Callaway 2014 Annual Report Download - page 87

F-19
The fees incurred in connection with the origination and amendment of the ABL Facility totaled $4,912,000, which will
be amortized into interest expense over the term of the ABL Facility agreement. Unamortized origination fees as of
December 31, 2014 and 2013 were $2,233,000 and $2,295,000, respectively, of which $496,000 and $918,000, respectively,
was included in other current assets and $1,737,000 and $1,377,000, respectively, was included in other long-term assets in
the accompanying consolidated balance sheets.
In January 2015, the Company entered into a separate asset-based loan and guarantee agreement (the "Japan ABL
Facility") between its subsidiary in Japan and The Bank of Tokyo-Mitsubishi UFG, Ltd and The Development Bank of Japan.
The Company can borrow up to 2 billion Yen (or $16,980,000, using the exchange rate in effect as of January 23, 2015) over
a one-year term, and the amounts outstanding are secured by certain assets, including eligible inventory. The Japan ABL
Facility is subject to an effective interest rate of 1.48%, and includes certain restrictions including covenants related to certain
pledged assets and financial performance metrics.
Convertible Senior Notes
On August 29, 2012, the Company issued $112,500,000 of 3.75% Convertible Senior Notes (the “convertible notes”),
of which $63,227,000 in aggregate principal amount was issued in exchange for 632,270 shares of the Company’s then-
outstanding 7.50% Series B Cumulative Perpetual Convertible Preferred Stock, $0.01 par value in separate, privately negotiated
exchange transactions (see Note 5), and $49,273,000 in aggregate principal amount was issued in private placement transactions
for cash. The convertible notes were priced at 95.02% of the principal amount with an effective yield to maturity of 4.59%
and pay interest of 3.75% per year on the principal amount, payable semiannually in arrears in cash on February 15 and
August 15 of each year. The convertible notes mature on August 15, 2019.
The Company incurred transactional fees of $3,537,000 which are being amortized over the term of the convertible
notes. Unamortized transaction fees as of December 31, 2014 and 2013 were $2,358,000 and $2,863,000, respectively, of
which $505,000 was included in other current assets as of both December 31, 2014 and 2013, and $1,853,000 and $2,358,000
was included in other long-term assets, respectively, in the accompanying consolidated financial statements.
The net carrying amount of the convertible notes as of December 31, 2014 and 2013 was $108,574,000 and $107,835,000,
respectively. The unamortized discount of $3,926,000 as of December 31, 2014 will be amortized over the remaining term of
4.66 years. Total interest and amortization expense recognized during the years ended December 31, 2014 and 2013 was
$4,957,000 and $4,907,000, respectively.
The convertible notes are convertible, at the option of the note holder, at any time on or prior to the close of business
on the business day immediately preceding August 15, 2019, into shares of common stock at an initial conversion rate of
133.3333 shares per $1,000 principal amount of convertible notes, which is equal to an aggregate of 15,000,000 shares of
common stock at a conversion price of approximately $7.50 per share, subject to customary anti-dilution adjustments. Upon
the occurrence of certain change of control events of the Company, the Company will pay a premium on the convertible notes
converted in connection with such change of control events by increasing the conversion rate on such convertible notes.
The Company has the right to terminate the right of note holders to convert their convertible notes into shares of the
Company's common stock if the closing price of the Company's common stock is greater than or equal to 130% of the
conversion price for at least 20 of 30 consecutive trading days. If the Company exercises such termination right prior to
August 15, 2015, each note holder who converts its convertible notes after receiving notice of such exercise will receive a
make-whole payment in cash or common stock, as the Company may elect, with respect to the convertible notes converted.
Upon the occurrence of a change of control of the Company or a termination of trading of the common stock of the
Company, note holders will have the option to require the Company to repurchase for cash all or any portion of such note
holder’s convertible notes at a price equal to 100% of the principal amount of the repurchased convertible notes, plus accrued
and unpaid interest thereon to the repurchase date.
The convertible notes are not redeemable by the Company prior to August 15, 2015. On or after August 15, 2015, the
convertible notes are redeemable in whole or in part at the option of the Company at a redemption price equal to 100% of the
principal amount of the convertible notes to be redeemed, plus accrued and unpaid interest thereon to the redemption date.
The convertible notes contain certain covenants including payment of principal and interest, certain repurchase
obligations, obligations of the Company to convert the convertible notes and other customary covenants as set forth in the
Indenture. The Company was in compliance with these covenants as of December 31, 2014.