As filed with the Securities and Exchange Commission on April 20, 1998
Registration No. 333-14647
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------------------
POST-EFFECTIVE AMENDMENT NO. 2
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 Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
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)
-----------------------------
Copies of Communications to:
Jeffrey A. Baumel, Esq.
Gibbons, Del Deo, Dolan,
Griffinger & Vecchione
One Riverfront Plaza
Newark, New Jersey 07102
Telephone: (973) 596-4500
Fax: (973) 639-6260
----------------------------
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.
----------------------------
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>
PROSPECTUS
PRELIMINARY PROSPECTUS DATED APRIL 20, 1998 - SUBJECT TO COMPLETION
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
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 holders thereof 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 also receive the proceeds from the sale of the Common Stock and Warrants
upon the exercise of the Representatives' Purchase Option. 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 19, 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 March 31, 1998,
the closing prices of the Common Stock and Warrants as quoted on the Nasdaq
SmallCap Market were $6.875 and $2.375, 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 14.
----------------------
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 ___________, 1998
<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
TearDrop Golf Company (the "Company" or "TearDrop") designs, develops and
markets throughout the world high-quality, premium priced golf clubs, including
its (a) TearDrop line of putters; (b) its Armour line of irons and woods; and
(c) its Ram line of irons, woods, and wedges; and (d) Zebra putters. The
TearDrop, Armour, Ram and Zebra lines of product are used by professional
golfers on the Professional Golf Association ("PGA") Tour, the Senior PGA Tour,
the Ladies PGA Tour and the Nike Tour. In addition, the Company operates a
professional development golf tour for aspiring PGA Tour players.
The Company completed an initial public offering of its Common Stock and
warrants to purchase Common Stock in December 1996. In January 1997, the Company
commenced its extensive marketing and advertising campaign. The Company has
produced and aired a variety of television commercials. The Company also has
aired its feature "the TearDrop Putt of the Week" on the Golf Channel at various
times on a weekly basis. The Company's print advertisements have appeared in
several magazines including Gold Illustrated and Senior Golfer during the months
from May through December. Finally, the Company has enlisted over 30 golf
professionals to promotional agreements, including Tommy Tolles, Tommy Armour
III, Omar Uresti, Tom Byrum, Paul Goydos, George Archer and Jan Stephenson.
On October 31, 1997 TearDrop Golf Company acquired the assets of Pro Golf
Promotions, LLC. The acquisition gave TearDrop the former Powerbilt Golf Tour, a
professional development tour for aspiring PGA Tour players, as well as an
experienced tour-management team. The tour was immediately renamed "The TearDrop
Professional Golf Tour."
In November 1997, the Company acquired the assets and certain liabilities
of the Tommy Armour Golf Company from U.S. Industries for common stock,
preferred stock and cash valued at approximately $22.4 Million. With the
acquisition, the Company expanded its operations to include a full line of golf
clubs and equipment.
In December 1997, the Company acquired the assets of the Ram Golf
Corporation for common stock and cash and assumption of certain liabilities with
a value of approximately $4.0 Million. With the acquisition of the Ram assets,
the Company's product line was expanded to include Ram irons, woods, wedges and
Zebra putters.
2
<PAGE>
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.
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 Prior to the
Offering (1) 2,654,857 shares
Common Stock to be Outstanding After
the Offering (1)(2) 4,342,357 shares
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 1,132,000 shares of
Common Stock or up to 1,333,333 shares of Common Stock issuable upon the
conversion of the Company's Series A Convertible Preferred 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
3
<PAGE>
Company from time to time upon exercise of Warrants, less any commissions and
expenses, will be used for redemption of the Company's Series A Preferred Stock,
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; 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, 1997, December 31, 1996 and December 31, 1995 is derived from the
audited financial statements of the Company included herein. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Plan of Operations" and the financial statements of the
Company, including the notes thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statement of Operations Data:
Sales $ 9,624,000 $ 847,358 $ 1,057,306
Loss from operations (9,025,000) (736,098) (434,637)
Net loss (9,149,000) (910,365) (542,425)
Net loss per common share-basic and
diluted $(4.10) $(1.15) $(.72)
Weighted average number of common shares
outstanding 2,230,397 791,100 750,000
</TABLE>
December 31, 1997
-----------------
Balance Sheet Data:
Working capital $15,435,000
Total current assets 29,591,000
Total assets 40,022,000
Total current liabilities 14,156,000
Long term debt 17,661,000
Preferred Stock 10,000,000
Accumulated deficit (11,431,000)
Total stockholders' deficiency (1,795,000)
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.
4
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk
and should not be made by persons who cannot afford the loss of their entire
investment. Prospective investors, prior to making an investment decision,
should consider carefully, in addition to the other information contained in
this Prospectus (including the financial statements and notes thereto), the
following factors. This Prospectus contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially. Factors that could cause
or contribute to such differences include but are not limited to, those
discussed below, as well as those discussed elsewhere in this Prospectus.
Limited Operating History; History of Losses; Accumulated Deficit;
Substantial Losses From and Declining Sales of Tommy Armour. 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 $9,624,000 during the year
ended December 31, 1997, the Company had losses of $9,149,000 for the year ended
December 31, 1997 and has incurred operating losses since its inception. At
December 31, 1997, the Company had an accumulated deficit of approximately
$11,431,000. In addition, of the Company's sales during 1997, $6,809,000 or
approximately 72%, represented primarily sales of Armour products that were
discontinued and will not be marketed on a substantial basis in the future.
Furthermore, Tommy Armour Golf had a reduction in sales from approximately $56.2
million in 1996 to approximately $32.0 million in 1997 and incurred a pre-tax
loss of approximately $31.4 million for its year ended September 30, 1997. The
Company believes that the decline in sales and subsequent loss for Tommy Armour
Golf were attributable primarily to the introduction of a new line of Ti 100
golf clubs in 1997 and the cessation of production and marketing by Tommy Armour
of all other product lines. The Ti 100 line of clubs did not achieve widespread
public acceptance and was subsequently discontinued. Nevertheless, no assurance
can be given that sales will not continue to decline, that the new line of Tommy
Armour golf club, produced by the Company will meet with widespread consumer
acceptance, or that the Company will not incur losses in the operation of the
Tommy Armour Golf Company in the future. See Financial Statements and
"Management's Discussion of Financial Condition and Results 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. See "Use of Proceeds", "Management's Discussion and Analysis of
Financial Condition and Plan of Operations" and Financial Statements.
5
<PAGE>
Substantial Indebtedness and Repayment Obligations. The Company has
borrowed substantial amounts of money to finance the acquisitions of Tommy
Armour and Ram and to fund its continuing operations. The Company had total
liabilities of approximately $31.8 million at December 31, 1997, approximately
$14.2 million of which are current which amounts have increased to date. Of such
debt, approximately $17.3 million is payable to CoreStates Bank (the "Bank")
pursuant to the Company's revolving line of credit. Interest expense under the
Company's credit facility could be substantial in the future. The revolving line
of credit is secured by substantially all of the assets of the Company. The Loan
Agreement also provides that the Company meet certain financial covenants. At
December 31, 1997, the Company was in violation of such covenants and has
obtained waivers from CoreStates with respect thereto. The Company is still not
in compliance with such covenants and no assurance can be given that the Bank
will continue to waive such covenant defaults in the future. In addition, if the
Bank were to demand repayment of the entire outstanding borrowings under the
facility, the Company would be required to identify alternative financing to
satisfy its repayment obligation and to continue its operations. There can be no
assurance that any such alternative funding sources will be available on a
commercially reasonable basis if at all. If it is unsuccessful in so identifying
such financing, the Company may be required to cease operations. The loan
agreement with the Bank also contains provisions which restrict certain
activities of the Company, including the sales of assets, the declaration of
dividends and also provides for various other restrictive covenants, including
the continuing participation of Rudy A. Slucker, the Chairman of the Board of
Directors, in his current management position. In connection with the
acquisition of the assets of the Tommy Armour Golf Company the Company issued
100,000 shares of Series A Preferred Stock to U.S. Industries, Inc. the seller
of the Tommy Armour Golf Company and a principal stockholder of the Company. The
Series A Preferred Stock is entitled to cumulative dividends at 6% per annum for
the first year after issuance, 7.5% per annum for the second year after issuance
and 9% per annum thereafter, subject to certain increases. The Company is
subject to certain restrictions with regard to the payment of dividends or
distributions or other classes of stock. On November 10, 2002, the Company is
obligated to redeem from any source of funds legally available therefore, all of
the shares of the Series A Preferred Stock then outstanding at a price of $100
per share of Series A Preferred Stock, subject to adjustment under certain
conditions, plus any accrued and unpaid interest. The Certificate of Designation
for the Series A Preferred Stock restricts the Company from entering into any
agreement that would prohibit or restrict its ability to redeem the Series A
Preferred Stock or pay dividends when due except under certain circumstances. In
addition, the Company is required, in connection with the consummation of any
public or private issuance or sale of debt or equity securities of the Company,
including this Offering to apply 70% of the net cash proceeds therefrom to the
redemption of the Series A preferred stock.
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."
6
<PAGE>
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 76.5% 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 $1.29 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. The Company has
entered into endorsement agreements with 25 touring professionals which
generally are for three-year terms and provide for certain payments by the
Company to the touring professionals in consideration for their using the
Company's equipment and bonuses based on tournament performance. In order to
succeed with its marketing strategy, the Company intends to continue to enter
into endorsement agreements with additional professional golfers. The inability
of the Company to maintain its relationships with its existing endorsing
professionals, to enter into endorsement agreements with additional professional
golfers, or the failure of the Company's endorsing professionals to achieve
tournament success, would diminish the effectiveness of the Company's marketing
strategy and may result in declining sales. See "Business-Sales and Marketing."
Risks Associated with Management of Growth, Implementation of Growth
Strategy and Potential Inability To Successfully Integrate Acquisitions. The
successful implementation of the Company's expansion strategy will be dependent
on, among other things, consumer acceptance of the Company's new line of golf
products; the reduction of Company costs; the Company's ability to develop and
introduce new products to consumers and the marketplace; the Company's ability
to enter into endorsement agreements with successful professional golfers; the
Company's ability to identify potential acquisition prospects; the establishment
of additional distribution arrangements; the hiring and retaining of additional
marketing, creative and other personnel; and the successful management of such
growth (including monitoring operations, controlling costs and maintaining
effective quality, inventory and service controls). As the Company continues to
grow, there will be additional demands on the Company's financial, technical and
administrative resources. The failure to maintain and improve such resources or
the occurrence of unexpected difficulties relating to the Company's expansion
strategy, could have a material adverse effect on the Company's business,
prospects, results of operations or financial condition. There can be no
assurance that the Company will be able to implement successfully its business
strategy or otherwise expand its operations. The complete integration and
consolidation into the Company of the product lines acquired upon the
acquisition of the assets of Tommy Armour and Ram as well as any future
corporate acquisitions and new product licensing arrangements will require
7
<PAGE>
substantial management, financial and other resources, and could pose
significant pressure on the financial condition and operating results of the
Company. There can be no assurance that the Company's resources will be
sufficient to accomplish such integration, or that the Company will not
experience difficulties with customers, personnel or others. In addition,
although the Company believes that its acquisition and licensing arrangements
will enhance its competitive position and business prospects, there can be no
assurance that such benefits will be realized or that the combination of the
Company with other companies will be successful. Although the Company regularly
evaluates possible acquisition opportunities, the Company is not a party to any
agreements, commitments, arrangements or understanding with respect to any such
acquisition and there can be no assurance that any such acquisitions will be
effected.
Dependence on Major Customers. The Company's sales to its five largest
customers represented approximately 17% of its sales in fiscal 1997 on a pro
forma basis giving effect to the acquisitions of substantially all of the assets
of Tommy Armour and Ram. Sales to the Company's top customer, Wal-Mart,
accounted for approximately $3.6 million of the Company's sales in fiscal 1997
(7.5% on a pro forma basis during fiscal 1997 giving effect to the acquisitions
of substantially all of the assets of Tommy Armour and Ram). The Company
anticipates that sales to its top five customers will continue to account for a
significant percentage of its sales. The Company has no long term commitments or
contracts with any of its customers. The loss or decreased sales from one or
more of these customers would have a material adverse effect on the Company's
business, prospects, results of operations or financial condition. Furthermore,
the inability of any of the Company's customers to satisfy any of their
obligations to the Company at any time or on a timely basis could have a
material adverse effect on the business, prospects, results of operations or
financial condition of the Company.
Dependence on Limited Number of Component Suppliers. The Company assembles
all of its clubs at its Morton Grove, Illinois facility. The Company does not
manufacture the components required to assemble its golf clubs. The Company
relies on a limited number of suppliers for club heads, 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."
Consumer Preferences and Industry Trends. The golf industry is
characterized by the frequent introduction of new products and services, and is
subject to changing consumer preferences and industry trends, which may
adversely affect the Company's ability to plan for future design, development
and marketing of its products and services. The Company's success will depend on
the Company's ability to anticipate and respond to these and other factors
affecting the industry. Moreover, if a downturn occurs in the economy, the
leisure industry, including the golf industry, may be particularly vulnerable.
There can be no assurance that the Company will be able to anticipate and
respond quickly and effectively to changing consumer preferences and industry
trends or that competitors will not develop and commercialize new products that
render the Company's products and services obsolete or less marketable.
8
<PAGE>
Use or Proceeds to Redeem Series A Preferred Stock; Broad Discretion in
Application of Proceeds; Benefits to Insiders. Approximately $6.3 million (70%)
of the net proceeds of this offering will be used for the redemption of the
Company's Series A preferred stock held by U.S. Industries, Inc. and $2.3
million (25.6%) of the estimated net proceeds of this offering have been
allocated to working capital and general corporate purposes. Accordingly, the
Company will have broad discretion as to the application of the proceeds of the
offering. Additionally, approximately $400,000 (4.4%) of the proceeds will be
used to repay indebtedness to Rudy A. Slucker, the Company's Chairman of the
Board of Directors. John Raos, a member of the Board of Directors of the
Company, is the President of U.S. Industries, Inc.
International Sales; Reliance on Limited Number of Foreign Distributors.
During the year ended December 31, 1997, sales to international customers,
accounted for approximately 24% of the Company's net sales on a pro forma basis.
The Company has subsidiaries in Canada and the U.K. from which sales in those
countries and parts of Europe are conducted. The Company also engages in foreign
distributors to market and sell the Company's products in other countries.
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 these foreign markets
in which such distributions operate. 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. 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
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<PAGE>
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."
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."
Extremely Competitive Industry. 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. In addition, the golf club
industry is dominated by a small number of very large corporations such as
Callaway, Taylor Made and Fortune Brands, which owns Titleist and Cobra, that
have substantial shares of the market and substantially greater financial and
other resources than the Company. 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. The Company faces
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<PAGE>
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 approximately 25% of 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 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 60% 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
11
<PAGE>
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 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 1,195,500 shares of Common Stock at per-share
exercise prices ranging from $2.50 to $7.425. The Company has reserved 450,000
shares for issuance under the 1996 Employee Stock Option Plan, has granted
five-year options to acquire 500,000 shares of Common Stock to Rudy A. Slucker,
the Chairman of the Board, President and Chief Executive Officer of the Company
and has granted options to purchase up to an aggregate of 92,600 shares of
Common Stock 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
12
<PAGE>
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, 1998.
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 "Management-Employee 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 900,000 shares of preferred stock, in one or more series, and to fix the
number of shares and the rights, preferences and privileges of any such series.
The issuance of preferred stock by the Board of Directors could affect the
rights of the holders of the Common Stock. For example, such an issuance could
result in a class of securities outstanding that would have dividend,
liquidation, or other rights superior to those of the Common Stock or could make
a takeover of the Company or the removal of management of the Company more
difficult. There are issued and outstanding 100,000 shares of series A Preferred
Stock. The Board of Directors does not currently intend to issue any additional
shares of preferred stock in the forseeable future. 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. In addition, the payment of dividends by
the Company is restricted pursuant to the Loan Agreement with CoreStates and
under the Certificate of Designation of the Company's Series A Preferred Stock.
See "Dividend Policy."
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<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 without giving effect to the Series A Redeemable Preferred
Stock) by the number of outstanding shares of Common Stock. As of December 31,
1997, the Company had a net tangible book value of $2,916,000, or approximately
$1.10 per share of Common Stock (based on 2,654,857 shares of Common Stock
outstanding at December 31, 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 $5,621,000, or approximately $1.29 per share. This
represents an immediate increase in net tangible book value of approximately
$.19 per share to existing stockholders and an immediate dilution of
approximately $4.21 per share or approximately 76.5% 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 December 31, 1997.
Public offering price of the Common Stock $5.50
Pro forma net tangible book value before Offering $2,916,000
Increase attributable to investors in this Offering 2,705,000
Pro forma net tangible book value after Offering 5,621,000
Dilution to investors in this Offering $4.21 per share
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 2,654,857 61.1 9,821,801 50.7 $3.70
Investors in this Offering 1,687,500 38.9 9,542,500 49.3 $5.65
--------- ---- ---------- ----
Total 4,342,357 100.0% 19,364,301 100.0%
</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 or conversion of any shares of Series A
Redeemable Preferred Stock. 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.
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<PAGE>
USE OF PROCEEDS
If the Warrants are exercised in full, the Company will receive net
proceeds of approximately $9,016,000, after deducting commissions and estimated
expenses. Up to approximately $6,311,000 of the net proceeds (70%) will be paid
to U.S. Industries, Inc. in redemption of shares of Series A preferred stock at
the rate of $100 per share. The Company is required, in connection with the
consummation of any public or private issuance or sale of debt or equity
securities of the Company or any of its subsidiaries for cash or partially for
cash, simultaneously with the receipt of the cash proceeds of such transaction,
to apply 70% of the net cash proceeds therefrom to the pro rata redemption of
then outstanding Series A preferred stock. The next $400,000 of such proceeds
will be used to repay certain indebtedness owed by the Company to Rudy A.
Slucker. This debt represents $400,000 of principal owed to Mr. Slucker 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 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 warrant holder 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
15
<PAGE>
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
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, 1996. 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.
These amounts, which have rounded to the nearest eighth, represent
quotations between dealers and do not include retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
Common Stock
Quarter Ended High Low
- - ------------- ---- ---
December 31, 1996 $5 3/4 $4 3/4
March 31, 1997 $6 1/4 $3 15/16
June 30, 1997 $4 1/2 $2 3/8
September 30, 1997 $5 11/16 $2 1/16
December 31, 1997 $7 7/16 $4 4/14
Warrants
Quarter Ended High Low
- - ------------- ---- ---
December 31, 1996 $1 1/4 $1
March 31, 1997 $1 1/2 $3/4
June 30, 1997 $15/16 $1/2
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<PAGE>
September 30, 1997 $1 7/16 $1/4
December 31. 1997 $2 5/16 $1 1/16
As of March 20, 1998, the Company believes that there were in excess of 400
beneficial holders of its shares of Common Stock. There is one holder of the
Company's Series A Preferred Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1998 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.
December 31, 1997
Actual As Adjusted(1)
------ --------------
Long term debt $ 17,661,000 $17,261,000
------------
Preferred Stock, $100 par value, 100,000 shares
issued and outstanding Series A cumulative
convertible preferred 10,000,000 3,689,000
------------ -----------
Stockholders' equity (deficiency):
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
2,654,857 shares (4,342,357 as adjusted) 27,000 44,000
Preferred stock, $.01 par value, authorized
900,000 shares, issued and outstanding none
Capital in excess of par value 9,634,000 18,633,000
Currency translations adjustment (25,000) (25,000)
Accumulated deficit (11,431,000) (11,431,000)
------------ -----------
Total stockholders' equity (deficiency) (1,795,000) 7,221,000
------------ -----------
Total capitalization $ 25,866,000 $28,171,000
============ ===========
- - ----------
(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 1,132,000 shares of Common
Stock or up to 1,333,333 shares of Common Stock issuable upon the exercise
of the Company's Series A Convertible Preferred Stock.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock and
does not intend to pay dividends in the foreseeable future. The payment of
dividends by the Company is restricted pursuant to the Loan Agreement with
CoreStates and under the Certificate of Designation of the Company's Series A
Preferred Stock. See "Description of Business Acquisition of Tommy Armour Golf
Company"
17
<PAGE>
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations Capital Resources and Liquidity."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
Overview
The Company was incorporated under the laws of Delaware in September 1996.
In October 1996, the Company merged with the TearDrop Putter Corporation, which
was formed in 1992. The Company designs, develops, manufactures and markets
throughout the world high-quality, premium priced golf clubs, including its (a)
TearDrop line of putters; (b) its Armour line of irons and woods; (c) its Ram
line of irons, woods and wedges, and (d) its Zebra putters. The Company's lines
of products are used by golfers throughout the world, including professional
golfers on the Professional Golf Association ("PGA") Tour, the Senior PGA Tour,
the Ladies PGA Tour and the Nike Tour. In addition, the Company operates a
professional developmental golf tour for aspiring PGA Tour players.
The Company introduced its first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. The Company
completed an initial public offering of its common stock in December 1996. In
January 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 and air
the infomercial and television commercials was substantial and resulted in
losses as the Company continued to roll out its advertising campaign in the
first three quarters of 1997. The advertising campaign was intended to increase
awareness and exposure of the Company's products as the Company did not believe
that sales would increase at the same rate as expenditures.
In the fourth quarter of 1997, the Company completed three acquisitions:
(a) In October, the Company acquired the assets of Pro Golf Promotions,
LLC, a professional developmental tour for aspiring PGA Tour players for 50,000
shares of the Company's common stock. The tour was immediately renamed "The
TearDrop Professional Golf Tour".
(b) In November, the Company acquired substantially all of the assets of
the Tommy Armour Golf Company ("Armour") from U.S. Industries, Inc. for common
stock, preferred stock and cash valued at approximately $22.4 million.
(c) In December, the Company acquired certain assets and assumed certain
liabilities of the Ram Golf Corporation ("Ram") for common stock and cash with a
value of approximately $4.0 million.
Neither Armour nor Ram were profitable in 1997 or 1996 and both businesses
had substantial declines in sales from 1996 to 1997. Armour incurred losses of
$19.1 million and $399,000 with sales of $32.0 million and $56.2 million for its
fiscal years ended September 30, 1997 and 1996, respectively and Ram incurred
losses of $4.1 million and $307,000 with sales of $14.0 million and $19.4
million for the years ended December 31, 1997 and 1996, respectively.
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<PAGE>
Since the acquisitions were completed, the Company has devoted substantial
efforts to reduce costs, eliminate unprofitable product lines and focus on
marketing of high quality products. However, there can be no assurance that the
Company will be able to operate the combined enterprises successfully or reverse
the history of losses that each of the Company, Ram and Armour have incurred in
the past.
The Company believes that an important element for increasing awareness
and demand for 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. The Company has entered into
endorsement agreements, of up to three years, with professional players on the
PGA Tour, the Senior PGA Tour, the Ladies PGA Tour, the Nike Tour and players on
foreign tours which provide for base payments 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 that could be substantial may be made based upon tournament
performance, standings on the official money list, and being named to the Ryder
Cup or President Cup teams. The Company has granted stock options to certain of
its endorsing professionals and intends to continue to do so in the future.
During 1997, the Company recorded compensation expense of $97,000 in connection
with the grant of such options on the date of grant. On January 1, 1998, the
Company granted additional options to golf professionals with respect to which
the Company also expects to record a charge to earnings. 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
or she is successful. For 1998, the Company has entered into endorsement
agreements which will require the payment of a minimum of approximately $1.9
million should each of the professionals use and endorse the Company's products
as provided in the agreements. In addition, the Company anticipates that it will
devote substantial capital to advertising and marketing during the next year.
The Company maintains an in-house research and development and design
department. In addition, the Company works closely with component manufacturers,
independent design consultants and the Company's endorsing golf professionals in
the design and development of new products and product improvements. The ability
of the Company to introduce new products or product improvements is directly
related to the efforts and success of this research and development effort.
The Company does not manufacture the components required to assemble its
golf clubs, relying instead on a number of component suppliers, both domestic
and foreign. The Company's success in assembling its products 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
supplier's components would delay the Company's delivery of finished products
and adversely affect current sales and could adversely affect future sales
potential if customers 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).
Results of Operations
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Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company had sales of $9,624,000 for the year ended December 31, 1997
compared to sales of $847,000 for the year ended December 31, 1996, an increase
of $8,777,000 or approximately 1036%. Sales from the TearDrop putter line were
$2,815,000 in 1997 compared to $847,000 in 1996, an increase of 232%, which
reflects the effects of the advertising campaign initiated in 1997 following the
initial public offering and the resulting acceptance of the TearDrop putter in
the marketplace. Sales of Armour products, following the acquisition in November
1997, were $6,809,000, which represented primarily products that have been
discontinued and will not be marketed on a substantial basis in the future.
Cost of sales were $7,543,000 (78.4% of sales) for the year ended December
31, 1997, compared to $407,000 (48.1% of sales) for the year ended December 31,
1996, an increase of $7,136,000. The increase in cost of sales as a percentage
of sales reflected the high cost of the Armour products that were sold during
December, generally for reduced prices. Gross margins on the TearDrop line of
products increased from 52% in 1996 to 69% in 1997. The increase in gross
margins is a result of a higher average selling price and lower unit cost per
product sold. Gross margins on the Armour line of products were 2.0% reflecting
the sale of discontinued inventory at lower prices following the acquisition.
Selling, general and administrative expenses were $11,106,000 for the year
ended December 31, 1997 or 115.4% of sales, compared to $1,176,000 for the year
ended December 31, 1996 or 139% of sales, an increase of $9,930,000. Of this
increase, $3,222,000 is attributable to selling, general and administrative
expense of the Armour operations from the date of acquisition. In addition, in
1997, the Company invested heavily in infomercial and advertising production and
airtime costs in order to increase awareness of its product line. Also, because
of the growth of the Company, additional sales, marketing, finance and
administrative personnel were hired in the latter part of 1996 and in 1997. The
Company also incurred expenses in moving its operating facilities in August 1997
from South Carolina to New Jersey. Selling, general and administrative expenses
also includes $438,000 representing compensation expense representing the
difference between the exercise price and the fair value of stock options to
purchase 250,000 shares of Common Stock granted to Rudy Slucker, the Company's
Chief Executive Officer, in December 1997.
Interest expense, net of interest income, was $124,000 for the year ended
December 31, 1997 compared to $174,000 for the year ended December 31, 1996. For
1997, the expense reflects the interest on the line of credit necessary to
effect the Armour and Ram acquisitions, net of income from investment during the
year, of funds obtained from the initial public offering. For 1996, the expense
reflects interest on loans, principally from stockholders, until the initial
public offering was completed.
As a result of the increased expenses and costs related to the growth of
the Company and the expansion through acquisition, the Company experienced a net
loss of $9,149,000, or $4.10 per common share, for the year ended December 31,
1997 compared to a net loss of $910,000 or $1.15 per common share, for the year
ended December 31, 1996.
Tommy Armour Golf Fiscal Year Ended September 30, 1997 Compared to Fiscal
Year Ended September 30, 1996
Tommy Armour Golf ("TAG") had sales of $32.0 million in the fiscal year
ended September 30, 1997 ("Fiscal 1997") as compared to sales of $56.2 million
in the fiscal year ended September 30, 1996 ("Fiscal 1996"), a decrease of 43%.
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This decrease is attributable primarily to the introduction by TAG of a new line
of golf clubs in 1997, the Ti100's, and the cessation of production and
marketing of all other product lines. The Ti100 line of clubs did not meet TAG's
expectations in the marketplace, nor did it achieve widespread public
acceptance, and as a result, sales revenues dropped off significantly.
Cost of sales for Fiscal 1997 were $26.6 million, or 83.1% of sales, as
compared to $29.0 million, or 51.6% of sales, for Fiscal 1996. Of this amount,
approximately $4.1 million was attributable to reserves established for returns
of the Ti100 clubs, approximately $3.0 million for reserves for obsolescence on
the Ti100 and other product lines, $1.5 million due to inefficiencies and
variances in production of the Ti100 in the TAG manufacturing facility and the
remainder of the difference due primarily to product mix and lower margins on
products sold in Fiscal 1997 as compared to those products sold in Fiscal 1996.
Selling, general and administrative and research and development expense
for Fiscal 1997 was $35.4 million (110% of sales) as compared to $25.2 million
(44.8% of sales) in Fiscal 1996. The increase in $10.2 million is attributable
to the marketing and advertising expense incurred in promoting the new Ti100
golf club and expenses incurred in connection with a restructuring of the TAG
operation and resultant reserves established.
Other expense, net for Fiscal 1997 was $1.4 million as compared to $2.6
million for Fiscal 1996. The primary reasons for the decrease were a reduction
in interest charged to TAG by its parent of $.4 million from Fiscal 1996 to
Fiscal 1997 and the receipt in Fiscal 1997 of transitional service income of
approximately $.5 million which resulted from the sales during such period of a
disposed-of product line.
As a result of the decreased sales and increased costs, TAG's pre-tax loss
for Fiscal 1997 was $31.4 million as compared to a pre-tax loss of $.5 for
Fiscal 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company had sales of $847,000 during the year ended December 31, 1996
as compared to sales of $1,057,000 during the year ended 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.
Cost of sales was $408,000 ($48% of sales) during the year ended December
31, 1996 as compared to $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.
During the year ended December 31, 1996, selling, general and
administrative expenses were $1,176,000 (139% of sales) as compared to $943,000
(89% of sales) during the year ended December 31, 1995. This increase was
attributable to the Company's overall growth, including the hiring of additional
marketing and sales personnel and stepped up marketing activities.
As a result of increasing expenses and costs relating to the growth of the
Company, the Company experienced a net loss of $910,000, or $1.15 per common
share, during the year ended December 31, 1996 and $542,000, or $.72 per common
share, 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.
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Liquidity and Capital Resources
At December 31, 1997, the Company had net working capital of $15,435,000
and $17,261,000 was payable to CoreStates Bank under the line of credit
described below. Nevertheless, the Company had a total stockholders' deficiency
of $1,795,000.
Pursuant to a Loan and Security Agreement between the Company and
CoreStates Bank, N.A. CoreStates provided a $25 million revolving credit
facility (the "Credit Facility") to the Company to finance the acquisition of
the assets of Tommy Armour and Ram and the Company's working capital and general
corporate expenditures. The Company drew down $10 million under the Credit
Facility to fund the cash payment for Armour and $2,668,009 under the Credit
Facility to fund the cash payment for Ram. Funds extended pursuant to the Credit
Facility accrue interest at the prime rate minus 1/2% or LIBOR plus 2% per
annum. The Credit Facility is secured by substantially all of the assets of the
Company, including the assets acquired in connection with the Acquisition. The
Loan Agreement contains restrictions on certain of the Company's activities,
including, but not limited to, the payment of dividends, redemption of
securities and the sale of assets outside the ordinary course of the Company's
business. The Loan Agreement also provides that the Company meet certain
financial covenants. At December 31, 1997, the Company was in violation of such
covenants and has obtained waivers from CoreStates with respect thereto. The
Company is still not in compliance with such covenants and no assurance can be
given that the Bank will continue to waive such covenant defaults in the future.
In 1996, the Company issued a note to the Company's Chief Executive
Officer for $400,000 which bears interest at 8% and 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 its initial public offering. Additional shareholder
loans aggregating approximately $432,000 were repaid in 1997. Interest expense
on all shareholder loans aggregate approximately $32,000 and $112,000 for the
years ended December 31, 1997 and 1996, respectively.
The Company's credit terms range from 30 days to 90 days, depending on the
type of account. Cash needs are highest in the first quarter of the year, as
inventories are being purchased and, while product is being shipped to
customers, the cash receipts from those sales are still up to 90 days away. In
addition, a significant financial commitment is made for advertising during the
first quarter of the year.
The Company does not have any significant capital expansion plans at the
present time and any capital expenditures will be financed from internally
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generated funds. There can be no assurance, however, that the current line of
credit is sufficient to allow the Company to meet its needs, particularly if
sales do not increase or if the Company encounters operational difficulties.
During 1998, the Company anticipates that it will spend in excess of $15
million on advertising. The Company is obligated to pay a minimum of $450,000 in
1998 under an advertising agreement with the Golf Channel.
The statements of cash flows for the Company for the years ended December
31, 1997 and 1996 is summarized below:
1997 1996
Net cash used by operating activities $ 7,092,000 $ 737,000
Net cash used in investing activities 14,448,000 15,000
Net cash provided by financing activities 17,313,000 5,245,000
In connection with the acquisition of the assets of the Tommy Armour Golf
Company, the Company issued 100,000 shares of Series A Preferred Stock. The
Series A Preferred Stock is entitled to cumulative dividends at 6% per annum for
the first year after issuance, 7.5% per annum for the second year after issuance
and 9% per annum thereafter, subject to certain increases if the Company is
unable to comply with its obligations under the Registration Agreement described
below. The Company is subject to certain restrictions with regard to the payment
of dividends or distributions or other classes of stock. The Series A Preferred
Stock is convertible into shares of Common Stock at any time at the rate of
$7.50 per share, subject to adjustment under certain conditions. The Series A
Preferred Stock shall rank with respect to dividends and with respect to
distributions upon the liquidation, dissolution or winding up of the Company,
senior to all classes or series of common stock, preferred stock or other
securities of the Company. On November 10, 2002, the Company shall redeem from
any source of funds legally available therefore, all of the shares of the Series
A Preferred Stock then outstanding at a price of $100 per share of Series A
Preferred Stock, subject to adjustment under certain conditions, plus any
accrued and unpaid interest. The Certificate of Designation for the Series A
Preferred Stock restricts the Company from entering into any agreement that
would prohibit or restrict its ability to redeem the Series A Preferred Stock or
pay dividends when due except under certain circumstances. In addition, the
Company is required, in connection with the consummation of any public or
private issuance or sale of debt or equity securities of the Company or any of
its subsidiaries for cash or partially for cash, simultaneously with the receipt
of the cash proceeds of such transaction, to apply 60% of the net cash proceeds
therefrom to the pro rata redemption of then outstanding Series A Preferred
Stock.
Year 2000 Modifications
The Company recognizes the potential business impacts related to the Year
2000 computer system issue. The issue is one in which computer systems may
recognize the designation "00" as 1900 when it means 2000, resulting in system
failure or miscalculations. The Company began to address the Year 2000 issue in
1997, and continues to implement measures to ensure its business operations are
not disrupted. The Company estimates that it will spend approximately $165,000
above normal operating costs in order to comply with Year 2000 issues.
Seasonality
The purchasing decisions of most customers are typically made in the
autumn 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.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange 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" within the meaning of the
Private Securities Litigation Reform Act of 1995. 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
TearDrop Golf Company (the "Company" or "TearDrop") designs, develops and
markets throughout the world high-quality, premium priced golf clubs, including
its (a) TearDrop line of putters; (b) its Armour line of irons and woods; and
(c) its Ram line of irons, woods, and wedges; and (d) Zebra putters. The
TearDrop, Armour and Ram lines of product are used by professional golfers on
the Professional Golf Association ("PGA") Tour, the Senior PGA Tour, the Ladies
PGA Tour and the Nike Tour. In addition, the Company operates a professional
developmental golf tour for aspiring PGA Tour players.
The Company completed an initial public offering of its Common Stock and
warrants to purchase Common Stock in December 1996. In January 1997, the Company
commenced its extensive marketing and advertising campaign. The Company has
produced and aired a variety of television commercials. The Company also has
aired its feature "The TearDrop Putt of the Week" on the Golf Channel at various
times on a weekly basis. The Company' print advertisements have appeared in
several magazines including Golf Illustrated and Senior Golfer during the months
from May through December. Finally, the Company has enlisted over 30 golf
professionals to promotional agreements, including Tommy Tolles, Tommy Armour
III, Omar Uresti, Tom Byrum, Paul Goydos, George Archer and Jan Stephenson.
On October 31, 1997 TearDrop Golf Company acquired the assets of Pro Golf
Promotions, LLC. The acquisition gave TearDrop the former Powerbilt Golf Tour, a
professional development tour for aspiring PGA Tour players, as well as an
experienced tour-management team. The tour was immediately renamed "The TearDrop
Professional Golf Tour."
In November 1997, the Company acquired the assets of the Tommy Armour Golf
Company from U.S. Industries for common stock, preferred stock and cash valued
at approximately $22.4 Million. With the acquisition, the Company expanded its
operations to include a full line of golf clubs and golf equipment.
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In December 1997, the Company acquired the assets of the Ram Golf
Corporation for common stock and cash and assumption of certain liabilities with
a value of approximately $4.0 Million. With the acquisition of the Ram assets,
the Company's product line was expanded to include Ram irons, woods, wedges and
Zebra putters.
Products
TearDrop Putter
The TearDrop putter was first introduced in 1993 and the Company currently
manufactures and markets 12 putters. The Company's TearDrop putters are
manufactured with the Company's exclusive roll face technology, 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
slight as it ravels 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 writs backward, he will tend to impart
backspin on the ball, causing it to skid slight as it begins to roll, also
affecting this true trajectory. In both cases, the problem is especially
pronounced on long putts, when the ball is struck hard. The TearDrop putter,
however, is designed to strike the ball directly on or slightly above 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 ally 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 subbing of the club on the swing and follow-through.
Each of the TearDrop putter models incorporates variations of the roll
face into different putter designs to accommodate golfers' 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 form its touring professionals, its component manufacturers and
independent design consultants. The Company does not have any agreements with
golf club designers, but believes that with the acquisition of the Tommy Armour
Golf's research and development organization, new designs will be developed that
further improve the roll face design.
Armour Products
Armour golf clubs are designed, manufactured and marketed to be the
highest quality equipment available targeted to the serious golfer, combining
the best of traditional design with the latest in technology.
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845s Irons
The Company currently manufactures its premium line of Armour 845s irons.
Originally introduced in 1987, the 845s Silver Scot irons are one of the most
well known irons in modern golf history, familiar and respected among consumers
and retailers. Capitalizing on the history and success of the 845s Silver Scot
franchise, the Company now offers two new contemporary versions of the modern
845s Silver Scot classic: the 845s Oversize and 845s Titanium
845s Silver Scot
TearDrop Golf continues to offer the original 845s Silver Scot. With its
traditional shaping, the 845s has appealed to the better player and the
traditional golfer. The Company believes that the clean, square, and simple
shape was attractive to players that inspired shotmaking and confidence. The
845s is cavity balanced, a concept utilized by Tommy Armour Golf in which the
center of gravity is located precisely in the middle of each clubface throughout
the set. With both perimeter weighting and progressive offset, the 845s Silver
Scot created increased stability and more offset in the long irons which help
improve a player's golf shot.
845s Oversize
The 845s product line features the original 845s classic shape combined
with the latest oversize technology for irons. The 845s Oversize was developed
with the combination of the best features of the original 845s Silver Scot and
the 855s Golden Scot. The 845s Oversize is intended to provide the performance,
playability, and proven technological benefits demanded by better players. With
the oversize technology, golfers should realize an enlarged sweetspot and
improved clubhead stability on off-center hits. The 845s Oversize maintains the
traditional blade shaping that displays appealing lines to inspire confidence at
address. Along with cavity balance and perimeter weighting, golfers should
realize increased forgiveness and stability on all golf shots.
845s Titanium Face
To capitalize on the superior benefits of titanium, Armour has developed
the 845s titanium face insert irons, an oversized stainless steel clubhead with
a titanium face insert. The 845s titanium is designed to take advantage of the
lightweight properties of titanium in the face insert, coupled with the more
dense stainless steel in the perimeter of the iron so that forgiveness and
stability of the club is increased. Armour's 845s titanium face irons differs
from other competitive titanium face insert irons in that the 845s titanium face
iron has a complete stainless steel body and a titanium insert. Some other
titanium face insert irons have only a stainless steel frame with a titanium
insert which can create negative vibration and an imprecise insert fit. In
addition, the 845s titanium face insert is as long as the scorelines of the
club, enabling more dense stainless steel in the perimeter of the iron intended
to provide increased forgiveness. Certain other competitive models have a
titanium face insert that stretches across the entire face detracting from the
most efficient perimeter weighting.
845s Original for Women
Armour has designed and developed an 845s product tailored specifically to
the women's market segment Offering the same 845s feature characteristics. The
845s original for women was developed with shafts and grips specifically
tailored to the women's golf swing and physique.
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All men's and women's 845s irons are available in steel and graphite
shafts.
845s Junior Set
To appeal to the growing junior market, Armour offers a 845s junior set.
Targeted to the 10-14 age group, the set features four irons, a putter and a
driver. The package includes a nylon carry bag and a fur headcover.
845s Woods
To compliment the 845s iron sets, Armour offers the 845s titanium face
woods. The oversize wood has been designed with a lighter weight titanium face
insert, intended to accentuate perimeter weighting and stability. The
traditional shaping of the wood inspires confidence, and with the four-way
cambered sole, the fairway woods are playable from a variety of lies and turf
conditions. 845s woods are available in a driver, 3-wood, and 5-wood with the G
Force 3.3 Tour Series graphite shafts.
Ram Products
Ram manufacturers and markets a complete line of high end, quality golf
clubs, including irons, woods, putters and utility clubs. In addition, it
markets a line of golf accessories including golf bags, golf gloves, head covers
and caps.
Ram Irons
The Company offers four different Ram iron club models, the Tour Grind
muscle back blade, the Tour Grind cavity back blade, the Oversize stainless
steel model and the Oversize nickel model, all under the FX umbrella trademark.
The FX Tour Grind is fully custom built to fit a golfer's swing and game.
The Tour Grind iron has been recently redesigned and improved. It is
re-engineered in a proprietary soft feel nickel metal that is softer than forged
carbon steel heads. The classic muscle-back model has been increased in size by
4% and the perimeter weighted cavity-back model is 8% larger with greater blade
length, but still with the same appearance as the club has had in the past. Both
models are available in steel shafts and graphite shafts.
The FX Stainless Steel Oversize irons are offered for the higher handicap
golfers in an economical price range. They have full cavity surround weighting
with a wider contoured sole and power offset. The FX Nickel Oversize irons have
a soft nickel formula for the mid handicap golfer and is larger than the
stainless model with more hitting area. Both models are offered for men,
ladies and seniors.
Ram Woods
The Company offers two models of woods, the FX Oversize model and the Big
Eye Ti(TM) model. The FX Oversize is a full perimeter weighted stainless steel
wood with more effective hitting surface that results in optimum trajectory and
ball carry for maximum distance and performance The Big Eye Ti is very playable
and easy to hit with a classic design that places the center of gravity deeper
and lower in the head. Its head is 260cc and the shaft is 45 inches long and
11.2 ounces. It comes with Ram's exclusive X-grip(R) and a POWERlite 55 gram,
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3.5 torque graphite shaft.
Ram Nickel Wedges
The Company offers a full line of Nickel wedges in both Classic and Troon
models. The nickel compound offers a softer feel than forged carbon steel and it
delivers a more consistent and solid feel at ball contact. It enhances a
player's touch, control and finesse around the green.
Zebra Putters
The Company offers the Zebra line of putters that is available in four
basic models, the Classic, the Deep-face, the Camber-Sole and the Wizard(R) 600
line. It is custom hand build with the Zebra design, the renowned face-balancing
and exclusive Z-Bend shaft. It comes with the Ram X-Grip and the exclusive
weight adjustable classic model. The Company does not sell Zebra insert putters.
TearDrop Professional Golf Tour
The Company conducts approximately 44 golf events over twelve months,
primarily in the southeast section of the United States, from Florida to
Virginia under the name of The TearDrop Professional Golf Tour. Nearly 1,000
professional golfers will compete on this tour in 1998 for total prize money
exceeding $1.8 Million. Tournaments are held mid-week, in two-day, three-day,
and four-day formats.
The tour is intended by the Company to serve as a way to introduce
TearDrop , Armour and Ram products to future professional golfers. Studies show
that brand usage at an early stage is instrumental in creating long-term brand
loyalty. While some TearDrop Tour players graduate to the PGA Tour, others
return to their home course pro-shops as head golf professionals where they may
have influence over purchasing and inventory. The TearDrop Tour provides the
Company and its sales representatives with direct access to these pro-shops. In
addition, the tour, from time to time, conducts Monday/Club-Pro only events
exclusively for club professionals.
Sales and Marketing
Advertising and Promotion. In January 1997, the Company commenced its
extensive marketing and advertising campaign for the TearDrop putter. 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 and fall of 1997. The Company also began to air a
60-second version of the infomercial in April 1997. The Company has also
produced and aired 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 during, and sponsors certain television programming produced by 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.
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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.
Marketing support for the Armour brand will be focused on promoting both
the 845s Oversize and 845s Titanium face insert. The marketing campaign will
focus on the conversion of the half million golfers who have purchased Armour
845s and 855s to the new improved Armour 845s. The Company intends to support an
aggressive national print and television campaign. Print ads will run in golf
publications such as Golf Digest, Golf Magazine, Golf World and Golf Week. Over
the course of 1998, the Company anticipates that it will spend approximately $15
million in sales and marketing to promote the 845s.
The Company also promotes its products with trade and consumer promotions
and demo days at golf courses. Ram clubs were promoted to the consumer with a
free golf bag offer. Retailers are provided with point of purchase material and
samples.
In addition, the Company promoted its product line with touring
professional endorsements, such as Tom Watson, and a playing bonus for the Zebra
putter. The Company had approximately 20 tour wins with players using its
product.
Nationwide Distribution Network. The Company markets its products through
Company-owned sales representatives to on-course golf pro shops, off-course
specialty golf shops, and upscale sporting good stores. The Company employs
approximately 40 persons in its domestic sales division who are responsible for
all TearDrop Golf Company brands, including Armour, Ram, TearDrop and Zebra.
Internationally, the Company has an operations and sales force in Canada
and the United Kingdom and utilizes independent distributors in other major golf
countries. Sales of products to international customers were approximately 15%
of the Company's total sales on a proforma combined basis.
The Company's domestic sales division focuses on building and managing
strong relationships with key customers on managing the field marketing effort
and account merchandising of the Company's products within the local territory.
Endorsements. The Company believes that the endorsement of its products by
touring professional golfers is an important feature of its overall marketing
effort. A group of touring professionals, including Tommy Tolles, Tommy Armour
III, Paul Goydos, Tom Byrum, Omar Uresti, George Archer, a former Masters
champion, P.J. Cowan, Jan Stephenson and other professionals currently use or
endorse the Company's products. The agreements with the company's professionals
generally are for one to three year terms and provide for certain payments by
the Company to the touring professionals in consideration for their using the
Company's products 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's obligation under endorsement agreements in place at March 15, 1998
provides for the payment of a minimum of approximately $1,900,000 through
December 31, 1998. The Company has instituted a "Player Pool" program, under
which the Company will provide rewards on a weekly basis to professional players
who win tournaments using the Company's golf clubs.
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.
30
<PAGE>
Assembly.
The Company assembles all of its products at its 95,000 square foot
office, manufacturing and warehouse facility in Morton Grove, Illinois.
Stainless steel and titanium aluminum clubheads are cast or forged by outside
suppliers generally utilizing Company-owned tooling and are inspected on-site by
Company representatives. Production personnel receive and review incoming
components, such as steel and graphite 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 Morton Grove facility, which include finishing and
warehousing facilities, from which finished clubs are shipped. 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 clubhead manufacturer manufactures club
heads at its facilities using equipment leased by the Company and provided to
the manufacturer. The Company's iron and driver head manufacturer are located in
the Far East. While management believes that alternative sources of supply
either exist or could be developed, in the event that it should lose its present
sources of supply for these materials and components, or experience delays in
receiving delivery from such sources, the Company would sustain at least
temporary shortages of materials and components, which could have a material
adverse effect on the Company's operating results.
New Club Development
The Company's product development effort is directed by individuals
consisting of a cross-functional selection of marketing, sales, tour and
operations. Input is also obtained from vendors, PGA tour players, and larger
key accounts at strategic times to review possible product introductions. These
selected individuals ensure that the highest level of innovation is accomplished
which provides instant appeal and long term user satisfaction. The product
engineering group provides the detail and develops the processes necessary to
accomplish the desired innovation.
The product development approach focuses on developing new designs, new
technologies and new methods of manufacturing. The new product development team
strives to achieve the highest consumer values for the Company's products by
optimizing performance and providing uniqueness through extensive engineering.
Competition
The Company competes in the premium-priced 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 substantially greater financial and other resources than the
Company. The Company's competitors are well known and recognizable names in the
marketplace and include Callaway, Ping, Taylor-Made, Titleist, Cobra, Mizuno and
other recognizable names in the golf industry, many of which are more well known
than the Company and its products. Several of these competitors, including
31
<PAGE>
Callaway and Fortune Brands, which owns Taylor Made and Titleist, have
substantially greater financial and other resources than the Company and have
substantially greater market share. The Company also competes with numerous
smaller, specialized companies than 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 clubs 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 December 31, 1997, the company had 239 full-time employees engaged in
manufacturing and assembly, sales support and in management and administration.
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 owns a variety of trademarks protecting its rights to the
TearDrop, Tommy Armour, Ram and Zebra names and marks. No assurances can be
given that any of such proprietary rights will protect the Company from
competitive practices of others.
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<PAGE>
Acquisition of Assets of Tommy Armour Golf Company
On November 10, 1997, the Company, through its newly formed, wholly owned
subsidiary, currently named Tommy Armour Golf Company ("Tommy Armour"), acquired
substantially all of the assets (the "Acquisition") of Tommy Armour Golf
Company, a Delaware corporation (currently named TA Liquidation Corp.), Tommy
Armour Golf (Scotland) Ltd. and the golf operations of USI Canada Inc., an
Ontario corporation, (collectively, the "Sellers"). The Company acquired the
assets for a purchase price consisting of (i) $10 million in cash (the "Cash
Payment"), (ii) 100,000 shares of Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") having a redemption value of $10,000,000
and (iii) 1,000,000 shares of the Company's common stock, par value $.01 per
share, subject to certain post closing adjustments. On March 31, 1998, the
Company and the Sellers entered into an agreement pursuant to which the Company
and the Sellers agreed upon certan adjustments to the purchase price in
settlement of certain disagreements relating to post-closing adjustments. Under
the agreement, the Cash Payment was increased to $11.6 million and the number of
shares of Common Stock was reduced to 175,000.
The Series A Preferred Stock is entitled to cumulative dividends at 6% per
annum for the first year after issuance, 7.5% per annum for the second year
after issuance and 9% per annum thereafter, subject to certain increases if the
Company is unable to comply with its obligations under the Registration
Agreement described below. The Company is subject to certain restrictions with
regard to the payment of dividends or distributions or other classes of stock.
The Series A Preferred Stock is convertible into shares of Common Stock at any
time at the rate of $7.50 per share, subject to adjustment under certain
conditions. The Series A Preferred Stock shall rank with respect to dividends
and with respect to distributions upon the liquidation, dissolution or winding
up of the Company, senior to all classes or series of common stock, preferred
stock or other securities of the Company. Holders of the Series A Preferred
Stock shall not be entitled or permitted to vote except as otherwise required
under Delaware law. However, the Certificate of Designation for the Series A
Preferred Stock contains certain restrictions on the activities of the Company
without the approval of holders of a majority of the shares of Series A
Preferred Stock including, but not limited to, creating, authorizing or issuing
any classes of stock that rank senior to or on a parity with the Series A
Preferred Stock or certain capital transactions involving mergers, acquisitions
or dispositions of a material nature, or taking such action as might adversely
affect the rights of the holders of Series A Preferred Stock. In the event of a
default by the Company on any of its obligations under the Certificate of
Designation for the Series A Preferred Stock or under the Asset Purchase
Agreement, then the holders of a majority of the shares of Series A Preferred
Stock then outstanding, voting or consenting, as the case may be, separately as
a single class, shall thereupon have the exclusive right to elect a majority of
the Board of Directors at any annual or special meeting of stockholders or at a
special meeting of holders of the Series A Preferred Stock. On November 10,
2002, the Company shall redeem from any source of funds legally available
therefore, all of the shares of the Series A Preferred Stock then outstanding at
a price of $100 per share of Series A Preferred Stock, subject to adjustment
under certain conditions, plus any accrued and unpaid interest. The Certificate
of Designation for the Series A Preferred Stock restricts the Company from
entering into any agreement that would prohibit or restrict its ability to
redeem the Series A Preferred Stock or pay dividends when due except under
certain circumstances. In addition, the Company is required, in connection with
the consummation of any public or private issuance or sale of debt or equity
securities of the Company or any of its subsidiaries for cash or partially for
cash, simultaneously with the receipt of the cash proceeds of such transaction,
to apply 70% of the net cash proceeds therefrom to the pro rata redemption of
then outstanding Series A Preferred Stock.
33
<PAGE>
The Company obtained funds for the Cash Payment pursuant to a Loan and
Security Agreement (the "Loan Agreement") between the Company and CoreStates
Bank, N.A. ("CoreStates"). Pursuant to the Loan Agreement, CoreStates has
provided a $25 million revolving credit facility (the "Credit Facility") to the
Company to finance the Acquisition and the Company's working capital and general
corporate expenditures. The Company drew down $10 million under the Credit
Facility to fund the Cash Payment. Funds extended pursuant to the Credit
Facility accrue interest at the prime rate minus 1/2% or LIBOR plus 2% per
annum. The Credit Facility is secured by substantially all of the assets of the
Company, including the assets acquired in connection with the Acquisition. The
Loan Agreement contains restrictions on certain of the Company's activities,
including, but not limited to, the payment of dividends, redemption of
securities and the sale of assets outside the ordinary course of the Company's
business. The Loan Agreement also provides that the Company meet certain
financial covenants. At December 31, 1997, the Company was in violation of such
covenants and has obtained waivers from CoreStates with respect thereto. The
Company is still not in compliance with such covenants and no assurance can be
given that the Bank will continue to waive such covenant defaults in the future.
The Company also entered into a Registration Agreement (the "Registration
Agreement") pursuant to which the Company agreed to file a registration
statement on Form S-3 with the Securities and Exchange Commission registering
the sale of the Common Shares, the Series A Preferred Stock and the shares of
the Company's common stock into which the Series A Preferred Stock are
convertible and use its best efforts to have the Registration Statement declared
effective as soon as possible after the date hereof.
Acquisition of RAM Golf
On December 29, 1997 (the "Closing Date"), the Company, through its newly
formed, wholly-owned subsidiary then known as TearDrop Ram Golf Company (now
known as Ram Golf Corporation) ("RGC"), acquired substantially all of the assets
of Ram Golf Corporation, a Delaware corporation (currently named JRH Golf
Corporation) ("JRH") including the stock of Ram Golf UK, Ltd., a UK corporation.
The Company acquired the assets for a purchase price consisting of (i)
$2,668,009 in cash (the "Cash Payment"), (ii) 83,007 shares of the Company's
common stock, to be held in escrow for disposition by the escrow agent in
accordance with a certain Inventory Escrow Agreement dated as of December 29,
1997 and subject to an audit of JRH to be conducted within 60 days of the
Closing Date, (iii) 100,000 shares of the Common Stock to be held in escrow
subject to the satisfaction of certain product delivery obligations for April
1998, (iv) 4,350 shares of Common Stock and (v) a Warrant to purchase 50,000
shares of Common Stock (the "Warrant").
The Company obtained funds for the Cash Payment pursuant to the CoreStates
Loan Agreement, which was amended at the time to provide for revolving credit
facility equal to the lesser of (i) the sum of 65% of the Company's eligible
accounts plus 65% of the Company's eligible inventory or (ii) $25 million (the
"Credit Facility") to the Company to finance the Acquisition and the Company's
working capital and general corporate expenditures. The Company drew down an
additional $2,668,009 under the Credit Facility to fund the Cash Payment.
The Warrant entitles JRH to purchase from the Company 50,000 shares of
Common Stock at a price of $6.625 per share at any time or from time to time
during the period from December 29, 1997 to December 29, 2002.
The Company also entered into a Registration Agreement (the "Registration
Agreement") pursuant to which the Company agreed to file a registration
statement on Form S-3 with the Securities and Exchange Commission registering
the sale of the Common Stock and use its best efforts to have the Registration
Statement declared effective no later than June 30, 1998.
34
<PAGE>
Property
The Company owns 965,000 square feet of office, manufacturing and
warehouse and distribution space in Morton Grove, Illinois. The Company conducts
its assembly, warehouse and distribution activities from these facilities. The
Company occupies 20,000 square feet of office and warehouse space in Union, NJ,
under a five-year lease agreement between the Company and Dolo Realty which
terminates in August, 2002. The aggregate minimum rental payments under the
lease for the years ending December 31, 1998 and 1999 are $75,000 and $76,666
respectively. During 1997, the Company conducted its TearDrop putter assembly,
warehouse and distribution activities from this location as well as its
corporate headquarters activities. Upon the acquisition of Tommy Armour Golf in
November 1997, the Company transferred its putter assembly, warehouse and
distribution activities to the Morton Grove, Illinois location. As a result, the
Union, New Jersey location is used solely for corporate activities. The Company
is actively seeking to sub-lease the Union, New Jersey location and move the
corporate headquarters to a smaller location in the same New York metropolitan
area.
The Company also uses an outside warehouse for storage of larger, bulk
inventory items such as golf bags. The arrangement with the warehouse is
month-to-month and the rental and storage charges are directly related to the
amount of inventory being stored each month.
Legal Proceedings
An action was served upon the Company in the Eastern District of
Pennsylvania on February 28, 1998 entitled "Izett Manufacturing, Inc.,
Plaintiff, vs. RAM Golf Corporation, JRH Corporation, Laser Golf Corporation,
TearDrop Golf Company and TearDrop RAM Golf Company, Defendants." seeking
damages of $12 million. The claim relates to an agreement assumed by the Company
in December 1997 in connection with the acquisition of the assets of RAM Golf
Company. The Company believes that it has valid defenses to such claim and
intends to defend the claim vigorously.
35
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are:
Name Age Position
---- --- --------
Rudy A. Slucker 48 Chairman of the Board, President
and Chief Executive Officer
Joseph Cioni 58 Vice President of Finance and
Chief Financial Officer
John Zeravica 41 Vice President
Matthew H. O'Toole 35 Vice President - Sales and
Marketing
Fred K. Hochman 50 Director
Leslie E. Goodman 53 Director
Bruce H. Nagel 44 Director
Jeffrey Baker 48 Director
John Raos 48 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; Ambassador Eyewear Group, Inc.,
a manufacturer and distributor of designer brand eyeglass frames under the names
of Playskool, 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.
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.
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.
Matthew H. O'Toole was elected as Vice President of Sales and Marketing in
March 1998. From November 1997 to March 1998, Mr. O'Toole was employed by the
Tommy Armour Golf Company, following the acquisition by the Company. He served
as Vice President of Sales at Armour
36
<PAGE>
Golf from 1995 through 1997 and as National Sales Manager from 1992 through
1995. Prior thereto and since 1983, Mr. O'Toole was employed by the Wilson
Sporting Goods Company in a variety of sales and marketing positions.
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.
Jeffrey Baker has been a Director of the Company since September 1996. Mr.
Baker has served as Senior Vice President of GoodTimes Entertainment, where he
is responsible for licensing, marketing and merchandising of video products. Mr.
Baker's prior experience includes more than twelve years of service in various
marketing and sales positions including marketing manager for Prodigy Services,
director of national account sales for RCA Video Disc, director of video sales
for Pickwick International and regional sales manager for Data Packaging Corp.
John G. Raos, has served as President and Chief Operating Officer and a
director of USI since its spin-off from Hanson PLC in 1995 (the "Demerger"). Mr.
Raos was President and Chief Operating Officer of Hanson Industries, the U.S.
arm of Hanson PLC, from 1992 until the Demerger and a director of Hanson PLC
from 1989 until the Demerger. Mr. Raos is also a director of Jade Technologies
Singapore Ltd.
37
<PAGE>
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.
Executive Compensation
Summary Compensation
The following table sets forth information concerning the compensation
paid or accrued by the Company for each of the three fiscal years ended December
31, 1997, to the individual performing the function of Chief Executive Officer
during such periods and each of the next four most highly compensated executive
officers who earned more than $100,000 during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name and Principal Year Ended Other Annual Number of All Other
Position December 31 Salary Bonus Compensation Options Compensation
<S> <C> <C> <C> <C> <C> <C>
Rudy Slucker
President and Chief
Executive Officer 1997 $175,000 $50,000 (1) 250,000(1) --
1996 $ 40,000 -- -- 250,000 --
1995 $ 0 $ 0 -- -- --
</TABLE>
(1) Does not include value of unexercised, in-the-money options granted during
1997, having an exercise price below fair market value on the date of grant. See
footnote 11 of the Company's Consolidated Financial Statements.
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 $250,000. 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
38
<PAGE>
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.
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 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 95,700 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, Jeffrey Baker 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
39
<PAGE>
As of April 15, 1998, options to acquire 1,195,500 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 861,800 of which were granted outside of
the Plan. 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 6, 1997, Mr. Slucker was granted options to acquire an
additional 250,000 shares for $4.625 per share. 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 29,100 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.
<TABLE>
<CAPTION>
Stock Option Grants in Last Fiscal Year
Number of Shares
Underlying % of Total Exercise
Fiscal Options Options Granted Price Per Expiration
Name Year Granted to Employees Share Date
- - ---- ------ ---------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Rudy Slucker 1997 250,000 86.6% $4.625 12/5/07
1996 250,000 100.0% $4.50 10/20/07
1995 -- -- -- --
</TABLE>
Aggregated Option Exercises in Last Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Shares to be Underlying Unexercised In-the-Money Options
Acquired on Value Options at December 31, 1997(1) at December 31, 1997(1)
Name Exercise (#) Realized Exercisable/Unexercisable(1) Exercisable/Unexercisable
<S> <C> <C> <C> <C>
Rudy Slucker -- -- 500,000/0 $1,125,000/$0
</TABLE>
(1) On December 31, 1997, the Common Stock closed at a price of $6.813 on the
Nasdaq Small Cap Market.
40
<PAGE>
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 March 31, 1998
for (i) each person who is known by the Company to beneficially own more than 5%
of the capital stock, (ii) each of the Company's directors, and (iii) all
directors and executive officers as a group. The Company believes that each of
the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares.
<TABLE>
<CAPTION>
Percentage Percentage
Number of Shares Ownership Ownership
Name Beneficially Owned Before Offering After Offering
---- ------------------ --------------- --------------
<S> <C> <C> <C>
Rudy A. Slucker 980,000 (1) 31.06% 20.24%
T.A. Liquidation Corp.
101 Wood Avenue
Iselin, New Jersey 1,508,333 (2) 37.82% 26.58%
JRH Golf Corporation
c/o James Hansberger
809 Red Stable Way
Oak Brook, Illnois 187,357 (3) 8.78% 5.40%
Fred K. Hochman 153,000 5.76% 3.52%
Joseph Cioni 14,000 (4) * *
Matthew O'Toole 0 (5) * *
Leslie E. Goodman 10,000 (6) * *
Bruce H. Nagel 20,000 (7) * *
John Zeravica 10,000 (6) * *
Jeffrey Baker 10,000 (6)
John Raos 1,508,333 (2) 37.82% 26.58%
All directors and executive officers
as a group (9 persons) 2,705,333 (2)(8) 59.61% 43.45%
</TABLE>
- - ----------
* Less than 1%.
(1) Includes (i) 500,000 shares subject to options exercisable to the extent
of 250,000 shares at $4.50 per share and 250,000 shares at $4.625 per
share and (ii) an aggregate of 75,000 shares of Common Stock owned by the
children and wife of Mr. Slucker.
(2) Includes 1,333,333 shares of Common Stock, issuable upon the conversion of
100,000 shares of Series A Redeemable Convertible Preferred Stock. John
Raos, a member of the Board of Directors of the Company, is President of
U.S. Industries, Inc. the parent company of T.A. Liquidation Corp.
(3) Includes 50,000 shares issuable upon the exercise of a common stock
purchase warrant.
(4) Includes 10,000 shares underlying options exercisable at $2.50 per share.
Does not include options to purchase 5,000 shares of Common Stock.
(5) Does not include options to purchase 12,000 shares of Common Stock.
(6) Includes 10,000 shares underlying options exercisable at $4.75 per share.
Does not include options to purchase 5,000 shares of Common Stock.
(7) Includes 5,000 shares underlying warrants and 10,000 shares underlying
options exercisable at $4.75 per share. Does not include options to
purchase 5,000 shares of Common Stock.
(8) Includes 50,000 shares underlying options, 250,000 shares underlying
options exercisable at $4.50 per share and 250,000 shares underlying
options exercisable at $4.625 per share. Does not include options to
purchase 27,000 shares of Common Stock.
41
<PAGE>
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>
Selling Security Number of Shares of Number of Number of Shares of Common
Holders Common Stock Warrants Stock 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>
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.
42
<PAGE>
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, $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.
On November 10, 1997, the Company, through its newly formed, wholly owned
subsidiary, currently named Tommy Armour Golf Company ("Tommy Armour"), acquired
substantially all of the assets (the "Acquisition") of Tommy Armour Golf
Company, a Delaware corporation (currently named TA Liquidation Corp.), Tommy
Armour Golf (Scotland) Ltd. and the golf operations of USI Canada Inc., an
Ontario corporation, (collectively, the "Sellers"). The Company acquired the
assets for a purchase price consisting of (i) $10 million in cash (the "Cash
Payment"), (ii) 100,000 shares of Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock") having a redemption value of $10,000,000
and (iii) 1,000,000 shares of the Company's common stock, par value $.01 per
share (the "Common Shares"), subject to certain post closing adjustments. On
March 31, 1998, the Company and the Sellers entered into an agreement pursuant
to which the Company and the Sellers agreed upon certan adjustments to the
purchase price in settlement of certain disagreements relating to post-closing
adjustments. Under the agreement, the Cash Payment was increased to $11.6
million and the number of shares of Common Stock was reduced to 175,000.
The Series A Preferred Stock is entitled to cumulative dividends at 6% per
annum for the first year after issuance, 7.5% per annum for the second year
after issuance and 9% per annum thereafter, subject to certain increases if the
Company is unable to comply with its obligations under the Registration
Agreement described below. The Company is subject to certain restrictions with
regard to the payment of dividends or distributions or other classes of stock.
The Series A Preferred Stock is convertible into shares of Common Stock at any
time at the rate of $7.50 per share, subject to adjustment under certain
conditions. The Series A Preferred Stock shall rank with respect to dividends
and with respect to distributions upon the liquidation, dissolution or winding
up of the Company, senior to all classes or series of common stock, preferred
stock or other securities of the Company. Holders of the Series A Preferred
Stock shall not be entitled or permitted to vote except as otherwise required
under Delaware law. However, the Certificate of Designation for the Series A
Preferred Stock contains certain restrictions on the activities of the Company
without the approval of holders of a majority of the shares of Series A
Preferred Stock including, but not limited to, creating, authorizing or issuing
any classes of stock that rank senior to or on a parity with the Series A
Preferred Stock or certain capital transactions involving mergers, acquisitions
or dispositions of a material nature, or taking such action as might
43
<PAGE>
adversely affect the rights of the holders of Series A Preferred Stock. In the
event of a default by the Company on any of its obligations under the
Certificate of Designation for the Series A Preferred Stock or under the Asset
Purchase Agreement, then the holders of a majority of the shares of Series A
Preferred Stock then outstanding, voting or consenting, as the case may be,
separately as a single class, shall thereupon have the exclusive right to elect
a majority of the Board of Directors at any annual or special meeting of
stockholders or at a special meeting of holders of the Series A Preferred Stock.
On November 10, 2002, the Company shall redeem from any source of funds legally
available therefore, all of the shares of the Series A Preferred Stock then
outstanding at a price of $100 per share of Series A Preferred Stock, subject to
adjustment under certain conditions, plus any accrued and unpaid interest. The
Certificate of Designation for the Series A Preferred Stock restricts the
Company from entering into any agreement that would prohibit or restrict its
ability to redeem the Series A Preferred Stock or pay dividends when due except
under certain circumstances. In addition, the Company is required, in connection
with the consummation of any public or private issuance or sale of debt or
equity securities of the Company or any of its subsidiaries for cash or
partially for cash, simultaneously with the receipt of the cash proceeds of such
transaction, to apply 70% of the net cash proceeds therefrom to the pro rata
redemption of then outstanding Series A Preferred Stock.
The Company obtained funds for the Cash Payment pursuant to a Loan and
Security Agreement (the "Loan Agreement") between the Company and CoreStates
Bank, N.A. ("CoreStates"). Pursuant to the Loan Agreement, CoreStates has
provided an $18 million revolving credit facility (the "Credit Facility") to the
Company to finance the Acquisition and the Company's working capital and general
corporate expenditures. The Company drew down $10 million under the Credit
Facility to fund the Cash Payment. Funds extended pursuant to the Credit
Facility accrue interest at the prime rate minus 1/2% or LIBOR plus 2% per
annum. The Credit Facility is secured by substantially all of the assets of the
Company, including the assets acquired in connection with the Acquisition. The
Loan Agreement contains restrictions on certain of the Company's activities,
including, but not limited to, the payment of dividends, redemption of
securities and the sale of assets outside the ordinary course of the Company's
business.
The Company also entered into a Registration Agreement (the "Registration
Agreement") pursuant to which the Company agreed to file a registration
statement on Form S-3 with the Securities and Exchange Commission registering
the sale of the Common Shares, the Series A Preferred Stock and the shares of
the Company's common stock into which the Series A Preferred Stock are
convertible and use its best efforts to have the Registration Statement declared
effective as soon as possible after the date hereof.
On December 29, 1997 (the "Closing Date"), the Company, through its newly
formed, wholly-owned subsidiary then known as TearDrop Ram Golf Company (now
known as Ram Golf Corporation) ("RGC"), acquired substantially all of the assets
of Ram Golf Corporation, a Delaware corporation (currently named JRH Golf
Corporation) ("JRH") including the stock of Ram Golf UK, Ltd., a UK corporation.
The Company acquired the assets for a purchase price consisting of (i)
$2,668,009 in cash (the "Cash Payment"), (ii) 83,007 shares of the Company's
common stock, to be held in escrow for disposition by the escrow agent in
accordance with a certain Inventory Escrow Agreement dated as of December 29,
1997 and subject to an audit of JRH to be conducted within 60 days of the
Closing Date, (iii) 100,000 shares of the Common Stock to the escrow agent to be
disposed in accordance with a Delivery Escrow Agreement dated as of December 29,
1997 and subject to the satisfaction of certain product delivery obligations for
April 1998, (iv) 4,350 shares of Common Stock and (v) a Warrant to purchase
50,000 shares of Common Stock (the "Warrant").
44
<PAGE>
The Company obtained funds for the Cash Payment pursuant to the CoreStates
Loan Agreement, which was amended at the time to provide for revolving credit
facility equal to the lesser of (i) the sum of 65% of the Company's eligible
accounts plus 65% of the Company's eligible inventory or (ii) $25 million (the
"Credit Facility") to the Company to finance the Acquisition and the Company's
working capital and general corporate expenditures. The Company drew down an
additional $2,668,009 under the Credit Facility to fund the Cash Payment.
The Warrant entitles JRH to purchase from the Company 50,000 shares of
Common Stock at a price of $6.625 per share at any time or from time to time
during the period from December 29, 1997 to December 29, 2002.
The Company also entered into a Registration Agreement (the "Registration
Agreement") pursuant to which the Company agreed to file a registration
statement on Form S-3 with the Securities and Exchange Commission registering
the sale of the Common Stock and use its best efforts to have the Registration
Statement declared effective no later than June 30, 1998.
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, 2,654,857
shares of Common Stock are outstanding and held of record by 28 stockholders,
and 100,000 shares of Series A Cumulative Redeemable Preferred Stock are held by
one stockholder.
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 there are 100,000 shares of Series A
Convertible Preferred Stock outstanding. The Board of Directors has no current
plans to issue any additional shares of Preferred Stock.
The Series A Preferred Stock is entitled to cumulative dividends at 6% per
annum for the first year after issuance, 7.5% per annum for the second year
after issuance and 9% per annum thereafter, subject to certain increases if the
Company is unable to comply with its obligations under the Registration
Agreement described below. The Company is subject to certain restrictions with
regard to the payment of dividends or distributions or other classes of stock.
The Series A Preferred Stock is convertible into shares of Common Stock at any
time at the rate of $7.50 per share, subject to adjustment under certain
conditions. The Series A Preferred Stock shall rank with respect to dividends
and with respect to distributions upon the liquidation, dissolution or winding
up of the Company, senior to all classes or series of common stock, preferred
stock or other securities of the Company. Holders of the
45
<PAGE>
Series A Preferred Stock shall not be entitled or permitted to vote except as
otherwise required under Delaware law. However, the Certificate of Designation
for the Series A Preferred Stock contains certain restrictions on the activities
of the Company without the approval of holders of a majority of the shares of
Series A Preferred Stock including, but not limited to, creating, authorizing or
issuing any classes of stock that rank senior to or on a parity with the Series
A Preferred Stock or certain capital transactions involving mergers,
acquisitions or dispositions of a material nature, or taking such action as
might adversely affect the rights of the holders of Series A Preferred Stock. In
the event of a default by the Company on any of its obligations under the
Certificate of Designation for the Series A Preferred Stock or under the Asset
Purchase Agreement, then the holders of a majority of the shares of Series A
Preferred Stock then outstanding, voting or consenting, as the case may be,
separately as a single class, shall thereupon have the exclusive right to elect
a majority of the Board of Directors at any annual or special meeting of
stockholders or at a special meeting of holders of the Series A Preferred Stock.
On November 10, 2002, the Company shall redeem from any source of funds legally
available therefore, all of the shares of the Series A Preferred Stock then
outstanding at a price of $100 per share of Series A Preferred Stock, subject to
adjustment under certain conditions, plus any accrued and unpaid interest. The
Certificate of Designation for the Series A Preferred Stock restricts the
Company from entering into any agreement that would prohibit or restrict its
ability to redeem the Series A Preferred Stock or pay dividends when due except
under certain circumstances. In addition, the Company is required, in connection
with the consummation of any public or private issuance or sale of debt or
equity securities of the Company or any of its subsidiaries for cash or
partially for cash, simultaneously with the receipt of the cash proceeds of such
transaction, to apply 70% of the net cash proceeds therefrom to the pro rata
redemption of then outstanding Series A Preferred Stock.
Common Stock
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding shares of preferred
stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, subject to the
liquidation preferences of preferred stock, the holders of Common Stock are
entitled to receive any declared and unpaid dividends, in addition to being
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any then outstanding shares of preferred stock.
Holders of Common Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock.
All outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable, and the shares of Common
Stock issued upon completion of this Offering have been duly authorized and,
when issued, will be fully paid and nonassessable.
Warrants
Each Warrant will entitle the registered holder to purchase one share of
the Company's Common Stock at an exercise price of $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.
46
<PAGE>
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 Securities Corp. ("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 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.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
4,342,357 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. All of such
shares, may be sold under Rule 144. However, all persons who were stockholders
of the Company as of December 19, 1996 have agreed that they will not sell any
of their securities without the prior consent of GKN until no sooner than
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 one year (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 one-year holding period requirement, in
order to sell shares of Common Stock that are not Restricted Securities, unless
such sale is registered under the Securities Act. A stockholder (or stockholders
who shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder, and
who has beneficially owned Restricted Securities for at least two 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.
48
<PAGE>
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 165% of the initial offering price of
the securities for a period of four years commencing December 19, 1997. 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 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 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
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.
49
<PAGE>
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 Gibbons, Del
Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, Newark, New
Jersey.
EXPERTS
The consolidated financial statements of TearDrop Golf Company at December
31, 1997, and for the year then ended, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The statements of operations, stockholers' equity and cash flows of
TearDrop Golf Company for the year ended December 31, 1996 included in this
Prospectus, have been included in reliance on the report of Rothstein, Kass &
Company, P.C., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The combined financial statements of Tommy Armour Golf Company as of
September 30, 1997 and 1996 and for each of the three years in the period ended
September 30, 1997 included in this Prospectus and Registration Statement have
been so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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.
50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
TearDrop Golf Company
We have audited the accompanying consolidated balance sheet of TearDrop Golf
Company as of December 31, 1997, and the related consolidated statements of
operations, stockholders' deficiency and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TearDrop Golf
Company at December 31, 1997, and the consolidated results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 31, 1998
F-1
<PAGE>
[LETTERHEAD OF ROTHSTEIN, KASS & COMPANY, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TearDrop Golf Company
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of TearDrop Golf Company for the year ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of TearDrop Golf
Company for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
January 31, 1997
F-2
<PAGE>
TearDrop Golf Company
Consolidated Balance Sheet
December 31, 1997
(in $000's)
ASSETS
CURRENT ASSETS:
Cash $ 257
Accounts receivable less allowance for
returns and doubtful accounts of $1,047 7,756
Inventories 21,269
Other current assets 309
--------
Total current assets $ 29,591
PROPERTY AND EQUIPMENT, less accumulated
depreciation 5,142
GOODWILL AND INTANGIBLE ASSETS, less accumulated amortization 5,289
--------
$ 40,022
========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 5,193
Accrued liabilities 7,363
Payable under acquisition agreement 1,600
--------
Total current liabilities $ 14,156
LONG TERM DEBT
Long term debt 17,261
Note payable, stockholder 400
--------
Total long term debt 17,661
PREFERRED STOCK
$100 par value, authorized 1,000,000 shares, issued
and outstanding 100,000 of series A cumulative
convertible preferred 10,000
STOCKHOLDERS' DEFICIENCY:
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
2,654,857 shares 27
Capital in excess of par value 9,634
Currency translation adjustment (25)
Accumulated deficit (11,431)
--------
Total stockholders' deficiency (1,795)
--------
$ 40,022
========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
TearDrop Golf Company
Consolidated Statements of Operations
For the Years Ended December 31, 1997 and 1996
(all dollar amounts, except per share amounts in $000's)
1997 1996
----------- -----------
Net Sales $ 9,624 $ 847
Cost of Sales 7,543 407
----------- -----------
Gross Profit 2,081 440
Selling, General and
Administrative Expenses 11,106 1,176
----------- -----------
Loss from Operations (9,025) (736)
Interest Expense, net (124) (174)
----------- -----------
Net Loss $ (9,149) $ (910)
=========== ===========
Net Loss per Common Share - Basic and Diluted $ (4.10) $ (1.15)
=========== ===========
Weighted Average Number of
Common shares Outstanding 2,230,397 791,100
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TearDrop Golf Company
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1997 and 1996
(in $000's)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (9,149) $ (910)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 160 37
Provision for doubtful accounts 143 53
Compensation expense related to option grants 438 --
Common stock and options issued for services 237 4
Changes in operating assets and liabilities, net
of acquisitions:
(Increase) in accounts receivable (1,687) (204)
Decrease in inventories 1,811 14
Decrease (increase) in other current assets 411 (267)
Increase in accounts payable and other current
liabilities 544 536
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (7,092) (737)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Tommy Armour Golf, net of cash acquired of $72 (11,528)
Ram Golf Corporation (2,668)
Purchases of property and equipment (252) (15)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (14,448) (15)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under financing agreements 17,201 (17)
Repayment of note payable (300)
Repayment of stockholders' notes (432) 663
Proceeds from issuance of common stock 844 4,470
Proceeds from issuance of common stock purchase
warrants -- 129
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,313 5,245
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (25) --
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,252) 4,493
CASH AND CASH EQUIVALENTS:
Beginning of year 4,509 16
-------- --------
End of year $ 257 $ 4,509
======== ========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TearDrop Golf Company
Consolidated Statement of Cash Flows (Continued)
For the Years Ended December 31, 1997 and 1996
(in $000's)
1997 1996
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, Interest paid during the year $ 191 $ 53
======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Preferred stock issued for acquisitions $10,000
Common stock issued at par for acquisition of
companies 5
Contribution to capital in excess
of par value from shares of stock and warrants
issued for acquired companies 2,416
Contribution to capital in excess of par value
from shares of stock and warrants issued to an
officer, consultants and other non-employees 675
Contribution to capital in excess of par value from
notes payable, stockholders and accrued interest -- 1,114
------- -------
$13,096 $ 1,114
======= =======
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TearDrop Golf Company
Consolidated Statement of Stockholders' Equity (Deficiency)
Years Ended December 31, 1997 and 1996
(All dollar amount in $000's)
<TABLE>
<CAPTION>
Common Stock Capital Currency
--------------------- Excess of Translation Accumulated
Shares Amount Par Value Adjustment Deficit Total
--------- --------- --------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 333,333 $ 3 $ (1,372) $ (1,369)
Common Stock issued for services 416,667 4 4
Sale of Common Stock 1,250,000 13 $ 4,458 4,471
Sale of Common Stock Purchase Warrants 129 129
Contribution to Capital by Stockholders 1,114 1,114
Net Loss (910) (910)
--------- --------- --------- --------- --------- ---------
Balances, December 31, 1996 2,000,000 20 5,701 (2,282) 3,439
Sales of Common Stock 242,500 2 842 844
Shares of stock and warrants issued for
companies acquired 412,357 5 2,416 2,421
Options issued to an officer, consultants,
and other non-employees 675 675
Currency Translation Adjustment $ (25) (25)
Net Loss (9,149) (9,149)
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 2,654,857 $ 27 $ 9,634 $ (25) $ (11,431) $ (1,795)
========= ========= ========= ========= ========= =========
</TABLE>
F-7
<PAGE>
TearDrop Golf Company
Notes to Consolidated Financial Statements
(All dollar amounts, except share and per share amounts, in $000's)
1. ORGANIZATION AND NATURE OF OPERATIONS
The TearDrop Golf Company ("TearDrop" and/or the "Company") was incorporated
under the laws of Delaware in September 1996. In October 1996, the Company
merged with the TearDrop Putter Corporation, which was formed in 1992. 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. (See Note 10)
The Company and its subsidiaries manufacture and market golf clubs, including
putters, irons, drivers and wedges throughout the world.
In October 1997, the Company acquired the assets of Pro Golf Promotions, LLC in
exchange for 50,000 shares of common stock of the Company and an option to
purchase 25,000 shares of common stock and other contingent consideration (See
Note 8).
In November 1997, the Company acquired the assets and assumed certain
liabilities of the Tommy Armour Golf Company ("Armour") in exchange for $11,600
cash, 175,000 shares of the Company's common stock and 100,000 shares of the
Company's Preferred Stock (See Note 8).
In December 1997, the Company acquired certain assets and assumed certain
liabilities of the Ram Golf Corporation ("Ram") in exchange for $2,668 cash,
187,357 shares of the Company's common stock and a warrant to purchase 50,000
shares of the Company's common stock at a price of $6.625 per share. The final
acquisition price has yet to be determined. Upon final determination, additional
shares of common stock may be issued or returned to the Company (See Note 8).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation - The consolidated balance sheet contains the accounts of
TearDrop Golf Company and its wholly-owned subsidiaries. The related statements
of operations and cash flows contain the operations of TearDrop for each period
and the operations of its wholly-owned subsidiaries from their dates of
acquisition. All significant inter-company accounts have been eliminated in
consolidation.
Inventories - Inventories are stated at the lower of cost, on a first-in,
first-out method, or market.
F-8
<PAGE>
Property and Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for depreciation
and amortization for operations acquired in 1997 principally using the straight
line method. The Company uses the double declining balance method for assets
acquired prior to 1997. There is no significant difference between the two
methods for 1997. Estimated useful lives, for each method is as follows:
Asset Estimated Useful Lives
Building and improvements 10 to 40 Years
Machinery and equipment 5 to 10 Years
Office furniture and equipment 5 Years
Goodwill and Intangible Assets - Goodwill relates to the excess of fair value
over the cost of net assets acquired. Other intangible assets include patents
and trademarks, which relate to costs associated with obtaining patents and
trademarks within and outside the United States. All goodwill and intangibles
are amortized on a straight-line basis over 15 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.
Revenue Recognition - The Company recognizes revenue from sales of product when
title to the product has passed, which is generally when product has been
shipped.
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, 1997 and 1996 were approximately $4,058 and $109, respectively.
Research and Development Expense - The Company expenses research and development
costs as incurred. Research and development expenses included in selling,
general and administrative expenses for the years ended December 31, 1997 and
1996 were approximately $105 and $20, respectively.
Foreign Currency Translation - The functional currency for the Company's foreign
subsidiaries is the applicable local currency. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at the balance sheet
date, while revenue, expenses and cash flows are translated at average exchange
rates for the period.
F-9
<PAGE>
Income Taxes - Deferred income tax assets and liabilities are computed annually
for differences between financial reporting and tax bases of assets and
liabilities, if any, 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.
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 amounts reported. Management believes that its
estimates are reasonable and proper, however, actual results could differ from
those estimates.
Net Income or 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 in each period.
The weighted average includes shares issued within one year of the Company's
initial public offering with an issue price less than the price of the initial
public offering.
On March 3, 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("SFAS No. 128"), which requires dual presentation of
basic and diluted earnings per share on the face of the income statement for all
periods presented.
Due to the operating loss in both periods, the effect of all outstanding options
and warrants are antidilutive. Therefore, they have been excluded from the
Company's computation of net loss per share. While SFAS No. 128 requires
restatement of prior years' earnings per share, the impact for all prior years
of the Company would be antidilutive and therefore, no restatement is required.
Stock Options
The Company accounts for stock options in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly,
there is no compensation exposure to the Company when stock options are granted
at prices equal to the fair market value at the date of grant. Proceeds on
exercises of stock options and the associated income tax benefits are credited
to stockholders' equity when received.
3. INVENTORIES
Inventories at December 31, 1997 consist of the following:
Raw materials $ 9,005
Work in process 229
F-10
<PAGE>
Finished goods 12,035
------
$21,269
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consist of the following:
Land $1,730
Buildings and improvements 1,371
Machinery and equipment 1,686
Office furniture and equipment 538
------
5,325
Less, accumulated depreciation and
amortization 183
------
$5,142
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist principally of the excess of cost over
the fair value of net assets purchased in connection with the acquisitions
consummated during 1997 (See Note 8). Other intangibles are the cost of those
patents and trademarks developed by the Company. Goodwill and all other
intangibles are being amortized over 15 years. During the years ended December
31, 1997 and 1996, $22 and $4, respectively, were amortized.
6. NOTES PAYABLE AND LONG TERM DEBT
During 1997, the Company obtained a line of credit with CoreStates Bank, N.A.,
(the "Bank") originally for $18,000 and later extended to $25,000
collateralized by a security interest in all the assets of the Company. The line
of credit bears interest on the outstanding principal amount, at the option of
the Company, of either the Bank's prime rate less 1/2% or LIBOR plus 2% and
expires on November 7, 1999. The loan agreement provides, among other things,
that the Company meet certain financial covenants. At December 31, 1997, the
Company was in violation of such covenants and has obtained waivers from the
Bank, as appropriate.
As of December 31, 1997, there was $17,261 of borrowings under this line of
credit. Interest expense on this line of credit approximated $149 in 1997.
F-11
<PAGE>
7. NOTE PAYABLE TO SHAREHOLDER
In 1996, the Company issued a note to the Company's Chief Executive Officer for
$400, which bears interest at 8% and 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 its initial public offering. Additional shareholder loans aggregating
approximately $432 were repaid in 1997. Interest expense on all shareholder
loans aggregate approximately $32 and $112 for the years ended December 31, 1997
and 1996, respectively.
8. ACQUISITIONS
During 1997, the Company made the following acquisitions:
a. In October, 1997, the Company acquired the assets of Pro Golf
Promotions, LLC for 50,000 shares of the Company's common stock
(valued at $225) and an option to purchase 25,000 additional shares
of the Company's common stock at $4.50 per share exercisable for a
period of three years from date of grant (valued at $80). In
addition, up to 50,000 additional shares of common stock may be
issued depending on the results of Pro Golf Promotions in 1998 and
1999. If such shares are issued, the fair value of such shares will
be recorded as an adjustment to purchase price.
b. On November 10, 1997, the Company completed the acquisition of the
assets and liabilities of the Tommy Armour Golf Company in exchange
for $11,600 cash (of which $1,600 is payable at December 31, 1997),
175,000 shares of the Company's common stock (valued at $788), and
100,000 shares of the Company's Series A Convertible Preferred Stock
(valued at $10,000). The purchase price of Armour was adjusted on
March 31, 1998 pursuant to a post-closing agreement under which the
cash payment was increased to $11,600 from $10,000 and the number of
shares of the Company's Common Stock was reduced to 175,000 from
1,000,000. There was no adjustment in the Series A Convertible
Preferred Stock.
c. On December 30, 1997, the Company acquired certain assets and
liabilities of the Ram Golf Corporation in exchange for $2,668 cash,
187,357 shares of the Company's common stock (valued at $1,241), and
a warrant to purchase 50,000 shares of the Company's common stock at
a price of $6.625 (valued at $88), expiring December 29, 2002. The
final purchase price is subject to final audit, and when determined,
may result in the release from escrow of additional shares or the
return of shares of common stock.
All three acquisitions were accounted for using the purchase method of
accounting. The operations of each company acquired have been included in the
Company's Consolidated Statement of Operations from the respective dates of
acquisition.
F-12
<PAGE>
The Company's consolidation plan following the acquisition of Armour and Ram was
to combine similar and overlapping operations, locations and personnel. In that
regard, the Company closed duplicate facilities in the U.K. and Canada, combined
the operations of the Company, Armour and Ram in one location in the U.S. and
eliminated certain corporate positions. The estimated costs of implementing this
consolidation plan are approximately $260 for the closing of duplicate
facilities and $503 for severance related to the elimination of several
corporate positions. These liabilities have been included in the cost allocation
of the acquired entities in 1997. The Company expects that its consolidation
plan will be completed in 1998.
The following table reflects unaudited condensed pro-forma information for the
years ended December 31, 1997 and 1996, as if each of the above companies had
been acquired on January 1, 1997 and 1996, respectively.
1997 1996
Net Sales $ 48,795 $76,505
Loss from operations (40,271) (1)
Net loss (42,896) (3,193)
Loss per common share (basic and
diluted) $ (16.44) $ (2.65)
9. SERIES A REDEEMABLE, CONVERTIBLE PREFERRED STOCK
In connection with the acquisition of Armour, 100,000 shares of Series A
Redeemable Convertible Preferred Stock ("Preferred Stock") were issued.
The Preferred Stock is entitled to cumulative dividends at 6% per annum
commencing 120 days from the issuance of the Preferred Stock for the first year
after issuance, 7.5% per annum for the second year after issuance and 9% per
annum thereafter, subject to certain increases if the Company is unable to
comply with obligations to register the stock with the Securities and Exchange
Commission. The Preferred Stock is convertible into shares of common stock at
any time at the rate of $7.50 per share, subject to certain adjustments. The
Preferred Stock is mandatorily redeemable by the Company, in part from any
proceeds from sale of debt or equity securities, and any remaining shares
outstanding on November 10, 2002, at $100 per share, subject to adjustments
under certain conditions. In addition, the Company may, at its option, subject
to certain restrictions, redeem any or all of the outstanding shares of
Preferred Stock at $100 per share.
F-13
<PAGE>
10. STOCKHOLDERS' DEFICIENCY
In April 1996, in consideration of the Company's Chief Executive Officer's
(CEO) agreement to loan the Company up to $300 and to guarantee a bank loan
outstanding at that time, the CEO was issued 416,667 shares of common stock.
In December, 1996, the Company completed its initial public offering ("IPO") 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 on December 19,
2001. The Company may redeem the warrants at $.01 per warrant, subject to
certain terms.
In connection with the IPO, an aggregate of $1,114 of stockholders' notes and
accrued interest was contributed to capital in excess of par value.
In connection with the acquisition of Armour, 175,000 shares of common stock
were issued (See Note 8).
In connection with the acquisition of Ram, 187,357 shares of common stock and
warrants to purchase 50,000 shares of common stock at $6.625 per share, which
expire on December 29, 2002, were issued (See Note 8).
In connection with the acquisition of Pro Golf Promotions, 50,000 shares of
common stock were issued and options to purchase 25,000 shares of common stock
at a price of $4.50 per share were granted. In addition, the Company has agreed
to issue up to 50,000 additional shares, such issuance being dependent on the
performance of the acquired operations in 1998 and 1999 (See Note 8).
During 1997, the Company issued additional shares, as follows:
a. On January 24, 1997, 187,500 shares were sold at $4.50 per share as
the Company's underwriters exercised their over-allotment option;
b. On May 16, 1997, the Company issued 5,000 shares of Common Stock in
connection with an endorsement contract with a professional golfer.
The fair value of such shares, determined using the Black-Scholes
option Pricing Model, are included in selling, general and
administrative expense.
c. On August 16, 1997, the Company sold 50,000 shares of common stock
for $.01 per share, and issued to the purchaser, a consultant to the
Company, an option to purchase an additional 100,000 shares at
prices ranging from $3.00 to $5.00 per share, exercisable from
January 18, 1998 to August 18, 1999. The fair value of such shares
and options, determined using the Black-Scholes option Pricing
Model, are included in selling, general and administrative expense.
F-14
<PAGE>
11. STOCK OPTIONS
In 1996, the Company adopted the TearDrop Golf Company Stock Option Plan
("Plan") providing for the issuance of up to 200,000 shares of common stock for
incentive stock options ("ISOs") and non-qualified stock options ("NQSOs"). 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. At December 31, 1996 no options were granted under the Plan. In 1997, the
Company granted various ISOs to employees to purchase up to 357,600 shares of
common stock of the Company at prices ranging from $2.50 to $6.88 per share, and
options vest ratably over three years. The options expire five years from the
date of grant.
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 on October 20, 2001.
On December 6, 1997, in recognition of services rendered in 1997, the Company
granted options (outside the Plan) to the Company's CEO to acquire 250,000
shares of the Company's common stock at $4.625 per share, vesting six months
from the date of grant and expiring in 10 years. The Company recorded
compensation expense in 1997 of $438, representing the difference between the
exercise price and the fair value of the stock on the date of grant.
The Company has reserved 250,000 shares of common stock (outside the Plan) to be
issued to touring golf professionals based upon their performance. As of
December 31, 1997, options to purchase 29,100 shares of common stock had been
granted to touring professionals at various dates in 1997 at $4.75 per share,
exercisable immediately and expiring five years from date of grant. The Company
has recorded compensation expense of $97 for such grants representing the fair
value of the options on the date of grant.
On January 1, 1998, the Company granted additional options to touring
professional golfers to purchase up to 63,500 shares of common stock at $4.75
per share, exercisable immediately and expiring on December 31, 2002. The
Company plans to record a charge for the fair value of such options in 1998.
The following table summarizes the activity for stock options during 1996 and
1997 including the weighted average exercise price:
F-15
<PAGE>
Under the Plan Outside the Plan
Shares Price Shares Price
Outstanding, January 1, 1996 -- --
------- -------
Option granted during 1996 -- 388,200 $5.45
------- -------
Outstanding December 31, 1996 -- 388,200 $5.45
Options granted during 1997 357,600 $6.06 410,100 $4.48
Options exercised -- -- -- --
Options expired or cancelled 23,900 $4.75 -- --
------- -------
Outstanding December 31, 1997 333,700 $6.83 798,300 $4.95
The following table summarizes information concerning outstanding options at
December 31, 1997:
Weighted Average
Range of Options Remaining
Exercise Outstanding Contractual Current
Prices Life (years) Exercisable
$2.50-3.00 70,500 5 6,800
$4.50-5.00 695,100 6.7 128,000
$6.88-7.43 366,400 5 128,000
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 Option 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 issued to employees 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
issued to employees 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:
1997 1996
Net loss:
As reported $9,149 $ 910
Pro forma 9,529 1,488
Loss per share, basic and diluted:
As reported $ 4.10 $ 1.15
Pro forma 4.27 1.88
F-16
<PAGE>
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 1997 and 1996, as follows:
1997 1996
Fair value of options granted
Above market at date of grant $3.24 --
At market at date of grant 3.73 $2.30
Below market at date of grant 5.18 --
Expected stock price volatility 114% 50%
Expected dividend yield 0% 0%
Risk free interest rate 5.71% 6%
Expected life of options 4 years 5 years
12. MAJOR CUSTOMERS, SUPPLIERS AND EXPORT SALES
During the year ended December 31, 1997, the Company derived approximately
$3,600 of its net sales from one customer, and for the year ended December 31,
1996, approximately $179 from two customers.
During the years ended December 31, 1997 and 1996, approximately 5% and 36% of
the Company's sales were export sales.
During the year ended December 31, 1997, the Company purchased approximately
$732 from one supplier, and during the previous year, purchased approximately
$182 from two suppliers.
13. EMPLOYEE BENEFIT PLANS
The Tommy Armour Golf Company, acquired in November, 1997, had a defined benefit
pension plan covering substantially all of its U. S. employees and a 401(k)
defined contribution plan. Under the pension plan, benefits were based primarily
on years of credited service and compensation as defined under the respective
plan provisions.
The Company plans to suspend the pension plan and freeze benefits to those
vested participants at the date of the transfer of the plan and its assets from
Armour's previous parent to the Company.
Assumptions used in the accounting for the Armour defined benefit plan, for
their fiscal year ended September 30, 1997, were as follows:
F-17
<PAGE>
Weighted average discount rate - 7.5%
Rate of increase in compensation levels - 4.5%
Expected long-term rate of return on assets - 9.0%.
The pension expense from the date of acquisition was not material. The funded
status and amounts recognized in the balance sheet for the Company at December
31, 1997 are as follows:
Actuarial present value of benefit obligations
Vested benefit obligation $2,257
Nonvested benefit obligation 178
------
Accumulated benefit obligation $2,435
Projected benefit obligation $3,670
Plan assets at fair value 2,990
------
Projected benefit obligation in excess of plan assets,
accrued at December 31, 1997 $ 680
The Company made no matching contributions to the 401(k) plan for the year ended
December 31, 1997.
Pension and other employee benefits of the Company's foreign subsidiaries are
primarily provided by government sponsored plans and are being accrued currently
over the period of active employment. The costs of such plans are not
significant.
14. INCOME TAXES
There were no provisions for income taxes during the years ended December 31,
1997 and 1996, due to net operating losses incurred during those periods. The
reconciliation of the income tax benefit computed at the federal statutory rate
of 34% and the provision for income taxes, is as follows:
1997 1996
Income tax benefit computed at statutory rate (34.0%) (34.0%)
Surtax exemption 5.3%
State income tax benefit at statutory rate, net
of federal tax benefit (4.7%) (3.3%)
Valuation allowance against net deferred tax asset 38.7% 32.0%
----- -----
F-18
<PAGE>
Provision for income taxes -- --
There was no current income tax expense for the years ended December 31, 1997
and 1996, due to the company incurring net operating losses for tax purposes
during each of those two years. No deferred taxes have been reflected in the
consolidated statements of operations because the Company has fully reserved the
tax benefit of net deductible temporary differences and operating loss carry
forwards due to the fact that the likelihood of realization of the tax benefits
cannot be established. The Company did not pay any income taxes during the years
ended December 31, 1997 and 1996.
Deferred tax assets are as follows:
1997 1996
Net operating loss carry forwards $ 3,018 $ 45
Allowance for doubtful accounts 663 17
Accrued expenses 1,058
Restructuring reserves 3,715
Other 110
------- ----
8,564 62
Valuation allowance (8,564) (62)
------- ----
Net deferred tax assets -- --
At December 31, 1997, the Company has cumulative net operating loss
carryforwards expiring between 2011 and 2012 for U.S. federal income tax
purposes of approximately $7,544. Net operating loss carry forwards are also
available for state income tax purposes.
15. COMMITMENTS AND CONTINGENCIES
The Company has entered into endorsement agreements with touring golf
professionals for periods up to three years. The agreements typically provide
for a base compensation and bonuses based upon, among other things, tournament
performances, standings on the official money list and earning spots on Ryder or
President Cup teams.
Minimum compensation requirements for the years ending December 31, 1998, 1999
and 2000, are approximately $1,900, $1,300 and $1,300, respectively.
In conjunction with these agreements, the Company granted options in 1997
(outside the Plan) to acquire an aggregate of 29,100 shares of the Company's
common stock at $4.75 per share, vesting immediately, and expiring five years
from date of grant.
F-19
<PAGE>
In 1998, the Company has granted options (outside the Plan) to acquire an
additional 63,500 shares of the Company's common stock at $4.75 per share and,
has made available additional options as bonuses, based on tournament
performances and money list standings.
The Company entered into a five year lease agreement for its New Jersey facility
in September 1997. Following the acquisition of Armour, the operations in New
Jersey were relocated to the Armour facility. The Company is actively seeking to
sublet these premises. Minimum annual rental under the lease agreement is $75,
$77, $80, $82, and $57 for the five year period December 31, 1998 through 2002,
respectively.
Rent expense for the years ended December 31, 1997 and 1996 are $134 and $45,
respectively.
In September 1996, the Company entered into an advertising agreement for which
the Company received media advertising valued at approximately $101, in exchange
for golf clubs of the same value.
The Company entered into a two year advertising agreement aggregating
approximately $770. Advertising expense under this agreement was $320 for the
year ended December 1997. For 1998, the Company is committed for approximately
$450 of expense.
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, 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. In March, 1998, the agreement was amended and now provides
for annual compensation of $250 for the years ending December 31, 1998 and 1999.
On November 18, 1996, the Company entered into an agreement for the production
of an informercial that began airing in 1997. The agreement provided for a fee
of $133, 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 which was paid in 1997 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 terminated on February 28, 1997,
and was extended for ten months for an additional payment of $25.
The Company has been named, among others, as a defendant in a lawsuit seeking
damages of $12,000. The Company believes that the lawsuit is without merit and
will defend it vigorously. Accordingly, no reserve has been established in this
connection.
F-20
<PAGE>
TOMMY ARMOUR GOLF COMPANY
AND AFFILIATES
FINANCIAL STATEMENTS
SEPTEMBER 30, 1997, 1996 AND 1995
F-21
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
----
Report of independent accountants F-23
Combined statements of operations for the fiscal
years ended September 30, 1997, 1996 and 1995 F-24
Combined balance sheets at September 30, 1997 and 1996 F-25
Combined statements of changes in invested capital of Parent for
the years ended September 30, 1997, 1996 and 1995 F-26
Combined statements of cash flows for the fiscal years ended
September 30, 1997, 1996 and 1995 F-27
Notes to combined financial statements F-28
F-22
<PAGE>
Report of Independent Accountants
To the Boards of Directors and Shareholders of
Tommy Armour Golf Company and Affiliates
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in invested capital of Parent and
of cash flows present fairly, in all material respects, the financial position
of Tommy Armour Golf Company and its affiliates at September 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Chicago, Illinois
January 8, 1998
F-23
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
For the fiscal years ended
September 30,
1997 1996 1995
-------- -------- --------
Net sales (Note 9) $ 31,992 $ 56,244 $ 43,411
Cost of products sold (Note 9) 26,647 28,996 21,361
-------- -------- --------
Gross profit 5,345 27,248 22,050
Selling, general and administrative
expenses (Note 9) 34,488 24,772 20,977
Research and development expenses 878 380 282
Management fees to affiliate -- -- 614
Amortization of goodwill -- -- 312
Goodwill impairment -- -- 12,939
-------- --------
Operating income (loss) (30,021) 2,906 (13,074)
Interest expense to affiliate (2,234) (2,606) (1,222)
Other income (expense), net 840 (2) (17)
-------- -------- --------
Loss before income taxes (31,415) (512) (14,313)
Income tax benefit (12,326) (113) (294)
-------- -------- --------
Net loss $(19,089) $ (399) $(14,019)
======== ======== ========
See notes to combined financial statements.
F-24
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED BALANCE SHEETS
(in thousands)
At September 30,
1997 1996
-------- --------
ASSETS
Current assets:
Cash $ 483 $ --
Trade receivables, net 4,842 16,292
Inventories, net 19,355 5,361
Other current assets 392 363
-------- --------
Total current assets 25,072 22,016
-------- --------
Property, plant and equipment, net 3,998 3,422
-------- --------
$ 29,070 $ 25,438
LIABILITIES AND INVESTED CAPITAL OF PARENT
Current liabilities:
Trade accounts payable $ 1,913 $ 5,065
Accrued expenses and other liabilities 4,855 4,086
-------- --------
Total current liabilities 6,768 9,151
-------- --------
Long-term debt due to Parent 33,096 33,096
Other liabilities 766 612
-------- --------
40,630 42,859
Commitments and contingencies -- --
Invested capital of Parent (11,826) (17,524)
Translation adjustment 266 103
-------- --------
(11,560) (17,421)
-------- --------
$ 29,070 $ 25,438
======== ========
See notes to combined financial statements.
F-25
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN INVESTED CAPITAL OF PARENT
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(in thousands)
Invested Capital
of Parent
Balance, September 30, 1994 $ 28,825
Net loss (14,019)
Net transfers to Parent (921)
Dividend (29,428)
--------
Balance September 30, 1995 (15,543)
Net loss (399)
Net transfers to Parent (1,582)
--------
Balance, September 30, 1996 (17,524)
Net loss (19,089)
Net transfers from Parent 24,787
--------
Balance, September 30, 1997 $(11,826)
========
See notes to combined financial statements.
F-26
<PAGE>
TOMMY ARMOUR GOLF COMPANY AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the fiscal years ended
September 30,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(19,089) $ (399) $(14,019)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 458 398 733
Pension expense 152 221 306
Goodwill impairment -- -- 12,939
Changes in operating assets and liabilities:
Trade receivables, net 11,450 (7,631) 2,711
Inventories (13,994) 5,124 (67)
Other current assets (29) (128) (154)
Trade accounts payable (3,152) 3,578 (822)
Accrued expenses and other liabilities 771 1,277 (368)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (23,433) 2,440 1,259
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (1,226) (1,010) (424)
Disposals of property, plant and equipment 192 19 --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,034) (991) (424)
CASH FLOWS FROM FINANCING ACTIVITIES -
Net cash transfers from (to) Parent 24,787 (1,582) (921)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 24,787 (1,582) (921)
Effect of exchange rate changes on cash 163 20 120
-------- -------- --------
INCREASE (DECREASE) IN CASH 483 (113) 34
Cash at beginning of year -- 113 79
-------- -------- --------
Cash at end of year $ 483 $ -- $ 113
======== ======== ========
</TABLE>
See notes to combined financial statements.
Payments for interest and income taxes are reflected as a component of net cash
transfers from (to) Parent. Due to the Company's cash management arrangement
with its Parent, such payments cannot be specifically identified.
During the fiscal year ended September 30, 1993 the Company declared a dividend
payable to USI of $29,428, which resulted in the execution of a promissory note
as opposed to a cash payment. See Note 8.
F-27
<PAGE>
Notes to Combined Financial Statements
NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
The accompanying combined financial statements of Tommy Armour Golf Company and
Affiliates (the "Company") include the accounts of Tommy Armour Golf Company,
Tommy Armour Golf Scotland, Ltd. and Tommy Armour Golf Canada, which are
indirect wholly-owned subsidiaries of U.S. Industries, Inc. ("USI"). The Company
was affected by a series of transactions executed May 31, 1995 and June 5, 1995
through which all of the interest in the Company was transferred from Hanson
PLC, a U.K. registered company ("Hanson") or its subsidiaries to U.S.
Industries, Inc., a wholly-owned subsidiary of Hanson (the "Demerger").
For the period prior to the Demerger, the financial statements include
management fees and related party charges that were paid by the Company to a
Hanson affiliate. For the period subsequent to the Demerger, related party
charges were paid by the Company to a USI affiliate. See Note 3 for a further
description of the related services provided to the Company.
The Company was acquired in prior years under transactions accounted for as
purchases. The allocation of acquisition costs has been pushed down in the
accompanying combined financial statements to reflect the assets and liabilities
of the companies at fair value at the dates of acquisition. All significant
intercompany transactions and balances (within the Company) have been eliminated
in combination.
The Company manufactures and distributes Tommy Armour brand golf woods, irons
and putters. The Company also distributes golf gloves and golf bags. Golf
specialty stores and golf course pro shops are the principal markets.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, net of allowances for obsolescence, are valued at the lower of
cost, as determined under the first-in, first-out (FIFO) method, or market
value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less allowance for
depreciation. Depreciation is computed on a straight line basis at rates based
on estimated useful lives which range from 3 to 40 years.
F-28
<PAGE>
Goodwill
Goodwill represents the excess of the Company's allocated acquisition cost over
the fair value of the net assets acquired and is being amortized using the
straight-line method over forty years. Goodwill is assessed for recoverability
based on the fair value methodology. As discussed in Note 9, the fiscal year
ended September 30, 1995 included in a charge of $12,939 to reflect permanent
goodwill impairment.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the applicable
local currency. Assets and liabilities of foreign subsidiaries are translated at
the exchange rates in effect at the balance sheet dates, while revenue, expenses
and cash flows are translated at average exchange rates for the period.
Income Taxes
For federal and state income tax purposes, taxable income of the Company was
included in the consolidated income tax returns of Hanson prior to the Demerger
and USI subsequent to the Demerger. Income tax expense has been provided herein
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," as if the Company had filed separate federal and
state income tax returns. The assets and liabilities for current and deferred
income taxes have been recognized as a component of Invested Capital of Parent
in the accompanying financial statements.
Revenue Recognition
Revenue is recognized upon shipment of product to the customer. The Company
warrants certain products against defects and has policies permitting the return
of products under certain circumstances. Provisions are made for these costs at
the time of sale.
Advertising Costs
Advertising costs are expensed as incurred. Such costs amounted to $10,934,
$7,442, and $5,494 for the years ended September 30, 1997, 1996 and 1995,
respectively.
F-29
<PAGE>
Fair Value of Financial Instruments
The carrying value of short-term financial instruments is a reasonable estimate
of their fair value due to their imminent maturity. The fair values of long-term
notes payable are based on terms that continue to be available to the Company
from USI at the date of the financial statements. Accordingly, book values
approximate fair values.
Invested Capital of Parent
All intercompany balances with USI and Hanson affiliates, except for long-term
notes payable, are included within the Invested Capital of Parent caption in the
accompanying combined financial statements. Except for certain cash balances
controlled at the Company level, cash accounts have been controlled on a
centralized basis by USI or Hanson affiliates. Accordingly, cash receipts and
disbursements have been received or made through USI or Hanson affiliates,
resulting in net adjustments to the Company's Invested Capital of Parent.
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 dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Estimates are used when accounting for the allowance for doubtful accounts,
reserve for returns, inventory obsolescence, long-lived assets, product warranty
expenses, employee benefit plans, income taxes and contingencies. It is
reasonably possible that actual results could differ significantly from those
estimates and significant changes to estimates could occur in the near term.
Earnings Per Share
Since there is no separate capitalization of the Company upon which a per share
calculation can be based, historical per share data has not been presented in
the accompanying financial statements.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to September 30 and
reflects 52-week or 53-week periods. All fiscal years have been designated as
ending on September 30 for convenience of reference.
F-30
<PAGE>
NOTE 3 - TRADE RECEIVABLES, NET
At September 30,
1997 1996
Trade receivables $10,561 $18,545
Reserve for returns and allowances (4,443) (1,129)
Allowance for doubtful accounts (1,276) (1,124)
------- -------
$ 4,842 $16,292
======= =======
NOTE 4 - INVENTORIES, NET
At September 30,
1997 1996
Finished products $11,248 $1,452
In-process products 5,441 1,560
Raw materials 5,859 2,652
Obsolescence reserve (3,193) (303)
------- -------
$19,355 $5,361
======= ======
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
At September 30,
1997 1996
Land and buildings $ 4,104 $ 3,752
Machinery and equipment 2,862 2,302
Furniture and fixtures 1,259 1,137
------- -------
8,225 7,191
Less: allowance for depreciation (4,227) (3,769)
------- -------
$ 3,998 $ 3,422
======= =======
Depreciation expense for the years ended September 30, 1997, 1996 and 1995 was
$458, $398 and $421, respectively.
F-31
<PAGE>
NOTE 6 - ACCRUED EXPENSES AND OTHER LIABILITIES
At September 30,
1997 1996
------ ------
Payroll and related benefits $3,365 $2,054
Sales promotion 265 625
Warranty 388 388
Real estate taxes 150 162
Advertising 202 447
Legal and professional 292 313
Other 193 97
------ ------
$4,855 $4,086
====== ======
NOTE 7 - PENSION PLANS
Domestic Benefit Plans
The Company has a defined benefit pension plan covering substantially all its
U.S. employees. Pension benefits under the plan are based primarily on years of
credited service and compensation as defined under the respective plan
provisions. The Company's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974, plus such additional amounts as the
Company may determine to be appropriate from time to time.The Company also
sponsors a defined contribution plan. Contributions relating to the defined
contribution plan are made based upon the plan's provisions.
Net period pension cost for U.S. pension plans included the following
components:
For the fiscal years ended
September 30,
1997 1996 1995
----- ----- -----
Defined benefit plan:
Service cost $ 586 $ 546 $ 573
Interest cost 199 149 127
Actual return on plan assets (589) (235) (177)
Net amortization and deferral 314 99 65
----- ----- -----
Net period pension cost
for defined benefit plans 510 559 588
Defined contribution plans 106 120 93
----- ----- -----
Total pension expense $ 616 $ 679 $ 681
Assumptions used in the accounting for the defined benefit plans were as
follows:
For the fiscal years ended
September 30,
1997 1996 1995
------ ------ ------
Weighted average discount rate 7.5% 7.75% 7.75%
Rates of increase in compensation levels 4.5% 4.5% 4.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
F-32
<PAGE>
The funded status and amounts recognized in the combined balance sheets for the
Company's U.S. defined benefit pension plan was as follows:
At September 30,
1997 1996
---- ----
Actuarial present value of benefit
obligations
Vested benefit obligation $ 2,257 $ 1,426
Nonvested benefit obligation 178 172
------- -------
Accumulated benefit obligation $ 2,435 $ 1,598
======= =======
Projected benefit obligation $ 3,670 $ 2,596
Plan assets at fair value (2,990) (2,148)
------- -------
Projected benefit obligation in
excess plan assets 680 448
Unrecognized prior service cost (148) (195)
Unrecognized net gain 193 320
------- -------
Accrued pension costs $ 725 $ 573
======= =======
Foreign Benefit Arrangements
Pension and other employee benefits of the Company's foreign subsidiaries are
primarily provided by government sponsored plans and are being accrued currently
over the period of active employment. The costs of such plans are not
significant.
NOTE 8 - RELATED PARTY TRANSACTIONS
USI and Hanson affiliates have provided certain management, legal, employee
benefit and accounting services to the Company. In 1995, Hanson charged the
Company a management fee for services rendered. This charge did not necessarily
approximate costs which might have been incurred if the Company was on a
stand-alone basis. Management fee charges amounted to $614 for the year ended
September 30, 1995. The Company was not charged for these services in the years
ended September 30, 1997 and 1996.
Prior to the Demerger, the Company had executed a promissory note with Hanson in
the amount of $3,439, with interest at the rate of 10 percent per annum. In
connection with the Demerger, Hanson affiliates received payment for their
entire investment in the Company, which included the long-term debt of $3,439
and accrued interest through the Demerger totaling $229. Subsequent to the
Demerger, the Company executed promissory notes with a USI affiliate totaling
$33,096, $29,428 for a dividend declaration to a USI affiliate and $3,668 for
the repayment of the Hanson note and accrued interest. These notes mature on
September 15, 2005, with an interest rate of 9 percent per annum through
December 31, 1995, at which time they were amended to accrue interest at a rate
of 7.5 percent per annum. Interest expense relating to the notes with USI and
Hanson affiliates totaled $2,234, $2,606 and $1,222 for the years ended
September 30, 1997, 1996, and 1995, respectively.
During the years ended September 30, 1997 and 1996, the manufacturing and
certain sales, general, administrative, distribution and research and
engineering expenses of the Company were shared with Odyssey Golf, Inc.
(Odyssey), formerly a wholly-owned subsidiary of the Company which was sold in
August, 1997. Accordingly, certain allocations have been made between the
Company and Odyssey which may not be indicative of actual expenses if they were
stand-alone operations for the periods presented. Such allocations were made on
various bases which, in the opinion of management, are reasonable in the
circumstances.
NOTE 9 - PRODUCT LAUNCH EXPENSES
During fiscal 1997, the Company incurred substantial costs in connection with
the launch of a new line of titanium irons, including increased advertising,
tour, promotional, research and development and engineering costs. In addition,
production substantially exceeded the ultimate demand for the new irons, as the
product launch did not meet management's expectations.
F-33
<PAGE>
In connection with the launch of the titanium irons and with the sale of
Odyssey, in the fourth quarter of fiscal 1997, the Company recorded charges
totaling $9,872 including severance, write-downs of tour contracts, inventory
obsolescence, sales markdowns and other charges to reflect the above events.
These charges are included in the following accounts in the Combined Statements
of Operations:
Net sales $4,100
Cost of products sold 2,799
Selling, general and
administrative expenses 2,973
------
$9,872
======
NOTE 10 - GOODWILL IMPAIRMENT
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is amortized using the straight-line method over forty
years. The Company periodically assesses the carrying value of recorded goodwill
to determine if there are indications that its carrying value may be impaired.
The fair value methodology is used by the Company to ascertain the
recoverability of its carrying value, when there are indications of impairment.
In the event that such fair value is below its carrying value, the Company
writes off goodwill to the extent indicated by the analysis.
The fair value methodology is applied to determine the recoverable value of the
Company using ranges of fair value obtained from independent appraisers. In
developing these ranges, the independent appraisers consider (a) publicly
available information, (b) financial projections, (c) the future prospects of
the Company as discussed with senior operating and financial management, (d)
publicly available information regarding comparable publicly traded companies,
(e) market prices, capitalizations and trading multiples of comparable public
companies and (f) other information deemed relevant. In reviewing these
valuations and considering the need to record a charge for impairment of
enterprise value and goodwill to the extent it is part of the enterprise value,
the Company also evaluates solicited and unsolicited bids for the Company.
As a result of the above policy, the Company recorded a pre-tax charge of
$12,939 in the fiscal year ended September 30, 1995 to reflect its assessment of
permanent goodwill impairment.
F-34
<PAGE>
NOTE 11 - INCOME TAXES
The company's effective income tax benefit differs from the statutory federal
income tax benefit as follows:
For the fiscal years ended
September 30,
1997 1996 1995
-------- -------- --------
Income tax at federal statutory rate $(10,996) $ (179) $ (5,051)
State income taxes (net of federal benefit) (1,409) (13) (34)
Goodwill amortization -- -- 183
Goodwill impairment -- -- 4,529
Other 79 79 79
-------- -------- --------
$(12,326) $ (113) $ (294)
======== ======== ========
NOTE 12- EXPORT SALES
Export sales for the years ended September 30, 1997, 1996 and 1995 were $6,088,
$4,144 and $4,531, respectively, including $4,035, $2,424 and $2,571,
respectively, to customers in Japan and Korea.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that have arisen in the
normal course of business, including those relating to commercial transactions,
product liability and environmental matters. It is management's opinion, based
on the advice of counsel, that the ultimate resolution of such litigation will
not have a material adverse effect on the Company's financial position or
results of operations.
NOTE 14 - SUBSEQUENT EVENT
Pursuant to an asset purchase agreement dated October 31, 1997, the Company sold
substantially all of its assets and liabilities to TearDrop Golf Company
("TearDrop"). In consideration, TearDrop agreed to issue the Companys'
shareholders one million shares of TearDrop's common stock, and 100,000 shares
of TearDrop's preferred stock with a redemption value of $10,000,000. TearDrop
also paid the Company's shareholders $10,000,000 cash. The cash portion of the
purchase price is subject to adjustment based upon the difference between the
Final Net Worth and the Target Net Worth (both terms as defined in the asset
purchase agreement). The common stock portion of the purchase price is subject
to adjustment based on the price of TearDrop's common stock on the closing date.
F-35
<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 14
Use of Proceeds 15
Price Range of Securities 16
Capitalization 17
Dividend Policy 17
Management's Discussion and Analysis of Financial Condition and Plan
of Operations 19
Business 25
Management 36
Principal Stockholders and Selling Security Holders 41
Certain Transactions 42
Description of Securities 45
Shares Eligible for Future Sale 48
Plan of Distribution 48
Legal Matters 50
Experts 50
Available Information 50
Index to Consolidated Financial Statements F-1
<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
========
i
<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 Aggregate
Transaction and Offering
Date Purchasers Securities Sold Price per Share Price
- - --------------- ---------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
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
Acquisition of TearDrop Professional Golf 50,000 shares of -- --
Professional Golf Tour Promotions, LLC Common Stock
Issuance of shares in T.A. Acquisition Corp 100,000 shares -- --
connection with Series A Redeemable
acquisition of Preferred Stock,
Tommy Armour Golf 175,000 shares of
Company, November 1997 Common Stock
Issuance of shares in JRH Golf Corporation 187,357 shares of
connection with Common Stock -- --
acquisition of RAM Golf
Company, December 1997
Issuance of shares to Millenium Holdings 50,000 shares of $4.00 $200,000
a consultant, April 1998 Group Inc. Common Stock
</TABLE>
The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.
Item 27. Exhibits
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
3.5* Certificate of Designation of Series A Cumulative Convertible
Preferred Stock
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
ii
<PAGE>
10.15+ Standard Form of Player Endorsement Agreement
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.
10.25* Asset Purchase Agreement dated as of October 31, 1997 among
Tommy Armour Golf Company, USI Canada, Inc., Tommy Armour Golf
(Scotland) Ltd., USI American Holdings, Inc., TearDrop
Acquisition Corp. and TearDrop Golf Company
10.26* Registration Statement dated as of October 31, 1997 between
TearDrop Golf Company and Tommy Armour Golf Company
10.27* Loan and Security Agreement dated as of November 10, 1997
among TearDrop Golf Company, TearDrop Acquisition Corp. and
CoreStates Bank, N.A.
10.27(a)** First Amendment to Loan and Security Agreement dated as of
January 9, 1998 among TearDrop Golf Company, Tommy Armour Golf
Company, TearDrop Ram Golf Company and CoreStates Bank, N.A.
10.28** Asset Purchase Agreement dated as of December 23, 1997 among
TearDrop Golf Company, TearDrop Ram Golf Company, Ram Golf
Corporation and Ram Golf UK, Ltd.
10.29** Registration Agreement dated as of December 29, 1997 between
TearDrop Golf Company and Ram Golf Corporation
10.30** Warrant dated December 29, 1997 made by TearDrop Golf Company
in favor of Ram Golf Corporation
10.31*** Settlement Agreement dated March 31, 1998 among TA Liquidation
Corp., formerly known as Tommy Armour Golf Company, Tommy
Armour Golf (Scotland) Ltd., and USI Canada, Inc.; USI
American Holdings, Inc., and Tommy Armour Golf Company,
formerly known as TearDrop Aquisition Corp. and TearDrop
Golf Company.
16**** Letter from Rothstein, Kass & Company, P.C. to the Commission
dated March 2, 1998
21*** Subsidiaries of the Registrant
24.1 Consent of Ernst & Young LLP
24.2 Consent of Rothstein, Kass & Company, P.C.
24.3 Consent of Price Waterhouse
- - ----------
+ 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.
* Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on November 26, 1997
and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on January 13, 1998
and incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Report on Form 10-KSB filed on April 6, 1998.
**** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on March 4, 1998 and
incorporated herein by reference.
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.
iii
<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,
onApril 15, 1998.
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 Executive
- - --------------------- Officer and Director
Rudy A. Slucker (Principal Executive Officer) April 15, 1998
/s/ Joseph Cioni Chief Financial Officer
- - --------------------- (Principal Financial and
Joseph Cioni Accounting Officer) April 15, 1998
* Director April 15, 1998
- - ---------------------
Fred K. Hochman
* Director April 15, 1998
- - ---------------------
Leslie E. Goodman
* Director April 15, 1998
- - ---------------------
Bruce Nagel
Director April 15, 1998
- - ---------------------
Jeffrey Baker
Director April 15, 1998
- - ---------------------
John Raos
*
- - ---------------------
Rudy Slucker,
as Attorney-in-Fact
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 31, 1998, in Post-Effective Amendment No. 2 to the
Registration Statement (Form SB-2 No. 333-14647) and related Prospectus of
TearDrop Golf Company for the Registration of 1,687,500 shares of common stock
and 125,000 redeemable common stock purchase warrants.
ERNST & YOUNG LLP
Chicago, Illinois
April 15, 1998
[LETTERHEAD OF ROTHSTEIN, KASS & COMPANY, P.C.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this post-effective Amendment No. 2 to Form SB-2
of TearDrop Golf Company (File No. 333-14647) of our report dated January 31,
1997, on our audit of operations, stockholders' equity, and cash flows of
TearDrop Golf Company for the year ended December 31, 1996. We also consent to
the reference to our firm under the caption "Experts."
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 14, 1998
EXHIBIT 24.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated January 8, 1998,
relating to the combined financial statements of Tommy Armour Golf Company,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
- - ------------------------
PRICE WATERHOUSE LLP
Chicago, Illinois
April 15, 1998
