CEO Employment Agreement

Exhibit 10.1
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CHIEF EXECUTIVE OFFICER EMPLOYMENT AGREEMENT


This Chief Executive Officer Employment Agreement ("Agreement") is entered into as of January 1, 1997, by and between Callaway Golf Company, a California corporation (the "Company"), and Donald H. Dye ("Employee").


1. TERM. The Company hereby employs Employee and Employee hereby accepts
---- employment pursuant to the terms and provisions of this Agreement for the term commencing January 1, 1997 and terminating December 31, 2001 unless this Agreement is earlier terminated as hereinafter provided. Unless such employment is earlier terminated, upon the expiration of the term of this Agreement, Employee's status shall be one of at will employment.


2. SERVICES.
--------


(a) Employee shall serve as President and Chief Executive Officer of the Company. Employee's duties shall be the usual and customary duties of the offices in which he serves. Employee shall report to the Board of Directors of the Company.


(b) Employee shall be required to comply with all policies and procedures of the Company, as such shall be adopted, modified or otherwise established by the Company from time to time.


3. SERVICES TO BE EXCLUSIVE. During the term hereof, Employee agrees to
------------------------ devote his full productive time and best efforts to the performance of Employee's duties hereunder pursuant to the supervision and direction of the Company's Board of Directors. Employee further agrees, as a condition to the performance by the Company of each and all of its obligations hereunder, that so long as Employee is employed by the Company, Employee will not directly or indirectly render services of any nature to, otherwise become employed by, or otherwise participate or engage in any other business without the Company's prior written consent. Employee further agrees to execute such secrecy, non- disclosure, patent, trademark, copyright and other proprietary rights agreements, if any, as the Company may from time to time reasonably require. Nothing herein contained shall be deemed to preclude Employee from having outside personal investments and involvement with appropriate community activities, and from devoting a reasonable amount of time to such matters, provided that this shall in no manner interfere with or derogate from Employee's work for the Company.


4. COMPENSATION.
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(a) The Company agrees to pay Employee during the term of this Agreement a base salary at the rate of $750,000.00 per year;


(b) The Company further agrees to pay Employee during the term of this Agreement an annual Bonus, consisting of a Qualified Bonus and a Non-Qualified Bonus. If Employee elects to defer all or any part of his annual Bonus (the "Deferred Bonus"), such Deferred Bonus shall be taken first from any Non- Qualified Bonus earned by Employee and then, to the extent necessary and only to such extent, from any Qualified Bonus earned by Employee. Notwithstanding whatever amounts Employee might defer, 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.


(c) The Qualified and Non-Qualified Bonuses shall be calculated as follows:


(i) The annual Qualified Bonus shall be determined pursuant to the applicable shareholder-approved nondiscretionary 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 in subsection 4(c)(ii) below.


(ii) Subject to the last sentence of this subsection, the annual Non- Qualified Bonus shall be 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 (e.g., if pre-tax profit grows 10% in 1999 as compared with 1998, then Employee's Non-Qualified Bonus for 1999 shall be $750,000.00; if pre-tax profit grows 25% in 2000 as compared with 1999, then Employee's Non-Qualified Bonus for 2000 shall be $1,875,000.00). Notwithstanding anything else to the contrary, 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.


5. EXPENSES AND BENEFITS.
---------------------


(a) Reasonable and Necessary Expenses. In addition to the compensation
--------------------------------- provided for in Section 4 hereof, the Company shall reimburse Employee for all reasonable, customary, and necessary expenses incurred in the performance of Employee's duties hereunder. Employee shall first account for such expenses by submitting a signed statement itemizing such expenses prepared in accordance with the policy set by the Company for reimbursement of such expenses. The amount, nature, and extent of such expenses shall always be subject to the control, supervision, and direction of the Company. While the Company shall not reimburse Employee for all incremental travel and entertainment expenses directly attributable to Employee's spouse, it is recognized that Employee's spouse will generally accompany Employee on business


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trips, and that such accompaniment by Employee's spouse is a benefit to the Company in that it assists Employee in the efficient and effective performance of his duties.


(b) Vacation. Employee shall receive four (4) weeks paid vacation for each
-------- twelve (12) month period of employment with the Company. The vacation may be taken any time during the year subject to prior approval by the Company, such approval not to be unreasonably withheld. Any unused time will accrue from year to year. The maximum vacation time Employee may accrue shall be three times Employee's annual vacation benefit. The Company reserves the right to pay Employee for unused, accrued vacation benefits in lieu of providing time off.


(c) Benefits. During Employee's employment with the Company pursuant to
-------- this Agreement, the Company shall provide for Employee to:


(i) participate in the Company's health insurance and disability insurance plans as the same may be modified from time to time;


(ii) receive, if Employee is insurable under usual underwriting standards and Employee's physical condition does not prevent Employee from reasonably qualifying for such insurance coverage, term life insurance coverage on Employee's life, payable to whomever the Employee directs, in the face amount of $2,000,000.00, such policies to be transferable to Employee upon the termination of employment without evidence of insurability;


(iii) participate in the Company's 401(k) pension plan pursuant to the terms of the plan, as the same may be modified from time to time;


(iv) participate in the Company's Executive Deferred Compensation Plan, as the same may be modified from time to time; and


(v) participate in any other benefit plans the Company provides from time to time to executive officers.


(d) Club Membership. The Company shall continue to make available to
---------------- Employee the benefits of at least one corporate membership at a mutually agreed upon country club. While the Company has paid the costs of initiation, Employee shall be responsible for all other expenses and costs associated with such club use, including monthly member dues and charges. The club membership itself shall belong to and be the property of the Company, not Employee. Upon the termination of Employee's employment with the Company, Employee shall have the option for ninety (90) days to purchase such club membership from the Company, if it is otherwise transferable, at a price equal to the actual cost to the Company of the membership at the time it was acquired.


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(e) Estate Planning and Other Perquisites. To the extent the Company
-------------------------------------- provides estate planning and related services, or any other perquisites and personal benefits to other executive officers from time to time, such services and perquisites shall be made available to Employee on the same terms and conditions.


(f) Stock Options.
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(i) Pursuant to a separate stock option agreement, the Company shall provide to Employee options to purchase up to 1,000,000 shares of the Common Stock of the Company at $40.00 per share (these stock options granted pursuant to this subsection hereinafter referred to as "Incentive Options"). Such Incentive Options shall vest on July 15, 2003. Notwithstanding anything else to the contrary, Employee's stock options granted pursuant to this subsection 5(f)(i) shall be subject to accelerated vesting as provided in subsection 5(f)(ii).


(ii) Employee's stock options granted pursuant to subsection 5(f)(i) shall be subject to accelerated vesting in accord with the following terms and conditions:


SHARES VESTING DATE AND CONDITIONS - - ------ ---------------------------


100,000 On the date upon which the average closing price for the Common Stock
of the Company on the New York Stock Exchange for the trailing sixty
(60) days is equal to or greater than $40.00 per share, if such date
occurs prior to July 15, 2002;


100,000 On the date upon which the average closing price for the Common Stock
of the Company on the New York Stock Exchange for the trailing sixty
(60) days is equal to or greater than $45.00 per share, if such date
occurs prior to July 15, 2002;


100,000 On the date upon which the average closing price for the Common Stock
of the Company on the New York Stock Exchange for the trailing sixty
(60) days is equal to or greater than $50.00 per share, if such date
occurs prior to July 15, 2002;


100,000 On the date upon which the average closing price for the Common Stock
of the Company on the New York Stock Exchange for the trailing sixty
(60) days is equal to or greater than $55.00 per share, if such date
occurs prior to July 15, 2002;


100,000 On the date upon which the average closing price for the Common Stock
of the Company on the New York Stock Exchange for the trailing sixty
(60) days is equal to or greater than $60.00 per share, if such date
occurs prior to July 15, 2002; and


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500,000 On the date upon which the average closing price for the Common Stock
of the Company on the New York Stock Exchange for the trailing sixty
(60) days is equal to or greater than $65.00 per share, if such date
occurs prior to July 15, 2002.


(iii) All shares of stock that are issuable upon the exercise of such options granted to Employee pursuant to this subsection shall be registered as promptly as possible with the Securities and Exchange Commission, and shall be approved for listing on the New York Stock Exchange upon notice of issuance. Except as otherwise provided herein, in the separate stock option agreements, or in any other written agreement between the Company and Employee, vesting of these stock options shall be conditioned upon Employee's continued employment with the Company as of the vesting date. Such options shall expire four (4) years following vesting if not exercised prior thereto, and shall be transferable to the full extent permitted by the law and the Company's stock option plan from which they are issued. At the discretion of the Board of Directors or its designee, such options may be granted as incentive stock options ("ISOs").


(g) Tax Indemnification. Employee and the Company recognize the
-------------------- existence of the Tax Indemnification Agreement effective July 20, 1995 between Employee and the Company, as amended effective January 1, 1996. It is specifically agreed that the Company shall do nothing to reduce the benefits or protections available to Employee pursuant to that agreement during the term of this Agreement.


6. DISABILITY. If on account of any physical or mental disability
---------- Employee shall fail or be unable to perform all or substantially all of Employee's duties under this Agreement for a continuous period of up to six (6) months during any twelve month period during the term of this Agreement, Employee shall be entitled to his full compensation and benefits as set forth in this Agreement. If Employee's disability continues after such six (6) month period, this Agreement is subject to termination pursuant to the provisions of Section 8(e) hereof.


7. NONCOMPETITION.
--------------


(a) Other Business. To the fullest extent permitted by law,
-------------- Employee agrees that, while employed by the Company, Employee will not, directly or indirectly (whether as agent, consultant, holder of a beneficial interest, creditor, or in any other capacity), engage in any business or venture which engages directly or indirectly in competition with the business of the Company, or have any interest in any person, firm, corporation, or venture which engages directly or indirectly in competition with the business of the Company. For purposes of this section, the ownership of interests in a broadly based mutual fund shall not constitute ownership of the stocks held by the fund.


(b) Other Employees. Except as may be required in the performance
--------------- of his duties hereunder, Employee shall not cause or induce, or attempt to cause or


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induce, any person now or hereafter employed by the Company, or any subsidiary, to terminate such employment, nor shall Employee directly or indirectly employ any person who is now or hereafter employed by the Company for a period of one (1) year from the date Employee ceases to be employed by the Company.


(c) Suppliers. While employed by the Company, and for one (1) year
--------- thereafter, Employee shall not cause or induce, or attempt to cause or induce, any person or firm supplying goods, services or credit to the Company to diminish or cease furnishing such goods, services or credit.


(d) Conflict of Interest. While employed by the Company, Employee shall
-------------------- not engage in any conduct or enterprise that shall constitute an actual or apparent conflict of interest with respect to Employee's duties and obligations to the Company.


8. TERMINATION.
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(a) Termination at the Company's Convenience. Employee's employment under
----------------------------------------- this Agreement may be terminated by the Company at its convenience at any time upon the majority vote of the group consisting of Ely Callaway, if Ely Callaway is a member of the Company's Board of Directors at the time, an ...