Document:

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

         AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, made and entered into as of
March __ 2005, between Aeroflex Incorporated, a Delaware corporation, with its
principal office located at 35 South Service Road, Plainview, NY 11803 (together
with its successors and assigns permitted under this Agreement, the "Company"),
and Carl Caruso, who resides at 5 Flamingo Drive, Smithtown, NY 11787 (the
"Employee").

                              W I T N E S S E T H:

         WHEREAS, the Company and Executive entered into an Employment Agreement
dated as of November 6, 2003 (hereinafter the "Employment Agreement"); and

         WHEREAS, the Company and Executive desire to modify said Employment
Agreement.

         NOW, THEREFORE, the parties hereto agree as follows:

1.       A new Paragraph 27 shall be added to the Employment Agreement, as
follows, effective as of the date hereof:

27.           CONSULTING PERIOD.

(a)           General. Effective upon the end of the Employment Term (but only
              -------
              if the Employment Term ends by reason of its expiration or, if
              earlier, upon termination of the Employee's employment by mutual
              agreement), the Employee shall become a consultant to Aeroflex, in
              recognition of the continued value to Aeroflex of his extensive
              knowledge and expertise. Unless earlier terminated, as provided in
              Section 27(e), the Consulting Period shall continue for three
              years.

(b)           Duties and Extent of Services.
              -----------------------------

        (i)   During the Consulting Period, the Employee shall consult with
              Aeroflex and its senior executive officers regarding its
              respective businesses and operations. Such consulting services
              shall not require more than 50 days in any calendar year, nor more
              than one day in any week, it being understood and agreed that
              during the Consulting Period the Employee shall have the right,
              consistent with the prohibitions of Sections 9 and 10 above, to
              engage in full-time or part-time employment with any business
              enterprise that is not a competitor of Aeroflex.

       (ii)   During the Consulting Period, the Employee shall not be obligated
              to serve as a member of the Board or to occupy any office on
              behalf of Aeroflex or any of its Subsidiaries.

<PAGE>

(c)           Compensation. During the Consulting Period the Employee shall
              ------------------------------------------
              receive from Aeroflex each year an amount equivalent to two-thirds
              of his Salary at the end of the Employment Term, payable as
              provided in Section 3 above.

(d)           Disability. In the event of Disability during the Consulting
              ----------
              Period, Aeroflex or the Employee may terminate the Employee's
              consulting services. If the Employee's consulting services are
              terminated due to Disability, he shall be entitled to
              compensation, in accordance with Section 27(c), for the remainder
              of the Consulting Period.

(e)           Termination. The Consulting Period shall terminate after three
              -----------
              years or, if earlier, upon the Employee's death or upon his
              failure to perform consulting services as provided in Section
              27(b), pursuant to 30 days' written notice by Aeroflex to the
              Employee of the grounds constituting such failure and reasonable
              opportunity afforded the Employee to cure the alleged failure.
              Upon any such termination, payment of consulting fees and benefits
              shall cease.

(f)           Other. During the Consulting Period, the Employee shall be
              -----
              entitled to expense reimbursement pursuant to the terms of Section
              6.

2.            Except as specifically provided in this Amendment, the Employment
Agreement is in all other respects hereby ratified and confirmed without
amendment.

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the day
and year first above written.

                                     AEROFLEX INCORPORATED

                                     By:  /s/Michael Gorin
                                     ---------------------------------------
                                         Michael Gorin, Vice Chairman

                                         /s/Carl Caruso
                                     ---------------------------------------
                                         Carl Caruso<PAGE>

                                                                    EXHIBIT 10.1

BERGER & MONTAGUE, P.C.
TODD S. COLLINS
1622 Locust Street
Philadelphia, PA 19103
(215) 875-3000

KLAFTER & OLSEN LLP
KURT B. OLSEN
2121 K Street, N.W.
Washington, DC 20037
(202) 261-3533

LERACH COUGHLIN STOIA
     GELLER RUDMAN & ROBBINS LLP
WILLIAM S. LERACH (68581)
ARTHUR C. LEAHY (149135)
JEFFREY D. LIGHT (159515)
401 B Street, Suite 1700
San Diego, CA 92101
(619) 231-1058

Lead Counsel for Plaintiffs

                          UNITED STATES DISTRICT COURT
                     FOR THE SOUTHERN DISTRICT OF CALIFORNIA

In re ASHWORTH INC.                MASTER FILE No. 99CV0121 - L (JFS)
SECURITIES LITIGATION

                     STIPULATION AND AGREEMENT OF SETTLEMENT

<PAGE>

                     STIPULATION AND AGREEMENT OF SETTLEMENT

      This Stipulation and Agreement of Settlement (the "Stipulation") is
submitted pursuant to Rule 23 of the Federal Rules of Civil Procedure. Subject
to the approval of the Court, this Stipulation is entered into among Lead
Plaintiffs (as defined in P. B below) and Class Representatives ("Plaintiffs"),
on behalf of themselves and the Class (as hereinafter defined), and defendants
Ashworth Inc. ("Ashworth"), Randall L. Herrel ("Herrel"), Gerald W. Montiel ("G.
Montiel"), A. John Newman ("Newman") ("Defendants" and individually
"Defendant"), by and through their respective counsel.

      WHEREAS:

      A.    Plaintiffs filed a class action complaint against the Defendants and
others on January 22, 1999, alleging violations of the Securities Exchange Act
of 1934.

      B.    Other plaintiffs filed similar complaints. By Orders dated April 30,
1999, the Court consolidated the complaints under the above caption and
appointed the New Hampshire Retirement System ("NHRS"), John Gervais, Debra Kopp
and Tony Le ("Lead Plaintiffs") as lead plaintiffs. The Court also approved Lead
Plaintiffs' choice of lead counsel: Berger & Montague, P.C., Milberg Weiss
Bershad Hynes & Lerach LLP (now Lerach Coughlin Stoia Geller Rudman & Robbins
LLP) and The Olsen Law Firm (now Klafter & Olsen LLP).

      C.    Plaintiffs filed the Consolidated Amended Complaint on December 15,
1999. Plaintiffs then filed the Second Consolidated Amended Complaint (the
"SAC") on September 19, 2000.

      D.    The SAC alleges that the Defendants and others issued false and
misleading public statements and financial results and made misleading filings
with the SEC, which materially overstated Ashworth's financial results.
Plaintiffs alleged that Ashworth falsely claimed that demand for its products,
golf apparel, was increasing and that its gross margins were growing, when, in
fact, Ashworth improperly recorded sales by making consignments, shipping goods
to warehouses, recording as sales goods shipped after the quarter had closed,
giving unrecorded discounts and ultimately selling to liquidators at prices
below cost, without taking adequate reserves or writing

<PAGE>

down its excess inventory. Plaintiffs allege that these and other practices were
in violation of GAAP. Ashworth's fraudulent financial results and other false
statements caused investors to buy Ashworth stock at artificially inflated
prices during the Class Period as defined in P. F below, giving some defendants
a chance to sell off their stock at a profit. On July 15, 1998, Ashworth stated
that its results for the third quarter of 1998 would be below expectations, and
that recent events might also negatively impact the fourth quarter of 1998.
Ashworth's stock declined, causing a loss to some investors who bought Ashworth
shares during the Class Period.

      E.    All defendants moved to dismiss the claims asserted against them in
the SAC. By Order entered December 3, 2001, the Court granted in part and denied
in part defendants' motion dismissing two defendants but allowed the case to
proceed on several allegations against the Defendants.

      F.    The Court certified a Class under Rule 23(b)(3) of the Federal Rules
of Civil Procedure on August 8, 2002. The Class certified by the Court consisted
of all persons who purchased shares of Ashworth common stock and its publicly
traded options during the period of September 4, 1997 through July 15, 1998,
inclusive and who were damaged thereby. However, on further investigation it
became clear that there are no option-holders who purchased during the Class
Period.

      G.    The Class is thus modified to include all persons who purchased
shares of Ashworth common stock during the period of September 4, 1997 through
July 15, 1998 inclusive (the "Class Period"). Excluded from the Class are
Defendants, the officers and directors of Ashworth during the Class Period, the
members of their immediate families, and their legal representatives, heirs,
successors or assigns, and any entity in which Defendants have or during the
Class Period had a controlling interest.

      H.    The Defendants deny any wrongdoing, fault, liability or damage to
Plaintiffs and the Class, deny that they knowingly made material misstatements,
deny that they committed any violation of law, deny that they acted improperly
in any way, believe that they acted properly at all times, and assert that the
Action has no merit. In light, however, of the uncertainty and the risk of the
outcome of any litigation, especially complex securities litigation, and the
difficulties and substantial expense

<PAGE>

and length of time necessary to defend this proceeding through summary judgment
motions, trial, post-trial motions, and appeals, Defendants have decided to
enter into this Stipulation. To eliminate the burden and expense of further
litigation, Defendants wish to settle the Action against them on the terms and
conditions stated in this Stipulation, and to put the Settled Claims (as defined
below) to rest finally and forever, without in any way acknowledging any
wrongdoing, fault, liability or damage to Plaintiffs and the Class. Nothing in
this Stipulation or in the exhibits attached hereto shall in any event be
construed or deemed to be evidence of an admission or concession on the part of
any Defendant with respect to any claim, or of any fault or liability or
wrongdoing or damage whatsoever, or any infirmity in the defenses that the
Defendants have asserted.

      I.    Plaintiffs' counsel conducted a thorough investigation, which
included reviewing hundreds of thousands of documents, taking twelve
depositions, interviewing more than a dozen potential witnesses and consulting
with experts relating to the claims and the underlying `events and transactions
alleged in the SAC. Plaintiffs believe their claims are meritorious. Plaintiffs'
counsel have analyzed the evidence adduced during pretrial discovery and have
researched the applicable law with respect to the claims of Plaintiffs and the
Class against the Defendants and the potential defenses thereto. This
Stipulation shall not be construed or deemed to be a concession by any Plaintiff
of any infirmity in the claims asserted in the Action.

      J.    Plaintiffs, by their counsel, have conducted arm's length
negotiations with counsel for the Defendants, with the assistance of Judge
Nicholas Politan (Ret.), with respect to a compromise and settlement of the
Action with a view to settling the issues in dispute and achieving the best
relief possible consistent with the interests of the Class.

      K.    Based upon their investigation and pretrial discovery as set forth
above, Plaintiffs' counsel have concluded that the terms and conditions of this
Stipulation are fair, reasonable and adequate to Plaintiffs and the Class, and
in their best interests, and have agreed to settle the claims raised in the
Action against the Defendants pursuant to the terms and provisions of this
Stipulation, after considering (1) the substantial benefits that Plaintiffs and
the members of the Class will receive from this Settlement (as defined below),
(2) the attendant risks of litigation, and (3) the desirability of permitting
the Settlement to be consummated as provided by the terms of this Stipulation.

<PAGE>

      NOW THEREFORE, without any admission or concession on the part of
Plaintiffs of any lack of merit of the Action whatsoever, and without any
admission or concession of any liability or wrongdoing or lack of merit in the
defenses whatsoever by the Defendants, it is hereby STIPULATED AND AGREED, by
and among the parties to this Stipulation, through their respective attorneys,
subject to approval of the Court pursuant to Rule 23(e) of the Federal Rules of
Civil Procedure, in consideration of the benefits flowing to the parties hereto
from the Settlement, that all Settled Claims (as defined below) against the
Released Parties (as defined below) shall be compromised, settled, released and
dismissed with prejudice, upon and subject to the following terms and
conditions:

                               CERTAIN DEFINITIONS

      1.    As used in this Stipulation, the following terms shall have the
following meanings:

            (a)   "Administration Costs" means the costs incurred by the Claims
Administrator and Lead Counsel for processing proofs of claim, investing the
Settlement Fund, and distributing the Net Settlement Fund to Class Members and
dealing with Tax Expenses.

            (b)   "Authorized Claimant" means a Class Member who submits a
timely and valid Proof of Claim form to the Claims Administrator and whose claim
is directed to be accepted in the class distribution order.

            (c)   "Claims Administrator" means the firm of Gilardi & Co. LLC,
which shall administer the Settlement.

            (d)   "Class" and "Class Members" mean all persons or entities who
purchased Ashworth common stock between September 4, 1997 and July 15, 1998,
inclusive. Excluded from the Class are any putative Class Members who exclude
themselves by timely submitting a request for exclusion. Also excluded are the
Defendants, the officers and directors of Ashworth during the Class Period and
their immediate families, and any entity in which any Defendant has a
controlling interest, and the legal affiliates, representatives, heirs,
controlling persons, successors or predecessors in interest of any Defendant.

            (e)   "Court" means the United States District Court for the
Southern District of California.

<PAGE>

            (f)   "Effective Date" means the date upon which the Settlement
contemplated by this Stipulation, including implementation of the corporate
governance measures described in Exhibit A, shall become effective, as set forth
in paragraph 29 below.

            (g)   "Insurers" means National Union Fire Insurance Co. of
Pittsburgh, PA and RLI Insurance Company, Ashworth's directors' and officers'
insurers.

            (h)   "Notice" means the Notice of Pendency and Proposed Settlement
of Class Action, which is to be sent to members of the Class substantially in
the form attached hereto as Exhibit 1 to Exhibit B.

            (i)   "Net Settlement Fund" means the Settlement Fund less any Court
awarded attorneys' fees and expenses, less expenses of the Lead Plaintiffs, and
less any Notice and Administration Costs.

            (j)   "Notice Costs" means costs incurred in connection with
preparing, mailing and publishing the Notice and Publication Notice, responding
to nominees' requests for additional copies of the Notice, tallying the number
of opt outs, costs billed to the Claims Administrator by the nominees and
associated correspondence and telephone costs, and related costs.

            (k)   "Notice and Administration Fund" means the fund established
and controlled by Lead Counsel subject to Court oversight which is to be funded
out of the Settlement Amount to pay for Notice Costs and Administration Costs,
which shall be initially funded with $150,000.

            (l)   "Order and Final Judgment" means the proposed order to be
entered approving the Settlement substantially in the form attached hereto as
Exhibit C.

            (m)   "Plaintiffs' Lead Counsel" and "Lead Plaintiffs' Counsel"
means Berger & Montague, P.C., Klafter & Olsen, LLP and Lerach, Coughlin, Stoia
& Robbins, LLP.

            (n)   "Preliminary Approval Order" means the proposed order
preliminarily approving the Settlement and directing notice thereof to the Class
substantially in the form attached hereto as Exhibit B.

            (o)   "Publication Notice" means the summary Notice of Pendency and
Settlement of Proposed Settlement and hearing for publication in the national
edition of The Wall Street Journal substantially in the form attached as Exhibit
3 to Exhibit B.

<PAGE>

            (p)   "Released Parties" means the Defendants, Insurers, and any of
their current, former or future affiliates, partners, joint venturers, agents
(acting in their capacity as agents), employees, attorneys, insurers,
reinsurers, advisors, accountants, associates, legal representatives, heirs,
successors in interest or assigns, and any other individual or entity in which
any of the aforementioned parties has a controlling interest.

            (q)   "Settled Claims" means any and all claims, debts, demands,
liabilities, rights and causes of action of every nature and description
whatsoever (including, but not limited to, any claims for damages, restitution,
interest, attorneys' fees, expert or consulting fees, and any other costs,
expenses or liability whatsoever), whether based on federal, state, local,
statutory or common law or any other law, rule or regulation, whether fixed or
contingent, accrued or unaccrued, liquidated or unliquidated, at law or in
equity, matured or unmatured, whether class or individual in nature, including
both known claims and Unknown Claims (as defined below), based upon or related
to both (i) the purchase of Ashworth common stock during the Class Period; and
(ii) the facts, transactions, events, occurrences, acts, disclosures,
statements, omissions or failures to act which were or could have been alleged
in the Action against any of the Released Parties, except claims to enforce the
Settlement or any of its terms.

            (r)   "Defendants' Claims" means any and all claims, rights,
demands, causes of action or suits by any Released Party against any of the
Plaintiffs, Class Members or their attorneys, which arise out of or relate to
the institution, prosecution, or settlement of the Action, except claims arising
out of or relating to the obligations of the Plaintiffs, Class Members or their
attorneys embodied in this Stipulation or the implementation or enforcement of
this Stipulation or the Settlement of the Action.

            (s)   "Settlement" means the settlement as set forth in this
Stipulation.

            (t)   "Settlement Escrow Account" means the interest-bearing account
established by the Settlement Escrow Agents (as defined below) pursuant to Court
order and subject to Court oversight for the deposit of the Settlement Fund (as
defined below).

            (u)   "Settlement Escrow Agents" means Lead Counsel, counsel for
each of the Insurers, and Ashworth.

<PAGE>

            (v)   "Settlement Fund" means the Settlement Amount as defined in
paragraph 5 together with all interest.

            (w)   "Taxes" means taxes, including any interest and penalties,
owed with respect to the income earned by the Settlement Fund, including any
taxes or tax detriments that may be imposed with respect to any income earned by
the Settlement Fund following the deposit of the Settlement Amount, or portion
thereof, by Ashworth and the Insurers with the Settlement Escrow Agents.

            (x)   "Tax Expenses" means the expenses and costs related to Taxes
incurred in connection with the Settlement, including but not limited to
expenses of tax attorneys and/or accountants and expenses relating to filing, or
failing to file, required tax returns.

            (y)   "Unknown Claims" means (1) any and all Settled Claims that any
Plaintiff or Class Member does not know or suspect to exist in his, her or its
favor at the time of the release of the Released Parties, including, without
limitation, claims that if known by him, her or it might have affected his, her
or its decision(s) to settle with and release the Released Parties or not to
object to the Settlement, and (2) any and all Defendants' Claims which any
Released Party does not know or suspect to exist in his, her or its favor,
including, without limitation, claims that if known by him, her or it might have
affected his, her or its decision(s) with respect to the Settlement, including
claims described in Section 1542 of the California Civil Code.

                         SCOPE AND EFFECT OF SETTLEMENT

      2.    The obligations incurred pursuant to this Stipulation shall be in
full and final disposition of the Action and any and all Settled Claims as
against all Released Parties and any and all Defendants' Claims as against
Plaintiffs, Class Members, or their attorneys.

      3.    (a)    Pursuant to the Order and Final Judgment, upon the Effective
Date of this Settlement, Plaintiffs and all members of the Class on behalf of
themselves, their heirs, executors, administrators, successors and assigns shall
be deemed to, with respect to each and every Settled Claim, release and forever
discharge, and shall forever be enjoined from prosecuting, any Settled Claims
against any of the Released Parties regardless of whether any Class Member
submits a valid and timely Proof of Claim.

<PAGE>

            (b)   Pursuant to the Order and Final Judgment, upon the Effective
Date of this Settlement, Plaintiffs and all Class Members, on behalf of
themselves, their heirs, executors, administrators, successors and assigns,
shall be deemed to have covenanted not to sue and shall be barred and enjoined
from suing on any Settled Claims.

            (c)   The Proof of Claim to be executed by Class Members shall
provide for a release of all Settled Claims against the Released Parties to be
effective on the Effective Date, and shall be substantially in the form of
Exhibit 2 to Exhibit B. Upon the Effective Date, all Class Members on behalf of
themselves, their heirs, executors, administrators, successors and assigns shall
be bound by the release and covenant not to sue as set forth in this Stipulation
and the Order and Final Judgment, whether or not they submit a valid and timely
Proof of Claim.

            (d)   Pursuant to the Order and Final Judgment, upon the Effective
Date of this Settlement, each of the Released Parties, on behalf of himself,
herself or itself and to the fullest extent permitted by law, shall release and
forever discharge each and every one of the Defendants' Claims, and shall
forever be enjoined from prosecuting the Defendants' Claims as against
Plaintiffs, Class Members, or their attorneys.

            (e)   With respect to any and all Settled Claims and Defendants'
Claims, the parties stipulate and agree that, upon the Effective Date, the
Plaintiffs and the Defendants shall have expressly, and all Class Members on
behalf of themselves, their heirs, executors, administrators, successors and
assigns shall be deemed to have, and by operation of the Order and Final
Judgment shall have, waived and relinquished to the fullest extent provided by
law the provisions, rights and benefits of Section 1542 of the California Civil
Code, which provides:

      A general release does not extend to claims which the creditor does not
      know or suspect to exist in his favor at the time of executing the
      release, which if known by him must have materially affected his
      settlement with the debtor.

Also, with respect to any and all Settled Claims, the Plaintiffs and all Class
Members on behalf of themselves, their heirs, executors, administrators,
successors and assigns shall, and with respect to any and all Defendants'
Claims, the Released Parties shall be deemed to, and by operation of the Order
and Final Judgment shall, waive any and all provisions, rights, and benefits
conferred by the law of any state or territory of the United States or any other
jurisdiction, or principle of common law,

<PAGE>

which is similar, comparable or equivalent to Cal. Civ. Code Section 1542. The
Plaintiffs, Class Members and Released Parties may hereafter discover facts in
addition to or different from those which they now know or believe to be true
with respect to the subject matter of the Settled Claims or Defendants' Claims
but hereby stipulate and agree that the Plaintiffs, Class Members and Released
Parties, and all of their heirs, executors, administrators, successors and
assigns, do, and by operation of the Order and Final Judgment shall, upon the
Effective Date, fully, finally and forever settle and release any and all
Settled Claims and Defendants' Claims, respectively, known or unknown, suspected
or unsuspected, contingent or non-contingent, which now exist, or heretofore
have existed upon any theory of law or equity, including, but not limited to,
conduct which is negligent, intentional, with or without malice, or breach of
any duty, law, or rule of any jurisdiction, without regard to subsequent
discovery or existence of such different or additional facts. Plaintiffs and
Defendants acknowledge, and Class Members and Released Parties by operation of
law shall be deemed to have acknowledged, that the inclusion of "Unknown Claims"
in the definition of Settled Claims and Defendants' Claims was separately
bargained for and was a key element of the Settlement of which the releases are
a part.

                          THE SETTLEMENT CONSIDERATION

      4.    In full and final settlement of the Action and the Settled Claims:

            (a)   Defendant Ashworth shall implement specific corporate
governance policies which are set forth in Exhibit A. In the event that Ashworth
fails to do so in accord with the terms of Exhibit A, then Plaintiffs shall have
the right to seek specific performance from the Court.

            (b)   Defendants shall deposit, by August 30, 2004, the sum of
Fifteen Million Two Hundred Fifty Thousand Dollars ($15,250,000.00) (the
"Settlement Amount") paid by Ashworth and the Insurers, which sum constitutes
the entire monetary consideration to be paid by Ashworth and the Insurers by or
on behalf of the Defendants pursuant to the Settlement. Defendants shall not be
responsible for the distribution of the Settlement Fund or the administration
thereof, and shall have no further or other liability or obligations to
Plaintiffs, Plaintiffs' Counsel or any member of the Class with respect to the
Settled Claims except as expressly stated in this Stipulation.

      5.    The Settlement Amount shall be paid by Insurers and Ashworth into an
interest-bearing escrow account, at a nationally chartered bank under the
control of the Settlement Escrow

<PAGE>

Agents until the Effective Date, when the escrow account shall be under the sole
control of Lead Counsel.

      6.    The Settlement Escrow Agents shall promptly cause the Settlement
Amount in excess of the $150,000 used for the Notice and Administration Fund to
be invested in short term instruments backed by the full faith and credit of the
United States Government (or a mutual fund invested solely in such instruments)
and shall collect and reinvest all interest accrued thereon. The funds held in
escrow in an amount of $150,000 (the "Notice and Administration Fund") shall be
used for the payment of Notice and Administration Costs and held in an interest
bearing bank account insured by the FDIC.

      7.    All interest or other income earned by the Settlement Escrow Account
shall become part of the Settlement Fund and shall inure to and be for the
benefit of the Class if the Effective Date occurs. If the Effective Date does
not occur, all such interest shall inure to the benefit of Defendants and shall
be returned to Ashworth and the Insurers in accordance with the provisions of
paragraph 9.

      8.    If the Settlement Amount is not paid into the Settlement Escrow
Account by August 30, 2004, interest shall accrue on any unpaid portion of the
Settlement amount at the 3-month T-Bill rate until paid, and Lead Plaintiffs
shall have the option on seven business days' written notice to terminate the
Settlement, unless Defendants have been unable to deposit the funds due to
Plaintiffs' actions or inaction or cure within that time by the deposit of the
funds.

      9.    Before the Effective Date, any and all Notice Costs to date shall be
approved by Plaintiffs' Lead Counsel and shall be paid out of the Notice and
Administration Fund.

      10.   In the event that this Stipulation is terminated or canceled as
provided herein or in the Supplemental Agreement as defined in paragraph 27, or
the Effective Date otherwise does not occur as provided herein, then the
Settlement Fund net of any Taxes or Tax Expenses incurred to date and the Notice
and Administration Fund net of any Notice Costs or Administration Costs incurred
to date, shall be paid to Ashworth and the Insurers, according to the proportion
of the settlement fund originally deposited in the Settlement Escrow Account by
them.

      11.   All funds held or invested by the Settlement Escrow Agent or held in
the Notice and Administration Fund shall be deemed in custodia legis of the
Court and shall remain subject to the

<PAGE>

jurisdiction of the Court, until such time as such funds shall be distributed,
pursuant to this Stipulation and/or further order(s) of the Court.

      12.   The parties hereto intend that the Settlement Fund be a "qualified
settlement fund" for federal income tax purposes pursuant to Treasury Regulation
section 1.468B-1, and to that end the Parties hereto shall not take a position
in any filing or before any tax authority that is inconsistent with such
treatment.

            (a)   The Claims Administrator and, as reasonably requested and
required by the Claims Administrator, Plaintiffs and the Defendants, shall
jointly and timely make such elections as are necessary to carry out the
provisions of this paragraph, including a "relation back election" as described
in Treas. Reg. Section 1.468B-(j)(2) to the earliest permitted date so as to
enable the Settlement Fund to be treated as a qualified settlement fund from the
earliest date possible. Such election shall be made in compliance with the
procedures and requirements contained in such regulation. It shall be the
responsibility of the Claims Administrator to timely and properly prepare and
deliver the necessary documentation for signature by all necessary parties and
thereafter take all such actions as may be necessary or appropriate to that end.

            (b)   For the purposes of section 468B of the Internal Revenue Code
of 1986, 26 U.S.C. Section 468B, as amended, and the regulations promulgated
thereunder, the "administrator" shall be the Claims Administrator. The Claims
Administrator shall timely and properly file all informational and tax returns
necessary or advisable for the Settlement Fund before and after the Effective
Date, and shall pay from the Settlement Fund any Taxes owed with respect to the
Settlement Fund.

            (c)   The Released Parties shall have no liability or responsibility
for the payment of any Taxes. The Settlement Fund shall indemnify and hold the
Released Parties harmless for any Taxes (including, without limitation, Taxes
payable by reason of any such indemnification).

            (d)   The Parties agree to cooperate with the Claims Administrator,
one another, and their tax attorneys and accountants to the extent reasonably
necessary to carry out the provisions of this paragraph.

      13.   All (a) Taxes or estimated taxes on the income of the Settlement
Fund, including, without limitation, any interest and penalties determined to be
due thereon, or any taxes or tax

<PAGE>

detriments that may be imposed upon Defendants with respect to any income earned
by the Settlement Fund, for any period during which the Settlement Fund does not
qualify as a "qualified settlement fund" for federal or state income tax
purposes, and (b) reasonable expenses and costs incurred in connection with the
taxation of the Settlement Fund, including, without limitation, expenses of tax
attorneys and accountants, mailing and distribution costs and expenses relating
to filing the returns described in paragraph 14(b), shall be paid out of the
Settlement Fund and shall be timely paid by the Claims Administrator without
further order of the Court. The Claims Administrator shall be obligated
(notwithstanding anything herein to the contrary) to withhold from distribution
to Class Members any funds necessary to pay such amounts, including the
establishment of adequate reserves for any Taxes (as well as any amounts that
may be required to be withheld under Treasury Regulation section 1.468B-2).

      14.   All interest earned on the Settlement Fund shall be added to and
become part of the Settlement Fund. Any interest earned by the Notice and
Administration Fund shall be added to that Fund.

      15.   The Settlement Escrow Agents and the Claims Administrator shall not
use or disburse all or any part of the Settlement Fund except as provided by
this Stipulation or an order of the Court.

      16.   The Claims Administrator shall administer the Settlement under
Plaintiffs' Lead Counsel's supervision and subject to the jurisdiction of the
Court. Defendants shall have no responsibility for the administration of the
Settlement and shall have no liability to the Class or Plaintiffs' counsel in
connection with such administration.

      17.   Except as expressly stated in this Stipulation, all payments of
Notice and Administration Expenses, any other fees of Escrow Agents and the
Claims Administrator (other than Tax Expenses), any other cost of administering
the Settlement Fund and/or related expenses, shall be paid by the Notice and
Administration Fund to be established and controlled by Lead Plaintiffs'
Counsel, subject to Court oversight. This fund is to be initially funded with
$150,000 out of the Settlement Amount.

      18.   Except as expressly stated in this Stipulation, there shall be no
liability on the part of Plaintiffs, Plaintiffs' counsel, members of the Class,
Defendants, or Defendants' counsel for Notice

<PAGE>

Costs, Administration Costs, and any other costs of administering the Settlement
Fund and/or related expenses, and attorneys' fees and reimbursement of expenses
awarded by the Court.

                          ATTORNEYS' FEES AND EXPENSES

      19.   Plaintiffs' Lead Counsel will submit an application to the Court for
an award to Plaintiffs' Lead Counsel on their own behalf and on behalf of
Plaintiffs' counsel of record from the Settlement Fund for attorneys' fees and
expenses, including expenses of Lead Plaintiffs, and interest thereon, in an
amount to be set forth in the Notice to the Class. Such attorneys' fees,
expenses and interest as are awarded by the Court shall be payable from the
Settlement Fund to Plaintiffs' Lead Counsel within five days of entry of the
Court's Order with respect to attorneys' fees and expenses, notwithstanding the
existence of any objections thereto or potential for appeal therefrom, provided
the Court has entered the Order and Final Judgment. In the event that such
payment occurs before the Effective Date, then Plaintiffs' Lead Counsel will be
required to reimburse all amounts paid, plus interest, in the event the
Effective Date does not occur. Plaintiffs' Lead Counsel reserve the right to
make additional applications to the Court for reimbursement from the Notice and
Administration Fund for fees and expenses and interest thereon relating to the
administration of the Settlement or any appeals; provided, that no such fees and
expenses, shall be due, owing or payable from the Settlement Fund or the Notice
and Administration Fund unless and until the Effective Date occurs. The Released
Parties shall take no position with respect to any such application.

      20.   The procedures for any allowance or disallowance by the Court of any
applications by Plaintiffs' Lead Counsel for attorneys' fees or expenses or
interest thereon are not part of the Settlement set forth in this Stipulation,
and are to be considered by the Court separately from the Court's consideration
of the fairness, adequacy, and reasonableness of the' Settlement set forth in
this Stipulation. Any order or proceedings related to the fees or expenses or
interest thereon, application, or any appeal from any order relating thereto or
reversal or modification thereof, shall not modify, terminate, or cancel this
Stipulation, or affect or delay the finality of the Order and Final Judgment
approving the Stipulation and the Settlement of the Action.

      21.   The Released Parties shall have no responsibility for, and no
liability whatsoever with respect to the fee and expense and costs application
or the allocation of any fees or expenses or

<PAGE>

interest thereon awarded by the Court or made by Plaintiffs' Lead Counsel among
Plaintiffs' counsel of record.

                      DISTRIBUTION TO AUTHORIZED CLAIMANTS

      22.   The Claims Administrator shall determine each Authorized Claimant's
pro rata share of the "Net Settlement Fund" based upon each Authorized
Claimant's Recognized Claim as defined in the Plan of Allocation described in
the Notice annexed hereto as Exhibit 1 to Exhibit B, or in such other Plan of
Allocation as the Court approves.

      23.   The Plan of Allocation proposed in the Notice is not a necessary
term of this Stipulation, and it is not a condition of this Stipulation that the
Plan of Allocation be approved.

      24.   Each Authorized Claimant shall be allocated a pro rata share of the
Net Settlement Fund based on his or her Recognized Claim compared to the total
Recognized Claims of all accepted claimants as determined by the terms of this
Stipulation as defined in the Plan of Allocation described in the Notice annexed
hereto as Exhibit 1 to Exhibit B, or in such other Plan of Allocation as the
Court approves. The Defendants shall not be entitled to recover any of the
settlement monies after the Effective Date.

      25.   The Claims Administrator shall be responsible for supervising the
administration of the Settlement and disbursement of the Net Settlement Fund,
subject to such supervision and direction of the Court and/or Plaintiffs' Lead
Counsel as may be necessary or appropriate. The procedures governing the
administration of the Settlement shall be as set forth in the Notice to the
Class. Defendants shall have neither the right nor the duty to participate in
the manner in which the Net Settlement Fund is distributed to the Class.

      26.   Upon completing the distribution of the Net Settlement Fund to the
Class, the Claims Administrator shall provide a report to counsel for plaintiffs
and counsel for defendants indicating: (a) the number of Class Members who
received payments; (b) the number of shares for which payments were made (broken
out by categories if different groups of shares received different per share
compensation); and (c) the amount paid per share (broken out by category if
different groups of shares received different per share compensation).

<PAGE>

                             SUPPLEMENTAL AGREEMENT

      27.   Plaintiffs' Lead Counsel and Counsel for the Defendants have
executed a "Supplemental Agreement" setting forth conditions under which this
Stipulation may be withdrawn or terminated by Ashworth if potential Class
Members who purchased in excess of a certain number of shares of common stock
properly exclude themselves from the Class. The Supplemental Agreement shall not
be filed prior to the Settlement Fairness Hearing unless a dispute arises as to
its terms. In the event of a withdrawal from this Stipulation pursuant to the
Supplemental Agreement, this Stipulation shall become null and void and of no
further force and effect except for paragraph 10. Notwithstanding the foregoing,
the Stipulation shall not become null and void as a result of the election by
the Defendants to exercise their option to withdraw from the Stipulation
pursuant to the Supplemental Agreement unless and until the conditions set forth
in the Supplemental Agreement have been satisfied.

                       TERMS OF PRELIMINARY APPROVAL ORDER

      28.   Within ten (10) business days after this Stipulation has been fully
executed, Plaintiffs' Lead Counsel shall apply to the Court for entry of a
Preliminary Approval Order, substantially in the form annexed hereto as Exhibit
B.

                        TERMS OF ORDER AND FINAL JUDGMENT

      29.   If the Settlement contemplated by this Stipulation is approved by
the Court, Plaintiffs' Lead Counsel and Defendants' counsel jointly shall
request that the Court enter an Order and Final Judgment substantially in the
form annexed hereto as Exhibit C.

               EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION

      30.   The Effective Date of Settlement shall be the date when all the
following shall have occurred:

            (a)   entry of the Preliminary Approval Order in all material
respects in the form annexed hereto as Exhibit B;

            (b)   approval by the Court of the Settlement, following notice to
the Class and a hearing, as prescribed by Rule 23 of the Federal Rules of Civil
Procedure;

<PAGE>

            (c)   Defendants' deposit of the Settlement Amount and Ashworth's
implementation of the specific changes in its corporate governance, as set forth
in Exhibit A; and

            (d)   entry by the Court of an Order and Final Judgment, in all
material respects in the form set forth in Exhibit C annexed hereto, and (1) the
expiration of the time to file a notice of appeal from the Order and Final
Judgment pursuant to Rule 4(a)(1)(A) of the Federal Rules of Appellate
Procedure, without any appeal having been taken, or (2) the dismissal of any
appeal or the affirmance of the Order and Final Judgment on appeal, and (3) the
expiration of the time for filing a petition for a writ of certiorari without
the filing of any petition, or (4) the denial of any petition for a writ of
certiorari that was filed and the expiration of the time to seek reconsideration
of such denial, or denial of such request for reconsideration, or, if such
petition is granted, the affirmance of the Order and Final Judgment. In the
event that the Court enters an Alternative Judgment (as defined in paragraph 31
below) and neither the Plaintiffs' Lead Counsel nor the Defendants elect to
terminate this Settlement pursuant to paragraph 31, the date that such
Alternative Judgment becomes final is the same as that provided under this
paragraph for the Order and Final Judgment. Under no circumstances shall an
appeal or petition for a writ of certiorari pertaining solely to the proposed
Plan of Allocation and/or Plaintiffs' Lead Counsel's fee and expense application
or an award thereof delay or preclude the Effective Date.

      31.   Defendants' counsel or Plaintiffs' Lead Counsel shall have the right
to terminate the Settlement and this Stipulation by providing written notice of
their election to do so ("Termination Notice") to all other parties hereto
within thirty (30) days of the date that: (a) the Court declines to enter the
Preliminary Approval Order or enters a preliminary approval order in lieu of the
Preliminary Approval Order that is not substantially in the form of Exhibit B
hereto; (b) the Court refuses to approve this Stipulation or any material part
of it; (c) the Court declines to enter the Order and Final Judgment or enters an
order and final judgment in lieu of the Order and Final Judgment that is not
substantially in the form of Exhibit C hereto (an "Alternative Judgment"); (d)
the Order and Final Judgment is modified or reversed by the Court of Appeals or
the Supreme Court; (e) an Alternative Judgment is modified or reversed by the
Court of Appeals or the Supreme Court, or (f) if permitted by the terms of the
Supplemental Agreement.

<PAGE>

      32.   In the event that this Stipulation is terminated or canceled as
provided herein or in the Supplemental Agreement, or that the Effective Date
does not otherwise occur as provided herein, and the parties, in their sole and
unfettered discretion, do not agree to modify this Stipulation and the
Settlement is not consummated, then:

            (a)   within seven business days after receiving written
notification of such termination, Lead Plaintiffs shall refund to the Settlement
Escrow Account any amounts left in the Notice and Administration Fund after all
expenses are paid. If the Notice and Administration Fund is not adequate to
cover all incurred expenses, Lead Plaintiffs may request funds from the
Settlement Escrow Account to cover all Notice Costs and Administration Costs.

            (b)   the Settlement Escrow Agents shall, within ten (10) business
days after receiving written notification of such termination, cancellation or
prevention, refund to the Insurers and Ashworth in the same proportions as their
original deposit into the Settlement Escrow Account, the Settlement Fund
including all interest and earnings thereon, less any Taxes due with respect to
such income, less Tax Expenses and including any amounts refunded from the
Notice and Administration Fund.

            (c)   The parties will return to the position they occupied
vis-a-vis each other and the Action as of the date of the execution of this
Stipulation except as expressly stated in this Stipulation;

            (d)   This Stipulation and the Settlement shall be null and void and
have no further force or effect, and shall not be referred to, admissible in or
introduced in any other way for any reason in any proceeding.

                           NO ADMISSION OF WRONGDOING

      33.   This Stipulation, whether or not consummated, and any proceedings
taken pursuant to it:

            (a)   shall not be offered against the Defendants as evidence of or
construed as or deemed to be evidence of any presumption, concession, or
admission by any of the Defendants with respect to the truth of any fact alleged
by Plaintiffs or the validity of any claim that had been or could have been
asserted in the Action or in any litigation, or the deficiency of any defense
that has been or

<PAGE>

could have been asserted in the Action or in any litigation, or of any
liability, negligence, fault, or wrongdoing of the Defendants;

            (b)   shall not be offered against the Defendants as evidence of a
presumption, concession or admission of any fault, misrepresentation or omission
with respect to any statement or written document approved or made by any
Defendant, or against the Plaintiffs and the Class as evidence of any infirmity
in the claims of Plaintiffs and the Class;

            (c)   shall not be offered against the Defendants or against the
Plaintiffs or the Class as evidence of a presumption, concession or admission
with respect to any liability, negligence, fault or wrongdoing, or in any way
referred to for any other reason as against any of the parties to this
Stipulation, in any other civil, criminal or administrative action or
proceeding, other than such proceedings as may be necessary to effectuate the
provisions of this Stipulation; provided, however, that if this Stipulation is
approved by the Court, Defendants may refer to it to effectuate the liability
protection granted them hereunder;

            (d)   shall not be construed against the Defendants or the
Plaintiffs and the Class as an admission or concession that the consideration to
be given hereunder represents the amount which could be or would have been
recovered after trial; and

            (e)   shall not be construed as or offered in evidence as an
admission, concession or presumption against Plaintiffs or the Class or any of
them that any of their claims are without merit or that damages recoverable
under the Complaint would not have exceeded the Settlement Fund.

                            MISCELLANEOUS PROVISIONS

      34.   All of the exhibits attached hereto are hereby incorporated by
reference as though fully set forth herein.

      35.   If a case is commenced concerning either of the Insurers or Ashworth
under Title 11 of the United States Code (Bankruptcy), or a trustee, receiver or
conservator is appointed under any similar law, and in the event of the entry of
a final order of a court of competent jurisdiction determining the transfer of
money to the Settlement Fund or any portion thereof by Ashworth or such Insurer
on behalf of the Defendants to be a preference, voidable transfer, fraudulent
transfer or similar transaction, and any portion thereof is required to be
returned, and is, in fact, returned, and such

<PAGE>

amount is not promptly deposited to the Settlement Fund by others, then, at the
election of Plaintiffs' Lead Counsel, the parties shall jointly move the Court
to vacate and set aside both the releases given and the Order and Final Judgment
entered in favor of the Defendants pursuant to this Stipulation. The releases
and Order and Final Judgment shall be null and void, and the parties shall be
restored to their respective positions in the litigation immediately prior to
the execution of this Stipulation. Any cash amounts in the Settlement Fund or
the Net Settlement Fund shall be returned as provided in paragraph 33 above.

      36.   The parties to this Stipulation intend the Settlement to be a final
and complete resolution of all disputes asserted or which could be asserted by
the Plaintiffs and Class Members against the Released Parties with respect to
the Settled Claims. Accordingly, Plaintiffs and Defendants agree not to assert
in any forum or in any statement to the media (whether or not for attribution)
that the litigation was brought by Plaintiffs or defended by Defendants in bad
faith or without a reasonable basis. No Defendant shall deny, based on the
publicly available information at the time, that the Action was filed in good
faith and with an adequate basis in fact. The parties hereto shall assert no
claims of any violation of Rule 11 of the Federal Rules of Civil Procedure
relating to the prosecution, defense, or settlement of the Action. The parties
agree that the amount paid and the other terms of the Settlement were negotiated
at arm's length in good faith by the parties, and reflect a Settlement that was
reached voluntarily, with the assistance of a mediator, after consultation with
experienced and competent legal counsel.

      37.   This Stipulation may not be modified or amended, nor may any of its
provisions be waived except by a writing signed by or on behalf of all parties
hereto or their successors-in-interest.

      38.   The headings herein are used for the purpose of convenience only and
are not meant to have legal effect.

      39.   The administration and consummation of the Settlement as embodied in
this Stipulation shall be under the authority of the Court, and the Court shall
retain jurisdiction for the purpose of entering orders providing for awards of
attorneys' fees and expenses to Plaintiffs' Counsel and enforcing the terms of
this Stipulation.

<PAGE>

      40.   The waiver by one party of any breach of this Stipulation by any
other party shall not be deemed a waiver of any other prior or subsequent breach
of this Stipulation.

      41.   This Stipulation and its exhibits and the Supplemental Agreement
constitute the entire agreement among the parties hereto concerning the
Settlement of the Action, and no representations, warranties, or inducements
have been made by any party hereto concerning this Stipulation and its exhibits
and the Supplemental Agreement and other than those contained and memorialized
in such documents.

      42.   This Stipulation may be executed in one or more counterparts. All
executed counterparts and each of them shall be deemed to be one and the same
instrument provided that counsel for the parties to this Stipulation shall
exchange among themselves original signed counterparts.

      43.   This Stipulation shall be binding upon, and inure to the benefit of,
the successors and assigns of the parties hereto.

      44.   The construction, interpretation, operation, effect and validity of
this Stipulation, and all documents necessary to effectuate it, shall be
governed by the internal laws of the State of California without regard to
conflicts of laws, except to the extent that federal law requires that federal
law governs.

      45.   This Stipulation shall not be construed more strictly against one
party than another merely by virtue of the fact that it, or any part of it, may
have been prepared by counsel for one of the parties. It is recognized that this
Stipulation is the result of arm's-length negotiations between the parties and
all parties have contributed substantially and materially to the preparation of
this Stipulation.

      46.   All counsel and any other person executing this Stipulation and any
of the exhibits hereto, or any related settlement documents, warrant and
represent that they have the full authority to do so and that they have the
authority to take appropriate action required or permitted to be taken pursuant
to the Stipulation to effectuate its terms.

      47.   Plaintiffs' Lead Counsel and Defendants' counsel agree to cooperate
fully with one another in seeking Court approval of the Preliminary Approval
Order, the Stipulation and the

<PAGE>

Settlement, and to promptly agree upon and execute all such other documentation
as may be reasonably required to obtain final approval by the Court of the
Settlement.

      48.   The Court shall retain continuing jurisdiction to enforce the
provisions of this Stipulation, including specifically paragraph 4(a) and
Exhibit A with respect to corporate governance provisions, and with respect to
settlement administration and related matters.

<PAGE>

Dated:  August 20, 2004

BERGER & MONTAGUE, P.C.                    KLAFTER & OLSEN LLP

BY: /s/ Todd S. Collins/EWF                BY: /s/ Kurt B. Olsen
    -----------------------                    -----------------------
    Todd S. Collins, Esquire                   Kurt B. Olsen, Esquire
    1622 Locust Street                         2121 K Street, N.W.
    Philadelphia, PA 19103                     Washington, DC 20037
    (215) 875-3000                             (202) 261-3553

LERACH COUGHLIN STOIA GELLER                   Jeffrey A. Klafter, Esquire
RUDMAN & ROBBINS LLP                           1311 Mamaroneck Avenue, Suite 220
                                               White Plains, NY 10602
                                               (914) 997-5656

BY: /s/ Jeffrey D. Light
    -----------------------
    Jeffrey D. Light, Esquire
    401 B Street, Suite 1700
    San Diego, CA  92101-4297
    (619) 231-1058

                           LEAD COUNSEL FOR PLAINTIFFS

GIBSON DUNN & CRUTCHER LLP                     COOLEY GODWARD LLP

BY: /s/ Elizabeth W. Brem                  BY: /s/ Koji Fukumura
    -----------------------                    -----------------------
    Wayne W. Smith, Esquire                    Koji Fukumura, Esquire
    Stephanie A. Baren, Esquire                4401 Eastgate Mall
    Elizabeth W. Brem, Esquire                 San Diego, CA 92121
    4 Park Plaza, Suite 1500                   (858) 550-6000
    Irvine, CA  92614-8557
    (949) 451-3800

ATTORNEYS FOR DEFENDANTS ASHWORTH, INC.        ATTORNEYS FOR DEFENDANT
RANDALL L. HERREL, SR.,                         A. JOHN NEWMAN
AND GERALD W. MONTIEL

<PAGE>

                                    EXHIBIT A

      The Company agrees to adoption of the following corporate governance
provisions all of which are subject to a "sunset" provision whereby after six
(6) years following the Effective Date of the Settlement, the Company may depart
from the foregoing standards if, and then only to the extent that, the Board of
Directors - in the good faith exercise of its fiduciary duties - determines that
changes to the foregoing policies are needed to ensure continued protection of
shareholder value:

      1.    The Company's outside auditors are prohibited from performing work
not intrinsically related to audit work, except Tax Return Services and
SEC-Related Work (collectively, "Other Non-Audit Services"). These Other
Non-Audit Services shall be put out to bid if the estimated fees associated with
such Other Non-Audit Services exceed 50% of the audit fee. This procedure shall
be approved and monitored by the Audit Committee. Except as expressly permitted
by the first sentence of this paragraph, the outside auditors shall be
prohibited from handling individual tax services for Ashworth Directors and
Officers or consulting services of any kind for Ashworth and its Officers and
Directors.

      2.    The outside auditors' engagement partner and concurring partner will
rotate off of the client team every five (5) years.

      3.    The Company will make clear, through the Audit Committee's review
and approval processes of the auditors' engagement, that the auditors' scope of
services will include an assessment of the Company's internal controls.

      4.    The Company shall implement and maintain a robust internal audit
function. The internal auditor shall be appointed by the Board or the Audit
Committee, and report to the Audit Committee at least semi-annually. The
internal auditor shall monitor the Company's internal control environment,
revenue recognition practices, and accounting practices. The internal audit
function may be outsourced under the supervision of the Audit Committee, but may
not be performed by the Company's outside auditors.

      5.    At least quarterly, the Company's CFO shall report directly to the
Board as to the Company's financial condition and prospects, all reasons for any
material increase in expenses and liabilities, or material decreases in revenues
or earnings.

      6.    The CEO and CFO shall be initially responsible for drafting the
Company's revenue recognition policy, which shall be reviewed and (if indicated)
revised by the Board within six (6) months after settlement of the Litigation.
Upon Board approval, the CFO shall ensure that the Company's revenue recognition
policy is distributed to each employee who records or reviews the recording of
revenue. Any questions or disputes regarding the policy, or its application,
shall be directed to the Company's CFO, who shall inform the CEO. The dispute
and its resolution shall be documented and forwarded to the Audit Committee.

      7.    The Company will establish a mechanism whereby employees can
directly and confidentially communicate any improper activity at the Company
relating to the Company's accounting process. For this purpose, the Company may
employ an outside, independent organization to which employees may direct their
communications. The Company will display notices in prominent places in the work
area(s) informing employees of the existence of this mechanism and relevant
contact information. In addition, the Chief Executive Officer and/or the Chief
Financial Officer shall inform employees of the existence of this mechanism on a
bi-annual basis corresponding to the Company's fiscal year.

      8.    The Company will commit to have a minimum of eight (8) Directors, on
its Board, of whom at all times at least seven (7) will be Independent Directors
as defined under NASDAQ listing requirements.

<PAGE>

      9.    The Company will adopt a policy effective twelve (12) months after
settlement of the Litigation, to implement the following:

      -     No non-employee Director may serve as a Director of more than three
            (3) other public companies;

      -     No non-employee Director who has full-time employment may serve as a
            Director of more than two (2) other public companies; and

      -     Non-employee Directors not meeting these requirements may complete
            their current terms.

      -     The Chief Executive Officer may serve as a Director of one (1) or
            two (2) other public companies, provided that the Ashworth Board of
            Directors expressly approves each Director position.

      10.   No Independent Director shall serve more than fifteen (15) years as
a Director of the Company.

      11.   The Company will maintain the policy, outlined below, for Directors,
the CEO and President, the Executive Vice President, Chief Financial Officer
("CFO") and Chief Operating Officer and the Senior Vice President ("SVP") levels
of executive management. Under the Company's policy, such persons are required
to retain stock acquired on option exercise equaling a value of at least 50% of
their net after-tax profits on each exercise of options granted on or after
March 24, 2004 until the following individual ownership goals are achieved:

      -     each Director - three (3) times the annual retainer;

      -     the CEO - two (2) times the annual base salary;

      -     the CFO - one and a half (1.5) times the annual base salary;

      -     the SVP - one (1) times the annual base salary.

      12.   The Company will implement the position of Lead Independent
Director.

      13.   The Company will adopt a proposal whereby the independent directors
of the Board shall hold an executive session at least twice a year at which the
CEO is not present.

      14.   The Company will maintain a Nominating/Corporate Governance
Committee of the Board, which shall consider candidates to fill vacant Board
positions, and shall consider policies relating to the composition and
governance of the Board and its officers and directors, including committee
structure and size, share ownership, and the retirement and resignation of
officers and directors.

      15.   The Nominating/Corporate Governance, Compensation and Audit
Committees of the Board shall each be comprised solely of independent directors,
each of which committees shall not be composed of fewer than three (3) members.

      16.   The Board's committees shall each have standing authorization, in
their reasonable discretion, to retain legal and other advisors of their choice
at Company expense, which advisors shall report directly to the committee.

<PAGE>

      17.   The Company will adopt a policy that all stock option plans, now and
in the future, must be clear, understandable and approved by the shareholders.
The Company also agrees to fully comply with relevant GAAP and SEC requirements
as to any mandatory expensing of options in the future.

      18.   No corporate officer or director may directly or indirectly "short"
Company stock or engage in "put" or "call" transactions involving Company stock.
No officer or director may enter into any securities transaction by which he or
she would directly or indirectly profit from a decline in the price of Ashworth
stock.

      19.   The Company will publicly disclose all future officer and Director
purchases and sales on its website and in SEC filings within two (2) business
days of the relevant transaction and will prohibit derivative transactions for
officers and Directors as to the Company's stock. The sole exception to this
policy, however, is that the Company need not treat bona fide pledges in
connection with a traditional margin account as "sales".

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