<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CALLAWAY 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF CALLAWAY GOLF]
March 10, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of the Shareholders
of Callaway Golf Company, which will be held on Thursday, April 17, 1997 at
2101 Faraday Avenue, Carlsbad, California 92008 (near the Company's
headquarters), commencing at 10:00 a.m. A map is provided on the back page of
these materials for your reference. Your Board of Directors and management
look forward to greeting personally those shareholders able to attend.
At the meeting, in addition to electing 11 directors, your Board is asking
shareholders to approve amendments to the Callaway Golf Company 1995 Employee
Stock Purchase Plan and 1996 Stock Option Plan, and to approve the adoption of
the 1998 Executive Non-Discretionary Bonus Plan for eligible officers of the
Company and its subsidiaries. These proposals are fully set forth in the
accompanying proxy statement which you are urged to read thoroughly. For the
reasons set forth in the proxy statement, your Board of Directors recommends a
vote "FOR" each of the proposals.
It is important that your shares are represented and voted at the meeting
whether or not you plan to attend. Accordingly, you are requested to sign,
date and mail the enclosed proxy in the envelope provided at your earliest
convenience.
Thank you for your cooperation.
Sincerely,
/s/ ELY CALLAWAY
---------------------
Ely Callaway
Chairman of the Board
<PAGE>
CALLAWAY GOLF COMPANY
2285 RUTHERFORD ROAD
CARLSBAD, CALIFORNIA 92008
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MEETING DATE: APRIL 17, 1997
TO OUR SHAREHOLDERS:
The Annual Meeting of the Shareholders of Callaway Golf Company, a
California corporation (the "Company"), will be held at 2101 Faraday Avenue,
Carlsbad, California 92008 (near the Company's headquarters), commencing at
10:00 a.m., on April 17, 1997, to consider and vote on the following matters
described in this notice and the accompanying Proxy Statement:
1. To elect 11 directors to the Company's Board of Directors to serve
for one-year terms.
2. To approve an amendment to the Callaway Golf Company 1995 Employee
Stock Purchase Plan, in order to increase the number of shares of
Common Stock reserved for issuance thereunder by 1,000,000 shares to
an aggregate of 1,500,000 shares.
3. To approve an amendment to the Callaway Golf Company 1996 Stock
Option Plan, in order to increase the number of shares of the
Company's Common Stock reserved for issuance thereunder by 1,000,000
shares to an aggregate of 3,000,000 shares.
4. To approve the adoption of the Callaway Golf Company 1998 Executive
Non-Discretionary Bonus Plan, which would enable eligible officers'
annual non-discretionary incentive awards earned thereunder to
qualify as performance-based compensation for purposes of Section
162(m) of the Internal Revenue Code.
5. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on February 27, 1997
as the record date for determination of shareholders entitled to vote at the
Annual Meeting or any adjournments thereof, and only record holders of Common
Stock at the close of business on that day will be entitled to vote. At the
record date, 73,668,108 shares of Common Stock were issued and outstanding.
TO ASSURE REPRESENTATION AT THE ANNUAL MEETING, SHAREHOLDERS ARE URGED TO
SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER ATTENDING
THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF HE OR SHE PREVIOUSLY RETURNED A
PROXY.
If you plan to attend the Annual Meeting in person, we would appreciate your
response by indicating so at the appropriate place on the proxy card enclosed.
By Order of the Board of Directors,
/s/ STEVEN C. MCCRACKEN
-----------------------
Steven C. McCracken
Secretary
Carlsbad, California
March 10, 1997
<PAGE>
CALLAWAY GOLF COMPANY
2285 RUTHERFORD ROAD
CARLSBAD, CALIFORNIA 92008
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
MEETING DATE: APRIL 17, 1997
This Proxy Statement is being sent on or about March 10, 1997 in connection
with the solicitation of proxies by the Board of Directors of Callaway Golf
Company, a California corporation (the "Company" or "Callaway Golf"). The
proxies are for use at the 1997 Annual Meeting of the Shareholders of the
Company, which will be held at 2101 Faraday Avenue, Carlsbad, California 92008
(near the Company's headquarters), on April 17, 1997, commencing at 10:00
a.m., and at any meetings held upon adjournment thereof (the "Annual
Meeting"). The record date for the Annual Meeting is the close of business on
February 27, 1997 (the "Record Date"). Only holders of record of the Company's
Common Stock on the Record Date are entitled to notice of the Annual Meeting
and to vote at the Annual Meeting.
A proxy card is enclosed. Whether or not you plan to attend the Annual
Meeting in person, please date, sign and return the enclosed proxy card as
promptly as possible, in the postage-prepaid envelope provided, to ensure that
your shares will be voted at the Annual Meeting. Any shareholder who returns a
proxy has the power to revoke it at any time prior to its effective use by
filing with the Secretary of the Company an instrument revoking it or a duly
executed proxy bearing a later date, or by attending the Annual Meeting and
voting in person. Unless contrary instructions are given, any such proxy, if
not revoked, will be voted at the Annual Meeting for the 11 nominees for
election as directors as set forth in this Proxy Statement, for the proposal
to amend the Callaway Golf Company 1995 Employee Stock Purchase Plan, for the
proposal to amend the Callaway Golf Company 1996 Stock Option Plan, for the
proposal to approve the adoption of the Callaway Golf Company 1998 Executive
Non-Discretionary Bonus Plan, and as recommended by the Board of Directors, in
its discretion, with regard to all other matters which may properly come
before the Annual Meeting. The Company does not currently know of any such
other matters.
At the Record Date, there were 73,668,108 shares of the Company's Common
Stock outstanding. The presence, either in person or by proxy, of persons
entitled to vote a majority of the Company's outstanding Common Stock is
necessary to constitute a quorum for the transaction of business at the Annual
Meeting. Abstentions and broker non-votes are counted for purposes of
determining a quorum, but are not considered as having voted for purposes of
determining the outcome of a vote. No other voting securities of the Company
were outstanding at the Record Date.
Holders of Common Stock have one vote for each share on any matter that may
be presented for consideration and action by the shareholders at the Annual
Meeting, except that shareholders may have cumulative voting rights with
respect to the election of directors. Cumulative voting rights entitle each
shareholder to cast as many votes as are equal to the number of directors to
be elected multiplied by the number of shares owned by such shareholder, which
votes may be cast for one candidate or distributed among two or more
candidates. For cumulative voting rights to be applicable, one or more
<PAGE>
shareholders must give notice at the Annual Meeting of the intention to
cumulate votes prior to the voting. The 11 nominees for director receiving the
highest number of votes at the Annual Meeting will be elected. Unless
instructed otherwise, the shares represented by proxies to management will be
voted in the discretion of management so as to elect the maximum number of
management nominees which may be elected by cumulative voting (if applicable).
The cost of preparing, assembling, printing and mailing this Proxy Statement
and the accompanying form of proxy, and the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company. The Company may
request banks and brokers to solicit their customers who beneficially own
Common Stock listed of record in names of nominees, and will reimburse such
banks and brokers for their reasonable out-of-pocket expenses for such
solicitations. The solicitation of proxies by mail may be supplemented by
telephone, telegram and personal solicitation by officers, directors and
regular employees of the Company, but no additional compensation will be paid
to such individuals. The Company has retained the firm of D. F. King & Co.,
Inc. to assist, if necessary, in the solicitation of proxies for a fee of
approximately $10,000 plus out-of-pocket expenses.
2
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BENEFICIAL OWNERSHIP OF THE COMPANY'S SECURITIES
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of February 12, 1997 (except as
otherwise noted) by (i) each person who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each director
who is standing for re-election, (iii) each of the executive officers named in
the Summary Compensation Table appearing elsewhere in this Proxy Statement
(the "Summary Compensation Table") and (iv) all directors standing for re-
election and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(/1/)
NAME AND ADDRESS OF ------------------------------
BENEFICIAL OWNER NUMBER PERCENT
------------------- ------------------ -------
<S> <C> <C>
Sanwa Bank California, 5,300,000 7.2%
Trustee for the Callaway Golf
Company Grantor Stock Trust(/2/)
Institutional Trust & Investments
601 S. Figueroa Street, W10-1
Los Angeles, California 90017
Ely Callaway(/3/) 905,435 1.2%
Donald H. Dye(/4/) 817,729 1.1%
William C. Baker(/5/) 84,900 *
Bruce Parker(/6/) 658,151 *
Aulana L. Peters(/7/) 200 *
Frederick R. Port(/8/) 105,600 *
Richard Rosenfield(/9/) 103,100 *
William A. Schreyer(/1//0/) 90,000 *
Michael Sherwin(/1//1/) 52,000 *
Elmer Ward(/1//2/) 19,000 *
Charles J. Yash(/1//3/) 200,439 *
Richard C. Helmstetter(/1//4/) 1,177,775 1.6%
All directors and executive officers
as a group
(15 persons)(/1//5/) 5,121,512 6.7%
</TABLE>
- --------
* Less than one percent.
(1) Except as otherwise indicated, the address for all persons shown on this
table is c/o the Company, 2285 Rutherford Road, Carlsbad, California
92008. Unless otherwise indicated in the
3
<PAGE>
footnotes to this table, and subject to community property laws where
applicable, to the knowledge of the Company each of the shareholders named
in this table have sole voting and investment power with respect to the
shares shown as beneficially owned by that shareholder.
(2) The Callaway Golf Company Grantor Stock Trust ("GST") holds Company
Common Stock pursuant to a trust agreement creating the GST in connection
with the prefunding of certain obligations of the Company under various
employee benefit plans. Both the GST and the Trustee disclaim beneficial
ownership of the shares of Common Stock. The Trustee has no discretion in
the manner in which the Company's Common Stock held by the GST will be
voted. The trust agreement provides that employees who hold unexercised
options as of the Record Date under the Company's stock option plans and
employees who have purchased stock under the Company's 1995 Employee
Stock Purchase Plan during the twelve months preceding the Record Date
will, in effect, determine the manner in which shares of the Company's
Common Stock held in the GST are voted. The Trustee will vote the Common
Stock held in the GST in the manner directed by those employees who
submit voting instructions for the shares.
The number of shares as to which any one employee can direct the vote will
depend upon how many employees submit voting instructions to the Trustee.
If all employees entitled to submit such instructions do so, as of February
27, 1997, the executive officers named in the Summary Compensation Table
would have the right to direct the vote of the following share amounts: Ely
Callaway--none, Donald H. Dye--449,778, Bruce Parker--393,556, Richard C.
Helmstetter--506,000, Charles J. Yash--337,334 and all executive officers
as a group--2,329,659. If less than all of the eligible employees submit
voting instructions, then the foregoing amounts would be higher. The trust
agreement further provides that all voting instructions received by the
Trustee will be held in confidence and not disclosed to any person
including the Company.
(3) Includes 591,480 shares held by the Ely R. Callaway, Jr. Trust (the
"Callaway Trust") for which Ely Callaway and Donald H. Dye are co-
trustees, each with voting and dispositive powers over such shares. Mr.
Dye disclaims beneficial ownership of the shares held by the Callaway
Trust. Also includes 76,872 shares held by Cindy Callaway, Mr. Callaway's
spouse. Also includes 80,175 shares held by the Callaway Golf Company
Foundation, a charitable foundation, which currently are voted by Mr.
Callaway in his capacity as President of the Callaway Golf Company
Foundation. Also includes 138,000 shares held by the Cindy and Ely
Callaway Family Foundation, a charitable foundation, which currently are
voted by Mr. Callaway in his capacity as President of the Cindy and Ely
Callaway Family Foundation. Mr. Callaway disclaims beneficial ownership
of all shares held by the Callaway Golf Company Foundation and the Cindy
and Ely Callaway Family Foundation.
(4) Does not include 591,480 shares held by the Callaway Trust for which Ely
Callaway and Donald H. Dye are co-trustees, each with voting and
dispositive powers over such shares. Mr. Dye disclaims beneficial
ownership of the shares held by the Callaway Trust. Includes 540,000
shares issuable upon the exercise of options held by Mr. Dye, which are
currently exercisable or become exercisable on or before April 14, 1997.
Also includes 9,150 shares which are held by Mr. Dye's spouse. Also
includes 44,036 shares held by the Dye Family Foundation, a charitable
foundation, which currently are voted by Mr. Dye in his capacity as
President of the Dye Family Foundation. Mr. Dye disclaims beneficial
ownership of all shares held by the Dye Family Foundation.
(5) Includes 84,000 shares issuable upon exercise of options held by Mr.
Baker, which are currently exercisable or become exercisable on or before
April 14, 1997. Includes 50 shares held by Mr. Baker's spouse.
4
<PAGE>
(6) Includes 650,000 shares issuable upon exercise of options held by Mr.
Parker, which are currently exercisable or become exercisable on or
before April 14, 1997.
(7) These shares are owned jointly with Mrs. Peters' spouse, Bruce F. Peters.
(8) Includes 100,000 shares issuable pursuant to options held by Mr. Port,
which are currently exercisable or become exercisable on or before April
14, 1997. Includes 2,000 shares held by Mr. Port's spouse.
(9) Includes 80,000 shares issuable upon exercise of options held by Mr.
Rosenfield, which are currently exercisable or become exercisable on or
before April 14, 1997. Includes 3,000 shares held in a trust for the
benefit of Mr. Rosenfield's children and 50 shares held by Mr.
Rosenfield's spouse.
(10) Includes 80,000 shares issuable upon exercise of options held by Mr.
Schreyer, which are currently exercisable or become exercisable on or
before April 14, 1997.
(11) Includes 8,000 shares issuable upon exercise of options held by Mr.
Sherwin, which are currently exercisable or become exercisable on or
before April 14, 1997.
(12) Includes 15,000 shares issuable upon exercise of options held by Mr.
Ward, which are currently exercisable or become exercisable on or before
April 14, 1997.
(13) Includes 200,000 shares issuable pursuant to options held by Mr. Yash,
which are currently exercisable or become exercisable on or before April
14, 1997.
(14) Includes 800,000 shares issuable pursuant to options held by Mr.
Helmstetter, which are currently exercisable or become exercisable on or
before April 14, 1997. Also includes 302,900 shares held by immediate
family members, both directly and through trusts in which Mr. Helmstetter
or his family members have an interest. Also includes 74,875 shares held
by the Helmstetter Family Foundation, a charitable foundation, of which
Mr. Helmstetter shares the power to vote and dispose of such shares in
his capacity as an officer and director of the Helmstetter Family
Foundation. Mr. Helmstetter disclaims beneficial ownership of all shares
held by the Helmstetter Family Foundation.
(15) Includes 2,899,000 shares issuable pursuant to stock options, which are
currently exercisable or become exercisable on or before April 14, 1997.
5
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has determined that the 11 directors named below will
be nominated for election as directors at the Annual Meeting. Each nominee has
consented to being named in the Proxy Statement as a nominee for election as
director and has agreed to serve as director if elected.
The persons named in the accompanying form of proxy have advised the Company
that they intend at the Annual Meeting to vote the shares covered by the
proxies for the election of the nominees named below. If any one or more of
such nominees should for any reason become unavailable for election, the
persons named in the accompanying form of proxy may vote for the election of
such substitute nominees as the Board of Directors may propose. The
accompanying form of proxy contains a discretionary grant of authority with
respect to this matter.
The nominees for election as directors at the Annual Meeting are set forth
below.
<TABLE>
<CAPTION>
POSITIONS WITH DIRECTOR
NAME THE COMPANY SINCE
---- -------------- --------
<C> <S> <C>
Ely Callaway Chairman of the Board 1982
and Director
Donald H. Dye President, Chief Executive Officer 1982
and Director
William C. Baker Director 1994
Bruce Parker Senior Executive Vice 1996
President, Chief Merchant and
Director
Aulana L. Peters Director 1996
Frederick R. Port Executive Vice President, 1995
International Sales, Licensing
and Business Development,
and Director
Richard Rosenfield Director 1994
William A. Schreyer Director 1994
Michael Sherwin Director 1992
Elmer Ward Manager, Apparel Licensing, 1992
and Director
Charles J. Yash President and Chief Executive 1996
Officer, Callaway
Golf Ball Company, and Director
</TABLE>
For additional biographical information concerning these individuals, see
"Biographical Information."
6
<PAGE>
The Company's Board of Directors met seven times during 1996. Each of the
Company's directors attended at least 75% of the meetings of the Board of
Directors and committees of the Board of Directors on which he or she served
during 1996.
All directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified.
Directors who are not employees of the Company receive $24,000 per year in
cash compensation, plus reimbursement of expenses. Non-employee directors of
the Company are also entitled to receive the current products of the Company,
free of charge, for their own personal use and the use of their immediate
family members living at home. In 1996, the wholesale value of products
received ranged from zero to approximately $5,800 per non-employee director.
In addition, the non-employee directors participate in the Callaway Golf
Company Non-Employee Directors Stock Option Plan (the "Director Plan"), which
was approved by the shareholders at the Company's 1993 Annual Meeting.
Pursuant to the Director Plan, non-employee directors are automatically
granted stock options to purchase 80,000 shares of Common Stock upon initial
election or appointment to the Board at an exercise price equal to (i) $10.00
per share of Common Stock, if elected or appointed prior to January 1, 1993,
(ii) 75% of the fair market value of the Common Stock on the date of initial
election or appointment, if elected or appointed on or after January 1, 1993
through April 17, 1996, or (iii) the fair market value of the Common Stock on
the date of such initial election or appointment, if elected or appointed
after April 17, 1996. Thereafter, each non-employee director automatically
receives, on each even-numbered anniversary of such initial election or
appointment (provided such person is continuing for at least one year
thereafter), an additional grant of stock options to purchase 8,000 shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock on the date of each such subsequent grant. All options granted under the
Director Plan vest 50% on the first anniversary of the date of grant and 50%
on the second anniversary, provided in each case the optionee remains as a
director on such vesting dates. A maximum of 840,000 shares have been approved
for issuance in the aggregate pursuant to stock options granted under the
Director Plan, and no individual director may receive options to purchase more
than 120,000 shares thereunder.
From January 1996 to October 1996, the Board of Directors had a Compensation
Committee consisting of Messrs. Callaway (Chair), Rosenfield (Vice Chair),
Baker, Schreyer and Sherwin. The Compensation Committee did not meet in 1996.
In October 1996, this committee was reconstituted and renamed the Executive
and Compensation Committee and Mr. Dye and Mrs. Peters became members of the
Committee. The Executive and Compensation Committee makes decisions or
recommendations to the Board concerning salaries and incentive compensation
for officers and employees of the Company. The Executive and Compensation
Committee met twice during 1996. Mr. Callaway and Mr. Dye do not participate
in Executive and Compensation Committee decisions related to their own or the
other's compensation.
The Board of Directors also has an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent accountants. The Audit Committee met four times during 1996. Until
July 1996, the Audit Committee consisted of Messrs. Sherwin (Chair), Baker and
Ward. In July 1996, Mr. Ward resigned from the Audit Committee upon his
commencing employment with the Company as Manager, Apparel Licensing. In
October 1996, Mrs. Peters became a member of the Audit Committee.
BIOGRAPHICAL INFORMATION
Ely Callaway, 77, Founder, has served as Chairman of the Board since the
Company's formation in 1982 and is the Chairman of the Executive and
Compensation Committee. He served as Chief
7
<PAGE>
Executive Officer from 1982 to May 1996. From 1974 to 1981, Mr. Callaway
founded and operated Callaway Vineyard and Winery in Temecula, California,
until it was sold. From 1946 to 1973, Mr. Callaway worked in the textile
industry, where he served as a Divisional President of several major divisions
of Burlington Industries, Inc., and in 1968 was elected Corporate President
and Director of Burlington, which at the time was the world's largest textile
company. Prior to 1945, Mr. Callaway served a five-year tour of duty in the
U.S. Army Quartermaster Corps. Mr. Callaway is a 1940 graduate of Emory
University.
Donald H. Dye, 54, serves as President and Chief Executive Officer of the
Company. He has served as Chief Executive Officer since May 1996, as President
since 1993, and as a Director of the Company since its formation in 1982. He
served as Chief Operating Officer from October 1991 until May 1996, as
Secretary from 1982 until 1994, and as General Counsel from 1991 until 1994.
From 1973 to 1991, Mr. Dye was in the private practice of law in Riverside,
California. During that period, he provided legal services to Callaway
Vineyard & Winery, Mr. Callaway and the Company. Prior to 1973, Mr. Dye served
five years in the U.S. Air Force as a member of the Judge Advocates General
Corps. Mr. Dye is a 1967 graduate of UCLA Law School.
William C. Baker, 63, has served as a Director of the Company since January
1994. He is currently Chairman and Chief Executive Officer of Santa Anita
Operating Company and Chairman of Santa Anita Realty Enterprises, Inc. He was
President and Chief Operating Officer of Red Robin International, Inc. (a
restaurant chain) from May 1993 to May 1995, and Chairman and Chief Executive
Officer of Carolina Restaurant Enterprises, Inc. from August 1992 to December
1996. Mr. Baker was the principal shareholder and Chief Executive Officer of
Del Taco, Inc. from 1977 until 1988 when that business was sold. He also
serves as a Director of Public Storage, Inc. Mr. Baker received his law degree
from the University of Texas in 1957.
Bruce Parker, 41, has served as a Director of the Company since July 1996,
Senior Executive Vice President since 1993 and Chief Merchant since 1991. Mr.
Parker also has served the Company in various vice presidential positions
since 1984 and became Executive Vice President, Chief Merchant in October
1991. Prior to 1984, Mr. Parker worked as a sales manager for various golf
club manufacturers in California.
Aulana L. Peters, 55, has served as a Director of the Company since July
1996. She has been a partner with the law firm of Gibson, Dunn & Crutcher
since 1980 in Los Angeles and Washington, D.C., having joined Gibson, Dunn &
Crutcher as an associate in 1973. From June 1984 through July 1988, Mrs.
Peters was a Commissioner with the Securities and Exchange Commission.
Currently, Mrs. Peters serves as a member of the Board of Directors of
Northrop Grumman Corporation, Merrill Lynch & Co., Inc., Minnesota Mining &
Manufacturing Company (3M) and Mobil Corporation. Mrs. Peters has served as a
member of the Board of Directors of the New York Stock Exchange and is
currently a member of the New York Stock Exchange's Market Regulatory Advisory
Committee. Mrs. Peters earned a J.D. from the University of Southern
California Law Center in 1973, and a B.A. in Philosophy from the College of
New Rochelle in 1963.
Frederick R. Port, 55, has served as Executive Vice President, International
Sales, Licensing and Business Development, of the Company since April 1996 and
as a Director since October 1995. He served as Executive Vice President,
Business Development, of the Company from September 1995 to April 1996. From
1993 to 1995, Mr. Port was the Managing Director of Korn/Ferry International
for the Southern California region (an executive recruiting and strategic
consulting firm). From 1987 to 1992, he was the President and a Director of
the Owl Companies (a company providing military base
8
<PAGE>
services management, construction materials production and sale, industrial
and commercial real estate development and power development). Prior to that,
he served with several companies in a variety of executive positions,
including Chairman, Chief Executive Officer and Director of Santa Anita
Development Corporation, Vice President, Finance and Asset Management, of the
Victor Palmieri Company and consultant for Booz, Allen and Hamilton. Mr. Port
served as an infantry officer in the United States Army. He is a 1963 graduate
of UCLA and received his MBA with honors from UCLA in 1966.
Richard Rosenfield, 51, has served as a Director of the Company since April
1994 and is Vice Chairman of the Executive and Compensation Committee. He is
co-Founder and co-Chairman of the Board of California Pizza Kitchen, Inc. (a
gourmet pizza restaurant chain, founded in 1985). From 1973 to 1985, Mr.
Rosenfield was a principal and partner of the Law Firm of Flax and Rosenfield,
a private law firm in Beverly Hills, California. From 1969 to 1973, he served
as an attorney in the U.S. Department of Justice. He is a 1969 graduate of
DePaul University College of Law.
William A. Schreyer, 69, has served as a Director of the Company since July
1994 and is Chairman Emeritus of Merrill Lynch & Co., Inc. He served as
Chairman of the Board of Merrill Lynch & Co., Inc. from April 1985 through
June 1993, and Chief Executive from July 1984 through April 1992. Mr. Schreyer
currently is a Director and member of the Compensation Committee of Deere &
Company; True North Communications, Inc.; Schering-Plough Corporation; and
Willis Corroon Group plc. He is affiliated with the George Bush Presidential
Library Foundation, and is Trustee, International Councillor, and Chairman of
the Executive Committee of the Center for Strategic and International Studies
(CSIS), a Washington, D.C.-based bipartisan public policy institute. Mr.
Schreyer graduated from Pennsylvania State University in 1948 and serves as a
member of its Board of Trustees.
Michael Sherwin, 55, has served as a Director of the Company since September
1992 and is the Chairman of the Audit Committee. Mr. Sherwin was the President
and Director of Mid-West Forge Corporation for over five years and currently
is its Vice Chairman. He has also been a Director of The Columbiana Boiler
Company for over five years and a Director of PVC Container Corporation since
January 1997. He received an MBA from Wharton Graduate Division, University of
Pennsylvania, in 1965.
Elmer Ward, 71, has served as a Director of the Company since December 1992
and as Manager, Apparel Licensing, since July 1996. Prior to July 1996, Mr.
Ward was a business consultant and private investor for over five years. From
1966 to 1985, Mr. Ward was Chairman and Chief Executive Officer of the Palm
Beach Company, a Fortune 500 manufacturer of apparel. Mr. Ward is a graduate
of Harvard College and received an MBA from the Harvard Business School in
1950. Mr. Ward also served as a naval aviator during World War II.
Charles J. Yash, 48, has served as a Director of the Company since July
1996, and as President and Chief Executive Officer of Callaway Golf Ball
Company, a wholly-owned subsidiary of the Company, since June 1996. From 1992
to June 1996, Mr. Yash was President and Chief Executive Officer and a
Director of Taylor Made Golf Company. From 1979 to 1992, Mr. Yash was employed
in various marketing positions with the golf products division of Spalding
Sports Worldwide, including Corporate Vice President and General Manager-Golf
Products, from 1988 to 1992. From 1970 to 1975, Mr. Yash served in the United
States Navy in various positions. Mr. Yash completed the Advanced Executive
Program at the University of Massachusetts in 1982, received his MBA in 1977
from Harvard Business School and graduated with a Bachelor of Science degree
from the U.S. Naval Academy in 1970.
9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows the compensation paid by the Company to its Chief
Executive Officer and the other four most highly compensated executive
officers of the Company for the years indicated.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
NAME AND PRINCIPAL OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS (#) COMPENSATION(/1/)
------------------ ---- -------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Ely Callaway 1996 $861,110(/2/)(/3/) $ 850,000 -0- $18,386
Chairman of the Board 1995 $735,000(/2/) $1,150,000 -0- $19,500
1994 $475,000(/2/) $ 900,000 -0- $20,460
Donald H. Dye 1996 $645,990(/3/) $1,000,000(/4/) -0- $27,794
President and CEO 1995 $621,384(/3/)(/4/) $ 950,000(/4/) 60,000 $19,500
1994 $399,076(/3/) $ 750,000(/4/) -0- $20,460
Bruce Parker 1996 $514,245(/3/)(/4/) $ 700,000(/4/) -0- $21,804
Sr. Exec. Vice Pres., 1995 $525,043(/3/)(/4/) $ 700,000(/4/) 30,000 $19,500
Chief Merchant 1994 $369,936(/3/) $ 700,000(/4/) -0- $20,460
Richard C. Helmstetter 1996 $448,354(/3/) $ 600,000 -0- $24,742
Sr. Exec. Vice Pres., 1995 $400,000 $ 550,000 30,000 $19,500
Chief of New Products 1994 $304,143(/3/) $ 600,000 -0- $20,768
Charles J. Yash 1996 $320,523(/4/) $ 970,000(/4/)(/5/) 600,000 $26,607
President and CEO, 1995 N/A N/A N/A N/A
Callaway Golf Ball 1994 N/A N/A N/A N/A
Company
</TABLE>
- --------
(1) Includes Company contributions under defined contribution plans (401(k)
and profit sharing), personal use of Company-owned assets and other
services paid for by the Company for the benefit of these named executive
officers.
(2) Includes the payment of a special expense allowance of $35,000 for 1996
and 1995, and $25,000 for 1994.
(3) Includes payout of accrued vacation hours.
(4) Includes amounts which were deferred pursuant to the Company's Executive
Deferred Compensation Plan which was implemented in 1994. The amounts of
these deferrals, at the election of the named individual officers, totaled
$823,200 in 1996, $249,000 in 1995 and $235,000 in 1994.
(5) Includes a signing bonus of $600,000 earned by Mr. Yash in connection with
his commencing employment with the Company, together with amounts earned
by Mr. Yash under the Company's Executive Bonus Pool.
10
<PAGE>
OPTION GRANTS IN 1996
The following table provides information on stock option grants to Mr. Yash,
the only executive officer named in the Summary Compensation Table to be
granted stock options in 1996.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS MARKET
GRANTED TO EXERCISE PRICE
OPTIONS EMPLOYEES OR BASE AT GRANT DATE
GRANTED IN FISCAL PRICE EXPIRATION GRANT PRESENT
NAME (#)(/1/) YEAR ($/SH) DATE(/2/) ($/SH) VALUE($)(/3/)
---- -------- ---------- -------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Yash 600,000 24.7% $25.13 2001-2005 $25.13 $3,644,000
</TABLE>
- --------
(1) 200,000 of these options vested immediately, with the remaining 400,000
options vesting in installments of 100,000 options each on May 10 of each
year from 1997-2000.
(2) These options expire on the earliest of (i) one year after Mr. Yash's
termination of employment for any reason (including death) or (ii) five
years after the vesting date of each option.
(3) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options using the following assumptions: (a) expected
volatility of 0.315, (b) risk-free rate of return of 6.19%--6.58%, (c)
dividend yield of 0.96% and (d) exercise terms of 1-5 years. The actual
value, if any, an executive may realize will depend on the excess of the
stock price over the exercise price on the date the option is exercised,
so there is no assurance the value realized by an executive will be at or
near the value estimated by the Black-Scholes model.
11
<PAGE>
OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table provides information on options exercised by the
executive officers named in the Summary Compensation Table during 1996 and
unexercised options held by such persons at December 31, 1996.
<TABLE>
<CAPTION>
OPTION EXERCISES UNEXERCISED OPTIONS HELD
DURING 1996 AT 12/31/96
----------------------- ---------------------------------------------------------------
VESTED UNVESTED
--------------------------- -----------------------------------
SHARES
ACQUIRED ON VALUE NUMBER OF VALUE AT YEAR OF NUMBER OF VALUE AT
NAME EXERCISE(#) REALIZED($) SHARES(#) 12/31/96 ($)(/1/) VESTING SHARES(#) 12/31/96 ($)(/1/)
---- ----------- ----------- --------- ----------------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ely Callaway 100,000 $ 756,250 -0- -0- -0- -0- -0-
Donald H. Dye 50,000 $ 1,267,935 450,000 $11,678,805 1997 240,000 $6,300,000
1998 200,000 $3,387,500
1999
and] 60,000 $ 540,000
after
Bruce Parker 130,000 $ 3,220,250 410,000 $10,673,370 1997 240,000 $6,300,000
1998 120,000 $2,032,500
1999
and] 30,000 $ 270,000
after
Richard C. Helmstetter 350,000 $ 8,906,300 560,000 $14,789,865 1997 240,000 $6,300,000
1998 120,000 $2,032,500
1999
and] 30,000 $ 270,000
after
Charles J. Yash -0- -0- 200,000 $ 725,000 1997 100,000 $ 362,500
1998 100,000 $ 362,500
1999
and] 200,000 $ 725,000
after
</TABLE>
- -------
1) Represents the spread between aggregate exercise price and assumed
aggregate market value using the closing price of the Company's Common
Stock on December 31, 1996.
12
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Callaway. The Company has an employment agreement with Mr. Callaway for
a term commencing January 1, 1995 and ending December 31, 1997. The agreement
requires Mr. Callaway to devote his full productive time and best efforts to
the Company during the term of the agreement, to refrain from competing with
the Company, to hold in confidence all trade secrets and proprietary
information Mr. Callaway receives from the Company, and to disclose and assign
to the Company all inventions and innovations he develops during the term of
his employment with the Company. In exchange, Mr. Callaway is entitled to
receive an annual salary of $700,000 and an opportunity to earn an annual
bonus based upon participation in the Company's Executive Bonus Pool. Mr.
Callaway also is entitled to receive a special, non-accountable expense
allowance of $35,000 per year for Company-related business expenses. If Mr.
Callaway is terminated for any reason other than misconduct, he will be
entitled to receive his full base salary and certain benefits payable under
the agreement for the remaining term of the agreement. Upon a "termination
event" following a "change in control" of the Company (as such terms are
defined below under "--Change in Control Arrangements"), Mr. Callaway will be
entitled to receive severance pay in an amount equal to the greater of (a) the
amount he would have received as base salary under the employment agreement
had the agreement run its full term or (b) six months' base salary. Finally,
under the employment agreement, Mr. Callaway has assigned to the Company the
perpetual right to commercial use of his name, likeness, image and identity.
Mr. Dye. The Company has an employment agreement with Mr. Dye for a term
commencing January 1, 1995 and ending December 31, 1997. The agreement
requires Mr. Dye to devote his full productive time and best efforts to the
Company during the term of the agreement, to refrain from competing with the
Company, to hold in confidence all trade secrets and proprietary information
Mr. Dye receives from the Company, and to disclose and assign to the Company
all inventions and innovations he develops during the term of his employment
with the Company. In exchange, Mr. Dye is entitled to receive an annual salary
of $600,000 and an opportunity to earn an annual bonus based upon
participation in the Company's Executive Bonus Pool. If Mr. Dye is terminated
by the Company for any reason other than substantial cause (as defined in the
agreement), or upon a "termination event" following a "change in control" of
the Company (as such terms are defined below under "--Change in Control
Arrangements"), he will be entitled to receive severance pay in an amount
equal to the greater of (a) the amount he would have received as base salary
under the employment agreement had the agreement run its full term or (b) six
months' base salary.
The Company is in negotiations with Mr. Dye with respect to a new, long-term
employment agreement. It is currently contemplated that the new agreement will
include an increase in base salary, a grant of approximately 1,000,000 stock
options with an exercise price of $40.00 per share (which is approximately 25%
above the current market price) and early vesting tied to the attainment of
certain stock price appreciation targets, and a significant performance-based
bonus tied to the attainment of certain company growth targets.
Mr. Parker. The Company's 1995 employment agreement with Mr. Parker was
superseded in February 1997 by a new employment agreement for a term
commencing January 1, 1997 and ending December 31, 1999. The agreement
requires Mr. Parker to devote his full productive time and best efforts to the
Company during the term of the agreement, to refrain from competing with the
Company, to hold in confidence all trade secrets and proprietary information
he receives from the Company, and to disclose and assign to the Company all
inventions and innovations he develops during the term of his employment with
the Company. In exchange, Mr. Parker is entitled to receive an annual salary
of $600,000 and an opportunity to earn an annual bonus based on participation
in the Company's
13
<PAGE>
Executive Bonus Pool. If Mr. Parker is terminated for convenience by the
Company, or if Mr. Parker terminates the agreement for substantial cause (as
defined in the agreement), or upon a "termination event" within one year
following a "change in control" of the Company (as such terms are defined
below under "--Change in Control Arrangements"), he will be entitled to
receive severance benefits equal to the continued payment of his full base
salary, nondiscretionary bonuses under the Company's Executive Bonus Pool (as
it existed at the date of termination) and certain benefits and perquisites
payable under the employment agreement, for the remaining term of the
agreement or two years, whichever is longer, and the immediate vesting of all
unvested stock options. If Mr. Parker is terminated due to permanent
disability, Mr. Parker will be entitled to receive severance benefits equal to
the continued payment of his full base salary and certain benefits and
perquisites payable under the employment agreement, for the remaining term of
the agreement or two years, whichever is longer, a one time payment of a
nondiscretionary bonus in the amount he would have received under the
Company's Executive Bonus Pool in the year of termination, prorated according
to the number of days which Mr. Parker was employed in the year of
termination, and the immediate vesting of unvested stock options, prorated
according to the number of days which Mr. Parker was employed in the option
vesting period. If Mr. Parker is terminated due to his death, Mr. Parker's
estate will be entitled to receive severance benefits equal to the continued
payment of his full base salary under the employment agreement for the
remaining term of the agreement or six months, whichever is longer, a one time
payment of a nondiscretionary bonus in the amount he would have received under
the Company's Executive Bonus Pool in the year of termination, prorated
according to the number of days which Mr. Parker was employed in the year of
termination, and the immediate vesting of unvested stock options, prorated
according to the number of days which Mr. Parker was employed in the option
vesting period.
Mr. Helmstetter. The Company also has an employment agreement with Richard
C. Helmstetter for a term commencing January 1, 1995 and ending December 31,
1997. The agreement requires Mr. Helmstetter to devote his full productive
time and best efforts to the Company during the term of the agreement, to
refrain from competing with the Company, to hold in confidence all trade
secrets and proprietary information he receives from the Company, and to
disclose and assign to the Company all inventions and innovations he develops
during the term of his employment with the Company. In exchange, Mr.
Helmstetter is entitled to receive an annual salary of $400,000 and an
opportunity to earn an annual bonus based on participation in the Company's
Executive Bonus Pool. If Mr. Helmstetter is terminated by the Company for any
reason other than substantial cause (as defined in the agreement), or upon a
"termination event" following a "change in control" of the Company (as such
terms are defined below under "--Change in Control Arrangements"), he will be
entitled to receive severance pay in an amount equal to the greater of (a) the
amount he would have received as base salary under the employment agreement
had the agreement run its full term or (b) six months' base salary. The
Company is in negotiations with Mr. Helmstetter with respect to a new, long-
term employment agreement.
Mr. Yash. The Company has an employment agreement with Mr. Yash for a term
commencing May 15, 1996 and ending May 14, 2001. The agreement requires Mr.
Yash to devote his full productive time and best efforts to the Company during
the term of the agreement, to refrain from competing with the Company, to hold
in confidence all trade secrets and proprietary information Mr. Yash receives
from the Company, and to disclose and assign to the Company all inventions and
innovations he develops during the term of his employment with the Company. In
exchange, Mr. Yash is entitled to receive an annual salary at the rate of
$500,000 per year through April 30, 1999 and $600,000 per year thereafter. Mr.
Yash received a one-time signing bonus under the agreement of
14
<PAGE>
$600,000 in 1996, $400,000 of which was deferred pursuant to the Company's
Executive Deferred Compensation Plan. Mr. Yash also is entitled to earn an
annual bonus based upon participation in the Company's Executive Bonus Pool.
Pursuant to a separate stock option agreement contemplated by the employment
agreement, Mr. Yash received stock options to purchase 600,000 shares of the
Company's Common Stock at an exercise price of $25.13 per share, with 200,000
options immediately vested and the remaining 400,000 options vesting in
installments of 100,000 on May 10 of each year from 1997-2001, and expiring
five years after the vesting date.
If Mr. Yash is terminated by the Company for convenience, or if Mr. Yash
terminates the agreement for substantial cause (as defined in the agreement),
or upon a "termination event" within one year following a "change in control"
of the Company (as such terms are defined below under "--Change in Control
Arrangements"), he will be entitled to receive severance benefits equal to the
continued payment of his full base salary, nondiscretionary bonuses under the
Company's Executive Bonus Pool (as it existed at the date of termination) and
certain benefits and perquisites payable under the employment agreement, for
the remaining term of the agreement or six months, whichever is longer, and
the immediate vesting of all unvested stock options held by Mr. Yash that
would have vested had he remained employed by the Company for the remaining
term of the agreement or six months, whichever is longer. If Mr. Yash is
terminated due to permanent disability, Mr. Yash will be entitled to receive
severance benefits equal to the continued payment of his full base salary and
certain benefits and perquisites payable under the employment agreement, for
the remaining term of the agreement or six months, whichever is longer, a one
time payment of a nondiscretionary bonus in the amount he would have received
under the Company's Executive Bonus Pool in the year of termination, prorated
according to the number of days which Mr. Yash was employed in the year of
termination, and the immediate vesting of unvested stock options, prorated
according to the number of days which Mr. Yash was employed in the option
vesting period. If Mr. Yash is terminated due to his death, Mr. Yash's estate
will be entitled to receive severance benefits equal to the continued payment
of his full base salary under the employment agreement for the remaining term
of the agreement or six months, whichever is longer, a one time payment of a
nondiscretionary bonus in the amount he would have received under the
Company's Executive Bonus Pool in the year of termination, prorated according
to the number of days which Mr. Yash was employed in the year of termination,
and the immediate vesting of unvested stock options, prorated according to the
number of days which Mr. Yash was employed in the option vesting period.
CHANGE IN CONTROL ARRANGEMENTS
From and after 1995, the Board of Directors has taken certain actions to
better assure that management, including the named executive officers, would
continue to provide independent leadership consistent with the Company's best
interests in the event of an actual or threatened change in control of the
Company. These actions are described below.
The Company's employment agreements with each of its officers, including the
named executive officers, provide certain protections in the event of a change
in control. If a change in control occurs before the termination of an
officer's employment agreement, then the employment agreement will be extended
in the same form and for the same number of years as the original term of the
agreement, commencing on the date of such change in control. A "change in
control" of the Company is defined as, in general, the acquisition by any
person of beneficial ownership of 30% or more of the voting stock of the
Company, a change in the majority of the incumbent members of the Board of
Directors (unless such change is approved by a majority of the incumbent
members), certain business
15
<PAGE>
combinations of the Company, or any shareholder-approved or court-ordered plan
of liquidation of the Company. As described above under "--Employment
Agreements," the Company's named executive officers are entitled to certain
benefits if, during the term of their employment agreements, there occurs a
termination event at certain specified times following a change in control. A
"termination event" means the occurrence of any of the following: (a) the
termination or material breach of the employment agreement by the Company or
its successor; (b) failure by the successor company to assume the employment
agreement; (c) any material diminishment in the position or duties of the
officer; (d) any reduction in compensation or benefits; or (e) any requirement
that the officer relocate his or her principal residence.
In addition, in 1995 the Company's stock option agreements with each of the
optionees, including the named executive officers, were amended to provide for
the immediate vesting of options under such agreements immediately prior to a
change in control (as described above), and tax indemnification agreements
were entered into with all officers, including the named executive officers,
to provide for payment by the Company of amounts sufficient to offset any
"excess parachute payment" excise tax payable pursuant to the provisions of
the Internal Revenue Code or any comparable provisions of state law. The
Company's 401(k) plan was also amended to provide for full vesting of all
participant accounts immediately prior to a change in control. Stock option
agreements entered into subsequent to 1995 also contain provisions for
immediate vesting of options immediately prior to a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Executive and Compensation Committee consists of Messrs.
Callaway (Chair), Rosenfield (Vice Chair), Dye, Sherwin, Baker and Schreyer
and Mrs. Peters. Mr. Callaway also serves as the Company's Chairman of the
Board and formerly served as its Chief Executive Officer. Mr. Dye also serves
as the Company's President and Chief Executive Officer. Mr. Callaway and Mr.
Dye do not participate, however, in Executive and Compensation Committee
decisions related to their own or the other's compensation. Mrs. Peters is a
partner with the law firm of Gibson, Dunn & Crutcher. The Company retained the
law firm of Gibson, Dunn & Crutcher to provide legal services to the Company
during 1996, and anticipates that it will retain Gibson, Dunn & Crutcher to
provide legal services in 1997 as well. Mrs. Peters does not serve on either
of the Stock Option or Executive Non-Discretionary Bonus Plan Subcommittees of
the Executive and Compensation Committee.
16
<PAGE>
REPORT OF THE EXECUTIVE AND COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Company had several major successes in 1996, making it a very good year.
Net sales grew 23% to $678.5 million, making the Company the largest seller of
golf clubs, measured in dollars, in the world. Earnings per share grew 24% to
$1.73 per share. The Company introduced five major new products, while
shortening its time to market for new products by almost 50%. All of these
successes, and more, were reflected in an overall increase in the Company's
stock price of 27% over the course of the year, with corporate market
valuation at approximately $2.1 billion as of the end of the year.
It has been the policy of Callaway Golf Company and its Founder and
Chairman, Ely Callaway, that compensation should be closely tied to
performance. This philosophy is evident not only in the compensation levels of
the top executives discussed in this report, but also in the overall
compensation structure used by Callaway Golf for all employees.
It is the belief of the members of the Executive and Compensation Committee
that the superior results achieved by the Company in the past several years,
and the continuation of the Company's success in 1996, would not have been
possible with less than outstanding performance from the management team.
The Company had two officer bonus plans in effect in 1996: (1) the Executive
Non-Discretionary Bonus Plan ("Non-Discretionary Plan") and (2) a
discretionary bonus plan. Under the Non-Discretionary Plan, which was approved
by shareholders in April of 1995, officers were entitled to receive annual
cash bonuses of up to the lesser of $750,000 or 75% of their base salaries,
based upon the Company's achievement of certain levels of operating
performance tied to growth in pre-tax earnings. Under the Company's
discretionary bonus plan, which was approved by the Board, officers were
eligible to receive additional cash bonuses based upon the Chief Executive
Officer's view of their individual contribution to the Company's performance
and various other factors considered significant by the Chief Executive
Officer in his discretion, subject to final approval of the bonus amounts by
the Committee (the discretionary bonuses for Messrs. Callaway and Dye,
however, were fixed by the Committee, without the participation of these
individuals). All bonuses, both non-discretionary and discretionary, were to
be paid from a bonus pool accrued at a rate not to exceed 150% of aggregate
salaries for all officers. The Company accrued throughout the year for both
bonus plans based upon the performance targets established in the Non-
Discretionary Plan (see below), and finished the year with accruals equal to
122% of the aggregate of the officers' base salaries.
The non-discretionary and discretionary bonuses for 1996, as approved by the
Committee and paid to the senior executive officers named in the tables
appearing elsewhere in this Proxy Statement, are set forth below.
<TABLE>
<CAPTION>
TOTAL BONUS
NON-DISCRETIONARY DISCRETIONARY TOTAL AS A PERCENT
BONUS BONUS BONUS OF BASE SALARY
----------------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
Ely Callaway $449,400 $400,600 $ 850,000 121%
Donald H. Dye $385,200 $614,800 $1,000,000 167%
Bruce Parker $321,000 $379,000 $ 700,000 140%
Richard C. Helmstetter $256,800 $343,200 $ 600,000 150%
Charles J. Yash $205,771 $164,229 $ 370,000 115%
</TABLE>
17
<PAGE>
As in 1995, the targets for 1996 under the Non-Discretionary Plan were
established such that a 30% growth in pre-tax earnings in 1996 over 1995
(after giving full effect to executive bonuses) would be required for
participants to earn the maximum bonuses available under that plan. However,
the targets for earning less than the maximum bonus amount were reduced as
compared with 1995. The actual non-discretionary bonus earned by each officer
for 1996 amounted to 64.2% of base salary, based on corporate pre-tax earnings
growth for the year of 23.53%.
The discretionary bonus amounts for the named senior executive officers were
based upon various factors considered to be significant by the Chief Executive
Officer and approved by this Committee (except with respect to the Chairman
and the Chief Executive Officer, whose bonuses were fixed by the Committee
without either's participation). Mr. Callaway, as Founder and Chairman, was
credited with continuing to lead the Company and motivate its people and for
maintaining high ethical standards. Mr. Dye was compensated for assuming the
role of Chief Executive Officer of the Company and for providing strong
management of the increasingly complex operations of the Company, while
increasing the Company's efforts with respect to strategic planning for future
growth. Mr. Parker's discretionary bonus reflected his efforts in directing
the sales and marketing function in a year when sales grew by over
$125,000,000 and reached unprecedented levels. Mr. Helmstetter was rewarded
for his efforts leading to the successful introduction of the new Biggest Big
Bertha(R) Titanium Driver and Great Big Bertha(R) Tungsten.TitaniumTM Irons in
January of 1997. Mr. Yash was awarded a discretionary bonus for his efforts
relating to the formation and start-up of Callaway Golf Ball Company, a
wholly-owned subsidiary of the Company. In addition, Mr. Yash received a
signing bonus of $600,000 in connection with his commencing employment with
the Company. These factors are listed by way of example, and are not intended
to be all-inclusive.
1997 base salaries of such senior executive officers are as follows:
<TABLE>
<S> <C>
Ely Callaway $700,000
Donald H. Dye $600,000
Bruce Parker $600,000
Richard C. Helmstetter $400,000
Charles J. Yash $500,000
</TABLE>
As noted elsewhere in this Proxy Statement, the Company is in negotiations
with Mr. Dye and Mr. Helmstetter with respect to new, long-term employment
agreements, which may include increases in 1997 base salaries for these
individuals.
The Non-Discretionary Plan will use the same performance targets in 1997 as
those used in 1996. Specifically, the Company's pre-tax earnings must show 30%
growth over the prior year in order for the maximum bonus payment to be made
of 75% of an officer's base salary under the Non-Discretionary Plan. A
discretionary bonus plan permitting the payment of additional cash bonuses
will also be in effect for 1997. As it did in 1996, the Company will accrue a
bonus pool for both plans throughout the year based upon pre-tax earnings
growth targets established by the Non-Discretionary Plan Subcommittee of this
Committee.
The Non-Discretionary Plan currently expires December 31, 1997. In February
1997, the Board of Directors adopted, subject to shareholder approval, the
Callaway Golf Company 1998 Executive Non-Discretionary Bonus Plan, which is
described elsewhere in this Proxy Statement.
18
<PAGE>
In May 1996, stock options to purchase 600,000 shares of the Company's
Common Stock at an exercise price of $25.13 were awarded to Mr. Yash, formerly
President and Chief Executive Officer of Taylor Made Golf Company, in
connection with his commencing employment with the Company. Of such options,
200,000 options vested immediately and the remaining 400,000 options vest in
installments of 100,000 on May 10 of each year from 1997-2001, with each
option expiring five years after its vesting date. The share amounts and the
delayed vesting dates are intended to continue the Company's practice of using
stock awards as long-term incentives to motivate and retain its executives. No
other stock options were granted to the named executive officers during 1996.
Section 162(m) of the Internal Revenue Code limits the deductibility for
federal tax purposes of certain types of executive compensation in excess of
$1.0 million per year. This limitation was not of material significance to the
Company in 1996. The Company's Non-Discretionary Plan is intended to meet the
requirements for deductibility under Section 162(m) of the Internal Revenue
Code, and the Company generally seeks to maximize the deductibility for tax
purposes of all elements of compensation as appropriate. However, the Company
may from time to time pay or award compensation to its executive officers that
may not be deductible. Further, because of the ambiguities and uncertainties
as to the application and interpretation of Section 162(m) and the regulations
issued thereunder, no assurance can be given, notwithstanding the efforts of
the Company in this area, that compensation intended by the Company to satisfy
the requirements for deductibility under Section 162(m) does in fact do so.
To conclude this report, we want to emphasize that the change in cash
compensation in recent years has been in response to the rapid growth in
Company sales and earnings, while overall sales of the industry have been
modest for the past several years. As previously noted, the Committee believes
the Company's rapid growth would not have been possible with less than
outstanding performance from the management team. In addition, the majority of
cash compensation paid to each senior executive in 1996, as in past years, was
not guaranteed but was determined at the end of the year based upon a variety
of factors including the Company's performance as a whole and each officer's
individual performance.
Additional information concerning the salary, bonus, and stock awards for
the Company's senior executive officers can be found in the tables appearing
elsewhere in this Proxy Statement under the caption "Compensation of Executive
Officers."
Information contained in this report regarding past performance of the
Company and performance targets for future bonus purposes should under no
circumstances be construed as a prediction, forecast, or projection by the
Company of future results, and no assurance can be given that the Company will
or will not achieve or maintain any particular performance level.
THE EXECUTIVE AND COMPENSATION COMMITTEE
Ely Callaway, Chair
Richard Rosenfield, Vice Chair
Donald H. Dye
William C. Baker
Aulana L. Peters
William A. Schreyer
Michael Sherwin
February 27, 1997
19
<PAGE>
PERFORMANCE GRAPH
The following chart presents a comparison of the cumulative total return
since the date of the Company's initial public offering (February 28, 1992),
of the Company's Common Stock, the Standard & Poors 500 Index and the Standard
& Poors 400 Midcap Index. The graph assumes an initial investment of $100 and
reinvestment of all dividends.
TOTAL CUMULATIVE SHAREHOLDER RETURN SINCE IPO
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Callaway Golf 173.750 535.288 670.312 924.886 1,185.638
- -------------------------------------------------------------------------------
S & P 400 Midcap 108.246 123.351 118.960 155.543 155.359
- -------------------------------------------------------------------------------
S & P 500 108.261 119.172 120.746 166.119 166.719
</TABLE>
The Callaway Golf Company index is based upon an Initial Public Offering price
of $2.50 on February 28, 1992, and its closing prices on December 31, 1992,
1993, 1994, 1995 and 1996 of $4.34, $13.34, $16.56, $22.63 and $28.75,
respectively. Prices for 1992, 1993, and 1994 have been adjusted for all stock
splits.
20
<PAGE>
APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
GENERAL
At the Annual Meeting, the shareholders of the Company are being asked to
approve an amendment to the Callaway Golf Company 1995 Employee Stock Purchase
Plan (the "Purchase Plan"), in order to increase the number of shares reserved
for issuance under the Purchase Plan by 1,000,000 shares, to an aggregate of
1,500,000 shares of Common Stock.
On January 25, 1995, the Board of Directors originally authorized the
adoption, subject to shareholder approval, of the Purchase Plan. The Purchase
Plan, and the rights of participants to make purchases thereunder, are
intended to qualify under the provisions of Sections 421 and 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). At the Company's 1995
Annual Meeting of Shareholders, the Company's shareholders approved the
initial adoption of the Purchase Plan. Accordingly, a total of 500,000 shares
of Common Stock were reserved for issuance under the Purchase Plan, and the
Company commenced the first offering period under the Purchase Plan in
September 1995.
On February 5, 1997, the Board of Directors authorized the First Amendment
to the Purchase Plan, subject to shareholder approval, which increased the
number of shares reserved for issuance under the Purchase Plan by 1,000,000
shares, to an aggregate of 1,500,000 shares of Common Stock. The Board of
Directors believes that the Purchase Plan, which is available to a broad base
of the Company's employees, provides the Company with a highly effective
equity purchase program to attract, retain and motivate the best available
talent for the Company's workforce and the successful conduct of its business.
Increasing the number of shares available for sale under the Purchase Plan
will enable the Company to continue to realize the benefits of this plan.
Approximately 401,750 shares of the Company's Common Stock have been sold
pursuant to the Purchase Plan through January 31, 1997, leaving an additional
98,250 shares available for sale under the plan. Of the approximately 2,050
employees currently eligible to participate in the Purchase Plan, 978 have
elected to participate in the Purchase Plan as of February 12, 1997. At the
current levels of participation, there are insufficient shares available to
continue the Purchase Plan beyond July 1997. If the First Amendment to the
Purchase Plan is not approved, all authorized shares will be purchased by
participants on July 31, 1997, and the Purchase Plan would then expire by its
terms.
SUMMARY OF THE PURCHASE PLAN
A description of the principal features of the Purchase Plan is set forth
below.
Purpose. The purpose of the Purchase Plan is to maintain competitive equity
compensation programs and to provide an incentive for employees of the Company
to acquire a proprietary interest in the Company through the purchase of
Common Stock, thereby more closely aligning the interests of the employees and
the shareholders.
Administration. The Purchase Plan is administered by a committee (the
"Committee") appointed by the Board consisting of not less than three members
of the Board who are not officers or employees of the Company or any of its
subsidiaries and who are disinterested persons within the meaning of Rule 16b-
3 promulgated under the Securities Exchange Act of 1934. All questions of
interpretation of the Purchase Plan are determined by the Committee, whose
decisions are final and binding upon all participants.
21
<PAGE>
Eligibility. Subject to certain limitations imposed by Section 423 of the
Code, any person who is employed by the Company (or any of its majority-owned
subsidiaries that are not excluded from participation by the Committee) for at
least twenty (20) hours per week and more than five (5) months in a calendar
year are eligible to participate in the Purchase Plan, provided that the
employee has been continuously employed for six (6) months on the first day of
an offering period. Eligible employees become participants in the Purchase
Plan by delivering to the Company an enrollment agreement authorizing payroll
and/or bonus deductions prior to the applicable offering period, unless
another time for filing the enrollment agreement is set by the Committee for
all eligible employees with respect to a given offering period.
Offering Dates. The Purchase Plan is implemented through a series of 24-
month offering periods with a new offering period commencing on each February
1 and August 1 during the term of the Purchase Plan. The first offering period
(a five-month period) commenced on September 1, 1995. The last day of each
six-month exercise period during each offering period under the Purchase Plan,
i.e., each July 31 and January 31, will be an exercise date under the Purchase
Plan. The Committee may later change the duration of the offering periods
without shareholder approval.
Purchase Price. Initially, the purchase price per share at which shares are
sold under the Purchase Plan is equal to the lower of 85% of the fair market
value of the Common Stock on the date of commencement of a 24-month offering
period or 85% of the fair market value of the Common Stock on each exercise
date of the option. The Committee may change the percentage rate from 85%;
however, it may never be less than 85%. The fair market value of the Common
Stock on a given date will be the closing price of the Common Stock on the New
York Stock Exchange as of such date. The closing price of the Company's Common
Stock on the New York Stock Exchange on February 12, 1997 was $32.00 per
share.
Payment of Purchase Price; Payroll Deductions/Bonus Contributions. The
purchase price of the shares is accumulated by payroll and/or bonus deductions
during an offering period. Currently, the payroll deductions may be any whole
percentage amount between 1% and 15% of a participant's eligible compensation
on each payroll date during the offering period. These percentage amounts are
subject to change at the sole discretion of the Board or the Committee. For
purposes of the Purchase Plan, eligible compensation is defined to include the
participant's full salary and wages, including commissions, bonuses, overtime
pay and shift differentials, but excluding any payments by the Company or its
subsidiaries to any pension or profit sharing plan, fringe benefits and
certain other forms of extraordinary pay. In addition, a participant may
designate all or some annual bonus compensation to be contributed to the
Purchase Plan by making such election by the November 1st immediately prior to
the payment of the bonus compensation, unless another time for filing such
election is set by the Committee. A participant may discontinue his or her
participation in the Purchase Plan at any time during the offering period. In
addition, a participant may, no more than two times in any calendar year,
reduce or increase the rate of payroll deductions. Payroll deductions will
commence on the first payday following the offering date, and will continue at
the same rate until the end of the offering period unless the participant
terminates participation in the Purchase Plan or reduces or increases the rate
of the payroll deductions.
In the event that the purchase price per share of Common Stock at the
beginning of any offering period is less than the purchase price per share of
Common Stock at the beginning of any prior offering period which has not yet
ended, the Committee in its discretion may terminate the participation of all
participants in the prior offering period and enroll them in the newly
beginning offering period at the same payroll deduction rate.
22
<PAGE>
Grant of Options. Currently, on the first day of each offering period, each
eligible employee is granted an option to purchase, on each exercise date
during the offering period, up to three (3) times the number of shares of
Common Stock determined by dividing 15% of the participant's eligible regular
compensation during each exercise period by 85% of the fair market value of
the Common Stock at the beginning of the offering period. This option grant
limit is subject to change at the sole discretion of the Board or the
Committee.
Notwithstanding the foregoing, no employee is permitted to subscribe for
shares under the Purchase Plan if immediately after the grant of the option,
the employee would own 5% or more of the voting power or value of all classes
of stock of the Company or of a parent or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options), nor shall any employee be granted an option which would
permit the employee's rights to purchase stock under all of the Company's
employee stock purchase plans to accrue at a rate which exceeds $25,000 worth
of stock (determined based on the fair market value of the shares at the time
the option is granted) in any calendar year.
Exercise of Options. Unless a participant withdraws from the Purchase Plan,
such participant's option to purchase shares will be exercised automatically
on each exercise date of the offering period to purchase the maximum number of
full shares that may be purchased at the exercise price with the accumulated
payroll and bonus deductions in the participant's account.
Withdrawal. A participant's interest in a given offering period may be
terminated in whole, but not in part, by signing and delivering to the Company
a notice of withdrawal from the Purchase Plan. The failure to remain in the
continuous employ of the Company or its participating majority-owned
subsidiaries for at least 20 hours per week during an offering period will be
deemed to be a withdrawal from that offering period.
Capital Changes. In the event any change is made in the Company's
capitalization, such as a reorganization, restructuring, reclassification,
stock split or stock dividend, which results in an increase or decrease in the
number of outstanding shares of Common Stock or a change of Common Stock into,
or an exchange of Common Stock for, a different number or kind of shares, the
Committee may authorize appropriate adjustments to be made to the shares
subject to purchase under the Purchase Plan and in the purchase price per
share. In the event of a dissolution or liquidation of the Company, any
options outstanding under the Purchase Plan will terminate unless the
Committee otherwise determines.
Non-transferability. Options to purchase Common Stock under the Purchase
Plan may not be transferred by a participant other than by will or under the
laws of the descent and distribution and may be exercised during a
participant's lifetime only by the participant.
Amendment and Termination of the Plan. The Board of Directors may at any
time amend or terminate the Purchase Plan, except that no amendment may be
made that would cause the Purchase Plan to fail to meet the requirements for
employee stock purchase plans as defined in Section 423 of the Code.
TAX INFORMATION
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and
423 of the Code. Under these provisions, no income
23
<PAGE>
will be taxable to a participant at the time of the grant of the option or
purchase of the shares. Upon disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
participant's holding period. If the shares have been held by the participant
for more than two years after the date of option grant and more than one year
after the transfer of the shares to the participant pursuant to the exercise
of the option, the lesser of (a) the excess of the fair market value of the
shares at the time of such disposition over the purchase price for the shares
or (b) the excess of the fair market value of the shares at the time the
option was granted over the purchase price for the shares will be treated as
ordinary income, and any further gain will be treated as long-term capital
gain. If the shares are disposed of before the expiration of these holding
periods, the excess of the fair market of the shares on the purchase date over
the purchase price will be treated as ordinary income, and any further gain or
loss on such disposition will be long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction
for amounts taxed as ordinary income or capital gain to a participant except
to the extent of ordinary income reported by participants upon disposition of
shares within two years from date of grant or within one year after the
transfer of the shares to the participants.
The foregoing brief summary of the effect of federal income taxation upon
the participant and the Company with respect to the purchase of shares under
the Purchase Plan does not purport to be complete and reference should be made
to the applicable provisions of the Code. In addition, this summary does not
discuss the provisions of the income tax laws of any municipality, state or
foreign country in which the participant may reside.
PARTICIPATION IN PURCHASE PLAN BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll and bonus deductions. Accordingly, future purchases by
executive officers and other employees under the Purchase Plan are not
determinable. None of the Company's executive officers acquired shares under
the Purchase Plan during 1996, although certain executive officers will
participate in the Purchase Plan in 1997. The following table sets forth
certain information regarding shares purchased under the Purchase Plan during
1996 by all employees who participated in the Purchase Plan as a group:
SUMMARY OF 1996 BENEFITS FOR PURCHASE PLAN
<TABLE>
<CAPTION>
AGGREGATE DOLLAR
AGGREGATE PURCHASE VALUES AT
AGGREGATE NUMBER PRICE PAID TO EXERCISE
IDENTITY OF GROUP OF SHARES PURCHASED COMPANY DATES(1)
- ----------------- ------------------- ------------------ ----------------
<S> <C> <C> <C>
All employees as a
group.................. 168,358 $2,274,179 $1,950,174
</TABLE>
- --------
(1) Aggregate Dollar Values at Exercise Dates represents the aggregate market
value of the shares acquired on the exercise dates in 1996, less the
aggregate purchase price paid for such shares under the Purchase Plan.
Exercise dates during 1996 occurred on January 31, 1996 and July 31, 1996.
VOTE REQUIRED
The affirmative vote of the holders of a majority of shares of Common Stock
represented and voting, in person or by proxy, at the Annual Meeting is
required to approve the First Amendment to the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE FIRST AMENDMENT TO THE CALLAWAY GOLF COMPANY 1995 EMPLOYEE STOCK PURCHASE
PLAN.
24
<PAGE>
AMENDMENT OF 1996 STOCK OPTION PLAN
GENERAL
At the Annual Meeting, the shareholders are being asked to approve an
amendment to the Callaway Golf Company 1996 Stock Option Plan (the "1996
Plan"), in order to increase the number of shares of Common Stock available
for issuance upon the exercise of stock options to be granted under the 1996
Plan by 1,000,000 shares, to an aggregate of 3,000,000 shares of Common Stock.
In February 1996, the Board of Directors originally authorized the adoption,
subject to shareholder approval, of the 1996 Plan, under which officers and
other employees, consultants and advisors of the Company are eligible to
receive awards of stock options. At the Company's 1996 Annual Meeting of
Shareholders, the shareholders approved the adoption of the 1996 Plan. The
1996 Plan only provides for the issuance of stock options; other types of
incentive-based awards may not be granted under the 1996 Plan. The 1996 Plan
also prohibits repricing of options (except with shareholder approval or
subject to the adjustment provisions for stock splits, reorganizations, etc.
described below) and the grant of options for less than 85% of fair market
value. A total of 2,000,000 shares of Common Stock initially were reserved for
issuance under the 1996 Plan as approved by the shareholders. As of February
27, 1997, options to purchase 320,000 shares of the Company's Common Stock
have been granted pursuant to the 1996 Plan.
On February 14, 1997, the Board of Directors authorized the adoption,
subject to shareholder approval, of the First Amendment to the 1996 Plan,
under which an additional 1,000,000 shares of the Company's Common Stock would
be authorized for issuance pursuant to stock options to be granted under the
1996 Plan. If approved by the shareholders, the pool of additional shares
available under the 1996 Plan will be used primarily for stock option grants
to officers of the Company and its subsidiaries, in the discretion of the
Stock Option Committee appointed by the Board. The Company and its
subsidiaries currently have 24 officers who would be primarily considered for
grants under the 1996 Plan. Other employees, consultants and advisors also
will be eligible to receive stock option grants under the 1996 Plan. The
Company and its subsidiaries currently have approximately 2,200 employees.
The 1996 Plan has been implemented to allow the Board of Directors or its
Stock Option Committee to create equity incentives for key employees, which
assists the Company in attracting, retaining and motivating the best available
talent for the successful management and conduct of the business of the
Company and its subsidiaries. As noted elsewhere in this Proxy Statement, the
Company is in negotiations with Mr. Dye with respect to a new, long-term
employment agreement. It is currently contemplated that this agreement will
include a grant of approximately 1,000,000 stock options with an exercise
price of $40.00 per share (which is approximately 25% above the current market
price) and early vesting tied to the attainment of certain stock price
appreciation targets. Once that grant has been made, the Board of Directors
believes the remaining shares under the 1996 Plan should be augmented to
permit greater flexibility in accomplishing the Plan's purposes, and
therefore, proposes to increase the number of shares authorized for issuance
under the 1996 Plan at this time.
SUMMARY OF THE 1996 PLAN
Purpose. The purpose of the 1996 Plan is to provide a means whereby the
Company may provide for grants of stock options to employees (including
officers), consultants and advisors of the Company and its subsidiaries and
affiliates, thereby helping to attract, retain and motivate such individuals,
and to encourage the judgment, initiative and efforts of such individuals by
further aligning their interests with those of the shareholders of the
Company.
25
<PAGE>
Administration. The 1996 Plan is administered by the Stock Option Committee
appointed by the Board of Directors (the "Committee"). Subject to the
requirements of the 1996 Plan, the Board or the Committee has full and
exclusive power to construe and interpret the 1996 Plan, to determine and
designate the class or classes of persons who are eligible to participate in
the 1996 Plan, to determine the terms of options, and generally to answer any
and all questions arising under the 1996 Plan. All decisions, determinations
and interpretations by the Committee or the Board regarding the 1996 Plan are
final and binding on all eligible persons and participants.
Eligibility. Any person who is an employee, consultant or advisor of the
Company or any of its subsidiaries or affiliates is eligible to be considered
for the grant of options under the 1996 Plan, as determined by the Board or
the Committee in its discretion; provided, however, that no director of the
Company who is not also an employee of the Company is eligible to receive any
options under the 1996 Plan.
Grant of Options and Exercise Price. The exercise price per share of each
option granted under the 1996 Plan will be not less than 85% of the fair
market value of such share on the option grant date. The closing price of the
Company's Common Stock on the New York Stock Exchange on February 12, 1997,
was $32.00 per share. Options may be in the form of incentive stock options or
non-qualified stock options. The maximum number of shares with respect to
which options may be granted under the 1996 Plan to a key employee in any
calendar year will not exceed 1,000,000.
Within these parameters, the Board or the Committee is authorized to grant
to eligible persons options to purchase shares of the Company's Common Stock
either automatically or upon the occurrence of specified events, including
without limitation, the achievement of qualifying performance criteria or the
satisfaction of an event or condition within the control of the recipient of
the option or within the control of others. For purposes of the 1996 Plan,
"qualifying performance criteria" means any one or more performance criteria
either individually, alternatively or in any combination, applied to either
the Company as a whole or to a business unit or subsidiary, either
individually, alternatively or in any combination and measured either on an
absolute basis or relative to a pre-established target to previous years'
results or to a designated comparison group, in each case as specified by the
Board or the Committee in the option agreement. For this purpose, such
performance criteria may include: (a) cash flow, (b) earnings per share
(including earnings before interest, taxes and amortization), (c) return on
equity, (d) total shareholder return, (e) return on capital, (f) return on
assets or net assets, (g) income or net income, (h) operating income or net
operating income, (i) operating profit or net operating profit, (j) operating
margin, (k) return on operating revenue, (l) market share or circulation and
(m) any similar performance criteria.
Termination of Options. Unless determined otherwise by the Board or the
Committee in its discretion, options will expire on the earlier of (a) one
year from the date on which the participant ceases to be an eligible person
for any reason (including death), or (b) with respect to each installment of
an option, the fifth anniversary of the vesting date of such installment. If a
participant who is an employee of the Company ceases for any reason to be such
an employee, that portion of the option that has not yet vested will
terminate, unless the Board or the Committee accelerates the vesting schedule
in its sole discretion. Options granted to a participant who is not such an
employee may be made subject to such other termination provisions as
determined appropriate by the Board or the Committee.
Non-assignability. Unless the Committee shall otherwise determine on a case
by case basis, no option granted under the 1996 Plan will be assignable or
transferable except (a) by will or by the laws
26
<PAGE>
of descent and distribution, or (b) subject to the final sentence of this
section, upon dissolution of marriage pursuant to a qualified domestic
relations order. Unless the Committee shall otherwise determine on a case by
case basis, during the lifetime of a participant, an option granted to him or
her will be exercisable only by the participant (or the participant's
permitted transferee) or his or her guardian or legal representative.
Notwithstanding the foregoing, (i) no option owned by a participant subject to
Section 16 of the Exchange Act may be assigned or transferred in any manner
inconsistent with Rule 16b-3 thereunder as interpreted and administered by the
Securities and Exchange Commission and its staff, and (ii) incentive stock
options may not be assigned or transferred in violation of Section 422(b)(5)
of the Code, or the Treasury Regulations thereunder, and nothing herein is
intended to allow such assignment or transfer.
Adjustment in Shares. If the outstanding securities of the class then
subject to the 1996 Plan are increased, decreased or exchanged for or
converted into cash, property or a different number or kind of shares or
securities, or if cash, property or shares or securities are distributed in
respect of such outstanding securities, in either case as a result of a
reorganization, merger, consolidation, recapitalization, restructuring,
reclassification, dividend (other than a regular, quarterly cash dividend) or
other distribution, stock split, reverse stock split, spin-off or the like, or
if substantially all of the property and assets of the Company are sold, then,
unless the terms of such transaction will provide otherwise, the Board or the
Committee will make appropriate and proportionate adjustments in (a) the
number and type of shares or other securities or cash or other property that
may be acquired pursuant to options theretofore granted under the 1996 Plan
and the exercise or settlement price of such options, provided, however, that
such adjustment will be made in such a manner that will not affect the status
of any option intended to qualify as an incentive stock option under Code
Section 422, and (b) the maximum number and type of shares or other securities
that may be issued pursuant to such options thereafter granted under the 1996
Plan.
Neither the Board nor the Committee may decrease the exercise price of
shares that may be acquired pursuant to options granted under the 1996 Plan
unless such decrease is (a) made subject to approval by the shareholders of
the Company or (b) made pursuant to the above-described adjustment provisions.
Further, in the event that the Board or the Committee determines that it is
appropriate to condition the grant of a new option to a participant upon the
surrender by such participant of a previously issued unexercised option having
a higher exercise price than the proposed new option, then the shares
underlying the old option will not again become available in the pool of
shares for which options may be granted under the 1996 Plan unless and until
such new option expires by reason of lapse of time or is otherwise terminated
without exercise for any reason other than in connection with a similar
conditional regrant.
Amendment and Termination of the 1996 Plan. The Board or the Committee may,
insofar as permitted by law, from time to time suspend or discontinue the 1996
Plan or revise or amend it in any respect whatsoever, and the 1996 Plan as so
revised or amended will govern all options thereunder, including those granted
before such revision or amendment, except that no such amendment will alter or
impair or diminish in any material respect any rights or obligations under any
option theretofore granted under the 1996 Plan, without the consent of the
person to whom such option was granted. In addition, if an amendment to the
1996 Plan would materially increase the number of shares subject to the 1996
Plan (as adjusted under the 1996 Plan), materially modify the requirements as
to eligibility for participation in the 1996 Plan, extend the final date upon
which options may be granted under the 1996 Plan, or otherwise materially
increase the benefits accruing to recipients in a manner not specifically
contemplated herein and which affects the 1996 Plan's compliance with Rule
16b-3 under the Exchange Act or applicable provisions of the Code or requires
the approval of the Company's
27
<PAGE>
shareholders so that the options granted under the 1996 Plan continue to
qualify as "performance-based compensation" described in Code Section 162(m)
and the Treasury regulations thereunder, then the amendment will be subject to
approval by the Company's shareholders to the extent required to comply with
Rule 16b-3 under the Exchange Act or applicable provisions of or rules under
the Code. Notwithstanding the foregoing, the Board or the Committee may amend
the 1996 Plan to comply with or take advantage of the rules or regulations (or
interpretations thereof) promulgated under Section 16 of the Exchange Act or
under the Code, subject to the shareholder approval requirement described
above.
Expiration. Unless previously terminated, the authority to grant options
under the 1996 Plan will expire ten (10) years after the effective date of the
1996 Plan, but such expiration will not affect any option previously made or
granted that is then outstanding.
FEDERAL INCOME TAX TREATMENT
The following brief summary of the effect of federal income taxation upon
the participant and the Company with respect to the exercise of options under
the 1996 Plan does not purport to be complete and reference should be made to
the applicable provisions of the Code. In addition, this summary does not
discuss the provisions of the income tax laws of any municipality, state or
foreign country in which the participant may reside.
Incentive Stock Options. Stock options granted under the 1996 Plan may
qualify as "incentive stock options" within the meaning of Section 422 of the
Code. If an optionee exercises an incentive stock option in accordance with
the terms of an incentive stock option and does not dispose of the shares
acquired within two years from the date of the grant of an incentive stock
option nor within one year from the date of exercise (the "Required Holding
Periods"), an optionee generally will not be subject to regular federal income
tax, and the Company will not be entitled to any deduction, on either the
grant or the exercise of an incentive stock option. An optionee's basis in the
shares acquired upon exercise will be the amount paid upon exercise. Provided
an optionee holds the shares as a capital asset at the time of sale or other
disposition of the shares, an optionee's gain or loss, if any, recognized on
the sale or other disposition will be capital gain or loss. The amount of an
optionee's gain or loss will be the difference between the amount realized on
the disposition of the shares and the optionee's basis in the shares.
If, however, an optionee disposes of the acquired shares at any time prior
to the expiration of the Required Holding Periods, then (subject to certain
exceptions), the optionee will recognize ordinary income at the time of such
disposition which will equal the excess, if any, of the lesser of (a) the
amount realized on such disposition, or (b) the fair market value of the
shares on the date of exercise, over the optionee's basis in the shares. The
Company generally will be entitled to a deduction in an amount equal to the
amount of ordinary income recognized by an optionee. Any gain in excess of
such ordinary income amount will be a short-term or long-term capital gain,
depending on the optionee's holding period. If an optionee disposes of such
shares for less than the optionee's basis in the shares, the difference
between the amount realized and the optionee's basis will be short-term or
long-term capital loss, depending upon the holding period of the shares.
The excess of the fair market value of the shares acquired on the exercise
date of an incentive stock option over the exercise price of such option
generally is required to be included in the optionee's alternative minimum
taxable income for the year in which the option is exercised and, accordingly,
may subject an optionee to the alternative minimum tax.
28
<PAGE>
Non-qualified Stock Options. In general, there are no tax consequences to
the optionee or to the Company on the grant of a stock option which does not
qualify as an incentive stock option (a "non-qualified stock option"). On
exercise, however, the optionee generally will recognize ordinary income equal
to the excess of the fair market value of the shares as of the exercise date
over the purchase price paid for such shares, and the Company will be entitled
to a deduction equal to the amount of ordinary income recognized by the
optionee. Upon a subsequent disposition of the shares received under a non-
qualified stock option, the difference between the amount realized on such
disposition and the fair market value of the shares on the date of exercise
generally will be treated as a capital gain or loss. Optionees subject to the
Section 16(b) insider trading rules generally are subject to the same tax
consequences with respect to a non-qualified stock option as any other
optionee unless the exercise of the option occurs within six months after the
date of grant. In such case, unless the optionee makes an affirmative election
under Code Section 83(b) within 30 days after exercise, the date on which the
optionee recognizes ordinary income with respect to such option will be
delayed until the date which is six months after the date of grant of the
option (or such earlier date on which the optionee no longer is subject to
suit under the Section 16(b) insider trading rules) and the amount of such
ordinary income will be the excess of the fair market value of the stock at
that time over the purchase price paid for such stock.
Miscellaneous Tax Issues. The Company generally will be required to make
arrangements for withholding applicable taxes with respect to any ordinary
income recognized by a recipient in connection with the exercise of options
granted under the 1996 Plan.
Special rules will apply in cases where a recipient of an option pays the
exercise price or applicable withholding tax obligations by delivering
previously owned shares of Common Stock or by reducing the amount of shares
otherwise issuable pursuant to the exercise of an option. The surrender or
withholding of such shares will in certain circumstances result in the
recognition of income with respect to such shares or a carryover basis in the
shares acquired.
The terms of the 1996 Plan allow for the granting of options that accelerate
the ability of the recipient to exercise the option in connection with a
change in ownership or control of the Company. In that event and depending
upon the individual circumstances of the recipient, certain amounts with
respect to such options may constitute "excess parachute payments" under the
"golden parachute" provisions of the Code. Pursuant to these provisions, a
recipient will be subject to a 20% excise tax on any "excess parachute
payments" and the Company will be denied any deduction with respect to such
payment.
The Company generally obtains a deduction equal to the ordinary income
recognized by a recipient of an option upon exercise. The Company's deduction
for such amounts (including other compensation received by the recipient from
the Company), however, may be limited to $1,000,000 (per person) annually.
PARTICIPATION IN THE 1996 PLAN BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES
Although the pool of additional shares available under the 1996 Plan will be
used primarily for stock option grants to officers of the Company and its
subsidiaries, participation in the 1996 Plan is at the discretion of the Board
or the Committee. Accordingly, future participation by executive officers and
other employees under the 1996 Plan is not determinable. As noted above, the
Company is in negotiations with Mr. Dye with respect to a new, long-term
employment agreement. It is currently contemplated that this agreement will
include a grant of approximately 1,000,000 stock options at an
29
<PAGE>
exercise price of $40.00 per share (which is approximately 25% above the
current market price) and with early vesting tied to the attainment of certain
stock price appreciation targets. Through February 27, 1997 options to
purchase an aggregate of 320,000 shares of Common Stock have been granted
under the 1996 Plan. These options include 60,000 options granted to two
executive officers (neither of whom was Mr. Dye) at an exercise price of
$31.13 per share and 260,000 options granted to a group of 14 other employees,
all of whom are officers of the Company, at an exercise price of $31.13 per
share.
VOTE REQUIRED
The affirmative vote of the holders of a majority of shares of the Common
Stock represented and voting, in person or by proxy, at the Annual Meeting is
required to approve the First Amendment to the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE FIRST AMENDMENT TO THE CALLAWAY GOLF COMPANY 1996 STOCK OPTION PLAN.
30
<PAGE>
APPROVAL OF 1998 EXECUTIVE NON-DISCRETIONARY BONUS PLAN
GENERAL
At the Annual Meeting, the shareholders of the Company are being asked to
approve the adoption of the Callaway Golf Company 1998 Executive Non-
Discretionary Bonus Plan (the "1998 Non-Discretionary Plan"), which will
become effective on January 1, 1998. If the 1998 Non-Discretionary Plan is
approved, the Company's existing Executive Non-Discretionary Bonus Plan (the
"1995 Plan") would be terminated at the end of 1997. Approval of the 1998 Non-
Discretionary Plan by the Company's shareholders will enable officers' annual
non-discretionary incentive awards earned under the plan to qualify as
performance-based compensation for purposes of Section 162(m) of the Code.
Since December 1991, the Company has had an Executive Bonus Pool, pursuant
to which both discretionary and non-discretionary annual bonuses were paid to
certain officers based on the Company's achievement of certain levels of
operating performance. In 1993, the Code was amended to add Section 162(m).
Section 162(m) places a limit of $1,000,000 on the amount of compensation that
may be deducted by the Company in any tax year with respect to each of the
Company's highest paid executives. However, certain non-discretionary
performance-based compensation that has been approved by the shareholders is
not subject to the deduction limit.
In March 1995, the Company's Board of Directors adopted the 1995 Plan,
subject to shareholder approval. At the Company's 1995 Annual Meeting of
Shareholders, the Company's shareholders approved the adoption of the
Company's 1995 Plan, enabling incentives earned under such plan to qualify as
performance-based compensation for purposes of Section 162(m), and therefore,
to be deductible by the Company without regard to the deduction limit
otherwise imposed by Section 162(m).
On February 27, 1997, the Board of Directors adopted, subject to shareholder
approval, the 1998 Non-Discretionary Plan, which will govern the payment of
certain non-discretionary bonuses to the Company's executive officers and
other participants during the period from January 1, 1998 to and including the
first meeting of the Company's shareholders in 2002. The 1998 Non-
Discretionary Plan is identical to the 1995 Plan in all material respects,
except that the 1998 Non-Discretionary Plan has a longer term and the maximum
annual bonus payable to each participant in the 1998 Non-Discretionary Plan is
$2,000,000, as compared to a maximum annual bonus payable under the 1995 Plan
equal to the lesser of $750,000 or 75% of the participant's annual base
salary. The Executive Non-Discretionary Bonus Plan Committee (the "Non-
Discretionary Plan Committee") which administers the 1998 Non-Discretionary
Plan may, in its sole discretion, establish maximum bonus amounts payable to
individual participants of less than $2,000,000 for any year, giving the Board
flexibility in establishing executive compensation plans for officers of the
Company and its subsidiaries.
The Board of Directors believes that it is desirable and in the best
interests of the Company and its shareholders to enable the Company's
executive compensation plans to comply with the requirements of Section
162(m), and therefore, to be deductible by the Company without regard to the
deduction limit imposed by Section 162(m). The Board believes that the 1995
Plan has been very successful in motivating the Company's officers. The Board
further believes that the 1998 Non-Discretionary Plan is consistent with the
Company's existing 1995 Plan, which closely aligns executive compensation with
the Company's earnings performance, and therefore, with the interests of
shareholders generally. The 1998 Non-Discretionary Plan also serves the
Company's interests by granting the Non-Discretionary Plan Committee
discretion both in selecting the performance targets,
31
<PAGE>
which will be based on achievement of specified levels of pre-tax earnings,
and in determining the actual amount of each eligible participant's bonus,
subject to maximum limits imposed by the 1998 Non-Discretionary Plan.
Accordingly, the Board of Directors is seeking shareholder approval of the
1998 Non-Discretionary Plan at this time.
If the Company's shareholders do not approve the 1998 Non-Discretionary
Plan, executive officer bonuses for 1998 and thereafter will be determined at
the discretion of the Executive and Compensation Committee. The Executive and
Compensation Committee would have the option of awarding discretionary bonuses
to the Company's executive officers, which might not be deductible under
Section 162(m) of the Code to the extent that, when combined with other non-
exempt compensation, such amounts exceed the limits set forth under Section
162(m).
SUMMARY OF THE 1998 NON-DISCRETIONARY PLAN
A description of the principal features of the 1998 Non-Discretionary Plan is
set forth below.
Purpose. The purpose of the 1998 Non-Discretionary Plan is to promote the
interests of the Company and its shareholders by providing incentive to
participating officers of the Company and its subsidiaries to make significant
contributions to the performance of the Company and its subsidiaries and to
reward outstanding performance on the part of those individuals whose
decisions and actions most significantly affect the growth, profitability and
efficient operation of the Company and its subsidiaries.
Administration. The 1998 Non-Discretionary Plan shall be administered by a
special subcommittee of the Executive and Compensation Committee of the Board
of Directors, which will at all times be constituted to meet the "outside
directors" requirements of Section 162(m) of the Code. The Non-Discretionary
Plan Committee shall have the power to make rules and regulations for the
administration of the 1998 Non-Discretionary Plan. In making any determination
under the 1998 Non-Discretionary Plan, the Non-Discretionary Plan Committee
shall be entitled to rely on reports, opinions or statements of officers or
employees of the Company and its affiliates as well as those of counsel,
public accountants and other professional or expert persons. The
interpretations and decisions of the Non-Discretionary Plan Committee with
regard to the 1998 Non-Discretionary Plan shall be final and conclusive. No
member of the Non-Discretionary Plan Committee shall be liable for any action
or determination made in good faith with respect to the 1998 Non-Discretionary
Plan.
Eligibility. The Non-Discretionary Plan Committee will initially designate
24 officers of the Company and its subsidiaries (which includes all of the
Company's executive officers), each of whom currently participates in the 1995
Plan, as eligible to participate in the 1998 Non-Discretionary Plan
("Participants"). These officers also will be designated by the Executive and
Compensation Committee as participants in the discretionary portion of the
Company's Executive Bonus Pool. Additional persons employed by the Company and
its subsidiaries may be added as Participants in the discretion of the Non-
Discretionary Plan Committee.
Determination of Benefits. The Non-Discretionary Plan Committee will
designate performance targets under the 1998 Non-Discretionary Plan for
participants within the time period required by Department of Treasury
Regulations adopted to implement Section 162(m) of the Code ("Regulations")
for each year. The performance targets will be based on achievement of
specified levels of pre-tax earnings. The performance targets from year to
year will be set by the Non-Discretionary Plan Committee based on the
Company's prior year performance and other relevant
32
<PAGE>
factors. The performance targets designated by the Non-Discretionary Plan
Committee may differ for each Participant in the 1998 Non-Discretionary Plan.
The maximum bonus amount payable under the 1998 Non-Discretionary Plan to any
Participant shall not exceed $2,000,000 for any year. Under the 1998 Non-
Discretionary Plan, the Non-Discretionary Plan Committee may, in its sole
discretion, establish maximum bonus amounts payable to individual Participants
in the plan of less than $2,000,000 for any year.
The performance targets for 1998 will be designated in late 1997 or early
1998. Because the 1998 performance targets have not yet been established,
amounts that will be payable to Participants in 1998 and beyond are not
determinable at this time.
The maximum $2,000,000 annual bonus represents only the maximum bonus award
payable under the 1998 Non-Discretionary Plan. Additional discretionary or
non-qualified non-discretionary bonuses may be awarded by the Executive and
Compensation Committee under the Company's Executive Bonus Pool, pursuant to
contract, or as otherwise determined by the Executive and Compensation
Committee. Any such discretionary or non-qualified non-discretionary amounts
would be subject to the $1,000,000 deductibility limit under Section 162(m) of
the Code. The Company currently expects that all or the substantial majority
of its executive bonus compensation will fall within the deductibility limits
(assuming shareholder approval of the 1998 Non-Discretionary Plan), and
therefore, will be fully deductible. It is possible, however, that a portion
of the compensation paid to an executive officer of the Company may not be
deductible under the Code.
Certification of Achievement of Performance Standards. Provided that the
Code and/or Regulations so requires, the Non-Discretionary Plan Committee
shall, prior to any payment under the 1998 Non-Discretionary Plan, certify in
writing the extent, if any, of achievement of performance standards for each
Participant. For purposes of this provision, and for so long as the Code
and/or Regulations permits, the approved minutes of the Non-Discretionary Plan
Committee meeting in which the certification is made may be treated as a
written certification.
Amendment or Termination. The Non-Discretionary Plan Committee may from time
to time amend the 1998 Non-Discretionary Plan in any respect or terminate or
suspend the 1998 Non-Discretionary Plan at any time in whole or in part,
provided that, if shareholder approval of an amendment is required for
continued compliance with the requirements of Section 162(m) of the Code, such
amendment shall be subject to obtaining the required shareholder approval.
No Assignment. Except as expressly authorized by the Non-Discretionary Plan
Committee, the rights under the 1998 Non-Discretionary Plan, including without
limitation, the rights to receive any payment, shall not be sold, assigned,
transferred, encumbered or hypothecated by a Participant (except by
testamentary disposition or intestate succession), and during the lifetime of
any Participant any payment shall be payable only to such Participant.
Term. The Non-Discretionary Plan shall be effective as of January 1, 1998,
subject to shareholder approval, and shall continue until the first
shareholder meeting in the fifth year following approval of the plan by the
Company's shareholders, unless amended or terminated by the Company (see
Amendment or Termination above), subject to any future shareholder re-approval
requirements of the Code and the regulations thereunder.
Governing Law. The validity, construction and effect of the 1998 Non-
Discretionary Plan and any action taken or relating to the 1998 Non-
Discretionary Plan shall be determined in accordance with the laws of the
State of California and applicable federal law.
33
<PAGE>
TAX INFORMATION
Under present federal income tax regulations, Participants will realize
ordinary income equal to the amount of the award received in the year of
receipt. The Company will receive a deduction for the amount constituting
ordinary income to the Participant, provided that the 1998 Non-Discretionary
Plan satisfies the requirements of Section 162(m) of the Code. It is the
Company's intention that the 1998 Non-Discretionary Plan be constructed and
administered in a manner that maximizes the deductibility of compensation for
the Company under Section 162(m) of the Code. In addition to and separate from
payments made under the 1998 Non-Discretionary Plan, the Company will from
time to time pay bonuses to eligible officers under the discretionary or non-
qualified non-discretionary portion of the Company's Executive Bonus Pool and
may pay other compensation to officers as determined appropriate by the
Executive and Compensation Committee. Such discretionary amounts will be
subject to the $1,000,000 deductibility limit of Section 162(m) of the Code.
The Company currently expects that all or the substantial majority of such
compensation will fall within the deductibility limits (assuming shareholder
approval of the 1998 Non-Discretionary Plan), and therefore, will be fully
deductible. It is possible, however, that a portion of the compensation paid
to an executive officer of the Company may not be deductible under the Code.
Further, because of the ambiguities and uncertainties as to the application
and interpretation of Section 162(m) and the regulations issued thereunder, no
assurance can be given, notwithstanding the efforts of the Company in this
area, that compensation intended by the Company to satisfy the requirements
for deductibility under Section 162(m) will in fact do so.
The foregoing brief summary of the effect of federal income taxation upon
Participants and the Company with respect to the 1998 Non-Discretionary Plan
does not purport to be complete and reference should be made to the applicable
provisions of the Code. In addition, this summary does not discuss the
provisions of income tax laws of any municipality, state or foreign country in
which a Participant may reside.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock represented and voting at the Annual Meeting is required to approve the
adoption of the 1998 Non-Discretionary Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE ADOPTION OF THE CALLAWAY GOLF COMPANY 1998 EXECUTIVE NON-DISCRETIONARY
BONUS PLAN.
34
<PAGE>
CERTAIN TRANSACTIONS
During 1996, the Company paid $90,000 in consulting fees to Elmer Ward, a
Director of the Company, for his implementation and management of the
licensing arrangement between the Company and Nordstrom, Inc. which created
the "Callaway Golf Apparel by Nordstrom" sportswear line for men and women,
and which is produced and marketed by Nordstrom, Inc. On July 1, 1996, Mr.
Ward commenced employment with the Company as Manager, Apparel Licensing.
The Company retained the law firm of Gibson, Dunn & Crutcher to provide
legal services to the Company during 1996, and anticipates that it will retain
Gibson, Dunn & Crutcher in 1997 as well. Ms. Aulana L. Peters, a Director of
the Company, is a partner at Gibson, Dunn & Crutcher.
Between July 1993 and May 1994, the Company made a net loan of $103,615 with
an annual interest rate of 7% to David Rane, Executive Vice President, Chief
Financial Officer. The loan was secured by a second deed of trust on his
primary residence. The loan was paid in full in February 1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and greater than 10% shareholders to file
initial reports of ownership (on Form 3) and periodic changes in ownership (on
Forms 4 and 5) of Company securities with the Securities and Exchange
Commission and the New York Stock Exchange. Based solely on its review of
copies of such forms and such written representations regarding compliance
with such filing requirements as were received from its executive officers,
directors and greater than 10% shareholders (if any), the Company believes
that all such Section 16(a) filing requirements were complied with during
1996.
ANNUAL REPORT
A copy of the Company's Annual Report, including financial statements for
the years ended December 31, 1996 and December 31, 1995, is being mailed with
this Proxy Statement to shareholders of record on the Record Date, but such
report is not incorporated herein and is not deemed to be a part of this proxy
solicitation material.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS, WILL BE FURNISHED
WITHOUT CHARGE TO ANY PERSON FROM WHOM THE ACCOMPANYING PROXY IS SOLICITED
UPON WRITTEN REQUEST TO THE COMPANY'S MANAGER OF INVESTOR RELATIONS AT
CALLAWAY GOLF COMPANY, 2285 RUTHERFORD ROAD, CARLSBAD, CALIFORNIA 92008.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP served as the Company's independent accountants for
1996. One or more representatives of Price Waterhouse LLP are expected to be
present at the Annual Meeting, will have an opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate
questions.
35
<PAGE>
SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's 1998
Annual Meeting of Shareholders in next year's proxy statement must, in
addition to other applicable requirements, cause their proposals to be
received in writing by the Company at its address set forth on the first page
of this Proxy Statement no later than November 10, 1997. Such proposals should
be addressed to the Company's Secretary and may be included in next year's
proxy statement if they comply with certain rules and regulations promulgated
by the Securities and Exchange Commission.
OTHER MATTERS
PRESENTED BY MANAGEMENT
Management knows of no matters other than those listed in the attached
Notice of the Annual Meeting which are likely to be brought before the Annual
Meeting. However, if any other matters should properly come before the Annual
Meeting or any adjournment thereof, the persons named in the enclosed proxy
will vote all proxies given to them in accordance with their best judgment of
such matters.
PRESENTED BY SHAREHOLDERS
Pursuant to the Bylaws of the Company, only such business shall be
conducted, and only such proposals shall be acted upon, at an annual meeting
of shareholders as are properly brought before the meeting. For business to be
properly brought before an annual meeting by a shareholder, in addition to any
other applicable requirements, timely notice of the matter must be first given
to the Secretary of the Company. To be timely, written notice must be received
at the principal executive offices of the Company not less than 60 days nor
more than 120 days prior to the scheduled meeting; provided, however, that if
less than 70 days' notice or prior public disclosure of the date of the
scheduled meeting has been given to shareholders, then notice of the proposed
business matter must be received not later than 10 days after the mailing of
notice of the meeting or such public disclosure. Any notice to the Secretary
must include as to each matter the shareholder proposes to bring before the
meeting: (a) a brief description of the proposal desired to be brought before
the meeting and the reason for conducting such business at the annual meeting,
(b) the name and record address of the shareholder proposing such business and
any other shareholders known by such shareholder to be supporting such
proposal, (c) the class and number of shares of the Company which are
beneficially owned by the shareholder on the date of such shareholder notice
and by other shareholders known by such shareholder to be supporting such
proposal on the date of such shareholder notice, and (d) any financial
interest of the shareholder in such proposal.
36
<PAGE>
Each shareholder is urged to complete, date, sign and promptly return the
enclosed proxy card. Any questions should be addressed to the Manager,
Investor Relations, at 2285 Rutherford Road, Carlsbad, California 92008,
telephone (619) 931-1771.
/s/ STEVEN C. MCCRACKEN
-----------------------
Steven C. McCracken
Secretary
Carlsbad, California
March 10, 1997
37
<PAGE>
[MAP APPEARS HERE]
DIRECTIONS:
From I-5:
---------
1997 CALLAWAY GOLF Exit on Palomar Airport Road - East
SHAREHOLDERS MEETING Left on College Blvd.
THURSDAY, APRIL 17 Right on Faraday Ave.
10:00 A.M.
2101 FARADAY AVENUE From I-15:
----------
CARLSBAD, CALIFORNIA Take 78 East
Exit on San Marcos Blvd. - South
(San Marcos Blvd. becomes Palomar
Airport Road)
Right on El Camino Real
Left on Faraday Ave.
<PAGE>
- --------------------------------------------------------------------------------
CALLAWAY GOLF COMPANY
This undersigned shareholder of CALLAWAY GOLF COMPANY hereby appoints
STEVEN C. MCCRACKEN, DAVID RANE, or either of them, proxies of the undersigned,
each with full power to act without the other and with the power of
substitution, to represent the undersigned at the Annual Meeting of Shareholders
of Callaway Golf Company to be held at 2101 Faraday Avenue, Carlsbad, California
92008, on April 17, 1997 at 10:00 A.M. (California time), and at any
adjournments or postponements thereof, and to vote all shares of stock of the
Company standing in the name of the undersigned with all the powers the
undersigned would possess if personally present, in accordance with the
instructions below and on the reverse hereof, and in their discretion upon such
other business as may properly come before the meeting; provided, however, that
such proxies, or either of them, shall have the power to cumulate votes and
distribute them among the nominees listed in the manner directed herein, as they
see fit, and to drop any such nominees, in order to ensure the election of the
greatest number of such nominees.
THIS PROXY WILL BE VOTED ON THE REVERSE HEREOF, AND WILL BE VOTED IN
FAVOR OF PROPOSALS 1, 2, 3, 4 AND 5 IF NO INSTRUCTIONS ARE INDICATED.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
R.S.V.P./COMMENTS/ADDRESS CHANGE: PLEASE MARK R.S.V.P./COMMENT/ADDRESS CHANGE
BOX ON REVERSE SIDE
(Continued and to be dated and signed, on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. YOUR
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
[X] Please mark
your votes
as indicated in this
example
1. ELECTION OF DIRECTORS
FOR all nominees
listed to the right
(except as marked to the
contrary)
[_]
WITHHOLD
AUTHORITY
(to vote for all nominees
listed at right)
[_]
Nominees: Ely Callaway, Donald H. Dye, William C. Baker, Bruce Parker,
Aulana L. Peters, Frederick R. Port, Richard Rosenfield, William A. Schreyer,
Michael Sherwin, Elmer Ward and Charles J. Yash.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
the nominee's name on the line provided below.)
- -----------------------------------------------------------
2. Proposal to approve an amendment to the Callaway Golf
Company 1995 Employee Stock Purchase Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve an amendment to the Callaway Golf
Company 1996 Stock Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Proposal to approve the adoption of the Callaway Golf
Company 1998 Executive Non-Discretionary Bonus Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the
meeting or any adjournment thereof.
I PLAN TO ATTEND MEETING [_]
R.S.V.P/COMMENTS/ADDRESS CHANGE
PLEASE MARK THIS BOX AND COMPLETE THE
REVERSE SIDE IF YOU ARE BRINGING OTHERS TO
THE MEETING OR IF YOU HAVE WRITTEN
COMMENTS/ADDRESS CHANGE. [_]
The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting of Shareholders to be held April 17, 1997 and the
Proxy Statement furnished herewith.
SIGNATURE ____________________________ SIGNATURE _____________________________
DATE__________________________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
[LETTERHEAD OF CALLAWAY GOLF COMPANY]
March 10, 1997
TO: CERTAIN PARTICIPANTS IN THE CALLAWAY GOLF COMPANY 401(k) PROFIT
SHARING PLAN
As a participant in the Callaway Golf Company 401(k) Profit Sharing Plan
with funds invested in Callaway Golf Company Common Stock, you have certain
rights to direct the voting of these shares at the upcoming Annual Meeting.
Your voting rights are based upon the number of shares of Callaway Golf Company
Common Stock allocated to your 401(k) account on February 27, 1997.
To exercise your voting rights, please complete the enclosed light blue
Voting Instruction Card. It directs the 401(k) Plan Trustee, Wells Fargo Bank,
how to vote. YOU MUST RETURN THE VOTING INSTRUCTION CARD USING THE ENCLOSED
RETURN ENVELOPE PRIOR TO THE ANNUAL MEETING, WHICH WILL BE HELD ON APRIL 17,
1997, IN ORDER TO EXERCISE YOUR VOTING RIGHTS UNDER THE 401(k) PLAN. THE
TRUSTEE CANNOT GUARANTEE THAT VOTING INSTRUCTIONS RECEIVED AFTER APRIL 15, 1997
WILL BE COUNTED.
For the reasons stated in the enclosed Proxy Statement for the Annual
Meeting, your Board of Directors recommends a vote "FOR" all of the nominees for
director and the other proposals set forth on the Voting Instruction Card.
You may get more than one package of materials regarding the upcoming
Annual Meeting. For example, if you are also a shareholder separate from the
401(k) plan, you will receive a different mailing containing a white Proxy Card.
If you hold unexercised stock options or purchased stock within the last year
through the Employee Stock Purchase Plan, you also will receive a separate
mailing containing a green Voting Instruction Card for shares held by the
Grantor Stock Trust. YOU MUST SEPARATELY VOTE THE SHARES HELD BY YOU AS A
SHAREHOLDER OR AS AN ELIGIBLE VOTER UNDER THE GRANTOR STOCK TRUST BY USING THE
PROXY CARD OR VOTING INSTRUCTION CARD YOU RECEIVE WITH THOSE PACKAGES. Please
return any Voting Instruction Card and Proxy Card you might receive separately,
in the separate return envelopes provided with each package.
As noted above, you may be receiving more than one copy of the Annual
Report and Proxy Statement. The law requires that we mail these informational
materials with each voting card. We regret any inconvenience this may cause.
If you wish, you can return any extra copies to the Company's Legal Department
where they will be re-used or recycled.
If you need further assistance, please contact Krista Mallory at (619)
931-1771. Thank you for your cooperation.
Sincerely,
/s/ ELY CALLAWAY /s/ DONALD H. DYE
Ely Callaway Donald H. Dye
Chairman of the Board President and
Chief Executive Officer
<PAGE>
CALLAWAY GOLF COMPANY
TO: WELLS FARGO BANK,
TRUSTEE OF THE CALLAWAY GOLF COMPANY 401(k)
PROFIT SHARING PLAN
With respect to the voting at the Annual Meeting of Shareholders of
Callaway Golf Company to be held on April 17, 1997, or any adjournment or
postponement thereof, the undersigned participant in the Callaway Golf Company
401(k) Profit Sharing Plan, as amended (the "401(k) Plan"), hereby directs Wells
Fargo Bank, as Trustee of the 401(k) Plan, to vote all of the undersigned's
votes to which the undersigned is entitled to direct under the 401(k) Plan, in
accordance with the following instructions:
THE VOTES TO WHICH THE UNDERSIGNED PLAN PARTICIPANT IS ENTITLED TO DIRECT
UNDER THE 401(K) PLAN WILL BE VOTED ON THE REVERSE HEREOF, AND WILL BE VOTED IN
FAVOR OF PROPOSALS 1,2,3,4 AND 5 IF NO INSTRUCTIONS ARE INDICATED.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
(CONTINUED AND TO BE DATED AND SIGNED, ON OTHER SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
PLEASE MARK, DATE, SIGN AND RETURN THIS VOTING INSTRUCTION CARD PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE. THE TRUSTEE CANNOT GUARANTEE THAT INSTRUCTIONS
RECEIVED AFTER APRIL 15, 1997 WILL BE COUNTED.
Please mark your vote as
indicated in this example [X]
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS
Nominees: Ely Callaway, Donald H. Dye, William C. Baker, Bruce Parker,
FOR all nominees listed to the right Aulana L. Peters, Federick R. Port, Richard Rosenfield, William A. Schreyer,
(except as marked to the contrary) [_] Michael Sherwin, Elmer Ward and Charles J. Yash.
WITHHOLD AUTHORITY (to vote for all (INSTRUCTION: To withhold authority to vote for any individual nominee,
nominees listed at right) [_] write the nominee's name on the line provided below.)
--------------------------------------------------------------------------
2. Proposal to approve an amendment to the FOR AGAINST ABSTAIN
Callaway Golf Company 1995 Employee [_] [_] [_]
Stock Purchase Plan.
3. Proposal to approve an amendment to the [_] [_] [_]
Callaway Golf Company 1996 Stock Option
Plan.
4. Proposal to approve the adoption of the [_] [_] [_]
Callaway Golf Company 1998 Executive
Non-Discretionary Bonus Plan.
5. In their discretion, Steven C. McCracken
and David Rane, or either of them, are
authorized to vote upon such other business
as may properly come before the meeting or
any adjournment thereof.
</TABLE>
Signature Date
------------------------------------------------- -----------
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders to be held April 17, 1997 and the Proxy Statement furnished
herewith. Please sign exactly as name appears hereon.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
[LETTERHEAD OF CALLAWAY GOLF COMPANY]
March 10, 1997
TO: PARTICIPANTS IN THE CALLAWAY GOLF COMPANY 1995 EMPLOYEE STOCK PURCHASE
PLAN AND EMPLOYEE STOCK OPTION PLANS
The Company has placed 5,300,000 shares of Common Stock into a Grantor
Stock Trust, where it is being held to fund benefits under, among other things,
the above stock plans. As a participant in one or more of the stock plans, you
have certain rights to direct the voting of these shares at the upcoming Annual
Meeting. Your voting rights are based upon the number of unexercised options
you hold under the Stock Option Plans and/or shares you purchased during the
last year under the Employee Stock Purchase Plan.
To exercise your voting rights, please complete the enclosed green Voting
Instruction Card. It directs the Trustee, Sanwa Bank of California, how to
vote. YOU MUST RETURN THE VOTING INSTRUCTION CARD TO THE TRUSTEE USING THE
ENCLOSED RETURN ENVELOPE PRIOR TO THE ANNUAL MEETING, WHICH WILL BE HELD ON
APRIL 17, 1997, IN ORDER TO EXERCISE YOUR VOTING RIGHTS UNDER THE TRUST. THE
TRUSTEE CANNOT GUARANTEE THAT VOTING INSTRUCTIONS RECEIVED AFTER APRIL 15, 1997
WILL BE COUNTED.
For the reasons stated in the enclosed Proxy Statement for the Annual
Meeting, your Board of Directors recommends a vote "FOR" all of the nominees for
director and the other proposals set forth on the Voting Instruction Card.
You may get more than one package of materials regarding the upcoming
Annual Meeting. For example, if you are also a shareholder separate from these
stock plans, you will receive a different mailing containing a white Proxy Card.
If a portion of the funds held in your 401(k) Profit Sharing Plan account is
invested in the Company's Common Stock, you also will receive a separate
mailing containing a light blue Voting Instruction Card for these shares.
YOU MUST SEPARATELY VOTE THE SHARES HELD BY YOU AS A SHAREHOLDER OR 401(k) PLAN
PARTICIPANT BY USING THE PROXY CARD OR VOTING INSTRUCTION CARD YOU RECEIVE WITH
THOSE PACKAGES. Please return any Voting Instruction Card and Proxy Card you
might receive separately, in the separate return envelopes provided with each
package.
As noted above, you may be receiving more than one copy of the Annual
Report and Proxy Statement. The law requires that we mail these informational
materials with each voting card. We regret any inconvenience this may cause.
If you wish, you can return any extra copies to the Company's Legal Department
where they will be re-used or recycled.
If you need further assistance, please contact Krista Mallory at
(619)931-1771. Thank you for your cooperation.
Sincerely,
/s/ ELY CALLAWAY /s/ DONALD H. DYE
Ely Callaway Donald H. Dye
Chairman of the Board President and Chief
Executive Officer
<PAGE>
CALLAWAY GOLF COMPANY
PLAN PARTICIPANT VOTING INSTRUCTION CARD
TO: SANWA BANK CALIFORNIA
TRUSTEE OF THE CALLAWAY GOLF COMPANY GRANTOR STOCK TRUST
With respect to the voting at the Annual Meeting of Shareholders of Callaway
Golf Company to be held on April 17, 1997, or any adjournment or postponement
thereof, the undersigned participant in the Callaway Golf Company Stock Option
Plans and/or 1995 Employee Stock Purchase Plan hereby directs Sanwa Bank
California, as Trustee of the Callaway Golf Company Grantor Stock Trust, to
vote all of the undersigned's votes to which the undersigned is entitled to
direct under the Trust in accordance with the following instructions:
THE VOTES TO WHICH THE UNDERSIGNED PLAN PARTICIPANT IS ENTITLED TO DIRECT UNDER
THE TRUST WILL BE VOTED AS DIRECTED BELOW AND ON THE REVERSE SIDE HEREOF, AND
WILL BE VOTED FOR ALL NOMINEES FOR DIRECTORS AND FOR PROPOSALS 2, 3, 4 AND 5 IF
NO INSTRUCTIONS ARE INDICATED.
1. ELECTION OF DIRECTORS
Nominees: Ely Callaway, Donald H. Dye, William C. Baker, Bruce Parker, Aulana
L. Peters, Frederick R. Port, Richard Rosenfield, William A. Schreyer,
Michael Sherwin, Elmer Ward and Charles J. Yash
[_] FOR all nominees listed (except as marked to the contrary)
[_] WITHHOLD AUTHORITY to vote for all nominees listed
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW).
- --------------------------------------------------------------------------------
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
PLEASE MARK YOUR VOTES
AS THIS EXAMPLE [X]
2. Proposal to approve an amendment to the Callaway Golf Company 1995 Employee
Stock Purchase Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve an amendment to the Callaway Golf Company 1996 Stock
Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Proposal to approve the adoption of the Callaway Golf Company 1998 Executive
Non-Discretionary Bonus Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
5. In their discretion, Steven C. McCracken and David Rane, or either of them,
are authorized to vote upon such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The undersigned hereby acknowledges
receipt of the Notice of Annual Meeting
of Shareholders to be held April 17,
1997 and the Proxy Statement furnished
herewith.
Signature
--------------------------------
Please sign exactly as name
appears hereon.
Date , 1997
--------------------------
PLEASE MARK, DATE, SIGN AND RETURN THIS
VOTING INSTRUCTION CARD PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE. THE TRUSTEE
CANNOT GUARANTEE THAT INSTRUCTIONS
RECEIVED AFTER APRIL 15, 1997 WILL BE
COUNTED.
