FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-18553
Ashworth, Inc.
Delaware 84-1052000
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
2791 LOKER AVENUE WEST
CARLSBAD, CA 92008
(Address of Principal Executive Offices)
(760) 438-6610
(Telephone No. Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Title Outstanding at May 28, 1999
$.001 par value Common Stock 14,079,773
<PAGE>
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Operations 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II. Other Information 12
Signatures 15
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
ASSETS (UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,218,000 $4,763,000
Accounts receivable-trade, net 30,810,000 19,924,000
Accounts receivable - other 1,526,000 459,000
Inventories 30,756,000 35,288,000
Income tax refund receivable -- 1,149,000
Other current assets 3,088,000 3,160,000
Deferred income tax asset 1,639,000 1,486,000
----------- ----------
Total current assets 69,037,000 66,229,000
PROPERTY, PLANT AND EQUIPMENT 24,674,000 24,139,000
Less accumulated depreciation
and amortization (12,889,000) (11,823,000)
----------- -----------
11,785,000 12,316,000
OTHER ASSETS 3,029,000 3,089,000
----------- -----------
$83,851,000 $81,634,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $815,000 $ --
Current portion of long-term debt 939,000 940,000
Accounts payable-trade 5,501,000 6,260,000
Income taxes payable 218,000 --
Accrued liabilities 3,405,000 2,714,000
---------- ----------
Total current liabilities 10,878,000 9,914,000
LONG-TERM DEBT, net of current portion 2,925,000 3,445,000
DEFERRED INCOME TAX LIABILITY 744,000 738,000
OTHER LONG TERM LIABILITIES 446,000 432,000
STOCKHOLDERS' EQUITY:
Common stock 14,000 14,000
Capital in excess of par value 42,261,000 42,259,000
Retained earnings 26,667,000 24,827,000
Deferred compensation -- (8,000)
Accumulated other comprehensive
(loss)income (84,000) 13,000
---------- ----------
68,858,000 67,105,000
----------- -----------
$83,851,000 $81,634,000
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES 35,690,000 38,057,000 55,352,000 62,083,000
COST OF GOODS SOLD 22,120,000 21,853,000 35,541,000 36,354,000
---------- ---------- ---------- ----------
Gross profit 13,570,000 16,204,000 19,811,000 25,729,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,525,000 8,732,000 16,404,000 14,980,000
---------- ---------- ---------- ----------
Income from operations 4,045,000 7,472,000 3,407,000 10,749,000
OTHER INCOME (EXPENSE):
Interest income 10,000 37,000 20,000 43,000
Interest expense (163,000) (111,000) (273,000) (232,000)
Other income(expense) (69,000) (49,000) (131,000) (91,000)
--------- -------- -------- --------
Total other income
(expense) (222,000) (123,000) (384,000) (280,000)
--------- -------- --------- ---------
Income before provision for
income tax expense 3,823,000 7,349,000 3,023,000 10,469,000
PROVISION FOR INCOME
TAX EXPENSE 1,495,000 2,829,000 1,182,000 4,090,000
--------- --------- --------- ---------
Net income 2,328,000 4,520,000 1,841,000 6,379,000
NET EARNINGS PER SHARE
Basic:
Weighted average shares
outstanding 14,080,000 14,343,000 14,080,000 13,962,000
Net earnings per share $0.17 $0.32 $0.13 $0.46
Diluted:
Weighted average shares
outstanding 14,082,000 15,280,000 14,084,000 14,826,000
Net earnings per share $0.17 $0.30 $0.13 $0.43
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended April 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net cash used in operating activities (3,201,000) (12,063,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (543,000) (1,307,000)
---------- -----------
Net cash used in investing activities (543,000) (1,307,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital
lease obligations (37,000) (114,000)
Borrowing on line of credit 14,640,000 3,025,000
Payments on line of credit (13,825,000) (3,025,000)
Principal payments on notes
payable and long-term debt (484,000) (492,000)
Proceeds from issuance of common
stock 2,000 12,321,000
Repayment of loan by stockholder -- 850,000
----------- ----------
Net cash provided by financing
activities 296,000 12,565,000
Effect of exchange rate changes on cash (97,000) 35,000
----------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,545,000) (770,000)
CASH AND CASH EQUIVALENTS,
beginning of period 4,763,000 3,787,000
----------- ---------
CASH AND CASH EQUIVALENTS, end of period 1,218,000 3,017,000
</TABLE>
<PAGE>
ASHWORTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
NOTE 1- Basis of Presentation.
In the opinion of management, the accompanying condensed
consolidated balance sheets and related interim condensed
consolidated statements of operations and condensed cash
flows include all adjustments (consisting only of normal
recurring items) necessary for their fair presentation.
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues,
and expenses. Actual results could differ from those
estimates. Interim results are not necessarily
indicative of results to be expected for the full year.
Certain information in footnote disclosure normally
included in financial statements has been condensed or
omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. The information
included in this Form 10-Q should be read in conjunction
with Management's Discussion and Analysis of Financial
Condition and Results of Operations, and financial
statements and notes thereto included in the annual
report on Form
10-K for the year ended October 31, 1998 filed with the
Securities and Exchange Commission.
NOTE 2 - Inventories.
Inventories consisted of the following at April 30, 1999,
and October 31, 1998:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
<S> <C> <C>
Raw materials $4,022,000 $4,221,000
Work in process 2,342,000 1,949,000
Finished goods 24,392,000 29,118,000
----------- -----------
$30,756,000 $35,288,000
</TABLE>
<PAGE>
NOTE 3 - Earnings Per Share Information.
Basic earnings per share has been computed based upon
the weighted average number of shares outstanding
during the period. Diluted earnings per share has
been computed based upon the weighted average number
of shares outstanding plus the dilutive effects of
common shares contingently issuable from stock
options. Common stock options are excluded from the
computation of net earnings per share if their effect
is anti-dilutive. The following table sets forth the
computation of basic and diluted earnings per share
based upon the requirements of SFAS No. 128:
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
1999 1998 1999 1998
Numerator:
<S> <C> <C> <C> <C>
Net income $2,328,000 $4,520,000 $1,841,000 $6,379,000
Numerator for basic and
diluted
earnings per share - income
available to common
shareholders $2,328,000 $4,520,000 $1,841,000 $6,379,000
Denominator:
Denominator for basic
earnings per share - weighted
average shares 14,080,000 14,343,000 14,080,000 13,962,000
Effect of dilutive
securities:
Employee stock options 2,000 937,000 4,000 864,000
---------- ---------- ----------- ----------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversions 14,082,000 15,280,000 14,084,000 14,826,000
Basic earnings per share $0.17 $0.32 $0.13 $0.46
Diluted earnings per share $0.17 $0.30 $0.13 $0.43
</TABLE>
For the quarters ended April 30, 1999 and 1998 the
diluted weighted average shares outstanding computation
excludes 2,609,000 anti-dilutive options and no anti-
dilutive options, respectively. For the six months
ended April 30, 1999 and 1998 the diluted weighted
average shares outstanding computation excludes
2,579,000 anti-dilutive options and 151,000 anti-
dilutive options, respectively.
<PAGE>
NOTE 4 - Comprehensive Income.
As of November 1, 1998 the Company adopted SFAS No. 130
Reporting Comprehensive Income. SFAS No. 130
establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130
requires the cumulative translation adjustment to be
included as a component of the comprehensive income
(loss) in addition to net income (loss) for the period.
During the quarters ended April 30, 1999 and 1998,
total comprehensive income was $2,272,000 and
$4,664,000, respectively. For the six-month periods
ended April 30, 1999 and 1998, total comprehensive
income was $1,744,000 and $6,414,000, respectively.
NOTE 5 - Legal Proceedings.
On January 22, 1999, a class action was commenced in
the United States District Court for the Southern
District of California ("U.S. District Court")
purportedly on behalf of purchasers of the Company's
common stock during the period between September 4,
1997 and July 15, 1998 alleging violations of the
Securities Exchange Act of 1934 by the Company and
certain of its officers and directors. The complaint
alleged, among other things, that, during the class
period, Company executives made positive statements
about the Company's business including statements
concerning product demand, offshore production and
inventories. The complaint further alleged that the
defendants knew these statements to be false when made
and concealed adverse conditions and trends in the
Company's business during the class period. The
plaintiff sought to recover unspecified damages on
behalf of all purchasers of the Company's common stock
during the period September 4, 1997 to July 15, 1998.
Subsequently, two additional class actions were
commenced in U.S. District Court which alleged similar
conduct, added certain allegations regarding financial
reporting and expanded the shareholders purportedly
represented from the above referenced period to the
periods of September 4, 1997 through December 17, 1998
and December 17, 1997 through July 15, 1998. The U.S.
District Court has consolidated these matters,
appointed co-lead plaintiffs, co-lead counsel, and
ordered that plaintiffs file a consolidated and amended
complaint no later than July 6, 1999. The U.S.
District Court has further approved a stipulation
dismissing Company spokesperson Fred Couples as a
defendant in the action. To date, no formal discovery
has occurred in the matter, no class action has been
certified and no contested motions have been filed or
heard. Although the consolidated and amended complaint
has not been filed, it is management's intent to
vigorously defend itself against this action.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter 1999 compared to Second Quarter 1998
Consolidated net sales for the second quarter of fiscal 1999
decreased 6.2% to $35,690,000 from $38,057,000 for the same
period in 1998. Domestic sales decreased 2.5% to $29,235,000
from $29,969,000 in the April quarter 1998, primarily due to
lower sales in the Company's off-course, specialty and
corporate business. Foreign sales decreased 20.2% to
$6,455,000 from $8,088,000 for the same period of the prior
year. The decline was primarily due to the lower sales in the
Company's UK subsidiary, which declined 38.9% due to softened
demand. This decline was partially offset by the increase
contributed by the Company's new Canadian division. The change
from a distributorship to a Company-owned division shifted
some of the sales traditionally realized in the first quarter
of the year into the second quarter.
Consolidated gross profit for the quarter decreased to 38.0%
as compared to 42.6% a year earlier. This was primarily due to
a higher per unit cost resulting from increased domestic
sourcing as well as higher discounts and markdown allowances.
Consolidated selling, general, and administrative expenses
increased 9.1% to $9,525,000 or 26.7% of net sales for the
quarter compared to 22.9% in the second quarter 1998. The
increase was due primarily to the additions of the Canadian,
women's, and corporate divisions following the second quarter
of fiscal 1998, as well as increased costs of distribution.
The Company installed an additional 80 golfman shop fixtured
locations during the second quarter, bringing the total number
to 715 at April 30, 1999.
Net other expenses increased to $222,000 from $123,000 in the
second quarter of 1998, due primarily to a higher currency
transaction loss by Ashworth UK Ltd. in its transactions with
Ashworth, Inc. and higher interest expense on the increased
borrowing on the Company's line of credit.
The effective income tax rate for the quarter was 39.1% of pre-
tax income compared with 38.5% in the second quarter of 1998.
The effective tax rate in the second quarter of fiscal 1999 is
consistent with the actual tax rate used in fiscal year 1998.
Six months ended April 30, 1999 compared to six months ended
April 30, 1998
Consolidated net sales for the first half of fiscal 1999
decreased 10.8% to $55,352,000 from $62,083,000 for the same
period in 1998. Domestic sales decreased 5.9% to $47,231,000
from $50,215,000 in the first half of fiscal 1998, primarily
due to lower sales in the Company's off-course, specialty, and
corporate business. Foreign sales decreased 31.6% to
$8,121,000 from $11,868,000 for the same period of the prior
year. The decline was primarily due to the lower sales in the
Company's UK subsidiary, which declined 42.5% due to softened
demand. This decline was partially offset by the increase
contributed by the Company's new Canadian division.
Consolidated gross profit for the six months decreased to
35.8% as compared to 41.4% for the same period a year earlier.
This was primarily due to a higher per unit cost resulting
from increased domestic sourcing as well as higher discount
and allowance expense.
Consolidated selling, general, and administrative expenses
increased 9.5% to $16,404,000 or 29.6% of net sales for the
six months compared to 24.1% for the same period in fiscal
1998. The increase was due primarily the additions of the
Canadian, women's, and corporate divisions following the
second quarter of fiscal 1998 as well as increased costs of
distribution. The Company installed a total of 115 golfman
shop fixtured locations during the first half of fiscal year
1999, bringing the total number to 715 at April 30, 1999.
Net other expenses increased to $384,000 from $280,000 in the
first half of fiscal 1998, due primarily to a higher currency
transaction loss by Ashworth UK Ltd. in its transactions with
Ashworth, Inc. and higher interest expense on the increased
borrowing on the Company's line of credit.
The effective tax rate in the first half of fiscal 1999 was
39.1% of pre-tax income and is consistent with the actual tax
rate used in fiscal year 1998.
Capital Resources and Liquidity
The Company's primary sources of liquidity are expected to be
its working capital line of credit with its bank and other
financial alternatives such as leasing. The Company requires
cash for expansion of its domestic and international sales,
capital expenditures and for general working capital purposes.
The Company has a $20,000,000 working capital line of credit
with Bank of America. At April 30, 1999, the Company had
$815,000 outstanding against the line as compared to no
amounts outstanding at April 30, 1998. The Company was in
compliance with all the covenants in its line of credit
agreement with the bank as of April 30, 1999.
Trade receivables were $30,810,000 at April 30, 1999, an
increase of $10,886,000 over the balance at October 31, 1998.
Because the Company's business is seasonal, the receivables
balance may more meaningfully be compared to the balance of
$34,599,000 at April 30, 1998, rather than the year-end
balance. This shows a decrease of 11.0% in receivables which
is primarily due to more aggressive credit controls and lower
sales.
Inventory decreased to $30,756,000 from $35,288,000 at October
31, 1998, a decrease of 12.8% and compared to the inventory of
$33,223,000 at April 30, 1998, inventory has decreased by
7.4%. This is primarily attributable to the successful
execution of the inventory reduction initiative consisting of
reduced number of styles and a more conservative buying
philosophy, which was started in the earlier part of the
current fiscal year.
During the first six months, the Company incurred capital
expenditures of $543,000 mainly for embroidery machines,
leasehold improvements, and computer equipment.
Based upon current levels of operations, the Company expects
that sufficient cash flow will be generated from operations so
that, combined with other financing alternatives available,
including cash on hand, bank credit facilities, and leasing
alternatives, the Company will be able to meet all of its debt
service, capital expenditure, and working capital
requirements.
Derivatives
The Company enters into short-term foreign exchange contracts
with its bank to hedge against the impact of currency
fluctuations between the U.S. dollar and the British pound.
The contracts provide that, on specified dates, the Company
will sell the bank a specified number of British pounds in
exchange for a specified number of U.S. dollars. Additionally,
the Company's subsidiary in England has similar contracts with
its bank to hedge against currency fluctuations between the
British pound and other European currencies. Realized gains
and losses on these contracts are recognized in the same
period as the hedged transactions. These contracts have
maturity dates that do not normally exceed 12 months. As of
April 30, 1999 the Company had outstanding foreign currency
forward exchange contracts with a notational value of
approximately $3.9 million dollars and had an unrealized gain
of $115,000.
Year 2000 Computer Conversion
Historically, most databases, as well as embedded
microprocessors in computer systems and industrial equipment,
were designed with date data using only two digits of the
year. Most computer programs, computers, and embedded
microprocessors controlling equipment were programmed to
assume that all two digit dates were preceded by "19", causing
"00" to be interpreted as the year 1900. This formerly common
practice now could result in a computer system or embedded
microprocessor that fails to recognize properly a year that
begins with a "20", rather than "19". This in turn could
result in computer system miscalculations or failures, as well
as failures of equipment controlled by the date-sensitive
microprocessors, and is generally referred to as the "Year
2000" problem.
The Company's computer operations currently run on an IBM
AS400 computer. The Company's software is based upon an
established, fully integrated, relational database system
designed for manufacturing companies and adapted for the
apparel industry. The programs running on the Company's
computer will have to be modified to accommodate the Year
2000. Certain of the Company's manufacturing equipment have
embedded chips that are date sensitive and will have to be
modified to accommodate the Year 2000.
During fiscal 1998, the Company completed a detailed analysis
of the program changes required and hired outside consultants
to work with in-house staff to make the necessary
modifications. As of April 5, 1999, 100% of the system
changes were completed. The Company's ancillary systems are
scheduled to be Year 2000 compliant by June 30, 1999. The
Company has tested 100% of its renovated systems and has
determined that the majority of these systems are now Year
2000 compliant. There can be no guarantee that target dates
will be met as a result of a number of factors including the
continuing availability of outside consultants. It is
estimated that expenditures for the Year 2000 project were
approximately $135,000 in fiscal 1998 and will be
approximately $255,000 in fiscal 1999 with costs being paid
out of working capital. This estimate, based upon currently
available information, will be updated as the Company
continues its assessment and proceeds with implementation and
testing, and may need to be revised upon receipt of more
information from vendors of material goods and services and
upon the design and implementation of the Company's
contingency plan.
The Company has assessed its non-information technology
systems such as embedded chip and micro controllers used in
its facilities and operations and has determined that its card
key security system is not compliant. The target date for
completion of the security system upgrade is June 30, 1999.
The Company has identified and sent letters to approximately
500 key vendors in an attempt to gain assurance of vendors'
Year 2000 readiness, with responses originally requested by
January 31, 1999. The Company has received a response from
approximately 10% of its vendors. The Company has identified
which of its vendors it believes are critical to its business.
The Company expects to continue discussions with the critical
vendors of goods and services throughout 1999 to attempt to
ensure the uninterrupted supply of goods and services and to
develop contingency plans in the event of the failure of any
such vendors to become and remain Year 2000 ready. The
Company will also seek to develop contingency plans for
alternate sources of goods and services for those currently
supplied by non-critical third party vendors.
If some or all of the Company's remediated or replaced
internal computer systems fail the testing phase, or if any
software applications or embedded microprocessors critical to
the Company's operations are overlooked in the assessment and
implementation phases, there could be a material adverse
effect on the
Company's results of operations, liquidity and financial
condition of a magnitude which the Company has not yet fully
analyzed.
In addition, the Company has not been assured that the
computer systems of its vendors of material goods and services
will be Year 2000 ready in a timely manner or that the
computer systems of third parties with which the Company's
computer system exchanges data will be Year 2000 ready both in
a timely manner and in a manner compatible with continued data
exchange with the Company's computer systems.
If the vendors of the Company's most important goods and
services, or the suppliers of the Company's necessary energy,
telecommunications, and transportation needs fail to provide
the Company with the materials and services which are
necessary to produce, distribute, and sell its products, the
electrical power and other utilities to sustain its
operations, or reliable means of obtaining supplies and
transporting products to its customers, such failure could
have a material adverse effect on the results of operations,
liquidity and financial condition of the Company.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information. This
Statement established standards for the way that public
business enterprises report information about operating
segments in annual financial statements and requires that
enterprises report selected information about operating
segments in interim financial reports issued to stockholders.
This Statement shall be effective for fiscal years beginning
after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated.
This Statement requires only additional informational
disclosures and is effective for the Company's fiscal year
ending October 31, 1999.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative
instruments and hedging activities. SFAS No. 133 requires that
an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. This Statement is effective
for all fiscal years beginning after June 15, 1999. SFAS No.
133 is effective for the Company's fiscal year ending October
31, 2000 and is not expected to have a material effect on the
Company's financial position or results of operations.
<PAGE>
Cautionary Statements and Risk Factors
This report on Form 10-Q contains certain forward-looking
statements, including without limitation those regarding the
Company's plans and expectations for revenue growth, product
lines, designs and seasonal collections, marketing programs,
foreign sourcing, cost controls, inventory levels,
availability of working capital and Year 2000 readiness.
These plans and expectations are subject to a number of risks
and uncertainties that could cause actual results to differ
materially from those anticipated, and the Company's business
in general is subject to certain risks that could affect the
value of the Company's stock. These risks include the
following:
Demand for the Company's products may decrease if the
popularity of golf decreases.
Like other apparel manufacturers, the Company must
correctly anticipate and help direct fashion trends within its
industry. The Company's results of operations could suffer if
it fails to develop fashions and styles that are well received
in any season.
The market for golf apparel and sportswear is extremely
competitive. While the Company is a leader in the core green
grass market, it has several strong competitors that are
better capitalized and have stronger distribution systems.
Outside the green grass market, the Company's market share is
not significant. Price competition or industry consolidation
could weaken the Company's competitive position.
The Company relies upon domestic and foreign contractors
to manufacture various products. If these contractors deliver
goods late or fail to meet the Company's quality standards,
the Company could lose sales.
There can be no assurance that the Company's future
revenues will not decline due to various factors, including
potential consolidation of the Company's core green grass
market, which could result in discounting, as well as possible
general declines in economic conditions from the levels
recently experienced.
The Company maintains high levels of inventory to support
its Basics program, and additional products, greater sales
volume, and customer trends toward increased "at-once"
ordering may require increased inventory. Disposal of excess
prior season inventory is an ongoing part of the Company's
business, and inventory writedowns may materially impair the
Company's financial performance in any period. Particular
inventory may be subject to multiple writedowns if the
Company's initial reserve estimates for inventory obsolescence
or lack of throughput prove to be too low. These risks
increase as inventory grows.
The Company's and/or its vendors' computer systems may
not be Year 2000 compliant which could result in the Company's
inability to produce, distribute and/or sell its products.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company enters into short-term foreign exchange contracts
with its bank to hedge against the impact of currency
fluctuations between the U.S. dollar and the British pound.
The contracts provide that, on specified dates, the Company
will sell the bank a specified number of British pounds in
exchange for a specified number of U.S. dollars. Additionally,
the Company's subsidiary in England has similar contracts with
its bank to hedge against currency fluctuations between the
British pound and other European currencies. Realized gains
and losses on these contracts are recognized in the same
period as the hedged transactions. These contracts have
maturity dates that do not normally exceed 12 months. As of
April 30, 1999 the Company had outstanding the following
material purchased foreign currency forward exchange contracts
(in thousands, except average contract rate):
<TABLE>
<CAPTION>
Weighted-
Contract Average Unrealized
Amount Rate Against Gain (loss)
Foreign Currency US $ Sterling US $
Forward Contracts Equivalent Equivalent
<S> <C> <C> <C>
British Pounds Sterling $2,321.7 1.658 $69.8
Portuguese Escudos 99.0 292.502 2.6
Spanish Pesetas 75.7 242.352 2.0
Danish Krone 251.6 10.868 6.3
French Francs 236.6 9.518 6.9
Deutsche Marks 519.5 2.839 15.1
Irish Punts 246.5 1.149 6.5
Swedish Krona 146.4 12.745 5.6
-------- -------
$3,897.0 $114.8
</TABLE>
PART II
OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
On January 22, 1999, a class action was commenced in the
United States District Court for the Southern District of
California ("U.S. District Court") purportedly on behalf of
purchasers of the Company's common stock during the period
between September 4, 1997 and July 15, 1998 alleging
violations of the Securities Exchange Act of 1934 by the
Company and certain of its officers and directors. The
complaint alleged, among other things, that, during the class
period, Company executives made positive statements about the
Company's business including statements concerning product
demand, offshore production and inventories. The complaint
further alleged that the defendants knew these statements to
be false when made and concealed adverse conditions and trends
in the Company's business during the class period. The
plaintiff sought to recover unspecified damages on behalf of
all purchasers of the Company's common stock during the period
September 4, 1997 to July 15, 1998. Subsequently, two
additional class actions were commenced in U.S. District Court
which alleged similar conduct, added certain allegations
regarding financial reporting and expanded the shareholders
purportedly represented from the above referenced period to
the periods of September 4, 1997 through December 17, 1998 and
December 17, 1997 through July 15, 1998. The U.S. District
Court has consolidated these matters, appointed co-lead
plaintiffs, co-lead counsel, and ordered that plaintiffs file
a consolidated and amended complaint no later than July 6,
1999. The U.S. District Court has further approved a
stipulation dismissing Company spokesperson Fred Couples as a
defendant in the action. To date, no formal discovery has
occurred in the matter, no class action has been certified and
no contested motions have been filed or heard. Although the
consolidated and amended complaint has not been filed, it is
management's intent to vigorously defend itself against this
action.
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
Item 3 DEFAULTS UPON SENIOR SECURITIES - NONE
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
March 26, 1999 - Annual Meeting of Stockholders
(1) Director elected at the meeting:
Stephen Bartolin Jr.
Number of votes FOR 12,464,436
Number of votes WITHHELD 231,237
Each other director whose term of office as director
continued after the meeting:
John M. Hanson, Jr.
Randall L. Herrel, Sr.
Andre P. Gambucci
James W. Nantz, III
(2) Other matters voted upon at the meeting:
None
Item 5 OTHER INFORMATION - NONE
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(a) Certificate of Incorporation as filed March 19, 1987
with the Secretary of State of Delaware, Amendment to
Certificate of Incorporation as filed August 3, 1987 and
Amendment to Certificate of Incorporation as filed April
26, 1991 (filed as Exhibit 3(a) to Registrant's
Registration Statement dated February 21, 1992 (File
No.33-45078) and incorporated herein by reference) and
Amendment to Certificate of Incorporation as filed April
6, 1995 (filed as Exhibit 3(a) to the Registrant's Form
10-K for fiscal year ended October 31, 1994 (File No. 0-
18553), and incorporated herein by reference)
3(b) Bylaws of the Registrant as adopted by its board of
directors on March 19, 1987, and amended February 13,
1991, October 15, 1993, and November 30, 1993 (filed as
Exhibit 3(b) to Registrant's Form 10-K for the fiscal
year ended October 31, 1993 (File No. 0-18553) and
incorporated herein by reference).
4(a) Specimen certificate for Common Stock, par value $.001,
of the Registrant (filed as Exhibit 4(a) to Registrant's
Registration Statement dated November 4, 1987 (File
No.33-16714-D) and incorporated herein by reference).
4(b)(1) Specimen certificate for Options granted under the
Amended and Restated Nonqualified Stock Option Plan
dated March 12, 1992 (filed as Exhibit 4(b) to
Registrant's Form 10-K for the fiscal year ended October
31, 1993 (File No. 0-18553) and incorporated herein by
reference).
4(b)(2) Specimen certificate for Options granted under the
Founders Stock Option Plan dated November 6, 1992 (filed
as Exhibit 4(b)(2) to Registrant's Form 10-K for the
fiscal year ended October 31, 1993 (File No. 0-18553)
and incorporated herein by reference).
4(c) Specimen certificate for Options granted under the
Incentive Stock Option Plan dated June 15, 1993 (filed
as Exhibit 4(c) to Registrant's Form 10-K for the fiscal
year ended October 31, 1993 (File No. 0-18553) and
incorporated herein by reference).
4(d) Rights Agreement dated as of October 6, 1998 by and
between Ashworth, Inc. and American Securities Transfer
& Trust, Inc. (filed as Exhibit 99.1 to Registrant's
Form 8-A of Registration Statement filed on October 9,
1998, (File No. 001-14547) and incorporated herein by
reference).
10(a) First Amended and Restated Executive Employment
Agreement effective February 22, 1999 by and between
Ashworth, Inc. and Randall L. Herrel, Sr.
10(b) Personal Services Agreement and Acknowledgement of
Termination of Executive Employment effective May 31,
1999 by and between Ashworth, Inc. and A. John Newman.
10(c) Offer and Acceptance of Executive Employment effective
March 2, 1999 by and between Ashworth, Inc. and
Gabrielle Sampietro.
10(d) Offer and Acceptance of Executive Employment effective
March 15, 1999 by and between Ashworth, Inc. and Terence
W. Tsang.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during
the second quarter of fiscal year ended October 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ASHWORTH, INC
(Registrant)
Date: June 14, 1999 By: /s/ Randall L. Herrel, Sr.
Randall L. Herrel, Sr.
President and CEO
Date: June 14, 1999 By: /s/ Terence W. Tsang
Terence W. Tsang
Chief Financial Officer
EXHIBIT 10(a)
ASHWORTH, INC.
FIRST AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT OF
RANDALL L. HERREL
This First Amended and Restated Executive Employment
Agreement ("Agreement") is effective as of February 22, 1999, 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.
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:
<TABLE>
<CAPTION>
Earnings % of Annual
Per Share Base Salary
<C> <C>
$0.46 15%
$0.48 35%
$0.50 50%
$0.52 65%
$0.54 85%
</TABLE>
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):
<TABLE>
<CAPTION>
No. of Shares Vesting Date
<C> <C>
50,000 June 15,1997
50,000 January 1,1998
100,000 January 1,1999
100,000 January 1, 2000
</TABLE>
(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. 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.
17. 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.
18. 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.
19. 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.
20. 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.
21. 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.
22. 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.
23. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement
the date and year indicated below.
Dated: March 4, 1999 "COMPANY"
ASHWORTH, INC.
By:/s/ John Newman
John Newman
Vice President
Dated: April 14, 1999 By:/s/ Randall L. Herrel
Randall L. Herrel
STATE OF CALIORNIA )
) SS.
COUNTY OF SAN DIEGO )
Subscribed and sworn to before me this 4th day of March,
1999.
/s/ Angelia Vanderhye
Notary Public
exhibit a to
FIRST 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 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.
EXHIBIT 10(b)
ASHWORTH, INC. AND A. JOHN NEWMAN
PERSONAL SERVICES AGREEMENT AND
ACKNOWLEDGMENT OF TERMINATION OF EXECUTIVE EMPLOYMENT
THIS AGREEMENT (the "Agreement") effective May 31, 1999, is
made and entered into by and between ASHWORTH, INC. (the
"Company") and A. JOHN NEWMAN ("Newman").
WHEREAS the Company and Newman wish to terminate Newman's
full time employment as the Chief Financial Officer with the
Company effective March 15, 1999, and Newman's full time
employment with the Company as Principal Financial and
Accounting Officer effective May 31, 1999 and
WHEREAS, the Company and Newman wish, instead, to enter
into a personal services agreement effective June 1, 1999
whereby Newman shall be an employee of the company working on an
as-needed basis, subject to his availability or as otherwise set
forth on Exhibit "A" attached hereto.
NOW, THEREFORE, the parties hereto acknowledge and agree as
follows:
1. Termination and Resignation. Newman and the Company
hereby mutually agree that Newman's employment as Vice President
- Finance, Chief Financial Officer and Treasurer will terminate
effective March 15, 1999. Newman and the Company hereby mutually
agree that Newman's employment as Principal Financial and
Accounting Officer and his position as an Officer of the company
will terminate on May 31, 1999. Newman further resigns as a
Director and Officer of all of the Company's subsidiaries
effective May 31, 1999.
2. Retention. Newman shall continue to be an employee of the
Company working in a consulting capacity effective June 1, 1999,
pursuant to the terms and conditions set forth below.
3. Term. The term of this Agreement shall commence on June
1, 1999, and continue for a term of two (2) years thereafter
(i.e., until May 31, 2001
4. Services.
a. The Company and Newman agree that Exhibit "A" attached to
the Agreement is part of the Agreement and Newman agrees to
complete the projects and/or provide the services listed.
b. Upon reasonable request of the Company's Chief Executive
Officer and/or the Board of Directors, and subject to
Newman's availability, Newman shall work with the Company's
Chief Executive Officer and staff as a special consultant
to Ashworth UK Ltd., Ashworth Canada, in other areas
relating to international affairs and other special
projects. The non-availability of Newman shall not be
deemed to be a breach of this contract
5. Compensation. All payments by the Company to Newman shall
have appropriate taxes and withholdings deducted.
a. The Company agrees to pay Newman through May 31, 1999, at
an annualized salary rate of one hundred sixty thousand
dollars ($160,000). With the final salary check, for May
1999, shall be included the sum of nine thousand two
hundred thirty dollars ($9,230.00) as payment for three (3)
weeks vacation pay which will have accrued at that time.
b. Commencing June 1, 1999, the Company shall pay Newman one
hundred sixty thousand dollars ($160,000), payable over the two
(2) year term of this Agreement in fifty-two (52) substantially
equal bi-weekly installments (the "payments").
c. With reference to exhibit "A" attached to this Agreement,
compensation shall be as follows:
Items 1 through 7 - Compensation is deemed to be included
in 5.a. above.
Item 8 - Class Action - there will be no additional
compensation.
Item 9 - Fiscal 1999 year-end - payment shall be at $333
per day.
d. If the Company's Chief Executive Officer requests Newman to
work after May 31, 1999, on projects which are not listed
on Exhibit "A" attached, and, provided Newman is available
to work for the Company, remuneration shall be at $333 per
day, which is in addition to the payments to be made in
5.b. above.
6. Acceleration of Compensation Payments. Upon thirty (30)
days written request of either party to this Agreement, the
second year's payments as required under paragraph 5 above, may
be accelerated and paid in a lump sum, provided however, that
both parties approve said acceleration in writing, which
approval shall not be unreasonably withheld. Said acceleration
payment is only for the second year's payments and cannot be
requested prior to April 1, 2000, and shall in no way be
construed as relieving Newman from his consulting obligations
hereunder. If Ashworth is acquired either by merger or
acquisition, said payments due hereunder shall become
immediately due and payable.
7. Employee Status. Newman will be an employee of Ashworth
for the term of this Agreement and will continue to receive the
full benefits of employment. Notwithstanding the foregoing,
Newman shall not accrue vacation, sick and/or personal time
during the term of this Agreement.
8. Health and Hospital Insurance. In accordance with his
employee status, the Company shall continue to provide Newman
with basic health insurance during the term of this Agreement.
9. Stock Options. During the term of this Agreement, all
options currently held or hereafter acquired by Newman shall
vest in accordance with the vesting period provided by each
option grant and shall be exercisable in accordance with the
terms of the applicable Stock Option Plan.
10. Expenses. Newman is authorized to incur reasonable
expenses for conducting the business of the Company, including
but not necessarily limited to travel and similar items,
provided such expenses are preapproved by the Company's Chief
Executive Officer. The Company will reimburse Newman for all
such expenses upon the presentation by Newman, from time to
time, of an itemized account of such expenditures.
11. Proprietary Interests of Company.
a. Recognizing and acknowledging that nothing in this
Agreement prevents Newman from providing services to other
companies which are in direct competition with the Company,
Newman acknowledges and agrees that he will not disclose
confidential and proprietary information of the Company which
are valuable, special, and unique assets of the Company's
business ("Trade Secrets"), nor will Newman use any of the
Company's Trade Secrets for any purpose other than in connection
with the employment within the Company.
b. The work product resulting from the services provided under
this Agreement shall be and remain the property of the Company
unless otherwise agreed in writing by both parties.
12. Goodwill and Reputation of the Company and Newman. Newman
shall at all times conduct himself in such manner as to preserve
and protect the reputation and goodwill of the Company. The
Company shall at all times conduct its affairs in such manner as
to preserve and protect the goodwill and reputation of Newman.
13. 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 the address
set forth below Newman's signature hereon in the case of Newman
or to its principal office in the case of the Company, or to
such other address as either party has assigned in a written
notice, as provided herein.
14. 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.
15. 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, as, as severed
and/or modified, this Agreement shall remain in full force and
effect.
16. 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. Newman
acknowledges that the services to be rendered under this
Agreement are unique and personal. Accordingly, Newman may not
assign his rights and obligations under this Agreement.
17. 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.
18. 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 over all
controversies, which may arise with respect to this Agreement.
19. No Authority to Bind. Newman is not by this Agreement
granted any right or authority, express or implied, on behalf of
or in the name of the Company to bind the Company in any manner
whatsoever unless specifically requested by the Company.
20. Release.
a. As consideration for the payments and benefits described
herein, Newman hereby releases the Company and its predecessors,
successors and affiliates and the officers, directors,
employees, agents, attorneys, representatives and assigns of
each of them (the "Released Parties") from any and all claims,
causes of action, damages, losses, liabilities and lawsuits
(including but not limited to, claims for wrongful termination,
claims for breach of contract, tort claims, claims under the
California Fair Employment and Housing Act, claims under the Age
Discrimination in Employment Act and claims under other state
and federal statutes), he may have that are based on employment
of Newman by the Company, the change in the status of such
employment, his resignation as Chief Financial Officer or on any
other event or omission occurring on or prior to the effective
date of this Agreement. Newman hereby agrees not to sue or
bring claim, or be a party in any claim or lawsuit, against the
Released Parties with respect to any matters released herein.
b. The foregoing release includes any and all claims, rights
and/or remedies arising under the Age Discrimination in
Employment Act ("ADEA") and the Older Workers Benefit Protection
Act ("OWBPA"). In compliance with the ADEA and OWBPA:
i. Newman acknowledges that prior to signing this Agreement,
he was given a period of 21 days to consider its provisions;
ii. Newman understands that he is entitled to revoke this
Agreement within 7 days after its execution. Further, this
Agreement will not be effective or enforceable until the
revocation period has expired; and
iii. Newman acknowledges and agrees that he has been advised to
consult with an attorney prior to signing this Agreement.
c. Newman waives any rights he may have under Section 1542 of
the Civil Code of the State of California or any comparable
provisions of state and federal law. Section 1542 of the Civil
Code of the State of California states:
"A general release does not extend to claims which the
creditor does not know of or suspect to exist in is
favor at the time of executing the release, which if
known by him must have materially affected his
settlement with the debtor."
Notwithstanding the provisions of Section 1542, and for the
purpose of implementing a full and complete release and
discharge of all claims, Newman expressly acknowledges that
this release is intended to include all claims which Newman
does not know or suspect to exist in his favor at this
time, and that this release contemplates extinguishment of
such claims.
21. Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original but all of
which shall constitute one and the same instrument.
IN WITNESS WHREOF, the parties have executed this
Agreement the date and year indicated below, effective
the date indicated above.
THE COMPANY:
ASHWORTH, INC.
Date: March 4, 1999 By:
/s/ Randall L. Herrel, Sr.
President & Chief Executive Officer
Address: 2791 Loker Avenue West
Carlsbad, California 92008
NEWMAN:
Date: March 4, 1999 /s/ A. John Mewman
A. John Newman
Address: 3155 Monroe Street
Carlsbad, Ca 92008
STATE OF CALIORNIA )
) SS.
COUNTY OF SAN DIEGO )
Subscribed and sworn to before me this 4th day of March, 1999.
/s/ Angelia Vanderhye
Notary Public
EXHIBIT "A" to
ASHWORTH, INC. AND A. JOHN NEWMAN
PERSONAL SERVICES AGREEMENT AND
ACKNOWLEDGEMENT OF TERMINATION OF EXECUTIVE
EMPLOYMENT
Project to Complete/Assist Date(s)/Day(s) Needed
------------------------------- ---------------------
1. Close Company Books for April '99 Through May 31, 1999
2. Establish Accounting Policies & Procedures By the end of April '99
For Ashworth Canada
3. Establish Accounting Policies & Procedures By the end of April '99
For Ashworth U.K. Including New Hires
4. Gross Margin Calculations-Train New Person Complete by May 31, 1999
5. Inventory Reserve Calculations-Train New Complete by May 31, 1999
New Person
6. Annual Meeting - Assist in Preparing For and
Attendance at March 26, 1999 Annual Meeting
7. Board Meeting Q2 - Assist in Preparing For By May 31, 1999
and Attendance at May '99 Board Meeting
8. Assist with Information for Class Action Law 2 Days per month through
Suit Filed Against Company and Any Other December 31, 1999, on dates
Related Issues Resulting form Class Action to be mutually agreed by
CEO and John Newman
9. Fiscal 1999 Year-End Consulting 3 Business Days in
November 1999
EXHIBIT 10(c)
February 25, 1999
Ms. Gabrielle Sampietro
929 Park Avenue
New York, New York 10028
Re: Employment at Ashworth, Inc.
Dear Gabrielle:
In accordance with our recent discussions, we are pleased to
confirm our offer to you of a position with Ashworth, Inc. (the
"Company") upon the following terms and conditions:
1. Position; Reporting; Commencement. The position shall be
Vice President of Operations, initially responsible for
sourcing, production and development and you shall report to
Randall Herrel in his position of President / CEO. You shall
commence employment on March 2, 1999. You will be required to
observe the Company's personnel and business policies and
procedures as they are in effect from time to time. In the
event of any conflict, the terms of this letter will control.
2. Base Salary; Reviews. You will receive an annual salary of
$160,000.00, less applicable withholding and deductions, which
is payable bi-weekly on Fridays. Employees are generally given
performance reviews on or about October of each year.
3. Bonus Program. You have an opportunity to receive a bonus
of $25,000 based on reasonable objectives. For 1999, these
objectives will be outlined within 30 days. For 2000 and
thereafter, they will be agreed upon on an annual basis, which
will include gross margin targets and reducing potential excess
inventory through buying more accurately.
4. Stock Options. The Company will grant you 30,000 options to
purchase shares of the Company's common stock at an exercise
price equal to the closing share price the day before your
employment commences. The options will vest over a three year
period, i.e., 10,000 vesting on March 2, 2000; 10,000 vesting
March 2, 2001; and 10,000 vesting March 2, 2002. Options will be
exercisable for a period of time from the vesting date as
defined by the Company's Stock Option Plan.
5. Lodging/Travel Allowance. You will receive a lodging
and/or travel allowance of $1,600.00 per month for a period not
to exceed nine months. This is not a taxable item provided that
original receipts are submitted to the Accounts Payable
Department each month.
6. Relocation Allowance. You will receive reimbursement for
moving expenses not to exceed $15,000.00. In addition, the
Company will provide four one-way coach class tickets to
relocate your family in the summer of 1999. These expenses will
not be taxable provided that you submit original receipts to the
Accounts Payable Department.
If you voluntarily resign from the Company within the first
year of employment, you agree to reimburse the Company for
the moving expenses incurred on your behalf. If you are
terminated in less than two years, you will receive a
similar allowance, not to exceed $15,000.00 to enable you
to move back East.
7. Savings Plan. You will be eligible to participate in the
Company's 401(k) Plan at the first entry date following the
completion of six months continuous employment with the Company.
Under the current provisions, you will be eligible as of January
1, 2000.
8. Insurance Benefits. The Company will provide you with
coverage under its group medical, dental, life and long-term
disability policies as more specifically described in the group
insurance materials which will be provided to you upon your
commencement of employment. The cost of the medical and dental
coverage will be shared between you and the Company, depending
on your plan and coverage elections. Your insurance program
will be effective April 1, 1999. The Company reserves the right
to change, modify or eliminate such benefits or coverages in its
discretion.
9. Business Expenses and Auto Allowance. You will receive
reimbursement for normal, ordinary and reasonable business
expenses upon your submission of receipts substantiating the
expenses claimed in accordance with Company policy. In
addition, you will receive an auto allowance of $350.00 per
month. This is a taxable fringe benefit which will be paid bi-
weekly with you regular payroll.
10. Confidentiality; Use of Licensed Software; Solicitation of
Employees; Return of Property; Termination. You acknowledge
that, in the course of your employment with the Company, you
will have access to confidential information concerning the
organization and functioning of the business of the Company, and
that such information is a valuable trade secret and the sole
property of the Company. Accordingly, except as required by
law, legal process, or in connection with any litigation between
the parties hereto with respect to matters arising out of this
agreement, you agree that you will not, at any time during your
employment with the Company or after such employment, whether
such employment is terminated as a result of your resignation or
discharge, disclose or furnish any such information to any
person other than an officer of the Company, and you will make
no use of any such information for your personal benefit.
The Company licenses the use of computer software from a
variety of outside companies and, unless authorized by the
software developer, does not have the right to reproduce
it. You may use software only in accordance with the
license agreement, whether on local area networks or on
multiple machines. If you learn of any misuse of software
or related documentation within the Company, you must
notify your department manager. If you make, acquire or
use unauthorized copies of such computer software, you
shall be disciplined as appropriate under the
circumstances. Such discipline may include termination.
You agree that for a period of two years from the date of
voluntary or involuntary termination, you will not solicit
on your behalf, or on behalf of a third party, any then
current employee of the Company, to leave his or her
employment with the Company for employment with another
employer.
You further agree that in the event of such termination,
whether voluntary or involuntary, you will not remove from
the offices of the Company any personal property that does
not rightfully and legally belong to you and that you will
return on the date of your said termination, to an
authorized representative of the Company, any and all
property belonging to the Company. You also agree that you
will provide passwords on request for personal computer
files.
11. At-Will Employment. You understand and agree that you are
being employed for an unspecified term and that this is an "at-
will" employment relationship. This means that either you or
the Company may terminate your employment at will at any time
with or without cause or notice. If the Company terminates your
employment for any reason other than gross negligence or
misconduct, the Company agrees to pay you a severance package
equal to six months of your base salary plus the pro-rata bonus
for the year at the time of termination. This at-will aspect of
your employment, which includes the right of the Company to
transfer, discipline, demote and/or reassign, may not be
modified, amended or rescinded except by an individual written
agreement signed by both you and the Company's President. This
letter sets forth the entire agreement between the parties and
there are no prior or contemporaneous representations, promises
or conditions, whether oral or written, to the contrary.
This offer of employment is contingent upon the satisfactory
completion of a background check, verifying that the information
provided by you on your application and resume is accurate and
correct. The Company reserves the right to withdraw an offer of
employment, or to terminate employment, at any time based on
information arising from the background check.
If you are in agreement with the terms of this letter, please
sign and return one copy of the enclosed letter to the Human
Resource Department to effect the commencement of your
employment. Please call if you have any questions or problems.
Sincerely,
/s/ Randall L. Herrel, Sr.
Randall L. Herrel, Sr.
President / CEO
ACCEPTED AND AGREED TO THIS
30th DAY OF March, 1999
/s/ Gabrielle Sampietro
Gabrielle Sampietro
EXHIBIT 10(d)
February 10, 1999
Mr. Terence W. Tsang
14309 Autumn Hill Lane
Chino Hills, California 91709
Re: Employment at Ashworth, Inc.
Dear Terence:
In accordance with our recent discussions, we are pleased to
confirm our offer to you of a position with Ashworth, Inc. (the
"Company") upon the following terms and conditions:
12. Position; Reporting; Commencement. The initial position
shall be Chief Financial Officer and you shall initially report
to Randall Herrel in his position of President / CEO. You shall
commence employment on or before March 15, 1999. As CFO, you
will be a member of the Operating Committee and an Executive
Officer of the Corporation. As such, you will be responsible
for Investor Relations, Human Resources and the Finance &
Accounting department, domestically and internationally. These
responsibilities include, but are not limited to, financial and
SEC reporting requirements, financial planning and budgeting.
You will be required to observe the Company's personnel and
business policies and procedures as they are in effect from time
to time. In the event of any conflict, the terms of this letter
will control.
13. Base Salary; Reviews. You will receive an annual salary of
$200,000.00, less applicable withholding and deductions, which
is payable bi-weekly on Fridays. Employees are generally given
performance reviews in or about October of each year.
14. Starting Bonus. You will receive a bonus of $5,000.00 upon
commencement of employment.
15. Stock Options. On the day your employment commences under
this agreement, the Company will grant you 60,000 options to
purchase shares of the Company's common stock at an exercise
price equal to the closing share price that same day. The total
options (60,000) will vest over a three year period, i.e.,
20,000 vesting on March 15, 2000; 20,000 vesting March 15, 2001;
and 20,000 vesting March 15, 2002. Options will be exercisable
for a five year period from the vesting date.
16. Relocation Allowances. You will receive reimbursement, not
to exceed $2,000.00, for your moving expenses to relocate. In
addition, you will receive a lodging allowance not to exceed a
total of $3,000.00. This is not a taxable item provided that
original receipts are submitted to the Accounts Payable
Department.
17. Savings Plan. You will be eligible to participate in the
Company's 401(k) Plan at the first entry date following the
completion of six months continuous employment with the Company.
Under the current provisions, you will be eligible as of January
1, 2000.
18. Insurance Benefits. The Company will provide you with
coverage under its group medical, dental, life and long-term
disability policies as more specifically described in the group
insurance materials which will be provided to you upon your
commencement of employment. The cost of the medical and dental
coverage will be shared between you and the Company, depending
on your plan and coverage elections. Your insurance program
will be effective May 1, 1999. The Company reserves the right
to change, modify or eliminate such benefits or coverages in its
discretion.
19. Business Expenses and Mileage Reimbursement. You will
receive reimbursement for normal, ordinary and reasonable
business expenses upon your submission of receipts
substantiating the expenses claimed in accordance with Company
policy.
20. Confidentiality; Use of Licensed Software; Solicitation of
Employees; Return of Property; Termination. You acknowledge
that, in the course of your employment with the Company, you
will have access to confidential information concerning the
organization and functioning of the business of the Company, and
that such information is a valuable trade secret and the sole
property of the Company. Accordingly, except as required by
law, legal process, or in connection with any litigation between
the parties hereto with respect to matters arising out of this
agreement, you agree that you will not, at any time during your
employment with the Company or after such employment, whether
such employment is terminated as a result of your resignation or
discharge, disclose or furnish any such information to any
person other than an officer of the Company, and you will make
no use of any such information for your personal benefit.
The Company licenses the use of computer software from a
variety of outside companies and, unless authorized by the
software developer, does not have the right to reproduce
it. You may use software only in accordance with the
license agreement, whether on local area networks or on
multiple machines. If you learn of any misuse of software
or related documentation within the Company, you must
notify your department manager. If you make, acquire or
use unauthorized copies of such computer software, you
shall be disciplined as appropriate under the
circumstances. Such discipline may include termination.
You agree that for a period of two years from the date of
voluntary or involuntary termination, you will not solicit
on your behalf, or on behalf of a third party, any then
current employee of the Company, to leave his or her
employment with the Company for employment with another
employer.
You further agree that in the event of such termination,
whether voluntary or involuntary, you will not remove from
the offices of the Company any personal property that does
not rightfully and legally belong to you and that you will
return on the date of your said termination, to an
authorized representative of the Company, any and all
property belonging to the Company. You also agree that you
will provide passwords on request for personal computer
files.
21. At-Will Employment. You understand and agree that you are
being employed for an unspecified term and that this is an "at-
will" employment relationship. This means that either you or
the Company may terminate your employment at will at any time
with or without cause or notice. If the Company terminates your
employment without cause, the Company agrees to pay you a
severance package equal to six months of your base salary at the
time of termination. This at-will aspect of your employment,
which includes the right of the Company to transfer, discipline,
demote and/or reassign, may not be modified, amended or
rescinded except by an individual written agreement signed by
both you and the Company's President. This letter sets forth
the entire agreement between the parties and there are no prior
or contemporaneous representations, promises or conditions,
whether oral or written, to the contrary.
This offer of employment is contingent upon the satisfactory
completion of a background check, verifying that the information
provided by you on your application and resume is accurate and
correct. The Company reserves the right to withdraw an offer of
employment, or to terminate employment, at any time based on
information arising from the background check.
If you are in agreement with the terms of this letter, please
sign and return one copy of the enclosed letter to the Human
Resource Department to effect the commencement of your
employment. Please call if you have any questions or problems.
Sincerely,
/s/ Randall L. Herrel
Randall Herrel
President / CEO
ACCEPTED AND AGREED TO THIS
11th DAY OF February, 1999
/s/ Terence W. Tsang
Terence W. Tsang
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