Callaway 1999 Annual Report Download - page 41

39CALLAWAY GOLF COMPANY
During 1999, the Company, at its discretion, extended the
expiration terms of 1,532,000 options held by certain employ-
ees and officers. At the time of modification, the exercise
prices of the options were in excess of the then-current market
price and accordingly this action did not result in compensa-
tion expense for the Company.
During 1998, the Company modified certain terms of
720,000 options held by directors, certain officers and
employees. These modifications, which largely resulted from
the Company’s restructuring plan, included acceleration of
vesting and extension of expiration terms at the Company’s
discretion. At the time of modification, the exercise prices of
the options were in excess of the then-current market price
and accordingly this action did not result in compensation
expense for the Company.
Also during 1998, the Company canceled 150,000
options held by non-employees with option prices in excess of
the then-current market price of the Company’s stock. The
Company then reissued an equivalent number of options to
these non-employees at the then-current market price and
extended certain expiration terms, and recorded the related
compensation expense of $71,000. An additional $195,000
was recorded in unearned compensation, and is being amor-
tized over the remaining vesting periods.
Rights
The Company has granted officers, consultants, and employ-
ees rights to receive an aggregate of 826,800 shares of
Common Stock for services or other consideration. During
1998, 80,000 rights were exercised while none were granted.
No rights were granted or exercised during 1999 or 1997. At
December 31, 1999, no rights to receive shares of Common
Stock remained outstanding.
The Company has a plan to protect shareholders’ rights in
the event of a proposed takeover of the Company. Under the
plan, each share of the Company’s outstanding Common Stock
carries one right to purchase one one-thousandth of a share of
the Company’s Series “A” Junior Participating Preferred Stock
(the “Right”). The Right entitles the holder, under certain cir-
cumstances, to purchase Common Stock of Callaway Golf
Company or of the acquiring company at a substantially dis-
counted price ten days after a person or group publicly
announces it has acquired or has tendered an offer for 15% or
more of the Company’s outstanding Common Stock. The
Rights are redeemable by the Company at $.01 per Right and
expire in 2005.
Restricted Common Stock
During 1998, the Company granted 130,000 shares of
Restricted Common Stock to 26 officers of the Company. Of
these shares, 41,250 shares have been canceled due to the
service requirement not being met. The shares, which are
restricted as to sale or transfer until vesting, will vest on
January 1, 2003. The related net compensation expense of
$2,751,000 is being recognized ratably over the vesting peri-
od, based on the difference between the exercise price and
market value of the stock on the measurement date.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“ESPP”)
whereby eligible employees may purchase shares of Common
Stock at 85% of the lower of the fair market value on the first
day of a two year offering period or the last day of each six
month exercise period. Employees may authorize the
Company to withhold compensation during any offering peri-
od, subject to certain limitations. During 1997, the ESPP was
amended to increase the maximum number of shares of the
Company’s Common Stock that employees may acquire under
this plan to 1,500,000 shares. During 1999, 1998 and 1997,
the ESPP purchased approximately 378,000, 386,000 and
372,000 shares, respectively, of the Company’s Common
Stock. As of December 31, 1999, 195,000 shares were
reserved for future issuance and will be purchased on the
January 31, 2000 exercise period, resulting in the termination
of the ESPP.
In May 1999, the Company’s shareholders approved a
new ESPP (the “1999 ESPP”) with substantially the same
terms as the ESPP. There are 2,000,000 shares reserved for
issuance under the 1999 ESPP. This plan will be effective
February 1, 2000 upon the termination of the ESPP.
Compensation Expense
During 1999, 1998, and 1997, the Company recorded
$1,370,000, $2,321,000 and $2,041,000, respectively, in com-
pensation expense for Restricted Common Stock and certain
options to purchase shares of Common Stock granted to
employees, officers and consultants of the Company. The valu-
ation of options granted to non-employees is estimated using
the Black-Scholes option pricing model.
Unearned compensation has been charged for the value
of options granted to both employees and non-employees on
the measurement date based on the valuation methods
described above. These amounts are amortized over the vest-
ing period. The unamortized portion of unearned compensa-
tion is shown as a reduction of shareholders’ equity in the
accompanying consolidated balance sheet.