<PAGE>
================================================================================
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:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF CALLAWAY GOLF]
March 17, 1998
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 23, 1998 at
2081 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 an amendment to the Callaway Golf Company 1996 Stock
Option Plan and to approve the adoption of the Callaway Golf Company 1998
Stock Incentive Plan. 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 23, 1998
TO OUR SHAREHOLDERS:
The Annual Meeting of the Shareholders of Callaway Golf Company, a California
corporation (the "Company"), will be held at 2081 Faraday Avenue, Carlsbad,
California 92008 (near the Company's headquarters), commencing at 10:00 a.m.,
on April 23, 1998, 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 1996 Stock
Option Plan, in order to increase the number of shares of the
Company's Common Stock reserved for issuance upon the exercise of
options granted or to be granted under this plan by 3,000,000 shares,
to an aggregate of 6,000,000 shares, and to provide that the exercise
price per share of each option granted under the plan will be not
less than the fair market value of such share on the option grant
date.
3. To approve the adoption of the Callaway Golf Company 1998 Stock
Incentive Plan, under which the Board of Directors will have the
authority to issue stock options, restricted stock, and other stock-
based awards or benefits to officers, employees, consultants and
advisors of the Company and its subsidiaries. This plan will
authorize and reserve for issuance 500,000 shares of the Company's
Common Stock which may be issued pursuant to the terms of the plan.
4. 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 24, 1998
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, 74,680,325 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 17, 1998
<PAGE>
CALLAWAY GOLF COMPANY
2285 RUTHERFORD ROAD
CARLSBAD, CALIFORNIA 92008
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
MEETING DATE: APRIL 23, 1998
This Proxy Statement is being sent on or about March 17, 1998 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 1998 Annual Meeting of the Shareholders of the
Company, which will be held at 2081 Faraday Avenue, Carlsbad, California 92008
(near the Company's headquarters), on April 23, 1998, 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 24, 1998 (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 1996 Stock Option Plan, for the proposal to
adopt the Callaway Golf Company 1998 Stock Incentive 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 74,680,325 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
shareholders must give notice at the Annual Meeting of the intention to
cumulate votes prior to the
<PAGE>
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
<PAGE>
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 20, 1998 (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
NAME AND ADDRESS OF -------------------------
BENEFICIAL OWNER(/1/) NUMBER PERCENT
--------------------- --------------- -------
<S> <C> <C>
Sanwa Bank California, 5,300,000 7.1%
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/) 627,899 *
Donald H. Dye(/4/) 588,395 *
William C. Baker(/5/) 8,901 *
Vernon E. Jordan, Jr. 1,000 *
Bruce Parker(/6/) 288,420 *
Aulana L. Peters(/7/) 40,200 *
Frederick R. Port(/8/) 15,600 *
Richard Rosenfield(/9/) 101,100 *
William A. Schreyer(/10/) 94,000 *
Elmer Ward(/11/) 24,105 *
Charles J. Yash(/12/) 233,705 *
John Duffy(/13/) 671,925 *
Richard C. Helmstetter(/14/) 1,051,375 1.4%
All directors and executive officers as a
group (15 persons)(/15/) 3,961,544 5.2%
</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
24, 1998, the executive officers named in the Summary Compensation Table
would have the right to direct the vote of the following share amounts: Ely
Callaway--74,180, Donald H. Dye--623,112, Bruce Parker--148,360, Richard C.
Helmstetter--482,170, John Duffy--169,130 and all executive officers as a
group--2,065,321. 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 300,000 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 41,157 shares held by Cindy Callaway, Mr. Callaway's
spouse. Also includes 50,000 shares issuable upon the exercise of options
held by Mr. Callaway, which are currently exercisable or become
exercisable on or before April 20, 1998. Also includes 80,275 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 130,180 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. Also
includes 10,000 shares which do not vest and are restricted as to sale or
transfer until January 1, 2003.
(4) Does not include 300,000 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 200,000
shares issuable upon the exercise of options held by Mr. Dye, which are
currently exercisable or become exercisable on or before April 20, 1998.
Also includes 9,150 shares which are held by Mr. Dye's spouse. Also
includes 64,036 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
4
<PAGE>
Foundation. Also includes 20,000 shares which do not vest and are
restricted as to sale or transfer until January 1, 2003.
(5) Includes 8,000 shares issuable upon exercise of options held by Mr.
Baker, which are currently exercisable or become exercisable on or before
April 20, 1998. Includes 50 shares held by Mr. Baker's spouse.
(6) Includes 270,000 shares issuable upon exercise of options held by Mr.
Parker, which are currently exercisable or become exercisable on or
before April 20, 1998. Also includes 10,000 shares which do not vest and
are restricted as to sale or transfer until January 1, 2003.
(7) Includes 200 shares owned jointly with Mrs. Peters' spouse, Bruce F.
Peters. Also includes 40,000 shares issuable upon exercise of options
held by Mrs. Peters, which are currently exercisable or become
exercisable on or before April 20, 1998.
(8) Includes 5,600 shares held by the Linda and Fred Port Family Foundation,
a charitable foundation, of which Mr. Port shares the power to vote and
dispose of such shares in his capacity as an officer and director of the
Linda and Fred Port Family Foundation. Mr. Port disclaims beneficial
ownership of all shares held by the Linda and Fred Port Family
Foundation. Also includes 10,000 shares held by Mr. Port which do not
vest and are restricted as to sale or transfer until January 1, 2003.
(9) Includes 84,000 shares issuable upon exercise of options held by Mr.
Rosenfield, which are currently exercisable or become exercisable on or
before April 20, 1998. 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 84,000 shares issuable upon exercise of options held by Mr.
Schreyer, which are currently exercisable or become exercisable on or
before April 20, 1998.
(11) Includes 23,400 shares issuable upon exercise of options held by Mr.
Ward, which are currently exercisable or become exercisable on or before
April 20, 1998.
(12) Includes 220,000 shares issuable upon exercise of options held by Mr.
Yash, which are currently exercisable or become exercisable on or before
April 20, 1998. Also includes 10,000 shares which do not vest and are
restricted as to sale or transfer until January 1, 2003.
(13) Includes 359,900 shares held in a revocable trust, of which Mr. Duffy and
his wife are co-trustees. Also includes 312,000 shares issuable upon the
exercise of options held by Mr. Duffy, which are currently exercisable or
become exercisable on or before April 20, 1998.
(14) Includes 695,000 shares issuable upon exercise of options held by Mr.
Helmstetter, which are currently exercisable or become exercisable on or
before April 20, 1998. Also includes 266,500 shares held by immediate
family members, both directly and through trusts in which Mr. Helmstetter
or his family members have an interest. Also includes 89,875 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 2,176,400 shares issuable upon exercise of options held by these
individuals, which are currently exercisable or become exercisable on or
before April 20, 1998. Also includes 70,000 shares which do not vest and
are restricted as to sale or transfer until January 1, 2003.
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 Founder, Chairman, Chief of Advertising, 1982
Press and Public Relations, and Director
Donald H. Dye President, Chief Executive Officer 1982
and Director
William C. Baker Director 1994
Vernon E. Jordan, Jr. Director 1997
Bruce Parker Senior Executive Vice President, Domestic 1996
Sales, Chief Merchant and Director
Aulana L. Peters Director 1996
Frederick R. Port Senior Executive Vice President, 1995
International Sales, and Director
Richard Rosenfield Director 1994
William A. Schreyer Director 1994
Elmer Ward Manager, Apparel Licensing, and Director 1992
Charles J. Yash Executive Vice President and Director, and 1996
President and Chief Executive Officer,
Callaway Golf Ball Company
</TABLE>
For additional biographical information concerning these individuals, see
"Biographical Information."
The Company's Board of Directors met nine times during 1997. 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 1997, except for Mr. Jordan who attended 71% of such meetings.
6
<PAGE>
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 1997, the wholesale value of products
received ranged from zero to approximately $3,200 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.
The Company has an Executive and Compensation Committee consisting of
Messrs. Callaway (Chair), Rosenfield (Vice Chair), Baker, Dye, Jordan and
Schreyer and Mrs. Peters. 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 six times during 1997. Mr. Callaway and Mr. Dye do
not participate in Executive and Compensation Committee decisions related to
their own or the other's compensation. Mrs. Peters does not participate in
decisions relating to compensation which is intended to be performance-based
compensation under Section 162(m) of the Internal Revenue Code; decisions
relating to the setting of targets or certifying the attainment of targets
under performance-based compensation plans; or decisions relating to the
approval or grant of stock awards intended to be exempt under Section 16 of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder.
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 three times during 1997. The
Audit Committee consists of Mr. Baker (Chair) and Mrs. Peters.
BIOGRAPHICAL INFORMATION
Ely Callaway, 78, Founder, has served as Chairman of the Board of the
Company since the Company's formation in 1982 and also currently serves as the
Company's Chief of Advertising, Press and Public Relations and Chairman of the
Executive and Compensation Committee. He served as Chief 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
7
<PAGE>
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, 55, 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, as Vice Chairman of the Board from October
1991 to April 1993, 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 School of Law.
William C. Baker, 64, has served as a Director of the Company since January
1994 and is Chairman of the Audit Committee. He is currently Chairman and
Chief Executive Officer of The Santa Anita Companies, Inc., a subsidiary of
Meditrust Operating Company. He was Chairman of Santa Anita Realty
Enterprises, Inc. from April 1996 to November 1997. He was Chairman, President
and Chief Executive Officer of Santa Anita Operating Company from August 1996
to November 1997. 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 1995. 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 Meditrust Operating Company
and Public Storage, Inc. Mr. Baker received his law degree from the University
of Texas in 1957.
Vernon E. Jordan, Jr., 62, has served as a Director of the Company since
July 1997. Mr. Jordan is a senior partner in the law firm of Akin, Gump,
Strauss, Hauer & Feld, having joined the firm in 1982. Currently, Mr. Jordan
serves as a member of the Board of Directors of American Express Company,
Bankers Trust Company, Bankers Trust New York Corporation, Chancellor Media
Corporation, Dow Jones and Company, Inc., J.C. Penney Company, Inc., Revlon
Group, Revlon, Inc., Ryder System, Inc., Sara Lee Corporation, Union Carbide
Corporation and Xerox Corporation. Prior to 1982, Mr. Jordan held the
following positions: President and Chief Executive Officer of the National
Urban League; Executive Director of the United Negro College Fund; Director of
the Voter Education Project of the Southern Regional Council; Attorney-
Consultant, U.S. Office of Economic Opportunity; Assistant to the Executive
Director of the Southern Regional Council; Georgia Field Director of the
National Association for the Advancement of Colored People; and an attorney in
private practice in Arkansas and Georgia. In addition, Mr. Jordan also served
as the Chairman of the Clinton Presidential Transition Team in 1992. Mr.
Jordan is a 1957 graduate of DePauw University and received his J.D. from the
Howard University School of Law in 1960.
Bruce Parker, 42, 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.
8
<PAGE>
Aulana L. Peters, 56, 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, 56, has served as Senior Executive Vice President,
International Sales since April 1997 and as a Director since October 1995. He
served as Executive Vice President, International Sales, Licensing and
Business Development of the Company from April 1996 to April 1997. 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 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, 52, 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 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, 70, 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, Schering-Plough Corporation, and Willis Corroon Group plc, and a
Director of Iridium World Communications Ltd. 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.
Elmer Ward, 72, 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
9
<PAGE>
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, 49, has served as an Executive Vice President of the
Company since February 1998, 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 M.B.A. in
1977 from Harvard Business School and graduated with a Bachelor of Science
degree from the U.S. Naval Academy in 1970.
10
<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 ("named executive officers") of the Company for the years indicated.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- ------------------------
RESTRICTED
STOCK
NAME AND PRINCIPAL AWARDS OPTIONS ALL OTHER
POSITION YEAR SALARY BONUS ($) (#) COMPENSATION(/1/)
------------------ ---- -------- ---------- ---------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ely Callaway 1997 $841,114(/2/)(/3/) $ 150,000 $310,000(/4/) 150,000 $14,608
Chairman of the Board 1996 $861,110(/2/)(/3/) $ 850,000 -0- -0- $18,386
and Chief of 1995 $735,000(/2/) $1,150,000 -0- -0- $19,500
Advertising, Press
and Public Relations
Donald H. Dye 1997 $763,370(/3/) $ 200,000 $620,000(/4/) 1,000,000 $66,637
President and CEO 1996 $645,990(/3/) $1,000,000(/5/) -0- -0- $27,794
1995 $621,384(/3/)(/5/) $ 950,000(/5/) -0- 60,000 $19,500
Bruce Parker 1997 $619,039(/3/)(/5/) $ 240,000(/5/) $310,000(/4/) -0- $20,016
Sr. Exec. Vice Pres., 1996 $514,245(/3/)(/5/) $ 700,000(/5/) -0- -0- $21,804
Domestic Sales, and 1995 $525,043(/3/)(/5/) $ 700,000(/5/) -0- 30,000 $19,500
Chief Merchant
Richard C. Helmstetter 1997 $408,677(/3/) $ 400,000 -0- -0- $21,194
Sr. Exec. Vice Pres., 1996 $448,354(/3/) $ 600,000 -0- -0- $24,742
Chief of New Golf 1995 $400,000 $ 550,000 -0- 30,000 $19,500
Club Products
John Duffy 1997 $402,523(/3/) $ 400,000(/5/) -0- -0- $36,890
Sr. Exec. Vice Pres., 1996 $417,542(/3/)(/5/) $ 500,000(/5/) -0- -0- $34,298
Chief of 1995 $416,950(/3/)(/5/) $ 600,000(/5/) -0- 30,000 $19,500
Manufacturing
</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 1997,
1996 and 1995.
(3) Includes payout of accrued vacation hours.
(4) In respect of individual officer performances in 1997 (see "Report of the
Executive and Compensation Committee of the Board of Directors on
Executive Compensation"), the Company's Stock Option Committee made grants
of restricted shares of the Company's Common Stock on February 19, 1998 to
the following named executive officers: Mr. Callaway, 10,000
11
<PAGE>
shares; Mr. Dye, 20,000 shares; and Mr. Parker, 10,000 shares. These
restricted shares do not vest until January 1, 2003. The closing price of
the Company's Common Stock on the New York Stock Exchange on the grant date
was $31.00 per share. All such shares shall be entitled to dividends, if
any, paid during the restriction period.
(5) 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 aforementioned named executive
officers, totaled $176,000 in 1997, $740,000 in 1996 and $938,000 in 1995.
12
<PAGE>
OPTION GRANTS IN 1997
The following table provides information on stock option grants to Messrs.
Callaway and Dye, the only executive officers named in the Summary
Compensation Table to be granted stock options in 1997.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE MARKET
OPTIONS EMPLOYEES OR BASE PRICE GRANT DATE
GRANTED IN FISCAL PRICE EXPIRATION AT GRANT PRESENT
NAME (#) YEAR ($/SH) DATE ($/SH) VALUE($)
---- --------- ---------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ely Callaway 150,000(/1/) 4.4% $32.38 2007-2009(/2/) $32.38 $ 1,251,000(/3/)
Donald H. Dye 1,000,000(/4/) 29.4% $40.00 2007 $36.19 $14,380,000(/5/)
</TABLE>
- --------
(1) These options vest in installments of 50,000 options each on December 31,
1997, 1998 and 1999, respectively.
(2) These options expire on the earlier of (i) one year from the date Mr.
Callaway ceases to be an employee of the Company for any reason or (ii) 10
years after the vesting date of each option.
(3) Mr. Callaway's options were valued 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 6.6%, (c) dividend yield of 0.77% and (d) exercise terms
of 1.7-3.7 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.
(4) These options vest on July 15, 2003, subject to accelerated vesting (i) in
five increments of 100,000 shares each on the date upon which the average
closing price for the Company's Common Stock on the New York Stock
Exchange for the trailing 60 days (the "Price") is first equal to or
greater than $40.00, $45.00, $50.00, $55.00 and $60.00 per share,
respectively, if such date occurs prior to July 15, 2002; and (ii) one
increment of 500,000 shares on the date upon which the Price is first
equal to or greater than $65.00 per share, if such date occurs prior to
July 15, 2002.
(5) Mr. Dye's options were valued based on the Black-Scholes option pricing
model adapted for use in valuing executive stock options using the
following assumptions: (a) expected volatility of 0.315, (b) risk-free
rate of return of 6.6%, (c) dividend yield of 0.77% and (d) an exercise
term of seven years. The actual value, if any, an executive may realize
will depend on the excess of the stock price over the exercise price on
the date the option is exercised, so there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model.
13
<PAGE>
OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
The following table provides information on options exercised by the
executive officers named in the Summary Compensation Table during 1997 and
unexercised options held by such persons at December 31, 1997.
<TABLE>
<CAPTION>
OPTION EXERCISES UNEXERCISED OPTIONS HELD
DURING 1997 AT 12/31/97
----------------------- ---------------------------------------------------------------
VESTED UNVESTED
--------------------------- -----------------------------------
SHARES YEAR
ACQUIRED ON VALUE NUMBER OF VALUE AT OF NUMBER OF VALUE AT
NAME EXERCISE(#) REALIZED($) SHARES(#) 12/31/97 ($)(/1/) VESTING SHARES(#) 12/31/97 ($)(/1/)
---- ----------- ----------- --------- ----------------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ely Callaway -0- -0- 50,000 -0- 1998 50,000 -0-
1999 50,000 -0-
Donald H. Dye 690,000 $19,718,705 -0- -0- 1998 200,000 $3,350,000
1999 60,000 $ 528,750
2003 1,000,000 -0-
Bruce Parker 500,000 $15,822,370 150,000 $ 3,909,375 1998 120,000 $2,010,000
1999 30,000 $ 264,375
Richard C. Helmstetter 225,000 $ 6,556,753 575,000 $15,254,063 1998 120,000 $2,010,000
1999 30,000 $ 264,375
John Duffy -0- -0- 192,000 $ 5,004,000 1998 120,000 $2,010,000
1999 30,000 $ 264,375
</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 the New York Stock Exchange on December 31, 1997.
14
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Callaway. The Company has an employment agreement with Mr. Callaway for
a term commencing January 1, 1997 and ending December 31, 1999. 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 $750,000 and an opportunity to earn an annual
discretionary bonus as determined by the Board of Directors. 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 "substantial cause" (as defined in the agreement),
he will be entitled to receive his full base salary and certain benefits
payable under the agreement for the remaining term of the agreement, as well
as the immediate vesting of all unvested stock options. 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 the same compensation and benefits he would be entitled to
if he were terminated other than for substantial cause.
Mr. Dye. The Company has an employment agreement with Mr. Dye for a term
commencing January 1, 1997 and ending December 31, 2001. 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 $750,000 and an opportunity to earn an annual bonus of $75,000 for each
full one percent of growth in the Company's pre-tax profit over the pre-tax
profit for the prior year. If Mr. Dye is terminated by the Company for any
reason other than "substantial cause" (as defined in the agreement), he will
be entitled to receive his full base salary and benefits for the remainder of
the 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. Dye will be entitled to receive severance pay
equal to 2.99 times his annual average total compensation (base salary and
bonus) for the preceding three years, as well as the continuation of all
benefits and perquisites payable under the agreement for the remainder of its
term and the immediate vesting of all unvested stock options.
Mr. Parker. The Company has an employment agreement with Mr. Parker 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 Executive Bonus Plan. 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, non-discretionary bonuses, if any, under the Company's
Executive Bonus Plan (as it existed at the date of
15
<PAGE>
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.
Mr. Helmstetter. The Company has an employment agreement with Mr.
Helmstetter for a term commencing January 1, 1998 and ending December 31,
2000, subject to certain automatic one-year extensions at the discretion of
the parties. 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 $600,000 and an
opportunity to earn an annual bonus based on participation in the Company's
Executive Bonus Plan. If Mr. Helmstetter is terminated for convenience by the
Company, or if Mr. Helmstetter 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, non-discretionary bonuses, if any, under the Company's Executive Bonus
Plan (as it existed at the date of termination) and certain benefits and
perquisites payable under the employment agreement, until December 31, 2000
(or if Mr. Helmstetter terminates the agreement for substantial cause, for the
remainder of the term of the agreement), and the immediate vesting of all
unvested stock options. In addition, if the agreement expires by its terms or
is terminated for convenience by either the Company or Mr. Helmstetter, Mr.
Helmstetter will become an exclusive consultant to the Company pursuant to a
separate 10-year consulting agreement, at an annual salary equal to one-half
of Mr. Helmstetter's base salary in effect in the final year of the employment
agreement. Under the agreement, Mr. Helmstetter also has assigned perpetually
to the Company all of his rights and title to the commercial use of his name,
likeness, image, character, identity and signature. If the Agreement expires
or terminates prior to December 31, 2012 because (i) the Company has elected
to discontinue the automatic one-year extensions of the agreement, (ii) the
Company has terminated the agreement for convenience or (iii) Mr. Helmstetter
has terminated the agreement for substantial cause, then Mr. Helmstetter will
be entitled to receive the difference between the severance payments otherwise
due under the agreement and the base salary and nondiscretionary bonuses Mr.
Helmstetter would have received under the Agreement through December 31, 2012.
In lieu of these payments, the Company may elect to return to Mr. Helmstetter
these commercial use rights.
In addition, pursuant to a separate stock option agreement, Mr. Helmstetter
received a grant in February 1998 of options to purchase 250,000 shares of the
Company's Common Stock at an exercise price of $31.00 per share. Subject to
Mr. Helmstetter's continued employment as an employee or a consultant of the
Company, these options vest in increments of 25,000, 50,000, 75,000, and
100,000 shares on January 1 of 1999 through 2002, respectively.
Mr. Duffy. The Company has an employment agreement with Mr. Duffy for a term
commencing January 1, 1997 and ending December 31, 1999. The agreement
requires Mr. Duffy 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. Duffy is entitled to receive an annual salary of
$400,000 and an opportunity to earn an annual bonus based on
16
<PAGE>
participation in the Company's Executive Bonus Plan. If Mr. Duffy is
terminated for convenience by the Company, or if Mr. Duffy 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, non-discretionary bonuses, if any,
under the Company's Executive Bonus Plan (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.
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 (except for Mr.
Helmstetter's agreement which continues in effect without extension). 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 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.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Executive and Compensation Committee consists of Messrs.
Callaway (Chair), Rosenfield (Vice Chair), Dye, Baker, Jordan and Schreyer and
Mrs. Peters. Mr. Callaway also serves as the Company's Chairman of the Board
and Chief of Advertising, Press and Public Relations, 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 1997, and anticipates
that it will retain Gibson, Dunn & Crutcher to provide legal services in 1998
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. Mrs. Peters does not participate in decisions relating to
compensation which is intended to be performance-based compensation under
Section 162(m) of the Internal Revenue Code; decisions relating to the setting
of targets or certifying the attainment of targets under performance-based
compensation plans; or decisions relating to the approval or grant of stock
awards intended to be exempt under Section 16 of the Securities Exchange Act
of 1934, as amended, and the rules promulgated thereunder.
18
<PAGE>
REPORT OF THE EXECUTIVE AND COMPENSATION
COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The Executive and Compensation Committee of the Board of Directors (the
"Committee") is composed of all the independent outside directors plus Mr.
Callaway and Mr. Dye. The Committee is responsible for setting and
administering the policies that govern annual compensation.
It is the policy of Callaway Golf Company and its Founder and Chairman, Ely
Callaway, that compensation be closely tied to performance. It is also the
policy of the Company that significant employee stock ownership effectively
motivates the building of shareholder wealth by aligning the interests of
employees with those of shareholders. 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.
The Company had several major successes in 1997. Net sales grew 24% to
$842.9 million, making the Company the largest seller of golf clubs, measured
in dollars, in the world and, we believe, in history. The Company continued to
shorten its time to market for new and improved products, and introduced
several major new products, including the Biggest Big Bertha(TM) Titanium
Driver, the Great Big Bertha(R) Tungsten.Titanium(TM) Irons, and new Bobby
Jones(R) Series Putters. And, notwithstanding the significant product
breakthroughs introduced in 1997, the Company has begun 1998 with a totally
new stainless steel iron--the Big Bertha(R) X-12(TM) Iron--which has replaced
the Big Bertha(R) Iron, the previous best selling iron in the market.
While the Company's revenues improved in 1997, the dramatic successes in
sales of golf equipment were not fully reflected in the Company's earnings.
Earnings per diluted share grew 7% to $1.85 per share. Earnings growth was
affected primarily by two things: substantial investment of corporate profits
in new business ventures to expand beyond the existing core business of the
Company, and significant external events beyond the control of the Company,
such as the economic crisis affecting Asia. Without these factors, earnings
growth in 1997 would have been greater.
It is the view of the Committee that Management has done an excellent job in
1997, both in growing the core business and in directing a strategy aimed at
enhancing the future of the Company. As in past years, the Committee believes
that the Company's overall performance in 1997 reflects an outstanding effort
by the management team.
1997 EXECUTIVE BONUS PLANS
The Company had two officer bonus plans in effect in 1997: (1) the Executive
Non-Discretionary Bonus Plan ("Non-Discretionary Plan") and (2) the Executive
Discretionary Bonus Plan ("Discretionary 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 in 1995,
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, are fixed by the Committee, without the participation of these
individuals). Both non-discretionary and discretionary bonuses were to be paid
from a bonus pool accrued at a rate not to exceed 150% of aggregate salaries
for all officers.
19
<PAGE>
In addition to the officer bonus plans, the Chief Executive Officer
Employment Agreement between the Company and Mr. Dye established a separate
bonus plan for Mr. Dye (the "CEO Plan"). The CEO Plan provides for a non-
discretionary bonus, consisting of a "Qualified Bonus" and a "Non-Qualified
Bonus," calculated as follows:
. The annual Qualified Bonus is determined pursuant to the applicable
shareholder-approved non-discretionary bonus plan for the year in which
the bonus is earned (i.e., the Executive Non-Discretionary Bonus Plan
for 1997 and the 1998 Executive Non-Discretionary Bonus Plan for
subsequent contract years). Subject to any restrictions in the
applicable plan or otherwise imposed by law, the Company may elect to
pay all, some or none of Employee's Bonus as Qualified Bonus, provided
however that the total Qualified Bonus payable in any year shall not be
greater than the maximum potential Non-Qualified Bonus (without taking
into account any offset for payment of a Qualified Bonus), as defined
below.
. The annual Non-Qualified Bonus is an amount equal to $75,000.00 for each
full one percent of growth in the Company's pre-tax profit over the pre-
tax profit in the prior year. However, the amount of any Non-Qualified
Bonus earned in any year shall be reduced, dollar for dollar, by the
amount of any Qualified Bonus earned in that same year.
It is further provided in the CEO Plan that any annual bonus amounts that
are not deductible by the Company as a result of the application of Section
162(m) of the Internal Revenue Code shall be deferred pursuant to the
Company's Executive Deferred Compensation Plan.
1997 EXECUTIVE BONUSES AND RESTRICTED STOCK GRANTS
The Company paid both non-discretionary and discretionary cash bonuses to
its executive officers for 1997 which are set forth in the table below. The
targets for growth in pre-tax earnings for 1997 under the Non-Discretionary
Plan were established such that they were the same as were set for 1996,
although the base from which growth would be measured was greater. Based on
corporate pre-tax earnings growth for the year of 9.3%, each officer was
eligible for a non-discretionary bonus of up to 40% of base salary. In light
of the Company's commitment to invest significant sums in new ventures (see
discussion above), Management recommended to the Committee that discretionary
cash bonuses be awarded only in a few, special cases. The Committee accepted
this recommendation, subject to implementation of the restricted stock grant
plan discussed below.
While the Committee accepted Management's recommendation that most
discretionary cash bonuses for officers be foregone for 1997 in order to
support the reinvestment strategy, the Committee was concerned that the
failure to pay discretionary cash bonuses that might otherwise be appropriate
had the Company not embarked on such a strategy could have a negative impact
on the motivation of some of the management team. As stated above, the
Committee feels that the management team did an excellent job in 1997, both in
growing the core business of the Company and in implementing the Company's
long term growth plan through investment in new business ventures. Therefore,
it was the Committee's decision, after consultation with outside compensation
experts, that Management should be awarded restricted stock grants in varying
amounts that reflect each officer's personal investment in the future of the
Company. Such grants will further serve to motivate Management to act in
concert with the interests of shareholders in supporting the Company's new
business ventures and other efforts aimed at increasing shareholder value. In
essence, the officers will benefit from these stock grants based in large part
upon their efforts to make the Company's new business ventures successful, as
reflected in the Company's stock price.
20
<PAGE>
The non-discretionary cash bonuses approved by the Non-Discretionary Plan
Committee, and the discretionary bonuses and restricted stock grants approved
by this Committee, for the senior executive officers named in the tables
appearing elsewhere in this Proxy Statement are set forth below. No grants of
restricted shares were made to Mr. Helmstetter or Mr. Duffy in light of the
discretionary cash bonuses paid to those officers for 1997. All restricted
shares vest on January 1, 2003. The total value of restricted shares shown
below is based on the closing price of $31.00 per share on February 19, 1998.
<TABLE>
<CAPTION>
TOTAL CASH
BONUS AS A TOTAL
TOTAL PERCENT OF VALUE OF
NON-DISCRETIONARY DISCRETIONARY CASH BASE RESTRICTED RESTRICTED
CASH BONUS CASH BONUS BONUS SALARY SHARES SHARES
----------------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ely Callaway $150,000 $ -0- $150,000 20% 10,000 $310,000
Donald H. Dye $200,000 $ -0- $200,000 27% 20,000 $620,000
Bruce Parker $240,000 $ -0- $240,000 40% 10,000 $310,000
Richard C. Helmstetter $160,000 $240,000 $400,000 100% -0- n/a
John Duffy $160,000 $240,000 $400,000 100% -0- n/a
</TABLE>
Restricted stock grants in other amounts, totaling 90,000 shares in the
aggregate, were made to other officers of the Company, vesting on January 1,
2003. The value of these grants, at $31.00 per share, was $2,790,000. The
Committee estimates that the total value of the cash bonuses and the
restricted stock grants given to officers is less than the amount that would
have been accrued under the Executive Discretionary and Executive Non-
Discretionary Bonus Plans for 1997 but for the Company's reinvestment strategy
and the impact of one-time events, including the settlement of litigation.
CEO STOCK OPTIONS
Under the terms of his employment agreement, in 1997 Mr. Dye was granted an
option to purchase 1,000,000 shares of the Company's Common Stock at $40.00
per share. Such option vests on July 15, 2003, subject to acceleration based
upon increases in the market price of the Company's Common Stock. 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. The pricing of Mr. Dye's options above the current market
price, and the provision for accelerated vesting based upon the achievement of
certain stock price targets, is intended to further motivate the Chief
Executive Officer to conduct the business of the Company in a way that
maximizes shareholder value.
DEDUCTIBILITY
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 1997. The Company's Non-Discretionary Bonus Plans are 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
21
<PAGE>
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.
SUMMARY
To conclude this report, we want to emphasize that the Company's
compensation policies have been established by the Committee in response to
the rapid growth in the Company's sales and earnings, while overall sales
growth in the industry has been modest for the past several years. In
addition, the Committee believes that Management has developed and is
implementing a solid plan for achieving additional growth in shareholder value
in the future through new business ventures. As previously noted, the
Committee believes the Company's excellent performance would not have been
possible with less than outstanding performance from the management team. The
cash and stock-based compensation awarded to Management for 1997 performance
is, in the Committee's opinion, a sound way in which to reward the management
team for its past success in growing the core business of the Company, as well
as an appropriate method for motivating that team to implement the Company's
identified growth plans successfully.
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
Vernon E. Jordan, Jr.
Aulana L. Peters
William A. Schreyer
March 10, 1998
22
<PAGE>
PERFORMANCE GRAPH
The following chart presents a comparison of the cumulative total return
since December 31, 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 at December 31, 1992 and reinvestment of all dividends.
TOTAL CUMULATIVE SHAREHOLDER RETURN SINCE DECEMBER 31, 1992
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 The Callaway Golf Company index is based
- ----------------------------------------------------------- upon the closing price of Callaway Golf
<S> <C> <C> <C> <C> <C> Company Common Stock at December 31,
Callaway Golf 308.189 386.460 532.308 682.382 683.041 1992, of $4.34 and closing prices on
- ----------------------------------------------------------- December 31, 1993, 1994, 1995, 1996 and
S & P 500 110.079 111.532 153.444 143.505 188.003 1997 of $13.34, $16.56, $22.63, $28.75
- ----------------------------------------------------------- and $28.56, respectively. Prices have
S & P 400 Midcap 113.954 109.897 143.694 154.019 200.897 been adjusted for all stock splits.
- -----------------------------------------------------------
</TABLE>
23
<PAGE>
AMENDMENT OF 1996 STOCK OPTION PLAN
GENERAL
At the Annual Meeting, the shareholders are being asked to approve the Third
Amendment to the Callaway Golf Company 1996 Stock Option Plan (the "1996
Plan"), in order (1) to increase the number of shares of Common Stock
available for issuance upon the exercise of stock options granted or to be
granted under the 1996 Plan by 3,000,000 shares, to an aggregate of 6,000,000
shares of Common Stock, and (2) to provide that the exercise price per share
of options granted under the 1996 Plan will not be less than the fair market
value of such share on the option grant date.
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, and further aligns their interests with those of the shareholders of
the Company. If the Third Amendment is approved by the shareholders, the pool
of additional shares available under the 1996 Plan will be used primarily in
connection with a significant grant of 2,575,000 stock options (granted
subject to shareholder approval) to certain officers of the Company in
February 1998. These options would have an exercise price equal to the closing
price of the Company's Common Stock on April 24, 1998, if shareholder approval
is obtained. These options are intended to motivate the Company's officers, as
a group and individually, to conduct the business of the Company in a way that
maximizes shareholder value, while, in many cases, reducing emphasis on cash-
based compensation.
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), as well as 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. In
February 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 were reserved for
issuance under the 1996 Plan, raising the total number of shares authorized
for issuance under the 1996 Plan to 3,000,000. At the Company's 1997 Annual
Meeting of Shareholders, the shareholders approved the adoption of that
amendment to the 1996 Plan. In February 1997, the Company's Board of Directors
adopted the Second Amendment to the 1996 Plan, which allows for
transferability of options granted under the 1996 Plan on a case-by-case basis
in the discretion of the Stock Option Committee. As of February 24, 1998,
options to purchase 1,970,000 shares of the Company's Common Stock have been
granted pursuant to the 1996 Plan.
On February 18, 1998, the Board of Directors authorized the adoption,
subject to shareholder approval, of the Third Amendment to the 1996 Plan.
Pursuant to the Third Amendment, an additional 3,000,000 shares of the
Company's Common Stock would be authorized for issuance pursuant to
stock options to be granted under the 1996 Plan. In addition, the provision
permitting the grant of options for not less than 85% of fair market value
would be replaced by a provision requiring that the exercise price of options
granted under the 1996 Plan will not be less than the fair market value of the
Company's Common Stock on the option grant date.
24
<PAGE>
The Company currently has 30 officers who would be primarily considered for
additional grants under the 1996 Plan. Other employees, consultants and
advisors of the Company and its subsidiaries also will be eligible to receive
stock option grants under the 1996 Plan. The Company and its subsidiaries
currently have approximately 2,500 employees.
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.
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. Currently, 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. If the Third
Amendment is approved by the Company's shareholders at the Annual Meeting, the
exercise price per share of each new option granted under the 1996 Plan will
be not less than 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 March 6, 1998 was $28.125 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
25
<PAGE>
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.
Transferability. 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 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 Internal Revenue Code of 1986, as
amended (the "Code"), or the Treasury Regulations thereunder.
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
26
<PAGE>
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 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 receipt and 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. Furthermore, 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
27
<PAGE>
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 capital gain. 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 capital loss.
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.
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.
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.
PARTICIPATION IN THE 1996 PLAN BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES
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.
28
<PAGE>
As noted above, if the Third Amendment to the 1996 Plan is approved by the
Company's shareholders, the pool of additional shares available under the 1996
Plan will be used primarily in connection with a significant grant of
2,575,000 stock options (granted subject to shareholder approval) to certain
officers of the Company (excluding Mr. Dye and Mr. Helmstetter) in February
1998, at an exercise price equal to the closing price of the Company's Common
Stock on April 24, 1998. These grants include 150,000 options granted to Mr.
Callaway, 150,000 options granted to Mr. Parker, 150,000 options granted to
Mr. Duffy, 600,000 options granted to a group of four other executive officers
of the Company and 1,525,000 options granted to a group of 19 other employees,
all of whom are officers of the Company.
In addition, through February 24, 1998, options to purchase an aggregate of
1,970,000 shares of Common Stock have been granted under the 1996 Plan. These
options include 1,000,000 options granted to Mr. Dye at an exercise price of
$40.00 per share, 150,000 options granted to Mr. Callaway at an exercise price
of $32.38 per share, 250,000 options granted to Mr. Helmstetter at an exercise
price of $31.00 per share, 60,000 options granted to two other executive
officers of the Company at an exercise price of $31.13 per share and 510,000
options granted to a group of 17 other employees, all of whom are officers of
the Company, at exercise prices ranging from $27.63 to $34.88 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 Third Amendment to the 1996 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE THIRD AMENDMENT TO THE CALLAWAY GOLF COMPANY 1996 STOCK OPTION PLAN.
29
<PAGE>
APPROVAL OF 1998 STOCK INCENTIVE PLAN
GENERAL
On February 18, 1998, the Board of Directors authorized the adoption,
subject to shareholder approval, of the Callaway Golf Company 1998 Stock
Incentive Plan (the "1998 Plan"). A total of 500,000 shares of Common Stock
would be reserved for issuance under the 1998 Plan. No shares of the Company's
Common Stock have been issued pursuant to the 1998 Plan. There are
approximately 2,500 employees currently eligible to participate in the 1998
Plan, in the discretion of the Board of Directors. A copy of the 1998 Plan is
appended to this Proxy Statement as Appendix A.
The 1998 Plan is being implemented to succeed to the Company's 1991 Stock
Incentive Plan (the "1991 Plan"), which has only 16,100 shares of the
Company's Common Stock remaining available for grant as of February 24, 1998.
Like the 1991 Plan, the 1998 Plan provides for awards of a range of stock-
based incentives, in addition to stock options. In contrast, the 1996 Plan is
limited only to grants of stock options. Like the 1996 Plan, however, the 1998
Plan prohibits repricing of stock options (except with shareholder approval or
subject to the adjustment provisions for stock splits, reorganizations, etc.)
as well as the granting of stock options with an exercise price less than the
fair market value of the Company's Common Stock on the option grant date
(assuming the Third Amendment to the 1996 Plan is approved by shareholders at
the Annual Meeting). The 1998 Plan is intended to comply with the requirements
of Section 162(m) of the Code. The 1998 Plan is being implemented to provide
the Board of Directors or its Stock Option Committee with the additional
flexibility to award various stock-based incentives, in addition to grants of
stock options, which will assist 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.
SUMMARY OF THE 1998 PLAN
Purpose and Eligibility. The 1998 Plan is intended to promote the interests
of the Company and its shareholders by using investment interests in the
Company to attract, retain and motivate its management and other persons, to
encourage and reward their contributions to the performance of the Company and
to align their interests with the interests of the Company's shareholders. The
persons eligible to receive an Award under the 1998 Plan include directors,
officers, employees, consultants, and advisors of the Company and its
affiliated entities.
Administration, Amendment and Termination. The administering body for the
1998 Plan is the Company's Stock Option Committee appointed by the Board of
Directors (the "Committee"). The Committee will have the power to construe the
1998 Plan and the rights of recipients of Awards granted thereunder. The
Committee also has the power to (i) discontinue, suspend or amend the 1998
Plan in any manner (subject to certain limited exceptions, including increases
in the number of shares available that may be the subject of Awards under the
1998 Plan) and (ii) modify, extend, renew or exchange outstanding Awards,
except that stock options cannot be repriced without shareholder approval.
Securities Subject to the 1998 Plan. The 1998 Plan provides for the grant
("Award") of stock options (including incentive stock options or nonqualified
stock options), restricted stock, stock appreciation rights, stock payments,
dividend equivalents, stock bonuses, stock sales, phantom stock and other
stock-based benefits. Stock options granted under the 1998 Plan may be
incentive stock options intended to qualify under the provisions of Section
422 of the Code or non-qualified stock options that do not so qualify. The
shares available under the 1998 Plan may either be authorized and
30
<PAGE>
unissued shares or shares reacquired by the Company through open market
purchases or otherwise. If any Award granted under the 1998 Plan expires,
terminates or is forfeited before the exercise thereof or the payment in full
thereof, the shares covered by the unexercised or unpaid portion will become
available for new grants under the 1998 Plan.
If (i) the outstanding shares of Common Stock of the Company are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through
merger, consolidation, sale or exchange of all or substantially all of the
properties of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, spin-off or other
distribution with respect to such shares of Common Stock (or any stock or
securities received with respect to such Common Stock) or (ii) the value of
the outstanding shares of Common Stock of the Company is reduced by reason of
an extraordinary cash dividend, an appropriate and proportionate adjustment
may be made in (1) the maximum number and kind of shares subject to the 1998
Plan, (2) the number and kind of shares or other securities subject to then
outstanding Awards, and/or (3) the price for each share or other unit of any
other securities subject to then outstanding Awards. Any adjustments under the
1998 Plan will be made by the Committee, whose determination as to any
adjustment will be final, binding and conclusive.
As of the effective time and date of any change in control of the Company
(as defined in the 1998 Plan), the 1998 Plan and any then outstanding Awards
(whether or not vested) shall automatically terminate unless (i) provision is
made in writing in connection with such transaction for the continuance of the
1998 Plan and for the assumption of such Awards, or for the substitution for
such Awards of new awards covering the securities of a successor entity or an
affiliate thereof with appropriate adjustments as to the number and kind of
securities and exercise prices, in which event the 1998 Plan and such
outstanding Awards shall continue or be replaced, as the case may be, in the
manner and under the terms so provided; or (ii) the Board otherwise shall
provide in writing for such adjustments as it deems appropriate in the terms
and conditions of the then-outstanding Awards (whether or not vested),
including without limitation (a) accelerating the vesting of outstanding
Awards and/or (b) providing for the cancellation of Awards and their automatic
conversion into the right to receive the securities, cash or other
consideration that a holder of the shares underlying such Awards would have
been entitled to receive upon consummation of such change in control had such
shares been issued and outstanding immediately prior to the effective date and
time of the change in control (net of the appropriate option exercise prices).
If, pursuant to the foregoing provisions of the 1998 Plan, the 1998 Plan and
the Awards shall terminate by reason of the occurrence of a change in control
without provision for any of the actions described in clause (i) or (ii)
above, then any recipient holding outstanding Awards shall have the right, at
such time immediately prior to the consummation of the change in control as
the Board shall designate, to exercise the recipient's Awards to the full
extent not theretofore exercised, including any installments which have not
yet become vested.
Terms and Conditions of Awards Under the 1998 Plan. The Committee will
select the recipients of Awards granted under the 1998 Plan and will determine
the dates, amounts, exercise prices, vesting periods and other relevant terms
of the Awards.
Award Pricing. The pricing of Awards, including the exercise price for stock
options granted under the 1998 Plan, shall be determined by the Committee as
of the date the Award is granted; provided, however, that the exercise price
for a stock option may be no less than the fair market value of the underlying
shares as of such date. Neither the Board nor the Committee may decrease the
31
<PAGE>
exercise price of shares that may be acquired pursuant to options granted
under the 1998 Plan unless such decrease is (a) made subject to approval by
the shareholders of the Company or (b) made pursuant to the share adjustment
provisions of the 1998 Plan.
Award Vesting. Awards granted under the 1998 Plan vest and become
exercisable as determined by the Committee in its discretion. Awards granted
under the 1998 Plan may be exercised at any time after they vest and before
the expiration date determined by the Committee, provided that an Award
intended to qualify as an incentive stock option under the Code will not be
exercisable after the expiration of five years from the date of grant to
certain holders of significant amounts of the Company's outstanding Common
Stock. Furthermore, in the absence of a specific agreement to the contrary,
options will generally expire and become unexercisable one year following
termination of the recipient's employment with the Company for any reason. The
Committee may accelerate the vesting of any options and may also extend the
period following termination of employment with the Company during which
options may vest and/or be exercised.
Award Payments. The exercise price for Awards may be paid in cash or in any
other consideration the Committee deems acceptable, including securities of
the Company surrendered by the Award holder or withheld from the shares
otherwise deliverable upon exercise. The Company may extend or arrange for the
extension of credit to any Award holder to finance the Award holder's purchase
of shares upon exercise of the holder's Award and/or the payment of taxes
payable in connection with an Award, on terms approved by the Stock Option
Committee, subject to restrictions under applicable laws and regulations, or
allow exercise in a broker's transaction in which the exercise price will not
be received until after exercise and subsequent sale of the underlying Common
Stock.
Transferability. Unless the Committee shall otherwise determine on a case-
by-case basis, no option granted under the 1998 Plan will be assignable or
transferable except (a) by will or by the laws 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 Stock
Option 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.
Awards Documentation. Awards granted under the 1998 Plan will be evidenced
by an agreement duly executed on behalf of the Company and by the recipient,
or by a confirming memorandum issued by the Company to the recipient, setting
forth such terms and conditions applicable to the Award. The adoption of the
1998 Plan shall not affect any other stock option, incentive or other
compensation plans in effect for the Company, and the 1998 Plan shall not
preclude the Company from establishing any other forms of incentive or other
compensation for employees, directors, advisors or consultants of the Company,
whether or not approved by shareholders.
Rights With Respect to Common Stock. No recipient of an Award under the 1998
Plan and no beneficiary or other person claiming under or through such
individual will have any right, title or interest in or to any shares of
Common Stock subject to any Award or any rights as a shareholder unless and
until such Award is duly exercised pursuant to the terms of the 1998 Plan and
the exercise of such Award results in the issuance of shares of Common Stock
to the recipient.
32
<PAGE>
1998 Plan Provisions Regarding Section 162(m) of the Code. In general,
Section 162(m) of the Code imposes a $1,000,000 limit on the amount of
compensation that may be deducted by the Company in any tax year with respect
to the Chief Executive Officer of the Company and its other four most highly
compensated employees, including any compensation relating to an Award under
the 1998 Plan. To prevent compensation relating to an Award under the 1998
Plan from being subject to the $1,000,000 limit of Code Section 162(m), the
1998 Plan provides that no one eligible person shall be granted any Awards
with respect to more than 250,000 shares of Common Stock in any one calendar
year if such grant would otherwise be subject to Code Section 162(m).
Furthermore, if Code Section 162(m) would otherwise apply and if the amount of
compensation an eligible person would receive under an Award is not based
solely on an increase in the value of the underlying common stock of the
Company after the date of grant or award, the Committee can condition the
grant, vesting, or exercisability of such an Award on the attainment of a
preestablished objective performance goal. For this purpose, a preestablished
objective performance goal may include one or more of the following
performance criteria: (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 margin, (j) return on operating revenue, and (k) any
other similar performance criteria.
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 receipt and exercise of
options under the 1998 Plan does not purport to be complete and reference
should be made to the applicable provisions of the Code. Furthermore, 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 1998 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 capital gain. 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 capital loss.
33
<PAGE>
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.
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.
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 1998 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 1998 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.
PARTICIPATION IN THE 1998 PLAN BY EXECUTIVE OFFICERS AND OTHER EMPLOYEES
Participation in the 1998 Plan is in the discretion of the Committee.
Accordingly, future participation by executive officers and other employees
under the 1998 Plan is not determinable.
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 1998 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THE CALLAWAY GOLF COMPANY 1998 STOCK INCENTIVE PLAN.
34
<PAGE>
CERTAIN TRANSACTIONS
In February 1997, the Company entered into a research and development
agreement with Callaway Advanced Materials, Inc. ("CAM"), a corporation of
which Mr. Reeves Callaway, Mr. Callaway's son, is an executive officer and in
which he owns a significant equity interest. The purpose of the agreement is
to explore the application of specialized know-how and technology controlled
by CAM to the golf club business. Under this agreement, the Company paid CAM
$20,000 per month for its research and development services. In February 1998,
the Company and CAM amended this agreement to provide for a one-time payment
to CAM of $110,000, an increase in the monthly development fee to $50,000 per
month, and a loan by the Company to CAM of certain equipment used in the
development project. The amended agreement may be terminated by the Company
for convenience at any time.
During 1997 the Company paid $105,500 to Callaway Editions, Inc. for the
performance of certain research and development work and the purchase of all
intellectual property rights associated therewith. Callaway Editions, Inc. is
a publishing and media company of which Mr. Nicholas Callaway, Mr. Callaway's
son, is an executive officer and in which he owns a significant equity
interest. In addition, in January 1998, the Company and Callaway Editions,
Inc. announced the formation of Callaway Golf Media Ventures ("CGMV"), a
limited liability company owned 80% by the Company and 20% by Callaway
Editions. CGMV was formed to produce print and other media products that
relate to the game of golf. Through March 2, 1998, Callaway Editions has made
capital contributions to CGMV of $100,000 and certain intangible property
rights valued at $125,000, and the Company has made capital contributions to
CGMV of $350,000 and remains obligated to make additional capital
contributions of $550,000. The Company also has agreed to loan to CGMV up to
$20 million for working capital, subject to CGMV's achievement of certain
milestones to the satisfaction of the Company in its sole discretion. Under
the CGMV Operating Agreement, Callaway Editions is entitled to receive an
annual management fee of up to $450,000 for its services to CGMV.
Mr. David Duffy, who is employed as Manufacturing Manager of Odyssey Golf,
Inc., a wholly-owned subsidiary of the Company, is the son of Mr. John Duffy,
Senior Executive Vice President and Chief of Manufacturing of the Company.
David Duffy, who had been working in this capacity for Odyssey Sports, Inc.
since January 1995, became an employee of Odyssey Golf, Inc. in August 1997
upon the Company's acquisition of certain assets and liabilities of Odyssey
Sports, Inc. David Duffy receives compensation and benefits comparable to
other employees of the Company and its subsidiaries with similar
responsibilities, and does not report to John Duffy.
Mr. Keith Fosgett, who became Mr. Dye's son-in-law in 1997, is presently
employed by the Company as a Senior Operations Coordinator in the Company's
Golf Development Group. Mr. Fosgett receives compensation and benefits
comparable to other employees of the Company and its subsidiaries with similar
responsibilities, and does not report directly to Mr. Dye.
The Company retained the law firm of Gibson, Dunn & Crutcher to provide
legal services to the Company during 1997, and anticipates that it will retain
Gibson, Dunn & Crutcher in 1998 as well. Mrs. Aulana L. Peters, a Director of
the Company, is a partner at Gibson, Dunn & Crutcher.
35
<PAGE>
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
1997, except for the January 1997 Form 4 of Mr. Michael Sherwin, a former
Director of the Company, which was filed three days late due to clerical
error.
ANNUAL REPORT
A copy of the Company's Annual Report, including financial statements for
the years ended December 31, 1997 and December 31, 1996, 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 DIRECTOR 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
1997. 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.
SHAREHOLDER PROPOSALS
Shareholders who wish to include proposals for action at the Company's 1999
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 17, 1998. 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.
36
<PAGE>
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.
Each shareholder is urged to complete, date, sign and promptly return the
enclosed proxy card. Any questions should be addressed to the Company's
Director of Investor Relations, at 2285 Rutherford Road, Carlsbad, California
92008, telephone (760) 931-1771.
/s/ Steven C. McCracken
-----------------------
Steven C. McCracken
Secretary
Carlsbad, California
March 17, 1998
37
<PAGE>
APPENDIX A
CALLAWAY GOLF COMPANY
1998 STOCK INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I PURPOSE OF PLAN.................................................. A-1
ARTICLE II EFFECTIVE DATE AND TERM OF PLAN................................. A-1
2.1Term of Plan............................................................ A-1
2.2Effect on Awards........................................................ A-1
2.3Shareholder Approval.................................................... A-1
ARTICLE III SHARES SUBJECT TO PLAN......................................... A-1
3.1Number of Shares........................................................ A-1
3.2Source of Shares........................................................ A-1
3.3Availability of Unused Shares........................................... A-1
3.4Adjustment Provisions................................................... A-1
3.5Reservation of Shares................................................... A-2
ARTICLE IV ADMINISTRATION OF PLAN.......................................... A-2
4.1Administering Body...................................................... A-2
4.2Authority of Administering Body......................................... A-2
4.3No Liability............................................................ A-3
4.4Amendments.............................................................. A-3
4.5Other Compensation Plans................................................ A-4
4.6Plan Binding on Successors.............................................. A-4
4.7References to Successor Statutes, Regulations and Rules................. A-4
4.8Issuances for Compensation Purposes Only................................ A-4
4.9Invalid Provisions...................................................... A-4
4.10Governing Law.......................................................... A-4
ARTICLE V GENERAL AWARD PROVISIONS......................................... A-4
5.1Participation in the Plan............................................... A-4
5.2Award Documents......................................................... A-5
5.3Exercise of Stock Options............................................... A-5
5.4Payment For Awards...................................................... A-5
5.5No Employment Rights.................................................... A-6
5.6Restrictions Under Applicable Laws and Regulations...................... A-6
5.7Additional Conditions................................................... A-7
5.8No Privileges of Stock Ownership........................................ A-7
5.9Nonassignability........................................................ A-7
5.10Information to Recipients.............................................. A-8
5.11Withholding Taxes...................................................... A-8
5.12Legends on Awards and Stock Certificates............................... A-8
5.13Effect of Termination of Employment on Awards.......................... A-8
(a)Termination of Vesting................................................ A-8
(b)Alteration of Vesting and Exercise Periods............................ A-8
(c)Leave of Absence...................................................... A-9
5.14Limits on Awards to Certain Eligible Persons........................... A-9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI AWARDS.......................................................... A-9
6.1Stock Options........................................................... A-9
(a)Nature of Stock Options............................................... A-9
(b)Option Exercise Price................................................. A-9
(c)Option Period and Vesting............................................. A-9
(d)Termination........................................................... A-10
(e)Special Provisions Regarding Incentive Stock Options.................. A-10
6.2Performance Awards...................................................... A-10
(a)Grant of Performance Awards........................................... A-10
(b)Payment of Performance Awards......................................... A-10
6.3Restricted Stock........................................................ A-11
(a)Award of Restricted Stock............................................. A-11
(b)Requirements of Restricted Stock...................................... A-11
(i)No Transfer........................................................ A-11
(ii)Certificates...................................................... A-11
(iii)Restrictive Legends.............................................. A-11
(iv)Other Restrictions................................................ A-11
(c)Lapse of Restrictions................................................. A-11
(d)Rights of Recipient................................................... A-11
(e)Termination of Employment............................................. A-11
6.4Stock Appreciation Rights............................................... A-11
(a)Granting of Stock Appreciation Rights................................. A-11
(b)Stock Appreciation Rights Related to Options.......................... A-11
(c)Stock Appreciation Rights Unrelated to Options........................ A-12
(d)Limits................................................................ A-12
(e)Payments.............................................................. A-12
6.5Stock Payments.......................................................... A-12
6.6Dividend Equivalents.................................................... A-12
6.7Stock Bonuses........................................................... A-13
6.8Stock Sales............................................................. A-13
6.9Phantom Stock........................................................... A-13
6.10Other Stock-Based Benefits............................................. A-13
6.11Termination of Employment.............................................. A-13
ARTICLE VII REORGANIZATIONS................................................ A-13
7.1Corporate Transactions Not Involving a Change in Control................ A-13
7.2Corporate Transactions Involving a Change in Control.................... A-13
ARTICLE VIII DEFINITIONS................................................... A-14
</TABLE>
ii
<PAGE>
CALLAWAY GOLF COMPANY
1998 STOCK INCENTIVE PLAN
ARTICLE I
Purpose of Plan
The Company has adopted this Plan to promote the interests of the Company
and its shareholders by using investment interests in the Company to attract,
retain and motivate employees and other persons, to encourage and reward their
contributions to the performance of the Company, and to align their interests
with the interests of the Company's shareholders. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in Article
VIII.
ARTICLE II
Effective Date and Term of Plan
2.1 Term of Plan. This Plan became effective as of the Effective Date and
shall continue in effect until the Expiration Date, at which time this Plan
shall automatically terminate.
2.2 Effect on Awards. Awards may be granted only during the Plan Term, but
each Award granted during the Plan Term shall remain in effect after the
Expiration Date until such Award has been exercised, terminated or expired in
accordance with its terms and the terms of this Plan.
2.3 Shareholder Approval. This Plan shall be approved by the Company's
shareholders within 12 months after the Effective Date. The effectiveness of
any Awards granted prior to such shareholder approval shall be subject to such
shareholder approval.
ARTICLE III
Shares Subject to Plan
3.1 Number of Shares. The maximum number of shares of Common Stock that may
be issued pursuant to Awards shall be 500,000, subject to adjustment as set
forth in Section 3.4.
3.2 Source of Shares. The Common Stock to be issued under this Plan will be
made available, at the discretion of the Board, either from authorized but
unissued shares of Common Stock or from previously issued shares of Common
Stock reacquired by the Company.
3.3 Availability of Unused Shares. Shares of Common Stock subject to
unexercised portions of any Award that expire, terminate or are canceled, and
shares of Common Stock issued pursuant to an Award that are reacquired by the
Company pursuant to the terms of the Award under which such shares were
issued, will again become available for the grant of further Awards under this
Plan.
3.4 Adjustment Provisions.
(a) If the outstanding shares of Common Stock are increased, decreased or
exchanged for a different number or kind of shares or other securities, or if
additional shares or new or different shares or other securities are
distributed in respect of such shares of Common Stock (or any stock or
securities received with respect to such Common Stock), including without
limitation through merger,
A-1
<PAGE>
consolidation, sale or exchange of all or substantially all of the assets of
the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or spin-off, an appropriate and
proportionate adjustment may be made in (1) the maximum number and kind of
shares subject to this Plan as provided in Section 3.1, (2) the number and
kind of shares or other securities subject to then outstanding Awards, and/or
(3) the price for each share or other unit of any other securities subject to,
or measurement criteria applicable to, then outstanding Awards.
(b) No fractional interests will be issued under this Plan resulting from
any adjustments.
(c) To the extent any adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Administering Body, whose
determination in that respect shall be final, binding and conclusive.
(d) The grant of an Award pursuant to this Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part
of its business or assets.
(e) No adjustment to the terms of an Incentive Stock Option shall be made
unless such adjustment either (i) would not cause such Option to lose its
status as an Incentive Stock Option or (ii) is agreed to in writing by the
Administering Body and the Recipient.
3.5 Reservation of Shares. The Company will at all times reserve and keep
available shares of Common Stock equaling at least the total number of shares
of Common Stock issuable pursuant to outstanding Awards.
ARTICLE IV
Administration of Plan
4.1 Administering Body.
(a) This Plan shall be administered by the Board or by a Committee of the
Board appointed pursuant to Section 4.1(b).
(b) The Board in its sole discretion may from time to time appoint a
Committee (which may be a subcommittee of an existing committee of the Board)
of not less than two Board members to administer this Plan and, subject to
applicable law, to exercise all of the powers, authority and discretion of the
Board under this Plan. The Board may from time to time increase or decrease
(but not below two) the number of members of the Committee, remove from
membership on the Committee all or any portion of its members, and/or appoint
such person or persons as it desires to fill any vacancy existing on the
Committee, whether caused by removal, resignation or otherwise. The Board may
disband the Committee at any time and revest in the Board the administration
of this Plan.
4.2 Authority of Administering Body.
(a) Subject to the express provisions of this Plan, the Administering Body
shall have the power to implement, (including the power to delegate such
implementation to appropriate officers of the Company), interpret and construe
this Plan and any Awards and Award Documents or other documents defining the
rights and obligations of the Company and Recipients hereunder and thereunder,
to determine all questions arising hereunder and thereunder, and to adopt and
amend such rules and
A-2
<PAGE>
regulations for the administration hereof and thereof as it may deem
desirable. The interpretation and construction by the Administering Body of
any provisions of this Plan or of any Award or Award Document shall be
conclusive and binding. Any action taken by, or inaction of, the Administering
Body relating to this Plan or any Award or Award Document shall be within the
absolute discretion of the Administering Body and shall be conclusive and
binding upon all persons. Subject only to compliance with the express
provisions hereof, the Administering Body may act in its absolute discretion
in matters related to this Plan and any and all Awards and Award Documents.
(b) Subject to the express provisions of this Plan, the Administering Body
may from time to time in its discretion select the Eligible Persons to whom,
and the time or times at which, Awards shall be granted or sold, the nature of
each Award, the number of shares of Common Stock or the number of rights that
make up or underlie each Award, the exercise price and period for the exercise
of each Award, and such other terms and conditions applicable to each
individual Award as the Administering Body shall determine. The Administering
Body may grant at any time new Awards to an Eligible Person who has previously
received Awards or other grants (including other stock options) regardless of
whether such prior Awards or such other grants are still outstanding, have
previously been exercised as a whole or in part, or are canceled in connection
with the issuance of new Awards. The Administering Body may grant Awards
singly, in combination or in tandem with other Awards, as it determines in its
discretion. The purchase price, exercise price, initial value and any and all
other terms and conditions of the Awards may be established by the
Administering Body without regard to existing Awards or other grants.
(c) Any action of the Administering Body with respect to the administration
of this Plan shall be taken pursuant to a majority vote of the authorized
number of members of the Administering Body or by the unanimous written
consent of its members; provided, however, that (i) if the Administering Body
is the Committee and consists of two members, then actions of the
Administering Body must be unanimous, and (ii) if the Administering Body is
the Board, actions taken by the Board shall be valid if approved in accordance
with applicable law.
4.3 No Liability. No member of the Board or the Committee or any designee
thereof will be liable for any action or inaction with respect to this Plan or
any Award or any transaction arising under this Plan or any Award, except in
circumstances constituting bad faith of such member.
4.4 Amendments.
(a) The Administering Body may, insofar as permitted by applicable law, rule
or regulation, and subject to Section 4.4(c), from time to time suspend or
discontinue this Plan or revise or amend it in any respect whatsoever, and
this Plan as so revised or amended will govern all Awards hereunder, including
those granted before such revision or amendment. Without limiting the
generality of the foregoing, the Administering Body is authorized to amend
this Plan to comply with or take advantage of amendments to applicable laws,
rules or regulations, including the Securities Act, Exchange Act, the IRC or
the rules of any exchange or interdealer quotation system upon which the
Common Stock is listed or traded. No shareholder approval of any amendment or
revision shall be required unless (i) such approval is required by this Plan
or by applicable law, rule or regulation or (ii) an amendment or revision to
this Plan would materially increase the number of shares subject to this Plan
(as adjusted under Section 3.4).
(b) The Administering Body may, with the written consent of a Recipient,
make such modifications in the terms and conditions of an Award as it deems
advisable. Without limiting the
A-3
<PAGE>
generality of the foregoing, the Administering Body may, in its discretion
with the written consent of the Recipient, at any time and from time to time
after the grant of any Award accelerate or extend the vesting or exercise
period of any Award as a whole or in part.
(c) Except as otherwise provided in this Plan or in the applicable Award
Document, no amendment, revision, suspension or termination of this Plan or
any outstanding Award may impair or adversely affect any rights or obligations
under any Award theretofore granted without the written consent of the
Recipient to whom such Award was granted.
4.5 Other Compensation Plans. The adoption of this Plan shall not affect any
other stock option, incentive or other compensation plans in effect from time-
to-time for the Company, and this Plan shall not preclude the Company from
establishing any other forms of incentive or other compensation for employees,
directors, advisors or consultants of the Company, whether or not approved by
shareholders.
4.6 Plan Binding on Successors. This Plan shall be binding upon the
successors and assigns of the Company.
4.7 References to Successor Statutes, Regulations and Rules. Any reference
in this Plan to a particular statute, regulation or rule shall also refer to
any successor provision of such statute, regulation or rule.
4.8 Issuances for Compensation Purposes Only. This Plan is intended to
constitute an "employee benefit plan," as defined in Rule 405 promulgated
under the Securities Act, and shall be administered accordingly.
4.9 Invalid Provisions. In the event that any provision of this Plan is
found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though
the invalid and unenforceable provision were not contained herein.
4.10 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of California, without giving
effect to the principles of the conflicts of laws thereof.
ARTICLE V
General Award Provisions
5.1 Participation in the Plan.
(a) A person shall be eligible to receive grants of Awards under this Plan
if, at the time of the grant of the Award, such person is an Eligible Person.
(b) Incentive Stock Options may be granted only to Eligible Persons meeting
the employment requirements of Section 422 of the IRC.
A-4
<PAGE>
(c) Notwithstanding anything to the contrary herein, the Administering Body
may, in order to fulfill the purposes of this Plan, modify grants of Awards to
Recipients who are foreign nationals or employed outside of the United States
to recognize differences in applicable law, tax policy or local custom.
5.2 Award Documents.
(a) Each Award granted under this Plan shall be evidenced by an agreement
duly executed on behalf of the Company and by the Recipient, or by a
confirming memorandum issued by the Company to the Recipient, setting forth
such terms and conditions applicable to the Award as the Administering Body
may in its discretion determine. Awards will not be binding upon the Company,
and Recipients will have no rights thereto, until such an agreement is entered
into between the Company and the Recipient or such a memorandum is delivered
by the Company to the Recipient, but an Award may have an effective date on or
after the date of grant but prior to the date of such an agreement or
memorandum. Award Documents may but need not be identical and shall comply
with and be subject to the terms and conditions of this Plan, a copy of which
shall be provided to each Recipient and incorporated by reference into each
Award Document. Any Award Document may contain such other terms, provisions
and conditions not inconsistent with this Plan as may be determined by the
Administering Body.
(b) In case of any conflict between this Plan and any Award Document, this
Plan shall control.
5.3 Exercise of Stock Options. No Stock Option shall be exercisable except
in respect of whole shares, and fractional share interests shall be
disregarded. A Stock Option shall be deemed to be exercised when the Secretary
or other designated official of the Company receives written notice of such
exercise from the Recipient, together with payment of the exercise price made
in accordance with Section 5.4 and any amounts required under Section 5.11.
Notwithstanding any other provision of this Plan, the Company and/or
Administering Body may impose, by rule and/or in Award Documents, such
conditions upon the exercise of Stock Options (including without limitation
conditions limiting the time of exercise to specified periods) as may be
required to satisfy applicable regulatory requirements.
5.4 Payment For Awards.
(a) The exercise price or other payment for an Award shall be payable upon
the exercise of a Stock Option or upon other purchase of shares pursuant to an
Award granted hereunder by delivery of legal tender of the United States or
payment of such other consideration as the Administering Body may from time to
time deem acceptable in any particular instance.
(b) The Company may assist any person to whom an Award is granted hereunder
(including without limitation any officer or director of the Company) in the
payment of the purchase price, withholding taxes or other amounts payable in
connection with the receipt or exercise of that Award, by lending such amounts
to such person on such terms and at such rates of interest and upon such
security (if any) as shall be approved by the Administering Body.
(c) The exercise price for Awards may be paid by delivery of Common Stock to
the Company by or on behalf of the person exercising the Award and duly
endorsed in blank or accompanied by stock powers duly endorsed in blank, with
signatures guaranteed in accordance with the Exchange Act if required by the
Company, or retained by the Company from the stock otherwise issuable upon
exercise or surrender of vested and/or exercisable Awards or other equity
Awards previously granted
A-5
<PAGE>
to the Recipient and being exercised (if applicable) (in either case valued at
Fair Market Value as of the exercise date); or such other consideration as the
Administering Body may from time to time in the exercise of its discretion
deem acceptable in any particular instance; provided, however, that (i) the
Company and/or the Administering Body may allow exercise of an Award in a
broker-assisted or similar transaction in which the exercise price is not
received by the Company until promptly after exercise, and/or (ii) the
Administering Body may allow the Company to loan the exercise price to the
person entitled to exercise the Award, if the exercise will be followed by a
prompt sale of some or all of the underlying shares and a portion of the sale
proceeds is dedicated to full payment of the exercise price and amounts
required pursuant to Section 5.11.
(d) Recipients will have no rights to the assistance described in Section
5.4(b) or to the exercise techniques described in Section 5.4(c), and the
Company may offer or permit such assistance or techniques on an ad hoc basis
to any Recipient without incurring any obligation to offer or permit such
assistance or techniques on other occasions or to other Recipients.
5.5 No Employment Rights. Nothing contained in this Plan (or in Award
Documents or in any other documents related to this Plan or to Awards granted
hereunder) shall confer upon any Eligible Person or Recipient any right to
continue in the employ of the Company or any Affiliated Entity or constitute
any contract or agreement of employment or engagement, or interfere in any way
with the right of the Company or any Affiliated Entity to reduce such person's
compensation or other benefits or to terminate the employment or engagement of
such Eligible Person or Recipient, with or without cause. Except as expressly
provided in this Plan or in any statement evidencing the grant of an Award
pursuant to this Plan, the Company shall have the right to deal with each
Recipient in the same manner as if this Plan and any such statement evidencing
the grant of an Award pursuant to this Plan did not exist, including without
limitation with respect to all matters related to the hiring, discharge,
compensation and conditions of the employment or engagement of the Recipient.
Any questions as to whether and when there has been a termination of a
Recipient's employment or engagement, the reason (if any) for such
termination, and/or the consequences thereof under the terms of this Plan or
any statement evidencing the grant of an Award pursuant to this Plan shall be
determined by the Administering Body and the Administering Body's
determination thereof shall be final and binding.
5.6 Restrictions Under Applicable Laws and Regulations.
(a) All Awards granted under this Plan shall be subject to the requirement
that, if at any time the Company shall determine, in its discretion, that the
listing, registration or qualification of the shares subject to Awards granted
under this Plan upon any securities exchange or interdealer quotation system
or under any federal, state or foreign law, or the consent or approval of any
government or regulatory body, is necessary or desirable as a condition of, or
in connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised as
a whole or in part unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Company. During the term of this Plan, the
Company will use its reasonable efforts to seek to obtain from the appropriate
governmental and regulatory agencies any requisite qualifications, consents,
approvals or authorizations in order to issue and sell such number of shares
of its Common Stock as shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain any such qualifications,
consents, approvals or authorizations shall relieve the Company of any
liability in respect of the nonissuance or sale of such stock as to which such
qualifications, consents, approvals or authorizations pertain.
A-6
<PAGE>
(b) The Company shall be under no obligation to register or qualify the
issuance of Awards or underlying securities under the Securities Act or
applicable state securities laws. Unless the issuance of Awards and underlying
securities have been registered under the Securities Act and qualified or
registered under applicable state securities laws, the Company shall be under
no obligation to issue any Awards or underlying securities unless the Awards
and underlying securities may be issued pursuant to applicable exemptions from
such registration or qualification requirements. In connection with any such
exempt issuance, the Company may require the Recipient to provide a written
representation and undertaking to the Company, satisfactory in form and scope
to the Company and upon which the Company may reasonably rely, that such
Recipient is acquiring such Awards and underlying shares for such Recipient's
own account as an investment and not with a view to, or for sale in connection
with, the distribution of any such securities, and that such person will make
no transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act and other
applicable law, and that if shares of stock are issued without such
registration, a legend to this effect (together with any other legends deemed
appropriate by the Company) may be endorsed upon the securities so issued. The
Company may also order its transfer agent to stop transfers of such
securities. The Company may also require the Recipient to provide the Company
such information and other documents as it may request in order to satisfy the
Company as to the investment sophistication and experience of the Recipient
and as to any other conditions for compliance with any such exemptions from
registration or qualification.
5.7 Additional Conditions. Any Award may also be subject to such other
provisions (whether or not applicable to any other Award or Recipient) as the
Administering Body determines appropriate, including without limitation
provisions to assist the Recipient in financing the purchase of Common Stock
through the exercise of Stock Options, provisions for the forfeiture of or
restrictions on resale or other disposition of shares of Common Stock acquired
under any Award, provisions giving the Company the right to repurchase shares
of Common Stock acquired under any Award in the event the Recipient elects to
dispose of such shares, and provisions to comply with federal and state
securities laws and federal and state income tax withholding requirements.
5.8 No Privileges of Stock Ownership. Except as otherwise set forth herein,
a Recipient or a permitted transferee of an Award shall have no rights as a
shareholder with respect to any shares issuable or issued in connection with
the Award until the date of the receipt by the Company of all amounts payable
and performance by the Recipient of all obligations in connection with the
exercise of the Award. Status as an Eligible Person shall not be construed as
a commitment that any Award will be granted under this Plan to an Eligible
Person or to Eligible Persons generally. No person shall have any right, title
or interest in any fund or in any specific asset (including shares of capital
stock) of the Company by reason of any Award granted hereunder. Neither this
Plan (or any documents related hereto) nor any action taken pursuant hereto
shall be construed to create a trust of any kind or a fiduciary relationship
between the Company and any person. To the extent that any person acquires a
right to receive an Award hereunder, such right shall be no greater than the
right of any unsecured general creditor of the Company.
5.9 Nonassignability. Unless the Administering Body shall otherwise
determine on a case-by-case basis, no Award granted under this Plan shall be
assignable or transferable except (i) by will or by the laws of descent and
distribution, or (ii) subject to the final sentence of this Section 5.9, upon
dissolution of marriage pursuant to a qualified domestic relations order.
Unless the Administering Body shall otherwise determine on a case-by-case
basis, during the lifetime of a Recipient, an Award
A-7
<PAGE>
granted to such person shall be exercisable only by the Recipient (or the
Recipient's permitted transferee) or such person's guardian or legal
representative. Notwithstanding the foregoing, (i) no Award owned by a
Recipient subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3, and (ii) Incentive
Stock Options (or other Awards subject to transfer restrictions under the IRC)
may not be assigned or transferred in violation of Section 422(b)(5) of the
IRC (or any comparable or successor provision) or the regulations thereunder,
and nothing herein is intended to allow such assignment or transfer.
5.10 Information to Recipients.
(a) The Company shall determine what, if any, financial and other
information shall be provided to Recipients and when such financial and other
information shall be provided after giving consideration to applicable federal
and state laws, rules and regulations, including without limitation applicable
federal and state securities laws, rules and regulations.
(b) The furnishing of financial and other information that is confidential
to the Company shall be subject to the Recipient's agreement that the
Recipient shall maintain the confidentiality of such financial and other
information, shall not disclose such information to third parties, and shall
not use the information for any purpose other than evaluating an investment in
the Company's securities under this Plan. The Company may impose other
restrictions on the access to and use of such confidential information and may
require a Recipient to acknowledge the Recipient's obligations under this
Section 5.10(b) (which acknowledgment shall not be a condition to Recipient's
obligations under this Section 5.10(b)).
5.11 Withholding Taxes. Whenever the granting, vesting or exercise of any
Award, or the issuance of any shares upon exercise of any Award or transfer
thereof, gives rise to tax or tax withholding liabilities or obligations, the
Company shall have the right to require the Recipient to remit to the Company
an amount sufficient to satisfy any federal, state and local withholding tax
requirements arising in connection therewith. The Company may, in the exercise
of its discretion, allow satisfaction of tax withholding requirements by
accepting delivery of stock of the Company or by withholding a portion of the
stock otherwise issuable in connection with an Award, in each case valued at
Fair Market Value as of the date of such delivery or withholding.
5.12 Legends on Awards and Stock Certificates. Each Award Document and each
certificate representing shares acquired upon vesting or exercise of an Award
shall be endorsed with all legends, if any, required by applicable federal and
state securities and other laws to be placed on the Award Document and/or the
certificate. The determination of which legends, if any, shall be placed upon
Award Documents or the certificates shall be made by the Company and such
decision shall be final and binding.
5.13 Effect of Termination of Employment on Awards.
(a) Termination of Vesting. Awards will be exercisable by a Recipient (or
the Recipient's successor-in-interest) following such Recipient's termination
of employment with the Company or any Affiliated Entity only to the extent
that installments thereof had become exercisable on or prior to the date of
such termination.
(b) Alteration of Vesting and Exercise Periods. Notwithstanding anything to
the contrary herein, (i) the Administering Body may, in its discretion,
designate shorter or longer periods for the vesting or
A-8
<PAGE>
exercise of any Award, or the lapse of transfer or other restrictions
pertaining thereto, following a Recipient's termination of employment with the
Company or any Affiliated Entity, provided, however, that any shorter periods
determined by the Administering Body shall be effective only if provided for
in the Award Document that evidences the grant to the Recipient of such Award
or if such shorter period is agreed to in writing by the Recipient; and (ii)
the Administering Body may, in its discretion, elect to accelerate the vesting
of all or any portion of any Award that had not become exercisable on or prior
to the date of such termination or to extend the vesting period beyond the
date of such termination.
(c) Leave of Absence. In the case of any employee on an approved leave of
absence, the Administering Body may make such provision respecting continuance
of Awards granted to such employee as the Administering Body in its discretion
deems appropriate.
5.14 Limits on Awards to Eligible Persons. Notwithstanding any other
provision of this Plan, in order for the compensation attributable to Awards
hereunder to qualify as Performance-Based Compensation, no one Eligible Person
shall be granted any Awards with respect to more than 250,000 shares of Common
Stock in any one calendar year. The limitation set forth in this Section 5.14
shall be subject to adjustment as provided in Section 3.4 or under Article
VII, but only to the extent such adjustment would not affect the status of
compensation attributable to Awards hereunder as Performance-Based
Compensation.
ARTICLE VI
Awards
6.1 Stock Options.
(a) Nature of Stock Options. Stock Options may be Incentive Stock Options or
Nonqualified Stock Options.
(b) Option Exercise Price. The exercise price for each Stock Option shall be
determined by the Administering Body as of the date such Stock Option is
granted. The exercise price shall be no less than the Fair Market Value of the
Common Stock subject to the Stock Option as of the date of grant. Subject to
approval by the shareholders, the Administering Body may, with the consent of
the Recipient and subject to compliance with statutory or administrative
requirements applicable to Incentive Stock Options, amend the terms of any
Stock Option to provide that the exercise price of the shares remaining
subject to the Stock Option shall be reestablished at a price not less than
100% of the Fair Market Value of the Common Stock on the effective date of the
amendment. No modification of any other term or provision of any Stock Option
that is amended in accordance with the foregoing shall be required, although
the Administering Body may, in its discretion, make such further modifications
of any such Stock Option as are not inconsistent with this Plan.
(c) Option Period and Vesting. Stock Options granted hereunder shall vest
and may be exercised as determined by the Administering Body, except that
exercise of such Stock Options after termination of the Recipient's employment
shall be subject to Section 5.13. Each Stock Option granted hereunder and all
rights or obligations thereunder shall expire on such date as shall be
determined by the Administering Body, but not later than 10 years after the
date the Stock Option is granted and shall be subject to earlier termination
as provided herein or in the Award Document. The Administering Body may, in
its discretion at any time and from time to time after the grant of a Stock
Option, accelerate
A-9
<PAGE>
vesting of such Stock Option as a whole or part by increasing the number of
shares then purchasable, provided that the total number of shares subject to
such Stock Option may not be increased. Except as otherwise provided herein, a
Stock Option shall become exercisable, as a whole or in part, on the date or
dates specified by the Administering Body and thereafter shall remain
exercisable until the expiration or earlier termination of the Stock Option.
(d) Termination. Unless determined otherwise by the Administering Body in
its sole discretion, Stock Options shall expire on the earliest of (i) one
year from the date on which the Recipient ceases to be an Eligible Person for
any reason other than death; (ii) one year from the date of the Recipient's
death; or (iii) with respect to each installment of such Stock Option, the
fifth anniversary of the vesting date of such installment. If a Recipient who
is an employee of the Company or any Affiliated Entity ceases for any reason
to be such an employee, that portion of the Stock Option that has not yet
vested shall terminate, unless the Administering Body accelerates the vesting
schedule in its sole discretion (in which case, the Administering Body may
impose whatever conditions it considers appropriate on the accelerated
portion). Stock Options granted to a Recipient who is not such an employee may
be made subject to such other termination provisions as determined appropriate
by the Administering Body.
(e) Special Provisions Regarding Incentive Stock Options.
(i) Notwithstanding anything in this Section 6.1 to the contrary, the
exercise price and vesting period of any Stock Option intended to qualify
as an Incentive Stock Option shall comply with the provisions of Section
422 of the IRC and the regulations thereunder. As of the Effective Date,
such provisions require, among other matters, that (A) the exercise price
must not be less than the Fair Market Value of the underlying stock as of
the date the Incentive Stock Option is granted, and not less than 110% of
the Fair Market Value as of such date in the case of a grant to a
Significant Shareholder; and (B) that the Incentive Stock Option not be
exercisable after the expiration of ten years from the date of grant of
such Incentive Stock Option, or five years from the date of grant in the
case of an Incentive Stock Option granted to a Significant Shareholder.
(ii) The aggregate Fair Market Value (determined as of the respective
date or dates of grant) of the Common Stock for which one or more Stock
Options granted to any Recipient under this Plan (or any other option plan
of the Company or any of its subsidiaries or affiliates) may for the first
time become exercisable as Incentive Stock Options under the federal tax
laws during any one calendar year shall not exceed $100,000.
(iii) Any Options granted as Incentive Stock Options pursuant to this
Plan that for any reason fail or cease to qualify as such shall be treated
as Nonqualified Stock Options.
6.2 Performance Awards.
(a) Grant of Performance Awards. The Administering Body shall determine in
its discretion the performance criteria (which need not be identical and may
be established on an individual or group basis) governing Performance Awards,
the terms thereof, and the form and time of payment of Performance Awards.
(b) Payment of Performance Awards. Upon satisfaction of the conditions
applicable to a Performance Award, payment will be made to the Recipient in
shares of Common Stock valued at Fair Market Value.
A-10
<PAGE>
6.3 Restricted Stock.
(a) Award of Restricted Stock. The Administering Body shall determine the
Purchase Price (if any), the terms of payment of the Purchase Price, the
restrictions upon the Restricted Stock, and when such restrictions shall
lapse.
(b) Requirements of Restricted Stock. All shares of Restricted Stock granted
or sold pursuant to this Plan will be subject to the following conditions:
(i) No Transfer. The shares may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, alienated or encumbered
until the restrictions are removed or expire;
(ii) Certificates. The Company may require that the certificates
representing Restricted Stock granted or sold to a Recipient pursuant to
this Plan remain in the physical custody of an escrow holder or the Company
until all restrictions are removed or expire;
(iii) Restrictive Legends. Each certificate representing Restricted Stock
granted or sold to a Recipient pursuant to this Plan will bear such legend
or legends making reference to the restrictions imposed upon such
Restricted Stock as the Company deems necessary or appropriate to enforce
such restrictions; and
(iv) Other Restrictions. The Administering Body may impose such other
conditions on Restricted Stock as the Administering Body may deem
advisable, including, without limitation, restrictions under the Securities
Act, under the Exchange Act, under the requirements of any stock exchange
or interdealer quotation system upon which such Restricted Stock or shares
of the same class are then listed or traded and under any blue sky or other
securities laws applicable to such shares.
(c) Lapse of Restrictions. The restrictions imposed upon Restricted Stock
will lapse in accordance with such terms or other conditions as are determined
by the Administering Body.
(d) Rights of Recipient. Subject to the provisions of Section 6.3(b) and any
restrictions imposed upon the Restricted Stock, the Recipient will have all
rights of a shareholder with respect to the Restricted Stock granted or sold
to such Recipient under this Plan, including, without limitation, the right to
vote the shares and receive all dividends and other distributions paid or made
with respect thereto.
(e) Termination of Employment. Unless the Administering Body in its
discretion determines otherwise, if a Recipient's employment with the Company
or any Affiliated Entity terminates for any reason, all of the Recipient's
Restricted Stock remaining subject to restrictions on the date of such
termination of employment shall be repurchased by the Company at the Purchase
Price (if any) paid by the Recipient to the Company, without interest or
premium, and otherwise returned to the Company without consideration.
6.4 Stock Appreciation Rights.
(a) Granting of Stock Appreciation Rights. The Administering Body may at any
time and from time to time approve the grant to Eligible Persons of Stock
Appreciation Rights, related or unrelated to Stock Options.
(b) Stock Appreciation Rights Related to Options.
(i) A Stock Appreciation Right granted in connection with a Stock Option
granted under this Plan will entitle the holder of the related Stock
Option, upon exercise of the Stock Appreciation
A-11
<PAGE>
Right, to surrender such Stock Option, or any portion thereof to the extent
previously vested but unexercised, with respect to the number of shares as
to which such Stock Appreciation Right is exercised, and to receive payment
of an amount computed pursuant to Section 6.2(b)(iii). Such Stock Option
will, to the extent surrendered, then cease to be exercisable.
(ii) A Stock Appreciation Right granted in connection with a Stock Option
hereunder will be exercisable only when, and only to the extent that, the
related Stock Option is exercisable, will not be transferable except to the
extent that such related Stock Option may be transferable, will not expire
later than the underlying Stock Option, and will be exercisable only when
the Fair Market Value of the Common Stock subject to the underlying Stock
Option exceeds the exercise price of such Stock Option.
(iii) Upon the exercise of a Stock Appreciation Right related to a Stock
Option, the Recipient will be entitled to receive payment of an amount
determined by multiplying (A) the difference obtained by subtracting the
exercise price of a share of Common Stock specified in the related Stock
Option from the Fair Market Value of a share of Common Stock on the date of
exercise of such Stock Appreciation Right (or as of such other date or as
of the occurrence of such event as may have been specified in the
instrument evidencing the grant of the Stock Appreciation Right), by (B)
the number of shares as to which such Stock Appreciation Right is
exercised.
(c) Stock Appreciation Rights Unrelated to Options. The Administering Body
may grant Stock Appreciation Rights unrelated to Stock Options to Eligible
Persons. Section 6.2(b)(iii) shall be used to determine the amount payable at
exercise under such Stock Appreciation Right, except that in lieu of the
exercise price specified in the related Stock Option, the initial base amount
specified in the Award shall be used.
(d) Limits. Notwithstanding the foregoing, the Administering Body, in its
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right under this Plan.
(e) Payments. Payment of the amount determined under the foregoing
provisions may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the sole discretion of the Administering Body, in cash or in
a combination of cash and shares of Common Stock as the Administering Body
deems advisable. The Administering Body has full discretion to determine the
form in which payment of a Stock Appreciation Right will be made and to
consent to or disapprove the election of a Recipient to receive cash in full
or partial settlement of a Stock Appreciation Right. If the Administering Body
decides to make full payment in shares of Common Stock, and the amount payable
results in a fractional share, payment for the fractional share will be made
in cash.
6.5 Stock Payments. The Administering Body may approve Stock Payments of the
Company's Common Stock to any Eligible Person for all or any portion of the
compensation (other than base salary) or other payment that would otherwise
become payable by the Company to the Eligible Person in cash.
6.6 Dividend Equivalents. The Administering Body may grant Dividend
Equivalents to any Recipient who has received a Stock Option, Stock
Appreciation Right or other Award denominated in shares of Common Stock.
Dividend Equivalents may be paid in cash, Common Stock or other Awards; the
amount of Dividend Equivalents paid other than in cash shall be determined by
the Administering
A-12
<PAGE>
Body by application of such formula as the Administering Body may deem
appropriate to translate the cash value of dividends paid to the alternative
form of payment of the Dividend Equivalent. Dividend Equivalents shall be
computed as of each dividend record date and shall be payable to recipients
thereof at such time as the Administering Body may determine. Notwithstanding
the foregoing, the payment of a Dividend Equivalent with respect to a Stock
Option intended to constitute Performance-Based Compensation shall not be
contingent upon the exercise of such Stock Option.
6.7 Stock Bonuses. The Administering Body may issue shares of Common Stock
to Eligible Persons as bonuses for services rendered or for any other valid
consideration on such terms and conditions as the Administering Body may
determine.
6.8 Stock Sales. The Administering Body may sell to Eligible Persons shares
of Common Stock on such terms and conditions as the Administering Body may
determine.
6.9 Phantom Stock. The Administering Body may grant Awards of Phantom Stock.
Phantom Stock is a cash bonus granted under this Plan measured by the Fair
Market Value of a specified number of shares of Common Stock on a specified
date, or measured by the excess of such Fair Market Value over a specified
minimum, which may but need not include a Dividend Equivalent.
6.10 Other Stock-Based Benefits. The Administering Body is authorized to
grant Other Stock-Based Benefits. Other Stock-Based Benefits are any
arrangements granted under this Plan not otherwise described above that (a) by
their terms might involve the issuance or sale of Common Stock or (b) involve
a benefit that is measured, as a whole or in part, by the value, appreciation,
dividend yield or other features attributable to a specified number of shares
of Common Stock.
6.11 Termination of Employment. Except as otherwise provided for in this
Plan or determined by the Administering Body in its discretion, all Awards
granted to a Recipient, and all of such Recipient's rights thereunder, shall
terminate upon termination for any reason of such Recipient's employment with
the Company or any Affiliated Entity.
ARTICLE VII
Reorganizations
7.1 Corporate Transactions Not Involving a Change in Control. If the Company
shall consummate any Reorganization not involving a Change of Control in which
holders of shares of Common Stock are entitled to receive in respect of such
shares any securities, cash or other consideration (including without
limitation a different number of shares of Common Stock), each Award
outstanding under this Plan shall thereafter be exercisable, in accordance
with this Plan, only for the kind and amount of securities, cash and/or other
consideration receivable upon such Reorganization by a holder of the same
number of shares of Common Stock as are subject to that Award immediately
prior to such Reorganization, and any adjustments will be made to the terms of
the Award in the sole discretion of the Administering Body as it may deem
appropriate to give effect to the Reorganization.
7.2 Corporate Transactions Involving a Change in Control. As of the
effective time and date of any Change in Control, this Plan and any then
outstanding Awards (whether or not vested) shall automatically terminate
unless (a) provision is made in writing in connection with such transaction
for the continuance of this Plan and for the assumption of such Awards, or for
the substitution for such Awards of new awards covering the securities of a
successor entity or an affiliate thereof, with
A-13
<PAGE>
appropriate adjustments as to the number and kind of securities and exercise
prices, in which event this Plan and such outstanding Awards shall continue or
be replaced, as the case may be, in the manner and under the terms so
provided; or (b) the Board otherwise shall provide in writing for such
adjustments as it deems appropriate in the terms and conditions of the then-
outstanding Awards (whether or not vested), including without limitation (i)
accelerating the vesting of outstanding Awards and/or (ii) providing for the
cancellation of Awards and their automatic conversion into the right to
receive the securities, cash or other consideration that a holder of the
shares underlying such Awards would have been entitled to receive upon
consummation of such Change in Control had such shares been issued and
outstanding immediately prior to the effective date and time of the Change in
Control (net of the appropriate option exercise prices). If, pursuant to the
foregoing provisions of this Section 7.2, this Plan and the Awards shall
terminate by reason of the occurrence of a Change in Control without provision
for any of the actions described in clause (a) or (b) hereof, then any
Recipient holding outstanding Awards shall have the right, at such time
immediately prior to the consummation of the Change in Control as the Board
shall designate, to exercise the Recipient's Awards to the full extent not
theretofore exercised, including any installments which have not yet become
vested.
ARTICLE VIII
Definitions
Capitalized terms used in this Plan and not otherwise defined shall have the
meanings set forth below:
"Administering Body" means the Board as long as no Committee has been
appointed and is in effect and shall mean the Committee as long as the
Committee is appointed and in effect.
"Affiliated Entity" means any Parent Corporation or Subsidiary Corporation.
"Applicable Dividend Period" means (i) the period between the date a
Dividend Equivalent is granted and the date the related Stock Option, Stock
Appreciation Right, or other Award is exercised, terminates, or is converted
to Common Stock, or (ii) such other time as the Administering Body may specify
in the written instrument evidencing the grant of the Dividend Equivalent.
"Award" means any Stock Option, Performance Award, Restricted Stock, Stock
Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock,
Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an
Eligible Person under this Plan.
"Award Document" means the agreement or confirming memorandum setting forth
the terms and conditions of an Award.
"Board" means the Board of Directors of the Company.
"Change in Control" means the following and shall be deemed to occur if any
of the following events occur:
(a) Any Person becomes the beneficial owner (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more
of either the then outstanding shares of Common Stock or the combined
voting power of the Company's then outstanding securities entitled to vote
generally in the election of directors; or
A-14
<PAGE>
(b) Individuals who, as of the effective date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors of the
Company, provided that any individual who becomes a director after the
effective date hereof whose election, or nomination for election by the
Company's Shareholders, is approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered to be a
member of the Incumbent Board unless that individual was nominated or
elected by any Person having the power to exercise, through beneficial
ownership, voting agreement and/or proxy, twenty percent (20%) or more of
either the outstanding shares of Common Stock or the combined voting power
of the Company's then outstanding voting securities entitled to vote
generally in the election of directors, in which case that individual shall
not be considered to be a member of the Incumbent Board unless such
individual's election or nomination for election by the Company's
Shareholders is approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board; or
(c) Consummation by the Company of the sale or other disposition by the
Company of all or substantially all of the Company's assets or a
reorganization or merger or consolidation of the Company with any other
person, entity or corporation, other than
(i) a reorganization or merger or consolidation that would result in
the voting securities of the Company outstanding immediately prior
thereto (or, in the case of a reorganization or merger or consolidation
that is preceded or accomplished by an acquisition or series of related
acquisitions by any Person, by tender or exchange offer or otherwise,
of voting securities representing five percent (5%) or more of the
combined voting power of all securities of the Company, immediately
prior to such acquisition or the first acquisition in such series of
acquisitions) continuing to represent, either by remaining outstanding
or by being converted into voting securities of another entity, more
than fifty percent (50%) of the combined voting power of the voting
securities of the Company or such other entity outstanding immediately
after such reorganization or merger or consolidation (or series of
related transactions involving such a reorganization or merger or
consolidation), or
(ii) a reorganization or merger or consolidation effected to
implement a recapitalization or reincorporation of the Company (or
similar transaction) that does not result in a material change in
beneficial ownership of the voting securities of the Company or its
successor; or
(d) Approval by the Shareholders of the Company or any order by a court
of competent jurisdiction of a plan of liquidation of the Company.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, as constituted on the
Effective Date of this Plan, and as thereafter adjusted as a result of any one
or more events requiring adjustment of outstanding Awards under Section 3.4
above.
"Company" means Callaway Golf Company, a California corporation.
"Committee" means the committee appointed by the Board to administer this
Plan pursuant to Section 4.1.
"Dividend Equivalent" means a right granted by the Company under Section 6.6
to a holder of a Stock Option, Stock Appreciation Right or other Award
denominated in shares of Common Stock to receive from the Company during the
Applicable Dividend Period payments equivalent to the amount
A-15
<PAGE>
of dividends payable to holders of the number of shares of Common Stock
underlying such Stock Option, Stock Appreciation Right, or other Award.
"Effective Date" means February 18, 1998, which is the date this Plan was
adopted by the Board.
"Eligible Person" shall include directors, officers, employees, consultants
and advisors of the Company or of any Affiliated Entity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" means the 10th anniversary of the Effective Date.
"Fair Market Value" of a share of the Company's capital stock as of a
particular date shall be (i) if the stock is listed on an established stock
exchange or exchanges (including for this purpose, the Nasdaq National
Market), the closing price of the stock quoted for such date as reported in
the Transactions Index of each such exchange, as published in The Wall Street
Journal and determined by the Administering Body, or, if no closing price was
quoted in any such Index for such date, then as of the next preceding date on
which such a closing price was quoted; or (ii) if the stock is not then listed
on an exchange or the Nasdaq National Market, the average of the closing bid
and asked prices per share for the stock in the over-the-counter market as
quoted on The Nasdaq Small Cap Market on such date (in the case of (i) or
(ii), subject to adjustment as and if necessary and appropriate to set an
exercise price not less than 100% of the fair market value of the stock on the
date an option is granted); or (iii) if the stock is not then listed on an
exchange or quoted in the over-the-counter market, an amount determined in
good faith by the Administering Body; provided, however, that (A) when
appropriate, the Administering Body, in determining Fair Market Value of
capital stock of the Company, may take into account such other factors as it
may deem appropriate under the circumstances and (B) if the stock is traded on
the Nasdaq Small Cap Market and both sales prices and bid and asked prices are
quoted or available, the Administering Body may elect to determine Fair Market
Value under either clause (i) or (ii) above. Notwithstanding the foregoing,
the Fair Market Value of capital stock for purposes of grants of Incentive
Stock Options shall be determined in compliance with applicable provisions of
the IRC. The Fair Market Value of rights or property other than capital stock
of the Company means the fair market value thereof as determined by the
Committee on the basis of such factors as it may deem appropriate.
"Incentive Stock Option" means a Stock Option that qualifies as an incentive
stock option under Section 422 of the IRC, or any successor statute thereto.
"IRC" means the Internal Revenue Code of 1986, as amended.
"Nonqualified Stock Option" means a Stock Option that is not an Incentive
Stock Option.
"Other Stock-Based Benefits" means an Award granted under Section 6.9 of
this Plan.
"Parent Corporation" means any Parent Corporation as defined in Section
424(e) of the IRC.
"Payment Event" means the event or events giving rise to the right to
payment of a Performance Award.
A-16
<PAGE>
"Performance Award" means an Award payable in Common Stock that vests and
becomes payable over a period of time upon attainment of performance criteria
established in connection with the grant of the Award.
"Performance-Based Compensation" means performance-based compensation as
described in Section 162(m) of the IRC. If the amount of compensation an
Eligible Person will receive under any Award is not based solely on an
increase in the value of Common Stock after the date of grant or award, the
Committee, in order to qualify an Award as performance-based compensation
under Section 162(m) of the IRC, can condition the grant, award, vesting, or
exercisability of such an Award on the attainment of a preestablished,
objective performance goal. For this purpose, a preestablished, objective
performance goal may include one or more of the following performance
criteria: (a) cash flow, (b) earnings per share (including earning before
interest, taxes, depreciation 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 margin, (j) return on operating revenue, and (k) any
other similar performance criteria.
"Person" means any person, entity or group, within the meaning of Section
13(d) or 14(d) of the Exchange Act, but excluding (i) the Company and its
subsidiaries, (ii) any employee stock ownership or other employee benefit plan
maintained by the Company that is qualified under ERISA and (iii) an
underwriter or underwriting syndicate that has acquired the Company's
securities solely in connection with a public offering thereof.
"Phantom Stock" means an Award granted under Section 6.9 of this Plan.
"Plan" means this 1998 Stock Incentive Plan of the Company.
"Plan Term" means the period during which this Plan remains in effect
(commencing the Effective Date and ending on the Expiration Date).
"Purchase Price" means the purchase price (if any) to be paid by a Recipient
for Restricted Stock as determined by the Committee (which price shall be at
least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are
met).
"Recipient" means an Eligible Person who has received an Award under this
Plan.
"Reorganization" means any merger, consolidation or other reorganization.
"Restricted Stock" means Common Stock that is the subject of an Award made
under Section 6.3 and that is nontransferable and subject to a substantial
risk of forfeiture until specific conditions are met, as set forth in this
Plan and in any statement evidencing the grant of such Award.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Shareholder" is an individual who, at the time a Stock Option
is granted to such individual under this Plan, owns more than ten percent
(10%) of the combined voting power of all classes of stock of the Company or
of any Parent Corporation or Subsidiary Corporation (after application of the
attribution rules set forth in Section 424(d) of the IRC).
A-17
<PAGE>
"Stock Appreciation Right" means a right granted under Section 6.4 to
receive a payment that is measured with reference to the amount by which the
Fair Market Value of a specified number of shares of Common Stock appreciates
from a specified date, such as the date of grant of the Stock Appreciation
Right, to the date of exercise.
"Stock Bonus" means an issuance or delivery of unrestricted or restricted
shares of Common Stock under Section 6.7 of this Plan as a bonus for services
rendered or for any other valid consideration under applicable law.
"Stock Payment" means a payment in shares of the Company's Common Stock to
replace all or any portion of the compensation (other than base salary) that
would otherwise become payable to a Recipient.
"Stock Option" means a right to purchase stock of the Company granted under
Section 6.1 of this Plan.
"Stock Sale" means a sale of Common Stock to an Eligible Person under
Section 6.8 of this Plan.
"Subsidiary Corporation" means any Subsidiary Corporation as defined in
Section 424(f) of the IRC.
A-18
<PAGE>
[MAP APPEARS HERE]
DIRECTORS:
From I-5:
---------
1998 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.
2081 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
The 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 2081 Faraday Avenue, Carlsbad, California
92008, on April 23, 1998 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 AND 3 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, Vernon E. Jordan, Jr.,
Bruce Parker, Aulana L. Peters, Frederick R. Port, Richard Rosenfield, William
A. Schreyer, 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 1996 Stock Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve the adoption of the Callaway Golf
Company 1998 Stock Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
4. 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 23, 1998 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 17, 1998
TO: CERTAIN PARTICIPANTS IN THE CALLAWAY GOLF COMPANY 401(k) PROFIT
SHARING PLAN AND ODYSSEY GOLF 401(k) PLAN
As a participant in the Callaway Golf Company 401(k) Profit Sharing Plan or
the Odyssey Golf 401(k) 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 24, 1998.
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 23,
1998, IN ORDER TO EXERCISE YOUR VOTING RIGHTS UNDER THE 401(k) PLAN. THE
TRUSTEE CANNOT GUARANTEE THAT VOTING INSTRUCTIONS RECEIVED AFTER APRIL 21, 1998
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 (760)
931-1771. Thank you for your cooperation.
Sincerely,
/s/ DONALD H. DYE
Donald H. Dye
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 23, 1998, 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 AND 3 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 21, 1998 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, Vernon E. Jordan, Jr.,
FOR all nominees listed to the right Bruce Parker, Aulana L. Peters, Federick R. Port, Richard Rosenfield,
(except as marked to the contrary) [_] William A. Schreyer, 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 [_] [_] [_]
Callaway Golf Company 1996 Stock Option
Plan.
3. Proposal to approve the adoption of the [_] [_] [_]
Callaway Golf Company 1998 Stock
Incentive Plan.
4. 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 23, 1998 and the Proxy Statement furnished
herewith. Please sign exactly as name appears hereon.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
CALLAWAY GOLF COMPANY
TO: WELLS FARGO BANK,
TRUSTEE OF THE ODYSSEY GOLF 401(k) PLAN
With respect to the voting at the Annual Meeting of Shareholders of
Callaway Golf Company to be held on April 23, 1998, or any adjournment or
postponement thereof, the undersigned participant in the Odyssey Golf 401(k)
Plan (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 AND 3 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 21, 1998 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, Vernon E. Jordan, Jr.,
FOR all nominees listed to the right Bruce Parker, Aulana L. Peters, Federick R. Port, Richard Rosenfield,
(except as marked to the contrary) [_] William A. Schreyer, 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 [_] [_] [_]
Callaway Golf Company 1996 Stock Option
Plan.
3. Proposal to approve the adoption of the [_] [_] [_]
Callaway Golf Company 1998 Stock
Incentive Plan.
4. 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 23, 1998 and the Proxy Statement furnished
herewith. Please sign exactly as name appears hereon.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
[LETTERHEAD OF CALLAWAY GOLF COMPANY]
March 17, 1998
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 CARD TO THE TRUSTEE USING THE ENCLOSED RETURN
ENVELOPE PRIOR TO THE ANNUAL MEETING, WHICH WILL BE HELD ON APRIL 23, 1998, IN
ORDER TO EXERCISE YOUR VOTING RIGHTS UNDER THE TRUST. THE TRUSTEE CANNOT
GUARANTEE THAT VOTING INSTRUCTIONS RECEIVED AFTER APRIL 21, 1998 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 separate white
Proxy Card. If a portion of the funds held in your 401(k) 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
(760) 931-1771. Thank you for your cooperation.
Sincerely,
/s/ DONALD H. DYE
Donald H. Dye
President and Chief
Executive Officer
<PAGE>
LOGO
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 23, 1998, 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 AND 3 IF NO
INSTRUCTIONS ARE INDICATED.
1. ELECTION OF DIRECTORS
Nominees: Ely Callaway, Donald H. Dye, William C. Baker, Vernon E. Jordan, Jr.,
Bruce Parker, Aulana L. Peters, Frederick R. Port, Richard Rosenfield,
William A. Schreyer, 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 1996 Stock
Option Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve the adoption of the Callaway Golf Company 1998 Stock
Incentive Plan.
[_] FOR [_] AGAINST [_] ABSTAIN
4. 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 23,
1998 and the Proxy Statement furnished
herewith.
Signature _____________________________
Please sign exactly as name
appears hereon.
Date _____________________________, 1998
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 21, 1998 WILL BE
COUNTED.
