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Pursuant to 17 C.F.R. 240.24b-2, confidential
information has been omitted in places marked
"[***]” and has been filed separately with the Securities and
Exchange Commission pursuant to a
Confidential Treatment Application filed with the
Commission.
Exhibit 10.3
GEKKO BRANDS,
LLC
EMPLOYMENT AND
NON-COMPETITION AGREEMENT
THIS
AGREEMENT (this “Agreement”) is made and entered into
this 31st day of May, 2007 and is effective as of
March 1, 2007 (the “Effective Date”), by and
between GEKKO BRANDS, LLC (the “Company”), an
Alabama limited liability company and a wholly-owned subsidiary of
Ashworth Inc., a Delaware corporation (“Ashworth”), and
Phil R. Stillwell (“Employee”). Company and Employee
are sometimes referred to hereinafter as a “Party” or,
collectively, the “Parties.”
WITNESSETH
THAT
WHEREAS , pursuant to that certain Membership Interests
Purchase Agreement, dated July 6, 2004 (the “Purchase
Agreement”), between Ashworth and the selling members as set
forth therein (the “Selling Members”), Ashworth
acquired all of the membership interests of Company (the
“Acquisition”);
WHEREAS , Employee was one of the Selling Members, and,
prior to the Acquisition, Employee participated in the management
of Company;
WHEREAS , as a Selling Member in the Acquisition, Employee
obtained rights to potentially receive additional purchase price
consideration in the form of Installment Payments pursuant to
Section 1.2 and 1.3 of the Purchase Agreement (the
“Installment Payments”);
WHEREAS , in consideration of terms, conditions and
covenants set forth in this Agreement, including, without
limitation, certain non-competition and non-solicitation covenants,
Ashworth desires to guaranty payment to Employee of the Installment
Payments for the Fiscal Years of 2007 and 2008 as set forth herein;
and
WHEREAS , based on
the terms and conditions of this Agreement, Company desires to
continue to employ Employee and bind Employee to certain
performance covenants including,
1
without limitation, certain non-competition and non-solicitation
covenants, and Employee desires to continue his employment with
Company;
NOW,
THEREFORE, in consideration of the foregoing premises and the
mutual and reciprocal covenants and agreements set forth herein,
and for other good and valuable consideration, Company and Employee
agree as follows:
ARTICLE I.
EMPLOYMENT
1.1
Acceptance of Employment . Subject to the terms and
conditions of this Agreement, Company hereby agrees to employ
Employee, and Employee hereby agrees to employment by Company.
Ashworth shall not employ Employee, and the Parties agree that
Ashworth shall have no obligation to Employee except as expressly
set forth herein or in the Purchase Agreement.
1.2
Duties and Responsibilities . Employee shall serve initially
as a Senior Vice President of Company and shall be responsible for
such duties and responsibilities as may be assigned to him from
time to time by (a) Ashworth’s Chief Executive Officer
(“CEO”), (b) Ashworth’s Chief Financial
Officer (“CFO”) or (c) the duly elected managers
of Company (the “Managers”). Employee shall devote his
full business time, attention, skill and energies to the business
and affairs of Company throughout the Term (as defined below).
1.3
Location . Employee will be based in Phenix City, Alabama
and, as a condition to the employment outlined herein, neither
Company nor Ashworth may require Employee to relocate during the
Term.
1.4
Chain of Authority . At all times during the Term, Employee
will report directly to either the CEO or CFO.
ARTICLE II.
EFFECTIVE DATE;
TERM
2.1
Term . The term of this Agreement begins as of the Effective
Date and runs through the fifth annual anniversary of the Effective
Date, unless terminated earlier in accordance with Article IV
of this Agreement (the “Term”). Just prior to the fifth
annual anniversary of the Effective Date, the Employee and Company
agree to negotiate with each other in good faith the possibility of
Employee’s continued employment under the terms of a new
employment agreement, unless Employee’s employment has been
terminated in accordance with Article IV of this
Agreement.
ARTICLE III.
COMPENSATION
3.1
Base Salary . For all services rendered by Employee pursuant
to this Agreement and in accordance with the terms and conditions
of this Agreement, Company shall pay Employee $[***] per annum
(“Base Salary”) in accordance with Company’s
standard payroll practices. Base Salary may be subject to
adjustment upwards based upon an annual review of such salary by
the CEO and/or CFO. In no event shall Base Salary be reduced below
$[***] per annum during the Term. For purposes of the
computation of Base Salary over any period which is shorter than a
Fiscal Year, Base Salary shall be pro rated based on the actual
number of days of employment during such Fiscal Year.
3.2
Incentive Compensation
(a)
Incentive Compensation . During the Term, provided his
employment has not otherwise been terminated and subject to
Section 3.2(b) below (including the vesting requirements
thereof), Employee shall be eligible to receive an annual incentive
bonus payment equal to [***]% of each dollar of EBITA achieved by
the Company that is in excess of the Adjusted Operating Target (the
“Incentive Compensation”); provided that in no event
shall the Incentive Compensation exceed an amount equal to the
aggregate Base Salary for Employee in such Fiscal Year. For
purposes of this Agreement, “Operating Target” means
the EBITA target for the Company in any Fiscal Year as determined
pursuant to Section 3.2(b) below, and the “Adjusted
Operating Target” means an amount equal to the product of
(x) the Operating Target for such Fiscal Year and (y) [***].
The Parties hereby agree that the Company’s Operating Target
for Fiscal Year 2007 is $[***].
(b)
Computation and Payment of Incentive Compensation .
(i) Ashworth shall in good faith solicit the reasonable advice
of the Company’s executive management and shall determine, in
Ashworth’s reasonable discretion, the Operating Target for
each Fiscal Year on or before the sixtieth (60 th ) day
of such Fiscal Year, and Employee shall use all reasonable efforts
to cooperate with Ashworth in its determination of the Operating
Targets for each such Fiscal Year.
(ii) Incentive Compensation shall be calculated based upon
each Fiscal Year, and, subject to clause (iv) below, any
Incentive Compensation that may be payable at the end of such
Fiscal Year shall be paid by the later of (x) ninety
(90) days after the end of such Fiscal Year in which the
Incentive Compensation becomes vested and payable and (y) the
resolution of any dispute concerning such Incentive
Compensation.
(iii) “Fiscal Year” as used in this Agreement
refers to the fiscal year of Ashworth. For purposes of the
computation of Incentive Compensation over any period which is
shorter than a Fiscal Year, Incentive Compensation shall be pro
rated based on the actual number of days of employment during such
Fiscal Year.
(iv) In determining whether an Operating Target has been
achieved, the Company’s EBITA for such period shall be
calculated using the current accounting policies of the Company and
the transfer pricing of goods and services exchanged between the
Company and Ashworth as set forth on Schedule 3.2(b). For
purposes of this Agreement, EBITA in any Fiscal Year shall mean the
Company’s net income (which calculation of net income shall
include as an operating expense any Incentive Compensation earned
pursuant to this Section 3.2 by J. Neil Stillwell, Phil R.
Stillwell, Jeffery N. Stillwell, Thomas Patrick Allison, Jr., and
Calvin J. Martin, Jr., in such year) before any interest charges
for such period, taxes payable by the Company for such period and
any Acquisition Amortization expenses for such period.
(v) Notwithstanding anything to the contrary in this
Agreement, 50% of the all Incentive Compensation shall not vest and
shall not become payable to Employee until the end of the Term, and
the Company will pay any such unvested amounts (the “Unvested
Incentive Compensation”) into an “Escrow Account”
established pursuant to that certain “Escrow
Agreement”, substantially in the form of
Exhibit B attached hereto. Synovus Trust
Company, N.A. (the “Escrow Agent”) will hold all such
Unvested Incentive Compensation in the Escrow Account through the
end of the Term, at which time such funds that remain in the Escrow
Account and that become vested pursuant to this Agreement shall be
distributed to Employee pursuant to the Escrow Agreement. During
the Term, in the event funds held in the Escrow Account equal or
exceed $2,000,000, the holdback set forth in the first sentence of
this Section 3.2(c)(iv) shall not apply to any additional
Incentive Compensation in excess of such $2,000,000, and Employee
shall be paid all Incentive Compensation over such $2,000,000
holdback in accordance with the terms of this Agreement.
(vi) The right to receive Incentive Compensation under this
Section 3.2, as applicable, shall vest when such Incentive
Compensation becomes payable in accordance with the terms and
conditions of this Agreement (the “Vested Incentive
Compensation”). Provided that Employee is not then in
material breach of this Agreement or the Purchase Agreement and
Employee’s employment with the Company was not terminated
pursuant to Sections 4.1 or 4.2 of this Agreement, the
Unvested Incentive Compensation shall become vested and payable to
the Employee upon the ninetieth calendar day after the expiration
of the Term.
(vii) In the event it is determined that the Unvested
Incentive Compensation is taxable to the Employee, the Escrow Agent
shall disburse such portion of the escrowed funds to Employee
sufficient to pay the income tax obligations arising out of such
escrowed Unvested Incentive Compensation.
3.3
Benefit Plans . Employee will be entitled to employee
benefits substantially comparable to those benefits made available
to comparable officers of Ashworth as may be in effect from time to
time. Notwithstanding anything to the contrary herein,
Employee’s eligibility and participation in the benefits
provided by Company’s benefit plans will be subject to, and
in accord with, the terms and conditions of such plans.
3.4
Expenses . Company shall reimburse Employee for all
reasonable Company approved business-related expenses incurred in
accordance with the policies and procedures of Company.
3.5
Automobile Allowance . During the Term, Company shall pay
Employee an automobile allowance equal to $[***] per month, payable
in accordance with Company’s standard practices in effect
from time to time during the Term.
3.6
Vacation . During the Term, Employee shall receive vacation
time each calendar year in accordance with Company’s vacation
policies in effect from time to time. In no event will Company
provide Employee with less than four (4) weeks of vacation per
year.
3.7 Net
Compensation . The amount of any gross payments provided for in
this Agreement shall be paid net of any applicable withholding
required under federal, state or local law.
3.8
Compensation Following Termination . During the Term,
Employee shall be entitled to compensation solely in accordance
with the terms of this Article III, and any compensation owed
to Employee after termination shall be paid as provided in
Article V hereof.
ARTICLE IV.
TERMINATION OF
EMPLOYMENT
4.1
Voluntary Termination By Employee .
(a) Employee may terminate his employment hereunder at any
time by giving at least ninety (90) days prior written notice to
Company and Ashworth of his intention to do so (a “Voluntary
Termination”). In the event such notice of termination is
given, said ninety (90) day period shall be counted as a
period of regular employment for all purposes under this Agreement,
unless expressly provided otherwise herein, including the payment
of Base Salary, provided that Employee continues to carry out in
good faith, as determined in Company’s reasonable judgment,
his duties and responsibilities during such ninety
(90) period.
(b) Notwithstanding the foregoing, Company reserves the right
to terminate Employee’s employment at any time after
Employee’s notice of voluntary termination upon payment in
full of all amounts which would have been due if Employee had
remained employed through the entire ninety (90) day notice period
and such termination shall continue to be deemed a Voluntary
Termination by Employee.
4.2
Termination for “Cause” . Effective immediately
and without prior notice (written or otherwise), Company may
terminate Employee’s employment hereunder for
“Cause,” which, for purposes of this Agreement,
includes any one or more of the following:
(a) the commission of or engagement in a felony or other crime
involving moral turpitude or the commission of any other act or
omission involving misappropriation, dishonesty, unethical business
conduct, disloyalty, fraud or breach of fiduciary duty;
(b) reporting to work under the influence of alcohol;
(c) the use of illegal drugs (whether or not at the workplace)
or other conduct, even if not in conjunction with his duties
hereunder, which could reasonably be expected to, or which does,
cause Company, Ashworth or any of their affiliates public disgrace
or disrepute or economic harm;
(d) the failure to perform duties as reasonably directed by
the CEO or CFO or any other officer to whom Employee reports or the
taking of any action contrary to specific direction of the CEO or
CFO;
(e) gross negligence or willful misconduct (i) with
respect to Company, Ashworth or any of their affiliates or in the
performance of Employee’s duties to the same or
(ii) that is materially injurious to Company, Ashworth or any
of their affiliates, their clients or their reputations, monetarily
or otherwise;
(f) the aiding or abetting of a competitor or other breach by
Employee of his fiduciary duty of loyalty to Company, including the
obtaining of any personal profit not thoroughly disclosed to and
approved by Company and Ashworth in connection with any transaction
entered into by, or on behalf of, Company, Ashworth or any of their
affiliates;
(g) the violation of any of the terms of Company’s rules
or policies which, if curable, is not cured to Company’s
reasonable satisfaction within fifteen (15) days after written
notice thereof to Employee;
(h) any other material breach of this Agreement or any other
agreement between the Employee and Company, Ashworth or any of
their affiliates which, if curable, is not cured to
Ashworth’s and Company’s reasonable satisfaction within
fifteen (15) days after written notice thereof to the
Employee;
(i) any breach of non-compete covenants pursuant to this
Agreement and the Purchase Agreement; or
(j) the occurrence of any of the actions set forth in
Section 4.2(a)-(i) above by any other executive officer of
Company (including any of the Selling Members) with the knowledge
of Employee and where Employee allows or fails to prevent any such
action by such executive officer or fails to notify the CEO or CFO
of any such action.
4.3
Termination by Company Other Than for Cause . By giving at
least ninety (90) days prior written notice, Company may
terminate Employee’s employment hereunder at any time. After
any such notice of termination, the following ninety (90) day
period shall be counted as a period of regular employment for all
purposes under this Agreement, unless expressly provided otherwise,
including the payment of Base Salary and the accrual and vesting of
Incentive Compensation.
4.4
Termination Upon Death or Total Disability of Employee .
Upon Employee’s death, Employee’s employment under this
Agreement shall terminate immediately without notice. Upon the
Total Disability (hereinafter defined) of Employee during the Term,
Employee’s employment under this Agreement shall terminate
immediately upon delivery of written notice to Employee.
(a) For purposes of this Agreement, the term “Total
Disability” shall be defined as the failure of Employee to
perform his normal duties hereunder for a period of two
(2) consecutive months, or for a total of four (4) months
within any twelve (12) month period, during the Term by reason
of Employee’s mental or physical Disability.
(b) The term “Disability” shall mean an infirmity
preventing Employee from performing the functions of his job where
no reasonable accommodation is possible, or where such reasonable
accommodation would be an undue burden on Company. Any question as
to the existence of a Disability which cannot be resolved by the
Parties shall be determined by a mutually agreeable qualified
independent physician. The cost of any such medical examination
shall be paid by Company.
ARTICLE V.
EFFECT OF
TERMINATION
5.1
Voluntary Termination and Termination For Cause .
(a) If Employee voluntarily terminates his employment as
provided in Section 4.1 (except under circumstances
constituting a “Constructive Discharge” as defined in
Section 5.4), or if Employee’s employment is terminated
by Company for Cause as provided in Section 4.2, then in such
event (i) Company shall only pay Employee (A) the accrued
value of Base Salary through the date of such termination only and
(B) any accrued and unused vacation time and (ii) the
Employee shall be deemed to have forfeited and Company shall be
entitled to retain and/or terminate any Incentive Compensation
achieved but not yet paid under this Agreement, any Unvested
Incentive Compensation, and any Escrowed Installment Payments
(together, the “Forfeited Contingent Payments”), it
being understood that such Forfeited Contingent Payments shall be
deemed to have been unearned upon such termination.
(b) Notwithstanding anything to the contrary in this
Agreement, for the avoidance of doubt the Parties expressly agree
that the Forfeited Contingent Payments will not limit, and shall be
in addition to, any and all remedies and/or monetary damages
available to the Company or Ashworth at law and in equity in
connection with, as a result of, or arising out of Employee’s
breach of this Agreement, including, without limitation, breach of
those covenants contained in Article VI of this Agreement.
5.2
Termination Upon Total Disability . In the event
Employee’s employment is terminated by reason of his Total
Disability, then in such event, Employee, or his representative,
shall be entitled to receive all unpaid Vested Incentive
Compensation, such amounts paid into the Escrow Account pursuant to
this Agreement (plus interest accrued thereon), any accrued and
unused vacation time, and accrued automobile allowance and all
other benefits provided Employee through the date of such
termination by reason of Total Disability.
5.3
Termination Upon Death . In the event Employee’s
employment is terminated by reason of his death, then subject to
applicable law, Company shall pay one of Employee’s spouse,
legal representative or his estate a lump sum payment in an amount
equal to his current Base Salary for the remaining Term or six
(6) months, whichever period is less. In addition, such
spouse, legal representative or estate shall be entitled to receive
(a) all unpaid Vested Incentive Compensation, (b) such
amounts paid into the Escrow Account pursuant to this Agreement
(plus interest accrued thereon), (c) any accrued and unused
vacation time, and (d) accrued automobile allowance and all
other benefits provided Employee through the date of
Employee’s termination by reason of his death.
5.4
Termination Other Than For Cause .
(a) In the event that (i) Company terminates
Employee’s employment other than for Cause, or
(ii) Employee voluntarily terminates under circumstances
constituting a “Constructive Discharge”, as defined
below (both events in this Section 5.4(a)(i) and
(ii) constituting termination without Cause for purposes of
this Agreement and the Purchase Agreement), Employee shall receive
a lump sum severance payment in an amount equal to his Base Salary
for a period of twelve (12) months, plus all unpaid Vested
Incentive Compensation, such amounts paid into the Escrow Account
(plus interest accrued thereon), and any accrued and unused
vacation time, automobile allowance and all other benefits provided
Employee as of the date of such termination.
(b) Notwithstanding the foregoing, Employee shall only be
entitled to the salary and other amounts set forth in
Section 5.4(a) in the event that he delivers a fully executed
release and waiver of all claims against Company and its affiliates
and subsidiaries substantially in the form attached as
Exhibit A hereto (the “Release
Agreement”).
(c) Employee shall be deemed to have been
“Constructively Discharged&rdq
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