SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
TEARDROP GOLF COMPANY
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
TEARDROP GOLF COMPANY
------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
| | $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a6(i)(2) or Item
22(a)(2) of Schedule 14A.
|_| $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and O-11.
1) Title of each class of securities to which transaction applies:
N.A.
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2) Aggregate number of securities to which transaction applies:
N.A.
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11: (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N.A.
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4) Proposed maximum aggregate value of transaction:
N.A.
-----------------------------------------------------------------------
5) Total fee paid:
N.A.
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|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_____________________________________________________
2) Form, Schedule or Registration Statement No.:_______________________________
3) Filing Party:_______________________________________________________________
4) Date Filed:_________________________________________________________________
<PAGE>
TEARDROP GOLF COMPANY
1080 Lousons Road
Union, New Jersey 07083
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 9, 1998
----------------------------------------
The 1998 Annual Meeting of the Stockholders of TearDrop Golf Company (the
"Company") will be held at the Company's offices at 8350 North Lehigh Avenue,
Morton Grove, Illinois 60053 on June 9, 1998 at 2:00 p.m., central time for the
following purposes:
(1) To elect six directors to hold office for a term of one year or until
their successors have been duly elected and qualified.
(2) To approve an amendment to the 1996 Employee Stock Option Plan to
increase the number of shares reserved for issuance under such plan.
(3) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 28, 1998 as the
record date for determining the stockholders entitled to notice of and to vote
at the meeting and any adjournment thereof.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
ALL STOCKHOLDERS ARE ASKED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY BY MAIL IN THE ENCLOSED SELF-ADDRESSED ENVELOPE, WHICH DOES
NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
Joseph Cioni
Secretary
May 11, 1998
Union, New Jersey
<PAGE>
TEARDROP GOLF COMPANY
1080 Lousons Road
Union, New Jersey 07083
----------------------------------
PROXY STATEMENT FOR ANNUAL MEETING
----------------------------------
This Proxy Statement is furnished by the Board of Directors (the "Board of
Directors") of TearDrop Golf Company, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies to be used at the Annual Meeting of
Stockholders (the "Meeting") to be held on June 9, 1998 at the Company's offices
at 8350 North Lehigh Avenue, Morton Grove, Illinois 60053 at 2:00 p.m., central
time, and at any adjournment thereof. This Proxy Statement and the accompanying
Annual Report, Notice and Proxy are being mailed to stockholders on or about
May 12, 1998. The principal executive offices of the Company are located at the
address indicated above.
Only stockholders of record at the close of business on the record date,
April 28, 1998 (the "Record Date"), will be entitled to vote at the Meeting and
at all adjournments thereof.
On the Record Date, there were outstanding and entitled to vote 2,740,857
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"). Each outstanding share of Common Stock is entitled to one vote on each
matter to be voted upon. A majority of the shares of Common Stock entitled to
vote at the Meeting will constitute a quorum for the transaction of business.
Holders of Common Stock have no cumulative voting rights.
VOTING OF PROXIES
If a proxy is properly signed by a stockholder and is not revoked, the
shares represented thereby will be voted at the Meeting in the manner specified
on the proxy, or if no manner is specified with respect to any matter therein,
such shares will be voted by the person designated therein (with respect to the
matters as to which the stockholder is entitled to vote) (a) "FOR" the election
of each of Rudy A. Slucker, Fred K. Hochman, Leslie E. Goodman, Bruce H. Nagel,
Jeffrey Baker and John Raos as directors of the Company, (b) "FOR" the approval
of an amendment to the 1996 Employee Stock Option Plan to increase the number of
shares reserved for issuance under such plan, (c) "FOR" the ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending December 31, 1998, and (d) in connection with the transaction
of such other business as may properly be brought before the Meeting, in
accordance with the judgment of the person or persons voting the proxy. If any
of the nominees for director is unable to serve or for good cause will not
serve, an event that is not anticipated by the Company, the shares represented
by the accompanying proxy will be voted for a substitute nominee designated by
the Board of Directors or the Board of Directors may determine to reduce the
size of the Board.
A proxy may be revoked by the stockholder at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company, by duly executing and delivering to the Secretary of the Company a
proxy bearing a later date or by voting in person at the Meeting.
Directors of the Company will be elected by a plurality of the vote of the
outstanding shares of Common Stock present, in person or by proxy, and entitled
to vote at the Meeting. The affirmative vote of the holders of at least a
majority of the outstanding shares of Common Stock present, in person or by
proxy, and entitled to vote at the Meeting is required for the ratification and
approval of, unless otherwise required by the Delaware General Corporation Law
or the Company's Certificate of Incorporation, any and all other matters
<PAGE>
which may be put to a stockholder vote at the Meeting. Except for the election
of directors, as to any particular proposal, abstentions will have the same
effect as a vote against that proposal, and broker non-votes will not be counted
as votes for or against the proposal, and will not be included in counting the
number of votes necessary for approval of the proposal. Votes cast, either in
person or by proxy, will be tabulated by Continental Stock Transfer & Trust
Company, the Company's transfer agent.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of April 28, 1998
for (i) each person who is known by the Company to beneficially own more than 5%
of the Common 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. The information contained herein is based upon 2,740,857
outstanding shares of Common Stock and does not give effect to 1,250,000
Redeemable Common Stock Purchase Warrants ("Warrants") to purchase Common Stock
of the Company for $5.50 per share. The Company may redeem the Warrants for $.01
per Warrant upon not less than 30 days notice if certain conditions are
satisfied, which conditions have been substantially satisfied. If the Company
were to redeem the Warrants, it should be expected that the holders will
exercise the Warrants prior to the end of the notice period and additional
shares will be outstanding. The Company has not yet issued a notice of
redemption with respect to the Warrants, but may do so at any time. Unless
otherwise indicated, the address for each such person listed below is c/o
TearDrop Golf Company, 1080 Lousons Road, Union, New Jersey 07083.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ---- ----------------------------------- -------------------
<S> <C> <C>
Rudy A. Slucker 980,000(1) 30.24%
T.A. Liquidation Corp. 1,508,333(2) 37.02%
101 Wood Avenue
Iselin, New Jersey
JRH Golf Corporation 237,357(3) 8.50%
c/o James Hansburger
809 Red Stable Way
Oak Brook, Illinois
Fred K. Hochman 153,000 5.58%
Joseph Cioni 14,000(4) *
Matthew O'Toole 0(5) *
Leslie E. Goodman 10,000(6) *
Bruce H. Nagel 23,000(7) *
John Zeravica 10,000(6) *
Jeffrey Baker 10,000(6) *
John Raos 1,508,333(2) 37.02%
All directors and executive officers 2,708,333(2)(8) 58.76%
as a group (9 persons)
</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 Cumulative Convertible Preferred Stock (the
"Series A 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 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.
2
<PAGE>
(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 35,000 shares underlying options and Warrants, 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.
PROPOSAL 1. ELECTION OF DIRECTORS
At this year's Annual Meeting of Stockholders, six directors will be
elected to hold office for a term expiring at the next Annual Meeting of
Stockholders. Each director will be elected to serve until a successor is
elected and qualified or until the director's earlier resignation or removal.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voted in person or by proxy at the Meeting is required for the election of
each director. Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of each of the following nominee
directors: Rudy A. Slucker, Fred K. Hochman, Leslie E. Goodman, Bruce H. Nagel,
Jeffrey Baker and John Raos. If any of the nominee directors listed above
becomes unable to serve or for good cause will not serve, an event that is not
anticipated by the Company, (i) the shares represented by the proxies will be
voted for a substitute nominee or substitute nominees designated by the Board of
Directors or (ii) the Board of Directors may determine to reduce the size of the
Board of Directors. At this time, the Board of Directors knows of no reason why
any of the persons listed above may not be able to serve as directors if
elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF THE
NOMINEE DIRECTORS.
The name and age of each of the nominee directors, their respective
positions with the Company and the period during which each such individual has
served as a director are set forth below. Additional biographical information
concerning each of the nominee directors and executive officers of the Company
follows the table.
<TABLE>
<CAPTION>
Name Age Position with the Company Position Since
- ---- --- ------------------------- --------------
<S> <C> <C> <C>
Rudy A. Slucker 48 Chairman of the Board, President and Chief 1996
Executive Officer
Fred K. Hochman 50 Director 1992
Leslie E. Goodman 53 Director 1996
Bruce H. Nagel 45 Director 1997
Jeffrey Baker 43 Director 1996
John Raos 48 Director 1997
</TABLE>
CERTAIN BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
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
3
<PAGE>
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.
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. 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. For
more than the last five years, 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 RAOS has served as President and Chief Operating Officer and a
director of U.S. Industries, Inc. 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.
JOSEPH CIONI, age 58, 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, and again from May 1996 to August 1997, Mr.
Cioni managed his personal investments.
4
<PAGE>
JOHN ZERAVICA, age 41, 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, age 35, 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 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.
JOHN RAOS has been designated to the Board of Directors by T.A. Liquidation
Corp., a principal stockholder of the Company, pursuant to a Certificate of
Designation of Series A Cumulative Convertible Preferred Stock. Mr. Raos serves
as the President and Chief Operating Officer of U.S. Industries, Inc., the
parent corporation of T.A. Liquidation Corp.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and Nasdaq SmallCap Market. Based solely on a
review of the copies of reports furnished to the Company and written
representations from the Company's executive officers, directors and persons who
beneficially own more than ten percent of the Company's equity securities, the
Company believes that, during the preceding year, all filing requirements
applicable to its officers, directors and ten percent beneficial owners under
Section 16(a) were satisfied.
MEETINGS OF THE BOARD AND COMMITTEES
During fiscal year 1997, the Board of Directors held five meetings. Each of
the directors attended at least 75% of the aggregate of all meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board of Directors of which each respective director was a member during the
time he was serving as such during the fiscal year ended December 31, 1997.
The Board of Directors has created a Compensation Committee and an Audit
Committee. The Board of Directors has not created a Nominating or similar
Committee. The Compensation Committee is comprised of Jeffrey Baker, Leslie E.
Goodman and John Raos. The Audit Committee is comprised of Fred K. Hochman and
Leslie E. Goodman.
The Compensation Committee, which held two meetings during fiscal year
1997, has jurisdiction on behalf of the Company to approve, disapprove, modify
or amend all plans to compensate employees including bonuses. The Compensation
Committee determines the salaries of employees of the Company who are directors
and also determines the salaries of all other employees of the Company who are
officers or who occupy such other positions as may be designated by the
Compensation Committee.
The Audit Committee, which held one meeting during fiscal year 1997,
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
5
<PAGE>
with applicable auditing rules, regulations and practices, and recommends
independent auditors for the Company to be elected by the stockholders.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
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 Rudy A. Slucker, President and Chief Executive Officer of the Company.
No other executive officer of the Company earned more than $100,000 in salary
and bonus during the last fiscal year.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL 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 A. Slucker
President and Chief
Executive Officer 1997 $175,000 $50,000 (1) 250,000(2) --
1996 $ 40,000 $ 0 -- 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.
(2) Includes options to purchase 250,000 shares of Common Stock for $4.625 per
share granted on December 6, 1997. The last sale price for the Common Stock
on the Nasdaq SmallCap Market on December 5, 1997 was $6.375.
COMPENSATION ARRANGEMENTS
The Company has entered into an employment agreement with Rudy A. Slucker
which expires on December 31, 1999. Pursuant to the agreement, Mr. Slucker
serves as the Company's President and Chief Executive Officer and is paid 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 is 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
is also entitled to a cash payment equal to the greater of $250,000 and 10% of
the excess consideration over $25,000,000. Mr. Slucker is also entitled to
receive bonuses at the discretion of the Board of Directors and in accordance
with certain performance criteria. The agreement further provides that Mr.
Slucker will not engage in activities competitive with the Company for a period
of two years after the expiration of his employment agreement. In the event that
the Company terminates Mr. Slucker's employment without cause, such provision
would not apply.
During fiscal year ended December 31, 1997, Mr. Slucker received a bonus in
the amount of $50,000 and stock options covering 250,000 shares of Common Stock
for $4.625 per share in recognition of Mr. Slucker's efforts in (i) increasing
sales, (ii) obtaining widespread name recognition, and (iii) completing the
acquisitions of substantially all of the assets of Pro Golf Promotions, LLC,
Tommy Armour Golf Company and Ram Golf Corporation.
6
<PAGE>
The Company has also entered into an employment agreement with John
Zeravica. Pursuant to the agreement, Mr. Zeravica serves as Vice President of
the Company for an annual salary of $100,000. The agreement with Mr. Zeravica
may be terminated either by the Company or Mr. Zeravica upon two weeks notice.
COMPENSATION OF DIRECTORS
The Company's compensation to directors is $500 per meeting attended.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information with respect to the options to purchase Common
Stock granted to the Chief Executive Officer and the named executive officers of
the Company.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL OPTIONS MARKET PRICE
UNDERLYING OPTIONS GRANTED TO EXERCISE PRICE PER ON DATE
NAME GRANTED EMPLOYEES SHARE OF GRANT EXPIRATION DATE
- ---- ------------------- ----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Rudy A. Slucker 250,000 86.6% $4.625 $6.375 l2/5/07
</TABLE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to the exercise of options to
purchase Common Stock by the Chief Executive Officer and the named executive
officers and unexercised options to purchase shares of Common Stock granted to
the Chief Executive Officer and such named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES TO BE ACQUIRED VALUE DECEMBER 31, 1997(1) DECEMBER 31, 1997(1)
NAME ON EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------------- -------- ---------------------------- -------------------------
<S> <C> <C> <C> <C>
Rudy A. 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 SmallCap Market.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
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
7
<PAGE>
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. 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, consultants and independent contractors to the Company. The Plan is
currently administered by the entire Board of Directors of the Company. On
December 6, 1997, the Board of Directors approved the amendment of the Plan,
subject to stockholder approval at the Meeting, to increase the number of shares
reserved for issuance to 450,000 shares.
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 among
the Company and the underwriters of the Company's initial public 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 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. In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Common Stock, there shall be an
appropriate adjustment made by the Board of Directors in the number and kind of
shares that may be granted in the aggregate and to grantees under the Plan, the
number and kind of shares subject to each outstanding option and the option
prices. In March 1997, 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 two years thereafter if they are serving on the
Board of Directors at such time. Such options expire five years from the date of
grant.
CERTAIN RELATIONSHIPS AND RELATED 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 Company's 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.
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On December 31, 1994, Mr. Hochman transferred 50,000 shares of Common Stock
to Rudy A. Slucker in consideration of $1.00 and the agreement to loan the
Company $140,000 at an interest rate of 8% per annum and payable over a
three-year term. On October 1, 1995, Mr. Slucker purchased 66,666 shares from
Mr. Hochman for $1.00 and Mr. Slucker's agreement to loan additional sums to the
Company, to the extent necessary.
In April 1996, in consideration of Mr. Slucker's agreement to loan the
Company up to $300,000, and to guarantee the NationsBank loan, Mr. Slucker was
issued 416,666 shares of Common Stock. In April 1996, Mr. Slucker sold 53,333
shares of Common Stock to Mr. Hochman for $80,000, represented by a promissory
note due April 1, 1998.
From time to time through December 1996, 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 outstanding Redeemable Common
Stock Purchase Warrants (the "Warrants"). The Warrants may be redeemed by the
Company under certain conditions that have been satisfied as of the date of this
Proxy Statement. If the Company were to commence a redemption of the Warrants,
it is likely that they would be exercised and Mr. Slucker would be repaid. 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
Company's initial public offering.
On November 10, 1997, the Company, pursuant to an asset purchase agreement
(the "Tommy Armour Asset Purchase Agreement"), through its newly formed,
wholly-owned subsidiary, currently named Tommy Armour Golf Company ("Tommy
Armour"), acquired substantially all of the assets (the "Tommy Armour
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 "Tommy Armour 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 certain adjustments to the purchase price in settlement of
certain disagreements relating to post-closing adjustments. Under the agreement,
the Tommy Armour 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 Tommy Armour
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
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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 Tommy Armour 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. Accordingly, if the Company were to commence a redemption of
the Warrants, or upon an exercise of the Warrants, 70% of the net proceeds
received by the Company would be remitted to the holders of the Series A
Preferred Stock. In addition, the Company is obligated to make such redemptions
to the extent of, and if it borrows funds in excess of the amount available
under its current credit facility with CoreStates Bank, N.A. ("CoreStates").
The Company obtained funds for the Cash Payment pursuant to a Loan and
Security Agreement (the "Loan Agreement") between the Company and CoreStates.
Pursuant to the Loan Agreement, CoreStates has provided an $18 million revolving
credit facility (the "Credit Facility") to the Company to finance the Tommy
Armour Acquisition and the Company's working capital and general corporate
expenditures. The Company drew down $10 million under the Credit Facility to
fund the Tommy Armour 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 Tommy Armour
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 "Tommy Armour
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. Such registration statement
was filed on April 30, 1998.
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 "Ram Acquisition"). The Company acquired the assets for a purchase price
consisting of (i) $2,668,009 in cash (the "Ram 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 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 "Ram Warrant").
The Company obtained funds for the Ram Cash Payment pursuant to the Loan
Agreement, which was amended at the time to provide for a revolving credit
facility equal to the lesser of (i) the sum of
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65% of the Company's eligible accounts plus 65% of the Company's eligible
inventory or (ii) $25 million to the Company to finance the Ram 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 Ram
Cash Payment.
The Ram 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 "Ram
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. Such
registration statement was filed on April 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.
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PROPOSAL 2. APPROVAL OF AMENDMENT TO THE 1996 EMPLOYEE STOCK OPTION PLAN
At the Meeting, the holders of the Common Stock will be asked to vote upon
a proposal to approve an amendment to the 1996 Employee Stock Option Plan (the
"Plan") to increase by 250,000 the number of shares of Common Stock for which
options may be granted thereunder from 200,000 shares to 450,000 shares. The
Plan, as proposed to be amended, is attached as Exhibit A to this Proxy
Statement.
REASONS FOR THE PROPOSAL
Under the Plan as currently in effect, options for up to 200,000 shares of
the Common Stock may be granted. The Board of Directors has determined that it
is advisable to continue to provide stock-based incentive compensation to the
Company's officers and employees, thereby continuing to align the interests of
such employees with those of stockholders, and that awards under the Plan are an
effective means of providing such compensation. In order to effectuate the grant
of the options by the Board of Directors and to continue to grant stock-based
incentive compensation in the future, it is necessary to increase the number of
shares of Common Stock available for grant under the Plan.
DESCRIPTION OF THE PLAN AND THE PROPOSED AMENDMENTS
The following is a summary of the Plan and the proposed amendments to it
under Proposal 2. This summary does not purport to be complete, and is qualified
in its entirety by reference to the text of the Plan, which is attached as
Exhibit A to this Proxy Statement.
Purpose. The purpose of the Plan is to provide an additional incentive to
directors, key employees, independent contractors, agents and consultants of the
Company or any of its subsidiaries to aid in attracting and retaining directors,
employees, independent contractors, agents and consultants of outstanding
ability, and to align their interests with those of stockholders. The Plan
presently authorizes the granting of options of up to 200,000 shares of Common
Stock ("Options"), and if Proposal 2 is approved, up to an additional 250,000
shares of Common Stock, subject to adjustment in the event of mergers,
consolidations, reorganizations, recapitalizations, stock dividends, stock
splits or other change in the corporate structure or capitalization affecting
the Company's issued Common Stock. The Board of Directors believes it is
beneficial to increase the number of shares subject to the Plan to make
additional shares available, subject to the discretion of the Board of
Directors, to such key employees.
Administration. If amended by Proposal 2, the Plan will be administered by
either the full Board of Directors, the Compensation Committee or such other
committee as may be designated by the Board of Directors (the "Committee"). In
administering the Plan, the Committee has the power to interpret its provisions
and to prescribe, amend, and rescind rules and regulations for its
administration, to select individuals to receive grants, to determine the terms
and provisions of grants of options and to make all other determinations
necessary or advisable for administration of the Plan.
Option Grants. The Plan provides for the granting of both incentive stock
options (an "ISO") and nonqualified stock options (a "NQO"). NQO's may be issued
to any employee or officer of the Company or its subsidiaries, or any other
person who is an independent contractor, agent or consultant of the Company or
its subsidiaries but not any director of the Company who is not an employee of
the Company. ISO's may be issued to employees and officers of the Company and
its subsidiaries, but not to any director, independent contractor, agent or
consultant. The Committee also determines the times at which options become
exercisable, their transferability and the dates, not more than ten years after
the date of
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grant, on which options will expire. The fair market value of the stock with
respect to which ISO's under the Plan or any other plan of the Company first
become exercisable may not exceed $100,000 in any year. The option price of an
ISO is to be at least 100% of the fair market value on the date of grant (110%
in the case of optionees holding more than ten percent of the combined voting
power of all classes of stock of the Company). The Plan, however, permits the
Committee to grant NQO's at any exercise price consistent with the purposes of
the Plan, whether or not such exercise price is equal to the fair market value
of the stock on the date of grant of the NQO. NQO's with an exercise price of
less than fair market value on the date of grant will not qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") and so any compensation expense generated by
the exercise of such an option would not be deductible by the Company if the
optionee is a "covered employee" who is paid compensation from the Company in an
amount in excess of $1,000,000 in the year of exercise.
Options may be exercised by the payment of the exercise price in cash, by
check or by delivery of full shares of Common Stock, or a combination thereof.
The Committee may make a loan for the purpose of exercising any option granted
under the Plan to an optionee in an amount not to exceed 100% of the purchase
price of the shares acquired upon exercise of the options. The loan must be
secured by a pledge of shares of the Company having an aggregate purchase price
equal to or greater than the amount of the loan.
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. Of such shares, 333,700 were granted under
the Plan (133,700 of which are subject to the amendment to the Plan being
approved at the Meeting) and 861,800 were granted outside of the Plan. As of
April 15, 1998, the Company has awarded or granted options under the Plan to
approximately 205 persons. The following persons and groups have received
certain of these options: John Zeravica: 27,000; Joseph Cioni: 15,000; Matthew
O'Toole: 12,000; all current executive officers as a group: 54,000; all current
directors who are not executive officers as a group: 45,000; and all employees
who are not executive officers as a group: 234,700. 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, directors of the Company, 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.
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, President and Chief Executive Officer of the
Company. On December 6, 1997, Mr. Slucker was granted an additional
option(outside of the Plan) to acquire an additional 250,000 shares of Common
Stock for $4.625 per share. The Company has granted five-year options to acquire
an aggregate of 29,000 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. The Committee has
not made any determination with respect to grants of options to employees in the
future. The Company has four executive officers and approximately 234 employees
who are not executive officers who could potentially qualify for grants of
options under the Plan as proposed to be amended.
Termination of Employment. Unless otherwise provided by the Committee, the
following rules apply to all options granted under the Plan. Options granted
under the Plan expire immediately if an employee is terminated for cause. If
termination of employment is voluntary or involuntary, options granted expire
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after a three month period. In the event of an employee's death within such
three-month period, the employee's estate may exercise the option for the number
of shares for which it is exercisable at the date of termination, for three
years after death but in no event beyond the expiration dates of the option. An
option outstanding at the time an employee retires under a Company retirement
plan or becomes disabled is exercisable within one year of termination in the
case of an ISO and in the case of a NQO may be exercisable at any time to the
extent that the optionee was otherwise entitled to exercise it at the time of
such cessation of employment with the Company or a subsidiary thereof, but in no
event after the expiration of the option period. If an employee dies, whether
before or after such retirement or disability, the employee's estate may
exercise the option exercisable at the date of termination of employment for up
to three years after death (one year in the case of voluntary termination of
employment), but in no event beyond the expiration dates of the option.
Income Tax Consequences. Under present law the federal income tax treatment of
stock options under the Plan is generally as follows:
Incentive Stock Options. For regular income tax purposes, an optionee will not
realize taxable income upon either the grant of an ISO or its exercise if the
optionee has been an employee of the Company or a subsidiary at all times from
the date of grant to a date not more than three months before the date of
exercise. The difference between the fair market value of the stock at the date
of exercise and the exercise price of an ISO, however, will be treated as an
item of tax preference in the year of exercise for purposes of the alternative
minimum tax.
If the shares acquired upon an exercise of an ISO are not disposed of by
the optionee within two years from the date of grant or within one year from the
date of exercise, any gain realized upon a subsequent sale of the shares will be
taxable as a capital gain. In that case, the Company will not be entitled to a
deduction in connection with the grant or the exercise of the ISO or the
subsequent disposition of the shares by the optionee. The amount of gain or loss
realized upon such a sale or other disposition will be measured by the
difference between the amount realized and the earlier exercise price of the ISO
(the optionee's basis in the stock).
If the optionee disposes of the shares within two years from the date of
grant of the ISO or within one year from the date of exercise of the ISO, the
optionee will realize ordinary income in an amount equal to the excess of the
fair market value of the shares at the date of exercise (or the amount realized
on disposition, if less) over the option price, and the Company will be allowed
a corresponding deduction. If the amount realized on the disposition exceeds the
fair market value of the shares at the date of exercise the gain on disposition
in excess of the amount treated as ordinary income will be treated as a capital
gain. Any such capital gain will be a mid-term capital gain if the optionee
holds the shares for more than one year, but not more than 18 months, from the
date of exercise. If the optionee holds the shares for more than 18 months from
the date of exercise, any such gain will be a long-term capital gain.
Nonqualified Stock Options. An optionee will not realize income upon the grant
of a nonqualified option. Upon the exercise of a nonqualified option, an
optionee will be required to recognize ordinary income in an amount equal to the
excess of the fair market value at the date of exercise of the NQO over the
option price. Any compensation includable in the gross income of an employee
with respect to a NQO will be subject to appropriate federal income and
employment taxes. The Company will be entitled to a business expense deduction
in the same amount and at the same time as when the optionee recognizes
compensation income. Upon a subsequent sale of the stock, any amount realized in
excess of such fair market value will constitute a capital gain. Any such
capital gain will be a mid-term capital gain if the optionee holds the shares
for more than one year, but not more than 18 months, from the date of exercise.
If the optionee holds the shares for more than 18 months from the date of
exercise, any such gain will be a long-term capital gain.
If an optionee exercises an option by tendering Company stock in payment of
the option price the optionee will be deemed to exchange the number of
previously owned shares (e.g., 50 shares) for an identical number of new shares
(e.g., 50 shares). This deemed exchange of previously owned Company
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stock for new Company stock should be eligible for nonrecognition treatment
under Section 1036 of the Code as an exchange of common stock for common stock
in the same corporation. With regard to the additional number of new Company
shares (e.g., the excess over 50 shares) that an optionee receives pursuant to
the exercise of the option, an optionee will be deemed to have acquired them
without paying consideration. If such extra shares are issued pursuant to a NQO,
the fair market value of such extra shares will be included in the optionees'
income as compensation income and the Company will be allowed a corresponding
deduction. If such extra shares are issued pursuant to an ISO, no income on the
exercise of such options will be recognized by the optionee, and the Company
will not be allowed a compensation deduction. The optionee's basis in the new
shares deemed exchanged for old shares will be equal to the optionee's basis in
the surrendered old shares, and the optionee's holding period in such new shares
will include his or her holding period in the old shares. The optionee's basis
in the additional (or excess) new shares received will equal the amount that the
optionee included in income with respect to those shares (their fair market
value for stock issued pursuant to a NQO; zero for stock issued pursuant to an
ISO), and the optionee's holding period in such additional shares will start as
of the date of acquisition.
In the limited circumstances in which an officer who is subject to Section
16(b) of the Securities Exchange Act of 1934, as amended (the "1934 Act")
exercises a NQO, which exercise is not exempt under Section 16(b), no income is
recognized for federal income tax purposes at the time of exercise unless the
optionee makes an election under Section 83(b) of the Code within 30 days after
the date of exercise, in which case the rules described in the second preceding
paragraph would apply. Where such an election is not made, the optionee will
recognize ordinary income on the first date that sale of such shares would not
create liability under Section 16(b) of the 1934 Act (this is generally, but not
necessarily, six months after the date of exercise). The ordinary income
recognized to such an optionee will be the excess, if any, of the fair market
value of shares on such later date over the option exercise price.
The foregoing discussion does not purport to be a complete analysis of all
the potential tax consequences relevant to recipients of options or to the
Company or its subsidiaries. The above discussion does not take into account the
effect of state and local tax laws. Moreover, no assurance can be given that
legislative, administrative, regulatory or judicial changes or interpretations
will not occur which could modify such analysis. In addition, an individual's
particular tax status and his other tax attributes may result in different tax
consequences from those described above. Therefore, any participant in the Plan
should consult with his own tax adviser concerning the tax consequences of the
grant, exercise and surrender of such options and the disposition of any stock
acquired pursuant to the exercise of such options.
Amendments. The Board of Directors may amend the Plan at any time, but may not,
without prior stockholder approval, increase the aggregate number of shares that
may be issued thereunder; materially increase the benefits to participants or
materially modify the requirements as to eligibility for participation in the
Plan.
Termination. The Plan terminates by its terms on October 17, 2006.
Vote Required. The affirmative vote of a majority of the outstanding shares of
Common Stock voted in person or by proxy at the Meeting is required for approval
of the amendment to the Plan to increase the number of options which may be
issued under the Plan to 450,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE PLAN.
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PROPOSAL 3. RATIFICATION AND APPROVAL OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Company, subject to stockholder ratification, has selected Ernst &
Young LLP to serve as its independent auditors for the fiscal year ending
December 31, 1998. If the stockholders do not ratify the appointment of Ernst &
Young LLP, the Company may reconsider its selection. A representative of Ernst &
Young LLP is expected to be present at the Meeting to respond to appropriate
questions and will be given the opportunity to make a statement if he or she
desires to do so.
Rothstein, Kass & Company, P.C. ("Rothstein Kass") were the predecessor
principal accountants for the Company. In 1997, the Company dismissed Rothstein
Kass as auditors of the Company. The "Effective Date of Dismissal" is considered
to have been February 27, 1998. Rothstein Kass's report on the Company's
financial statements as of December 31, 1995 was initially qualified as to
uncertainty regarding the Company's ability to continue as a going concern. In
reissuing such report in connection with the December 31, 1996 audit, the
qualification was removed and the report contained no adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. The decision to change accountants was ratified
by the Audit Committee of the Company's Board of Directors. During the two most
recent fiscal years prior to the Effective Date of Dismissal and all subsequent
interim periods preceding the date hereof, there were no disagreements between
the Company and Rothstein Kass on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Rothstein Kass, would have
caused Rothstein Kass to make reference to the subject matter of disagreement in
connection with Rothstein Kass's reports.
Effective February 27, 1998 (the "Effective Date of Engagement"), the
Company engaged Ernst & Young LLP as its principal accountants. During the two
most recent fiscal years prior to the Effective Date of Engagement and all
subsequent interim periods preceding the date hereof, the Company has not
consulted Ernst & Young LLP regarding any matters or events as set forth in Item
304(a)(2) of Regulation S-B.
The affirmative vote of the holders of a majority of the shares of Common
Stock of the Company present, in person or by proxy, and entitled to vote at the
Meeting is required for the ratification and approval of the appointment of
auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION AND APPROVAL OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholder proposals intended to be presented at the Company's next
annual meeting of stockholders must be received by the Company at its offices at
1080 Lousons Road, Union, New Jersey 07083, on or before February 9, 1999, for
consideration for inclusion in the proxy material for such annual meeting of
stockholders.
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EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.
OTHER MATTERS
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement, and is not aware that any
other matters will be presented for action at the Meeting. If any other matters
come before the Meeting, the persons named in the enclosed form of proxy will
vote the proxy with respect thereto in accordance with their best judgment,
pursuant to the discretionary authority granted by the proxy. Whether or not you
plan to attend the Meeting in person, please complete, sign, date and return the
enclosed proxy card promptly.
By Order of the Board of Directors
Joseph Cioni
Secretary
Dated: May 11, 1998
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EXHIBIT A(1)
TEARDROP GOLF COMPANY
1996 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the TearDrop Golf Company Stock Option Plan (the "Plan") is
to provide an additional incentive to directors, key employees, independent
contractors, agents and consultants of TearDrop Golf Company (the "Company") to
aid in attracting and retaining directors, employees, independent contractors,
agents and consultants of outstanding ability, and to align their interests with
those of shareholders.
SECTION 2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms, when
used in this Plan, shall have the meanings set forth in this Section 2.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986 and the rules and
regulations thereunder, as it or they may be amended from time to time.
(c) "COMMITTEE" shall mean the full Board, Compensation Committee of the
Board or such other committee as may be designated by the Board. If less than
the full Board, the Committee shall consist of two or more members of the Board
who are not eligible to participate in the Plan, and who otherwise are
"non-employee directors" under Rule 16b-3.
(d) "DATE OF EXERCISE" shall mean the earlier of the date on which written
notice of exercise, together with payment in full, is received at the office of
the Secretary of the Company or the date on which such notice and payment are
mailed to the Secretary of the Company at its principal office by certified or
registered mail.
(e) "DIRECTOR" shall mean a member of the Board of Directors.
(f) "EMPLOYEE" shall mean any employee or any officer of the Company or any
of its Subsidiaries, or any other person, who is an independent contractor,
agent or consultant of the Company or any of its Subsidiaries, and excluding any
director of the Company who is not otherwise an employee of the Company. For the
purposes of any provision of this Plan relating to Incentive Stock Options, the
term "Employee" shall be limited to mean any employee (as that term is defined
under Code Section 3401(c)) or officer of the Company or any of its
Subsidiaries, but not any person who is merely an independent contractor, agent
or consultant of the Company or any of its subsidiaries.
(g) "FAIR MARKET VALUE" of the Stock means, for all purposes of the Plan
unless otherwise provided (i) the mean between the high and low sales prices of
the Stock as reported on the National Market System or Small Cap Market of the
National Association of Securities Dealers, Inc., Automated Quotation System, or
any similar system of automated dissemination of quotations of securities prices
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(1) Underscored language represents new language added and language which is
lined out is to be removed.
<PAGE>
then in common use, if so quoted, or (ii) if not quoted as described in clause
(i), the mean between the high bid and low asked quotations for the Stock as
reported by a the National Quotation Bureau Incorporated or such other source as
the Committee shall determine, or (iii) if the Stock is listed or admitted for
trading on any national securities exchange, the mean between the high and low
sales price, or the closing bid price if no sale occurred, of the Stock on the
principal securities exchange on which the Stock is listed. In the event that
the method for determining the Fair Market Value of the Stock provided for above
shall either be not applicable or not be practical, in the opinion of the
Committee, then the Fair Market Value shall be determined by such other
reasonable method as the Committee, in its discretion, shall select and apply.
(h) "GRANTEE" shall mean an Employee granted a Stock Option.
(i) "GRANTING DATE" shall mean the date on which the Committee authorizes
the issuance of a Stock Option for a specified number of shares of Stock to a
specified Employee.
(j) "INCENTIVE STOCK OPTION" shall mean a Stock Option granted under the
Plan which is properly qualified under the provisions of Section 422 of the
Code.
(k) "NONSTATUTORY STOCK OPTION" shall mean a Stock Option granted within
the Plan which is not an Incentive Stock Option or otherwise qualified under
similar tax provisions.
(l) "RULE 16B-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
or any rule in replacement thereof.
(m) "STOCK" shall mean the Common Stock, par value $.01 per share, of the
Company.
(n) "STOCK OPTION" shall mean an Incentive Stock Option or Nonstatutory
Stock Option granted pursuant to the Plan to purchase shares of Stock.
SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN
The Company shall reserve 450,000 shares of Stock for issuance upon the
exercise of Stock Options granted pursuant to this Plan. Shares delivered under
the Plan may be authorized and unissued shares or issued shares held by the
Company in its treasury. If any Stock Options expire or terminate without having
been exercised, the shares of Stock covered by such Stock Option shall become
available again for the grant of Stock Options hereunder. Similarly, if any
Stock Options are surrendered for cash pursuant to the provisions of Section 6,
the shares of Stock covered by such Stock Options shall also become available
again for the grant of Stock Options hereunder. Shares of Stock covered by Stock
Options surrendered for Stock pursuant to Section 6, however, shall not become
available again for the grant of Stock Options hereunder.
SECTION 4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it, to
determine the terms and provisions of Stock Option grants, and to make all other
determinations necessary or advisable for the administration of the Plan.
(b) It is intended that the Plan and any transaction hereunder meet all of
the requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as such rule is currently in effect or as hereafter modified or
amended, and all other applicable laws. If any provision of the Plan or any
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transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or other applicable laws, such provision or transaction
shall be construed or deemed amended to conform to Rule 16b-3 or such other
applicable laws or otherwise shall be deemed to be null and void, in each case
to the extent permitted by law and deemed advisable by the Committee.
(c) Any controversy or claim arising out of or related to this Plan shall
be determined unilaterally by and at the sole discretion of the Committee.
SECTION 5. GRANTING OF STOCK OPTIONS
(a) Directors, Key Employees, independent contractors, agents and
consultants to the Company shall be eligible to receive Stock Options under the
Plan. Only Employees shall be eligible to receive Incentive Stock Options under
the Plan.
(b) The option price of each share of Stock subject to an Incentive Stock
Option shall be at least 100% of the Fair Market Value of a share of the Stock
on the Granting Date.
(c) The option price of each share of Stock subject to a Nonstatutory Stock
Option shall be 100% of the Fair Market Value of a share of the Stock on the
Granting Date, or such other price either greater than or less than the Fair
Market Value (but in no event less than the par value of the Stock) as the
Committee shall determine appropriate to the purposes of the Plan and to the
Company's total compensation program.
(d) The Committee shall determine and designate from time to time those
persons who are to be granted Stock Options and whether the particular Stock
Options are to be Incentive Stock Options or Nonstatutory Stock Options, and
shall also specify the number of shares covered by and the option price per
share of each Stock Option. Each Stock Option granted under the Plan shall be
clearly identified as to its status as a Nonstatutory Stock Option or an
Incentive Stock Option.
(e) The aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation) shall not exceed
$100,000.
(f) A Stock Option shall be exercisable during such period or periods and
in such installments as shall be fixed by the Committee at the time the Stock
Option is granted or in any amendment thereto; but each Stock Option shall
expire not later than ten years from the Granting Date.
(g) The Committee shall have the authority to grant both transferable Stock
Options and nontransferable Stock Options, and to amend outstanding
nontransferable Stock Options to provide for transferability. Each
nontransferable Stock Option intended to qualify under Rule 16b-3 or otherwise
shall provide by its terms that it is not transferable otherwise than by will or
the laws of descent and distribution or, except in the case of Incentive Stock
Options, pursuant to a "qualified domestic relations order" as defined by the
Code, and is exercisable, during the Grantee's lifetime, only by the Grantee.
Each transferable Stock Option may provide for such limitations on
transferability and exercisability as the Committee may designate at the time a
Stock Option is granted or is otherwise amended to provide for transferability.
(h) Stock Options may be granted to an Employee or Director who has
previously received Stock Options or other options whether such prior Stock
Options or other options are still outstanding, have previously been exercised
or surrendered in whole or in part, or are canceled in connection with the
issuance of new Stock Options.
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(i) Notwithstanding the foregoing, the option price of an Incentive Stock
Option in the case of a Grantee who owns more than ten percent of the total
combined voting power of all classes of stock of the Company or any of its
Subsidiaries, will not be less than one-hundred-ten percent (110%) of the Fair
Market Value of the Stock at the Granting date and in the case of such a
Grantee, the Incentive Stock Option may be exercised no more than five years
after the Granting Date.
SECTION 6. EXERCISE OF STOCK OPTIONS
(a) Except as provided in Section 7, no Incentive Stock Option may be
exercised at any time unless the Grantee has been an Employee at all times
during the period beginning on the Granting Date and ending on the day 3 months
before the date of such exercise.
(b) The Grantee shall pay the option price in full on the Date of Exercise
of a Stock Option in cash, by check, or by delivery of full shares of Stock of
the Company, duly endorsed for transfer to the Company with signature
guaranteed, or by any combination thereof. Stock will be accepted at its Fair
Market Value on the Date of Exercise.
(c) Subject to the approval of the Committee, or of such person to whom the
Committee may delegate such authority ("its designee"), and subject further to
the applicable regulations of any governmental authority, the Company may loan
to the Grantee a sum equal to an amount which is not in excess of 100% of the
purchase price of the shares of Stock acquired upon exercise of a Stock Option,
such loan to be evidenced by the execution and delivery of a promissory note.
Interest shall be paid on the unpaid balance of the promissory note at such
times and at such rate as shall be determined by the Committee or its designee.
Such promissory note shall be secured by the pledge to the Company of shares of
Stock having an aggregate purchase price on the date of purchase equal to or
greater than the amount of such note. A Grantee shall have, as to such pledged
shares of Stock, all rights of ownership including the right to vote such shares
of Stock and to receive dividends paid on such shares of Stock, subject to the
security interest of the Company. Such shares of Stock shall not be released by
the Company from the pledge unless the proportionate amount of the note secured
thereby has been repaid to the Company; provided, however that shares of Stock
subject to a pledge may be used to pay all or part of the purchase price of any
other option granted hereunder or under any other stock incentive plan of the
Company under the terms of which the purchase price of an option may be paid by
the surrender of shares of Stock, subject to the terms and conditions of this
Plan relating to the surrender of shares of Stock in payment of the exercise
price of an option. In such event, that number of the newly purchased shares of
Stock equal to the shares of Stock previously pledged shall be immediately
pledged as substitute security for the pre-existing debt of the Grantee to the
Company, and thereupon shall be subject to the provisions hereof relating to
pledged shares of Stock. All notes executed hereunder shall be payable at such
times and in such amounts and shall contain such other terms as shall be
specified by the Committee or its designee or stated in the option agreement;
provided, however, that such terms shall conform to requirements contained in
any applicable regulations which are issued by any governmental authority.
SECTION 7. TERMINATION OF EMPLOYMENT
Except as otherwise provided by the Committee at the time an Incentive
Stock Option is granted or any amendment thereto, if a Grantee ceases to be an
Employee then:
(a) if termination of employment is voluntary or involuntary without cause,
the Grantee may exercise each Stock Option held by the Grantee within three
months after such termination (but not after the expiration date of the Stock
Option) to the extent of the number of shares subject to the Stock Option which
are purchasable pursuant to its terms at the date of termination;
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(b) if termination is for cause, all Stock Options held by the Grantee
shall be canceled as of the date of termination;
(c) subject to the provisions of Section 7(d), if termination is (i) by
reason of retirement at a time when the Grantee is entitled to the current
receipt of benefits under any retirement plan maintained by the Company, or (ii)
by reason of disability, each Stock Option held by the Grantee may be exercised
by the Grantee at any time (but not after the expiration date of the Stock
Option) (within one year of termination in the case of Incentive Stock Options)
to the extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination;
(d) if termination is by reason of the death of the Grantee, or if the
Grantee dies after retirement or disability as referred to in Section 7(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period of three years after death (but not
after the expiration date of the Stock Option) to the extent of the total number
of shares subject to the Stock Option which were purchasable pursuant to its
terms at the date of termination; or
(e) if the Grantee should die within three months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 7(a), each Stock Option held by the Grantee may be
exercised by the Grantee's estate, or by any person who acquires the right to
exercise by reason of the Grantee's death, at any time within a period of one
year after death (but not after the expiration date of the Stock Option) to the
extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination.
SECTION 8. ADJUSTMENTS
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Stock, there shall be an appropriate
adjustment made by the Committee in the number and kind of shares that may be
granted in the aggregate and to Grantees under the Plan, the number and kind of
shares subject to each outstanding Stock Option and the option prices.
SECTION 9. GENERAL PROVISIONS
(a) Each Stock Option shall be evidenced by a written instrument containing
such terms and conditions, not inconsistent with this Plan, as the Committee
shall approve.
(b) The granting of a Stock Option in any year shall not give the Grantee
any right to similar grants in future years. The granting of a Stock Option in
any year shall not give the Grantee any right to be retained in the employ of
the Company or interfere in any way with the right of the Company to terminate
an Employee's employment at any time.
(c) The Company shall have the right to deduct from any payment or
distribution under the Plan any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take such
other action as may be necessary to satisfy all obligations for the payment of
such taxes. In case distributions are made in shares of Stock, the Company shall
have the right to retain the value of sufficient shares of Stock to equal the
amount of tax to be withheld for such distributions or require a recipient to
pay the Company for any such taxes required to be withheld on such terms and
conditions prescribed by the Committee.
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(d) No Grantee shall have any of the rights of a shareholder by reason of a
Stock Option until it is exercised.
(e) This Plan shall be construed and enforced in accordance with the laws
of the State of Delaware (without regard to the legislative or judicial conflict
of laws rules of any state), except to the extent superseded by federal law.
SECTION 10. AMENDMENT AND TERMINATION
(a) The Plan shall terminate on October 17, 2006 and no Stock Option shall
be granted hereunder after that date, provided that the Board may terminate the
Plan at any time prior thereto.
(b) The Board may amend the Plan at any time without notice, provided
however, that the Board may not, without prior approval by the shareholders, (i)
increase the maximum number of shares of Stock for which Stock Options may be
granted, (ii) materially increase the benefits accruing to participants under
the Plan or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
(c) No termination or amendment of the Plan may, without the consent of a
Grantee to whom a Stock Option shall theretofore have been granted, adversely
affect the rights of such Grantee under such Stock Option.
SECTION 11. EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL
The Plan shall become effective as of October 18, 1996, subject to its
approval by the affirmative votes of the holders of a majority of the securities
of the Company present, or represented, and entitled to vote thereon at the next
meeting of shareholders of the Company or any adjournment or postponement
thereof. Before such approval, Stock Options may be granted under the Plan
expressly subject to such approval.
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<PAGE>
TEARDROP GOLF COMPANY
The undersigned hereby appoints Rudy A. Slucker, with full power of
substitution, as proxy for the undersigned, to attend the annual meeting of
stockholders of TearDrop Golf Company (the "Company"), to be held at the
Company's offices at 8350 North Lehigh Avenue, Morton Grove, Illinois 60053 on
June 9, 1998, at 2:00 p.m., central time, or any adjournment thereof, and to
vote the number of shares of common stock of the Company that the undersigned
would be entitled to vote, and with all the power the undersigned would possess,
if personally present, as follows:
1. [_] FOR or [_] WITHHOLD AUTHORITY to vote for the following nominees for
election as directors:
Rudy A. Slucker
Fred K. Hochman
Leslie E. Goodman
Bruce H. Nagel
Jeffrey Baker
John Raos
(Instruction: To withhold authority to vote for an individual nominee, write the
nominees' name on the line provided below.)
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2. Approval of an amendment to the 1996 Employee Stock Option Plan to increase
the number of shares reserved for issuance under such plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. Approval of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
4. The Proxy is authorized to vote in his discretion upon such other matters
as may properly come before the meeting.
(Continued on reverse side)
<PAGE>
(Continued from previous page)
The Proxy will vote as specified herein or, if a choice is not specified,
he will vote "For" the nominees listed in Item 1 and "For" the proposals set
forth in Items 2 and 3.
This Proxy is solicited by the Board of Directors of the Company.
Receipt of the Notice of Annual Meeting
of Stockholders, Proxy Statement dated
May 11, 1998 and Annual Report to
Stockholders is hereby acknowledged:
Date: ______________________, 1998
__________________________________
__________________________________
__________________________________
(Signature)
(Please sign exactly as your name
appears hereon, indicating, where
proper, official position or
representative capacity).
