Document:

exv10w2

 

Exhibit 10.2

AGREEMENT RE: CHANGE IN CONTROL

     This AGREEMENT RE: CHANGE IN CONTROL (this “Agreement”) is dated as of September 12, 2005 and
is entered into by and between Gary I. Schneiderman (“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.

1 of 8

 

     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 11 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.

2 of 8

 

     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 he elects to
terminate his employment because his overall compensation plan is reduced or adversely
modified in any material respect or his authority or duties are materially changed. For
such purposes, Executive’s authority or duties shall 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 his title, status, overall position, or
responsibilities.

          (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 for a period of three (3) months.

          (c) Executive is involuntarily terminated for “Cause.” For this purpose, “Cause” shall
mean:

               1. Executive’s willful and deliberate refusal to comply with a lawful,
instruction of the CEO or 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;

               2. Executive’s act or acts of personal dishonesty;

               3. Executive’s conviction of a felony;

               4. Executive’s violation of the Company’s policies and/or code of conduct;

               5. Executive’s violation of any confidentiality or non-competition agreement
with the Company or any Affiliate of the Company; or

               6. The willful engaging by Executive in misconduct which is injurious to the
Company.

     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 one (1) times Executive’s annual base salary (the
“Severance Payment”).

          (a) For purposes of this Agreement, Executive’s “base salary” shall equal the
Executive’s highest annual salary rate with the Company within the three year period ending
on the date of Executive’s Qualifying Termination.

3 of 8

 

          (b) In lieu of a cash lump sum, Executive may, in his sole discretion, elect to receive
the Severance Payment provided by this Section in equal annual installments
over three (3) years. Such installments shall be paid to Executive on each
anniversary of the date of Executive’s Qualifying Termination, beginning with the first such
anniversary and continuing on each such anniversary thereafter until fully paid. Such
election to receive the Severance Payment in installments may be made and/or revoked by
Executive at any time prior to the occurrence of a Change in Control by written notice to
the Board of Directors of the Company. Upon the occurrence of a Change in Control, any such
election to receive the Severance Payment in installments that has been made and not revoked
prior to the Change in Control shall be irrevocable and binding on both the Company and
Executive. In the event that at the time of a Change in Control there is not in effect an
election by Executive to receive the Severance Payment in installments, such Severance
Payment shall be paid to Executive in a single cash lump sum as provided in subparagraph (a)
above.

          (c) 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. 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,

4 of 8

 

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.

     8. 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.

5 of 8

 

     9. Non-Exclusivity of Rights. Subject to Section 6(c) 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(c) 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.

     10. 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).

     11. 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.

     12. 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.

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

     14. Dispute Resolution: Executive and the Company will utilize a system of binding
arbitration to resolve all disputes that may arise out of the employment context. Both the Company
and Executive agree that any claim, dispute, and/or controversy that either Executive may have
against the Company (or its owners, directors, officers, managers, employees, agents, and parties
affiliated with its employee benefit and health plans) or the Company may have against Executive,
arising from, related to, or having any relationship or connection whatsoever with Executive’s
seeking employment with, employment by, or other association

6 of 8

 

with the Company, shall be submitted to and determined exclusively by binding arbitration
under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration
Act (Cal. Code Civ. Proc. sec 1280 et seq., including section 1283.05 and all of the Act’s other
mandatory and permissive rights to discovery). Included within the scope of this Agreement are all
disputes, whether based on tort, contract, statute (including, but not limited to, any claims or
discrimination and harassment, whether they be based on the California Fair Employment and Housing
Act, Title VII of the Civil Rights Act of 1964, as amended, or any other state or federal law or
regulation), equitable law, or otherwise. However, nothing herein shall prevent Executive from
filing and pursuing proceedings before the California Department of Fair Employment and Housing, or
the United States Equal Employment Opportunity Commission (although if Executive chooses to pursue
a claim following the exhaustion of such administrative remedies, that claim would be subject to
the provisions of this Agreement). In addition to any other requirements imposed by law, the
arbitrator selected shall be a retired California Superior Court Judge and shall be subject to
disqualification on the same grounds as would apply to a judge of such court. To the extent
applicable in civil actions in California courts, the following shall apply and be observed: all
rules of pleading (including the right of demurrer), all rules of evidence, and all rights to
resolution of the dispute by means of motions for summary judgment, judgment on the pleadings, and
judgment under Code of Civil Procedure Section 631.8. Resolution of the dispute shall be based
solely upon the law governing the claims and defenses pleaded, and the arbitrator may not invoke
any basis (including but not limited to, notions of “just cause”) other than such controlling law.
The arbitrator shall have the immunity of a judicial officer from civil liability when acting in
the capacity of an arbitrator, which immunity supplements any other existing immunity. Likewise,
all communications during or in connection with the arbitration proceedings are privileged in
accordance with Cal. Civil Code Section 47(b). As reasonably required to allow full use and
benefit of this agreement’s modification to the Act’s procedures, the arbitrator shall extend the
times set by the Act for the giving of notices and setting of hearings. Awards shall include the
arbitrator’s written reasoned opinion.

     15. 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.
	 	Gary I. Schneiderman
	 

	 	2765 Loker Avenue West
	 	20 Camberley
	 

	 	Carlsbad, California 92010
	 	Laguna Niguel, CA 92677
	 

	 	Attn:      President	 	 

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

     17. 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.

7 of 8

 

     18. 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.

     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.

	 	 	 	 	 
	Dated: September 6, 2005	 	ASHWORTH, INC.
	 
	 	 	 	 
	 

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

	 	 	 	 
	 

	 	 	 	     Randall L. Herrel, Sr.
	 
	 	 	 	 
	 

	 	Title: Chairman, President and CEO
	 
	 	 	 	 
	Dated: September 7, 2005	 	GARY I. SCHNEIDERMAN
	 
	 	 	 	 
	 

	 	By:
	 	/s/Gary I. Schneiderman
	 

	 	 	 	 
	 

	 	 	 	     Gary I. Schneiderman

8 of 8Exhibit 4.2

                          [FRANCE TELECOM LOGO OMITTED]

                           U.S. Employee Shareholding

                                 September 2005

                           U.S. EMPLOYEE PLAN DOCUMENT

                                       1
<PAGE>

I.       INTRODUCTION

              This U.S. Employee Plan document sets forth the terms and
conditions of an offering of Ordinary Shares of France Telecom, nominal value
four euros per share (the "Shares"), to eligible employees of France Telecom and
its majority-owned subsidiaries who reside in the United States.

II.      DEFINED TERMS

              As used in this Plan document, the following terms have the
meanings indicated. In addition, other terms are defined throughout the Plan
document and are thereafter written with initial capital letters.

Defined Term            Meaning
----------------------  --------------------------------------------------------

"ADR"                        An American Depositary Receipt, which is a U.S.
                             dollar-denominated, negotiable certificate that
                             represents an ADS.

"ADS"                        An American Depositary Share. Each ADS represents
                             one Share. Shares offered pursuant to the Plan may,
                             after the expiration of the Restricted Period, be
                             deposited in the ADR Facility in exchange for ADSs.

"Committee"                  As defined in Section III.F.9 below.

"Delivery Date"              The date on which Shares purchased pursuant to the
                             Plan are definitively delivered to Participating
                             Employees and transferred to accounts maintained on
                             their behalf with the Registrar and Sub-Registrar.

"Deposit Agreement"          As defined in Section F below.

"Depositary"                 The Bank of New York, which is the depositary bank
                             for the Company's ADS program and has been retained
                             by the Company to perform certain administrative
                             functions in connection with the Plan.

"Eligible Employees"         Employees who are eligible to purchase Shares under
                             the Plan. The conditions of eligibility are set
                             forth in Section III.B below.

"France Telecom" or          France Telecom, a French company.
the "Company"

"Offer Period"               The period during which Eligible Employees may
                             submit orders for Shares offered under the Plan as
                             set forth in Section III.E below.

"Participating Employee"     An Eligible Employee who elects to purchase Shares
                             under the Plan.

"Plan"                       The terms and conditions of France Telecom U.S.
                             Employee Shareholding - September 2005 as set forth
                             in this plan document.

"Private Placement"          As defined in Section III.A below.

"Purchase Order"             As defined in Section III.F below.

"Reference Price"            As defined in Section III.D below.

"Registrar"                  BNP Paribas Securities Services SA, which has been
                             retained by the Company to perform certain
                             administrative functions in connection with the
                             Plan.

                                       2
<PAGE>

"Restricted Period"          As defined in Section III.E.2 below.

"Securities Act"             As defined in Section III.F.7 below.

"Shares"                     The Ordinary Shares of the Company. Each Share has
                             a nominal value of 4 euro.

"Sub-Registrar"              The Bank of New York, a New York banking
                             corporation, which has been retained by the Company
                             to perform certain administrative functions in
                             connection with the Plan in the United States, as a
                             sub-registrar to BNP Paribas Securities Services
                             S.A., the Registrar.

"U.S. Subsidiaries"          Those companies organized within the United States
                             in which France Telecom owns, directly or
                             indirectly, a majority interest:

                             o    Globecast N.A.

                             o    Etrali North America Inc.

                             o    Wildfire

                             o    Orange Serv. Inc. Imagineering US

                             o    ErasMus Inc.

                             o    FTLD USA

                             o    EQUANT

"Worldwide Employee          An offering of Shares to eligible employees of
Offering"                    France Telecom and its majority-owned subsidiaries
                             throughout the world. The offering pursuant to the
                             Plan constitutes a part of the Worldwide Employee
                             Offering.

III.     TERMS AND CONDITIONS OF THE PLAN

         A.   Purpose

              The purpose of the Plan is to enable Eligible Employees to
purchase Shares on preferential terms and thereby to encourage them to identify
their interests with those of the Company. Shares offered under the Plan are
currently owned by the French State.

              The offering pursuant to the Plan follows a sale by the French
State of a portion of its stake in the Company through a private placement to
institutional investors (the "Private Placement"), which took place on June 7,
2005.

              The Plan is not subject to the provisions of the U.S. Employee
Retirement Income Security Act of 1974, as amended, and is not a "qualified
plan" under Section 401(a) of the U.S. Internal Revenue Code of 1986, as
amended.

         B.   Eligibility

              "Eligible Employees" include all individuals who, at the moment of
remittance of their purchase order, are employed on a regular full-time basis,
or on a regular part-time basis, by any U.S. Subsidiary. There is no minimum
service requirement for participation in the Plan by active employees.

                                       3
<PAGE>

              Eligible Employees include employees who otherwise meet the
requirements described in the preceding paragraph, but who are absent from
active service due to an authorized leave for disability, workers compensation,
family leave or other authorized leave of absence.

              Former employees (retired or otherwise) are not Eligible
Employees.

         C.   Offer Period

              The Offer Period is expected to open 8:00 A.M. (New York time) on
Thursday, September 15, 2005 and to close at 4:59 P.M. (New York time) on
Monday, September 27, 2005.

              The Company reserves the right to change the expected starting or
end dates of the Offer Period. The Company will notify Eligible Employees of any
such change.

         D.   Purchase Price

              The purchase price for Shares offered pursuant to the Worldwide
Employee Offering will be between 18.04 and 22.55 euro. At the bottom of this
range, the price would represent a 20% discount from the price of 22.55 euro per
Share (the "Reference Price") at which the French State sold Shares in the
Private Placement. The Company will convert the purchase price to U.S. dollars
under the Plan. See section E.1 below.

         E.   Specific Terms

              Eligible Employees under the Plan will benefit from the following
terms.

              1.   Conversion of Purchase Price to U.S. Dollars

              The Purchase Price for Shares under the Plan will be between 18.04
and 22.55 euro per Share. Participating Employees in the United States will make
payment in U.S. dollars.

              The U.S. dollar equivalent of the initial amount due for Shares
purchased under the Plan will be based on an exchange rate established
immediately prior to the opening of the Offer Period. The Company's
determination of these U.S. dollar amounts will be final, binding and conclusive
on all Participating Employees.

              Participating Employees bear the risk of exchange rate
fluctuations between the euro and the U.S. dollar for the life of their
shareholding, while the Company will assume the risk of fluctuations between the
open of the Offer Period and the Delivery Date.

              2.   Restrictions on Resale

              A Participating Employee may not sell, pledge or otherwise
transfer (including by gift) any Shares purchased pursuant to the Plan for a
period of two years from the Delivery Date. This period is referred to herein as
the "Restricted Period."

              The resale restrictions of the Plan will remain in effect in the
event that a Participating Employee's employment terminates before the end of
the Restricted Period.

              A Participating Employee may not liquidate his or her investment
by selling, pledging or otherwise transferring his or her Shares purchased under
the Plan during the Restricted Period and must, therefore, bear the financial
risk of their investment during this period.

              3.   Payment Terms

              A Participating Employee must make payment in full for Shares
purchased under the Plan. A Participating Employee is required to submit a
personal check in US dollars concurrently with their Purchase Order

                                       4
<PAGE>

during the Offer Period for the full purchase price of their Shares (in the
equivalent U.S. dollar amount as provided in the Purchase Order).

              If the personal check is rejected for lack of funds or any other
reason, a Participating Employee will have a limited time during which to make
satisfactory payment.

              4.   Consequences of a Default in Payment

              All orders under the Plan will become binding and irrevocable at
the end of the Offer Period.

              A default in payment of the Purchase Price due for Shares
purchased under the Plan will not relieve a Participating Employee of his or her
obligations under the Plan. The Company may enforce its right to be paid any
delinquent amount and/or may seek recovery of any damages it may incur as a
result of the Participating Employee's default. Alternatively, the Company may
elect to treat the Participating Employee's order for Shares under the Plan as
null and void, and the Participating Employee will forfeit all rights under the
Plan.

              5.   Termination of Employment

              The following terms shall apply upon termination of a
Participating Employee's employment, whether by retirement, voluntary
resignation, involuntary termination or otherwise.

              a) Restrictions on Transfer Continue in Effect. Shares purchased
under the Plan will remain subject to the restrictions on transfer described
above in "Restrictions on Resale" for the remainder of the Restricted Period,
notwithstanding termination of employment.

              b) Payment Obligations. Termination of employment will not affect
a Participating Employee's rights in Shares purchased under the Plan or the
obligation to pay for them.

         F.   Certain General Terms and Conditions

              1.   Allotment and Allocation

              The number of Shares available for the Worldwide Employee Offering
will be limited to 16,911,111 Shares. If total employee orders in the Worldwide
Employee Offering exceed this amount, an allocation or reduction rule will be
applied under conditions defined by the French State in consultation with the
Company. The determination of the French State as to the number of Shares
allotted to any Participating Employee shall be final, binding and conclusive on
all Participating Employees.

              2.   Maximum Purchase Order

              Under applicable French law, the Shares purchased by any
Participating Employee pursuant to the Plan may not have an aggregate purchase
price in excess of 150,960 euro. Consequently, the maximum order that an
individual may submit under the Plan will be between 8,368 and 6,694 Shares, at
the low and high points of the price range, respectively.

              If a Participating Employee places an order for Shares having an
aggregate purchase price in excess of this limit, the order will automatically
be reduced and will be considered an order for the maximum permissible number.

              3.   Purchase Formalities

              A Participating Employee will complete a purchase order (the
"Purchase Order") to be distributed (either in electronic or paper form) by the
Company's majority owned subsidiaries. Orders may be modified or cancelled until
the end of the Offer Period. There will be no charge for any such modification
or cancellation. All

                                       5
<PAGE>

orders will become binding and irrevocable at the end of the Offer Period and
will constitute a legally enforceable contract of the Participating Employee at
that time.

              Following the end of the Offer Period, the French State, in
consultation with the Company, will determine the number of Shares to be
allocated to each Participating Employee, based on the procedures and
limitations described above under "Allotment and Allocation." A Participating
Employee will be notified of the number of Shares allocated to him or her.
Shares will be allocated in whole numbers only. Any funds not applied to the
purchase of Shares will be refunded to a Participating Employee as soon as
practicable after the Delivery Date.

              Participating Employees will also be advised of any applicable
withholding tax payment. See "Required Tax Payments" below.

              4.   Required Tax Payments

              The Company or its U.S. Subsidiaries are required to withhold U.S.
federal income tax and, where applicable, state and local income and employment
taxes applicable to compensation realized upon the purchase of Shares under the
Plan. Participating Employees who are citizens or permanent residents of the
United States, or otherwise taxable in the United States on compensation earned
from the Company or its U.S. Subsidiaries, will recognize ordinary income for
U.S. federal income tax purposes in an amount equal to (i) the fair market value
of the Shares purchased, determined at the time Shares are allocated to
Participating Employees, minus (ii) the Purchase Price. U.S. federal employment
taxes (Social Security and Medicare (FICA and FUTA) taxes), as well as state and
local income tax, may also be due, depending on the circumstances of the
Participating Employee.

              Prior to or concurrently on the Delivery Date, the Company or its
U.S. Subsidiaries will notify Participating Employees of the applicable amount
of the taxes required to be paid in connection with their purchase. Required tax
amounts will be withheld from future payments of salary (or payments of other
compensation) to Participating Employees to the extent possible. If the
Participating Employee's employer determines that salary withholding will not be
an adequate or feasible way to satisfy withholding tax obligations, such
Participating Employee will be required to forward a check in the appropriate
amount to the Company or the appropriate U.S. Subsidiary within ten days. If a
Participating Employee's employment terminates before the Delivery Date, he or
she will be required to submit a check in the appropriate amount to the Company
or a U.S. Subsidiary.

              Notwithstanding anything else in the Plan, the Company reserves
the right to pursue any and all remedies that may be available to it if a
Participating Employee fails to forward a check in the amount of any required
tax payment within the specified period, including, without limitation, the
right to treat an order as void and without effect or to delay delivery of
purchased Shares until payment has been made. The security interest held by the
Company or its subsidiary in a Participating Employee's Shares will continue in
effect until the Participating Employee has satisfied all tax obligations under
the Plan. If a Participating Employee fails to make any required tax payment,
the Company or its subsidiary may exercise any rights it has under law. See
"Consequences of a Default in Payment" above. The Participating Employee will
remain liable for any shortfall.

              5.   Safekeeping

              The Shares purchased pursuant to the Plan will be issued in
book-entry form and registered in the name of each Participating Employee in
separate individual accounts on the books of The Bank of New York (the
"Sub-Registrar"), who will in turn be registered on the books of BNP Paribas
Securities Services S.A. (the "Registrar") in France. Following the expiration
of the Restricted Period, Shares may be deposited with The Bank of New York as
Depositary (the "Depositary") pursuant to the Deposit Agreement (the "Deposit
Agreement") between the Company, the Depositary and holders of American
depositary receipts ("ADRs"), evidencing American Depositary Shares ("ADSs"),
against issuance by the Depositary of an equal number of ADSs. No ADRs may be
issued prior to the expiration of the Restricted Period. Participating Employees
must retain their holding in Shares for one additional year after expiration of
the Restricted Period to receive bonus shares. See section F.8 below.

              The Sub-Registrar will issue periodic statements to Participating
Employees. Such statements will reflect any dividends received and distributed
to a Participating Employee since the last statement. The Sub-

                                       6
<PAGE>

Registrar will also issue any tax forms, returns and certificates showing the
total amount of the dividends received by the Participating Employee during the
applicable calendar year.

              The Company or one or more of its subsidiaries will bear all
administrative charges relating to maintenance of a Participating Employee's
accounts with the Sub-Registrar at least until the end of the Restricted Period,
provided that the Participating Employee maintains his or her account with the
Sub-Registrar during this period. A Participating Employee will be responsible
for taxes, brokerage and similar charges incurred in connection with resales of
Shares or ADSs. See "Specific Terms - Consequences of a Default in Payment."

              6.   Resales

              For so long as Shares are held by a Participating Employee through
the Sub-Registrar, any sale of Shares by such Participating Employee will be
made through the Sub-Registrar, who will offer the Shares, or cause the Shares
to be offered, for sale on the Eurolist by Euronext market, the New York Stock
Exchange (in the form of ADSs) or any other stock exchange on which the Shares
are actively traded. The sale of Shares and ADSs is subject to brokerage
commissions, for which the selling Participating Employee will be responsible.

              7.   Rights of Participating Employees as Shareholders

              Except as otherwise noted, a Participating Employee will have the
rights and privileges provided under French law in the Shares that he or she
purchases under the Plan. Voting and dividend rights with respect to the Shares
are described below.

              a) Voting and Dividends. As of the Delivery Date, each
Participating Employee will have all of the rights of holders of Ordinary
Shares, including all applicable voting and dividend rights.

              The Company is not subject to the proxy rules of the U.S.
Securities Exchange Act of 1934, as amended.

              The Company currently pays dividends. There can be no assurance
that the Company will continue to pay dividends on the Shares in the future, nor
can any assurance be given as to the amount of any such dividends.

              b) Rights. The Company may, from time to time, offer to its
shareholders rights to subscribe for additional Shares or rights of any other
nature. The Company may, in its sole discretion, decide not to register such
rights or the securities to which such rights relate under the U.S. Securities
Act of 1933, as amended (the "Securities Act"), where such registration would be
required in connection with the offer or sale of such rights or securities to
Participating Employees. In such case, Participating Employees will not be
permitted to purchase such securities or otherwise exercise such rights and the
Sub-Registrar may dispose of such rights for the account of the Participating
Employees in a manner that it deems equitable and practicable and distribute the
proceeds to the Participating Employees (subject to the payment of any expenses
incurred in connection with such disposal).

              c) Other Adjustments. The terms and conditions of the Plan may be
equitably adjusted in the discretion of the Committee in the event of a stock
split, stock dividend, recapitalization, reorganization, merger, consolidation,
spin-off, split-up, combination, exchange of Shares, warrants or rights offering
to purchase Shares or similar event. It is understood that any such adjustment
will be made in a manner that the Committee considers to be consistent with any
adjustments made in respect of other Shares sold in the Worldwide Employee
Offering.

              8.   Bonus Shares

              Pursuant to the French Privatization Law, any Participating
Employee who continues to own Shares purchased pursuant to the Plan that remain
in book-entry form on the books of the Registrar or Sub-Registrar on the third
anniversary of the Delivery Date will receive one bonus share for each five
Shares initially purchased, irrespective of continued employment of the
Participating Employee. Allocation of bonus shares will be made by the French
State at the end of the three-year holding period up to a total maximum value of
1,258 euros (based on

                                       7
<PAGE>

the Reference Price). The maximum number of Shares may be determined by dividing
this amount by the purchase price per Share. To be eligible for Bonus Shares, a
Participating Employee must continue to hold Shares in the form of Shares for
the entire three-year holding period, and/or in the form of ADSs.

              9.   Administration and Amendment

              a) Administration. The Plan shall be administered by a committee
(the "Committee"). The members of the Committee are appointed with the approval
of, and serve at the discretion of, France Telecom and are eligible to
participate in the Plan on the same terms as other Eligible Employees. Decisions
of the Committee are final, binding and conclusive in all matters relating to
the Plan, including, without limitation, any determination of whether an
individual is an Eligible Employee.

              The Plan provides for the making of certain determinations,
including, without limitation, determinations of fair market value of Shares.
The Company (which may, but shall not be required to, act through the Committee)
shall be responsible for making all such determinations, and all such
determinations shall be final, binding and conclusive on Participating
Employees.

              No member of the Committee shall be liable for anything whatsoever
in connection with the administration of the Plan except such member's own
willful misconduct. Under no circumstances shall any member of the Committee be
liable for any act or omission of any other member of the Committee. In the
performance of its functions with respect to the Plan, the Committee shall be
entitled to rely upon information and advice furnished by the officers of the
France Telecom Group (including the U.S. Subsidiaries), the France Telecom
Group's accountants and counsel and any other party the Committee deems
necessary, and no member of the Committee shall be liable for any action taken
or not taken in reliance upon any such advice. Members of the Committee will be
indemnified by the Company or another member of the France Telecom Group
(including the U.S. Subsidiaries) for any liabilities, expenses or losses
incurred by them in connection with the administration of the Plan.

              b) Right to Amend or Terminate the Plan. The Company in its
discretion may amend the terms of the Plan at any time, or from time to time. No
such amendment, however, may adversely affect the rights of Participating
Employees in Shares that they have already purchased under the Plan. In
addition, the Company reserves the right to terminate operation of the Plan at
any time in its sole discretion, and, should it elect to do so before delivery
of any of the Shares for which orders were tendered, the orders shall be
canceled, and this Plan shall cease to have any effect.

              10.  Continued Employment

              A Purchase Order is not an employment agreement. Neither the Plan
nor any Purchase Order will confer on any Participating Employee or Eligible
Employee any rights to continued employment with any other member of the France
Telecom Group.

              11.  Governing Law

              The Plan shall be subject to the laws of the French Republic. Any
dispute, controversy or claim arising out or relating to this Plan shall be
submitted to the exclusive jurisdiction of the courts of Paris (France).

                                       8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00090-of-00352.parquet"}]]