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:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| 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):
-------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------
|_| 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:___________________________________________________________
3
<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
April 27, 2000, 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
Jeffrey Baker
Andrew Kairey
(Instruction: To withhold authority to vote for an individual nominee, write the
nominee's name on the line provided below.)
- -------------------------------
2. Approval of the adoption of an amendment to the Company's Certificate of
Incorporation to increase the Company's authorized shares of Common Stock, $.01
par value, from 10,000,000 to 20,000,000 shares.
FOR |_| AGAINST |_| ABSTAIN |_|
3. Ratification of the grant of options to Rudy A. Slucker, Chairman and Chief
Executive Officer of the Company, to purchase 1,500,000 shares of the Company's
common stock for $1.375.
FOR |_| AGAINST |_| ABSTAIN |_|
4. Ratification of the issuance to Rudy A. Slucker, Chairman and Chief Executive
Officer of the Company, of a $1,000,000 Amended and Restated Subordinated
Convertible Demand Note.
FOR |_| AGAINST |_| ABSTAIN |_|
5. Approval of an amendment to the 1996 Employee Stock Option Plan to increase
the number of shares reserved for issuance under such plan to 1,300,000.
FOR |_| AGAINST |_| ABSTAIN |_|
6. Approval of the appointment of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 2000.
FOR |_| AGAINST |_| ABSTAIN |_|
7. In their discretion, on such other business as may properly come before the
meeting or any adjournment thereof.
FOR |_| AGAINST |_| ABSTAIN |_|
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, 5 and 6.
This Proxy is solicited by the Board of Directors of the Company.
Receipt of the Notice of Special Meeting of
Stockholders, Financial Information and Proxy
Statement dated _____________, ____ is hereby
acknowledged:
Date: ______________________, ____
__________________________________
__________________________________
__________________________________
(Signature)
(Please sign exactly as your name appears hereon,
indicating, where proper, official position
or representative capacity).
____________________________
|____________________________|
4
<PAGE>
TearDrop Golf Company
1080 Lousons Road
Union, New Jersey 07083
-----------------------------------------------
Notice Of Annual Meeting Of Stockholders
To Be Held April 27, 2000
-----------------------------------------------
NOTICE IS HEREBY GIVEN that the 2000 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 [April 27], 2000 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 approve the adoption of an amendment to the Company's Certificate
of Incorporation increasing the Company's authorized shares of
common stock, $.01 par value, from 10,000,000 to 20,000,000 shares.
(3) To ratify the grant of options to Rudy A. Slucker, Chairman and
Chief Executive Officer of the Company, to purchase 1,500,000 shares
of the Company's common stock for $1.375.
(4) To ratify the issuance to Rudy A. Slucker, Chairman and Chief
Executive Officer of the Company, of a $1,000,000 Amended and
Restated Subordinated Convertible Demand Note.
(5) To approve an amendment to the 1996 Employee Stock Option Plan to
increase the number of shares reserved for issuance under such plan
to 1,300,000.
(6) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2000.
(7) 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 March 27, 2000 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
March 28, 2000
Union, New Jersey
5
<PAGE>
TearDrop Golf Company
1080 Lousons Road
Union, New Jersey 07083
------------------------------------------------
Proxy Statement for Annual Meeting
------------------------------------------------
This Proxy Statement is furnished by the Board of Directors (the "Board of
Directors") of TearDrop Golf Company, a Delaware corporation (the "Company"), in
connection with the solicitation of proxies to be used at the Annual Meeting of
Stockholders (the "Meeting") to be held on April 27, 2000 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 Notice and Proxy are being mailed to stockholders on or about March
28, 2000. 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,
March 27, 2000 (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 5,262,565
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, Andrew
Kairey and Jeffrey Baker as directors of the Company, (b) "FOR" the approval of
the adoption of an amendment to the Company's Certificate of Incorporation
increasing the Company's authorized shares of common stock, $.01 par value, from
10,000,000 to 20,000,000 shares, (c) "FOR" the ratification of the grant of
options to Rudy A. Slucker, Chairman and Chief Executive Officer of the Company,
to purchase an aggregate of 1,500,000 shares of common stock of the Company, for
$1.375, (d) "FOR" the ratification of the issuance of a $1,000,000 Amended and
Restated Subordinated Convertible Demand Note to Rudy A. Slucker, Chairman and
Chief Executive Officer of the Company, (e) "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 to 1,300,000, (f) "FOR the ratification of the
appointment of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending December 31, 2000, and (g) 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
1
<PAGE>
the holders of at least a majority of the outstanding shares of Common Stock
present, in person or by proxy, and entitled to vote at the Meeting is required
for the ratification and approval of, unless otherwise required by the Delaware
General Corporation Law or the Company's Certificate of Incorporation, any and
all other matters 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 March 27, 2000
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 3,734,200(2) 43.9%
Andrew M. Kairey 57,000(3) *
Joseph A. Cioni 53,000(4) 1.0
John Zeravica 27,000(5) *
Fred K. Hochman 168,000(6) 3.2%
Leslie E. Goodman 15,000(6) *
Bruce H. Nagel 23,280(6) *
Jeffrey Baker 15,000(6) *
Wellington Management 370,100(7) 7.0%
Company, LLP
75 State Street
Boston, Massachusetts
02109
All directors and 4,050,480(8) 46.8%
executive officers as a
group (7 persons)
- ---------------------
* 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) 750,000 shares subject to options exercisable to the extent
of 250,000 shares at $4.50 per share, 250,000 shares at $4.625 per share,
and 250,000 shares at $3.375 per share and (ii) an aggregate of 25,000
shares of common stock owned by the wife of Mr. Slucker, with respect to
which Mr. Slucker disclaims beneficial ownership. Also includes 1,500,000
shares underlying options granted on December 31, 1999, subject to
stockholder approval at the Meeting, and which will be immediately
exercisable at $1.375 per share. Also includes 1,000,000 shares underlying
the $1,000,000 Amended and Restated Subordinated Convertible Demand Note
(the "Note") which, subject to shareholder approval at the Meeting,
provides Mr. Slucker the option of converting the Note at any time, in
whole or in part, at the rate of one share of the Company's Common Stock
for each one dollar ($1.00) of unpaid principal and interest outstanding
on this Note. Does not include 1,000,000 shares subject to options
exercisable at $3.375 per share which are exercisable only upon the
achievement of certain earnings and stock price targets.
(3) Includes 15,000 shares underlying options exercisable at $2.25 per share.
Does not include options to purchase 100,000 shares of common stock that
are not exercisable within 60 days of the date hereof.
2
<PAGE>
(4) Includes 39,000 shares underlying options exercisable at prices ranging
from $1.375 to $5.25 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 27,000 shares underlying options exercisable at prices ranging
from $4.75 to $6.875 per share. Does not include options to purchase
24,000 shares of Common Stock that are not exercisable within 60 days from
the date hereof.
(6) Includes 15,000 shares underlying options exercisable at $4.75 per share.
Does not include options to purchase 15,000 shares of Common Stock that
are not exercisable within 60 days from the date hereof.
(7) Represents 370,000 shares of Common Stock that Wellington Management
Company, in its capacity as investment adviser, may be deemed to
beneficially own and which are held of record by clients of Wellington
Management Company. Those clients have the right to receive, or the power
to direct the receipt of, dividends from, or the proceeds from the sale
of, such Common Stock. No such client is known to have such right or power
with respect to more than five percent (5%) of the Company' Common Stock.
(8) Includes 250,000 shares underlying options exercisable at $4.50 per share,
250,000 shares underlying options exercisable at $4.625 per share, 250,000
shares underlying options exercisable at $3.375 per share, 1,500,000
shares underlying options, which, subject to stockholder approval at the
Meeting, shall be immediately exercisable at $1.375 per share, 15,000
shares underlying options exercisable at $2.25 per share, 39,000 shares
underlying options exercisable at prices ranging from 1.375 to $5.25 per
share, 27,000 shares underlying options exercisable at prices ranging from
$4.75 to $6.875 per share, 60,000 shares underlying options exercisable at
$4.75 per share, and 1,000,000 shares underlying the $1,000,000 Amended
and Restated Subordinated Convertible Demand Note (the "Note") which,
subject to shareholder approval at the Meeting, provides Mr. Slucker the
option of converting the Note at any time, in whole or in part, at the
rate of one share of the Company's Common Stock for each one dollar
($1.00) of unpaid principal and interest outstanding on this Note. Does
not include options to purchase 109,000 shares of Common Stock that are
not exercisable within 60 days from the date hereof. Also does not include
options to purchase 1,000,000 shares of common stock at $3.375 per share
that are exercisable only upon the achievement of certain targets.
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, Andrew M. Kairey
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.
Bruce Nagel, Esq., a current Director of the Company, will not stand for
reelection at this year's Annual Meeting of Stockholders. Andrew M. Kairey, the
Company's President and Chief Operating Officer, has been nominated to stand for
election at this year's Annual Meeting of Stockholders, and if elected, would
hold the seat previously held by Mr. Nagel.
3
<PAGE>
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 and executive officers of
the Company, 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.
Name Age Position with the Company Held Position Since
- ---- --- ------------------------- -------------------
Rudy A. Slucker 50 Chairman of the Board and 1996
Chief Executive Officer
Andrew M. Kairey 40 President and Chief 2000
Operating Officer
Fred K. Hochman 51 Director 1992
Leslie E. Goodman 55 Director 1996
Jeffrey Baker 44 Director 1996
Joseph A. Cioni 60 Senior Vice President and [1997]
Chief Financial Officer
John Zeravica 43 Senior Vice President of [1996]
Manufacturing Operations
CERTAIN BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
RUDY A. SLUCKER has served as Chairman of the Board and Chief Executive
Officer of the Company since September 1996 and served as its President from
September 1996 through January 2000. 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 of Ambassador Eyewear Group, Inc., a manufacturer and distributor of
designer brand eyeglass frames which filed for protection under the Federal
Bankruptcy laws in February 2000.
ANDREW M. KAIREY, joined the Company in January 2000 as its President and
Chief Operating Officer and will stand for election to the Board of Directors at
this year's Annual Meeting. Prior to joining the Company, Mr. Kairey was
employed for twelve years at Universal Studios Inc., most recently holding
the position of Executive Vice President - International of Universal Studios
Home Video.
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 November 1982 through August 1992, he was Chairman
of Machine Tool Finance Corporation, a company he co-founded.
LESLIE E. GOODMAN has been a director of the Company since November 1996.
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
4
<PAGE>
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.
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.
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. Mr. Nagel will not
stand for reelection at this year's Annual Meeting.
JOSEPH A. CIONI joined the Company in August 1997 as Vice President of
Finance and Chief Financial Officer and was appointed Senior Vice President and
Chief Financial Officer of the Company in 2000. 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 joined the Company in September 1996 as Vice President of
Manufacturing and Operations and was appointed Senior Vice President of
Manufacturing Operations in 2000. 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 director filed a Form 5 late and an officer filed a
Form 3 late.
MEETINGS OF THE BOARD AND COMMITTEES
During fiscal year 1999, the Board of Directors held 5 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
5
<PAGE>
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, 1999.
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 four meetings during fiscal year
1999, 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 1999,
periodically reviews the Company's auditing practices and procedures, makes
recommendations to management or to the Board of Directors as to any changes to
such practices and procedures deemed necessary from time to time to comply with
applicable auditing rules, regulations and practices, and recommends independent
auditors for the Company to be elected by the stockholders.
6
<PAGE>
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, 1999, 1998 and 1997
of those persons who were, at December 31, 1999, (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, 1999 (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 1999 252,788 -- 2,500,000(1)
Chairman of the 1998 250,000 -- 1,250,000(2)
Board and Chief 1997 175,000 50,000 250,000
Executive Officer
Joseph A. Cioni 1999 110,000 -- 37,000(3)
Secretary, Senior 1998 90,000 -- 12,000
Vice President and 1997 22,500 -- 15,000
Chief Financial
Officer
1999 120,000 -- 12,000
John Zeravica 1998 104,000 -- 12,000
Senior Vice 1997 99,540 -- 27,000
President of
Manufacturing
Operations
</TABLE>
(1) Includes 1,500,000 shares subject to options granted on December 31, 1999,
which, subject to stockholder approval at the Meeting, shall be
exercisable at $1.375 per share within 60 days from the date hereof. Also
includes 1,000,000 shares underlying the $1,000,000 Amended and Restated
Subordinated Convertible Demand Note (the "Note") which, subject to
shareholder approval at the Meeting, provides Mr. Slucker the option of
converting the Note at any time, in whole or in part, at the rate of one
share of the Company's Common Stock for each one dollar ($1.00) of unpaid
principal and interest outstanding on this Note.
(2) Includes 250,000 shares subject to options that shall be exercisable at
$3.375 per share within 60 days from the date hereof. Also includes
1,000,000 shares subject to options that shall be exercisable at $3.375
per share only upon the achievement of certain earnings and stock price
targets.
(3) Includes 25,000 shares subject to options that shall be exercisable at
$1.375 per share within 60 days from the date hereof.
7
<PAGE>
COMPENSATION ARRANGEMENTS
The Company has entered into an employment agreement with Rudy A. Slucker
that expires on June 24, 2002. Pursuant to the agreement, Mr. Slucker serves as
the Company's Chief Executive Officer and was to be paid an annual salary of
$250,000. Pursuant to an amendment to Mr. Slucker's employment agreement
effective March 1, 2000, Mr. Slucker's annual salary has been increased to to
$500,000. The employment agreement also provides that Mr. Slucker is entitled to
receive a bonus equal to 10% of the Company's pre-tax net income starting with
the year ending December 31, 1997. Such bonus is payable to the extent of 50% of
such amount in cash and the remaining 50% in the form of Common Stock of the
Company valued at the lowest last sale price of the Common Stock during the last
quarter of the Company's fiscal year. In addition, if there is a sale of the
Company or substantially all of the assets of the Company which involves
consideration equal to or greater than $25,000,000, Mr. Slucker is also entitled
to a cash payment equal to the greater of $250,000 and 10% of the excess
consideration over $25,000,000. Mr. Slucker is also entitled to receive bonuses
at the discretion of the Board of Directors and in accordance with certain
performance criteria. The agreement further provides that Mr. Slucker will not
engage in activities competitive with the Company for a period of two years
after the expiration of his employment agreement. In the event that the Company
terminates Mr. Slucker's employment without cause, such provision would not
apply.
Mr. Slucker did not receive a cash bonus in fiscal year ended December 31,
1998. On June 24, 1999, the stockholders approved the grant of option to Mr.
Slucker to purchase 1,250,000 shares of Common Stock for $3.375 per share of
which 250,000 were immediately exercisable and 1,000,000 of which were
exercisable only upon the achievement of certain targets. These options to
purchase an aggregate of 1,000,000 shares become exercisable in the following
manner:
(i) 250,000 shares become exercisable at such point that the Common
Stock of the Company exceeds $10.00 per share for twenty (20)
consecutive trading days or if the Company's earnings per share
equals $1.00 for any fiscal year;
(ii) An additional 250,000 shares become exercisable at such point that
the Common Stock of the Company exceeds $13.00 per share for twenty
(20) consecutive trading days or if the Company's earnings per share
equal $1.25 for any fiscal year;
(iii) An additional 250,000 shares become exercisable at such point that
the Common Stock of the Company exceeds $16.00 per share for twenty
(20) consecutive trading days or if the Company's earnings per share
equals $1.50 for any fiscal year; and
(iv) An additional 250,000 shares become exercisable at such point that
the Common Stock of the Company exceeds $20.00 per share for twenty
(20) consecutive trading days or if the earnings per share equals
$1.75 for any fiscal year.
All of the options, however, 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 that have not vested at the time Mr. Slucker's employment
is terminated (other than by 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.
8
<PAGE>
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.
Similarly, Mr. Slucker did not receive a cash bonus in fiscal year ended
December 31, 1999. Through Mr. Slucker's efforts, however, the Company continued
to increase sales of continuing products in fiscal year 1999 and has gained
further name recognition. Additionally, Mr. Slucker played a pivotal role in the
Company's ability to obtain a $28,000,000 credit facility from Congress
Financial Corporation that the Company believes is crucial to its current
financial viability and its future financial success. As a result, the
Compensation Committee has authorized, subject to stockholder approval at the
Meeting, the grant of options to Mr. Slucker to purchase an additional 1,500,000
shares of the Company's common stock, exercisable immediately at $1.375 per
share, the market value of the shares of the Company's common stock as of
December 31, 1999, the effective date of the Commitment Letter between Congress
Financial Corp. and the Company and the date of the grant. The options will, to
the extent not previously exercised, expire and become void on December 31,
2009.
Effective January 28, 2000, the Company entered into an employment
agreement with Andrew M. Kairey. Pursuant to the agreement, Mr. Kairey will
serve as the President and Chief Operating Officer of the Company and will be
paid an annual salary of $225,000. The agreement is for a term of three years.
Upon retention, the Company granted options to Mr. Kairey to purchase 115,000
shares of the Company's Common Stock at $2.25, 15,000 of which are exercisable
within 60 days of the date hereof. The remaining options shall vest according to
the following schedule: (i) 33,333 shares on December 31, 2000; (ii) 33,333
shares on December 31, 2001; and (iii) 33,333 shares on December 31, 2002. The
options will, to the extent not previously terminated or exercised, expire and
become void on December 31, 2009.
The Company has also entered into an employment agreement with John
Zeravica. Pursuant to the agreement, Mr. Zeravica serves as Vice President of
Manufacturing 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 $500 per
Board or committee meeting attended by means of conference call.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information with respect to the options to purchase Common
Stock granted to the Chief Executive Officer and the named executive officers of
the Company during 1999.
<TABLE>
<CAPTION>
Stock Option Grants in Last Fiscal Year
Percent of
Number of Total Options
Securities Granted to
Underlying Employees In
Name Options Granted Fiscal Year (%) Exercise Price ($/Sh) Expiration Date
- ---- --------------- ---------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Rudy A. Slucker (1) 1,250,000 79.6 3.375 4/27/09
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
John Zeravica 12,000 0.8 1.50 12/21/04
Joseph Cioni 37,000 2.3 1.375 to 1.50 12/31/04
</TABLE>
(1) Includes the grant of options covering an aggregate of 1,250,000 shares of
common stock of the Company at a price of $3.375 per share, 250,000 of
which are exercisable within 60 days of the date hereof and 1,000,000 of
which are exercisable only upon the achievement of certain earnings and
stock price targets. Does not include the grant on December 31, 1999,
subject to stockholder approval at the Meeting, of options to purchase
1,500,000 shares of common stock of the Company, all of which are
exercisable within 60 days of the date hereof at a price of $1.375 per
share. If such shares were included, Mr. Slucker, Mr. O'Toole, Mr.
Zeravica, and Mr. Cioni would have been granted 89.4 %, 0.1%, 0.4%, and
1.2%, respectively, of the total number of options granted to all
employees of the Company during the fiscal year ended December 31, 1999.
OPTION EXERCISES AND FISCAL YEAR END VALUES
Shown below is information with respect to the exercise of options to
purchase Common Stock by the Chief Executive Officer and the named executive
officers and unexercised options to purchase shares of Common Stock granted to
the Chief Executive Officer and such named executive officers.
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Shares Acquired On Value Options at December 31, 1999(1) December 31, 1999(1)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------------------- ------------ ------------------------------- -------------------------
<S> <C> <C> <C> <C>
Judy A. Slucker (2) -- -- 750,000/1,000,000 $0/$0
John Zeravica -- -- 27,000/24,000 $0/$0
Joseph Cioni -- -- 39,000/25,000 $0/$0
</TABLE>
(1) On December 31, 1999, the Common Stock closed at a price of $1.375 per
share on the Nasdaq SmallCap Market.
(2) Includes options covering an aggregate of 1,250,000 shares of common stock
of the Company, exercisable at $3.375 per share, 250,000 of which are
exercisable within 60 days of the date hereof and 1,000,000 of which are
exercisable only upon the achievement of certain earnings and stock price
targets. Does not include the grant on December 31, 1999, subject to
stockholder approval at the Meeting, of options to purchase 1,500,000
shares of the Company's Common Stock, all of which are exercisable within
60 days of the date hereof at a price of $1.375 per share. If such shares
were included, with respect to Mr. Slucker, the number of exercisable
securities underlying unexercised options at December 31, 1999 would have
been 2,250,000 and the value of in-the-money options at December 31, 1999
would still have been $0.
10
<PAGE>
shares of Common Stock were exercisable and options covering an aggregate
of 20,000 shares of Common Stock were unexercisable. 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. Mr.
O'Toole, however, was granted options covering an additional 4,000 shares
of Common Stock of the Company exercisable at $5.125 within 60 days of the
date hereof.
COMPENSATION PLANS
NEW PLAN BENEFITS
As of December 31, 1999, the Compensation Committee of the Company
approved the grant to Rudy A. Slucker, the Company's Chairman and Chief
Executive Officer, of stock options to purchase 1,500,000 shares of the
Company's Common Stock at an exercise price equal to $1.375, which was equal to
the fair market value of the Common Stock on the date of grant. These options
will, to the extent not previously exercised, expire and become void on December
31, 2009. These options were not granted under the Company's 1996 Employee Stock
Option Plan, as amended. These options were granted to Mr. Slucker pursuant to a
Stock Option Agreement between the Company and Mr. Slucker dated as of December
31, 1999, a copy of which is attached as Exhibit B to this Proxy Statement. Mr.
Slucker had previously been granted options to purchase 750,000 shares,
exercisable to the extent of 250,000 shares at $4.50 per share, 250,000 shares
at $4.625 per share, and 250,000 shares at $3.375 per share. Mr. Slucker had
also been granted options to purchase 1,000,000 shares exercisable at $3.375 but
only upon the achievement of certain earnings and stock price targets.
Stock Options Granted to Rudy A. Slucker
Name and Position Dollar Value ($) Number of Units
----------------- ---------------- ---------------
Rudy A. Slucker
Chairman, President and Chief
Executive Officer (1) -(2) 1,500,000
(1) To the extent that the grant on December 31, 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 $__.__, the closing price of
the Common Stock on March 27, ___, 2000 and the exercise price of $1.375,
which was the fair market value of the Common Stock underlying the options
on the date of the grant.
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
11
<PAGE>
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 2000 Annual Meeting of Stockholders, the
stockholders of the Company are being asked to approve an amendment to the Plan
to increase the number of shares of Common Stock reserved for issuance under the
Plan from 800,000 shares to 1,300,000 shares. As of March 27, 2000, options
covering an aggregate of 784,043 shares of Common Stock are outstanding under
the Plan.
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 March
31, 1998, the Company and the Sellers entered into an agreement pursuant to
which the Company and the Sellers agreed upon certain adjustments to the
purchase price in settlement of certain disagreements relating to post-closing
adjustments. Under the agreement, the Tommy Armour Cash Payment was increased to
$11.6 million and the number of shares of Common Stock was reduced to 175,000.
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.
12
<PAGE>
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.
In January 2000, in connection with a financing arrangement between the Company
and Congress Financial Corporation ("Congress"), Mr. Slucker loaned the Company
an additional $500,000. Subject to shareholder approval at the Meeting, the
Company consolidated these loans and issued to Mr. Slucker an Amended and
Restated Subordinated Convertible Demand Note (the "Note") which is due upon
demand and accrues interest at the rate of one percent (1%) per annum in excess
of the Prime Rate of First Union National Bank. The Note is convertible at the
option of Mr. Slucker, at the rate of one share of the Company's common stock
for each dollar ($1.00) of unpaid principal and interest outstanding under the
Note.
In connection with the Company's financing arrangement with Congress, Mr.
Slucker also agreed to personally guaranty a portion of the term loan component
of the financing package. Mr. Slucker also provided Congress with a guarantee
against Congress' failure to collect by reason of certain fraudulent or criminal
acts or material misrepresentations of Mr. Slucker, Joseph A. Cioni, the
Company's Chief Financial Officer, or other employees of the Company acting at
their direction. For further details regarding the financing arrangement with
Congress, the Note, and Mr. Slucker's guarantees, please see "Proposal 4:
Ratification of the Issuance of a $1,000,000 Amended and Restated Subordinated
Convertible Demand Note to Rudy A. Slucker, Chairman and Chief Executive
Officer."
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.
PROPOSAL 2. APPROVAL OF THE ADOPTION OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION INCREASING THE COMPANY'S AUTHORIZED
SHARES OF COMMON STOCK, $.01 PAR VALUE, FROM 10,000,000 TO
20,000,000 SHARES.
The Board of Directors has determined that it is in the best interests of
the Company's stockholders to amend Article 4 of the Company's Certificate of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 20,000,000. Accordingly, the Board of Directors has unanimously
approved the proposed amendment and has directed that it be submitted to the
stockholders for approval at the Annual Meeting.
As of March 27, 2000, the record date for the Annual Meeting, the Company
had 10,000,000 authorized shares of Common Stock, $.01 par value, of which
5,262,565 were outstanding and 2,870,781 shares were reserved for issuance
pursuant to the Company's existing stock based compensation and benefit plans,
including the 1996 Employee Stock Option Plan (the "Plan") but excluding shares
issuable (i) upon exercise of the Stock Option Agreement between the Company and
Mr. Slucker that is presented to the stockholders for approval at the Annual
Meeting, and (ii) upon conversion of the Note issued, subject to stockholder
approval at the Meeting, to Mr. Slucker. The Board of Directors believes that it
is in the best interests of the Company's stockholders to increase the number of
authorized shares of common stock in order to have additional authorized, but
unissued shares available for issuance to meet business needs as they arise. The
additional authorized shares could be used for any proper purpose approved by
the Board of Directors. The Board of Directors believes that the availability of
additional shares of authorized common stock will provide the Company with the
flexibility it may need in the future to raise capital, negotiate acquisitions,
restructure debt, or for other corporate purposes.
13
<PAGE>
The additional shares of common stock to be authorized pursuant to the
proposed amendment would allow shares to be issued without the expense and delay
of a special meeting of the stockholders. The Board of Directors does not
presently intend to seek further stockholder approval to issue any such shares,
except as may be required by applicable law or the Nasdaq Marketplace Rules. The
issuance by the Company of additional shares of common stock may, depending upon
the context in which they are issued, dilute the stock ownership of the existing
stockholders of the Company. The Company's stockholders do not have any
preemptive or similar rights to subscribe for or purchase any additional shares
of common stock that may be issued in the future. The Company does not have any
definitive agreement or arrangement at the present time with respect to the
issuance of any additional shares of common stock. Although such additional
shares could be used to dilute the stock ownership of persons seeking to obtain
control of the Company, approval of the proposed amendment is not being sought
for that purpose.
In accordance with Delaware law, if approved by the stockholders, the
proposed amendment will become effective upon the filing of a certificate of
amendment relating thereto with the Secretary of State of Delaware, which will
occur as promptly as practicable after the date of the Annual Meeting. The full
text of the proposed amendment to Article 4 of the Company's Certificate of
Incorporation is set forth in Exhibit A.
The Board of Directors recommends a vote "FOR" the approval of the amendment to
the Company's Certificate of Incorporation increasing the number of authorized
shares of common stock from 10,000,000 to 20,000,000 shares.
PROPOSAL 3: RATIFICATION OF GRANT OF STOCK OPTION TO RUDY SLUCKER, THE
COMPANY'S CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TO PURCHASE
1,500,000 SHARES OF THE COMPANY'S COMMON STOCK.
As of December 31, 1999, the Compensation Committee of the Company
approved the grant of options to Rudy A. Slucker, the Company's Chairman and
Chief Executive Officer, to purchase 1,500,000 share of the Company's Common
Stock which shall be immediately exercisable at an exercise price equal to
$1.375, which was equal to the fair market value of the Common Stock on the date
of grant. The options will, to the extent not previously exercised, expire and
become void on December 31, 2009. 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 B.
These options were granted to Mr. Slucker in consideration for his role in
assisting the Company in obtaining the Company's important financing discussed
below and to compensate Mr. Slucker for his continued commitment to the Company.
On January 20, 2000, the Company entered into a $28,000,000 financing
arrangement with Congress Financial Corporation ("Congress") consisting of a
revolving loan based on the Company's eligible inventory and accounts
receivable, a $2,175,000 term loan ("Term Loan A"), and a $4,500,000 term loan
("Term Loan B"). The Company believes that obtaining this financing was critical
for the Company to sustain its current financial viability and to provide for
its future financial success.
14
<PAGE>
To assist the Company in obtaining this financing and to accommodate the
demands of Congress, Mr. Slucker agreed to personally guarantee fifty (50%)
percent of the outstanding amount of Term Loan B. Moreover, Mr. Slucker provided
Congress with a guarantee against Congress' failure to collect any outstanding
amount by reason of any fraud, material misrepresentation or criminal act
performed by either Mr. Slucker or Joseph A. Cioni or by reason of Congress'
reliance on intentionally and materially false, erroneous, misleading,
inaccurate, incorrect or incomplete information provided by Mr. Slucker, Mr.
Cioni, or any employee of the Company acting at the direction of either Mr.
Slucker or Mr. Cioni. The Loan Agreement with Congress also provides that the
failure by the Company to continue to employ Mr. Slucker as Chief Executive
Officer will result in a default under the loan facility.
To satisfy additional demands of Congress, Mr. Slucker also agreed to loan
the Company an additional $500,000 of additional capital. Together with the
$500,000 loan previously made to the Company in March 1999, Mr. Slucker will
have provided the Company with a total of $1,000,000 of capital during the past
fiscal year. The Company has consolidated these loans and has issued to Mr.
Slucker an Amended and Restated Subordinated Convertible Demand Note (the
"Note") in an amount of $1,000,000 attached as Exhibit C. Subject to shareholder
approval at the Meeting, the Note may be converted at the option of Mr. Slucker
into shares of the Company's common stock at a rate of one share for each dollar
($1.00) of unpaid principal and interest outstanding under the Note.
The Board of Directors recognizes that it is unusual for a person who
holds less than ten percent of the outstanding shares of a public company that
is the size of the Company to provide personal guarantees for the Company's
indebtedness. Moreover, the Board recognizes that Mr. Slucker has irrevocably
provided his personal guarantees and the loans to the Company prior to receiving
shareholder approval and without any assurance that he would receive adequate
compensation for providing these benefits to the Company. Accordingly, should
the shareholders not approve the issuance of the convertible note to Mr.
Slucker, he will have up to $3,250,000 of his own capital at risk. Finally, the
Board recognizes that Congress, which had insisted upon the additional infusion
of cash by Mr. Slucker as a condition to its financing, would not have approved
its credit facility to the Company were it not for Mr. Slucker's financial
commitment. To compensate Mr. Slucker for his continued financial commitment to
the Company and for the risks assumed by Mr. Slucker in order to complete the
Congress loan transaction, the Board of Directors considered granting Mr.
Slucker additional stock options in the Company.
In considering the grant of these additional options to Mr. Slucker, the
Board of Directors also evaluated the economic value of Mr. Slucker's existing
compensation package. The Board of Directors recognizes that as a result of the
decline in the Company's common stock price, options previously granted to Mr.
Slucker as compensation are now "out of the money" and have therefore yielded no
value and no compensation to Mr. Slucker as originally intended.
15
<PAGE>
The Compensation Committee previously authorized and the stockholders
previously approved the grant to Mr. Slucker of options to purchase an aggregate
of 1,750,000 shares of the Company's common stock. These options are exercisable
as follows: (i) options covering an 250,000 shares are currently exercisable at
$4.50 per share; (ii) options covering 250,000 shares are currently exercisable
at $4.625 per share; (iii) options covering 250,000 shares are currently
exercisable at $3.375 per share; and (iv) options covering 1,000,000 shares are
exercisable at $3.375 only upon the achievement of certain share price and
earnings targets or in the event of a sale of the Company at a price greater
than or equal to $10.00 per share. The Compensation Committee intended for the
stock options to comprise an important component of the overall compensation
package provided to Mr. Slucker. The Compensation Committee also believed that
the granting of the options was critical to retaining the long-term services of
Mr. Slucker as Chairman and Chief Executive Officer. Further, the Company
believes the retention of the long-term services of Mr. Slucker to be crucial to
the future success of the Company. However, the exercise prices of the options
were set at the fair market value of the Company's common stock on the date of
their grant and, as a result of the decline in the common stock price, the
options granted to Mr. Slucker are now "out of the money". The options have
therefore yielded no value and no compensation to Mr. Slucker as originally
intended by the Compensation Committee.
Despite the devaluation of Mr. Slucker's overall compensation package, the
Board observed that Mr. Slucker remains committed to the Company. He has worked
diligently to increase sales and to obtain widespread name recognition for the
Company's products. He continues to be a source of capital for the Company, as
evidenced by his previous loan of $500,000 and his agreement to loan the Company
an additional $500,000 so that the Company could obtain the financing it needs
to achieve financial success. Therefore, in consideration for Mr. Slucker's role
in obtaining the critical financing arrangement with Congress, and for his
commitment of time, energy, and financing to the Company, and in recognition
that Mr. Slucker's current compensation package has not met its objectives and
no longer provides an effective retention incentive, the Compensation Committee
of the Board of Directors of the Company composed of two "outside directors" as
defined under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), has authorized the grant to Mr. Slucker, subject to shareholder
approval, of options to purchase 1,500,000 shares of the Company's common stock
at $1.375, the market value of shares of the Company's common stock on December
31, 1999, the date of the authorization and the effective date of the Commitment
Letter with Congress.
Adverse Consequences
There are certain potential adverse effects to the Company that could
result from the grant of these options. Because the options immediately vest,
there exists the potential for Mr. Slucker's actual exercise of the options.
Such an exercise could cause significant dilution to the existing stockholders.
In addition, and if the grant of the options is approved at the Annual Meeting,
if the fair market value of the Company's common stock exceeds the exercise
price of the stock option on the date of the Meeting, then the Company will
recognize a change in earnins equal to the amount of such spread multiplied by
the number of shares underlying the option.
Summary
By issuing to Mr. Slucker options, however, the Board believes that it is
appropriately compensating Mr. Slucker for taking the unusual step of providing
both a personal guaranty and additional capital. These actions have enabled the
Company to obtain the financing it needs to maintain its financial viability.
Without Mr. Slucker's financial commitment to the Company, this financing would
have been unavailable. Additionally, by setting the exercise price at a level
commensurate with the recent market value of the Company's common stock, the
Company has provided Mr. Slucker with an incentive to maximize shareholder
value. For Mr. Slucker to receive any financial benefit from the options, the
stock price must appreciate. Moreover, because options previously granted to Mr.
Slucker are currently out of the money, Mr. Slucker has not been fully
compensated for the value and commitment that he has provided
16
<PAGE>
the Company. Should this situation continue, Mr. Slucker may be inclined to
leave the Company. The Compensation Committee strongly believes that Mr. Slucker
is a valuable asset to the Company and that the retention of his long-term
services is crucial to the future success of the Company.
Additionally, the Loan Agreement with Congress provides that the failure
by the Company to continue to employ Mr. Slucker as Chief Executive Officer will
result in a default under the loan facility. Therefore, if Mr. Slucker was to
determine that his compensation package is not satisfactory and leave the
Company, the Company would be in default under its line of credit and Congress
could accelerate the Loan. Therefore, after consideration of the positive and
adverse consequences of the option grant to Mr. Slucker, the Compensation
Committee has determined that it is in the Company's best interest, both in the
near and long term future, to grant Mr. Slucker options to purchase an
additional 1,500,000 shares of the Company' common stock exercisable immediately
at $1.375.
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, 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
17
<PAGE>
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. 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 option s to purchase 1,500,000 shares of Common Stock to Rudy A. Slucker,
the Company's Chairman and Chief Executive Officer.
PROPOSAL 4: RATIFICATION OF THE ISSUANCE OF A $1,000,000 AMENDED AND RESTATED
SUBORDINATED CONVERTIBLE DEMAND NOTE TO RUDY A. SLUCKER, CHAIRMAN
AND CHIEF EXECUTIVE OFFICER.
On January 20, 2000, the Company entered into a $28,000,000 financing
arrangement with Congress consisting of a revolving loan based on the Company's
eligible inventory and accounts receivable, a $2,175,000 term loan ("Term Loan
A"), and a $4,500,000 term loan ("Term Loan B"). In connection with this
financing, Mr. Slucker has agreed to personally guarantee fifty (50%) percent of
the outstanding amount of Term Loan B. Additionally, Mr. Slucker provided
Congress with a guarantee against Congress' failure to collect by reason of any
fraud, material misrepresentation or criminal act performed by either Mr.
Slucker or Joseph A. Cioni or by reason of Congress' reliance on intentionally
and materially false, erroneous, misleading, inaccurate, incorrect or incomplete
information provided by Mr. Slucker, Mr. Cioni, or any employee of the Company
acting at the direction of either Mr. Slucker or Mr. Cioni. Finally, Mr. Slucker
has agreed to loan the Company an additional $500,000. Mr. Slucker previously
loaned the company $500,000 in March 1999. Subject to shareholder approval at
the Meeting, the Company consolidated these loans and issued to Mr. Slucker an
Amended and Restated Subordinated Convertible Demand Note (the "Note") in an
amount of $1,000,000 attached hereto as Exhibit C.
The Note is payable on demand and interest accrues and is payable monthly
at the rate of one (1%) percent per annum in excess of the Prime Rate of First
Union National Bank. The Note, however, is subordinate and junior to any debt
owed to Congress. The Note is convertible at the option of Mr. Slucker at any
time prior to maturity, in whole or in part, at the rate of one share of the
Company's common stock for each dollar ($1.00) of unpaid principal and interest
outstanding under the Note (the "Conversion Rate"). The Conversion Rate is
subject to adjustment in the event of a stock dividend, stock split, reverse
stock split, other dividends or distributions, issuance of shares or warrants at
a price below current market price, or the reclassification of common stock into
securities other than common stock. The Conversion Rate, however, shall not be
adjusted upon the issuance or sale of shares of common stock issued or sold
under options granted pursuant to any present or future stock option plan, stock
option agreement, stock purchase plan, employees' savings or profit sharing plan
or other incentive or benefit plan providing for the sale or other issuance of
common stock by the Company to officers, directors, or employees. Additionally,
18
<PAGE>
the Conversion Rate shall not be adjusted upon the issuance or sale of shares of
the Company's common stock for a consideration per share equal to or greater
than the current market price per share.
At the time that Mr. Slucker was asked by the Board of Directors of the
Company and by Congress to loan the money to the Company and to provide his
guarantees, the Board could not assure Mr. Slucker that the shareholders of the
Company would approve the convertibility of the loan or the grant of his stock
options. Accordingly, Mr. Slucker was asked to be in the position of making his
loans and guarantees without the certainty that he would be receiving
compensation or protection that he believed was appropriate for the
responsibility that he assumed. In order to provide partial protection to Mr.
Slucker, the Company has agreed that until the stockholders have approved the
issuance of the Convertible Promissory Note and the grant of stock options to
Mr. Slucker, the Company will not sell or issue any additional shares of Common
Stock of the Company. As a result, the Company would be unable to raise any
additional capital through the sale of equity. The Company may also be unable to
use stock in connection with any acquisition transactions. Therefore, if the
shareholders fail to approve both Proposal 3 and Proposal 4, the Company's
ability to raise additional capital will be severely limited.
By providing these guarantees and this additional loan to the Company, Mr.
Slucker is demonstrating his commitment to the Company. It is unusual for a
holder of less than 10% of the outstanding shares of a public company the size
of the Company to provide personal guarantees. Moreover, by providing the
guarantees and the loan prior to obtaining shareholder approval, Mr. Slucker has
put up to $3,250,000 of his own capital at risk with no guaranteed return.
Finally, without Mr. Slucker's cooperation, Congress would not have provided the
financing package that is so critical to the company's present and future
viability. Therefore, the Board has determined that it is in the best interests
of the Company, both in the near and long term future, to issue the Note to Mr.
Slucker.
Adverse Consequences Related to Convertible Debt. The $1 million of
convertible debt can be converted into common stock of the Company at a
conversion price of $1 per share. Although the closing price for the Company's
Common Stock was $1.38 on the date that the Commitment Letter was signed, if the
fair value of the common stock at the date that the stockholders of the Company
approve this proposal is greater than $1 per share, this convertible debt will
be deemed to have a beneficial conversion feature. In accordance with the
Financial Accounting Standards Board Emerging Issues Task Force No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features," the
Company will record the impact of this beneficial conversion feature with a
charge to interest expense equal to the excess of the fair value on the date of
the Annual Meeting over $1 million. This amount represents the difference
between the conversion price and the fair value of the common stock into which
the debt is convertible, multiplied by the number of shares into which the debt
is convertible.
PROPOSAL 5. 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 800,000 shares to 1,300,000 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 800,000 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
19
<PAGE>
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 D 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 800,000 shares of Common
Stock ("Options"), and if Proposal 5 is approved, up to an additional 500,000
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 5, the Plan will be administered by
either the full Board of Directors, the Compensation Committee or such other
committee as may be designated by the Board of Directors (the "Committee"). In
administering the Plan, the Committee has the power to interpret its provisions
and to prescribe, amend, and rescind rules and regulations for its
administration, to select individuals to receive grants, to determine the terms
and provisions of grants of options and to make all other determinations
necessary or advisable for administration of the Plan.
Option Grants. The Plan provides for the granting of both incentive stock
options (an "ISO") and nonqualified stock options (a "NQO"). NQO's may be issued
to any employee or officer of the Company or its subsidiaries, or any other
person who is an independent contractor, agent or consultant of the Company or
its subsidiaries but not any director of the Company who is not an employee of
the Company. ISO's may be issued to employees and officers of the Company and
its subsidiaries, but not to any director, independent contractor, agent or
consultant. The Committee also determines the times at which options become
exercisable, their transferability and the dates, not more than ten years after
the date of 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
20
<PAGE>
of shares of the Company having an aggregate purchase price equal to or greater
than the amount of the loan.
As of March 27, 1999, options to acquire 4,370,781 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, 899,043 shares of Common
Stock had been granted under the Plan and 2,040,748 were granted outside of the
Plan (2,750,000 of which have been granted to Rudy A. Slucker, the Company's
Chairman, President and Chief Executive Officer, 1,500,000 of which are subject
to approval at the Meeting by the stockholders). As of March 27, 2000, 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: 2,750,000 (1,500,000 of which are subject to
stockholder approval at the Meeting); Andrew H. Kairey: 115,000; John Zeravica:
51,000; Joseph A. Cioni: 63,000; all current executive officers as a group:
2,979,000; all current directors who are not executive officers as a group:
120,000; and all employees who are not executive officers as a group: 550,043.
On December 21, 1999, options to purchase 15,000 shares of Common Stock for
$1.50 per share were granted to each of Fred K. Hochman, Leslie E. Goodman and
Jeffrey Baker, 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.
The Company has granted five-year options to acquire an aggregate of
71,748 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
21
<PAGE>
exercise. The difference between the fair market value of the stock at the date
of exercise and the exercise price of an ISO, however, will be treated as an
item of tax preference in the year of exercise for purposes of the alternative
minimum tax.
If the shares acquired upon an exercise of an ISO are not disposed of by
the optionee within two years from the date of grant or within one year from the
date of exercise, any gain realized upon a subsequent sale of the shares will be
taxable as a capital gain. In that case, the Company will not be entitled to a
deduction in connection with the grant or the exercise of the ISO or the
subsequent disposition of the shares by the optionee. The amount of gain or loss
realized upon such a sale or other disposition will be measured by the
difference between the amount realized and the earlier exercise price of the ISO
(the optionee's basis in the stock).
If the optionee disposes of the shares within two years from the date of
grant of the ISO or within one year from the date of exercise of the ISO, the
optionee will realize ordinary income in an amount equal to the excess of the
fair market value of the shares at the date of exercise (or the amount realized
on disposition, if less) over the option price, and the Company will be allowed
a corresponding deduction. If the amount realized on the disposition exceeds the
fair market value of the shares at the date of exercise the gain on disposition
in excess of the amount treated as ordinary income will be treated as a capital
gain. Any such capital gain will be a mid-term capital gain if the optionee
holds the shares for more than one year, but not more than 18 months, from the
date of exercise. If the optionee holds the shares for more than 18 months from
the date of exercise, any such gain will be a long-term capital gain.
Nonqualified Stock Options. An optionee will not realize income upon the grant
of a nonqualified option. Upon the exercise of a nonqualified option, an
optionee will be required to recognize ordinary income in an amount equal to the
excess of the fair market value at the date of exercise of the NQO over the
option price. Any compensation includable in the gross income of an employee
with respect to a NQO will be subject to appropriate federal income and
employment taxes. The Company will be entitled to a business expense deduction
in the same amount and at the same time as when the optionee recognizes
compensation income. Upon a subsequent sale of the stock, any amount realized in
excess of such fair market value will constitute a capital gain. Any such
capital gain will be a mid-term capital gain if the optionee holds the shares
for more than one year, but not more than 18 months, from the date of exercise.
If the optionee holds the shares for more than 18 months from the date of
exercise, any such gain will be a long-term capital gain.
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.
22
<PAGE>
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 1,300,000.
The Board of Directors recommends a vote "FOR" the amendment to the Plan.
The Board of Directors recommends a vote "FOR" the ratification of the issuance
of a $1,000,000 Amended and Restated Subordinated Convertible Demand Note to
Rudy A. Slucker, the Company's Chairman and Chief Executive Officer.
PROPOSAL 6. RATIFICATION 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, 2000. 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 was
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, 2001, for
consideration for inclusion in the proxy material for such annual meeting of
stockholders.
23
<PAGE>
EXPENSES OF SOLICITATION
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.
OTHER MATTERS
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement, and is not aware that any
other matters will be presented for action at the Meeting. If any other matters
come before the Meeting, the persons named in the enclosed form of proxy will
vote the proxy with respect thereto in accordance with their best judgment,
pursuant to the discretionary authority granted by the proxy. Whether or not you
plan to attend the Meeting in person, please complete, sign, date and return the
enclosed proxy card promptly.
EXPERTS
The audited consolidated financial statements and schedules of the Company
have been audited and prepared by Ernst & Young LLP, independent public
accountants, as indicated in their reports thereto, and are attached to this
document in reliance upon the authority of that firm as experts in accounting
and auditing.
By Order of the Board of Directors
Joseph A. Cioni
Secretary
Dated:
Attachments: Proposed Amendment to Certificate of Incorporation
Stock Option Agreement
Amended and Restated Subordinated Convertible Note
24
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
TEARDROP GOLF COMPANY
Pursuant to the provisions of Sections 242 of the Delaware General
Corporation Law, the undersigned corporation executes the following Certificate
of Amendment to its Certificate of Incorporation:
1. The name of the corporation is TearDrop Golf Company (the
"Corporation").
2. The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on September 18, 1996.
3. The following amendment to the Corporation's Certificate of
Incorporation was approved by written consent of the directors of Corporation,
dated as of ____________, and thereafter duly adopted by the stockholders of the
Corporation at the Annual Meeting of the Stockholders on [April 27, 2000].
RESOLVED, that the first paragraph of Article 4 of the Corporation's
Certificate of Incorporation be amended in its entirety to read as follows:
"The total number of shares of stock which the Corporation shall
have authority to issue is twenty one million (21,000,000), divided
into two classes consisting of twenty million (20,000,000) shares of
Common Stock, $.01 par value per share, and one million (1,000,000)
shares of Preferred Stock, par value $.01 per share."
4. The total number of shares entitled to vote on the amendment was
[5,262,565].
5. The number of shares voting for the amendment was _______and
________ shares were voted against the amendment.
The effective date of this Amendment to the Corporation's
Certificate of Incorporation shall be upon filing.
Dated the _____th day of April 2000.
TEARDROP GOLF COMPANY
By: /s/ Rudy A. Slucker
------------------------
Name: Rudy A. Slucker
Title: Chief Executive Officer
1
<PAGE>
EXHIBIT B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of December 31, 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 1,500,000 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 December 31, 1999 until December 31, 2009 at 5:00 p.m., New York time
(the "Option Exercise Term"), 1,500,000 Shares at an initial exercise price
(subject to adjustment as provided in Article 7 hereof) of $1.375 per Share.
a. Vesting Schedule. The option shall immediately vest.
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 $1.375
per share of Common Stock payable in cash or by certified check to the order of
the Company, subject to adjustment as 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
1
<PAGE>
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 $1.375 per Share. The adjusted exercise price shall be
the price that 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.
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
2
<PAGE>
(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.
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
3
<PAGE>
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
(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.
4
<PAGE>
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.
5
<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
6
<PAGE>
Exhibit C
THIS NOTE, AND THE INDEBTEDNESS EVIDENCED HEREBY, IS SUBORDINATE AND JUNIOR IN
RIGHT OF PAYMENT IN THE MANNER AND TO THE EXTENT SET FORTH IN THE SUBORDINATION
AGREEMENT (THE "SUBORDINATION AGREEMENT") DATED AS OF JANUARY 20, 2000 BY THE
PAYEE OF THIS NOTE IN FAVOR OF CONGRESS FINANCIAL CORPORATION (CENTRAL) TO ALL
SENIOR OBLIGATIONS (AS DEFINED IN THE SUBORDINATION AGREEMENT) AT ANY TIME OWED
BY THE MAKER OF THIS NOTE, AND THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE
HEREOF, SHALL BE BOUND BY THE SUBORDINATION AGREEMENT, AND THIS NOTE MAY BE SOLD
OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE
SUBORDINATION AGREEMENT.
AMENDED AND RESTATED SUBORDINATED CONVERTIBLE DEMAND NOTE
Union, New Jersey
$1,000,000.00 Dated as of January 20, 2000
FOR VALUE RECEIVED, TEARDROP GOLF COMPANY, a Delaware corporation
("Maker"), promises to pay to the order of RUDY A. SLUCKER ("Payee"), an
individual residing at 66 Duffield Drive, South Orange, New Jersey 07079, the
principal sum of One Million Dollars ($1,000,000) lawful money of the United
States of America, together with interest from the date of this Note, at the
rate and on the terms set forth below, as follows:
1. The principal and all other sums under this Note shall be payable on
demand, at the office of the Maker or at such other place or Payee, from time to
time may designate in writing. Interest shall accrue and be payable monthly at
the rate of one percent (1%) per annum in excess of the Prime Rate (which shall
be defined as the rate from time to time publicly announced by First Union
National Bank, or its successors, at its offices in Charlotte, North Carolina,
as its prime rate, whether or not such announced rate is the best rate available
at such bank).
2. Maker and all endorsers, sureties and guarantors jointly and severally
waive presentment for payment, demand, notice of demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note, and all other notices in
connection with the delivery, acceptance, performance, default, or enforcement
of the payment of this Note, and they agree that the liability of each of them
shall be joint and several and unconditional, without regard to the liability of
any other party, and shall not be affected in any manner by any indulgence,
extension of time, renewal, waiver or modification granted or consented to by
Payee. Maker and all endorsers, sureties, and guarantors consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Payee with respect to the payment or other provisions of this Note, and to the
release of the collateral or any part of it, with or without substitution, and
agree that additional makers, endorsers, guarantors, or sureties may become
parties to it without notice to them or affecting their liability under this
Note.
3. If any provision of this Note is held to be invalid or unenforceable by
a Court of competent jurisdiction, the other provisions of this Note shall
remain in full force and effect and shall be construed liberally in favor of
Payee in order to effectuate the provisions of this Note. In no event shall the
rate of interest payable under this Note exceed the maximum rate of interest
permitted to be charged by the applicable law (including the choice of law
rules) and any interest paid in excess of the permitted rate shall be refunded
to Maker. That refund shall be made by application of the excessive amount of
interest paid against any sums outstanding and shall be applied in such order as
Payee may determine. If the excessive amount of interest paid exceeds the sums
outstanding, the portion exceeding the sums outstanding shall be refunded in
cash by Payee. Any crediting or refund shall not cure or waive any default by
Maker under this Note. Make agrees, however, that in determining whether or not
any interest payable under this Note exceeds the highest rate permitted by law,
any non-principal payment shall be deemed, to the extent permitted by law, to be
an expense, fee, premium or penalty rather than interest.
4. Payee shall not be deemed, by any act or omission or commission, to
have waived any of his rights or remedies under this Note unless the waiver is
in writing and signed by Payee, and then only to the extent specifically set
forth in the writing. A waiver on one event shall not be construed as continuing
or as a bar to or
1
<PAGE>
waiver of any right or remedy to a subsequent event. This Note may not be
amended except by written agreement executed by both Maker and Payee.
5. THE PROVISIONS OF THIS SECTION 5 ARE SUBJECT TO THE APPROVAL OF THE
SHAREHOLDERS OF MAKER.
5.1. This Note may be converted at the option of the holder of this
Note, at any time and from time to time prior to the Maturity Date, in whole, or
in part, at the rate of one share of Common Stock for each one dollar ($1.00) of
unpaid principal and interest outstanding on this Note (the "Conversion Rate"),
subject to such adjustment of the Conversion Rate as set forth in Section 5.2
below. Upon the exercise of the conversion right under Section 5.6, all accrued
and unpaid interest on the Note with respect to the principal amount and
interest converted shall be canceled and the Maker shall have no obligation to
pay any such amount on the converted portion of this Note.
5.2. The Conversion Rate shall be subject to adjustment from time to
time as follows:
(i) In case the Maker shall pay or make to all holders
of Common Stock of the Maker a dividend or other distribution
on such class of Common Stock in Common Stock, the Conversion
Rate in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution shall be
increased by multiplying the Conversion Rate by a fraction of
which the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed
for such determination (the "Fixed Number of Shares") and the
numerator shall be the sum of the Fixed Number of Shares and
the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately
after the opening of business on the day following the date
fixed for such determination. For the purposes of this
paragraph (i), the number of shares of Common Stock at any
time outstanding shall not include shares issuable in respect
of scrip certificate issued in lieu of fractions of shares of
Common Stock;
(ii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day
following the day upon which subdivision becomes effective shall be
proportionately increased, and, conversely, in case outstanding
shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such
combination becomes effective shall be proportionately decreased,
such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the
day upon which subdivision or combination becomes effective;
(iii) In case the Maker shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, any dividend or
distribution paid in cash out of funds of the Maker legally
available for dividends or distributions under the laws of the state
of incorporation of the Maker and any dividend or distribution
referred to in paragraph (i) of this Section), the Conversion Rate
shall be adjusted so that the same shall equal the rate determined
by multiplying the Conversion Rate in effect immediately prior to
the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction of
which the denominator shall be the current market price per share
(determined as provided in paragraph (vi) of this Section) of the
Common Stock on the date fixed for such determination less the fair
market value (as determined by the Board of Directors of the Maker
("Board of Directors"), whose determination shall be conclusive and
set forth in a Board resolution, such resolution to be based upon
the opinion of an independent investment banker reasonably
satisfactory to the holder of this Note, if requested by the holder
of this Note) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common Stock
and the numerator shall be such current market price per share of
the Common Stock, such adjustment to become effective immediately
after the opening of business
2
<PAGE>
on the day following the date fixed for the determination of
stockholders entitled to receive such distribution;
(iv) in case the Maker shall issue shares of Common Stock or
rights or warrants to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per
share (determined as provided in paragraph (vi) of this Section) of
the Common Stock on the date fixed for the determination of
stockholders entitled to receive such shares, rights or warrants,
the Conversion Rate in effect at the opening of business on the day
following the date fixed for such determination shall be increased
by multiplying such Conversion Rate by a fraction of which the
denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase
at such current market price and the numerator shall be the number
of shares of Common Stock outstanding at the close of business on
the date fixed for such determination plus the number of additional
shares of Common Stock so offered for subscription or purchase, such
increase to become effective immediately after the opening of
business on the day following the date fixed for such determination.
For the purposes of this paragraph (iv), the number of shares of
Common Stock at any time outstanding shall not include shares held
in the treasury of the Corporation but shall include shares issuable
in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. For purposes of this paragraph (iv), the
granting of the right to purchase shares of Common Stock (whether
from treasury shares or otherwise) pursuant to any dividend or
interest reinvestment plan and/or any Common Stock purchase plan
providing for the reinvestment of dividends or interest payable on
securities of the Maker and/or investment of periodic optional
payments at a price per share of not less than 95% of the current
market price per share (determined as provided in such plans) of
Common Stock (so long as such right to purchase is in no case
evidenced by the delivery of rights or warrants) shall not be deemed
to constitute an issue of shares, rights or warrants by the Maker
within the meaning of this paragraph (iv). If any rights or warrants
subsequently expire or are canceled prior to exercise thereof, the
Conversion Rate shall be readjusted to the Conversion Rate that
would have been in effect had such rights or warrants not been
issued;
(v) The reclassification (excluding any reclassification upon
a consolidation or merger) of Common Stock into securities other
than Common Stock shall be deemed to involve (a) a distribution of
such securities other than the Common Stock to all holders of Common
Stock (and the effective date of such reclassification shall be
deemed to be "the date fixed for the determination of stockholders
entitled to receive such distribution" and "the date fixed for such
determination" within the meaning of paragraph (iii) of this
Section), and (b) a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number of shares of Common
Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such
combination becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within
the meaning of paragraph (ii) of this Section);
(vi) For the purpose of Section 5, the current market price
per share of Common Stock on any day shall be deemed to be (a) the
average of the last reported sales price of Common Stock on the
National Market of the National Association of Securities Dealers,
Inc., Automated Quotation System, or any similar system of automated
dissemination of quotations of securities prices then in common use
for the 30 consecutive trading days immediately preceding the day on
which the current market price is to be determined, if so quoted, or
(b) if not quoted as described in clause (a), the mean between the
high bid and low asked quotations for Common Stock as reported by
the National Quotation Bureau Incorporated for the 30 consecutive
trading days immediately preceding the day on which the current
market price is to be determined, if so quoted, or (c) if the Common
Stock is listed or admitted for trading on any national securities
exchange, the last sales price, or the closing bid price if no sale
occurred, of Common Stock on
3
<PAGE>
the principal securities exchange on which Common Stock is listed
for the 30 consecutive trading days immediately preceding the day on
which the current market price is to be determined, if so quoted. If
Common Stock is quoted on a national securities or central market
system, in lieu of a market or quotation system described above, the
closing price shall be determined in the manner set forth in clause
(b) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set
forth in clause (c) of the preceding sentence if actual transactions
are reported. If none of the conditions set forth above is met, the
current market price per share on any day shall be such fair market
value as shall be determined by a resolution of the Board of
Directors, based upon the opinion of an independent investment
banker reasonably satisfactory to the holder of this Note, if
requested by the holder of this Note;
(vii) No fractional shares will be issued upon conversion to
the extent of legally available funds. The right to convert this
Note terminates on the Maturity Date; and
(viii) Notwithstanding anything contained in this Section, no
adjustment in the Conversion Rate in respect of this Note shall be
required upon the issuance or sale of (a) shares of Common Stock
issued or sold under options granted or to be granted (or shares of
Common Stock otherwise issuable or salable) pursuant to any present
or future stock option plan, stock option agreement, stock purchase
plan, employees' savings or profit sharing plan or other incentive
or benefit plan providing for the sale or other issuance of Common
Stock by the Maker to officers, directors or employees (including
former officers, directors or employees) of the Maker or any of its
subsidiaries (including any such plan or agreement assumed by the
Maker or any subsidiary in connection with the acquisition of a
going concern business), and (b) shares of Common Stock for a
consideration per share equal to or greater than the current market
price per share (determined as provided in paragraph (vi) of this
Section) of Common Stock in effect immediately prior to such sale or
issuance.
5.3. The Maker shall not effect any consolidation, merger,
sale, transfer or other disposition of substantially all of the assets of the
Maker in which the Maker is not the continuing person (other than (i) a merger
with a wholly-owned subsidiary or (ii) a transfer or disposition of assets to
one or more wholly-owned subsidiaries of the Maker), unless prior to the
consummation thereof the successor or surviving corporation, as the case may be,
or the corporation purchasing such assets shall assume, by written instrument
executed and mailed to the holder of this Note, at the address appearing in the
first paragraph of this Note or at such other address as may be specified to the
Maker in writing, all of the obligations under this Note. The successor,
surviving or purchasing corporation shall be deemed substituted for the Maker
for all purposes of this Note. The provisions of this Section governing the
substitution of another corporation for the Maker shall similarly apply to
successive instances in which the corporation then deemed to be the Maker
hereunder shall either sell all or substantially all of its properties and
assets to any other corporation, shall consolidate with or merge into any other
corporation or shall be the surviving corporation of the merger into it of any
other corporation, as a result of which the holders of any of its stock or other
securities shall become entitled to the stock or other securities of any
corporation other than the corporation at the time deemed to be the Maker
hereunder.
5.4.
(i) Upon any adjustment of the Conversion Rate, then, and in
each such case, the Maker shall give written notice thereof to the
holder of this Note, which notice shall state the Conversion Rate
resulting from such adjustment and the increase or decrease, if any,
in the number of shares purchasable at such price upon the exercise
of the conversion rights hereunder, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based. In addition, whenever the Conversion Rate
shall be adjusted as provided in Section 5.2, the Maker shall
forthwith file and keep on record at the office of the Secretary of
the Maker or at such other place as may be designated by the Maker,
a statement, signed by its Treasurer or Chief Financial Officer,
showing in detail the facts requiring such adjustment and the
Conversion Rate that shall be in effect after such adjustment. The
Maker shall also cause a copy of such statement to be sent by
first-class, certified mail, return receipt requested, postage, to
the holder of this Note at such holder's appearing address in the
first paragraph of this Note or at such other address as may be
specified to the Maker in writing. Where appropriate, such copy
4
<PAGE>
may be given in advance of any such adjustment and may be included
as part of a notice otherwise required to be given to the holder of
this Note.
(ii) In the event the Maker shall propose to take any action
of the types described in Section 5.2(i), (ii), (iii) or (iv), or
any contemplated redemption of capital stock of the Maker, the Maker
shall give notice to the holder of this Note in the manner set forth
in Section 5.4(i), which notice shall specify the record date, if
any, with respect to any such action and the date on which such
action is to take place. Such notice shall also set forth such facts
with respect thereto as shall be reasonably necessary to indicate
the effect of such action (to the extent such effect may be known at
the date of such notice) on the Conversion Rate with respect to this
Note, and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon each
conversion of this Note. In the case of any such action, such notice
shall be given at least 10 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall
not affect the legality or validity of any such action.
5.5
(i) In order to convert into Common Stock the principal and
interest on this Note, the holder shall give written notice thereof
to the Maker duly executed by it, indicating its intention to
convert the principal hereof into Common Stock (the "Conversion
Notice").
(ii) Any conversion of this Note shall be deemed to have
occurred on the date of the Conversion Notice as provided above and
the converting holder of this Note shall be treated for all purposes
as the record holder of such Common Stock on such date (such date
being herein referenced as the "Conversion Date").
(iii) As soon as practicable on or after a Conversion Date,
the Maker shall issue and deliver to such converting holder of this
Note a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion.
5.6 The Maker shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purposes of issuance upon conversion of this Note, the full number of
shares of Common Stock then deliverable upon the conversion of the full
principal amount of this Note then outstanding.
6. This Note shall be governed by and construed in accordance with the
laws of the State of New Jersey. Each of the parties hereto agree that sole and
exclusive jurisdiction over and proper venue relating to any controversy or
claim arising out of or relating to this Note or the breach thereof shall reside
in the courts of the State of New Jersey and the United States District Court
for the District of New Jersey. This Note shall be construed without the aid of
any canon, custom or rule of law requiring construction against the draftsman.
7. Whenever used, the singular number shall include the plural, the plural
and singular, the use of any gender shall be applicable to all genders, and the
words "Payee" and "Maker" shall be deemed to include the respective heirs,
personal representatives, successors and assigns of Payee and Maker. If Maker
consists of more than one (1) person, corporation or other entity, the
obligations and liabilities of such persons, corporations or other entities
under this Note shall be joint and several, and the word "Maker" shall mean all
or some of any of them.
8. This Note amends, restates and supersedes in its entirety the
Promissory Note, dated March 5, 1999, by Maker in favor of Payee.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this
Note to be executed on the date stated above.
Witness: TEARDROP GOLF COMPANY
a Delaware corporation
5
<PAGE>
__________________________ By: _________________________________
Joseph Cioni, Chief Financial Officer
ENDORSEMENT
For value received, the undersigned, RUDY A. SLUCKER, hereby endorses to
the order of CONGRESS FINANCIAL CORPORATION (CENTRAL) the Note dated January 20,
2000, executed by TearDrop Golf Company therein in favor of the undersigned.
________________________________
RUDY A. SLUCKER
6
<PAGE>
EXHIBIT D(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
- -------------------
1 Underscored language represents new language added and language which is lined
out is to be removed.
1
<PAGE>
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 1,300,000 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
2
<PAGE>
other applicable laws, such provision or transaction shall be construed or
deemed amended to conform to Rule 16b-3 or such other applicable laws or
otherwise shall be deemed to be null and void, in each case to the extent
permitted by law and deemed advisable by the Committee.
(c) Any controversy or claim arising out of or related to this Plan shall
be determined unilaterally by and at the sole discretion of the Committee.
SECTION 5. GRANTING OF STOCK OPTIONS
(a) 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.
3
<PAGE>
(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;
4
<PAGE>
(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.
5
<PAGE>
(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.
6
