<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEARDROP GOLF COMPANY
(Name of small business issuer in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3949 57-1056600
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
32 BOW CIRCLE, BUILDING #1
HILTON HEAD ISLAND, SOUTH CAROLINA 29928
(803) 686-4995
(Address and telephone number of principal executive offices)
------------------------------
32 BOW CIRCLE, BUILDING #1
HILTON HEAD ISLAND, SOUTH CAROLINA 29928
(Address of principal place of business or intended principal place of business)
------------------------------
MR. RUDY A. SLUCKER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
32 BOW CIRCLE, BUILDING #1
HILTON HEAD ISLAND, SOUTH CAROLINA 29928
(803) 686-4995
(Name, address and telephone number of agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Jeffrey A. Baumel, Esq. David Alan Miller, Esq.
Crummy, Del Deo, Dolan, Graubard Mollen & Miller
Griffinger & Vecchione 600 Third Avenue
One Riverfront Plaza New York, New York 10018
Newark, New Jersey 07102 Telephone: (212) 818-8800
Telephone: (201) 596-4500 Fax: (212) 818-8881
Fax: (201) 639-6260
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE MAXIMUM PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SECURITY(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share........................... 1,322,500(3) $4.75 $ 6,281,875 $ 2,166.16
Warrants......................................................... 1,322,500(4) $.10 $ 132,250 $ 45.60
Shares of Common Stock underlying Warrants....................... 1,322,500 $4.00 $ 5,290,000 $ 1,824.14
Underwriter's Purchase Option.................................... 115,000 $.0009 $ 103.50 $ 0.03
Shares of Common Stock included as part of Underwriter's Purchase
Option......................................................... 115,000 $5.23 $ 601,450 $ 207.40
Warrants included as part of Underwriter's Purchase Option....... 115,000 $0.11 $ 12,650 $ 4.36
Shares of Common Stock underlying Warrants included as part of
Underwriter's Purchase Option.................................. 115,000 $4.00 $ 460,000 $ 158.62
Total Registration Fee........................................... $ 4,406.31
</TABLE>
(1) Pursuant to Rule 416, there are also being registered such indeterminable
number of additional securities which may be issued as a result of the
anti-dilution provisions of the Warrants and the Underwriter's Purchase
Option.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 172,500 shares of Common Stock subject to an over-allotment option
granted to the Underwriter by the Registrant.
(4) Includes 172,500 Warrants subject to an over-allotment option granted to the
Underwriter by the Registrant.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS PRELIMINARY OFFICIAL STATEMENT AND THE INFORMATION CONTAINED HEREIN ARE
SUBJECT TO COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY THEM BE ACCEPTED, PRIOR TO THE TIME THE OFFICIAL
STATEMENT IS DELIVERED IN FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS
PRELIMINARY OFFICIAL STATEMENT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF, THESE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION, QUALIFICATION OR FILING UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 23, 1996
PROSPECTUS
TEARDROP GOLF COMPANY
1,150,000 SHARES OF COMMON STOCK AND
1,150,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the 1,150,000 shares of common stock ("Common Stock") and 1,150,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby (together,
the "Securities") are being sold by TearDrop Golf Company ("Company" or
"TearDrop"). Each Warrant entitles the holder to purchase one share of Common
Stock for $4.00 during the five-year period commencing on the date of this
Prospectus. The Company may redeem the Warrants at a price of $.01 per Warrant
on not less than 30 days' prior written notice if the last sale price of the
Common Stock has been at least 162.5% of the then-exercise price of the Warrants
(initially $6.50) for the 20 consecutive trading days ending on the third day
prior to the date on which notice is given. See "Description of Securities."
Prior to this Offering, there has been no public market for the Securities and
there can be no assurance that any such market will develop. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price of the Securities and the exercise price of the Warrants.
The Company has applied for quotation of the Common Stock and Warrants on the
Nasdaq SmallCap Market under the symbols "TDRP" and "TDRPW", respectively.
------------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 6 AND
"DILUTION" AT PAGE 13.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share............................................. $4.75 $.475 $4.275
Per Warrant........................................... $.10 $.01 $.09
Total (3)............................................. $5,577,500 $557,750 $5,019,750
</TABLE>
(1) Does not include a 3% nonaccountable expense allowance which the Company has
agreed to pay to the Underwriter. The Company has also agreed to sell the
Underwriter an option to purchase 115,000 shares of Common Stock and/or
115,000 Warrants ("Underwriter's Purchase Option"), to retain the
Underwriter as a financial consultant and to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company, not including the
nonaccountable expense allowance, estimated at approximately $350,000.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
172,500 shares of Common Stock and/or 172,500 Warrants on the same terms set
forth above, solely for the purpose of covering over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$6,414,125, $641,413 and $5,772,712, respectively. See "Underwriting."
The Securities are being offered by the Underwriter subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to the
approval of certain legal matters by counsel and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify this Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities will be made against payment therefor
at the offices of the Underwriter in New York City, on or about ,
1996.
GKN SECURITIES
, 1996
<PAGE>
[GRAPHICS TO BE PROVIDED]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
"TEARDROP-REGISTERED TRADEMARK-" IS A REGISTERED TRADEMARK OF TEARDROP GOLF
COMPANY. THE UNITED STATES PATENT AND TRADEMARK OFFICE HAS ISSUED A NOTICE OF
ALLOWANCE TO TEARDROP GOLF COMPANY FOR THE TRADEMARK "SPIN MASTER-TM-."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS
BEEN ADJUSTED TO REFLECT THE REINCORPORATION OF THE COMPANY IN THE STATE OF
DELAWARE, EFFECTED ON OCTOBER 21, 1996 AND A 3,333.33-FOR-ONE SHARE CONVERSION
IN CONNECTION THEREWITH (THE "REINCORPORATION"). THIS PROSPECTUS CONTAINS, IN
ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
The Company designs, develops and markets high-quality, premium-priced golf
clubs based on its proprietary technologies, including its
TearDrop-Registered Trademark- line of putters and its new line of Spin
Master-TM- wedges. The TearDrop putter is used by professional golfers on the
Professional Golf Association ("PGA") Tour, the PGA Senior Tour and the Nike
Tour, including Brett Ogle (1995 Hawaiian Open and Pebble Beach Golf Tournament
Champion), Dustin Phillips, Dino Lucchesi, Dennis Zinkon and P.J. Cowan. The
TearDrop putter achieved a top-ten ranking on both the PGA Tour and the PGA
Senior Tour for victories and top-ten finishes in 1995 among all putters used.
The Company believes that its products address the demand for innovative
short-game clubs that has not been adequately met by the golf equipment
industry, which recently has stressed technological advancement in the design of
drivers.
Gross retail sales of golf clubs in the United States have grown from
approximately $2.1 billion in 1986 to approximately $5.0 billion in 1994. With
increasing sales, golf equipment manufacturers have invested more in research
and development, designing clubs by combining new materials and technologies
with advanced remodeling, testing and manufacturing techniques in order to
provide golfers with clubs (primarily drivers) that allow for greater distance
and control. While it is estimated that between 10 to 12 million putters were
purchased worldwide during 1995, there have been relatively few advances in the
design and manufacture of putters and other short-game clubs.
To exploit the niche for innovative short-game clubs, the Company introduced
its first product, the TearDrop putter, in 1993, and has since developed and
introduced six additional putters, all based on TearDrop putter technology. The
TearDrop putter features a rounded hitting surface rather than the flat hitting
surface found on most other putters. This technology allows for the striking of
the ball directly at or below center, eliminating most skidding and developing a
high overspin, resulting in a superior roll for more precise putts. The Company
broadened its product line in Spring 1996 with the introduction of its Spin
Master wedges, which feature a titanium-treated friction surface to provide
enhanced backspin and added durability.
The Company's objective is to become a leading supplier of quality specialty
clubs, including putters and wedges, and, in the longer term, drivers. To
achieve this objective, the Company is focusing on increasing awareness, and
enhancing the reputation, of its products; increasing market penetration of its
products; and continuing the development of innovative clubs and the refinement
and improvement of existing products. An integral part of this strategy is the
expansion of the Company's marketing and advertising efforts for which the
Company intends to use a substantial portion of the proceeds of this Offering.
The Company's domestic marketing strategy targets on-course golf pro shops and
selected off-course specialty stores and will include print advertising,
television commercials and infomercials and other promotional activities. An
important feature of the Company's overall marketing effort includes the
endorsement of its products by touring professional golfers who will demonstrate
the effectiveness of the TearDrop putter and provide valuable exposure. These
professionals also provide important feedback to
3
<PAGE>
the Company regarding future product introductions and existing product
refinements. The Company also intends to expand its line of clubs by developing,
acquiring or licensing advanced technologies for other specialty clubs such as
wedges or drivers.
The Company's executive offices are located at 32 Bow Circle, Building #1,
Hilton Head Island, South Carolina 29928 and its telephone number is (803)
686-4995. The Company was incorporated in South Carolina in 1992 under the name
"Teardrop Putter Corporation" and merged into the "TearDrop Golf Company" a
Delaware corporation in October 1996.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 1,150,000 shares of Common Stock and
1,150,000 Warrants. Each Warrant entitles
the registered holder thereof to purchase
one share of Common Stock for $4.00 during
the five-year period commencing on the date
of this Prospectus. The Company may redeem
the Warrants at a price of $.01 per Warrant
on not less than 30 days' prior written
notice if the last sale price of Common
Stock has been at least 162.5% of the then-
exercise price of the Warrants (initially
$6.50) for the 20 consecutive trading days
ending on the third day prior to the date
on which notice of redemption is given. See
"Description of Securities."
Common Stock Outstanding
Prior to the Offering...................... 750,000 shares
Common Stock to be Outstanding
After the Offering......................... 1,900,000 shares
Proposed Nasdaq SmallCap
Market Symbols............................. Common Stock: TRDP
Warrants: TRDPW
</TABLE>
USE OF PROCEEDS
The Company intends to apply approximately $2,200,000 of the net proceeds of
this Offering to its marketing and advertising activities, approximately
$300,000 to repay indebtedness to NationsBank of South Carolina ("NationsBank"),
approximately $250,000 to improve its manufacturing operations and approximately
$100,000 to research and development. The remaining $1,652,425 will be used for
working capital and general corporate purposes. See "Use of Proceeds."
RISK FACTORS
The securities offered hereby involve a high degree of risk, including,
without limitation, the Company's limited operating history; a history of losses
and accumulated and stockholders' deficits; recent decreases in net sales and
increases in net loss; the possible need for additional capital; and the highly
competitive nature of the sporting goods industry generally and the golf
equipment segment specifically. An investment in the Securities offered hereby
should be considered only by investors who can afford the loss of their entire
investment. See "Risk Factors."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data presented below for the fiscal years ended
December 31, 1994 and December 31, 1995 is derived from the audited financial
statements of the Company included herein. The summary financial data as of and
for the nine months ended September 30, 1995 and September 30, 1996 are derived
from the unaudited financial statements of the Company. In the opinion of
management, the summary financial data presented below as of and for the nine
months ended September 30, 1995 and September 30, 1996 include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The nine month results are not necessarily indicative of the results to
be expected for the full year. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Plan of
Operations" and the financial statements of the Company, including the notes
thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
1996 1995 1995 1994
----------- ------------- ------------- -------------
STATEMENT OF OPERATIONS DATA:
Sales................................................. $ 715,495 $ 820,746 $ 1,057,306 $ 784,519
Loss from operations.................................. (251,785) (214,602) (434,637) (443,653)
Net loss.............................................. (372,930) (293,135) (542,425) (552,044)
Pro forma net loss per share (1)...................... $ (.50) $ (.39) $ (.72) $ (.74)
Shares used in computing pro forma net loss per share
(1)................................................. 750,000 750,000 750,000 750,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------
<S> <C> <C> <C> <C>
PRO FORMA
AS
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
------------- ------------- ----------------
BALANCE SHEET DATA:
Working capital (deficit)......................... $ (160,297) $ (160,297) $ 4,342,128
Total current assets.............................. 446,552 446,552 4,648,977
Total assets...................................... 643,820 643,820 4,846,245
Total liabilities................................. 2,384,881 1,301,555 1,001,555
Accumulated deficit............................... (1,741,286) (1,741,286) (1,741,286)
Total stockholders' equity (deficit).............. $ (1,741,061) $ (657,735) $ 3,844,690
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
(2) Gives effect to (i) the forgiveness by certain stockholders of the Company
of an aggregate of $1,083,326 of indebtedness of the Company as of September
30, 1996 and (ii) the Reincorporation.
(3) Reflects the receipt by the Company of the net proceeds from the sale of the
Securities offered hereby and the application thereof.
UNLESS OTHERWISE INDICATED, ALL SHARE, PER-SHARE AND FINANCIAL INFORMATION
SET FORTH HEREIN HAS BEEN ADJUSTED TO GIVE EFFECT TO THE REINCORPORATION;
ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION; THE WARRANTS;
OTHER OUTSTANDING OPTIONS TO ACQUIRE UP TO AN AGGREGATE OF 500,000 SHARES OF
COMMON STOCK; AND OPTIONS TO ACQUIRE UP TO AN AGGREGATE OF 200,000 SHARES OF
COMMON STOCK WHICH MAY BE GRANTED UNDER THE COMPANY'S 1996 EMPLOYEE STOCK OPTION
PLAN; AND GIVES PRO FORMA EFFECT TO THE FORGIVENESS OF AN AGGREGATE OF
$1,083,326 OF INDEBTEDNESS BY CERTAIN STOCKHOLDERS OF THE COMPANY AS OF THE
EFFECTIVE DATE OF THIS OFFERING.
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE SECURITIES,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH THE OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS. NO INVESTOR SHOULD PARTICIPATE
IN THIS OFFERING UNLESS SUCH INVESTOR CAN AFFORD A COMPLETE LOSS OF HIS
INVESTMENT.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ACCUMULATED DEFICIT;
STOCKHOLDER DEFICIT; RECENT DECREASE IN NET SALES AND INCREASE IN NET LOSS. The
Company has a short operating history. It commenced operations in August 1992,
shipped its first products in 1993 and commenced substantial sales activities in
1994. Although the Company had net sales of approximately $785,000 during 1994
and net sales of approximately $1,057,000 during 1995, the Company has incurred
operating losses since its inception, which losses have continued to date. As of
September 30, 1996, the Company had an accumulated deficit and stockholders'
deficit of approximately $1,741,000. During late 1995 and early 1996, the
Company discontinued its previous line of putters and introduced its current
line. However, because of delays in manufacturing, the Company was not able to
ship any products until April 1996. This resulted in a decrease in sales from
approximately $821,000 for the nine months ended September 30, 1995 to
approximately $715,000 for the nine months ended September 30, 1996 and an
increase in net loss from approximately $293,000 during the nine months ended
September 30, 1995 to approximately $373,000 during the nine months ended
September 30, 1996. See Financial Statements and "Management's Discussion and
Analysis and Plan of Operations."
CONTINUED LOSSES EXPECTED; GOING CONCERN OPINION. The Company will not be
able to achieve profitability unless it is able to increase substantially sales
of its existing line of putters and wedges, successfully introduce new products
in a timely manner and finance improvements to its production capabilities. In
order to increase sales, the Company will spend substantially increased amounts
for advertising and marketing. The Company expects that losses will continue for
at least the immediate future because it is not anticipated that such increased
expenditures will result in immediate proportionate increases in sales as the
Company develops its reputation and brand name recognition. There can be no
assurance that the Company will be able to sustain net sales in the future or
achieve or sustain profitability. The Company's accountants have included a
statement in their opinion on the financial statements for the Company to the
effect that the Company's loss from operations raises substantial doubt about
its ability to continue as a going concern. See Note 12 to the Notes to
Financial Statements, "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Plan of Operations."
WORKING CAPITAL DEFICIT; DEPENDENCE UPON LOANS FROM STOCKHOLDERS AND
NATIONSBANK; PLEDGE OF SUBSTANTIALLY ALL ASSETS TO SECURE INDEBTEDNESS; NEED FOR
ADDITIONAL CAPITAL. Since its inception, the Company's internally generated
cash flow has not been sufficient to finance its operations. The Company has
experienced severe working capital shortfalls in the past, which have restricted
the Company's ability to conduct its business. As of September 30, 1996, the
Company had a working capital deficit of $160,000. Through the date of this
Offering, the Company has been primarily dependent upon loans from its current
stockholders in order to maintain its operations. It can be expected that
following this Offering, additional loans from such stockholders will no longer
be available. In addition, the Company has borrowed $300,000 from NationsBank
which was due and payable on March 15, 1996. The Company expects to extend the
due date for indebtedness to December 31, 1996. From time to time, the Company
has been in default on this loan, each of which defaults have been subsequently
waived. The loan is secured by all of the assets of the Company. The Company may
obtain alternative financing from another lender to repay the NationsBank debt
although it may be expected that any such debt will also be secured by the
assets of the Company. Although the Company believes that the proceeds from this
Offering will be sufficient for the Company to maintain its operations as
planned for at least the next 12 months, if the Company's sales do not increase
substantially, it will likely need additional financing after such time in order
to continue operations. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, if
6
<PAGE>
at all, when required by the Company. The inability to obtain additional
financing when needed would have a material adverse effect on the Company's
operating results and, as a result, the Company could be required to
significantly reduce or suspend its operations, seek a merger partner or sell
some or substantially all of its assets. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Plan of Operations."
DEPENDENCE UPON ENDORSEMENTS. As an integral part of its marketing
strategy, the Company seeks to obtain endorsements of its clubs from touring
professionals. Typically, the Company's agreements with its endorsing
professionals provide for the use of the professionals' names in connection with
the marketing of the Company's clubs and the use of the clubs by such
professionals in tournament play. The effect of a particular professional's
endorsement on the successful marketing of the Company's clubs, and the
heightening of awareness of the Company's brand name, is directly related to the
success of such professional in tournament play. However, the amount of
remuneration required to be paid or provided by the Company under a typical
endorsement agreement is not substantially dependent on the tournament success
of such professional. Accordingly, if the Company's endorsing professionals do
not have substantial tour victories, the Company likely will receive less
exposure, yet would still be required to pay endorsement fees. To date, only a
limited number of touring professional golfers have signed endorsement
agreements with the Company. In order to succeed with its marketing strategy,
the Company will be required to enter into endorsement agreements with
additional professional golfers. The inability of the Company to maintain its
relationships with its existing endorsing professionals, to enter into
endorsement agreements with additional professional golfers, or the failure of
the Company's endorsing professionals to achieve tournament success, would
diminish the effectiveness of the Company's marketing strategy and may result in
declining sales. See "Business--Sales and Marketing."
DEPENDENCE ON INDEPENDENT DESIGNERS. The Company does not employ any
research and development or design personnel, but instead works closely with
component manufacturers, independent design consultants and touring
professionals in the development of new products and improvement of existing
products. The Company does not have any written agreements with design
consultants, but believes that to the extent design services are needed,
designers having suitable technical design expertise would be readily available.
However, if the Company is unable to retain qualified design consultants who are
able to devote the necessary attention to the Company's needs when required, or
if the cost of utilizing such experts proves to be too high, the Company may be
unable to develop new products or improved products on a cost-effective or
timely basis. The inability of the Company to develop new products and improve
its current products on commercially reasonable terms could have a material
adverse effect on the Company's operating results and financial condition. See
"Business--Products."
DEPENDENCE ON LIMITED NUMBER OF COMPONENT SUPPLIERS. The Company assembles
all of its clubs at its Hilton Head Island, North Carolina facility. The Company
does not manufacture the components required to assemble its golf clubs. The
Company relies on one supplier for putter heads, a different supplier for wedge
heads and a small number of suppliers for shafts and grips. The Company does not
have written supply agreements with any of its current suppliers. Therefore, the
Company's success will be dependent on maintaining its relationships with
existing suppliers and developing relationships with new suppliers. The Company
believes that there are readily available alternative sources for each of the
components used in the manufacture and assembly of its clubs, although, of this,
there can be no assurance. Any significant delay or disruption in the supply of
components from the Company's suppliers or any diminution of quality resulting
from such supplier's insufficient controls or inadequate component testing,
would have a material adverse effect on the Company's business, operating
results and financial condition. Further, given the highly seasonal nature of
the golf equipment industry, such adverse effect would be exacerbated should any
supply delay or quality problem occur immediately prior to or during the six
month period ending June 30 (the period during which sales of golf equipment
generally are expected to be the highest). See "Management's Discussion and
Analysis of Financial Condition and Plan of Operations" and
"Business--Assembly."
7
<PAGE>
RELIANCE ON INDEPENDENT DOMESTIC SALES REPRESENTATIVES. Sales of the
Company's products are dependent, in part, on its nationwide network of
independent sales representatives. While the Company believes that its
relationships with its sales representatives and customers are satisfactory,
there can be no assurance that the Company will be able to maintain such
relationships in the future. The Company's sales representatives may also
provide services for other golf club equipment manufacturers that offer product
lines competitive with those of the Company. Although the Company works closely
with its sales representatives, the Company cannot directly control such
representatives' sales and marketing activities. There can be no assurance that
these representatives will effectively manage the sale of the Company's products
or that their selling efforts will prove effective. See "Business--Sales and
Marketing."
INTERNATIONAL SALES; RELIANCE ON LIMITED NUMBER OF FOREIGN DISTRIBUTORS.
During the years ended December 31, 1994 and 1995, and during the nine months
ended September 30, 1996, sales to international customers, primarily through
one customer which markets products in Japan, accounted for approximately 21%,
30% and 41% of the Company's net sales, respectively. Accordingly, if this
distributor ceases to purchase golf clubs from the Company, the Company's sales
will be reduced significantly. The Company relies exclusively on this and other
foreign distributors to market and sell the Company's products outside the
United States. Although the Company works closely with its foreign distributors,
the Company cannot directly control such distributors' sales and marketing
activities and, accordingly, cannot manage the Company's product sales in
foreign markets. The Company's foreign distributors may also distribute, either
on behalf of themselves or other golf club equipment manufacturers, other
product lines, including product lines that may be competitive with those of the
Company. There can be no assurance that these distributors will effectively
manage the sale of the Company's products worldwide or that their marketing
efforts will prove effective. Additionally, the Company's international sales
may be disrupted or adversely affected by events beyond the Company's control,
including currency fluctuations and political or regulatory changes. See
"Business--Sales and Marketing."
NEW PRODUCTS; USGA REGULATION. The Company believes that the introduction
of new and innovative technologies and club designs will be crucial to its
future success. New models and basic design changes are frequently introduced
into the golf club market but are often met with consumer rejection. Although
the Company has achieved certain successes in the introduction of its golf
putters, no assurances can be given that the Company will be able to continue to
design and manufacture golf clubs that meet with market acceptance. In addition,
prior successful designs may be rendered obsolete within a relatively short
period of time as new products are introduced into the market. It is expected
that competitors will attempt to develop alternative golf clubs that apply
existing and new technology . There can be no assurances that the Company will
be able to continue to design innovative products that can achieve market
acceptance.
The design of new golf clubs is also greatly influenced by rules and
interpretations of the United States Golf Association ("USGA"). Although the
golf equipment standards established by the USGA generally apply only to
competitive events sanctioned by that organization, it has become critical for
designers of new clubs to assure compliance with USGA standards. To the extent
that the Company's clubs are ruled ineligible under USGA standards, even
non-professional golfers will likely be unwilling to purchase them. The Company
has received approval for its primary putter designs by the USGA. However, the
Company's current wedges have not yet been submitted to the USGA for approval,
and the Company believes that further modifications will be necessary to bring
the wedges within USGA guidelines. No assurance can be given that the wedges or
any new products will receive USGA approval or that existing USGA standards will
not be altered in ways that adversely affect the sales of the Company's
products. See "Business--Products" and "--Regulatory Matters."
SEASONAL BUSINESS; QUARTERLY FLUCTUATIONS. Golf is primarily a warm weather
sport. The purchasing decisions of most customers are typically made in the fall
and a vast majority of sales are expected to occur during the first six months
of the year. In addition, quarterly results may vary from year to year due to
the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and
8
<PAGE>
shipments. Accordingly, comparisons of quarterly information of the Company's
results of operations may not be indicative of the Company's overall annual
performance. See "Management's Discussion and Analysis of Financial Condition
and Plan of Operations" and "Business--Sales and Marketing."
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS. Sales of golf equipment have
historically been dependent on discretionary consumer spending. As a result, the
Company's revenues will be subject to fluctuations based upon general economic
conditions in the United States and within the foreign countries into which the
Company sells its products. If there is a general economic downturn or recession
in the United States or in foreign countries in which the Company markets its
clubs, general consumer spending on golf equipment could be expected to decline,
which would have a material adverse effect on the Company's business, operating
results and financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company believes its success will depend
to a significant extent on the efforts and abilities of certain of its senior
management, particularly those of Rudy A. Slucker, its Chief Executive Officer
and Chairman of the Board. The Company will maintain "key person" life insurance
in the amount of $1,000,000 on the life of Mr. Slucker under which the Company
will be the sole beneficiary. Although the Company intends to enter into an
employment agreement with Mr. Slucker which is expected to expire in October
1999, the loss of Mr. Slucker or other key management, marketing or technical
employees could have a material adverse effect on the Company's operating
results and financial condition. There is strong competition for qualified
personnel in the golf club industry, and the loss of key personnel or an
inability on the Company's part to attract, retain and motivate key personnel
could adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to retain its
existing key personnel or attract additional qualified personnel. See
"Business--Employees" and "Management."
BROAD DISCRETION IN APPLICATION OF NET PROCEEDS; USE OF PROCEEDS TO REPAY
INDEBTEDNESS; USE OF PORTION OF PROCEEDS OF OVER-ALLOTMENT OPTION TO REPAY
INSIDER INDEBTEDNESS. The Company intends to use approximately $1,652,000, or
approximately 36.7%, of the net proceeds of this Offering for working capital
and general corporate purposes, over which management will have broad
discretion. The Company intends to use $300,000 of the proceeds to repay
NationsBank. Since Rudy Slucker, the Chairman of the Board of Directors of the
Company, is expected to provide, and Fred Hochman, a director and principal
stockholder of the Company, has provided, a personal guarantee for portions of
the Company's $300,000 indebtedness to NationsBank, they will benefit to the
extent of the release of their guarantees. Additionally, the Company has agreed
to allocate up to $400,000 from the proceeds, if any, received by the Company
upon the exercise of the Underwriter's over-allotment option, to the repayment
of indebtedness to certain stockholders of the Company, including members of
management. See "Use of Proceeds."
MANAGEMENT OF GROWTH. Following the completion of this Offering, the
Company will substantially expand its operations. It can be expected that this
will place a significant strain on the Company's management and other resources.
The Company's ability to manage its growth effectively will require it to hire
additional management personnel to improve its operational, financial and
management information systems, to accurately forecast sales demand and
calibrate manufacturing to such demand, to accurately forecast retail sales, to
control its overhead, to manage its advertising and marketing programs in
conjunction with actual demand, and to attract, train, motivate and manage its
employees effectively. If the Company's management is unable to manage growth
effectively, the Company's operating results and financial condition will be
adversely affected.
COMPETITION. The market for premium quality golf clubs is highly
competitive and includes a number of well-established companies that have more
readily recognizable brand names and larger, more widely known corps of
endorsing golf professionals, as well as greater market access and financial
resources, than the Company. Many purchasers of premium clubs desire golf clubs
that feature the most recent technology, innovative designs and recognized brand
names. Additionally, purchases are often made based upon highly subjective
decisions that may be influenced by numerous factors, many of which are out of
the
9
<PAGE>
Company's control. Golfers' subjective preferences are subject to rapid and
unanticipated changes. As a result, the Company will face substantial
competition from existing and new companies that market golf clubs that are
perceived to enhance performance, are visually appealing or appeal to other
consumer preferences. In addition, there are several manufacturers that do not
currently compete with the Company that could pose significant competition if
they enter the market for golf putters and wedges, or concentrate greater
resources upon their efforts in this market. There can be no assurance as to the
market acceptance of the Company's golf clubs in relation to its competition.
See "Business--Competition."
UNCERTAINTY OF PROPRIETARY RIGHTS; EXPENSE OF INTELLECTUAL PROPERTY
LITIGATION. The Company relies on a combination of patents, trademark and trade
secret protection to establish and protect the proprietary rights it has in its
products. The ability of the Company's competitors to acquire technologies or
other proprietary rights equivalent or superior to those of the Company or the
inability of the Company to enforce its proprietary rights would have a material
adverse effect on the Company's operating results and financial condition. There
can be no assurance that the Company's competitors will not independently
develop or acquire patented or other proprietary technologies that are
substantially equivalent or superior to those of the Company. There also can be
no assurance that the measures adopted by the Company to protect its proprietary
rights will be adequate to do so or that the Company's products do not infringe
on third party intellectual property rights, including patents. Intellectual
property matters are frequently litigated on allegations that third-party
proprietary rights have been infringed. The Company may have to defend against
such lawsuits, which could be expensive and time-consuming. See
"Business--Proprietary Rights."
CONTROL OF THE COMPANY BY OFFICERS AND DIRECTORS. Immediately following
this Offering, the Company's officers and directors will beneficially own
approximately 47.4% of the outstanding shares of the Company's Common Stock. As
a result, such persons, acting together, have the ability to exercise
significant influence over all matters requiring stockholder approval. The
concentration of ownership could delay or prevent a change in control of the
Company. See "Management" and "Principal Stockholders."
NO PRIOR MARKET; POTENTIAL LIMITED TRADING MARKET; POSSIBLE VOLATILITY OF
STOCK PRICE. There has been no prior market for the Company's Common Stock or
Warrants, and there can be no assurance that a public market for the Common
Stock or the Warrants will develop or be sustained after the Offering. Although
the Common Stock and Warrants will be quoted on the Nasdaq Small Cap Market upon
the effective date of this Prospectus, in order to continue such quotation after
the Offering, the Company must satisfy certain maintenance criteria. The failure
to meet these maintenance criteria may result in the Common Stock or Warrants no
longer being eligible for quotation on Nasdaq, and trading, if any, of the
Common Stock and the Warrants would thereafter be conducted on the OTC Bulletin
Board. If the Common Stock and Warrants are not quoted on the Nasdaq or a
national stock exchange, an investor may find it more difficult to dispose of,
or obtain accurate quotations as to the market value of the Common Stock or the
Warrants. The public offering prices of the Securities and the exercise price
and other terms of the Warrants being offered hereby were established by
negotiation between the Company and the Underwriter and may not be indicative of
prices that will prevail in the trading market. In the absence of an active
trading market, purchasers of the Common Stock or the Warrants may experience
substantial difficulty in selling their securities. The trading price of the
Company's Common Stock and Warrants is expected to be subject to significant
fluctuations in response to variations in quarterly operating results, changes
in analysts' earnings estimates, announcements of technological innovations by
the Company or its competitors, general conditions in the golf club industry and
other factors. In addition, the stock market is subject to price and volume
fluctuations that affect the market prices for companies and that are often
unrelated to operating performance. See "Underwriting."
WARRANT PRICE AND EFFECT ON TRADING PRICE OF COMMON STOCK. The Warrants
being offered hereby have an exercise price below the initial offering price of
the Common Stock. It therefore may be possible
10
<PAGE>
that a substantial number of the Warrants will be exercised within a short time
following the Effective Date of the Offering. Such exercise would be dilutive to
the net tangible book value of the Common Stock being offered hereby. In
addition, purchasers in the public offering may be willing to sell their Common
Stock into the public market at prices less than the initial offering price
because of gains in the market price of or realized on the sale or exercise of
their Warrants. Such sales could adversely affect the public market price of the
Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Securities offered
hereby will incur an immediate and substantial dilution of approximately 58% of
their investment in the Common Stock because the net tangible book value of the
Company's Common Stock after the Offering will be approximately $2.01 per share
as compared with the initial public offering price of $4.75 per share of Common
Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the
public market after this Offering could adversely affect the market price of the
Common Stock or the Warrants. See "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
such Common Stock and only if such Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws of the jurisdictions
in which the various holders of the Warrants reside. The Company has undertaken
and intends to file and keep current a prospectus which will permit the purchase
and sale of the Common Stock underlying the Warrants, but there can be no
assurance that the Company will be able to do so. Although the Company intends
to seek to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the securities are to be offered, no assurance can be
given that such qualification will occur. The Warrants may be deprived of any
value and the market for the Warrants may be limited if a current prospectus
covering the Common Stock issuable upon the exercise of the Warrants is not kept
effective or if such Common Stock is not qualified or exempt from qualification
in the jurisdictions in which the holders of the Warrants then reside. See
"Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company at any time at a redemption price of $.01 per Warrant on
not less than 30 days' prior written notice if the last sale price of the Common
Stock has been at least 162.5% of the then-exercise price of the Warrants
(initially $6.50) for the 20 consecutive trading days during a period ending on
the third trading day prior to the date of the notice of redemption. Notice of
redemption of the Warrants could force the holders to exercise the Warrants and
pay the exercise price at a time when it may be disadvantageous for them to do
so, to sell the Warrants at the current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price which would be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--Warrants.'
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. As of the date of this
Prospectus, there are outstanding options to purchase an aggregate of 250,000
shares of Common Stock at per-share exercise prices of $4.75. In addition, in
connection with this Offering, the Company will issue the Warrants and the
Underwriter's Purchase Option. The exercise of such outstanding options,
Warrants and Underwriter's Purchase Option would dilute the percentage ownership
of the Company's stock, and any sales in the public market of Common Stock
underlying such stock options could adversely affect prevailing market prices
for the Common Stock. Moreover, the terms upon which the Company would be able
to obtain additional equity capital could be adversely affected since the
holders of such securities can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in such stock options. See
"Management--Employee Benefit Plans," "Certain Transactions," "Description of
Securities" and "Underwriting."
11
<PAGE>
POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK ISSUANCE. The Board of
Directors has the authority, without further stockholder approval, to issue up
to 1,000,000 shares of preferred stock, in one or more series, and to fix the
number of shares and the rights, preferences and privileges of any such series.
The issuance of preferred stock by the Board of Directors could affect the
rights of the holders of the Common Stock. For example, such an issuance could
result in a class of securities outstanding that would have dividend,
liquidation, or other rights superior to those of the Common Stock or could make
a takeover of the Company or the removal of management of the Company more
difficult. There are no issued and outstanding shares of preferred stock, and
the Board of Directors does not currently intend to issue any such shares. See
"Description of Securities--Preferred Stock.
DIVIDENDS UNLIKELY. The Company has never declared or paid dividends on its
Common Stock and currently does not intend to pay dividends in the foreseeable
future. The payment of dividends in the future will be at the discretion of the
Board of Directors. The Company's credit facility with NationsBank prohibits the
payment of dividends while any amount is outstanding under the credit facility.
See "Dividend Policy."
12
<PAGE>
DILUTION
The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share of Common Stock after
this Offering constitutes the dilution per share of Common Stock to investors in
this Offering (after giving effect to the forgiveness of certain stockholders of
the Company of $1,083,326 of indebtedness as of September 30, 1996 and to the
Reincorporation). Net tangible book value per share is determined by dividing
the net tangible book value (total tangible assets less total liabilities) by
the number of outstanding shares of Common Stock. As of September 30, 1996, the
Company had a pro forma net tangible book value of $(688,379), or approximately
$(.92) per share of Common Stock (based on 750,000 shares of Common Stock
outstanding at September 30, 1996). After giving effect to the sale of the
Securities offered hereby (less underwriting discounts and estimated expenses of
this Offering) and the application of the net proceeds therefrom, the pro forma
net tangible book value at that date would have been $3,814,046, or
approximately $2.01 per share. This represents an immediate increase in net
tangible book value of approximately $2.93 per share to existing stockholders
and an immediate dilution of approximately $2.74 per share or approximately 58%
to investors in this Offering.
The following table illustrates the per share dilution without giving effect
to operating results of the Company subsequent to September 30, 1996.
<TABLE>
<S> <C> <C>
Public offering price of the Securities....................... $ 4.75
Pro forma net tangible book value before Offering........... $ (.92)
Increase attributable to investors in this Offering......... 2.93
---------
Pro forma net tangible book value after Offering.............. $ 2.01
---------
Dilution to investors in this Offering........................ $ 2.74
---------
---------
</TABLE>
The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid, and the average price per share paid by existing stockholders (after
giving effect to the forgiveness by certain stockholders of the Company of
$1,083,326 of indebtedness as of the date of this Prospectus) and by investors
pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 750,000 39.5% $ 1,083,551 16.3% $ 1.44
Investors in this Offering........................... 1,150,000 60.5 5,577,500 83.7 $ 4.75
---------- ----- ------------ -----
Total............................................ 1,900,000 100.0% $ 6,661,051 100.0%
---------- ----- ------------ -----
</TABLE>
The foregoing analyses assumes no exercise of the Warrants or outstanding
options or the Underwriter's Purchase Option (or the Warrants included in the
Underwriter's Purchase Option). In the event any such options or warrants are
exercised, the percentage ownership of the investors in this Offering will be
reduced and the dilution per share of Common Stock to investors in this Offering
will increase.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions and estimated
expenses payable by the Company in connection with this offering, are estimated
to be approximately $4.5 million (approximately $5.25 million if the
Underwriter's over-allotment option is exercised in full). The Company intends
to apply the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ------------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Marketing and advertising.................................................................. $ 2,200,000 48.9%
Repayment of debt.......................................................................... 300,000 6.7
Manufacturing operations................................................................... 250,000 5.5
Research and development................................................................... 100,000 2.2
Working capital and general corporate purposes............................................. 1,652,425 36.7
------------ -----
Total................................................................................ $ 4,502,425 100%
------------ -----
------------ -----
</TABLE>
Approximately $2,200,000 of the net proceeds of this Offering is allocated
for marketing and advertising purposes, including the development and placement
of advertisements in various forms of media, including print and television, and
making payments to touring professional golfers in consideration of their
endorsements of the Company's products, which may include payments under the
Company's "Player Pool" program under which the Company will provide rewards on
a weekly basis to professional golfers who win tournaments using TearDrop golf
clubs. See "Business--Sales and Marking."
Approximately $300,000 of the net proceeds will be used to repay
indebtedness plus interest to NationsBank that is expected to be due December
31, 1996. The debt accumulates interest at the per annum rate equal to the prime
rate plus 1%.
Approximately $250,000 of the net proceeds of this Offering is allocated for
improving the Company's manufacturing and assembly operations to meet
anticipated growth. In addition, the Company may use such proceeds for the
development of facilities capable of manufacturing certain of its TearDrop club
heads.
The Company is continually seeking to improve the design of the TearDrop
putters and, in addition, is seeking to develop additional golf clubs such as
wedges and drivers. Accordingly, approximately $100,000 of the net proceeds of
this Offering is allocated for the development and/or licensing of new
technologies for golf club design.
The balance of the net proceeds of this Offering is allocated for working
capital and general corporate purposes including, among other things, payment of
expenses incurred or to be incurred by the Company in connection with its
operations, costs associated with additional inventory, payment of general
corporate expenses, including salaries of additional officers and financial and
management personnel, and the fee of $60,000 payable to the Underwriter for
financial consultant services.
If the Underwriter exercises the over-allotment option in full, the Company
will realize additional net proceeds of approximately $725,000, of which up to a
maximum of $300,000 will be used to repay certain indebtedness owed by the
Company to Rudy A. Slucker the Chairman and Chief Executive Officer of the
Company and the next $100,000 of which will be used to repay certain
indebtedness to other current stockholders of the Company, and any remaining
amount will be added to the Company's working capital. The debt of up to a
maximum of $300,000 owed by the Company to Mr. Slucker and the $100,000 of debt
owed to certain other stockholders of the Company will be payable with interest
at the rate of 8% per annum upon the earlier of the exercise by the Underwriter
of the over-allotment option (to the extent proceeds derived therefrom are
sufficient to make repayment) and two years from the date of this Prospectus.
14
<PAGE>
If the Warrants are exercised in full, the Company will receive additional
net proceeds of approximately $4,370,000, the first $400,000 of which will be
used to repay certain indebtedness owed by the Company to Mr. Slucker, and any
remaining amount will be added to the Company's working capital. The $400,000 of
debt owed to Mr. Slucker will be payable with interest at 8% per annum upon the
earlier of the exercise of the Warrants offered hereby (to the extent proceeds
derived therefrom are sufficient to make repayment) and three years from the
date of this Prospectus.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations, its business plans, and current economic and industry
conditions, and is subject to reapportionment among the categories listed above
or to new categories in response to, among other things, changes in the
Company's plans, unanticipated industry conditions, and future revenues and
expenditures. The amount and timing of expenditures will vary depending on a
number of factors, including, without limitation, the results of operations and
changing industry conditions. To the extent deemed appropriate by management,
the Company may acquire fully developed products or businesses that are
complementary to the Company's operations. To the extent that the Company
identifies any such oportunities, an acquisition may involve the expenditure of
significant cash or the issuance of Common Stock. Any expenditure of cash will
reduce the amount of cash available for working capital or marketing and
advertising activities. The Company currently has no commitments, understandings
or arrangements with respect to any such acquisition.
Although the Company believes that the proceeds from this Offering will be
sufficient for the Company to maintain its operations as planned for at least
the next 12 months, if the Company's sales do not increase substantially, it
will likely need additional financing after such time in order to continue
operations. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all, when required by the
Company. The inability to obtain additional financing when needed would have a
material adverse effect on the Company's operating results, and as a result, the
Company could be required to significantly reduce or suspend its operations,
seek a merger partner or sell some or substantially all of its assets. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations."
Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short-term certificates of
deposit, money market funds or other investment grade short-term
interest-bearing investments.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 (i) on a historical basis, and (ii) pro forma, to reflect
certain debt repayment and the Reincorporation and (iii) pro forma, as adjusted
to give effect to the sale of the 1,150,000 shares of Common Stock and 1,150,000
Warrants offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
---------- ---------- -----------
<S> <C> <C> <C>
Stockholders' loans....................................... $1,713,860 $ 630,534 $ 630,534
---------- ---------- -----------
Obligation under capital lease, less current portion...... 64,172 64,172 64,172
---------- ---------- -----------
Stockholders' equity (deficit):
Common stock, $1 par value, authorized 100,000 shares,
issued and outstanding 225 shares..................... 225
Pro Forma-preferred stock, $.01 par value, authorized
1,000,000 shares, issued and outstanding none.........
Pro Forma-common stock, $1 par value, authorized
10,000,000 shares, issued and outstanding 750,000
shares and 1,900,000 shares........................... 7,500 19,000
Capital in excess of par value.......................... 1,076,051 5,569,976(3)
Accumulated deficit..................................... (1,741,286) (1,741,286 (1,741,286)
---------- ---------- -----------
Total stockholders' equity (deficit)................ (1,741,061) (657,735) 3,844,690
---------- ---------- -----------
Total capitalization.............................. $ 36,971 $ 36,971 $4,539,396
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------------
(1) Gives effect to the forgiveness by certain stockholders of the Company of an
aggregate of $1,083,326 of indebtedness and the Reincorporation. See Note 2
of Notes to Financial Statements for an explanation of the determination of
the number of shares used in computing pro forma net loss per share.
(2) Gives effect to the receipt by the Company of the net proceeds from the sale
of the securities offered hereby and the application thereof.
(3) Includes proceeds from the sale of the Warrants.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and it is currently the intention of the Company not to pay cash dividends
on its Common Stock in the foreseeable future. Management intends to reinvest
earnings, if any, in the development and expansion of the Company's business.
Any future declaration of cash dividends will be at the discretion of the Board
of Directors and will depend upon the earnings, capital requirements and
financial position of the Company, general economic conditions and other
pertinent factors. The Company's credit facility with NationsBank prohibits the
payment of dividends while any amount is outstanding under the credit facility.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
PLAN OF OPERATIONS
OVERVIEW
The Company introduced its first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. Since the
introduction of the TearDrop putter, the Company has expanded its product line
to include six additional putters and three wedges. A significant percentage of
sales made during the introductory phase of the Company's initial products were
made at discounted prices as part of the Company's marketing strategy to
introduce and increase market awareness of the Company and its clubs.
In order to achieve profitability, the Company will be required to address
numerous issues, including, among others: (i) increasing market awareness of,
and demand for, its existing products, (ii) effectively introducing, over time,
additional innovative golf clubs to the market, (iii) accurately gauging demand
for its products, (iv) determining viable price points for such products, (v)
maintaining and strengthening its supply channels, (vi) designing efficient
manufacturing and assembling systems to meet demand for its products, and (vii)
continuing to build efficient channels of distribution. There can be no
assurance that the Company will ever achieve profitability, or that if such
profitability is obtained, that it can be maintained.
The Company believes that an important element for introducing and
increasing awareness of its golf clubs is the building of a corps of touring
professional golfers that will endorse, use and win with the Company's clubs.
Accordingly, as an integral part of its marketing strategy, the Company
continually seeks to obtain professional endorsements of its clubs. Typically,
the Company's agreements with its endorsing professionals provide for the use of
the professionals' names in connection with the marketing of the Company's clubs
and the use of the clubs by such professionals in tournament play. The effect of
a particular professional's endorsement on the successful marketing of the
Company's clubs, and the heightening of awareness of the Company's name, may be
directly related to the success of such professional in tournament play. To
date, only a limited number of touring professional golfers have signed
endorsement agreements with the Company. In order to succeed with its marketing
strategy, the Company will be required to enter into endorsement agreements with
additional touring professional golfers.
The Company does not maintain an in-house research and development or design
department. Rather, the Company works closely with component manufacturers,
independent design consultants and the Company's endorsing golf professionals in
the design and development of new products and product improvements.
Accordingly, the Company does not incur regular, ongoing expenses relating to
salaries of in-house design personnel, but does incur design consulting fees
when a new club or product improvement is in the development phase. The Company
does not have any agreements with independent design consultants, but has
historically been able to retain the services of qualified designers when
needed. The inability on the part of the Company to retain qualified design
consultants possessing suitable technical expertise when needed in the future
could result in delays in the introduction of a new product or product
improvement, which could adversely affect sales.
The Company does not manufacture the components required to assemble its
golf clubs, relying instead on a small number of component suppliers. The
Company does not have supply agreements with any of its current suppliers.
Therefore, the Company's success will be dependent, in part, on maintaining its
relationships with its existing suppliers and developing relationships with new
suppliers.
The Company believes that there are readily available alternative sources
for each of the components comprising its clubs, although there can be no
assurance of this. Any significant delay or disruption in the supply of
components from the Company's suppliers or any quality problems with the
suppliers' components would delay the Company's delivery of finished product and
adversely affect current sales and could adversely affect future sales potential
if distributors lose faith in the Company's ability to deliver a quality
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product on a timely basis. Further, given the highly seasonal nature of the golf
equipment industry, such adverse affect would be exacerbated should any such
supply delay or quality problem occur immediately prior to or during the
six-month period ending June 30 (the period during which sales of golf equipment
have historically been the highest).
Under an agreement with Wayne R. Wooten, the designer of the original
TearDrop putter, the Company has agreed to pay royalties on the sale of putters
developed, designed or modified by Mr. Wooten. The Company has agreed to pay Mr.
Wooten one dollar per putter for each of the first 40,000 putters sold by the
Company during each of the one-year periods commencing on July 27, 1995, July
27, 1996 and July 27, 1997. The Company is required to pay Mr. Wooten two
dollars per putter for each putter in excess of 40,000 sold by the Company
during each of the respective one-year periods. The Company is also required to
pay Mr. Wooten two dollars for every "cavity back" putter sold by the Company
for a term of four years following the date of the sale of such putter.
Additionally, the Company is required to pay Mr. Wooten $5,000 each time any
major professional golfing event or tournment is won by a player using a
TearDrop putter. Fred K. Hochman, a director and principal stockholder of the
Company, provided a personal guaranty of the Company's obligations to Mr.
Wooten.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AS COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company had sales of approximately $715,000 during the nine months ended
September 30, 1996 as compared to sales of approximately $821,000 during the
nine months ended September 30, 1995, a decrease of 13%. This decrease is
attributable to difficulties initially encountered by the Company in developing
the manufacturing molds for its new line of clubs introduced in late 1995, as a
result of which the Company was unable to produce and deliver clubs during the
important Spring 1996 buying season. Because of these delays, the Company was
unable to fill orders until late into Spring 1996, resulting in substantially
reduced sales during the nine months ended September 30, 1996.
The cost of sales primarily consists of amounts paid for the purchase of the
components used in the assembly of the Company's golf clubs and costs relating
to the machining and milling of such components and assemblage thereof into
finished golf clubs. Cost of sales was approximately $300,000 (42% of sales)
during the nine months ended September 30, 1996 as compared to approximately
$390,000 (48% of sales) during the nine months ended September 30, 1995. This
decline in costs is directly attributable to reduced sales during the first half
of 1996 resulting from the difficulties encountered in developing necessary
manufacturing molds. Because of the reduction in production during the nine
months ended September 30, 1996, the Company had reduced machining and milling
costs during such period. However, because the Company purchased the milling
equipment necessary for the production of the golf club heads in April 1996,
reducing the per-club manufacturing cost, there was a slight decline in cost of
sales as a percentage of sales. The Company does not expect to encounter similar
production delays during the remainder of 1996 and, accordingly, expects the
costs of sales to decrease correspondingly with increased production and sales,
if such increases occur.
During the nine months ended September 30, 1996, selling, general and
administrative expenses were approximately $668,000 (93% of sales) as compared
to approximately $645,000 (79% of sales) during the nine months ended September
30, 1995. This increase is attributable to the Company's overall growth,
including the hiring of additional marketing and sales personnel and stepped up
marketing activities.
As a result of increasing expenses and costs relating to the growth of the
Company, the Company experienced a net loss of approximately $373,000 during the
nine months ended September 30, 1996 and $293,000 during the nine months ended
September 30, 1995. The Company's inability to offset such increased costs and
expenses by increasing its sales (as a result of the aforementioned production
delays), resulted in the increase in net loss during the nine months ended
September 30, 1996 as compared to the same period of the prior year.
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YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company had sales of approximately $1,057,000 during the year ended
December 31, 1995 as compared to sales of approximately $785,000 during the year
ended December 31, 1994, an increase of 35%. This increase is attributable to
the Company's increased marketing efforts and greater awareness and acceptance
of the TearDrop putter, among both the print media and touring professionals.
During 1995, cost of sales was approximately $549,000 (52% of sales) as
compared to $446,000 (57% of sales) during 1994. This increase was primarily a
result of increased production of clubs to address increased sales.
Selling, general and administrative expenses consist of, among other things,
salaries, advertising expenses and endorsement fees. During 1995, these costs
were approximately $943,000 as compared to $782,000 during 1994. This increase
is attributable to the Company's overall growth, including the hiring of
additional personnel and the retention of additional endorsing golf
professionals. The Company anticipates that as it increases substantially its
marketing and sales activities, that marketing costs, including payments to
endorsing golf professionals will be substantially higher during the next 12
months than in the past.
As a result of costs and expenses associated with the growth of the Company
and the ramp up of production, the Company experienced a net loss of
approximately $542,000 during 1995 and a net loss of approximately $552,000
during 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $160,000 at
September 30, 1996. Since inception, the Company's internally generated cash
flow has not been sufficient to finance operations. Further, the Company has
experienced severe working capital shortfalls in the past, which have restricted
the Company's ability to conduct its business as anticipated. As a result, the
Company has been substantially dependent upon loans from its current
stockholders in order to maintain its operations. As of the date of this
Prospectus, the current stockholders of the Company have made loans to the
Company which as of September 30, 1996 have an aggregate principal amount plus
interest of approximately $1,714,000 (which may increase and which will accrue
interest through the Effective Date). In connection with this Offering, all but
a maximum of $800,000 of such debt will be forgiven by the stockholders. The
remaining debt plus additional interest incurred through the consummation of the
Offering will be payable with interest at the rate of 8% per annum upon the
earlier of (i) with respect to $400,000 of such debt, the exercise by the
Underwriter of the over-allotment option (to the extent proceeds derived
therefrom are sufficient to make repayment), (ii) with respect to the remaining
$400,000, the exercise of the Warrants offered hereby (to the extent proceeds
derived therefrom are sufficient to make repayment) and (iii) two years from the
date of this Prospectus with respect to $400,000 of such debt, and three years
with respect to the remaining $400,000.
The Company has borrowed $300,000 from NationsBank, which was payable on
March 15, 1996. The Company is completing negotiations with NationsBank with
respect to an extension of such indebtedness to December 31, 1996, with interest
at the per annum rate of prime plus 1%. The Company intends to seek an
alternative line of credit with which it will repay NationsBank. No assurance
can be given that the Company will identify or obtain any such line of credit.
If the Company is unable to obtain an alternative line of credit prior to the
consummation of this Offering, the Company will be required to repay the loan
from NationsBank from the proceeds of this Offering.
Although the Company believes that the proceeds from this Offering will be
sufficient for the Company to maintain its operations as planned for at least
the next 12 months, if the Company's sales do not increase substantially, it
will likely need additional financing after such time in order to continue
operations. There can be no assurance that any additional financing will be
available to the Company on
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acceptable terms, if at all, when required by the Company. The inability to
obtain additional financing when needed would have a material adverse effect on
the Company's operating results, and, as a result, the Company could be required
to significantly reduce or suspend its operations, seek a merger partner or sell
some or all of its assets.
SEASONALITY
The purchasing decisions of most customers are typically made during the
last three months of the calendar year and the substantial majority of sales
typically occur during the first six months of the year. In addition, quarterly
results may vary from year to year due to the timing of new product
introductions, orders and sales, advertising expenditures, promotional periods
and shipments. Accordingly, comparisons of quarterly information of the
Company's results of operations may not be indicative of the Company's overall
annual ongoing performance.
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BUSINESS
GENERAL
The Company designs, develops and markets high-quality, premium-priced golf
clubs based on its proprietary technologies, including its TearDrop line of
putters and its new line of Spin Master wedges. The TearDrop putter is used by
professional golfers on the Professional Golf Association ("PGA") Tour, the PGA
Senior Tour and the Nike Tour, including Brett Ogle (1995 Hawaiian Open and
Pebble Beach Golf Tournament Champion), Dustin Phillips, Dino Lucchesi, Dennis
Zinkon and P.J. Cowan and achieved a top-ten ranking on both the PGA Tour and
the PGA Senior Tour for victories and top-ten finishes in 1995 among all putters
used. The Company believes that its products address the demand for innovative
short-game clubs that has not been adequately met by the golf equipment
industry, which recently has stressed technological advancement in the design of
drivers.
To exploit the niche for innovative short-game clubs, the Company introduced
its first product, the TearDrop putter, in 1993, and has since developed and
introduced six additional putters, all based on the TearDrop putter technology.
The Company broadened its product line in Spring 1996 with the introduction of
its Spin Master Wedges.
Gross retail sales of golf clubs in the United States has grown from
approximately $2.1 billion in 1986, to approximately $5.0 billion in 1994. With
increasing sales, the golf club industry has adopted dramatic new technologies
in club design, materials and manufacturing processes resulting in the
introduction of numerous new club designs. Most of the innovations have been in
the design and construction of drivers. Manufacturers have stressed evolving
materials in the shafts and the club head (even increasing the size of the club
head) to enable players to hit their drives farther. However, while it is
estimated that between 10 to 12 million putters were purchased worldwide during
1995, there have been relatively few advances in the design and manufacture of
putters and other short-game clubs.
STRATEGY
The Company's objective is to become a leading supplier of high quality
specialty clubs, including putters and wedges, and, in the longer term, drivers.
To achieve this objective, the Company is focusing on increasing product
awareness, and enhancing the reputation, of its products; increasing market
penetration of its products; and continuing the development and introduction of
innovative clubs and refinement and improvement of existing products. An
integral part of this strategy is the substantial expansion of the Company's
marketing and advertising efforts for which the Company intends to use a
substantial portion of the proceeds of this Offering. The Company believes that
golfers tend to purchase specialty clubs, such as putters, wedges and drivers,
more frequently than other clubs since these clubs may be purchased separately
and need not necessarily match a set. The Company will focus its initial efforts
on the Teardrop putters and Spin Master wedges.
EXPANDED MARKETING. The Company's domestic marketing strategy targets
on-course golf pro shops and selected off-course specialty stores and will
include print advertising, television commercials and infomercials and other
promotional activities. An important feature of the Company's overall marketing
effort includes the endorsement of its products by touring professional golfers
who will demonstrate the effectiveness of the TearDrop putter and provide
valuable exposure. The Company's domestic marketing strategy targets on-course
golf pro shops and selected off-course specialty stores and includes print
advertising. An important feature of the Company's overall marketing effort
includes the endorsement of its products by touring professional golfers who
will demonstrate the effectiveness of the TearDrop putter and provide invaluable
exposure. The Company intends to use a substantial portion of the proceeds of
this Offering for the expansion of its advertising and marketing activities,
including the production and placement of television commercials, infomercials
and print advertisements and the expansion of the corps of touring pros
endorsing the Company's clubs. The Company also intends to expand its line of
clubs by acquiring or licensing advanced technologies for other specialty clubs
such as wedges or drivers.
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HIGH QUALITY PRODUCTION. The Company assembles all of its products at its
corporate headquarters in Hilton Head Island, South Carolina. After receiving
the components for its products, including clubheads, shafts and grips, the
Company's production personnel review the components for quality control and
assemble the components to exacting specifications. The Company intends to
expand its manufacturing capability by purchasing additional club head milling
machines and overseeing the manufacturing and production of the club heads
itself. This would allow the Company to reduce its costs as well as maintain
more control over the manufacturing process. See "--Manufacturing and Assembly."
CONTINUED DEVELOPMENT OF INNOVATIVE CLUBS. The Company intends to continue
to seek innovative technologies to develop additional specialty clubs, and
eventually, to offer a full line of golf clubs and related equipment. The
Company intends to form a Professional Advisory Board made up of touring
professional golfers to provide design and development advice to the Company for
the development of new products and the improvement of its existing products.
PRODUCTS
TEARDROP PUTTERS
The Company currently manufactures and markets seven putters. The Company's
TearDrop putters are manufactured with the Company's exclusive rollface head
distinguishing them from most other putters, which have a standard flat face.
With a standard flat faced putter, if a golfer twists his wrist forward, he will
tend to hit the ball down into the green, causing it to bounce slightly as it
travels forward. This slight bounce tends to alter the true trajectory of the
ball rolling towards the cup. With the same standard flat faced putter, if the
golfer twists his wrist backward, he will tend to impart backspin on the ball,
causing it to skid slightly as it begins its roll, also affecting its true
trajectory. In both cases, the problem is especially pronounced on long putts,
when the ball is struck harder. The TearDrop putter, however, is designed to
strike the ball directly on or slightly below the center of the ball, which
eliminates most skidding and develops a high overspin, resulting in a superior
roll for a more precise shot. The rounded barrel of the TearDrop rollface putter
is designed to keep ball-to-club contact and the angle of impact constant.
During assembly, the TearDrop putter is balanced by hand using the Company's
face weighting system to provide uniform weighting across the face of the
putter, providing for a larger "sweet spot." The weighting system is designed to
allow a golfer to strike the ball on a straighter line rather than with a semi-
circular motion, also encouraging a steadier, more constant stroke. In addition,
the heavy milled aluminum-titanium alloy head is designed to slow a golfer's
backswing and encourage acceleration all the way through the moment of impact.
In addition, the TearDrop design, with its rounded fin, helps prevent stubbing
of the club on the swing and follow-through.
Each of the TearDrop putter models incorporates the rollface into different
putter designs to accommodate golfer's varying tastes, preferences and habits.
The original TearDrop design was invented by one of the Company's founders and
further developed by its current management. The designs for the subsequent
models were developed by the Company with assistance and input from its touring
professionals, its component manufacturers and independent design consultants.
The Company does not have any agreements with golf club designers, but believes
that to the extent any services may be needed, designers having suitable
technical design expertise may be located. However, if the Company is unable to
retain qualified experts who may be able to devote the necessary attention
during the time required, or if the cost proves to be too high, the Company may
be unable to develop new products or improved products on a cost effective or a
timely basis. The Company pays a royalty to Wayne R. Wooten, the designer of the
original TearDrop putter, on the sales of certain models ranging from $1.00 to
$4.00 per club.
The following is a list of the seven TearDrop putters currently manufactured
and marketed by the Company:
ORIGINAL TEARDROP--The Original TearDrop was first introduced in 1993 and
was refined in 1996. The TearDrop features the rollface to eliminate skid and
produce a purer roll. It is precision milled from
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titanium-aluminum alloy and has a horizontally hand-weighted and face balanced
head to eliminate stubbing and enhance control.
LADY TEARDROP--The Company's woman's club is designed and weighted
especially for women with a specifically developed lighter weighting system for
more control and a better feel for women.
TEARDROP TOUR II--The TearDrop Tour II was designed specifically in response
to input provided by certain of the Company's touring pros, and has a slightly
modified shape and less pronounced roll, for use on faster, better kept greens.
TEARDROP MALLET--The Company's mallet was designed in response to popular
demand for a wide putter, with horizontal as well as heel and toe weighting and
the Company's rollface for more stable support.
OVERSIZED TEARDROP--The Company's long putter is available in 48 inch and 52
inch lengths. This club is the club used by the Company's primary sponsor, Brett
Ogle, the winner of the Pebble Beach and Hawaiian Open Championships. The
Oversized TearDrop was remodeled in 1996, primarily as a result of Mr. Ogle's
input.
CLASSIC I AND II--The Company designed the Classic series of putters in
response to demand for a putter with more visual similarity to classic looking
putters. The Classic putter is cast from stainless steel and features
traditional heel and toe weighting and design with the Company's roll face. The
Classic II also features a semi-mallet design.
THE TEARDROP SPIN MASTER WEDGE
The TearDrop Spin Master wedge features a classic-shape stainless steel
clubhead with a coarse, abrasive titanium treated surface. The rough face
creates a greater spin, and the liquid titanium prevents the face from becoming
smooth with use. The titanium treated friction-face of the Spin Master wedges
are designed to impart a backward spin on the golf ball that will help the ball
resist rolling after it hits the green. The wedges are offered in lofts of 52,
56 and 61 degrees for use as a pitching wedge, a sand wedge and a lob wedge,
respectively. Each of the wedges have a traditional shaft and grip.
SALES AND MARKETING
NATIONWIDE DISTRIBUTION NETWORK. The Company markets its clubs primarily
through sales representatives primarily to on-course golf pro shops and
specialty stores, general sporting goods stores and specialty sporting goods
stores. The Company believes that its marketing approach allows it to maintain
its high-quality reputation while at the same time generating loyalty from its
customer base. At September 30, 1996, the Company had 20 independent sales
representatives who call upon and service the needs of the on-course golf
professionals, off-course specialty store operations and sporting goods stores.
These sales representatives receive a commission on qualifying sales. All of the
sales representatives exclusively sell TearDrop putters and wedges although many
also sell apparel, bags, shoes and gloves made by other companies.
Working together with the on-course golf professionals and off-course
specialty store sales force, the independent sales representatives help
introduce and explain the various characteristics of new golf clubs, responds to
questions concerning product support, prepare customers for new product
introductions, provides liaison services to communicate delivery and special
customer needs, and obtain in-field feedback with respect to the market appeal
of the Company's and competitors' products.
The independent sales representative network is supported by the Company's
executive officers who travel to visit the sales representatives, customers and
potential new customers, and by technical representatives who demonstrate the
Company's golf equipment at various customer locations. While the Company
believes that its relationships with its sales representatives and customers are
satisfactory, there can be no assurance that the Company will be able to
maintain such relationships in the future. Although the
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Company works closely with its sales representatives, the Company cannot
directly control such representatives' sales and marketing activities. There can
be no assurance that these representatives will effectively manage the sale of
the Company's products or that their marketing efforts will prove effective.
CUSTOMER SERVICE AND SUPPORT. The Company believes that its relationships
with its distributors and golfing customers have contributed significantly to
its past success and should continue to enhance its prospects. The Company
supports these relationships through programs developed to select its customers
in the sale of its products.
DEMONSTRATION/LOANER PROGRAM. The Company believes that a significant
contribution to its sales effort is provided by its demonstration/loaner
program. This program generally permits each qualifying on-course golf
professional and off-course specialty store operator to purchase demonstration
clubs within the Company's product line at a discount dependent upon the number
of clubs purchased for resale. Demonstration clubs are available on the basis of
one demonstration club for each six clubs of the same model ordered. The
customer lends a "demo" set or club to the golfer for on-course trial use,
which, in management's judgment, substantially increases the probability of
purchases by the golfer who might otherwise be reluctant to purchase premium
clubs without having on-course experience with them.
INTERNATIONAL DISTRIBUTION. The Company markets its products
internationally on a limited basis through exclusive licensees and distributors.
The Company's products are sold on a non-exclusive basis through independent
distributors. International sales accounted for 21%, 30% and 41% of the
Company's gross sales in 1994, 1995 and the first nine months of 1996,
respectively. The Company intends to continue to explore opportunities to expand
its activities in international markets. To such end, the Company's distributor
in Japan produced an infomercial in Japan regarding the TearDrop putter which
the Company believes generated significant sales
PRODUCT WARRANTIES. The Company supports its golf clubs with a lifetime
quality guaranty, entitling the purchaser to return the clubs for repair or
replacement. The Company has not experienced a material level of product
warranty claims.
ADVERTISING AND PROMOTION. The Company uses various forms of media,
including print advertising campaigns, to market and promote its products. In
the United States, the Company concentrates its print advertising in golf
magazines such as Golf World and Golf Illustrated and in trade magazines such as
Golf Shop Operations. Following this Offering, the Company intends to begin
television advertising in support of its products and to commence the production
of an infomercial. The Company's advertising spending in the first nine months
of 1996 was approximately $101,000 or 14% of net sales, compared with
approximately $139,000, or 17% of net sales, in the first nine months of 1995.
The Company believes that the endorsement of its products by touring
professional golfers is an important feature of its overall marketing effort.
Brett Ogle, an internationally recognized golf professional and 1995 Hawaiian
Open and Pebble Beach Golf Tournament Champion, heads a group of touring
professionals including Dustin Phillips, Dino Luchesi, Dennis Zinkon and P.J.
Cowan who currently use or endorse the Company's products. Mr. Ogle's agreement
extends through December 31, 1998. Following the completion of this offering,
the Company intends to develop and institute a "Player Pool" program, under
which the Company will provide rewards on a weekly basis to professional players
who win tournaments using TearDrop golf clubs. With the exception of the
endorsement contract with Mr. Ogle, endorsement commitments are made on a
year-to-year basis.
ASSEMBLY
The Company assembles all of its putters for the domestic market and for
sales to selected foreign markets at its 4,000 square foot corporate
headquarters in Hilton Head Island, South Carolina. Stainless steel and titanium
aluminum clubheads are cast or forged by outside suppliers utilizing
Company-owned tooling and are inspected on-site by Company representatives.
Production personnel receive and review incoming components, such as steel
shafts and grips, most of which are supplied to the proprietary
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specifications of the Company. All assembly operations, including painting,
stenciling and the application of all trade dress, are completed at the
corporate headquarters, which include finishing and warehousing facilities, from
which finished clubs are shipped. In order to maintain a high level of quality
control, the Company performs numerous visual and machine inspections at various
points along the assembly process, intended to detect any non-conforming clubs
or subassemblies.
The Company relies on a limited number of suppliers for materials and
clubheads. The Company's primary putter club head manufacturer manufactures club
heads at its facilities using equipment leased by the Company and provided to
the manufacturer. Under the equipment lease, the Company has the option to
purchase the manufacturing equipment at various times during the lease. They may
also remove the equipment from the manufacturer's facilities at any time. While
management believes that alternative sources of supply either exist or could be
developed, in the event that it should lose its present sources of supply for
these materials and components, or experience delays in receiving delivery from
such sources, the Company would sustain at least temporary shortages of
materials and components, which could have a material adverse effect on the
Company's operating results.
NEW CLUB DEVELOPMENT
The Company works closely with component manufacturers, independent design
consultants and touring professionals in the development of new products and the
improvement of its existing designs. The Company relies on the input and advice
of its consulting pros to modify its putters. For example, Brett Ogle was
instrumental in designing the Tear Drop Pro Model. The Company has formed a
Professional Advisory Board consisting of touring professional golfers who will
meet at least two times a year to review design plans and comment on the
Company's expansion plans, club designs and general issues regarding the
Company.
COMPETITION
The Company competes in the premium-priced game-improvement segment of the
golf club manufacturing industry. The market for premium-priced golf clubs is
highly competitive and a number of established companies compete in this market,
many of which have greater financial and other resources than the Company. The
Company's competitors include Callaway Golf Company, Kersten Manufacturing
Corporation (Ping), Taylor-Made Golf Company, Cobra Golf Incorporated and Tommy
Armour Golf Company. The Company also competes with numerous smaller,
specialized companies that may compete effectively on a regional basis.
The golf club industry is generally characterized by rapid and widespread
imitation of popular golf club designs pioneered by new or existing competitors.
Occasionally, new market entrants may develop innovative club designs which meet
with acceptance from golf club purchasers, leading to unanticipated changes in
consumer preferences. Many purchasers of premium-price game-improvement clubs
desire golf clubs that feature the latest technological innovations and cosmetic
designs, and their purchasing decisions are often the result of highly
subjective preferences which can be influenced by many factors, including, among
others, advertising, media and product endorsement. The Company could therefore
face substantial competition from existing or new competitors that introduce and
successfully promote golf clubs perceived to offer performance advantages and
greater aesthetic appeal. In addition, there are several manufacturers that do
not currently compete with the Company that could pose significant competition
if they were to enter the market of premium-priced high-quality clubs..
REGULATORY MATTERS
The design of new golf clubs is greatly influenced by rules and
interpretations of the USGA. Although the golf equipment standards established
by the USGA generally apply only to competitive events sanctioned by that
organization, it has become critical for designers of new clubs to assure
compliance with USGA standards. To the extent that the Company's clubs are ruled
ineligible by the USGA standards, professional golfers, including the Company's
paid touring professional golfers, will be unable to use the
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clubs and even non-professional golfers will likely be unwilling to purchase
them. The Company believes that its putters all comply with USGA standards.
However, the Company's wedges have not yet been submitted to the USGA for
approval, and the Company believes that further modifications will be necessary
to bring the wedges within USGA guidelines. No assurance can be given that the
wedges or any new products will receive USGA approval or that existing USGA
standards will not be altered in ways that adversely affect the sales of the
Company's products.
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. The Company is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in the production areas of its facilities. The
Company believes it is in compliance in all material respects with all
applicable environmental and occupational safety regulations.
EMPLOYEES
At June 30, 1996, the Company had six full-time employees engaged in
manufacturing and assembly, sales support and in management and administration.
The Company intends to use the proceeds from this Offering to expand
substantially its sales and marketing staff and retain personnel for certain
management positions, including a Chief Financial Officer and other
administrative personnel. The Company believes that additional manufacturing
personnel will be available as needed.
PROPRIETARY RIGHTS
The Company has been issued three patents relating to various aspects of the
TearDrop putter head. The Company relies on a combination of patents, trademark
and trade secret protection to establish and protect the proprietary rights it
has in its products.
The Company's "TearDrop" trademark is registered with the United States
Patent and Trademark Office (the "U.S. Patent Office"), and the U.S. Patent
Office has issued a notice of allowance to the Company for the trademark "Spin
Master."
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
PROPERTIES
The Company occupies 4,000 square feet of office, manufacturing and
warehouse and distribution space in Hilton Head Island, South Carolina under a
three-year lease terminating in 1998. Rental payments under the lease are $3,200
per month. The Company conducts its corporate, research and development,
assembly, warehouse and distribution activities from these facilities. Following
the offering, the Company intends to relocate facilities to or establish
additional facilities in the New York metropolitan area, where the Company
intends to expand its executive and production capabilities.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Rudy A. Slucker.................... 47 Chairman of the Board, President and Chief Executive Officer
Brian R. Hochman................... 29 Secretary and Vice President
John Zeravica...................... 51 Vice President
Fred K. Hochman.................... 50 Director
Jeffrey Baker...................... 41 Director
</TABLE>
RUDY A. SLUCKER. Mr. Slucker has served as Chairman of the Board, President
and Chief Executive Officer of the Company since September 1996. Mr. Slucker was
the Chief Executive Officer of the Atlas Group of Companies, Inc. ("Atlas"),
which imported and marketed hardware and consumer products from 1978 until 1990,
when it was sold. Since 1990, Mr. Slucker has been a venture capital investor.
He currently serves on the board of directors and/or is a principal stockholder
of the following companies: Lilli Group, a knitwear manufacturer; Diplomat
Optical, Inc., a manufacturer and distributor of designer brand eyeglass frames
under the names of Playskool, Jones New York, Coventry, Harve Benard and Kathy
Ireland; Major League Fitness, a chain of fitness centers associated with Major
League Baseball through a licensing agreement; and Babylon Enterprises and
Beacon Concessions, which, together, currently own and operate the Beacon
Theater in Manhattan.
BRIAN R. HOCHMAN. Mr. Hochman joined the Company in March 1994 as a vice
president and served as president from January 1995 through September 1996. Mr.
Hochman practiced law with the firm of Novit & Scarminach from August 1992
through January 1994. Mr. Hochman is a graduate of Wake Forest University and
Villanova Law School. Mr. Hochman is the son of Fred K. Hochman.
JOHN ZERAVICA. John Zeravica became vice president of the Company in
September 1996. From 1990 through 1996, Mr. Zeravica served as Director of
Operations for the U.S. division of Bridgestone Sports, USA, Inc., an
international manufacturer and distribution of sporting goods. From 1983 to
1990, Mr. Zeravica served as operating manager of Mizuno, USA, a sports product
manufacturing and marketing company.
FRED K. HOCHMAN. Mr. Hochman has been a director of the Company since its
incorporation and was its Chief Executive Officer through April 1996. Mr.
Hochman currently serves as senior vice president of Orix-Commercial Alliance
Corporation, part of the Orix Corporation, a diversified services corporation.
From September 1992 through October 1996, Mr. Hochman served as President of the
finance division of Financial Federal Credit, Inc., a company listed on the
American Stock Exchange which specializes in the financing of computer
numerically controlled machine tools, which are the type of tools used to
manufacture the TearDrop putter heads. From November 1982 through August 1992,
he was Chairman of Machine Tool Finance Corporation, a company he co-founded,
which is now a subsidiary of US Bancorporation. Mr. Hochman is the father of
Brian R. Hochman.
JEFFREY BAKER. Mr. Baker has been a Director of the Company since September
1996. Since 1986, Mr. Baker has served as Senior Vice President of GoodTimes
Entertainment, where he is responsible for licensing, marketing and
merchandising of video products. Mr. Baker's prior experience includes more than
twelve years of service in various marketing and sales positions including
marketing manager for Prodigy Services, director of national account sales for
RCA Video Disc, director of video sales for Pickwick International and regional
sales manager for Data Packaging Corp.
27
<PAGE>
DIRECTOR COMPENSATION
The Company's directors are not compensated for attending meetings of the
Board of Directors. The Company currently does not plan to compensate directors
for services rendered in their capacity as directors.
EXECUTIVE COMPENSATION
No executive officer of the Company received cash compensation in excess of
$100,000, or stock options or other long-term compensation during 1995.
EMPLOYMENT AGREEMENTS
The Company intends to enter into an employment agreement with Rudy A.
Slucker on the effective date of this Prospectus for an initial term of three
years. The agreement will provide for an annual salary of $200,000 and certain
bonuses based on performance criteria. The agreement will further provide that
Mr. Slucker may not engage in certain activities competitive with the Company
for a period of one year after the expiration of his employment agreement. In
the event that the Company terminates Mr. Slucker's employment without cause,
such provisions would not apply.
The Company has also entered into an employment agreement with John
Zeravica. The agreement with Mr. Zeravica may be terminated either by the
Company or Mr. Zeravica upon two weeks notice. The agreement provides for an
annual salary of $100,000 and reimbursement for certain relocation expenses upon
the relocation of the Company's headquarters.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Company's By-laws provide
that the Company shall indemnify its directors and executive officers and may
indemnify its other officers, employees, agents and other agents to the fullest
extent permitted by law. The Company's By-laws also permit the Company to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the By-laws would permit indemnification. Although the Company does not
currently maintain liability insurance for its officers and directors, the
Company's By-laws provide that the Company may purchase and maintain such
insurance.
The Company has entered into indemnification agreements with each of its
executive officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where the Company currently
anticipates indemnification will be required.
STOCK OPTION PLANS
On October 18, 1996, the Board of Directors and the stockholders of the
Company adopted the 1996 Employee Stock Option Plan ("Plan") and reserved
200,000 shares of Common Stock for issuance thereunder. The Plan provides for
the granting to employees (including employee directors and officers) of options
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended ("Code"), and for the granting
of nonstatutory stock options to employees and consultants. The Plan is
currently administered by the entire Board of Directors of the Company.
The exercise price per share of incentive stock options granted under the
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. In addition, in accordance with the Underwriting Agreement
relating to this Offering, the Company has agreed not to grant any options under
28
<PAGE>
the Plan with an exercise price per share less than the initial public offering
price of the Common Stock. With respect to any participant who owns shares
representing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive or nonstatutory
stock option must be equal to at least 110% of the fair market value on the
grant date, and the maximum term of the option must not exceed five years. The
terms of all other options granted under the Plan may not exceed ten years. Upon
a merger of the Company, the options outstanding under the Plan will terminate
unless assumed or substituted by the successor corporation. To date, no options
have been granted under the Plan.
OTHER OPTIONS
On October 21, 1996, the Company granted five-year options (outside of the
Plan) to acquire 250,000 shares of Common Stock for $4.75 per share to Rudy
Slucker, the Chairman of the Board and Chief Executive Officer of the Company.
In addition, the Company may grant five-year options to purchase up to an
aggregate of 250,000 shares of Common Stock for $4.75 per share to touring golf
professionals who perform consulting and promotional services for the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of the date of this
Prospectus for (i) each person who is known by the Company to beneficially own
more than 5% of the capital stock, (ii) each of the Company's directors, and
(iii) all directors and executive officers as a group. The Company believes that
each of the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY ----------------------------------
NAME OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Rudy A. Slucker (1)............................................ 730,000 73.0% 33.9%
Fred K. Hochman(2)............................................. 153,000 22.7% 8.9%
Frank Grace....................................................
518 Route 513
Caliphon, New Jersey 07830 50,000 6.7% 2.6%
Richard Rizzuto................................................
518 Route 513
Caliphon, New Jersey 07830 41,667 5.6% 2.2%
Jeffrey Baker.................................................. 0 -- --
All directors and executive officers as a group (4 persons).... 900,000 90% 47.4%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes (i) 250,000 shares subject to options exercisable at $4.75 per
share and (ii) an aggregate of 75,000 shares of Common Stock owned by the
children and wife of Mr. Slucker.
(2) Mr. Hochman has pledged his shares to NationsBank to secure the Company's
indebtedness of $300,000 plus interest. See "Certain Transactions."
CERTAIN TRANSACTIONS
The Company was initially capitalized in October, 1992 through the sale of
333,333 shares of its Common Stock for $.01 per share, including 133,333 shares
purchased by Fred K. Hochman, 133,333 shares purchased by Wayne R. Wooten, and
50,000 shares purchased by Frank Grace, each of whom was a director and/or
officer of the Company. On March 13, 1994, Messrs. Hochman and Wooten each sold
16,667 shares of Common Stock to Richard Rizzuto, then a director of the
Company.
On July 27, 1994, the Company entered into a Consulting and Non-Competition
Agreement with Mr. Wooten providing for payments by the Company in the form of
royalties on the sale of certain putters through July 26, 1996. An aggregate of
$33,070 was paid through such date to Mr. Wooten under the Agreement. At such
time, Mr. Hochman purchased from Mr. Wooten 116,666 shares of Common Stock of
the Company for approximately $75,000. In addition, Mr. Wooten resigned as an
officer and director of the Company.
In November 1994, the Company borrowed $300,000 from NationsBank. Mr.
Hochman provided a personal guarantee for the loan. In addition, the Company
guaranteed a personal loan of $100,000 from NationsBank to Mr. Hochman, which
guarantee will be released in October 1996. Mr. Hochman has pledged all of his
shares of Common Stock of the Company to secure his personal indebtedness.
On December 31, 1994, Mr. Hochman transferred 50,000 shares of Common Stock
to Rudy A. Slucker in consideration of $1.00 and the agreement to loan the
Company $140,000 at an interest rate of 8% per annum and payable over a
three-year term. On October 1, 1995, Mr. Slucker purchased 66,666
30
<PAGE>
shares from Mr. Hochman for $1.00 and Mr. Slucker's agreement to loan additional
sums to the Company, to the extent necessary.
In April 1996, in consideration of Mr. Slucker's agreement to loan the
Company up to $300,000, and to guarantee the NationsBank loan, Mr. Slucker was
issued 416,666 shares of Common Stock. In April 1996 Mr. Slucker sold 53,000
shares of Common Stock to Mr. Hochman for $80,000 which was represented by a
promissory note due April 1, 1998.
From time to time, the Company has borrowed funds from its officers,
directors and stockholders. Since the inception of the Company in August 1992,
the Company has borrowed the following amounts (inclusive of accrued interest
through September 30, 1996) from officers, directors and beneficial owners of 5%
or more of the Company's Securities: $742,276 from Rudy A. Slucker, $406,348
from Fred Hochman, $257,188 from Richard Rizzuto, $44,192 from John Schubert and
$263,856 from Frank Grace. Pursuant to an agreement dated as of October 18,
1996, $400,000 of debt owed to Mr. Slucker will be extended and paid, with
interest from and after the Effective Date at 8% per annum, until three years
from the Effective Date, except that the Company may prepay such amounts from
net proceeds received from the exercise of the Warrants. In addition, an
additional aggregate amount of $100,000 of debt owed to Messrs. Slucker,
Hochman, Rizzuto, Schubert and Grace will be extended and paid, with interest
from and after the Effective Date, at 8% per annum, to a date no earlier than
two years from the Effective Date, except that the Company may prepay such
amounts from net proceeds received from the exercise by the Underwriter of its
over-allotment option. The balance of $171,742, $376,348, $244,688, $41,692 and
$248,856, plus interest through the Effective Date will be forgiven by Messrs.
Slucker, Hochman, Rizzuto, Schubert and Grace on the Effective Date.
From August 1, 1996 through September 30, 1996, Mr. Slucker advanced
$130,000 to the Company for its business operations. The Company has agreed to
repay the amounts advanced by Mr. Slucker through September 30, 1996 and any
additional amounts loaned through the Effective Date, with interest at 8% per
annum payable at maturity no earlier than two years from the Effective Date,
except that the Company may prepay such amounts from net proceeds received from
the exercise by the Underwriter of its over-allotment option. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operations--Liquidity
and Capital Resources."
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority of
disinterested directors.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 11,000,000, consisting of
10,000,000 shares of Common Stock, $.01 par value and 1,000,000 shares of
Preferred Stock, $.01 par value. As of the date of this Prospectus, 750,000
shares of Common Stock are outstanding and held of record by five stockholders.
Upon the completion of this Offering there will be 1,900,000 shares of Common
Stock outstanding (2,072,500 if the Underwriter's over-allotment option is
exercised in full).
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock without further stockholder appoval. The
Preferred Stock may be divided into such classes or series as the Board of
Directors may determine by resolution. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. Currently no Preferred Stock is outstanding, and
the Board of Directors has no current plans to issue any such shares.
31
<PAGE>
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding shares of preferred
stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, subject to the
liquidation preferences of preferred stock, the holders of Common Stock are
entitled to receive any declared and unpaid dividends, in addition to being
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any then outstanding shares of preferred stock.
Holders of Common Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock.
All outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable, and the shares of Common Stock
issued upon completion of this Offering have been duly authorized and, when
issued, will be fully paid and nonassessable.
WARRANTS
Each Warrant will entitle the registered holder to purchase one share of the
Company's Common Stock at an exercise price of $4.00 per share for five years
from the date of this Prospectus. No fractional shares of Common Stock will be
issued in connection with the exercise of Warrants. Upon exercise, the Company
will pay the holder the value of any such fractional shares in cash, based upon
the market value of the Common Stock at such time.
Unless extended by the Company at its discretion, the Warrants will expire
at 5:00 p.m., New York time, on the fifth anniversary of the date of this
Prospectus. In the event a holder of Warrants fails to exercise the Warrants
prior to their expiration, the Warrants will expire and the holder thereof will
have no further rights with respect to the Warrants.
The Company may, with the consent of the Underwriter, redeem not less than
all of the outstanding Warrants at a price of $.01 per Warrant upon not less
than 30 days' prior written notice if the last sale price of the Common Stock
has been at least 162.5% of the then-exercise price of the Warrants (initially
$6.50) for the 20 consecutive trading days ending on the third day prior to the
date on which the notice is given.
No Warrants will be exercisable unless at the time of exercise there is a
current prospectus covering the shares of Common Stock issuable upon exercise of
such Warrants under an effective registration statement filed with the
Commission and such shares have been qualified for sale or are exempt from
qualification under the securities laws of the state or residence of the holder
of such Warrants. Although the Company intends to have all shares so qualified
for sale in those states where the Securities are being offered and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement, there can be no assurance that
will be able to do so.
A holder of Warrants will not have any rights, privileges or liabilities as
a stockholder of the Company prior to the exercise of the Warrants. The Company
is required to keep available a sufficient number of authorized shares of Common
Stock to permit exercise of the Warrants.
The exercise price of the Warrants and the number of shares issuable upon
exercise of the Warrants will be subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications. No assurance can be given that the market
price of the Company's Common Stock will exceed the exercise price of the
Warrants at any time during the exercise period.
32
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
1,900,000 shares of Common Stock, not including shares of Common Stock issuable
upon exercise of outstanding options, warrants and assuming no exercise of the
over-allotment option granted to the Underwriters.
Of these outstanding shares, the 1,150,000 shares of Common Stock sold to
the public in this Offering may be freely traded without restriction or further
registration under the Securities Act, except that any shares that may be held
by an "affiliate" of the Company (as that term is defined in the rules and
regulations under the Securities Act) may be sold only pursuant to a
registration under the Securities Act or pursuant to an exemption from
registration under the Securities Act, including the exemption provided by Rule
144 adopted under the Securities Act.
The 750,000 shares of Common Stock outstanding prior to this Offering are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act and may not be sold unless such sale is registered under the Securities Act
or is made pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. Of such shares, 333,333 may be
sold under Rule 144 within 12 months of the date of this Prospectus and the
remaining number of shares may be sold within 24 months of the date of this
Prospectus. All stockholders of the Company have agreed that for a period of 24
months from the date of this Prospectus, they will not sell any of their
securities without the prior consent of the Underwriter.
Of the shares of Common Stock issuable upon exercise of options outstanding
as of the date hereof, 250,000 shares are subject to lock-up provisions that
prevent their resale for a period of two years following the date of this
Prospectus. See "Management--Other Options."
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Securities for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which such notice of such sale is given to the Securities and Exchange
Commission, provided certain public information, manner of sale and notice
requirements are satisfied. A stockholder who is deemed to be an affiliate of
the Company, including members of the Board of Directors and senior management
of the Company, will still need to comply with the restrictions and requirements
of Rule 144, other than the two-year holding period requirement, in order to
sell shares of Common Stock that are not Restricted Securities, unless such sale
is registered under the Securities Act. A stockholder (or stockholders who
shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder, and
who has beneficially owned Restricted Securities for at least three years, will
be entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or in the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.
33
<PAGE>
UNDERWRITING
GKN Securities Corp. ("Underwriter") has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,150,000 shares of Common Stock and 1,150,000 Warrants.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to approval of certain legal matters by counsel and various other
conditions precedent, and that the Underwriter is obligated to purchase all of
the Securities offered by this Prospectus (other than the Securities covered by
the over-allotment option described below), if any are purchased.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Securities to the public at the initial offering prices set forth on
the cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of $ per share of Common Stock and $. per
Warrant. The Underwriter may allow, and such dealers may re-allow, a concession
not in excess of $ per share of Common Stock and $. per Warrant to
certain other dealers. After this Offering, the offering price and other selling
terms may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Underwriter an expense allowance on a nonaccountable basis
equal to 3% of the gross proceeds derived from the sale of the Securities
underwritten (including the sale of any Securities subject to the Underwriter's
over-allotment option), $50,000 of which has been paid to date. The Company also
has agreed to pay all expenses in connection with qualifying the Securities
offered hereby for sale under the laws of such states as the Underwriter may
designate, and for obtaining the clearance of this Offering with the National
Association of Securities Dealers, Inc. including fees and expenses of counsel
retained for such purposes by the Underwriter. The Company has agreed to retain
the Underwriter to act as a financial consultant for a two-year period
commencing on the date of this Prospectus at an annual fee of $30,000 per year,
payable in advance at the closing of this Offering.
The Company has granted to the Underwriter an option to purchase up to an
aggregate of 172,500 additional shares of Common Stock and/or 172,500 additional
Warrants at the offering price, less underwriting discounts and the
nonaccountable expense allowance for the sole purpose of covering over-
allotments, if any.
The Company has engaged the Underwriter, on a non-exclusive basis, as its
agent for the solicitation of the exercise of the Warrants. Additionally, other
NASD members may be engaged by the Underwriter in its solicitation efforts. To
the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission, the Company has agreed to pay the Underwriter for
bona fide services rendered a commission equal to 5% of the exercise price for
each Warrant exercised after one year from the date of this Prospectus if the
exercise was solicited by the Underwriter. In addition to soliciting, either
orally or in writing, the exercise of the Warrants, such services may also
include disseminating information, either orally or in writing, to warrant
holders about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of Warrants. No compensation will be
paid to the Underwriter in connection with the exercise of the Warrants if the
market price of the underlying shares of Common Stock is lower than the exercise
price, the Warrants are held in a discretionary account, the Warrants are
exercised in an unsolicited transaction, the warrantholder has not confirmed in
writing that the Underwriter solicited such exercise or the arrangement to pay
the commission is not disclosed in the prospectus provided to warrantholders at
the time of exercise. In addition, unless granted an exemption by the Commission
from Rule 10b-6 under the Exchange Act, while it is soliciting exercise of the
Warrants, the Underwriter will be prohibited from engaging in any market
activities or solicited brokerage activities with regard to the Company's
securities unless the Underwriter has waived its right to receive a fee for the
exercise of the Warrants.
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<PAGE>
In connection with this Offering, the Company has agreed to sell to the
Underwriter and its designees, for an aggregate of $100, the Underwriter's
Purchase Option to purchase up to an aggregate of 115,000 shares of Common Stock
and/or 115,000 Warrants. The Underwriter's Purchase Option is exercisable at a
price equal to 110% of the initial offering price of the securities for a period
of four years commencing one year from the date of this Prospectus. The
securities purchasable upon exercise of the Underwriter's Purchase Option are
identical to those offered hereby. The Underwriter's Purchase Option grants to
the holder thereof certain "piggyback" rights and one demand right for a period
of seven and five years, respectively, from the date of this Prospectus with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the Underwriter's Purchase Option. The
Underwriter's Purchase Option cannot be transferred, sold, assigned or
hypothecated during the one-year period following the date of this Prospectus,
except to officers of the Underwriter and to selected dealers and their officers
or partners.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Securities and the
terms of the Warrants have been determined by negotiation between the Company
and the Underwriter and do not necessarily bear any relating to established
valuation criteria. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, included an assessment of the
prospects for the industry in which the Company will compete, the Company's
management and the Company's capital structure.
Pursuant to the Underwriting Agreement, all of the holders of the
outstanding Common Stock of the Company prior to this Offering have agreed not
to sell any of their shares of Common Stock for a period of two years from the
date of this Prospectus without the prior written consent of the Underwriter. In
addition, the Underwriting Agreement provides that, for a period of five years
from the date of this Prospectus, the Company will permit the Underwriter to
designate one person to the Board of Directors, or alternatively, to send a
representative to observe meetings of the Board of Directors. Such
representative will not be a member of the Board of Directors and will not be
entitled to vote on any matters before the Board. The Underwriter has not yet
selected a designee or representative.
LEGAL MATTERS
The legality of the Securities offered hereby will be passed upon for the
Company by Crummy, Del Deo, Dolan, Griffinger & Vecchione, a Professional
Corporation, Newark, New Jersey. Graubard Mollen & Miller, New York, New York,
has served as counsel to the Underwriter in connection with this Offering.
EXPERTS
The financial statements and schedules of TearDrop Golf Company at December
31, 1994 and 1995 appearing in this Prospectus and the Registration Statement
have been audited by Rothstein, Kass & Company, P.C., independent auditors, as
set forth in their report thereon (which contains an explanatory paragraph which
raises substantial doubt about the Company's ability to continue as a going
concern) appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission") a Registration Statement with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, having been omitted from this
Prospectus in accordance with the rules and regulations of the Commission. For
further information with respect to the Company, the securities offered by this
Prospectus and such omitted information, reference is made to the Registration
Statement, including any and all exhibits and amendments thereto. Statements
contained in this Prospectus concerning the provisions of any document filed as
an exhibit are of necessity
35
<PAGE>
brief descriptions thereof and are not necessarily complete, and in each
instance reference is made to the copy of the document filed as an exhibit to
the Registration Statement, each such statement being qualified in its entirety
by this reference.
Following the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Securities and Exchange Act
of 1934, as amended, and in accordance therewith the Company will file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington D.C. 20549;
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, New York, New York 10048. Copies of
such material, including the Registration Statement, can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington
D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited and reported on by its independent public
accounting firm and such other periodic reports as the Company may determine to
be appropriate or as may be required by law.
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<PAGE>
TEARDROP GOLF COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report..................................................... F-2
Financial Statements
Balance Sheets................................................................. F-3
Statements of Operations....................................................... F-4
Statements of Stockholders' Deficit............................................ F-5
Statements of Cash Flows....................................................... F-6
Notes to Financial Statements.................................................. F-7-F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TearDrop Golf Company
We have audited the accompanying balance sheet of TearDrop Golf Company as
of December 31, 1995, and the related statements of operations, stockholders'
deficit and cash flows for the years ended December 31, 1995 and 1994. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TearDrop Golf Company as of
December 31, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has, since inception, an accumulated loss from
operations, which raises substantial doubt about its ability to continue as a
going concern. Management's plan in regard to these matters are also described
in Note 12. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ROTHSTEIN, KASS & COMPANY, P.C.
ROSELAND, NEW JERSEY
SEPTEMBER 28, 1996, EXCEPT FOR NOTE 13
AS TO WHICH THE DATE IS OCTOBER 21, 1996
F-2
<PAGE>
TEARDROP GOLF COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
SEPTEMBER 30, 1996 DECEMBER 31,
1996 (NOTE 2) 1995
------------- ------------- ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current Assets:
Cash...................................................................... $ 4,079 $ 4,079 $ 15,868
Accounts receivable, less allowance for doubtful accounts of $17,000 in
1996 and 1995........................................................... 268,242 268,242 79,497
Inventories............................................................... 101,064 101,064 121,035
Prepaid expenses and other current assets................................. 73,167 73,167 13,333
------------- ------------- ------------
Total current assets.................................................. 446,552 446,552 229,733
Property and Equipment, less accumulated depreciation and amortization...... 166,624 166,624 184,927
Other Assets, intangible assets, less accumulated amortization.............. 30,644 30,644 33,635
------------- ------------- ------------
$ 643,820 $ 643,820 $ 448,295
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable.......................................................... $ 240,884 $ 240,884 $ 230,284
Notes payable............................................................. 300,000 300,000 300,000
Obligation under capital lease............................................ 15,101 15,101 15,226
Other current liabilities................................................. 50,864 50,864 15,824
------------- ------------- ------------
Total current liabilities............................................. 606,849 606,849 561,334
------------- ------------- ------------
Obligation Under Capital Lease, less current portion........................ 64,172 64,172 76,629
------------- ------------- ------------
Stockholders' Loans (Note 8 and 13)......................................... 1,713,860 630,534 1,178,588
------------- ------------- ------------
Commitments and Contingencies
(Notes 10 and 11)
Stockholders' Deficit:
Common stock, $1 par value in 1996 and 1995, authorized 100,000 shares,
issued and outstanding 225 shares in 1996 and 100 shares in 1995........ 225 100
Pro Forma--preferred stock, $.01 par value, authorized 1,000,000 shares,
issued and outstanding none (Note 2).................................... --
Pro Forma--common stock, $.01 par value, authorized 10,000,000 shares,
issued and outstanding 750,000 shares (Note 2).......................... 7,500
Capital in excess of par value (Note 2)................................... 1,076,051
Accumulated deficit....................................................... (1,741,286) (1,741,286) (1,368,356)
------------- ------------- ------------
Total stockholders' deficit............................................... (1,741,061) (657,735) (1,368,256)
------------- ------------- ------------
$ 643,820 $ 643,820 $ 448,295
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1995 1994
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Sales....................................................... $ 715,495 $ 820,746 $ 1,057,306 $ 784,519
Cost of sales............................................... 299,521 390,396 549,305 446,057
----------- ----------- ------------ -----------
Gross profit................................................ 415,974 430,350 508,001 338,462
Selling, general and administrative expenses................ 667,759 644,952 942,638 782,115
----------- ----------- ------------ -----------
Loss from operations........................................ (251,785) (214,602) (434,637) (443,653)
Interest expense............................................ 121,145 78,533 107,788 108,391
----------- ----------- ------------ -----------
Net loss.................................................... $ (372,930) $ (293,135) $ (542,425) $(552,044)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Loss per common share....................................... $ (.50) $ (.39) $ (.72) $ (.74)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted average number of common shares outstanding........ 750,000 750,000 750,000 750,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ACCUMULATED
SHARES AMOUNT DEFICIT
----------- ----------- -------------
<S> <C> <C> <C>
Balances, January 1, 1994....................................................... 100 $ 100 $ (273,887)
Net Loss........................................................................ (552,044)
--- ----- -------------
Balances, December 31, 1994..................................................... 100 100 (825,931)
Net Loss........................................................................ (542,425)
--- ----- -------------
Balances, December 31, 1995..................................................... 100 100 (1,368,356)
Common Stock Issued for Services (UNAUDITED).................................... 125 125
Net Loss (UNAUDITED)............................................................ (372,930)
--- ----- -------------
Balances, September 30, 1996 (UNAUDITED)........................................ 225 $ 225 $ (1,741,286)
--- ----- -------------
--- ----- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
------------------------ --------------------
1996 1995 1995 1994
----------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss....................................... $(372,930) $(293,135) $(542,425) $(552,044)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 26,368 14,761 19,682 18,684
Provision for doubtful accounts............ 3,795 7,355 4,317 27,276
Accrued interest on stockholders' loans.... 74,147 49,122 75,420 83,876
Loss on abandoned assets................... 74,443
Common stock issued for services........... 125
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................. (192,540) 10,234 29,297 (77,214)
(Increase) decrease in inventories....... 19,971 (34,387) (93,679) 67,321
(Increase) decrease in prepaid expenses
and other current assets............... (59,834) 1,355 (5,581) 37,964
Increase in accounts payable............. 10,600 30,111 79,678 16,783
Increase in other current liabilities.... 35,040 1,907 7,841 3,811
----------- ----------- --------- ---------
Net Cash Used In Operating Activities............ (455,258) (212,677) (351,007) (373,543)
----------- ----------- --------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment............. (5,074) (19,140) (29,479) (7,061)
Payments for patents and trademarks............ (18,786)
----------- ----------- --------- ---------
Net Cash Used In Investing Activities............ (5,074) (19,140) (29,479) (25,847)
----------- ----------- --------- ---------
Cash Flows From Financing Activities:
Payments on capital lease obligations.......... (12,582) (1,202)
Proceeds from notes payable.................... 8,750 8,750 207,250
Loans from stockholders........................ 461,125 225,375 380,577 192,873
----------- ----------- --------- ---------
Net Cash Provided By Financing Activities........ 448,543 234,125 388,125 400,123
----------- ----------- --------- ---------
Net Increase (Decrease) In Cash.................. (11,789) 2,308 7,639 733
Cash, beginning of period........................ 15,868 8,229 8,229 7,496
----------- ----------- --------- ---------
Cash, end of period.............................. $ 4,079 $ 10,537 $ 15,868 $ 8,229
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Supplemental Disclosure Of Cash Flow Information:
cash paid during the periods for interest...... $ 28,498 $ 27,584 $ 32,626 $ 22,901
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Supplemental Schedules Of Noncash Investing And
Financing Activities:
Capital lease obligation incurred for lease of
new equipment................................ $ -- $ -- $ 93,057 $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Costs of equipment included in accounts
payable...................................... $ -- $ -- $ 37,000 $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Cost of equipment included in stockholders'
loans........................................ $ -- $ -- $ 18,500 $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND NATURE OF OPERATIONS
The Teardrop Putter Corporation ("TPC") was formed as a South Carolina
corporation in 1992 and subsequently merged with the Teardrop Golf Company, (the
"Company) a Delaware corporation, (SEE NOTE 13). The Company manufactures and
markets golf putters and wedges within and outside the United States. The
Company intends to relocate its production and executive facilities to or
establish additional facilities in the New York metropolitan area.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES--Inventories are stated at cost on a first-in, first-out basis,
which does not exceed market value.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for depreciation
and amortization as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSET LIVES PRINCIPAL METHOD
- ---------------------------------------------------------- ----------- --------------------
<S> <C> <C>
Office furniture and equipment............................ 5 Years Declining-balance
Machinery and equipment................................... 10 Years Declining-balance
</TABLE>
INTANGIBLE ASSETS--Patents and trademarks relate to costs associated with
obtaining patents and trademarks within and outside the United States. These
costs are amortized on a straight-line basis over 17 years.
Organization costs relate to costs associated with the formation of TPC.
These costs are amortized on a straight-line basis over 5 years.
INCOME TAXES--TPC is an "S" corporation and, as a result, the earnings and
losses have been included in the personal income tax returns of the respective
stockholders. Upon completion of the proposed public offering, the "S" election
will be terminated.
The Company complies with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," which requires an asset and liability
approach to financial reporting of income taxes. Deferred income tax assets and
liabilities are computed for differences between financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to effect taxable income.
Valuation allowances are established, when necessary, to reduce the deferred
income tax assets to the amount expected to be realized.
LOSS PER COMMON SHARE--Loss per common share is computed based on net loss
applicable to common stockholders divided by the weighted average number of
common shares outstanding, after giving effect to the merger (SEE NOTE 13).
The weighted average includes shares issued within one year of the Company's
proposed initial public offering (IPO) with an issue price less than the IPO
price.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company periodically assesses the
recoverability of the carrying amounts of long-lived assets, including
intangible assets. A loss is recognized when expected undiscounted future cash
flows are less than the carrying amount of the asset. The impairment loss is the
difference by which the carrying amount of the asset exceeds its fair value.
F-7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of the Company's assets
and liabilities which qualify as financial instruments under SFAS No. 107
approximate the carrying amounts presented in the balance sheet. It is not
practicable to estimate the fair value of amounts due to stockholders.
UNAUDITED FINANCIAL STATEMENTS--The unaudited financial statements, in the
opinion of management, include all adjustments of a normal and recurring nature,
which are necessary for a fair presentation. The results of operations for the
nine months ended September 30, 1996 and 1995 are not necessarily indicative of
the results expected for the full year.
PRO FORMA--The pro forma amounts shown in the financial statements reflect
the anticipated capitalization of stockholder loans (and accrued interest) as a
contribution to capital in excess of par value upon the effective date of the
Registration Statement relating to the IPO, and after giving effect to the
merger (SEE NOTE 13).
NOTE 3--INVENTORIES
Inventories are comprised of the following at September 30, 1996 (UNAUDITED)
and December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
Raw materials................................................... $ 28,593 $ 111,073
Finished goods.................................................. 72,471 9,962
------------- ------------
$ 101,064 $ 121,035
------------- ------------
------------- ------------
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1996
(UNAUDITED) and December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
Office furniture and equipment.................................. $ 33,063 $ 29,489
Machinery and equipment......................................... 174,547 173,047
------------- ------------
207,610 202,536
Accumulated depreciation and amortization (includes $9,974 for
the nine months ended September 30, 1996 (UNAUDITED) under a
capital lease)................................................ 40,986 17,609
------------- ------------
$ 166,624 $ 184,927
------------- ------------
------------- ------------
</TABLE>
F-8
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INTANGIBLE ASSETS
Intangible assets consist of the following at September 30, 1996 (UNAUDITED)
and December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
Patents and trademarks.......................................... $ 33,786 $ 33,786
Organization costs.............................................. 10,000 10,000
------------- ------------
43,786 43,786
Accumulated amortization........................................ 13,142 10,151
------------- ------------
$ 30,644 $ 33,635
------------- ------------
------------- ------------
</TABLE>
Amortization for the years ended December 31, 1995 and 1994 was $3,987 and
$3,435, respectively, and $2,991 for the nine months ended September 30, 1996
and 1995 (UNAUDITED).
NOTE 6--NOTES PAYABLE
Notes payable consist of two lines of credit under which the Company can
borrow up to $300,000 and bear interest at 1% over the prime lending rate (9.5%
at December 31, 1995 and 9.25% at September 30, 1996 (UNAUDITED)). The lines of
credit are collateralized by a security interest in all assets of the Company
and are guaranteed by a stockholder. These notes became due on March 15, 1996
(SEE NOTE 13).
NOTE 7--OBLIGATION UNDER CAPITAL LEASE
Machinery and equipment includes a milling machine stated at $93,057
recorded under a capital lease which was acquired in December 1995.
Aggregate future lease payments at September 30, 1996 (UNAUDITED) and
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- -------------
<S> <C> <C>
Years ending
1996........................................................... $ -- $ 23,726
1997........................................................... 23,726 23,726
1998........................................................... 23,726 23,726
1999........................................................... 23,726 23,726
2000........................................................... 23,726 21,749
2001........................................................... 1,977
------- -------------
Total future lease payments.................................... 96,881 116,653
Less amount representing interest.............................. 17,608 24,798
------- -------------
Present value of future minimum lease payments................. 79,273 91,855
Less current portion........................................... 15,101 15,226
------- -------------
Long-term portion.............................................. $ 64,172 $ 76,629
------- -------------
------- -------------
</TABLE>
F-9
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--RELATED PARTY TRANSACTIONS
Stockholders' loans represent cash advances with no stated repayment date.
The loans bear interest at 9% per annum (SEE NOTE 13).
In August 1996, the Company issued a note to the Company's Chief Executive
Officer (CEO) up to a maximum of $300,000 which bears interest at 8% per annum
and is due on the earlier of two years following the effective date the
Company's Registration Statement relating to the IPO, or July 31, 1997 if the
effective date has not yet occurred (SEE NOTE 13). At September 30, 1996
(UNAUDITED), stockholders' loans includes $130,000 under this note.
The Company is a guarantor of a stockholder's personal loan of $100,000.
NOTE 9--PROPOSED PUBLIC OFFERING
In August 1996, the Company signed a letter of intent with an investment
banking firm for the purpose of underwriting an IPO.
NOTE 10--ECONOMIC DEPENDENCY
During the year ended December 31, 1995, the Company derived revenues of
approximately $256,000 from one customer. During the nine months ended September
30, 1996 (UNAUDITED), the Company derived revenues of approximately $179,000
from two customers.
During the years ended December 31, 1995 and 1994, the Company purchased
approximately $389,000 and $165,000 of its inventory from three and two
suppliers, respectively. During the nine months ended September 30, 1996 and
1995 (UNAUDITED), the Company purchased approximately $132,000 and $165,000 of
its inventory from two and one suppliers, respectively.
NOTE 11--COMMITMENTS AND CONTINGENCIES
In July 1994, the Company entered into a consulting and non-competitive
agreement with a former stockholder of the Company, which provided for payments
by the Company in the form of royalties on the sale of certain putters through
July 1996. In addition, the former stockholder will receive $5,000 for each
major golfing event or tournament (as defined in the agreement) won by a player
using a TearDrop Putter. This agreement is personally guaranteed by one of the
Company's stockholders. The Company paid royalties under this agreement of
$21,652 and $1,445 in the years ended December 31, 1995 and 1994, respectively,
and $9,973 and $14,712 in the nine months ended September 30, 1996 and 1995
(UNAUDITED), respectively.
The Company rents its current office and assembly facilities under a lease
which expires on November 30, 1998. The lease requires that rent be adjusted
annually for cost of living increases.
Future aggregate minimum rental payments are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996.............................................................. $ 38,400
1997.............................................................. 38,400
1998.............................................................. 35,200
---------
$ 112,000
---------
---------
</TABLE>
F-10
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense approximated $27,000 and $19,400 in the years ended December
31, 1995 and 1994, respectively, and $33,600 and $18,400 in the nine months
ended September 30, 1996 and 1995 (UNAUDITED), respectively.
On June 26, 1996, the Company entered into an employment agreement with one
of the Company's sales representatives which provides for compensation of
$70,000 annually beginning July 1996 and $100,000 annually upon the effective
date of the Registration Statement relating to the IPO. The agreement may be
terminated by either party upon two weeks notice. In October 1996, the Company
intends to enter into an employment agreement with its CEO (SEE NOTE 13).
NOTE 12--OPERATING RESULTS AND MANAGEMENT'S PLANS
The Company has expended significant amounts in the development and
introduction of its initial products. As a result, the Company incurred a net
loss of $542,425 for 1995 and has incurred substantial net losses for each of
the past two years. At September 30, 1996 (UNAUDITED), current liabilities
exceed current assets by $160,297 and total liabilities exceed total assets by
$1,741,061. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence. Management plans to raise
equity capital and, in August 1996, has retained the services of an investment
banking firm and entered into a letter of intent to raise approximately
$4,500,000 (after registration costs) in an IPO of its common stock.
NOTE 13--SUBSEQUENT EVENTS
The Company's stockholders intend to execute an agreement under which, upon
the effective date of the Registration Statement relating to the IPO, $1,083,326
of stockholder loans and accrued interest will be contributed to capital in
excess of par value. Of the remaining balance, $500,000 will be converted to (i)
five promissory notes in various amounts, which aggregate $100,000, bearing
interest at 8% per annum and are due no earlier than two years from the date the
Company's Registration Statement relating to the IPO becomes effective, and (ii)
one $400,000 promissory note which bears interest at 8% per annum and is due no
earlier than three years from the date the Company's Registration Statement
relating to the IPO becomes effective. In addition, these notes contain
provisions under which, upon the exercise of certain warrants, the notes became
immediately payable.
On October 18, 1996, the Company's stockholders adopted a stock option plan
("Plan") providing for incentive stock options ("ISOs") and non-qualified stock
options ("NQSOs"). The Company has reserved 200,000 shares of common stock for
issuance upon the exercise of stock options granted under the Plan. The exercise
price of an ISO or NQSO will not be less than 100% of the fair market value of
the Company's common stock at the date of the grant. The exercise price of an
ISO granted to an employee owning greater than 10% of the Company's common stock
will not be less than 110% of the fair market value of the Company's common
stock at the date of the grant and will have a maximum term of five years. All
other options granted under the Plan will have a maximum term of ten years.
On October 21, 1996, TPC merged with Teardrop Golf Company ("TGC"), a
Delaware corporation. Each share of TPC's common stock issued and outstanding
immediately prior to the merger will be converted to 3333.33 shares of TGC's
common stock. The authorized capital stock of TGC is 10,000,000
F-11
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUBSEQUENT EVENTS (CONTINUED):
shares of common stock, $.01 par value per share, and 1,000,000 shares of
preferred stock, $.01 par value per share.
The Company intends to enter into an employment agreement with its CEO as of
the effective date of the Registration Statement relating to the IPO. The
agreement will provide for compensation of $200,000 annually for three years
with a one year renewal term. In addition, the CEO will receive a performance
bonus as defined. The agreement will further provide that he may not engage in
certain competitive activities, as defined, for one year after termination of
the employment agreement.
On October 21, 1996, the Company granted five-year options (outside the
Plan) to acquire 250,000 shares of the Company's common stock for $4.75 per
share to the Company's CEO. In addition, the Company intends to grant five-year
options to purchase up to an aggregate of 250,000 shares of the Company's common
stock for $4.75 per share to touring golf professionals.
At March 15, 1996, the Company was in default of the lines of credit as a
result of the failure to pay when due. The Company's CEO is expected to
guarantee these notes. In addition, the Company expects to receive a waiver of
the defaults and an extension on the notes until December 31, 1996.
F-12
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Dilution........................................
Use of Proceeds.................................
Capitalization..................................
Dividend Policy.................................
Management's Discussion and Analysis
of Financial Condition and Plan
of Operations.................................
Business........................................
Management......................................
Principal Stockholders..........................
Certain Transactions............................
Description of Securities.......................
Shares Eligible for Future Sale.................
Underwriting....................................
Legal Matters...................................
Experts.........................................
Available Information...........................
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS AFFECTING TRANSACTIONS IN THE COMMON STOCK AND THE WARRANTS, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
TEARDROP GOLF COMPANY
1,150,000 SHARES OF COMMON STOCK
AND
1,150,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
------------------------
PROSPECTUS
------------------------
GKN SECURITIES
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation contains a provision
eliminating or limiting director liability to the Registrant and its
stockholders for monetary damages arising from acts or omissions in the
director's capacity as director. The provision does not, however, eliminate or
limit the personal liability of a director (i) for any breach of such director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of the law, (iii) under the Delaware statutory provision making
directors personally liable, under a negligence standard, for unlawful dividends
or unlawful stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. This provision offers
persons who serve on the Board of Directors of the Registrant protection against
awards of monetary damages resulting from breaches of their duty of care (except
as indicated above). As a result of this provision, the ability of the
Registrant or a stockholder thereof to successfully prosecute an action against
a director for breach of his duty of care is limited. However, the provision
does not affect the availability of equitable remedies such as an injunction or
rescission based upon a director's breach of his duty of care. The Securities
and Exchange Commission has taken the position that the provision will have no
effect on claims arising under the Federal securities laws.
In addition, the Registrant's Certificate of Incorporation and Bylaws
provide for mandatory indemnification rights, subject to limited exceptions, to
any director or officer of the Registrant who by reason of the fact that he or
she is a director or officer of the Registrant, is involved in a legal
proceeding of any nature. Such indemnification rights include reimbursement for
expenses incurred by such director, officer, employee or agent in advance of the
final deposition of such proceeding in accordance with the applicable provisions
of Delaware General Corporation Law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock, par
value $.01 per share, offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 4,407
NASD Filing Fee................................................... $ 1,778
NASDAQ Listing Fee................................................ $ *
Blue Sky Fees and Expenses........................................ $ 50,000
Legal Fees and Expenses........................................... $ *
Accounting Fees................................................... $ *
Printing and Engraving Costs...................................... $ *
Transfer Agent Fees............................................... $ *
Miscellaneous Expenses............................................ $ *
---------
TOTAL....................................................... $ 350,000
</TABLE>
- ------------------------
* To be included by amendment
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.
<TABLE>
<CAPTION>
NATURE OF
TRANSACTION AND AGGREGATE
DATE CLASS OF PURCHASERS SECURITIES SOLD OFFERING PRICE PRICE PER SHARE
- ------------------------ ------------------------ ------------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Initial Capitalization Five Investors 100 shares of $ 5.00 $ 1.00
August, 1992 Common Stock
Sale of shares to Rudy 125 shares of $ 125.00 $ 1.00
A. Slucker Common Stock
</TABLE>
The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Underwriting Agreement
3.1 Certificate of Incorporation
3.2 Certificate of Merger
3.3 Agreement and Plan of Merger dated October 21, 1996 between the Company and
TearDrop Putter Corporation, a South Carolina Corporation
3.4 By-Laws
5.1* Opinion of Crummy, Del Deo, Dolan, Griffinger & Vecchione
10.1* Employment Agreement with Rudy A. Slucker
10.2 Employment Agreement with John Zeravica
10.3 Stock Option Plan
10.4 Form of Stock Option Agreement
10.5 Form of Agreement dated as of October 18, 1996 between the Company, TearDrop Putter Corporation, a South
Carolina Corporation, Rudy A. Slucker, Fred K. Hochman, Frank Grace, Richard Rizzuto and John Schubert
10.6 Grid Note with a maximum principal amount of $300,000 dated as of August 1, 1996 issued by the Company to
Rudy A. Slucker
10.7 Form of Promissory Note in the original principal amount of $400,000 to be issued by the Company to Rudy
A. Slucker
10.8 Form of Promissory Note in the original principal amount of $40,000 to be issued by the Company to Rudy
A. Slucker
10.9 Form of Promissory Note in the original principal amount of $30,000 to be issued by the Company to Fred
R. Hochman
10.10 Form of Promissory Note in the original principal amount of $15,000 to be issued by the Company to Frank
Grace
10.11 Form of Promissory Note in the original principal amount of $12,500 to be issued by the Company to
Richard Rizzuto
10.12 Endorsement Agreement dated January 1, 1996 between the Company and
Consolidated Artists Inc.
10.13 Agreement dated May 5, 1996 between the Company and Dustin Phillips
10.14 Agreement dated August 29, 1996 between the Company and Dennis Zinkon
10.15 Agreement dated September 10, 1996 between the Company and Dino Lucchesi
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Agreement dated September 25, 1996 between the Company and P.J. Cowan
10.17 Property Lease dated August 3, 1995 between the Company and Albert H. Politi
10.18 Equipment Lease dated November 30, 1995 between the Company and
Packaging Management Associates, Inc.
10.19 Consulting and Non-Competitive Agreement dated July 27, 1994 between the Company and Wayne Richard Wooten
24.1* Consent of Crummy, Del Deo, Dolan, Griffinger & Vecchione (See Item 5.1)
24.4 Consent of Rothstein, Kass & Company, P.C.
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters,
at the Closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to Item 24 hereof, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, 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 of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Hilton
Head Island, State of South Carolina, on October , 1996.
TEARDROP GOLF COMPANY
BY: /S/ RUDY A. SLUCKER
-----------------------------------------
Rudy A. Slucker
PRESIDENT AND CHIEF EXECUTIVE OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
Officer and Director
/s/ RUDY A. SLUCKER (Principal Executive
- ------------------------------ Officer and Principal October , 1996
Rudy A. Slucker Financial and Accounting
Officer)
/s/ FRED K. HOCHMAN Director
- ------------------------------ October , 1996
Fred K. Hochman
/s/ JEFFREY BAKER Director
- ------------------------------ October , 1996
Jeffrey Baker
II-4
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "TEARDROP GOLF COMPANY", FILED IN THIS OFFICE ON THE EIGHTEENTH
DAY OF SEPTEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
[SEAL] ----------------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION: 8110970
DATE: 09-19-96
<PAGE>
CERTIFICATE OF INCORPORATION
OF TEARDROP GOLF COMPANY
1. The name of the corporation is TearDrop Golf Company (the
"Corporation").
2. The Registered Office of the Corporation in the State of Delaware is
to be located at 1013 Centre Road, in the City of Wilmington, County of New
Castle, Zip Code 19805. The Registered Agent in charge thereof is Corporation
Service Company.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
4. The total number of shares of stock which the Corporation shall have
authority to issue is eleven million (11,000,000), divided into two classes
consisting of ten million shares (10,000,000) of Common Stock, $.01 par value
per share, and one million (1,000,000) shares of Preferred Stock, par value of
$.01 per share.
Subject to the limitations prescribed by law, the Board of Directors of the
Corporation shall have the authority to cause the issuance of one or more series
of Preferred Stock and with respect to each such series, to fix by resolution or
resolutions providing for the issuance of such series, the number of shares of
such series, the voting powers, full or limited, if any, of the shares of such
series and the designations, preferences and relative, participating, optional
or other special rights and the qualifications, limitations or restrictions
thereof. The Board of Directors shall have all powers and rights with respect to
the Preferred Stock which are not inconsistent with any limitations prescribed
by law or this Section 4, including, but not limited to, the determination or
fixing of the following:
(i) The designation and number of shares of such series;
(ii) The dividend rate of such series, the conditions and dates upon which
such dividends shall be payable, the relation which such dividends shall bear to
the dividends payable on any other class or classes of stock, and whether such
dividends shall be cumulative or noncumulative;
(iii) Whether the shares of such series shall be subject to redemption by
the Corporation and, if made subject to such redemption, the times, prices and
other terms and conditions of such redemption;
(iv) The terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series;
(v) Whether or not the shares of such series shall be convertible into or
exchangeable for shares of any other class or classes or of any other series of
any class or classes of stock of the Corporation, and, if provision be made for
conversion or exchange, the times, prices, rates, adjustments and other
conditions of such conversion or exchange;
<PAGE>
(vi) The extent, if any, to which the holders of the shares of such series
shall be entitled to vote with respect to the election of directors or
otherwise;
(vii) The restrictions, if any, on the issue or reissue of any additional
Preferred Stock; and
(viii) Notwithstanding any other provision of this Section 4, the rights of
the holders of the shares of such series upon the dissolution of, or upon the
distribution of assets of, the Corporation.
5. The name and mailing address of the incorporator are as follows:
Name Address
---- -------
Jeffrey A. Baumel, Esq. c/o Crummy, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
6. After the original or other By-Laws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and after the Corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the By-Laws of the Corporation may
be exercised by the Board of Directors of the Corporation.
7. To the fullest extent permitted by the General Corporation Law of
Delaware, no director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except that a director shall not be relieved from liability:
(a) for any breach of the director's duty of loyalty to the Corporation or its
stockholders; (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (c) under Section 174 of
the General Corporation Law of Delaware; or (d) for any transaction from which
the director derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a corporation under the laws
of the State of Delaware, do make, file and record this Certificate, and do
certify that the facts herein stated are true, and I have accordingly hereunto
set my hand this 18th day of September, 1996.
/s/ Jeffrey A. Baumel
-----------------------------------
Jeffrey A. Baumel, Esq.,
Incorporator
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF MERGER
OF
TEARDROP PUTTER CORPORATION
A SOUTH CAROLINA CORPORATION
INTO
TEARDROP GOLF COMPANY
A DELAWARE CORPORATION
- --------------------------------------------------------------------------------
Under Section 252 of the
Delaware General Corporation Law
- --------------------------------------------------------------------------------
Pursuant to the provisions of Section 252 of the Delaware General
Corporation Law, the undersigned does hereby certify:
FIRST: The name of each of the constituent corporations is TEARDROP PUTTER
CORPORATION ("TPC"), a South Carolina corporation and TEARDROP GOLF COMPANY
("TGC"), a Delaware corporation, which shall be the surviving corporation of the
merger.
SECOND: Pursuant the Agreement and Plan of Merger, dated October 21,
1996 (the "Merger Agreement"), TPC shall be merged with and into TGC.
THIRD: As of October 18, 1996, the Board of Directors and shareholders of
TPC duly approved and adopted the Merger Agreement in accordance with the South
Carolina Code and as of October 18, 1996, the Board of Directors of TGC duly
approved and adopted the Merger Agreement in accordance with Sections 251 and
252 of the Delaware General Corporation Law. The Merger Agreement was executed,
certified and acknowledged by each of the constituent corporations as of October
18, 1996 in accordance with Section 252 of the Delaware General Corporation Law
and the South Carolina Code and sets forth that:
(A) TPC shall be merged into TGC and TGC shall be the "Surviving
Corporation."
<PAGE>
(B) The name of the Surviving Corporation shall be "TEARDROP GOLF
COMPANY" and the certificate of incorporation of TGC shall be the certificate of
incorporation of the Surviving Corporation.
(C) TGC shall assume all assets and liabilities of TPC.
(D) As of filing of this Certificate of Merger (the "Effective
Date"), and by virtue of the Merger, without any action on the part of TPC or
TGC, each share of TPC's common stock issued and outstanding immediately prior
to the Effective Date shall be converted and exchangeable for 3,333.33 shares of
TGC's common stock, and upon conversion, all TPC common stock shall be canceled
and shall cease to be outstanding.
FOURTH: The Merger Agreement is on file at the principal place of business
of TGC which is located at 32 Bow Circle, Building #1, Hilton Head Island, South
Carolina 29928, Attention: Brian Hochman.
FIFTH: A copy of the Merger Agreement will be furnished by TGC on request
and without cost to any stockholder of any constituent corporation.
SIXTH: The authorized capital stock of TPC consists of one series of
common stock totaling 100,000 shares. The designation and number of issued and
outstanding shares of stock of TPC are:
NUMBER OF SHARES ISSUED
AND OUTSTANDING DESIGNATION OF SHARES
----------------------- ---------------------
225 Common Stock
The number of shares of TPC entitled to vote on the plan of merger is 225
shares of Common Stock and all of such shares were voted in favor of the merger.
SEVENTH: The authorized capital stock of TGC is eleven million
(11,000,000) shares, divided into two classes consisting of ten million
(10,000,000) shares of Common Stock, $.01 par value per share, and one million
(1,000,000) shares of Preferred Stock, $.01 par value per share. No shares of
stock of TGC were issued prior to the adoption of the Merger Agreement by the
Board of Directors of TGC, and by virtue of the applicability of Section 251(f)
of the Delaware General Corporation Law, no vote of the stockholders of TGC
is necessary to authorize the merger pursuant of this Certificate of Merger.
EIGHTH: The merger shall be effective as of the date of filing this
Certificate of Merger.
2
<PAGE>
IN WITNESS WHEREOF, each of the corporations hereto has caused this
Certificate of Merger to be executed on its behalf this 18th day of October,
1996.
TEARDROP PUTTER CORPORATION
a South Carolina corporation
By: /s/ Brian R. Hochman
---------------------
Brian R. Hochman, President
TEARDROP GOLF COMPANY
a Delaware corporation
By: /s/ Rudy A. Slucker
--------------------
Rudy A. Slucker, President
3
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement"), made and entered
into as of this 21th day of October, 1996, by and among TEARDROP GOLF COMPANY, a
corporation organized under the laws of the State of Delaware ("TGC") and
TEARDROP PUTTER CORPORATION, a corporation organized under the laws of the State
of South Carolina ("TPC"). TGC and TPC are collectively referred to herein as
the "Constituent Corporations":
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions of this Merger Agreement, TGC
and TPC desire and deem it in their respective best interests that TPC be merged
with and into TGC;
WHEREAS, the respective boards of directors of the Constituent Corporations
have duly approved this Merger Agreement; and
WHEREAS, the shareholders of TPC have duly approved this Merger Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
SECTION 1. THE MERGER.
1.1 THE MERGER. Subject to the terms and conditions hereof, the parties
hereto agree that TPC shall be merged into TGC in accordance with the applicable
provisions of the South Carolina Code and the Delaware General Corporation Law
and the separate existence of TPC shall thereupon cease (the "Merger"). TGC
shall be the surviving corporation in the Merger (the "Surviving Corporation")
and shall be governed by the laws of the State of Delaware. Subject to the
terms and conditions hereof, the parties hereto shall take all actions necessary
in accordance with applicable law and their respective Articles of Incorporation
and Bylaws to cause the Merger to be consummated.
1.2 APPROVAL AND EFFECTIVE DATE OF THE MERGER. The respective Boards of
Directors of the Constituent Corporations have duly approved this Merger
Agreement. The shareholders of TPC have duly appoved this Merger Agreement as
provided by the South Carolina Code. No shares of stock of TGC were issued
prior to the adoption of this Merger Agreement by the Board of Directors of
TGC and, by virtue of he applicability of Section 251(f) of the Delaware
General Corporation Law, no vote of the stockholders of TGC is required. Upon
the approval of this Merger Agreement, in accordance with the requirements of
the South Carolina Code and the Delaware General Corporation Law, all
required documents shall be executed, filed, and recorded and all required
-1-
<PAGE>
acts shall be done in order to accomplish the Merger under the provisions of the
South Carolina Code, Delaware General Corporation Law and this Merger Agreement.
The Merger shall become effective upon the filing of a Certificate of Merger
with the Secretary of State of Delaware (the "Effective Date").
1.3 ARTICLES, BYLAWS, OFFICERS AND DIRECTORS OF SURVIVING CORPORATION.
The name of the surviving corporation shall be "TearDrop Golf Company". The
Certificate of Incorporation and the Bylaws of TGC as existing and constituted
immediately prior to the Effective Date shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation after the Effective
Date until amended in accordance with applicable law.
The officers and directors of TGC holding office immediately prior to the
Effective Date shall be the officers and directors of the Surviving Corporation
after the Effective Date.
SECTION 2. TERMS AND CONDITIONS
2.1 At the Effective Date, TGC shall thereupon and thereafter possess all
the rights, privileges, powers and franchises of a public as well as of a
private nature, and be subject to all the restrictions and duties of each
Constituent Corporation; and all rights, privileges, powers and franchises of
each Constituent Corporation, and all property, real, personal and mixed, and
all debts due to any Constituent Corporation on whatever account, as well as for
stock subscriptions, and all other things in action or belonging to each
Constituent Corporation shall be vested in TGC; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of TGC as they were of the respective
Constituent Corporations, and the title to any real estate vested by deed or
otherwise in the Constituent Corporations shall not revert or be in any way
impaired by reason of the Merger; but all rights of creditors and all liens upon
any property of the Constituent Corporations shall be preserved unimpaired, and
all debts, liabilities and duties of the respective Constituent Corporations
shall thenceforth attach to TGC and may be enforced against TGC to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by it.
2.2 The assets, liabilities, reserves and accounts of each Constituent
Corporation shall be recorded on the books of TGC at the amounts at which they,
respectively, were carried on the books of such Constituent Corporation at the
Effective Date.
SECTION 3. CONVERSION AND EXCHANGE OF SHARES.
3.1 EXCHANGE OF SHARES. At the Effective Date, by virtue of the Merger
and without any action on the part of TPC or TGC or the holder of any of the
following securities, each share of TPC's common stock ("TPC Common Stock"),
issued and outstanding immediately prior to
-2-
<PAGE>
the Effective Date (as defined herein) shall be converted and exchangeable for
3,333.33 shares of TGC's common stock ("TGC Common Stock"). Upon conversion,
all TPC Common Stock outstanding immediately prior to the Effective Date shall
be cancelled.
3.2 STOCK TRANSFER BOOK. At the Effective Date, the stock transfer books
of TPC shall be closed and there shall be no further registration or transfer of
stock thereafter on the records of TPC.
SECTION 4. MISCELLANEOUS
4.1 BINDING EFFECT. This Agreement shall inure to the benefit of and
shall be binding upon TPC, TGC and their respective successors and assigns and
the shareholders and each of their respective personal representatives,
executors, heirs, beneficiaries and assigns.
4.2 CONSTRUCTION. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in
accordance with the laws of, the State of Delaware. No provision of this
Agreement or any related document shall be construed against or interpreted
to the disadvantage of any party hereto by any court or other governmental or
judicial authority by reason of such party's having or being deemed to have
structured or drafted such provision.
4.3 FURTHER ACTION. Subject to the terms and conditions hereof, each of
the parties hereto further agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement as soon as practical.
4.4 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings relating to such subject
matter. This Agreement may be modified only by written instrument signed by
each of the parties hereto.
4.5 HEADINGS. The section and paragraph headings contained in this Merger
Agreement are for reference purposes only and shall not affect in any way the
meaning or interprestation of this Merger Agreement.
4.5 EXECUTION IN COUNTERPARTS. For the convenience of the parties and to
facilitate the filing and recording of this Merger Agreement, any number of
counterparts hereof may be executed, and each such counterpart shall be deemed
to be an original instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
ATTEST: TEARDROP PUTTER CORPORATION
a South Carolina Corporation
/s/ Brian Hochman By: /s/ Brian Hochman
------------------ ------------------
Brian Hochman Brian Hochman
Secretary President
-4-
<PAGE>
ATTEST: TEARDROP GOLF COMPANY
a Delaware Corporation
By: /s/ Rudy A. Slucker
/s/ Linda Slucker ---------------------
- ------------------------ Rudy A. Slucker
Linda Slucker President
Assistant Secretary
-5-
<PAGE>
BY-LAWS
OF
TEARDROP GOLF COMPANY
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the corporation shall
be located in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
CERTIFICATES FOR SHARES
Section 1. CERTIFICATES REPRESENTING SHARES OF STOCK. The shares of stock of
the corporation shall be represented by certificates signed by, or in the name
of, the corporation by the Chairman or Vice-Chairman of the Board of Directors,
if any, or by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
corporation. Any or all the signatures on any such certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class of
stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
Section 2. LOST CERTIFICATES. The corporation may issue a new certificate of
stock or uncertificated shares in place of any certificate theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the Board of Directors
may require the owner of the lost, stolen or
<PAGE>
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against it on account of the alleged loss, theft, or destruction of any such
certificate or the issuance of any such new certificate or uncertificated
shares.
Section 3. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
Section 4. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrant, or subject to any other conditions which the Board of
Directors may impose.
Section 5. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
Section 6. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if
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notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the books in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 7. MEANING OF CERTAIN TERMS. As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that
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no such rights shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of incorporation,
except as any provision of law may otherwise require.
ARTICLE III
STOCKHOLDERS MEETINGS
Section 1. TIME OF MEETINGS. The annual meeting shall be held on the date
and at the time fixed, from time to time, by the directors, provided, that the
first annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting may be called by the Board of Directors, and shall be
held on the date and at the time fixed by the Board of Directors.
Section 2. PLACE OF MEETINGS. Annual meetings and special meetings shall be
held at such place, within or without the State of Delaware, as the directors
may, from time to time, fix. Whenever the directors shall fail to fix such
place, the meeting shall be held at the registered office of the corporation in
the State of Delaware.
Section 3. CALL OF MEETINGS. Annual meetings and special meetings may be
called by the Board of Directors or by any officer instructed by the Board of
Directors to call the meeting.
Section 4. NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall
be given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law.
Except as otherwise provided by the General Corporation Law, a copy of the
notice of any meeting shall be given, personally or by mail, not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, unless
the lapse of the prescribed period of time shall have been waived, and directed
to each stockholder at his record address or at such other address which he may
have furnished by request in writing to the Secretary of the corporation. Notice
by mail shall be deemed to be given when deposited, with postage thereon
prepaid, in the United States mail.
If a meeting is adjourned to another time, not more than thirty (30) days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting,
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it shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Whenever notice is required to be given under the General Corporation Law or
under the certificate of incorporation or these By-Laws, a written waiver,
signed by the person entitled to the notice whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
Section 5. STOCKHOLDER LIST. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city or other
municipality or community where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
Section 6. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting: the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
Section 7. PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact or must
be otherwise authorized in accordance with the General Corporation Law. No proxy
shall be voted or acted upon after three (3) years from its date unless such
proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A
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proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally.
Section 8. INSPECTORS. The directors, in advance of any meeting of
stockholders, shall appoint one or more inspectors of election to act at the
meeting or any adjournment thereof and to make a written report thereof. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In case any person who may be appointed as an
inspector or alternate inspector fails to appear or act, the vacancy may be
filled by appointment at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of stock outstanding and
the voting power of each, the shares of stock represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result thereof, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders.
Section 9. QUORUM. The holders of a majority of the outstanding shares of
stock entitled to vote shall constitute a quorum at a meeting of stockholders
for, and the votes that shall be necessary for, the transaction of any business.
The stockholders present may adjourn the meeting despite the absence of a
quorum.
Section 10. VOTING. Each share of stock shall entitle the holders thereof to
one vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by the
affirmative vote of a majority of the votes present in person or represented by
proxy at a meeting and entitled to vote, except where the General Corporation
Law prescribes a different percentage of votes and/or a different exercise of
voting power, and except as may be otherwise prescribed by the provisions of the
certificate of incorporation and these By-Laws. In the election of directors,
and for any other action, voting need not be by ballot.
Section 11. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
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ARTICLE IV
DIRECTORS
Section 1. FUNCTIONS; COMPENSATION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The use of the phrase "whole board" herein refers to the
total number of directors which the corporation would have if there were no
vacancies. The Board of Directors shall have the authority to fix the
compensation of the members thereof.
Section 2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder,
a citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of three persons. Thereafter the number
of directors constituting the whole board shall be at least one but not more
than nine. Subject to the foregoing limitation and except for the first Board of
Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be five. The number of directors may be increased or decreased by action
of the stockholders or of the directors.
Section 3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies resulting from the removal of directors for
cause or without cause, may be filled by the vote of a majority of the remaining
directors then in office, although less than a quorum, or by the sole remaining
director.
Section 4. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
Section 5. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member
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of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it, but in no event shall a committee have any
authority the delegation of which is prohibited by Section 141 of the General
Corporation Law.
ARTICLE V
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. TIME OF MEETINGS. Meetings shall be held at such time as the
Board shall fix, except that the first meeting of a newly elected Board shall be
held as soon after its election as the directors may conveniently assemble.
Section 2. PLACE OF MEETINGS. Meetings shall be held at such place within or
without the State of Delaware as shall be fixed by the Board.
Section 3. CALL OF MEETINGS. No call shall be required for regular meetings
for which the time and place have been fixed. Special meetings may be called by
or at the direction of the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, the President, or of a majority of the directors in office.
Section 4. NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
Section 5. QUORUM AND ACTION. A majority of the whole Board shall constitute
a quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of
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directors held to fill vacancies and newly created directorships in the Board or
action of disinterested directors.
Section 5. MEETING BY CONFERENCE. Any member or members of the Board of
Directors or of any committee designated by the Board, may participate in a
meeting of the Board, or any such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this subsection shall constitute presence in person at a
meeting.
Section 6. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
Section 7. DIRECTOR ACTION WITHOUT MEETINGS. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
ARTICLE VI
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be chosen by the
Board of Directors and shall consist of a Chairman of the Board, a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient or desirable by the
Board of Directors, a Vice-Chairman of the Board, a Chief Executive Officer, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Section 2. TERM. Unless otherwise provided in the resolution choosing him,
each officer shall be chosen for a term which shall continue until the meeting
of the Board of Directors following the next annual meeting of stockholders and
until his successor shall have been chosen and qualified or until his earlier
resignation or removal.
Section 3. REMOVAL; VACANCIES. Any officer may be removed, with or without
cause, by the Board of Directors. Any vacancy in any office, whether occurring
by death, resignation, removal or otherwise, shall be filled by the Board of
Directors.
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Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the stockholders, shall have general and active management of
the business of the corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
The Chairman of the Board shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be delegated by the Board of Directors to
some other officer or agent of the corporation.
Section 5. PRESIDENT. The President shall, in the absence or disability of
the Chairman of the Board and Chief Executive Officer, if any, perform the
duties and exercise the powers of the Chairman of the Board and Chief Executive
Officer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
Section 6. VICE PRESIDENT. The Vice-President, if there shall be one, or, if
there shall be more than one, the Vice-Presidents in the order determined by the
Board of Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
Section 7. SECRETARY AND ASSISTANT SECRETARIES. The Secretary, if there
shall be one, shall attend all meetings of the Board of Directors and all
meetings of the stockholders and record all the proceedings of the meetings of
the corporation and of the Board of Directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed bv the Board of Directors or President, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he, or an Assistant Secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors, shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 8. TREASURER AND ASSISTANT TREASURERS. The Treasurer, if there shall
be one, shall be the chief financial officer of the corporation, shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the Board
of Directors.
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The Treasurer shall disburse the funds of the cororation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
If required by the Board of Directors, the Treasurer shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
The Assistant Treasurer, or, if there shall be more than one, the
Assistant Treasurers, in the order determined by the Board of Directors, shall,
in the absence of disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
ARTICLE VII
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE IX
CONTROL OVER BY-LAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these By-Laws and to adopt new By-Laws may be exercised by the Board of
Directors or by the stockholders.
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TearDrop Golf Company
32 Bow Circle Phone (803) 686-1995
BLDG #1 800-829-PUTT
Hilton Head Island, SC 29928 FAX (803) 686-2998
Mr. John Zeravica
2842 Lowe Court
Suwanee, GA 30174
June 28, 1996
Dear John:
This letter should confirm the terms of your employment with TearDrop Golf
Company. You will begin on July 8, 1996. Your salary will initially be based
on a $70,000.00 annual salary. You will receive a $300.00 per month car
allowance. If TearDrop successfully undergoes an initial public offering, your
salary will be based upon a $100,000.00 annual salary. Either party may end
this relationship with two weeks notice. However, we are hopeful this will be a
long term relationship and will revisit this provision after a successful public
offering.
As you know, it will be necessary for you to live near the company's
headquarters, and a move from the current location of Hilton Head to New Jersey
is under consideration. The company will incur the expense of moving you, your
family and your household furnishings after the public offering to the location
of TearDrop's headquarters. When you move to the new company's location, you
will pay for your housing at the new location. However, if the cost of
reasonable housing rental is in excess of $1485.00 per month, the company will
pay such overage, up to $500.00 per month up to 12 months or as long as your are
employed by TearDrop.
It will be necessary for you to spend a significant amount of time on the road
traveling with salesmen and calling on accounts. In addition, until relocation,
you will also need to spend significant time in TearDrop's office on Hilton
Head. We will work out a travel plan on July 8 to formulate an itinerary for
time on the road and in the Hilton Head office. TearDrop will pay for the
travel costs incurred under the travel plan when you are on the road with
salesmen and calling on accounts. In addition, TearDrop will pay for travel
expenses to and from the Hilton Head office and provide housing while you are in
Hilton Head. TearDrop will provide a company credit card for you to use when
conducting company business within the travel plan.
<PAGE>
TearDrop will provide a laptop computer, a pager and a phone with voice mail for
your home until you are relocated. TearDrop will also provide medical insurance
and will pay for your health insurance ($447.00 per month) under COBRA through
your previous employer until you can begin coverage under the TearDrop policy.
I look forward to meeting you in person. Hopefully, we will be able to take
advantage of the opportunity presented. Please indicate your acceptance of the
above by signing below.
Sincerely,
TearDrop Golf Company
/s/ Brian R. Hochman
Brian R. Hochman, President
Accepted:
/s/ John Zeravica
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John Zeravica
<PAGE>
TEARDROP GOLF COMPANY
1996 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the TearDrop Golf Company Stock Option Plan (the "Plan") is
to provide an additional incentive to key employees, independent contractors,
agents and consultants of TearDrop Golf Company (the "Company") to aid in
attracting and retaining employees, independent contractors, agents and
consultants of outstanding ability, and to align their interests with those of
shareholders.
SECTION 2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section 2.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986 and the rules and
regulations thereunder, as it or they may be amended from time to time.
(c) "COMMITTEE" shall mean the full Board, Compensation Committee of the
Board or such other committee as may be designated by the Board. If less than
the full Board, the Committee shall consist of two or more members of the Board
who are not eligible to participate in the Plan, and who otherwise are "non-
employee directors" under Rule 16b-3.
(d) "DATE OF EXERCISE" shall mean the earlier of the date on which written
notice of exercise, together with payment in full, is received at the office of
the Secretary of the Company or the date on which such notice and payment are
mailed to the Secretary of the Company at its principal office by certified or
registered mail.
(e) "EMPLOYEE" shall mean any employee or any officer of the Company or
any of its Subsidiaries, or any other person, who is an independent contractor,
agent or consultant of the Company or any of its Subsidiaries, and excluding any
director of the Company who is not otherwise an employee of the Company. For
the purposes of any provision of this Plan relating to Incentive Stock Options,
the term "Employee" shall be limited to mean any employee (as that term is
defined under Code Section 3401(c)) or officer of the Company or any of its
Subsidiaries, but not any person who is merely an independent contractor, agent
or consultant of the Company or any of its subsidiaries.
(f) "FAIR MARKET VALUE" of the Stock means, for all purposes of the Plan
unless otherwise provided (i) the mean between the high and low sales prices of
the Stock as reported on the National Market System or Small Cap Market of the
National Association of Securities Dealers, Inc., Automated Quotation System, or
any similar system of automated dissemination of quotations of securities prices
then in common use, if so quoted, or (ii) if not quoted as described in clause
(i), the mean between the high bid and low asked quotations for the Stock as
reported by a the National Quotation Bureau Incorporated or such other source as
the Committee shall determine, or (iii) if the Stock is listed or admitted for
trading on any national securities exchange, the mean between the high and low
sales price,
<PAGE>
or the closing bid price if no sale occurred, of the Stock on the principal
securities exchange on which the Stock is listed. In the event that the method
for determining the Fair Market Value of the Stock provided for above shall
either be not applicable or not be practical, in the opinion of the Committee,
then the Fair Market Value shall be determined by such other reasonable method
as the Committee, in its discretion, shall select and apply.
(g) "GRANTEE" shall mean an Employee granted a Stock Option.
(h) "GRANTING DATE" shall mean the date on which the Committee authorizes
the issuance of a Stock Option for a specified number of shares of Stock to a
specified Employee.
(i) "INCENTIVE STOCK OPTION" shall mean a Stock Option granted under the
Plan which is properly qualified under the provisions of Section 422 of the
Code.
(j) "NONSTATUTORY STOCK OPTION" shall mean a Stock Option granted within
the Plan which is not an Incentive Stock Option or otherwise qualified under
similar tax provisions.
(k) "RULE 16B-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
or any rule in replacement thereof.
(l) "STOCK" shall mean the Common Stock, par value $.01 per share, of the
Company.
(m) "STOCK OPTION" shall mean an Incentive Stock Option or Nonstatutory
Stock Option granted pursuant to the Plan to purchase shares of Stock.
SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN
The Company shall reserve 200,000 shares of Stock for issuance upon the
exercise of Stock Options granted pursuant to this Plan. Shares delivered under
the Plan may be authorized and unissued shares or issued shares held by the
Company in its treasury. If any Stock Options expire or terminate without
having been exercised, the shares of Stock covered by such Stock Option shall
become available again for the grant of Stock Options hereunder. Similarly, if
any Stock Options are surrendered for cash pursuant to the provisions of Section
7, the shares of Stock covered by such Stock Options shall also become available
again for the grant of Stock Options hereunder. Shares of Stock covered by
Stock Options surrendered for Stock pursuant to Section 7, however, shall not
become available again for the grant of Stock Options hereunder.
SECTION 4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of Stock Option grants, and to make all
other determinations necessary or advisable for the administration of the Plan.
(b) It is intended that the Plan and any transaction hereunder meet all of
the requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as such rule is currently in effect or as hereafter modified or
amended, and all other applicable laws. If any provision of the Plan or any
transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or
2
<PAGE>
other applicable laws, such provision or transaction shall be construed or
deemed amended to conform to Rule 16b-3 or such other applicable laws or
otherwise shall be deemed to be null and void, in each case to the extent
permitted by law and deemed advisable by the Committee.
(c) Any controversy or claim arising out of or related to this Plan shall
be determined unilaterally by and at the sole discretion of the Committee.
SECTION 5. GRANTING OF STOCK OPTIONS
(a) Only key Employees shall be eligible to receive Stock Options under
the Plan. Directors of the Company who are not also employees shall not be
eligible for Stock Options.
(b) The option price of each share of Stock subject to an Incentive Stock
Option shall be at least 100% of the Fair Market Value of a share of the Stock
on the Granting Date.
(c) The option price of each share of Stock subject to a Nonstatutory
Stock Option shall be 100% of the Fair Market Value of a share of the Stock on
the Granting Date, or such other price either greater than or less than the Fair
Market Value (but in no event less than the par value of the Stock) as the
Committee shall determine appropriate to the purposes of the Plan and to the
Company's total compensation program.
(d) The Committee shall determine and designate from time to time those
key Employees who are to be granted Stock Options and whether the particular
Stock Options are to be Incentive Stock Options or Nonstatutory Stock Options,
and shall also specify the number of shares covered by and the option price per
share of each Stock Option. Each Stock Option granted under the Plan shall be
clearly identified as to its status as a Nonstatutory Stock Option or an
Incentive Stock Option.
(e) The aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation) shall not exceed
$100,000.
(f) A Stock Option shall be exercisable during such period or periods and
in such installments as shall be fixed by the Committee at the time the Stock
Option is granted or in any amendment thereto; but each Stock Option shall
expire not later than ten years from the Granting Date.
(g) The Committee shall have the authority to grant both transferable
Stock Options and nontransferable Stock Options, and to amend outstanding
nontransferable Stock Options to provide for transferability. Each
nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise
shall provide by its terms that it is not transferable otherwise than by will or
the laws of descent and distribution or, except in the case of Incentive Stock
Options, pursuant to a "qualified domestic relations order" as defined by the
Code, and is exercisable, during the Grantee's lifetime, only by the Grantee.
Each transferable Stock Option may provide for such limitations on
transferability and exercisability as the Committee may designate at the time a
Stock Option is granted or is otherwise amended to provide for transferability.
(h) Stock Options may be granted to an Employee who has previously
received Stock Options or other options whether such prior Stock Options or
other options are still outstanding, have
3
<PAGE>
previously been exercised or surrendered in whole or in part, or are canceled in
connection with the issuance of new Stock Options.
(i) The aggregate number of shares of Stock subject to Stock Options
granted to an Employee under the Plan during any calendar year shall not exceed
25,000 shares.
(j) Notwithstanding the foregoing, the option price of an Incentive Stock
Option in the case of a Grantee who owns more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
Subsidiaries, will not be less than one-hundred-ten percent (110%) of the Fair
Market Value of the Stock at the Granting date and in the case of such a
Grantee, the Incentive Stock Option may be exercised no more than five years
after the Granting Date.
SECTION 6. EXERCISE OF STOCK OPTIONS
(a) Except as provided in Section 7, no Stock Option may be exercised at
any time unless the Grantee is an Employee on the Date of Exercise and, in the
case of holders of Incentive Stock Options, has been an Employee at all times
during the period beginning on the Granting Date and ending on the day 3 months
before the date of such exercise.
(b) The Grantee shall pay the option price in full on the Date of Exercise
of a Stock Option in cash, by check, or by delivery of full shares of Stock of
the Company, duly endorsed for transfer to the Company with signature
guaranteed, or by any combination thereof. Stock will be accepted at its Fair
Market Value on the Date of Exercise.
(c) Subject to the approval of the Committee, or of such person to whom
the Committee may delegate such authority ("its designee"), and subject further
to the applicable regulations of any governmental authority, the Company may
loan to the Grantee a sum equal to an amount which is not in excess of 100% of
the purchase price of the shares of Stock acquired upon exercise of a Stock
Option, such loan to be evidenced by the execution and delivery of a promissory
note. Interest shall be paid on the unpaid balance of the promissory note at
such times and at such rate as shall be determined by the Committee or its
designee. Such promissory note shall be secured by the pledge to the Company of
shares of Stock having an aggregate purchase price on the date of purchase equal
to or greater than the amount of such note. A Grantee shall have, as to such
pledged shares of Stock, all rights of ownership including the right to vote
such shares of Stock and to receive dividends paid on such shares of Stock,
subject to the security interest of the Company. Such shares of Stock shall not
be released by the Company from the pledge unless the proportionate amount of
the note secured thereby has been repaid to the Company; provided, however that
shares of Stock subject to a pledge may be used to pay all or part of the
purchase price of any other option granted hereunder or under any other stock
incentive plan of the Company under the terms of which the purchase price of an
option may be paid by the surrender of shares of Stock, subject to the terms and
conditions of this Plan relating to the surrender of shares of Stock in payment
of the exercise price of an option. In such event, that number of the newly
purchased shares of Stock equal to the shares of Stock previously pledged shall
be immediately pledged as substitute security for the pre-existing debt of the
Grantee to the Company, and thereupon shall be subject to the provisions hereof
relating to pledged shares of Stock. All notes executed hereunder shall be
payable at such times and in such amounts and shall contain such other terms as
shall be specified by the Committee or its designee or stated in the option
agreement; provided, however, that such terms shall conform to requirements
contained in any applicable regulations which are issued by any governmental
authority.
4
<PAGE>
SECTION 7. TERMINATION OF EMPLOYMENT
Except as otherwise provided by the Committee at the time the Stock Option
is granted or any amendment thereto, if a Grantee ceases to be an Employee then:
(a) if termination of employment is voluntary or involuntary without
cause, the Grantee may exercise each Stock Option held by the Grantee within
three months after such termination (but not after the expiration date of the
Stock Option) to the extent of the number of shares subject to the Stock Option
which are purchasable pursuant to its terms at the date of termination;
(b) if termination is for cause, all Stock Options held by the Grantee
shall be canceled as of the date of termination;
(c) subject to the provisions of Section 7(d), if termination is (i) by
reason of retirement at a time when the Grantee is entitled to the current
receipt of benefits under any retirement plan maintained by the Company, or (ii)
by reason of disability, each Stock Option held by the Grantee may be exercised
by the Grantee at any time (but not after the expiration date of the Stock
Option) (within one year of termination in the case of Incentive Stock Options)
to the extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination;
(d) if termination is by reason of the death of the Grantee, or if the
Grantee dies after retirement or disability as referred to in Section 7(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period of three years after death (but not
after the expiration date of the Stock Option) to the extent of the total number
of shares subject to the Stock Option which were purchasable pursuant to its
terms at the date of termination; or
(e) if the Grantee should die within three months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 7(a), each Stock Option held by the Grantee may be
exercised by the Grantee's estate, or by any person who acquires the right to
exercise by reason of the Grantee's death, at any time within a period of one
year after death (but not after the expiration date of the Stock Option) to the
extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination.
SECTION 8. ADJUSTMENTS
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Stock, there shall be an appropriate
adjustment made by the Committee in the number and kind of shares that may be
granted in the aggregate and to individual Employees under the Plan, the number
and kind of shares subject to each outstanding Stock Option and the option
prices.
SECTION 9. GENERAL PROVISIONS
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Plan, as the
Committee shall approve.
5
<PAGE>
(b) The granting of a Stock Option in any year shall not give the Grantee
any right to similar grants in future years or any right to be retained in the
employ of the Company or interfere in any way with the right of the Company to
terminate an Employee's employment at any time.
(c) The Company shall have the right to deduct from any payment or
distribution under the Plan any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take such
other action as may be necessary to satisfy all obligations for the payment of
such taxes. In case distributions are made in shares of Stock, the Company
shall have the right to retain the value of sufficient shares of Stock to equal
the amount of tax to be withheld for such distributions or require a recipient
to pay the Company for any such taxes required to be withheld on such terms and
conditions prescribed by the Committee.
(d) No Grantee shall have any of the rights of a shareholder by reason of
a Stock Option until it is exercised.
(e) This Plan shall be construed and enforced in accordance with the laws
of the State of Delaware (without regard to the legislative or judicial conflict
of laws rules of any state), except to the extent superseded by federal law.
SECTION 10. AMENDMENT AND TERMINATION
(a) The Plan shall terminate on October 17, 2006 and no Stock Option shall
be granted hereunder after that date, provided that the Board may terminate the
Plan at any time prior thereto.
(b) The Board may amend the Plan at any time without notice, provided
however, that the Board may not, without prior approval by the shareholders, (i)
increase the maximum number of shares of Stock for which Stock Options may be
granted, (ii) materially increase the benefits accruing to participants under
the Plan or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
(c) No termination or amendment of the Plan may, without the consent of a
Grantee to whom a Stock Option shall theretofore have been granted, adversely
affect the rights of such Grantee under such Stock Option.
SECTION 11. EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL
The Plan shall become effective as of October 18, 1996, subject to its
approval by the affirmative votes of the holders of a majority of the securities
of the Company present, or represented, and entitled to vote thereon at the
Annual Meeting of Shareholders of the Company or any adjournment or postponement
thereof. Before such approval, Stock Options may be granted under the Plan
expressly subject to such approval.
6
<PAGE>
TEARDROP GOLF COMPANY 1996 STOCK OPTION PLAN
Incentive Stock Option Terms and Conditions
-------------------------------------------
1. PLAN INCORPORATED BY REFERENCE. THIS OPTION IS ISSUED PURSUANT TO THE
TERMS OF THE PLAN AND MAY BE AMENDED AS PROVIDED IN THE PLAN. CAPITALIZED
TERMS USED AND NOT OTHERWISE DEFINED IN THIS CERTIFICATE HAVE THE MEANINGS
GIVEN TO THEM IN THE PLAN. THIS CERTIFICATE DOES NOT SET FORTH ALL OF THE
TERMS AND CONDITIONS OF THE PLAN, WHICH ARE INCORPORATED HEREIN BY REFERENCE.
THE COMMITTEE ADMINISTERS THE PLAN AND ITS DETERMINATIONS REGARDING THE
OPERATION OF THE PLAN ARE FINAL AND BINDING. COPIES OF THE PLAN MAY BE
OBTAINED UPON WRITTEN REQUEST WITHOUT CHARGE FROM THE PRESIDENT OF THE
COMPANY.
2. OPTION PRICE. THE PRICE TO BE PAID FOR EACH SHARE OF COMMON STOCK
ISSUED UPON EXERCISE OF THE WHOLE OR ANY PART OF THIS OPTION IS THE OPTION
PRICE SET FORTH ON THE FACE OF THIS CERTIFICATE.
3. EXERCISABILITY SCHEDULE. THIS OPTION MAY BE EXERCISED AT ANY TIME AND
FROM TIME TO TIME FOR THE NUMBER OF SHARES AND IN ACCORDANCE WITH THE
EXERCISABILITY SCHEDULE SET FORTH ON THE FACE OF THIS CERTIFICATE, BUT ONLY
FOR THE PURCHASE OF WHOLE SHARES. THIS OPTION MAY NOT BE EXERCISED AS TO ANY
SHARES AFTER THE EXPIRATION DATE.
4. METHOD OF EXERCISE. TO EXERCISE THIS OPTION, THE OPTIONHOLDER SHALL
DELIVER WRITTEN NOTICE OF EXERCISE TO THE PRESIDENT OF THE COMPANY SPECIFYING
THE NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS BEING EXERCISED
ACCOMPANIED BY PAYMENT OF THE OPTION PRICE FOR SUCH SHARES IN CASH, BY
CERTIFIED CHECK OR IN SUCH OTHER FORM, INCLUDING SHARES OF COMMON STOCK OF
THE COMPANY VALUED AT THEIR FAIR MARKET VALUE ON THE DATE OF DELIVERY, AS THE
COMMITTEE MAY AT THE TIME OF EXERCISE APPROVE. PROMPTLY FOLLOWING SUCH
NOTICE, THE COMPANY WILL DELIVER TO THE OPTIONEE A CERTIFICATE REPRESENTING
THE NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS BEING EXERCISED.
5. RIGHTS AS A STOCKHOLDER OR EMPLOYEE. THE OPTIONEE SHALL NOT HAVE ANY
RIGHTS IN RESPECT OF SHARES AS TO WHICH THE OPTION SHALL NOT HAVE BEEN
EXERCISED AND PAYMENT MADE AS PROVIDED ABOVE. THE OPTIONEE SHALL NOT HAVE
ANY RIGHTS TO CONTINUED EMPLOYMENT BY THE COMPANY OR ANY SUBSIDIARY BY VIRTUE
OF THE GRANT OF THIS OPTION.
6. RECAPITALIZATION, MERGERS, ETC. AS PROVIDED IN THE PLAN, IN THE EVENT
OF CERTAIN CORPORATE TRANSACTIONS AFFECTING THE COMPANY'S OUTSTANDING COMMON
STOCK, THE COMMITTEE SHALL EQUITABLY ADJUST THE NUMBER AND KIND OF SHARES
SUBJECT TO THIS OPTION AND THE EXERCISE PRICE HEREUNDER.
7. OPTION NOT TRANSFERABLE. THIS OPTION IS NOT TRANSFERABLE BY THE
OPTIONEE OTHERWISE THAN BY WILL OR THE LAWS OF DESCENT AND DISTRIBUTION, AND
IS EXERCISABLE, DURING THE OPTIONEE'S LIFETIME, ONLY BY OPTIONEE. ANY
ATTEMPTED ASSIGNMENT,, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
OTHER THAN IN ACCORDANCE WITH THE TERMS SET FORTH HEREIN AND IN THE PLAN
SHALL BE VOID AND OF NO EFFECT.
8. COMPLIANCE WITH SECURITIES LAWS. IT SHALL BE A CONDITION TO THE
OPTIONEE'S RIGHT TO PURCHASE SHARES OF COMMON STOCK HEREUNDER THAT THE
COMPANY MAY, IN ITS DISCRETION, REQUIRE (A) THAT THE SHARES OF COMMON STOCK
RESERVED FOR ISSUE UPON THE EXERCISE OF THIS OPTION SHALL HAVE BEEN DULY
LISTED, UPON OFFICIAL NOTICE OF ISSUANCE, UPON ANY NATIONAL SECURITIES
EXCHANGE OR AUTOMATED QUOTATION SYSTEM ON WHICH THE COMPANY'S COMMON STOCK
MAY THEN BE LISTED OR QUOTED, (B) THAT EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 WITH RESPECT TO THE SHARES SHALL BE IN
EFFECT, OR (II) IN THE OPINION OF COUNSEL FOR THE COMPANY, THE PROPOSED
PURCHASE SHALL BE EXEMPT FROM REGISTRATION UNDER THAT ACT AND THE OPTIONEE
SHALL HAVE MADE SUCH UNDERTAKINGS AND AGREEMENTS WITH THE COMPANY AS THE
COMPANY MAY REASONABLY REQUIRE, AND (C) THAT SUCH OTHER STEPS, IF ANY, AS
COUNSEL FOR THE COMPANY SHALL CONSIDER NECESSARY TO COMPLY WITH ANY LAW
APPLICABLE TO THE ISSUE OF SUCH SHARES BY THE COMPANY SHALL HAVE BEEN TAKEN
BY THE COMPANY OR THE OPTIONEE, OR BOTH. THE CERTIFICATES REPRESENTING THE
SHARES PURCHASED UNDER THIS OPTION MAY CONTAIN SUCH LEGENDS AS COUNSEL FOR
THE COMPANY SHALL CONSIDER NECESSARY TO COMPLY WITH ANY APPLICABLE LAW.
9. PAYMENT OF TAXES. THE OPTIONEE SHALL PAY TO THE COMPANY, OR MAKE
PROVISION SATISFACTORY TO THE COMPANY FOR PAYMENT OF, ANY TAXES REQUIRED BY
LAW TO BE WITHHELD WITH RESPECT TO THE EXERCISE OF THIS OPTION. THE
COMMITTEE MAY, IN ITS DISCRETION, REQUIRE ANY OTHER FEDERAL OR STATE TAXES
IMPOSED ON THE SALE OF THE SHARES TO BE PAID BY THE OPTIONEE. IN THE
COMMITTEE'S DISCRETION, SUCH TAX OBLIGATIONS MAY BE PAID IN WHOLE OR IN PART
IN SHARES OF COMMON STOCK, INCLUDING SHARES RETAINED FROM THE EXERCISE OF
THIS OPTION, VALUED AT THEIR FAIR MARKET VALUE ON THE DATE OF DELIVERY. THE
COMPANY AND ITS SUBSIDIARIES MAY, TO THE EXTENT PERMITTED BY LAW, DEDUCT ANY
SUCH TAX OBLIGATIONS FROM ANY PAYMENT OF ANY KIND OTHERWISE DUE TO THE
OPTIONEE.
<PAGE>
1996 ISO -/ /--------- / /---------Shares
-
-------------
TEARDROP GOLF COMPANY
1996 STOCK OPTION PLAN
INCENTIVE STOCK OPTION CERTIFICATE
TearDrop Golf Company (the "Company"), a Delaware corporation, hereby
grants to the person named below an option to purchase shares of Common
Stock, par value $0.01 per share, of the Company (the "Option") under and
subject to the Company's 1996 Stock Option Plan (the "Plan") exercisable on
the following terms and conditions and those set forth in connection with
this certificate:
Name of Optionee:/ /
-----------------------------------------------
Address:/ /
-----------------------------------------------
Social Security No.:/ /
-----------------------------------------------
Number of Shares:/ /
-----------------------------------------------
Option Price:/ /
-----------------------------------------------
Date of Grant:/ /
-----------------------------------------------
EXERCISABILITY SCHEDULE
EXERCISE PERIOD
---------------
NUMBER OF SHARES SUBJECT TO OPTION COMMENCEMENT EXPIRATION DATE
- ---------------------------------- DATE ---------------
-------------
/ /----------- / /------ / /-------
/ /----------- / /------ / /-------
/ /----------- / /------ / /-------
/ /----------- / /------ / /-------
Special Provisions Regarding Rights
if Optionee Ceases to be an Employee: / /------ / /-------
<PAGE>
Although this Option is intended to be treated as an Incentive Stock
Option under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company does not and cannot guaranty or warranty that the
Option will be so treated. Certain acts of the Optionee such as disposing of
the Stock issued pursuant to this Option prior to the expiration of the
holding periods required under Code Section 422 will prevent this Option from
being treated as an Incentive Stock Option.
By acceptance of this Option, the Optionee agrees to the terms and
conditions hereof.
TEARDROP GOLF COMPANY
Dated: / /------ By:
Rudy A. Slucker, President
and Chief Executive Officer
ACCEPTED:
[Optionee]
<PAGE>
TEARDROP GOLF COMPANY 1996 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION TERMS AND CONDITIONS
1. PLAN INCORPORATED BY REFERENCE. THIS OPTION IS ISSUED PURSUANT TO THE
TERMS OF THE PLAN AND MAY BE AMENDED AS PROVIDED IN THE PLAN. CAPITALIZED
TERMS USED AND NOT OTHERWISE DEFINED IN THIS CERTIFICATE HAVE THE MEANINGS
GIVEN TO THEM IN THE PLAN. THIS CERTIFICATE DOES NOT SET FORTH ALL OF THE
TERMS AND CONDITIONS OF THE PLAN, WHICH ARE INCORPORATED HEREIN BY REFERENCE.
THE COMMITTEE ADMINISTERS THE PLAN AND ITS DETERMINATIONS REGARDING THE
OPERATION OF THE PLAN ARE FINAL AND BINDING. COPIES OF THE PLAN MAY BE
OBTAINED UPON WRITTEN REQUEST WITHOUT CHARGE FROM THE PRESIDENT OF THE
COMPANY.
2. OPTION PRICE. THE PRICE TO BE PAID FOR EACH SHARE OF COMMON STOCK
ISSUED UPON EXERCISE OF THE WHOLE OR ANY PART OF THIS OPTION IS THE OPTION
PRICE SET FORTH ON THE FACE OF THIS CERTIFICATE.
3. EXERCISABILITY SCHEDULE. THIS OPTION MAY BE EXERCISED AT ANY TIME AND
FROM TIME TO TIME FOR THE NUMBER OF SHARES AND IN ACCORDANCE WITH THE
EXERCISABILITY SCHEDULE SET FORTH ON THE FACE OF THIS CERTIFICATE, BUT ONLY
FOR THE PURCHASE OF WHOLE SHARES. THIS OPTION MAY NOT BE EXERCISED AS TO ANY
SHARES AFTER THE EXPIRATION DATE.
4. METHOD OF EXERCISE. TO EXERCISE THIS OPTION, THE OPTIONHOLDER SHALL
DELIVER WRITTEN NOTICE OF EXERCISE TO THE PRESIDENT OF THE COMPANY SPECIFYING
THE NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS BEING EXERCISED
ACCOMPANIED BY PAYMENT OF THE OPTION PRICE FOR SUCH SHARES IN CASH, BY
CERTIFIED CHECK OR IN SUCH OTHER FORM, INCLUDING SHARES OF COMMON STOCK OF
THE COMPANY VALUED AT THEIR FAIR MARKET VALUE ON THE DATE OF DELIVERY, AS THE
COMMITTEE MAY AT THE TIME OF EXERCISE APPROVE. PROMPTLY FOLLOWING SUCH
NOTICE, THE COMPANY WILL DELIVER TO THE OPTIONEE A CERTIFICATE REPRESENTING
THE NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS BEING EXERCISED.
5. RIGHTS AS A STOCKHOLDER OR EMPLOYEE. THE OPTIONEE SHALL NOT HAVE ANY
RIGHTS IN RESPECT OF SHARES AS TO WHICH THE OPTION SHALL NOT HAVE BEEN
EXERCISED AND PAYMENT MADE AS PROVIDED ABOVE. THE OPTIONEE SHALL NOT HAVE
ANY RIGHTS TO CONTINUED EMPLOYMENT BY THE COMPANY OR ANY SUBSIDIARY BY VIRTUE
OF THE GRANT OF THIS OPTION.
6. RECAPITALIZATION, MERGERS, ETC. AS PROVIDED IN THE PLAN, IN THE EVENT
OF CERTAIN CORPORATE TRANSACTIONS AFFECTING THE COMPANY'S OUTSTANDING COMMON
STOCK, THE COMMITTEE SHALL EQUITABLY ADJUST THE NUMBER AND KIND OF SHARES
SUBJECT TO THIS OPTION AND THE EXERCISE PRICE HEREUNDER.
7. OPTION NOT TRANSFERABLE. THIS OPTION IS NOT TRANSFERABLE BY THE
OPTIONEE OTHERWISE THAN BY WILL OR THE LAWS OF DESCENT AND DISTRIBUTION OR
PURSUANT TO A "QUALIFIED DOMESTIC RELATIONS ORDER" AS DEFINED IN THE CODE AND
IS EXERCISABLE, DURING THE OPTIONEE'S LIFETIME, ONLY BY OPTIONEE. ANY
ATTEMPTED ASSIGNMENT,, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
OTHER THAN IN ACCORDANCE WITH THE TERMS SET FORTH HEREIN AND IN THE PLAN
SHALL BE VOID AND OF NO EFFECT.
8. COMPLIANCE WITH SECURITIES LAWS. IT SHALL BE A CONDITION TO THE
OPTIONEE'S RIGHT TO PURCHASE SHARES OF COMMON STOCK HEREUNDER THAT THE
COMPANY MAY, IN ITS DISCRETION, REQUIRE (A) THAT THE SHARES OF COMMON STOCK
RESERVED FOR ISSUE UPON THE EXERCISE OF THIS OPTION SHALL HAVE BEEN DULY
LISTED, UPON OFFICIAL NOTICE OF ISSUANCE, UPON ANY NATIONAL SECURITIES
EXCHANGE OR AUTOMATED QUOTATION SYSTEM ON WHICH THE COMPANY'S COMMON STOCK
MAY THEN BE LISTED OR QUOTED, (B) THAT EITHER (I) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 WITH RESPECT TO THE SHARES SHALL BE IN
EFFECT, OR (II) IN THE OPINION OF COUNSEL FOR THE COMPANY, THE PROPOSED
PURCHASE SHALL BE EXEMPT FROM REGISTRATION UNDER THAT ACT AND THE OPTIONEE
SHALL HAVE MADE SUCH UNDERTAKINGS AND AGREEMENTS WITH THE COMPANY AS THE
COMPANY MAY REASONABLY REQUIRE, AND (C) THAT SUCH OTHER STEPS, IF ANY, AS
COUNSEL FOR THE COMPANY SHALL CONSIDER NECESSARY TO COMPLY WITH ANY LAW
APPLICABLE TO THE ISSUE OF SUCH SHARES BY THE COMPANY SHALL HAVE BEEN TAKEN
BY THE COMPANY OR THE OPTIONEE, OR BOTH. THE CERTIFICATES REPRESENTING THE
SHARES PURCHASED UNDER THIS OPTION MAY CONTAIN SUCH LEGENDS AS COUNSEL FOR
THE COMPANY SHALL CONSIDER NECESSARY TO COMPLY WITH ANY APPLICABLE LAW.
9. PAYMENT OF TAXES. THE OPTIONEE SHALL PAY TO THE COMPANY, OR MAKE
PROVISION SATISFACTORY TO THE COMPANY FOR PAYMENT OF, ANY TAXES REQUIRED BY
LAW TO BE WITHHELD WITH RESPECT TO THE EXERCISE OF THIS OPTION. THE
COMMITTEE MAY, IN ITS DISCRETION, REQUIRE ANY OTHER FEDERAL OR STATE TAXES
IMPOSED ON THE SALE OF THE SHARES TO BE PAID BY THE OPTIONEE. IN THE
COMMITTEE'S DISCRETION, SUCH TAX OBLIGATIONS MAY BE PAID IN WHOLE OR IN PART
IN SHARES OF COMMON STOCK, INCLUDING SHARES RETAINED FROM THE EXERCISE OF
THIS OPTION, VALUED AT THEIR FAIR MARKET VALUE ON THE DATE OF DELIVERY. THE
COMPANY AND ITS SUBSIDIARIES MAY, TO THE EXTENT PERMITTED BY LAW, DEDUCT ANY
SUCH TAX OBLIGATIONS FROM ANY PAYMENT OF ANY KIND OTHERWISE DUE TO THE
OPTIONEE.
<PAGE>
1996 NSO - / /------ / /----- Shares
---------
TEARDROP GOLF COMPANY
1996 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION CERTIFICATE
TearDrop Golf Company (the "Company"), a Delaware Corporation, hereby
grants to the person named below an option to purchase shares of Common
Stock, par value $ .01 per share, of the Company (the "Option") under and
subject to the Company's 1996 Stock Option Plan (the "Plan") exercisable on
the following terms and conditions and those set forth in connection with
this certificate:
Name of Optionee:/ /------
---------------------------------------------
Address:/ /------
---------------------------------------------
Social Security No:/ /------
---------------------------------------------
Number of Shares:/ /------
---------------------------------------------
Option Price:/ /------
---------------------------------------------
Date of Grant:/ /------
---------------------------------------------
Exercisability Schedule
Exercise Period
Number of Shares Subject to Option Commencement Expiration Date
- ---------------------------------- Date ---------------
------------
/ /------- / /----- / /-----
-------- --------
/ /------- / /----- / /-----
-------- --------
/ /------- / /----- / /-----
-------- --------
/ /------- / /----- / /-----
-------- --------
Special Provisions Regarding Rights
if Optionee Ceases to be an Employee: / /----- / /-----
-------- --------
<PAGE>
The Option shall not be treated as an Incentive Stock Option under section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
By acceptance of this Option, the Optionee agrees to the terms and
conditions hereof.
TEARDROP GOLF COMPANY
Dated:/ /----- By:
Rudy A. Slucker, President
and Chief Executive Officer
ACCEPTED:
[Optionee]
<PAGE>
THIS AGREEMENT ("Agreement") is made and entered into as of the 18th day
of October, 1996 by and among TEARDROP GOLF COMPANY, a Delaware Corporation
(the "Company"), TEARDROP PUTTER CORPORATION, a South Carolina corporation
("TPC"), RUDY A. SLUCKER, 66 Duffield Drive, South Orange, New Jersey 07079
("Slucker"), FRED K. HOCHMAN, 20 Donax Road, Hilton Head Island, South
Carolina 29928 ("Hochman"), FRANK GRACE, c/o Gardiner-Caldwell SynerMed,
Route 513, Trimmer Road, Califon, New Jersey 07830 ("Grace"), RICHARD
RIZZUTO, c/o Gardiner-Caldwell SynerMed, Route 513, Trimmer Road, Califon,
New Jersey 07830 ("Rizzuto"), and JOHN SCHUBERT, c/o Gardiner-Caldwell
SynerMed, Route 513, Trimmer Road, Califon, New Jersey 07830 ("Schubert")
(Slucker, Hochman, Grace, Rizzuto and Schubert hereinafter may individually
be referred to as a "Transferor" and collectively referred to as the
"Transferors").
RECITALS
WHEREAS, TPC was formed under the laws of the State of South Carolina on
August 24, 1992;
WHEREAS, pursuant to the Shareholders Agreement dated October 1, 1992, as
amended by the amendment dated March 13, 1994 and the second amendment dated
December 31, 1994, and certain other agreements among the shareholders of TPC,
including, but not limited to the letter agreement dated April 16, 1996 (the
"Shareholder Agreements"), TPC and the shareholders of TPC set forth their
agreement regarding the organization and management of TPC and the disposition
of shares of stock of TPC;
WHEREAS, TPC has determined, in its business judgment, that it should
terminate the Shareholder Agreements, pursuant to the terms and conditions of
this Agreement;
WHEREAS, TPC and Slucker, Hochman, Grace, Rizzuto and Schubert, as owners
of all of the issued and outstanding stock of TPC, desire to terminate the
Shareholder Agreements pursuant to the terms and conditions of this Agreement;
WHEREAS, from time-to-time Slucker, Hochman, Grace, Rizzuto and Schubert
have extended loans to TPC, which, with accrued interest through September
30, 1996, aggregate amounts due at September 30, 1996 are set forth in
Schedule I;
WHEREAS, the Company was formed under the laws of the State of Delaware on
September 18, 1996;
WHEREAS, pursuant to that certain Agreement and Plan of Merger dated as
of October 21, 1996, by and among the Company and TPC (the "Merger Agreement"),
the shares of TPC's issued and outstanding common stock will be converted and
exchangeable for 750,000 shares of the Company's common stock;
<PAGE>
WHEREAS, pursuant to the Merger Agreement, TPC will be merged into the
Company and the Company will, as a matter of law, assume all debts,
liabilities and obligations of TPC;
WHEREAS, Slucker, Hochman, Grace, Rizzuto and Schubert have agreed to
contribute certain debt owed to them by the Company, the particular amounts of
which are set forth opposite their names on Schedule II attached hereto (the
"Contributed Debt");
WHEREAS, Slucker, Hochman, Grace, Rizzuto and Schubert have agreed to
extend the payment of certain debt owed to them by TPC pursuant to certain notes
to be issued by the Company which are identified on Schedule III attached hereto
(the "Notes"); and
WHEREAS, the Transferors desire to contribute the Contributed Debt to the
Company, as successor to TPC, and the Company, as successor to TPC, desires to
accept such contribution and issue the Notes, on the terms and conditions set
forth in this Agreement; and
WHEREAS, Transferors, TPC and the Company hereby acknowledge and agree that
it is their intention that (i) the transactions contemplated hereby will close
simultaneously with the effectiveness of the Company's registration statement on
Form SB-2 (the "Registration Statement"), as determined by the United States
Securities and Exchange Commission (the "Effective Date") and (ii) that the
closing of the transactions contemplated hereby be treated as an integrated
unitary transaction between the parties hereto and one plan of formation for the
Company under Section 351 of the Internal Revenue Code of 1986, as amended.
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties agree as follows:
ARTICLE 1
TERMINATION OF SHAREHOLDER AGREEMENTS
1.1. The Shareholder Agreements and any and all agreements and
understandings, written or oral, by and between TPC and the shareholders of TPC
prior to this Agreement will be terminated and be of no further force and
effect, without further action by the parties thereto as of and on the Effective
Date.
1.2. TPC hereby represents and warrants that it has the requisite power
and authority to enter into this Agreement.
1.3. Each of the parties by execution hereof waives any rights that such
party may have under the Shareholder Agreements in connection with the sale of
stock by the Company to Rudy Slucker in April 1996 and from Rudy Slucker to Fred
Hochman at such time.
2
<PAGE>
ARTICLE 2
CONTRIBUTION
2.1 CONTRIBUTION OF DEBT. At the Effective Date, Slucker, Hochman,
Grace, Rizzuto and Schubert shall contribute to the Company, as successor to
TPC, and cancel, release and forgive the amount of Contributed Debt and all
additional interest theron from September 30, 1996 through the Effective Date
set forth opposite their name on Schedule II hereto for no additional
consideration and without any further action by them, TPC or the Company.
2.2 POSSESSION OF INSTRUMENTS. Upon the execution of this Agreement,
each Transferor shall tender to the Company to hold in escrow until the
Effective Date, all promissory notes or other documentation representing the
Contributed Debt.
2.3 ISSUANCE OF ADDITIONAL DEBT. At the Effective Date, and as a
condition to the foregiveness of the Contributed Debt, the Company will
execute and deliver to each Transferer the respective Notes listed on Schedule
III.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EACH TRANSFEROR
To induce the Company to accept the Contributed Debt, each Transferor
hereby represents and warrants to the Company, severally and not jointly, as set
forth in Sections 3.1 through 3.6 hereof as follows:
3.1 AUTHORITY. Each Transferor has the requisite power and authority to
execute and deliver this Agreement and to perform his obligations hereunder.
3.2 BINDING EFFECT. This Agreement has been duly executed and delivered
by each Transferor and constitutes the legal, valid and binding obligation of
each such Transferor, enforceable against the Transferors in accordance with its
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity.
3.3 NO CONFLICT. Neither the execution and delivery of this Agreement
by the Transferors nor the performance of obligations hereunder will conflict
with or result in a breach of any of the provisions of, or constitute a default
under any material agreement or any mortgage, indenture, lease, contract or
other instrument to which any such Transferor is a party or by which a
Transferor is bound, or require the consent, approval or authorization of any
person, entity or governmental authority, or result in the violation of any law
to which a Transferor is subject.
3.4 OUTSTANDING DEBT. Slucker, Hochman, Grace, Rizzuto and Schubert
represent and warrant that there is no other debt owed to them individually
or collectively, other than the loans described in Schedule I and, as of the
Effective Date, the only indebtedness of the Company to each of them will be
represented by the Respective Notes as
described in Schedule III.
3.5 LOCK-UP LETTER. Each Transferor agrees to execute and deliver
the lock up letter (the "Lock-Up Letter") attached hereto as Exhibit A in
connection with the Company's initial public offering.
3
<PAGE>
3.6 FURTHER ACTION. Each of the parties hereto further agree to use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable as soon as practical to
consummate and effectuate the transactions contemplated by this Agreement or as
requested by the Underwriter of the Company's initial public offering to
complete such initial public offering.
ARTICLE 4
ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGMENTS
4.1 BINDING EFFECT. The covenants, conditions and agreements contained
in this Agreement shall bind, and the benefits hereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
4.2 AMENDMENTS. This Agreement may be amended, modified, changed or
terminated only by an agreement in writing signed by all the parties hereto.
4.3 REPRESENTATION BY COUNSEL. Each Transferor understands and
acknowledges that the Company has been represented by the law firm of Crummy,
Del Deo, Dolan, Griffinger & Vecchione, a professional corporation ("CDDG&V") in
connection with this Agreement, the Registration Statement and other matters.
Each Transferor acknowledges that CDDG&V has not been engaged to represent and
is not representing any Transferor in connection with the contribution to the
Company of the Contributed Debt. Each Transferor acknowledges that he will, at
his own discretion, obtain independent legal representation in connection with
the transactions contemplated hereby.
4.4 CAPTIONS. The captions preceding the text of the sections of this
Agreement are used solely for the convenience of reference and shall not affect
the meaning or construction of this Agreement.
4.5 WAIVER OF JURY TRIAL. In any litigation arising out of or relating
to any of the matters contained in this Agreement, the parties hereto waive
trial by jury.
4.6 NEW JERSEY LAW GOVERNS. This Agreement shall be governed and
construed in accordance with the laws of the State of New Jersey.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TEARDROP GOLF COMPANY
By: _________________________
Name: Rudy A. Slucker
Title: President
TEARDROP PUTTER CORPORATION
By:
---------------------
Brian R. Hochman
President
--------------------
RUDY A. SLUCKER
--------------------
FRED K. HOCHMAN
--------------------
RICHARD RIZZUTO
----------------
FRANK GRACE
------------------
JOHN SCHUBERT
5
<PAGE>
SCHEDULE I
Amount of
Principal and Interest
NAME Outstanding at September 30, 1996
- ---- ---------------------------------
Rudy A. Slucker $742,276
Fred K. Hochman $406,348
Frank Grace $263,856
Richard Rizzuto $257,188
John Schubert $44,192
-------------
Total $1,714,000
6
<PAGE>
SCHEDULE II
DEBT TO BE CONTRIBUTED
NAME (outstanding amount as of September 30, 1996
- ---- ----------------
Rudy A. Slucker $171,742
Fred K. Hochman $376,348
Frank Grace $248,856
Richard Rizzuto $244,688
John Schubert $41,692
--------------
Total $1,083,326
7
<PAGE>
SCHEDULE III
Grid Note with a maximum principal amount of $300,000 dated as of August 1, 1996
issued by the Company to Rudy A. Slucker
Promissory Note in the original principal amount of $400,000 dated as of
, 1996 issued by the Company to Rudy A. Slucker
Promissory Note in the original principal amount of $40,000 dated as of
, 1996 issued by the Company to Rudy A. Slucker
Promissory Note in the original principal amount of $30,000 dated as of
, 1996 issued by the Company to Fred K. Hochman
Promissory Note in the original principal amount of $15,000 dated as of
, 1996 issued by the Company to Frank Grace
Promissory Note in the original principal amount of $12,500 dated as of
, 1996 issued by the Company to Richard Rizzuto
Promissory Note in the original principal amount of $2,500 dated as of
, 1996 issued by the Company to John Schubert
8
<PAGE>
October , 1996
GKN Securities Corp.
61 Broadway
New York, New York 10006
Ladies and Gentlemen:
The undersigned officer, director and/or stockholder of TearDrop Golf
Company, ("Company"), in consideration of the underwriting of a public
offering ("Offering") of securities of the Company by GKN Securities Corp.
("GKN"), hereby agrees that, without the prior written consent of GKN for a
period of 24 months from the effective date ("Effective Date") of the
Company's Registration Statement on Form SB-2 which relates to the Offering,
the undersigned will not offer, sell, transfer or otherwise dispose of any
shares of Common Stock of the Company now owned or hereafter acquired,
whether beneficially or of record, by the undersigned, including, but not
limited to shares of Common Stock acquired upon exercise of options or
warrants or acquired upon conversion of any other securities owned by the
undersigned (collectively, the "Shares"). Notwithstanding the foregoing, the
undersigned shall have the right to sell securities of the Company purchased
by the undersigned in the Offering or in the aftermarket at any time without
the consent of the Underwriter.
The undersigned also acknowledges and agrees that, during the five-year
period following the Effective Date, GKN shall have the right, but not the
obligation, to purchase for its account or to sell for the account of the
undersigned, any securities of the Company sold by the undersigned on the
open market. The undersigned agrees to consult with GKN with regard to any
such sales and will offer GKN the exclusive opportunity to purchase or sell
such securities on terms at least as favorable to the undersigned as the
undersigned can secure elsewhere. If GKN fails to accept such proposal for
sale by the undersigned within three hours after receipt of a written notice
containing such proposal, then GKN shall have no claim or right with respect
to any such sales contained in any such notice. If, thereafter, such proposal
is modified in any material respect, the undersigned shall follow the same
procedure as with respect to the original proposal.
The undersigned acknowledges that a manually signed copy of this
Agreement will be filed with the Pennsylvania Securities Commission as part
of the Company's registration filing and further, that the undersigned will
cause:
1. A copy of this Agreement to be available from the Company or
the Company's transfer agent upon request and without charge;
- -------------
It is agreed that, for purposes of this letter, the undersigned
beneficially owns, among other shares, any shares owned by (i) members of
his family and (ii) any person or entity controlled by the undersigned
or under common control with the undersigned.
<PAGE>
2. A notice to be placed on the face of each stock certificate
for Shares stating that the transfer of the Shares is
restricted in accordance with the conditions set forth on the
reverse side of the certificate; and
3. A typed legend to be placed on the reverse side of each stock
certificate representing Shares which states that the sale or
transfer of the Shares is subject to certain restrictions
pursuant to an agreement between the stockholder and GKN,
which agreement is on file with the Company and the stock
transfer agent from which a copy is available upon request and
without charge.
The terms and conditions contained in this Agreement can only be
modified (including premature termination of this Agreement) with the prior
written consent of GKN.
Very truly yours,
Signature:
------------------------------
Print Name:
------------------------------
8
<PAGE>
<PAGE>
GRID NOTE
$300,000 As of August 1, 1996
FOR VALUE RECEIVED, the undersigned, TEARDROP GOLF COMPANY, a Delaware
corporation (the "Maker"), promises to pay to the order of RUDY A. SLUCKER,
having an address at 66 Duffield Drive, South Orange, New Jersey 07079 (the
"Payee"), the principal sum of THREE HUNDRED THOUSAND DOLLARS ($300,000), or so
much thereof or such other amount as shall have been advanced by the Payee to
the Maker during the period beginning on August 1, 1996 and ending on the date
on which the Maker's registration statement on Form SB-2 ("Registration
Statement") is declared effective by the United States Securities and Exchange
Commission (the "Effective Date") in accordance with the terms hereof, together
with interest, as hereinafter provided. The Payee or anyone who takes this Note
by transfer and who is entitled to receive payments under this Note is sometimes
called the "Note Holder".
1. ADVANCES. By its acceptance of this Note, provided that no Event of
Default (as defined herein) has occurred and is continuing, the Payee agrees to
advance funds to the Maker upon the request of the Maker, up to a maximum
principal amount at any time outstanding of $300,000; provided that Payee may,
in its sole discretion, advance funds to Maker in excess of such maximum and, in
the event Payee makes any such advances, the sums so advanced shall be evidenced
by this Note.
The holder of this Note is authorized to endorse on the schedule annexed
hereto, and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof (the "Grid"), the date and amount of each
advance made pursuant to this Note and the date and amount of each payment or
prepayment of principal thereof, which endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed; provided, however, that
the failure to make any such endorsement shall not affect the obligations of the
Maker in respect of such advance.
2. INTEREST RATE AND CALCULATION. Interest will be charged on the
outstanding principal balance of this Note from the date or dates advances
evidenced hereby are made by the Payee until the full amount of principal has
been paid at the fixed rate of eight percent (8%) per annum. Interest will be
calculated on the basis of the actual number of days elapsed over a 360 day
year.
3. PAYMENT OF PRINCIPAL AND INTEREST. The entire unpaid principal
balance and accrued interest due on this Note shall be due and payable on the
sooner of (i) the occurrence of the events set forth in Section 6 hereof, (ii)
the date which is two years following the Effective Date, or (iii) and July 31,
1997, if the Effective Date has not occurred by such date.
<PAGE>
4. APPLICATION OF PAYMENTS. Each payment made under this Note shall be
applied first to accrued interest and the remainder to principal.
5. TENDER OF PAYMENT. All payments on this Note shall be made directly
to the Payee in immediately available lawful money of the United States.
6. MANDATORY PREPAYMENT. This Note shall be prepaid in full, with
interest, or in part, to the full extent possible from the proceeds recieved by
the Maker upon the exercise of the option (the "Option") granted to GKN
Securities, the underwriter of the Maker's initial public offering, for the
purpose of covering over-allotments, if any, as set forth in the Registration
Statement.
Any prepayments, in whole or in part at any time, shall be without
prepayment penalty or premium, provided that any prepayment will also be
accompanied by payment of all accrued and unpaid interest due under this Note
and all other fees, expenses and other sums due and owing hereunder. Any
partial prepayment will be applied to the principal due under this Note in
inverse order of maturity.
7. EVENTS OF DEFAULT. The unpaid balance of this Note and all interest
thereon shall immediately become due and payable, at the election of the Payee,
without demand or notice, in the event of: (i) a default in the payment of any
sum due hereunder within ten (10) days after the date when due, which default
continues for more than fifteen (15) days after written notice; (ii) any default
(other than as set forth in clause (i) above) in the terms, covenants or
conditions set forth in this Note which continues after notice and expiration of
any applicable grace period; or (iii) Maker filing a voluntary petition in
bankruptcy, being adjudicated bankrupt or insolvent, admitting in writing its
inability to pay its debts as they become due, or the filing of any petition or
agreement seeking reorganization, liquidation or similar relief for Maker. Each
of the foregoing events is hereby referred to as an "Event of Default".
8. LATE CHARGE; DEFAULT INTEREST RATE.
8.1 In addition to all other rights and remedies of the Payee, in the
event that any payment due hereunder is not paid on the date when due, the Maker
shall pay to the Payee, on demand, a late charge of five percent (5%) of such
delinquent payment.
8.2 After maturity, or upon the occurrence of an Event of Default as
provided in Section 7 of this Note, the unpaid principal balance of this Note
shall thereafter bear interest at a rate three percent (3%) per annum above the
interest rate then in effect as set forth herein.
<PAGE>
9. MISCELLANEOUS.
9.1 BINDING EFFECT. The covenants, conditions and agreements
contained in this Note shall bind, and the benefits thereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns.
9.2 NO ORAL MODIFICATIONS. This Note may not be changed or
terminated orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
9.3 ATTORNEYS FEES. If the Payee retains an attorney to enforce
payment or on account of any other matter involving this Note, all costs of suit
and all reasonable attorneys fees so incurred by the Payee shall be forthwith
due and payable on demand by the Maker and shall be evidenced hereby.
9.4 CAPTIONS. The captions preceding the text of the sections of
this Note are used solely for the convenience of reference and shall not affect
the meaning or construction of this Note.
9.5 WAIVER OF JURY TRIAL. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO ANY OF THE MATTERS CONTAINED IN THIS NOTE IN WHICH THE UNDERSIGNED
AND THE PAYEE ARE ADVERSE PARTIES, THE UNDERSIGNED AND THE PAYEE WAIVE TRIAL BY
JURY.
9.6 NEW JERSEY LAW GOVERNS. This Note shall be governed and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned Maker, by its duly authorized officer,
has executed this Note the day and year first above-written.
TEARDROP GOLF COMPANY
By: /s/ Rudy A. Slucker
--------------------
Name: Rudy A. Slucker
Title: President
<PAGE>
GRID SCHEDULE
DATE DESCRIPTION (ADVANCE, CONVERSION, PAYMENT) AMOUNT
- ---- ------------------------------------------ ------
<PAGE>
PROMISSORY NOTE
$400,000 1996
FOR VALUE RECEIVED, the undersigned, TEARDROP GOLF COMPANY, a Delaware
corporation (the "Company"), promises to pay to the order of RUDY A. SLUCKER,
having an address at 66 Duffield Drive, South Orange, New Jersey 07079 (the
"Holder"), the principal sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000). The
Holder or anyone who takes this Note by transfer and who is entitled to receive
payments under this Note is sometimes called the "Note Holder".
1. INTEREST RATE AND CALCULATION. Interest will be charged on the
outstanding principal balance of this Note from the date or dates advances
evidenced hereby are made by the Holder until the full amount of principal has
been paid at the fixed rate of eight percent (8%) per annum. Interest will be
calculated on the basis of the actual number of days elapsed over a 360 day
year.
2. PAYMENT OF PRINCIPAL AND INTEREST. The principal of, and interest
accrued and accruing upon, this Note shall be due and payable on the sooner of
(i) the occurrence of the events set forth in Section 5 hereof, (ii) unless
sooner paid, the date which is three years following the date that the Company's
registration statement on Form SB-2 ("Registration Statement") is declared
effective by the United States Securities and Exchange Commission (the
"Effective Date") or (ii) July 31, 1997, if the Effective Date has not occurred
by such date.
3. APPLICATION OF PAYMENTS. Each payment made under this Note shall be
applied first to accrued interest and the remainder to principal.
4. TENDER OF PAYMENT. All payments on this Note shall be made directly
to the Holder in immediately available lawful money of the United States.
5. MANDATORY PREPAYMENT. This Note shall be prepaid in full, with
interest, or partially, from time to time, from the proceeds the Company
receives upon the exercise of all or any Warrants issued by the Company in the
Initial Public Offering.
Any prepayment, whether in whole or in part, shall be without
prepayment penalty or premium, provided that such prepayment will be accompanied
by payment of all accrued and unpaid interest due under this Note and all other
fees, expenses and other sums due and owing hereunder. Any partial prepayment
will be applied first to principal due under this Note.
6. EVENTS OF DEFAULT. The unpaid balance of this Note and all interest
thereon shall immediately become due and payable, at the election of the Holder,
without
<PAGE>
demand or notice, in the event of: (i) a default in the payment of any sum due
hereunder within ten (10) days after the date when due, which default continues
for more than fifteen (15) days after written notice; (ii) any default (other
than as set forth in clause (i) above) in the terms, covenants or conditions set
forth in this Note which continues after notice and expiration of any applicable
grace period; or (iii) Maker filing a voluntary petition in bankruptcy, being
adjudicated bankrupt or insolvent, admitting in writing its inability to pay its
debts as they become due, or the filing of any petition or agreement seeking
reorganization, liquidation or similar relief for Maker. Each of the foregoing
events is hereby referred to as an "Event of Default".
7. LATE CHARGE; DEFAULT INTEREST RATE.
7.1 In addition to all other rights and remedies of the Holder, in
the event that any payment due hereunder is not paid on the date when due, the
Company shall pay to the Holder, on demand, a late charge of five percent (5%)
of such delinquent payment.
7.2 After maturity, or upon the occurrence of an Event of Default as
provided in Section 6 of this Note, the unpaid principal balance of this Note
shall thereafter bear interest at a rate three percent (3%) per annum above the
interest rate then in effect as set forth herein.
8. MISCELLANEOUS.
8.1 BINDING EFFECT. The covenants, conditions and agreements
contained in this Note shall bind, and the benefits thereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns; provided that this Note cannot be assigned by the undersigned
without the prior express written consent of the Note Holder.
8.2 NO ORAL MODIFICATIONS. This Note may not be changed or
terminated orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
8.3 ATTORNEYS FEES. If the Holder retains an attorney to enforce
payment or on account of any other matter involving this Note, all costs of suit
and all reasonable attorneys fees so incurred by the Holder shall be forthwith
due and payable on demand by the Company and shall be evidenced hereby.
8.4 CAPTIONS. The captions preceding the text of the sections of
this Note are used solely for the convenience of reference and shall not affect
the meaning or construction of this Note.
8.5 WAIVER OF JURY TRIAL. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO ANY OF THE MATTERS CONTAINED IN THIS NOTE IN WHICH THE
<PAGE>
UNDERSIGNED AND THE HOLDER ARE ADVERSE PARTIES, THE UNDERSIGNED AND THE HOLDER
WAIVE TRIAL BY JURY.
8.6 NEW JERSEY LAW GOVERNS. This Note shall be governed and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer, has
executed this Note the day and year first above-written.
TEARDROP GOLF COMPANY
By:
----------------------
Name: Rudy A. Slucker
Title: President
<PAGE>
PROMISSORY NOTE
$40,000 1996
FOR VALUE RECEIVED, the undersigned, TEARDROP GOLF COMPANY, a Delaware
corporation (the "Company"), promises to pay to the order of RUDY A. SLUCKER,
having an address at 66 Duffield Drive, South Orange, New Jersey 07079 (the
"Holder"), the principal sum of FORTY THOUSAND DOLLARS ($40,000). The Holder or
anyone who takes this Note by transfer and who is entitled to receive payments
under this Note is sometimes called the "Note Holder".
L. INTEREST RATE AND CALCULATION. Interest will be charged on the
outstanding principal balance of this Note from the date or dates advances
evidenced hereby are made by the Holder until the full amount of principal has
been paid at the fixed rate of eight percent (8%) per annum. Interest will be
calculated on the basis of the actual number of days elapsed over a 360 day
year.
2. PAYMENT OF PRINCIPAL AND INTEREST. The principal of, and interest
accrued and accruing upon, this Note shall be due and payable on the sooner of
(i) the occurrence of the events set forth in Section 5 hereof, (ii) unless
sooner paid, the date which is two years following the date that the Company's
registration statement on Form SB-2 ("Registration Statement") is declared
effective by the United States Securities and Exchange Commission (the
"Effective Date") or (ii) July 31, 1997, if the Effective Date has not occurred
by such date.
3. APPLICATION OF PAYMENTS. Each payment made under this Note shall be
applied first to accrued interest and the remainder to principal.
4. TENDER OF PAYMENT. All payments on this Note shall be made directly
to the Holder in immediately available lawful money of the United States.
5. MANDATORY PREPAYMENT. This Note shall be prepaid in whole or in part
from proceeds (the "Proceeds") received by the Company upon the exercise of the
option (the "Option") granted to GKN Securities, the underwriter of the
Company's initial public offering, to cover over-allotments, if any, as set
forth in the Registration Statement. Holder shall be paid forty percent (40%)
of each One Dollar ($1.00) of Proceeds in excess of $300,000 received by the
Company upon the exercise of the Option.
Any prepayments, in whole or in part at any time, shall be without
prepayment penalty or premium, provided that any prepayment will also be
accompanied by payment of all accrued and unpaid interest due under this Note
and all other fees, expenses and other sums due and owing hereunder. Any
partial prepayment will be applied to the principal due under this Note in
inverse order of maturity.
<PAGE>
6. EVENTS OF DEFAULT. The unpaid balance of this Note and all interest
thereon shall immediately become due and payable, at the election of the Holder,
without demand or notice, in the event of: (i) a default in the payment of any
sum due hereunder within ten (10) days after the date when due, which default
continues for more than fifteen (15) days after written notice; (ii) any default
(other than as set forth in clause (i) above) in the terms, covenants or
conditions set forth in this Note which continues after notice and expiration of
any applicable grace period; or (iii) Maker filing a voluntary petition in
bankruptcy, being adjudicated bankrupt or insolvent, admitting in writing its
inability to pay its debts as they become due, or the filing of any petition or
agreement seeking reorganization, liquidation or similar relief for Maker. Each
of the foregoing events is hereby referred to as an "Event of Default".
7. LATE CHARGE; DEFAULT INTEREST RATE.
7.1 In addition to all other rights and remedies of the Holder, in
the event that any payment due hereunder is not paid on the date when due, the
Company shall pay to the Holder, on demand, a late charge of five percent (5%)
of such delinquent payment.
7.2 After maturity, or upon the occurrence of an Event of Default as
provided in Section 6 of this Note, the unpaid principal balance of this Note
shall thereafter bear interest at a rate three percent (3%) per annum above the
interest rate then in effect as set forth herein.
8. MISCELLANEOUS.
8.1 BINDING EFFECT. The covenants, conditions and agreements
contained in this Note shall bind, and the benefits thereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns; provided that this Note cannot be assigned by the undersigned
without the prior express written consent of the Note Holder.
8.2 NO ORAL MODIFICATIONS. This Note may not be changed or
terminated orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
8.3 ATTORNEYS FEES. If the Holder retains an attorney to enforce
payment or on account of any other matter involving this Note, all costs of suit
and all reasonable attorneys fees so incurred by the Holder shall be forthwith
due and payable on demand by the Company and shall be evidenced hereby.
8.4 CAPTIONS. The captions preceding the text of the sections of
this Note are used solely for the convenience of reference and shall not affect
the meaning or construction of this Note.
<PAGE>
8.5 WAIVER OF JURY TRIAL. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO ANY OF THE MATTERS CONTAINED IN THIS NOTE IN WHICH THE UNDERSIGNED
AND THE HOLDER ARE ADVERSE PARTIES, THE UNDERSIGNED AND THE HOLDER WAIVE TRIAL
BY JURY.
8.6 NEW JERSEY LAW GOVERNS. This Note shall be governed and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer, has
executed this Note the day and year first above-written.
TEARDROP GOLF COMPANY
By:
---------------------
Name: Rudy A. Slucker
Title: President
<PAGE>
PROMISSORY NOTE
$30,000 1996
FOR VALUE RECEIVED, the undersigned, TEARDROP GOLF COMPANY, a Delaware
corporation (the "Company"), promises to pay to the order of FRED K. HOCHMAN,
having an address at 20 Donax Road, Hilton Head Island, South Carolina 29928
(the "Holder"), the principal sum of THIRTY THOUSAND DOLLARS ($30,000). The
Holder or anyone who takes this Note by transfer and who is entitled to receive
payments under this Note is sometimes called the "Note Holder".
1. INTEREST RATE AND CALCULATION. Interest will be charged on the
outstanding principal balance of this Note from the date or dates advances
evidenced hereby are made by the Holder until the full amount of principal has
been paid at the fixed rate of eight percent (8%) per annum. Interest will be
calculated on the basis of the actual number of days elapsed over a 360 day
year.
2. PAYMENT OF PRINCIPAL AND INTEREST. The principal of, and interest
accrued and accruing upon, this Note shall be due and payable on the sooner of
(i) the occurrence of the events set forth in Section 5 hereof, (ii) unless
sooner paid, the date which is two years following the date that the Company's
registration statement on Form SB-2 ("Registration Statement") is declared
effective by the United States Securities and Exchange Commission (the
"Effective Date") or (ii) July 31, 1997, if the Effective Date has not occurred
by such date.
3. APPLICATION OF PAYMENTS. Each payment made under this Note shall be
applied first to accrued interest and the remainder to principal.
4. TENDER OF PAYMENT. All payments on this Note shall be made directly
to the Holder in immediately available lawful money of the United States.
5. MANDATORY PREPAYMENT. This Note shall be prepaid in whole or in part
from proceeds (the "Proceeds") received by the Company upon the exercise of the
option (the "Option") granted to GKN Securities, the underwriter of the
Company's initial public offering, to cover over-allotments, if any, as set
forth in the Registration Statement. Holder shall be paid thirty percent (30%)
of each One Dollar ($1.00) of Proceeds in excess of $300,000 received by the
Company upon the exercise of the Option.
Any prepayments, in whole or in part at any time, shall be without
prepayment penalty or premium, provided that any prepayment will also be
accompanied by payment of all accrued and unpaid interest due under this Note
and all other fees, expenses and other sums due and owing hereunder. Any
partial prepayment will be applied to the principal due under this Note in
inverse order of maturity.
<PAGE>
6. EVENTS OF DEFAULT. The unpaid balance of this Note and all interest
thereon shall immediately become due and payable, at the election of the Holder,
without demand or notice, in the event of: (i) a default in the payment of any
sum due hereunder within ten (10) days after the date when due, which default
continues for more than fifteen (15) days after written notice; (ii) any default
(other than as set forth in clause (i) above) in the terms, covenants or
conditions set forth in this Note which continues after notice and expiration of
any applicable grace period; or (iii) Maker filing a voluntary petition in
bankruptcy, being adjudicated bankrupt or insolvent, admitting in writing its
inability to pay its debts as they become due, or the filing of any petition or
agreement seeking reorganization, liquidation or similar relief for Maker. Each
of the foregoing events is hereby referred to as an "Event of Default".
7. LATE CHARGE; DEFAULT INTEREST RATE.
7.1 In addition to all other rights and remedies of the Holder, in
the event that any payment due hereunder is not paid on the date when due, the
Company shall pay to the Holder, on demand, a late charge of five percent (5%)
of such delinquent payment.
7.2 After maturity, or upon the occurrence of an Event of Default as
provided in Section 6 of this Note, the unpaid principal balance of this Note
shall thereafter bear interest at a rate three percent (3%) per annum above the
interest rate then in effect as set forth herein.
8. MISCELLANEOUS.
8.1 BINDING EFFECT. The covenants, conditions and agreements
contained in this Note shall bind, and the benefits thereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns; provided that this Note cannot be assigned by the undersigned
without the prior express written consent of the Note Holder.
8.2 NO ORAL MODIFICATIONS. This Note may not be changed or
terminated orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
8.3 ATTORNEYS FEES. If the Holder retains an attorney to enforce
payment or on account of any other matter involving this Note, all costs of suit
and all reasonable attorneys fees so incurred by the Holder shall be forthwith
due and payable on demand by the Company and shall be evidenced hereby.
8.4 CAPTIONS. The captions preceding the text of the sections of
this Note are used solely for the convenience of reference and shall not affect
the meaning or construction of this Note.
<PAGE>
8.5 WAIVER OF JURY TRIAL. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO ANY OF THE MATTERS CONTAINED IN THIS NOTE IN WHICH THE UNDERSIGNED
AND THE HOLDER ARE ADVERSE PARTIES, THE UNDERSIGNED AND THE HOLDER WAIVE TRIAL
BY JURY.
8.6 NEW JERSEY LAW GOVERNS. This Note shall be governed and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer, has
executed this Note the day and year first above-written.
TEARDROP GOLF COMPANY
By:
---------------------
Name: Rudy A. Slucker
Title: President
<PAGE>
PROMISSORY NOTE
$15,000 1996
FOR VALUE RECEIVED, the undersigned, TEARDROP GOLF COMPANY, a Delaware
corporation (the "Company"), promises to pay to the order of FRANK GRACE, having
an address at c/o Gradiner-Caldwell SynerMed, Route 513, Trimmer Road, Califon,
New Jersey 07830 (the "Holder"), the principal sum of FIFTEEN THOUSAND DOLLARS
($15,000). The Holder or anyone who takes this Note by transfer and who is
entitled to receive payments under this Note is sometimes called the "Note
Holder".
L. INTEREST RATE AND CALCULATION. Interest will be charged on the
outstanding principal balance of this Note from the date or dates advances
evidenced hereby are made by the Holder until the full amount of principal has
been paid at the fixed rate of eight percent (8%) per annum. Interest will be
calculated on the basis of the actual number of days elapsed over a 360 day
year.
2. PAYMENT OF PRINCIPAL AND INTEREST. The principal of, and interest
accrued and accruing upon, this Note shall be due and payable on the sooner of
(i) the occurrence of the events set forth in Section 5 hereof, (ii) unless
sooner paid, the date which is two years following the date that the Company's
registration statement on Form SB-2 ("Registration Statement") is declared
effective by the United States Securities and Exchange Commission (the
"Effective Date") or (ii) July 31, 1997, if the Effective Date has not occurred
by such date.
3. APPLICATION OF PAYMENTS. Each payment made under this Note shall be
applied first to accrued interest and the remainder to principal.
4. TENDER OF PAYMENT. All payments on this Note shall be made directly
to the Holder in immediately available lawful money of the United States.
5. MANDATORY PREPAYMENT. This Note shall be prepaid in whole or in part
from proceeds (the "Proceeds") received by the Company upon the exercise of the
option (the "Option") granted to GKN Securities, the underwriter of the
Company's initial public offering, to cover over-allotments, if any, as set
forth in the Registration Statement. Holder shall be paid fifteen percent (15%)
of each One Dollar ($1.00) of Proceeds in excess of $300,000 received by the
Company upon the exercise of the Option.
Any prepayments, in whole or in part at any time, shall be without
prepayment penalty or premium, provided that any prepayment will also be
accompanied by payment of all accrued and unpaid interest due under this Note
and all other fees, expenses and other sums due and owing hereunder. Any
partial prepayment will be applied to the principal due under this Note in
inverse order of maturity.
<PAGE>
6. EVENTS OF DEFAULT. The unpaid balance of this Note and all interest
thereon shall immediately become due and payable, at the election of the Holder,
without demand or notice, in the event of: (i) a default in the payment of any
sum due hereunder within ten (10) days after the date when due, which default
continues for more than fifteen (15) days after written notice; (ii) any default
(other than as set forth in clause (i) above) in the terms, covenants or
conditions set forth in this Note which continues after notice and expiration of
any applicable grace period; or (iii) Maker filing a voluntary petition in
bankruptcy, being adjudicated bankrupt or insolvent, admitting in writing its
inability to pay its debts as they become due, or the filing of any petition or
agreement seeking reorganization, liquidation or similar relief for Maker. Each
of the foregoing events is hereby referred to as an "Event of Default".
7. LATE CHARGE; DEFAULT INTEREST RATE.
7.1 In addition to all other rights and remedies of the Holder, in
the event that any payment due hereunder is not paid on the date when due, the
Company shall pay to the Holder, on demand, a late charge of five percent (5%)
of such delinquent payment.
7.2 After maturity, or upon the occurrence of an Event of Default as
provided in Section 6 of this Note, the unpaid principal balance of this Note
shall thereafter bear interest at a rate three percent (3%) per annum above the
interest rate then in effect as set forth herein.
8. MISCELLANEOUS.
8.1 BINDING EFFECT. The covenants, conditions and agreements
contained in this Note shall bind, and the benefits thereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns; provided that this Note cannot be assigned by the undersigned
without the prior express written consent of the Note Holder.
8.2 NO ORAL MODIFICATIONS. This Note may not be changed or
terminated orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
8.3 ATTORNEYS FEES. If the Holder retains an attorney to enforce
payment or on account of any other matter involving this Note, all costs of suit
and all reasonable attorneys fees so incurred by the Holder shall be forthwith
due and payable on demand by the Company and shall be evidenced hereby.
8.4 CAPTIONS. The captions preceding the text of the sections of
this Note are used solely for the convenience of reference and shall not affect
the meaning or construction of this Note.
<PAGE>
8.5 WAIVER OF JURY TRIAL. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO ANY OF THE MATTERS CONTAINED IN THIS NOTE IN WHICH THE UNDERSIGNED
AND THE HOLDER ARE ADVERSE PARTIES, THE UNDERSIGNED AND THE HOLDER WAIVE TRIAL
BY JURY.
8.6 NEW JERSEY LAW GOVERNS. This Note shall be governed and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer, has
executed this Note the day and year first above-written.
TEARDROP GOLF COMPANY
By:
---------------------
Name: Rudy A. Slucker
Title: President
<PAGE>
PROMISSORY NOTE
$12,500 1996
FOR VALUE RECEIVED, the undersigned, TEARDROP GOLF COMPANY, a Delaware
corporation (the "Company"), promises to pay to the order of RICHARD RIZZUTO,
having an address at c/o Gradiner-Caldwell SynerMed, Route 513, Trimmer Road,
Califon, New Jersey 07830 (the "Holder"), the principal sum of TWELVE THOUSAND
AND FIVE HUNDRED DOLLARS ($12,500). The Holder or anyone who takes this Note by
transfer and who is entitled to receive payments under this Note is sometimes
called the "Note Holder".
1. INTEREST RATE AND CALCULATION. Interest will be charged on the
outstanding principal balance of this Note from the date or dates advances
evidenced hereby are made by the Holder until the full amount of principal has
been paid at the fixed rate of eight percent (8%) per annum. Interest will be
calculated on the basis of the actual number of days elapsed over a 360 day
year.
2. PAYMENT OF PRINCIPAL AND INTEREST. The principal of, and interest
accrued and accruing upon, this Note shall be due and payable on the sooner of
(i) the occurrence of the events set forth in Section 5 hereof, (ii) unless
sooner paid, the date which is two years following the date that the Company's
registration statement on Form SB-2 ("Registration Statement") is declared
effective by the United States Securities and Exchange Commission (the
"Effective Date") or (ii) July 31, 1997, if the Effective Date has not occurred
by such date.
3. APPLICATION OF PAYMENTS. Each payment made under this Note shall be
applied first to accrued interest and the remainder to principal.
4. TENDER OF PAYMENT. All payments on this Note shall be made directly
to the Holder in immediately available lawful money of the United States.
5. MANDATORY PREPAYMENT. This Note shall be prepaid in whole or in part
from proceeds (the "Proceeds") received by the Company upon the exercise of the
option (the "Option") granted to GKN Securities, the underwriter of the
Company's initial public offering, to cover over-allotments, if any, as set
forth in the Registration Statement. Holder shall be paid twelve and one-half
percent (12.5%) of each One Dollar ($1.00) of Proceeds in excess of $300,000
received by the Company upon the exercise of the Option.
Any prepayments, in whole or in part at any time, shall be without
prepayment penalty or premium, provided that any prepayment will also be
accompanied by payment of all accrued and unpaid interest due under this Note
and all other fees, expenses and other sums due and owing hereunder. Any
partial prepayment will be applied to the principal due under this Note in
inverse order of maturity.
<PAGE>
6. EVENTS OF DEFAULT. The unpaid balance of this Note and all interest
thereon shall immediately become due and payable, at the election of the Holder,
without demand or notice, in the event of: (i) a default in the payment of any
sum due hereunder within ten (10) days after the date when due, which default
continues for more than fifteen (15) days after written notice; (ii) any default
(other than as set forth in clause (i) above) in the terms, covenants or
conditions set forth in this Note which continues after notice and expiration of
any applicable grace period; or (iii) Maker filing a voluntary petition in
bankruptcy, being adjudicated bankrupt or insolvent, admitting in writing its
inability to pay its debts as they become due, or the filing of any petition or
agreement seeking reorganization, liquidation or similar relief for Maker. Each
of the foregoing events is hereby referred to as an "Event of Default".
7. LATE CHARGE; DEFAULT INTEREST RATE.
7.1 In addition to all other rights and remedies of the Holder, in
the event that any payment due hereunder is not paid on the date when due, the
Company shall pay to the Holder, on demand, a late charge of five percent (5%)
of such delinquent payment.
7.2 After maturity, or upon the occurrence of an Event of Default as
provided in Section 6 of this Note, the unpaid principal balance of this Note
shall thereafter bear interest at a rate three percent (3%) per annum above the
interest rate then in effect as set forth herein.
8. MISCELLANEOUS.
8.1 BINDING EFFECT. The covenants, conditions and agreements
contained in this Note shall bind, and the benefits thereof shall inure to, the
parties hereto and their respective heirs, executors, administrators, successors
and assigns; provided that this Note cannot be assigned by the undersigned
without the prior express written consent of the Note Holder.
8.2 NO ORAL MODIFICATIONS. This Note may not be changed or
terminated orally, but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification or discharge is
sought.
8.3 ATTORNEYS FEES. If the Holder retains an attorney to enforce
payment or on account of any other matter involving this Note, all costs of suit
and all reasonable attorneys fees so incurred by the Holder shall be forthwith
due and payable on demand by the Company and shall be evidenced hereby.
8.4 CAPTIONS. The captions preceding the text of the sections of
this Note are used solely for the convenience of reference and shall not affect
the meaning or construction of this Note.
<PAGE>
8.5 WAIVER OF JURY TRIAL. IN ANY LITIGATION ARISING OUT OF OR
RELATING TO ANY OF THE MATTERS CONTAINED IN THIS NOTE IN WHICH THE UNDERSIGNED
AND THE HOLDER ARE ADVERSE PARTIES, THE UNDERSIGNED AND THE HOLDER WAIVE TRIAL
BY JURY.
8.6 NEW JERSEY LAW GOVERNS. This Note shall be governed and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned, by its duly authorized officer, has
executed this Note the day and year first above-written.
TEARDROP GOLF COMPANY
By:
----------------------
Name: Rudy A. Slucker
Title: President
<PAGE>
EXHIBIT 10.12
ENDORSEMENT AGREEMENT
This Endorsement Agreement is made and entered into this first (1st)
day of January, 1996, by and between Teardrop Putter Corporation having its
principal office at 207 WatersEdge, Shelter Cove, Hilton Head Island, South
Carolina 29928 (hereinafter referred to as "TPC"), and Consolidated Artists
Inc., Sommerville House, Phillips Street, St. Helier, Jersey JE1 1DE, Channel
Islands, British Isles (hereinafter referred to as "Consolidated Artists").
WITNESSETH:
WHEREAS, Brett Ogle (hereinafter referred to as "Ogle") is recognized
and widely known throughout the world as an expert golfer; and
WHEREAS, Ogle's name, by virtue of his ability and extensive experience, has
acquired a secondary meaning in the mind of the purchasing public important to
the advertisement, promotion and sale of golf putters; and
WHEREAS, TPC is engaged in the manufacture, distribution and sale of golf
putters, and is desirous of acquiring the exclusive right to utilize Ogle's name
in connection with the advertisement, promotion and sale of the Teardrop Putter;
and
WHEREAS, Consolidated Artists holds all rights to and in Ogle's name and
endorsement for purposes of this Agreement; and
WHEREAS, Consolidated Artists being exclusively entitled to such rights
within the Contract Territory (as hereinafter defined)
<PAGE>
- 2 -
has agreed to authorize such use upon the terms and conditions hereinafter
contained;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein set forth and for other good and valuable consideration, it is
agreed as follows:
1. DEFINITIONS: As used herein, the terms set forth below shall be
defined as follows:
(a) "Ogle Endorsement" shall mean the name, likeness, photograph, and
endorsement of Ogle.
(b) "Endorsed Product" shall mean a putter manufactured, distributed,
promoted, advertised and sold by TPC bearing the "Teardrop
Putter" name and/or logo.
(c) "Contract Territory" shall mean the entire world.
(d) "Contract Period" shall mean that period of time commencing
January 1, 1996, and concluding December 31, 1998, unless sooner
terminated in accordance with the terms and conditions hereof.
(e) "Contract Year" shall mean that twelve (12)month period of time
commencing each first (1st) day of January throughout the
Contract Period.
(f) "Major Tournament" shall mean any of the following tournaments:
the Masters, the U.S. Open, the British Open and the PGA
Championship.
<PAGE>
- 3 -
(g) "PGA Tour Tournament" shall mean PGA Tour tournaments, excluding
the Major Tournaments.
(h) "International Tournament" shall mean European PGA Tour
tournaments (excluding the British Open),Japan PGA Tour
tournaments and Australian PGA Tour tournaments.
2. OGLE TO USE ENDORSED PRODUCT. Consolidated Artists agrees to cause
Ogle to use the Endorsed Product during the Contract Period and throughout the
Contract Territory whenever he is playing competitive golf or otherwise
participating in golf clinics and outings.
3. GRANT OF ENDORSEMENT RIGHTS. Subject to the terms and conditions set
forth herein, Consolidated Artists grants to TPC the exclusive right and
license, within the Contract Territory and during the Contract Period, to use
the Ogle Endorsement in connection with the manufacture, distribution,
advertisement, promotion and sale of the Endorsed Product.
4. CLOTHING IDENTIFICATION. Consolidated Artists agrees to cause Ogle to
wear a patch and/or an embroidered non-patch bearing the Teardrop name and/or
logo on the right chest, left sleeve, and back of his golf shirt and/or sweater
(near the collar) and/or rain gear whenever he is playing competitive golf,
participating in golf clinics and outings or otherwise engaging in golf
promotional activities during the Contract Period and throughout the Contract
Territory. The expenses for the clothing and placement of the
<PAGE>
- 4 -
patch and/or embroidered non-patch shall be borne by TPC. TPC agrees to supply
Consolidated Artists or its designee with adequate quantities of said patch and
embroidered non-patch at no charge to Consolidated Artists.
5. RETENTION OF ENDORSEMENT RIGHTS. Subject to the provisions of
Paragraphs 2, 3 and 4 above, TPC agrees that Consolidated Artists shall retain
all rights in and to the Ogle Endorsement and shall not be prevented from using
or permitting or licensing others to use his name or endorsement in connection
with the promotion, advertisement, or sale of any product or service other than
a golf putter in the Contract Territory during the Contract Period. TPC further
agrees that upon the termination of this Endorsement Agreement for any cause
whatsoever, it will cease using the Ogle Endorsement, the name "Brett Ogle," or
any facsimile thereof, for any promotional or advertising purposes; provided,
however, that TPC shall have the right to use the Ogle Endorsement in
advertisements for ad space purchased by TPC prior to the termination of this
Agreement for a period of up to six (6) months following such termination. In
this connection, TPC shall provide Consolidated Artists with a list of such
previously purchased ad space within seven (7) days of the effective date of
termination and all such advertisements released after the effective date of
termination shall be subject to Consolidated Artists' prior approval pursuant to
the terms of Paragraph 7 below.
<PAGE>
- 5 -
6. PHOTOGRAPH SHOOTS; PERSONAL APPEARANCES. Consolidated Artists
agrees, if requested by TPC, to make Ogle available for one (1) day on behalf
of TPC in each Contract Year during the Contract Period at times and places
mutually convenient to Ogle and TPC for the purpose of taking still
photographs for the preparation and production of advertising and promotional
materials. TPC agrees that such photograph shoots shall not exceed five (5)
hours each in duration. Further, Consolidated Artists agrees, if requested by
TPC, to make Ogle available for two (2) personal appearance days on behalf of
TPC in each Contract Year during the Contract Period at times and places
mutually convenient to Ogle and TPC. Such personal appearances shall be
limited to one (1) day and shall not exceed five (5) hours each in duration.
In addition, TPC agrees to pay all reasonable and necessary expenses
(including first class travel, hotel accommodations and meal expenses)
incurred by Consolidated Artists in connection with such photograph shoots
and personal appearances.
7. PROMOTIONAL AND ADVERTISING MATERIALS. TPC agrees to provide
Consolidated Artists and its representative, Advantage International Management,
Inc. ("Advantage"), with a copy of all advertising and promotional materials
which will use or show the Ogle Endorsement for their approval. Such promotional
or advertising materials shall be delivered to Advantage at least fourteen (14)
days prior to their release to the general public, and TPC agrees that the same
shall not be released without the
<PAGE>
- 6 -
prior written approval of Advantage. Advantage agrees that it will not
unreasonably disapprove or reject promotional or advertising materials
hereunder, and that Advantage's failure to disapprove such materials within
fourteen (14) days of receipt shall be deemed to be approval. In addition, TPC
agrees to provide Consolidated Artists with complimentary duplicates of all
promotional and/or advertising materials featuring Ogle or the Ogle Endorsement.
8. RETAINER FEE. In consideration of the rights and benefits granted to
TPC hereunder, TPC agrees to pay Consolidated Artists on behalf of Ogle a
retainer fee in each Contract Year during the Contract Period ("Retainer Fee")
in accordance with the following schedule:
CONTRACT YEAR RETAINER FEE
First (1st) Contract Year Fifty-Five Thousand U.S.
(Jan. 1, 1996-Dec. 31, 1996) Dollars ($55,000)
Second (2nd) Contract Year Seventy Thousand U.S.
(Jan. 1, 1997-Dec. 31, 1997) Dollars (70,000)
Third (3rd) Contract Year Ninety Thousand U.S.
(Jan. 1, 1998-Dec. 31, 1998) Dollars ($90,000)
Said Retainer Fee shall be paid in four (4) equal installments on or before the
first (1st) day of February, May, August and November in each Contract Year.
9. TOURNAMENT BONUSES. In addition to the Retainer Fee set forth in
Paragraph 8 above, TPC agrees to pay Consolidated Artists on behalf of Ogle the
following tournament bonuses for Ogle's
<PAGE>
- 7 -
tournament performances during the Contract Period (the "Tournament Bonus or
Bonuses"):
(a) Sixty Thousand U.S. Dollars ($60,000), each time Ogle wins a Major
Tournament; and
(b) Twenty Thousand U.S. Dollars ($20,000), each time Ogle wins a network
televised US PGA Tour Tournament; and
(c) Ten Thousand U.S. Dollars ($10,000) each time Ogle wins a cable
televised US PGA Tour Tournament; and
(d) Seven Thousand Five Hundred U.S. Dollars ($7,500) each time Ogle wins
a Golf Channel televised US PGA Tour Tournament or a Golf Channel
televised International Tournament; and
(e) Five Thousand U.S. Dollars ($5,000) each time Ogle wins an
International Tournament not televised by Golf Channel or a
non-televised US PGA Tour Tournament.
TPC shall pay any Tournament Bonuses due Consolidated Artists for a Major
Tournament win within sixty (60) days following TPC's receipt of an invoice from
Consolidated Artists or Advantage and any Tournament Bonuses due Consolidated
Artists for a network televised US PGA Tour Tournament win shall be paid within
forty-five (45) days following TPC's receipt of an invoice from Consolidated
Artists or Advantage. All other Tournament Bonuses due to Consolidated Artists
shall be paid by TPC within thirty (30) days following TPC's receipt of an
invoice from Consolidated Artists or Advantage.
<PAGE>
- 8 -
10. MONEY LIST BONUS(ES). In addition to the Retainer Fee and the
Tournament Bonuses set forth in Paragraphs 8 and 9 above, TPC agrees to pay
Consolidated Artists on behalf of Ogle the following bonuses in each Contract
Year for Ogle's position on the Official Year-End PGA Tour Money List ("Money
List Bonus(es)"):
(a) Fifty Thousand U.S. Dollars ($50,000) each time Ogle finishes in first
(1st) place on the Official Year-End PGA Tour Money List; and
(b) Twenty-Five Thousand U.S. Dollars ($25,000) each time Ogle finishes
between second (2nd) and tenth (10th) place on the Official Year-End
PGA Tour Money List; and
(c) Fifteen Thousand U.S. Dollars ($15,000) each time Ogle finishes
between eleventh (11th) and twentieth (20th) place on the Official
Year-End PGA Tour Money List; and
(d) Seven Thousand Five Hundred U.S. Dollars ($7,500) each time Ogle
finishes between twenty-first (21st) and thirtieth (30th) place on the
Official Year-End PGA Tour Money List; and
(e) Five Thousand U.S. Dollars ($5,000) each time Ogle finishes between
thirty-first (31st) and fortieth (40th) place on the Official Year-End
PGA Tour Money List.
TPC shall pay any Money List Bonuses due to Consolidated Artists within thirty
(30) days following TPC's receipt of an invoice from Consolidated Artists or
Advantage.
<PAGE>
- 9 -
11. ROYALTY COMPENSATION FOR ENDORSED PRODUCT. In addition to the Retainer
Fee, Tournament Bonuses and Money List Bonuses set forth in Paragraphs 8, 9 and
10 above, TPC agrees to pay Consolidated Artists on behalf of Ogle royalty
compensation of ten percent (10%) of the net sales of all Endorsed Products
distributed or sold during the Contract Period in or to the Countries of
Australia and New Zealand ("Royalty Compensation"). "Net sales" shall mean the
gross invoice price billed to customers, less customary trade/quantity
discounts, rebates and returns actually credited, but with no deductions of any
kind. No costs incurred by TPC in the manufacture, advertisement, promotion or
exploitation of any Endorsed Product shall be deducted as a cost in calculating
the net sales. TPC agrees to guarantee to Consolidated Artists on behalf of Ogle
a minimum Royalty Compensation of Twenty Thousand U.S. Dollars ($20,000) payable
in four (4) equal installments of Five Thousand U.S. Dollars ($5,000) and due
simultaneously with the Retainer Fee on or before the first (1st) day of
February, May, August and November in each Contract Year.
12. PAYMENT OF ROYALTY COMPENSATION. Within thirty (30) days of the
conclusion of each three (3) month period in each Contract Year during the
Contract Period, TPC agrees to deliver to Consolidated Artists and Advantage an
itemized statement setting forth the actual number of all Endorsed Products
distributed and sold during the preceding three (3) month period. Simultaneous
with the delivery of each statement setting forth such totals, TPC
<PAGE>
- 10 -
agrees to pay Consolidated Artists the appropriate Royalty Compensation in
excess of the $5,000 quarterly payment set forth in Paragraph 10 above, due on
the sales of the Endorsed Product for the period covered by such statement.
13. ACCOUNTING FOR ROYALTY COMPENSATION. TPC agrees that it shall keep
accurate and complete books and records showing all Endorsed Products
manufactured, distributed and sold. Consolidated Artists and Advantage, at
Consolidated Artists' expense, shall have the right during the Contract Period
and until two (2) years after the termination of this Agreement to inspect and
make copies of the books and records of TPC insofar as they relate to the
computation of royalty payments due and owing to Consolidated Artists hereunder.
14. PAYMENTS TO CONSOLIDATED ARTISTS. All payments to be made to
Consolidated Artists pursuant to the terms hereof shall be made by wire transfer
in U.S. Dollars to the following account:
Account Name: Advantage International Escrow Fund
Account #: 20068160-13
ABA #: 054001547
Bank Name: Franklin National Bank of Washington
Address: 1722 Eye Street
Washington, D.C. 20006
U.S.A.
Re: Consolidated Artists
15. MINIMUM PLAY REQUIREMENT. TPC shall have the right to prorate the
Retainer Fee due Consolidated Artists upon fourteen (14) days written notice
to Consolidated Artists or Advantage in the event Ogle fails to play a
minimum of seventeen (17) U.S. PGA
<PAGE>
- 11 -
Tour Events and the British Open in each Contract Year during the Contract
Period.
16. TIME OF THE ESSENCE. TPC acknowledges that time is of the essence in the
payment of all compensation due Consolidated Artists hereunder. For the purposes
of this Agreement, all payments not received within thirty (30) days of the date
due shall be deemed "past due". Such past due payments shall bear interest at a
rate of two percent (2%) per month OR the maximum rate permissible by law,
whichever is less. The imposition of interest provided for in this Paragraph
shall be in addition to any other remedies available to Consolidated Artists
under this Agreement or otherwise. Accordingly, Consolidated Artists shall not
be precluded from exercising any other remedies, whether at law or in equity, to
enforce the terms of this Agreement.
17. SPECIAL RIGHT OF NEGOTIATION AND TERMINATION. If at any time during the
Contract Period Ogle determines that he no longer desires to use the Endorsed
Product Consolidated Artists shall so notify TPC in writing and the parties
shall meet and negotiate in good faith an amicable solution. Such discussion
shall take place within fourteen (14) days of Consolidated Artists' notice and
shall include such issues as Ogle's continued use of the Endorsed Product, the
continued use of the Ogle Endorsement and the termination of this Agreement. If
no solution is reached within fourteen (14) days of such negotiation, the
parties agree that this Agreement shall automatically terminate and that TPC
will cease
<PAGE>
- 12 -
using the Ogle Endorsement, the name "Brett Ogle," or any facsimile thereof, for
any promotional or advertising purposes in accordance with the terms set forth
in Paragraph 5 above. In addition, TPC agrees that Consolidated Artists shall be
entitled to the Retainer Fee prorated to the effective date of termination as
well any Tournament Bonuses, Money List Bonuses and any Royalty Compensation
earned by Consolidated Artists prior to the effective date of termination.
18. PRODUCTS FOR OGLE'S USE. During the Contract Period, TPC shall supply
Consolidated Artists, at no charge, with such quantities of the Endorsed Product
as Consolidated Artists may reasonably request for Ogle's use and the personal
use of Ogle's immediate family. In addition, TPC shall supply Consolidated
Artists at normal wholesale price with such quantities of the Endorsed Product
as Ogle may reasonably request for gifts to others.
19. PROTECTING THE OGLE ENDORSEMENT. TPC and Consolidated Artists agree that
they will take all necessary steps during the Contract Period and thereafter to
protect the Ogle Endorsement, the name "Brett Ogle" or any facsimile thereof in
connection with the advertisement, promotion, distribution and sale of the
Endorsed Product.
20. TERM OF AGREEMENT. The term of this Agreement shall commence January 1,
1996, and shall continue for a period of three (3) years, concluding December
31, 1998.
<PAGE>
- 13 -
21. SPECIAL RIGHT OF TERMINATION BY CONSOLIDATED ARTISTS. Consolidated
Artists shall have the right to terminate this Agreement upon thirty (30) days
prior written notice to TPC in the event of the occurrence of any of the
following contingencies:
(a) If TPC is adjudicated as insolvent, declares bankruptcy or fails to
continue its business of selling the Endorsed Product; or
(b) If TPC fails to make payment to Consolidated Artists of any sums due
pursuant to this Agreement within thirty (30) days following the date
such payment is due hereunder, provided that TPC is notified in
writing of such nonpayment by Consolidated Artists or Advantage and
such payment is not made within ten (10) days following such
notification.
TPC agrees that such termination shall not relieve it of its obligation to pay
Consolidated Artists all compensation contemplated hereunder. Accordingly,
Consolidated Artists shall not waive any of its rights at law or in equity.
22. SPECIAL RIGHT OF TERMINATION BY TPC. TPC shall have the right to
terminate this Agreement upon thirty (30) days prior written notice to
Consolidated Artists or Advantage in the event of the occurrence of any of the
following contingencies:
(a) In the event of 0gle's death during the Contract Period; or
<PAGE>
- 14 -
(b) In the event Ogle is convicted of a felony involving moral turpitude.
In the event of such termination above, the parties agree that the Retainer Fee
due Consolidated Artists shall be prorated to the effective date of termination.
Furthermore, TPC agrees that any Tournament Bonuses, Money List Bonuses and any
Royalty Compensation earned by Ogle prior to the effective date of termination
shall be paid in full within thirty (30) days of such effective date of
termination.
23. INDEMNITY. TPC agrees to protect, indemnify and hold harmless
Consolidated Artists and Ogle from and against any and all expenses, damages,
claims, suits, actions, judgments and costs whatsoever, including attorneys'
fees, arising out of, or in any way connected with, any claim or action which
arises from the use of the Endorsed Product, the use of the Ogle Endorsement, or
the performance of Consolidated Artists' and Ogle's obligations hereunder.
24. WAIVER. The failure of TPC or Consolidated Artists at any time or times
to demand strict performance by the other of any of the terms, covenants or
conditions set forth herein shall not be construed as a continuing waiver or
relinquishment thereof and either may at any time demand strict and complete
performance by the other of said terms, covenants and conditions.
25. ASSIGNMENT. Neither TPC nor Consolidated Artists shall have any right to
grant sublicenses hereunder or to otherwise
<PAGE>
- 15 -
assign, transfer, alienate, encumber or hypothecate any of its rights or
obligations hereunder without the express prior written consent of the other
party, except that Consolidated Artists shall have the right to assign the
financial benefits hereof and TPC hereby consents to such assignment.
26. NOTICES. All notices required hereunder shall be sent by telefax,
overnight mail or first class mail, return receipt requested, as appropriate, to
the parties at the following addresses:
TPC Mr. Fred A. Hochman
President
Teardrop Putter Corporation
207 WatersEdge, Shelter Cove
Hilton Head Island, South Carolina 29928
Consolidated Consolidated Artists, Inc.
Artists Sommerville House
Phillips Street
St. Helier
Jersey JE1 1DE
Channel Islands
British Isles
cc: Advantage International Management, Inc.
1751 Pinnacle Drive
Suite 1500
McLean, Virginia 22102
Attention: Mr. Peter Roisman
Advantage and TPC shall promptly notify each other in writing of any change of
address.
27. EMPLOYER/EMPLOYEE RELATIONSHIP. Nothing contained in this Agreement
shall be construed as establishing an employer/employee relationship between TPC
and Consolidated Artists. Accordingly, there shall be no withholding for tax
<PAGE>
- 16 -
purposes from any payments due hereunder to Consolidated Artists by TPC.
28. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia applicable to contracts
entered into and wholly to be performed within the Commonwealth of Virginia and,
in the event of any litigation arising out of this Agreement, venue shall be the
Commonwealth of Virginia. Should Consolidated Artists be required to institute
litigation due to TPC's breach of any terms of this Agreement, all costs of such
litigation, including reasonable attorneys' fees, shall be borne by TPC.
29. SIGNIFICANCE OF HEADINGS. Paragraph headings contained hereunder are
solely for the purpose of aiding in speedy location of subject matter and are
not in any sense to be given weight in the construction of this Agreement.
Accordingly, in case of any question with respect to the construction of this
Agreement, it is to be construed as though such paragraph headings had been
omitted.
30. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between Consolidated Artists and TPC, and cannot be altered or modified except
by an agreement in writing signed by both parties. Upon its execution, this
Agreement shall supersede all prior negotiations, understandings and agreements,
whether oral or written, and such prior agreements shall thereupon be null and
void and without further legal effect.
<PAGE>
- 17 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
TEARDROP PUTTER CORPORATION
Date: 2-27-96 BY: /s/ Brian R. Hochman
-------------------- --------------------------------
Brian R. Hochman
President
CONSOLIDATED ARTISTS, INC.
Date: 10-4-96 By: /s/ M. M. Murray
-------------------- --------------------------------
Its: Ass Secretary
-------------------------------
<PAGE>
GUARANTY
I, the undersigned, Brett Ogle, do hereby acknowledge that I have read the
foregoing Agreement between Teardrop Putter Corporation ("TPC") and Consolidated
Artists, Inc. ("Consolidated Artists") and am aware of the terms thereof. In
this connection, I agree that I will be bound by the terms and conditions of
such Agreement and that I will be entitled to the rights and benefits set forth
therein, as fully as if I have been a party to such Agreement. Furthermore, in
consideration of the mutual covenants and conditions and as a material
inducement to TPC to enter into said Agreement with Consolidated Artists, I do
hereby guarantee the performance of said Agreement by Consolidated Artists. This
guaranty shall only be effective upon the execution of the Agreement by
Consolidated Artists.
DATE: 3/28/96 /s/ Brett Ogle
-------------------- -----------------------------------
BRETT OGLE
<PAGE>
EXHIBIT 10.13
AGREEMENT
THIS AGREEMENT IS BETWEEN DUSTIN PHILLIPS (THE "PLAYER") AND TEARDROP GOLF
COMPANY (THE "COMPANY") AND IS MADE THIS 5TH DAY OF MAY, 1996.
1. BASE COMPENSATION For every Nike Tour Tournament Player that uses the
TearDrop putter, carries the TearDrop bag, and wears the TearDrop hat and shirt,
the Company shall pay Player $150 per week. The Company must provide a
reasonable quantity of hats, shirts, and a golf bag.
2. ADDITIONAL COMPENSATION
A. MAKING THE CUT For every week the Player qualifies for compensation
under paragraph one, and the Player makes the cut, Player shall earn an
additional $200 per tournament if the Player wears the shirt and hat, carries
the TearDrop bag, and uses the TearDrop putter during each and every day of the
Tournament.
B. TOURNAMENT BONUSES
1. WIN - Every time a Player wins a Nike Tour or PGA TOUR Tournament
Company shall pay Player $2500.
2. PLACE 2 - 5 - Every time a Player finishes two through five in a
Nike Tour or PGA TOUR Tournament, Company shall pay Player $500.
3. PLACE 6 - 10 - Every time a Player finishes six through ten in a
Nike Tour or PGA TOUR Tournament, Company shall pay Player $250.
C. YEAR END BONUSES
1. If Player finishes first on the year end Nike money list, Company
shall pay Player $10,000.
2. If Player finishes two through five on the year end Nike money
list, Company shall pay Player $2500.
3. If Player finishes six through ten on the Nike money list,
Company shall pay Player $1,000.
4. If Player finishes eleven through twenty on the year end Nike
money list, Company shall pay Player $500.
3. PAYMENTS Evaluations will be made on June 30, 1996, September 30, 1996,
and December 1, 1996 to determine the amount owed to Player under the above
paragraphs and payments will be made fifteen days thereafter.
4. PERSONAL APPEARANCES Player shall make 3 personal appearances if so
requested by the Company. Company shall pay for Player's travel expenses and
lodging, and said appearances shall not interfere with Player's Tournament or
golf schedule.
<PAGE>
5. PLAYER'S ENDORSEMENT Player hereby endorses the TearDrop Putter and grants
the Company permission to use Player's name and likeness for promotional
purposes.
The Company
TearDrop Golf Company
By: /s/ Brian R. Hochman
---------------------------
Brian R. Hochman
Its:President
The Player
/s/ Dustin Phillips
- ------------------------------
Dustin Phillips
<PAGE>
EXHIBIT 10.14
AGREEMENT
This Agreement is between Dennis Zinkon (the "Player") and TearDrop Golf Company
(the "Company") and is made this 29th day of August, 1996. The term of this
Agreement shall commence as of this date and continue until December 31, 1996.
1. BASE COMPENSATION: For every Nike Tour Tournament Player uses the TearDrop
putter, wears the TearDrop hat and either: A) wears the TearDrop shirt or B)
carries the TearDrop bag, Company shall pay Player $250 per week. Company shall
provide a reasonable quantity of hats, shirts and/or golf bag. Player will
compete in the world match play championship, PGA tour school qualifying and
other tournaments. Player and Company will agree to a similar compensation
package for these tournaments based upon their format.
2. ADDITIONAL COMPENSATION:
A. MAKING THE CUT - for every week Player qualifies for compensation under
paragraph one, and Player makes the cut, Player shall earn an additional $250
per tournament.
B. TOURNAMENT BONUSES
1. WIN - Every time Player wins a Nike Tour Tournament Company shall
pay Player $10,000.
2. PLACE 2ND - Every time Player finishes second in a Nike Tour
Tournament, Company shall pay Player $1,000.
3. PLACE 3RD. - Every time Player finishes third in a Nike Tour
Tournament, Company shall pay Player $500.
3. PERSONAL APPEARANCES: Player shall make 1 personal appearance if so
requested by the Company. Company shall pay for Player's travel expenses and
lodging and said appearances shall not interfere with Player's tournament or
golf schedule.
4. PLAYER'S ENDORSEMENT: Player hereby endorses the Teardrop Putter and grants
the Company permission to use Player's name and likeness for promotional
purposes. Player recognizes the Company plans an initial public offering and
authorizes Company to use Player's endorsements in any prospectus associated
with the public offering.
The Company
TearDrop Golf Company
By: /s/ Brian Hochman
---------------------------
Brian Hochman
The Player:
/s/ Dennis Zinkon
- ------------------------------
Dennis Zinkon
<PAGE>
EXHIBIT 10.15
AGREEMENT
This Agreement is between Dino Luchesi (the "Player") and TearDrop Golf Company
(the "Company") and is made the 10th day of September, 1996. The term of this
Agreement shall commence as of this date and continue until December 31, 1996.
1. BASE COMPENSATION For every Nike Tour Tournament that Player uses the
TearDrop putter and wears a TearDrop patch on his shirt, Company shall pay
Player $150 per week. Player and Company will agree to similar compensation
packages for tournaments other than Nike Tour Tournaments based upon their
format during the contract.
2. ADDITIONAL COMPENSATION:
A. MAKING THE CUT - For every week the Player qualifies for compensation
under paragraph one, and Player makes the cut, Player shall earn an additional
$150 per tournament.
B. TOURNAMENT BONUSES
1. WIN - Every time Player wins a Nike Tour Tournament, Company
shall pay Player $10,000.
2. PLACE 2ND. - Every time Player finishes second in a Nike Tour
Tournament, Company shall pay Player $1,000.
3. PLACE 3RD. - Every time Player finishes third in a Nike Tour
Tournament, Company shall pay Player $500.
3. PERSONAL APPEARANCES Player shall make 1 personal appearance if so
requested by the Company. Company shall pay for Player's travel expenses and
lodging and said appearances shall not interfere with Player's tournament or
golf schedule.
4. PLAYER'S ENDORSEMENT Player hereby endorses the TearDrop Putter and grants
the Company permission to use Player's name and likeness for promotional
purposes. Player recognizes the Company plans an initial public offering and
authorizes Company to use Player's endorsements in any prospectus associated
with the public offering.
5. TOUR SCHOOL TearDrop will pay $1,500 to offset Player's expenses, however,
any amounts pay under paragraph one or two above shall first be subtracted from
this $1,500 payment.
6. RENEWAL If Player qualifies for the PGA TOUR in 1997 this contract shall
renew for one year commencing Jan. 1, 1997 and shall apply tp PGA TOUR
Tournament.
The Company
TearDrop Golf Company
By: /s/ Brian Hochman
---------------------------
Brian Hochman
The Player:
/s/ Dina Lucchesi
- ------------------------------
<PAGE>
EXHIBIT 10.16
AGREEMENT
This Agreement is between PJ Cowan (the "Player") and Teardrop Golf Company (the
"Company") and is made this 25th day of September, 1996. The term of the
Agreement shall commence as of this date and continue until December 31, 1996.
1. BASE COMPENSATION: For every Nike Tour Tournament or PGA Tournament that
Player uses the Teardrop Putter, Company shall pay Player $250.00 per week.
Player also agrees to place the Teardrop logo on his bag, shirt or hat. Company
shall supply Player Company's logo slick.
2. ADDITIONAL COMPENSATION:
A. MAKING THE CUT - For every week Player qualifies for compensation
under paragraph one, and Player makes the cut, Player shall earn an additional
$250 per tournament.
B. TOURNAMENT BONUSES
1. WIN - Every time Player wins a Nike Tour Tournament or PGA
Tour Tournament Company shall pay Player $10,000.
2. PLACE 2ND. - Every time Player finishes second in a Nike Tour
Tournament or PGA Tour Tournament, Company shall pay
Player $1,000.
3. PLACE 3RD. - Every time Player finishes third in a Nike Tour
Tournament or PGA Tour Tournament, Company shall pay
Player $500.
3. PERSONAL APPEARANCES: Player shall make 3 personal appearances if so
requested by the Company. Company shall pay for Players travel expenses and
lodging and said appearances shall not interfere with Player's tournament or
golf schedule.
4. USAGE: Player shall use a Teardrop Putter during the contract period. If
Player becomes unsatisfied with a Teardrop Putter, Player shall work with the
Company to make changes to the Putter in order to make it satisfactory. If
Company is unable to supply a Putter satisfactory to Player, Player may use
another Company's Putter, provided Player may not promote another Company's
Putter during the contract period.
5. PLAYER'S ENDORSEMENT: Player hereby endorses the Teardrop Putter and grants
the Company permission to use Player's name and likeness for promotional
purposes. Player recognizes the Company plans an initial public offering and
authorizes Company to use Player's endorsements in any prospectus associated
with the public offering during the fourth quarter of 1996.
The Company
Teardrop Golf Company
By: /s/ Brian Hochman
---------------------------
Brian Hochman
President
The Player:
/s/ P.J. Cowan
- ------------------------------
PJ Cowan
<PAGE>
STATE OF SOUTH CAROLINA
COUNTY OF BEAUFORT
LEASE AGREEMENT
32 BOW CIRCLE
HILTON HEAD, S.C.
THIS LEASE AGREEMENT is made this 3rd day of August 1995, by and between the
Landlord, ALBERT H. POLITI, and the Tenant, Tear Drop Putter Corp.
WITNESSETH: THAT,
(1) Premises: Manner of Use. Landlord, upon the terms and conditions
following, agrees to lease approximately 3920 square feet in unit Bldg 1 of
Landlord's building at 32 Bow Circle, Hilton Head Island, County of Beaufort,
State of South Carolina.
(2) Common Facilities: The common facilities furnished by Landlord
including, without limitation, all parking areas, driveways, lighting
facilities, and other areas and improvements, shall, wherever possible, be
subject to the exclusive control and management of Landlord. Landlord shall have
the right to establish, modify, and enforce reasonable rules and regulations
with respect to the common facilities; to change the areas, locations, and
arrangements of parking areas and other common facilities; to enter into,
modify, and terminate easements and other agreements pertaining to the use and
maintenance of the parking areas and other common facilities; to close
temporarily any or all portions of the said areas of facilities; to discourage
non-customer parking; and to do and perform such other acts Landlord shall
determine to be advisable with a view to the improvements of the convenience and
use by tenants, employees and customers.
Landlord will operate and maintain the common facilities and Landlord
reserves the right in its sole discretion to change, reduce or supplement any or
all of the common facilities as long as adequate facilities in common areas are
made available to Tenant.
(3) Alterations: Landlord reserves the right at any time to make alterations
in which the Leased Premises are contained.
(4) Term: The term of this lease shall be for 3 years, beginning Dec 1,
1995 and ending Nov 30, 1998, unless sooner terminated, as hereinafter provided,
on the following terms and conditions:
1
<PAGE>
(5) Rent: The rent shall be $$38,400 for the first year $3,200 per
month, payable on the FIRST DAY OF THE M0NTH. The first month's rent shall be
due Dec 1, 1998. For the following year and each successive year thereafter, a
"cost-of-living" (Southeastern U.S.) increase shall be added to the above
rental fees. Tenant agrees to pay Landlord without any set-off or
counterclaim whatsoever. (If the commencement date is not the first day of a
month, or if the lease termination date is not the first day of a month, a
prorated monthly installment shall be paid.)
All payments shall be made to Albert H. Politi, 66 Planters Row, Hilton Head
Island, South Carolina 29928, or as otherwise designated by Landlord.
(7) Utilities and Refuse: Landlord shall not be liable in the event of any
interruption in the supply of any utilities. Tenant agrees that it will not
install any equipment which will exceed or overload the capacity of any utility
facilities and that if any equipment installed by Tenant shall require
additional utility facilities, it shall be installed at Tenant's expense in
accordance with plans and specifications to be approved in writing by Landlord.
Tenant shall be solely responsible for and shall promptly pay all charges for
use or consumption for heat, air conditioning, and electricity in his unit.
Tenant shall also be responsible for his use-share of the building refuse
charges as determined bv Landlord.
(8) Taxes: Tenant at all times shall be responsible for and shall pay before
delinquent, all taxes on any personal property of any kind owned, installed, or
used by Tenant, including leasehold improvements.
2
<PAGE>
Tenant agrees to pay before they become delinquent all taxes, permits or
license fees levied, imposed, or assessed by any government authority in
connection with Tenant's activities on and from the Leased Premises.
(9) Use of Premises: The premises are to be used for the purpose of
marketing, selling, assembly of golf clubs. Tenant shall restrict its use to
such purposes, and shall not use or permit the use of these premises for any
other purpose without the written consent of the Landlord, or Landlord's
authorized agent.
(1O) Restrictions on Use: Tenant shall not use the premises in any manner
that will increase risk covered by insurance on the premises and result in an
increase in the rate of insurance or a cancellation of any insurance policy,
even if such use may be in furtherance of Tenant's business purposes. Tenant
shall not keep, use, or sell anything prohibited by any policy of fire insurance
covering the premises, and shall comply with all requirements of the insurers
applicable to the premises necessary to keep in force the fire and liability
insurance.
(11) Default: Not withstanding any other clause in this Lease, if the Tenant
does not make payment of rent or any other sum due within 10 days of due date,
or if Tenant shall sublet said premises, or mortgage, pledge, or assign this
Lease without Landlord's written consent, or if Tenant shall fail to observe and
perform any of the covenants, conditions and agreements herein, or any of the
rules and regulations made a part hereof, as well as any reasonable additions or
modifications, or if Tenant shall vacate or abandon the premises for a period of
thirty days or more, or fail to take possession of the premises during the term
of the lease, or if Tenant shall be adjudged to be bankrupt, or a receiver or
trustee be appointed and not be discharged within thirty days from the date of
such appointment, then Landlord may among other remedies elect:
A. To enter free from all claims of the Tenant and repossess said premises
and to remove all persons and property in the same manner and with the same
rights as if this Lease had not been made; to store without liability for
safekeeping, or to dispose of the effects therein; and then this Lease and
everything herein contained shall terminate, and be utterly void.
Notwithstanding the re-entry by Landlord, the Tenant shall remain liable for the
amount of all rent and liquidated damages provided for under this Lease, plus
the cost of reletting, if any; any remaining payments of this Lease shall become
due and owing at the time of default; and
B. As agent of Tenant to enter, repossess and remove without notice, and to
re-rent said premises to the best advantage, applying rentals received to the
amount due from Tenant under this Lease, and to expenses so incurred, including
costs of remodeling, in which case the deficiency, if any, shall be paid to the
Landlord by the Tenant. Tenant in such event to be liable for such expense when
incurred and installments of rents and other charges as they become due; and
C. It is agreed that after default or breach, Landlord may take immediate
possession of the leased premises.
D. The Landlord shall have a first lien on Tenant's interest in this
Lease, and all equipment, appliances, furniture or other furnishings of any
nature, used or placed on the leased premises, to secure the payment and
performance of Tenant's obligations hereunder in case of default; and
3
<PAGE>
E. Landlord's remedies under this Lease are non-exclusive nor limited to the
remedies provided in this Lease.
(12) Landlord's Right of Entry: The Landlord shall have the right, without
charge or diminution of rent, to enter the leased premises at all reasonable
times and in a reasonable manner for the purposes of examining the leased
premises, and making repairs or improvements either to the leased premises or to
utility lines or other facilities of the building or to install such lines or
facilities.
Tenant shall upon the discovery of any defect in or injury to the Leased
Premises, or any need of repairs, promptly report the same to Landlord in
writing, specifying such defects. There shall be no allowance to Tenant or
diminution of rent and no liability on the part of the Landlord by reason of
inconvenience, annoyance, or injury to alterations, additions, or improvements
to the fixtures, appurtenances and equipment.
A. During the three months prior to the expiration of the term of this
Lease, Landlord may exhibit the leased premises to prospective tenants. If,
during the last month of the term of this Lease, Tenant shall have removed all
of Tenant's property, Landlord may, on forty-eight hours' notice to Tenant,
enter and alter, renovate and redecorate the Leased Premises without charge or
abatement of rent.
B. Landlord shall be allowed to take all material into and upon the Leased
Premises that may be required for repairs or alterations (but only as or when
needed for immediate use) without the same constituting an eviction of Tenant in
whole or in part while such repairs or alterations are being made, by reason of
loss or interruption of the operations of Tenant.
(13) Alterations, Improvements and Fixtures: Tenant shall make no changes,
alterations or additions to the premises or attach or affix any article thereto
without Landlord's prior written consent. All alterations, additions or
improvements which may be made by either of the parties upon the premises,
except unattached trade fixtures or office furniture, put in at the expense of
Tenant, shall not be removed but shall become the property of Landlord upon
termination of this Lease agreement; provided, however, that Landlord shall have
the option, to be exercised on termination of this Lease Agreement, to require
Tenant to remove any or all of such additions, improvements or fixtures and
restore the premises to the original condition at Tenant's expense.
As a condition to Landlord's consent to the making by Tenant of
alterations, decorations, installations, additions, or improvement to the
Leased Premises, Tenant agrees to obtain and deliver to Landlord written and
unconditioned waivers of mechanic's liens upon the real property in which the
Leased Premises are located, for all work, labor, and services to be
performed and materials to be furnished by them in connection with such work
signed by all contractors, subcontractors, suppliers and laborers to become
involved in such work. (If any mechanic's lien is filed against the Leased
Premises, or the building of which the same form a part, for the work claimed
to have been done for, or materials claimed to have been furnished to Tenant,
it shall be discharged by Tenant within ten days thereafter, at Tenant's
expense, by filing the bond required by law.)
(14) Property Not Removed: All of Tenant's personal property not removed
from the Leased Premises when Tenant leaves the premises on termination of this
Lease Agreement shall be conclusively presumed to have been abandoned by Tenant
and shall forthwith become Landlord's property provided, however, that Landlord
instead may have such personal property removed and returned to Tenant at
Tenant's expense.
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(15) Holding Over: Should Tenant hold the Leased Premises after termination
of this Lease, the Tenant will be a tenant from month to month, at such rental
rate and subject to such other charges or conditions as the Landlord may from
time to time deem to be necessary and proper. Such month-to-month tenancy may be
terminated by either party upon the giving of thirty days' written notice to the
other party prior to such termination. No receipt of money by Landlord from
Tenant after termination of this Lease shall reinstate or extend this Lease, or
affect any prior notice given by Landlord to Tenant, and no extension of this
Lease shall be valid unless in writing, signed by Landlord and Tenant.
(16) Rules and Regulations: Tenant shall comply with the rules and
regulations marked Exhibit A, as well as all reasonable changes that may from
time to time be made by Landlord for the operation and protection of the
building and protection and welfare of Landlord's tenants and invitees. Changes
and additions to the rules and regulations shall become effective and a part of
this Lease upon delivery of a copy to Tenant.
(17) Government Regulations and Applicable Law: Tenant shalI comply with all
valid laws, ordinances, rules, and regulations of all government authorities
pertaining to use and occupancy of Leased Premises. The law of the State of
South Carolina shall be solely applicable in determining the rights of the
parties under this Lease.
(18) Structural Repairs: Landlord will make all necessary structural repairs
to the Leased Premises provided Tenant shall give Landlord written notice of the
necessity for such repairs, and provided that the damage thereto shall not have
been caused by negligence of Tenant, its concessionaires, officers, employees,
or contractors, in which event Tenant shall be responsible.
(19) Interior Repairs: Tenant shall at its own cost and expense, take good
care of and make necessary repairs, or replacements, to the interior of the
Leased Premises, the fixtures and equipment therein and appurtenances thereto,
including interior windows, doors, signs, showcases, floor coverings, interior
walls, columns and partitions, and lighting. Tenant agrees to maintain in good
condition the electrical equipment, heating and air conditioning equipment, and
plumbing fixtures in the Leased Premises.
Any damage sustained by any party caused by mechanical, electrical, plumbing
or any other equipment or installations, whose maintenance and repair is the
responsibility of Tenant shall be paid by Tenant, and Tenant shall indemnify and
hold Landlord harmless from any and all claims, actions, damages and liability
in connection therewith, including, but not limited to, attorney's and other
professional fees, and any other cost which Landlord might reasonably incur.
(20) Assignment and Subletting: Tenant shall not assign, mortgage, or
encumber this Lease, in whole or in part, or sublet all or any part of the
Leased Premises without the prior written consent of Landlord. The consent by
Landlord to any assignment or subletting shall not constitute a waiver of the
necessity for such consent to any subsequent assignment or subletting. If this
Lease be assigned, or if the Leased Premises or any part thereof be occupied by
anybody other than Tenant, Landlord may collect rent from the assignee, or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this provision or the acceptance of the assignee, subtenant, or occupant as
Tenant, or as a release of Tenant from the further performance by Tenant of the
provisions on its part to be observed or performed herein. Notwithstanding any
assignment or sublease, Tenant shall remain fully liable and shall not be
released from performing any of the terms of this Lease.
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<PAGE>
(2l) Indemnity: Tenant shall indemnify Landlord and save LandIord harmless
from all actions, damages, liability and expenses in connection with loss of
life, bodily injury or property damage arising from or out of the occupancy or
use by Tenant of the Leased Premises or any part thereof and the common
facilities within the premises, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees, invites or licensees.
Tenant shall store its property in and shall occupy the Leased Premises and
all other portions of the premises at its own risk, and agrees that Landlord
shall not be responsible or liable to Tenant or anyone claiming through Tenant
at any time for any loss or damage to Tenant's merchandise, equipment, fixtures
or other personal property, or to Tenant's business unless such loss or damage
is caused by Landlord's willful act or negligence.
(22) Waiver of Subrogations: Landlord and Tenant hereby waive all fights
of recovery and causes of action which either have or may have or which may
arise against the other, whether caused by negligence, intentional misconduct
or otherwise, for any damage to premises, property or business caused by any
of the perils covered by fire and extended coverage, building and contents
and business interruption insurance, or for which either party may be
reimbursed as a result of insurance coverage affecting any loss suffered by
it; provided, however, that the foregoing waivers shall apply only to the
extent of any recovery made by the parties hereto under any policy of
insurance now or hereafter issued, and further provided that the foregoing
waivers do not invalidate any policy of insurance of the parties, it being
stipulated by the parties that the waivers shall not apply in any case in
which the application would result in the invalidation of any policy of
insurance.
(23) Mortgage and Assignment by Landlord: Landlord shall have the right
to transfer, assign, mortgage and convey in whole or in part the building and
any and all rights of Landlord under this Lease, and nothing herein shall be
construed as a restriction upon Landlord's so doing. This Lease shall be
subject and subordinate to any mortgage or other financing arrangement
hereafter placed upon the leased property and any subsequent renewal,
modification, consolidation, replacement, and extension thereof. Although no
instrument or act on the part of the Tenant shall be necessary to effectuate
such subordination, the Tenant will, nevertheless, execute and deliver such
further instrument subordinating this Lease to the lien of any such mortgages
or other financing arrangements as may be desired by the mortgagee or other
lender. The Tenant hereby appoints the Landlord as attorney-in-fact,
irrevocably, to execute and deliver any such instrument for the Tenant.
(24) Condition of Premises: The Tenant has rented the Leased Premises after
examination in their present condition (unless otherwise specifically agreed
upon in writing) and without any representations on the part of the Landlord or
any of its agents. The act of taking possession shall be always conclusive
evidence that the premises were in satisfactory condition.
A. Improvements by Landlord shall be completed in a good and workmanlike
manner. Landlord shall promptly repair or replace, at Landlord's expense, any
defects in the improvements or damage to the improvements not caused by normal
wear and tear or by the act, fault, or neglect of Tenant, or Tenant's employees,
invites, or agents. Tenant shall promptly report to Landlord any defective
conditions in the premises and known to Tenant which Landlord is required to
repair.
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<PAGE>
(25) Tenant shall not conduct "Quitting Business", "Lost- our-Lease",
"Bankruptcy", or other sales of that nature on the premises without the written
consent of the Landlord.
(26) Unrestricted Access for Maintenance: Landlord shall have
unrestricted access to any and all air conditioning and other building
services in the leased premises for the purpose of repairs and maintenance.
Tenant acknowledges that any one or more of such services may be interrupted
or curtailed when necessary by reason of accidents or making of repairs,
alterations or improvements which in the judgment of Landlord are reasonable,
desirable or necessary to be made; or of unavoidable delays, provided,
however, that in each instance or interruption or curtailment or suspension
of such services, Landlord shall exercise diligence to eliminate the cause
for the same.
Except in the case of emergency repairs, Landlord shall give Tenant
reasonable advance notice of any contemplated shutting down of air conditioning
for any portion of the leased premises and will use reasonable efforts to avoid
unnecessary inconvenience to Tenant. (No such interruption or curtailment of
service shall ever be deemed an eviction or disturbance of Tenant's use and
possession to the Leased Premises or any part thereof, or render Landlord liable
to Tenant for damages by abatement of rent or otherwise, or relieve Tenant from
performance of Tenant's obligations under this Lease.
(27) Brokers: Tenant represents and warrants that it has engaged no broker
in connection with this Lease, or, if it has engaged any other broker, is solely
responsible for any commission to such broker.
(28) No Waiver: No provision of this Lease shall be altered, waived, amended
or extended, except in writing signed by both parties. The waiver of one default
or right shall not constitute the waiver of any other. The acceptance of rent
shall not be construed to be a waiver of any breach of condition of this Lease.
(29) Headings: The section and paragraph headings of this Lease are for
convenience only and are in no way to be construed as part of this Lease, or as
a limitation or enlargement of the scope of the particular sections or
paragraphs to which they refer.
(30) Examination of Lease: Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for Lease,
and is not effective as a Lease or otherwise until execution and delivery by
both Landlord and Tenant.
(31) Notices: All notices required or agreed to be given under this Lease
shall be sufficient if given by Landlord by certified mail address to the
Tenant at the Leased Premises; or if given the Landlord by the Tenant by
certified mail address to Landlord at the place where rent is payable.
(32) Rights Reserved by Landlord: Landlord reserves and shall have the
following additional rights:
A. To change the name of the building, or complex as the case may be,
without liability.
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B. To charge Tenant any expenses incurred by Landlord for time and/or
material for work performed in Tenant's premises over and above what this Lease
Agreement specifies.
(33) Penalty--Late Rent Payment: If any rental payment shall be received by
Landlord after the tenth day of the month in which it is due, Tenant shall be
liable for a penalty charge of three percent (3 %) of the monthly rent. Should a
Tenant's rent check be returned by the bank for insufficient funds Tenant shall
pay Landlord a Twenty Dollar ($20) fee. Such penalties shall be cumulative and
shall be due and payable with the next monthly rental payment. Should Landlord
accept these penalties, the said penalties will not limit the Landlord's
remedies found in paragraph 11 of this Lease.
(34) Memorandum of Lease: In the event either Landlord or Tenant determines
to record this Lease, a short-form memorandum of the Lease shall be recorded
with the Beaufort County Recorder at Beaufort, South Carolina, in lieu of the
original lease. Such short-form memorandum shall be executed by both parties but
shall not in any way vary or revoke the terms of this Lease.
(35) Quiet Enjoyment: Landlord covenants with Tenant that the Tenant, having
performed its covenants and agreements shall have quiet and peaceable possession
of the Leased Premises on the terms and conditions provided.
(36) Successors: The provisions of this Lease shall be binding upon and
inure to the benefit of the Landlord and Tenant, respectively, and their
respective successors, assigns, heirs, executors, and administrators. The Tenant
agrees to become the tenant of the Landlord's successor in interest under the
same terms and conditions of its tenancy hereunder.
(37) Attorney's Fees: In the event this Lease is breached by the Tenant,
Tenant shall be liable to Landlord for any attorney's fees and court costs
incurred enforcing any rights available to Landlord by this Lease or by law.
This remedy is non-exclusive and shall be cumulative with and in addition to any
other remedies set forth in this Lease or otherwise provided bv law.
(38) The execution of this lease is conditioned upon the terms of Brian
Hochman's letter dated Aug. 3, 1995 to Al Politi and the terms of said letter
are incorporated into this lease.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the date first above written.
/s/Brian Hochman President, TearDrop Putter Corp.
- ----------------------- --------------------------------
TENANT
/s/Albert Politi BY: Albert Politi
- --------------------- -----------------------------
LANDLORD
<PAGE>
EXHIBIT A
RULES AND REGULATIONS
(THESE RULES AND REGULATIONS HAVE BEEN ADOPTED FOR THE PURPOSE OF INSURING ORDER
AND SAFETY IN THE BUILDING AND OF MAINTAINING THE RIGHTS OF TENANTS AND OWNER.)
(1) No signs, advertisements, or notices of any kind shall be inscribed,
painted or affixed upon any part of said building, and no signs of any kind
shall be permitted on the building, in the corridors, or inside the Leased
Premises where said sign can be seen from the outside without the written
approval of the Landlord.
(2) No additional locks shall be placed upon any door without the written
consent of the Landlord, and all locks and keys shall remain and become the
property, of the Landlord when tenants vacate, and be delivered to Landlord by
Tenant. This rule notwithstanding, Tenant has every right to lock interior
storage and/or vault areas.
(3) No explosives or articles of a dangerous nature shall at any time be
brought into the building and no safes, bulky or heavy articles, or freight
shall be carried into the main entranceways of the building unless arrangements
are first made with Landlord, who prescribe the time and manner for the carrying
in or removal of such articles and also the weight and proper position of sales
and other weighty articles before the same are admitted to the building; the
tenant shall be responsible for all injury to persons or property caused by
installing, maintaining or removing such articles.
(4) Tenants or their employees shall not make disturbing noises; shall keep
no birds or animals in said premises; shall not use said premises for cooking,
lodging or sleeping purposes; nor commit any act upon said premises or any other
parts of said building which Landlord deems would interfere with the rights,
comfort and convenience of other tenants.
(5) Nothing shall be placed on the outside of the building nor on the
windows, window sills or projections where these areas exist without Landlord's
written approval.
(6) If the Tenant desires to introduce telephone or other wires and
instruments, such installation must be under the direction of the Landlord, and
without such consent and direction, no placing, boring or cutting of wires will
be permitted without Landlord approval.
(7) Tenant will see that all windows and doors are securely locked and water
faucets are turned off before leaving the building. It is agreed that lights on
the outside of the building will stay on.
(8) The Tenant shall be liable for injury or damage caused by the infraction
of any of the above rules and regulations; or for acts causing stoppage in
toilets, etc., damage to the building or its appliances. The Landlord may at
once repair said damage or injury, charging cost of same to Tenant, which amount
shall be part of the rent due for the ensuing month.
(10) The Tenant shall give the Landlord sixty days' written notice of his
intention to vacate said premises, and the Landlord may place and keep a "For
Rent" sign on the door or window of the premises at any time within sixty days
prior to any vacation, and may show the premises to prospective tenants during
such period.
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(11) The Landlord reserves the right to rescind, modify or supplement any
of these rules and to make such other and further reasonable rules and
regulations, which, in the Landlord's judgment, may from time to time be needful
for the safety, care, and cleanliness of the premises, and for the preservation
of good order therein.
(12) In the event the Tenant installs extra heat-producing equipment in the
Leased Premises, thereby overloading the Standard Air Conditioning System, then
Landlord may install additional air conditioning equipment at Tenant's expense.
(13) Tenant agrees that it shall not discriminate upon the basis of
race, color, religion. sex, or national origin in the use and occupancy or in
any sublease or subletting of the Leased Premises.
APPROVED AND ACCEPTED:
/s/ Brian Hochman 8/3/95
- ----------------- --------
TENANT DATE
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<PAGE>
[LETTERHEAD]
August 3, 1995
VIA FACSIMILE & US MAIL
(704) 264-0396
Al Politi
66 Planters Row
Hilton Head Island, SC 29926
Re: Lease of 32 Bow Circle
Dear Al:
Thank you for your patience regarding the lease of 32 Bow Circle. For your
information, TearDrop has agreed with Southern Marketing to pay $500 for rent in
the month of July, $1,600 in the month of August and September and $3,200
beginning October 1st. We have paid Southern Marketing directly $500 for July.
We are forwarding rent for August and September directly to you.
I have reviewed the lease in detail and executed the same. However, there are
some clarifications to the lease which I have made below. For simplicity, I have
incorporated these clarifications into the terms of the lease. Of course, my
execution of the enclosed lease is conditioned upon your approving the
clarifications made below. I would appreciate you returning a signed copy of the
lease and a signed copy of this letter to me after you have reviewed them.
1) Paragraph 8, referring to taxes, is understood to mean the tenant is
responsible for personal property taxes levied upon TearDrop's assets
within the building. The landlord remains liable for all property
taxes on the building.
2) I have entered in Paragraph 9 that TearDrop will be marketing, selling
and assembling golf clubs. I have no way of knowing what the assembly
of golf clubs will do to your insurance policy on the building.
However, it is understood that the marketing, selling and assembly of
golf clubs is not a violation of this lease and this specifically
Paragraph 10.
<PAGE>
Al Politi
Page 2
3) Any lien on TearDrop's property is and will subordinate to any bank
providing TearDrop financing now or in the future. In addition, you
will execute any and all documents necessary to subordinate your
interests in TearDrop's property should TearDrop borrow further from
any entity or person. Of course, TearDrop agrees to do the same under
the lease should you decide to sell the building or borrow against it.
4) Under Paragraph 12, if it is necessary to conduct repairs on the
premise, you will make those repairs as fast as reasonably possible
and if the repairs can be done at a time during non-business hours
which will not interfere with our business you will make every effort
to do so. Al, this is important to us as there are some months of the
year when we are extremely busy and other months when we are not and
we must take precautions to make sure we are at capacity during the
busy times. I trust you understand my concerns regarding this issue
and I am sure you would accommodate us anyway.
5) Under Paragraph 13, it is understood that racks or shelving which we
install although they may be affixed to the walls will remain
TearDrop's property. I will be happy to go over our storage plan with
you in detail should you desire.
6) Under Paragraph 17, we will of course obey all laws and regulations.
As I have mentioned to you, I do not think the Hilton Head Island
zoning ordinances is entirely clear with regard to the assembly of
golf clubs. Should Hilton Head Island, Beaufort County or South
Carolina decide that TearDrop is in violation of a zoning ordinance
and TearDrop contests that decision unsuccessfully, TearDrop will be
entitled to terminate the lease and its obligations under the lease.
As you and I discussed under Paragraph 19, this paragraph makes
TearDrop responsible for minor repairs such as switching light bulbs,
or repairing a clogged toilet which TearDrop caused through misuse.
However, repairs to major appliances, electrical equipment, heating
and air
<PAGE>
Al Politi
Page 3
conditioner equipment, plumbing fixtures etc. remains the
landlord's responsibility. Thus, TearDrop's responsibility
under this paragraph would be small in terms of dollars (eg. under
$100).
7) Under Paragraph 20, regarding subletting, it is a good possibility
that TearDrop will sublet in the future and you have approved this
idea provided that you approve the tenant and the tenant's intended
use. This approval is in your reasonable discretion.
/s/Albert Politi /s/Brian Hochman
- ---------------- -------------------
<PAGE>
PACKAGING MANAGEMENT ASSOCIATES, INC.
MASTER LEASE AGREEMENT Master Lease Number:___________
This MASTER LEASE AGREEMENT made as of NOVEMBER __, 1995, by and between
PACKAGING MANAGEMENT ASSOCIATES, INC. ("Lessor") and TEAR DROP PUTTER
CORPORATION ("Lessee"),
WHEREAS, Lessor and Lessee desire to enter into this Master Lease Agreement
to enable Lessee to Lease certain equipment from Lessor by the mutual execution
of one or more schedules to this agreement, all on the terms and subject to the
conditions herein provided;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee, intending to be
legally bound, hereby agree as follows:
1. LEASE. Lessor leases to Lessee, and Lessee leases from Lessor, the equipment
specified in any equipment schedule which shall be executed by Lessor and Lessee
on or after the date hereof (hereinafter called an "Equipment Schedule"), (any
such equipment being hereinafter called "Equipment" and all of the Equipment
taken together being hereinafter collectively called "the Equipment"). All
replacements, parts, repairs, additions, accessions and accessories now or
hereafter incorporated therein or affixed thereto shall immediately become the
property of the Lessor and shall be deemed to be part of the Equipment for all
purposes of this Lease. The term this "Lease" or this "Agreement" as used herein
shall refer to this Master Lease Agreement together with any and all Equipment
Schedules, and the provisions of all such Schedules are, as of their respective
dates, incorporated herein by this reference and deemed for all purposes to be
set forth at length herein.
2. FINANCE LEASE. IN THE EVENT THAT ARTICLE 2a OF THE UNIFORM COMMERCIAL CODE
HAS BEEN ADOPTED IN THE JURISDICTION WHOSE LAWS GOVERN THIS LEASE, AND SUCH
ARTICLE IS DEEMED TO APPLY TO THIS LEASE, THEN THIS LEASE IS INTENDED TO BE A
"FINANCE LEASE" WITHIN THE MEANING OF SUCH ARTICLE. IN SUCH EVENT, THIS LEASE
SHALL NOT BECOME EFFECTIVE UNLESS AND UNTIL LESSEE SHALL APPROVE LESSOR'S
PURCHASE ORDER OR OTHER CONTRACT EVIDENCING LESSOR'S PURCHASE OF THE EQUIPMENT.
NO WARRANTIES. THE EQUIPMENT LEASED HEREUNDER IS LEASED AS-IS. LESSOR NOT
BEING THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT NOR AN AGENT OF EITHER,
MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY KIND WHATSOEVER
IN REGARD TO THE EQUIPMENT. LESSOR HEREBY DISCLAIMS ANY AND ALL REPRESENTATIONS
AND WARRANTIES IN REGARD TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, THOSE
OF MERCHANTABILITY OR FITNESS FOR USE OR FITNESS FOR ANY PARTICULAR PURPOSE OR
OF QUALITY, DESIGN, CONDITION, CAPACITY, SUITABILITY OR PERFORMANCE. LESSOR
FURTHER DISCLAIMS ANY WARRANTY AGAINST INTERFERENCE OR INFRINGEMENT.
Lessee acknowledges that it has made the selection of each item of Equipment
and of the supplier thereof (the "Supplier"). Such selection was based upon
Lessee's own judgment, and Lessee expressly disclaims any reliance upon
statements made by Lessor. Lessee is aware that Lessor is not in a position to
have any special knowledge, or greater knowledge than Lessee, in regard to the
design, inspection, selection or operation of the Equipment. Lessee further
acknowledges that the Equipment will be shipped directly to Lessee and that
Lessor will have no opportunity to inspect, and will not inspect the Equipment,
and that Lessor will not assist Lessee in inspecting, maintaining or servicing
the Equipment, Lessee acknowledges that Lessor is acquiring the Equipment solely
for purposes of this Lease. Lessor agrees to order the Equipment from the
Supplier thereof, but shall not be liable for specific performance of this Lease
or for damages if for any reason the Supplier delays or fails to fill the order
or to properly install the Equipment or if the Equipment is not accepted by
Lessee.
Lessor hereby informs Lessee that Lessee may have rights under Lessor's
Purchase Order or other contract evidencing Lessor's purchase of the Equipment.
Lessee shall be entitled to whatever rights in regard to the Equipment which
Lessor or Lessee may have against any person other than the Lessor, including
any rights against the Supplier and/or the manufacturer of the Equipment, to the
extent permitted by law. Lessee may contact such Supplier for a description of
such rights.
No agency relationship exists or shall be deemed to exist between Lessor and
any manufacturer, the Supplier or Lessee. No salesman, representative or agent
of any manufacturer or the Supplier is authorized to waive or alter any term or
condition ot this Lease. No representation in regard to the Equipment, this
Lease, or any other matter by any manufacturer or the Supplier shall in any way
affect Lessee's duty to perform the obligations set forth in this Lease and any
Equipment Schedule.
3. TERM AND CONTINUATION; BASIC AND ADDITIONAL RENT; ADVANCE RENT AND SECURITY
DEPOSITS; LATE CHARGE. This Lease shall commence on the date hereof and shall
continue in effect until the term applicable to each and every item of Equipment
in accordance with each applicable Equipment Schedule (each such term being
hereinafter called an "Equipment Term") shall have expired in accordance with
its terms: provided that this Lease shall not terminate except as expressly
provided herein until each and every term, condition and covenant hereof shall
have been fully and satisfactorily observed and performed. Each Equipment Term
shall commence on the earlier of the date the Equipment specified in the
corresponding Equipment Schedule is delivered to and accepted by Lessee, as
evidenced by the execution by Lessee of a Delivery and Acceptance Certificate
(hereinafier called an "Acceptance Certificate") (the "Equipment Acceptance
Date") or on such Rental Commencement Date as may be specified in such Equipment
Schedule, and shall continue for the term set forth therein. Lessee shall
execute an Acceptance Certificate upon delivery to and acceptance of Equipment
by Lessee. If Lessee shaft not accept any item of Equipment. Lessee shall take
all steps necessary to preserve any rights of the Lessor or Lessee against the
Supplier, including, without limitation, refusal to accept delivery and
revocation of acceptance; if Lessee shall not take such steps, Lessee shall be
deemed to have accepted such item of Equipment for all purposes of this Lease
and Lessee's obligations hereunder shall commence. If a Supplier shall duly
tender delivery and any necessary installation of Equipment in any undamaged
condition and Lessee shall not accept such delivery and/or installation, Lessor
shall be entitled to retain the full amount of any security deposits as
liquidated damages for breach of a bargain.
During the Lease Term, Lessee agrees to pay Lessor, as basic rent,
aggregate rentals equal to the sum of all rental payments (including any
security deposits) specified in any Equipment Schedule. The first monthly
payment of basic rent (other than any security deposits) for any item of
Equipment is due on the Equipment Acceptance Date for such Equipment, unless a
different Rental Commencement Date is specified in the applicable Equipment
Schedule, in which case the first payment of basic rent (other than any security
deposits) is due on the Rental Commencement Date specified in such Schedule, and
the remaining rents are due on the same day of each consecutive month
thereafter. Any security deposits shall be due and payable upon the execution
of an Equipment Schedule by Lessee. Lessee shall also pay to Lessor, as
additional rent, amounts equal to any fees, taxes, insurance premiums or other
expenses or disbursements incurred by Lessor in its sole discretion to protect
Lessor's interest in the Equipment or to maintain or restore compliance with the
terms of this Lease. All such additional rent shall be due and payable from
Lessee on demand.
All sums due hereunder including without limitation late charges and any
interest assessed shall be hereinafter referred
<PAGE>
to any obligations of Lessee due at the time each such payment is received by
Lessor.
Lessee hereby acknowledges that late payment by Lessee to Lessor of Rent
will cause Lessor to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult to ascertain. Such costs include,
but are not limited to, substantial processing, accounting and collection costs.
Accordingly, if any installment of Rent shall not be received by Lessor or
Lessor's Assignees within ten (10) days after such amount is due, Lessee shall
pay to Lessor a late charge as specified in each Equipment Schedule. The parties
hereby agree that the amount of such late charge represents a reasonable
estimate of the cost that Lessor would incur in processing each delinquent
payment by Lessee and that such fate charge shall be paid to Lessor as
liquidated damages for each delinquent payment. The parties further agree that
the payment of late charges and the payment of interest provided herein are
distinct and separate from one another in that the payment of interest is to
compensate Lessor for the use of Lessor's money by Lessee while the payment of a
late charge is to compensate Lessor for the additional administrative expense
incurred by Lessor in handling and processing delinquent payments. Acceptance of
any late charge or interest shall not constitute a waiver of default with
respect to the overdue amount, or prevent Lessor from exercising any other
available rights and remedies.
All payments provided for in this Lease shall be payable at Lessor's place
of business or at such other place as Lessor shall direct.
No payment by Lessee or receipt by Lessor of a lesser amount than the Rent
herein stipulated shall be deemed to be other than on account of such Rent, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as Rent be deemed an accord and satisfaction, and Lessor may
accept such check or payment without prejudice to Lessor's right to recover the
balance of such Rent or pursue any other remedy provided by this Lease.
4. NET LEASE; NONCANCELLABLE LEASE; ABSOLUTE OBLIGATION. Lessee agrees and
acknowledges that this Lease is a fully net lease, and that the full amount of
all payments made by Lessee hereunder shall be net to Lessor without subtraction
or abatement for any reason whatsoever. Notwithstanding any provision of this
Lease or of any other instrument or agreement, or any presumption of any present
or future law to the contrary, except as expressly provided herein, this Lease
shall not terminate or lapse, and Lessee's obligations under this Lease shall be
noncancellable, absolute and unconditional and shall not be affected or abated
for any purpose, or as a result or in virtue of any cause or circumstances of
any character whatsoever, including, without limitation: (i) any delay whether
indefinite, material or otherwise in shipment or delivery; (ii) any claim,
counterclaim, demand, recoupment, defense, setoff or indebtedness of any kind or
nature that Lessee may have or assert against Lessor or any affiliate against
any supplier or manufacturer of the Equipment, or any part thereof or therefor,
or against any other person; (iii) any unavailability of Equipment for any
reason, or any lack, invalidity or defect in the title, design, condition,
operation or fitness for use of the Equipment; (iv) any act of God, fire, flood,
war, government regulation, direction or request, accident or labor dispute; (v)
any loss, destruction or interruption in the right or ability to use the
Equipment; (vi) any inadequacy or failure of consideration; (vii) any insecurity
in regard to the Lessor's performance hereunder (whether based upon reasonable
grounds or otherwise); (viii) any failure of inability to the Lessor or any
other person to perform any permitted or required action under this Lease;
(ease) any bankruptcy, insolvency, reorganization, liquidation or similar
proceeding by or against Lessor or any other person; (x) the falsehood,
misleading character or breach of any representation or warranty; (xi) the
failure of Lessor to perform any covenant or agreement contained herein, or any
other act or omission of Lessor under this Lease or any other agreement at any
time existing between Lessor and any other person and the Lessee; or (xii) the
lack or right, power or authority of Lessor to enter into this Lease.
Lessee hereby waives, to the extent permitted by law, all right to
terminate, cancel, revoke or quit this Lease, except in accordance with the
express terms of this Lease. If for any reason this Lease shall be invalid,
unenforceable or void (including, without limitation, if this Lease or any
Equipment Schedule shall be invalid, void or unenforceable in whole or part as a
result of impossibility or impracticality of performance or frustration of the
purpose of this Lease) or if this Lease shall be terminated in whole or in part
by operation of law or otherwise (except as expressly provided in this Lease).
Lessee nonetheless agrees to pay to Lessor an amount equal to each rental
payment at the time such payment would have become due and payable (including,
without limitation, upon the exercise of any of Lessor's remedies under Section
15 of this Lease) in accordance with the terms of this Lease had this Lease not
been frustrated, invalidated or terminated in whole or in part.
5. OWNERSHIP; QUIET ENJOYMENT; IDENTIFICATION; NO LESSEE ASSIGNMENT. Lessee
transfers to Lessor all right, title and interest, including any and all
ownership interest, which Lessee may have in or to the Equipment. Lessee
represents and warrants that it has the legal right to make such transfer and
that such transfer does not constitute a transfer of all or substantially all of
the assets of Lessee, and that such transfer does not constitute all or a
portion of a "bulk transfer" under the Uniform Commercial Code. It is agreed
between the parties hereto that Lessor shall be the owner of, and hold title to,
the Equipment for all purposes throughout each Equipment Term. Any provision
hereof to the contrary notwithstanding, or right, title or interest in or to the
Equipment shall pass to Lessee other than, conditioned upon Lessee's compliance
with and fulfillment of the terms and condition of this lease, the right to
maintain possession and quiet enjoyment of, and use the Equipment as the Lessee
thereof the Lease Term. Lessor may require markings to be affixed to the
Equipment indicating Lessor's interest. LESSEE AGREES NOT TO SELL, MORTGAGE,
HYPOTHECATE, GRANT A SECURITY INTEREST IN, ASSIGN, SUBLET OR OTHERWISE ENCUMBER
OR SUFFER ALIEN UPON OR AGAINST ANY INTEREST IN THIS LEASE OR THE EQUIPMENT OR
TO ALTER OR REMOVE THE EQUIPMENT FROM ITS LOCATION OF INSTALLATION AS SET FORTH
IN THE APPLICABLE EQUIPMENT SCHEDULE. ANY ATTEMPT TO SO SELL, MORTGAGE,
HYPOTHECATE, GRANT A SECURITY INTEREST IN, ASSIGN, SUBLET OR OTHERWISE ENCUMBER
OR SUFFER A LIEN UPON OR AGAINST ANY INTEREST IN THIS LEASE OR THE EQUIPMENT
SHALL BE NULL, VOID AND WITHOUT FORCE OR EFFECT. LESSEE SHALL KEEP THE EQUIPMENT
FREE AND CLEAR OF ALL CLAIMS, LIENS AND ENCUMBRANCES WHATSOEVER.
6. LAWS AND REGULATIONS; TAXES. Lessee agrees to comply with all laws,
regulations and orders relating or pertaining to the Equipment or to this lease
and to notify Lessor of, and to pay to or on behalf of Lessor as and when due,
all license and registration fees and all taxes, assessments, levies, imposts,
duties, and charges of any kind or nature whatsoever, together with any and all
penalties, additions to tax, fines or interest thereon (collectively, "taxes,
fees or other charges") imposed upon Lessor or Lessee by any Federal, state or
local government or taxing authority upon or with respect to the Equipment or
upon the purchase, ownership, delivery, financing, leasing, possession, use,
operation, return or other disposition thereof. There shall be excluded from the
preceding sentence any taxes, fees or other charges based on, or measured by the
net income of Lessor ("Lessor income taxes"). Lessee hereby agrees to indemnify
and hold Lessor harmless from and to defend Lessor against any and all liens,
liabilities, losses, damages (including indirect, special, consequential,
extraordinary or punitive damages), penalties, claims, injuries, investigations,
proceedings, arbitrations, actions, suits, costs, expenses and disbursements
(including reasonable attorney's fees and costs of investigation) arising out of
or pertaining to any taxes, fees or other charges other than Lessor income
taxes. Lessee further agrees that, with respect to any payment or indemnity by
Lessee hereunder, such payment or indemnity shall include any amount necessary
to indemnify and hold Lessor harmless on an after-tax from and against all taxes
required to be paid with respect to such payment or indemnity under the laws of
any Federal, state or local government or taxing authority.
Lessee shall not be responsible under this paragraph for any tax upon the
Equipment with respect to any period following the actual return of the
Equipment at the end of each Equipment term.
7. CONSTRUCTION; TRUE LEASE; SECURITY INTEREST. It is hereby stipulated (i)
that this Agreement shall be construed to be a "true" lease and not a "lease
intended as security" within the meaning of subsection (37) of Section 1-201 of
the Uniform Commercial Code as in effect in the jurisdiction whose laws govern
this Agreement (the "UCC") and, therefore, (ii) that this Agreement is not
subject to Article 9 of such UCC. Such stipulations shall, in accordance with
subsection (2)(b) of Section 1-102 of the UCC, be enforced as the intention and
agreement of the parties and shall further, in accordance with subsections (3)
and (4) of Section 1-102 of the UCC, be so enforced notwithstanding any contrary
provision or presumption of the UCC or of any other
<PAGE>
jurisdiction shall notwithstanding the foregoing, determine that this Agreement
is a "lease intended as security" within the meaning of subsection 1-20(37) of
the UCC or shall otherwise determine that the Lessee has any right, title or
interest in the Equipment other or greater than Lessee's interest in the
Equipment as the Lessee thereof pursuant to the express provisions of this
Agreement, then Lessee hereby grants to Lessor as of the date of this Agreement
security interest in all Lessee's right, title and interest in and to the
Equipment as security for all of Lessee's obligations to Lessor of every kind
and nature, whether direct or indirect, absolute or contingent, matured or
unmatured, and whether now in existence or arising hereafter (including, without
limitation, Lessee's obligations of payment and performance arising pursuant to
this Agreement). Any such security interest shall be conclusively presumed and
deemed to have "attached" as of the date of this Agreement and to have been
"perfected" under Article 9 of the UCC by any filing(s) placing notice of this
Agreement on the public record.
8. INDEMNIFICATION. Lessee hereby agrees to indemnify and hold Lessor, its
agents, officers, employees, successors and assigns harmless from and against
any and all liens, liabilities, losses, damages (including, without limitation,
indirect, special, consequential, extraordinary or punitive damages), penalties,
claims, injuries, investigations, proceedings, arbitrations, actions and suits,
costs, expenses and disbursements (including, without limitation, attomey's fees
and costs of investigation) of whatever kind and nature (including, without
limitation, costs and expenses incurred by Lessor in defending claims,
investigations, proceedings, arbitrations, actions and suits brought against
Lessor by Lessee arising out of or in connection with this Lease) in contract,
tort or otherwise, including, without limitation, actions based upon negligence
and/or "products liability" and/or breach of warranty and/or strict or absolute
liability of or by any person, including, without limitation, Lessor (and Lessee
shall give notice to Lessor of and, at its sole expense, defend any and all such
claims, investigations, proceedings, arbitrations, actions or suits), in any way
emanating from, arising out of, resulting from or otherwise connected with the
selection, modification, purchase, inspection. acceptance or rejection of the
Equipment, the ownership of the Equipment, or the transportation, delivery,
lease, financing, possession, maintenance, use condition (including, without
limitation, latent, or other defect, in design or otherwise, whether or not
discoverable by Lessor or Lessee, and any claim for patent trademark or
copyright infringement) return or operation of the equipment by whomever used or
operated, or in any way emanating from, arising out of, resulting from or
otherwise connected with the condition of the Equipment when sold, leased or
otherwise disposed of by, or after use by, Lessee or any sublessee. This
indemnity and the indemnities provided in Section 6 hereof shall continue in
full force and effect notwithstanding any termination of this Lease.
9. USE; PERSONAL PROPERTY; INSPECTION. Lessee, at its own cost and expense, will
cause the Equipment to be operated in accordance with applicable manufacturer's
manuals or instructions by competent and duly qualified personnel only, in
accordance with applicable governmental regulations, if any, and for business
purposes only. Lessee shall at all times keep the Equipment free and clear of
any lien, levy, attachment, encumbrance or charge of any kind whatsoever
(including, without limitation, those referred to in Section 6 hereof), and
shall immediately give Lessor written notice of any of the foregoing.
The Equipment is and shall always remain personal property irrespective of
any use, manner of attachment to realty or classification for taxation or
regulatory purposes. Lessee shall not cause or permit the Equipment to be used
or located in such a manner that it might be deemed affixed to realty under
applicable law without obtaining the prior written consent of Lessor. Upon any
request for such consent, or at any other time, Lessor may demand, and Lessee
shall thereupon obtain, the written agreement of the owner and the mortgagee, if
any, of such realty as to the right, title and interest of Lessor in the
Equipment and waiver or, as Lessor may agree, subordination of the rights of
such owner and mortgagee.
Lessor shall have the right from time to time during normal business hours
to enter upon Lessee's premises or elsewhere for the purpose of confirming the
existence, condition, and proper maintenance of the Equipment.
10. RISK OF LOSS. Lessee assumes and shall be solely responsible for the entire
risk of use and operation of the Equipment, and for each and every cause or
hazard, and any and all loss and damage to any or all of the Equipment, whether
arising through operation or otherwise. Such responsibility shall commence upon
delivery of the Equipment to Lessee. Lessee further agrees to give Lessor prompt
notice of any damage to, or loss or destruction of, the Equipment, or any part
thereof. In the event of any damage to, or partial destruction of the Equipment,
Lessee, at its sole cost and expense, shall promptly repair the Equipment,
restoring it to at least its condition prior to such damage or partial
destruction and at least the condition in which it was required to be assuming
Lessee had met all its obligations in regard to maintenance of the Equipment. In
the event of the total loss, or theft or, as determined in the sole judgment of
Lessor, complete destruction or damage beyond repair to the Equipment, or if
obsolescence shall, as determined in the sole judgment of Lessor, render the
repair of the Equipment not economically justifiable. Lessee shall pay to Lessor
with respect thereto the sum of (a) all amounts then due and payable hereunder,
including, without limitation, all rent theretofore accrued and unpaid
hereunder, plus (b) the then net present value (discounted at eight percent (8%)
per annum of (i) the aggregate amount of rent and other amounts payable
hereunder for and with respect to the unexpired portion of the Lease Term, and
(ii) the anticipated residual value of the Equipment at the end of the Lease
Term If there shall be appended hereto a Schedule of Stipulated Values, then
Lessee shall, instead of the amount required by clause (b) of this paragraph,
pay to Lessor the Stipulated Value of the Equipment as provided in such Schedule
as of the date of such loss, theft, destruction or damage.
For purposes of this Section 10 and Section 15 of this Lease, except as set
forth in the applicable Equipment Schedule, the anticipated residual value of
the Equipment upon expiration of the Lease Term shall be determined as follows:
The anticipated life of the Equipment shall be deemed to be equal to the class
life of equipment of the classification into which the Equipment falls in
accordance with the class life system utilized to determine depreciation
allowances pursuant to Section 168 of the Internal Revenue Code. The anticipated
residual value of the Equipment shall be computed by assuming that the Equipment
depreciates from the date that it was new on a straight-line basis to a zero
salvage value over the period of such anticipated life and employing a half year
convention.
Provided no event of default has occurred under this lease, any proceeds of
insurance received by Lessor with respect to any loss, damage or destruction
from policies of insurance maintained by Lessee shall be applied to reimburse
Lessee for costs incurred and paid by Lessee in repairing damaged Equipment or
credited against the total amount payable to Lessor with regard to the
Equipment, as the case may be, as provided in this Section 10.
11. INSURANCE. Lessee shall obtain, and maintain for the entire term of this
Lease until the actual return of each item of Equipment by Lessee pursuant to
Section 17 hereof, from financially second insurance carriers, property damage
and liability insurance and insurance against loss or damage to the Equipment,
including, without limitation, loss by fire (including so-called extended
coverage), theft, "mysterious disappearance," collision, earthquake, flood and
such other risks of loss as are customarily insured against on the type of
Equipment leased hereunder by businesses of the type in which Lessee is engaged,
in such amount, in such form and with such insurance carriers as shall be
satisfactory to Lessor; provided, however, that (i) the amount of insurance
(without deductible or co-insurance) against loss or damage to the Equipment
shall not be less than the greater of the fair market value or the amount
payable in the event of a total loss pursuant to Section 10 hereof; (ii) the
amount of Lessee's liability insurance shall under no circumstances be less than
$500,000.00; (iii) if any insurance requirements shall be separately scheduled,
the amounts of property damage and/or liability insurance shall not be less than
the amounts slated in the insurance Schedule attached to this Lease; and (iv)
all insurance carrier(s) shall have a Best rating of or exceeding A. Each
insurance policy shall name Lessor or Lessor's designee as an additional insured
and loss payee, and shall contain a clause requiring the insurance carrier to
give Lessor at least ten (10) days' written notice of any alteration in the
terms of such policy or of the cancellation thereof. Lessee shall from time to
time furnish to Lessor such evidence of insurance as Lessor shall require,
including, without limitation, a copy of Lessee's insurance policy(s) with
appropriate endorsement(s), an insurance "binder" and a certificate of insurance
coverage as in effect; provided, however, that Lessor shall be under no duty
either to ascertain the existence of or to examine such evidence of insurance or
to advise Lessee in the event of such insurance coverage shall not comply with
the requirements hereof; no failure to so advise Lessee shall constitute a
waiver of the requirements of this Section 11. Lessor may, but shall have no
obligation to purchase insurance as required by this Section (or to take any
other ---copy to come----- copy to come----- copy to come-----
<PAGE>
interest in the Equipment) with the entire cost thereof (including, without
limitation, any charges assessed by Lessor for such service) borne by Lessee,
whenever Lessor shall not be reasonably satisfied as to the amount (including
deductible and insurance amount) or type of coverage maintained, the terms or
conditions of such coverage or the carrier(s) by whom such coverage is
underwritten.
12. MAINTENANCE; REPAIRS. Lessee, at its own cost, and expense, shall keep the
equipment in good repair, condition and working order, shall keep the Equipment
appropriately protected from the elements, and shall furnish all required parts
and servicing (including any contract service necessary) to maintain the benefit
of any warranty of the manufacturer). All such parts shall immediately become
the property of Lessor and part of the Equipment for all purposes hereof.
13. FINANCIAL STATEMENTS. So long as this Lease is in effect, Lessee shall
furnish current financial statement satisfactory to Lessor as to form,
preparation and content, but which shall include at least an annual statement
prepared by Lessee's independent public accountants (which annual statement
shall be prepared at least as a review by such accountants, and shall be
certified by such accountants if it constitutes an audit) delivered to Lessor
not later than 120 days after the end of Lessees fiscal year; which financial
statements shall be in comparative form for such fiscal year and prior fiscal
year(s), provided, however, that if Lessee is registered pursuant to Section 12
of the Securities Exchange Act of 1034, as amended, and if Lessee shall furnish
to Lessor within thirty (30) days of their filing, all quarterly and annual
reports filed by Lessee with the Securities and Exchange Commission pursuant to
the requirements of said Act, Lessee shall not be required to delivery any other
financial statements under this Section 13. Each financial statement (or report)
submitted by Lessee to Lessor pursuant to the provisions of this Section 13
shall be accompanied by a certificate signed by the chief executive officer, the
chief financial officer of Lessee, certifying (i) that such financial statement
(or the financial statement which was included in such report) was prepared in
accordance with generally accepted accounting principles consistently applied
and fairly and accurately presents the Lessee's financial condition and results
of operations for the period to which it pertains, and (ii) that no event of
default has occurred under this Lease during the period to which such financial
statement pertains. Should an event of default occur hereunder, Lessor shall
also have the right (i) to demand, and Lessee agrees to provide, quarterly
statements in comparative form for the reporting quarter for the portion of the
year then ended and for the comparable period(s) of the prior fiscal year(s).
and (ii) upon reasonable prior notice, to inspect the books and records of
Lessee, wherever maintained, which right to inspect shall include the right to
copy and abstract from said books and records and to make photocopies of said
books and records and to converse with Lessee's officers, employees and agents
and its independent public accountants.
14. EVENTS OF DEFAULT. An event of default shall occur hereunder if (i) Lessee
fails to pay, as and when due, any installment of Rent or any other payment
required hereunder; or (ii) Lessee fails to maintain insurance, or, as and when
requested by Lessor, to supply (or cause the carrier(s) to supply) evidence of
insurance, in each case as required by Section 11 hereof, or fairs to deliver or
cause to be delivered unqualified financial statements complying in form and
substance with Section 13 hereof, or (iii) Lessee fails to perform or observe
any other covenant or agreement to be performed or observed by it hereunder
orbreaches any warranty contained herein or made in connection herewith, and
such failure or breach continues unremedied for five (5) days after written
notice thereof to Lessee; or (iv) Lessee or any guarantor of this Lease makes
any representation or warranty herein or in connection herewith which proves, in
the sole judgment of Lessor, to be incorrect or materially misleading; or (v)
entry of any judgment, issuance of any garnishment or attachment against any
property of Lessee; or (vi) Lessee fails to pay as and when due any indebtedness
of Lessee, whether or not to Lessor (unless in the case of indebtedness to a
person other than Lessor, Lessee actively contests the same in good faith,
having posted, in the sole judgment of Lessor, adequate security for the payment
thereof) arising independently of this Lease; or (vii) Lessee defaults under any
material agreement to which it is party; or (viii) Lessee removes or attempts to
remove from its location of installation as provided in the applicable Equipment
Schedule, or sells or attempts to sell, or mortgages, hypothecates, grants and
security interest in, assigns, sublets, encumbers, or suffers a lien upon or
against any prior written consent of Lessor or fails to keep any Equipment in
Lessee or any guarantor of this Lease becomes insolvent or bankrupt or makes an
assignment of the benefit of creditors or files a voluntary petition in
bankruptcy or an involuntary petition in bankruptcy is filed against it, which
petition is not dismissed within thirty (30) days, or consents to the
appointment of a Trustee or Receiver or Liquidator or any thereof shall be
appointed for Lessee or for a substantial part of its property with or without
its consent; or (x) Lessee or any guarantor of this Lease suffers, in the
judgment of Lessor, a material adverse change in its financial condition,
business or operations from the date hereof; or (xi) at any time Lessor believes
in good faith that the prospect of Lessee's payment or performance in accordance
with the provisions of this Lease is impaired, or that any of the Equipment is
at risk.
Any amount due from Lessee to Lessor hereunder which is not paid within ten
(10) days after such amount is due shall bear interest at the lesser of (i)
fifteen (15%) percent per annum or (ii) the maximum rate per annum which Lessor
is permitted by law to charge (the "Default Interest Rate") from the date such
payment is due until paid.
15. REMEDIES. Lessee acknowledges that Lessor is fully entitled to the benefit
of its bargain. Such benefit to Lessor under the Lease includes, without
limitation, the value of rental payments for the full term of the Lease as and
when due and Lessor's residual interest in the Equipment upon expiration of each
Equipment Term. Should an event of default occur under this Lease, some or all
of Lessor's benefit may be lost or impaired. As a result, Lessee agrees and
acknowledges upon the occurrence of an event of default to pay to Lessor the
benefit of its bargain including the present value Lessor's profit and any and
all amount necessary to fully compensate Lessor for any loss or damage to
Lessor's residual interest in the Equipment and that the liquidated damage
provisions set forth in this Section 15 are reasonable in light of the
anticipated harm to be caused to Lessor by such an event of default.
In particular, and not in limitation of the foregoing, upon the occurrence
of any event of default, or at any time thereafter, Lessor may, in its sole
discretion, do any one or more of the following: (i) terminate this Lease; (ii)
declare all sums due and to be become due hereunder for the full term of the
Lease immediately due and payable; (iii) demand that Lessee (and Lessee agrees
that it will) return any or all Equipment to Lessor in the condition required by
Section 17 hereof: (iv) without demand or legal process, enter the premises
where any Equipment is located and take immediate possession of and remove the
same, or render the same unusable, without liability of Lessor or its agents for
any damages whatsoever resulting from any such action; (v) use Lessee's place of
business for the purpose of displaying and/or disposing of the Equipment (all at
no expense to Lessor); (vi) by written notice to Lessee, demand that Lessee (and
Lessee agrees that it will) assemble the Equipment and make it available to
Lessor at a place designated by Lessor which is reasonably convenient to Lessor
and Lessee; (vii) retain all prior payments; (viii) sell, lease or otherwise
dispose of any or all of the Equipment at public or private sale or in any other
commercially reasonable anner in bulk or in parcels and with or without having
the Equipment (and to the extent permitted by applicable law. Lessee waivers
any right to any proceeds with respect thereto); (ease) immediately and without
notice or other action set off against any of Lessee's liabilities to Lessor any
money owed by Lessor or any affiliate of Lessor in any capacity to Lessee,
whether or not due, and such right of set-off shall be deemed to have been
exercised and a charge against any such money shall be deemed to have been made
immediately upon the occurrence of an event of default through actual book
entries may be made at some time subsequent thereto (for purposes of this
Section 15, the term "affiliate" refers to any corporation under common
ownership with Lessor); (x) recover from Lessee, and Lessee agrees that it will
pay (as liquidated damages for loss of a bargain and not as a penalty), the sum
of the contractual value at the time of payment to Lessor of:
(A) any and all amounts then due and payable under the Lease; plus
(B) all amounts not then due and payable which are to become due and
payable under the Lease for the remainder of the Lease Term plus
(C) the anticipated residual value of the Equipment upon expiration of the
Lease Term:
<PAGE>
or (xi) exercise any right or remedy which may be available to it under any
applicable law or proceed by court action to enforce the terms hereof or to
recover damage for the breach hereof.
For purposes of subclause A of clause (x), contractual value shall be
computed at the Default interest Rate (as denied in Section 14 hereof) on all
sums from the date due under this Lease until paid. For purposes of subclauses
(B) and (C) of clause (x), contractual value shall be computed as the net
present value at the time of payment to Lessor (discounted at the rate of eight
percent (8%) per annum). For purposes of subclause (C) of clause (x), except as
set forth in the applicable Equipment Schedule, the anticipated residual value
of the Equipment upon expiration of each Equipment Term shall be determined in
accordance with the procedure set forth in Section 10 of this Lease.
Lessee shall be liable for any and all costs and expenses incurred by Lessor
in connection with any event of default hereunder or the exercise of any of
Lessor's rights or remedies, including (without limitation) any and all legal
fees and expenses, transportation and other repossession expenses, storage
expenses and expenses incurred in connection with restoring the Equipment to the
condition required pursuant to Section 17 hereof or necessary to render the
Equipment marketable. Lessee shall also be responsible for any and all
incidental and/or consequential damages suffered by Lessor as a result of an
event of default hereunder.
In the event Lessor shall dispose of the Equipment after default and
repossession by sale, release or otherwise, Lessee shall receive a credit for
the proceeds of such disposition, net of any sales commissions and other costs
and expenses incurred by Lessor in connection with such disposition. In the
event such disposition is by re-lease, the proceeds of such disposition shall be
deemed to be equal to the net present value at the time of re-lease (discounted
at the rate per annum of three percent (3%) in excess of the rate which United
States National Bank of Oregon from time to time identifies as its prime rate as
in effect on the date of such re-lease), including the anticipated fair market
value of the Equipment upon the expiration of the term of such release computed
in accordance with the procedure set forth in Section 10 of this Lease.
No remedy referred to in this Section 15 is intended to be exclusive but
each shall be cumulative and in addition to any other remedy referred to above
or otherwise available to Lessor under applicable law or in equity. To the
extent permitted by applicable law, Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use any Equipment in mitigation of Lessor's damages (as set
forth in this Section 15 or otherwise), or which may give the Lessee the right
to treat this Lease as terminated or which may otherwise limit or modify any of
Lessors rights or remedies hereunder.
16. NOTICES. Any notices or demands required to be given herein shall be given
to the parties in writing by United States first class mail (express, certified
or otherwise) at the parties respective principal places of business as set
forth in the applicable Equipment Schedule or to such other addresses as the
parties may hereafter substitute by written notice given in the manner
prescribed in this paragraph.
17. RETURN OF EQUIPMENT. Upon the expiration of each Equipment Term in
accordance with the corresponding Equipment Schedule, or upon the demand of
Lessor as set forth in Section 15 hereof, Lessee, at its own risk and expense,
will immediately pack and/or crate the Equipment specified in such Schedule for
shipment by a common carrier or such other transportation as Lessor may require,
to such location as Lessor shall designate, and return such Equipment to Lessor
in the same condition as when delivered to Lessee at the commencement of this
Lease, ordinary wear and tear excepted. Upon the termination of this Lease at
the end of such Equipment Term and receipt of such Equipment, Lessor shall
return Lessee's security deposit as set forth in such Equipment Schedule, net of
any amounts necessary to restore such Equipment to the condition required
hereunder.
18. FILINGS; FURTHER ASSURANCES. Lessee will execute, acknowledge and deliver in
recordable or fileable form any document or instrument, including, without
limitation, any financing statement, fixture filing, continuation statement or
mortgage, or any amendment to any of the foregoing, as required by Lessor to
carry out the intent and purposes of this Lease, including, without limitation,
to place notice of this Lease on the public record or to perfect or maintain any
security interest created pursuant to Section 7 hereof in full force and effect.
Lessee hereby grants Lessor a power of attorney, and appoints Lessor, Lessee's
attorney-in-fact, to sign Leasee's name on, and to execute on Leasee's behalf
any such document or instrument. Lessee will also promptly execute and deliver
to Lessor such further documents and take such further actions as Lessor may
request in order to more effectively carry out such intent and purposes. Any
filing made under the Uniform Commercial Code or similar law in any jurisdiction
shall provide notice on the public record of this Lease and all of Lessor's
right, title and interest in and to the Equipment. No such filing shall be a
factor in any determination as to whether this Agreement is a "lease intended as
security" within the meaning of subsection (37) of Section 1-201 of the UCC or
shall suggest, admit or constitute evidence that Lessee has any right, title or
interest in or to the Equipment other than as the lessee thereof pursuant to the
express provisions of this Agreement.
19. LESSOR NOT LIABLE FOR CONSEQUENTIAL DAMAGES. Lessor shall not be liable for
any incidental or consequential damages under any circumstances whatsoever,
including, without limitation, any failure of Lessor to comply with the
provisions of this Lease.
20. MISCELLANEOUS. THIS LEASE, ANY AMENDMENT HERETO OR MODIFICATION HEREOF AND
ANY WAIVER OF ANY CONDITION OR PROVISION CONTAINED HEREIN SHALL NOT BE VALID
UNLESS IN WRITING AND SIGNED BY THE PARTY TO BE CHARGED THEREBY. NO FAILURE ON
THE PART OF LESSOR TO EXERCISE, OR DELAY IN EXERCISING, ANY RIGHT, POWER,
PRIVILEGE OR REMEDY HEREUNDER SHALL OPERATE AS A WAIVER THEREOF, NOR SHALL ANY
SINGLE OR PARTIAL EXERCISE OF ANY RIGHT, POWER, PRIVILEGE OR REMEDY HEREUNDER
PRECLUDE ANY OTHER OR FURTHER EXERCISE THEREOF FOR THE EXERCISE OF ANY OTHER
RIGHT, POWER, PRIVILEGE OR REMEDY. NO WAIVER OF ANY EVENT OF DEFAULT HEREUNDER
SHALL CONSTITUTE A WAIVER OF ANY OTHER EVENT OF DEFAULT HEREUNDER, OR A WAIVER
OF ANY RIGHT, POWER, PRIVILEGE OR REMEDY OF LESSOR HEREUNDER.
This Lease is intended to take effect as a sealed instrument and shall be
binding upon and inure to the benefit of the parties hereto and their permitted
successors and assigns. Any term, clause or provision of this Lease which is
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining terms or clauses of such provision or the remaining provisions
hereof; and any prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such term, clause or provision in any other
jurisdiction. Lessee agrees and acknowledges that time is of the essence with
respect to the performance of its obligations under this Lease, including,
without limitation, its obligations to promptly make all payments required
hereunder. All amounts due Lessor hereunder, including, without limitation,
amounts due to reimburse Lessor for payments made by Lessor in accordance with
the provisions hereof, shall bear interest at the Default Interest Rate from the
date due until paid. The Lessee further agrees and acknowledges that the Lessee
has no right to prepay or renew this Lease. The captions in this Lease are for
convenience only and shall not define or limit any of the terms hereof. Unless
otherwise provided in the applicable Equipment schedule, this Lease shall in all
respects be governed by, and construed in accordance with, the laws of the state
or commonwealth in which the Equipment is located as specified in Recital (f) of
each Equipment Schedule. Lessee agrees that any action arising out of this
Lease may be litigated under the laws of such state or commonwealth, and
submitted to the jurisdiction of such state or commonwealth, and submitted to
the jurisdiction or such state or commonwealth, and that service of process by
certified mail, return receipt requested, will be sufficient to confer personal
jurisdiction over the Lessee in such state or commonwealth.
Lessee acknowledges that it has received a copy of this Lease. should
Lessee so request, Lessee shall be entitled to receive an additional copy
hereof.
By Lessee's execution of this Lease Lessee assigns to Lessor any and all
rights Lessee may have under any purchase order(s) issued by Lessee insured to
the Equipment. This Lease copy to come-- copy to come--- copy to come--- copy
to come-
<PAGE>
until it shall have been approved by Lessor and executed at one of Lessor's
headquarters offices by an authorized officer of Lessor.
21. REPRESENTATIONS AND WARRANTIES BY LESSEE. If Lessee is a corporation, Lessee
represents and warrants that (i) it is duly-organized, validly-existing and in
good standing in the state of its incorporation and is qualified to do business
wherever such qualification is required; (ii) it has the lawful corporate power
and authority to conduct its business, own its assets and to execute, deliver
and comply with the provisions of this Lease, any Equipment Schedule and any
related documentation: and (iii) the execution and delivery of this Lease and
compliance by Lessee with the provisions hereof have been duly authorized by all
necessary corporate action. If Lessee is an individual or a partnership, Lessee
represents and warrants that Lessee has the legal capacity to enter into this
Lease. Lessee represents and warrants that the execution, delivery and
compliance with the provisions of this Lease do not and will not violate the
provisions of any applicable law or government regulation.
Lessee represents and warrants that it is not in default of any evidence of
indebtedness, loan agreement, capital lease, security instrument or other
material agreement to which Lessee is party, and that the execution and delivery
of this Lease any Equipment Schedule and any related documentation does not and
will not constitute or result in any such default. Lessee is not a party to any
agreement which has or could have a material adverse effect on Lessee's ability
to satisfy its obligations under this Lease. Lessee represents and warrants that
(i) it has filed all Federal, State, and local tax returns required under
applicable law and paid all taxes, charges and fines and assessments shown on
such returns or otherwise imposed upon or assessed against Lessee when due; (ii)
there are no judgments outstanding against Lessee or pending actions or
proceedings before any court or administrative body which result or could result
in a material adverse change in Lessee's business or financial affairs; and
(iii) no consent of shareholders or of any public or governmental authority or
agency is necessary in connection with the execution, delivery or compliance
with the provisions of this Lease and any related documentation.
22. TRANSFER OF ASSETS; MERGER. Lessee will not transfer or dispose of all of
its assets, or any substantial portion thereof, to any person or entity
(including, without limitation, to a corporation wholly or partially owned or
controlled by Lessee) other than in the ordinary course of its business (and, if
Lessee is a corporation, will not merge or consolidate with or into another
corporation, liquidate or dissolve), unless (a) Lessor shall have been notified
at least thidy (30) days prior to any such event; (b) Lessor shall have
consented in writing to such event; and (c) the transferee of such assets or
surviving or successor corporation, as the case may be, shall, by the execution
of a written instrument, assume all the obligations of Lessee to Lessor.
23. NO REPRESENTATIONS OR AGREEMENTS BY LESSOR AS TO INCOME TAX TREATMENT OR
BENEFITS. No representation or warranty is or has been made by Lessor as to the
treatment for Federal, state or local income tax purposes of this Lease or the
Equipment herewith. Lessor has not agreed to take or refrain from taking any
action whatsoever in regard to such treatment.
24. ASSIGNMENT BY LESSOR, LESSEE ACKNOWLEDGES THAT LESSOR MAY SELL OR ASSIGN ITS
INTEREST IN THE EQUIPMENT OR THIS LEASE WITHOUT ANY OTHER OR FURTHER CONSENT BY
LESSEE. LESSEE AGREES THAT IN THE EVENT OF THE ASSIGNMENT OF THIS LEASE, LESSEE
SHALL, UPON THE DIRECTION OF LESSOR, PAY DIRECTLY AND PROMPTLY TO LESSOR'S
ASSIGNEE WITHOUT ABATEMENT, DEDUCTION OR SETOFF, ALL AMOUNTS WHICH BECOME DUE
HEREUNDER, AND THAT, UPON THE ASSIGNMENT OF THIS LEASE, LESSOR'S ASSIGNEE SHALL
HAVE ANY AND ALL RIGHTS, IMMUNITIES AND DISCRETIONS OF LESSOR HEREUNDER, AND
SHALL BE ENTITLED TO EXERCISE ANY REMEDIES OF LESSOR HEREUNDER, AND ALL
REFERENCES HEREIN TO LESSOR SHALL INCLUDE LESSOR'S ASSIGNEE (EXCEPT THAT,
NOTWITHSTANDING ANY PROVISIONS OR PRESUMPTION OF APPLICABLE LAW, SUCH ASSIGNMENT
SHALL NOT CONSTITUTE A DELEGATION OF LESSOR'S OBLIGATIONS HEREUNDER, AND LESSOR
SHALL CONTINUE TO BE CHARGEABLE WITH SUCH OBLIGATIONS, AND ASSIGNEE SHALL NOT BE
CHARGEABLE WITH ANY OBLIGATIONS OR LIABILITIES HEREUNDER OR IN RESPECT HEREOF)
AND LESSEE FURTHER (AND NOT IN LIMITATION OF THE FOREGOING) COVENANTS AND AGREES
THAT IT WILL NOT ASSERT AGAINST LESSOR'S ASSIGNEES ANY DEFENSE, COUNTERCLAIM OR
SETOFF WHICH LESSEE MAY HAVE AGAINST LESSOR.
25. ENTIRE AGREEMENT. This Agreement, any Equipment Schedule, and any related
documents and instruments executed in connection herewith on or after the date
hereof by authorized officers of Lessee and Lessor, represent the entire
agreement of the parties hereto with regard to the subject matter hereof and is
intended to be a complete and exclusive statement of such agreement. Any and all
prior understandings or agreements with regard to such subject matter are merged
heroin and superseded hereby. There are no understandings, agreements,
representations or warranties, express or implied, except as expressly provided
in this Lease, any Equipment Schedule or in such related documents and
instruments.
LESSEE'S INITIALS AS TO SECTION 25:____________
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Master
Lease Agreement to be duly executed as of the day and year first above written.
[SEAL]
ATTEST OR WITNESS: TEAR DROP PUTTER CORPORATION
[Lessee]
By:
- -------------------------------------- -------------------------------
Name: BRIAN HOCHMAN Name: BRIAN HOCHMAN
Title: SECRETARY Title: PRESIDENT
- --------------------------------------------------------------------------------
[SEAL]
Attest: PACKAGING MANAGEMENT
ASSOCIATES, INC.
By:
- -------------------------------------- -------------------------------
<PAGE>
PACKAGING MANAGEMENT ASSOCIATES, INC. GUARANTY [INDIVIDUAL]
MASTER LEASE NO.___________________
In order to induce PACKAGING MANAGEMENT ASSOCIATES, INC. (hereinafter called the
("Lessor") to enter into the Master Lease Agreement dated as of NOVEMBER _______
____________, 1995 (said Master Lease Agreement, together with any and all
schedules and riders thereto, being hereinafter called the "Lease Agreement")
with, or otherwise directly or indirectly making equipment available to TEAR
DROP PUTTER CORPORATION (hereinafter called the "Lessee"), and/or to induce
Lessor to grant to Lessee such renewals, extensions, forbearances, releases of
collateral or other relinquishments of rights, whether in connection with the
Lease Agreement or otherwise, as Lessor may in its sole discretion deem
advisable, and in consideration of any equipment lease agreements or other
agreements heretofore or hereafter entered into between Lessor and Lessee (any
and all such equipment lease agreements, including the Lease Agreement, entered
into between Lessee and Lessor together with any and all schedules and riders
thereto and any and all other instruments or agreements including, without
limitation, security agreements, pledge agreements and assignments, executed and
delivered by Lessee in connection therewith, being hereinafter collectively
called the "Guaranteed Agreements"), and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
EACH OF THE UNDERSIGNED (EACH OF WHOM IS HEREINAFTER CALLED A "GUARANTOR"),
INTENDING TO BE LEGALLY BOUND, HEREBY JOINTLY AND SEVERALLY GUARANTEES THE FULL,
PROMPT, COMPLETE AND FINAL PAYMENT AND PERFORMANCE OF ALL THE LESSEE'S
OBLIGATIONS PURSUANT TO THE LEASE AGREEMENT OR ANY OF THE OTHER GUARANTEED
AGREEMENTS OR IN ANY WAY ARISING THEREFROM AND ANY AND ALL OTHER OBLIGATIONS AND
LIABILITIES OF LESSEE TO LESSOR, WHETHER NOW IN EXISTENCE OR ARISING HEREAFTER,
AND WHETHER DIRECT OR INDIRECT, CONTINGENT OR ABSOLUTE, OBLIGATIONS OR
UNMATURED, SECURED OR UNSECURED, AND HOWEVER CONTRACTED OR ARISING (ALL SUCH
OBLIGATIONS AND LIABILITIES BEING HEREINAFTER CALLED THE "OBLIGATIONS").
Each Guarantor hereby promises to pay Lessor when due, on demand, all
indebtedness of any kind or nature emanating from the Lease Agreement, any of
the other Guaranteed Agreements or the Obligations (including, without
limitation, if an event of default shall occur under the Lease Agreement or any
of the other Guaranteed Agreements, payment on demand of all unpaid sums to
become due under the defaulted Agreement for the entire term thereof), whether
now or hereafter arising and however and whenever evidenced (all such
indebtedness being hereinafter called the "Indebtedness"); and each Guarantor
agrees to indemnify and hold Lessor harmless from and against any and all
losses, liabilities and costs emanating from any failure of Lessee to fully,
promptly and completely satisfy the Obligations and pay the indebtedness (such
losses, liabilities and costs being referred to hereinafter as the
"Indemnities"). For purposes hereof, (i) "losses, liabilities and costs" shall
include (without limitation), all losses, liabilities, obligations, claims,
demands, judgments, costs and expenses of whatever kind or nature (including,
without limitation, attorneys' fees) and (ii) "emanating" from an event or cause
shall include (without limitation) in any way directly or indirectly being
caused by or in any other way arising out of such event or cause.
Each Guarantor hereby waives any notice of default or nonpayment or of late or
inadequate satisfaction in regard to the Obligations and the Indebtedness. In
particular (and not in limitation of the foregoing), each Guarantor hereby
agrees that in enforcing this Guaranty the Lessor shall not be required (i) to
demand payment of the amount due (known as "demand"; (ii) to present for payment
any evidence of any of the Indebtedness or the Obligations (known as
"presentment" or "presentment for payment"); (iii) to give notice that amounts
due have not been paid (known as "notice of dishonor"); or (iv) to obtain an
official certification of nonpayment (known as "protest") or to give any
Guarantor notice of any such "protest"; and each Guarantor hereby waives demand,
presentment, presentment for payment, notice of dishonor, protest and notice of
protest, as aforesaid. Each Guarantor hereby further waives notice of
acceptance hereof and any and all other notices to which such Guarantor may be
entitled. Each Guarantor hereby consents and agrees that without any further
notice to, or assent by Guarantor, the liability of Lessee or any guarantor of
the Obligations or Indebtedness may from time to time, in whole or in part, be
extended, renewed, continued, amended, modified, composed, accelerated,
supplemented, compromised, settled or released in Lessor's sole discretion, and
that any collateral for any of the Obligations or Indebtedness or for any
guaranty thereof (including this Guaranty) may from time to time, in whole or
part, be exchanged, sold or surrendered in Lessor's sole discretion. Each
Guarantor hereby agrees that no such extension, renewal, continuation,
amendment, modification, composition, acceleration, supplement, compromise,
settlement, release, exchange, sale or surrender shall in any way impair, affect
or release the liability of any Guarantor hereunder or constitute a waiver of
any of Lessor's rights hereunder.
This Guaranty is unlimited, absolute, irrevocable and unconditional and shall
continue in full force and effect until all the Obligations, Indebtedness and
Indemnities shall have been fully, completely and finally satisfied and paid.
The obligations of each Guarantor hereunder shall continue and survive the
repossession of any equipment or other property leased pursuant to the Lease
Agreement Or any of the other Guaranteed Agreements (or any property in which
the Lessor has a security interest securing any of the Obligations, Indebtedness
or Indemnities) whether or not any such repossession constitutes an "election of
remedies" against the Lessee or any other person. Each Guarantor agrees to be
obligated hereunder notwithstanding any termination of the Lease Agreement in
whole or part by operation of law or any unenforceability or invalidity of the
Lease Agreement or any of the other Guaranteed Agreements for any reason
whatsoever (including without limitation, invalidity or voidness ab initio
and/or partial or complete unenforceability as a result of imposeibility or
impracticability of performance or frustration of the purpose of the Lease
Agreement or any of the other Guaranteed Agreements). The obligations of the
Guarantors hereunder shall not be subject to any abatement, setoff, defense or
counterclaim for any cause whatsoever.
Each Guarantcr hereby agrees that its obligations hereunder are direct and
primary and that the Lessor may proceed directly and in the first instance
against each or any Guarantor or combination of Guarantors and have its remedy
hereunder without first being obliged to resort to any other right or remedy or
security for any of the Obligations, Indebtedness or Indemnities; and each
Guarantor hereby waives any right to require the Lessor to proceed against the
Lessee or to proceed against any other Guarantor or to proceed against any other
guarantor of the Obligations or Indebtedness, or to proceed against any security
held from the Lessee or to pursue any other action in Lessor's power whatsoever.
If there shall be any securities for any of the Obligation or Indebtedness, or
for the obligations of any Guarantor hereunder, or for the obligations of any
other guarantor of any of the Obligations or Indebtedness, the Lessor may
proceed against and/or enforce any or all of such securities in whatever order
in may, in its sole discretion, deem appropriate. Any amount(s) received by the
Lessor from whatever source and applied by it to any of the Obligations,
Indebtedness, or Indemnities shall be applied in such order of applications as
Lessor shall from time to time, in its sole discretion, elect.
In the event of any default in regard to any Guarantor's obligations hereunder,
or in the event of death, incompetency, termination, dissolution or insolvency
of the Lessee, or if a receiver, liquidator or conservator be appointed for any
part of the property or assets of the Lessee, or if the Lessee makes an
assignment for the benefit of creditors, or if the Lessee shall file a voluntary
petition in bankruptcy or any involuntary petition in bankruptcy shall be filed
against it (whether or not any such event occurs at a time when any of the
Obligations or Indebtedness is otherwise due and payable, and whether or not any
such event gives rise to an enforceable legal right on the part of Lessor to
demand payment of or collect any sums from Lessee or to accelerate the maturity
of any sums to become due and payable thereafter), then, and in any such case,
each Guarantor agrees to pay to Lessor, upon demand, the full amount which would
be payable hereunder by such Guarantor if all the Obligations and Indebtedness
including, but not limited to, any remaining payments owing pursuant to the
Lease Agreement or any of the other guaranteed Agreements, were then due and
payable.
Notwithstanding any provisions hereof or any provision of any other instrument
or agreement, or any presumption of applicable law or principle of legal
construction to the contrary: (i) nothing shall discharge or satisfy and
Guarantor's obligations hereunder except full, complete and final payment and
satisfaction of all the Obligations, Indebtedness and Indemnities; (ii) each
Guarantor hereby waives any and all defenses to its obligations hereunder
including, without limitation, any defense arising by reason of any cessation of
the Lessee's business or any bankruptcy insolvency or business
<PAGE>
Guarantor shall have any right of subrogation, and each Guarantor hereby waives
any and all rights of subrogation it may have, to enforce any right or remedy
which the Lessor has or may hereafter have against the Lessee, and waives the
benefits of, and any and all rights to participate in, any security or
securities now or hereafter held by Lessor.
Each Guarantor hereby represents and warrants to Lessor that all information
concerning such Guarantor, including (without limitation) financial statements
and other financial information, furnished to Lessor in connection with the
Lease Agreement or any of the other Guaranteed Agreements, was true, complete
and accurate as of the date of delivery thereof to Lessor, and that all such
information remains true, complete and accurate, and that there have been no
material adverse changes in such Guarantor's financial condition as of the date
hereof. In the event of any breach of any Guarantor's representations and
warranties herein or any material adverse change in the financial condition of
any Guarantor, upon the request of Lessor, such Guarantor shall promptly furnish
to Lessor such additional security for the performance of such Guarantor's
obligations hereunder as Lessor may reasonably request.
No notice of termination of this Guaranty shall be effective unless and until
such notice shall be in writing and executed by Guarantor and shall have been
received at Lessor's principal corporate headquarters at 53 N.W. 53rd Street,
Suite 320, Boca Raton, FL 33487; provided, however, that in the event of such
notice, this Guaranty shall continue in full force and effect with regard to all
Obligations and Indebtedness created, existing or arising prior to the date of
such receipt. No modification hereof or amendment hereto and no waiver of any
term or provision hereof shall be valid unless in writing and signed by an
authorized officer of Lessor. No delay or failure on the part of Lessor in the
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by Lessor of any right or remedy shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. No action
of Lessor permitted hereunder shall invalidate or in any way impair this
Guaranty. No waiver of any right or remedy hereunder shall constitute a waiver
of any other or further right or remedy hereunder.
Each Guarantor hereby consents and agrees that without any further notice to, or
assent by Guarantor, this guaranty may be assigned by Lessor and reassigned, in
the sole discretion of the Lessor or its assignee. As used herein, the term
"Lessor" includes the Lessor and any successor or assign of the Lessor. This
Guaranty shall be binding upon each Guarantor, and upon the legal successors,
representatives, and assigns of such Guarantor. Each and every waiver made
herein by any Guarantor is and shall be deemed to be and construed as an
absolute, irrevocable and unconditional waiver of the right waived.
This Guaranty is intended to be legal, valid, binding and enforceable in
accordance with its terms. Whenever possible, each term and provision of this
Guaranty shall be interpreted so as to be effective and to effectuate its intent
under applicable law. If any term or provision of this Guaranty shall be
unenforceable, invalid or prohibited in any jurisdiction under applicable law,
such term or provision shall be ineffective in such jurisdiction, but only to
the extend of such unenforceability, invalidity or prohibition, and the
remainder of such term or provision, and the other terms and provisions of the
Guaranty, shall not thereby be affected or impaired in such jurisdiction, nor
shall any of the terms or provision of the Guaranty be thereby affected or
impaired in any way in any other jurisdicticn.
This Guaranty is deemed made and delivered in the State whose laws govern the
Lease Agreement. Each Guarantor agrees that this Guaranty shall be governed by
the construed in accordance with the laws of such State, and that service of
process by certified mail, return receipt requested, will be sufficient to
confer personal jurisdiction over such Guarantor for purposes of litigating any
actions arising hereunder in the courts of such State.
This Guaranty is in addition to, and not in limitation or derogation of, any and
all other guaranties of the Obligations or Indebtedness executed by any
Guarantor. In the event of any conflict between the provisions of this Guaranty
and those of any such other guaranty, the provisions of this Guaranty shall
govern.
Each Guarantor hereby agrees and acknowledges that time is of the essence with
regard to the performance of such Guarantor's obligations hereunder. This
Guaranty shall take effect as a sealed instrument.
THE LIABILITY OF THE GUARANTORS HEREUNDER IS JOINT AND SEVERAL. THIS GUARANTY IS
JOINT AND SEVERAL AND WITH ANY AND ALL OTHER GUARANTEES OF ANY OF THE OBLIGATION
OR INDEBTEDNESS. ANY ONE GUARANTOR, OR ANY GROUP OR COMBINATION OF GUARANTORS
(IF MORE THAN ONE), MAY BE REQUIRED TO SATISFY ALL THE OBLIGATIONS AND
INDEBTEDNESS.
IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty to be duly
executed and delivered this 30th day of June, 1996.
*The liability of the guarantor hereunder is limited to $41,520.99.
Witness: RUDY SLUCKER
/s/ R Slucker /s/ R Slucker
- ------------------------------ --------------------------------
Print Name: As an individual
Witness:
- ------------------------------ --------------------------------
Print Name: As an individual
<PAGE>
PACKAGING MANAGEMENT ASSOCIATES, INC. GUARANTY [INDIVIDUAL]
Master Lease No. _______________________
In order to induce PACKAGING MANAGEMENT ASSOCIATES, INC. (hereinafter called
the ("Leseor") to enter into the Master Lease Agreement dated as of NOVEMBER
______________, 1995 (said Master Lease Agreement, together with any and all
schedules and riders thereto, being hereinafter called the Agreement") with, or
otherwise directly or indirectly making equipment available to TEAR DROP PUTTER
CORPORATION (hereinafter called the "Lessee"), and/or to induce Lessor to grant
to Lessee such renewals, extensions, forbearances, releases of collateral or
other relinquishments of rights, whether in connection with the Lease Agreement
or otherwise, as Lessor may in its sole discretion deem advisable, and in
consideration of say equipment lease agreements or other agreements heretofore
or hereafter entered into between Lessor and Lessee (any end all such equipment
lease agreements, including the Lease Agreement, entered into between Lessee and
Lessor together with any and all schedules and riders thereto and any and all
other instruments or agreements including, without limitation, security
agreements, pledge agreements end assignments, executed end delivered by Lessee
in connection therewith, being hereinafter collectively called the "Guaranteed
Agreements"), and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, EACH OF THE UNDERSIGNED (EACH OF
WHOM IS HEREINAFTER CALLED A "GUARANTOR"), INTENDING TO BE LEGALLY SOUND, HEREBY
JOINTLY AND SEVERALLY GUARANTEES THE FULL, PROMPT, COMPLETE AND FINAL PAYMENT
AND PERFORMANCE OF ALL THE LESSEE'S OBLIGATIONS PURSUANT TO THE LEASE AGREEMENT
OR ANY OF THE OTHER GUARANTEED AGREEMENTS OR IN ANY WAY ARISING THEREFROM AND
ANY AND ALL OTHER OBLIGATIONS AND LIABILITIES OF LESSEE TO LESSOR, WHETHER NOW
IN EXISTENCE OR ARISING HEREAFTER, AND WHETHER DIRECT OR INDIRECT, CONTINGENT OR
ASSOLUTE, MATURED OR UNMATURED, SECURED OR UNSECURED, AND HOWEVER CONTRACTED OR
ARISING (ALL SUCH OBLIGATIONS AND LIABILITIES BEING HEREINAFTER CALLED THE
"OBLIGATIONS").
Each Guarantor hereby promises to pay Lessor when due, on demand, all
indebtedness of any kind or nature emanating from the Lease Agreement, any of
the other Guaranteed Agreements or the Obligations (including, without
limitation, if an event of default shall occur under the Lease Agreement or any
of the other Guaranteed Agreements, payment on demand of all unpaid sums to
become due under the defaulted Agreement for the entire term thereof), whether
now or hereafter arising and however and whenever evidenced (all such
indebtedness being hereinafter called the "Indebtedness"); and each Guarantor
agrees to indemnify and hold Lessor harmless from and against any and all
losses, liabilities and costs emanating from any failure of Lessee to fully,
promptly and completely satisfy the Obligations and pay the indebtedness (such
losses, liabilities and costs being referred to hereinafter as the
"Indemnities"). For purposes hereof, (i) "losses, liabilities and costs" shall
include (without limitation), all losses, liabilities, obligations, claims,
demands, Judgments, costs end expenses of whatever kind or nature (including,
without limitation, attorneys fees) and "emanating" from an event or cause shall
include (without limitation) in any way directly or indirectly being caused by
or in ANY other way arising out of such event or cause.
Each Guarantor hereby waives any notice of default or nonpayment or of late or
inadequate satisfaction in regard to the Obligations and the Indebtedness. In
particular (and not in limitation of the foregoing), each Guarantor hereby
agrees that in enforcing this Guaranty the Lessor shall not be required (i) to
demand payment of the amount due (known as "demand"; (ii) to present for payment
any evidence of any of the Indebtedness or the Obligations (known as
"presentment" or "presentment for payment"); (iii) to give notice that amounts
due have not been paid (known as "notice of dishonor"); or (iv) to obtain an
official certification of nonpayment (known as "protest") or to give any
Guarantor Notice of any such "protest"; and each Guarantor hereby waives demand,
presentment, presentment for payment, notice of dishonor, protest and notice of
protest, as aforesaid. Each Guarantor hereby further waives notice of
acceptance hereof and any and all other notices to which such Guarantor may be
entitled. Each Guarantor hereby consents and agrees that without any further
notice to, or assent by Guarantor, the liability of Lessee or any guarantor of
the Obligations or Indebtedness may from time to time, in whole or in part, be
extended, renewed, continued, amended, modified, composed, accelerated,
supplemented, compromised, settled or released in Lessor's sole discretion, and
that any collateral for any of the Obligations or Indebtedness or for any
guaranty thereof (including this Guaranty) may from time to time, in whole or
part, be exchanged, sold or surrendered in Lessor's sole discretion. Each
Guarantor hereby agrees that no such extension, renewal, continuation,
amendment, modification, composition, acceleration, supplement, compromise,
settlement, release, exchange, sale or surrender shall in any way impair, affect
or release the liability of any Guarantor hereunder or constitute a waiver of
any of Lessor's rights hereunder.
This Guaranty is unlimited, absolute, irrevocable and unconditional and shall
continue in full force and effect until all the Obligations, Indebtedness and
Indemnities shall have been fully, completely and finally satisfied and paid.
The obligations of each Guarantor hereunder shall continue and survive the
repossession of any equipment or other property leased pursuant to the Lease
Agreement or any of the other Guaranteed Agreements (or any property in which
the Lessor has a security interest securing any of the Obligations, Indebtedness
or Indemnities) whether or not any such repossession constitutes an "election of
remedies" against the Lessee or any other person. Each Guarantor agrees to be
obligated hereunder notwithstanding any termination of the Lease Agreement in
whole or part by operation of law or any unenforceabiltty or invalidity of the
Lease Agreement or any of the other Guaranteed Agreements for any reason
whatsoever (including without limitation, invalidity or voidness ab initio
and/or partial or complete unenforceability as a result of impossibility or
impracticability of performance or frustration of the purpose of the Lease
Agreement or any of the other Guaranteed Agreements). The obligations of the
Guarantors hereunder shall not be subject to any abatement, setoff, defense or
counterclaim for any cause whatsoever.
Each Guarantor hereby agrees that its obligations hereunder are direct and
primary and that the Lessor may proceed directly and in the first instance
against each or any Guarantor or combination of Guarantors and have its remedy
hereunder without first being obliged to resort to any other right or remedy or
security for any of the Obligations, Indebtedness or Indemnitiee; and each
Guarantor hereby waives any right to require the Lessor to proceed against the
Lessee or to proceed against any other Guarantor or to proceed against any other
guarantor of the Obligations or Indebtedness, or to proceed against any security
held from the Lessee or to pursue any other action in power whatsoever.
If there shall be any securities for any of the Obligation or Indebtedness, or
for the obligations of any Guarantor hereunder, or for the obligations of any
other guarantor of any of the Obligations or Indebtedness, the Lessor may
proceed against and/or enforce any or all of such securities in whatever order
in may, in its sole discretion, deem appropriate. Any amount(s) received by the
Lessor from whatever source and applied by it to any of the Obligations,
Indebtedness, or Indemnities shall be applied in such order of application as
Lessor shall from time to time, in its sole discretion, elect.
In the event of any default in regard to any guarantor's obligations hereunder,
or in the event of death, incompetency, termination, dissolution or insolvency
of the Lessee, or if a receiver, liquidator or conservator be appointed for any
part of the property or assets of the Lessee, or if the Lessee makes an
assignment for the benefit of creditors, or if the Lessee shall file a voluntary
petition in bankruptcy or any involuntary petition in bankruptcy shall be filed
against it (whether or not any such event occurs at a time when any of the
Obligations or Indebtedness is otherwise due and payable, and whether or not any
such event gives rise to an enforceable legal right on the part of Lessor to
demand payment of or collect any sums from Lessee or to accelerate the maturity
of any sums to become due and payable thereafter), then, and in any such case,
each Guarantor agrees to pay to Lessor, upon demand, the full amount which would
be payable hereunder by such Guarantor if all the Obligations and Indebtedness
including, but not limited to, any remaining payments owing pursuant to the
Lease Agreement or any of the other guaranteed Agreements, were then due and
payable.
Notwithstanding any provision hereof or any provision of any other instrument or
agreement, or any presumption of applicable law or principle of legal
construction to the contrary: (i) nothing shall discharge or satisfy any
Guarantor's obligations hereunder except full, complete and final payment and
satisfaction of all the Obligations, Indebtedness and Indemnities; (ii) each
Guarantor hereby waives any and all defenses to its obligations hereunder
including, without limitation, any defense
<PAGE>
Guarantor shall have any right of subrogation, and each Guarantor hereby waives
any and all rights of subrogation it may have, to enforce any right or remedy
which the Lessor has or may hereafter have against the Lessee, and waives the
benefits of, and any and all rights to participate in, any security or
securities now or hereafter held by Lessor.
Each Guarantor hereby represents and warrants to Lessor that all information
concerning such Guarantor, including (without limitation) financial statements
and other financial information, furnished to Lessor in connection with the
Lease Agreement or any of the other Guaranteed Agreements, was true, complete
and accurate as of the date of delivery thereof to Lessor, and that all such
information remains true, complete and accurate, and that there have been no
material adverse changes in such Guarantor's financial condition as st the date
hereof. In the event of any breach of any Guarantor's representations and
warranties heroin or any material adverse change in the financial condition of
any Guarantor, upon the request of Lessor, such Guarantor shall promptly furnish
to Lessor such additional security for the performance of such Guarantor's
obligations hereunder ae Lessor may reasonably request,
No notice of termination of this Guaranty shall be effective unless and until
such notice shall be in writing and executed by Guarantor and shall have been
received at Lessor's principal corporate headquarters at 53 N.W. 53rd Street,
Suite 320, Boca Raton, FL 33487; provided, however, that in the event of such
notice, this Guaranty shall continue in full force and effect with regard to all
Obligations and Indebtedness created, existing or arising prior to the date of
such receipt. No modification hereof or amendment hereto and no waiver of any
term or provision hereof shall be valid unless in writing and signed by an
authorized officer of Lessor. No delay or failure on the part of Lessor in the
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by Lessor of any right or remedy shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. No action
of Lessor permitted hereunder shall invalidate or in any way impair this
Guaranty. No waiver of any right or remedy hereunder shall constitute a waiver
of any other or further right or remedy hereunder.
Each Guarantor hereby consents and agrees that without any further notice to, or
assent by Guarantor, this guaranty may he assigned by Lessor and reassigned, in
the sole discretion of the Lessor or its assignee. As used herein, the term
"Lessor" includes the Lessor and any successor or assign of the Lessor. This
Guaranty shall be binding upon each Guarantor, and upon the legal successors,
representatives, and assigns of such Guarantor. Each and every waiver made
heroin by any Guarantor iS and shall be deemed to be and construed as an
absolute, irrevocable and unconditional waiver of the right waived.
This Guaranty is intended to be legal, valid, binding and enforceable in
accordance with its terms. Whenever possible, each term and provision of this
Guaranty shall be interpreted so as to be effective and to effectuate its intent
under applicable law. If any term or provision of this Guaranty shall he
unenforceable, invalid or prohibited in any Jurisdiction under applicable law,
such term or provision shall be ineffective in such Jurisdiction, but only to
the extend of such unenforceability, invalidity or prohibition, and the
remainder of such term or provision, and the other terms and provisions of the
Guaranty, shall not thereby be affected or impaired in such Jurisdiction, nor
shall any of the terms or provision of the Guaranty be thereby affected or
impaired in any way in any other Jurisdiction.
This Guaranty is deemed made and delivered in the State whose laws govern the
Lease Agreement. Each Gearantor agrees that this Guaranty shall be governed by
the construed in accordance with the laws of such State, and that service of
process by certified mail, return receipt requested, will be sufficiant to
confer personal Jurisdiction over such Gearenter for purposes of litigating any
actions arising hereunder in the courts of such State.
This Guaranty is in addition to, and not in limitation or derogation of, any and
all other guaranties of the Obligations or Indebtedness executed by any
Guarantor. In the event of any conflict between the provisions of this Guaranty
and those of any such other guaranty, the provisions of this Guaranty shall
govern.
Each Guarantor hereby agrees and acknowledges that time is of the essence with
regard to the performance of such Guarantor's obligations hereunder. This
Guaranty shall take effect as a sealed instrument.
THE LIABILITY OF THE GUARANTORS HEREUNDER IS JOINT AND SEVERAL. THIS GUARANTY IS
JOINT AND SEVERAL AND WITH ANY AND ALL OTHER GUARANTEES OE ANY OF THE OBLIGATION
OR INDEBTEDNESS. ANY ONE GUARANTOR, OR ANY GROUP OR COMBINATION OF GUARANTORS
{IF MORE THAN ONES, MAY BE REQUIRED TO SATISFY ALL THE OBLIGATIONS AND
INDEBTEDNESS.
IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty to be duly
executed and delivered this ________ DAY OF _____________________, 19____.
*The liability of the guarantor hereunder is limited to $32,570.00.
Witness FRED HOCHMAN
/s/ Kathleen ???? /s/ Fred Hochman
- ----------------------------------- ---------------------------------------
Print Name: As an individual
Witness:
- ----------------------------------- ---------------------------------------
Print Name: As an individual
<PAGE>
STATE OF SOUTH CAROLINA )
) CONSULTING AND
COUNTY OF BEAUFORT ) NON-COMPETITIVE AGREEMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION TO THE EXTENT PROVIDED IN PARAGRAPH 9,
PURSUANT TO THE UNIFORM ARBITRATION ACT, SECTION 15-48-10, ET SEQ., CODE OF LAWS
OF SOUTH CAROLINA, 1976 (AS AMENDED).
THIS AGREEMENT is made this 27th day of July, 1994, by and between THE
TEARDROP PUTTER CORPORATION, its successors and assigns (hereinafter referred to
as the "Owner"), Suite 207 WatersEdge, Shelter Cove, Hilton Head Island, South
Carolina, 29928, and WAYNE RICHARD WOOTEN, his heirs and assigns, Route 1, Box
670, Hazlehurst, Georgia 31539 (hereinafter referred to as the "Consultant").
WHEREAS, the Owner desires to engage the Consultant to serve as a
consultant in connection with Owner's golf equipment manufacturing and sales
business to include the manufacture of the Teardrop Putter in current and future
models (hereinafter referred to as the "Owner's Business"); and
WHEREAS, the Consultant desires to provide to the Owner such consulting
services; and
WHEREAS; this Agreement is executed in order to set forth the respective
functions and obligations of the parties;
NOW, THEREFORE, for and in consideration of Ten and No/100 ($10.00) Dollars
in hand paid by the Owner to the Consultant, of the mutual promises contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, and intending to be legally bound, the
parties hereto agree as follows:
1. Recitals. The above preamble and "Whereas" clauses are incorporated
herein as if restated verbatim.
2. Services. The Owner hereby hires and engages the Consultant on an
exclusive basis to provide the following
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consulting services in connection with the Owner's Business, and the Consultant
hereby accepts such engagement, utilizing such time and effort as the Consultant
solely at his option deems necessary except as herein provided:
(a) The Consultant shall be available to the Corporation to assist and
consult on meeting requests for special variations of the Teardrop Putter
made by the professional golfers from time to time and consult on the
design of new prototype putters
(b) Such other consulting services reasonably related to the Business
of the Corporation as may be requested during the term hereof.
(c) Consultant's services under this contract shall be and are
strictly limited solely to consulting and advising, primarily by telephone,
mail and telefacsimile communications and will not unreasonably interfere
with his regular employment. Consultant shall not be required or requested
to do any design work or hands on work except as may be required to fulfill
requests made by professional golfers as provided at subparagraph (a)
above.
(d) If Owner desires Consultant to do any design work, all such design
work shall be optional (except as to requests for professional golfers)
with Consultant and performed on an "as available" basis only and
compensation for such design work shall be as provided under subparagraph
12(d) for new models placed into production by Owner plus compensation for
actual design time as provided for in paragraph 13.
Services shall be provided hereunder at the request of the Owner but shall
not exceed eight (8) hours per month for a period of twenty-four (24) months
from the date of this Agreement.
3. Description of the Owner's Business. The Owner's Business is the
development, manufacture and sale of golf putters and other golf equipment.
4. Contract Approval by the Consultant. Any contract or agreement to which
the Owner is a party and which may place any responsibility, duty or obligation
on the Consultant must be approved by the Consultant prior to its
implementation.
5. Term. The term of this Agreement shall be for a period of twenty-four
(24) months, beginning on the date hereof, however, Owner's obligations to
compensate Consultant shall be for a minimum of four (4) years or as otherwise
provided elsewhere herein.
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6. Independent Contractor. The Consultant hereby acknowledges that it is an
independent contractor of the Owner, and that it shall be responsible for all
Internal Revenue Service and state reporting and withholding and other related
labor reporting and record keeping requirements of the Consultant.
7. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall be settled by arbitration in accordance
with South Carolina Code of Laws Section 15-48-10, et seq., as amended, and
judgment upon the award rendered may be entered in any court having
jurisdiction.
8. Confidentiality. The Consultant shall not, during the term of this
Agreement or thereafter, disclose to others or use, except as authorized by the
Owner, any of the Owner's confidential, technical or other business information.
"Confidential, technical or other business information" shall mean any
information (including lists of the Owner's clients and customers) which the
Consultant has used, learned, or contributed to during the term of this
Agreement or acquired during the course of providing services hereunder whether
it is written or other tangible form that is not generally available to the
public, and gives one who uses it a competitive advantage over the Owner. Use of
any such information by Consultant which is generally known in the trade or is
easily obtainable from other sources shall not be in violation of this
restriction. The Consultant shall not during the term of this Agreement or
thereafter use or make any references to the Teardrop name or logo, including
any tradenames, in any commercial activity or venture related to the sale and/or
marketing of golf equipment and related products. References to Seller as
designer and/or developer of the Teardrop putter and other putters or products
designed by Seller for the Corporation in any publication where said references
are of an editorial or informative nature in describing Seller's past
achievements and which are not originated by Seller for advertising or
promotional purposes shall be permitted as an exception to the above.
Upon termination of this Agreement, the Consultant shall surrender to
the Owner any and all materials, including but not limited to, drawings,
manuals, reports, documents, list of Owner's suppliers and customers,
photographs, blue prints, design drawings and the like (including all copies
thereof), models of prototype putters that the Consultant has prepared for
Owner's Business or has in his possession relating to the business of the Owner,
or its affiliates. The Consultant acknowledges that all such material is the
property of the Owner solely and that he does not have any right, title, or
interest in or to such materials. However, this requirement does not apply to
any work product of Consultant which
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does not directly relate to either golf putters or other products on which
Consultant has worked or designed for Owner.
The Consultant acknowledges that the remedies at law for any breach by the
Consultant of this Paragraph 8 will be inadequate and that the Owner shall be
entitled to injunctive relief, without bond, against either or both of them in
the event of any such breach. If any court of competent jurisdiction shall hold
that the restrictions contained in this article are unreasonable as to time or
geographical area, such restrictions shall be deemed to be reduced to the extent
necessary, in the opinion of such court, to make them reasonable.
9. Security. The Consultant's compensation for the term of hereof and the
Consultant's covenant not to compete shall be secured by the personal guaranty
of Fred K. Hochman in the form attached hereto as Exhibit A.
10. Consultant to Fully Indemnify The Owner. The Consultant shall indemnify
the Owner, its affiliated companies, and shareholders and save them harmless
from and against any and all claims, common actions, damages, liabilities, and
expense in connection with loss of like, personal injury, and/or damage to the
property and/or monetary loss arising from or out of any occurrence, act or
omission arising out of Consultant's services under this Agreement including any
representations or statements made by the Consultant. The Consultant shall also
pay all costs, expenses, and reasonable attorneys' fees that may be incurred or
paid by the Owner in enforcing the covenants and agreements of this Agreement.
This indemnification shall survive the termination of this Agreement.
In addition to the above general indemnification, the Consultant shall
indemnify the Owner and its affiliated companies and shareholders from any
penalty, interest, or claims which may be incurred by the Owner of the
shareholders for a period of two (2) years after the date of this Agreement.
11. Covenant Not To Compete. Consultant hereby represents, warrants and
covenants to Owner that neither he, nor any entity or enterprise in which he has
an ownership interest or exercises any degree of control, shall provide services
and/or products regarding the design, manufacture, sale, marketing or
distribution of golf putters for a period of two (2) years from the date hereof,
in the entire world. This prohibition specifically includes operating, advising,
representing, becoming an employee or independent contractor of, rendering
services to, selling products to, designing putters for, being an officer or
director of any person or entity engaged in the design, manufacture, sale,
marketing or
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distribution of golf putters. Owner expressly reserves the right to use
Consultant's name in connection with the promotion, marketing and sales of any
putters or other products designed or developed by Consultant for Owner for as
long as royalties are being paid to Owner hereunder.
12. Compensation for Consulting And None Competitive Agreement. In exchange
for Consultant's agreement not to compete, Owner agrees to pay Consultant
royalties on the sale of putters and other equipment developed, designed or
modified by Consultant as follows:
(a) Fifty ($0.50) Cents per putter for each and every putter sold by
Owner during the first six (6) months from the Date of Closing (beginning
with the Date of Closing).
(b) For each and every putter sold by Owner for the period beginning
six (6) months after the Date of Closing through the day immediately
preceding the first anniversary date of the Agreement, Consultant shall be
paid by Owner at the following rates, to wit: One ($1.00) Dollar per putter
for each of the first Forty Thousand (40,000) putters sold by Owner, plus
Two ($2.00) Dollars per putter for each putter sold by Owner in excess of
Forty Thousand (40,000).
(c) For each and every putter sold by Owner beginning on the first
anniversary date of this Agreement, Owner shall pay Consultant as follows:
One ($1.00) Dollar per putter for each of the first Forty Thousand (40,000)
putters sold by Owner each year for the second, third and fourth year
immediately following the date of this Agreement, plus Two ($2.00) Dollars
per putter for each putter sold by Owner in excess of Forty Thousand
(40,000) in each of the same three (3) years. The anniversary date of this
Agreement shall be the beginning date for calculating the number of putters
sold annually in the second, third and fourth years under this Agreement.
For every "cavity back" putter sold by Owner, in lieu of the above, Owner
shall pay Consultant Two and No/10 ($2.00) Dollars for a term of four (4)
years following the date of the first sale of such putters.
(d) For each new putter design or modification or other product
developed or designed by Consultant and accepted by Owner for production as
hereinafter defined, Owner shall pay Consultant as follows: Three ($3.00)
Dollars for each putter with a new design or modification developed by
Consultant and sold by Owner during the four (4) year period immediately
following the date of the first sale of such putter with a new design or
modification or other product designed by Consultant. This obligation of
Owner shall continue even if Owner's other obligations to pay Consultant
under this
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Agreement have expired. This payment shall be made to Consultant in lieu
of payment due under subparagraphs (a), (b) and (c) above if the putter or
other product is a new product or modification made by Consultant and
accepted by Owner for production.
(e) All royalties due by Owner to Consultant hereunder shall be paid
to Consultant by Owner quarterly, July, 1994 being the first month of the
first such quarter. The first such payment shall be due following the end
of September, 1994. The first quarterly payment shall include only putters
sold in July, 1994 on or after the Date of Closing. The last quarterly
payment shall include only putters sold through the fourth anniversary date
of this Agreement. Royalties due by Owner to Consultant for new putter
designs and modifications and new product designs likewise shall be paid
quarterly on the same date as the royalties are due Consultant hereunder
for all other putters (even though the first and last quarterly payments
may cover a period of less than three (3) full months).
(f) In addition to all other compensation, Owner agrees that for so
long as Owner is obligated to make royalty payments hereunder to pay
Consultant a bonus of Five Thousand ($5,000.00) Dollars each time any major
professional golfing event or tournament is won by a player using a
Teardrop putter or any other product designed by Consultant and sold by
Owner, said sum to be paid to Consultant by Owner no later than ninety (90)
days after the closing day of each such tournament or event.
Owner shall notify Consultant with five (5) days in writing after
each such tournament win. For the purpose of this Agreement, "major
professional golfing events and tournaments" shall be defined as all
televised PGA Tournaments, the Master Tournament, the British Open
Tournament and the U.S. Open.
(g) Owner's obligations hereunder to pay royalties and bonuses to
Consultant extend beyond the expiration of Consultant's obligations
hereunder not to compete, and Owner acknowledges that Consultant's right to
receive all putter royalties and bonuses required to be paid to Consultant
hereunder will have been fully earned at the end of two (2) years from the
date of this Agreement, even though Owner's obligations to pay Consultant
royalties continue for two (2) more years thereafter for all putters, and
for periods of four (4) years after any newly designed or modified putter
or other product developed or designed by Consultant is first sold by
Owner.
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(h) All funds and correspondence require to be sent to Consultant
shall be mailed or delivered by Owner to Consultant at Route 1, Box 670,
Hazlehurst, Georgia 51539, or at such other address as Consultant may
advise Owner in writing.
(i) Owner agrees to send Consultant a complete and detailed
production and sales report each month beginning with the date of Closing.
Each report shall reflect the total number of buyer's putters (and other
products, if any, for which Consultant is entitled to receive a royalty),
produced and sold by Owner in the monthly period covered by the report.
Owner shall continue to send such monthly reports to Consultant as long as
Consultant is entitled to receive compensation from Owner under this
Agreement. Each such monthly report shall be sent to Consultant no later
than fifteen (15) days following the last day of the period covered by the
report.
(j) All royalties to which Consultant is entitled hereunder shall be
due and shall be paid by Owner no later than the fifteenth (15th) day
following the end of the quarter in which the royalties have been earned as
set forth in this Agreement. Owner agrees to pay Consultant a five (5)
percent late charge for any payment due Consultant which is not received by
Consultant by the fifteenth (15th) day following the end of each quarterly
period Consultant is due royalties.
(k) In the event Consultant must collect any sum due him from Owner
hereunder, Owner agrees to pay all of Consultant's expenses of collection,
including all legal and court costs.
(l) Consultant is not an employee of Owner and the funds to be paid
Consultant hereunder by Owner constitute compensation for Consultant's
agreement not to compete with Owner, and/or the future design and
modification of putters and other products as set forth in this Agreement.
(m) For purposes of this Agreement, a putter or other product for
which Consultant is entitled to receive a royalty hereunder, shall be
considered "sold" as of the date the putter or other product is actually
shipped by Owner; the "date of the first sale" of such item shall also be
the first date of shipment of such item provided, however, that putters
ordered prior to Closing shall not be included in calculating the within
described royalty for the first six (6) months after Closing
notwithstanding the date the putters are shipped. Owner's monthly reports
to Consultant shall reflect the date of shipment of all putters and other
products designed by Consultant. In addition, monthly reports for the
first six (6) months shall reflect the date putters were ordered.
Notwithstanding the foregoing, Consultant is not entitled to
receive a royalty twice for the same putter. There will be paid only one
royalty to Consultant the first time each putter is "sold". Anytime Owner
has to take back a putter which Owner has already paid a royalty for, Owner
shall not pay Consultant a royalty when or if that putter is returned to
Owner (without having been paid for) and then is "sold" the second time by
Owner.
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Notwithstanding the foregoing, for purposes of making the final
quarterly payment due Consultant at the end of the fourth (4th) year as
provided above, the word "sold" herein shall also include all putter and
other products for which orders have been received by Owner either through
the fourth anniversary date of this Agreement as to putter designs
currently being manufactured by Owner or the fourth (4th) anniversary date
since the first newly designed putter or other products were shipped by
Owner (as to newly designed putters and other products), even though such
putters or other products may not have been manufactured or shipped by
Owner as of said fourth (4th) anniversary date.
(n) Consultant's death shall in no manner lessen or terminate Owner's
obligation to pay Consultant hereunder, and in the event of Consultant's
death, Consultant's heirs and/or estate shall be entitled to receive all
compensation due Consultant hereunder following Consultant's death.
(o) For purposes of this Agreement, the newly designed putter or
putters or other products shall include all putter(s), putter designs and
modifications and other product designs designed or developed by Consultant
after the date of Closing of the Stock Purchase Agreement or even date.
For purposes of clarification, if Consultant redesigns the existing
Teardrop Tour Model to prevent bounce (the "radius face" or "arch face"),
said redesign shall be a newly designed putter. However, the original
Wooten I, the Wooten II, the Teardrop Tour Model, the Teardrop with a flat
face, including the modified smaller flat face and the cavity back putters
are not newly designed putters for purposes of this Agreement. For
purposes of this Agreement, a new design shall be considered submitted to
Owner on the date drawings or plans are delivered by Consultant to Owner
which are detailed to the extent necessary to permit production of a
finished product based on such drawings or plans.
The agreement to pay the compensation not to compete is independent of
all other agreements, and Owner shall be obligated to pay same notwithstanding
any other agreements to the contrary as long as Consultant complies with this
Consulting and Non-Competitive Agreement.
13. Additional Compensation for Consultant.
(a) Consultant shall not receive any additional compensation for the
first eight (8) hours of consultation and advice each month for the twenty-
four (24) month period his is to be a consultant hereunder.
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(b) Consultant shall be paid an additional Twenty-Five and No/100
($25.00) Dollars per hour for each hour in excess of eight (8) hours per
month he provides consulting services to Owner each month. Notwithstanding
the foregoing, Consultant shall not be required to perform any consulting
work beyond eight (8) hours per month; any additional consulting work is
solely option with the Consultant. All payments due Consultant under this
paragraph shall be paid by Owner on the fifteenth (15th) day of the month
following the month those additional services are rendered
(c) The Consultant shall be reimbursed for all reasonable and
authorized expenditures, such as travel and entertainment, which he may
incur in promoting the business of the Owner provided such activities shall
be approved in advance by the Owner. Such authorized expenditures will be
reimbursed upon presentation by the Consultant to the Owner of an itemized
accounting of such expenditures and receipts relating thereto in the form
requested by the Owner.
14. Illegal Compensation. The Consultant agrees that he shall not, to the
best of his knowledge, nor shall he allow anyone under his supervision to
receive from a third party directly or indirectly, any bribes or kickbacks
regardless of form, whether in money, property or services in connection with
any business transaction related to his services hereunder or the Business of
the Owner. All compensation to the Consultant relating to any business
transaction in which the Owner is involved shall be made by the Owner only.
15. Miscellaneous.
(a) No person who is not a party to this Agreement shall have any equitable
or other rights by virtue of this Agreement.
(b) If any term or provision of this Agreement should be determined to be
invalid or unenforceable, such term or provision shall, if possible, be changed
to the most minor extent necessary to make it valid and enforceable and to carry
out the intent of the parties. In such event, all remaining terms and provisions
of this Agreement shall remain in full force and effect with such change or
without the affected term or provision, as the case may be.
(c) This Agreement constitutes the entire Agreement of the parties and
supersedes all prior written or oral and all contemporaneous oral agreements,
understandings, and negotiations between the parties.
(d) This Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute one and the same
documents.
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(e) This Agreement and any rights herein granted are personal to the
parties hereto, and shall not be assigned, encumbered, or otherwise transferred
by any party without the prior written consent of the other parties provided,
however, that in the event of the sale of all or substantially all of the assets
of the Owner or [ILLEGIBLE] this Agreement may be assigned without the written
permission of the Consultant. Any attempt at violative assignment, encumbrance,
or other transfer, whether voluntary or by operation of law, shall be void and
of no force and effect.
(f) Failure of any party to complain of any act or omission on the part of
any other party, no matter how long the same may continue, shall not be deemed
to be a waiver by any part of its rights under this Agreement.
(g) This Agreement shall be binding on the parties hereto, their
successors, assigns and legal representatives.
(h) Notice by any party is deemed given when personally delivered or
mailed, postage prepaid, addressed to the other parties at the address appearing
below:
As to Owner: The Teardrop Putter Corporation
Suite 207 WatersEdge, Shelter Cove
Hilton Head Island, SC 29928
Attention: Mr. Fred K. Hochman
With copy to: Charles A. Scarminach, Esquire
Novit & Scarminach, P.A.
Post Office Drawer 14
Hilton Head Island, SC 29938
As to Consultant: Mr. Wayne Richard Wooten
Route 1, Box 670
Hazlehurst, Georgia 31539
With copy to: Lamar A. Elder, Jr., Esquire
107 Jeff Davis Street
Hazlehurst, Georgia 31539
(i) Nothing in this Agreement shall be considered to create the
relationship of employer and employee between the parties hereto and the
Consultant shall be deemed at all time to be an independent contractor.
(j) The Corporation and Owner will provide Consultant with reasonable
quantities of prototypes, samples and production models
10
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of all newly designed and modified putters and other products designed or
modified by Consultant for Consultant's personal use and evaluation, all at no
charge to Consultant.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
WITNESSES: OWNER:
THE TEARDROP PUTTER CORPORATION
/s/ Charles A. Scarminach /s/ Fred K. Hochman
- --------------------------------- By: ---------------------------------
Fred K. Hochman
Its: President
/s/ Marjorie Anne Bussey /s/ Brian R. Hochman
- --------------------------------- Attest: ----------------------------
Brian R. Hochman
Its: Secretary
(corporate seal)
CONSULTANT
/s/ [Illegible] /s/ Wayne Richard Wooten
- --------------------------------- --------------------------------------
WAYNE RICHARD WOOTEN
/s/ Gina Hamm
- ---------------------------------
11
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EXHIBIT A
---------
GUARANTY OF CONSULTING AND NON-COMPETITIVE AGREEMENT
12
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STATE OF SOUTH CAROLINA )
) GUARANTY OF CONSULTING AND
COUNTY OF BEAUFORT ) NON-COMPETITIVE AGREEMENT
THIS GUARANTY is given by FRED K. HOCHMAN, the undersigned, to WAYNE
RICHARD WOOTEN.
The undersigned, in consideration of the Agreement by Wayne Richard Wooten
as consultant to, and not to compete with, The Teardrop Putter Corporation, a
South Carolina corporation, under that certain Consulting and Non-Competitive
Agreement of even date herewith (the "Agreement"), does hereby covenant with
Wayne Richard Wooten that if default shall, at any time, be made by The Teardrop
Putter Corporation in the payment of compensation for the Consulting and Non-
Competitive Agreement, the undersigned will pay to Wayne Richard Wooten,
compensation or any arrears thereof, and all costs of collection including
accounting fees, attorney's fees and court costs, on receipt of written notice
of such default from Wayne Richard Wooten, his personal representative or
assigns. The Guaranty shall be a continuing Guaranty, and the liability
hereunder shall in no way be affected or diminished by reason of any extension
of time that may be granted by Wayne Richard Wooten to The Teardrop Putter
Corporation. This Guaranty is irrevocable.
Notwithstanding anything herein to the contrary, Wayne Richard Wooten shall
not be required to exhaust his legal remedies against The Teardrop Putter
Corporation for any breach of the Agreement prior to proceeding against the
undersigned.
IN WITNESS WHEREOF, the undersigned has signed this Guaranty this 27th day
of July, 1994.
/s/ Charles A. Scarminach /s/ Fred K. Hochman
- --------------------------------- ---------------------------------
FRED K. HOCHMAN
/s/ Marjorie Anne Bussey
- ---------------------------------
<PAGE>
EXHIBIT 24.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Registration Statement of TearDrop Golf Company
on Form SB-2 of our report dated September 28, 1996 except for Note 13 as to
which the date is October 21, 1996 on the financial statements of TearDrop Golf
Company, and to the reference to our firm under the caption "Experts" in such
Prospectus.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
October 21, 1996
