Document:

exv10w1

 

Exhibit 10.1

ASHWORTH, INC.

SECOND AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT OF

RANDALL L. HERREL

     This Second First Amended and Restated Executive Employment Agreement (“Agreement”) is
effective as of February 28, 2006, and amends and restates the Executive Employment Agreement made
and entered into by and between ASHWORTH, INC. (the “Company”) and RANDALL L. HERREL (“Herrel”)
dated October 10, 1996, and amended and restated by that certain First Amended and Restated
Executive Employment Agreement, dated February 22, 1999.

     1. Employment. The Company hereby employs Herrel, and Herrel hereby accepts
employment upon the terms and conditions hereinafter set forth.

     2. Term. Herrel shall be employed by the Company at-will, and will serve at the
pleasure of the Company’s board of directors, subject to the severance compensation described in
Section 15.

     3. Compensation. For all services rendered by Herrel under this Agreement, the
Company shall pay Herrel as follows:

     (a) Starting Bonus: A starting bonus, in lieu of relocation expenses, equal to
Seventy-Five Thousand Dollars ($75,000), to be paid on or before October 31,1996;

     (b) Annual Base Salary: An annual base salary no less than Three Hundred Twenty-Five
Thousand ($325,000) Dollars, payable in bi-weekly installments, such compensation to be
reviewed annually in the sole discretion of the Board’s Compensation Committee on the basis
of Herrel’s performance and the Company’s financial success and progress.

     (c) Annual Bonus: An annual bonus to be paid on January 15 following the 1997 fiscal
year end based on the Company’s earnings per share and Herrel’s then current annual base
salary as of such fiscal year end, as follows:

	 	 	 	 	 
	Earnings	 	% of Annual
	Per Share	 	Base Salary
	$0.46
	 	 	15	%
	$0.48
	 	 	35	%
	$0.50
	 	 	50	%
	$0.52
	 	 	65	%
	$0.54
	 	 	85	%

Such bonus shall be included in the calculation of the respective earnings per share. The
Company and Herrel agree to engage in good faith negotiations to determine the terms of an
annual bonus for fiscal years after 1997.

 

     (d) Initial Stock Options: Initial options to purchase Three Hundred Thousand
(300,000) shares of the Company’s Common Stock at an exercise price of $6.00 per share,
exercisable by Herrel until January 1, 2006, subject to the following vesting dates (such
options to be subject to the terms and conditions of the Company’s Incentive Stock Option
Plan attached hereto):

	 	 	 	 	 
	No. of Shares	 	Vesting Date	 
	50,000
	 	June 15, 1997
	50,000
	 	January 1, 1998
	100,000
	 	January 1, 1999
	100,000
	 	January 1, 2000

     (e) Clothing Allowance: Ashworth clothing as reasonably necessary for the personal use
of Herrel and his immediate family.

     4. Duties. Herrel is engaged as Chief Executive Officer and President. As long as
Herrel is the Chief Executive Officer of the Company, the board shall nominate Herrel for
reelection to the Company’s board at the time of each expiration of his term of office as a board
member. If Herrel ceases to be the Chief Executive Officer of the Company at any time, he will
resign from the board of directors unless a majority of the members of the board other than Herrel
vote to retain him on the board. As Chief Executive Officer and President, Herrel shall have
complete responsibility for the management of the operations of the Company, and shall have full
authority and responsibility, subject to the general direction and control of the board of
directors, for formulating policies and administering the Company in all respects. His power shall
include authority to hire and fire personnel of the Company and to retain consultants when he deems
necessary to implement the Company’s policies. The precise services of Herrel may be extended or
reduced from time to time at the direction of the board of directors, provided any such expanded
services are services normally associated with the position held by Herrel.

     5. Extent of Services. Herrel agrees to devote his best efforts to the business of
the Company and shall not allow any other business interests to adversely affect his obligations
and responsibilities under this Agreement. Nothing in this Agreement shall be construed as
preventing Herrel from: (a) investing his assets in any form or manner, or (b) serving as a
Chairman, officer, director, advisor, or consultant to another company or companies; provided,
however, that such services are not in connection with a business which is in direct competition
with the Company.

     6. Working Facilities. Herrel shall be furnished with a private office, administrative
assistant, and such other facilities and services suitable to Herrel’s position and adequate for
the performance of the duties required by this Agreement.

     7. Employee Benefits. Except as otherwise provided herein, Herrel shall be entitled
to receive all of the rights, benefits, and privileges of a principal executive under any
retirement, pension, profit-sharing, insurance, health and hospital, and other employee benefit
plans which may be now in effect or hereafter adopted.

     8. Life Insurance. The Company shall maintain during the term of this Agreement life
insurance in the amount of One Million Dollars ($1,000,000), the beneficiary of which may be named
by Herrel.

 

 

     9. Automobile Allowance. The Company shall pay Herrel an automobile expense allowance
of Seven Hundred Dollars ($700) per month.

     10. Vacation. Herrel shall be entitled to annual vacations in a manner commensurate
with Herrel’s status as a principal executive.

     11. Disability. In the event Herrel shall become disabled during the term of this
Agreement for a continuous period up to ninety days, Herrel’s salary shall continue at the same
rate as on the date of such disability. To provide for disability which continues beyond ninety
days, the Company agrees to obtain and maintain disability insurance for the period covering the
term of this Agreement which will provide Herrel with disability benefits after a waiting period of
ninety days in an amount no less than 60% of his then current salary. The Company shall also pay
Herrel a pro rata share of Annual Bonus in the year which Herrel was disabled. All stock options
granted to Herrel as of the date of disability, whether granted pursuant to this Agreement or
otherwise, shall continue to vest as if Herrel had not been disabled. The Company shall have no
other obligations with respect to compensation to Herrel during his disability. For the purpose of
this Agreement, disability shall mean mental or physical illness or condition rendering Herrel
incapable of performing his normal duties with the Company.

     12. Proprietary Interests of Company. Herrel agrees that he will not, during or after
the term of his employment, disclose confidential and proprietary information of the Company which
are valuable, special, and unique assets of the Company’s business (Trade Secrets).

     In the event of a breach or threatened breach by Herrel of the provisions of this section, the
Company shall be entitled to an injunction restraining Herrel from such breach. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedies available to the
Company for such breach or threatened breach, including the recovery of any severance compensation
described herein, damages, costs, and attorney fees.

     13. Noncompete. Herrel agrees that during the term of this Agreement Herrel will not,
directly or indirectly, own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, or control of any business which
manufactures or sells golf-inspired sportswear which is substantially the same as that of the
Company and which is distributed in the same channels of distribution as the then current channels
of distribution of the Company, provided, however, that if Herrel’s employment is terminated for
reasons which provide for severance compensation, the noncompete term shall be extended to the
period for which he receives such severance compensation.

     In the event of Herrel’s actual or threatened breach of the provisions of this paragraph, the
Company shall be entitled to an injunction restraining Herrel therefrom. Nothing shall be
construed as prohibiting the Company from pursuing any other available remedies for such breach or
threatened breach, including the recovery of any severance compensation described herein damages,
costs, and attorney fees.

     14. Expenses. Herrel is authorized to incur reasonable expenses for promoting and
conducting the business of the Company, including expenses for entertainment, travel and similar
items. The Company will reimburse Herrel for all such expenses upon the presentation by Herrel,
from time to time, of an itemized account of such expenditures.

     15. Termination of Employment.

 

 

     (a) Death. All stock options owned by Herrel, whether granted pursuant to this
Agreement or otherwise and regardless of their scheduled vesting dates, will vest
immediately upon termination of Herrel’s employment as a result of his death, and will be
exercisable for a period of one year following the date of death, provided that no option
may be exercised beyond its original expiration date.

     (b) Termination Without Cause. Upon termination of Herrel’s employment without
cause (as defined in the attached Exhibit A), Herrel shall receive severance compensation as
follows:

     i. If terminated within the first twelve months of this Agreement, cash
compensation in an amount equal to one and one-half times his then annual base
salary. If terminated after the first twelve months of this Agreement, cash
compensation in an amount equal to his then annual base salary. Such compensation
shall be paid in a lump sum; however, Herrel acknowledges that such compensation is
an advance payment of severance intended to compensate him for the loss of income
during the respective periods following termination;

     ii. Any earned but unpaid annual bonus plus a pro rata share of annual bonus
for the fiscal year in which terminated without cause; and

     iii. All stock options owned by Herrel, whether granted pursuant to this
Agreement or otherwise and regardless of their scheduled vesting dates, will vest
immediately upon termination of Herrel’s employment, and will be exercisable for a
period of two years following the date of termination, provided that no option may
be exercised beyond its original expiration date.

     The Company also agrees to continue to provide Herrel full employee benefits for the
first year following termination of his employment without cause.

     (c) Termination Upon Change of Control. Herrel’s employment will be deemed to
have been terminated as a result of a change of control of the Company within the meaning of
this section if Herrel’s employment terminates for any reason at the instigation of the
Company or Herrel himself at any time within 90 days before or within 180 days after the
change in control. Upon termination of Herrel’s employment as a result of a change of
control of the Company (as defined herein and in the attached Exhibit A), Herrel shall
receive severance compensation as follows:

     i. Cash compensation in an amount equal to two times his then annual base
salary, to be paid in a lump sum; however, Herrel acknowledges that such
compensation is an advance payment of severance intended to compensate him for the
loss of income during the two-year period following termination;

     ii. Any earned but unpaid annual bonus plus the annual bonus which would have
been earned at the end of the fiscal year in which the employment is terminated; and

     iii. All stock options owned by Herrel, whether granted pursuant to this
Agreement or otherwise and regardless of their scheduled vesting dates, will

 

 

vest immediately upon termination of Herrel’s employment, and will be
exercisable for a period of five years following the date of termination, provided
that no option may be exercised beyond its original expiration date.

     The Company also agrees to continue to provide Herrel full employee benefits for the
first year following termination of his employment as a result of a change of control of the
Company.

     (d) Intentionally omitted.

     (e) Resignation in the Event of Change of Circumstances. In the event of any
change in Herrel’s Duties, Compensation, or Benefits (as defined in the attached Exhibit A),
Herrel shall be entitled to resign and receive severance compensation as provided for a
termination without cause.

     (f) Severance Payments. The severance payments provided herein will be payable
regardless of when termination of employment occurs and will be payable notwithstanding any
other employment Herrel may find.

16. Section 409A Compliance.

     (a) Notwithstanding any provision of this Agreement to the contrary, if, at the time of
Herrel’s termination of employment with the Company, he is a “specified employee” as defined
in Section 409A of the Internal Revenue Code (the “Code”), and one or more of the payments
or benefits received or to be received by Herrel pursuant to this Agreement would constitute
deferred compensation subject to Section 409A, no such payment or benefit will be provided
under this Agreement until the earliest of (A) the date which is six (6) months after his
“separation from service” for any reason, other than death or “disability” (as such terms
are used in Section 409A(a)(2) of the Code), (B) the date of his death or “disability” (as
such term is used in Section 409A(a)(2)(C) of the Code) or (C) the effective date of a
“change in the ownership or effective control” of the Company (as such term is used in
Section 409A(a)(2)(A)(v) of the Code) (the “Deferred Payment”). The provisions of this
Section 16 shall only apply to the extent required to avoid Herrel’s incurrence of any
penalty tax or interest under Section 409A of the Code or any regulations or Treasury
guidance promulgated thereunder. In addition, if any provision of this Agreement would
cause Herrel to incur any penalty tax or interest under Section 409A of the Code or any
regulations or Treasury guidance promulgated thereunder, the Company shall reform such
provision to maintain to the maximum extent practicable the original intent of the
applicable provision without violating the provisions of Section 409A of the Code.

     (b) In the event the six-month delay described in this Section 16 applies, the Company
shall make an irrevocable contribution in the amount of the Deferred Payment to a rabbi
trust which shall take the form of the model rabbi trust described in Internal Revenue
Service Revenue Procedure 92-64, which amount (along with any net income received by the
trust) shall be paid by the trust to Herrel on the six-month anniversary of his termination
of employment, and the trust shall terminate at such time. The trustee shall be chosen by
the Company in its reasonable discretion. The Company shall pay the reasonable expenses of
establishing and maintaining the trust.

 

     17. Notices. Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and delivered in person or sent by registered or certified mail to
Herrel’s residence in the case of Herrel or to its principal office in the case of the Company.

     18. Arbitration. Any dispute arising out of this Agreement shall be resolved by
binding arbitration at San Diego, California pursuant to the rules of the American Arbitration
Association. In any such proceeding, the prevailing party shall be entitled to an award of its
reasonable attorneys fees and expenses.

     19. Waiver. The waiver of any provision of this Agreement shall not operate or be
construed as a waiver of any other provision of this Agreement. No waiver shall be valid unless in
writing and executed by the party to be charged therewith.

     20. Severability/Modification. In the event that any clause or provision of this
Agreement shall be determined to be invalid, illegal or unenforceable, such clause or provision may
be severed or modified to the extent necessary, and, as severed and/or modified, this Agreement
shall remain in full force and effect.

     21. Assignment. The rights and obligations of the Company under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of the Company.
Herrel acknowledges that the services to be rendered under this Agreement are unique and personal.
Accordingly, Herrel may not assign his rights and obligations under this Agreement.

     22. Entire Agreement. This instrument contains the entire agreement concerning the
employment arrangement between the parties and shall, as of the effective date hereof supersede all
other such agreements between the parties. It may not be amended except by an agreement in writing
signed by both parties.

     23. Governing Law and Jurisdiction. This Agreement shall be interpreted, construed,
and enforced under the laws of the State of California. The courts and authorities of the State of
California shall have sole jurisdiction and venue for purposes of enforcing the arbitration
agreement above.

     24. Authorization to Sign. The undersigned represents that he is properly authorized
to legally bind Ashworth, Inc., to this Agreement and to sign this Agreement on behalf of Ashworth,
Inc.

[Remainder of page left blank intentionally, signatures on following page]

 

 

     IN WITNESS WHEREOF, the parties have executed this Agreement the date and year indicated
above.

	 	 	 	 	 
	 	 	“COMPANY”

ASHWORTH, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ James G. O’Connor 
	 

	 	 	 	 

Name: James G. O’Connor

	 
	 	 	 	Title: Chairman,
Compensation and Human Resources Committee
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Randall L. Herrel, Sr.
	 

	 	 	 	 
	 

	 	 	 	Randall L. Herrell

 

 

EXHIBIT A TO

SECOND AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT OF

RANDALL L. HERREL

DEFINITIONS OF TERMS

     For purposes of the severance compensation granted to Herrel pursuant to the terms of the
Second First Amended and Restated Executive Employment Agreement between him and Ashworth, Inc., to
which this exhibit is attached, the following terms shall have the meanings indicated:

     Termination Without Cause shall be deemed to have occurred if the executive officer is
terminated for any reason other than the executive officer’s fraud, misappropriation of or
intentional material damage to the property or business of the Company (including its
subsidiaries), or conviction of a felony, provided, however, that termination as a result of a
material breach of the Executive Employment Agreement shall be deemed to be termination with cause.

     Change of Control shall be deemed to have occurred if:

     1. Any “person,” including a “group” as determined in accordance with the Section 13(d)(3) of
the Securities Exchange Act of 1934 (the “Exchange Act”), is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 20% or more of the combined
voting power of the Company’s then outstanding securities;

     2. As a result of, or in connection with, any tender offer or exchange offer, merger or other
business combination, sale of assets or contested election, or any combination of the foregoing
transactions (a “Transaction”), the persons who were directors of the Company before the
Transaction shall cease to constitute a majority of the Board of Directors of the Company or any
successor to the Company;

     3. The Company is merged or consolidated with another corporation and as a result of the
merger or consolidation less than 70% of the outstanding voting securities of the surviving or
resulting corporation shall then be owned in the aggregate by the former stockholders of the
Company, other than (x) affiliates within the meaning of the Exchange Act or (y) any party to the
merger or consolidation;

     4. A tender offer or exchange offer is made and consummated for the ownership of securities of
the Company representing 20% or more of the combined voting power of the Company’s then outstanding
voting securities; or

     5. The Company transfers substantially all of its assets to another corporation which is not a
wholly-owned subsidiary of the Company.

     Change in Duties, Compensation or Benefits shall mean any one or more of the following:

     1. A significant change in the nature or scope of the executive officer’s authorities or
duties;

 

 

     2. A reduction in executive officer’s Annual Base Salary;

     3. A diminution in executive officer’s eligibility to participate in bonus, stock option,
incentive award and other compensation plans which provide opportunities to receive compensation;

     4. A diminution in Employee benefits (including but not limited to medical, dental, life
insurance and long-term disability plans) and prerequisites applicable to executive officer; or

     5. A change in the location of executive officer’s principal place of employment by the
Company (including its subsidiaries) by more than ten miles from the location where he was
principally employed.exv10w2

 

Exhibit 10.2

AMENDED & RESTATED AGREEMENT RE: CHANGE IN CONTROL

     This AGREEMENT RE: CHANGE IN CONTROL (this “Agreement”) is dated as of February 28, 2006 and
is entered into by and between Randall L. Herrel, Sr. (“Executive”) and Ashworth, Inc., a Delaware
corporation (the “Company”).

Background

     The Company believes that because of its position in the industry, financial resources and
historical operating results there is a possibility that the Company may become the subject of a
Change in Control (as defined below), either now or at some time in the future.

     The Company believes that it is in the best interest of the Company and its stockholders to
foster Executive’s objectivity in making decisions with respect to any pending or threatened Change
in Control of the Company and to assure that the Company will have the continued dedication and
availability of Executive, notwithstanding the possibility, threat or occurrence of a Change in
Control. The Company believes that these goals can best be accomplished by alleviating certain of
the risks and uncertainties with regard to Executive’s financial and professional security that
would be created by a pending or threatened Change in Control and that inevitably would distract
Executive and could impair his ability to objectively perform his duties for and on behalf of the
Company. Accordingly, the Company believes that it is appropriate and in the best interest of the
Company and its stockholders to provide to Executive compensation arrangements upon a Change in
Control that lessen Executive’s financial risks and uncertainties and that are reasonably
competitive with those of other corporations.

     With these and other considerations in mind, the Compensation Committee of the Company has
authorized the Company to enter into this Agreement with the Executive to provide the protections
set forth herein for Executive’s financial security following a Change in Control.

     NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable
consideration the receipt of which is hereby acknowledged, it is hereby agreed as follows:

Agreement

     1. Term of Agreement. This Agreement shall be effective from the date first written
above and, subject to the provisions of Section 4, shall extend to (and thereupon automatically
terminate) one (1) day after Executive’s termination of employment with the Company for any reason.
No termination of this Agreement shall limit, alter or otherwise affect Executive’s rights
hereunder with respect to a Change in Control which has occurred prior to such termination,
including without limitation Executive’s right to receive the various benefits hereunder.

     2. Purpose of Agreement. The purpose of this Agreement is to provide that, in the
event of a “Change in Control,” Executive may become entitled to receive certain additional
benefits, as described herein, in the event of his termination under specified circumstances.

     3. Change in Control. As used in this Agreement, the phrase “Change in Control” shall
mean:

 

 

          (i) Except as provided by subparagraph (iii) hereof, the acquisition (other than from the
Company) by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (excluding, for this purpose,
the Company or its subsidiaries, or any executive benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the Company), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or
more of either the then outstanding shares of common stock or the combined voting power of the
Company’s then outstanding voting securities entitled to vote generally in the election of
directors; or

          (ii) Individuals who, as of the date hereof, constitute the Board of Directors of the Company
(as of the date hereof the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board of Directors of the Company, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the Company’s
stockholders, is or was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest relating to the election
of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or

          (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation
with any other person, entity or corporation, other than

          (1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of another entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the Company or such
other entity outstanding immediately after such merger or consolidation, or

          (2) a merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person acquires forty percent (40%) or more of the
combined voting power of the Company’s then outstanding voting securities; or

          (iv) Approval by the stockholders of the Company of a plan of complete liquidation of the
Company or an agreement for the sale or other disposition by the Company of all or substantially
all of the Company’s assets.

     4. Effect of a Change in Control. In the event of a Change in Control, Sections 6
through 12 of this Agreement shall become applicable to Executive. These Sections shall continue to
remain applicable until the third anniversary of the date upon which the Change in Control occurs.
On such third anniversary date, and provided that the employment of Executive has not been
terminated on account of a Qualifying Termination (as defined in Section 5 below), this Agreement
shall terminate and be of no further force or effect.

     5. Qualifying Termination. If following, or within ninety (90) days prior to, a Change
in Control Executive’s employment with the Company and its affiliated companies is terminated, such
termination shall be conclusively considered a “Qualifying Termination” unless:

 

 

     (a) Executive voluntarily terminates his employment with the Company and its affiliated
companies. Executive, however, shall not be considered to have voluntarily
terminated his employment with the Company and its affiliated companies if, following, or
within ninety (90) days prior to, the Change in Control, Executive’s overall compensation is
reduced or adversely modified in any material respect or Executive’s authority or duties are
materially changed, and subsequent to such reduction, modification or change Executive
elects to terminate his employment with the Company and its affiliated companies. For such
purposes, Executive’s authority or duties shall conclusively be considered to have been
“materially changed” if, without Executive’s express and voluntary written consent, there is
any substantial diminution or adverse modification in Executive’s title, status, overall
position, responsibilities, reporting relationship, general working environment (including
without limitation secretarial and staff support, offices, and frequency and mode of
travel), or if, without Executive’s express and voluntary written consent, Executive’s job
location is transferred to a site more than fifty (50) miles away from his place of
employment ninety (90) days prior to the Change in Control. In this regard as well,
Executive’s authority and duties shall conclusively be considered to have been “materially
changed” if, without Executive’s express and voluntary written consent, Executive no longer
holds the same title or no longer has the same authority and responsibilities or no longer
has the same reporting responsibilities, in each case with respect and as to a publicly held
parent company which is not controlled by another entity or person.

     (b) The termination is on account of Executive’s death or Disability. For such
purposes, “Disability” shall mean a physical or mental incapacity as a result of which
Executive becomes unable to continue the performance of his responsibilities for the Company
and its affiliated companies and which, at least three (3) months after its commencement, is
determined to be total and permanent by a physician agreed to by the Company and Executive,
or in the event of Executive’s inability to designate a physician, Executive’s legal
representative. In the absence of agreement between the Company and Executive, each party
shall nominate a qualified physician and the two physicians so nominated shall select a
third physician who shall make the determination as to Disability.

     (c) Executive is involuntarily terminated for “Cause.” For this purpose, “Cause” shall
be limited to only three types of events:

     (1) the willful and deliberate refusal of Executive to comply with a lawful,
written instruction of the Board of Directors, which refusal is not remedied by
Executive within a reasonable period of time after his receipt of written notice
from the Company identifying the refusal, so long as the instruction is consistent
with the scope and responsibilities of Executive’s position prior to the Change in
Control;

     (2) an act or acts of personal dishonesty by Executive which were intended to
result in substantial personal enrichment of Executive at the expense of the
Company; or

     (3) Executives conviction of any felony involving an act of moral turpitude.

 

 

     6. Severance Payment. If Executive’s employment is terminated as a result of a
Qualifying Termination, the Company shall pay Executive within thirty (30) days after the
Qualifying Termination a cash lump sum equal to two (2) times Executive’s Compensation (the
“Severance Payment”).

     (a) For purposes of this Agreement, Executive’s “Compensation” shall equal the sum of
(i) Executive’s highest annual salary rate with the Company within the three year period
ending on the date of Executive’s Qualifying Termination, plus (ii) a “Bonus Increment.” The
Bonus Increment shall equal the annualized average of all bonuses and incentive compensation
payments paid to Executive during the two (2) year period immediately before the date of
Executive’s Qualifying Termination under all of the Company’s bonus and incentive
compensation plans or arrangements.

     (b) The Severance Payment hereunder is in lieu of any severance payment that Executive
might otherwise be entitled to from the Company in the event of a Change in Control under
the Company’s applicable severance pay policies, if any, or under any other oral or written
agreement; provided, however, that Executive shall continue to be entitled
to receive the severance pay benefits under the Company’s applicable policies, if any, or
under another written agreement if and to the extent Executive’s termination is not a
Qualifying Termination after, or within ninety (90) days prior to, a Change in Control.

     7. Additional Benefits.

     (a) In the event of a Qualifying Termination, any and all unvested stock options of
Executive shall immediately become fully vested and exercisable.

     (b) In the event of a Qualifying Termination, Executive shall be entitled to continue
to participate in the following executive benefit programs which had been made available to
Executive (including his family) before the Qualifying Termination: group medical insurance,
group dental insurance, group-term life insurance, and disability insurance. These programs
shall be continued at no cost to Executive, except to the extent that tax rules require the
inclusion of the value of such benefits in Executive’s income. The programs shall be
continued in the same way and at the same level as immediately prior to the Qualifying
Termination. The programs shall continue for Executive’s benefit for two (2) years after
the date of the Qualifying Termination; provided, however, that Executive’s
participation in each of such programs shall be earlier terminated or reduced, as
applicable, if and to the extent Executive receives benefits as a result of concurrent
coverage through another program.

     8. Indemnification for Excise Tax. In the event that Executive becomes entitled to
receive a Severance Payment in accordance with the provisions of Section 6 above, and such
Severance Payment and any other benefits or payments (including transfers of property) that
Executive receives, or is to receive, pursuant to this Agreement or any other agreement, plan or
arrangement with the Company in connection with a Change in Control of the Company (“Other
Benefits”) shall be subject to the tax imposed pursuant to Section 4999 of the Internal Revenue
Code of 1986, as amended (the “Code”)(or any successor thereto) or any comparable provision of
state law (an “Excise Tax”), the following rules shall apply:

     (a) The Company shall pay to Executive, within thirty (30) days after the Executive’s
Qualifying Termination, an additional amount (the “Gross-Up Payment”)

 

 

such that the net amount retained by Executive, after deduction of any Excise Tax with
respect to the Severance Payment or the Other Benefits and any federal, state and local
income tax, FICA tax, and Excise Tax upon such Gross-Up Payment, is equal to the amount that
would have been retained by Executive if such Excise Tax were not applicable. It is
intended that Executive shall not suffer any loss or expense resulting from the assessment
of any Excise Tax or the Company’s reimbursement of Executive for payment of any such Excise
Tax.

     (b) For purposes of determining whether any of the Severance Payments or Other Benefits
will be subject to an Excise Tax and the amount of such Excise Tax, (i) any other payments
or benefits received or to be received by Executive in connection with a Change in Control
of the Company or Executive’s termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any person
whose actions result in a Change in Control or any person affiliated with the Company or
such person) shall be treated as “parachute payments” within the meaning of Section
280G(b)(2) of the Code (or any successor thereto), and all “excess parachute payments”
within the meaning of Section 280G(b)(l) of the Code (or any successor thereto) shall be
treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the
Company’s independent auditors and acceptable to Executive such other payments or benefits
(in whole or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code (or any successor thereto),
(ii) the amount of the Severance Payments and Other Benefits which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the
Severance Payments or Other Benefits or (B) the amount of excess parachute payments within
the meaning of Sections 280G(b)(l) and (4) of the Code (or any successor or successors
thereto), after applying clause (i), above, and (iii) the value of any non-cash benefits or
any deferred payment or benefit shall be determined by the Company’s independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the Code (or any successor
or successors thereto).

     (c) For purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality of Executive’s
residence on the date of the Executive’s Qualifying Termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such state and
local taxes.

     (d) In the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of the Executive’s Qualifying Termination,
the Executive shall repay to the Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code (or any successor thereto) (the “Applicable Rate”). In the event
that the Excise Tax is determined to exceed the amount taken into account hereunder at the
time of such Qualifying Termination (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus interest, determined at
the Applicable Rate,

 

 

payable with respect to such excess) at the time that the amount of such excess is
finally determined.

     9. Section 409A Compliance.

     (a) Notwithstanding any provision of this Agreement to the contrary, if, at the time of
Executive’s termination of employment with the Company, he is a “specified employee” as
defined in Section 409A of the Internal Revenue Code (the “Code”), and one or more of the
payments or benefits received or to be received by Executive pursuant to this Agreement
would constitute deferred compensation subject to Section 409A, no such payment or benefit
will be provided under this Agreement until the earliest of (A) the date which is six (6)
months after his “separation from service” for any reason, other than death or “disability”
(as such terms are used in Section 409A(a)(2) of the Code), (B) the date of his death or
“disability” (as such term is used in Section 409A(a)(2)(C) of the Code) or (C) the
effective date of a “change in the ownership or effective control” of the Company (as such
term is used in Section 409A(a)(2)(A)(v) of the Code) (the “Deferred Payment”). The
provisions of this Section 9 shall only apply to the extent required to avoid Executive’s
incurrence of any penalty tax or interest under Section 409A of the Code or any regulations
or Treasury guidance promulgated thereunder. In addition, if any provision of this
Agreement would cause Executive to incur any penalty tax or interest under Section 409A of
the Code or any regulations or Treasury guidance promulgated thereunder, the Company shall
reform such provision to maintain to the maximum extent practicable the original intent of
the applicable provision without violating the provisions of Section 409A of the Code.

     (b) In the event the six-month delay described in this Section 9 applies, the Company
shall make an irrevocable contribution in the amount of the Deferred Payment to a rabbi
trust which shall take the form of the model rabbi trust described in Internal Revenue
Service Revenue Procedure 92-64, which amount (along with any net income received by the
trust) shall be paid by the trust to the Executive on the six-month anniversary of his
termination of employment, and the trust shall terminate at such time. The trustee shall be
chosen by the Company in its reasonable discretion. The Company shall pay the reasonable
expenses of establishing and maintaining the trust.

     10. Rights and Obligations Prior to a Change in Control. Prior to the date which is
ninety (90) days before a Change in Control, the rights and obligations of Executive with respect
to his employment by the Company shall be determined in accordance with the policies and procedures
adopted from time to time by the Company and the provisions of any written employment contract in
effect between the Company and Executive from time to time. This Agreement deals only with certain
rights and obligations of Executive subsequent, or within ninety (90) days prior to, a Change in
Control, and the existence of this Agreement shall not be treated as raising any inference with
respect to what rights and obligations exist prior to the date which is ninety (90) days before a
Change in Control. Unless otherwise expressly set forth in a separate written employment agreement
between Executive and the Company, the employment of Executive is expressly at-will, and Executive
or the Company may terminate Executive’s employment with the Company at any time and for any
reason, with or without cause, provided that if such termination occurs within ninety (90) days
prior to or three (3) years after a Change in Control and constitutes a Qualifying Termination (as
defined in Section 5 above) the provisions of this Agreement shall govern the payment of the
Severance Payment and certain other benefits as provided herein.

 

 

     11. Non-Exclusivity of Rights. Subject to Section 6(b) hereof, nothing in this
Agreement shall prevent or limit Executive’s continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its affiliated
companies and for which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements with the Company or
any of its affiliated companies. Except as otherwise provided in Section 6(b) hereof, amounts
which are vested benefits or which Executive is otherwise entitled to receive under any plan or
program of the Company or any of its affiliated companies at or subsequent to the date of any
Qualified Termination shall be payable in accordance with such plan or program.

     12. Full Settlement. The Company’s obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counter-claim, recoupment, defense or other claim, right or action which the Company may
have against Executive or others. In no event shall Executive be obligated to seek other
employment or to take any other action by way of mitigation of the amounts payable to Executive
under any of the provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably incur as a result of
Executive’s successful collection efforts to receive amounts payable hereunder, or as a result of
any contest (regardless of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about the amount of any
payment pursuant to this Section).

     13. Successors.

     (a) This Agreement is personal to Executive, and without the prior written consent of
the Company shall not be assignable by Executive other than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of and be enforceable by
Executive’s legal representatives.

     (b) The rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the Company.

     14. Governing Law. This Agreement is made and entered into in the State of
California, and the internal laws of California shall govern its validity and interpretation in the
performance by the parties hereto of their respective duties and obligations hereunder.

     15. Modifications. This Agreement may be amended or modified only by an instrument in
writing executed by all of the parties hereto.

     16. Dispute Resolution.

     (a) Any controversy or dispute between the parties involving the construction,
interpretation, application or performance of the terms, covenants, or conditions of this
Agreement or in any way arising under this Agreement (a “Covered Dispute”) shall, on demand
by either of the parties by written notice served on the other party in the manner
prescribed in Section 17 hereof, be referenced pursuant to the procedures described in
California Code of Civil Procedure (“CCP”) Sections 638, et seq., as they may be
amended from time to time (the “Reference Procedures”), to a retired Judge from the Superior
Court for the County of San Diego or the County of Orange for a decision.

 

 

     (b) The Reference Procedures shall be commenced by either party by the filing in the
Superior Court of the State of California for the County of Orange or the County of San
Diego of a petition pursuant to CCP Section 638(1) (a “Petition”). Said Petition shall
designate as a referee a Judge from the list of retired San Diego County and Orange County
Superior Court Judges who have made themselves available for trial or settlement of civil
litigation under said Reference Procedures. If the parties hereto are unable to agree on
the designation of a particular retired San Diego County or Orange County Superior Court
Judge or the designated Judge is unavailable or unable to serve in such capacity, request
shall be made in said Petition that the Presiding or Assistant Presiding Judge of the Orange
County Superior Court or the San Diego County Superior Court, as relevant, appoint as
referee a retired San Diego County or Orange County Superior Court Judge from the
aforementioned list.

     (c) Except as hereafter agreed by the parties, the referee shall apply the internal law
of California in deciding the issues submitted hereunder. Unless formal pleadings are
waived by agreement among the parties and the referee, the moving party shall file and serve
its complaint within 15 days from the date a referee is designated as provided herein, and
the other party shall have 15 days thereafter in which to plead to said complaint. Each of
the parties reserves its respective rights to allege and assert in such pleadings all
claims, causes of action, contentions and defenses which it may have arising out of or
relating to the general subject matter of the Covered Dispute that is being determined
pursuant to the Reference Procedures. Reasonable notice of any motions before the referee
shall be given, and all matters shall be set at the convenience of the referee. Discovery
shall be conducted as the parties agree or as allowed by the referee. Unless waived by each
of the parties, a reporter shall be present at all proceedings before the referee.

     (d) It is the parties’ intention by this Section 16 that all issues of fact and law and
all matters of a legal and equitable nature related to any Covered Dispute will be submitted
for determination by a referee designated as provided herein. Accordingly, the parties
hereby stipulate that a referee designated as provided herein shall have all powers of a
Judge of the Superior Court including, without limitation, the power to grant equitable and
interlocutory and permanent injunctive relief.

     (e) Each of the parties specifically (i) consents to the exercise of jurisdiction over
his person by a referee designated as provided herein with respect to any and all Covered
Disputes; and (ii) consents to the personal jurisdiction of the California courts with
respect to any appeal or review of the decision of any such referee.

     (f) Each of the parties acknowledges that the decision by a referee designated as
provided herein shall be a basis for a judgment as provided in CCP Section 644 and shall be
subject to exception and review as provided in CCP Section 645.

     17. Notices. Any notice or communications required or permitted to be given to the
parties hereto shall be delivered personally or be sent by United States registered or certified
mail, postage prepaid and return receipt requested, and addressed or delivered as follows, or at
such other addresses the party addressed may have substituted by notice pursuant to this Section:

 

 

	 	 	 
	Ashworth, Inc.

	 	Randall L. Herrel, Sr.
	2791 Loker Avenue West

	 	1 Whiteshore Drive
	Carlsbad, California 92008

	 	Newport Coast, California 92657
	Attn: President
	 	 

     18. Captions. The captions of this Agreement are inserted for convenience and do not
constitute a part hereof.

     19. Severability. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein and there shall be deemed substituted for such invalid,
illegal or unenforceable provision such other provision as will most nearly accomplish the intent
of the parties to the extent permitted by the applicable law. In case this Agreement, or any one
or more of the provisions hereof, shall be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, this Agreement or any such provision thereof
shall not as a consequence thereof be deemed to be invalid, illegal or unenforceable in any other
governmental jurisdiction or subdivision thereof.

     20. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall together constitute one in the same
Agreement.

[Remainder of page left blank intentionally, signatures on following page]

 

 

     IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first written above in Carlsbad, California.

	 	 	 	 	 
	 	 	ASHWORTH, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ James G. O’Connor
	 

	 	 	 	 

	 
	 	 	 	 
	 

	 	Title:	 	Chairman, Compensation and Human
Resources Committee
	 

	 	 	 	 

	 
	 	 	 	 
	 	 	RANDALL L. HERREL, SR.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Randall L. Herrel, Sr.

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