As filed with the Securities and Exchange Commission on October 10, 1997
Registration No. 333-14647
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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TEARDROP GOLF COMPANY
(Name of small business issuer in its charter)
Delaware 3949 57-1056600
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification
incorporation or organization) Code Number) Number)
1080 Lousons Road
Union, New Jersey 07083
(908) 688-4445
(Address and telephone number of principal executive offices)
1080 Lousons Road
Union, New Jersey 07083
(Address of principal place of business or intended
principal place of business)
Mr. Rudy A. Slucker
Chairman and Chief Executive Officer
1080 Lousons Road
Union, New Jersey 07083
(908) 688-4445
(Name, address and telephone number of agent for service)
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Copies of Communications to:
Jeffrey A. Baumel, Esq.
Crummy, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Telephone: (201) 596-4500
Fax: (201) 639-6260
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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.
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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>
PRELIMINARY PROSPECTUS, DATED OCTOBER 10, 1997 - SUBJECT TO COMPLETION
PROSPECTUS
1,687,500 SHARES OF COMMON STOCK AND
125,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
TEARDROP GOLF COMPANY
This Prospectus relates to an offering by TearDrop Golf Company
("Company" or "TearDrop") of an aggregate of 1,437,500 shares of common stock
("Common Stock") issuable upon the exercise of Redeemable Common Stock Purchase
Warrants (the "Warrants", and collectively with the Common Stock, the
"Securities"). Each Warrant entitles the holder (the "Warrant Holders") to
purchase one share of Common Stock for $5.50 during the five-year period ending
on December 19, 2001. 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 145.5% of the then-exercise price of the
Warrants (initially $8.00) for the 20 consecutive trading days ending on the
third day prior to the date on which notice is given. See "Description of
Securities."
This Prospectus also relates to 125,000 shares of Common Stock and
125,000 Warrants that may be offered and sold by certain stockholders and
125,000 shares of Common Stock issuable upon the exercise of such Warrants. The
Shares of Common Stock and Warrants to be offered by certain stockholders are
issuable upon exercise of an option (the "Representatives' Purchase Option")
issued on December 26, 1996 in connection with the Company's initial public
offering (the "Initial Public Offering").
The securities underlying the Representatives' Purchase Option may be
offered from time to time by the Warrant Holders through ordinary brokerage
transactions in the over-the-counter markets, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices. The Company will receive all of the proceeds from the sale of the Common
Stock to the Warrant Holders upon the exercise of their Warrants. The Company
will not receive any proceeds from the sale of any of the 125,000 shares of
Common Stock or 125,000 Warrants underlying the Representatives' Purchase
Option. The Company has agreed under certain conditions to pay GKN Securities
Corp. and Kirlin Securities, Inc., the Representatives of the underwriters for
the Company's Initial Public Offering (the "Representatives"), a commission
equal to 5% of the exercise price for each Warrant exercised after December 17,
1997 if the exercise was solicited by either of the Representatives.
If all of the Warrants are exercised, of which there can be no
assurance, the Company could receive gross proceeds of up to $9,542,500. Any
proceeds received by the Company from such exercises, less any commissions and
expenses, will be used for repayment of certain indebtedness and for working
capital and general corporate purposes. See "Use of Proceeds."
The Company's Common Stock and Warrants are quoted on the Nasdaq
SmallCap Market under the symbols "TDRP" and "TDRPW", respectively. On September
30, 1997, the closing prices of the Common Stock and Warrants as quoted on the
Nasdaq SmallCap Market were $5.625 and $1.438, respectively.
------------------
The Securities offered hereby are speculative in nature and involve a high
degree of risk and substantial dilution. See "Risk Factors" at page 5 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.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The date of this Prospectus is ________________, 1997
<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 TearDrop7 line
of putters and its new line of Spin MasterJ wedges. The TearDrop putter is used
by professional golfers on the Professional Golf Association ("PGA") Tour, the
Senior PGA Tour and the Nike Tour. The Company introduced its first product, the
TearDrop putter, in 1993, and has since developed and introduced numerous
additional putters, all based on the TearDrop putter technology. The TearDrop
putter features a rounded hitting surface rather than the flat hitting surface
found on most other putters. This technology is intended to allow for the
striking of the ball directly at or below center, and is designed to eliminate
most skidding and develop a high overspin, resulting in a superior roll for more
precise putts. The Company now markets 12 putters. In 1997, the Company
introduced a new line of four different Spin Master Wedges.
The Company's objective is to become a leading supplier of high-quality
specialty clubs, including putters and wedges and, in the longer term,
additional clubs. To achieve this objective, the Company is focusing on
increasing awareness, as well as 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 continues to expend substantial
resources. The Company's domestic marketing strategy targets on-course golf pro
shops and selected off-course specialty stores and includes print advertising,
television commercials and infomercials and other promotional activities. An
important feature of the Company's overall marketing effort is 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 the Company regarding future
product introductions and existing product refinements.
The Company's executive offices are located at 1080 Lousons Road,
Union, New Jersey 07083 and its telephone number is (908) 688-4445. 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 as part of the Reincorporation. The purpose of the
Reincorporation was solely to provide for the reincorporation and
3,333.33-for-one stock split and no change in beneficial ownership occurred as a
result of the Reincorporation.
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<PAGE>
The Offering
Securities Offered 1,437,500 shares of Common Stock underlying
1,437,500 Warrants, 125,000 shares of Common
Stock included as part of the
Representatives' Purchase Option, 125,000
Warrants included as part of the
Representatives' Purchase Option and 125,000
shares of Common Stock underlying Warrants
included as part of the Representatives'
Purchase Option. Each Warrant entitles the
registered holder thereof to purchase one
share of Common Stock for $5.50 during the
five-year period ending on December 19, 2001.
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
145.5% of the then- exercise price of the
Warrants (initially $8.00) 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 2,242,500 shares
Prior to the Offering (1)
Common Stock to be 3,930,000 shares
Outstanding After
the Offering (1)(2)
Nasdaq SmallCap Market Common Stock: TDRP
Symbols Warrants: TDRPW
- --------------
(1) Based on shares outstanding as of the date of this Prospectus. Does not
include outstanding options to acquire an aggregate of 392,000 shares of
Common Stock.
(2) Assumes the issuance of 1,437,500 shares of Common Stock upon the exercise
of Warrants, the issuance of 125,000 shares of Common Stock included as
part of the Representatives' Purchase Option and the issuance of 125,000
shares of Common Stock underlying Warrants included as part of the
Representatives' Purchase Option.
Use of Proceeds
The Company may receive up to $9,542,500 of gross proceeds if all of
the Warrants are exercised by the Warrant Holders, of which there can be no
assurance. Any proceeds received by the Company from time to time upon exercise
of Warrants, less any commissions and expenses, will be used for repayment of
certain indebtedness to, among others, the Company's Chairman, President and
Chief Executive Officer and for working capital and general corporate purposes.
The Company will receive no proceeds from the sale of any Warrants or shares of
Common Stock by any selling security holders. 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;
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<PAGE>
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."
Summary Financial Information
The summary financial data presented below for the fiscal years ended
December 31, 1995 and December 31, 1996 is derived from the audited financial
statements of the Company included herein. The summary financial data as of and
for the six months ended June 30, 1996 and June 30, 1997 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 six months ended June
30, 1996 and June 30, 1997 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 six 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.
Six Months Ended Years Ended
June 30, December 31,
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1997 1996 1996 1995
---- ---- ---- ----
Statement of
Operations Data:
Sales $ 1,404,481 $ 475,412 $ 847,358 $ 1,057,306
Loss from operations (2,191,121) (168,159) (736,098) (434,637)
Net loss (2,150,583) (251,586) (910,365) (542,425)
Net loss per common
share $ (.99) $ (.34) $ (1.15) $ (.72)
Weighted average
number of
common shares
outstanding 2,162,638 750,000 791,100 750,000
June 30, 1997 December 31, 1996
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Balance Sheet Data:
Working capital $ 2,230,913 $ 3,702,265
Total current assets 3,064,001 5,127,224
Total assets 3,345,996 5,324,374
Total liabilities 1,290,427 1,884,768
Accumulated deficit (4,432,537) (2,281,954)
Total stockholders' equity $ 2,055,569 $ 3,439,606
Unless otherwise indicated, all share, per-share and financial
information set forth herein is based upon the weighted average number of shares
outstanding, as adjusted to give effect to the Reincorporation.
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<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. 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 $1,404,000 during the
six months ended June 30, 1997 and net sales of approximately $847,000 during
1996, the Company has incurred operating losses since its inception, which
losses have continued to date. During the six months ended June 30, 1997, the
Company incurred a net loss of approximately $2,151,000 and at June 30, 1997,
the Company had an accumulated deficit of approximately $4,433,000. The Company
had accounts receivable, less allowance for doubtful accounts, of $548,880 at
June 30, 1997. The Company has provided extended payment terms to several
distributors in order to encourage initial purchases of its clubs. Accordingly,
approximately 16% of such accounts receivable are over 90 days old at June 30,
1997. The Company does not anticipate that it generally will extend such liberal
payment terms in the future, except in certain limited circumstances where it is
necessary to access distributors that are perceived by the Company to have the
ability to enhance market exposure and penetration of the Company's products.
The Company has not experienced significant collection problems or credit risks
in the past. See Financial Statements and "Management's Discussion and Analysis
of Financial Condition and Plan of Operations."
Continued Losses Expected. 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. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations."
Working Capital Shortfalls; 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. The Company has been primarily dependent upon sales of its equity
securities and other financing in order to maintain its operations. The
Company's expenditures and commitments for advertising and marketing have been
substantial and the Company must continue to incur such costs in order to
continue to increase consumer awareness of its products. If the Company's sales
do not increase substantially to cover its expenditures, it will be required to
limit its advertising expenditures and expansion plans or seek additional
financing in order to continue operations. The inability to obtain additional
financing when needed would have a material adverse effect on the Company's
liquidity, 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. 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.
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See "Use of Proceeds", "Management's Discussion and Analysis of Financial
Condition and Plan of Operations" and Financial Statements.
Dependence on Key Personnel; Limited Industry Experience. 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 its Chief
Executive Officer and Chairman of the Board, Rudy A. Slucker. The Company
maintains "key person" life insurance in the amount of $1,000,000 on the life of
Mr. Slucker under which the Company is the sole beneficiary. Although the
Company has entered into an employment agreement with Mr. Slucker which expires
on December 31, 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. Management has only a limited history
in the golf club industry. 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."
Immediate and Substantial Dilution; Higher Per-Share Price Paid by
Warrant Holders Upon Exercise of Warrants Compared to Existing Stockholders.
Purchasers of the Securities offered hereby will incur an immediate and
substantial dilution of approximately 48.2% 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 $2.85 per share as compared with the exercise
price of $5.50 per share of Common Stock. Because Warrant Holders upon exercise
of the Warrants will pay a substantially higher price per share of Common Stock
than the average per-share price paid by existing stockholders, purchasers in
this Offering will have a greater loss on their investment than existing
stockholders in the event of declines in the market price of the Company's
Securities. See "Dilution."
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. The Company has entered into endorsement agreements
with 25 touring professionals which generally are for a one-year term and
provide for certain payments by the Company to the touring professionals in
consideration for their using a TearDrop putter and bonuses based on tournament
performance. The Company's endorsement agreement with Brett Ogle extends through
December 31, 1998 and provides for certain minimum payments during the years
ended December 31, 1997 and 1998 and for certain bonuses based on tournament
performances and sales. 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
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<PAGE>
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 the 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 Union, New Jersey facility. The Company does
not manufacture the components required to assemble its golf clubs. The Company
relies on three suppliers 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. 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 any 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."
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 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 year ended December 31, 1996, and during the six months
ended June 30, 1997, sales to international customers, primarily through one
distributor which markets products in Japan, accounted for approximately 36% and
2% 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. The Company has entered into an exclusive Distribution Agreement
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with Williams Worldwide Television providing Williams Worldwide Television with
the exclusive right to market the TearDrop golf clubs in Australia, Japan,
Korea, Malaysia and New Zealand. 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 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 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 assurance 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. There can be no
assurance 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. No assurance
can be given that any new products will receive USGA approval or that existing
USGA standards will not be revised in ways that adversely affect the sales of
the Company's products. See "Business-Products" and "-Regulatory Matters."
Management of Growth. 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 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.
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 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."
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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 in the foreign countries
where 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.
Uncertainty of Proprietary Rights; Expense of Intellectual Property
Litigation. The Company relies on a combination of patents, trademarks 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."
Competition. The market for high quality, premium-priced golf clubs is
highly competitive and includes a number of well-established companies that have
more readily recognizable brand names and a 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 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 which are
perceived to enhance performance, are visually appealing or appeal to other
consumer preferences. Further, the golf club industry is subject to rapid and
widespread imitation of golf club designs which, not withstanding the existence
of any proprietary rights, could further hamper the Company's ability to
compete. 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. The Company faces competition on the basis of
price, reputation and qualitative distinctions among available products. There
can be no assurance as to the market acceptance of the Company's golf clubs in
relation to its competition. See "Business-Competition."
Broad Discretion in Application of Net Proceeds. The Company intends to
use the net proceeds received upon the exercise of the Warrants, the amount of
which there can be no assurance, for working capital and general corporate
purposes, and accordingly, management will have broad discretion in the
application of such proceeds. See "Use of Proceeds."
Use of Portion of Proceeds of Exercise of Warrants to Repay Insider
Indebtedness. The Company has agreed to allocate $400,000 (plus interest) of the
proceeds, if any, received by the Company upon the exercise of the Warrants to
repayment of indebtedness owed by the Company to
9
<PAGE>
Rudy Slucker, President and Chairman of the Board of the Company. See "Use of
Proceeds" and "Certain Transactions."
Control of the Company by Officers and Directors. The Company's
officers and directors beneficially own approximately 37% 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."
Potential Limited Trading Market; Possible Volatility of Stock Price;
Potential Effects of "Penny Stock" Rules. Although the Common Stock and Warrants
are quoted on the Nasdaq SmallCap Market, in order to continue such quotation,
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 in the non-Nasdaq over-the-counter
market. As a result of such delisting, an investor may find it more difficult to
dispose of or to obtain accurate quotations as to the market value of the
Company's Securities. In addition, if the Common Stock was to become delisted
from trading on Nasdaq and the trading price of the Common Stock was less than
$5.00 per share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage them
from effecting transactions in the Common Stock and Warrants, which could
severely limit the liquidity of the Common Stock and Warrants and the ability to
sell the Common Stock and Warrants in the secondary market.
The exercise price and other terms of the Warrants were established by
negotiation between the Company and the underwriters for the Company's initial
public offering 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."
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
10
<PAGE>
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 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 145.5% of the then-exercise price of the Warrants
(initially $8.00) 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 and Potential Issuances of
Bonus Shares. As of the date of this Prospectus, there are outstanding options
to purchase an aggregate of 392,000 shares of Common Stock at per-share exercise
prices ranging from $2.50 to $4.75. The Company has reserved 200,000 shares for
issuance under the 1996 Employee Stock Option Plan, has granted five-year
options to acquire 250,000 shares of Common Stock for $4.50 per share to Rudy A.
Slucker, the Chairman of the Board, President and Chief Executive Officer of the
Company and may grant five-year options to purchase up to an aggregate of
250,000 shares of Common Stock for $4.50 per share to touring golf professionals
who perform consulting and promotional services for the Company. Under the
promotional agreements with the Company's golf professionals, the Company may be
required to grant additional stock options if the professional satisfies certain
conditions such as winning a golf tournament. If the Company's professionals win
a large number of tournaments, the number of additional options granted could be
substantial. The exercise of such outstanding options, the Warrants and
Representatives' Purchase Option would dilute the then-existing stockholders'
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. The Company's employment agreement with Rudy A. Slucker, its Chairman
and Chief Executive Officer provides that Mr. Slucker is entitled to receive a
bonus equal to 10% of the Company's pre-tax net income starting with the year
ending December 31, 1997. Such bonus will be payable to the extent of 50% of
such amount in cash and the remaining 50% in the form of Common Stock of the
Company. The issuance of these additional shares could also have an adverse
effect on the liquidity of the Company's Common Stock. See "ManagementnEmployee
Benefit Plans," "Certain Transactions," "Description of Securities" and
"Underwriting."
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
11
<PAGE>
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. See "Dividend Policy."
12
<PAGE>
DILUTION
The difference between the per share exercise price of the Warrants 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. 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
June 30, 1997, the Company had a net tangible book value of $2,027,915, or
approximately $.93 per share of Common Stock (based on 2,187,500 shares of
Common Stock outstanding at June 30, 1997). After giving effect to the exercise
of the Warrants (less commissions 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 $11,044,353, or approximately $2.85 per
share. This represents an immediate increase in net tangible book value of
approximately $1.92 per share to existing stockholders and an immediate dilution
of approximately $2.65 per share or approximately 48.2% to Warrant Holders who
exercise the Warrants. The Company will not receive any proceeds from the sale
of any shares of Common Stock or Warrants by selling security holders.
The following table illustrates the per share dilution without giving
effect to operating results of the Company subsequent to June 30, 1997.
Public offering price of the Securities $5.50
Pro forma net tangible book value before Offering $ .93
Increase attributable to investors in this Offering $1.92
-----
Pro forma net tangible book value after Offering $2.85
-----
Dilution to investors in this Offering $2.65
=====
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 and by Warrant Holders who exercise the Warrants.
<TABLE>
<CAPTION>
Number of Amount of Average
Shares Total Price Per
Purchased Percent Consideration Percent Share
--------- ------- ------------- ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,187,500 56.4% $ 7,677,301 44.6% $3.51
Investors in this Offering 1,687,500 43.6 9,542,500 55.4 $5.65
--------- ----- ----------- -----
Total 3,875,000 100.0% $17,219,801 100.0%
========= ===== =========== =====
</TABLE>
The foregoing analysis assumes the exercise of all the Warrants, the
Representatives' Purchase Option and the Warrants included in the
Representatives' Purchase Option. The foregoing analysis also assumes no
exercise of outstanding options. 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
If the Warrants are exercised in full, the Company will receive gross
proceeds of approximately $9,542,500, after deducting commissions and estimated
expenses. The first $400,000 of such proceeds will be used to repay certain
indebtedness owed by the Company to Rudy A. Slucker. This $400,000 debt owed to
Mr. Slucker is 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 December 19, 1999.
The balance of the net proceeds will be 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.
The Company has engaged the Representatives, on a non-exclusive basis,
as its agents for the solicitation of the exercise of the Warrants. To the
extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Securities and Exchange Commission (the "Commission"), the
Company has agreed under certain conditions to pay the Representatives a
commission equal to 5% of the exercise price for each Warrant exercised after
December 19, 1997 if the exercise was solicited by one of the Representatives.
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 Representatives 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 one of the Representatives
solicited such exercise or the arrangement to pay the commission is not
disclosed in the prospectus provided to warrantholders at the time of exercise.
The foregoing represents the Company's best estimate of the allocation
of the net proceeds of the exercise of the Warrants based upon the Company's
currently contemplated operations, business plans, as well as 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 future revenues and expenditures, and
unanticipated industry conditions. 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 and which, in the
opinion of management, facilitate the growth of the Company and enhance the
market penetration or reputation of its products. To the extent that the Company
identifies any such opportunities, 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's current corporate policy would not
prohibit any such transactions between the Company and any business or company
in which management or any affiliate or associate of any member of management
have an ownership interest, but would require that the terms of any such
transaction be on terms no less favorable to the Company as those that could be
obtained from an independent third party. No such
14
<PAGE>
transaction is currently under consideration and, in any case, would require the
approval of the Company's audit committee, a majority of which is comprised of
independent directors.
The Company's expenditures and commitments for advertising and
marketing have been substantial and the Company must continue to incur such
costs in order to continue to increase consumer awareness of its products. If
the Company's sales do not increase substantially to cover its expenditures, it
will be required to limit its advertising expenditures and expansion plans or
seek additional financing 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 liquidity, 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. 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.
PRICE RANGE OF SECURITIES
The Company's Common Stock and Warrants have been quoted on the Nasdaq
SmallCap Market under the symbols "TDRP" and "TDRPW", respectively, since
December 20, 1997. The following table sets forth the high and low bids for the
Common Stock and Warrants as reported by the Nasdaq Stock Market for the periods
indicated.
Common Stock Warrants
Period High Low High Low
---- --- ---- ---
1996
- ----
Fourth Quarter (from $5.00 $4.75 $1.12 $1.00
December 20, 1996
through December 31,
1996)
1997
- ----
First Quarter $6.25 $3.93 $1.50 $.75
Second Quarter $4.50 $2.37 $.93 $.50
Third Quarter $5.68 $2.06 $1.43 $.28
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1997 on a historical basis and as adjusted to give effect to the sale
by the Company of all shares of Common Stock upon the exercise of all of the
Warrants and the Representatives' Purchase Option.
June 30, 1997
Actual As Adjusted(1)
------ -----------
Stockholders' loans $ 406,589
----------
Obligation under capital lease, less current portion 50,750 50,750
---------- -----------
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 21,875 38,750
shares, issued and outstanding 2,187,500 shares
(3,875,000 as adjusted) Preferred stock,
$.01 par value, authorized 1,000,000
shares, issued and outstanding none
Capital in excess of par value 6,466,231 15,465,794
Accumulated deficit (4,432,537) (4,432,537)
---------- -----------
Total stockholders' equity 2,055,569 11,072,007
---------- -----------
Total capitalization $2,512,908 $11,122,757
========== ===========
- ----------
(1) Gives effect to the sale by the Company of shares of Common Stock upon the
exercise of all the Warrants, the sale of 125,000 shares of Common Stock
included as part of the Representatives' Purchase Option and the sale of
125,000 shares of Common Stock underlying Warrants included as part of the
Representatives' Purchase Option. Does not include the exercise of
outstanding options to acquire an aggregate of 392,000 shares of Common
Stock.
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.
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 12 putters and four 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 attained, that it can be maintained.
In early 1997, the Company commenced a substantial television and print
advertising campaign, including the production and airing of a television
infomercial and a series of television commercials. The costs to produce the
infomercial and commercials and to show these on the air were substantial and
were incurred primarily during the first and second quarters of 1997. Although
the Company believes that its advertising efforts will increase sales, the
Company's advertising program is intended to increase awareness and exposure of
the Company's products, and the Company does not believe that sales will
increase at the same rate as expenditures. Accordingly, the Company will
continue to incur losses during these periods as it rolls out its advertising
program.
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 base
payments of between $8,000 and $75,000 in consideration of 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. In addition,
bonus payments, which could be substantial, may be made based upon tournament
performance. The Company has granted stock options to its endorsing
professionals and intends to continue to do so in the future. 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. The
Company, however will be required to compensate a professional whether or not he
is successful. In order to succeed with its marketing strategy, the Company will
be required to enter into endorsement agreements with additional touring
professional golfers who will be successful in tournament play.
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
17
<PAGE>
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 products
and adversely affect current sales and could adversely affect future sales
potential if distributors lose faith in the Company's ability to deliver a
high-quality product on a timely basis. Further, given the highly seasonal
nature of the golf equipment industry, such adverse effect 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 had agreed to pay royalties on the sale of putters
developed, designed or modified by Mr. Wooten. The Agreement was terminated on
December 18, 1996 by the Company and Mr. Wooten. In consideration thereof, the
Company paid Mr. Wooten $20,000 upon the closing of the Company's Initial Public
Offering and agreed to pay Mr. Wooten $15,000 on December 31, 1997 and to issue
him options to purchase 1,000 shares of Common Stock for $4.50 per share. Fred
K. Hochman, a director and principal stockholder of the Company, had provided a
personal guarantee of the Company's obligations to Mr. Wooten.
Results of Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30,
1996
The Company had sales of $1,222,140 during the quarter ended June 30,
1997 and $1,404,481 during the first six months of 1997 as compared to sales of
$385,521 during the quarter ended June 30, 1996 and $475,412 during the first
six months of 1996, an increase of approximately 217% and 195%, respectively.
This increase is attributable to increased marketing and advertising, and
capabilities during 1997 of producing and delivering clubs.
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 assembly thereof
into finished golf clubs. Cost of sales was $277,442 (22.7% of sales) during the
quarter ended June 30, 1997 and $319,386 (22.7% of sales) during the first six
months of 1997 as compared to $153,584 (39.8% of sales) during the quarter ended
June 30, 1996 and $208,396 (43.8% of sales) during the first six months of 1996.
This decline in costs as a percentage of sales is attributable
18
<PAGE>
to increased capabilities during 1997 of producing and delivering clubs during
the first six months of 1997.
During the quarter ended June 30, 1997, selling, general and
administrative expenses were $2,405,143 as compared to $196,369 during the
quarter ended June 30, 1996. During the first six months of 1997, selling,
general and administrative expenses were $3,276,216 as compared to $435,175
during the first six months of 1996. This increase is attributable to
substantial increases in marketing and advertising activities, including
television and print advertising, production and airing of a television
infomercial and a series of television commercials and the Company's hiring of
additional marketing and sales personnel. The Company intends to continue its
aggressive advertising and marketing campaign through the end of the third
quarter of 1997, with a reduction in such expenditures during the fourth quarter
of 1997.
As a result of increasing expenses and costs relating to the growth of
the Company, the Company experienced a net loss of $1,451,598 during the quarter
ended June 30, 1997 and a net loss of $2,150,583 during the first six months of
1997 as compared to a net loss of $16,513 during the quarter ended June 30, 1996
and a net loss of $251,586 during the first six months of 1996. The Company's
inability to offset such increased costs and expenses by sufficient increases in
sales resulted in the increased net loss during the quarter and six months ended
June 30, 1997 as compared to the same periods of the prior year.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company had sales of approximately $847,000 during the year ended
December 31, 1996 as compared to sales of approximately $1,057,000 during the
year ended December 31, 1995, a decrease of approximately 20%. 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, which
resulted in the Company's inability 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 December 31, 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 $408,000 (48% of
sales) during the year ended December 31, 1996 as compared to approximately
$549,000 (52% of sales) during the year ended December 31, 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 year
ended December 31, 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 and, accordingly, expects the costs of sales to decrease correspondingly
with increased production and sales, if such increases occur.
During the year ended December 31, 1996, selling, general and
administrative expenses were approximately $1,176,000 (139% of sales) as
compared to approximately $943,000 (89% of sales) during the year ended December
31, 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.
19
<PAGE>
As a result of increasing expenses and costs relating to the growth of
the Company, the Company experienced a net loss of approximately $910,000 during
the year ended December 31, 1996 and $542,000 during the year ended December 31,
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 year ended December 31, 1996 as
compared to the same period of the prior year.
Liquidity and Capital Resources
The Company had working capital of $2,230,913 at June 30, 1997. 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 in the past
been substantially dependent upon loans from its current stockholders in order
to maintain its operations. The $400,000 of remaining debt owed to a current
stockholder will be payable upon the earlier of the date of exercise of the
Warrants (to the extent proceeds derived therefrom are sufficient to make
repayment) and December 19, 1999.
The Company had accounts receivable, less allowance for doubtful
accounts, of $548,880 at June 30, 1997. The Company has provided extended
payment terms to several international distributors in order to encourage
initial purchases of its clubs. Accordingly, approximately $107,000, or 16% of
such accounts receivable were over 90 days old at June 30, 1997. The Company
does not anticipate that it will continue to extend such liberal payment terms.
However, as it expands its activities, it may do so again in order to increase
its exposure to the market for its products. The Company has not experienced
significant collection problems or credit risks in the past.
The Company has entered into an advertising agreement with the Golf
Channel which commenced January 1, 1997 and ends on December 31, 1998. The
agreement provides that the Company will pay $770,000 to the Golf Channel over
the term of the agreement for the broadcast of commercial advertising during,
and sponsorship of certain television programming produced by the Golf Channel.
The Company has also incurred substantial expenses and undertaken substantial
financial commitments to commence its media campaign including the production of
its television infomercial, its television commercial and its print
advertisements and has purchased substantial advertising time during the next
several months on a variety of broadcast and cable television channels. The
Company will depend upon increased sales to satisfy these obligations and to
recover these costs. In addition, the Company has entered into endorsement
agreements with 25 touring golf professionals that provide for minimum payments
that range from $8,000 to $75,000. These agreements also provide for bonuses,
which could be substantial if the professionals are successful in tournament
play.
The Company is conducting an aggressive advertising and marketing
campaign in order to increase the exposure of the Company's products and
increase sales. The Company's expenditures and commitments for advertising and
marketing have been substantial and the Company must continue to incur such
costs in order to continue to increase consumer awareness of its products. If
the Company's sales do not increase substantially to cover its expenditures, it
will be required to limit its advertising expenditures and expansion plans or
seek additional financing 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 liquidity, and, as a result, the Company could be
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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 in the
autumn and the 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 shipments. Accordingly, comparisons of
quarterly information on the Company's results of operations may not be
indicative of the Company's overall annual performance.
Forward Looking Statements
When used in this and in future filings by the Company with the
Commission, in the Company's press releases and in oral statements made with the
approval of an authorized executive officer of the Company, the words or phrases
"will likely result," "expects," "plans," "will continue," "is anticipated,"
"estimated," "project" or "outlook" or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify "forward-looking statements." The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, each of which
speak only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Such risks and
other aspects of the Company's business and operations are described in "Risk
Factors." The Company has no obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
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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 PGA Tour, the Senior PGA Tour and the Nike Tour. The
Company introduced its first product, the TearDrop putter, in 1993, and has
since developed and introduced numerous additional putters, all based on the
TearDrop putter technology. The Company now markets 12 putters. In 1997, the
Company introduced an improved line of four different Spin Master Wedges.
In January 1997, the Company commenced its extensive marketing and
advertising campaign. In February, the Company's 30-minute television
infomercial began being aired in selected locations throughout the country. The
Company began to air a 60-second version of the infomercial in April. The
Company has also produced and begun airing standard television commercials and
increased substantially the number of commercials in April, May and June 1997.
The Company has begun airing its feature, "The TearDrop Putt of the Week" on the
Golf Channel at various times on a weekly basis. The Company's print
advertisements will appear in several magazines including Golf Illustrated and
Senior Golfer during the months from May through October. Finally, the Company
has enlisted numerous golf professionals to promotional agreements, including
Omar Uresti, Brett Ogle and Charles Coody.
Products
TearDrop Putters
The Company currently manufactures and markets 12 putters. The
Company's TearDrop putters are manufactured with the Company's exclusive roll
face head, distinguishing them from most other putters, which have a standard
flat face. The Company believes that 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 is intended to eliminate most skidding and
develop a high overspin, resulting in a superior roll for a more precise shot.
The rounded barrel of the TearDrop roll face 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. The TearDrop design, with its rounded fin, is also designed to help
prevent stubbing of the club on the swing and follow-through.
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Each of the TearDrop putter models incorporates the roll face 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 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
Advertising and Promotion. In January 1997, the Company commenced its
extensive marketing and advertising campaign. In February, the Company's
30-minute television infomercial began being aired in selected locations
throughout the country. The Company continued airing the infomercial through the
summer of 1997. The Company began to air a 60-second version of the infomercial
in April. The Company has also produced and begun airing standard television
commercials and increased substantially the number of commercials that appear on
numerous broadcast and cable channels in April, May and June 1997. The Company
has entered into an advertising agreement with the Golf Channel which commenced
on January 1, 1997 and ends on December 31, 1998. Pursuant to this Agreement,
the Company broadcasts commercial advertising and sponsors certain television
programming aired on the Golf Channel. The Company has begun airing its feature,
"The TearDrop Putt of the Week" on the Golf Channel at various times on a weekly
basis. The Company has agreed to purchase no less than $770,000 in advertising
from January 1, 1997 through December 31, 1998. 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 Senior Golf, Golf Tips and Golf Illustrated and in
trade magazines such as Golf Shop Operations.
The Company believes that the endorsement of its products by touring
professional golfers is an important feature of its overall marketing effort.
Omar Uresti, Charles Coody, a former Masters champion, and P.J. Cowan head a
group of 25 touring professionals who currently use or endorse the Company's
products. The agreements with the Company's professionals generally are for a
one-year term and provide for certain payments by the Company to the touring
professionals that range from $8,000 to $75,000 per annum in consideration for
their using a TearDrop Putter and bonuses based on tournament performance. The
Company has also granted options to purchase common stock of the Company and may
grant additional options in lieu of or in addition to such performance bonuses.
The Company has instituted a "Player Pool" program, under
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which the Company will provide rewards on a weekly basis to professional players
who win tournaments using TearDrop golf clubs. Endorsement commitments are made
on a year-to-year basis.
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 15, 1997, the Company had 30 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, respond to
questions concerning product support, prepare customers for new product
introductions, provide 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 meet with 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 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 45% and 36% of the Company's
gross sales in 1995 and 1996, respectively. The Company intends to continue to
explore opportunities to expand its activities in international markets. In
January 1997, the Company entered into an exclusive Distribution Agreement with
Williams Worldwide Television providing Williams Worldwide Television
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with the exclusive right to market the TearDrop golf clubs in Australia, Japan,
Korea, Malaysia and New Zealand.
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.
Assembly
The Company assembles all of its putters for the domestic market and
for sales to selected foreign markets at its corporate headquarters in Union,
New Jersey . 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 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 and financial condition.
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 TearDrop Pro Model. The Company intends to form 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, Karsten
Manufacturing Corporation (Ping), Taylor-Made Golf Company, Cobra Golf
Incorporated and Tommy
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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-priced
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. The Company faces
competition on the basis of price, reputation and qualitative distinctions among
available products. 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 clubs and even
non-professional golfers will likely be unwilling to purchase them. The Company
believes that its putters all comply with USGA standards. No assurance can be
given that any new products will receive USGA approval or that existing USGA
standards will not be altered in ways that adversely affect the sales of 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 September 15, 1997, the Company had 24 full-time employees engaged
in manufacturing and assembly, sales support and in management, administration
and professional golf tour representation. The Company intends to expand its
sales and marketing staff. The Company believes that additional manufacturing
personnel will be available as needed.
Proprietary Rights
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 has been issued three patents relating to various aspects
of the TearDrop putter head. 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."
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Legal Proceedings
The Company is not involved in any material legal proceedings.
Properties
The Company occupies approximately 20,000 square feet of office,
manufacturing and warehouse and distribution space in Union, New Jersey under a
five-year lease agreement which terminates August 31, 2002. The aggregate
minimum rental payments under the lease for the one year periods ending August
31, 1998 and 1999 are $75,000. The Company conducts its corporate, research and
development, assembly, warehouse and distribution activities from these
facilities.
The Company also leases 4,000 square feet of office, manufacturing and
warehouse space in Hilton Head Island, South Carolina under a three-year lease
agreement which terminates in November 1998. The aggregate minimum rental
payments under the lease for the years ending December 31, 1997 and 1998 are
$38,400 and $35,200, respectively. The Company will attempt to sublease these
facilities in Hilton Head Island, South Carolina.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are:
Name Age Position
- ---- --- --------
Rudy A. Slucker 47 Chairman of the Board, President and
Chief Executive Officer
John Zeravica 41 Vice President
Charles A. Gerber 42 Vice President
Joseph Cioni 58 Vice President of Finance and Chief
Financial Officer
Fred K. Hochman 50 Director
Leslie E. Goodman 53 Director
Bruce H. Nagel 44 Director
Rudy A. 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., 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; The Sled Dogs
Company, a Nasdaq-listed manufacturer of sporting goods; 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.
John Zeravica became vice president of the Company in September 1996.
From 1990 through May 1996, Mr. Zeravica served as Director of Operations for
the U.S. division of Bridgestone Sports, USA, Inc., an international
manufacturer and distributor of sporting goods. From 1983 to 1990, Mr. Zeravica
served as operating manager of Mizuno, USA, a sports product manufacturing and
marketing company.
Charles A. Gerber became vice president of the Company in October 1996.
From April 1994 through September 1996, Mr. Gerber served as vice president of
sales for Bobby Grace Golf Design Inc. From February 1993 to April 1994, Mr.
Gerber served as a director of sales for American Companies. From 1978 to 1992,
Mr. Gerber served as a regional sales manager for the Dial Corporation. From
1976 to 1978, Mr. Gerber served as a sales representative for W.H. Reynolds
Company.
Joseph Cioni became Vice President of Finance and Chief Financial
Officer of the Company in August 1997. From February 1993 to May 1996, Mr. Cioni
served as vice president of finance for Remington Products Company. From
September 1992 to February 1993, Mr. Cioni managed his personal investments.
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Fred K. Hochman has been a director of the Company since its inception
and served as its President from inception through January 1995 and Chief
Executive Officer from inception through December 1995. In October 1996, Mr.
Hochman became senior vice president of Orix Credit Alliance Inc. From September
1992 through October 1996, Mr. Hochman served as President of the Machine Tool
Division of Financial Federal Credit, Inc., a wholly-owned subsidiary of
Financial Federal Corporation. Financial Federal Corporation is listed on the
American Stock Exchange. The Machine Tool Division provides financing for
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.
Leslie E. Goodman has been a director of the Company since November
1996. From January 1996 through December 1996, Mr. Goodman served as North
Jersey Area President of First Union National Bank overseeing consumer and
commercial banking in northern New Jersey. Since January 1996, Mr. Goodman also
served as Chairman of the Board of CREOL, Inc., Commercial Real Estate On Line,
an internet based information service. Mr. Goodman also served as a senior
executive vice president of First Union Corporation. From January 1990 through
December 1995, Mr. Goodman served as a member of the Office of the Chairman of
First Fidelity Bancorporation overseeing the Community Business Bank, Corporate
and Institutional Trust. Mr. Goodman was a member of the board of directors of
First Fidelity Bancorporation from January 1990 through December 1995. Mr.
Goodman served as President of First Fidelity Bank, N.A., New Jersey from
September 1990 to January 1994. From 1988 to 1990, Mr. Goodman served as
chairman and chief executive officer of Fidelity Bank, Philadelphia, a
subsidiary of First Fidelity Bancorporation. Mr. Goodman currently is a member
of the board of directors of Wawa Inc., the board of governors of the Hackensack
Medical Center and the board of trustees of Rutgers University.
Bruce H. Nagel, Esq. has been a director of the Company since January
1997. For more than the last five years, Mr. Nagel has been a partner with the
law firm of Nagel Rice & Dreifuss in Livingston, New Jersey.
Committees of the Board of Directors
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee are Fred K. Hochman and Leslie E. Goodman. The Audit Committee
periodically reviews the Company's auditing practices and procedures, makes
recommendations to management or to the Board of Directors as to any changes to
such practices and procedures deemed necessary from time to time to comply with
applicable auditing rules, regulations and practices, and recommends independent
auditors for the Company to be elected by the stockholders. The members of the
Compensation Committee are Rudy A. Slucker and Bruce H.
Nagel. The Compensation Committee meets periodically to make recommendations to
the Board of Directors concerning the compensation and benefits payable to the
Company's executive officers and other senior executives.
Director Compensation
The Company's compensation to directors is $500 per meeting attended.
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Executive Compensation
No executive officer of the Company received cash compensation in
excess of $100,000 during the year ended December 31, 1996. In October 1996,
Rudy Slucker, the Company's Chairman of the Board and Chief Executive Officer
was granted an option to acquire 250,000 shares of common stock for $4.50 per
share.
Employment Agreements
The Company has entered into an employment agreement with Rudy A.
Slucker which expires on December 31, 1999. Pursuant to the agreement, Mr.
Slucker will serve as the Company's Chief Executive Officer and President for an
annual salary of $175,000. The employment agreement also provides that Mr.
Slucker is entitled to receive a bonus equal to 10% of the Company's pre-tax net
income starting with the year ending December 31, 1997. Such bonus will be
payable to the extent of 50% of such amount in cash and the remaining 50% in the
form of Common Stock of the Company valued at the lowest last sale price of the
Common Stock during the last quarter of the Company's fiscal year. In addition,
if there is a sale of the Company or substantially all of the assets of the
Company which involves consideration equal to or greater than $25,000,000, Mr.
Slucker will also be entitled to a cash payment equal to the greater of $250,000
and 10% of the excess consideration over $25,000,000. Mr. Slucker will also be
entitled to receive bonuses at the discretion of the Board of Directors and in
accordance with certain performance criteria. The agreement further provides
that Mr. Slucker will not engage in activities competitive with the Company for
a period of two years after the expiration of his employment agreement. In the
event that the Company terminates Mr. Slucker's employment without cause, such
provision would not apply.
The Company has also entered into an employment agreement with John
Zeravica. Pursuant to the agreement, Mr. Zeravica will serve as Vice President
of the Company for an annual salary of $100,000. The agreement with Mr. Zeravica
may be terminated either by the Company or Mr. Zeravica upon two weeks notice.
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.
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
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thereunder. The Plan provides for the granting to employees (including employees
who are also 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
directors, 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
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. In March 1997,
options to purchase 99,700 shares of Common Stock were granted under the Plan,
including Incentive Stock Options to acquire 50,700 shares of Common Stock for
$4.75 per share to certain employees of the Company. Options to purchase 15,000
shares of Common Stock for $4.75 per share were granted to each of Leslie E.
Goodman and Bruce H. Nagel, which options vest one-third six months from the
date of grant and one-third per year for the next two years if they are serving
on the Board of Directors at such time. Such options expire five years from the
date of grant.
Other Options
As of September 15, 1997, options to acquire 392,000 shares of Common
Stock had been granted to officers, directors and employees of the Company and
to consultants and professional athletes who perform consulting and other
promotional services for the Company. On October 21, 1996, the Company granted a
five-year option (outside of the Plan) to acquire 250,000 shares of Common Stock
for $4.50 per share to Rudy A. Slucker, the Chairman of the Board and Chief
Executive Officer of the Company. On December 18, 1996, the Company agreed to
grant options to Wayne R. Wooten to purchase 1,000 shares of Common Stock for
$4.50 per share. The Company has granted five-year options to acquire an
aggregate of 29,300 shares of Common Stock to touring golf professionals and
other professional athletes who perform consulting and other promotional
services for the Company. Under the promotional agreements with the Company's
golf professionals, the Company may be required to grant additional stock
options if the professional satisfies certain conditions such as winning a golf
tournament. If the Company's professionals win a large number of tournaments,
the number of additional options granted could be substantial. On August 18,
1997, the Company, pursuant to a consulting agreement, agreed to grant to
Millenium Holdings Group, Inc. options to acquire 100,000 shares of Common
Stock, such options being exercisable during the period January 18, 1998 to
August 18, 1999 at exercise prices ranging from $3.00 to $5.00 per share.
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PRINCIPAL STOCKHOLDERS AND SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of September 15,
1997 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.
Number of Shares Percentage
Name Beneficially Owned Ownership
- ---- ------------------ ---------
Rudy A. Slucker 730,000 (1) 29.95%
Fred K. Hochman 153,000 6.99%
Joseph Cioni 9,000 (2) *
Leslie E. Goodman 5,000 (3) *
Bruce H. Nagel 15,000 (4) *
John Zeravica 5,000 (3) *
Charles A. Gerber 5,000 (3) *
All directors and executive officers
as a group (7 persons) 922,000 (5) 36.55%
- ------------------
* Less than 1%.
(1) Includes (i) 250,000 shares subject to options exercisable at $4.50 per
share and (ii) an aggregate of 75,000 shares of Common Stock owned by the
children and wife of Mr. Slucker.
(2) Includes 5,000 shares underlying options exercisable at $2.50 per share.
Does not include options to purchase 10,000 shares of Common Stock.
(3) Includes 5,000 shares underlying options exercisable at $4.75 per share.
Does not include options to purchase 10,000 shares of Common Stock.
(4) Includes 5,000 shares underlying warrants and 5,000 shares underlying
options exercisable at $4.75 per share. Does not include options to
purchase 10,000 shares of Common Stock.
(5) Includes 15,000 shares underlying options exercisable at $4.75 per share,
250,000 shares underlying options exercisable at $4.50 per share. Does not
include options to purchase 30,000 shares of Common Stock.
The following table sets forth information with respect to the number
of shares of Common Stock, Warrants and shares of Common Stock underlying the
Warrants which may be issued to Selling Security Holders upon the exercise of
the Representatives' Purchase Option:
<TABLE>
<CAPTION>
Number of Shares of
Selling Security Number of Shares of Number of Common Stock
Holder Common Stock Warrants Underlying Warrants
------ ------------ -------- -------------------
<S> <C> <C> <C>
GKN Securities Corp. 51,250 51,250 51,250
Kirlin Securities, Inc. 27,500 27,500 27,500
Jay Goldman 27,500 27,500 27,500
David M. Nussbaum 6,250 6,250 6,250
Robert Gladstone 6,250 6,250 6,250
Roger Gladstone 6,250 6,250 6,250
------- ------- -------
Totals 125,000 125,000 125,000
======= ======= =======
</TABLE>
32
<PAGE>
Because the selling security holders may offer some or part of the
Securities which it holds pursuant to the offering contemplated by this
Prospectus, no estimate can be given as to the amount of Securities that will be
held by the selling security holder after the completion of this offering. The
Securities held by the selling security holders may be sold from time to time
directly by the holder thereof, or by pledgees, donees, transferees or other
successors in interest. Alternatively, such Securities may be offered from time
to time by underwriters, dealers or agents. The distribution of the Securities
may be effected in one or more transactions that may take place on the
over-the-counter market, including block trades, ordinary broker's transactions,
privately negotiated transactions or through sales to one or more broker/dealers
for resale of such securities as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by these holders in connection with such sales. In
connection with such sales, the selling security holder, any participating
brokers or dealers, may be deemed "underwriters" as such term is defined in the
Securities Act.
CERTAIN TRANSACTIONS
On July 27, 1994, the Company entered into a Consulting and
Non-Competition Agreement with Wayne 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, Fred K. 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. This indebtedness was repaid
with proceeds from the Initial Public Offering. In addition, the Company
guaranteed a personal loan of $100,000 from NationsBank to Mr. Hochman, which
guarantee was 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 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 53,333
shares of Common Stock to Mr. Hochman for $80,000, represented by a promissory
note due April 1, 1998.
From time to time, the Company has borrowed funds from its officers,
directors and stockholders. Pursuant to an agreement dated as of October 18,
1996, $400,000 of debt plus interest owed by the Company to Mr. Slucker was
extended from and after the consummation of the Company's initial public
offering at the rate of 8% per annum until three years after the consummation of
such offering, 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 $71,000 of debt owed by the Company to Messrs. Slucker, Hochman and
three other shareholders of the Company was repaid on January 24, 1997 with
interest from the proceeds received from the exercise of the over-allotment
option by the underwriters of the Company's initial public offering. The
balances of $183,478, $384,426,
33
<PAGE>
$249,800, $42,570 and $254,101, inclusive of accrued interest were forgiven by
Messrs. Slucker, Hochman and such shareholders at the consummation of the
Company's initial public offering.
From August 1, 1996 through December 19, 1996, Mr. Slucker advanced an
additional $331,759 to the Company for its business operations and to fund
certain costs of the initial public offering. The Company has repaid the amounts
advanced by Mr. Slucker, with interest at 8% per annum from proceeds received
from the exercise of the over-allotment option issued in connection with the
Initial Public Offering.
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, 2,242,500
shares of Common Stock are outstanding and held of record by 28 stockholders.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock without further stockholder approval. 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.
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.
34
<PAGE>
Warrants
Each Warrant will entitle the registered holder to purchase one share
of the Company's Common Stock at an exercise price of $5.50 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 December 19, 2001. 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 GKN , 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 145.5% of the then-exercise price of the Warrants (initially $8.00) 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
the Company 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 Company has engaged the Representatives, on a non-exclusive basis,
as its agents for the solicitation of the exercise of the Warrants. To the
extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission, the Company has agreed under certain conditions
to pay the Representatives a commission equal to 5% of the exercise price for
each Warrant exercised after December 19, 1997 if the exercise was solicited by
either of the Representatives. 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
Representatives 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
one of the Representatives solicited such exercise or the arrangement to pay the
commission is not disclosed in the prospectus provided to warrantholders at the
time of exercise.
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
35
<PAGE>
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.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's securities is
Continental Stock Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,930,000 shares of Common Stock, not including shares of Common Stock issuable
upon exercise of outstanding options, warrants.
Of these outstanding shares, the 1,250,000 shares of Common Stock sold
to the public in the Initial Public Offering are freely traded without
restriction or further registration under the Securities Act of 1933, as amended
(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 the Initial
Public 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, approximately 333,000 may be sold under Rule 144 within 12 months of
December 19, 1996 and the remaining shares may be sold within 24 months of
December 19, 1996; however, all persons who were stockholders of the Company as
of December 19, 1996, have agreed that for a period of 24 months from December
19, 1996, they will not sell any of their securities without the prior consent
of GKN
The shares of Common Stock issuable upon exercise of options
outstanding as of the date hereof are subject to lock-up provisions that prevent
their resale until December 19, 1998. 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 (the "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
36
<PAGE>
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 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.
PLAN OF DISTRIBUTION
The Securities offered hereby are being offered directly by the Company
pursuant to the terms of the Warrants and the Representatives' Purchase Option.
The Company has engaged the Representatives, on a non-exclusive basis,
as its agents for the solicitation of the exercise of the Warrants. To the
extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission, the Company has agreed under certain conditions
to pay the Representatives a commission equal to 5% of the exercise price for
each Warrant exercised after December 19,1997 if the exercise was solicited by
either of the Representatives. 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
Representatives 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
one of the Representatives 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 they are soliciting exercise of
the Warrants, the Representatives will be prohibited from engaging in any market
activities or solicited brokerage activities with regard to the Company's
securities unless the Representatives have waived their right to receive a fee
for the exercise of the Warrants.
In connection with its initial public offering, the Company agreed to
sell to the Representatives and their respective designees, for an aggregate of
$100, the Representatives' Purchase Option to purchase up to an aggregate of
125,000 shares of Common Stock and/or 125,000 Warrants. The Representatives'
Purchase Option is exercisable at a price equal to 140% of the initial offering
price of the securities for a period of four years commencing one year from
December 19, 1996. The securities purchasable upon exercise of the
Representatives' Purchase Option are identical to those offered hereby. The
Representatives' 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 December 19, 1996 with respect to the registration under
the Securities Act of the securities directly and indirectly issuable upon
exercise of the Representatives' Purchase Option. The Representatives' Purchase
Option cannot be transferred, sold, assigned or hypothecated during the one-year
period following the December 19, 1996, except to officers of the
Representatives and to selected dealers and their officers or partners.
The Common Stock issuable to the Warrant Holders upon exercise of the
Warrants may be offered and sold from time to time as market conditions permit
in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or in
37
<PAGE>
negotiated transactions. The shares offered hereby may be sold by one or more of
the following methods, without limitation: (a) a block trade in which a broker
or dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (d)
face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Warrant
Holders may arrange for other brokers or dealers to participate. Such broker or
dealers may receive commissions or discounts from Warrant Holders in amounts to
be negotiated. Such brokers and dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Act, in
connection with such sales.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance 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.
EXPERTS
The financial statements of TearDrop Golf Company as of and for the
years ended December 31, 1995 and 1996 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, appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the 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 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.
The Company is subject to the informational requirements of the
Exchange Act of 1934 and in accordance therewith files 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.
38
<PAGE>
TEARDROP GOLF COMPANY
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
DECEMBER 31, 1996 AND 1995:
BALANCE SHEET F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-17
JUNE 30, 1997 (UNAUDITED)
BALANCE SHEET (UNAUDITED) F-18
STATEMENTS OF OPERATIONS (UNAUDITED) F-19
STATEMENTS OF CASH FLOWS (UNAUDITED) F-20
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) F-21 - F-23
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, 1996, and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1996 and 1995. 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, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
January 31, 1997, except for Notes 17 and 18
as to which the dates are March 21, 1997
and October 7, 1997, respectively
F-2
<PAGE>
TEARDROP GOLF COMPANY
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,508,993
Accounts receivable, less allowance for doubtful
accounts of $53,000 230,202
Inventories 106,781
Prepaid advertising 215,041
Other current assets 66,207
-----------
Total current assets $ 5,127,224
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 167,502
OTHER ASSETS, intangible assets, less
accumulated amortization 29,648
-----------
$ 5,324,374
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 300,000
Current portion of notes payable, stockholders 431,759
Current portion of obligation under capital lease 15,482
Accounts payable and other current liabilities 677,718
-----------
Total current liabilities $ 1,424,959
NOTES PAYABLE, stockholders, less current portion 400,000
OBLIGATION UNDER CAPITAL LEASE, less
current portion 59,809
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares, issued and
outstanding none
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
2,000,000 shares 20,000
Capital in excess of par value 5,701,560
Accumulated deficit (2,281,954)
-----------
Total stockholders' equity 3,439,606
-----------
$ 5,324,374
===========
See accompanying notes to financial statements.
F-3
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------
1996 1995
----------- -----------
SALES $ 847,358 $ 1,057,306
COST OF SALES 407,512 549,305
----------- -----------
GROSS PROFIT 439,846 508,001
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,175,944 942,638
----------- -----------
LOSS FROM OPERATIONS (736,098) (434,637)
INTEREST EXPENSE, net (174,267) (107,788)
----------- -----------
NET LOSS $ (910,365) $ (542,425)
=========== ===========
NET LOSS PER COMMON SHARE $ (1.15) $ (.72)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 791,100 750,000
=========== ===========
See accompanying notes to financial statements.
F-4
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in
------------------------- Excess of Accumulated
Shares Amount Par Value Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 333,333 $ 3,333 $ - $ (829,164) $ (825,831)
NET LOSS (542,425) (542,425)
----------- ----------- ----------- ------------ -----------
BALANCES, December 31, 1995 333,333 3,333 (1,371,589) (1,368,256)
COMMON STOCK ISSUED FOR SERVICES 416,667 4,167 4,167
SALE OF COMMON STOCK 1,250,000 12,500 4,457,811 4,470,311
SALE OF COMMON STOCK PURCHASE WARRANTS 129,375 129,375
CONTRIBUTION TO CAPITAL BY STOCKHOLDERS 1,114,374 1,114,374
NET LOSS (910,365) (910,365)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1996 2,000,000 $ 20,000 $ 5,701,560 $(2,281,954) $ 3,439,606
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (910,365) $ (542,425)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 36,626 19,682
Provision for doubtful accounts 52,918 4,317
Accrued interest on stockholders' notes 112,279 75,420
Loss on abandoned assets 74,443
Common stock issued for services 4,167
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (203,623) 29,297
(Increase) decrease in inventories 14,254 (93,679)
(Increase) in prepaid advertising (215,041)
(Increase) in other current assets (52,874) (5,581)
Increase in accounts payable
and other current liabilities 423,991 87,519
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (737,668) (351,007)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES, purchases
of property and equipment (15,213) (29,479)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 8,750
Payments on obligation under capital lease (16,564) (1,202)
Proceeds from stockholders' notes 662,884 380,577
Proceeds from issuance of common stock 4,470,311
Proceeds from issuance of common
stock purchase warrants 129,375
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,246,006 388,125
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,493,125 7,639
CASH AND CASH EQUIVALENTS:
Beginning of year 15,868 8,229
----------- -----------
End of year $ 4,508,993 $ 15,868
=========== ===========
See accompanying notes to financial statements.
F-6
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
----------------------
1996 1995
----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year
for interest $ 53,370 $ 32,626
=========== =========
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Contribution to capital in excess of par value from
notes payable, stockholders and accrued interest $ 1,114,374
===========
Equipment recorded under capital lease obligation $ 93,057
=========
Cost of equipment included in
accounts payable $ 37,000
=========
Cost of equipment included in
stockholders' notes $ 18,500
=========
See accompanying notes to financial statements.
F-7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS:
The TearDrop Golf Company (the "Company") was incorporated under the laws
of Delaware in September 1996. In October 1996, the Company merged with the
TearDrop Putter Corporation ("TPC"), a South Carolina corporation (see Note
9) which was formed in 1992. 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:
Cash Equivalents - Cash equivalents include all highly liquid investments
having a maturity of less than three months from the purchase date. Cash
equivalents include commercial paper.
Inventories - Inventories are stated at the lower of cost, on a first-in,
first-out method, or market.
Property and Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for
depreciation and amortization principally using a declining-balance method
as follows:
Estimated
Asset Useful Lives
----- ------------
Office furniture and equipment 5 Years
Machinery and equipment 5-10 Years
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 are being amortized on a straight-line basis over 5
years.
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.
Advertising Costs - The Company expenses production costs of advertising
and promotions the first date the advertisements take place.
Advertising costs included in selling, general and administrative expenses
for the years ended December 31, 1996 and 1995 were approximately $109,000
and $154,000, respectively.
Fair Value of Financial Instruments - The fair value of the Company's
assets and liabilities which qualify as financial instruments under
Statement of Financial Accounting Standards No. 107 (SFAS 107) approximate
the carrying amounts presented in the balance sheet.
F-8
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes - The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS 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 annually 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.
Net Loss Per Common Share - Net loss per common share is computed based on
net loss applicable to common shareholders, divided by the weighted average
number of common shares outstanding, after giving effect to the merger.
The weighted average includes shares issued within one year of the
Company's initial public offering (IPO) with an issue price less than the
IPO price.
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.
Newly Issued Account Standard - On March 3, 1997, the Financial Accounting
Standards Board released Statement No. 128, "Earnings Per Share". Statement
128 requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all periods presented. Basic earnings
per share excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to Accounting Principles Bulletin No.
15. Statement 128 is effective for fiscal years ending after December 15,
1997, and when adopted, it will require restatement of prior years'
earnings per share.
Since the effect of outstanding options and warrants are antidilutive, they
have been excluded from the Company's computation of net loss per share.
Accordingly, management does not believe that Statement 128 will have an
impact upon historical net loss per share as reported.
NOTE 3 - INVENTORIES:
Inventories consist of the following at December 31, 1996:
Raw materials $ 78,377
Finished goods 28,404
----------
$ 106,781
==========
F-9
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31, 1996:
Office furniture and equipment $ 31,752
Machinery and equipment 92,940
Equipment recorded under capital lease 93,057
---------
217,749
Less accumulated depreciation and amortization
($13,298 pertaining to capital lease) 50,247
---------
$ 167,502
=========
NOTE 5 - INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31, 1996:
Patents and trademarks $ 33,786
Organization costs 10,000
---------
43,786
Less accumulated amortization 14,138
---------
$ 29,648
=========
NOTE 6 - NOTES PAYABLE:
Notes payable consist of two lines of credit under which the Company can
borrow up to $300,000, with interest at 1% over the prime lending rate
(9.25% at December 31, 1996). The lines of credit are collateralized by a
security interest in all assets of the Company and are guaranteed by a
stockholder. The notes were due December 31, 1996 and were paid off on
January 8, 1997.
The Company has an unsecured line of credit expiring January 31, 1997,
under which it can borrow up to $200,000, with interest at the prime
lending rate (8.25% at December 31, 1996). As of December 31, 1996, the
Company has no borrowing under this line of credit.
NOTE 7 - OBLIGATION UNDER CAPITAL LEASE:
Future minimum lease payments at December 31, 1996 are as follows:
Year ending December 31:
1997 $ 23,726
1998 23,726
1999 23,726
2000 19,772
-------------
Total future minimum lease payments 90,950
Amount representing interest 15,659
-------------
Present value of future minimum lease payments 75,291
Less current portion 15,482
-------------
$ 59,809
=============
F-10
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
Accounts payable and other current liabilities consist of the following:
Trade $ 483,523
Accrued professional fees 144,000
Other accrued expenses 50,195
-------------
$ 677,718
=============
NOTE 9 - STOCKHOLDERS' EQUITY:
In April 1996, in consideration of the Company's Chief Executive Officer's
(CEO) agreement to loan the Company up to $300,000, and to guarantee the
bank loan, the CEO was issued 416,667 shares of Common Stock.
In connection with the merger (see Note 1), each share of TPC's common
stock issued and outstanding was converted to 3333.33 shares of the
Company's common stock. Accordingly, all number of shares and per share
data have been restated to reflect this stock conversion.
In December 1996, the Company completed its Initial Public Offering for the
sale of 1,250,000 shares of common stock at $4.50 per share and 1,437,500
redeemable common stock purchase warrants at $.10 per warrant. Each warrant
entitles the holder to purchase one share of the Company's common stock for
$5.50. These warrants are exercisable immediately and expire five years
from December 19, 1996. The Company may redeem the warrants at $.01 per
warrant, subject to certain terms.
In connection with the IPO, an aggregate of $1,114,374 of stockholders'
notes and accrued interest was contributed to capital in excess of par
value.
NOTE 10 - STOCK OPTIONS:
On October 18, 1996, the Company's stockholders adopted the TearDrop Golf
Company 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. As of
December 31, 1996, no options were granted under the plan.
On October 21, 1996, the Company granted options (outside the Plan) to the
Company's CEO to acquire 250,000 shares of the Company's common stock for
$4.50 per share. These options vest immediately and expire five years from
the grant date.
On December 18, 1996, in connection with the termination of an agreement to
pay royalties to the designer of the original TearDrop putter, the Company
granted options (outside the Plan) to acquire 1,000 shares of the Company's
common stock for $4.50 per share. These options vest immediately and expire
five years from the grant date.
F-11
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS (CONTINUED):
The Company has reserved 250,000 shares of common stock (outside the Plan)
to be issued to touring golf professionals based upon their performance
(see Notes 15 and 17).
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation", effective for the Company's
December 31, 1996 financial statements. The Company applies APB Opinion No.
25 and related interpretations in accounting for its plans. Accordingly,
compensation costs have been recognized for its stock plan, other stock
options, and stock purchase warrants based on the intrinsic value of the
stock option at date of grant (i.e., the difference between the exercise
price and the fair value of the Company's stock). Had compensation cost for
the Company's stock-based compensation plan, other stock options, and stock
purchase warrants been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No.
123, the Company's net loss and loss per share would have been adjusted to
the pro forma amounts indicated below:
Net loss:
As reported $ (910,365)
Pro forma (932,750)
Loss per share:
As reported (1.15)
Pro forma (1.18)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996: risk-free interest rates of 6.0
percent; no dividend yields of expected lives of 5 years; and expected
volatility of 50 percent.
NOTE 11 - RELATED PARTY TRANSACTIONS:
In August 1996, the Company issued a note to its CEO for advances made up
to a maximum of $400,000, which bears interest at 8% per annum and is due
on the earlier of December 19, 1998 or upon the exercise of the
underwriters' over-allotment option (see Note 17). At December 31, 1996,
stockholders' notes includes $331,759 under this note.
Stockholders' notes bear interest at 8% per annum and include five
promissory notes which aggregate $100,000, and are due on the earlier of
December 19, 1998 or upon the exercise of the underwriters' over-allotment
option. In addition, stockholders' notes include another $400,000
promissory note issued to the Company's CEO, which is due on the earlier of
December 19, 1999 or upon the exercise of all of the warrants issued by the
Company in connection with the IPO.
Interest expense on these notes aggregated approximately $112,000 and
$75,000 for the years ended December 31, 1996 and 1995, respectively.
F-12
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES:
A reconciliation of income tax credit to the federal statutory rate is as
follows:
1996 1995
---------- ---------
Income tax credit on reported pretax
loss at federal statutory rate (34.0)% (34.0)%
Surtax exemption 5.3
Effective tax rate applicable to loss
during "S" corporation period 34.0
State income tax credit, net of
federal benefit (3.3)
Net operating loss carryforward 32.0
---------- ---------
Income taxes 0 % 0 %
========== =========
TPC was an "S" Corporation and, as a result, the earnings and losses were
included in the personal income tax returns of the respective stockholders.
The "S" election was terminated in connection with the merger.
SFAS 109 requires that the Company record a valuation allowance when it is
more likely than not that some portion or all of the deferred tax asset
will not be realized. The ultimate realization of this deferred tax asset
depends on the ability to generate sufficient taxable income in the future.
The components of deferred income tax asset as of December 31, 1996 are as
follows:
Net operating loss carryforward $ 45,000
Allowance for doubtful accounts 17,000
-----------
62,000
Valuation allowance for deferred tax asset (62,000)
-----------
$ -
===========
At December 31, 1996, the Company has a federal net operating loss
carryforward of approximately $140,000, which can be utilized against
future taxable income and expires in the year 2011. Net operating losses
available for state income tax purposes are less than those for federal
purposes and generally expire earlier.
NOTE 13 - MAJOR CUSTOMERS AND SUPPLIERS:
During the years ended December 31, 1996 and 1995, the Company derived
revenues of approximately $85,000 and $94,000 from two customers and
$256,000 from one customer, respectively.
During the years ended December 31, 1996 and 1995, the Company purchased an
aggregate of approximately $118,000 and $64,000 of its inventories from two
suppliers and $252,000, $106,000 and $31,000 of its inventories from three
suppliers, respectively.
F-13
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - FOREIGN SALES:
Export sales were as follows for the years ended December 31, 1996 and
1995:
1996 1995
---------- ----------
Japan $ 193,000 $ 271,000
Other countries 110,000 201,000
---------- ----------
$ 303,000 $ 472,000
========== ==========
NOTE 15 - COMMITMENTS AND CONTINGENCIES:
The Company rents its 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 minimum annual lease payments are as follows:
Year ending December 31:
1997 $ 38,400
1998 35,200
---------
$ 73,600
=========
Rent expense for the years ended December 31, 1996 and 1995 was
approximately $45,000 and $27,000, respectively.
In January 1996, the Company entered into an endorsement agreement with a
PGA touring professional for three years. The agreement provides for
payments of $55,000, $70,000 and $98,000 during the years ending December
31, 1996, 1997, and 1998, respectively. In addition, the agreement provides
for certain bonuses based on tournament performances and sales in Australia
and New Zealand, as defined. This agreement was modified on January 17,
1997 (see Note 17).
In September 1996, the Company entered into an advertising agreement for
which the Company will receive media advertising valued at approximately
$101,000, in exchange for golf clubs of the same value.
The Company entered into a two year advertising agreement commencing
January 1, 1997, with a one year renewal. The Company will be obligated to
pay an aggregate of approximately $770,000 for advertising services, as
defined in the agreement.
On November 18, 1996, the Company entered into a three year employment
agreement with its CEO commencing December 19, 1996. The agreement provides
for annual compensation of $175,000, with a one year renewal, and
performance bonuses, as defined. The agreement further provides that the
CEO may not engage in certain competitive activities, as defined, for two
years after termination of the employment agreement.
F-14
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
On November 18, 1996, the Company entered into an agreement for the
production of an infomercial to air in 1997. The agreement provides for a
fee of $132,500, to be paid in installments during the production of the
infomercial, and for royalties to be paid of 1% of net worldwide television
sales, as defined.
On December 6, 1996, the Company entered into an agreement with an
advertising agency to provide a nationally recognized athlete to appear in
the aforementioned infomercial (the infomercial agreement). The agreement
provides for a guaranteed payment of $60,000 to be paid in two equal
installments and for the grant of options (outside the Plan) to acquire
2,000 shares of the Company's common stock for $4.75 per share. These
options vest immediately and expire five years from the grant date. The
agreement terminates on February 28, 1997, at which time the Company can
extend the term for ten months for an additional payment of $25,000 (see
Note 17).
In December 1996, the Company entered into one year endorsement agreements
with nine touring golf professionals, which commence January 1, 1997. The
agreements provide for base compensation, which ranges between $8,000 and
$75,000 per annum, and bonuses based upon tournament performance. In
conjunction with these agreements, the Company granted options (outside the
Plan) to acquire an aggregate of 11,200 shares of the Company's common
stock at $4.75 per share. These options vest immediately and expire five
years from the grant date.
On December 24, 1996, the Company entered into a two year financial
consulting agreement to pay the aggregate of $60,000 for services to be
rendered.
NOTE 16 - CONCENTRATION OF CREDIT RISK:
The Company's cash is maintained in financial institutions, and at times
exceeds the Federal Deposit Insurance Corporation coverage of $100,000.
Management regularly monitors the financial condition of the financial
institution in order to keep the potential risk to a minimum.
F-15
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS:
On January 9, 1997, the Company entered into a one year agency service
agreement, with a one year renewal. The agreement provides for the agency
to negotiate, purchase and arrange for the Company's advertising in the
United States and Canada. The agreement further provides for a 15%
commission based on the gross media cost, as defined.
On January 13, 1997, the Company entered into a six month distribution
agreement in connection with the infomercial. The agreement grants the
distributor the exclusive right to advertise, promote, market and sell the
Company's products in Japan, Australia, Korea, Indonesia, Malaysia, New
Zealand, the Philippines, Singapore and Thailand.
On January 16, 1997, the Company entered into an agreement in which the CEO
is to be featured in a documentary program which will air in 1997. The
agreement provides for a fee of $34,000 to be paid in two equal
installments during production.
On January 17, 1997, the Company renegotiated an endorsement agreement with
a PGA touring professional expiring December 31, 1997 (see Note 15). The
agreement provides for guaranteed compensation of $50,000. In addition, the
Company granted options to acquire 1,000 shares of the Company's common
stock for $4.75 per share. These options vest immediately and expire five
years from the grant date.
On January 24, 1997, the Company's underwriters exercised their
over-allotment option to sell an additional 187,500 shares of common stock
at $4.50 per share (net proceeds of approximately $734,000). Proceeds of
approximately $422,000 were used to repay stockholders' notes, plus accrued
interest, of which $351,000 was paid to the Company's CEO.
In 1997, the Company entered into one and two year endorsement agreements
with six touring golf professionals, which commence January 1, 1997. The
agreements provide for base compensation, which ranges between $12,000 and
$60,000 per annum, and bonuses based upon tournament performance. Certain
of these bonuses are in the form of additional stock option grants, as
defined in the agreements, at an exercise price based upon the market value
on the date of the grant. In conjunction with these agreements, the Company
granted options (outside the Plan) to acquire an aggregate of 11,000 shares
of the Company's common stock at $4.75 per share. These options vest
immediately and expire five years from the grant date.
In March 1997, the Company extended its infomercial agreement until
December 31, 1997 by making an additional payment of $25,000 and granted
the options provided for in the agreement (see Note 15).
F-16
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED):
On March 21, 1997, the Company granted ISO's (in the Plan) to certain
employees to acquire 50,700 shares of the Company's common stock for $4.75
per share. These options vest over a three year period and expire five
years from the grant date. In addition, the Company granted NQSO's (in the
Plan) to its advertising agency and public relations firm to acquire 4,000
shares of the Company's common stock for $4.75 per share. These options
vest immediately and expire five years from the grant date. The Company
also granted NQSO's (in the Plan) to three outside Board members to acquire
45,000 shares of the Company's common stock for $4.75 per share. These
options vest over a three year period if the members are serving on the
Board of Directors at such time, and expire in five years.
NOTE 18 - LIQUIDITY
Management believes that the Company has adequate financial resources to
meet its working capital needs through 1997. Adequacy of cash flows
generated beyond 1997 will depend upon the Company's ability to achieve
sales volumes sufficient to support profitable operations. If the Company's
sales do not increase substantially to cover its expenditures, it will be
required to limit is advertising expenditures and expansion plans or seek
additional financing 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 liquidity, 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.
F-17
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
TEARDROP GOLF COMPANY
BALANCE SHEET
(Unaudited)
June 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,145,013
Accounts receivable, less allowance for doubtful
accounts of $121,000 548,880
Inventories 495,814
Prepaid advertising 694,851
Other current assets 179,443
-----------
Total current assets $3,064,001
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 254,341
OTHER ASSETS, intangible assets, less
accumulated amortization 27,654
----------
$3,345,996
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligation under capital lease $ 16,272
Accounts payable and other current liabilities 816,816
-----------
Total current liabilities $ 833,088
NOTES PAYABLE, stockholders, less current portion 406,589
OBLIGATION UNDER CAPITAL LEASE, less
current portion 50,750
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares, issued and
outstanding none
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
2,187,500 shares 21,875
Capital in excess of par value 6,466,231
Accumulated deficit (4,432,537)
-----------
Total stockholders' equity 2,055,569
----------
$3,345,996
==========
See accompanying notes to financial statements.
3
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- -----------------------
<S> <C> <C> <C> <C>
SALES $1,222,140 $ 385,521 $1,404,481 $ 475,412
COST OF SALES 277,442 153,584 319,386 208,396
---------- ---------- ---------- ----------
GROSS PROFIT 944,698 231,937 1,085,095 267,016
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,405,143 196,369 3,276,216 435,175
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (1,460,445) 35,568 (2,191,121) (168,159)
INTEREST INCOME (EXPENSE) 8,847 (52,081) 40,538 (83,427)
---------- ---------- ---------- ----------
NET LOSS $(1,451,598) $ (16,513) $(2,150,583) $ (251,586)
=========== ========== =========== ==========
NET LOSS PER COMMON SHARE $ (0.66) $ (0.02) $ (0.99) $ (0.34)
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,187,500 750,000 2,162,638 750,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,150,583) $(251,586)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 33,092 16,061
Provision for doubtful accounts 70,512 3,702
Stock and stock options issued for services 32,383 500
Accrued interest on stockholders' notes 18,219 66,271
Changes in assets and liabilities:
Increase in accounts receivable (389,190) (83,358)
Increase in inventories (389,033) (19,858)
Increase in prepaid advertising (479,810)
(Increase) decrease in other current assets (113,236) 375
Increase in accounts payable and other current liabilities 139,098 7,240
---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (3,228,548) (260,653)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES, purchases
of property and equipment (117,937) (1,501)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (300,000)
Payments on obligations under capital lease (8,269) (7,423)
(Payments on) proceeds from stockholders' notes (443,389) 256,125
Proceeds from issuance of common stock 734,163
----------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (17,495) 248,702
----------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,363,980) (13,452)
CASH AND CASH EQUIVALENTS:
Beginning of period $ 4,508,993 15,868
----------- ---------
End of period $ 1,145,013 $ 2,416
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the period for interest $ 17,701 $ 18,656
=========== =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ACCOUNTING POLICIES:
The accounting policies followed by the Company are set forth in Note
1 of the Company's financial statements on Form 10-KSB for the year
ended December 31, 1996. The financial statements should be read in
conjuction with the financial statements and the notes thereto,
together with management's discussion and analysis of financial
condition and results of operations contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996. The
results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results for the entire fiscal year
ending December 31, 1997.
In the opinion of management, the accompanying financial statements
contain the necessary adjustments, all of which are of a normal and
recurring nature, to present fairly Teardrop Golf Company's financial
position at June 30, 1997 and the results of its operations for the
three and six months ended June 30, 1997 and 1996 and its cash flows
for the six months ended June 30, 1997 and 1996.
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.
NOTE 2 - INVENTORIES:
Inventories consist of the following at June 30, 1997:
Raw materials $ 441,274
Finished goods 54,540
----------
$ 495,814
==========
NOTE 3 - STOCKHOLDERS' EQUITY
In January 1997, the Company's underwriters exercised their
over-allotment option to sell an additional 187,500 shares of common
stock at $4.50 per share (net proceeds of approximately $734,000).
Proceeds of approximately $422,000 were used to repay stockholder
notes, plus accrued interest, of which $351,000 was paid to the
Company's Chief Executive Officer (CEO) in repayment of amounts due to
him under the notes.
NOTE 4 - COMMITMENTS AND CONTINGENCIES:
In January 1996, the Company entered into an endorsement agreement
with a PGA touring professional for three years. The agreement
provides for payments of $70,000 and $98,000 during the years ending
December 31, 1997, and 1998, respectively. In addition, the agreement
provides for certain bonuses based on tournament performances and
sales in Australia and New Zealand, as defined. This agreement was
modified on January 17, 1997. The modified agreement provides for
guaranteed compensation of $50,000. In addition, the Company granted
options to acquire 1,000 shares of the Company's common stock for
$4.75 per share. These options vest immediately and expire five years
from the grant date.
The Company entered into a two year advertising agreement commencing
January 1, 1997, with a one year renewal option. The Company will be
obligated to pay an aggregate of approximately $770,000 for
advertising services, as defined in the agreement.
6
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
On November 18, 1996, the Company entered into a three year employment
agreement with its CEO commencing December 19, 1996. The agreement
provides for annual compensation of $175,000, with a one year renewal,
and performance bonuses, as defined. The agreement further provides
that the CEO may not engage in certain competitive activities, as
defined, for two years after termination of the employment agreement.
On November 18, 1996, the Company entered into an agreement for the
production of an infomercial. The agreement provides for a fee of
$132,500, to be paid in installments during the production of the
infomercial, and for royalties to be paid of 1% of net worldwide
television sales, as defined.
In December 1996, the Company entered into one year endorsement
agreements with nine touring golf professionals, which commenced
January 1, 1997. The agreements provide for base compensation, which
ranges between $8,000 and $75,000 per annum, and bonuses based upon
tournament performance. In conjunction with these agreements, the
Company granted options to acquire an aggregate of 11,200 shares of
the Company's common stock at $4.75 per share. These options vest
immediately and expire five years from the grant date.
In 1997, the Company entered into one and two year endorsement
agreements with ten touring golf professionals, which commenced
January 1, 1997. The agreements provide for base compensation, which
ranges between $12,000 and $60,000 per annum, and bonuses based upon
tournament performance. Certain of these bonuses are in the form of
additional stock option grants, as defined in the agreements, at an
exercise price based upon the market value of the common stock on the
date of the grant. In conjunction with these agreements, the Company
granted options to acquire an aggregate of 12,100 shares of the
Company's common stock at $4.75 per share. These options vest
immediately and expire five years from the grant date.
7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - LIQUIDITY
Management believes that the Company has adequate financial resources
to meet its working capital needs through 1997. Adequacy of cash flows
generated beyond 1997 will depend upon the Company's ability to
achieve sales volumes sufficient to support profitable operations. If
the Company's sales do not increase substantially to cover its
expenditures, it will be required to limit is advertising expenditures
and expansion plans or seek additional financing 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
liquidity, 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.
8
<PAGE>
No dealer, salesperson or any 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 by the Representatives. This Prospectus does not
constitute an offer to sell or solicitation of an offer to buy any security
other than the securities offered by this Prospectus, or an offer to sell or a
solicitation of an offer to buy 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 herein is correct as of any time subsequent to
the date of this Prospectus.
-----------
TABLE OF CONTENTS
Page
----
Prospectus Summary 2
Risk Factors 5
Dilution 13
Use of Proceeds 14
Price Range of Securities 15
Capitalization 16
Dividend Policy 16
Management's Discussion and Analysis of Financial
Condition and Plan of Operations 17
Business 22
Management 28
Principal Stockholders and Selling Security Holders 32
Certain Transactions 33
Description of Securities 34
Shares Eligible for Future Sale 36
Plan of Distribution 37
Legal Matters 38
Experts 38
Available Information 38
Index to Consolidated Financial Statements F-1
39
<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
The following are an estimate of the fees and expenses to be incurred
in connection with the Warrants and shares of Common Stock offered hereby:
Blue Sky Fees and Expenses $ 10,000
Legal Fees and Expenses $ 25,000
Accounting Fees $ 12,000
Miscellaneous Expenses $ 15,000
Commissions Payable to Representatives Upon
Exercise of Warrants $464,062
--------
Total $526,062
========
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 Purchasers Securities Sold Price per Share Offering Price
- ---- ---------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Initial Capitalization Wayne R. Wooten, 333,333 shares of $.0003 $100.00
August, 1992 Fred K. Hochman, Common Stock
Frank Grace, Richard
Rizzuto, John Schubert
Sale of shares to a Rudy A. Slucker 416,666 shares of $.0003 $125.00
director of the Common Stock
Company, April, 1996
Sale of shares to a George Archer 5,000 shares of $.01 $50.00
consultant to the Common Stock
Company, May, 1997
Sale of shares to a Millenium Holdings 50,000 shares of $.01 $500.00
consultant to the Group Inc. Common Stock
Company, August, 1997
</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
Exhibit No. Description
- ----------- -----------
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
4.1+ Warrant Agreement
4.2+ Specimen Common Stock Certificate
4.3+ Specimen Warrant Certificate
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
10.7+ Form of Promissory Note in the original principal amount of
$400,000 to be issued by the Company to Rudy A. Slucker
10.15+ Standard Form of Player Endorsement Agreement
II-2
<PAGE>
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.
10.21+ Financial Consulting Agreement between the Company and GKN
Securities Corp.
10.22+ Advertising Agreement dated November 13, 1996 between the
Company and the Golf Channel, Inc.
10.23+ Form of Lock-up Agreement
10.24 Property Lease dated August 10, 1997 between the Company and
Dolo Realty Co.
24.4 Consent of Rothstein, Kass & Company, P.C.
- ------------------
+ Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form SB-2 (File No.
333-14647) and incorporated herein by reference.
II-3
<PAGE>
Item 28. Undertakings
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-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, as
amended, 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
Post-Effective Amendment to the Registration Statement on Form SB-2 to be signed
on its behalf by the undersigned, in the City of Union, State of New Jersey, on
September 30, 1997.
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, as
amended, this Post-Effective Amendment to the Registration Statement on Form
SB-2 has been signed by the following persons in the capacities and on the dates
stated. Each person whose signature appears below hereby constitutes and
appoints Rudy A. Slucker as such person's true and lawful attorney-in-fact and
agent with full power of substitution for such person and in such person's name,
place and stead, in any and all capacities, to sign and to file with the
Securities and Exchange Commission, any and all amendments and post-effective
amendments to this Registration Statement, with exhibits thereto and other
documents in connection therewith, granting unto said attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or any
substitute therefor, any lawfully do or cause to be done by virtue thereof.
Name Title Date
---- ----- ----
/s/ Rudy A. Slucker President, Chief September 30, 1997
- -------------------------------- Executive Officer
Rudy A. Slucker and Director (Principal
Executive Officer)
/s/ Joseph Cioni Chief Financial Officer September 30, 1997
- -------------------------------- (Principal Financial and
Joseph Cioni Accounting Officer)
/s/ Fred K. Hochman Director September 30, 1997
- --------------------------------
Fred K. Hochman
/s/ Leslie E. Goodman Director September 30, 1997
- --------------------------------
Leslie E. Goodman
/s/ Bruce Nagel Director September 30, 1997
- --------------------------------
Bruce Nagel
II-5
LEASE AGREEMENT
This Lease Agreement, made this 10 day of August, 1997, by and between:
DOLO REALTY CO.
a partnership of New Jersey
c/o Gilbert Levine
4 Candlewick Way
Colts Neck, New Jersey 07722
(hereinafter referred to as "Landlord")
and
TEARDROP GOLF COMPANY
32 Bow Circle
Building No. 1
Hilton Head, South Carolina
Until commencement date
Then at:
1080 Lousons Road
Union, New Jersey 07083
(hereinafter referred to as "Tenant")
WITNESSETH:
1. THE DEMISE
The Landlord does hereby demise and lease to Tenant, and Tenant does
hereby lease and hire from Landlord, a building ("Building") of approximately
20,000 sq. ft. and the land known and designated as Block 4303, Lot 26, all
commonly known as 1080 Lousons Road, Union, New Jersey, which land and building
are herein referred to as the "Premises", (Exhibit "A"). Tenant shall have the
right of ingress and egress between Lousons Road and the Premises. This lease is
for the entire building and land.
2. QUIET ENJOYMENT
Upon performing its obligations under this Lease, Tenant shall have and
enjoy quiet and peaceable possession of the Premises during the Term (as
hereinafter defined), subject to the terms of this Lease.
<PAGE>
3. USE OF PREMISES
The Premises may be used for manufacturing, production and distribution
of golf clubs and any other lawful purposes, except premises may not be used for
manufacturing, preparation and storage of any type of food products, either in
finished or raw material stage. However, Tenant may maintain a cafeteria for
employees only on premises.
4. TERM
A. The term of this Lease (the "Term") shall commence on September 1,
1997 (the "Commencement Date"), and shall end August 31, 2002. The word "Term"
as used in this Lease in phrases such as "during the Term" or "at expiration of
the Term" shall include, unless a contrary intention is expressed, the Renewal
Term, if any.
B. The terms of the work letter, attached as Exhibit C, shall be
completed prior to the Commencement Date by Landlord at its sole expense, in a
good and workmanlike manner in compliance with all laws. Tenant shall obtain a
Certificate of Occupancy if necessary.
S. RENT; ADDITIONAL RENT; SECURITY
A. Tenant shall pay to Landlord, as fixed minimum rent ("Basic Rent")
effective as of the Commencement Date, the sums set forth in Exhibit B. The
Basic Rent shall be payable monthly in advance without setoff, deduction or
counterclaim, and without previous notice or demand therefor, with the first
monthly installment to be due and payable on September 1, 1997 and on the first
day of each month of the Term.
B. In addition to the Basic Rent, Tenant shall pay to Landlord or to the
appropriate third party (as may be specified hereinbelow), as additional rent
from the Commencement Date, without previous notice or demand therefor except as
otherwise herein provided (subject to no offset, deduction or counterclaim of
any kind of nature), and in the manner and upon the conditions herein set forth,
all other charges provided for hereunder to be paid by Tenant. Any and all sums
required to be paid by Tenant hereunder, whether to Landlord or otherwise, shall
for purposes of Landlord's rights including the non-payment thereof and for all
other purposes for which the same shall be relevant, be deemed additional rent
subject to the same duties and obligations of Tenant with respect to, and the
same remedies of Landlord for the non-payment of, Basic Rent ("Additional
Rent"). If Landlord shall pay any monies or incur any expenses in correction of
Tenant's violation of the covenants contained in this Lease, the amounts so paid
or incurred shall, upon notice to Tenant, be
2
<PAGE>
considered Additional Rent payable by Tenant with the next installment of Basic
Rent thereafter to become due and payable or, if at expiration of the Term or at
other termination of this Lease, within ten (10) days of demand therefor by
Landlord, it being agreed that the responsibility for payment thereof shall
survive expiration of the Term or other termination of this Lease. All rentals
of any nature shall be paid and delivered to Landlord at Landlord's address as
set forth at the head of this Lease, or to such other place or person as
Landlord may from time to time designate by notice to Tenant.
C. Basic Rent and Additional Rent are sometimes hereinafter collectively
referred to as "Rent", "rent" or "rental".
D. Contemporaneously with the execution of this Lease, Tenant has
deposited with Landlord the sum set forth in Exhibit B as the security deposit
(the "Deposit"), receipt of which is hereby acknowledged by Landlord, as
security for the faithful performance by Tenant of all of the terms, covenants
and conditions of this Lease by Tenant to be kept and performed. If at any time
during the Term, any of the rent herein reserved or provided to be paid shall be
overdue and unpaid beyond any applicable grace period, then Landlord may, at its
option, appropriate and apply any portion of the Deposit to the payment of any
such overdue rent; and in the event of the failure of Tenant to keep and perform
any other term, covenant and/or condition of this Lease to be kept and performed
by Tenant, then Landlord, at its option, may appropriate and apply the Deposit,
or so much thereof as may be necessary, to compensate Landlord for the loss or
damage suffered by Landlord due to the breach on the part of Tenant.
6. ASSIGNMENT OR SUBLETTING
A. Tenant may not assign this Lease in whole or in part, nor sublet all
or any part of the Premises, without the prior written Consent of Landlord which
shall not be unreasonably withheld. In all circumstances of assignment or
subletting, the assignee or subtenant shall assume in writing the obligations of
Tenant hereunder and the existing Tenant and guarantor hereunder (if any) and
each subsequent assignee, and guarantor shall remain jointly and severally
liable under this Lease. Consent to any particular assignment or subletting
shall not be deemed consent to any further or subsequent assignment or
subletting.
B. If Tenant shall assign this Lease or sublet the Premises and at any
time and the rent to be received by Tenant pursuant to such assignment or
subletting is in excess of the then applicable rent per square foot hereunder,
Landlord and Tenant shall split equally the entire amount of such excess,
3
<PAGE>
which excess shall be due and payable from time to time by Tenant promptly upon
receipt by Tenant of payment of rent by the assignee or subtenant. Any excess
shall be reduced by expenses incurred by Tenant, such as brokerage, etc.
C. If Tenant wishes to assign this Lease or sublet to any party, Tenant
first shall give written notice to Landlord of such intention ("Tenant's
Notice"), specifying the name of the proposed assignee or sublessee, the name of
and character of its business, the terms of the proposed assignment or sublease,
and shall provide Landlord with such other information as Landlord requests
including financial statements in form acceptable to Landlord.
D. Landlord may, within fifteen (15) days after its receipt of Tenant's
Notice, by notice to Tenant ("Landlord's Notice"), either consent not to be
unreasonably withheld to or reject the proposal, or Landlord may terminate this
Lease as of a date selected by Tenant, in the event only of a proposed
assignment, (except Landlord may not terminate in connection with the sale of
Tenant's business,) such date of termination having the same effect as if that
date were the original expiration date of this Lease, with all rents being
apportioned and adjusted as of such date of termination
7. REAL ESTATE TAXES
A. Tenant shall pay as Additional Rent during the Term, upon demand from
time to time by Landlord, the "Proportionate Share" (as hereinafter defined) of
real estate taxes, assessments and other charges and levies which may be made or
imposed upon the Premises ("Taxes"), other than income, franchise, gross
receipts, corporation, capital levy, excess profits, revenue, inheritance,
devolution, gift, estate, payroll or stamp tax, or other tax not in lieu of or
as substitute for real estate tax; provided, however, that if any time during
the Tern the methods of taxation prevailing at the Commencement Date shall be
altered so as to cause the whole or any part of the Taxes to be imposed, wholly
or partly, as a capital levy, on the rents received from the Premises or
otherwise, or if any tax shall be measured by or based in whole or in part upon
the value of the Premises and shall be imposed upon Landlord, then, to the
extent that such other tax is a substitute for or is enacted in lieu of existing
real estate tax, as described above, Tenant shall be responsible for payment, as
Additional Rent, of all such Taxes. The maximum obligation of Tenant, however,
shall be achieved by computing such substitute tax as if the Premises were the
sole property of Landlord. Upon request of Tenant, Landlord shall execute all
documents necessary for, and will cooperate with Tenant with respect to, the
prosecution, in Landlord's name, of appeals of the tax assessment against the
Premises, provided
4
<PAGE>
that no such appeal shall be prosecuted if the prosecution thereof would, in
Landlord's reasonable judgment, jeopardize Landlord's ownership of the Tract or
create any lien or encumbrance thereon, and further provided that Landlord shall
incur no expense or obligation in connection with any such appeals.
B. At the option of Landlord from time to time, the share of Taxes
and/or any other charges for which Tenant may be responsible hereunder shall be
paid in monthly installments in such amounts as are estimated and billed by
Landlord, each such installment being due on the first day of each month. If
Landlord does not make such election, then Tenant shall pay taxes to Landlord on
a quarterly basis, thirty (30) days before the date Landlord is required to pay
same. If Landlord elects such option, which it may do from time to time, then
within sixty (60) days after receipt by Landlord of final Tax bills and/or a
reasonable accounting of any other charges so billed for the applicable year,
Landlord shall make available for Tenant's inspection copies of such Tax bills
and/or such accounting, and the monthly payments to be made by Tenant thereafter
shall be adjusted to compensate for any overpayment or underpayment made by
Tenant in the preceding period. It is understood and agreed that the
responsibility of Tenant to pay costs of any nature which may be due under this
Lease shall, if not paid as of the time of expiration of the Term or other
termination of this Lease, survive expiration of the Term or other termination
of this Lease.
C. The phrase "Proportionate Share" shall mean one hundred percent
(100%).
D. Landlord shall elect to pay assessment for municipal improvements in
the maximum number of installments permitted by law. If the law does not permit
such election, Tenant's share thereof shall be determined as if such assessment
was payable in installments over twenty (20) years.
E. All taxes at beginning and end of term shall be prorated.
8. MAINTENANCE AND REPAIRS
Except as provided below, Tenant shall be responsible for undertaking
all maintenance and repairs to the premises and surrounding land, including the
systems servicing the premises and exterior maintenance such as but not limited
to snow removal. Landlord shall be responsible for structural maintenance and
repair of the Building except that Tenant shall be responsible for any
structural repair (including roof repairs) the need for which shall result from
or arise out of the acts or negligence of
5
<PAGE>
Tenant or its agents, employees, contractors, invitees or licenses ("Agents").
9. INSURANCE AND INDEMNITY; NON-LIABILITY
A. Tenant shall during the term, at its sole cost and expense, keep in
full force and effect a policy of public liability insurance with respect to the
premises to which the limits of liability for personal injury and property
damage combined shall not be less than $1,000,000 per occurrence and $2,000,000
annual aggregate (per location). In addition, tenant shall provide an excess
limits or umbrella liability policy with limits of liability not less than
$3,000,000 personal injury and property damage per occurrence and annual
aggregate. Landlord shall be named as an additional insured on each of these
policies.
All provisions of said policy, except the limits of liability, shall
operate in the same manner as if there were a separate policy covering each
insured. Certificates of said coverage shall be provided to the Landlord. Said
certificates to offer 30 days prior written notice of any material change or
cancellation. A certificate of insurance shall be delivered to the Landlord on
or before the Commencement Date of this lease.
B. Tenant shall indemnify and save Landlord harmless against and from
any and all claims, actions, damages, losses, liability and expense, including
court costs and reasonable attorneys' fees, in connection with loss of life,
personal injury and/or damage to property arising from or out of any occurrence
in, upon or at the Premises, or the occupancy or use by Tenant of the Premises,
or any part thereof, or occasioned wholly or in part by any act or negligence of
Tenant or its Agents. It is understood that Landlord shall not be liable for any
damage or injury which may be sustained by Tenant or any other person as a
consequence of the failure, breakage, leakage or obstruction of the water,
plumbing, steam, sewer, waste or soil pipes, roof, drains, leaders, gutters,
valleys, downspouts or the like, or of the electrical, gas, power, conveyor,
refrigeration, sprinkler, air conditioning or heating systems; or by reason of
the elements; or resulting from the carelessness, negligence or improper conduct
on the part of any other tenant or its Agents, unless it arises out of
Landlord's or its Agents' negligence.
C. If Tenant shall fail, refuse or neglect to obtain any of the
insurance called for by this Lease or maintain the same and to show Landlord
evidence of the same as aforesaid, Landlord shall have the right (but not the
obligation) to procure any such insurance and charge the cost thereof to Tenant,
but only after notice of failure to cure, within thirty (30) days.
6
<PAGE>
D. Tenant shall maintain fire and "special perils" insurance coverage on
the building on a replacement cost valuation basis and shall name the Landlord
as an insured. Insurance shall be in an amount equal to the replacement cost of
the building which shall be determined by appraisal of the tenants insurance
company, or, an independent appraisal service and shall be updated at a minimum
of every three years. At the commencement of this lease, it is agreed that the
replacement value shall be $1,000,000.00. Said policy shall recognize the
interest of the Landlord's mortgagees and/or lienholders.
Tenant shall procure rent insurance for two (2) years covering the
perils of file and "special perils" in an amount equal to the rent as outlined
in this lease adjusted per the terms of this lease.
If the tenant carries property insurance on a blanket basis covering
buildings and contents and/or several buildings and/or several buildings and
contents in several buildings, said policy shall contain a provision that the
amount of insurance determined as replacement cost in this paragraph above,
shall be reserved from this blanket amount of insurance for the benefit of the
Landlord.
Policies may be in the name of the tenant and the Landlord, however, it
should be provided within the policy that loss, if any, shall be payable to the
Landlord (see terms and conditions of paragraph 9A). Coverage shall be with an
insurance company licensed to do business in the state of New Jersey and rated A
XII or better by Bests Rating Service (or the equivalent as rated by Standard
and Poors Rating Service). Copies of said policies shall be provided to the
Landlord and their mortgagees as required. Certificates evidencing 30 day notice
of cancellation or material change shall be provided to the Landlord. Said
policies may provide for deductibles of no more than $50,000., however, Tenant
agrees to reimburse Landlord in the amount of any deducible incurred in case of
loss. Said policies hall be written on a no co-insurance and/or agreed amount
basis and shall also provided coverage in an amount no less than $250,000. to
provide for increased cost of construction as the result of changes in
ordinances or codes, and for removal of debris (known as ordinance and law
provisions).
E. Each party hereby releases the other from liability for property
damage from any cause whatsoever to the extent such releasing party shall
receive insurance proceeds (or have the availability of the receipt thereof) on
account of such damage or injury. Landlord and Tenant agree to use their best
efforts to include in their respective property insurance policies, the
following: (i) a waiver of the insurer's right of subrogation against the other
party, (ii) an express agreement
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that such policy shall not be invalidated if the insured waives the right to
recovery against any party responsible for a casualty, or (iii) any other form
of permission for the release of the other party.
10. TENANT'S RIGHT TO MAKE ALTERATIONS OTHER THAN RENOVATION WORK; SIGNS
ON EXTERIOR OF PREMISES
A. Tenant may, from time to time, at its own cost and expense, make such
nonstructural installations, alterations, restorations, changes or replacements
(hereinafter called "Alterations"), in, of or to the Premises as Tenant deems
necessary or desirable, provided that the prior written consent of Landlord
shall have been obtained, which consent shall not be unreasonably withheld or
delayed, (i.e., five (5) days after requested) if the Alterations will not
impair the value of the Premises in Landlord's reasonable judgment.
B. Tenant, in making the Alterations, shall comply with all applicable
laws, orders and regulations of federal, state, county and municipal
authorities, with any direction pursuant to law or given by any public officer,
and with all regulations of any board of fire underwriters having jurisdiction.
C. Tenant shall obtain or cause to be obtained, all building permits,
licenses, temporary and permanent certificates of occupancy and other
governmental approvals which may be required in connection with the making of
the Alterations, and Landlord shall cooperate with Tenant in the obtaining
thereof (at no out-of-pocket expense to Landlord) and shall execute any
documents reasonably required in furtherance of such purpose.
D. Tenant shall pay all costs and expenses in connection with the making
of Alterations and shall discharge or bond any mechanic's lien filed against the
Premises in connection therewith within a period of fifteen (15) days after
Tenant receives notice of filing of such lien, it being understood that Landlord
shall not be deemed hereby to have given consent to any such filing.
E. Tenant shall indemnify and hold Landlord harmless against and from
any claims arising out of such work and shall perform all work in a good and
workmanlike manner.
F. The Alterations shall be and remain the property of Landlord;
provided, however, that Landlord shall have the option, to be exercised, if at
all, at least fifteen (15) days prior to expiration of the Term or of any other
termination hereof, to give notice to Tenant that Tenant is to remove all or any
part of Alterations made by Tenant, upon the giving of which
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notice Tenant shall be obligated to remove the specified Alterations prior to
such expiration or termination and to repair any damage caused by the removal
and restore the Premises to their condition as existed prior to the making of
the applicable Alterations.
G. No signs may be placed or maintained on the exterior of the Premises
by Tenant without the prior written approval of Landlord, which consent shall
not be unreasonably withheld or delayed, (i.e., five (5) days after requested)
and any such sign as is placed or maintained by Tenant on the exterior of the
Premises must be kept in good condition and repair at all times and must be
installed and maintained in compliance with all applicable laws, rules and
regulations.
11. FIXTURES AND PERSONAL PROPERTY
Any trade fixtures, equipment and other property installed in or
attached to the Premises by and at the expense of Tenant shall remain property
of Tenant, and Tenant shall have the right, at any time, and from time to time,
to remove any and all of its trade fixtures, equipment and other property which
it may have stored or installed in the Premises. Tenant shall make all repairs
required as a result of the removal of such items so as to restore the Premises
to their original condition (including but not limited to repair of any holes in
the walls of the Building).
12. UTILITY CHARGES
Tenant shall, upon demand by Landlord, pay for all utilities of any
nature serving the Building.
13. OBSERVANCE OF LAWS, ORDINANCES, RULES AND REGULATIONS
A. Tenant shall comply with all statutes, ordinances, rules, orders,
regulations and requirements of all federal, state, county and municipal and
other applicable governmental authorities relating to the Premises and shall
faithfully observe in the use of the Premises all municipal and county
ordinances and regulations and state and federal statutes and regulations of the
Board of Fire Underwriters or similar agency for the prevention of fires to the
extent that the need to comply is caused by the specific use being made by
Tenant of the premises or any alterations made therein by Tenant. In case Tenant
shall fail or neglect to comply with the aforesaid statutes, ordinances, rules,
orders, regulations and requirements, or any of them, within the period of time
for compliance as contained therein or such shorter time as may be required in
this Lease, then (not in limitation of any other rights which Landlord may
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have under this Lease or by law in the case of a default by Tenant) Landlord or
its agents may enter the Premises and make necessary repairs and comply with any
and all of the said statutes, ordinances, rules, orders, regulations or
requirements, at the cost and expense of Tenant. In case of Tenant's failure to
pay therefor, the said cost and expense shall be added to the next month's rent
and be due and payable promptly as Additional Rent, together with interest as in
this Lease provided. In all other circumstances, Landlord shall comply with all
statutes, ordinances, rules, etc.
B. Tenant may contest any of the above-stated statutes, ordinances,
rules, orders, regulations or requirements, provided that Tenant shall indemnify
Landlord for any loss or liability (including but not limited to reasonable
attorneys' fees incurred by Landlord), and shall not do so in any circumstances
as would, in Landlord's reasonable judgment, jeopardize Landlord's ownership of
the Tract or cause any lien or encumbrance to be placed upon the Tract. Landlord
agrees to cooperate with any such contest, provided that Landlord shall entail
no out-of-pocket cost or expense.
14. DAMAGE TO PREMISES
A. If the Premises shall be damaged by fire, the elements, unavoidable
accident or other casualty, then, subject to the provisions below, Landlord
shall cause the damage to be repaired. In doing so, Landlord shall commence its
repairs promptly and diligently proceed with same, but shall not be required, in
any event, to expend more than the net amount of insurance proceeds received on
account of the damage and if proceeds are insufficient to restore and Landlord
does not expend additional funds, Tenant may terminate.
B. If the Premises shall be so damaged or destroyed as would render the
Premises untenantable for a period in excess of one hundred eighty (180) days,
or if then applicable laws or zoning requirements do not permit the necessary
repair or restoration after occurrence of damage or destruction of the Premises
to whatever extent, then either party shall have the right to cancel this Lease
by written notice to the other served within thirty (30) days of the occurrence,
effective as of the occurrence. Upon such termination, all Rent and Additional
Rent shall be apportioned as of the date of the occurrence. Further, if the
Premises are not in fact restored within 180 days, Tenant may terminate.
C. Tenant shall immediately notify Landlord in case of fire or other
damage to the Premises.
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D. The repair and restoration of any damage to the property of Tenant or
to the decorations and Alterations of Tenant shall not be the responsibility of
Landlord.
E. In the event any damage or destruction of the Premises renders the
Premises untenantable, all rent shall be abated during such period of
untenantability. If any such damage or destruction renders the Premises
partially untenantable, all rent shall be equitably apportioned. For purposes of
this Paragraph E, the word "rent" shall not include any Additional Rent as may
be due from Tenant by reason of default by Tenant under any term, covenant or
condition of this Lease.
F. Insurance proceeds applicable to the Premises and/or Building shall
be and remain the exclusive property of Landlord, except insurance proceeds
specifically designated as proceeds for Tenant's property.
15. EMINENT DOMAIN
A. In the event that more than ten percent (10%) as to Tenant or fifty
percent (50%) as to Landlord, of the floor area of the Building, or egress or
ingress from or to the Building or any utility necessary to operate the Premises
shall be appropriated or taken under or in lieu of the power of eminent domain
by any public or quasi-public authority (without the provision by Landlord of
alternative ingress and egress or utility service), either Landlord or Tenant
may terminate this Lease, effective as of the date of taking, by written notice
to the other given within sixty (60) days from the date of such taking, and the
parties shall thereupon be released from any liability to each other accruing
thereafter. Upon such termination, all Rent and Additional Rent shall be
pro-rated to the date of termination.
B. If there shall occur any such appropriation or taking under or in
lieu of eminent domain not giving rise to a right of termination pursuant to
paragraph A above, or if neither party timely exercises its right of
termination, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that the Basic Rent shall be reduced in the
proportion that the floor area taken bears to the total floor area of the
Building. If a portion of the Building shall have been appropriated or taken and
if this Lease shall continue, then and in that event, Landlord agrees to
promptly commence restoration of the Building to a complete unit of like quality
and character as existed prior to such appropriation or taking. In no event
shall Landlord be obligated to incur costs in excess of the net proceeds of
condemnation actually received by Landlord.
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C. If this Lease is terminated as described in this Section, rent for
the last month of Tenant's occupancy shall be pro-rated and Landlord agrees to
refund to Tenant any rent paid in advance.
D. In the event of any appropriation or taking as aforesaid, whether
whole or partial, Tenant shall not be entitled to any part of the award paid for
such condemnation except as otherwise provided in paragraph E of this Section,
and Landlord is to receive the full amount of such award. Tenant hereby
expressly waives any right or claim to any part of such award, except as
hereinafter provided.
E. Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, all such compensation then permitted by law as
may be separately awarded or recoverable by Tenant by reason of the condemnation
(provided that such separate award shall not reduce the compensation payable to
Landlord), including but not limited to compensation for or on account of any
cost or loss to which Tenant might be put in repairing, altering or removing
Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment.
16. DEFAULT AND REMEDIES
A. If Tenant defaults in the payment of Basic Rent or any Additional
Rent (no notice thereof being required to be given by Landlord), or if the
Premises shall be deserted, abandoned or vacated, or if Tenant defaults in
compliance with any of the other covenants or conditions of this Lease and fails
to cure the same within twenty (20) days after the receipt of notice specifying
the default, then upon such rental default or at the expiration of such twenty
(20) days, as the case may be, Landlord may (a) cancel and terminate this Lease
upon written notice to Tenant (whereupon the Term shall terminate and expire,
and Tenant shall then quit and surrender the Premises to Landlord, but Tenant
shall remain liable as hereinafter provided) and/or (b) at any time thereafter
re-enter and resume possession of the Premises as if this Lease had not been
made. Anything above to the contrary notwithstanding, the said twenty (20)-day
period of time for cure of non-monetary defaults shall extend beyond such twenty
(20) days for the period of time necessary to effect the cure provided that
Tenant shall diligently commence the cure during such twenty (20)-day period and
shall diligently and continuously prosecute the cure to completion.
B. If this Lease shall be terminated or if Landlord shall be entitled to
re-enter the Premises and dispossess or remove Tenant under the provisions of
this Section (either or both of which events are hereinafter referred to as a
"Termination"), Landlord or Landlord's Agents may immediately or
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at any time thereafter re-enter the Premises and remove therefrom Tenant, its
Agents, and any subtenants and other persons, firms or corporations, and all or
any of its or their property therefrom, either by summary dispossess proceedings
or by any suitable action or proceeding at law or by peaceable reentry or
otherwise, without being liable to indictment, prosecution or damages therefor,
and may repossess and enjoy the Premises, including all additions, alterations
and improvements thereto.
C. In case of Termination, the Basic Rent and all other charges required
to be paid by Tenant hereunder shall thereupon become due and shall be paid by
Tenant up to the time of the Termination, and Tenant shall also pay to Landlord
all reasonable expenses which Landlord may then or thereafter incur as a result
of or arising out of a Termination, including but not limited to court costs,
attorneys' fees, brokerage commissions, and costs of terminating the tenancy of
Tenant, re-entering, dispossessing or otherwise removing Tenant and restoring
the Premises to good order and condition, and from time to time altering and
otherwise preparing the same for re-letting (including but not limited to costs
of removing all or any part of the Renovations or Alterations made by Tenant).
Upon a Termination, Landlord may, at any time and from time to time (but shall
not be obligated to), re-let the Premises, in whole or in part, in its own name,
for a term or terms which, at Landlord's option, may be for the remainder of the
Term, or for any longer or shorter period. Landlord shall be required to
mitigate its damages.
D. In addition to the payments required hereinabove in this Section,
Tenant shall be obligated to, and shall, pay to Landlord, upon demand and at
Landlord's option:
(i) liquidated damages in an amount which, at the time of Termination,
is equal to the excess, if any, of the then present amount of the installments
of Basic Rent and Additional Rent reserved hereunder, for the period which would
otherwise have constituted the unexpired portion of the Term over the then
present rental value of the Premises for such unexpired portion of the Term (the
word "Term" for purposes of this clause (i) and the ensuing clause (ii) being
deemed to include any Renewal Term then in effect or for which the option shall
have theretofore been exercised); or
(ii) damages payable in monthly installments, in advance, on the first
day of each calendar month following the Termination, and continuing until the
date originally fixed herein for the expiration of the Term, in amounts equal to
the excess, if any, of the sums of the aggregate expenses paid by Landlord
during the month immediately preceding such calendar month for all such items
as, by the terms of this Lease, are
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required to be paid by Tenant, plus an amount equal to the installment of Basic
Rent which would have been payable by Tenant hereunder in respect to such
calendar month, had this Lease not been terminated, over the sum of rents, if
any, collected by or accruing to Landlord in respect to such calendar month
pursuant to a re-letting or to any holding over by any subtenants of Tenant.
E. Landlord shall in no event be liable for failure to relet the
Premises, or in the event that the Premises are re-let, for failure to collect
rent due under such re-letting; and in no event shall Tenant be entitled to
receive any excess of rents over the sums payable by Tenant to Landlord
hereunder but such excess shall be credited to the unpaid rentals due hereunder,
and to the expenses of reletting and preparing for re-letting as provided
herein.
F. Suit or suits for the recovery of damages hereunder, or for any
installments of rent, may be brought by Landlord from time to time at its
election, and nothing herein contained shall be deemed to require Landlord to
postpone suit until the date when the "Term would have expired if it had not
been terminated under the provisions of this Lease, or under any provision of
law, or had Landlord not reentered into or upon the Premises.
C. Landlord, at its option, in addition to any and all remedies
available to it, shall have the right to charge a fee for payment of rent
received later than ten (10) days after the date due, which fee shall be the
greater of five percent (5%) of the delinquent payment or one percent (1%) per
month of the amount of the overdue rent.
H. Tenant hereby waives all rights of redemption to which Tenant or any
person claiming under Tenant might be entitled, after an abandonment of the
Premises or after a surrender and acceptance of the Premises and Tenant's
leasehold estate, or after a dispossession of Tenant from the Premises, or after
a termination of this Lease, or after a judgment against Tenant in an action in
ejectment, or after the issuance of a final order or warrant of dispossess in a
summary proceeding, or in any other proceeding or action authorized by any rule
of law or statute now or hereafter in force or effect.
I. No mention in this Lease of any specific right or remedy shall
preclude Landlord from exercising any other right or from having any other
remedy or from maintaining any action to which Landlord may otherwise be
entitled hereunder or at law or in equity.
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J. Landlord shall subordinate any statutory lien to any Lender providing
financing to Tenant.
17. NOTICES
Wherever in this Lease it shall be required or permitted that notice or
demand be given or served by either party to this Lease to or on the other, such
notice or demand shall be in writing and shall either be served personally or
sent by registered or certified mail, return receipt requested, to the parties
at the addresses described below -- to Landlord, at its address stated at the
head of this Lease, with a copy to Leonard H. Selesner, Esq., 225 Millburn
Avenue, Suite 208, Millburn, New Jersey 07041; to Tenant, at its address stated
at the head of this Lease, attention of Rudy Slucker, with a copy to Howard
Kantrowitz, Esq., 301 S. Livingston Avenue, Livingston, New Jersey 07039. Such
addresses may be changed from time to time by either party by written notices
served upon the other, as above provided. Notices shall be effective upon
receipt.
18. ATTORNMENT; DEFINITION OF TERM "LANDLORD"
A. Tenant shall attorn to any new owner of the Tract, including a
mortgagee of the Tract, and shall execute such attornment instrument as shall
reasonably be requested by such new owner, and Tenant waives any right it may
have to surrender possession of the Premises or terminate this Lease in the
event of change of ownership of the Premises. The term "Landlord", as used in
this Lease, means only the owner for the time being of the Premises, so that in
the event of any sale or conveyance thereof, Landlord (and any successor selling
or conveying landlord) shall be and hereby is entirely freed and relieved of all
Landlord's covenants and obligations hereunder which accrued thereafter and it
shall be determined and construed, without further agreement between the parties
and the purchaser or transferee at or of any such sale or conveyance, that the
purchaser or transferee has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder.
B. Upon any transfer of title by Landlord, Tenant agrees to give to the
grantee, at the request of Landlord an estoppel or offset statement as provided
for in Section 22 below ("Estoppel or Offset Statements") and then current
financial statements of Tenant.
19. COST OF PERFORMING OBLIGATIONS
Unless otherwise specified, the respective obligations of the parties to
keep, perform and observe any terms, covenants or conditions of this Lease shall
be at the sole cost and expense of the party so obligated.
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20. RE-ENTRY BY LANDLORD
Should Tenant make an assignment for the benefit of creditors or file a
voluntary petition in bankruptcy or be adjudicated a bankrupt or take the
benefit of any insolvency act or if a receiver or trustee of Tenant and/or of
its property shall be appointed in any proceedings other than bankruptcy
proceedings and such appointment, if made in proceedings instituted by Tenant,
shall not be vacated within thirty (30) days after it has been made, or if made
in proceedings instituted by other than Tenant, shall not be vacated within
sixty (60) days after it has been made, any of the foregoing shall constitute a
default hereunder and Landlord, in addition to all other rights or remedies
hereunder and by law or equity, shall have the immediate right of re-entry and
may remove all persons and property from the Premises and such property may be
removed and stored in a public warehouse or elsewhere at the cost and expense of
Tenant, all without Landlord being deemed guilty of trespass or becoming liable
for any loss or damage which may be occasioned thereby.
21. MORTGAGE SUBORDINATION
This Lease shall be subordinate to the lien of any present or future
mortgage(s) on the Premises. Notwithstanding the automatic nature of the
subordination described in this Section, Tenant shall execute, acknowledge and
deliver to Landlord, or to its designee(s), any and all documents evidencing
such subordination as may be reasonably requested by Landlord or by any proposed
mortgagee. In default of such responsibility, Tenant hereby appoints Landlord as
Tenant's attorney-in-fact to execute, acknowledge and deliver such instrument
for and in the name and stead of Tenant, such power of attorney given to
Landlord to be deemed irrevocable and coupled with an interest. If any mortgagee
elects to have Tenant's interest in this Lease rendered superior in priority to
that mortgagee's lien on the Premises, then by notice to Tenant, this Lease
shall be deemed superior to that mortgagee's lien, whether this Lease was
executed before or after execution or recording of the instrument creating that
mortgagee's lien. Tenant shall provide to Landlord, Landlord's mortgagee and/or
any prospective mortgagee of Landlord, such financial statements and
information, relating to Tenant, as may be reasonably requested from time to
time by Landlord, the mortgagee and/or the prospective mortgagee.
22. ESTOPPEL OR OFFSET STATEMENTS
Tenant and Landlord shall, upon the reasonable request from time to time
of Landlord or Tenant, execute and deliver an estoppel or offset statement (a)
certifying that this Lease is in full force and effect and has not been modified
or amended, or
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stating all amendments and modifications thereto; (b) specifying the dates to
which Rent and Additional Rent have been paid; (c) stating whether or not Tenant
or Landlord alleges that the other is in any respect in default, and, if so,
specifying the alleged default; (d) stating the Commencement Date; (e) stating
which options to renew have been exercised, if any; and (f) stating such other
information as Landlord may reasonably request.
23. HOLDOVER
In the event that Tenant shall for any reason remain in possession of
the Premises after the expiration of the Term, such possession shall at the
option of Landlord be on a month-to-month basis subject to the terms and
conditions of this Lease except as to duration of term and except that the Basic
Rent shall be one hundred and fifty percent (150%) of that in effect at
expiration of the Term. The foregoing is not intended to afford to Tenant the
right to remain in possession of the Premises after expiration of the Term
without Landlord's prior written consent.
24. FORCE MAJEURE
The period of time during which either party is prevented or delayed in
the making of any improvements or repairs or fulfilling any obligation required
under this Lease, with the exception of obligations of the payment of Rent or
Additional Rent, due to unavoidable delays caused by fire, catastrophe, strikes,
labor trouble, civil commotion, Acts of God or public enemies, government
prohibitions or regulations or inability to obtain materials or any other causes
beyond such party's reasonable control, shall be added to such party's time for
performance thereof, and such party shall have no liability by reason thereof.
It is understood, not in limitation of the generality of the foregoing, that
Landlord shall under no circumstances be liable to Tenant in damages or
otherwise for any interruption in service of water, electricity, heating, air
conditioning and/or other utilities and services of any nature caused by an
unavoidable delay, by the making of any necessary repairs or improvements or by
any cause beyond Landlord's reasonable control.
25. ENTRY BY LANDLORD
For a period commencing one (1) year prior to the termination of this
Lease, Landlord and its Agents shall have reasonable access, during business
hours, to the Premises for the purpose of exhibiting the same to prospective
tenants, and shall during the Term have reasonable access, during business
hours, to the Premises for the purpose of exhibiting the same to prospective
purchasers. Landlord shall exercise its right of access for such purposes, if
exercised at all, upon reasonable
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advance notice to Tenant and in a manner not unreasonably to interfere
with Tenant's business at the Premises. At all times during the Term, Tenant
will permit upon prior notice, Landlord and its Agents to enter the Premises
during business hours in order to inspect the same and/or to enforce or carry
out any provision of this Lease.
26. BROKERS
Each party represents to the other it knows of no broker or other person
who introduced the parties to this transaction other than The Real Estate Store,
Kenilworth, New Jersey and Rubin Realty Associates, Inc., for whose commission
Landlord shall be liable by separate agreement (and against which Landlord shall
indemnify and hold Tenant harmless from). In the event of a claim by any other
broker or person for commissions arising out of a misrepresentation by one of
the parties hereto, that party shall indemnify and hold the other harmless from
that claim, such indemnify and hold harmless agreement to include court costs
and reasonable attorneys' fees incurred in respect to or in defense against such
claim.
27. END OF TERM
Upon expiration of the Term or other termination of this Lease, Tenant
shall peaceably and quietly quit and surrender the Premises, broom clean, in the
same condition as on Commencement Date, reasonable wear and tear and damage by
fire or other casualty excepted. Tenant shall also, remove all trade fixtures
and movable partitions, and shall repair any damage caused in so moving and
restore the Premises to such condition as existed prior to installation of such
fixtures and partitions. All Alterations of Tenant shall be left by Tenant and
shall remain part of the Premises except to the extent Landlord may have
otherwise specified in a notice to Tenant given pursuant to paragraph F of
Section 10 ("Tenant's Right to Make Alterations; Signs on Exterior of
Premises").
28. LIABILITY OF LANDLORD
Tenant agrees that the liability of Landlord (or of any subsequent
landlord) in the event of breach by Landlord shall be limited to Landlord's
interest in the Premises and any proceed therefrom. Tenant expressly agrees that
any judgment or award which Tenant may obtain against Landlord shall be
recoverable and satisfied solely out of the right, title and interest of
Landlord in and to the Premises and any proceed therefrom, and Tenant shall have
no personal rights against any principals or partners of Landlord, and shall
have no rights of lien or levy against any other property of Landlord.
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29. NET LEASE
It is understood and agreed that, except as may otherwise in this Lease
be expressly provided, Tenant has the responsibility of paying all charges of
any kind or nature attributable to the Premises, whether or not specifically set
forth in this Lease, it being the intention of the parties hereto that, except
as may otherwise herein be provided, the Rent payable to Landlord under this
Lease be absolutely net and that Landlord have no expense whatsoever
attributable to the Premises or to the operation or maintenance of the Premises.
30. PERFORMANCE OF TENANT'S OBLIGATIONS
If Tenant shall be in default hereunder, after the lapse of any
applicable notice and grace period, in any respect, Landlord may at Landlord's
option and without waiving its rights hereunder, cure such default on behalf of
Tenant, in which event Tenant shall, promptly upon demand by Landlord, reimburse
Landlord for all expenses incurred by Landlord in effecting such cure, including
but not limited to attorneys' fees, together with interest thereon at twelve
percent (12%) per annum (whether or not elsewhere in this Lease it is provided
for Landlord to recover interest upon occurrence of a specified default by
Tenant and cure thereof by Landlord). In order to collect such reimbursement,
Landlord shall have all the remedies available under this Lease and/or by law or
equity for a default in the payment of Rent. Tenant shall also be responsible
for all attorneys' fees incurred by Landlord in connection with any default or
threatened default by Tenant, the enforcement by Landlord of any covenant made
by Tenant, and/or Landlord's exercise of any right of approval or consent as may
be provided for hereunder.
31. FLOOR LOADS
Tenant shall not place a load upon any floor of the Premises exceeding
the floor load per square foot area which it was designed to carry and which is
allowed by law.
32. ECRA COMPLIANCE
Tenant shall, at Tenant's own expense, comply with the Environmental
Cleanup Responsibility Act and Industrial Site Recovery Act N.J.S.A. 13:1K-6
et. seq., and the regulations promulgated thereunder ("ECRA") and ("ISRA"), as
well as all other environmental laws, rules or regulations ("Environmental
Laws") only in connection with cessation of its operation and be limited to
costs and expenses related to its actions or occurrences during the lease term.
Tenant shall, at Tenant's own
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expense, make all submissions to, provide all information to, and comply
with all requirements of, the Bureau of Industrial Site Evaluation ("the
Bureau") of the New Jersey Department of Environmental Protection ("NJDEP").
Should the Bureau or any other division of NJDEP determine that a cleanup plan
be prepared and that a cleanup be undertaken because of any spills or discharges
of hazardous substances or wastes at the Premises which occur during the Term,
unless caused by Landlord's or its Agents' acts or omissions, or from offsite,
then Tenant shall, at Tenant's own expense, prepare and submit the required
plans and financial assurances, and carry out the approved plans. At no expense
to Landlord, Tenant shall promptly provide all information requested by Landlord
for preparation of nonapplicability affidavits with respect to ECRA and ISRA and
shall promptly sign and deliver such affidavits when requested by Landlord.
Tenant shall indemnify, defend and save harmless Landlord against all fines,
suits, procedures, claims and actions of any kind (including attorneys' fees)
arising out of or in any way connected with any spills or discharges of
hazardous substances or wastes at the Premises which occur during the Term, and
from all fines, suits, procedures, claims and actions of any kind (including
attorneys' fees) arising out of Tenant's failure to provide all information,
make all submissions and take all actions required by the Bureau or any other
division of NJDEP, or from any violation under or failure to comply with ECRA
and ISRA or any other Environmental Law. Tenant's obligations and liabilities
under this Section 32 shall continue so long as Landlord remains responsible for
any spills or discharges of hazardous substances or wastes at the Premises which
occur during the term, notwithstanding expiration of the Term or other
termination of this Lease. Tenant's failure to abide by the terms of this
Section 32 shall be restrainable by injunction.
33. INVALIDITY OF PARTICULAR PROVISIONS
Wherever in this Lease any portion or part thereof has been stricken
out, whether or not any relative provision has been added, this Lease shall be
read and construed as if the material so stricken were never included herein and
no implication shall be drawn from the text of the material so stricken which
would be inconsistent in any way with the construction or interpretation which
would be appropriate if such material were never contained herein.
34. GENDER AND PERSON
Words of any gender used in this Lease shall be held to include any
other gender, and words in the singular number shall be held to include the
plural, when the sense of the words require same.
20
<PAGE>
35. MODIFICATION
This Lease may not be modified except by an instrument in writing signed
by the parties hereto.
36. COVENANTS TO BIND RESPECTIVE PARTIES
The covenants and agreements contained in this Lease shall inure to the
benefit of the parties hereto and their heirs, legal representatives, successors
and permitted assigns and, subject to Section 18 ("Attornment, Definition of
Term 'Landlord'"), shall be binding on the parties hereto, their heirs, legal
representatives, successors and assigns.
37. NO WAIVER OF BREACHES
The failure of Landlord or Tenant to insist upon strict performance of
any of the covenants or conditions of this Lease or to exercise any option
herein conferred in any one or more instances shall not be construed as a waiver
or relinquishment for the future of any such covenants, conditions or options,
but the same shall be and remain in full force and effect. Acceptance by
Landlord of current rent shall not be deemed a waiver of past obligations of
Tenant, nor shall acceptance by Landlord at any time of any monies proffered by
Tenant constituting less than the entire amount of rent then due be deemed other
than receipt of partial payment on account of the rent due, and shall not
constitute an accord or satisfaction.
38. CAPTIONS
Captions have been used solely for the sake of reference and shall in no
way govern or affect the interpretation hereof.
39. EXHIBITS
All exhibits referred to herein are attached (unless otherwise
specified) and are deemed to be a part hereof.
40. INTEGRATION
The agreements contained in this Lease constitute the full and final
agreement between the parties hereto as to the subject matter hereof, and all
prior agreements or writings of any nature between the parties hereto are hereby
superseded and are integrated herein. This Lease may not be amended except in
writing signed by both parties hereto.
21
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41. JOINT AND SEVERAL LIABILITY
In the event that two or more individuals, corporations, partnerships or
other business associations (or any combination of two or more thereof) shall
sign this Lease as or hereafter become Tenant, the liability of each such
individual, corporation, partnership or other business association to pay rent
and perform all other obligations hereunder shall be joint and several. In the
event that Tenant is or shall be a partnership or other business association the
members of which are, by virtue of statute or general law, subject to personal
liability, the liability of each such member shall be joint and several.
42. NO OPTION OR OFFER
The submission of this Lease for examination does not constitute a
reservation of, or option for, the Premises nor an offer of any nature, and this
Lease becomes effective only upon execution hereof by Landlord, Tenant and the
guarantor(s), if any.
43. CHANGES REQUIRED BY LENDER
Tenant shall consent in writing to any changes in this Lease required by
any prospective mortgage lender provided that no such changes shall materially
adversely affect Tenant's rights hereunder or materially increase Tenant's
obligations hereunder.
44. LANDLORD REPRESENTATION
Landlord represents, to the best of its knowledge, there are not
hazardous substances on the demised premises, including asbestos, and Landlord
shall remediate any of the same to the extent that they exist prior to the
commencement of the term or were caused by acts of Landlord or migration from
offsite, and the Landlord agrees to indemnify and hold Tenant harmless
therefrom.
45. WAIVER OF JURY TRIAL
The parties waive the right to a jury trial with respect to any action,
including an action for damage or injury, arising out of this Lease or Tenant's
use or occupancy of the Premises.
46. NO LEASE RECORDING
Tenant agrees that it will not record this Lease or any memorandum
hereof.
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47. RENEWAL
A. Tenant shall be entitled to renew this Lease for one (1) five
(5)-year period, which shall commence on the day immediately subsequent to the
date of the expiration of the initial Term (the "Renewal Term"), upon the same
terms and conditions as are contained in this Lease, except that there shall be
no further right of renewal and the Basic Rent for the Renewal Term shall be as
set forth on Exhibit B.
B. Tenant shall only be entitled to exercise its right to renew if
Tenant is not in material default of any of the provisions of this Lease at the
time of exercise thereof, and such right shall only be effective if Tenant shall
continue to be current and not in default with respect to the provisions of this
Lease from the date of Tenant's exercise of renewal to the date of expiration of
the Term.
C. Tenant shall exercise its right of renewal, if at a11, by giving
Landlord notice of the exercise thereof at least nine (9) months prior to
expiration of the Term.
IN WITNESS WHEREOF, the parties hereto have hereunder set their hands
and seals the day and year first above written.
WITNESS OR ATTEST: LANDLORD:
DOLO REALTY CO.
/s/ Rosalyn Parker By: /s/ Gilbert Levine
- -------------------------- --------------------------
Gilbert Levine, Partner
/s/ Floyd E. Williams By: /s/ Michael Levine
- --------------------------- --------------------------
Michael Levine, Partner
TENANT:
TEARDROP GOLF CO.
/s/ R. Slucker
___________________________ --------------------------
Secretary President
23
<PAGE>
EXHIBIT A
[GRAPHIC OMITTED]
Survey of 1080 Lousons Road, Township of Union, Union County, New Jersey
<PAGE>
EXHIBIT B
BASIC RENT FOR BUILDING-AND TRACT
Portion of Term Fixed Annual Fixed Monthly
------------ -------------
September 1, 1997-- August 31, 1998 $75,000.00 $6,250.00
September 1, 1998 - August 31, 1999 $75,000.00 $6,250.00
September 1, 1999 - August 31, 2000 $80,000.00 $6,666.66
September 1, 2000 - August 31, 2001 $80,000.00 $6,666.66
September 1, 2001 - August 31, 2002 $85,000.00 $7,083.33
SECURITY DEPOSIT
Two Months - which is increased as Rent increases $12,500.00
Renewal Portion:
September 1, 2002 - August 31, 2007 $450,000.00 $ 7,500.00
WITNESS OR ATTEST: LANDLORD:
DOLO REALTY CO.
/s/ Rosalyn Parker By: /s/ Gilbert Levine
- -------------------------- --------------------------
Gilbert Levine, Partner
/s/ Floyd E. Williams By: /s/ Michael Levine
- --------------------------- --------------------------
Michael Levine, Partner
TENANT:
TEARDROP GOLF CO.
/a/ Linda Slucker /s/ R. Slucker
- ---------------------------- --------------------------
Secretary President
24
<PAGE>
EXHIBIT C
WORK LETTER
The Landlord shall complete the following at its own sole cost and
expense:
A Repair existing driveway as to eliminate all pot holes,
stones and etc.;
B Paint the walls of the offices;
C Replace any broken, stained or missing ceiling tiles;
and
D Warehouse shall be delivered in a "broom swept" clean
condition.
WITNESS OR ATTEST: LANDLORD:
DOLO REALTY CO.
/s/ Rosalyn Parker By: /s/ Gilbert Levine
- -------------------------- --------------------------
Gilbert Levine, Partner
/s/ Floyd E. Williams By: /s/ Michael Levine
- --------------------------- --------------------------
Michael Levine, Partner
TENANT:
TEARDROP GOLF CO.
/a/ Linda Slucker /s/ R. Slucker
- ---------------------------- --------------------------
Secretary President
<PAGE>
Dolo Realty Co., as Landlord, and Teardrop Golf Company, as Tenant, are
about to enter into a Lease Agreement ("Lease") for premises commonly known as
1080 Lousons Road, Union, New Jersey 07083.
This will confirm our agreement as follows:
1. If Teardrop Golf Company ("Teardrop") does not obtain from Union
Township a Certificate of Occupancy permitting its use of the premises for the
manufacturing, production and distribution of golf clubs, without the need to
make any repairs or improvements to the premises and without the imposition of
any requirements other than the mere filing of an application, then Teardrop
Golf Company shall have the right to terminate the Lease and the same shall be
deemed void ab initio. If Teardrop decides to exercise the right herein provided
it shall do so by August 18, 1997.
2. Teardrop shall have the right, during the twenty-one day period
after the existing tenant of the premises vacates the same and Teardrop is
notified of that fact ("Exam Commencement Date"), to examine the premises to
determine the condition thereof. If Teardrop is unsatisfied with the condition
of the premises, for any reason, it shall have the right to terminate the Lease
by giving notice to the Landlord within twenty-one (21) days after the Exam
Commencement Date. Notwithstanding the foregoing, (x) if Teardrop's inspection
of the premises indicates that repairs are needed to the HVAC system, then
Landlord shall be obligated to make the same and to provide Teardrop with a six
month warranty with respect thereto and (y) if Teardrop is unsatisfied with the
condition of the premises and elects to terminate the Lease Landlord may negate
said termination notice by agreeing, at Landlord's expense, by notice given to
Teardrop within five (5) days of Teardrop's termination notice, to promptly make
all repairs desired by Teardrop.
The undersigned have executed this letter agreement to indicate their
agreement with the foregoing.
Teardrop Golf Company
By: /s/ R. Slucker
---------------------------
Dolo Realty Co.
By: /s/ [ILLEGIBLE]
---------------------------
<PAGE>
Dolo Realty Co., as Landlord, and Teardrop Golf Company, as Tenant, have
entered into a Lease Agreement ("Lease"), dated August 10, 1997 for premises
commonly known as 1080 Lousons Road, Union, New Jersey 07083.
Section 4 of the lease provides that "Tenant shall obtain a Certificate
of Occupancy if necessary."
The parties have been advised by the Township of Union that a
Certificate of Occupancy cannot and will not be issued until such time as Tenant
takes possession of the demised premises and moves in furniture, fixtures and
equipment therein, and sets up the premises for the operation of its business.
The parties hereby agree as follows:
1. If the Township of Union, or any department thereof, requires that
repairs or alterations be made to the demised premises as a condition (precedent
or subsequent) of obtaining a Certificate of Occupancy then each of the
Landlord and Tenant are responsible for such repairs and alterations as follows:
(i) If the repairs and alterations are required solely by reason of
the specific use being made by Tenant of the demised premises, of
the specific machinery and equipment placed therein by the Tenant
or the specific layout of the demised premises made by Tenant,
then Tenant shall be responsible for making such repairs and
alterations.
(ii) If the repairs and alterations required to be made do not fall
within category (i) above, then the Landlord shall promptly, at
its expense, make all such repairs and alterations.
2. If the Tenant is prevented by the Township from commencing the
conduct of business until Landlord makes its repairs and alterations, then
rental under the Lease shall abate until such time as the Landlord finishes its
repairs and alterations and the Township signs off on the same.
The undersigned have executed this letter agreement to indicate their
agreement with the foregoing.
Teardrop Golf Company
By: /s/ R. Slucker
-------------------------------
Dolo Realty Co.
By: /s/ Thomas G
------------------------------
Dated: August , 1997
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 January 31, 1997 except for Notes 17
and 18 as to which the dates are March 21, 1997 and October 7, 1997,
respectively, 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 7, 1997
