:
(1) an individual who is a citizen or resident of the United States;
(2) a corporation or an entity, treated as a corporation for federal income tax purposes, created or organized in or under the laws of the United States or of any state therein or the District of Columbia;
(3) an estate, the income of which is subject to United States federal income taxation regardless of its source; or
(4) a trust that either (i) is subject to the primary supervision of a court within the United States and which has one or more United States persons with authority to control all substantial decisions, or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.
If a partnership (or other entity treated as a partnership) holds our Notes, the United States federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Notes, you should consult your tax advisor.
As used herein, the term "non-U.S. holder" means a beneficial owner of a note that is not a U.S. holder or a partnership or other pass-through entity for United States federal income tax purposes.
114
Payments of Interest
Stated interest on a note will generally be includible in your gross income as ordinary interest income in accordance with your usual method of accounting for tax purposes.
Exchange Pursuant to Exercise of Registration Rights
Neither an exchange of Original Notes for new notes nor the filing of a registration statement with respect to the resale of the New Notes should be a taxable event to you, and you should not recognize any taxable gain or loss or any interest income as a result of such exchange or such filing. Moreover, the U.S. holder's holding period for the new note received in the exchange will include the holding period for the note so exchanged, and such U.S. holder's adjusted tax basis in the new note will be the same as such U.S. holder's adjusted tax basis in the Notes so exchanged determined immediately before the exchange.
Although the matter is not free from doubt, if payments of liquidated damages are actually made, such payments may be considered as a reduction in principal. However, we intend to take the position that they likely would be includible in your gross income as ordinary income. If such payments were actually made, the notes would probably be treated as reissued for purposes of applying the original issue discount rules under the Code and the Treasury Regulations.
Optional Redemption
The Notes may be redeemed prior to their stated maturity at our option or at the option of the holders under certain circumstances. We intend to take the position that neither our nor the holders' ability to redeem or cause the redemption of the Notes prior to the stated maturity thereof will affect the yield of the Notes for original issue discount purposes.
Sale, Exchange or Redemption of the Notes
Upon the disposition of a Note by sale, exchange or redemption (other than an exchange pursuant to this exchange offer), you will generally recognize gain or loss equal to the difference, if any, between (i) the amount realized on the disposition (other than amounts attributable to accrued but unpaid interest which amounts will be treated as ordinary income to the extent not previously included in gross income) and (ii) your adjusted federal income tax basis in the Note. Your adjusted federal income tax basis in a Note generally will equal the cost of the Note.
Any gain or loss you recognize on a disposition of a Note will generally constitute capital gain or loss and will be long-term capital gain or loss if you have held the Note for longer than one year. Certain non-corporate U.S. holders may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to certain limitations.
Backup Withholding and Information Reporting
Under the Code, you may be subject, under certain circumstances, to information reporting and/or backup withholding (currently at a rate of 28%) with respect to cash payments in respect of the Notes. This withholding applies only if you (i) fail to furnish your social security number or other taxpayer identification number ("TIN") within a reasonable time after a request therefor, (ii) furnish an incorrect TIN, (iii) are notified by the IRS that you failed to report interest or dividends properly, or (iv) fail, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is your correct number and that you are not subject to backup withholding. Backup witholding is not an additional tax. Any amount withheld from a payment under the backup withholding rules is allowable as credit against your United States federal income tax liability (and may entitle you to a refund), provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including corporations and certain financial institutions. You should consult your tax advisor as to your qualification for exemption from backup withholding and the procedure for obtaining such exemption.
115
Non-U.S. Holders
U.S. Federal Withholding Tax
The 30% U.S. federal withholding tax will not apply to any payment of interest on the Notes provided that:
 | |
| • | you do not actually (or constructively) own 10% or more of the total combined voting power of all classes of our voting stock within the meaning of the Code and the Treasury Regulations; |
| |
| • | you are not a controlled foreign corporation that is related, directly or indirectly, to us through stock ownership; |
| |
| • | you are not a bank whose receipt of interest on the Notes is pursuant to a loan agreement entered into in the ordinary course of business; and |
| |
| • | you have fulfilled the statement requirements set forth in section 871(h) or section 881(c) of the Code and the Treasury Regulations, as discussed below. |
The statement requirements referred to above will be fulfilled if you certify on IRS Form W-8BEN or other successor form, under penalties of perjury, that you are not a United States person and provide your name and address, and (i) you file IRS Form W-8BEN or other successor form with the withholding agent or (ii) in the case of a note held on your behalf by a securities clearing organization, bank or other financial institution holding customers' securities in the ordinary course of its trade or business, the financial institution files with the withholding agent a statement that it has received the IRS Form W-8BEN or other successor form from the holder and furnishes the withholding agent with a copy thereof; provided that a foreign financial institution will fulfill the certification requirement by filing IRS Form W-8IMY with the withholding agent if it has entered into an agreement with the IRS to be treated as a qualified intermediary. You should consult your tax advisor regarding possible additional reporting requirements.
If you cannot satisfy the requirements described above, payments of interest made to you will be subject to the 30% U.S. federal withholding tax, unless you provide us with a properly executed (1) IRS Form W-8BEN (or successor form) claiming an exemption from (or a reduction of) withholding under the benefit of a tax treaty or (2) IRS Form W-8ECI (or successor form) stating that payments on the note are not subject to withholding tax because such payments are effectively connected with your conduct of a trade or business in the United States (and if a tax treaty applies, that interest is attributable to a permanent establishment or fixed base maintained in the United States), as discussed below.
The 30% U.S. federal withholding tax will generally not apply to any gain that you realize on the sale, exchange, or other disposition of the Notes.
U.S. Federal Estate Tax
Your estate will not be subject to U.S. federal estate tax on Notes beneficially owned by you at the time of your death, provided that (1) you do not own, actually or constructively, 10% or more of the total combined voting power of all classes of our voting stock (within the meaning of the Code and the Treasury Regulations) and (2) interest on those Notes would not have been, if received at the time of your death, effectively connected with the conduct by you of a trade or business in the United States.
U.S. Federal Income Tax
If you are engaged in a trade or business in the United States and interest on the Notes is effectively connected with the conduct of that trade or business and, if a tax treaty applies, is attributable to a permanent establishment or a fixed base in the United States, you will be subject to U.S. federal income tax on the interest on a net income basis in the same manner as if you were a
116
U.S. person as defined under the Code. In that case, you would not be subject to the 30% U.S. federal withholding tax. See "U.S. Holders" above. In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% (or lower applicable treaty rate) of your earnings and profits for the taxable year that are effectively connected with the conduct by you of a trade or business in the United States. For this purpose, interest on Notes will be included in earnings and profits if so effectively connected.
Any gain realized on the sale, exchange, or redemption of Notes generally will not be subject to U.S. federal income tax unless:
| |
| • | that gain is effectively connected with the conduct of a trade or business in the United States by you or, if a tax treaty applies, is attributable to a permanent establishment in the United States; or |
| |
| • | you are an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met. |
Information Reporting and Backup Withholding
In general, you will not be subject to information reporting and backup withholding with respect to payments that we make to you provided that we do not have actual knowledge that you are a U.S. person and we have received from you the statement described above under "U.S. Federal Withholding Tax."
Under current Treasury Regulations, payments on the sale, exchange or other disposition of a note made to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, if the broker is (i) a United States person, (ii) a controlled foreign corporation for United States federal income tax purposes, (iii) a foreign person 50% or more of whose gross income is effectively connected with a United States trade or business for a specified three-year period, or (iv) a foreign partnership with certain connections to the United States, then information reporting will be required unless the broker has in its records documentary evidence that the beneficial owner is not a United States person and certain other conditions are met or the beneficial owner otherwise establishes an exemption. Backup withholding may apply to any payment that the broker is required to report if the broker has actual knowledge that the payee is a United States person. Payments to or through the United States office of a broker will be subject to backup withholding and information reporting unless the beneficial owner certifies, under penalties of perjury, that it is not a United States person or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the IRS.
117
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Original Notes that were acquired for the account of that broker-dealer as a result of market-making or other trading activities, other than Original Notes acquired directly from us or any of our affiliates, may exchange those Original Notes for New Notes pursuant to the exchange offer. This is true so long as each broker-dealer that receives New Notes for its own account in exchange for Original Notes, where the Original Notes were acquired by the broker-dealer as a result of market-making or other trading activities, acknowledges that it will deliver a prospectus in connection with any resale of such New Notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Original Notes where the Original Notes were acquired as a result of market-making activities for other trading activities. We have agreed that we will make this prospectus, as it may be amended or supplemented from time to time, available to any broker-dealer for use in connection with any resale, except that use of the prospectus maybe suspended for a specified period if our parent's board of directors determine, upon the advice of counsel, that a prospectus would require disclosure of confidential information that would interfere with a material business transaction of ours or otherwise have a material adverse effect on us. All broker-dealers effecting transactions in the New Notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of New Notes by broker-dealers or any other holder of New Notes. New Notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of the resale, at prices related to such prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer that resells New Notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any resale of New Notes and any commissions or concessions received by those persons maybe deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incident to the exchange offer and to our performance of, or compliance with, the registration rights agreement (other than the commissions or concessions of any brokers or dealers) and will indemnify the holders of the New Notes (including any broker-dealers) against some liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Whether the New Notes offered hereby will be our binding obligations will be passed upon for us by Schulte Roth & Zabel LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of ATT Holding Co. and subsidiaries at September 27, 2003 and for the fiscal year ended September 27, 2003, and at September 28, 2002 and for the period ended September 28, 2002; the combined financial statements and schedule of Ames True Temper Group (Predecessor Company) for the period ended January 13, 2002 and the fiscal year ended September 29, 2001; and the combined financial statements of National Sales Co., LLC and Global Sales Co., LLC d/b/a Dynamic Design at November 14, 2002, and for the period ended November 14, 2002, included in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports appearing elsewhere herein and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
118
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the Securities Act with respect to our offering of the New Notes. This prospectus does not contain all of the information included in the registration statement and the exhibits and schedules thereto. You will find additional information about us and the New Notes in the registration statement. You may read and copy the registration statement and the exhibits and schedules thereto, as well as other information that we file with the SEC, at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at l-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) that contains information that registrants, including us, file electronically with the SEC. Statements made in this prospectus about legal documents may not necessarily be complete and you should read the documents, which are filed as exhibits to the registration statement or otherwise filed with the SEC.
119
INDEX TO FINANCIAL STATEMENTS
| | | | | | |
| | | Page |
| ATT Holding Co. | |
| Audited Consolidated Financial Statements: | |
| Report of Independent Registered Public Accounting Firm | | | F-2 | |
| Consolidated Balance Sheets as of September 27, 2003 and September 28, 2002 | | | F-3 | |
| Consolidated Statements of Operations for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 and (Predecessor Company) for the period September 30, 2001 to January 13, 2002 and the fiscal year ended September 29, 2001 | | | F-4 | |
| Consolidated Statements of Changes in Stockholders' Equity for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 | | | F-5 | |
| Combined Statements of Changes in Invested Capital (Predecessor Company) for the period September 30, 2001 to January 13, 2002 and the fiscal year ended September 29, 2001 | | | F-6 | |
| Consolidated Statements of Cash Flows for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 and (Predecessor Company) for the period September 30, 2001 to January 13, 2002 and the fiscal year ended September 29, 2001 | | | F-7 | |
| Notes to Consolidated Financial Statements | | | F-9 | |
| Unaudited Condensed Consolidated Financial Statements: | |
| Condensed Consolidated Balance Sheets as of March 27, 2004 and September 27, 2003 | | | F-30 | |
| Condensed Consolidated Statements of Income for the twenty-six weeks ended March 27, 2004 and March 29, 2003 | | | F-31 | |
| Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended March 27, 2004 and March 29, 2003 | | | F-32 | |
| Notes to Condensed Consolidated Financial Statements | | | F-33 | |
| National Sales Co., LLC and Global Sales Co., LLC d/b/a "Dynamic Design" | |
| Report of Independent Registered Public Accounting Firm | | | F-39 | |
| Combined Balance Sheet as of November 14, 2002 | | | F-40 | |
| Combined Statement of Income and Changes in Members' Capital for the period January 1, 2002 to November 14, 2002 | | | F-41 | |
| Combined Statement of Cash Flows for the period January 1, 2002 to November 14, 2002 | | | F-42 | |
| Notes to Combined Financial Statements | | | F-43 | |
|
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors
ATT Holding Co.
We have audited the accompanying consolidated balance sheets of ATT Holding Co. and subsidiaries (the "Company") as of September 27, 2003 and September 28, 2002, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 (post acquisition) and the combined statements of operations, changes in invested capital and cash flows of Ames True Temper Group (Predecessor) for the period October 1, 2001 to January 13, 2002 and the fiscal year ended September 29, 2001. Our audits also included the financial statement schedule listed in the index at Item 21(b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ATT Holding Co. and subsidiaries at September 27, 2003 and September 28, 2002, and the related consolidated results of their operations and their cash flows for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, in conformity with U.S. generally accepted accounting principles. Further, in our opinion, the aforementioned Predecessor combined financial statements present fairly, in all material respects, the combined results of operations and cash flows of Ames True Temper Group for the period from October 1, 2001 to January 13, 2002 and for the fiscal year ended September 29, 2001, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the 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.
| /s/ Ernst & Young LLP |
May 14, 2004,
except for Note 22, as to which the date is
June 28, 2004
Philadelphia, Pennsylvania
F-2
ATT Holding Co.
Consolidated Balance Sheets
(In Thousands)
| | | | | | | | | | |
| | | September 27,
2003 | | September 28,
2002 |
| Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,688 | | | $ | 32,593 | |
| Trade receivables, net | | | 51,023 | | | | 35,538 | |
| Inventories | | | 77,051 | | | | 62,772 | |
| Deferred taxes | | | 10,199 | | | | 6,103 | |
| Other current assets | | | 4,639 | | | | 3,292 | |
| Total current assets | | | 144,600 | | | | 140,298 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 31,228 | | | | 25,812 | |
| Pension asset | | | 22,761 | | | | 21,910 | |
| Goodwill | | | 9,810 | | | | — | |
| Intangibles, net | | | 16,407 | | | | — | |
| Other noncurrent assets | | | 3,275 | | | | 3,134 | |
| Total assets | | $ | 228,081 | | | $ | 191,154 | |
| Liabilities and stockholders' equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Trade accounts payable | | $ | 25,613 | | | $ | 18,499 | |
| Accrued payroll and related taxes | | | 3,425 | | | | 3,441 | |
| Income taxes payable | | | 1,771 | | | | 1,434 | |
| Accrued expenses and other current liabilities | | | 19,385 | | | | 21,004 | |
| Revolving loan | | | 1,941 | | | | — | |
| Current portion of long-term debt | | | 13,794 | | | | 8,012 | |
| Total current liabilities | | | 65,929 | | | | 52,390 | |
| | | | | | | | | |
| Deferred taxes | | | 11,077 | | | | 4,999 | |
| Long-term debt | | | 62,753 | | | | 66,882 | |
| Other liabilities | | | 4,149 | | | | 4,681 | |
| Total liabilities | | | 143,908 | | | | 128,952 | |
| | | | | | | | | |
| Stockholders' equity: | | | | | | | | |
| Preferred stock—Series A, $.0001 per share par value; 100,000 shares authorized; 62,495 and 59,495 shares issued and 62,495 and 59,396 outstanding as of September 27, 2003 and September 28, 2002, respectively | | | — | | | | — | |
| Common stock—Class A, $.0001 per share par value; 1,600,000 shares authorized; 726,706 and 723,406 shares issued and 726,706 and 692,052 outstanding as of September 27, 2003 and September 28, 2002, respectively | | | — | | | | — | |
| Common stock—Class B, $.0001 per share par value; 300,000 shares authorized; 267,448 shares issued and outstanding as of September 27, 2003 and September 28, 2002 | | | — | | | | — | |
| Additional paid-in capital | | | 63,543 | | | | 60,540 | |
| Retained earnings | | | 18,120 | | | | 1,555 | |
| Accumulated other comprehensive income | | | 2,510 | | | | 237 | |
| | | | 84,173 | | | | 62,332 | |
| Treasury stock, at cost | | | — | | | | (130 | ) |
| Total stockholders' equity | | | 84,173 | | | | 62,202 | |
| Total liabilities and stockholders' equity | | $ | 228,081 | | | $ | 191,154 | |
|
See accompanying notes.
F-3
ATT Holding Co.
Consolidated Statements of Operations
(In Thousands)
| | | | | | | | | | |
| | | | | | | Predecessor Company |
| | | Fiscal year
ended
September 27,
2003 | | Period ended
September 28, 2002 | | Period ended
January 13,
2002 | | Fiscal year
ended
September 29,
2001 |
| Net sales | | $ | 407,426 | | | $ | 279,354 | | | $ | 75,600 | | | $ | 377,500 | |
| Cost of goods sold | | | 294,487 | | | | 223,414 | | | | 58,200 | | | | 290,400 | |
| Gross profit | | | 112,939 | | | | 55,940 | | | | 17,400 | | | | 87,100 | |
| Selling, general, and administrative expenses | | | 73,142 | | | | 46,547 | | | | 19,100 | | | | 75,300 | |
| Gain on disposal of fixed assets | | | (880 | ) | | | (85 | ) | | | — | | | | — | |
| Special charges | | | 797 | | | | — | | | | — | | | | — | |
| Amortization of intangible assets | | | 3,508 | | | | — | | | | — | | | | — | |
| Management fees | | | — | | | | — | | | | — | | | | 3,400 | |
| Impairment and restructuring charges | | | — | | | | — | | | | — | | | | 115,600 | |
| Operating income (loss) | | | 36,372 | | | | 9,478 | | | | (1,700 | ) | | | (107,200 | ) |
| Interest expense to Affiliates | | | — | | | | — | | | | 2,300 | | | | 8,000 | |
| Interest expense | | | 10,377 | | | | 7,000 | | | | — | | | | 200 | |
| Other (income) expense | | | (1,065 | ) | | | (131 | ) | | | (2,400 | ) | | | 800 | |
| Income (loss) before taxes | | | 27,060 | | | | 2,609 | | | | (1,600 | ) | | | (116,200 | ) |
| Income tax expense | | | 10,495 | | | | 1,050 | | | | 1,200 | | | | 8,500 | |
| Net income (loss) | | $ | 16,565 | | | $ | 1,559 | | | $ | (2,800 | ) | | $ | (124,700 | ) |
|
See accompanying notes.
F-4
ATT Holding Co.
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands, Except Number of Shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Series A
Preferred Stock | | Class A Common
Stock | | Class B Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income | | Treasury
Stock | | Total
Stockholders'
Equity |
| | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | |
| Balance at January 13, 2002 | | | — | | | $ | — | | | | — | | | $ | — | | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Issuance of common stock | | | — | | | | — | | | | 723,406 | | | | — | | | | 267,448 | | | | — | | | | 991 | | | | — | | | | — | | | | — | | | | 991 | |
| Issuance of preferred stock | | | 59,495 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 59,425 | | | | — | | | | — | | | | — | | | | 59,425 | |
| Issuance of warrants to purchase Class A common stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 124 | | | | — | | | | — | | | | — | | | | 124 | |
| Purchase of treasury stock | | | (99 | ) | | | — | | | | (31,354 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (130 | ) | | | (130 | ) |
| Payment of preferred stock dividends | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | — | | | | — | | | | (4 | ) |
| Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,559 | | | | — | | | | — | | | | 1,559 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 360 | | | | — | | | | 360 | |
| Minimum pension liability | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (123 | ) | | | — | | | | (123 | ) |
| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,796 | |
| Balance at September 28, 2002 | | | 59,396 | | | | — | | | | 692,052 | | | | — | | | | 267,448 | | | | — | | | | 60,540 | | | | 1,555 | | | | 237 | | | | (130 | ) | | | 62,202 | |
| Issuance of common stock | | | — | | | | — | | | | 3,300 | | | | — | | | | — | | | | — | | | | 3 | | | | — | | | | — | | | | — | | | | 3 | |
| Issuance of preferred stock | | | 3,000 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 3,000 | | | | — | | | | — | | | | — | | | | 3,000 | |
| Issuance of treasury stock | | | 99 | | | | — | | | | 31,354 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 130 | | | | 130 | |
| Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 16,565 | | | | — | | | | — | | | | 16,565 | |
| Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,176 | | | | — | | | | 2,176 | |
| Minimum pension liability | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 97 | | | | — | | | | 97 | |
| Comprehensive income | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 18,838 | |
| Balance at September 27, 2003 | | | 62,495 | | | $ | — | | | | 726,706 | | | $ | — | | | | 267,448 | | | $ | — | | | $ | 63,543 | | | $ | 18,120 | | | $ | 2,510 | | | $ | — | | | $ | 84,173 | |
|
See accompanying notes.
F-5
ATT Holding Co.
Combined Statements of Changes in Invested Capital (Predecessor Company)
(In Thousands)
| | | | | | | | | | | | | | | | | | |
| Balance at September 30, 2000 | | $ | 191,900 | | |
| Comprehensive loss: | | | | | |
| Net loss | | | (124,700 | ) | |
| Foreign currency translation adjustments | | | (2,800 | ) | |
| Minimum pension liability | | | (300 | ) | |
| Total comprehensive loss | | | (127,800 | ) | |
| Net transactions with Affiliates | | | 22,300 | | |
| Balance at September 29, 2001 | | | 86,400 | | |
| Comprehensive loss: | | | | | |
| Net loss | | | (2,800 | ) | |
| Foreign currency translation adjustments | | | (700 | ) | |
| Total comprehensive loss | | | (3,500 | ) | |
| Net transactions with Affiliates | | | (2,100 | ) | |
| Balance at January 13, 2002 | | $ | 80,800 | | |
|
See accompanying notes.
F-6
ATT Holding Co.
Consolidated Statements of Cash Flows
(In Thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | Predecessor Company |
| | | Fiscal year
ended
September 27,
2003 | | Period
ended
September 28,
2002 | | Period
ended
January 13,
2002 | | Fiscal year
ended
September 29,
2001 |
| Operating activities | |
| Net income (loss) | | $ | 16,565 | | | $ | 1,559 | | | $ | (2,800 | ) | | $ | (124,700 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| Depreciation and amortization | | | 10,993 | | | | 3,000 | | | | 900 | | | | 14,500 | |
| Amortization of loan fees | | | 755 | | | | 425 | | | | — | | | | — | |
| Provision for bad debts | | | (3 | ) | | | 182 | | | | 700 | | | | 700 | |
| Provision for deferred taxes | | | 1,982 | | | | (1,184 | ) | | | 1,200 | | | | 10,300 | |
| Noncash interest expense | | | 489 | | | | 193 | | | | — | | | | — | |
| Gain on disposal of fixed assets | | | (880 | ) | | | (85 | ) | | | — | | | | — | |
| Impairment charges | | | — | | | | — | | | | — | | | | 114,300 | |
| Changes in assets and liabilities, net of effects of acquisition: | | | | | | | | | | | | | | | | |
| Accounts receivable | | | (9,969 | ) | | | 6,179 | | | | 6,900 | | | | (4,100 | ) |
| Inventories | | | (8,653 | ) | | | 57,429 | | | | (6,300 | ) | | | 10,700 | |
| Prepaid expenses and other assets | | | (1,381 | ) | | | (1,864 | ) | | | (1,800 | ) | | | (7,700 | ) |
| Accounts payable | | | 2,063 | | | | 3,092 | | | | (700 | ) | | | (11,200 | ) |
| Accrued expenses | | | (4,224 | ) | | | 1,283 | | | | 4,000 | | | | (1,000 | ) |
| Other liabilities | | | (532 | ) | | | 726 | | | | — | | | | (100 | ) |
| Net cash provided by operating activities | | | 7,205 | | | | 70,935 | | | | 2,100 | | | | 1,700 | |
| | | | | | | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | | | | | | |
| Acquisition of businesses, net of cash received | | | (38,620 | ) | | | (165,400 | ) | | | — | | | | — | |
| Purchase of fixed assets | | | (7,053 | ) | | | (4,647 | ) | | | (2,000 | ) | | | (16,100 | ) |
| Proceeds from sale of fixed assets | | | 1,112 | | | | 188 | | | | — | | | | — | |
| Net cash used in investing activities | | | (44,561 | ) | | | (169,859 | ) | | | (2,000 | ) | | | (16,100 | ) |
| | | | | | | | | | | | | | | | | |
|
F-7
ATT Holding Co.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
| | | | | | | | | | | | | | | | | | |
| | | | | | | Predecessor Company |
| | | Fiscal year
ended
September 27,
2003 | | Period
ended
September 28,
2002 | | Period
ended
January 13,
2002 | | Fiscal year
ended
September 29,
2001 |
| Financing activities | |
| Increase in notes payable to Affiliates | | $ | — | | | $ | — | | | $ | 2,600 | | | $ | 800 | |
| Repayments of long-term debt | | | (8,836 | ) | | | (775 | ) | | | — | | | | (4,000 | ) |
| Borrowings on revolver, net | | | 1,941 | | | | — | | | | — | | | | — | |
| Borrowings on long-term debt | | | 10,000 | | | | 75,600 | | | | — | | | | — | |
| Debt issuance costs | | | (533 | ) | | | (3,559 | ) | | | — | | | | — | |
| Net transfers with Affiliates | | | — | | | | — | | | | (2,100 | ) | | | 22,300 | |
Proceeds from issuance of capital
stock | | | 3,003 | | | | 60,416 | | | | — | | | | — | |
| Issuance (purchase) of treasury stock | | | 130 | | | | (130 | ) | | | — | | | | — | |
Payment of dividends on preferred
stock | | | — | | | | (4 | ) | | | — | | | | — | |
| Net cash provided by financing activities | | | 5,705 | | | | 131,548 | | | | 500 | | | | 19,100 | |
| Effect of exchange rate changes on cash | | | 746 | | | | (31 | ) | | | (600 | ) | | | (2,300 | ) |
| (Decrease) increase in cash and cash equivalents | | | (30,905 | ) | | | 32,593 | | | | — | | | | 2,400 | |
| Cash and cash equivalents at beginning of period | | | 32,593 | | | | — | | | | 3,200 | | | | 800 | |
| Cash and cash equivalents at end of period | | $ | 1,688 | | | $ | 32,593 | | | $ | 3,200 | | | $ | 3,200 | |
|
See accompanying notes.
F-8
ATT Holding Co.
Notes to Consolidated
Financial Statements
September 27, 2003
(Dollars In Thousands, Except Share Data)
1. Formation and Description of Business
ATT Holding Co. and its subsidiaries (the "Company") manufacture and market non-powered lawn and garden tools and accessories, decorative pots and planters, and garden hose primarily in North America and Europe.
The accompanying consolidated financial statements present the financial position of the Company as of September 27, 2003 and September 28, 2002 and the results of operations, changes in stockholders' equity, and cash flows of the Company for the fiscal year ended September 27, 2003 and the period from January 14, 2002 through September 28, 2002 and the results of operations, changes in invested capital, and cash flows of the Predecessor Company for the period from October 1, 2001 through January 13, 2002 and the fiscal year ended September 29, 2001.
The Company was incorporated on December 20, 2001. On January 14, 2002, the Company acquired from U.S. Industries, Inc. ("USI") certain assets and liabilities of Ames True Temper Group (the "Predecessor Company"), including Ames True Temper, Inc.; True Temper Ltd.; IXL Manufacturing, Inc.; and Garant Division of USI Canada, Inc., a division of U.S. Industries, Inc. The purchase price was approximately $165,400, including transaction costs of approximately $4,712. The transaction was recorded under the purchase method of accounting. The purchase price was allocated to the acquired assets and assumed liabilities based upon the fair values of those assets and liabilities as determined by the Company. The operating results of the acquired company have been included in the accompanying statements of operations from the date of acquisition. In May 2002, IXL Manufacturing was merged into Ames True Temper, Inc.
The purchase price of the Company allocated to the fair market value of inventory acquired resulted in an increase in cost of goods sold of approximately $18,783 during the period ended September 28, 2002. That amount represents the manufacturing profits acquired.
At September 29, 2001 and January 13, 2002, the Predecessor Company had no separate legal status or existence as a combined group. These financial statements are presented on a going concern basis as if the Predecessor Company had existed as a corporation separate from USI during the period presented and include the historical net assets and results of operations directly related to the Predecessor Company's operations.
USI and certain subsidiaries of USI (referred to herein as "Affiliates") have provided certain corporate general and administrative services to the Predecessor Company including legal, finance, tax, risk management and employee benefits. A portion of the related costs has been allocated to the Predecessor Company "Management fees" based on the percentage of the Predecessor Company's sales to the consolidated sales of USI. The Predecessor Company's management believes such amounts are reasonable; however, they may not be indicative of the Predecessor Company's ongoing costs as a separate entity. No intercompany profits or losses were realized on transactions with affiliates except for Management fees and the interest associated with the notes payable to affiliates.
The Company's fiscal year ends on the Saturday nearest to September 30.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
F-9
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
2. Significant Accounting Policies (continued)
Principles of Consolidation
The accompanying consolidated financial statements for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 include the accounts of ATT Holding Co. and its subsidiaries. All material intercompany transactions have been eliminated in consolidation.
The combined financial statements for the period ended January 13, 2002 and the fiscal year ended September 29, 2001 include the accounts of the Predecessor Company which is defined in Note 1. All material intercompany transactions have been eliminated in combination.
Cash and Cash Equivalents
Cash equivalents represent short-term, highly liquid investments, which have maturities of 90 days or less when purchased. The carrying amount of cash and cash equivalents approximates fair value.
Accounts Receivable
Accounts receivable are reported net of an allowance for doubtful accounts. The allowance is based on management's estimate of the amount of receivables that will actually be collected. Accounts are considered past due based on how payments are received compared to the customer's credit terms. Accounts are written off when management determines the account is worthless. Finance charges are not assessed on past due accounts.
Inventories
Inventories are stated at the lower of cost, which is determined by the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost less accumulated depreciation provided under the straight-line method. Buildings and building improvements are depreciated based on lives of 25 and 10 years, respectively. Land improvements and leasehold improvements are depreciated based on lives of 15 and 10 years, respectively. Machinery and equipment is depreciated based on lives ranging from three to seven years, and furniture and fixtures based on a life of five years. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the costs and accumulated depreciation are removed from the accounts. Any resulting gain or loss is recognized currently. Construction in progress is comprised of ongoing development costs associated with upgrades and additions.
The Predecessor Company depreciated buildings based on lives ranging from 10 to 40 years, machinery and equipment based on lives ranging from 5 to 15 years, and furniture and fixtures based on lives ranging from 3 to 15 years.
Long-Lived Assets
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires that companies consider whether indicators of impairment of long-lived assets held for use are present. If such indicators are present, companies determine whether
F-10
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amount, and if so, companies recognize an impairment loss based on the excess of the carrying amount of the assets over their fair value. Accordingly, management will periodically evaluate the ongoing value of property and equipment.
Goodwill and Other Intangible Assets
Effective January 14, 2002, the Company adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141, which addresses financial accounting and reporting for business combinations, requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001 and prohibits the use of the pooling-of-interests method. SFAS No. 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets.
SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives and requires that these assets be tested for impairment. In addition to goodwill, the Company has tradenames that are deemed to have indefinite lives. Intangible assets with finite lives are amortized over their useful lives. Under the provisions of SFAS No. 142, intangible assets, including goodwill, that are not subject to amortization will be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired, using a two-step impairment assessment. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The Company completed the annual impairment tests, which resulted in no impairment charge.
Predecessor Company Goodwill
The Predecessor Company's Parent Company reviewed operating results and other relevant facts quarterly for each of its businesses to determine if there were indications that the carrying value of the business may be impaired. When there were indicators of impairment, the Parent Company first assessed the recoverability of goodwill associated with long-lived assets in accordance with the requirements of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets, which required impairment losses to be recorded when the undiscounted cash flows estimated to be generated by those assets were less than the carrying amount of those assets. In addition, an enterprise level assessment of the recoverability of any remaining goodwill was performed using the fair value methodology, as permitted under Accounting Principles Board ("APB") Opinion No. 17, Intangible Assets. In the event that such fair value was below the carrying value of an enterprise, for those companies with goodwill, the Predecessor Company reduced goodwill to the extent it was impaired based upon fair value.
The fair value methodology was applied to determine the recoverable value for each business on a stand alone basis using ranges of fair values obtained from independent appraisers. In developing these ranges, the independent appraisers considered (a) publicly available information, (b) financial projections of each business based on management's best estimates, (c) the future prospects of each business as discussed with senior operating and financial management, (d) publicly available information regarding comparable publicly traded companies in each industry, (e) market prices,
F-11
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
capitalizations and trading multiples of comparable public companies and (f) other information deemed relevant. In reviewing these valuations and considering the need to record a charge for impairment of enterprise value and goodwill to the extent it is part of the enterprise value, the Predecessor Company also evaluated solicited and unsolicited bids for the businesses of the Predecessor Company. See Note 9 for a description of the Predecessor Company's fiscal year ended September 29, 2001 review of its goodwill, which resulted in the write-off of all of the remaining carrying value of such goodwill in the fiscal year ended September 29, 2001.
Debt Issuance Costs
Other long-term assets include debt issuance costs in the amount of $4,092 and $3,559 as of September 27, 2003 and September 28, 2002, respectively. The debt issuance costs are being amortized over a period of three to eight years based on the corresponding life of the debt. Accumulated amortization of debt issuance costs amounted to approximately $1,180 and $425 as of September 27, 2003 and September 28, 2002, respectively.
Income Tax
Deferred tax assets and liabilities are computed based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates and laws. Deferred income tax expense or benefit is based on changes in deferred tax assets and liabilities from period to period.
Revenue and Cost Recognition
Revenue is recognized upon shipment of products or delivery of products to the customer depending on the terms of the sale. Provisions are made for estimated sales returns and allowances at the time of the sale. Such amounts, which are included in net sales, totaled $6,235 and $4,330 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively. For the period ended January 13, 2002 and for the fiscal year ended September 29, 2001, such provisions were $1,606 and $5,953, respectively.
Shipping and Handling Costs
All shipping and handling costs are expensed as incurred. Costs incurred to ship product from the distribution center to the customer are included in costs of goods sold and totaled $16,594 and $11,852 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively. Costs to ship the product from manufacturing facilities to the distribution centers are included in selling, general and administrative expense and totaled $3,891 and $3,738 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively.
For the period ended January 13, 2002 and for the fiscal year ended September 29, 2001, costs incurred to ship product from the distribution center to the customer are included in costs of goods sold and totaled $4,400 and $21,100, respectively. Costs to ship the product from manufacturing facilities to the distribution centers are included in selling, general and administrative expenses and totaled $1,300 and $8,100 for the period ended January 13, 2002 and for the fiscal year ended September 29, 2001, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Such amounts totaled $9,798 and $6,904 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively. Such amounts totaled $2,600 for the period ended January 13, 2002 and $10,900 for the fiscal year ended September 29, 2001.
F-12
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
Research and Development Costs
Research and development costs are expensed as incurred. Such amounts totaled $899 and $558 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively. Such amounts totaled $400 for the period ended January 13, 2002 and $1,700 for the fiscal year ended September 29, 2001.
Foreign Currency Translation
The financial statements of the Company's foreign operations are measured using the local currency as the functional currency. Assets and liabilities of foreign subsidiaries are translated at the exchange rates as of the balance sheet date. Resulting translation adjustments, net of the related income tax effects, are recorded in the currency translation adjustment account, a separate component of Accumulated Other Comprehensive Income. Income and expense items are translated at average monthly exchange rates. Gains and losses from foreign currency transactions are included in net income.
Accumulated Other Comprehensive Income
Comprehensive income (loss) is defined as net income (loss) and other changes in stockholders' equity (deficit) from transactions and other events from sources other than stockholders. The components of and changes in other comprehensive income (loss) are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Beginning
Balance | | Before-Tax
Amount | | Tax Benefit
(Expense) | | Net-of-Tax
Amount | | Ending
Balance |
| September 27, 2003 | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | $ | 360 | | | $ | 3,567 | | | $ | (1,391 | ) | | $ | 2,176 | | | $ | 2,536 | |
| Minimum pension liability adjustment | | | (123 | ) | | | 159 | | | | (62 | ) | | | 97 | | | | (26 | ) |
| | | $ | 237 | | | $ | 3,726 | | | $ | (1,453 | ) | | $ | 2,273 | | | $ | 2,510 | |
| | | | | | | | | | | | | | | | | | | | | |
| September 28, 2002 | | | | | | | | | | | | | | | | | | | | |
| Currency translation adjustment | | $ | — | | | $ | 590 | | | $ | (230 | ) | | $ | 360 | | | $ | 360 | |
| Minimum pension liability adjustment | | | — | | | | (202 | ) | | | 79 | | | | (123 | ) | | | (123 | ) |
| | | $ | — | | | $ | 388 | | | $ | (151 | ) | | $ | 237 | | | $ | 237 | |
|
Fair Value of Financial Instruments
Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, and long-term debt.
The fair values of all cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying value due to their short-term nature. The fair value of the debt is also estimated to approximate its carrying amount based upon current market conditions and interest rates.
Segment Reporting
Operating results are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by chief operating decision makers in deciding how to allocate resources in assessing performance. All of the Company's operations are classified within one business segment.
F-13
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
Labor Availability
The industry is labor intensive and requires an adequate supply of labor. As of September 27, 2003, approximately one-third of the Company's employees are subject to collective bargaining agreements.
Reclassification
Certain amounts in the accompanying financial statements of the Predecessor Company have been reclassified to conform to the Company's fiscal year ended September 27, 2003 and period ended September 28, 2002 presentation.
Recent Accounting Pronouncements
In December 2003, the FASB issued a revised Statement of Financial Accounting Standard ("SFAS") No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The revisions to SFAS No. 132 are intended to improve financial statement disclosures for defined benefit plans and were initiated in 2003 to respond to concerns raised by investors and other users of financial statements, about the need for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ending after December 15, 2003.
3. Transactions of the Predecessor Company
Cash Equivalents
Cash equivalents represent short-term, highly liquid investments, which have maturities of 90 days or less when purchased. Except for certain cash balances owned by the Predecessor Company, cash accounts have been controlled on a centralized basis by an Affiliate. Accordingly, cash receipts and disbursements have been made through Affiliates. The net results of cash transactions between or on behalf of the Company, including intercompany advances, are included in the combined balance sheet as invested capital.
The Predecessor Company's United States earnings have been included in the consolidated federal income tax return filed by USI. The Predecessor Company provided for income taxes in the accompanying financial statements as if it were a stand-alone entity and filed separate income tax returns from USI. Federal taxes currently receivable or payable are included in invested capital. Income taxes paid to state, local, and foreign jurisdictions were $0 and $100 for the period ended January 13, 2002 and for the fiscal year ended September 29, 2001, respectively.
4. Acquisitions
On November 15, 2002, the Company acquired National Sales Company LLC and Global Sales LLC, d/b/a Dynamic Design. Dynamic Design is in the business of manufacturing, marketing, selling and distributing indoor and outdoor pots and planters. The Company established an indemnity escrow account related to the acquisition of $3,250.
On May 5, 2003, the Company acquired Outdoor Inspirations, Inc., Ontario, Canada. Outdoor Inspirations is in the business of marketing, selling and distributing garden hose.
On August 4, 2003, the Company acquired Greenlife, Inc., Bridgewater, Massachusetts, with operations in China. Greenlife is in the business of marketing, selling and distributing non-powered
F-14
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
lawn and garden tools and accessories. The Company established an indemnity escrow account related to the acquisition of $300, which is held for two years and an escrow account of $1,700, which was held for 120 days after the date of the purchase agreement.
The purchase price of the acquisitions allocated to the fair market value of inventory acquired resulted in an increase in cost of goods sold of approximately $892 for the fiscal year ended September 27, 2003. That amount represents the manufacturing profits acquired.
Information described above with respect to businesses acquired in the purchase transactions during the fiscal year ended September 27, 2003 is as follows:
| | | | | | |
| Cash paid including acquisition costs (net of cash acquired) | | $ | 25,830 | |
| Preferred stock issued | | | 3,000 | |
| Long-term debt issued | | | 10,000 | |
| Liabilities assumed | | | 5,922 | |
| | | | 44,752 | |
| Fair value of assets acquired, primarily accounts receivable, inventory and fixed assets | | | 15,027 | |
| Tradenames | | | 8,450 | |
| Customer relationships | | | 6,950 | |
| Vendor relationships | | | 1,300 | |
| Restrictive covenants and noncompete agreements | | | 2,747 | |
| Employment agreements | | | 468 | |
| Cost in excess of fair value of net assets acquired (goodwill) | | $ | 9,810 | |
|
The above businesses were acquired to expand the Company's product lines and increase the Company's market share.
All acquisitions were accounted for using the purchase method. The allocation of the purchase price associated with the acquisitions has been determined by the Company and independent third-party appraisals based upon available information and in certain cases is subject to further refinement.
Consideration given for the purchase for one of the acquisitions referred to above includes purchase price amounts that are contingent upon achieving future financial goals. These contingent payments will be added to the cost of the acquisitions in excess of the fair value of the net assets acquired when determined and made.
The operating results of the acquired companies have been included in the accompanying consolidated statements of income from the respective dates of acquisition.
The following unaudited pro forma financial information reflects the results of operations as if the acquisition of Dynamic Design had occurred as of the beginning of the period ended September 28, 2002. Pro forma adjustments include only the effects of events directly attributed to the transaction that are factually supportable and expected to have a continuing impact. The pro forma adjustments reflected in the table below include adjustments for amortization expense on the acquired identifiable intangible assets, interest expense on the acquisition debt and the related income tax effects.
F-15
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
| | | | | | |
| | | Period ended
September 28, 2002 |
| | | (Unaudited) |
| Net Sales | | $ | 316,361 | |
| Net income | | $ | 2,228 | |
|
Pro forma information reflecting the results of operations of Dynamic Design is not materially different from the results of operations for the fiscal year ended September 27, 2003. Pro forma information, reflecting the result of operations of Outdoor Inspirations, Inc. and Greenlife, Inc. are not provided as those acquisitions did not materially impact the Company's results of operations.
The unaudited pro forma financial information does not necessarily reflect the operating results that would have occurred had the acquisition been consummated as of the above date, nor is such information indicative of future operating results.
5. Restructuring and Purchase Accounting
In connection with the initial acquisition, the Company committed to exit plans for the closing of several facilities. The exit plans call for the Company to consolidate corporate office functions and to reduce workforce in multiple manufacturing locations in order to reduce fixed overhead costs and lower internal shipping and handling expenses. Costs associated with the plans, including severance, totaling approximately $6,198 were accrued as part of the purchase price allocation. In addition, the Company granted enhanced pension benefits to certain severed employees, which resulted in a net decrease to the pension asset of $3,315.
During fiscal 2003, as additional information was obtained, adjustments were made to these restructuring reserves to recognize revised estimates of termination benefits and exit costs for the plans in effect at September 28, 2002. The adjustments were primarily to severance and benefits for closed facilities, and were added to the purchase price of the Company.
In 2003, in connection with the acquisition of Dynamic Design, the Company committed to exit plans for the closure of certain acquired administrative offices and the consolidation of certain acquired distribution facilities. Costs related to these plans consist of employee severance and benefits, and exit costs (primarily lease expenses under existing contracts), and totaled $434 and were added to the purchase price of the Company.
At September 27, 2003, the remaining restructuring reserves of $2,414 are included in accrued liabilities and relate to portions of the exit plans that are not yet completed. Management expects to complete these plans in the next one to three years. Changes to the restructuring reserves are as follows:
F-16
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
| | | | | | | | | | | | | | |
| | | Ames True
Temper | | Dynamic
Design | | Total |
Balance as of January 12, 2002, date of
acquisition | | $ | 6,198 | | | $ | — | | | $ | 6,198 | |
| Fiscal year 2002 payments | | | (3,424 | ) | | | — | | | | (3,424 | ) |
| Balance as of September 28, 2002 | | | 2,774 | | | | — | | | | 2,774 | |
| Adjustments to 2002 reserves (see below) | | | 1,730 | | | | — | | | | 1,730 | |
| 2003 exit plans | | | — | | | | 434 | | | | 434 | |
| Fiscal 2003 payments | | | (2,090 | ) | | | (434 | ) | | | (2,524 | ) |
| Balance as of September 27, 2003 | | $ | 2,414 | | | $ | — | | | $ | 2,414 | |
|
The Company recorded adjustments to the original purchase accounting totaling $1,339 based on refinement of the original estimated purchase information. The nature of the adjustments are as follow: increase of restructuring accruals for severance of $1,730; decrease of self-insurance reserves of $(558); increase in reserves for potential product liability for plastic-rim wheelbarrow tires of $1,617; decrease of prepaid pension assets for curtailment related to restructuring plans (see Note 13) of $(782); decrease of reserves for an employee injury suit of $(745) and other adjustments of $78. These adjustments have been allocated to the purchase price of the Company resulting in an increase to fixed assets.
The Predecessor Company recorded cash restructuring charges of $1,300 in the fiscal year ended September 29, 2001. The charges included $900 of severance related to the closure of a distribution center and $400 of redundancy charges at the Ireland subsidiary. These charges included the closure of a distribution center and the termination of 118 employees. As of September 29, 2001, all affected employees had been terminated. In certain cases severance and related benefits continue to be paid subsequent to the termination date. During the fiscal year ended September 29, 2001, cash charges of $1,100 were paid.
6. Trade Receivables and Concentrations of Credit Risk
Trade receivables are as follows:
| | | | | | | | | | |
| | | September 27
2003 | | September 28
2002 |
| Trade receivables | | $ | 67,443 | | | $ | 51,035 | |
| Allowance for doubtful accounts | | | (2,091 | ) | | | (2,559 | ) |
| Other sales reserves | | | (14,329 | ) | | | (12,938 | ) |
| | | $ | 51,023 | | | $ | 35,538 | |
|
The Company operates principally in the United States, and to a lesser extent, in Europe and Canada. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Credit losses have been within management's estimates.
The Company's top two customers represented approximately 35% and 20% of sales for the fiscal year ended September 27, 2003 and represent approximately 35% and 24% of net trade receivables at September 27, 2003. The Company's top two customers represented approximately 33% and 19% of sales for the period ended September 28, 2002 and represented approximately 25% and 25% of net trade receivables at September 28, 2002.
F-17
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
The Predecessor Company's top two customers represented approximately 29% and 17%, respectively, of sales in the fiscal year ended September 29, 2001.
The Predecessor Company's top two customers represented approximately 29% and 15%, respectively, of sales for the period ended January 13, 2002.
7. Inventories
Inventories are as follows:
| | | | | | | | | | |
| | | September 27,
2003 | | September 28,
2002 |
| Finished goods | | $ | 51,767 | | | $ | 42,458 | |
| Work in process | | | 14,812 | | | | 15,254 | |
| Raw materials | | | 17,764 | | | | 14,453 | |
| | | | 84,343 | | | | 72,165 | |
| Less allowance for obsolescence | | | (7,292 | ) | | | (9,393 | ) |
| | | $ | 77,051 | | | $ | 62,772 | |
| | | | | | | | | |
|
8. Property, Plant and Equipment
A summary of property, plant and equipment is as follows:
| | | | | | | | | | |
| | | September 27,
2003 | | September 28,
2002 |
| | | | | | | | | |
| Land and improvements | | $ | 471 | | | $ | 409 | |
| Buildings and improvements | | | 9,675 | | | | 7,607 | |
| Machinery and equipment | | | 26,591 | | | | 14,381 | |
| Furniture and fixtures | | | 281 | | | | 167 | |
| Computer hardware | | | 447 | | | | 351 | |
| Computer software | | | 2,054 | | | | 1,186 | |
| Construction in progress | | | 3,302 | | | | 4,711 | |
| | | | 42,821 | | | | 28,812 | |
| Less accumulated depreciation | | | (11,593 | ) | | | (3,000 | ) |
| Net property, plant and equipment | | $ | 31,228 | | | $ | 25,812 | |
| | | | | | | | | |
|
9. Goodwill and Other Intangibles
In accordance with SFAS No. 142, the Company is required to test goodwill and indefinite lived intangible assets for impairment on at least an annual basis. There can be no assurance that future impairment tests will not result in a charge to earnings. The cost of other acquired intangible assets, including primarily customer and vendor relationships, covenants not to compete and employment agreements, is amortized on a straight-line basis over the estimated lives of 2 to 14 years. Amortization of other intangibles amounted to $3,508 and $0 for the fiscal year ended September 27,
F-18
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
2003 and the period ended September 28, 2002, respectively. The estimated aggregate amortization expense for each of the succeeding fiscal years is as follows: $4,343 in 2004; $1,186 in 2005; $722 in 2006; $716 in 2007; $363 in 2008 and $627 thereafter.
The following table reflects the components of intangible assets at September 27, 2003:
| | | | | | | | | | |
| | | Gross
Carrying
Amount | | Accumulated
Amortization |
| Nonamortized intangible assets: | | | | | | | | |
| Goodwill | | $ | 9,810 | | | $ | — | |
| Tradenames | | | 8,450 | | | | — | |
| | | | 18,260 | | | | — | |
| | | | | | | | | |
| Amortized intangible assets: | | | | | | | | |
| Customer and vendor relationships | | | 8,250 | | | | 3,059 | |
| Covenants not to compete | | | 2,747 | | | | 315 | |
| Employment agreements | | | 468 | | | | 134 | |
| | | | 11,465 | | | | 3,508 | |
| | | $ | 29,725 | | | $ | 3,508 | |
|
All amounts of acquired goodwill are expected to be deductible for income tax purposes.
During the fiscal year ended September 29, 2001, the Predecessor Company evaluated the recoverability of its goodwill associated with long-lived assets in accordance with its accounting policy described in Note 2. The Predecessor Company determined that certain tangible and intangible assets were impaired. In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, management determined that future cash flow would not be sufficient to recover the long-term assets plus goodwill. Accordingly, the Predecessor Company recorded an asset impairment charge of $114,300 including, a goodwill impairment charge of $39,500, equal to the full amount of the carrying value of the goodwill at that time.
Goodwill was amortized on a straight-line basis over 40 years. Amortization of goodwill was $0 for the period ended January 13, 2002 and $800 for the fiscal year ended September 29, 2001.
F-19
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
10. Income Taxes
Income before income taxes and the related provision for income taxes consist of the following:
| | | | | | | | | | | | | | | | | | |
| | | | | | | Predecessor Company |
| | | Fiscal year
ended
September 27,
2003 | | Period ended
September 28,
2002 | | Period ended
January 13,
2002 | | Fiscal year
ended
September 29,
2001 |
| Income before provision for income taxes: | | | | | | | | | | | | | | | | |
| Domestic | | $ | 20,991 | | | $ | 212 | | | $ | (2,700 | ) | | $ | (116,900 | ) |
| Foreign | | | 6,069 | | | | 2,397 | | | | 1,100 | | | | 700 | |
| | | $ | 27,060 | | | $ | 2,609 | | | $ | (1,600 | ) | | $ | (116,200 | ) |
| | | | | | | | | | | | | | | | | |
| Income tax expense (benefit): | | | | | | | | | | | | | | | | |
| Current: | | | | | | | | | | | | | | | | |
| Federal | | $ | 6,900 | | | $ | 1,480 | | | $ | — | | | $ | (3,900 | ) |
| State | | | 357 | | | | 39 | | | | — | | | | — | |
| Foreign | | | 1,256 | | | | 715 | | | | — | | | | 2,100 | |
| | | | 8,513 | | | | 2,234 | | | | — | | | | (1,800 | ) |
| Deferred: | | | | | | | | | | | | | | | | |
| Federal | | | 863 | | | | (1,160 | ) | | | 1,200 | | | | 10,300 | |
| State | | | 402 | | | | (24 | ) | | | — | | | | — | |
| Foreign | | | 717 | | | | — | | | | — | | | | — | |
| | | | 1,982 | | | | (1,184 | ) | | | 1,200 | | | | 10,300 | |
| | | $ | 10,495 | | | $ | 1,050 | | | $ | 1,200 | | | $ | 8,500 | |
|
The reported income tax provisions differ from the amount based on United States federal income tax rates as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Predecessor Company |
| | | Fiscal year
ended
September 27,
2003 | | Period ended
September 28,
2002 | | | | Period ended
January 13,
2002 | | Fiscal year
ended
September 29,
2001 |
| Statutory federal income tax (expense) benefit | | $ | (9,435 | ) | | $ | (887 | ) | | | | | | $ | 560 | | | $ | 40,670 | |
| Nondeductible goodwill | | | — | | | | — | | | | | | | | — | | | | (3,200 | ) |
| Nondeductible other | | | (50 | ) | | | (30 | ) | | | | | | | — | | | | — | |
| Foreign income tax differential | | | 128 | | | | — | | | | | | | | — | | | | (1,900 | ) |
| Valuation allowance | | | — | | | | — | | | | | | | | (2,000 | ) | | | (44,100 | ) |
| State income tax expense (net of federal benefit) | | | (517 | ) | | | — | | | | | | | | — | | | | — | |
| Other | | | (621 | ) | | | (133 | ) | | | | | | | 240 | | | | 30 | |
| | | $ | (10,495 | ) | | $ | (1,050 | ) | | | | | | $ | (1,200 | ) | | $ | (8,500 | ) |
| | | | | | | | | | | | | | | | | | |
|
F-20
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities:
| | | | | | | | | | |
| | | September 27,
2003 | | September 28,
2002 |
| Deferred tax assets: | |
| Accounts receivable | | $ | 1,295 | | | $ | 1,157 | |
| Inventories | | | 1,579 | | | | 1,374 | |
| Accrued liabilities and restructuring expenses | | | 8,480 | | | | 7,949 | |
| Other noncurrent items | | | 776 | | | | 525 | |
| Total deferred tax assets | | | 12,130 | | | | 11,005 | |
| Deferred tax liabilities: | |
| Plant and equipment, principally due to differences in depreciation | | | 11,502 | | | | 9,160 | |
| Deferred revenue | | | 816 | | | | — | |
| Other current items | | | 340 | | | | — | |
| Other noncurrent items | | | 350 | | | | 741 | |
| Total deferred tax liabilities | | | 13,008 | | | | 9,901 | |
| Net deferred tax (liabilities) assets | | $ | (878 | ) | | $ | 1,104 | |
| | | | | | | | | |
|
During the fiscal year ended September 27, 2003 and the period ended September 28, 2002, the Company paid income taxes of $7,153 and $801, respectively.
11. Debt Arrangements
On January 14, 2002, in conjunction with the Ames True Temper acquisition, the Company entered into a loan and security agreement with Wells Fargo Foothill, the arranger and administrative agent, and a group of other lenders, consisting of two term loans and a revolving loan facility. The loan and security agreement is secured by substantially all assets of the Company. The term loans consist of a $13,600 Term Loan A and a $25,000 Term Loan B. The revolving loan facility provides for up to $115,000 of borrowings. Revolving loan amounts outstanding as of September 27, 2003 and September 28, 2002 were $1,941 and $0, respectively. Annual fees are currently 0.50% of the unused portion of the revolving loan facility. Borrowings under the Term Loans and revolving loan facility bear interest at rates based on Prime or LIBOR adjusted by a certain percentage, as defined by the agreement. Interest on all loans is payable monthly. Principal payments on Term Loan A are made monthly beginning July 1, 2002 through June 2007. Principal payments on Term Loan B are made annually based upon Company cash flows, as defined. The remaining Term Loan B principal is due January 14, 2005. The weighted-average interest rate incurred on the credit facility was 10.1% for the fiscal year ended September 27, 2003 and 8.1% for the period ended September 28, 2002.
The credit agreement allows for the issuance of letters of credit in accordance with certain terms and conditions as defined in the agreement. The Company had letters of credit outstanding totaling $1,450 and $750 as of September 27, 2003 and September 28, 2002, respectively.
The Company also entered into a Securities Purchase Agreement in the amount of $47,000, under which the Company issued Senior Subordinated Notes. The note purchasers received warrants for the purchase of 124,859,393 shares of Class A Common Stock that were recorded at $124, the estimated fair value of the warrants on the date of issuance. The fair value was recorded as a discount to the
F-21
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
Senior Subordinated Notes that is being amortized over the life of the debt. The notes bear interest at 13% per annum and interest is due quarterly. Required prepayments of $15,667 and related interest are due on January 14, 2008 and January 14, 2009. The remaining unpaid principal balance and interest is due on January 14, 2010. The notes are secured by substantially all existing assets of the Company and are subordinate to the loan and security agreement with Wells Fargo Foothill Corporation.
Long-term debt is as follows:
| | | | | | | | | | |
| | | September 27,
2003 | | September 28,
2002 |
| Term Loan A, 5.5% | | $ | 9,882 | | | $ | 12,825 | |
| Term Loan B, 10.5% | | | 19,763 | | | | 15,193 | |
| Senior Subordinated Debt, 13.0% | | | 47,000 | | | | 47,000 | |
| | | | 76,645 | | | | 75,018 | |
| Current portion of long-term debt | | | (13,794 | ) | | | (8,012 | ) |
| Less unaccreted discount | | | (98 | ) | | | (124 | ) |
| | | $ | 62,753 | | | $ | 66,882 | |
| | | | | | | | | |
|
The Company is required to make monthly principal payments on Term Loan A of $227 during the term of the debt. Future minimum principal payments as of September 27, 2003 are $2,720 for 2004, $2,720 for 2005, $2,720 for 2006, and $1,722 for 2007.
Principal payments due on Term Loan B are based on excess cash flow of the Company. On an annual basis, the Company is required to pay an amount equal to 30% of the excess cash flow, as defined in the agreement, for the period ended September 27, 2003 and 50% of the excess cash flow for each fiscal year thereafter for the term of the debt. The estimated minimum principal payment due in 2004 is $11,074 as of September 27, 2003.
Principal payments are also due on the Term Loan A and Term Loan B debt immediately upon any sale or disposition of equipment that is substantially worn, damaged, or obsolete in the ordinary course of business or upon receipt of any insurance proceeds in the amount of 100% of the cash proceeds received in excess of proceeds used for replacement. Any outstanding unpaid principal is due and payable on the date of termination of the agreement.
Both the loan and security agreement and the subordinated notes contain various affirmative and negative covenants. Among other things, the covenants limit the Company's ability to incur additional indebtedness and make capital expenditures, and require the Company to maintain certain financial ratios with respect to fixed charge coverage, interest coverage, and indebtedness to EBITDA, as defined. The agreements contain several covenants with respect to the reporting of financial results, as well as the maintenance of certain financial ratios.
Interest payments were approximately $9,800 and $5,100 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively.
12. Lease Arrangements
The Company leases certain distribution and production facilities, machinery, computer hardware, computer software, office equipment, and vehicles under lease arrangements of varying terms. The most significant lease commitments involve distribution and production facilities with lease terms ranging from 7 to 17 years.
F-22
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
Rental expense for operating leases was $8,898 and $5,999 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively. Rent expense for operating leases was $2,900 and $5,300 for the period ended January 13, 2002 and the fiscal year ended September 29, 2001, respectively.
Future minimum rental commitments under noncancelable operating leases as of September 27, 2003 are as follows:
| | | | | | |
| 2004 | | $ | 7,479 | |
| 2005 | | | 7,092 | |
| 2006 | | | 6,364 | |
| 2007 | | | 6,485 | |
| 2008 | | | 6,387 | |
| Thereafter | | | 39,003 | |
| Total minimum lease payments | | $ | 72,810 | |
| | | | | |
|
13. Pension and Other Postretirement Benefits
The Company has three noncontributory defined benefit plans covering substantially all of its United States employees. The benefits under these plans are based primarily on years of credited service and compensation as defined under the respective plan provisions. The Company's funding policy is to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such amounts as the Company may determine to be appropriate from time to time. Effective September 1, 2003, the Retirement Plan for Hourly Paid Employees of the Kane, Pennsylvania Plant and the Retirement Plan for Hourly Paid Employees of Ames True Temper, Inc. Elyria Plant were merged into the Ames True Temper, Inc. Pension Plan. The Company provides for an unfunded supplemental executive retirement program, which is a non-qualified plan that provides certain senior executives defined pension benefits based on their age, service, and total compensation. The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. The benefits are at fixed amounts per retiree and are partially contributory by the retiree.
The following table provides a reconciliation of changes in the projected benefit obligation, fair value of plan assets and the funded status of the Company's U.S. qualified defined-benefit pension (valuation dates July 1, 2003 and 2002, respectively), nonqualified defined-benefit pension, and postretirement benefit plans with the amounts recognized in the Company's consolidated balance sheets at September 27, 2003 and September 28, 2002:
F-23
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| | | 2003 | | 2002 | | 2003 | | 2002 |
| Change in projected benefit obligation | | | | | | | | | |
| Benefit obligation at beginning of period | | $ | 85,851 | | | $ | 81,430 | | | $ | 2,400 | | | $ | 2,331 | |
| Service cost | | | 2,469 | | | | 1,896 | | | | 23 | | | | 22 | |
| Interest cost | | | 6,044 | | | | 3,923 | | | | 165 | | | | 145 | |
| Curtailment | | | (782 | ) | | | — | | | | — | | | | — | |
| Assumption changes | | | 4,600 | | | | — | | | | (11 | ) | | | — | |
| Amendments | | | 78 | | | | — | | | | — | | | | — | |
| Actuarial (gain) | | | (3,772 | ) | | | — | | | | — | | | | — | |
| Benefits paid | | | (5,275 | ) | | | (1,398 | ) | | | (182 | ) | | | (98 | ) |
| Benefit obligation at end of period | | $ | 89,213 | | | $ | 85,851 | | | $ | 2,395 | | | $ | 2,400 | |
| | | | | | | | | | | | | | | | | |
| Change in fair value of plan assets | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of period | | $ | 97,491 | | | $ | 101,855 | | | $ | — | | | $ | — | |
| Actual return (loss) on plan assets | | | 2,787 | | | | (2,655 | ) | | | — | | | | — | |
| Employer contributions | | | 144 | | | | 48 | | | | 182 | | | | 98 | |
| Benefits paid | | | (5,275 | ) | | | (1,398 | ) | | | (155 | ) | | | (59 | ) |
| Plan expenses | | | (506 | ) | | | (359 | ) | | | (27 | ) | | | (39 | ) |
| Fair value of plan assets at end of period | | $ | 94,641 | | | $ | 97,491 | | | | — | | | $ | — | |
|
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| | | 2003 | | 2002 | | 2003 | | 2002 |
| Funded status of plans | | | | | | | | | | | | | | | | |
Plan assets in excess of (less than) projected
benefit obligation | | $ | 5,428 | | | $ | 11,640 | | | $ | | (2,395) | | $ | | (2,400) |
| Unrecognized prior service cost | | | 51 | | | | — | | | | — | | | | — | |
| Unrecognized net loss | | | 16,208 | | | | 9,100 | | | | 14 | | | | — | |
| Net amount recognized | | $ | 21,687 | | | $ | 20,740 | | | $ | (2,381 | ) | | $ | (2,400 | ) |
| | | | | | | | | | | | | | | | | |
Amounts recognized in the balance sheet
consist of: | | | | | | | | | | | | | | | | |
| Pension asset | | $ | 21,763 | | | $ | 20,965 | | | $ | — | | | $ | — | |
| Intangible asset | | | 51 | | | | — | | | | — | | | | — | |
| Accrued benefits | | | (153 | ) | | | (348 | ) | | | (2,381 | ) | | | (2,400 | ) |
| Accumulated other comprehensive income | | | 26 | | | | 123 | | | | — | | | | — | |
| Net amount recognized | | $ | 21,687 | | | $ | 20,740 | | | $ | (2,381 | ) | | $ | (2,400 | ) |
| | | | | | | | | | | | | | | | | |
|
Prepaid pension assets of $22,761 as of September 27, 2003 consist of: pension asset (above) $21,763, intangible asset (above) $51 and Ireland pension asset of $947. Prepaid pension assets of $21,910 as of September 28, 2002 consist of: pension asset (above) $20,965 and Ireland pension asset of $945.
F-24
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
In addition to pension benefit information disclosed above, the Ireland subsidiary administers a defined benefit pension plan. The plan had a projected benefit obligation of $4,643 and a fair value of plan assets of $4,085 at September 27, 2003. At September 28, 2002, the plan had a projected benefit obligation of $3,825 and a fair value of plan assets of $3,368. Pension expense was $130 and $69 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively.
The assets for the Company's U.S. plans are principally invested in stock and bond mutual funds.
The assumptions used in determining the net periodic pension cost for the Company's defined benefit plans and the retiree plan, covering employees in the United States are presented below.
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| | | 2003 | | 2002 | | 2003 | | 2002 |
| Weighted-average assumptions as of fiscal year end: | | | | | | | | | | | | | | | | |
| Discount rate | | | 6.75 | % | | | 7.25 | % | | | 6.75 | % | | | 7.25 | % |
| Rate of compensation increase | | | 4.00 | % | | | 4.50 | % | | | — | | | | — | |
| Expected return on assets | | | 9.00 | % | | | 9.00 | % | | | — | | | | — | |
| | | | | | | | | | | | | | | | | |
|
Amounts recognized in the income statement consist of:
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| | | 2003 | | 2002 | | 2003 | | 2002 |
| Service cost | | $ | 2,975 | | | $ | 2,315 | | | $ | 23 | | | $ | 22 | |
| Interest cost | | | 6,044 | | | | 3,923 | | | | 165 | | | | 120 | |
| Actual (return) loss on plan assets | | | (2,787 | ) | | | 2,655 | | | | — | | | | — | |
| Asset loss deferred | | | (6,329 | ) | | | (9,100 | ) | | | — | | | | — | |
| Amortization of prior service cost | | | 26 | | | | — | | | | — | | | | — | |
| Net periodic benefit cost (credit) | | $ | (71 | ) | | $ | (207 | ) | | $ | 188 | | | $ | 142 | |
| | | | | | | | | | | | | | | | | |
|
The tables above set forth the historical components of net periodic pension cost and a reconciliation of the funded status of the pension and other postretirement benefit plans for the employees associated with the Company and are not necessarily indicative of the amounts to be recognized by the Company on a prospective basis.
The Company has a defined contribution savings plan that covers substantially all of its eligible U.S. employees. The purpose of the plan is generally to provide additional financial security to employees during retirement. Participants in the savings plan may elect to contribute, on a pre-tax basis, a certain percent of their annual earnings with the Company matching a portion of these contributions. Expense under the plan related to the Company's matching contribution was $479 and $325 for the fiscal year ended September 27, 2003 and the period ended September 28, 2002, respectively.
The Company's Canadian subsidiary, Garant Inc., operates a group-registered retirement savings plan. The Company matches 50% of nonunion employee contributions, up to 3% of an employee's base salary. The expense related to the plan for the Company for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 was approximately $66 and $74, respectively.
F-25
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
14. Pension and Other Postretirement Benefits — Predecessor Company
The Predecessor Company had four noncontributory defined benefit plans covering substantially all of its United States employees. The benefits under these plans were based primarily on years of credited service and compensation as defined under the respective plan provisions. The Predecessor Company's funding policy was to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such amounts as the Predecessor Company determined to be appropriate from time to time. The Predecessor Company also provided healthcare and life insurance benefits for certain groups of retirees through several plans. These plans were partially contributory by the retiree.
The Predecessor Company also sponsored defined contribution plans. Contributions relating to defined contribution plans were made based upon the respective plans' provisions.
The assumptions used for the Predecessor Company's defined benefit plans covering employees in the United States are presented below:
| | | | | | | | | | |
| | | Pension
Benefits
2001 | | Other
Benefits
2001 |
| Weighted-average assumptions as of September 30: | | | | | | | | |
| Discount rate | | | 7.50 | % | | | 7.50 | % |
| Rate of compensation increase | | | 4.50 | % | | | — | |
| Expected return on assets | | | 9.50 | % | | | — | |
|
Amounts recognized in the income statement consist of:
| | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits |
| | | 2002 | | 2001 | | 2002 | | 2001 |
| Service cost | | $ | 3,500 | | | $ | 3,500 | | | $ | — | | | $ | — | |
| Interest cost | | | 6,400 | | | | 6,400 | | | | 200 | | | | 200 | |
| Actual (return) loss on plan assets | | | (17,500 | ) | | | (17,500 | ) | | | — | | | | — | |
| Amortization of prior service cost | | | 900 | | | | 900 | | | | — | | | | — | |
| Amortization of unrecognized transition assets | | | (100 | ) | | | (100 | ) | | | — | | | | — | |
| Curtailment | | | — | | | | — | | | | (200 | ) | | | (200 | ) |
| | | $ | (6,800 | ) | | $ | (6,800 | ) | | $ | — | | | $ | — | |
|
The tables above set forth the historical components of net periodic pension cost of the pension and other postretirement benefit plans for the employees associated with the Predecessor Company and are not necessarily indicative of the amounts to be recognized by the Predecessor Company on a prospective basis (see Note 1).
15. Stock-Based Compensation — Predecessor Company
The Predecessor Company did not have stock-based compensation plans separate from USI; however, the Predecessor Company did participate in USI's stock-based compensation plans. Consistent with USI, the Predecessor Company accounted for participation in these plans in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees.
Certain key employees of the Predecessor Company participated in stock incentive plans of USI that provided for awards of restricted stock and options to purchase USI common stock at prices equal to
F-26
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
the fair value of the underlying shares at the date of grant. The Predecessor Company recognized compensation expense of less than $100 in fiscal 2001 for vesting restricted stock awards. As of September 30, 2001, an aggregate of approximately 100 options to purchase shares of USI common stock were held by Predecessor Company employees. Any options that were not vested as of the date of the sale of the Predecessor Company were forfeited. The Predecessor Company has elected to not present any of the pro-forma net income disclosures under SEAS No. 123, Accounting for Stock-Based Compensation, as such amount would not differ materially from the Predecessor Company's reported results of operations for the period ended January 13, 2002 and the fiscal year ended September 29, 2001.
16. Stockholders' Equity
Series A Preferred Stock
The Company is authorized to issue 100,000 shares of Series A Preferred Stock at a par value of $0.0001. There were 62,495 and 59,495 shares issued and 62,495 and 59,396 outstanding as of September 27, 2003 and September 28, 2002, respectively. Dividends on each share of the Series A Preferred Stock accrue on a daily basis at the rate of 10% per annum of the Liquidation Value thereof plus all accumulated and unpaid dividends thereon from and including the date of issuance of such share to and including the first to occur of (i) the date on which the Liquidation Value of such share (plus all accrued and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Company or the redemption of such share by the Company or (ii) the date on which such share is otherwise acquired by the Company. The Company has $11,203 and $4,248 accumulated and unpaid dividends as of September 27, 2003 and September 28, 2002, respectively.
Upon any liquidation, dissolution or winding up of the Company, each holder of Series A Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all shares held by such holder plus all accrued and unpaid dividends thereon, and the holders of Series A Preferred Stock shall not be entitled to any further payment. The aggregate Liquidation Preference was $62,495 and $59,396 as of September 27, 2003 and September 28, 2002, respectively. The Series A Preferred Stock has no voting rights.
Class A and B Common Stock
The Company is authorized to issue 1,600,000 shares of Class A Common Stock at a par value of $0.0001. There were 726,706 and 723,406 shares issued and 726,706 and 692,052 outstanding as of September 27, 2003 and September 28, 2002, respectively.
The Company is authorized to issue 300,000 shares of Class B Common Stock at a par value of $0.0001. There were 267,448 shares issued and outstanding as of September 27, 2003 and September 28, 2002.
Class A Common Stock and Class B Common Stock shall be entitled to one vote for each share. With respect to the election of the Board of Directors, the holders of shares of Class B Common Stock shall have that number of votes equal to the lessor of (i) the number of shares outstanding or (ii) 29.99% of the voting power of the Company. With respect to the election of the Board of Directors, the holders of shares of Common Stock excluding Class B Common Stock shall have that number of votes equal to the greater of (i) the number of shares outstanding or (ii) 70.01% of the voting power of the Company.
F-27
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
Warrants
In conjunction with the issuance of the $47,000 Senior Subordinated Notes, the Company has issued warrants to purchase 124,859.393 shares of Class A Common Stock at a price equal to $.01 per share. The warrants are exercisable at any time prior to January 13, 2010.
17. Segment Information
The Company's operations are classified into one business segment. These operations are conducted primarily in the United States, and to a lesser extent, in Canada and Ireland. The following table presents certain data by geographic areas:
| | | | | | | | | | | | | | |
| | | Identifiable
Assets | | Net Sales | | Earnings
Before
Income Taxes |
| September 27, 2003 | | | | | | | | | | | | |
| United States | | $ | 200,317 | | | $ | 360,213 | | | $ | 20,991 | |
| Europe | | | 5,200 | | | | 6,741 | | | | 785 | |
| Canada | | | 22,564 | | | | 40,472 | | | | 5,284 | |
| Total | | $ | 228,081 | | | $ | 407,426 | | | $ | 27,060 | |
| | | | | | | | | | | | | |
| September 28, 2002 | | | | | | | | | | | | |
| United States | | $ | 166,448 | | | $ | 249,297 | | | $ | 408 | |
| Europe | | | 4,725 | | | | 4,333 | | | | 360 | |
| Canada | | | 19,981 | | | | 25,724 | | | | 1,841 | |
| Total | | $ | 191,154 | | | $ | 279,354 | | | $ | 2,609 | |
|
| | | | | | | | | | | | | | |
| | | Identifiable
Assets | | Net Sales | | Earnings
(Loss) Before
Income Taxes |
| January 13, 2002 | | | | | | | | | | | | |
| United States | | $ | 266,500 | | | $ | 63,200 | | | $ | (2,700 | ) |
| Europe | | | 3,700 | | | | 1,200 | | | | (100 | ) |
| Canada | | | 15,900 | | | | 11,200 | | | | 1,200 | |
| Total | | $ | 286,100 | | | $ | 75,600 | | | $ | (1,600 | ) |
| September 29, 2001 | | | | | | | | | | | | |
| United States | | $ | 255,300 | | | $ | 332,300 | | | $ | (116,900 | ) |
| Europe | | | 4,700 | | | | 5,000 | | | | (4,400 | ) |
| Canada | | | 24,800 | | | | 40,200 | | | | 5,100 | |
| Total | | $ | 284,800 | | | $ | 377,500 | | | $ | (116,200 | ) |
| | | | | | | | | | | | | |
|
F-28
ATT Holding Co.
Notes to Consolidated
(Dollars In Thousands, Except Share Data)
18. Other Income (Expense)
Other income (expense) consists of the following:
| | | | | | | | | | | | | | |
| | | | | | | Predecessor Company |
| | | Fiscal year
ended
September 27,
2003 | | Period ended
September 28,
2002 | | Period
ended
January 13,
2002 | | Fiscal year
ended
September 29,
2001 |
| Foreign exchange translation gain | | $ | 935 | | | $ | — | | | $ | — | | | $ | — | |
| Anti-dumping duties | | | 74 | | | | — | | | | 2,400 | | | | — | |
| Other | | | 56 | | | | 131 | | | | — | | | | (800 | ) |
| Total | | $ | 1,065 | | | $ | 131 | | | $ | 2,400 | | | $ | (800 | ) |
| | | | | | | | | | | | | | | | | |
|
19. Related Party Transactions
Wind Point Partners, a shareholder, provides certain management services to the Company. The related agreement provides for annual fees of $800 plus expenses. Costs incurred for the fiscal year ended September 27, 2003 and the period ended September 28, 2002 related to these management services were $819 and $586, respectively.
20. Commitments and Contingencies
The Company is involved in lawsuits and claims, including certain environmental matters, arising out of the normal course of its business. In the opinion of management, the ultimate amount of liability, if any, under pending litigation will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
21. Special Charges
The Company incurred $797 in medical expenses during the fiscal year ended September 27, 2003, as a result of an insurance company's refusal to provide stop loss coverage.
22. Subsequent Event
On June 28, 2004, the Company completed the sale of all of its outstanding common and preferred stock to a private equity group. The transaction was valued at $380 million. In connection with the sale, Ames True Temper, Inc., which is a 100% owned subsidiary of the Company, entered into a new credit facility. ATT Holding Co. has no independent assets or operations separate from the investment in Ames True Temper, Inc. ATT Holding Co. fully and unconditionally guaranteed the $150,000 10% senior Subordinated Notes due 2012. ATT Holding Co. has no other subsidiaries other than Ames True Temper, Inc. Ames True Temper, Inc. is restricted by the Credit Agreement dated as of June 28, 2004 to provide funds to ATT Holding Co., except for the provisions described therein.
F-29
ATT Holding Co.
Condensed Consolidated Balance Sheets
(In thousands)
| | | | | | | | | | |
| | | March 27,
2004 | | September 27,
2003 |
| | | (Unaudited) | | |
| Assets | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 1,700 | | | $ | 1,688 | |
| Trade receivables, net | | | 95,354 | | | | 51,023 | |
| Inventories | | | 106,008 | | | | 77,051 | |
| Deferred tax assets | | | 9,654 | | | | 10,199 | |
| Other current assets | | | 4,424 | | | | 4,639 | |
| Total current assets | | | 217,140 | | | | 144,600 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 30,207 | | | | 31,228 | |
| Pension asset | | | 22,803 | | | | 22,761 | |
| Intangibles, net | | | 23,755 | | | | 26,217 | |
| Other noncurrent assets | | | 2,835 | | | | 3,275 | |
| Total assets | | $ | 296,740 | | | $ | 228,081 | |
| | | | | | | | | |
| Liabilities and stockholders' equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Trade accounts payable | | $ | 45,841 | | | $ | 25,613 | |
| Accrued expenses and other current liabilities | | | 28,427 | | | | 24,581 | |
| Revolving loan | | | 46,518 | | | | 1,941 | |
| Current portion of long-term debt | | | 11,343 | | | | 13,794 | |
| Total current liabilities | | | 132,129 | | | | 65,929 | |
| | | | | | | | | |
| Deferred income taxes | | | 12,936 | | | | 11,077 | |
| Long-term debt | | | 52,711 | | | | 62,753 | |
| Other liabilities | | | 4,533 | | | | 4,149 | |
| Total liabilities | | | 202,309 | | | | 143,908 | |
| | | | | | | | | |
| Stockholders' equity: | |
| Preferred stock | | | — | | | | — | |
| Common stock | | | — | | | | — | |
| Additional paid-in capital | | | 63,543 | | | | 63,543 | |
| Retained earnings | | | 27,810 | | | | 18,120 | |
| Accumulated other comprehensive income | | | 3,079 | | | | 2,510 | |
| | | | 94,432 | | | | 84,173 | |
| Treasury stock | | | (1 | ) | | | — | |
| Total stockholders' equity | | | 94,431 | | | | 84,173 | |
| Total liabilities and stockholders equity | | $ | 296,740 | | | $ | 228,081 | |
|
See accompanying notes.
F-30
ATT Holding Co.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands)
| | | | | | | | | | |
| | | Twenty-six weeks
ended
March 27, 2004 | | Twenty-six weeks
ended
March 29, 2003 |
| | | | | | | | | |
| Net sales | | $ | 214,101 | | | $ | 192,918 | |
| | | | | | | | | |
| Costs of goods sold | | | 154,219 | | | | 139,537 | |
| Gross profits | | | 59,882 | | | | 53,381 | |
| | | | | | | | | |
| Selling, general, and administrative expenses | | | 37,141 | | | | 35,433 | |
| Special Charges | | | — | | | | 797 | |
| Amortization of intangible assets | | | 2,218 | | | | 1,467 | |
| Operating income | | | 20,523 | | | | 15,684 | |
| | | | | | | | | |
| Interest expense | | | 4,989 | | | | 4,580 | |
| Other expense (income) | | | 58 | | | | (437 | ) |
| Income before taxes | | | 15,476 | | | | 11,541 | |
| | | | | | | | | |
| Income tax expense | | | 5,786 | | | | 4,589 | |
| Net income | | $ | 9,690 | | | $ | 6,952 | |
|
See accompanying notes.
F-31
ATT Holding Co.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| | | | | | | | | | |
| | | Twenty-six weeks
ended
March 27, 2004 | | Twenty-six weeks
ended
March 29, 2003 |
| Operating Activities | |
| Net Income | | $ | 9,690 | | | $ | 6,952 | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 6,111 | | | | 5,759 | |
| Amortization of loan fees | | | 440 | | | | 342 | |
| Provision for bad debts | | | (44 | ) | | | 266 | |
| Noncash interest expense | | | 163 | | | | 216 | |
| Loss (gain) on disposal of fixed assets | | | 5 | | | | (222 | ) |
| Provision for deferred taxes | | | 2,404 | | | | 8 | |
| Changes in assets and liabilities, net of effects of acquisition: | | | | | | | | |
| Accounts receivable | | | (44,287 | ) | | | (62,837 | ) |
| Inventories | | | (28,957 | ) | | | (12,888 | ) |
| Prepaid expenses and other assets | | | 180 | | | | (775 | ) |
| Accounts payable | | | 19,975 | | | | 17,750 | |
| Accrued expenses and other current liabilities | | | 3,846 | | | | 3,678 | |
| Other liabilities | | | 384 | | | | 187 | |
| Net cash used in operating activities | | | (30,090 | ) | | | (41,564 | ) |
| | |
| Investing activities | | | | | | | | |
| Acquisition of businesses, net cash received | | | 497 | | | | (33,338 | ) |
| Purchase of fixed assets | | | (2,569 | ) | | | (3,848 | ) |
| Proceeds from sale of fixed assets | | | (5 | ) | | | 222 | |
| Loans | | | — | | | | (650 | ) |
| Net cash used in investing activities | | | (2,077 | ) | | | (37,614 | ) |
| | |
| Financing activities | | | | | | | | |
| Repayments of long-term debt | | | (12,663 | ) | | | (6,792 | ) |
| Borrowings on revolver, net | | | 44,577 | | | | 41,542 | |
| Borrowings on long-term debt, net of debt issuance costs | | | — | | | | 9,842 | |
| Purchase of treasury stock | | | (1 | ) | | | — | |
| Proceeds from issuance of capital stock | | | — | | | | 3,091 | |
| Net cash provided by financing activities | | | 31,913 | | | | 47,683 | |
| Effect of exchange rate changes on cash | | | 266 | | | | 298 | |
| Increase (decrease) in cash and cash equivalents | | | 12 | | | | (31,197 | ) |
| Cash and cash equivalents at beginning of period | | | 1,688 | | | | 32,593 | |
| Cash and cash equivalents at end of period | | $ | 1,700 | | | $ | 1,396 | |
|
See accompanying notes.
F-32
ATT Holding Co.
Notes to Condensed Consolidated
Financial Statements (Unaudited)
March 27, 2004
(In thousands, except share data)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and, therefore, do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial statements. The accompanying financial information reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. As our business has historically been seasonal, the results of operations for the twenty-six week period ended March 27, 2004 are not necessarily indicative of the results to be expected for the full fiscal year ending September 25, 2004. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto in the financial statements for the year ended September 27, 2003.
The consolidated balance sheet at September 27, 2003 has been derived from the audited consolidated balance sheet at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
All entities and assets owned by ATT Holding Co. are referred to collectively as the "Company."
2. Recent Accounting Pronouncements
In December 2003, the FASB issued a revised Statement of Financial Accounting Standard ("SFAS") No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The revisions to SFAS No. 132 are intended to improve financial statement disclosures for defined benefit plans and was initiated in 2003 in response to concerns raised by investors and other users of financial statements about the need for greater transparency of pension information. In particular, the standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant quantitative and qualitative information. The guidance is effective for fiscal years ending after December 15, 2003. The interim-period disclosures required by this Statement are effective for interim periods beginning after December 15, 2003, and have been adopted for the period ended March 27, 2004.
3. Restructuring
In connection with the initial acquisition, the Company committed to an exit plan for the closing of several facilities. The exit plan called for the Company to consolidate corporate office functions and to reduce workforce in multiple manufacturing locations in order to reduce fixed overhead costs and lower internal shipping and handling expenses. Costs associated with the exit plan, including severance, totaling approximately $6,198 were accrued as part of the purchase price allocation. In addition, the Company granted enhanced pension benefits to certain severed employees, which resulted in a net decrease to the pension asset of $3,315.
At March 27, 2004, the remaining restructuring reserves of $2,259 are included in accrued liabilities and relate to portions of the exit plans that are not yet completed. Changes to the restructuring reserves are as follows:
F-33
ATT Holding Co.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
March 27, 2004
(In thousands, except share data)
| | | | | | |
| Balance as of September 27, 2003 | | $ | 2,414 | |
| Additions | | | — | |
| Payments | | | (155 | ) |
| Balance as of March 27, 2004 | | $ | 2,259 | |
|
4. Inventories
Inventories are as follows:
| | | | | | | | | | |
| | | March 27, | | September 27, |
| | | 2004 | | 2003 |
| Finished goods | | $ | 77,911 | | | $ | 51,767 | |
| Work in process | | | 16,569 | | | | 14,812 | |
| Raw materials | | | 19,725 | | | | 17,764 | |
| | | | 114,205 | | | | 84,343 | |
| Less allowance for obsolescence | | | (8,197 | ) | | | (7,292 | ) |
| | | $ | 106,008 | | | $ | 77,051 | |
|
5. Debt Arrangements
On January 14, 2002, in conjunction with the Ames True Temper acquisition, the Company entered into a loan and security agreement with Wells Fargo Foothill, the arranger and administrative agent, and a group of other lenders, consisting of two term loans and a revolving loan facility. The loan and security agreement is secured by substantially all assets of the Company. The term loans consist of a $13,600 Term Loan A and a $25,000 Term Loan B. The revolving loan facility provides for up to $115,000 of borrowings, contingent on the amount of assets held by the Company. Revolving loan amounts outstanding as of March 27, 2004 and September 27, 2003 were $46,518 and $1,941, respectively. Annual fees are currently 0.50% of the unused portion of the revolving loan facility. Borrowings under the Term Loans and revolving loan facility bear interest at rates based on Prime or LIBOR adjusted by a certain percentage, as defined by the agreement. Interest on all loans is payable monthly. Principal payments on Term Loan A are made monthly beginning July 1, 2002, with a final payment scheduled on January 14, 2007. Principal payments on Term Loan B are made annually based upon Company cash flows, as defined. The remaining balance of $8,623 for Term Loan B principal is due January 14, 2005, and was classified as current at March 27, 2004.
The credit agreement allows for the issuance of letters of credit in accordance with certain terms and conditions as defined in the agreement. The Company had letters of credit outstanding totaling $1,450 as of March 27, 2004 and September 27, 2003, which reduced the borrowing availability under the revolving loan facility.
During fiscal 2002, the Company also entered into a Securities Purchase Agreement in the amount of $47,000, under which the Company issued Senior Subordinated Notes. The note purchasers received warrants for the purchase of 124,859.393 shares of Class A Common Stock that were recorded at $124, the estimated fair value of the warrants on the date of issuance. The fair value of the warrants was recorded as a discount to the Senior Subordinated Notes and is being amortized over the life of the debt. The notes bear interest at 13% per annum and interest is due quarterly. Required prepayments of $15,667 and related interest are due on January 14, 2008 and January 14, 2009. The remaining
F-34
ATT Holding Co.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
March 27, 2004
(In thousands, except share data)
unpaid principal balance and interest is due on January 14, 2010. The notes are secured by substantially all existing assets of the Company and are subordinate to the loan and security agreement with Wells Fargo Foothill.
Long-term debt is as follows:
| | | | | | | | | | |
| | | March 27, | | September 27, |
| | | 2004 | | 2003 |
| Term Loan A, 5.5% | | $ | 8,522 | | | $ | 9,882 | |
| Term Loan B, 10.5% | | | 8,623 | | | | 19,763 | |
| Senior Subordinated Debt, 13.0% | | | 47,000 | | | | 47,000 | |
| | | | 64,145 | | | | 76,645 | |
| Current portion of long-term debt | | | (11,343 | ) | | | (13,794 | ) |
| Less unaccreted discount | | | (91 | ) | | | (98 | ) |
| | | $ | 52,711 | | | $ | 62,753 | |
|
The Company is required to make monthly principal payments on the Term Loan A of $227 during the term of the debt. Future minimum principal payments as of March 27, 2004 are $1,360 for the remainder of fiscal 2004 and $2,720, $2,720 and $1,722 for fiscal years 2005, 2006 and 2007, respectively.
Principal payments due on Term Loan B are based on excess cash flow of the Company. On an annual basis, the Company is required to pay an amount equal to 30% of the excess cash flow, as defined in the agreement, for the period ended September 27, 2003 and 50% of the excess cash flow for each fiscal year thereafter for the term of the debt. As of March 27, 2004, the estimated remaining minimum principal payment is $8,623 and is due in 2005.
Principal payments are also due on the Term Loan A and Term Loan B debt immediately upon any sale or disposition of equipment that is substantially worn, damaged, or obsolete in the ordinary course of business or upon receipt of any insurance proceeds in the amount of 100% of the cash proceeds received in excess of proceeds used for replacement. Any outstanding unpaid principal is due and payable on the date of termination of the agreement.
Both the loan and security agreement and the subordinated notes contain various affirmative and negative covenants. Among other things, the covenants limit the Company's ability to incur additional indebtedness and make capital expenditures, and require the Company to maintain certain financial ratios with respect to fixed charge coverage, interest coverage, and indebtedness to EBITDA, as defined. The agreements contain several covenants with respect to the reporting of financial results, as well as the maintenance of certain financial ratios. At March 27, 2004, the Company was in compliance with all applicable debt covenants.
Interest payments were approximately $4,506 and $4,624 for the twenty-six weeks ended March 27, 2004 and March 29, 2003, respectively.
F-35
ATT Holding Co.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
March 27, 2004
(In thousands, except share data)
6. Pension and Other Postretirement Benefits
| | | | | | | | | | | | | | | | | | |
| | | Twenty-six week period ended
March 27, 2004 and March 29, 2003 |
| | | Pension Benefits | | Other Benefits |
| | | 2004 | | 2003 | | 2004 | | 2003 |
| Service cost | | $ | 1,394 | | | $ | 1,465 | | | $ | 12 | | | $ | 11 | |
| Interest cost | | | 2,927 | | | | 3,019 | | | | 78 | | | | 83 | |
| Expected return on plan assets | | | (4,538 | ) | | | (4,558 | ) | | | — | | | | — | |
| Amortization of prior service cost | | | 13 | | | | — | | | | — | | | | — | |
| Amortization of unrecognized net loss | | | 226 | | | | — | | | | — | | | | — | |
| Net periodic benefit cost (benefit) | | $ | 22 | | | $ | (74 | ) | | $ | 90 | | | $ | 94 | |
|
Employer Contributions
During the twenty-six week period ended March 27, 2004 and March 29, 2003, the Company contributed $17 and $95, respectively, to its defined benefit pension plan.
During the twenty-six week period ended March 27, 2004 and March 29, 2003, the Company contributed $33 and $42, respectively, to its post-retirement benefit plan.
7. Foreign Operations
The Company has operations in the Americas, Europe and Canada. The following is a summary by geographic region:
| | | | | | | | | | | | | | |
| | | Identifiable
Assets | | Net Sales | | Earnings
(Loss) Before
Income
Taxes |
| | | | | | | | | | | | | |
| March 27, 2004 | | | | | | | | | | | | |
| Americas | | $ | 262,410 | | | $ | 182,116 | | | $ | 11,594 | |
| Europe | | | 5,544 | | | | 2,994 | | | | (17 | ) |
| Canada | | | 28,786 | | | | 28,991 | | | | 3,899 | |
| Total | | $ | 296,740 | | | | 214,101 | | | $ | 15,476 | |
| | | | | | | | | | | | | |
| March 29, 2003 | | | | | | | | | | | | |
| Americas | | $ | 243,587 | | | $ | 169,136 | | | $ | 8,928 | |
| Europe | | | 4,977 | | | | 3,239 | | | | 260 | |
| Canada | | | 25,041 | | | | 20,543 | | | | 2,888 | |
| Total | | $ | 273,605 | | | $ | 192,918 | | | $ | 12,076 | |
|
8. Acquisitions
On May 5, 2003, the Company acquired Outdoor Inspirations, Inc., Ontario, Canada. Outdoor Inspirations is in the business of marketing, selling and distributing garden hose.
On August 4, 2003, the Company acquired Greenlife, Inc., Bridgewater, Massachusetts, with operations in China. Greenlife is in the business of marketing, selling and distributing non-powered
F-36
ATT Holding Co.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
March 27, 2004
(In thousands, except share data)
lawn and garden tools and accessories, The Company established an indemnity escrow account related to the acquisition of $300, which is held for two years and an escrow account of $1,700, which is held for 120 days after the date of the purchase agreement.
All acquisitions were accounted for using the purchase method. The allocation of the purchase price associated with the acquisitions has been determined by the Company based upon available information and in certain cases is subject to further refinement.
Consideration given for the purchase for one of the acquisitions referred to above includes purchase price amounts that are contingent upon achieving future financial goals. These contingent payments will be added to the cost of the acquisitions in excess of the fair value of the net assets acquired when determined and made.
The operating results of the acquired companies have been included in the accompanying consolidated statements of income from the respective dates of acquisition.
9. Goodwill and Intangibles
The Company evaluates goodwill and indefinite lived intangible assets for impairment on an annual basis, pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangibles. Intangible assets other than goodwill and tradenames are finite-lived and amortized over their useful lives. The following is a summary of the Company's intangible assets as of March 27, 2004 and September 27, 2003:
| | | | | | | | | | | | | | | | | | |
| | | March 27, 2004 | | September 27, 2003 |
| | | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
| | | | | | | | | | | | | | | | | |
| Nonamortized intangible assets: | | | | | | | | | | | | | | | | | | | | |
| Goodwill | | $ | 9,565 | | | $ | — | | | $ | 9,810 | | | $ | — | |
| Tradenames | | | 8,450 | | | | — | | | | 8,450 | | | | — | |
| | | | 18,015 | | | | — | | | | 18,260 | | | | — | |
| | |
| Amortized intangible assets: | |
| Customer and vendor relationships | | | 8,250 | | | | 4,880 | | | | 8,250 | | | | 3,059 | |
| Covenants not to compete | | | 2,747 | | | | 609 | | | | 2,747 | | | | 315 | |
| Employment agreements | | | 468 | | | | 236 | | | | 468 | | | | 134 | |
| | | | 11,465 | | | | 5,725 | | | | 11,465 | | | | 3,508 | |
| | | $ | 29,480 | | | $ | 5,725 | | | $ | 29,725 | | | $ | 3,508 | |
|
| | | | | | |
| Goodwill balance, September 27, 2003 | | $ | 9,810 | |
| Goodwill adjustments for amounts acquired in Dynamic Design and Outdoor Inspiration, Inc. acquisitions | | | (245 | ) |
| Goodwill balance, March 27, 2004 | | $ | 9,565 | |
|
10. Special Charges
The Company incurred $797 in medical expenses during the twenty-six weeks ended March 29, 2003, as a result of an insurance company's refusal to provide stop loss coverage.
F-37
ATT Holding Co.
Notes to Condensed Consolidated
Financial Statements (Unaudited) (continued)
March 27, 2004
(In thousands, except share data)
11. Subsequent Event
On June 28, 2004, the Company completed the sale of all its outstanding common and preferred stock to a private equity group. The transaction was valued at $380 million. In connection with the sale, Ames True Temper, Inc., which is a 100% owned subsidiary of the Company, entered into a new credit facility. ATT Holding Co. has no independent assets or operations separate from the investment in Ames True Temper, Inc. ATT Holding Co. fully and unconditionally guaranteed the $150,000 10% senior Subordinated Notes due 2012. ATT Holding Co. has no other subsidiaries other than Ames True Temper, Inc. Ames True Temper, Inc. is restricted by the Credit Agreement dated as of June 28, 2004 to provide funds to ATT Holding Co., except for the provisions described therein.
F-38
Report of Independent Registered Public Accounting Firm
Board of Directors
ATT Holding Co.
We have audited the accompanying combined balance sheet of National Sales Co., LLC and Global Sales Co., LLC d/b/a Dynamic Design (the "Company") as of November 14, 2002, and the combined statements of income and members' capital and cash flows for the period January 1, 2002 to November 14, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (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 combined financial position of National Sales Co., LLC and Global Sales Co., LLC d/b/a Dynamic Design at November 14, 2002, and the related combined results of their operations and their cash flows for the period January 1, 2002 to November 14, 2002, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
May 21, 2004
Philadelphia, Pennsylvania
F-39
Dynamic Design
Combined Balance Sheet
November 14, 2002
(In Thousands)
| | | | | | |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 461 | |
| Trade receivables, net | | | 4,336 | |
| Inventories | | | 2,813 | |
| Other current assets | | | 67 | |
| Total current assets | | | 7,677 | |
| | | | | |
| Property, plant and equipment, net | | | 2,930 | |
| Total assets | | $ | 10,607 | |
| | | | | |
| Liabilities and members' capital | | | | |
| Current liabilities: | | | | |
| Trade accounts payable | | $ | 1,994 | |
| Accrued expenses and other current liabilities | | | 299 | |
| Due to related party | | | 389 | |
| Accrued volume rebate | | | 888 | |
| Total current liabilities | | | 3,570 | |
| | | | | |
| Members' distributions payable | | | 5,486 | |
| Total liabilities | | | 9,056 | |
| | | | | |
| Members' capital | | | 1,551 | |
| Total liabilities and members' capital | | $ | 10,607 | |
|
See accompanying notes
F-40
Dynamic Design
Combined Statement of Income and Changes in Members' Capital
For the Period January 1, 2002 to November 14, 2002
(In Thousands)
| | | | | | |
| Net sales | | $ | 41,454 | |
| | | | | |
| Cost of goods sold | | | 27,007 | |
| Gross profit | | | 14,447 | |
| | | | | |
| Selling, general, and administrative expense | | | 9,624 | |
| Operating income | | | 4,823 | |
| | | | | |
| | | | | |
| Interest expense | | | 134 | |
| Net income | | $ | 4,689 | |
| | | | | |
| Members' capital — beginning of period | | | 5,012 | |
| Member distributions | | | (8,150 | ) |
| Net income | | | 4,689 | |
| Members' capital — end of period | | $ | 1,551 | |
|
See accompanying notes.
F-41
Dynamic Design
Combined Statement of Cash Flows
For the Period January 1, 2002 to November 14, 2002
(In Thousands)
| | | | | | |
| Operating activities | | | | |
| Net income | | $ | 4,689 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortization | | | 963 | |
| Loss on sale of fixed assets | | | 13 | |
| Changes in assets and liabilities: | | | | |
| Decrease in inventory | | | 720 | |
| Increase in accounts receivable, net | | | (548 | ) |
| Increase in prepaids and other current assets | | | (1 | ) |
| Increase in accounts payable | | | 661 | |
| Increase in accrued expenses and other current liabilities | | | 7 | |
| Increase in volume rebate accrual | | | 515 | |
| Net cash provided by operating activities | | | 7,019 | |
| | | | | |
| Investing activities | | | | |
| Purchase of property, plant and equipment | | | (647 | ) |
| Proceeds from sale of fixed assets | | | 4 | |
| Net cash used in investing activities | | | (643 | ) |
| | | | | |
| Financing activities | | | | |
| Repayments of notes payable — bank | | | (1,216 | ) |
| Repayments of loans to members | | | (2,646 | ) |
| Distributions to members | | | (2,664 | ) |
| Net cash used in financing activities | | | (6,526 | ) |
| | | | | |
| Decrease in cash and cash equivalents | | | (150 | ) |
| Cash and cash equivalents at beginning of period | | | 611 | |
| Cash and cash equivalents at end of period | | $ | 461 | |
| | | | | |
| Supplementary Cash Flow Data | | | | |
| Members' capital distributions declared but not paid | | $ | 5,486 | |
| Interest paid | | $ | 141 | |
|
See accompanying notes.
F-42
Dynamic Design
Notes to Combined Financial Statements
November 14, 2002
(Dollars in Thousands)
1. Formation and Description of Business
The accompanying combined financial statements include the accounts of National Sales Co., LLC (a New Jersey limited liability company) and Global Sales Co., LLC (a New Jersey limited liability company), which are related entities as a result of common ownership, common management, shared resources and related common business activities therein after referred to as the "Company."
National Sales Co., LLC and Global Sales Co., LLC d/b/a Dynamic Design are economically interdependent entities. National Sales Co., LLC is responsible for the production of all products and distribution thereof. Global Sales Co., LLC provides the marketing expertise, nationwide sales network and maintains all relationships with the customers. Together, the Company manufacturers and markets foam and injection-molded pots and planters to customers principally in the United States.
The Company's fiscal year ends on December 31.
On November 14, 2002, the Company sold predominantly all of its assets and liabilities to ATT Holding Co. These combined financial statements represent the operating results of the Company from January 1, 2002 to November 14, 2002.
2. Significant Accounting Policies
Principles of Combination
The accompanying combined financial statements for the period January 1, 2002 to November 14, 2002 include the accounts of National Sales Co., LLC and Global Sales Co., LLC. All material intercompany transactions have been eliminated in combination.
Cash and Cash Equivalents
Cash equivalents represent short-term, highly liquid investments, which have maturities of 90 days or less when purchased. The carrying amount of cash and cash equivalents approximates fair value.
Accounts Receivable
Trade receivables are reported net of an allowance for sales returns and doubtful accounts. The allowance is based on management's estimate of the amount of receivables that will actually be collected, and is based upon historical experience. Accounts are written off when management determines the account is uncollectible. The allowances are adjusted periodically to reflect the Company's expected bad debt and returns chargeback activity. For the period ended November 14, 2002, the Company incurred $179 of bad debt expense. Finance charges are not assessed on past due accounts.
Inventories
Inventories are stated at the lower of cost, which is determined by the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost less accumulated depreciation provided under the straight-line method. Assets are depreciated over the useful lives of each asset, primarily
F-43
Dynamic Design
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
2. Significant Accounting Policies (continued)
five years. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the costs and accumulated depreciation are removed from the accounts. Any resulting gain or loss is recognized currently. Construction in progress is comprised of ongoing development costs associated with upgrades and additions. Depreciation expense totaled $963 for the period ending November 14, 2002, of which $864 is included in cost of goods sold and $99 is included in selling, general and administrative expense.
Long-Lived Assets
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires that companies consider whether indicators of impairment of long-lived assets held for use are present. If such indicators are present, companies determine whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than their carrying amount, and if so, companies recognize an impairment loss based on the excess of the carrying amount of the assets over their fair value. Management periodically evaluates the changing value of property and equipment and has determined there were no indicators of impairment as of November 14, 2002.
Income Taxes
National Sales Co., LLC and Global Sales Co., LLC are treated as partnerships for federal and state income tax reporting purposes and accordingly the income tax liabilities are the responsibility of, and are paid by, the individual members.
Revenue and Cost Recognition
Revenue is recognized upon shipment of products or delivery of products to the customer, depending on the terms of the sale. Provisions are made for estimated sales returns and allowances at the time of sale and are included in net sales.
Shipping and Handling Costs
All shipping and handling costs are expensed as incurred. Costs incurred to ship product to the customer are included in costs of goods sold and totaled $2,842 for the period ended November 14, 2002. Warehousing and distribution costs incurred with third-party warehouse facilities are included in selling, general and administrative expense and totaled approximately $2,848 for the period ended November 14, 2002.
Advertising Costs
Advertising costs are expensed as incurred. Such amounts totaled approximately $13 for the period ended November 14, 2002.
Research and Development Costs
Research and development costs are expensed as incurred. Such amounts totaled $75 for the period ended November 14, 2002.
Fair Value of Financial Instruments
Financial instruments held by Dynamic Design include cash and cash equivalents, accounts receivable and accounts payable.
F-44
Dynamic Design
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
2. Significant Accounting Policies (continued)
The fair values of all cash and cash equivalents, accounts receivable, and accounts payable approximate their carrying value due to their short-term nature.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could differ from those estimates.
3. Trade Receivables and Concentrations of Credit Risk
Trade receivables are as follows as of November 14, 2002:
| | | | | | |
| Trade receivables | | $ | 4,837 | |
| Allowance for doubtful accounts and estimated sales returns and allowances | | | (501 | ) |
| | | $ | 4,336 | |
|
The Company operates principally in the United States. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Credit losses have been within management's estimates.
The Company's top two customers represented approximately 54% and 18% of sales for the period January 1, 2002 to November 14, 2002. Trade receivables due from these two customers represented approximately 78% and 17% of the balance at November 14, 2002.
4. Inventories
Inventories are as follows as of November 14, 2002:
| | | | | | |
| Finished goods | | $ | 2,651 | |
| Raw materials | | | 365 | |
| | | | 3,016 | |
| Less allowance for obsolescence | | | (203 | ) |
| | | $ | 2,813 | |
|
F-45
Dynamic Design
Notes to Combined Financial Statements (continued)
(Dollars in Thousands)
5. Property, Plant and Equipment
A summary of property, plant and equipment held by the Company is as follows as of November 14, 2002:
| | | | | | |
| Leasehold improvements | | $ | 93 | |
| Machinery and equipment | | | 400 | |
| Furniture and fixtures | | | 341 | |
| Molds | | | 6,867 | |
| Construction in progress | | | 185 | |
| | | | 7,886 | |
| Less accumulated depreciation | | | (4,956 | ) |
| Property, plant and equipment, net | | $ | 2,930 | |
|
6. Lease Arrangements
Rental expense for operating leases was $149 for the period from January 1, 2002 to November 14, 2002.
Future minimum rental commitments under non cancelable operating leases as of November 14, 2002 are as follows:
| | | | | | |
| Remainder of 2002 | | $ | 21 | |
| 2003 | | | 136 | |
| 2004 | | | 3 | |
| Total minimum lease payments | | $ | 160 | |
|
7. Profit Sharing Plan
The Company has a qualified defined contribution profit sharing retirement plan, under which the Company, at the discretion of its members, can make annual, tax deductible contributions to the retirement accounts of participating employees pursuant to Internal Revenue Code guidelines and regulations in amounts ranging from 0% to 15% of participating employee compensation. This amount is funded annually. The expense for the period January 1, 2002 to November 14, 2002 was $108.
8. Related Party Transactions
Included in administrative expenses are royalties of $797 earned by a member of the Company in accordance with a contractual agreement. As of November 14, 2002, $389 was payable to a member.
9. Members' Equity
National Sales Co., LLC and Global Sales Co., LLC are New Jersey limited liability companies. In accordance with the limited liability agreements, profit and loss is allocated to members in accordance with their respective ownership interests. The debts, obligations and liabilities of the companies, whether arising in contract, tort or otherwise, shall be solely debts, obligations and liabilities of the companies, and no member or manager of the companies shall be obligated personally for any such debt, obligation or liability of the companies solely by reason of being a member or manager.
F-46
PROSPECTUS DATED , 2004
$150,000,000
Ames True Temper, Inc.
Offer to Exchange
10% Senior Subordinated Notes due 2012
for any and all outstanding
10% Senior Subordinated Notes due 2012
PROSPECTUS
We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or our solicitation of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of our company have not changed since the date hereof.
Until , 2004 (90 days from the date of this prospectus), all dealers effecting transactions in the securities, whether or not participating in this exchange offer, may be required to deliver a prospectus.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification of Directors and Officers of the Issuer
Ames True Temper, Inc. is a corporation organized under the laws of the State of Delaware.
Indemnification under the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful.
Section 145 of the DGCL does not permit indemnification in any threatened, pending or completed action or suit by or in the right of the corporation in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses, which the Court of Chancery or such other court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter, such person shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended.
The DGCL also provides that indemnifications under Section 145 can only be made upon a determination that indemnification of the present or former director, officer or employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 145. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of directors who are not a party to the action at issue (even though less than a quorum), or (2) by a majority vote of a designated committee of these directors (even though less than a quorum), or (3) if there are no such directors, or these directors authorize, by the written opinion of independent legal counsel, or (4) by the stockholders.
The DGCL also empowers a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide for eliminating or limiting the personal liability of one of its directors for any monetary damages related to a breach of fiduciary duty as a director, so as long the corporation does not eliminate or limit the liability of a director
II-1
(1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for unlawful payments of dividends or unlawful stock purchases or redemptions, or (4) for any transaction from which the director received an improper personal benefit.
These provisions will not limit the liability of directors or officers under the federal securities laws of the United States.
Indemnification under the by-laws.
Article XIV of amended and restated by-laws of Ames True Temper, Inc. provides that the company shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, if such person has acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. Such persons shall also be indemnified in actions or suit by or in the right of the company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the company, or is or was serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the company, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought determines upon application that such person is fairly and reasonably entitled to indemnity for such expenses.
In addition, the amended and restated by-laws of Ames True Temper, Inc. provide that the company shall have the power to purchase and maintain insurance on behalf of any director, officer, employee or agent of the company or serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise whether or not the company would have the power to indemnify said persons against such expense, liability or loss under Article XIV of the amended and restated by-laws. Article XIV also contains provisions permitting the advancement of expenses incurred in defending any threatened or pending civil, criminal, administrative or investigative action, suit or proceeding. Such expenses are to be paid such amount if indemnification is ultimately determined not to be appropriate. The indemnification and the advancement of expenses provisions are not exclusive of any other rights to which those seeking indemnification or the advancement of expenses may be entitled under any statute, certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors, pursuant to the direction of any court of competent jurisdiction or otherwise.
Indemnification of Directors and Officers of the Parent
ATT Holding Co. is a corporation organized under the laws of the State of Delaware.
Indemnification under the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good
II-2
faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful.
Section 145 of the DGCL does not permit indemnification in any threatened, pending or completed action or suit by or in the right of the corporation in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses, which the Court of Chancery or such other court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter, such person shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended.
The DGCL also provides that indemnifications under Section 145 can only be made upon a determination that indemnification of the present or former director, officer or employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 145. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of directors who are not a party to the action at issue (even though less than a quorum), or (2) by a majority vote of a designated committee of these directors (even though less than a quorum), or (3) if there are no such directors, or these directors authorize, by the written opinion of independent legal counsel, or (4) by the stockholders.
The DGCL also empowers a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide for eliminating or limiting the personal liability of one of its directors for any monetary damages related to a breach of fiduciary duty as a director, so as long the corporation does not eliminate or limit the liability of a director (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) for unlawful payments of dividends or unlawful stock purchases or redemptions, or (4) for any transaction from which the director received an improper personal benefit.
These provisions will not limit the liability of directors or officers under the federal securities laws of the United States.
Indemnification under the certificate of incorporation.
Article 7 of the second amended and restated certificate of incorporation of ATT Holding Co. gives the company the right, to the fullest extent permitted by applicable law, to indemnify its officers and directors.
Article 8 of the second amended and restated certificate of incorporation expressly eliminates a director's personal liability for monetary damages to the company and its stockholders for breaches of fiduciary duty as a director, except in circumstances involving a breach of a director's duty of loyalty to the company or its stockholders, acts or omissions not in good faith or that involve intentional misconduct or knowing violations of the law, liability arising out of unlawful payments of dividends or unlawful stock purchases or redemptions and transactions from which the director derived an improper personal benefit.
II-3
Indemnification under the by-laws.
Article 7 of the by-laws of ATT Holding Co. provides that the company shall indemnify each person who was or is a party or is threatened to be made a party to any third party proceeding by reason of the fact that he or she is or was an authorized representative of the company, if such person has acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. Such persons shall also be indemnified in corporate proceedings, by reason of the fact that he is or was an authorized representative of the company, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the company, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the company unless and only to the extent that the Court of Chancery or the court in which such corporate proceeding was brought determines upon application that such person is fairly and reasonably entitled to indemnity for such expenses.
In addition, the by-laws provide that the company shall have the power to purchase and maintain insurance on behalf of any director, officer, employee or agent of the company or serving at the request of the company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise whether or not the company would have the power to indemnify said persons against such expense, liability or loss under Article 7 of the by-laws. Article 7 also contains provisions permitting the advancement of expenses incurred by an authorized representative in defending a third party or corporate proceeding, upon receipt of an undertaking by or on behalf of the authorized representative to repay such amount if it shall ultimately be determined that the authorized representative is not entitled to be indemnified by the corporation. The indemnification and the advancement of expenses provisions are not exclusive of any other rights to which those seeking indemnification or the advancement of expenses may be entitled under any statute, certificate of incorporation, bylaw, agreement, vote of stockholders or disinterested directors or pursuant to the direction of any court of competent jurisdiction or otherwise.
Item 21. Exhibits and Financial Statement Schedules.
| | | | | | | | | | |
Exhibit
Number | | Description | | |
| | 1.1 | * | | Purchase Agreement dated June 23, 2004 among Ames True Temper, Inc. and the Initial Purchasers | | |
| | 3.1 | * | | Certificate of Incorporation of Ames True Temper, Inc. | | |
| | 3.2 | * | | By-laws of Ames True Temper, Inc. | | |
| | 3.3 | * | | Certificate of Incorporation of ATT Holding Co. | | |
| | 3.4 | * | | By-laws of ATT Holding Co. | | |
| | 4.1 | * | | Indenture dated as of June 28, 2004 among Ames True Temper, Inc., as Issuer, ATT Holding Co. as Guarantor and The Bank of New York, as Trustee | | |
| | 4.2 | * | | Form of 10% Senior Subordinated Notes due 2012 (included in Exhibit 4.1) | | |
| | 4.3 | * | | Registration Rights Agreement, dated June 28, 2004, among Ames True Temper, Inc., ATT Holding Co. and the Initial Purchasers | | |
| | 5.1 | ** | | Opinion of Schulte Roth & Zabel LLP | | |
|
II-4
| | | | | | | | | | |
Exhibit
Number | | Description | | |
| | 10.1 | ** | | Stock Purchase Agreement, dated as of June 21, 2004, by and among ATT Holding Co., the Warrantholders of ATT Holding Co., Windpoint Investors V, L.P., as Sellers' Representative, CHATT Holdings LLC, as Buyer Parent, and CHAAT Holdings Inc., as Buyer | | |
| | 10.2 | ** | | Credit Agreement, dated as of June 28, 2004, by and among Ames True Temper, Inc., ATT Holding Co., the lenders from time to time party thereto (each a "Lender" and collectively, the "Lenders"), Bank of America, N.A., in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, General Electric Capital Corporation as Documentation Agent, Wachovia Bank, National Association, as Syndication Agent and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager | | |
| | 10.3 | ** | | Security Agreement, dated as of June 28, 2004, made by Ames True Temper, Inc. the other person listed on the signature pages thereof to Bank of America, N.A., as Collateral Agent | | |
| | 10.4 | ** | | Intellectual Property Security Agreement, dated June 28, 2004, made by the persons listed on the signature pages thereof in favor of Bank of America, N.A., as Collateral Agent | |
| | 10.5 | ** | | Subsidiary Guaranty, dated as of June 28, 2004, made by the persons listed on the signature pages thereof under the caption "Subsidiary Guarantor" in favor of the Secured Parties | |
| | 10.6 | ** | | Charge of Shares in respect ot the shares of True Temper Limited made on June 28, 2004 between Ames True Temper, Inc. and Bank of America, N.A., as security trustee | |
| | 10.7 | ** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Richard C. Dell | | |
| | 10.8 | ** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Judy A. Schuchart | | |
| | 10.9 | ** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Duane R. Greenly | | |
| | 10.10 | ** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and George Reed, Jr. | | |
| | 10.11 | ** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Joseph Wersosky | |
| | 11.1 | ** | | Management Agreement, dated June 28, 2004, by and among Castle Harlan, Inc., ATT Holding Co., Ames True Temper, Inc. and CHATT Holdings Inc. | | |
| | 12.1 | * | | Statement Regarding Computation of Ratios | | |
| | 21.1 | * | | List of subsidiaries of the Company | | |
| | 23.1 | * | | Consent of Ernst & Young LLP | | |
| | 23.2 | ** | | Consent of Schulte Roth & Zabel LLP (incorporated by reference in Exhibit 5.1) | | |
| | 24 | * | | Power of Attorney (included on Signature Page of initial filing) | | |
| | 25 | * | | Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as Trustee | | |
| | 99.1 | * | | Form of Letter of Transmittal | | |
| | 99.2 | * | | Form of Notice of Guaranteed Delivery for Outstanding 10% Senior Subordinated Notes due 2012 in exchange for 10% Senior Subordinated Notes due 2012. | | |
|
| |
| * | Filed herewith |
| |
| ** | To be filed by amendment |
II-5
| | |
| | (b) Financial Statements Schedules |
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended September 27, 2003, the Period Ended September 28, 2002,
the Period Ended January 13, 2002 and the Year Ended September 30, 2001
(Dollar amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts | | Balance at
beginning of
period | | Additions
charged to
costs and
expenses | | Deductions | | Acquisitions | | Balance at
end of
period |
| ATT Holding Co. | | | | | | | | | | | | | | | | | | | | |
| Year ended September 27, 2003 | | $ | 2,559 | | | $ | 199 | | | $ | 1,219 | | | $ | 552 | | | $ | 2,091 | |
| Period ended September 28, 2002 | | | 2,500 | | | | 1,689 | | | | 1,630 | | | | — | | | | 2,559 | |
| Ames True Temper Group (Predecessor Company) | | | | | | | | | | | | | | | | | | | | |
| Period ended January 13, 2002 | | | 1,700 | | | | 900 | | | | — | | | | — | | | | 1,600 | |
| Year ended September 30, 2001 | | | 1,300 | | | | 700 | | | | 300 | | | | — | | | | 1,700 | |
|
II-6
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
| |
| (1) | To file, during any period in which offers or sales are being made, a post effective amendment to this Registration Statement: |
| | |
| (i) | To include any prospectus required by Section l0(a)(3) of the Securities Act of 1933; |
| | |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement, or the most recent post-effective amendment thereof, which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered, if the total dollar value of securities offered would not exceed that which was registered, and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; |
| | |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; |
| |
| (2) | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and |
| |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
The undersigned Registrant hereby undertakes that:
| |
| (1) | Prior to any public reoffering of the securities registered hereunder through use of a prospectus which is apart of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. |
| |
| (2) | Every prospectus: (i) that is filed pursuant to the immediately preceding paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective.
II-7
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by then is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Ames True Temper, Inc. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Camp Hill, State of Pennsylvania, on the 10th day of August, 2004.
| AMES TRUE TEMPER, INC. |
| By: /s/ RICHARD DELL |
| |
| Date: August 10, 2004 | Name: Richard Dell
Title: President and Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Richard Dell and Judy Schuchart, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| | | | |
| Signature | | Title | | Date |
|
| /s/ RICHARD DELL | | Director, President and Chief Executive Officer | | August 10, 2004 |
|
| Richard Dell |
|
| /s/ JUDY SCHUCHART | | Vice President Finance, Chief Financial Officer | | August 10, 2004 |
|
| Judy Schuchart |
|
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ATT Holding Co. has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Camp Hill, State of Pennsylvania, on the 10th day of August, 2004.
| ATT HOLDING CO. |
| By: /s/ RICHARD DELL |
| |
| Date: August 10, 2004 | Name: Richard Dell
Title: President and Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Richard Dell and Judy Schuchart, and each of them, severally (with full power to act alone) as the true and lawful attorney-in-fact and agent for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in, and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
| | | | |
| Signature | | Title | | Date |
|
| /s/ RICHARD DELL | | Director, President and Chief Executive Officer | | August 10, 2004 |
|
| Richard Dell |
|
| /s/ JUDY SCHUCHART | | Vice President Finance, Chief Financial Officer | | August 10, 2004 |
|
| Judy Schuchart |
|
II-10
EXHIBIT INDEX
| | | | | | |
Exhibit
Number | | Description |
| 1.1* | | Purchase Agreement dated June 23, 2004 among Ames True Temper, Inc. and the Initial Purchasers |
| 3.1* | | Certificate of Incorporation of Ames True Temper, Inc. |
| 3.2* | | By-laws of Ames True Temper, Inc. |
| 3.3* | | Certificate of Incorporation of ATT Holding Co. |
| 3.4* | | By-laws of ATT Holding Co. |
| 4.1* | | Indenture dated as of June 28, 2004 among Ames True Temper, Inc., as Issuer, ATT Holding Co. as Guarantor and The Bank of New York, as Trustee |
| 4.2* | | Form of 10% Senior Subordinated Notes due 2012 (included in Exhibit 4.1) |
| 4.3* | | Registration Rights Agreement, dated June 28, 2004, among Ames True Temper, Inc., ATT Holding Co. and the Initial Purchasers |
| 5.1** | | Opinion of Schulte Roth & Zabel LLP |
| 10.1** | | Stock Purchase Agreement, dated as of June 21, 2004, by and among ATT Holding Co., the Warrantholders of ATT Holding Co., Windpoint Investors V, L.P., as Sellers' Representative, CHATT Holdings LLC, as Buyer Parent, and CHAAT Holdings Inc., as Buyer |
| 10.2** | | Credit Agreement, dated as of June 28, 2004, by and among Ames True Temper, Inc., ATT Holding Co., the lenders from time to time party thereto (each a "Lender" and collectively, the "Lenders"), Bank of America, N.A., in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, General Electric Capital Corporation, as Documentation Agent, Wachovia Bank, National Association, as Syndication Agent and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager |
| 10.3** | | Security Agreement, dated as of June 28, 2004, made by Ames True Temper, Inc., the other persons listed on the signature pages thereof to Bank of America, N.A., as Collateral Agent |
| 10.4** | | Intellectual Property Security Agreement, dated June 28, 2004, made by the persons listed on the signature pages thereof in favor of Bank of America, N.A., as Collateral Agent |
| 10.5** | | Subsidiary Guaranty, dated as of June 28, 2004, made by the persons listed on the signature pages thereof under the caption "Subsidiary Guarantor" in favor of the Secured Parties |
| 10.6** | | Charge of Shares in respect of the shares of True Temper Limited made on June 28, 2004 between Ames True Temper, Inc. and Bank of America, N.A., as security trustee |
| 10.7** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Richard C. Dell |
| 10.8** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Judy A. Schuchart |
| 10.9** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Duane R. Greenly |
|
II-12
| | | | | | |
Exhibit
Number | | Description |
| 10.10** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and George Reed, Jr. |
| 10.11** | | Amended and Restated Employment Agreement, dated June 28, 2004, between Ames True Temper, Inc. and Joseph Wersosky |
| 11.1** | | Management Agreement, dated June 28, 2004, by and among Castle Harlan, Inc., ATT Holding Co., Ames True Temper, Inc. and CHATT Holdings Inc. |
| 12.1* | | Statement Regarding Computation of Ratios |
| 21.1* | | List of subsidiaries of the Company |
| 23.1* | | Consent of Ernst & Young LLP |
| 23.2** | | Consent of Schulte Roth & Zabel LLP (incorporated by reference in Exhibit 5.1) |
| 24* | | Power of Attorney (included on Signature Page of initial filing) |
| 25* | | Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as Trustee |
| 99.1* | | Form of Letter of Transmittal |
| 99.2* | | Form of Notice of Guaranteed Delivery for Outstanding 10% Senior Subordinated Notes due 2012 in exchange for 10% Senior Subordinated Notes due 2012 |
|
| |
| * | Filed herewith |
| |
| ** | To be filed by amendment |
II-13
![[ ]](https://capedge.com/proxy/S-4/0000950136-04-002530/ebox.gif){kind=small}
