SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
|X| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TEARDROP GOLF COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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|_| Fee paid previously with preliminary materials:
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(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
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 24, 1999, at 9:00 a.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
(Instruction: To withhold authority to vote for an individual nominee, write the
nominees' name on the line provided below.)
- -------------------------------
2. Approval of the grant of options covering an aggregate of 1,250,000 shares of
common stock of the Company, 1,000,000 of which are exercisable only upon the
achievement of certain targets, to Rudy A. Slucker, Chairman, President and
Chief Executive Officer of the Company.
FOR |_| AGAINST |_| ABSTAIN |_|
3. 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 |_|
4. Approval of the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999.
FOR |_| AGAINST |_| ABSTAIN |_|
5. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
FOR |_| AGAINST |_| ABSTAIN |_|
(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, 3, 4 and 5.
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 27, 1999 and
Annual Report to Stockholders is
hereby acknowledged:
Date: ____________________, 1999
________________________________
________________________________
________________________________
(Signature)
(Please sign exactly as your
name appears hereon, indicating,
where proper, official position
or representative capacity).
<PAGE>
TearDrop Golf Company
1080 Lousons Road
Union, New Jersey 07083
----------------------------------------------
Notice Of Annual Meeting Of Stockholders
To Be Held June 24, 1999
----------------------------------------------
The 1999 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 24, 1999 at 9:00 a.m., central time for the
following purposes:
(1) To elect five directors to hold office for a term of one year or
until their successors have been duly elected and qualified.
(2) To ratify the grant of options covering an aggregate of 1,250,000
shares of common stock of the Company, 1,000,000 of which are
exercisable only upon the achievement of certain targets, to Rudy A.
Slucker, Chairman, President and Chief Executive Officer of the
Company.
(3) To approve an amendment to the 1996 Employee Stock Option Plan to
increase the number of shares reserved for issuance under such plan.
(4) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
(5) 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, 1999 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 A. CIONI
Secretary
May 27, 1999
Union, New Jersey
<PAGE>
TearDrop Golf Company
1080 Lousons Road
Union, New Jersey 07083
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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 24, 1999 at the Company's
offices at 8350 North Lehigh Avenue, Morton Grove, Illinois 60053 at 9:00 a.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 27, 1999. 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, 1999 (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 5,179,890
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 (a) "FOR" the
election of each of Rudy A. Slucker, Fred K. Hochman, Leslie E. Goodman, Bruce
H. Nagel and Jeffrey Baker as directors of the Company, (b) "FOR" the
ratification of the grant of options covering an aggregate of 1,250,000 shares
of common stock of the Company, 1,000,000 of which are exercisable only upon the
achievement of certain targets, to Rudy A. Slucker, Chairman, President and
Chief Executive Officer of the Company, (c) "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, (d) "FOR" the ratification of the appointment of
Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending December 31, 1999, and (e) 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
<PAGE>
all other matters which may be put to a stockholder vote at the Meeting. Votes
will NOT be considered cast if the shares are not voted for any reason,
including an abstention indicated as such on a written proxy or ballot,
directions are given in a written proxy to withhold votes, or if the votes are
withheld by a broker. 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, 1999
for (i) each person who is known by the Company to beneficially own more than 5%
of the Common Stock, (ii) each named executive officer listed in the Summary
Compensation table below, (iii) each of the Company's directors, and (iv) all
directors and executive officers as a group. The Company has been advised that
each stockholder listed below has sole voting and dispositive power with respect
to such shares unless otherwise noted in the footnotes following the table.
Name and Address Of Amount and Nature Of
Beneficial Owner (1) Beneficial Owner Percent Of Class
-------------------- ---------------- ----------------
Rudy A. Slucker 1,230,000(2) 23.7%
Joseph A. Cioni 9,000(3) *
John Zeravica 14,000(4) *
Fred K. Hochman 163,000(5) 3.1%
Leslie E. Goodman 10,000(5) *
Bruce H. Nagel 18,280(5) *
Jeffrey Baker 10,000(5) *
SAFECO Corporation
SAFECO Plaza
Seattle, Washington 98185 566,500(6) 10.9%
All directors and
executive officers as a
group (7 persons) 1,454,280(7) 28.1%
- ---------------------
* Less than 1%.
(1) Unless otherwise indicated, the address for each such person listed below
is c/o TearDrop Golf Company, 1080 Lousons Road, Union, New Jersey 07083.
(2) 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 with respect to which Mr. Slucker
disclaims beneficial ownership. Also includes 250,000 shares subject to
options granted on April 27, 1999 exercisable at $3.375 per share, the
closing price on such date, which, subject to stockholder approval at the
Meeting, will be exercisable immediately. Does not include 1,000,000
shares subject to options granted on April 27, 1999 exercisable at $3.375
per share, which, subject to stockholder approval at the Meeting, are
exercisable only upon the achievement of certain targets.
(3) Includes 5,000 shares underlying options exercisable at $2.50 per share.
Does not include options to purchase 22,000 shares of Common Stock that
are not exercisable within 60 days from the date hereof.
(4) Includes 14,000 shares underlying options exercisable at $4.75 per share.
Does not include options to purchase 25,000 shares of Common Stock that
are not exercisable within 60 days from the date hereof.
(5) Includes 10,000 shares underlying options exercisable at $4.75 per share.
Does not include options to purchase 5,000 shares of Common Stock that are
not exercisable within 60 days from the date hereof.
(6) Represents 566,500 shares of Common Stock as to which each of SAFECO
Corporation and SAFECO Asset Management Company has reported it has shared
voting power and shared
2
<PAGE>
dispositive power and 314,000 shares of Common Stock as to which SAFECO
Common Stock Trust has reported it has shared voting power and shared
dispositive power. SAFECO Asset Management Company, a subsidiary of SAFECO
Corporation, and SAFECO Corporation expressly declared that the filing of
the statement on Schedule 13G shall not be construed as an admission that
they are, for the purposes of Section 13(d) or 13(g) of the Securities and
Exchange Act of 1934, as amended, the beneficial owners of any securities
covered by such statement. Each of such companies filed the statement on
Schedule 13G because it is considered an indirect beneficial owner of such
securities based on its ownership or control of one or more investment
companies which directly own such shares.
(7) Includes 5,000 shares underlying options exercisable at $2.50 per share,
250,000 shares underlying options exercisable at $4.50 per share, 250,000
shares underlying options exercisable at $4.625 per share, 54,000 shares
underlying options exercisable at $4.75 per share, and 250,000 shares
subject to options exercisable at $3.375 per share granted on April 27,
1999, which, subject to stockholder approval at the Meeting, will be
exercisable within 60 days from the date hereof. Does not include options
to purchase 67,000 shares of Common Stock that are not exercisable within
60 days from the date hereof. Does not include 1,000,000 shares subject to
options exercisable at $3.375 per share granted on April 27, 1999, which,
subject to stockholder approval at the Meeting, are exercisable only upon
the achievement of certain targets. Does not include options to purchase
4,000 shares of Common Stock which are currently exercisable at $6.875 per
share and held by Matthew O'Toole, a former officer of the Company whose
employment with the Company ceased as of March 15, 1999.
PROPOSAL 1. ELECTION OF DIRECTORS
At this year's Annual Meeting of Stockholders, five 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
and Jeffrey Baker. 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.
3
<PAGE>
Held Position
Name Age Position with the Company Since
---- --- ------------------------- -----
Rudy A. Slucker 49 Chairman of the Board, 1996
President and Chief
Executive Officer
Fred K. Hochman 51 Director 1992
Leslie E. Goodman 55 Director 1996
Bruce H. Nagel 46 Director 1997
Jeffrey Baker 44 Director 1996
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 frames under the names
of Playskool, Coventry, Harve Benard and Kathy Ireland; 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 in
1992 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 November1982 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.
Since October 1997, Mr. Goodman has managed his personal investments. From
January 1997 through October 1997, Mr. Goodman served as Chairman of the Board
of CREOL, Inc., Commercial Real Estate On Line, an internet based information
service. 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. 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 Board of Directors and of
the Office of the Chairman of First Fidelity Bancorporation overseeing the
Community Business Bank, Corporate and Institutional Trust. 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., Admiralty Bancorp, Inc., Grand Court Lifestyles, 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.
4
<PAGE>
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.
Joseph A. Cioni, age 59, 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.
John Zeravica, age 43, became Vice President of Manufacturing and
Operations for the Company in September 1996. From 1988 through July 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 1981 to 1988, Mr.Zeravica served as Operating Manager of Mizuno,
USA, a sports product manufacturing and marketing company.
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,
except that one officer and one director each filed a Form 4 late.
Meetings of the Board and Committees
During fiscal year 1998, 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, 1998.
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 and Leslie
E. Goodman. The Audit Committee is comprised of Fred K. Hochman and Leslie E.
Goodman.
The Compensation Committee, which held three meetings during fiscal year
1998, 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 1998,
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
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<PAGE>
comply 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 annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for each of the fiscal years ended December 31, 1998, 1997 and 1996
of those persons who were, at December 31, 1998, (i) the Chief Executive Officer
and (ii) the other two most highly compensated executive officers of the Company
for the fiscal year ended December 31, 1998 (the "named executive officers").
Other than the Chief Executive Officer and the named executive officers, no
other executive officer of the Company earned more than $100,000 in salary and
bonus during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Principal
Position Year Salary ($) Bonus ($) Securities Underlying Options
- -------- ---- ---------- --------- -----------------------------
(#)
<S> <C> <C> <C> <C>
Rudy A. Slucker 1998 250,000 -- 250,000(1)
Chairman of the Board, 1997 175,000 50,000 250,000
President and Chief 1996 40,000 -- 250,000
Executive Officer
Matthew O'Toole 1998 125,103 -- 12,000
Vice President of Sales 1997 16,827 -- 12,000
and Marketing (2) 1996 -- -- --
John Zeravica 1998 104,000 -- 12,000
Vice President of 1997 99,540 -- 27,000
Marketing and Operations 1996 45,830 -- --
</TABLE>
(1) Includes 250,000 shares subject to options exercisable at $3.375 per share
granted on April 27, 1999, which, subject to stockholder approval at the
Meeting, will be exercisable within 60 days from the date hereof. Does not
include 1,000,000 shares subject to options exercisable at $3.375 per
share granted on April 27, 1999, which, subject to stockholder approval at
the Meeting, are exercisable only upon the achievement of certain targets.
The closing price for the Common Stock on the Nasdaq SmallCap Market on
April 27, 1999 was $3.375.
(2) Mr. O'Toole's employment with the Company ceased as of March 15, 1999.
Compensation Arrangements
The Company has entered into an employment agreement with Rudy A. Slucker
which expires on December 31, 1999. On April 27, 1999, Mr. Slucker agreed to
extend the term of the employment agreement for a period of three years from the
date of the Meeting, subject to stockholder ratification of the grant of stock
options to Mr. Slucker at the Meeting. 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.
6
<PAGE>
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, 1998, Mr. Slucker did not receive a
cash bonus. On April 27, 1999, Mr. Slucker was granted, subject to stockholder
approval at the Meeting, stock options covering 1,250,000 shares of Common Stock
for $3.375 per share, 1,000,000 of which are exercisable only upon the
achievement of certain targets. These options were granted to Mr. Slucker in
connection with the extension of his employment agreement, in recognition of Mr.
Slucker's efforts in increasing sales and obtaining widespread name recognition
for the Company's products and as additional incentive to achieve success for
the Company and its stockholders.
The Company has also entered into an employment agreement with John
Zeravica. Pursuant to the agreement, Mr. Zeravica serves as Vice President of
Manufacturing and Operations for the Company and is paid an annual salary of
$100,000, subject to increase at the discretion of the Company. 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 $1,500 per Board meeting
attended in person, $750 per committee meeting attended in person and $500 per
Board or committee meeting attended by means of conference call.
Option Grants in Last Fiscal Year
Shown below is information with respect to the options to purchase Common
Stock granted to the Chief Executive Officer and the named executive officers of
the Company.
Stock Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percent of Total
Number of Options
Securities Granted to
Underlying Options Employees In
Name Granted (#) Fiscal Year(%) Exercise Price($/Sh) Expiration Date
- ---- ----------- -------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Rudy A. Slucker (1) -- -- -- --
Matthew O'Toole (2) 12,000 4.6 5.25 12/21/03
John Zeravica 12,000 4.6 5.25 12/21/03
</TABLE>
(1) Does not include the grant on April 27, 1999 of options covering an
aggregate of 1,250,000 shares of common stock of the Company at a price of
$3.375 per share, 1,000,000 of which are exercisable only upon the
achievement of certain targets and all of which are subject to stockholder
approval at the Meeting. If such shares were included, Mr. Slucker, Mr.
O'Toole and Mr. Zeravica would have been granted 82.8%, 0.8% and 0.8%,
respectively, of the total number of options granted to all employees of
the Company during the fiscal year ended December 31, 1998.
(2) Mr. O'Toole's employment with the Company ceased as of March 15, 1999. At
the time of the cessation of Mr. O'Toole's employment with the Company,
none of the options granted to him during the fiscal year ended December
31, 1998 had vested. Therefore, the options covering 12,000 shares of
Common Stock that were granted to Mr. O'Toole during fiscal year 1998 were
forfeited to the Company on March 15, 1999.
7
<PAGE>
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to the exercise of options to
purchase Common Stock by the Chief Executive Officer and the named executive
officers and unexercised options to purchase shares of Common Stock granted to
the Chief Executive Officer and such named executive officers.
Aggregated Option Exercises In Last Fiscal Year and Fiscal
Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Shares Acquired On Value Options at December31, 1998(1) December 31, 1998(1)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Rudy A. Slucker (2) -- -- 500,000/0 $218,750/$0
Matthew O'Toole (3) -- -- 4,000/20,000 $0/$0
John Zeravica -- -- 14,000/25,000 $2,500/$1,250
</TABLE>
(1) On December 31, 1998, the Common Stock closed at a price of $5.00 per
share on the Nasdaq SmallCap Market.
(2) Does not include the grant on April 27, 1999 of options covering an
aggregate of 1,250,000 shares of common stock of the Company at a price of
$3.375 per share, 1,000,000 of which are exercisable only upon the
achievement of certain targets and all of which are subject to stockholder
approval at the Meeting. If such shares were included, with respect to Mr.
Slucker, the number of exercisable and unexercisable securities underlying
unexercised options at December 31, 1998 would have been 750,000 and
1,000,000, respectively, and the value of in-the-money options at December
31, 1998 would have been $625,000.
(3) Mr. O'Toole's employment with the Company ceased as of March 15, 1999. At
the time of the cessation of Mr. O'Toole's employment with the Company,
options covering an aggregate of 4,000 shares of Common Stock were
exercisable and options covering an aggregate of 20,000 shares of Common
Stock were unexerciable. The exercisable options were initially granted to
Mr. O'Toole during fiscal year 1997. All unexercisable options were
forfeited to the Company on March 15, 1999.
New Plan Benefits
As of April 27, 1999, the Compensation Committee of the Company approved
the grant to Rudy A. Slucker, the Company's Chairman, President and Chief
Executive Officer, of stock options to purchase 1,250,000 shares of Common Stock
of the Company at an exercise price equal to $3.375, which was equal to the fair
market value of the Common Stock on the date of grant. These options were not
granted under the Company's 1996 Employee Stock Option Plan, as amended. A copy
of the Stock Option Agreement between the Company and Mr. Slucker is attached as
Exhibit A to this Proxy Statement.
Grant of Stock Options to Rudy A. Slucker
Name and Position Dollar Value ($) Number of Units
----------------- ---------------- ---------------
Rudy A. Slucker
Chairman, President and Chief
Executive Officer (1) 0(2) 1,250,000
(1) To the extent that the grant on April 27, 1999 of such options to Mr.
Slucker pursuant to a stock option agreement is deemed a "plan" under Item
402 of Regulation S-B, Mr. Slucker is the only person entitled to
participate in this plan.
(2) Calculated based on the difference between $3.25, the closing price of the
Common Stock on April 28, 1999, and the exercise price of $3.375, which
was the fair market value of the Common Stock underlying the options on
the date of grant.
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<PAGE>
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 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 in which 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 Compensation Committee of the Board of Directors
of the Company, although, to date, the entire Board of Directors has approved
the grant of all options. At the 1998 Annual Meeting of Stockholders, the
stockholders of the Company ratified an amendment to the Plan to increase the
number of shares of Common Stock reserved for issuance under the Plan to 450,000
shares. As of April 28, 1999, options covering an aggregate of 553,300 shares of
Common Stock had been granted under the Plan, 103,300 of which are subject to
the approval by the stockholders of the Company, prior to December 14, 1999, of
an amendment to the Plan increasing the number of shares reserved thereunder.
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. 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.
Certain Relationships And Related Transactions
On November 10, 1997, the Company, pursuant to an asset purchase agreement
(the "Tommy Armour Asset Purchase Agreement"), through its then 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 T.A. 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) $10.0 million in cash, (ii) 100,000 shares of Series A Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock") having a redemption
value of $10.0 million and (iii) 1,000,000 shares of the Company's common stock,
par value $.01 per share, subject to certain post-closing adjustments. On
March31, 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
9
<PAGE>
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. On June 24, 1998,
70,000 shares of the Series A Preferred Stock were converted by the holder
thereof into 933,333 shares of Common Stock. Simultaneously, with such
conversion, the Company redeemed the remaining 30,000 outstanding shares of
Series A Preferred Stock for $3.0 million. John Raos, an officer of the parent
company for the Sellers of the assets of Tommy Armour, served on the Board of
Directors of the Company from November 1997 through March 1999.
The Company also entered into a Registration Agreement with T.A.
Liquidation Corp. 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 issued in the Tommy Armour Acquisition, the Series
A Preferred Stock and the shares of the Company's Common Stock into which the
Series A Preferred Stock are convertible and to use its best efforts to have the
Registration Statement declared effective as soon as possible after the date of
the agreement. Such registration statement was declared effectively by the
Securities and Exchange Commission on July 1, 1998. The Company has been
informed that T.A. Liquidation Corp. sold all shares of Common Stock held by it
in April 1999.
On December 29, 1997 (the "Closing Date"), the Company, through its then
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, (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 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. In settlement of
certain litigation between the Company and JRH on March 2, 1999, the Company
agreed to reduce the exercise price of the Ram Warrant from $6.625 per share to
$5.50 per share.
The Company also entered into a Registration Agreement with JRH 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
issued in the Ram Acquisition and use its best efforts to have the registration
statement declared effective no later than June 30, 1998. Such registration
statement was declared effective by the Securities and Exchange Commission on
July 1, 1998. The Company has been informed that JRH sold certain of the shares
of Common Stock held by it during April 1999.
In March 1998, the Company repaid a loan to Mr. Slucker in the amount of
$400,000, which bore interest at 8%. On March 10, 1999, Rudy A. Slucker, the
Company's Chairman, President and Chief Executive Officer, loaned the Company
$500,000, bearing interest at 8% and due upon demand once the Company has
reached certain reduced levels of indebtedness under the Company's Credit
Facility with First Union National Bank.
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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<PAGE>
PROPOSAL 2. RATIFICATION OF STOCK OPTION GRANTS TO RUDY A. SLUCKER, THE
COMPANY'S CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Terms of the Stock Option Grants
As of April 27, 1999, the Compensation Committee of the Company approved
the grant to Rudy A. Slucker, the Company's Chairman, President and Chief
Executive Officer, of stock options to purchase 1,250,000 shares of Common Stock
of the Company at an exercise price equal to $3.375, which was equal to the fair
market value of the Common Stock on the date of grant. These options were not
granted under the Company's 1996 Employee Stock Option Plan, as amended. A copy
of the Stock Option Agreement between the Company and Mr. Slucker is attached as
Exhibit A to this Proxy Statement. The following is a summary of the Stock
Option Agreement. This summary does not purport to be complete, and is qualified
in its entirety by reference to the text of the Stock Option Agreement, which is
attached as Exhibit A to this Proxy Statement.
Stockholder approval of the grant of options to Mr. Slucker is required
under the Nasdaq Stock Market, Inc. Marketplace Rules.
The options shall vest as follows:
(i) 250,000 shares of Common Stock on the date of grant.
(ii) an additional 250,000 shares at such point that the Common Stock of
the Company exceeds $10.00 per share for 20 consecutive trading days or if the
earnings per share equals $1.00 for any fiscal year;
(iii) an additional 250,000 shares at such point that the Common Stock of
the Company exceeds $13.00 per share for 20 consecutive trading days or if the
earnings per share equals $1.25 for any fiscal year;
(iv) an additional 250,000 shares at such point that the Common Stock of
the Company exceeds $16.00 per share for 20 consecutive trading days or if the
earnings per share equals $1.50 for any fiscal year; and
(v) an additional 250,000 shares at such point that the Common Stock of
the Company exceeds $20.00 per share for 20 consecutive trading days or if the
earnings per share equals $1.75 for any fiscal year.
The earnings and market price levels set forth above were determined by
the Compensation Committee and should not be construed in any way to imply or
predict any future earnings by the Company or any increase in the market price
of its securities.
All of the options granted to Mr. Slucker will vest immediately in the
event there is a sale of the Company or similar transaction at a price greater
than or equal to $10 per share. Options which have not vested at the time Mr.
Slucker's employment is terminated (other than by reason of death, disability or
termination without cause) will be canceled. The options will, to the extent not
previously terminated or exercised, expire and become void on April 27, 2009.
The Compensation Committee is currently composed of two "outside
directors" as defined under Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), consisting of Jeffrey Baker and Leslie E. Goodman.
During 1998 and early 1999, the Compensation Committee met four times by
telephone to discuss the compensation, including the grant of stock options, to
be paid to Mr. Slucker.
11
<PAGE>
In addition, the Compensation Committee requested and received a report from an
outside consulting firm that specializes in the analysis of executive
compensation analyzing various aspects of the compensation paid to Mr. Slucker
as it compares to the compensation of other executives in the sports equipment
industry.
The employment agreement between the Company and Mr. Slucker expires in
December 1999. On April 27, 1999, Mr. Slucker agreed to extend the term of the
employment agreement for a period of three years from the date of the Meeting,
subject to stockholder ratification of the grant of stock options to Mr. Slucker
at the Meeting.
The Compensation Committee believes that the granting of options is
critical to retaining the long-term services of Mr. Slucker as Chairman,
President and Chief Executive Officer, which it also believes to be crucial to
the future success of the Company. Mr. Slucker did not receive a bonus in 1998
for his services with the Company. The Compensation Committee believes that the
grant of stock options to Mr. Slucker is an effective way to retain the future
services of Mr. Slucker and, in light of his relatively moderate salary and
receipt of no bonus for 1998, is an important component of the overall
compensation package provided to him.
In determining the size of Mr. Slucker's stock option grant, the
Compensation Committee considered Mr. Slucker's responsibilities, experience and
value to the Company and the expected future contribution of Mr. Slucker to the
Company's performance. In addition, the Compensation Committee, with the help of
the report of its outside consultants, examined the low outright equity position
held by Mr. Slucker relative to equity positions of other chief executives in
the industry in their own company stock. Furthermore, the options that were
previously granted to Mr. Slucker (and that are not subject to stockholder
ratification at the Meeting), are exercisable at a price that is currently above
the market price of the Common Stock at April 28, 1999.
The stock options covering an aggregate of 1,250,000 shares of Common
Stock were granted to Mr. Slucker at $3.375 per share, the fair market value of
the Common Stock of the Company on the date of the grant. Thus, the value of a
stockholder's investment in the Company must appreciate before Mr. Slucker
receives any financial benefit from the options. Most significantly, 1,000,000
of the options vest only if the Company meets certain earnings or stock price
targets that are significantly greater than the current levels of Company
earnings and stock price. The Compensation Committee believes that the grant of
stock options in this manner provides an incentive for Mr. Slucker to maximize
stockholder value by directly linking a substantial portion of Mr. Slucker's
compensation to the achievement of significantly higher earnings and share price
for the Company. Thus, the grant of these options to Mr. Slucker provides him
with a strong economic interest in working towards the future success of the
Company and maximizing stock price appreciation for the Company and its
stockholders.
There are, however, certain potential adverse effects to the Company that
could result from the grant of these options to Mr. Slucker. First, because all
of Mr. Slucker's options would vest in the event of a sale of the Company for
consideration greater than or equal to $10 per share, Mr. Slucker might have an
incentive to negotiate for a sale of the Company, even if it might not be in the
Company's best long-term interests, thus creating a conflict of interest for Mr.
Slucker. Second, in the event that the Company attains any of the earnings
thresholds or the Common Stock meets certain market prices, the vesting of any
or all of the additional 1,000,000 options would be deemed additional
compensation expense of the Company. Accordingly, the Company may, during the
periods that any such options vest, recognize a charge to earnings, which could
reduce or eliminate earnings, if any, at such times. Although the amount of
compensation expense recognized by the Company in such a situation would not
affect the Company's total stockholders' equity, it could result in a reduction
of the market price of the Common Stock of the Company. Third, once vested, the
exercise by Mr. Slucker of the options could cause significant dilution to
existing stockholders.
12
<PAGE>
After consideration of the positive and possible adverse consequences of
granting the options to Mr. Slucker, through numerous internal discussions and
after reviewing internally and externally generated information on executive
compensation, the Compensation Committee determined that it is in the Company's
best interests, both in the near and long-term future, to grant the stock
options to Mr. Slucker.
Federal Income Tax Consequences
The following is intended only as a brief summary of the federal income
tax rules relevant to the grant of the options to Mr. Slucker. These rules are
highly technical and subject to change in the future.
Tax Consequences to the Company. Recent changes in tax law limit the
amount that a corporation can deduct for compensation to any "covered employee."
Section 162(m) of the Code generally disallows the deduction of compensation
income in excess of $1.0 million in any taxable year beginning on or after
January 1, 1994. If Mr. Slucker were still a "covered employee," meaning either
the Chief Executive Officer or one of the other four most highly compensated
employees of the Company whose compensation is required to be disclosed under
the Securities Exchange Act of 1934, as amended, and he were to exercise his
options or otherwise accrue more than $1.0 million in compensation in any given
taxable year (irrespective of when such compensation was earned, e.g., when such
options were granted), the Company would not be allowed to deduct that portion
of Mr. Slucker's otherwise deductible compensation that exceeded $1.0 million.
Section 162(m) does not apply, however, to compensation that meets the following
four criteria: (i) the compensation is based solely on the attainment of
performance goals; (ii) the performance goals are determined by a Compensation
Committee of the Board of Directors comprised of two or more outside directors;
(iii) the material terms of the compensation are disclosed to stockholders and
approved by a majority vote of stockholders; and (iv) certification by the
Compensation Committee that the performance goals have been met. Stock options
are automatically treated as based on the attainment of performance goals and
are not subject to certification by the Compensation Committee if the exercise
price of the options is not less than the fair market value of the underlying
stock at the time the options were granted. Thus, since the options were granted
by the Compensation Committee of the Board of Directors of the Company comprised
solely of outside directors, upon stockholder approval of this proposal, Mr.
Slucker will be able to exercise his options once vested, and the Company will
be able to deduct the compensation income attributable to Mr. Slucker upon such
an exercise.
Tax Consequences to Mr. Slucker. The options granted to Mr. Slucker by the
Compensation Committee are classified as non-qualified options ("NQOs") under
the Code. Under the Code, an optionee does not recognize any taxable income, and
the Company is not entitled to a deduction, upon the grant of an NQO. Upon the
exercise of an NQO, Mr. Slucker will recognize ordinary compensation income
(subject to wage and employment tax withholding) equal to the excess of the fair
market value of the shares acquired over the option exercise price. The amount
of such excess is generally determined by reference to the fair market value of
the Company's Common Stock on the date of exercise. However, because Mr. Slucker
is subject to six month short-swing profit liability under Section 16(b) of the
Securities Exchange Act of 1934, as amended (typically, officers, directors and
major stockholders of a corporation), such excess will be determined by using
the fair market value on the later of the date of exercise or the date six
months after the date of grant unless Mr. Slucker elects to be taxed based on
the fair market value of the Company's Common Stock on the date of exercise by
filing an appropriate election pursuant to Section 83(b) of the Code with the
Internal Revenue Service within 30 days after the exercise date. Mr. Slucker's
basis in the stock received is equal to such stock's fair market value on the
date of exercise (or on the date six months after the date of grant). The
Company is entitled to a deduction equal to the compensation taxable to Mr.
Slucker.
If Mr. Slucker sells shares acquired pursuant to the exercise of the
options, he will recognize capital gain or loss equal to the difference between
the selling price of the shares and his basis in the shares.
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<PAGE>
Such capital gain or loss is long- or short-term depending on whether he has
held the shares for more than one year. If Mr. Slucker does not make the
election described above, any such capital gain will be long term only if the
stock has been held for more than one year after the later of the exercise date
or the date six months after the date of grant. The Company is not entitled to
any deduction with respect to any capital gain recognized by Mr. Slucker.
Capital losses on the sale of such shares may be used to offset capital
gains. The net long-term capital gain of an individual taxpayer is subject to a
maximum tax rate of 28%. If capital losses exceed capital gains, then up to
$3,000 of the excess losses may be deducted from ordinary income. Remaining
capital losses may be carried forward to future tax years.
The Board of Directors recommends a vote "FOR" the ratification of the grant of
stock options to purchase 1,250,000 shares of Common Stock to Rudy A. Slucker,
the Company's Chairman, President and Chief Executive Officer.
PROPOSAL 3. 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 350,000 the number of shares of Common Stock for which
options may be granted thereunder from 450,000 shares to 800,000 shares. The
Plan, as proposed to be amended, is attached as Exhibit B to this Proxy
Statement.
Reasons For The Proposal
Under the Plan as currently in effect, options for up to 450,000 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 3. 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 B 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 450,000 shares of Common
Stock ("Options"), and if Proposal 3 is approved, up to an additional 350,000
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 key employees, independent contractors, agents and consultants of
the Company or any of its subsidiaries.
Administration. If amended by Proposal 3, 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
14
<PAGE>
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 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 28, 1999, options to acquire 2,594,048 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, 553,300 shares of Common
Stock had been granted under the Plan (103,300 of which are subject to the
approval by the stockholders of an amendment to the Plan at the Meeting) and
2,040,748 were granted outside of the Plan (1,250,000 of which have been granted
to Rudy A. Slucker, the Company's Chairman, President and Chief Executive
Officer and are subject to approval at the Meeting by the stockholders). As of
April 28, 1999, the Company has awarded or granted options under the Plan to
approximately 268 persons. The following persons and groups have received
certain of these options: Rudy A. Slucker: 1,750,000 (1,250,000 of which are
subject to stockholder approval at the Meeting); John Zeravica: 39,000; Joseph
A. Cioni: 27,000; all current executive officers as a group: 1,816,000; all
current directors who are not executive officers as a group: 60,000; and all
employees who are not executive officers as a group: 427,300. On March 21, 1997,
options to purchase 15,000 shares of Common Stock for $4.75 per share were
granted to each of Fred K. Hochman, 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.
15
<PAGE>
The Company has granted five-year options to acquire an aggregate of 93,748
shares of Common Stock to touring golf professionals and other professional
athletes who perform consulting and other promotional services for the Company,
all of which have been granted outside of the Plan. 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 three executive officers
and approximately 230 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
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
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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.
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 800,000.
The Board of Directors recommends a vote "FOR" the amendment to the Plan.
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PROPOSAL 4. 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, 1999. 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. The Company dismissed Rothstein Kass as
auditors of the Company effective as of February 27, 1998 (the "Effective Date
of Dismissal"). Rothstein Kass' 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' reports.
Effective February 27, 1998 (the "Effective Date of Engagement"), the
Company engaged Ernst & Young LLP ("E&Y") as its principal accountants. E&Y's
report on the Company's financial statements as of December 31, 1998 has been
qualified as to uncertainty regarding the Company's ability to continue as a
going concern. 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 E&Y 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 January 27, 2000, for
consideration for inclusion in the proxy material for such annual meeting of
stockholders.
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.
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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 A. Cioni
Secretary
Dated: May 27, 1999
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EXHIBIT A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of April 27, 1999 between TEARDROP GOLF
COMPANY, a Delaware corporation (the "Company") and RUDY A. SLUCKER (hereinafter
referred to as the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue stock options (the "Options") to
Optionee to purchase 1,250,000 shares (the "Shares") of Common Stock of the
Company, $.01 par value per share (the "Common Stock") in accordance with the
vesting schedules and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the agreements herein set forth and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Optionee is hereby granted the right to purchase, at any
time from April 27, 1999 until April 27, 2009 at 5:00 p.m., New York time (the
"Option Exercise Term"), 1,250,000 Shares at an initial exercise price (subject
to adjustment as provided in Article 7 hereof) of $3.375 per Share.
a. Vesting Schedule. The option shall vest to the extent of:
(i) 250,000 shares of Common Stock on the date of grant.
(ii) An additional 250,000 shares at such point that the closing price of
the Common Stock of the Company exceeds $10.00 per share for 20 consecutive
trading days or if the earnings per share equals $1.00 for any fiscal year;
(iii) An additional 250,000 shares at such point that the closing price of
the Common Stock of the Company exceeds $13.00 per share for 20 consecutive
trading days or if the earnings per share equals $1.25 for any fiscal year;
(iv) An additional 250,000 shares at such point that the closing price of
the Common Stock of the Company exceeds $16.00 per share for 20 consecutive
trading days or if the earnings per share equals $1.50 for any fiscal year; and
(v) An additional 250,000 shares at such point that the closing price of
the Common Stock of the Company exceeds $20.00 per share for 20 consecutive
trading days or if the earnings per share equals $1.75 for any fiscal year.
If any of the above conditions are not satisfied by the end of the term of
this agreement, then this option shall expire with respect to any non-vested
shares of Common Stock.
b. Acceleration of Vesting on Change of Control. In the event of a
Change of Control as hereinafter defined, pursuant to which the value of
the consideration (determined by the Board of Directors of the Company)
received by the shareholders of the Company is at least $10.00 per share,
the option shall vest in its entirety immediately upon the consummation of
the
<PAGE>
transaction that results in the Change of Control. For the purposes
hereof, "Change of Control" shall mean a change in ownership or managerial
control of the stock, assets or business of the Company resulting from one
(1) or more of the following circumstances:
(i) A change of control in ownership of the Company through a
transaction or series of transactions, such that any person is or
becomes the beneficial owner, directly or indirectly, of securities
of the Company representing fifty percent (50%) plus one share or
more of the combined voting power of the Company's then outstanding
securities; or
(ii) A change in ownership of the shares of the Company,
through a transaction or series of transactions, such that any
person not presently an owner of securities of the Company as of the
effective date hereof becomes the beneficial owner, directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then
outstanding securities; or
(iii) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant
to which shares of the Company stock would be converted into cash,
securities or other property; or
(iv) The shareholders of the Company approve any plan or
proposal for the liquidation or dissolution of the Company; or
(v) During any period of two (2) consecutive years,
individuals who, at the beginning of such period, constituted the
Board of Directors of the Company cease, for any reason, to
constitute at least a majority thereof, unless the election or
nomination for election of each new director was approved by the
vote of at least two-thirds (2/3) of the directors then still in
office who were directors at the beginning of the period; or
(vi) The voluntary or involuntary filing of a petition for
reorganization or dissolution of the Company under the United States
federal bankruptcy laws, which petition shall not be dismissed
within thirty (30) days after the date of filing of said petition.
The terms "beneficial owner" shall have the same meaning as given to that term
in Rule 13d-3 of the General Rules and Regulations of the Securities Exchange
Act of 1934 (the "Act"), and "person" shall mean any individual, partnership,
joint venture, association, trust, corporation or other entity (including a
"group" as defined in Section 13(d)(3) of the Act) other than an employee
benefit plan of the Company or any entity organized, appointed or established
pursuant to the terms of any such benefit plan.
2. Option Certificate. An option certificate (the "Option Certificate")
shall be delivered to Optionee pursuant to this Agreement in the form set forth
in Exhibit A attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Options. The Options are exercisable at a price of $3.375
per share of Common Stock payable in cash or by certified check to the order of
the Company, subject to adjustment as
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<PAGE>
provided in Article 7 hereof. Upon surrender of the Option Certificate with the
Form of Election, attached hereto as Exhibit B, duly executed, together with
payment of the Exercise Price (as hereinafter defined) for the Shares at the
Company's principal executive offices, the registered holder of the Option
Certificate ("Holder") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Option Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional Shares). In the case of the purchase
of less than all the Shares, the Company shall cancel said Option Certificate
upon the surrender thereof and shall execute and deliver a new Option
Certificate of like tenor for the balance of the Shares.
4. Issuance of Certificates. Upon the exercise of the Options, the
issuance of certificates for the Shares purchased shall be made forthwith (and
in any event within three business days thereafter) without charge to the Holder
thereof including, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates and the Company shall not
be required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
The Option Certificate and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of Directors
or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company.
Upon exercise, in part or in whole, of the Options, certificates
representing the Shares purchased (collectively, the "Option Securities"), shall
bear a legend substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent applicable,
pursuant to Rule 144 under the Act (or any similar rule under such
Act relating to the disposition of securities), or (iii) upon the
delivery by the holder to the Company of an opinion of counsel,
reasonably satisfactory to counsel to the Company, stating that an
exemption from registration under such Act is available."
5. Restriction on Transfer of Options. The Holder of the Option
Certificate, by its acceptance thereof, covenants and agrees that the Options
are being acquired as an investment and not with a view to the distribution
thereof.
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial exercise price
of each Option shall be $3.375 per Share. The adjusted exercise price shall be
the price which shall result from time to time from any and all adjustments of
the initial exercise price in accordance with the provisions of Article 7
hereof.
6.2. Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
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7. Adjustments of Exercise Price and Number of Securities. The following
adjustments apply to the Exercise Price of the Options with respect to the
Shares and the number of Shares purchasable upon exercise of the Options. In the
event the Exercise Price per Share and/or the number of Shares so purchasable is
adjusted, then the Exercise Price of the Options shall be adjusted in the same
proportion.
7.1. Computation of Adjusted Price. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution
the Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance
with the provisions of this Section 7.1, the Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the date following
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution.
7.2. Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
7.3. Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Option shall be adjusted to the
nearest full number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Options immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
7.4. Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or in the
case of a sale or conveyance to another corporation of the property of the
Company as an entirety, the Holder shall thereafter have the right to purchase
the kind and number of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holder were the owners of the Shares immediately prior to
any such events, at a price equal to the product of (x) the number of shares of
Common Stock issuable upon exercise of the Holder's Options and (y) the Exercise
Price in effect immediately prior to the record date for such reclassification,
change, consolidation, merger, sale or conveyance as if such Holder had
exercised the Options.
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<PAGE>
7.5. Determination of Outstanding Shares of Common Stock. The number
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights and upon the conversion or exchange of convertible or exchangeable
securities.
8. Replacement of Option Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Option Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Option, if mutilated, the Company will
make and deliver a new Option Certificate of like tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of Shares upon the exercise of the Option, nor shall it be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.
10. Reservation of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Option, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Options and payment of the Exercise Price therefor, all Shares
issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any shareholder.
11. Approval of Stockholders.
The grant hereunder shall be contingent upon the receipt by the
Company of approval of the grant of this option by the stockholders of the
Company to be solicited at the next Annual Meeting of Stockholders to be held by
the Company.
12. Rights of Option Holder.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder the right to vote or to consent or to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company.
13. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to Optionee, to the address of the Optionee as shown on the
books of the Company; or
5
<PAGE>
(b) If to the Company, to the address of the Company's principal
executive officers or such address as the Company may designate.
14. Supplements and Amendments.
The Company and the Optionee may from time to time supplement or
amend this Option Agreement without the approval of any Holder of the Option
Certificate in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Optionee may deem
necessary or desirable and which the Company and the Optionee deem not to
adversely affect the interests of the Holder of the Option Certificate.
15. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Optionee inure to the benefit of their respective
successors and assigns hereunder.
16. Governing Law.
This Agreement and each Option Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Delaware and for all
purposes shall be construed in accordance with the laws of said State.
17. Counterparts.
This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
TEARDROP GOLF COMPANY
By:__________________________________
Name:
Title:
OPTIONEE
_____________________________________
Rudy A. Slucker
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<PAGE>
EXHIBIT A
_______ Shares
THE SECURITIES ISSUABLE UPON EXERCISE OF STOCK OPTIONS ISSUED PURSUANT TO
THE STOCK OPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT
APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY
THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE.
TEARDROP GOLF COMPANY
Stock Option Certificate
TearDrop Golf Company (the "Company"), a Delaware Corporation, hereby
grants to the person named below an option to purchase shares of Common Stock,
par value $.01 per share, of the Company (the "Option") under and subject to the
Stock Option Agreement between the Company and ______________ (the "Agreement")
exercisable on the following terms and conditions and those set forth in
connection with this certificate:
Name of Optionee:_________________________________________________________
Address:_________________________________________________________
_________________________________________________________
Social Security No:._________________________________________________________
Number of Shares:_________________________________________________________
Option Price:_________________________________________________________
Date of Grant:_________________________________________________________
Exercisability Schedule
Exercise Period
---------------
Number of Shares Subject to Option Commencement Date Expiration Date
- ---------------------------------- ----------------- ---------------
The Option shall not be treated as an Incentive Stock Option under section
422 of the Internal Revenue Code of 1986, as amended. By acceptance of this
Option, the Optionee agrees to the terms and conditions hereof.
<PAGE>
TEARDROP GOLF COMPANY
Stock Option Terms And Conditions
1. Agreement Incorporated by Reference. This Option is issued pursuant to
the terms of the Stock Option Agreement (the "Agreement) between TearDrop Golf
Company, a Delaware corporation (the "Company) and Rudy A. Slucker. Capitalized
terms used and not otherwise defined in this certificate have the meanings given
to them in the Agreement. This certificate does not set forth all of the terms
and conditions of the Agreement, which are incorporated herein by reference.
2. Option Price. The price to be paid for each share of Common Stock
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
from time to time for the number of shares and in accordance with the Agreement.
This Option may not be exercised as to any shares after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
deliver written notice of exercise to the President of the Company specifying
the number of shares with respect to which the Option is being exercised
accompanied by payment of the Option Price for such shares in cash or by
certified check. Promptly following such notice, the Company will deliver to the
Optionee a certificate representing the number of shares with respect to which
the Option is being exercised.
5. Rights as a Stockholder. The Optionee shall not have any rights as a
stockholder of the Company in respect of shares as to which the Option shall not
have been exercised and payment made as provided above.
6. Recapitalization, Mergers, Etc. As provided in the Agreement, in the
event of certain corporate transactions affecting the Company's outstanding
Common Stock, the number and kind of shares subject to this Option and the
exercise price hereunder Committee shall be adjusted.
7. Compliance with Securities Laws. It shall be a condition to the
Optionee's right to purchase shares of Common Stock hereunder that the Company
may, in its discretion, require (a) in the opinion of counsel for the Company,
the proposed purchase shall be exempt from registration under that Act and the
Optionee shall have made such undertakings and agreements with the Company as
the Company may reasonably require, and (b) that such other steps, if any, as
counsel for the Company shall consider necessary to comply with any law
applicable to the issue of such shares by the Company shall have been taken by
the Company or the Optionee, or both. The certificates representing the shares
purchased under this Option may contain such legends as counsel for the Company
shall consider necessary to comply with any applicable law.
8. Payment of Taxes. The Optionee shall pay to the Company, or make
provision satisfactory to the Company for payment of, any taxes required by law
with respect to the exercise of this Option.
<PAGE>
TEARDROP GOLF COMPANY
By:___________________________
ACCEPTED:
______________________________
<PAGE>
EXHIBIT B
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Option Certificate, to purchase _________ Shares of Common
Stock and herewith tenders in payment for such securities, cash or a certified
or official bank check payable to the order of TearDrop Golf Company in the
amount of $_____________, all in accordance with the terms of that Stock Option
Agreement dated as of ____________. The undersigned requests that a certificate
for such securities be registered in the name of _________________________,
whose address is _________________________________.
Date: Signature:________________________________ *
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
* Signature must conform in all respects to
name of holder as specified on the face of
the Option Certificate.
<PAGE>
EXHIBIT B(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
then
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(1) Underscored language represents new language added and language which is
lined out is to be removed.
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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 800,000 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
transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or
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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.
(d) No Grantee shall have any of the rights of a shareholder by reason of
a Stock Option until it is exercised.
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(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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