Callaway 2002 Annual Report Download - page 62

CALLAWAY GOLF COMPANY 59
to sale or transfer until vesting, vested on January 1, 2003. The
net compensation expense of $813,750 related to the remaining
shares was recognized ratably over the vesting period, based
on the difference between the exercise price and market value
of the stock on the measurement date.
Employee Stock Purchase Plan
The Company had an Employee Stock Purchase Plan (“ESPP”)
whereby eligible employees purchased 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. Eligible employees authorized the Company to
withhold compensation during an offering period, subject to
certain limitations. In May 1999, the Company’s shareholders
approved a new ESPP (the “1999 ESPP”) with substantially the
same terms as the ESPP. This plan was effective February 1,
2000 upon the termination of the ESPP.
During 2002, 2001, and 2000, approximately 443,000, 506,000
and 412,000 shares, respectively, of the Company’s Common
Stock were purchased under the 1999 ESPP or the ESPP. As of
December 31, 2002, 835,000 shares were reserved for future
issuance under the 1999 ESPP.
Compensation Expense
During 2002, 2001 and 2000, the Company recorded $314,000,
$342,000 and $2,157,000, respectively, in compensation
expense for Restricted Common Stock and certain options to
purchase shares of Common Stock granted to employees, offi-
cers, professional endorsers and consultants of the Company.
The valuation of options granted to non-employees is estimat-
ed using the Black-Scholes option-pricing model.
Unearned compensation has been charged for the value of
stock-based awards granted to both employees and non-
employees on the measurement date based on the valuation
methods described above. These amounts are amortized over
the vesting period. The unamortized portion of unearned
compensation is shown as a reduction of shareholders’ equity
in the accompanying consolidated balance sheet.
During 2002, 2001 and 2000, the Company, at its discretion,
extended the expiration terms or accelerated the vesting of
683,000, 1,422,000 and 622,000 options, respectively, held by
certain employees and officers. At the time of the modifications,
the exercise prices of the options were in excess of the then-
current market price and accordingly these actions did not
result in compensation expense for the Company. Also during
2001, the Company, at its discretion, cancelled and re-granted
17,000 options and recognizes compensation expense, if any,
related to these options in accordance with variable plan
accounting.
Shareholders’ Rights Plan
The Company has a plan to protect shareholders’ rights in the
event of a proposed takeover of the Company. This plan is not
intended to prevent transactions which provide full and fair
value to shareholders. It is intended to discourage abusive
takeover tactics and to provide time for the Company’s Board of
Directors to review and evaluate what is in the best interests of
shareholders. 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 circumstances, to purchase Common
Stock of Callaway Golf Company or of the acquiring company at
a substantially discounted 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 with a fair value of $31 per share to 26 officers
of the Company. Of these shares, 83,750 shares have been
canceled due to the service requirement not being met. During
1998, the Company, at its discretion, accelerated the vesting of
20,000 shares and recorded related compensation expense of
$618,000. The remaining 26,250 shares, which are restricted as