Exhibit 10.1

 

SECOND AMENDMENT

TO

AMENDED AND RESTATED CREDIT AGREEMENT

 

This Second Amendment to Amended and Restated Credit Agreement, dated as of
July 9, 2010 (this “Amendment”), is entered into by and among GOLFSMITH
INTERNATIONAL, L.P., a Delaware limited partnership (“GI”), GOLFSMITH NU,
L.L.C., a Delaware limited liability company (“GN”), GOLFSMITH USA, L.L.C.
(“GUSA” and together with GI and GN, the “Borrowers”, and each individually, a
“Borrower”), the other Credit Parties party hereto, and General Electric Capital
Corporation, a Delaware corporation, as a Lender and as Agent for the Lenders
party to the Credit Agreement (in such capacity, “Agent”).

 

RECITALS

 

WHEREAS, Borrowers, Agent and Lenders are parties to that certain Amended and
Restated Credit Agreement, dated as of June 20, 2006 (as amended by the First
Amendment thereto, dated as of September 26, 2007, and as it may hereafter be
further amended, restated or otherwise modified, the “Credit Agreement”);

 

WHEREAS, Borrowers have requested that Agent and Lenders agree to amend the
Credit Agreement as and to the extent set forth in this Amendment and Agent and
Lenders are willing to do so as and to the extent, and solely as and to the
extent, and subject to the terms and conditions set forth in this Amendment; and

 

WHEREAS, this Amendment shall constitute a Loan Document and these Recitals
shall be construed as part of this Amendment.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

1.               Definitions.  Except to the extent otherwise specified herein,
capitalized terms used in this Amendment shall have the same meanings ascribed
to them in the Credit Agreement, including Annex A thereto.

 

2.               Amended Credit Agreement.  Subject to the terms and conditions
hereof, and the occurrence of the Second Amendment Effective Date (as defined in
the amended Credit Agreement attached hereto as Exhibit A), the Credit Agreement
is hereby amended as reflected in Exhibit A attached hereto.

 

3.               Representations and Warranties.

 

3.1 Each Borrower and each other Credit Party hereby represents and warrants
that the execution, delivery and performance by it of this Amendment has been
duly authorized by all necessary corporate action and that this Amendment is a
legal, valid and binding obligation of it enforceable against it in accordance
with its terms, except as the enforcement hereof may be

 

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subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors’ rights generally or to general
principles of equity.

 

3.2 The execution, delivery and performance of this Amendment by each Borrower
and each other Credit Party does not, and will not, contravene or conflict with
any provision of (a) law, (b) any judgment, decree or order, or (c) the
certificate or articles of incorporation or by-laws of any Borrower or any other
Credit Party, and does not, and will not, contravene or conflict with, or cause
any Lien to arise under, any provision of any agreement, mortgage, lease,
instrument or other document binding upon or otherwise affecting any Borrower or
any other Credit Party or any property of any Borrower or any other Credit Party
or any Subsidiary thereof.

 

3.3 Each Borrower and each other Credit Party hereby certifies that all of the
representations and warranties contained in the Credit Agreement are true and
correct in all material respects on and as of the date hereof as if made on the
date hereof (it being understood and agreed that any representation or warranty
which by its terms is made as of a specified date shall be required to be true
and correct only as of such specified date) and that no Default or Event of
Default exists under the Credit Agreement or any other Loan Document or will
exist after or be triggered by the execution and delivery of this Amendment.

 

4. Conditions to Effectiveness.  The effectiveness of this Amendment is
expressly conditioned upon the satisfaction of the following conditions
precedent in a manner reasonably acceptable to Agent:

 

4.1 Amendment.  Agent’s receipt of counterparts of this Amendment, duly executed
by each Borrower, each other Credit Party, Agent and Lenders.

 

4.2 No Default.  Both before and after giving effect to this Amendment, no
Default or Event of Default shall have occurred and be continuing or would
result from the effectiveness of this Amendment.

 

4.3 Amendment Fees.  The Borrowers shall have paid to Agent the fees set forth
in a separate agreement entered into among the Borrowers and Agent.

 

4.4 Reaffirmation of Collateral Documents.  Agent’s receipt of a reaffirmation
of each existing Collateral Document, duly executed by each Borrower, each other
Credit Party and Agent, in form and substance reasonably satisfactory to Agent.

 

4.5 Certificates of Formation and Good Standing For each Credit Party, Agent’s
receipt of (a) its articles or certificate of incorporation or certificate of
formation, as applicable, and all amendments thereto, (b) good standing
certificates (including verification of tax status) in its state of
incorporation or formation, as applicable, and (c) good standing certificates
(including verification of tax status) and certificates of qualification to
conduct business in each jurisdiction where its ownership or lease of property
or the conduct of its business requires such qualification, each dated a recent
date prior to the Second Amendment Effective Date and certified by the
applicable Secretary of State or other authorized Governmental Authority.

 

4.6 By-laws and Resolutions For each Credit Party, Agent’s receipt of (a) its
by-laws or operating agreement, as applicable, together with all amendments
thereto and (b) resolutions of

 

2

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such Person’s Board of Directors or Board of Members, as applicable, approving
and authorizing the execution, delivery and performance of this Amendment and
the transactions to be consummated in connection herewith, each certified as of
the Second Amendment Effective Date by such Person’s secretary or an assistant
secretary as being in full force and effect without any modification or
amendment.

 

4.7 Incumbency Certificates For each Credit Party, Agent’s receipt of signature
and incumbency certificates of the officers of such Person executing this
Amendment, certified as of the Second Amendment Effective Date by such Person’s
secretary or an assistant secretary as being true, accurate, correct and
complete.

 

5. Reference to and Effect Upon the Credit Agreement and other Loan Documents.

 

5.1 Except as expressly set forth herein, the Credit Agreement, the Notes and
each other Loan Document shall remain in full force and effect and each is
hereby ratified and confirmed by each Borrower and each of the other Credit
Parties.

 

5.2 The execution, delivery and effect of this Amendment shall be limited
precisely as written and shall not be deemed to (a) be a consent to any waiver
of any term or condition or an amendment or modification of any term or
condition of the Credit Agreement or any other Loan Document, except as
expressly set forth herein or in Exhibit A attached hereto, or (b) prejudice any
right, power or remedy which the Agent or any Lender now has or may have in the
future under or in connection with the Credit Agreement, the Notes or any other
Loan Document.

 

6. Counterparts.  This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed an original but all such
counterparts shall constitute one and the same instrument.  A counterpart
signature page delivered by fax or “pdf” transmission shall be as effective as
delivery of an originally executed counterpart.

 

7. GOVERNING LAW.  THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF NEW YORK.

 

8. Costs and Expenses.  As provided in the Credit Agreement, Borrowers shall
promptly pay on demand all reasonable expenses, costs and other fees (including
attorneys’ fees of counsel for Agent) incurred by Agent in connection with the
documentation and negotiation of this Amendment and the transactions
contemplated hereunder.

 

9. Headings.  Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.

 

[SIGNATURE PAGES FOLLOW]

 

3

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IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first
written above.

 

 

 

BORROWERS:

 

 

 

 

 

GOLFSMITH INTERNATIONAL, L.P.

 

By: Golfsmith GP L.L.C., as General Partner

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH NU, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH USA, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

Signature Page to Second Amendment to Credit Agreement

 

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CREDIT PARTIES:

 

 

 

 

 

GOLFSMITH INTERNATIONAL, INC.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH INTERNATIONAL HOLDINGS, INC.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH GP, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH DELAWARE, L.L.C.

 

 

 

By:

/s/ Martin E. Hanaka

 

Name: Martin E. Hanaka

 

Title: Chairman and Chief Executive Officer

 

 

 

 

 

GOLFSMITH CANADA, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

Signature Page to Second Amendment to Credit Agreement

 

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GOLFSMITH EUROPE, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH LICENSING, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH INCENTIVE SERVICES, L.L.C.

 

 

 

By:

/s/ Sue E. Gove

 

Name: Sue E. Gove

 

Title: Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

Signature Page to Second Amendment to Credit Agreement

 

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GENERAL ELECTRIC CAPITAL CORPORATION,

 

as Agent and Lender

 

 

 

By:

Peter Foley

 

Name: Peter Foley

 

Its Duly Authorized Signatory

 

Signature Page to Second Amendment to Credit Agreement

 

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EXHIBIT A TO SECOND AMENDMENT TO

 

AMENDED AND RESTATED CREDIT AGREEMENT

 

 

 

 

AMENDED AND RESTATED CREDIT AGREEMENT

 

DATED AS OF June 20, 2006

 

by and among

 

GOLFSMITH INTERNATIONAL, L.P.,

 

GOLFSMITH NU, L.L.C., and

 

GOLFSMITH USA, L.L.C.

 

as Borrowers

 

and

 

THE OTHER PERSONS PARTY HERETO THAT ARE

 

DESIGNATED AS CREDIT PARTIES

 

and

 

GENERAL ELECTRIC CAPITAL CORPORATION

 

as Agent, L/C Issuer and a Lender

 

and

 

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

 

and

 

GE CAPITAL MARKETS, INC.,
as Sole Lead Arranger and Bookrunner

 

 

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

 

Section 1.

AMOUNTS AND TERMS OF LOANS

1

 

 

 

1.1.

Loans

1

 

 

 

1.2.

Interest and Applicable Margins

7

 

 

 

1.3.

Fees

10

 

 

 

1.4.

Payments

11

 

 

 

1.5.

Prepayments

12

 

 

 

1.6.

Maturity

12

 

 

 

1.7.

Eligible Accounts

13

 

 

 

1.8.

Eligible Inventory

15

 

 

 

1.9.

Loan Accounts

16

 

 

 

1.10.

Yield Protection; Illegality

16

 

 

 

1.11.

Taxes

17

 

 

 

1.12.

(Intentionally Omitted)

19

 

 

 

1.13.

Borrower Representative

19

 

 

 

1.14.

Credit Card Collections

20

 

 

 

Section 2.

AFFIRMATIVE COVENANTS

20

 

 

 

2.1.

Compliance With Laws and Contractual Obligations

20

 

 

 

2.2.

Insurance; Damage to or Destruction of Collateral

21

 

 

 

2.3.

Inspection; Lender Meeting

22

 

 

 

2.4.

Organizational Existence

22

 

 

 

2.5.

Environmental Matters

22

 

 

 

2.6.

Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate
Purchases

23

 

 

 

2.7.

Conduct of Business

23

 

 

 

2.8.

Further Assurances

23

 

 

 

2.9.

(Intentionally Omitted)

19

 

 

 

2.10.

Cash Management Systems

24

 

 

 

Section 3.

NEGATIVE COVENANTS

24

 

 

 

3.1.

Indebtedness

24

 

 

 

3.2.

Liens and Related Matters

25

 

 

 

3.3.

Investments

26

 

 

 

3.4.

Contingent Obligations

27

 

 

 

3.5.

Restricted Payments

28

 

i

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TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

3.6.

Restriction on Fundamental Changes

29

 

 

 

3.7.

Disposal of Assets or Subsidiary Stock

29

 

 

 

3.8.

Transactions with Affiliates

30

 

 

 

3.9.

Conduct of Business

30

 

 

 

3.10.

Changes Relating to Indebtedness

30

 

 

 

3.11.

Fiscal Year

30

 

 

 

3.12.

Press Release; Public Offering Materials

30

 

 

 

3.13.

Subsidiaries

31

 

 

 

3.14.

Bank Accounts

31

 

 

 

3.15.

Hazardous Materials

31

 

 

 

3.16.

ERISA

31

 

 

 

3.17.

(Intentionally Omitted)

31

 

 

 

3.18.

Prepayments of Other Indebtedness

31

 

 

 

3.19.

Changes to Material Contracts

32

 

 

 

Section 4.

FINANCIAL REPORTING

32

 

 

 

4.1.

Financial Statements and Other Reports

32

 

 

 

4.2.

Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement

35

 

 

 

Section 5.

REPRESENTATIONS AND WARRANTIES

36

 

 

 

5.1.

Disclosure

36

 

 

 

5.2.

No Material Adverse Effect

36

 

 

 

5.3.

No Conflict

36

 

 

 

5.4.

Organization, Powers, Capitalization and Good Standing

36

 

 

 

5.5.

Financial Statements and Projections

37

 

 

 

5.6.

Intellectual Property

37

 

 

 

5.7.

Investigations, Audits, Etc.

38

 

 

 

5.8.

Employee Matters

38

 

 

 

5.9.

Solvency

38

 

 

 

5.10.

Litigation; Adverse Facts

38

 

 

 

5.11.

Use of Proceeds; Margin Regulations

38

 

 

 

5.12.

Ownership of Property; Liens

38

 

 

 

5.13.

Environmental Matters

39

 

 

 

5.14.

ERISA

39

 

ii

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TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

5.15.

Brokers

40

 

 

 

5.16.

Deposit and Disbursement Accounts

40

 

 

 

5.17.

Agreements and Other Documents

40

 

 

 

5.18.

Insurance

41

 

 

 

5.19.

Acquisition Agreement

36

 

 

 

Section 6.

DEFAULT, RIGHTS AND REMEDIES

41

 

 

 

6.1.

Event of Default

41

 

 

 

6.2.

Suspension or Termination of Commitments

43

 

 

 

6.3.

Acceleration and other Remedies

43

 

 

 

6.4.

Performance by Agent

43

 

 

 

6.5.

Application of Proceeds

44

 

 

 

Section 7.

CONDITIONS TO LOANS

44

 

 

 

7.1.

Conditions to Initial Loans

44

 

 

 

7.2.

Conditions to All Loans

45

 

 

 

Section 8.

ASSIGNMENT AND PARTICIPATION

46

 

 

 

8.1.

Assignment and Participations

46

 

 

 

8.2.

Agent

48

 

 

 

8.3.

Set Off and Sharing of Payments

52

 

 

 

8.4.

Disbursement of Funds

52

 

 

 

8.5.

Disbursements of Advances; Payment

53

 

 

 

Section 9.

MISCELLANEOUS

55

 

 

 

9.1.

Indemnities

55

 

 

 

9.2.

Amendments and Waivers

55

 

 

 

9.3.

Notices

56

 

 

 

9.4.

Failure or Indulgence Not Waiver; Remedies Cumulative

58

 

 

 

9.5.

Marshaling; Payments Set Aside

58

 

 

 

9.6.

Severability

59

 

 

 

9.7.

Lenders’ Obligations Several; Independent Nature of Lenders’ Rights

59

 

 

 

9.8.

Headings

59

 

 

 

9.9.

Applicable Law

59

 

 

 

9.10.

Successors and Assigns

59

 

 

 

9.11.

No Fiduciary Relationship; Limited Liability

59

 

iii

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TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

9.12.

Construction

59

 

 

 

9.13.

Confidentiality

59

 

 

 

9.14.

CONSENT TO JURISDICTION

60

 

 

 

9.15.

WAIVER OF JURY TRIAL

60

 

 

 

9.16.

Survival of Warranties and Certain Agreements

61

 

 

 

9.17.

Entire Agreement

61

 

 

 

9.18.

Counterparts; Effectiveness

61

 

 

 

9.19.

Replacement of Lenders

61

 

 

 

9.20.

Delivery of Termination Statements

62

 

 

 

9.21.

Amendment and Restatement

62

 

 

 

Section 10.

CROSS-GUARANTY

63

 

 

 

10.1.

Cross-Guaranty

63

 

 

 

10.2.

Waivers by Borrowers

63

 

 

 

10.3.

Benefit of Guaranty

64

 

 

 

10.4.

Waiver of Subrogation, Etc.

64

 

 

 

10.5.

Election of Remedies

64

 

 

 

10.6.

Limitation

64

 

 

 

10.7.

Contribution with Respect to Guaranty Obligations

65

 

 

 

10.8.

Liability Cumulative

65

 

iv

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INDEX OF APPENDICES

 

Annexes

 

 

 

 

 

 

 

 

 

Annex A

 

-

 

Definitions

Annex B

 

-

 

Pro Rata Shares and Commitment Amounts

Annex C

 

-

 

Closing Checklist

Annex D

 

-

 

Intentionally Omitted

Annex E

 

-

 

Lenders’ Wire Transfer Information

Annex F

 

-

 

Cash Management Systems

 

 

 

 

 

Exhibits

 

 

 

 

 

 

 

 

 

Exhibit 1.1(a)(i)

 

-

 

Revolving Note

Exhibit 1.1(a)(ii)

 

-

 

Notice of Revolving Credit Advance

Exhibit 1.1(c)

 

-

 

Swing Line Note

Exhibit 1.2(e)

 

-

 

Notice of Continuation/Conversion

Exhibit 1.11(c)

 

-

 

Form of Non-Bank Certificate

Exhibit 4.1(d)

 

-

 

Borrowing Base Certificate

Exhibit 4.1(k)

 

-

 

Compliance Certificate

Exhibit 8.1

 

-

 

Assignment Agreement

Exhibit A1

 

-

 

Master Documentary Agreement

Exhibit A2

 

-

 

Master Standby Agreement

Exhibit A3

 

-

 

Intercompany Subordination Agreement

 

 

 

 

 

Schedules

 

 

 

 

 

 

 

 

 

Schedule 1.14

 

-

 

Credit Card Collections

Schedule 2.7

 

-

 

Corporate and Trade Names

Schedule 3.2

 

-

 

Liens

Schedule 3.3

 

-

 

Investments

Schedule 3.4

 

-

 

Contingent Obligations

Schedule 3.8

 

-

 

Affiliate Transactions

Schedule 3.9

 

-

 

Business Description

Schedule 5.4(a)

 

-

 

Jurisdictions of Organization and Qualifications

Schedule 5.4(b)

 

-

 

Capitalization

Schedule 5.6

 

-

 

Intellectual Property

Schedule 5.7

 

-

 

Investigations and Audits

Schedule 5.8

 

-

 

Employee Matters

Schedule 5.10

 

-

 

Litigation

Schedule 5.11

 

-

 

Use of Proceeds

Schedule 5.12

 

-

 

Real Estate

Schedule 5.13

 

-

 

Environmental Matters

Schedule 5.14

 

-

 

ERISA

Schedule 5.16

 

-

 

Deposit and Disbursement Accounts

Schedule 5.17

 

-

 

Agreements and Other Documents

Schedule 5.18

 

-

 

Insurance

 

v

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AMENDED AND RESTATED CREDIT AGREEMENT

 

This AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June 20, 2006 and
entered into by and among GOLFSMITH INTERNATIONAL, L.P., a Delaware limited
partnership (“LP”), GOLFSMITH NU, L.L.C., a Delaware limited liability company
(“NU”), GOLFSMITH USA, L.L.C., a Delaware limited liability company (“USA”) (LP,
NU and USA are sometimes referred to herein as “Borrowers” and individually as a
“Borrower”), the other persons designated as “Credit Parties” on the signature
pages hereof, the financial institutions who are or hereafter become parties to
this Agreement as Lenders, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware
corporation (in its individual capacity “GE Capital”), as a Lender, as the
initial L/C Issuer and as Agent and GE CAPITAL MARKETS, INC., as Sole Lead
Arranger and Bookrunner (“GECM”).

 

R E C I T A L S:

 

WHEREAS, Borrowers desire that Lenders extend a revolving credit facility to
Borrowers to retire certain senior secured notes, to fund certain fees and
expenses in connection therewith and the entering into of this Agreement and to
fund working capital and general corporate purposes of Borrowers; and

 

WHEREAS, Borrowers desire to secure all of their Obligations under the Loan
Documents by granting to Agent, for the benefit of Agent and Lenders, a security
interest in and lien upon substantially all of their existing and after-acquired
real and personal property; and

 

WHEREAS, Golfsmith International Holdings, Inc., a Delaware corporation
(“Holdings”), that indirectly owns all of the Stock of Borrowers is willing to
guaranty all of the Obligations and to pledge to Agent, for the benefit of Agent
and Lenders, as security for the Obligations, all of the Stock of Golfsmith
International, Inc. (“GII”), a Delaware corporation, which either directly or
indirectly owns all of the Stock of Borrowers and GII’s other Subsidiaries; and

 

WHEREAS, each of GII, GII’s Subsidiaries other than Borrowers and Borrowers’
Subsidiaries is willing to guaranty all of the Obligations of Borrowers and to
grant to Agent, for the benefit of Agent and Lenders, as security for the
Obligations, a security interest in and lien upon substantially all of its
existing and after acquired real and personal property; and

 

WHEREAS, all capitalized terms herein shall have the meanings ascribed thereto
in Annex A hereto which is incorporated herein by reference.

 

NOW, THEREFORE, in consideration of the premises and the agreements, provisions
and covenants herein contained, Borrowers, Credit Parties, Lenders and Agent
agree as follows:

 

SECTION 1.

 

AMOUNTS AND TERMS OF LOANS

 

1.1.          Loans.  Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Borrowers and the other
Credit Parties contained herein:

 

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(a)           Revolving Loans.

 

(i)            Each Revolving Lender agrees, severally and not jointly, to make
available to Borrowers from time to time from the Closing Date until the
Commitment Termination Date its Pro Rata Share of advances (each a “Revolving
Credit Advance”) requested by Borrower Representative on behalf of the Borrowers
hereunder; provided that no Revolving Credit Advance shall be made in an amount
less than $250,000.  The Pro Rata Share of the Revolving Loan of any Revolving
Lender (including, without duplication, Swing Line Loans) shall not at any time
exceed its separate Revolving Loan Commitment.  Revolving Credit Advances may be
repaid and reborrowed; provided that the amount of any Revolving Credit Advance
to be made at any time shall not exceed Borrowing Availability.  Borrowing
Availability may be further reduced by Reserves imposed by Agent after notice to
Borrowers in its reasonable credit judgment.  All Revolving Loans shall be
repaid in full on the Commitment Termination Date.  Each Borrower shall execute
and deliver to each Revolving Lender a promissory note to evidence the Revolving
Loan Commitment of that Revolving Lender.  Each promissory note shall be in the
principal amount of the Revolving Loan Commitment of the applicable Revolving
Lender, dated the Closing Date and substantially in the form of Exhibit
1.1(a)(i) (each a “Revolving Note” and, collectively, the “Revolving Notes”). 
Other than pursuant to Section 1.1(a)(ii), if at any time the outstanding
Revolving Loans (including Swingline Loans) exceed the Borrowing Base (any such
excess Revolving Loans are herein referred to collectively as “Overadvances”),
Lenders shall not be obligated to make Revolving Credit Advances, no additional
Letters of Credit shall be issued and, except as provided in Section 1.1(a)(ii)
below, Revolving Loans must be repaid immediately and Letters of Credit cash
collateralized in an amount sufficient to eliminate any Overadvances.  All
Overadvances shall constitute Index Rate Loans and shall bear interest at the
Default Rate.  Revolving Loans which are Index Rate Loans may be requested in
any amount with one (1) Business Day prior written notice required for funding
requests equal to or greater than $5,000,000.  For funding requests for such
Loans less than $5,000,000, written notice must be provided by 1:00 p.m. (New
York time) on the Business Day on which the Loan is to be made.  All LIBOR Loans
require three (3) Business Days prior written notice. Written notices for
funding requests shall be in the form attached as Exhibit 1.1(a)(ii) (“Notice of
Revolving Credit Advance”).

 

(ii)           If Borrower Representative on behalf of Borrowers requests that
Revolving Lenders make, or permit to remain outstanding any Overadvances, Agent
may, in its sole discretion, elect to make, or permit to remain outstanding such
Overadvances; provided, however, that Agent may not cause Revolving Lenders to
make, or permit to remain outstanding, (a) aggregate Revolving Loans in excess
of the Maximum Amount or (b) Overadvances in an aggregate amount in excess of 5%
of the Revolving Loan Commitment.  If an Overadvance is made, or permitted to
remain outstanding, pursuant to the preceding sentence, then all Revolving
Lenders shall be bound to make, or permit to remain outstanding such Overadvance
based upon their Pro Rata Shares of the Revolving Loan Commitments in accordance
with the terms of this Agreement.  If an Overadvance remains outstanding for
more than ninety (90) days during any one hundred eighty (180) day period,
Revolving Loans must be repaid immediately in an amount sufficient to eliminate
all of such Overadvances.  Furthermore, holders of a majority of the Revolving
Loan Commitment may prospectively revoke Agent’s ability to make or permit
Overadvances by written notice to Agent.  Any Overadvance may be made as a Swing
Line Advance.

 

(b)           [Intentionally Omitted].

 

2

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(c)           Swing Line Facility.

 

(i)            Agent shall notify the Swing Line Lender upon Agent’s receipt of
any Notice of Revolving Credit Advance.  Subject to the terms and conditions
hereof, the Swing Line Lender may, in its discretion, make available from time
to time from the Closing Date until the Termination Date advances (each, a
“Swing Line Advance”) in accordance with any such notice. The provisions of this
Section 1.1(c) shall not relieve Revolving Lenders of their obligations to make
Revolving Credit Advances under Section 1.1(a); provided that if the Swing Line
Lender makes a Swing Line Advance pursuant to any such notice, such Swing Line
Advance shall be in lieu of any Revolving Credit Advance that otherwise may be
made by Revolving Lenders pursuant to such notice.  The aggregate amount of
Swing Line Advances outstanding shall not exceed at any time the lesser of (A)
the Swing Line Commitment and (B) the lesser of the Maximum Amount and (except
for Overadvances) the Borrowing Base, in each case, less the outstanding balance
of the Revolving Loan at such time (“Swing Line Availability”); provided, that,
the amount of any Swing Line Advance to be made at any time shall not exceed
Borrowing Availability.  Until the Termination Date, Borrowers may from time to
time borrow, repay and reborrow under this Section 1.1(c).  Each Swing Line
Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered
to Agent by Borrower Representative on behalf of the applicable Borrower in
accordance with Section 1.1(a).  Any such notice must be given no later than
1:00 p.m. (New York time) on the Business Day of the proposed Swing Line
Advance.  Unless the Swing Line Lender has received at least one Business Day’s
prior written notice from Requisite Lenders instructing it not to make a Swing
Line Advance, the Swing Line Lender shall, notwithstanding the failure of any
condition precedent set forth in Sections 7.2, be entitled to fund that Swing
Line Advance, and to have each Revolving Lender make Revolving Credit Advances
in accordance with Section 1.1(c)(iii) or purchase participating interests in
accordance with Section 1.1(c)(iv).  Notwithstanding any other provision of this
Agreement or the other Loan Documents, the Swing Line Loan shall constitute an
Index Rate Loan.  Borrowers shall repay the aggregate outstanding principal
amount of the Swing Line Loan upon demand therefor by Agent.

 

(ii)           Borrowers shall execute and deliver to the Swing Line Lender a
promissory note to evidence the Swing Line Commitment.  This note shall be in
the principal amount of the Swing Line Commitment of the Swing Line Lender,
dated the Closing Date and substantially in the form of Exhibit 1.1(c) (the
“Swing Line Note”). Each Swing Line Note shall represent the obligation of
Borrowers to pay the amount of the Swing Line Commitment or, if less, the
aggregate unpaid principal amount of all Swing Line Advances made to Borrowers
together with interest thereon as prescribed in Section 1.5.  The entire unpaid
balance of the Swing Line Loan and all other noncontingent Obligations shall be
immediately due and payable in full in immediately available funds on the
Termination Date if not sooner paid in full.

 

(iii)          If no Revolving Lender is a Non-Funding Lender, the Swing Line
Lender, at any time and from time to time no less frequently than once weekly
shall on behalf of any Borrower (and each Borrower hereby irrevocably authorizes
the Swing Line Lender to so act on its behalf) request each Revolving Lender
(including the Swing Line Lender) to make a Revolving Credit Advance to each
Borrower (which shall be an Index Rate Loan) in an amount equal to that
Revolving Lender’s Pro Rata Share of the principal amount of the applicable
Borrower’s Swing Line Loan (the “Refunded Swing Line Loan”) outstanding on the
date such notice is given.  Unless any of the events described in Sections
6.1(f) or 6.1(g) has occurred (in which event the procedures of Section
1.1(c)(iv) shall apply) and regardless of whether the conditions precedent set
forth in this Agreement to the making of a Revolving Credit Advance are then
satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata
Share of a Revolving Credit Advance on behalf of the Swing Line Lender prior to
3:00 p.m. (New York time) in immediately available funds on the Business Day
next succeeding the date that notice is given.  The proceeds of those Revolving
Credit Advances shall be immediately paid to the Swing Line Lender and applied
to repay the Refunded Swing Line Loan of the applicable Borrower.  If any
Revolving Lender is a Non-Funding Lender, that Non-Funding Lender’s
reimbursement obligations with respect to the Swing Line Loans shall be
allocated to and assumed by the other Revolving Lenders pro rata in

 

3

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accordance with their Pro Rata Share (calculated as if the Non-Funding Lender’s
Pro Rata Share was reduced to zero and each other Revolving Lender’s Pro Rata
Share had been increased proportionately).  If any Revolving Lender is a
Non-Funding Lender, upon receipt of the request described above, each Revolving
Lender that is not a Non-Funding Lender will be obligated to disburse to Agent
its Pro Rata Share (calculated as if the Non-Funding Lender’s Pro Rata Share was
reduced to zero and each other Revolving Lender’s Pro Rata Share had been
increased proportionately) of the Refunded Swing Line Loan; provided that no
Revolving Lender shall be required to fund any amount which would result in the
sum of its outstanding Revolving Loans, outstanding Letter of Credit Obligations
(increased as described in Section 1.1(d)(ii)), the amount of its participation
in Swing Line Loans and its pro rata share of unparticipated amounts in Swing
Line Loans (increased as described above) to exceed its Revolving Loan
Commitment.

 

(iv)          If, prior to refunding a Swing Line Loan with a Revolving Credit
Advance pursuant to Section 1.1(c)(iii), one of the events described in Sections
6.1(f) or 6.1(g)  has occurred, then, subject to the provisions of Section
1.1(c)(v) below, each Revolving Lender shall, on the date such Revolving Credit
Advance was to have been made for the benefit of the applicable Borrower,
purchase from the Swing Line Lender an undivided participation interest in the
Swing Line Loan to such Borrower in an amount equal to its Pro Rata Share of
such Swing Line Loan.  Upon request, each Revolving Lender shall promptly
transfer to the Swing Line Lender, in immediately available funds, the amount of
its participation interest.

 

(v)           Each Revolving Lender’s obligation to make Revolving Credit
Advances in accordance with Section 1.1(c)(iii) and to purchase participation
interests in accordance with Section 1.1(c)(iv) shall be absolute and
unconditional and shall not be affected by any circumstance, including (A) any
setoff, counterclaim, recoupment, defense or other right that such Revolving
Lender may have against the Swing Line Lender, any Borrower or any other Person
for any reason whatsoever; (B) the occurrence or continuance of any Default or
Event of Default; (C) any inability of any Borrower to satisfy the conditions
precedent to borrowing set forth in this Agreement at any time or (D) any other
circumstance, happening or event whatsoever, whether or not similar to any of
the foregoing.  If any Revolving Lender does not make available to Agent or the
Swing Line Lender, as applicable, the amount required pursuant to Sections
1.1(c)(iii) or 1.1(c)(iv), as the case may be, the Swing Line Lender shall be
entitled to recover such amount on demand from such Revolving Lender, together
with interest thereon for each day from the date of non-payment until such
amount is paid in full at the Federal Funds Rate for the first two Business Days
and at the Index Rate thereafter.

 

(d)           Letters of Credit.  The Revolving Loan Commitment may, in addition
to advances under the Revolving Loan, be utilized, upon the request of Borrower
Representative on behalf of the applicable Borrower, for the issuance of Letters
of Credit.  Immediately upon the issuance by an L/C Issuer of a Letter of
Credit, and without further action on the part of Agent or any of the Lenders,
each Revolving Lender shall be deemed to have purchased from such L/C Issuer a
participation in such Letter of Credit (or in its obligation under a risk
participation agreement with respect thereto) equal to such Revolving Lender’s
Pro Rata Share of the aggregate amount available to be drawn under such Letter
of Credit.  Issuance of Letters of Credit shall be subject to the limits of
Section 1.1(a).  Furthermore, GE Capital as an L/C Issuer may elect only to
issue Letters of Credit in its own name and may only issue Letters of Credit to
the extent permitted by requirements of all applicable laws, rules, regulations
and orders of any Governmental Authority, and such Letters of Credit may not be
accepted by certain beneficiaries such as insurance companies.  If (i) any
Lender is a Non-Funding Lender or Agent determines that any of the Lenders is an
Impacted Lender and (ii) the reallocation of that Non-Funding Lender’s or
Impacted Lender’s Letter of Credit Obligations to the other Revolving Lenders
would reasonably be expected to cause the Letter of Credit Obligations and

 

4

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Revolving Loans of any Lender to exceed its Revolving Loan Commitment, taking
into account the amount of outstanding Revolving Loans and expected advances of
Revolving Loans as determined by Agent, then no Letters of Credit may be issued
or renewed unless the Non-Funding Lender or Impacted Lender has been replaced,
the Letter of Credit Obligations of that Non-Funding Lender or Impacted Lender
have been cash collateralized, or the Revolving Loan Commitments of the other
Lenders have been increased by an amount sufficient to satisfy Agent that all
future Letter of Credit Obligations will be covered by all Revolving Lenders who
are not Non-Funding Lenders or Impacted Lenders.

 

(i)            Maximum Amount.  The aggregate amount of Letter of Credit
Obligations with respect to all Letters of Credit outstanding at any time shall
not exceed $5,000,000 (“L/C Sublimit”).

 

(ii)           Reimbursement.  Borrowers shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind (including for purposes of Section 10), to
reimburse any L/C Issuer on demand in immediately available funds for any
amounts paid by such L/C Issuer with respect to a Letter of Credit, including
all reimbursement payments, Fees, Charges, costs and expenses paid by such L/C
Issuer.  Borrowers hereby authorize and direct Agent, at Agent’s option, to
debit Borrowers’ account (by increasing the outstanding principal balance of the
Revolving Credit Advances or Swing Line Advances made to Borrower) in the amount
of any payment made by an L/C Issuer with respect to any Letter of Credit.  All
amounts paid by an L/C Issuer with respect to any Letter of Credit that are not
repaid on the same Business Day by Borrowers with the proceeds of a Revolving
Credit Advance, Swing Line Advance or otherwise shall bear interest at the
interest rate applicable to Revolving Loans which are Index Rate Loans plus, if
such amounts are not paid within one (1) Business Day after such demand, at the
election of Agent or Requisite Revolving Lenders, an additional two percent
(2.00%) per annum.  Each Revolving Lender agrees to fund its Pro Rata Share of
any Revolving Loan made pursuant to this Section 1.1(d)(ii).  In the event Agent
elects not to debit Borrowers’ account and Borrowers fail to reimburse the L/C
Issuer in full on the date of any payment in respect of a Letter of Credit,
Agent shall promptly notify each Revolving Lender of the amount of such
unreimbursed payment and the accrued interest thereon and, if no Revolving
Lender is a Non-Funding Lender (or if the only Non-Funding Lender is the L/C
Issuer that issued such Letter of Credit), each Revolving Lender, on the next
Business Day prior to 3:00 p.m. (New York time), shall deliver to Agent an
amount equal to its Pro Rata Share thereof in same day funds.  If any Revolving
Lender (other than the Revolving Lender that is also the L/C Issuer that issued
such Letter of Credit) is a Non-Funding Lender, that Non-Funding Lender’s Letter
of Credit Obligations shall be reallocated to and assumed by the other Revolving
Lenders pro rata in accordance with their Pro Rata Shares of the Revolving Loan
Commitment (calculated as if the Non-Funding Lender’s Pro Rata Share was reduced
to zero and each other Revolving Lender’s Pro Rata Share had been increased
proportionately).  If any Revolving Lender (other than the Revolving Lender that
is also the L/C Issuer that issued such Letter of Credit) is a Non-Funding
Lender, upon payment by Agent or any Revolving Lender on or pursuant to any
Letter of Credit, each Revolving Lender that is not a Non-Funding Lender shall
pay to Agent for the account of such L/C Issuer its Pro Rata Share (increased as
described above) of the Letter of Credit Obligations that from time to time
remain outstanding; provided that no Revolving Lender shall be required to fund
any amount which would result in the sum of its outstanding Revolving Loans,
outstanding Letter of Credit Obligations, the amounts of its participation in
Swing Loans and its pro rata share of unparticipated amounts in Swing Line Loans
(each as increased as described in Section 1.1(c)(iii)) to exceed its Revolving
Loan Commitment.  Each Revolving Lender hereby absolutely and unconditionally
agrees to pay to the L/C Issuer upon demand by the L/C Issuer such Revolving
Lender’s Pro Rata Share (including as adjusted as provided above) of each
payment made by the L/C Issuer in respect of a Letter of Credit and not

 

5

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immediately reimbursed by Borrowers or satisfied through a debit of Borrowers’
account.  Each Revolving Lender acknowledges and agrees that its obligations
pursuant to this subsection in respect of Letters of Credit are absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including setoff, counterclaim, the occurrence and continuance of a Default or
an Event of Default or any failure by Borrowers to satisfy any of the conditions
set forth in Section 7.2.  If any Revolving Lender fails to make available to
the L/C Issuer the amount of such Revolving Lender’s Pro Rata Share of any
payments made by the L/C Issuer in respect of a Letter of Credit as provided in
this Section 1.1(d)(ii), the L/C Issuer shall be entitled to recover such amount
on demand from such Revolving Lender together with interest at the Index Rate.

 

(iii)                               Request for Letters of Credit.  Borrower
Representative shall give Agent at least three (3) Business Days prior written
notice specifying the date a Letter of Credit is requested to be issued, the
amount and the name and address of the beneficiary, the name of the Borrower on
whose behalf such Letter of Credit is to be issued and a description of the
transactions proposed to be supported thereby.  If Agent informs Borrower
Representative that the L/C Issuer cannot issue the requested Letter of Credit
directly, such Borrower Representative may request that L/C Issuer arrange for
the issuance of the requested Letter of Credit under a risk participation
agreement with another financial institution reasonably acceptable to Agent, L/C
Issuer and Borrower Representative.  The issuance of any Letter of Credit under
this Agreement shall be subject to the conditions that the Letter of Credit (i)
supports a transaction entered into in the ordinary course of business of
Borrowers and (ii) is in a form and contains such terms and conditions as are
reasonably satisfactory to the L/C Issuer and, in the case of standby letters of
credit, Agent.  The initial notice requesting the issuance of a Letter of Credit
shall be accompanied by the form of the Letter of Credit and the Master Standby
Agreement or Master Documentary Agreement, as applicable, and an application for
a letter of credit, if any, then required by the L/C Issuer completed in a
manner satisfactory to such L/C Issuer.  If any provision of any application or
reimbursement agreement is inconsistent with the terms of this Agreement, then
the provisions of this Agreement, to the extent of such inconsistency, shall
control.

 

(iv)                              Expiration Dates of Letters of Credit.  The
expiration date of each Letter of Credit shall be on a date which is not later
than the earlier of (a) one year from its date of issuance or (b) the thirtieth
(30th) day prior to the date set forth in clause (a) of the definition of the
term Commitment Termination Date. Notwithstanding the foregoing, a Letter of
Credit may provide for automatic extensions of its expiration date for one (1)
or more successive one (1) year periods provided that the L/C Issuer has the
right to terminate such Letter of Credit on each such annual expiration date and
no renewal term may extend the term of the Letter of Credit to a date that is
later than the thirtieth (30th) day prior to the date set forth in clause (a) of
the definition of the term Commitment Termination Date.  The L/C Issuer may
elect not to renew any such Letter of Credit and, upon direction by Agent or
Requisite Lenders, shall not renew any such Letter of Credit at any time during
the continuance of an Event of Default, provided that, in the case of a
direction by Agent or Requisite Lenders, the L/C Issuer receives such directions
prior to the date notice of non-renewal is required to be given by the L/C
Issuer and the L/C Issuer has had a reasonable period of time to act on such
notice.

 

(v)                                 Obligations Absolute.  The obligation of
Borrowers to reimburse the L/C Issuer, Agent and Lenders for payments made in
respect of Letters of Credit issued by the L/C Issuer shall be unconditional and
irrevocable and shall be paid under all circumstances strictly in accordance
with the terms of this Agreement, including the following circumstances: (a) any
lack of validity or enforceability of any Letter of Credit; (b) any amendment or
waiver of or any consent or departure from all or any of the provisions of any
Letter of Credit or any Loan Document; (c) the existence of any claim, set-off,
defense or other right which Borrowers, any of their Subsidiaries or Affiliates
or any other Person may at any time have against any beneficiary of any Letter
of Credit, Agent, any L/C Issuer, any Lender or any other

 

6

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Person, whether in connection with this Agreement, any other Loan Document or
any other related or unrelated agreements or transactions; (d) any draft or
other document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect; (e) payment under any Letter of
Credit against presentation of a draft or other document that does not
substantially comply with the terms of such Letter of Credit; or (f) any other
act or omission to act or delay of any kind of any L/C Issuer, Agent, any Lender
or any other Person or any other event or circumstance whatsoever that might,
but for the provisions of this Section 1.1(d)(v), constitute a legal or
equitable discharge of Borrowers’ obligations hereunder.

 

(vi)                              Obligations of L/C Issuers.  Each L/C Issuer
(other than GE Capital) hereby agrees that it will not issue a Letter of Credit
hereunder until it has provided Agent with written notice specifying the amount
and intended issuance date of such Letter of Credit and Agent has returned a
written acknowledgment of such notice to L/C Issuer.  Each L/C Issuer (other
than GE Capital) further agrees to provide to Agent:  (a) a copy of each Letter
of Credit issued by such L/C Issuer promptly after its issuance; (b) a weekly
report summarizing available amounts under Letters of Credit issued by such L/C
Issuer, the dates and amounts of any draws under such Letters of Credit, the
effective date of any increase or decrease in the face amount of any Letters of
Credit during such week and the amount of any unreimbursed draws under such
Letters of Credit; and (c) such additional information reasonably requested by
Agent from time to time with respect to the Letters of Credit issued by such L/C
Issuer.  Without limiting the generality of the foregoing, it is expressly
understood and agreed by Borrowers that the absolute and unconditional
obligation of Borrowers to Agent and Lenders hereunder to reimburse payments
made under a Letter of Credit will not be excused by the gross negligence or
willful misconduct of the L/C Issuer.  However, the foregoing shall not be
construed to excuse an L/C Issuer from liability to Borrowers to the extent of
any direct damages (as opposed to consequential damages, with Borrowers hereby
waiving all claims for any consequential damages to the extent permitted by
applicable law) suffered by Borrowers that are subject to indemnification under
the Master Standby Agreement or the Master Documentary Agreement.

 

(e)                                  Funding Authorization.  The proceeds of all
Loans made pursuant to this Agreement subsequent to the Closing Date are to be
funded by Agent by wire transfer to the account designated by Borrower
Representative (the “Disbursement Account”) or such other account as Borrower
Representative may notify Agent in writing at least three (3) Business Days
before the desired effective date of such change.

 

1.2.                              Interest and Applicable Margins.

 

(a)                                  Borrowers shall pay interest to Agent, for
the ratable benefit of Lenders, in accordance with the Loans being made by each
Lender (or in the case of the Swing Line Loan, for the benefit of the Swing Line
Lender), in arrears on each applicable Interest Payment Date, at the following
per annum rates: (i) with respect to the Revolving Credit Advances which are
designated as Index Rate Loans, the Index Rate plus the Applicable Revolver
Index Margin or, with respect to Revolving Credit Advances which are designated
as LIBOR Loans, at the election of Borrower Representative, the applicable LIBOR
Rate plus the Applicable Revolver LIBOR Margin; and (ii) with respect to the
Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin.

 

7

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As of the Second Amendment Effective Date, the Applicable Margins are as
follows:

 

Applicable Revolver Index Margin

 

0.25

%

 

 

 

 

Applicable Revolver LIBOR Margin

 

2.75

%

 

 

 

 

Applicable L/C Margin

 

2.75

%

 

The Applicable Margins shall be adjusted (up or down) prospectively on a
quarterly basis on the first Business Day of each Fiscal Quarter as determined
by average daily Borrowing Availability for the immediately preceding Fiscal
Quarter, commencing January 1, 2011.  Adjustments in Applicable Margins will be
determined by reference to the following grids:

 

 

 

Applicable Margins:

 

If Average Daily Borrowing Availability for
the Immediately Preceding Fiscal Quarter is:

 

Revolving Index

 

Revolving LIBOR and
L/C

 

> $20,000,000

 

0.00

%

2.50

%

> $10,000,000 and < $20,000,000

 

0.25

%

2.75

%

< $10,000,000

 

0.50

%

3.00

%

 

In the event that EBITDA for the Fiscal Year ending on or about December 31,
2010 exceeds $11,800,000, then beginning on the first anniversary of the Second
Amendment Effective Date, the Applicable Margins shall be reset as described
below:

 

If Average Daily Borrowing Availability for

 

Applicable Margins:

 

the Immediately Preceding Fiscal Quarter
is:

 

Revolving Index

 

Revolving LIBOR and
L/C

 

> $20,000,000

 

0.00

%

2.25

%

> $10,000,000 and < $20,000,000

 

0.00

%

2.50

%

< $10,000,000

 

0.25

%

2.75

%

 

Borrower shall deliver to Agent and Lenders a certificate, signed by its chief
financial officer, setting forth in reasonable detail the basis for the
continuance of, or any change in, the Applicable Margins.  If any Default or an
Event of Default has occurred and is continuing at the time any reduction in the
Applicable Margins is to be implemented, that reduction shall be deferred until
the first day of the first calendar month following the date on which all
Defaults or Events of Default are waived or cured.

 

(b)                                 If any payment on any Loan becomes due and
payable on a day other than a Business Day, the maturity thereof will be
extended to the next succeeding Business Day (except as set forth in the
definition of LIBOR Period) and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.

 

8

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(c)                                  All computations of Fees calculated on a
per annum basis and interest shall be made by Agent on the basis of a 360-day
year, in each case for the actual number of days occurring in the period for
which such Fees and interest are payable.  The Index Rate is a floating rate
determined for each day.  Each determination by Agent of an interest rate and
Fees hereunder shall be final, binding and conclusive on Borrowers, absent
manifest error.

 

(d)                                 So long as an Event of Default has occurred
and is continuing under Section 6.1(a), (f) or (g) and without notice of any
kind, or so long as any other Event of Default has occurred and is continuing
and at the election of Agent (or upon the written request of Requisite Lenders)
confirmed by written notice from Agent to Borrower Representative, the interest
rates applicable to the Loans and the Letter of Credit Fee shall be increased by
two percentage points (2%) per annum above the rates of interest or the rate of
such Fee otherwise applicable hereunder (“Default Rate”) and all outstanding
Obligations shall bear interest at the Default Rate applicable to such
Obligations.  Interest and Letter of Credit Fees at the Default Rate shall
accrue from the initial date of any such Event of Default until such Event of
Default is cured or waived and shall be payable upon demand, but in any event,
shall be payable on the next regularly scheduled payment date set forth herein
for such Obligation.

 

Borrower Representative shall have the option to (i) request that any Revolving
Credit Advance be made as a LIBOR Loan, (ii) convert at any time all or any part
of outstanding Loans from Index Rate Loans to LIBOR Loans, (iii) convert any
LIBOR Loan to an Index Rate Loan, subject to payment of the LIBOR Breakage Fee
in accordance with Section 1.3(e) if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan as a LIBOR Loan upon the expiration of the applicable LIBOR
Period and the succeeding LIBOR Period of that continued Loan shall commence on
the first day after the last day of the LIBOR Period of the Loan to be
continued.  Any Loan or group of Loans having the same proposed LIBOR Period to
be made or continued as, or converted into, a LIBOR Loan must be in a minimum
amount of $250,000 and integral multiples of $100,000 in excess of such amount. 
Any such election must be made by 1:00 p.m. (New York time) on the third
Business Day prior to (1) the date of any proposed Revolving Credit Advance
which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period
with respect to any LIBOR Loans to be continued as such, or (3) the date on
which Borrower Representative wishes to convert any Index Rate Loan to a LIBOR
Loan for a LIBOR Period designated by Borrower Representative in such election. 
If no election is received with respect to a LIBOR Loan by 1:00 p.m. (New York
time) on the third Business Day prior to the end of the LIBOR Period with
respect thereto, that LIBOR Loan shall be converted to an Index Rate Loan at the
end of its LIBOR Period.  Borrower Representative must make such election by
notice to Agent in writing, by fax or overnight courier.  In the case of any
conversion or continuation, such election must be made pursuant to a written
notice (a “Notice of Conversion/Continuation”) in the form of Exhibit 1.2(e). 
No Loan shall be made, converted into or continued as a LIBOR Loan, if an Event
of Default has occurred and is continuing and Agent or Requisite Lenders have
determined not to make or continue any Loan as a LIBOR Loan as a result thereof.

 

(e)                                  Notwithstanding anything to the contrary
set forth in this Section 1.2, if a court of competent jurisdiction determines
in a final order that the rate of interest payable hereunder exceeds the highest
rate of interest permissible under law (the “Maximum Lawful Rate”), then so long
as the Maximum Lawful Rate would be so exceeded, the rate of interest payable
hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if
at any time thereafter the rate of interest payable hereunder is less than the
Maximum Lawful Rate, Borrowers shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest received by Agent, on
behalf of Lenders, is equal to the total interest that would have been received
had the interest rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the Closing Date as otherwise
provided in this Agreement.  Thereafter, interest hereunder shall be paid at the
rate(s) of interest and in the manner

 

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provided in Sections 1.2(a) through (e), unless and until the rate of interest
again exceeds the Maximum Lawful Rate, and at that time this paragraph shall
again apply.  In no event shall the total interest received by any Lender
pursuant to the terms hereof exceed the amount that such Lender could lawfully
have received had the interest due hereunder been calculated for the full term
hereof at the Maximum Lawful Rate.  If the Maximum Lawful Rate is calculated
pursuant to this paragraph, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made.  If, notwithstanding the provisions of this
Section 1.2(f), a court of competent jurisdiction shall determine by a final,
non-appealable order that a Lender has received interest hereunder in excess of
the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law,
promptly apply such excess as specified in Section 1.5(e) and thereafter shall
refund any excess to Borrowers or as such court of competent jurisdiction may
otherwise order.

 

1.3.                              Fees.

 

(a)                                  Fee Letter.  Borrowers shall pay to GE
Capital, individually, the Fees specified in that certain fee letter dated as of
June 20, 2006, between Borrowers and GE Capital (as may be amended from time to
time, the “GE Capital Fee Letter”), at the times specified for payment therein.

 

(b)                                 Unused Line Fee.  As additional compensation
for the Revolving Lenders, Borrowers shall pay to Agent, for the ratable benefit
of such Lenders, in arrears, on the first Business Day of each month prior to
the Commitment Termination Date and on the Commitment Termination Date, a fee
for Borrowers’ non-use of available funds in an amount equal to three-eighths of
one percent (0.375%) per annum multiplied by the difference between (x) the
Maximum Amount (as it may be adjusted from time to time) and (y) the average for
the period of the daily closing balances of the Revolving Loan (including,
without duplication, Swing Line Loans) outstanding during the period for which
such Fee is due (the “Average Daily Loan Balance”).

 

(c)                                  (Intentionally Omitted).

 

(d)                                 Letter of Credit Fee.  Borrowers agree to
pay to Agent for the benefit of Revolving Lenders, as compensation to such
Revolving Lenders for Letter of Credit Obligations incurred hereunder, (i) all
costs and expenses incurred by Agent or any Lender on account of such Letter of
Credit Obligations, and (ii) for each month during which any Letter of Credit
Obligation shall remain outstanding, a fee (the “Letter of Credit Fee”) in an
amount equal to the Applicable L/C Margin from time to time in effect multiplied
by the maximum amount available from time to time to be drawn under the
applicable Letter of Credit.  Such fee shall be paid to Agent for the benefit of
the Revolving Lenders in arrears, on the first Business Day of each month and on
the Commitment Termination Date.  In addition, Borrowers shall pay to any L/C
Issuer, on demand, such fees (including all per annum fees), charges and
expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance,
amendment, transfer and payment of such Letter of Credit or otherwise payable
pursuant to the application and related documentation under which such Letter of
Credit is issued.

 

(e)                                  LIBOR Breakage Fee.  Upon (i) any default
by any Borrower in making any borrowing of, conversion into or continuation of
any LIBOR Loan following Borrower Representative’s delivery to Agent of any
LIBOR Loan request in respect thereof or (ii) any payment of a LIBOR Loan on any
day that is not the last day of the LIBOR Period applicable thereto (regardless
of the source of such prepayment and whether voluntary, by acceleration or
otherwise), Borrowers shall pay Agent, for the benefit of all Lenders that
funded or were prepared to fund any such LIBOR Loan, the LIBOR Breakage Fee;
provided, that Agent shall have delivered to Borrowers a statement showing the
calculation of the LIBOR Breakage Fee consistent with the definition thereof.

 

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(f)                                    (Intentionally Omitted).

 

(g)                                 Expenses and Attorneys’ Fees.  Borrowers
agree to promptly pay all reasonable fees, charges, costs and expenses
(including reasonable attorneys’ fees and expenses and the allocated cost of
internal legal staff) incurred by Agent and GECM in connection with any matters
contemplated by or arising out of the Loan Documents, in connection with the
examination, review, due diligence investigation, documentation, negotiation,
closing and syndication of the transactions contemplated herein and in
connection with the continued administration of the Loan Documents including any
amendments, modifications, consents and waivers.  Borrowers agree to promptly
pay reasonable documentation charges assessed by Agent for amendments, waivers,
consents and any of the documentation prepared by Agent’s internal legal staff. 
Borrowers agree to promptly pay all reasonable fees, charges, costs and expenses
(including reasonable fees, charges, costs and expenses of attorneys, auditors
(whether internal or external), appraisers, consultants and advisors and the
allocated cost of internal legal staff) incurred by Agent in connection with any
Event of Default, work-out or action to enforce any Loan Document or to collect
any payments due from Borrowers or any other Credit Party.  In addition, in
connection with any work-out or action to enforce any Loan Document or to
collect any payments due from Borrowers or any other Credit Party, Borrowers
agree to promptly pay all fees, charges, costs and expenses incurred by Lenders
for one (1) counsel acting for all Lenders other than Agent.  All reasonable
fees, charges, costs and expenses for which Borrowers are responsible under this
Section 1.3(g) shall be deemed part of the Obligations when incurred, payable
promptly after demand or in accordance with the final sentence of Section 1.4
and secured by the Collateral.  Agent and GECM agree to promptly deliver to the
Borrower Representative invoices in respect of audits and appraisals of
Inventory or Accounts of the Credit Parties.

 

1.4.                              Payments.  All payments by Borrowers of the
Obligations shall be without deduction, defense, setoff or counterclaim and
shall be made in same day funds and delivered to Agent, for the benefit of Agent
and Lenders, as applicable, by wire transfer or such other place as Agent may
from time to time designate to Borrowers in writing.

 

Borrowers shall receive credit on the day of receipt for funds received by Agent
by 2:00 p.m. (New York time).  In the absence of timely receipt, such funds
shall be deemed to have been paid on the next Business Day.  Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a
Business Day, the payment may be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the amount of
interest and Fees due hereunder.

 

Borrowers hereby authorize Lenders to make Revolving Credit Advances or Swing
Line Advances, on the basis of their Pro Rata Shares, for the payment of
interest, Fees and expenses, Letter of Credit reimbursement obligations and any
amounts required to be deposited with respect to outstanding Letter of Credit
Obligations pursuant to Sections 1.5(g) or 6.3.

 

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1.5.                              Prepayments.

 

(a)                                  Voluntary Prepayments of Loans.  At any
time, Borrowers may prepay the Loans, in whole or in part, without premium or
penalty subject to the payment of LIBOR Breakage Fees, if applicable.

 

(b)                                 (Intentionally Omitted).

 

(c)                                  Prepayments from Asset Dispositions. 
Immediately upon receipt of any Net Proceeds by any Borrower (other than from
Asset Dispositions permitted under Section 3.7(c) or (d), such Borrower shall
prepay the Loans in an amount equal to such Net Proceeds, except that Borrower
or its Subsidiaries may reinvest all Net Proceeds of any such Asset Disposition,
within one hundred eighty (180) days, in fixed assets.  The payments shall be
applied in accordance with Section 1.5(e).

 

(d)                                 Prepayments from Issuance of Debt. 
Immediately upon the receipt by any Credit Party of proceeds from the sale or
issuance of debt securities of any Credit Party or any other indebtedness for
borrowed money incurred by any Borrower or any Subsidiary of any Borrower after
the Closing Date (other than proceeds from any indebtedness permitted under
Section 3.1, Borrowers shall prepay the Loans in an amount equal to such
proceeds.  The payments shall be applied in accordance with Section 1.5(e).

 

(e)                                  Application of Proceeds.  Prepayments made
by any Borrower pursuant to Sections 1.5(c) and Section 1.5(d) shall be applied
to the Revolving Credit Advances outstanding to that Borrower until the same
have been repaid in full and thereafter to the Revolving Credit Advances of the
other Borrowers, but in any event not as a permanent reduction of the Revolving
Loan Commitment.  Any such prepayment shall be applied first to Index Rate Loans
of the type required to be prepaid before application to LIBOR Loans of the type
required to be prepaid, in each case in a manner which minimizes any resulting
LIBOR Breakage Fee.

 

(f)                                    Application of Prepayments from Insurance
Proceeds.  To the extent not reinvested in the business, prepayments from
insurance in accordance with Section 2.2 or condemnation proceeds shall be
applied in accordance with Section 1.5(e).

 

(g)                                 Letter of Credit Obligations.  In the event
any Letters of Credit are outstanding at the time that the Revolving Loan
Commitment is terminated, Borrowers shall deposit with Agent for the benefit of
all Revolving Lenders cash in an amount equal to 105% of the aggregate
outstanding Letter of Credit Obligations to be available to Agent to reimburse
payments of drafts drawn under such Letters of Credit and pay any Fees and
expenses related thereto.  Upon termination of any such Letter of Credit, the
unearned portion of such prepaid fee attributable to such Letter of Credit shall
be refunded to Borrowers.

 

1.6.                              Maturity.  All of the Obligations shall become
due and payable as otherwise set forth herein, but in any event all of the
remaining Obligations (other than contingent indemnification obligations to the
extent no unsatisfied claim has been asserted) shall become due and payable upon
termination of this Agreement.  Until all Obligations have been fully paid and
satisfied (other than contingent indemnification obligations to the extent no
unsatisfied claim has been asserted), the Revolving Loan Commitment has been
terminated and all Letters of Credit have been terminated or otherwise secured
to the satisfaction of Agent, Agent shall be entitled to retain the security
interests in the Collateral granted under the Collateral Documents and the
ability to exercise all rights and remedies available to them under the Loan
Documents and applicable laws.  Notwithstanding anything contained in this
Agreement to the contrary, upon any termination of the Revolving Loan
Commitment, all of the

 

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Obligations (other than contingent indemnification obligations to the extent no
unsatisfied claim has been asserted) shall be immediately due and payable.

 

1.7.                              Eligible Accounts.  All of the Accounts owned
by each Borrower and reflected in the most recent Borrowing Base Certificate
delivered to Agent shall be “Eligible Accounts” for purposes of this Agreement,
except any Account to which any of the exclusionary criteria set forth below
applies.  Agent shall have the right after notice to Borrower Representative to
establish or modify or eliminate Reserves against Eligible Accounts from time to
time in its reasonable credit judgment.  In addition, Agent reserves the right,
at any time and from time to time after the Closing Date, after notice to
Borrower Representative, to adjust any of the criteria set forth below, to
establish new criteria and to adjust advance rates with respect to Eligible
Accounts, in its reasonable credit judgment, subject to the approval of
Requisite Lenders in the case of adjustments or new criteria or changes in
advance rates which have the effect of making more credit available.  Eligible
Accounts shall not include any Account of any Borrower:

 

(a)                                  that does not arise from the sale of goods
or the performance of services by such Borrower in the ordinary course of its
business;

 

(b)                                 (i) upon which such Borrower’s right to
receive payment is not absolute or is contingent upon the fulfillment of any
condition whatsoever or (ii) as to which such Borrower is not able to bring suit
or otherwise enforce its remedies against the Account Debtor through judicial
process, or (iii) if the Account represents a progress billing consisting of an
invoice for goods sold or used or services rendered pursuant to a contract under
which the Account Debtor’s obligation to pay that invoice is subject to such
Borrower’s completion of further performance under such contract or is subject
to the equitable lien of a surety bond issuer;

 

(c)                                  to the extent that any defense,
counterclaim, setoff or dispute is asserted as to such Account;

 

(d)                                 that is not a true and correct statement of
bona fide indebtedness incurred in the amount of the Account for merchandise
sold to or services rendered and accepted by the applicable Account Debtor;

 

(e)                                  with respect to which an invoice,
reasonably acceptable to Agent in form and substance, has not been sent to the
applicable Account Debtor;

 

(f)                                    that (i) is not owned by such Borrower or
(ii) is subject to any right, claim, security interest or other interest of any
other Person, other than Liens in favor of Agent on behalf of itself and
Lenders, or other junior Liens that are expressly permitted hereunder;

 

(g)                                 that arises from a sale to any director,
officer, other employee or Affiliate of any Credit Party, or to any entity that
has any common officer or director with any Credit Party;

 

(h)                                 that is the obligation of an Account Debtor
that is the United States government or a political subdivision thereof, or any
state, county or municipality or department, agency or instrumentality thereof
unless Agent, in its sole discretion, has agreed to the contrary in writing and
such Borrower, if necessary or desirable, has complied with respect to such
obligation with the Federal Assignment of Claims Act of 1940, or any applicable
state, county or municipal law restricting the assignment thereof with respect
to such obligation;

 

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(i)                                     that is the obligation of an Account
Debtor located in a foreign country other than Canada unless payment thereof is
assured by a letter of credit assigned and delivered to Agent, satisfactory to
Agent as to form, amount and issuer;

 

(j)                                     to the extent such Borrower or any
Subsidiary thereof is liable for goods sold or services rendered by the
applicable Account Debtor to such Borrower or any Subsidiary thereof but only to
the extent of the potential offset;

 

(k)                                  that arises with respect to goods that are
delivered on a bill-and-hold, credit hold, cash-on-delivery basis or placed on
consignment, guaranteed sale or other terms by reason of which the payment by
the Account Debtor is or may be conditional;

 

(l)                                     that is in default; provided, that,
without limiting the generality of the foregoing, an Account shall be deemed in
default upon the occurrence of any of the following:

 

(i)                                     the Account is not paid within the
earlier of: 60 days following its due date or 90 days following its original
invoice date;

 

(ii)                                  the Account Debtor obligated upon such
Account suspends business, makes a general assignment for the benefit of
creditors or fails to pay its debts generally as they come due; or

 

(iii)                               a petition is filed by or against any
Account Debtor obligated upon such Account under any bankruptcy law or any other
federal, state or foreign (including any provincial) receivership, insolvency
relief or other law or laws for the relief of debtors;

 

(m)                               that is the obligation of an Account Debtor if
50% or more of the Dollar amount of all Accounts owing by that Account Debtor
are ineligible under the other criteria set forth in this Section 1.7;

 

(n)                                 as to which Agent’s Lien thereon, on behalf
of itself and Lenders, is not a first priority perfected Lien;

 

(o)                                 as to which any of the representations or
warranties in the Loan Documents are untrue;

 

(p)                                 to the extent such Account is evidenced by a
judgment, Instrument or Chattel Paper;

 

(q)                                 to the extent such Account exceeds any
credit limit established by Agent, in its reasonable credit judgment;

 

(r)                                    to the extent that such Account, together
with all other Accounts owing to such Account Debtor and its Affiliates as of
any date of determination exceed 10% of all Eligible Accounts of all Borrowers;

 

(s)                                  that is payable in any currency other than
Dollars; or

 

(t)                                    that is otherwise unacceptable to Agent
in its reasonable credit judgment.

 

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1.8.                              Eligible Inventory.  All of the Inventory
owned by the Borrowers and reflected in the most recent Borrowing Base
Certificate delivered to Agent shall be “Eligible Inventory” for purposes of
this Agreement, except any Inventory to which any of the exclusionary criteria
set forth below applies.  Agent shall have the right after notice to Borrower
Representative to establish, modify, or eliminate Reserves against Eligible
Inventory from time to time in its reasonable credit judgment.  In addition,
Agent reserves the right, at any time and from time to time after the Closing
Date, after notice to Borrower Representative, to adjust any of the criteria set
forth below, to establish new criteria and to adjust advance rates with respect
to Eligible Inventory in its reasonable credit judgment, subject to the approval
of Requisite Lenders in the case of adjustments or new criteria or changes in
advance rates which have the effect of making more credit available.  Eligible
Inventory shall not include any Inventory of any Borrower that:

 

(a)                                  is not owned by such Borrower free and
clear of all Liens and rights of any other Person (including the rights of a
purchaser that has made progress payments and the rights of a surety that has
issued a bond to assure such Borrower’s performance with respect to that
Inventory), except the Liens in favor of Agent, on behalf of itself and Lenders
and other junior Liens that are expressly permitted hereunder;

 

(b)                                 (i) is not located on premises owned, leased
or rented by such Borrower and set forth in Disclosure Schedule (5.12) or (ii)
is stored at a leased location (other than those as to which Agent has given its
prior consent thereto) unless on or after the ninetieth (90th) day following the
Closing Date (x) a reasonably satisfactory landlord waiver has been delivered to
Agent, or (y) Reserves reasonably satisfactory to Agent up to three months’ rent
for such location have been established with respect thereto, (iii) is stored
with a bailee or warehouseman unless a reasonably satisfactory, acknowledged
bailee letter has been received by Agent or Reserves reasonably satisfactory to
Agent up to three months’ rent or storage charges (as applicable) for such
location have been established with respect thereto, or (iv) is located at an
owned location subject to a mortgage in favor of a lender other than Agent,
unless a reasonably satisfactory mortgagee waiver has been delivered to Agent,
or (v) is located at any site if the aggregate book value of Inventory at any
such location is less than $100,000;

 

(c)                                  is placed on consignment or is in transit,
except for Inventory in transit between domestic locations of Credit Parties as
to which Agent’s Liens have been perfected at origin and destination;

 

(d)                                 is covered by a negotiable document of
title, unless such document has been delivered to Agent with all necessary
endorsements, free and clear of all Liens except those in favor of Agent and
Lenders;

 

(e)                                  is used (other than trade-ins and other
than returns that have been restocked and can be resold as new), excess,
obsolete, unsaleable, shopworn, seconds, damaged or unfit for sale;

 

(f)                                    consists of display items or packing or
shipping materials, manufacturing supplies, work-in-process Inventory or
replacement parts (excluding from the foregoing, however, readily saleable golf
club components);

 

(g)                                 consists of goods which have been returned
by the buyer (other than trade-ins and other than returns that have been
restocked and can be resold as new);

 

(h)                                 is not of a type held for sale in the
ordinary course of such Borrower’s business;

 

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(i)                                     is not subject to a first priority lien
in favor of Agent on behalf of itself and Lenders subject to Permitted
Encumbrances;

 

(j)                                     breaches any of the representations or
warranties pertaining to Inventory set forth in the Loan Documents;

 

(k)                                  consists of any costs associated with
“freight-in” charges;

 

(l)                                     consists of Hazardous Materials or goods
that can be transported or sold only with licenses that are not readily
available;

 

(m)                               is not covered by casualty insurance
reasonably acceptable to Agent; or

 

(n)                                 may not be sold without violation or
infringement of the intellectual property rights of others; or

 

(o)                                 is otherwise unacceptable to Agent in its
reasonable credit judgment.

 

1.9.                              Loan Accounts.  Agent shall maintain a loan
account (the “Loan Account”) on its books to record: all Advances, all payments
made by Borrowers, and all other debits and credits as provided in this
Agreement with respect to the Loans or any other Obligations.  All entries in
the Loan Account shall be made in accordance with Agent’s customary accounting
practices as in effect from time to time.  The balance in the Loan Account, as
recorded on Agent’s most recent printout or other written statement, shall,
absent manifest error, be presumptive evidence of the amounts due and owing to
Agent and Lenders by Borrowers; provided that any failure to so record or any
error in so recording shall not limit or otherwise affect any Borrower’s duty to
pay the Obligations.  Agent shall render to Borrower Representative a monthly
accounting of transactions with respect to the Loans setting forth the balance
of the Loan Account as to each Borrower for the immediately preceding month. 
Unless Borrower Representative notifies Agent in writing of any objection to any
such accounting (specifically describing the basis for such objection), within
thirty (30) days after the date thereof, each and every such accounting shall,
absent manifest error, be deemed final, binding and conclusive on Borrowers in
all respects as to all matters reflected therein.  Only those items expressly
objected to in such notice shall be deemed to be disputed by Borrowers. 
Notwithstanding any provision herein contained to the contrary, any Lender may
elect (which election may be revoked) to dispense with the issuance of Notes to
that Lender and may rely on the Loan Account as evidence of the amount of
Obligations from time to time owing to it.

 

1.10.                        Yield Protection; Illegality.

 

(a)                                  Capital Adequacy and Other Adjustments.  In
the event that any Lender shall have determined that the adoption after the date
hereof of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy, reserve requirements
or similar requirements or compliance by any Lender or any corporation
controlling such Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) from any central bank or governmental agency or body having
jurisdiction does or shall have the effect of increasing the amount of capital,
reserves or other funds required to be maintained by such Lender or any
corporation controlling such Lender and thereby reducing the rate of return on
such Lender’s or such corporation’s capital as a consequence of its obligations
hereunder, then Borrowers shall from time to time within fifteen (15) days after
notice and demand from such Lender (together with the certificate referred to in
the next sentence and with a copy to Agent) pay to Agent, for the account of
such Lender, additional amounts sufficient to compensate such Lender for such
reduction.  A certificate as to the

 

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amount of such cost and showing in reasonable detail the basis of the
computation of such cost submitted by such Lender to Borrower Representative and
Agent shall, absent manifest error, be final, conclusive and binding for all
purposes.

 

(b)                                 Increased LIBOR Funding Costs; Illegality. 
Notwithstanding anything to the contrary contained herein, if the introduction
of or any change in any law, rule, regulation, treaty or directive (or any
change in the interpretation thereof) shall make it unlawful, or any central
bank or other Governmental Authority shall assert that it is unlawful, for any
Lender to agree to make or to make or to continue to fund or maintain any LIBOR
Loan, then, unless that Lender is able to make or to continue to fund or to
maintain such LIBOR Loan at another branch or office of that Lender without, in
that Lender’s opinion, adversely affecting it or its Loans or the income
obtained therefrom, on notice thereof and demand therefor by such Lender to
Borrower Representative through Agent, (i) the obligation of such Lender to
agree to make or to make or to continue to fund or maintain LIBOR Loans shall
terminate and (ii) each Borrower shall forthwith prepay in full all outstanding
LIBOR Loans owing by such Borrower to such Lender, together with interest
accrued thereon, unless Borrower Representative on behalf of such Borrower,
within five (5) Business Days after the delivery of such notice and demand,
converts all LIBOR Loans into Index Rate Loans. If, after the date hereof, the
introduction of, change in or interpretation of any law, rule, regulation,
treaty or directive would impose or increase reserve requirements (other than as
taken into account in the definition of LIBOR) or otherwise increase the cost to
any Lender of making or maintaining a LIBOR Loan, then Borrowers shall from time
to time within fifteen (15) days after notice and demand from Agent to Borrower
Representative (together with the certificate referred to in the next sentence)
pay to Agent, for the account of all such affected Lenders, additional amounts
sufficient to compensate such Lenders for such increased cost.  A certificate as
to the amount of such cost and showing in reasonable detail the basis of the
computation of such cost submitted by Agent on behalf of all such affected
Lenders to Borrower Representative shall, absent manifest error, be final,
conclusive and binding for all purposes.

 

1.11.                        Taxes.

 

(a)                                  No Deductions.  Except as provided in
Section 1.11(c), any and all payments or reimbursements made hereunder
(including any payments made pursuant to Section 10) or under the Notes shall be
made free and clear of and without deduction for any and all taxes, levies,
imposts, deductions or withholdings, and all liabilities with respect thereto of
any nature whatsoever imposed by any taxing authority, excluding such taxes to
the extent imposed on Agent’s or a Lender’s net income by the jurisdiction in
which Agent or such Lender is organized or the jurisdiction in which the
principal office or applicable lending office of Agent or such Lender is located
or any subdivision thereof or therein (all such non-excluded taxes, levies,
imposts, deductions or withholdings being referred to collectively as “Taxes”). 
If any Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder to any Lender or Agent, then the sum payable
hereunder shall be increased by additional amounts as may be necessary so that,
after making all required deductions, such Lender or Agent receives an amount
equal to the sum it would have received had no such deductions been made.

 

(b)                                 Changes in Tax Laws.  In the event that,
subsequent to the Closing Date, (1) any changes in any existing law, regulation,
treaty or directive or in the interpretation or application thereof relating to
Taxes, (2) any new law, regulation, treaty or directive enacted or any
interpretation or application thereof, or (3) compliance by Agent or any Lender
with any request or directive relating to Taxes (whether or not having the force
of law) from any Governmental Authority:

 

(i)                                     does or shall subject Agent or any
Lender to any tax of any kind whatsoever with respect to this Agreement, the
other Loan Documents or any Loans made or Letters of

 

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Credit issued hereunder or change the basis of taxation of payments to Agent or
such Lender of principal, fees, interest or any other amount payable hereunder
(except for net income taxes, or franchise taxes imposed in lieu of net income
taxes, imposed generally by taxing authorities with respect to interest or
commitment Fees or other Fees payable hereunder or changes in the rate of tax on
the overall net income of Agent or such Lender); or

 

(ii)                                  does or shall impose on Agent or any
Lender any other condition or increased cost in connection with the transactions
contemplated hereby or participations herein;

 

and the result of any of the foregoing is to increase the cost to Agent or any
such Lender of issuing any Letter of Credit or making or continuing any Loan
hereunder, as the case may be, or to reduce any amount receivable hereunder,
then, in any such case, Borrowers shall promptly pay to Agent or such Lender,
upon its demand, any additional amounts necessary to compensate Agent or such
Lender, on an after-tax basis, for such additional cost or reduced amount
receivable, as reasonably determined by Agent or such Lender with respect to
this Agreement or the other Loan Documents.  If Agent or such Lender becomes
entitled to claim any additional amounts pursuant to this Section 1.11(b), it
shall promptly notify Borrower Representative of the event by reason of which
Agent or such Lender has become so entitled.  A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Agent or such
Lender to Borrower Representative (with a copy to Agent) shall, absent manifest
error, be final, conclusive and binding for all purposes.

 

(c)                                  Foreign Lenders.  Each Lender that is not a
United States person (as the term is defined in Section 7701 (a)(30) of the IRC)
(a “Foreign Lender”) shall provide to Borrower Representative and Agent two
properly completed and executed original copies of an IRS Form W-8BEN or
Form W-8ECI or other applicable form, certificate or document prescribed by the
IRS certifying as to such Foreign Lender’s entitlement to complete exemption
from United States withholding tax with respect to payments to be made to such
Foreign Lender under this Agreement and under the Notes (a “Certificate of
Exemption”).  Prior to becoming a Lender under this Agreement and within fifteen
(15) days after a reasonable written request of Borrower Representative or Agent
from time to time thereafter, each Foreign Lender that becomes a Lender under
this Agreement shall provide a Certificate of Exemption to Borrower
Representative and Agent.  In addition to two properly completed and executed
original copies of a Certificate of Exemption, any Foreign Lender that is not a
“bank” within the meaning of Section 881(c)(3)(A) of the IRC and is relying on
the so-called “portfolio interest exemption” shall also furnish a “Non-Bank
Certificate” substantially in the form of Exhibit 1.11(c).  Each Foreign Lender
agrees that from time to time after the Closing Date, when a lapse in time or
change in circumstances renders the previous Certificate of Exemption obsolete
or inaccurate in any material respect, it will deliver to Borrower
Representative and Agent two new, accurate, properly completed and executed
original copies of a Certificate of Exemption.  Notwithstanding anything to the
contrary contained in Section 1.11(a) or Section 1.11(b), (x) any Borrower shall
be entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Foreign Lender to the extent
such Lender has not provided to Borrower Representative and Agent two properly
completed and executed original copies of a Certificate of Exemption
establishing complete exemption from such deduction or withholding and (y) any
Borrower shall not be obligated pursuant to Section 1.11(a) or
Section 1.11(b) hereof to gross-up payments to be made to a Foreign Lender in
respect of income or similar taxes imposed by the United States if (I) such
Lender has not provided Borrower Representative and Agent two properly completed
and executed original copies of a Certificate of Exemption establishing a
complete exemption from such taxes as required to be provided Borrower
Representative and Agent pursuant to this Section 1.11(c) or (II) in the case of
a payment, other than interest, to a Foreign Lender that is not a “bank” within
the meaning of Section 881(c)(3)(A) of the IRC

 

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and is relying on the “portfolio interest exemption”, to the extent that such
Certificate of Exemption does not establish a complete exemption from
withholding of such taxes.  Notwithstanding anything to the contrary contained
in the preceding sentence, the Borrower agrees to pay additional amounts to a
Foreign Lender in the manner set forth in Section 1.11(a) in respect of any
amounts deducted or withheld by it as described in the immediately preceding
sentence as a result of any changes after the Closing Date or, in the case of an
assignee Lender, after the date such assignee Lender becomes a Lender under this
Agreement, in any applicable law, treaty, governmental rule, regulation,
guideline or order relating to the deducting or withholding of income or similar
taxes, including, without limitation, any such change as a result of which such
Foreign Lender is no longer properly entitled to deliver forms, certificates or
other evidences as to such Foreign Lender’s entitlement to exemption from U.S.
withholding tax.

 

(d)                                 Each Lender that is a United States person,
as defined in Section 7701(a)(30) of the IRC, shall provide to Borrower
Representative and Agent two properly completed and executed original copies of
an IRS Form W-9, or any successor form that such person is entitled to provide
at such time in order to comply with United States back-up withholding
requirements.

 

(e)                                  Notwithstanding anything to the contrary
contained in this Section 1.11, if a Lender is a conduit entity participating in
a conduit financing arrangement (as defined in Section 7701(1) of the IRC and
the Treasury Regulations issued thereunder) with respect to any payments made by
Borrowers under this Agreement or the Notes, (i) Borrowers shall not be
obligated to pay additional amounts to such Lender pursuant to Sections
1.11(a) and 1.11(b) to the extent that the amount of Taxes exceeds the amount
that would have otherwise been payable had such Lender not been a conduit entity
participating in a conduit financing arrangement, and (ii) such Lender shall
indemnify Borrowers for the amount of Taxes paid by Borrowers pursuant to this
Section 1.11(e) that exceeds the amount that would have otherwise been payable
had such Lender not been a conduit entity participating in a conduit financing
arrangement.

 

(f)                                    If Borrowers are required to pay a Lender
any additional amounts pursuant to Sections 1.11(a) and 1.11(b), such Lender
shall, upon the reasonable request of Borrowers, designate a different office or
transfer its rights, benefits and obligations under this Agreement to an
affiliate if such designation or transfer would reduce or eliminate such
obligation to pay additional amounts and would not, in the reasonable discretion
of such Lender, be disadvantageous to such Lender, it being understood that if
such Lender so determines that such designation or transfer would be
disadvantageous, Borrowers shall be required to pay all additional amounts
payable pursuant to Section 1.11(a) and 1.11(b).

 

(g)                                 Each Credit Party shall jointly and
severally indemnify and, within ten (10) days of demand therefor, pay Agent and
each Lender for the full amount of Taxes subject to gross-up under
Section 1.11(a) (including any Taxes imposed by any jurisdiction on amounts
payable under Section 1.11(a)) paid by Agent or such Lender, as appropriate, and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto.

 

1.12.                        (Intentionally Omitted).

 

1.13.                        Borrower Representative.  Each Borrower hereby
designates GII as its representative and agent on its behalf (in such capacity,
the “Borrower Representative”) for the purposes of issuing Notices of Revolving
Credit Advances and Notices of Conversion/Continuation, giving instructions with
respect to the disbursement of the proceeds of the Loans, selecting interest
rate options, requesting Letters of Credit, giving and receiving all other
notices and consents hereunder or under any of the other Loan Documents and
taking all other actions (including in respect of compliance with covenants) on
behalf of any Borrower or Borrowers under the Loan Documents.  Borrower
Representative hereby accepts such appointment.  Agent and each Lender may
regard any notice or other communication pursuant to any

 

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Loan Document from Borrower Representative as a notice or communication from all
Borrowers.  Each warranty, covenant, agreement and undertaking made on its
behalf by Borrower Representative shall be deemed for all purposes to have been
made by such Borrower and shall be binding upon and enforceable against such
Borrower to the same extent as it if the same had been made directly by such
Borrower.

 

1.14.                        Credit Card Collections.

 

(a)                                  Annexed hereto is Schedule 1.14, which
describes all arrangements to which the Credit Parties are a party as of the
date of this Agreement with respect to the payment to the Credit Parties of the
proceeds of all credit card charges for sales by the Credit Parties.  Borrower
Representative may amend Schedule 1.14 so long as (i) such amendment occurs by
written notice to Agent not less than thirty (30) days prior to the date on
which any new arrangements are to be effective or any existing arrangements are
to be terminated, (ii) Agent is reasonably satisfied with any such arrangements,
and (iii) with respect to any new arrangement, Agent has received a notification
of such arrangement and is reasonably satisfied therewith.

 

(b)                                 Payment of all credit card charges submitted
by the Credit Parties to credit card clearinghouses or other processors
identified on Schedule 1.14 or otherwise and any other amounts payable to the
Credit Parties by such clearinghouses or other processors shall be directed to
such deposit account as may be designated by Agent.

 

SECTION 2.

AFFIRMATIVE COVENANTS

 

Each Credit Party executing this Agreement jointly and severally agrees as to
all Credit Parties that from and after the date hereof and until the Termination
Date:

 

2.1.                              Compliance With Laws and Contractual
Obligations.  Each Credit Party will (a) comply with and shall cause each of its
Subsidiaries to comply with (i) the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority (including, without
limitation, laws, rules, regulations and orders relating to taxes, employer and
employee contributions, securities, employee retirement and welfare benefits,
environmental protection matters and employee health and safety) as now in
effect and which may be imposed in the future in all jurisdictions in which any
Credit Party or any of its Subsidiaries is now doing business or may hereafter
be doing business and (ii) the obligations, covenants and conditions contained
in all Contractual Obligations of such Credit Party or any of its Subsidiaries,
in each case other than those laws, rules, regulations, orders and provisions of
such Contractual Obligations the noncompliance with which could not be
reasonably expected to have, either individually or in the aggregate, a Material
Adverse Effect, and (b) maintain or obtain and shall cause each of its
Subsidiaries to maintain or obtain all licenses, qualifications and permits now
held or hereafter required to be held by such Credit Party or any of its
Subsidiaries, for which the loss, suspension, revocation or failure to obtain or
renew, could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.  This Section 2.1 shall not preclude any
Credit Party or its Subsidiaries from contesting any taxes or other payments, if
they are being diligently contested in good faith in a manner which stays
enforcement thereof and if appropriate expense provisions have been recorded in
conformity with GAAP, subject to Section 3.2.  Each Credit Party represents and
warrants that it (i) is in compliance and each of its Subsidiaries is in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority and the obligations, covenants and
conditions contained in all Contractual Obligations other than those laws,
rules, regulations, orders and provisions of such Contractual Obligations the
noncompliance with which could not be reasonably expected to have, either
individually or in the aggregate, a Material Adverse Effect, and

 

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(ii) maintains and each of its Subsidiaries maintains all licenses,
qualifications and permits referred to in clause (b) above.

 

2.2.                              Insurance; Damage to or Destruction of
Collateral.

 

(a)                                  The Credit Parties shall, at their sole
cost and expense, maintain the policies of insurance described on Schedule 5.18
as in effect on the date hereof or otherwise in form and amounts consistent with
other similarly situated businesses.  Such policies of insurance (or the loss
payable and additional insured endorsements delivered to Agent) shall contain
provisions pursuant to which the insurer agrees to provide 30 days prior written
notice to Agent in the event of any non-renewal, cancellation or amendment of
any such insurance policy.  If any Credit Party at any time or times hereafter
shall fail to obtain or maintain any of the policies of insurance required above
or to pay all premiums relating thereto, Agent may at any time or times
thereafter obtain and maintain such policies of insurance and pay such premiums
and take any other action with respect thereto that Agent deems advisable. 
Agent shall have no obligation to obtain insurance for any Credit Party or pay
any premiums therefor.  By doing so, Agent shall not be deemed to have waived
any Default or Event of Default arising from any Credit Party’s failure to
maintain such insurance or pay any premiums therefor.  All sums so disbursed,
including reasonable attorneys’ fees, court costs and other charges related
thereto, shall be payable on demand by Borrowers to Agent and shall be
additional Obligations hereunder secured by the Collateral.

 

(b)                                 Each Credit Party shall deliver to Agent, in
form and substance reasonably satisfactory to Agent, endorsements to (i) all
“All Risk” and business interruption insurance naming Agent, on behalf of itself
and Lenders, as loss payee, and (ii) all general liability and other liability
policies naming Agent, on behalf of itself and Lenders, as additional insured. 
Each Credit Party irrevocably makes, constitutes and appoints Agent (and all
officers, employees or agents designated by Agent), so long as any Default or
Event of Default has occurred and is continuing or the anticipated Net Proceeds
from insurance exceed $100,000 per instance for any retail location or $250,000
per instance for the headquarters facility located in Austin, Texas, as each
Credit Party’s true and lawful agent and attorney-in-fact for the purpose of
making, settling and adjusting claims under such “All Risk” policies of
insurance, endorsing the name of each Credit Party on any check or other item of
payment for the proceeds of such “All Risk” policies of insurance and for making
all determinations and decisions with respect to such “All Risk” policies of
insurance; provided that no such appointment is made with respect to claims
arising from loss or destruction of or damage to Equipment or Fixtures.  Agent
shall have no duty to exercise any rights or powers granted to it pursuant to
the foregoing power-of-attorney.  Each Credit Party shall promptly notify Agent
of any loss, damage, or destruction to the Collateral in the amount of $100,000
per instance for any retail location or $250,000 per instance for the
headquarters facility located in Austin, Texas or more, whether or not covered
by insurance.  After deducting from any insurance proceeds the expenses, if any,
incurred by Agent in the collection or handling thereof, Agent may, at its
option, apply such proceeds to the reduction of the Obligations in accordance
with Section 1.5(f), provided that in the case of insurance proceeds pertaining
to any Credit Party other than a Borrower, such insurance proceeds shall be
applied to the Loans owing by any Borrower, or permit or require the applicable
Credit Party to use such money, or any part thereof, to replace, repair or
restore the Collateral in a diligent and expeditious manner with materials and
workmanship of substantially the same quality as existed before the loss, damage
or destruction. Notwithstanding the foregoing, if the casualty giving rise to
such insurance proceeds could not reasonably be expected to have a Material
Adverse Effect and Net Proceeds of insurance with respect to such casualty do
not exceed $100,000 per instance for any retail location or $250,000 per
instance for the headquarters facility located in Austin, Texas, Agent shall
permit the applicable Credit Party to replace, restore or repair the Collateral;
provided that if such Credit Party has not completed or entered into binding
agreements to complete such replacement,

 

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restoration or repair within 180 days of such casualty, Agent may apply such Net
Proceeds to the Obligations in accordance with Section 1.5(f); provided further
that in the case of Net Proceeds pertaining to any Credit Party other than a
Borrower, such insurance proceeds shall be applied to the Loans owing by a
Borrower.  All insurance proceeds that are to be made available to such Borrower
to replace, repair or restore the Collateral shall be applied by Agent to reduce
the outstanding principal balance of the Revolving Loan (which application shall
not result in a permanent reduction of the Revolving Loan Commitment) and upon
such application, Agent shall establish a Reserve against the Borrowing Base of
such Borrower or if the loss was of property of a Credit Party other than a
Borrower, to the Aggregate Borrowing Base in an amount equal to the amount of
such proceeds so applied.  All insurance proceeds made available to any Credit
Party that is not a Borrower to replace, repair or restore Collateral shall be
deposited in a cash collateral account or an account subject to a Blocked
Account Agreement.  Thereafter, such funds shall be made available to such
Credit Party to provide funds to replace, repair or restore the Collateral as
follows: (i) such Borrower shall request a Revolving Credit Advance or release
from the cash collateral account be made to such Borrower or such Credit Party,
as applicable, in the amount requested to be released; (ii) so long as the
conditions set forth in Section 7.2 have been met, Revolving Lenders shall make
such Revolving Credit Advance or Agent shall release funds from the cash
collateral account; and (iii) in the case of insurance proceeds applied against
the Revolving Loan, the Reserve established with respect to such insurance
proceeds shall be reduced by the amount of such Revolving Credit Advance.  To
the extent not used to replace, repair or restore the Collateral, such Net
Proceeds shall be applied in accordance with Section 1.5(f); provided that in
the case of insurance proceeds pertaining to any Credit Party other than a
Borrower, such insurance proceeds shall be applied to the Loans owing by a
Borrower.

 

2.3.                              Inspection; Lender Meeting.  Each Credit Party
shall permit any authorized representatives of Agent to visit, audit and inspect
any of the properties of such Credit Party and its Subsidiaries, including its
and their financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and business with its
and their officers and certified public accountants, at such reasonable times
during normal business hours and as often as may be reasonably requested. 
Representatives of each Lender will be permitted to accompany representatives of
Agent during each visit, inspection and discussion referred to in the
immediately preceding sentence.  Without in any way limiting the foregoing, to
the extent requested by Agent, each Credit Party will participate and will cause
key management personnel of each Credit Party and its Subsidiaries to
participate in a meeting with Agent and Lenders at least once during each year,
which meeting shall be held at such time and such place as may be reasonably
acceptable to Agent and Borrower Representative.

 

2.4.                              Organizational Existence.  Except as otherwise
permitted by Section 3.6, each Credit Party will and will cause its Subsidiaries
to at all times preserve and keep in full force and effect its organizational
existence and all rights and franchises related to its business the loss of
which could reasonably be expected to have a Material Adverse Effect.

 

2.5.                              Environmental Matters.  Each Credit Party
shall and shall cause each Person within its control to: (a) conduct its
operations and keep and maintain its Real Estate in compliance with all
Environmental Laws and Environmental Permits other than noncompliance that could
not reasonably be expected to have a Material Adverse Effect; (b) implement any
and all investigation, remediation, removal and response actions that are
appropriate or necessary (i) to maintain the value and marketability of the
owned Real Estate or (ii) to otherwise comply with Environmental Laws and
Environmental Permits pertaining to the presence, generation, treatment,
storage, use, disposal, transportation or Release of any Hazardous Material on,
at, in, under, above, to, from or about any of its Real Estate; (c) notify Agent
promptly after such Credit Party or any Person within its control becomes aware
of any violation of Environmental Laws or Environmental Permits or any Release
on, at, in, under, above, to, from or about

 

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any Real Estate that is reasonably likely to result in Environmental Liabilities
to a Credit Party or its Subsidiaries in excess of $100,000; and (d) promptly
forward to Agent a copy of any order, notice, request for information or any
communication or report received by such Credit Party or any Person within its
control in connection with any such violation or Release or any other matter
relating to any Environmental Laws or Environmental Permits that could
reasonably be expected to result in Environmental Liabilities in excess of
$100,000, in each case whether or not the Environmental Protection Agency or any
Governmental Authority has taken or threatened any action in connection with any
such violation, Release or other matter.  If Agent at any time has a reasonable
basis to believe that there may be a violation of any Environmental Laws or
Environmental Permits by any Credit Party or any Person under its control or any
Environmental Liability arising thereunder, or a Release of Hazardous Materials
on, at, in, under, above, to, from or about any of its Real Estate, that, in
each case, could reasonably be expected to have a Material Adverse Effect, then
each Credit Party and its Subsidiaries shall, upon Agent’s written request
(i) cause the performance of such environmental audits including subsurface
sampling of soil and groundwater, and preparation of such environmental reports,
at Borrowers’ expense, as Agent may from time to time reasonably request, which
shall be conducted by reputable environmental consulting firms reasonably
acceptable to Agent and shall be in form and substance reasonably acceptable to
Agent, and (ii) permit Agent or its representatives to have access to all Real
Estate for the purpose of conducting such environmental audits and testing as
Agent deems appropriate, including subsurface sampling of soil and groundwater. 
Borrowers shall reimburse Agent for the costs of such audits and tests and the
same will constitute a part of the Obligations secured hereunder.

 

2.6.                              Landlords’ Agreements, Mortgagee Agreements,
Bailee Letters and Real Estate Purchases.  Each Credit Party shall use
commercially reasonable efforts to obtain a landlord’s agreement, mortgagee
agreement or bailee letter, as applicable, from the lessor of each leased
property, mortgagee of owned property or bailee with respect to any warehouse,
processor or converter facility or other location where Collateral is stored or
located, which agreement or letter shall contain a waiver or subordination of
all Liens or claims that the landlord, mortgagee or bailee may assert against
the Collateral at that location, and shall otherwise be reasonably satisfactory
in form and substance to Agent. With respect to such locations or warehouse
space leased or owned as of the Closing Date or thereafter, if Agent has not
received a landlord or mortgagee agreement or bailee letter as of the Closing
Date (or, if later, as of the date such location is acquired or leased), the
Eligible Inventory at that location shall, in Agent’s discretion, be subject to
such Reserves as may be established by Agent in its reasonable credit judgment
up to three months’ rent or storage charges (as applicable) for each such
location.  Each Credit Party shall and shall cause its Subsidiaries to timely
and fully pay and otherwise perform in all material respects their obligations
under all leases and other agreements with respect to each leased location or
public warehouse where any Collateral is or may be located.

 

2.7.                              Conduct of Business.  Each Credit Party shall
at all times maintain, preserve and protect all of its assets and properties
used or useful in the conduct of its business, and keep the same in good repair,
working order and condition in all material respects (taking into consideration
ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices; and transact business only in such corporate
and trade names as are set forth in Schedule 2.7.

 

2.8.                              Further Assurances.

 

(a)                                  Each Credit Party shall, from time to time,
execute such guaranties, financing statements, documents, security agreements
and reports as Agent or Requisite Lenders at any time may reasonably request to
evidence, perfect or otherwise implement the guaranties and security for
repayment of the Obligations contemplated by the Loan Documents.

 

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(b)                                 In the event that after the Closing Date any
Credit Party acquires a fee ownership interest in real property having a fair
market value in excess of $1,000,000, such Credit Party shall deliver to Agent a
fully executed Mortgage or deed of trust over such real property in form and
substance reasonably satisfactory to Agent, together with such title insurance
policies, surveys, appraisals, evidence of insurance, legal opinions,
environmental assessments and other documents and certificates as shall be
reasonably required by Agent.

 

(c)                                  Each Credit Party shall (i) cause each
Person, upon its becoming a Subsidiary of such Credit Party (provided that this
shall not be construed to constitute consent by any of the Lenders to any
transaction referred to above which is not expressly permitted by the terms of
this Agreement), promptly to guaranty the Obligations and to grant to Agent, for
the benefit of Agent and Lenders, a security interest in the real, personal and
mixed property of such Person to secure the Obligations, (ii) pledge, or cause
to be pledged, to Agent, for the benefit of Agent and Lenders, all of the Stock
of such Subsidiary to secure the Obligations (limited, however, in the case of
any Foreign Subsidiary, to 65% of the Voting Stock, and all other Stock, of such
Subsidiary) and (iii) cause such Subsidiary to become a party to the
Intercompany Subordination Agreement, and, as a Credit Party, this Agreement. 
The documentation for such guaranty, security and pledge shall be substantially
similar to the Loan Documents executed concurrently herewith with such
modifications as are reasonably requested by Agent.

 

2.9.                                                                             
Cash Management Systems.  On or prior to the Closing Date each Credit Party
shall establish and will maintain until the Termination Date, the cash
management systems described in Annex F (the “Cash Management Systems”).

 

SECTION 3.

NEGATIVE COVENANTS

 

Each Credit Party executing this Agreement jointly and severally agrees as to
all Credit Parties that from and after the date hereof until the Termination
Date:

 

3.1.                              Indebtedness.  The Credit Parties shall not
and shall not cause or permit their Subsidiaries directly or indirectly to
create, incur, assume, or otherwise become or remain directly or indirectly
liable with respect to any Indebtedness (other than pursuant to a Contingent
Obligation permitted under Section 3.4) except:

 

(a)                                  the Obligations;

 

(b)                                 Hedging obligations under Rate Contracts
arranged by GE Capital or any other Lender (or an Affiliate thereof) entered
into for the sole purpose of hedging in the normal course of business and
consistent with industry practices.

 

(c)                                  Indebtedness consisting of intercompany
loans and advances made by any Borrower to any Credit Party, other than
Holdings, that is a Borrower or Guarantor or by such Guarantor to any Borrower
or other Guarantor; provided, that: (i) except in the case of unpaid amounts for
intercompany sales of inventory in the ordinary course of business, each
Borrower shall have executed and delivered to each Guarantor, and each Guarantor
shall have executed and delivered to each Borrower, on the Closing Date, a
demand note (the “Intercompany Note”) to evidence any such intercompany
Indebtedness owing at any time by any Borrower to any Guarantor or by any
Guarantor to any Borrower, which Intercompany Notes shall be in form and
substance reasonably satisfactory to Agent and shall be

 

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pledged and delivered to Agent pursuant to the applicable Pledge Agreement or
Security Agreement as additional collateral security for the Obligations;
(ii) such Borrower shall record all intercompany transactions on its books and
records; (iii) the obligations of such Borrower under any such Intercompany
Notes shall be subordinated to the Obligations of such Borrower hereunder
pursuant to the Intercompany Subordination Agreement; (iv) at the time any such
intercompany loan or advance is made by such Borrower and after giving effect
thereto, such Borrower shall be Solvent; (v) no Default or Event of Default
would occur and be continuing after giving effect to any such proposed
intercompany loan; (vi) in the case of any such intercompany loans made by any
Borrower, Borrowing Availability shall be not less than $200,000 after giving
effect to such intercompany loan; (vii) the aggregate amount of such
intercompany loans owing to Borrowers by other Credit Parties shall not exceed
$2,500,000 at any one time outstanding; and (viii) the recipient of any such
intercompany loans shall be creditworthy as determined by Agent;

 

(d)                                 Indebtedness not to exceed $5,000,000 in the
aggregate at any time outstanding secured by purchase money Liens or incurred
with respect to Capital Leases;

 

(e)                                  any other unsecured Indebtedness not to
exceed $2,500,000 in the aggregate at any time outstanding; and

 

(f)                                    any other unsecured Subordinated Debt if
at the time of the incurrence of such Subordinated Debt, the Credit Parties
have, on a pro forma basis after giving effect to the incurrence of such
Indebtedness, a Consolidated Fixed Charge Coverage Ratio as at the end of, and
for, the most recently ended twelve-month period, of at least 1.25:1.00 and
shall have delivered an officer’s certificate to Agent (with such supporting
documentation as Agent shall reasonably request) as to the calculation of such
Consolidated Fixed Charge Coverage Ratio.

 

3.2.                              Liens and Related Matters.

 

(a)                                  No Liens.  The Credit Parties shall not and
shall not cause or permit their Subsidiaries to directly or indirectly create,
incur, assume or permit to exist any Lien on or with respect to any property or
asset of such Credit Party or any such Subsidiary, whether now owned or
hereafter acquired, or any income or profits therefrom, except Permitted
Encumbrances (including, without limitation, those Liens constituting Permitted
Encumbrances existing on the date hereof and renewals and extensions thereof, as
set forth on Schedule 3.2).

 

(b)                                 No Negative Pledges.  The Credit Parties
shall not and shall not cause or permit their Subsidiaries to directly or
indirectly enter into or assume any agreement (other than the Loan Documents and
provisions contained in agreements expressly permitted under Section 3.2(c))
prohibiting the creation or assumption of any Lien in favor of Agent, for the
benefit of itself and Lenders, upon its properties or assets, whether now owned
or hereafter acquired.

 

(c)                                  No Restrictions on Subsidiary Distributions
to Borrowers.  Except as provided herein the Credit Parties shall not and shall
not cause or permit their Subsidiaries to directly or indirectly create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary to:
(1) pay dividends or make any other distribution on any of such Subsidiary’s
Stock owned by any Borrower or any other Subsidiary; (2) pay any Indebtedness
owed to any Borrower or any other Subsidiary; (3) make loans or advances to any
Borrower or any other Subsidiary; or (4) transfer any of its property or assets
to any Borrower or any other Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) mandatory provisions of
applicable law, if any, (ii) this Agreement and the other Loan Documents,
(iii) customary provisions restricting subletting or assignment of any lease
governing any leasehold interest of Holdings or any of its

 

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Subsidiaries, (iv) customary provisions restricting assignment of any licensing
agreement (in which Holdings or any of its Subsidiaries is the licensee) or
other contract entered into by Holdings or any of its Subsidiaries in the
ordinary course of business, (v) restrictions on the transfer of any asset
pending the close of the sale of such asset, (vi) any operating lease or capital
lease, insofar as the provisions thereof limit grants of a security interest in,
or other assignments of, the related leasehold interest to any other Person,
(vii) customary provisions in partnership agreements, limited liability company
organizational documents, joint venture agreements and other similar agreements
entered into the ordinary course of business in connection with an Investment
expressly permitted under Section 3.3 that restrict the transfer of capital
stock in partnership, limited liability companies, joint ventures or similar
Persons and (viii) restrictions contained in agreements for Subordinated Debt
permitted under Section 3.1(f), provided, that restrictions in any such
Subordinated Debt agreement shall not be more restrictive than any contained in
this Agreement.

 

3.3.                              Investments.  The Credit Parties shall not and
shall not cause or permit their Subsidiaries to directly or indirectly make or
own any Investment in any Person except:

 

(a)                                  GII and its Subsidiaries may make and own
Investments in Cash Equivalents subject to account control agreements in favor
of Agent; provided that such Cash Equivalents are not subject to setoff rights
other than any such setoff rights permitted under the terms of the respective
control agreement;

 

(b)                                 GII and its Subsidiaries may make
intercompany loans to other Credit Parties to the extent permitted under
Section 3.1;

 

(c)                                  Rate Contracts entered into in compliance
with Section 3.1;

 

(d)                                 GII and its Subsidiaries may make loans and
advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business not to exceed $500,000 in the
aggregate at any time outstanding; and

 

(e)                                  GII and its Subsidiaries may make capital
contributions to their wholly-owned Domestic Subsidiaries in an amount not to
exceed $500,000 in the aggregate in addition to the amount of Investments made
pursuant to Section 3.1(c);

 

(f)                                    Any Credit Party may make an Investment
in Golfsmith Europe; provided that the aggregate amount of such Investments does
not exceed $1,500,000 during any Fiscal Year or $5,000,000 at any time; and

 

(g)                                 Any Credit Party may acquire Inventory from
bankruptcy estates, if such Inventory (i) is in good condition and salable as
new in accordance with such Credit Party’s normal practices, (ii) is acquired by
such Credit Party free and clear of any Liens and claims of others and (iii) is
acquired by such Credit Party on terms that are commercially reasonable or
advantageous to such Credit Party and do not impose any burdensome condition or
restriction on such Credit Party;

 

(h)                                 Borrowers and their Subsidiaries may hold
accounts receivables or similar receivable obligations owing to any of them, if
created in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms of such Borrower or such Subsidiary;

 

(i)                                     Holdings and its Subsidiaries may hold
the Investments held by them on the Closing Date and described on Schedule 3.3;

 

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(j)                                     Borrowers and their Subsidiaries may
acquire and own investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers or received
pursuant to a plan or reorganization of any supplier or customer, in each case
in good faith settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;

 

(k)                                  Borrowers and their Subsidiaries may
consummate the Related Transactions;

 

(l)                                     Borrowers and their Subsidiaries may
acquire and hold Investments consisting of notes received in connection with
Asset Dispositions permitted under Section 3.7; provided, that such notes shall
be pledged and delivered to Agent, for the benefit of Agent and Lenders, as
security for the Obligations;

 

(m)                               Borrowers and any of their Subsidiaries may
convey, lease, license, sell or otherwise transfer or acquire assets and
properties to the extent permitted by Section 3.7;

 

(n)                                 Holdings may make cash common equity
contributions to Borrowers and Borrowers and their Subsidiaries may establish
Subsidiaries to the extent permitted by Section 3.13;

 

(o)                                 Borrowers and their Subsidiaries may
consummate Permitted Acquisitions; and

 

(p)                                 Borrowers and their Subsidiaries may make
Investments not otherwise permitted by this Section 3.3 in an aggregate amount
not to exceed $500,000 (net of cash repayments of principal in the case of loans
and cash equity returns (whether as a dividend or redemption) in the case of
equity investments).

 

3.4.                              Contingent Obligations.  The Credit Parties
shall not and shall not cause or permit their Subsidiaries to directly or
indirectly create or become or be liable with respect to any Contingent
Obligation except:

 

(a)                                  Letter of Credit Obligations;

 

(b)                                 those arising under Rate Contracts entered
into in compliance with Section 3.1

 

(c)                                  those resulting from endorsement of
negotiable instruments for collection in the ordinary course of business;

 

(d)                                 those existing on the Closing Date and
described in Schedule 3.4;

 

(e)                                  those arising under indemnity agreements to
title insurers to cause such title insurers to issue to Agent mortgagee title
insurance policies;

 

(f)                                    those arising with respect to customary
indemnification obligations incurred in connection with Asset Dispositions
permitted hereunder;

 

(g)                                 those incurred in the ordinary course of
business with respect to surety and appeal bonds, performance and
return-of-money bonds and other similar obligations not exceeding at any time
outstanding $1,000,000 in aggregate liability;

 

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(h)                                 those incurred with respect to Indebtedness
permitted by Section 3.1 provided that any such Contingent Obligation is
subordinated to the Obligations to the same extent as the Indebtedness to which
it relates is subordinated to the Obligations;

 

(i)                                     those arising under the Acquisition
Agreement, whether for indemnification, purchase price adjustments, compensation
or otherwise;

 

(j)                                     Contingent Obligations of any Credit
Party of the obligations of any Credit Party which are permitted under this
Agreement; and

 

(k)                                  any other Contingent Obligation not
expressly permitted by clauses (a) through (j) above, so long as any such other
Contingent Obligations, in the aggregate at any time outstanding, do not exceed
$250,000.

 

3.5.                              Restricted Payments.  The Credit Parties shall
not and shall not cause or permit their Subsidiaries to directly or indirectly
declare, order, pay, make or set apart any sum for any Restricted Payment,
except that:

 

(a)                                  GII may pay dividends to Holdings that are
used by Holdings (i) to pay federal and state income taxes then due and owing,
franchise taxes and other similar licensing expenses incurred in the ordinary
course of business; provided that GII’s aggregate contribution to taxes as a
result of the filing of a consolidated or combined return by Holdings shall not
be greater, nor the aggregate receipt of tax benefits less, than they would have
been had GII not filed a consolidated or combined return with Holdings, or
(ii) to pay other reasonable out of pocket costs and expenses incurred in the
ordinary course of business;

 

(b)                                 Wholly-owned Subsidiaries of GII may make
Restricted Payments to GII or to a wholly-owned Subsidiary of GII;

 

(c)                                  GII may pay fees due to First Atlantic on
the Closing Date;

 

(d)                                 Borrowers may pay dividends to Holdings to
permit Holdings to repurchase, redeem, acquire, cancel or otherwise retire Stock
owned by employees of Holdings and its Subsidiaries whose employment with
Holdings and/or its Subsidiaries has been terminated pursuant to death,
disability, retirement or otherwise, provided that such dividend payments shall
not exceed $500,000 in any fiscal year and provided that no Event of Default
exists at the time of such Restricted Payment or would occur as a result
thereof; provided, further, that, if in any Fiscal Year, any portion of the
permitted $500,000 amount is not utilized, up to $250,000 of such unused amount
may be carried forward to the next succeeding Fiscal Year to increase the
permitted amount for such succeeding Fiscal Year;

 

(e)                                  Borrowers may pay dividends to Holdings to
permit Holdings to repurchase, redeem, acquire, cancel or otherwise retire Stock
owned by employees of Holdings and its Subsidiaries who will incur tax
liabilities as a result of the consummation of the Initial Public Offering;
provided, that, (i) such dividend payments shall not exceed $1,200,000 in the
aggregate, (ii) such dividend payments are made within one year after the
Closing Date and (iii) no Event of Default exists at the time of such Restricted
Payment or would occur as a result thereof;

 

(f)                                    GII and Holdings may make any Restricted
Payment required to be made by them pursuant to the Acquisition Agreement,
whether in respect of purchase price adjustment, indemnification or otherwise;

 

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(g)                                 any Subsidiary of a Borrower may pay
dividends to its shareholders, in each case so long as such Borrower or any
Subsidiary of such Borrower which owns an equity interest in such Subsidiary
receives a percentage of any such dividend which is at least equal to its
percentage equity interest in the respective Subsidiary paying such dividend;
and

 

(h)                                 Borrowers may make Restricted Payments to
Holdings and Holdings may make Restricted Payments so long as (i) average daily
Borrowing Availability for the 30 day period prior to the making of any such
Restricted Payment, and projected average daily Borrowing Availability for the
30 day period after the making of any such Restricted Payment (after giving
effect to such Restricted Payment), shall be not less than $15,000,000 and
(ii) at the time any such Restricted Payment is made, the sum of all Restricted
Payments made under this clause (h) since the Closing Date (including such
Restricted Payment) shall not exceed 50% of the cumulative Consolidated Net
Income since the Closing Date.

 

3.6.                              Restriction on Fundamental Changes.  The
Credit Parties shall not and shall not cause or permit their Subsidiaries to
directly or indirectly:  (a) amend, modify or waive any term or provision of its
organizational documents, including its articles of incorporation, certificates
of designations pertaining to preferred stock, by-laws, partnership agreement or
operating agreement unless required by law or if such amendment, modification or
waiver could not adversely impact the interests of Agent or the Lenders in any
material respect; (b) enter into any transaction of merger or consolidation
except, upon not less than five (5) Business Days prior written notice to Agent,
(i) any Borrower may merge with or into another Borrower and (ii) any
wholly-owned Domestic Subsidiary of a Borrower may be merged with or into such
Borrower (provided that such Borrower is the surviving entity) or any other
wholly-owned Domestic Subsidiary of such Borrower that is a Guarantor;
(c) liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), except, upon not less than five (5) Business Days prior written
notice to Agent, any wholly-owned Domestic Subsidiary of a Borrower may be
merged with or into such Borrower (provided that such Borrower is the surviving
entity) or any other wholly-owned Domestic Subsidiary of such Borrower that is a
Guarantor; or (d) acquire by purchase or otherwise all or any substantial part
of the business or assets of any other Person.  Notwithstanding the foregoing,
Borrowers may consummate Permitted Acquisitions.

 

3.7.                              Disposal of Assets or Subsidiary Stock.  The
Credit Parties shall not and shall not cause or permit their Subsidiaries to
directly or indirectly convey, sell, lease, sublease, transfer or otherwise
dispose of, or grant any Person an option to acquire, in one transaction or a
series of related transactions, any of its property, business or assets, whether
now owned or hereafter acquired, except for (a) sales of inventory in good faith
to customers for fair value in the ordinary course of business and dispositions
of obsolete equipment not used or useful in the business, (b) closures of
individual retail stores, if, in the judgment of the relevant Credit Party’s
board of directors such closure is appropriate and any inventory held therein
having a value in excess of $100,000 is transferred to other stores for sale in
the ordinary course of business or returned to such Credit Party’s warehouse
(c) asset transfers from (i) a Borrower to another Borrower or (ii) any
Subsidiary of a Borrower (that is not itself a Borrower) to a Borrower or
another wholly-owned domestic Subsidiary of a Borrower, (d) sales of Cash
Equivalents and (e) Asset Dispositions if all of the following conditions are
met:  (i) the market value of assets sold or otherwise disposed of in any single
transaction or series of related transactions does not exceed $500,000 and the
aggregate market value of assets sold or otherwise disposed of in any Fiscal
Year does not exceed $1,000,000; (ii) the consideration received is at least
equal to the fair market value of such assets; (iii) the sole consideration
received is cash or a note subject to Section 3.3; and (iv) no Default or Event
of Default then exists or would result from such Asset Disposition.

 

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3.8.                              Transactions with Affiliates.  The Credit
Parties shall not and shall not cause or permit their Subsidiaries to directly
or indirectly enter into or permit to exist any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
management, consulting, investment banking, advisory or other similar services)
with any Affiliate or with any director, officer or employee of any Credit
Party, except (a) as set forth on Schedule 3.8, (b) transactions in the ordinary
course of and pursuant to the reasonable requirements of the business of any
such Credit Party or any of its Subsidiaries and upon fair and reasonable terms
which are fully disclosed to Agent and are no less favorable to any such Credit
Party or any of its Subsidiaries than would be obtained in a comparable arm’s
length transaction with a Person that is not an Affiliate, (c) payment of
reasonable compensation to officers and employees for services actually rendered
to any such Credit Party or any of its Subsidiaries (d) payment of director’s
fees in the ordinary course of business, plus expenses, (e) payment of
reasonable compensation (including compensation under employee benefit plans,
stock option plans and other similar compensatory arrangements) to officers,
directors and employees in the ordinary course of business for services actually
rendered to any such Credit Party or any of its Subsidiaries, (f) the issuance
of Stock of Holdings as compensation to employees, officers and directors,
(g) transactions permitted under Sections 3.1, 3.3, 3.4, 3.5, 3.6 or 3.7,
(h) Holdings and its Subsidiaries may enter into and make payments under
customary indemnification provisions with officers, employees and directors of
Holdings and its Subsidiaries, (i) employment arrangements entered into by the
Credit Parties with respect to the procurement of services of their respective
officers and employees in the ordinary course of business, (j) the issuance of
Stock of Holdings to the Permitted Holders and (k) the reimbursement of any
out-of-pocket expenses incurred by First Atlantic in connection with providing
services to the Credit Parties.

 

3.9.                              Conduct of Business.  The Credit Parties shall
not and shall not cause or permit their Subsidiaries to directly or indirectly
engage in any business other than businesses of the type currently engaged in or
proposed to be engaged in as of the Closing Date or any business substantially
related thereto.  Holdings shall engage in no business other than owning Stock
in GII and activities related thereto, the performance of its obligations under
the Loan Documents to which it is a party and the maintenance of its corporate
existence and corporate governance.  GII shall engage in no business other than
owning Stock of its Subsidiaries and activities related thereto, the performance
of its obligations under the Loan Documents to which it is a party and the
maintenance of its corporate existence and corporate governance.

 

3.10.                        [Intentionally Omitted].

 

3.11.                        Fiscal Year.  No Credit Party shall change its
Fiscal Year or permit any of its Subsidiaries to change their respective fiscal
years.

 

3.12.                        Press Release; Public Offering Materials.  Each
Credit Party executing this Agreement agrees that neither it nor its Affiliates
will in the future issue any press releases or other public disclosure,
including any prospectus, proxy statement or other materials filed with any
Governmental Authority relating to a public offering of the Stock of any Credit
Party, using the name of GE Capital or its affiliates or referring to this
Agreement, the other Loan Documents or the Related Transactions Documents
without at least two (2) Business Days’ prior notice to GE Capital and without
the prior written consent of GE Capital unless (and only to the extent that)
such Credit Party or Affiliate is required to do so under law and then, in any
event, such Credit Party or Affiliate will consult with GE Capital before
issuing such press release or other public disclosure.  Each Credit Party
consents to the publication by Agent or any Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this
Agreement.  Agent or such Lender shall provide a draft of any such tombstone or
similar advertising material to each Credit Party for review and comment prior
to the publication thereof.  Agent

 

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reserves the right to provide to industry trade organizations information
necessary and customary for inclusion in league table measurements.

 

3.13.                        Subsidiaries.  The Credit Parties shall not and
shall not cause or permit their Subsidiaries to directly or indirectly
establish, create or acquire any new Subsidiary; provided, that, Borrowers or
any wholly-owned Subsidiary of a Borrower may acquire, establish or create one
or more wholly-owned Subsidiaries so long as, upon the creation, establishment
or acquisition thereof (i) 100% of the Stock of each such wholly-owned
Subsidiary is pledged pursuant to the Pledge Agreement (and, if certificated,
delivered to Agent, for the benefit of Lenders), and (ii) each such domestic
wholly-owned Subsidiary executes the Security Agreement and a Guaranty in form
and substance reasonably satisfactory to Agent; provided, further, that
(x) Subsidiaries created or acquired in connection with Investments permitted
under Section 3.3(p) may be less than wholly owned by Borrowers or one of their
Subsidiaries and (y) Borrowers or one of their wholly-owned Subsidiaries may
establish transitory special purpose Subsidiaries for the purpose of effecting
Permitted Acquisitions (which Subsidiaries shall own no assets (other than
nominal capitalization and any contract rights pursuant to the acquisition
agreement relating to any such Permitted Acquisition and other than cash held on
a transitory basis not to exceed two (2) Business Days which is used to pay the
purchase price and transaction fees and expenses for such Permitted Acquisition;
provided, that Agent maintains a first priority perfected Lien in such cash)
prior to giving effect to any such Permitted Acquisition) without having to
comply with preceding clauses (i) and (ii).

 

3.14.                        Bank Accounts.  The Credit Parties shall not and
shall not cause or permit their Subsidiaries to establish any new bank accounts
without prior written notice to Agent and unless Agent and the bank at which the
account is to be opened enter into a tri-party agreement regarding such bank
account pursuant to which such bank acknowledges the security interest of Agent
in such bank account, agrees to comply with instructions originated by Agent
directing disposition of the funds in the bank account without further consent
from such Credit Party or Subsidiary, and agrees to subordinate and limit any
security interest the bank may have in the bank account on terms satisfactory to
Agent.

 

3.15.                        Hazardous Materials.  The Credit Parties shall not
and shall not cause or permit their Subsidiaries to cause or permit a Release of
any Hazardous Material on, at, in, under, above, to, from or about any of the
Real Estate where such Release would (a) violate in any respect, or form the
basis for any Environmental Liabilities by the Credit Parties or any of their
Subsidiaries under, any Environmental Laws or Environmental Permits or
(b) otherwise adversely impact the value or marketability of any of the Real
Estate or any of the Collateral, other than such violations or Environmental
Liabilities that could not reasonably be expected to have a Material Adverse
Effect.

 

3.16.                        ERISA.  The Credit Parties shall not and shall not
cause or permit any ERISA Affiliate to, cause or permit to occur an ERISA Event
to the extent such ERISA Event could reasonably be expected to have a Material
Adverse Effect.

 

3.17.                        Sale-Leaseback.  No Credit Party shall engage in
any sale-leaseback, synthetic lease or similar transaction involving any of its
assets.

 

3.18.                        Prepayments of Other Indebtedness.  The Credit
Parties shall not, directly or indirectly, voluntarily purchase, redeem, defease
or prepay any principal of, premium, if any, interest or other amount payable in
respect of any Indebtedness, other than (i) the Obligations; (ii) Indebtedness
secured by a Permitted Encumbrance if the asset securing such Indebtedness has
been sold or otherwise disposed of in accordance with Section 3.7(b);
(iii) intercompany Indebtedness reflecting amounts owing to Borrowers;
(iv) Indebtedness permitted under Section 3.1(d); and (v) Indebtedness permitted
under Sections 3.1(e) and (f) so long as average daily Borrowing Availability
for the 30 day period prior to the

 

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making of any such prepayment, and projected average daily Borrowing
Availability for the 30 day period after the making of any such prepayment
(after giving effect to such prepayment), shall be not less than $15,000,000.

 

3.19.                        Minimum Borrowing Availability.  The Credit Parties
shall not permit Borrowing Availability at any time to be less than $3,500,000.

 

SECTION 4.

FINANCIAL REPORTING

 

The Credit Parties covenant and agree that from and after the date hereof until
the Termination Date, the Credit Parties shall perform and comply with, and
shall cause each of the other Credit Parties to perform and comply with, all
covenants in this Section 4 applicable to such Person.

 

4.1.                                                                             
Financial Statements and Other Reports.  Holdings and its Subsidiaries will
maintain, and cause each of their Subsidiaries to maintain, a system of
accounting established and administered in accordance with sound business
practices to permit preparation of Financial Statements in conformity with GAAP
(it being understood that monthly Financial Statements are not required to have
footnote disclosures and are subject to year end adjustments).  Borrower
Representative will deliver each of the Financial Statements and other reports
described below to Agent (and each Lender in the case of the Financial
Statements and other reports described in Sections (4.1)(a), (b), (d), (f), (g),
(h), and (k)).

 

(a)                                  Monthly Financials.  As soon as available
and in any event within thirty (30) days after the end of each Fiscal Month
(other than the last Fiscal Month of Holdings’ Fiscal Year) and within sixty
(60) days after the end of the last Fiscal Month of Holdings’ Fiscal Year,
Borrower Representative will deliver (1) the consolidated balance sheets of
Holdings and its Subsidiaries, as at the end of such Fiscal Month, and the
related consolidated statements of income, stockholders’ equity and cash flow
for such Fiscal Month and for the period from the beginning of the then current
Fiscal Year of Holdings to the end of such Fiscal Month and (2) a report setting
forth in comparative form the corresponding figures for the corresponding
periods of the previous Fiscal Year and the corresponding figures from the most
recent Projections for the current Fiscal Year delivered pursuant to
Section 4.1(f).

 

(b)                                 Year-End Financials.  As soon as available
and in any event within ninety (90) days after the end of each Fiscal Year of
Holdings, Borrower Representative will deliver (1) the consolidated balance
sheets of Holdings and its Subsidiaries, as at the end of such year, and the
related consolidated statements of income, stockholders’ equity and cash flow
for such Fiscal Year (it being understood that the delivery of Holdings’ SEC
Form 10-K for such Fiscal Year shall satisfy the requirement of this clause
(1)), and (2) a report with respect to the consolidated Financial Statements
from a firm of Certified Public Accountants of recognized national standing
selected by Borrowers, which report shall be prepared in accordance with
Statement of Auditing Standards No. 58 (the “Statement”) “Reports on Audited
Financial Statements” and such report shall be “Unqualified” (as such term is
defined in such Statement).

 

(c)                                  Accountants’ Reports.  Promptly upon
receipt thereof, Borrower Representative will deliver copies of all significant
reports submitted by Borrowers’ firm of certified public accountants in
connection with each annual, interim or special audit or review of any type of
the Financial Statements or related internal control systems of Holdings or its
Subsidiaries made by such accountants, including any comment letter submitted by
such accountants to management in connection with their services.

 

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(d)                                 Additional Deliveries.

 

(i)                                     To Agent, upon its request, and in any
event no less frequently than noon New York time, six (6) Business Days after
the end of each Fiscal Month (together with a copy of any of the following
reports requested by any Lender in writing after the Closing Date), and, so long
as an Event of Default has occurred and is continuing from time to time more
frequently upon the request of Agent, each of the following reports, each of
which shall be prepared by Borrowers as of the last day of the immediately
preceding Fiscal Month or the date 2 days prior to the date of any such request:

 

(A)                              a Borrowing Base Certificate, accompanied by
such supporting detail and documentation as shall be requested by Agent in its
reasonable discretion (in substantially the same form as Exhibit 4.1(d)
(“Borrowing Base Certificate”);

 

(B)                                a summary of Inventory by location and type
with a supporting perpetual Inventory report, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion; and

 

(C)                                a monthly trial balance showing Accounts
outstanding aged from invoice date as follows:  1 to 30 days, 31 to 60 days, 61
to 90 days and 91 days or more, accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion.

 

(ii)                                  To Agent, at the time of delivery of each
of the monthly Financial Statements delivered pursuant to this Section 4.1:

 

(A)                              a reconciliation of the Borrowing Base for the
most recently ended Fiscal Month, general ledger and month-end Inventory reports
to Holdings’ consolidated general ledger and monthly Financial Statements
delivered pursuant to this Section 4.1, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;

 

(B)                                a reconciliation of the perpetual inventory
by location to the Borrowing Base Certificate for the most recently ended Fiscal
Month, general ledger and monthly Financial Statements delivered pursuant to
this Section 4.1, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion; and

 

(C)                                an aging of accounts payable and a
reconciliation of that accounts payable aging to each Borrower’s general ledger
and monthly Financial Statements delivered pursuant to this Section 4.1, in each
case accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion.

 

(iii)                               To Agent, at the time of delivery of each of
the annual Financial Statements delivered pursuant to Section 4.1, (i) a listing
of government contracts of each Borrower subject to the Federal Assignment of
Claims Act of 1940; and (ii) a list of any new applications for the registration
of any Patent, Trademark or Copyright filed by any Credit Party with the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in the prior Fiscal Year.

 

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(e)                                  Appraisals; Inspections.

 

(i)                                     At Borrower’s expense, at any time while
and so long as an Event of Default shall have occurred and be continuing, and in
the absence of a Default or Event of Default, in the cases of clauses (x) and
(y), not more than twice during each calendar year, and in the case of clause
(z) not more than once during each calendar year, Agent shall be entitled to
(x) conduct or cause to be conducted, a field examination or audit of the
Collateral, (y) obtain appraisal reports in form and substance and from
appraisers satisfactory to Agent stating the then current liquidation values of
the Inventory of the Credit Parties and (z) obtain appraisal reports in form and
substance and from appraisers satisfactory to Agent stating the then current
liquidation values of the Real Estate of the Credit Parties.

 

(ii)                                  Borrowers, at their own expense, shall
deliver to Agent the results of each physical verification, if any, that
Borrowers or any other Credit Party may in their discretion have made, or caused
any other Person to have made on their behalf, of all or any portion of their
Inventory (and, if a Default or an Event of Default has occurred and is
continuing, Borrowers shall, upon the request of Agent, conduct, and deliver the
results of, such physical verifications as Agent may require).

 

(f)                                    Projections.  As soon as available and in
any event no later than the sixtieth day after the beginning of each of
Holdings’ Fiscal Years, Borrower Representative will deliver Projections of
Holdings and its Subsidiaries for the forthcoming fiscal year on a month by
month basis

 

(g)                                 SEC Filings and Press Releases.  Promptly
upon their becoming available, Borrower Representative will deliver copies of
(1) all Financial Statements, reports, notices and proxy statements sent or made
available by Holdings to its Stockholders, (2) all regular and periodic reports
and all registration statements and prospectuses, if any, filed by Holdings, or
any of its Subsidiaries with any securities exchange or with the Securities and
Exchange Commission, any Governmental Authority or any private regulatory
authority, and (3) all press releases and other statements made available by
Holdings or any of its Subsidiaries to the public concerning developments in the
business of any such Person.

 

(h)                                 Events of Default, Etc.  Promptly upon any
officer of any Credit Party obtaining knowledge of any of the following events
or conditions, Borrower Representative shall deliver copies of all notices given
or received by Holdings or any of its Subsidiaries with respect to any such
event or condition and a certificate of Borrower Representative’s chief
executive officer specifying the nature and period of existence of such event or
condition and what action Holdings or any of its Subsidiaries has taken, is
taking and proposes to take with respect thereto:  (1) any condition or event
that constitutes, or which could reasonably be expected to result in the
occurrence of, an Event of Default or Default; (2) any notice that any Person
has given to Holdings or any of its Subsidiaries or any other action taken with
respect to a claimed default or event or condition of the type referred to in
Section 6.1(b); (3) any event or condition that could reasonably be expected to
result in any Material Adverse Effect; or (4) any default or event of default
with respect to any Indebtedness of Holdings or any of its Subsidiaries in a
principal amount in excess of $1,000,000.

 

(i)                                     Litigation.  Promptly upon any officer
of any Credit Party obtaining knowledge of (1) the institution of any material
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation, tax audit or arbitration now pending or, to the best knowledge of
such Credit Party, threatened against or affecting any Credit Party or any of
its Subsidiaries or any property of any Credit Party or any of its Subsidiaries
(“Litigation”) not previously disclosed by Borrower Representative to Agent or
(2) any material development in any action, suit, proceeding, governmental
investigation or arbitration at any time pending against or affecting any Credit
Party or any property of any Credit Party

 

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which, in each case, could reasonably be expected to have a Material Adverse
Effect, Borrower Representative will promptly give notice thereof to Agent and
provide such other information as may be reasonably available to them to enable
Agent and its counsel to evaluate such matter.

 

(j)                                     Notice of Corporate and other Changes. 
Borrower Representative shall provide prompt written notice of (1) all
jurisdictions in which a Credit Party becomes qualified after the Closing Date
to transact business in which Inventory having a value of $100,000 or more is
located, (2) any change after the Closing Date in the authorized and issued
Stock of any Credit Party or any Subsidiary of any Credit Party or any amendment
to their articles or certificate of incorporation, by-laws, partnership
agreement or other organizational documents, (3) any Subsidiary created or
acquired by any Credit Party or any of its Subsidiaries after the Closing Date,
such notice, in each case, to identify the applicable jurisdictions, capital
structures or Subsidiaries, as applicable, and (4) any other event that occurs
after the Closing Date which would cause any of the representations and
warranties in Section 5 of this Agreement or in any other Loan Document to be
untrue or misleading in any material respect.  The foregoing notice requirement
shall not be construed to constitute consent by any of the Lenders to any
transaction referred to above which is not expressly permitted by the terms of
this Agreement.

 

(k)                                  Compliance Certificate.  Together with each
delivery of Financial Statements of Holdings and its Subsidiaries pursuant to
Sections 4.1(a) and (b), Borrower Representative will deliver a fully and
properly completed Compliance Certificate (in substantially the same form as
Exhibit 4.1(k) (the “Compliance Certificate”) signed by Holdings’ chief
executive officer or chief financial officer.

 

(l)                                     (Intentionally Omitted).

 

(m)                               Other Information.  With reasonable
promptness, Borrower Representative will deliver such other information and data
with respect to any Credit Party or any Subsidiary of any Credit Party as from
time to time may be reasonably requested by Agent.

 

(n)                                 Taxes.  Borrower Representative shall
provide prompt written notice of (i) the execution or filing with the IRS or any
other Governmental Authority of any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Charges by any Credit Party or any of its Subsidiaries and (ii) any agreement by
any Credit Party or any of its Subsidiaries or request directed to any Credit
Party or any of its Subsidiaries to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
in each case, could reasonably be expected to have a Material Adverse Effect.

 

4.2.                              Accounting Terms; Utilization of GAAP for
Purposes of Calculations Under Agreement.  For purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to such terms in conformity with GAAP.  Financial statements and other
information furnished to Agent pursuant to Section 4.1 or any other section
(unless specifically indicated otherwise) shall be prepared in accordance with
GAAP as in effect at the time of such preparation; provided that no Accounting
Change shall affect financial covenants, standards or terms in this Agreement;
provided further that Borrowers shall prepare footnotes to the Financial
Statements required to be delivered hereunder that show the differences between
the Financial Statements delivered (which reflect such Accounting Changes) and
the basis for calculating financial covenant compliance (without reflecting such
Accounting Changes).  All such adjustments described in clause (c) of the
definition of the term Accounting Changes resulting from expenditures made
subsequent to the Closing Date (including capitalization of costs and expenses
or payment of pre-Closing Date liabilities) shall be treated as expenses in the
period the expenditures are made.

 

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SECTION 5.

REPRESENTATIONS AND WARRANTIES

 

To induce Agent and Lenders to enter into the Loan Documents, to make Loans and
to issue or cause to be issued Letters of Credit, Borrowers and the other Credit
Parties executing this Agreement, jointly and severally, represent, warrant and
covenant to Agent and each Lender that the following statements are and, after
giving effect to the Related Transactions, will remain true, correct and
complete until the Termination Date with respect to all Credit Parties:

 

5.1.                              Disclosure.  No representation or warranty of
any Credit Party contained in this Agreement, the Financial Statements referred
to in Section 5.5, the other Related Transactions Documents or any other
document, certificate or written statement furnished to Agent or any Lender by
or on behalf of any such Person for use in connection with the Loan Documents or
the Related Transactions Documents contains any untrue statement of a material
fact or omitted, omits or will omit to state a material fact necessary in order
to make the statements contained herein or therein (taken as a whole) not
misleading in light of the circumstances in which the same were made.  It is
understood that, as to the financial projections delivered to Agent and the
Lenders by or on behalf of Holdings and/or Borrowers, no representation or
warranty is being made pursuant to this Agreement other than that such financial
projections are based on good faith estimates and assumptions believed by such
Persons to be reasonable at the time made, it being recognized by Agent and the
Lenders that projections as to future events are not to be viewed as facts or
factual information and that actual results during the period or periods covered
thereby may differ from the projected results and such differences may be
material.

 

5.2.                              No Material Adverse Effect.  Since
December 31, 2005 there have been no events or changes in facts or circumstances
affecting any Credit Party or any of its Subsidiaries which individually or in
the aggregate have had or could reasonably be expected to have a Material
Adverse Effect and that have not been disclosed herein or in the attached
Disclosure Schedules.

 

5.3.                              No Conflict.  The consummation of the Related
Transactions does not and will not violate or conflict with any laws, rules,
regulations or orders of any Governmental Authority or violate, conflict with,
result in a breach of, or constitute a default (with due notice or lapse of time
or both) under any Contractual Obligation or organizational documents of any
Credit Party or any of its Subsidiaries except if such violations, conflicts,
breaches or defaults could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

 

5.4.                              Organization, Powers, Capitalization and Good
Standing.

 

(a)                                  Organization and Powers.  Each of the
Credit Parties and each of their Subsidiaries is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and qualified to do business in all states where such qualification is required
except where failure to be so qualified could not reasonably be expected to have
a Material Adverse Effect.  The jurisdiction of organization and all
jurisdictions in which each Credit Party is qualified to do business are set
forth on Schedule 5.4(a).  Each of the Credit Parties and each of their
Subsidiaries has and, immediately prior to the consummation of the Related
Transactions, Acquisition Co. had, all requisite organizational power and
authority to own, pledge, mortgage or otherwise encumber and operate its
properties, to carry on its business as now conducted and proposed to be
conducted, to enter into each Related Transactions Document to which it is a
party and to incur the Obligations, grant liens and security interests in the
Collateral and carry out the Related Transactions.

 

(b)                                 Capitalization.  As of the Closing Date: 
(i) the authorized Stock of each of the Credit Parties and each of their
Subsidiaries is as set forth on Schedule 5.4(b); (ii) all issued and

 

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outstanding Stock of each of the Credit Parties and each of their Subsidiaries
is duly authorized and validly issued, fully paid, nonassessable, free and clear
of all Liens other than those in favor of Agent for the benefit of Agent and
Lenders, and such Stock was issued in compliance with all applicable state,
federal and foreign laws concerning the issuance of securities; (iii) the
identity of the holders of the Stock of each of the Holding’ direct and indirect
Subsidiaries and the percentage of their fully-diluted ownership of the Stock of
and each such Subsidiary is set forth on Schedule 5.4(b); and (iv) no Stock of
any such Subsidiary, other than those described above, is issued and
outstanding.  Except as provided in Schedule 5.4(b), as of the Closing Date,
there are no preemptive or other outstanding rights, options, warrants,
conversion rights or similar agreements or understandings for the purchase or
acquisition from any Credit Party or any of its Subsidiaries of any Stock of any
such entity.

 

(c)                                  Binding Obligation.  This Agreement is, and
the other Related Transactions Documents when executed and delivered will be,
the legally valid and binding obligations of the Credit Parties party thereto,
each enforceable against each of such Credit Parties, as applicable, in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting, creditors’
rights generally and the effects of general principles of equity.

 

5.5.                              Financial Statements and Projections.  All
Financial Statements concerning Holdings and its Subsidiaries (including GII and
its Subsidiaries) which have been or will hereafter be furnished to Agent
pursuant to this Agreement, including those listed below, have been or will be
prepared in accordance with GAAP consistently applied (except as disclosed
therein) and do or will present fairly the financial condition of the entities
covered thereby as at the dates thereof and the results of their operations for
the periods then ended, subject to, in the case of unaudited Financial
Statements, the absence of footnotes and normal year-end adjustments.

 

(a)                                  The consolidated balance sheets at
December 31, 2005 and the related statement of income of Holdings, on a
consolidated basis, for the Fiscal Year then ended, audited by Ernst & Young
LLP.

 

(b)                                 The consolidated balance sheet at April 1,
2006 and the related statement of income of Holdings, on a consolidated basis,
for the three (3) months then ended.

 

The Projections delivered on or prior to the Closing Date and the updated
Projections delivered pursuant to Section 4.1(f) represent and will represent as
of the date thereof the good faith estimate of Credit Parties and their senior
management concerning the most probable course of their business; provided,
that, no representation or warranty is made as to the impact of future general
economic conditions or as to whether the projections contained in the
Projections will actually be realized and Agent and Lenders understand that the
Projections may differ from actual results and such differences may be material.

 

5.6.                              Intellectual Property. GII or another Credit
Party owns, is licensed to use or otherwise has the right to use, all
Intellectual Property that is used in and necessary for the conduct of each
Credit Party’s business as currently conducted and that is material to the
condition (financial or other), business or operations of such Credit Party and
its Subsidiaries and all such Intellectual Property that is registered as of the
Closing Date is identified on Schedule 5.6.  Each of the registrations shown on
Schedule 5.6 has been registered or applied for, as the case may be, in
accordance with the intellectual property laws of the particular countries.
Except as disclosed in Schedule 5.6, the use of such Intellectual Property by
the Credit Parties and their Subsidiaries and the conduct of their businesses
does not and, immediately prior to the consummation of the Related Transactions,
did not, and has not been alleged by any Person to, infringe on the rights of
any Person except for such infringement which could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.

 

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5.7.                              Investigations, Audits, Etc.  As of the
Closing Date, except as set forth on Schedule 5.7, neither any Credit Party nor
any of its Subsidiaries is the subject of any review or audit by the IRS or any
governmental investigation concerning the violation or possible violation of any
law.

 

5.8.                              Employee Matters.  Except as set forth on
Schedule 5.8, (a) no Credit Party or Subsidiary of a Credit Party nor any of
their respective employees is subject to any collective bargaining agreement,
(b) no petition for certification or union election is pending with respect to
the employees of any Credit Party or any of their Subsidiaries and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of any Credit Party or any Subsidiary of a Credit
Party, (c) there are no strikes, slowdowns, work stoppages or controversies
pending or, to the best knowledge of any Credit Party after due inquiry,
threatened between any Credit Party or any Subsidiary of a Credit Party and its
respective employees, other than employee grievances which could not reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect, (d) hours worked by and payment made to employees of each Credit Party
and each of its Subsidiaries comply with the Fair Labor Standards Act and
(e) hours worked by and payment made to employees of each Credit Party and each
of its Subsidiaries comply with each other federal, state, local or foreign law
applicable to such matters, other than noncompliance which could not reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect.  As of the Closing Date, except as set forth on Schedule 3.8 or 5.8,
neither any Credit Party nor any of its Subsidiaries is party to an employment
contract.

 

5.9.                              Solvency.  Each Credit Party and each
Subsidiary of a Credit Party is Solvent.

 

5.10.                        Litigation; Adverse Facts.  Except as set forth on
Schedule 5.10, there are no judgments outstanding against any Credit Party or
any of its Subsidiaries or affecting any property of any Credit Party or any of
its Subsidiaries, nor is there any Litigation pending, or to the best knowledge
of any Credit Party threatened, against any Credit Party or any of its
Subsidiaries which in any such case could reasonably be expected to result in
any Material Adverse Effect.

 

5.11.                        Use of Proceeds; Margin Regulations.  No part of
the proceeds of any Loan will be used for “buying” or “carrying” “margin stock”
within the respective meanings of such terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time hereafter
in effect or for any other purpose that violates the provisions of the
regulations of the Board of Governors of the Federal Reserve System.  If
requested by Agent, each Credit Party will furnish to Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR
Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.

 

(a)                                  Borrowers shall utilize the proceeds of the
Loans solely to retire certain senior secured notes and to fund certain fees and
expenses in connection therewith, pay any transaction expenses relating to this
Agreement, and for the financing of Borrowers’ ordinary working capital and
general corporate needs.  Schedule 5.11 contains a description of Borrowers’
sources and uses of funds as of the Closing Date, including Loans and Letter of
Credit Obligations to be made or incurred on that date, and a funds flow
memorandum detailing how funds from each source are to be transferred for
particular uses.

 

5.12.                        Ownership of Property; Liens.  As of the Closing
Date, the real estate (“Real Estate”) listed in Schedule 5.12 constitutes all of
the real property owned, leased or subleased, by any Credit Party or any of its
Subsidiaries.  Each of the Credit Parties and each of its Subsidiaries owns good
and insurable fee simple title to all of its owned Real Estate, and valid
leasehold interests in all of its leased Real Estate, all as described on
Schedule 5.12.  Schedule 5.12 further describes any Real Estate with respect to
which any Credit Party or any of its Subsidiaries is a lessor, sublessor or
assignor as of the Closing Date.  Each of the Credit Parties and each of its
Subsidiaries also has valid title to, or valid leasehold interests in, all of
its personal property and assets.  As of the Closing Date, none of the
properties and assets of any

 

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Credit Party or any of its Subsidiaries are subject to any Liens other than
Permitted Encumbrances, and there are no facts, circumstances or conditions
known to any Borrower that may result in any Liens (including Liens arising
under Environmental Laws) other than Permitted Encumbrances against the
properties or assets of any Credit Party or any of its Subsidiaries.

 

5.13.                        Environmental Matters.

 

(a)                                  Except as set forth in Schedule 5.13, as of
the Closing Date: (i) the Real Estate is free of contamination from any
Hazardous Material except for such contamination that could not reasonably be
expected to adversely impact the value or marketability of such Real Estate and
that could not reasonably be expected to result in Environmental Liabilities of
the Credit Parties or their Subsidiaries in excess of $100,000 in the aggregate;
(ii) no Credit Party and no Subsidiary of a Credit Party has caused or suffered
to occur any Release of Hazardous Materials on, at, in, under, above, to, from
or about any of their Real Estate; (iii) the Credit Parties and their
Subsidiaries are and have been in compliance with all Environmental Laws, except
for such noncompliance that could not reasonably be expected to result in
Environmental Liabilities of the Credit Parties or their Subsidiaries in excess
of $100,000 in the aggregate; (iv) the Credit Parties and their Subsidiaries
have obtained, and are in compliance with, all Environmental Permits required by
Environmental Laws for the operations of their respective businesses as
presently conducted or as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits could not reasonably be
expected to result in Environmental Liabilities of the Credit Parties or their
Subsidiaries in excess of $100,000 in the aggregate, and all such Environmental
Permits are valid, uncontested and in good standing; (v) no Credit Party and no
Subsidiary of a Credit Party is involved in operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to result in any Environmental Liabilities of such Credit Party or
Subsidiary which could reasonably be expected to be in excess of $100,000 in the
aggregate, and no Credit Party or Subsidiary of a Credit Party has permitted any
current or former tenant or occupant of the Real Estate to engage in any such
operations; (vi) there is no Litigation arising under or related to any
Environmental Laws, Environmental Permits or Hazardous Material that seeks
damages, penalties, fines, costs or expenses in excess of $100,000 in the
aggregate or injunctive relief against, or that alleges criminal misconduct by
any Credit Party or any Subsidiary of a Credit Party; (vii) no notice has been
received by any Credit Party or any Subsidiary of a Credit Party identifying any
of them as a “potentially responsible party” or requesting information under
CERCLA or analogous state statutes, and to the knowledge of the Credit Parties,
there are no facts, circumstances or conditions that may result in any of the
Credit Parties or their Subsidiaries being identified as a “potentially
responsible party” under CERCLA or analogous state statutes; and (viii) the
Credit Parties have provided to Agent copies of all existing environmental
reports, reviews and audits and all written information pertaining to actual or
potential Environmental Liabilities, in each case relating to any of the Credit
Parties or their Subsidiaries.

 

(b)                                 Each Credit Party hereby acknowledges and
agrees that Agent (i) is not now, and has not ever been, in control of any of
the Real Estate or affairs of such Credit Party or its Subsidiaries and
(ii) does not have the capacity through the provisions of the Loan Documents or
otherwise to influence any Credit Party’s or its Subsidiaries’ conduct with
respect to the ownership, operation or management of any of their Real Estate or
compliance with Environmental Laws or Environmental Permits.

 

5.14.                        ERISA.

 

(a)                                  Schedule 5.14 lists, as of the Closing
Date, all Plans and separately identifies, as of the Closing Date, all Pension
Plans, including Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans,
including all Retiree Welfare Plans.  Copies of all such listed Plans, (other
than a

 

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Multiemployer Plan) together with a copy of the latest form IRS/DOL 5500-series
for each such Plan have been delivered, or made available to Agent.  Except with
respect to Multiemployer Plans, each Qualified Plan has been determined by the
IRS to qualify under Section 401 of the IRC (or is comprised of a master or
prototype Plan that has received a favorable opinion letter from the IRS), the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and to the knowledge of any Borrower
nothing has occurred that would cause the loss of such qualification or
tax-exempt status.  Each Plan is in substantial compliance with the applicable
provisions of ERISA and the IRC, including the timely filing of all reports
required under the IRC or ERISA, including the statement required by 29 CFR
Section 2520.104-23.  Except as would not result in any liability in excess of
$100,000, neither any Credit Party nor ERISA Affiliate has failed to make any
contribution or pay any amount due as required by either Section 412 of the IRC
or Section 302 of ERISA or the terms of any such Plan.  Neither any Credit Party
nor ERISA Affiliate has engaged in a “prohibited transaction,” as defined in
Section 406 of ERISA and Section 4975 of the IRC, in connection with any Plan,
that would subject any Credit Party to a material tax on prohibited transactions
imposed by Section 502(i) of ERISA or Section 4975 of the IRC.

 

(b)                                 Except as set forth in Schedule 5.14 or as
would not reasonably expected to result, either individually or in the
aggregate, in liabilities in excess of $100,000: (i) no Title IV Plan has any
Unfunded Pension Liability; (ii) no ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Borrower, threatened claims (other than claims for benefits in the normal
course), sanctions, actions or lawsuits, asserted or instituted against any Plan
or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA
Affiliate has incurred or reasonably expects to incur any liability as a result
of a complete or partial withdrawal from a Multiemployer Plan; (v) within the
last five years no Title IV Plan of any Credit Party or ERISA Affiliate has been
terminated, whether or not in a “standard termination” as that term is used in
Section 4041(b)(1) of ERISA, nor has any Title IV Plan of any Credit Party or
ERISA Affiliate (determined at any time within the past five years) with
Unfunded Pension Liabilities been transferred outside of the “controlled group”
(within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or
ERISA Affiliate; (vi) except in the case of any ESOP, Stock of all Credit
Parties and their ERISA Affiliates makes up, in the aggregate, no more than 10%
of fair market value of the assets of any Plan measured on the basis of fair
market value as of the latest valuation date of any Plan; and (vii) no liability
under any Title IV Plan has been satisfied with the purchase of a contract from
an insurance company that is not rated AAA by the S&P or an equivalent rating by
another nationally recognized rating agency.

 

5.15.                        Brokers.  Except, in each case, in connection with
the Initial Public Offering, no broker or finder acting on behalf of any Credit
Party or Affiliate thereof brought about the obtaining, making or closing of the
Loans or the Related Transactions, and no Credit Party or Affiliate thereof has
any obligation to any Person in respect of any finder’s or brokerage fees in
connection therewith.

 

5.16.                        Deposit and Disbursement Accounts.  Schedule 5.16
lists all banks and other financial institutions at which any Credit Party
maintains deposit or other accounts as of the Closing Date, including any
Disbursement Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number
therefor.

 

5.17.                        Agreements and Other Documents.  As of the Closing
Date, each Credit Party has provided to Agent or its counsel, on behalf of
Lenders, accurate and complete copies (or summaries) of all of the following
agreements or documents to which it is subject and each of which is listed in
Schedule 5.17:  supply agreements and purchase agreements not terminable by such
Credit Party within sixty (60)

 

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days following written notice issued by such Credit Party and involving
transactions in excess of $1,000,000 per annum; licenses and permits held by the
Credit Parties, the absence of which could reasonably be expected to have a
Material Adverse Effect; instruments and documents evidencing any Indebtedness
or Guaranteed Indebtedness of such Credit Party in an amount in excess of
$250,000 and any Lien granted by such Credit Party with respect thereto; and
instruments and agreements evidencing the issuance of any equity securities,
warrants, rights or options to purchase equity securities of such Credit Party. 
Notwithstanding the foregoing, each Credit Party has provided to Agent or its
counsel, on behalf of Lenders, accurate and complete copies (or summaries) of
all other agreements, instruments, and other documents that Agent or its counsel
has requested.

 

5.18.                        Insurance.  Schedule 5.18 lists all insurance
policies of any nature maintained, as of the Closing Date, for current
occurrences by each Credit Party, as well as a summary of the key business terms
of each such policy such as deductibles, coverage limits and term of policy.

 

SECTION 6.

 

DEFAULT, RIGHTS AND REMEDIES

 

6.1.                              Event of Default.  “Event of Default” shall
mean the occurrence or existence of any one or more of the following:

 

(a)                                  Payment.  (1) Failure by any Credit Party
to pay any principal of any Loan when due, or to repay Revolving Loans to reduce
their balance to the maximum amount of Revolving Loans then permitted to be
outstanding or to reimburse any L/C Issuer for any payment made by such L/C
Issuer under or in respect of any Letter of Credit when due or to provide cash
collateral for any Letter of Credit when due or (2) failure to pay, within three
(3) Business Days after the due date, any interest on any Loan or any other
amount due under this Agreement or any of the other Loan Documents; or

 

(b)                                 Default in Other Agreements.  (1) Any Credit
Party or any of its Subsidiaries fails to pay when due or within any applicable
grace period any principal or interest on Indebtedness (other than the Loans) or
any Contingent Obligations or (2) breach or default of any Credit Party or any
of its Subsidiaries, or the occurrence of any condition or event, with respect
to any Indebtedness (other than the Loans) or any Contingent Obligations, if the
effect of such breach, default or occurrence is to cause or to permit the holder
or holders then to cause, Indebtedness and/or Contingent Obligations having an
individual principal amount in excess of $5,000,000 or having an aggregate
principal amount in excess of $5,000,000 to become (other than as a result of a
voluntary Asset Disposition securing Indebtedness permitted under the definitive
documentation thereof) or be declared due prior to their stated maturity; or

 

(c)                                  Breach of Certain Provisions; Breach of
Warranty.  Failure of any Credit Party to perform or comply with any term or
condition contained in that portion of Section 2.2 relating to the Credit
Parties’ obligation to maintain insurance, Section 2.3, Section 3 or Section 4
(other than Sections 4.1(a), (b), (d)(ii), (d)(iii), (f) and (k), as to which an
Event of Default shall occur if the Credit Parties’ failure to comply with the
provisions of such Sections shall continue for a period of five (5) days); or

 

(d)                                 Borrowing Base Certificate; Breach of
Warranty.  Any information contained in any Borrowing Base Certificate is untrue
or incorrect in any respect in the aggregate in any Borrowing Base, or any
representation or warranty herein or in any Loan Document or in any written
statement, report, financial statement or certificate (other than a Borrowing
Base Certificate) made or delivered to Agent or any Lender by any Credit Party
is untrue or incorrect in any material respect (without duplication of
materiality qualifiers contained therein) as of the date when made or deemed
made; or

 

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(e)                                  Other Defaults Under Loan Documents. Any
Credit Party defaults in the performance of or compliance with any term
contained in this Agreement or the other Loan Documents (other than occurrences
described in other provisions of this Section 6.1 for which a different grace or
cure period is specified, or for which no cure period is specified and which
constitute immediate Events of Default) and such default is not remedied or
waived within thirty (30) days after the earlier of (1) receipt by Borrower
Representative of notice from Agent or Requisite Lenders of such default or
(2) actual knowledge of any Borrower or any other Credit Party of such default;
or

 

(f)                                    Involuntary Bankruptcy; Appointment of
Receiver, Etc.  (1) A court enters a decree or order for relief with respect to
any Credit Party in an involuntary case under the Bankruptcy Code, which decree
or order is not stayed or other similar relief is not granted under any
applicable federal or state law; or (2) the continuance of any of the following
events for forty-five (45) days unless dismissed, bonded or discharged:  (a) an
involuntary case is commenced against any Credit Party, under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a
decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over any
Credit Party, or over all or a substantial part of its property, is entered; or
(c) a receiver, trustee or other custodian is appointed without the consent of a
Credit Party, for all or a substantial part of the property of the Credit Party;
or

 

(g)                                 Voluntary Bankruptcy; Appointment of
Receiver, Etc.  (1) any Credit Party commences a voluntary case under the
Bankruptcy Code, or consents to the entry of an order for relief in an
involuntary case or to the conversion of an involuntary case to a voluntary case
under any such law or consents to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or (2) any Credit Party makes any assignment for the benefit of
creditors; or (3) the Board of Directors of any Credit Party adopts any
resolution or otherwise authorizes action to approve any of the actions referred
to in this Section 6.1(g); or

 

(h)                                 Judgment and Attachments.  Any money
judgment, writ or warrant of attachment, or similar process (other than those
described elsewhere in this Section 6.1) involving (1) an amount in any
individual case in excess of $1,000,000 or (2) an amount in the aggregate at any
time in excess of $5,000,000 (in either case to the extent not adequately
covered by insurance as to which the insurance company has acknowledged
coverage) is entered or filed against one or more of the Credit Parties or any
of their respective assets and remains undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days or in any event later than five
(5) Business Days prior to the date of any proposed sale thereunder; or

 

(i)                                     Dissolution.  Any order, judgment or
decree is entered against any Credit Party decreeing the dissolution or split up
of such Credit Party and such order remains undischarged or unstayed for a
period in excess of fifteen (15) days; or

 

(j)                                     Solvency.  Any Credit Party ceases to be
Solvent, fails to pay its debts as they become due or admits in writing its
present or prospective inability to pay its debts as they become due; or

 

(k)                                  Invalidity of Loan Documents.  Any of the
Loan Documents for any reason, other than a partial or full release in
accordance with the terms thereof, ceases to be in full force and effect or is
declared to be null and void, or any Credit Party denies that it has any further
liability under any Loan Documents to which it is party, or gives notice to such
effect; or

 

(l)                                     Business Activities.  Holdings engages
in any type of business activity other than the ownership of Stock of GII and
activities relating thereto and performance of its obligations under the

 

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Related Transaction Documents to which it is a party and the maintenance of its
corporate existence and corporate governance; or

 

(m)                               Change of Control.  A Change of Control
occurs.

 

6.2.                              Suspension or Termination of Commitments. 
Upon the occurrence and continuance of any Event of Default, Agent may, and at
the request of Requisite Lenders Agent shall, without notice or demand,
immediately suspend or terminate all or any portion of Lenders’ obligations to
make additional Loans or issue or cause to be issued Letters of Credit under the
Revolving Loan Commitment.   Upon the occurrence of any Default, Agent may, and
at the request of Requisite Lenders Agent shall, without notice or demand,
immediately suspend all or any portion of Lenders’ obligations to make
additional Loans or issue or cause to be issued Letters of Credit under the
Revolving Loan Commitment; provided that, if the subject Default is waived by
Requisite Lenders or cured within any applicable grace or cure period, the
Revolving Loan Commitment shall be reinstated.

 

6.3.                              Acceleration and other Remedies.  Upon the
occurrence of any Event of Default described in Sections 6.1(f) or 6.1(g), the
Commitments shall be immediately terminated and all of the Obligations,
including the Revolving Loans, shall automatically become immediately due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or other requirements of any kind, all of which are
hereby expressly waived (including for purposes of Section 10) by Borrowers, and
the Commitments shall thereupon terminate.  Upon the occurrence and during the
continuance of any other Event of Default, Agent may, and at the request of the
Requisite Lenders, Agent shall, by written notice to Borrower Representative
(a) reduce the aggregate amount of the Commitments from time to time,
(b) declare all or any portion of the Loans and all or any portion of the other
Obligations to be, and the same shall forthwith become, immediately due and
payable together with accrued interest thereon, (c) terminate all or any portion
of the obligations of Agent, L/C Issuers and Lenders to make Revolving Credit
Advances and issue Letters of Credit, (d) demand that Borrowers immediately
deliver cash to Agent for the benefit of L/C Issuers (and Borrowers shall then
immediately so deliver) in an amount equal to 105% of the aggregate outstanding
Letter of Credit Obligations and (e) exercise any other remedies which may be
available under the Loan Documents or applicable law.  Borrowers hereby grant to
Agent, for the benefit of L/C Issuers and each Lender with a participation in
any Letters of Credit then outstanding, a security interest in such cash
collateral to secure all of the Letter of Credit Obligations.  Any such cash
collateral shall be made available by Agent to L/C Issuers to reimburse L/C
Issuers for payments of drafts drawn under such Letters of Credit and any Fees,
Charges and expenses of L/C Issuers with respect to such Letters of Credit, and
the unused portion thereof, after all such Letters of Credit shall have expired
or been fully drawn upon, shall be applied to repay any other Obligations. 
After all such Letters of Credit shall have expired or been fully drawn upon and
all Obligations shall have been satisfied and paid in full, the balance, if any,
of such cash collateral shall be returned to Borrowers.  Borrowers shall from
time to time execute and deliver to Agent such further documents and instruments
as Agent may request with respect to such cash collateral.

 

6.4.                              Performance by Agent.  If any Credit Party
shall fail to perform any covenant, duty or agreement contained in any of the
Loan Documents, Agent may perform or attempt to perform such covenant, duty or
agreement on behalf of such Credit Party after the expiration of any cure or
grace periods set forth herein.  In such event, such Credit Party shall, at the
request of Agent, promptly pay any amount reasonably expended by Agent in such
performance or attempted performance to Agent, together with interest thereon at
the highest rate of interest in effect upon the occurrence of an Event of
Default as specified in Section 1.2(d) from the date of such expenditure until
paid.  Notwithstanding the foregoing, it is expressly agreed that Agent shall
not have any liability or responsibility for the performance of any obligation
of any Credit Party under this Agreement or any other Loan Document.

 

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6.5.                              Application of Proceeds.  Notwithstanding
anything to the contrary contained in this Agreement, upon the occurrence and
during the continuance of an Event of Default, (a) Borrowers irrevocably waive
the right to direct the application of any and all payments at any time or times
thereafter received by Agent from or on behalf of Borrowers, and Agent shall
have the continuing and exclusive right to apply and to reapply any and all
payments received at any time or times after the occurrence and during the
continuance of an Event of Default against the Obligations in such manner as
Agent may deem advisable notwithstanding any previous application by Agent and
(b) in the absence of a specific determination by Agent with respect thereto,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied:  first, to Fees and reimbursable expenses of Agent
and GECM then due and payable pursuant to any of the Loan Documents; second, to
interest then due and payable on that Borrower’s Swing Line Loan; third, to the
principal balance of the Swing Line Loan outstanding to that Borrower until the
same has been repaid in full; fourth, to interest then due and payable on
Revolving Loans made to that Borrower and unpaid Obligations under any Secured
Rate Contract, ratably in proportion to the interest accrued as to each
Revolving Loan and unpaid Obligations under any Secured Rate Contract, as
applicable; fifth to principal payments on the Revolving Loans of such Borrower
and unpaid Obligations under any Secured Rate Contract and to provide cash
collateral for Letter of Credit Obligations ratably to the combined principal
balance of the Revolving Loans, unpaid Obligations under any Secured Rate
Contract and outstanding Letter of Credit Obligations, sixth, to interest then
due and payable on the Swing Line Loan of each other Borrower, pro rata;
seventh, to the principal balances of the Swing Line Loan outstanding to each
other Borrower, pro rata, until the same have been repaid in full; eighth, to
interest then due and payable on the Revolving Loans outstanding and unpaid
Obligations under any Secured Rate Contract accrued as to each Revolving Loan
and unpaid Obligations under any Secured Rate Contract ratably in proportion to
interest then due and payable on Revolving Loans and unpaid Obligations under
any Secured Rate Contract of each other Borrower, pro rata, until the same has
been paid in full and last, to the principal balance of the Revolving Loans made
to each other Borrower, pro rata and unpaid Obligations under any Secured Rate
Contract and to provide cash collateral for the Letter of Credit Obligations
ratably to the combined principal balance of the Revolving Loans, unpaid
Obligations under any Secured Rate Contract and outstanding Letter of Credit
Obligations of each other Borrower, pro rata until the same has been paid in
full.  Any balance remaining shall be delivered to Borrowers or to whomever may
be lawfully entitled to receive such balance or as a court of competent
jurisdiction may direct.

 

SECTION 7.

 

CONDITIONS TO LOANS

 

The obligations of Lenders and L/C Issuers to make Loans and to issue or cause
to be issued Letters of Credit are subject to satisfaction of all of the
applicable conditions set forth below.

 

7.1.                              Conditions to Initial Loans.  The obligations
of Lenders and L/C Issuers to make the initial Loans and to the initial issuance
of Letters of Credit, whichever occurs first, are, in addition to the conditions
precedent specified in Section 7.2, subject to:

 

(a)                                  The delivery of all documents listed on,
the taking of all actions set forth on and the satisfaction of all other
conditions precedent listed in the Closing Checklist attached hereto as Annex C,
all in form and substance, or in a manner, satisfactory to Agent and Lenders.

 

(b)                                 Agent shall have received a fully executed
original of a pay-off letter, reasonably satisfactory to Agent, confirming that
all obligations in connection with the Senior Notes will be satisfied
simultaneously with the Closing Date in full through the payment of cash in
accordance with the

 

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provisions of the indenture governing the Senior Notes and all Liens upon any
property of any Credit Party in connection with the Senior Notes shall be
terminated immediately upon such payment.

 

(c)                                  The Eligible Accounts, Eligible Inventory
and Eligible Real Estate supporting the initial Revolving Credit Advance and the
initial Letter of Credit Obligations incurred and the amount of the Reserves to
be established on the Closing Date shall be sufficient in value, as determined
by Agent, to provide Borrowers, collectively, with Borrowing Availability,
(after giving effect to the initial Revolving Credit Advance made to each
Borrower, the incurrence of any initial Letter of Credit Obligations, the
consummation of the Related Transactions and the payment of all costs and
expenses related thereto) of at least $10,000,000.

 

(d)                                 Consummation of the Initial Public Offering
with net proceeds of not less than $70,000,000.

 

(e)                                  Receipt by Agent of acceptable (i) real
estate appraisals prepared by an appraiser retained by Agent and (ii) inventory
appraisals prepared by an appraiser retained by Agent.

 

(f)                                    Receipt by Agent of the Company’s
available unaudited statements for each monthly period from January 2006 through
April 2006.

 

(g)                                 Borrowers, on a consolidated basis, will
have a minimum EBITDA for the trailing twelve months ended April 30, 2006 of at
least $20,000,000.

 

(h)                                 Borrowers shall not make a request for a
Revolving Credit Advance on the Closing Date for more than $25,000,000.

 

7.2.                              Conditions to All Loans.  Except as otherwise
expressly provided herein, no Lender or L/C Issuer shall be obligated to fund
any Advance or incur any Letter of Credit Obligation, if, as of the date thereof
(the “Funding Date”):

 

(a)                                  any representation or warranty by any
Credit Party contained herein or in any other Loan Document is untrue or
incorrect in any material respect (without duplication of any materiality
qualifier contained therein) as of such date (except to the extent that such
representation or warranty expressly relates to an earlier date), and Agent or
Requisite Revolving Lenders have determined not to make such Advance or incur
such Letter of Credit Obligation as a result of the fact that such warranty or
representation is so untrue or incorrect;

 

(b)                                 any Default or Event of Default has occurred
and is continuing or would result after giving effect to any Advance (or the
incurrence of any Letter of Credit Obligation), and Agent or Requisite Revolving
Lenders shall have determined not to make any Advance or incur any Letter of
Credit Obligation as a result of that Default or Event of Default; or

 

(c)                                  after giving effect to any Advance (or the
incurrence of any Letter of Credit Obligations), the outstanding amount of the
aggregate Revolving Loan would exceed remaining Borrowing Availability (except
as provided in Section 1.1(a)(ii)).

 

The request and acceptance by any Borrower of the proceeds of any Advance, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan shall be deemed to constitute, as of the
date thereof, (i) a representation and warranty by Borrowers that the conditions
in this Section 7.2  have been satisfied and (ii) a reaffirmation by Borrowers
of the cross

 

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guaranty provisions set forth in Section 10 and of the granting and continuance
of Agent’s Liens, on behalf of itself and Lenders, pursuant to the Collateral
Documents.

 

SECTION 8.

 

ASSIGNMENT AND PARTICIPATION

 

8.1.                              Assignment and Participations.

 

(a)                                  Subject to the terms of this Section 8.1,
any Lender may make an assignment to a Qualified Assignee of, or sale of
participations in, at any time or times, the Loan Documents, Loans, Letter of
Credit Obligations and any Commitment or any portion thereof or interest
therein, including any Lender’s rights, title, interests, remedies, powers or
duties thereunder.  Any assignment by a Lender shall:  (i) require the consent
of Agent (which consent shall not be unreasonably withheld or delayed with
respect to a Qualified Assignee, and which consent is not required for an
assignment between Lenders or from a Lender to an Affiliate or a Lender) and the
execution of an assignment agreement (an “Assignment Agreement” substantially in
the form attached hereto as Exhibit 8.1 and otherwise in form and substance
reasonably satisfactory to, and acknowledged by, Agent); provided, however, that
assignments by Non-Funding Lenders shall be subject to Agent’s prior written
consent in all instances in the sole discretion of Agent; (ii) be conditioned on
such assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof;
(iii) except with respect to any assignment by a Lender to an Affiliate of such
Lender, after giving effect to any such partial assignment, the assignee Lender
shall have Commitments in an amount at least equal to $2,500,000 and the
assigning Lender shall have retained Commitments in an amount at least equal to
$2,500,000; (iv) require a payment to Agent of an assignment fee of $3,500 and
(v) provided, that, no Event of Default shall have occurred or be continuing,
require the consent of Borrower Representative (which consent shall not be
unreasonably withheld or delayed).  In the case of an assignment by a Lender
under this Section 8.1, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as all other Lenders
hereunder.  The assigning Lender shall be relieved of its obligations hereunder
with respect to its Commitments or assigned portion thereof from and after the
date of such assignment.  Borrowers hereby acknowledge and agree that any
assignment shall give rise to a direct obligation of Borrowers to the assignee
and that the assignee shall be considered to be a “Lender.”  In all instances,
each Lender’s liability to make Loans hereunder shall be several and not joint
and shall be limited to such Lender’s Pro Rata Share of the applicable
Commitment.  In the event Agent or any Lender assigns or otherwise transfers all
or any part of the Obligations, Agent or any such Lender shall so notify
Borrowers and Borrowers shall, upon the request of Agent or such Lender, execute
new Notes in exchange for the Notes, if any, being assigned.  Notwithstanding
the foregoing provisions of this Section 8.1(a), (a) any Lender may at any time
pledge the Obligations held by it and such Lender’s rights under this Agreement
and the other Loan Documents to a Federal Reserve Bank, (b) any Lender that is
an investment fund may assign the Obligations held by it and such Lender’s
rights under this Agreement and the other Loan Documents to another investment
fund managed by the same investment advisor or pledge such Obligations and
rights to trustee for the benefit of its investors and (c) any Lender may assign
the Obligations to an Affiliate of such Lender or to a Person that is a Lender
prior to the date of such assignment.

 

(b)                                 Any participation by a Lender of all or any
part of its Commitments shall be made with the understanding that all amounts
payable by Borrowers hereunder shall be determined as if that Lender had not
sold such participation, and that the holder of any such participation shall not
be

 

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entitled to require such Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in the principal amount of,
or interest rate or Fees payable with respect to, any Loan in which such holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents).  Solely for purposes of Sections 1.10,
1.11, 8.3 and 9.1, Borrowers acknowledge and agree that a participation shall
give rise to a direct obligation of Borrowers to the participant and the
participant shall be considered to be a “Lender.”  Notwithstanding the
foregoing, at the time of each assignment or sale of a participation pursuant to
this Section 8.1 to a Person which is not already a Lender hereunder and which
is not a United States person (as such term is defined in Section 7701(a)(30) of
the IRC) for U.S. Federal income tax purposes, the assignee Lender or holder of
such participation shall, to the extent legally entitled to do so, provide to
the relevant Borrower the appropriate Certificate of Exemption and “Non Bank
Certificate” described in Section 1.11(c).  To the extent that an assignment or
sale of a participation of all or any portion of a Lender’s Commitments and
related outstanding Obligations pursuant to this Section 8.1 would, at the time
of such assignment, result in increased costs under Section 1.10 or 1.11 from
those being charged by the assigning or selling Lender prior to such assignment,
then such Borrowers shall not be obligated to pay such additional amounts
(although the relevant Borrowers, in accordance with and pursuant to the other
provisions of this Agreement, shall be obligated to pay any other increased
costs of the type described above resulting from changes after the date of the
respective assignment or sale of participation).  Except as set forth in the
preceding sentence no Borrower or any other Credit Party shall have any
obligation or duty to any participant.  Neither Agent nor any Lender (other than
the Lender selling a participation) shall have any duty to any participant and
may continue to deal solely with the Lender selling a participation as if no
such sale had occurred.

 

(c)                                  Except as expressly provided in this
Section 8.1, no Lender shall, as between Borrowers and that Lender, or Agent and
that Lender, be relieved of any of its obligations hereunder as a result of any
sale, assignment, transfer or negotiation of, or granting of participation in,
all or any part of the Loans, the Notes or other Obligations owed to such
Lender.

 

(d)                                 Each Credit Party shall assist each Lender
permitted to sell assignments or participations under this Section 8.1 as
required to enable the assigning or selling Lender to effect any such assignment
or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be reasonably
requested and the prompt preparation of informational materials for, and the
participation of management in meetings with, potential assignees or
participants, all on a timetable established by Agent in its sole discretion. 
Each Credit Party executing this Agreement shall certify the correctness,
completeness and accuracy of all descriptions of the Credit Parties and their
respective affairs contained in any selling materials provided by it and all
other information provided by it and included in such materials, except that any
Projections delivered by Borrowers shall only be certified by Borrowers as
having been prepared by Borrowers in compliance with the representations
contained in Section 5.5.  Agent shall maintain, on behalf of Borrowers, in its
offices located at 500 West Monroe Street, Chicago, Illinois or such other
office as Agent shall determine a “register” for recording the name, address,
commitment and Loans owing to each Lender.  The entries in such register shall
be presumptive evidence of the amounts due and owing to each Lender in the
absence of manifest error.  Borrowers, Agent and each Lender may treat each
Person whose name is recorded in such register pursuant to the terms hereof as a
Lender for all purposes of this Agreement.  The register described herein shall
be available for inspection by Borrower and any Lender, at any reasonable time
upon reasonable prior notice.

 

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(e)                                  A Lender may furnish any information
concerning Credit Parties in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants);
provided that such Lender shall obtain from assignees or participants
confidentiality covenants substantially equivalent to those contained in
Section 9.13.

 

(f)                                    So long as no Event of Default has
occurred and is continuing, no Lender shall assign or sell participations in any
portion of its Loans or Commitments to a potential Lender or participant, if, as
of the date of the proposed assignment or sale, the assignee Lender or
participant would be subject to capital adequacy or similar requirements under
Section 1.10(a), increased costs or an inability to fund LIBOR Loans under
Section 1.10(b), or withholding taxes in accordance with Section 1.11.

 

8.2.                              Agent.

 

(a)                                  Appointment.  Each Lender hereby designates
and appoints GE Capital as its Agent under this Agreement and the other Loan
Documents, and each Lender hereby irrevocably authorizes Agent to execute and
deliver the Collateral Documents and to take such action or to refrain from
taking such action on its behalf under the provisions of this Agreement and the
other Loan Documents and to exercise such powers as are set forth herein or
therein, together with such other powers as are reasonably incidental thereto. 
Agent is authorized and empowered to amend, modify, or waive any provisions of
this Agreement or the other Loan Documents on behalf of Lenders subject to the
requirement that certain of Lenders’ consent be obtained in certain instances as
provided in this Section 8.2 and Section 9.2.  The provisions of this
Section 8.2 are solely for the benefit of Agent and Lenders and neither
Borrowers nor any other Credit Party shall have any rights as a third party
beneficiary of any of the provisions hereof.  In performing its functions and
duties under this Agreement, Agent shall act solely as agent of Lenders and does
not assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for Borrowers or any other Credit
Party.  Agent may perform any of its duties hereunder, or under the Loan
Documents, by or through its agents or employees.

 

(b)                                 Nature of Duties.  The duties of Agent shall
be mechanical and administrative in nature.  Agent shall not have by reason of
this Agreement a fiduciary relationship in respect of any Lender.  Nothing in
this Agreement or any of the Loan Documents, express or implied, is intended to
or shall be construed to impose upon Agent any obligations in respect of this
Agreement or any of the Loan Documents except as expressly set forth herein or
therein.  Each Lender shall make its own independent investigation of the
financial condition and affairs of each Credit Party in connection with the
extension of credit hereunder and shall make its own appraisal of the
creditworthiness of each Credit Party, and Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any Lender
with any credit or other information with respect thereto (other than as
expressly required herein).  If Agent seeks the consent or approval of any
Lenders to the taking or refraining from taking any action hereunder, then Agent
shall send notice thereof to each Lender.  Agent shall promptly notify each
Lender any time that the Requisite Lenders have instructed Agent to act or
refrain from acting pursuant hereto.

 

(c)                                  Rights, Exculpation, Etc.  Neither Agent
nor any of its officers, directors, employees or agents shall be liable to any
Lender for any action taken or omitted by them hereunder or under any of the
Loan Documents, or in connection herewith or therewith, except that Agent shall
be liable to the extent of its own gross negligence or willful misconduct as
determined by a final non-appealable order by a court of competent
jurisdiction.  Agent shall not be liable for any apportionment or distribution
of payments made by it in good faith and if any such apportionment or
distribution is subsequently determined to have been made in error the sole
recourse of any Lender to whom payment was due but not made, shall be to recover
from other Lenders any payment in excess of the amount to

 

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which they are determined to be entitled (and such other Lenders hereby agree to
return to such Lender any such erroneous payments received by them).  In no
event shall Agent be liable for punitive, special, consequential, incidental,
exemplary or other similar damages.  In performing its functions and duties
hereunder, Agent shall exercise the same care which it would in dealing with
loans for its own account, but neither Agent nor any of its agents or
representatives shall be responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any of the Loan Documents or the transactions contemplated thereby,
or for the financial condition of any Credit Party.  Agent shall not be required
to make any inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of this Agreement or any of the Loan
Documents or the financial condition of any Credit Party, or the existence or
possible existence of any Default or Event of Default.  Agent may at any time
request instructions from Requisite Lenders or all affected Lenders with respect
to any actions or approvals which by the terms of this Agreement or of any of
the Loan Documents Agent is permitted or required to take or to grant.  If such
instructions are promptly requested, Agent shall be absolutely entitled to
refrain from taking any action or to withhold any approval and shall not be
under any liability whatsoever to any Person for refraining from any action or
withholding any approval under any of the Loan Documents until it shall have
received such instructions from the Requisite Lenders or such other portion of
the Lenders as shall be prescribed by this Agreement.  Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent as
a result of Agent acting or refraining from acting under this Agreement or any
of the other Loan Documents in accordance with the instructions of Requisite
Lenders or all affected Lenders, as applicable; and, notwithstanding the
instructions of Requisite Lenders or all affected Lenders, as applicable, Agent
shall have no obligation to take any action if it believes, in good faith, that
such action is deemed to be illegal by Agent or exposes Agent to any liability
for which it has not received satisfactory indemnification in accordance with
Section 8.2(e).

 

(d)                                 Reliance.  Agent shall be entitled to rely,
and shall be fully protected in relying, upon any written or oral notices,
statements, certificates, orders or other documents or any telephone message or
other communication (including any writing, telex, fax or telegram) believed by
it in good faith to be genuine and correct and to have been signed, sent or made
by the proper Person, and with respect to all matters pertaining to this
Agreement or any of the Loan Documents and its duties hereunder or thereunder. 
Agent shall be entitled to rely upon the advice of legal counsel, independent
accountants, and other experts selected by Agent in its sole discretion.

 

(e)                                  Indemnification.  Lenders will reimburse
and indemnify Agent for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, attorneys’ fees and expenses), advances or
disbursements of any kind or nature whatsoever (including, without limitation,
Taxes required to be paid to Agent by Borrowers under Section 1.11) which may be
imposed on, incurred by, or asserted against Agent in any way relating to or
arising out of this Agreement or any of the Loan Documents or any action taken
or omitted by Agent under this Agreement or any of the Loan Documents, in
proportion to each Lender’s Pro Rata Share, but only to the extent that any of
the foregoing is not reimbursed by Borrowers; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements to the extent resulting from Agent’s gross negligence or willful
misconduct as determined by a final non-appealable order by a court of competent
jurisdiction.  If any indemnity furnished to Agent for any purpose shall, in the
opinion of Agent, be insufficient or become impaired, Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against even if so directed by the Requisite Lenders or such other portion of
the Lenders as shall be prescribed by this Agreement until such additional
indemnity is furnished.  The obligations of Lenders under this
Section 8.2(e) shall survive the payment in full of the Obligations and the
termination of this Agreement.

 

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(f)                                    GE Capital Individually.  With respect to
its Commitments hereunder, GE Capital shall have and may exercise the same
rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Lender.  The
terms “Lenders”, “Requisite Lenders” or any similar terms shall, unless the
context clearly otherwise indicates, include GE Capital in its individual
capacity as a Lender or one of the Requisite Lenders.  GE Capital, either
directly or through strategic affiliations, may lend money to, acquire equity or
other ownership interests in, provide advisory services to and generally engage
in any kind of banking, trust or other business with any Credit Party as if it
were not acting as Agent pursuant hereto and without any duty to account
therefor to Lenders.  GE Capital, either directly or through strategic
affiliations, may accept fees and other consideration from any Credit Party for
services in connection with this Agreement or otherwise without having to
account for the same to Lenders.

 

(g)                                 Successor Agent.

 

(i)                                     Resignation.  Agent may resign from the
performance of all its agency functions and duties hereunder at any time by
giving at least thirty (30) Business Days’ prior written notice to Borrower
Representative and Lenders.  Such resignation shall take effect upon the
acceptance by a successor Agent of appointment pursuant to clause (ii) below or
as otherwise provided in clause (ii) below.

 

(ii)                                  Appointment of Successor.  Upon any such
notice of resignation pursuant to clause (i) above, Requisite Lenders shall
appoint a successor Agent which, unless an Event of Default has occurred and is
continuing, shall be reasonably acceptable to Borrowers.  If a successor Agent
shall not have been so appointed within the thirty (30) Business Day period
referred to in clause (i) above, the retiring Agent, upon notice to Borrower
Representative, shall then appoint a successor Agent which, unless an Event of
Default has occurred and is continuing, shall be reasonably acceptable to
Borrowers and who shall serve as Agent until such time, if any, as Requisite
Lenders appoint a successor Agent as provided above.

 

(iii)                               Successor Agent.  Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations under the Loan
Documents.  After any retiring Agent’s resignation as Agent, the provisions of
this Section 8.2 shall continue to inure to its benefit as to any actions taken
or omitted to be taken by it in its capacity as Agent.

 

(h)                                 Collateral Matters.

 

(i)                                     Release of Collateral.  Lenders hereby
irrevocably authorize Agent, at its option and in its discretion, to release any
Lien granted to or held by Agent upon any Collateral (x) upon termination of the
Commitments and payment and satisfaction of all Obligations and all Obligations
arising under Secured Rate Contracts (other than contingent indemnification
obligations to the extent no claims giving rise thereto have been asserted) or
(y) constituting property being sold or disposed of if Borrowers (or any of
them) or the Borrower Representative certify to Agent that the sale or
disposition is made in compliance with the provisions of this Agreement (and
Agent may rely in good faith conclusively on any such certificate, without
further inquiry).

 

(ii)                                  Confirmation of Authority; Execution of
Releases.  Without in any manner limiting Agent’s authority to act without any
specific or further authorization or consent by Lenders (as set forth in
Section 8.2(h)(i)), each Lender agrees to confirm in writing, upon request by
Agent or Borrower Representative, the authority to release any Collateral
conferred upon Agent under

 

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clauses (x) and (y) of Section 8.2(h)(i).  Upon receipt by Agent of any required
confirmation from the Requisite Lenders of its authority to release any
particular item or types of Collateral, and upon at least ten (10) Business
Days’ prior written request by Borrower Representative, Agent shall (and is
hereby irrevocably authorized by Lenders to) execute such documents as may be
necessary to evidence the release of the Liens granted to Agent upon such
Collateral; provided, however, that (x) Agent shall not be required to execute
any such document on terms which, in Agent’s opinion, would expose Agent to
liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty, and (y) such release shall
not in any manner discharge, affect or impair the Obligations or any Liens upon
(or obligations of any Credit Party, in respect of), all interests retained by
any Credit Party, including the proceeds of any sale, all of which shall
continue to constitute part of the Collateral.

 

(iii)                               Absence of Duty.  Agent shall have no
obligation whatsoever to any Lender or any other Person to assure that the
property covered by the Collateral Documents exists or is owned by Borrowers or
any other Credit Party or is cared for, protected or insured or has been
encumbered or that the Liens granted to Agent have been properly or sufficiently
or lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent in this
Section 8.2(h) or in any of the Loan Documents, it being understood and agreed
that in respect of the property covered by the Collateral Documents or any act,
omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its discretion, given Agent’s own interest in property covered
by the Collateral Documents as one of the Lenders and that Agent shall have no
duty or liability whatsoever to any of the other Lenders, provided that Agent
shall exercise the same care which it would in dealing with loans for its own
account.

 

(i)                                     Agency for Perfection.  Agent and each
Lender hereby appoint each other Lender as agent for the purpose of perfecting
Agent’s security interest in assets which, in accordance with the Code in any
applicable jurisdiction, can be perfected by possession or control.  Should any
Lender (other than Agent) obtain possession or control of any such assets, such
Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor,
shall deliver such assets to Agent or in accordance with Agent’s instructions or
transfer control to Agent in accordance with Agent’s instructions.  Each Lender
agrees that it will not have any right individually to enforce or seek to
enforce any Collateral Document or to realize upon any collateral security for
the Loans unless instructed to do so by Agent in writing, it being understood
and agreed that such rights and remedies may be exercised only by Agent.

 

(j)                                     Notice of Default.  Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default except with respect to defaults in the payment of principal, interest
and Fees required to be paid to Agent for the account of Lenders, unless Agent
shall have received written notice from a Lender or Borrower Representative
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a “notice of default”.  Agent will use reasonable
efforts to notify each Lender of its receipt of any such notice, unless such
notice is with respect to defaults in the payment of principal, interest and
fees, in which case Agent will notify each Lender of its receipt of such
notice.  Agent shall take such action with respect to such Default or Event of
Default as may be requested by Requisite Lenders in accordance with Section 6. 
Unless and until Agent has received any such request, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable or in the
best interests of Lenders.

 

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(k)                                  Lender Actions Against Collateral.  Each
Lender agrees that it will not take any action, nor institute any actions or
proceedings, with respect to the Loans, against any Borrower or any Credit Party
hereunder or under the other Loan Documents or against any of the Real Estate
encumbered by Mortgages without the consent of the Requisite Lenders.  With
respect to any action by Agent to enforce the rights and remedies of Agent and
the Lenders under this Agreement and the other Loan Documents, each Lender
hereby consents to the jurisdiction of the court in which such action is
maintained, and agrees to deliver its Notes to Agent to the extent necessary to
enforce the rights and remedies of Agent for the benefit of the Lenders under
the Mortgages in accordance with the provisions hereof.

 

8.3.                              Set Off and Sharing of Payments.  In addition
to any rights now or hereafter granted under applicable law and not by way of
limitation of any such rights, during the continuance of any Event of Default,
each Lender is hereby authorized by Borrowers at any time or from time to time,
with reasonably prompt subsequent notice to Borrower Representative (any prior
or contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (A) balances held by such Lender at any of
its offices for the account of any Borrower or any of its Subsidiaries
(regardless of whether such balances are then due to Borrower or its
Subsidiaries), and (B) other property at any time held or owing by such Lender
to or for the credit or for the account of any Borrower or any of its
Subsidiaries, against and on account of any of the Obligations; except that no
Lender shall exercise any such right without the prior written consent of
Agent.  If a Non-Funding Lender or Impacted Lender receives any such payment as
described in the previous sentence, such Lender shall turn over such payments to
Agent up to such amount as would satisfy the cash collateral requirements set
forth in Section 8.5(a)(ii).  Any Lender exercising a right to set off shall
purchase for cash (and the other Lenders shall sell) interests in each of such
other Lender’s Pro Rata Share of the Obligations as would be necessary to cause
all Lenders to share the amount so set off with each other Lender in accordance
with their respective Pro Rata Shares.  Borrowers agree, to the fullest extent
permitted by law, that any Lender may exercise its right to set off with respect
to amounts in excess of its Pro Rata Share of the Obligations and upon doing so
shall deliver such amount so set off to the Agent for the benefit of all Lenders
in accordance with their Pro Rata Shares.

 

8.4.                              Disbursement of Funds.  Agent may, on behalf
of Lenders, disburse funds to Borrowers for Loans requested.  Each Lender shall
reimburse Agent on demand for all funds disbursed on its behalf by Agent, or if
Agent so requests, each Lender will remit to Agent its Pro Rata Share of any
Loan before Agent disburses same to Borrowers.  If Agent elects to require that
each Lender make funds available to Agent prior to a disbursement by Agent to
Borrowers, Agent shall advise each Lender by telephone or fax of the amount of
such Lender’s Pro Rata Share of the Loan requested by Borrower Representative no
later than 1:00 p.m. (New York time) on the Funding Date applicable thereto, and
each such Lender shall pay Agent such Lender’s Pro Rata Share of such requested
Loan, in same day funds, by wire transfer to Agent’s account on such Funding
Date.  If any Lender fails to pay the amount of its Pro Rata Share within one
(1) Business Day after Agent’s demand, Agent shall promptly notify Borrower
Representative, and Borrowers shall immediately repay such amount to Agent.  Any
repayment required pursuant to this Section 8.4 shall be without premium or
penalty.  Nothing in this Section 8.4 or elsewhere in this Agreement or the
other Loan Documents, including the provisions of Section 8.5, shall be deemed
to require Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its commitments hereunder or to prejudice
any rights that Agent or Borrowers may have against any Lender as a result of
any default by such Lender hereunder.

 

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8.5.                              Disbursements of Advances; Payment.

 

(a)                                  Advances; Payments.

 

(i)                                     Revolving Lenders shall refund or
participate in the Swing Line Loan in accordance with clauses (iii) and (iv) of
Section 1.1(c).  If the Swing Line Lender declines to make a Swing Line Advance
or if Swing Line Availability is zero, Agent shall notify Revolving Lenders,
promptly after receipt of a Notice of Revolving Credit Advance and in any event
prior to 1:00 p.m. (New York time) on the date such Notice of a Revolving Credit
Advance is received, by fax, telephone or other similar form of transmission. 
Each Revolving Lender shall make the amount of such Lender’s Pro Rata Share of
such Revolving Credit Advance available to Agent in same day funds by wire
transfer to Agent’s account as set forth in Section 1.1(e) not later than
3:00 p.m. (New York time) on the requested Funding Date in the case of an Index
Rate Loans and not later than 11:00 a.m. (New York time) on the requested
Funding Date in the case of a LIBOR Loan.  After receipt of such wire transfers
(or, in the Agent’s sole discretion, before receipt of such wire transfers),
subject to the terms hereof, Agent shall make the requested Revolving Credit
Advance to Borrowers as designated by Borrower Representative in the Notice of
Revolving Credit Advance.  All payments by each Revolving Lender shall be made
without setoff, counterclaim or deduction of any kind.

 

(ii)                                  At least once each calendar week or more
frequently at Agent’s election (each, a “Settlement Date”), Agent shall advise
each Lender by telephone or fax of the amount of such Lender’s Pro Rata Share of
principal, interest and Fees paid for the benefit of Lenders with respect to
each applicable Loan.  Provided that each Lender has funded all payments and
Advances required to be made by it and purchased all participations required to
be purchased by it under this Agreement and the other Loan Documents as of such
Settlement Date, Agent shall pay to each Lender such Lender’s Pro Rata Share of
principal, interest and Fees paid by Borrowers since the previous Settlement
Date for the benefit of such Lender on the Loans held by it. Such payments shall
be made by wire transfer to such Lender’s account (as specified by such Lender
in Annex E or the applicable Assignment Agreement) not later than 2:00 p.m. (New
York time) on the next Business Day following each Settlement Date. To the
extent that any Lender (a “Non-Funding Lender”) has failed to fund all such
payments and Advances or failed to fund the purchase of all such participations,
Agent shall be entitled to set off the funding shortfall against that
Non-Funding Lender’s Pro Rata Share of all payments received from Borrowers and
hold, in a non-interest bearing account, all payments received by Agent for the
benefit of any Non-Funding Lender pursuant to this Agreement as cash collateral
for any unfunded reimbursement obligations of such Non-Funding Lender until the
Obligations are paid in full in cash, all Letter of Credit Obligations have been
discharged or cash collateralized and all Commitments have been terminated, and
upon such unfunded obligations owing by a Non-Funding Lender becoming due and
payable, Agent shall be authorized to use such cash collateral to make such
payment on behalf of such Non-Funding Lender.  Any amounts owing by a
Non-Funding Lender to Agent which are not paid when due shall accrue interest at
the interest rate applicable during such period to Revolving Loans that are
Index Rate Loans..

 

(b)                                 Availability of Lender’s Pro Rata Share. 
Agent may assume that each Revolving Lender will make its Pro Rata Share of each
Revolving Credit Advance available to Agent on each Funding Date.  If such Pro
Rata Share is not, in fact, paid to Agent by such Revolving Lender when due,
Agent will be entitled to recover such amount on demand from such Revolving
Lender without setoff, counterclaim or deduction of any kind.  If any Revolving
Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent’s
demand, Agent shall promptly notify Borrower Representative and Borrowers shall
immediately repay such amount to Agent.  Nothing in this Section 8.5(b) or
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Agent to advance funds on behalf of any Revolving Lender or to relieve
any Revolving Lender from its obligation to fulfill its Commitments hereunder or
to prejudice any rights that Borrowers may have against any Revolving Lender as
a result of any default by such Revolving Lender hereunder.  To the extent that
Agent advances funds to Borrowers on behalf of any Revolving Lender and is not
reimbursed therefor on the same

 

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Business Day as such Advance is made, Agent shall be entitled to retain for its
account all interest accrued on such Advance until reimbursed by the applicable
Revolving Lender.

 

(c)                                  Return of Payments.

 

(i)                                     If Agent pays an amount to a Lender
under this Agreement in the belief or expectation that a related payment has
been or will be received by Agent from Borrowers and such related payment is not
received by Agent, then Agent will be entitled to recover such amount from such
Lender on demand without setoff, counterclaim or deduction of any kind.

 

(ii)                                  If Agent determines at any time that any
amount received by Agent under this Agreement must be returned to any Borrower
or paid to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, Agent will not be required to distribute any portion thereof to any
Lender.  In addition, each Lender will repay to Agent on demand any portion of
such amount that Agent has distributed to such Lender, together with interest at
such rate, if any, as Agent is required to pay to any Borrower or such other
Person, without setoff, counterclaim or deduction of any kind.

 

(d)                                 Non-Funding Lenders.  The failure of any Non
Funding Lender to make any Revolving Credit Advance, pay any Letter of Credit
Obligation or make any other payment required by it hereunder or to purchase any
participation in any Swing Line Loan to be made or purchased by it on the date
specified therefor shall not relieve any other Lender (each such other Revolving
Lender, an “Other Lender”) of its obligations to make such Advance or payment or
purchase such participation on such date, but neither Agent nor, other than as
expressly set forth herein, any Other Lender shall be responsible for the
failure of any Non-Funding Lender to make an Advance, purchase a participation
or make any other payment required hereunder.  Notwithstanding anything set
forth herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
“Lender” or a “Revolving Lender” (or be, or have its Loans and Commitments,
included in the determination of “Requisite Lenders” or “Lenders directly
affected” pursuant to Section 9.2) for any voting or consent rights under or
with respect to any Loan Document.  Moreover, for the purposes of determining
Requisite Lenders, the Loans and Commitments held by Non-Funding Lenders shall
be excluded from the total Loans and Commitments outstanding.  At Borrower
Representative’s request, Agent or a Person reasonably acceptable to Agent shall
have the right with Agent’s consent and in Agent’s sole discretion (but shall
have no obligation) to purchase from any Non-Funding Lender, and each
Non-Funding Lender agrees that it shall, at Agent’s request, sell and assign to
Agent or such Person, all of the Commitments of that Non-Funding Lender for an
amount equal to the principal balance of all Loans held by such Non-Funding
Lender and all accrued interest and fees with respect thereto through the date
of sale, such purchase and sale to be consummated pursuant to an executed
Assignment Agreement.

 

(e)                                  Dissemination of Information.  Agent shall
use reasonable efforts to provide Lenders with any notice of Default or Event of
Default received by Agent from, or delivered by Agent to, any Credit Party, with
notice of any Event of Default of which Agent has actually become aware and with
notice of any action taken by Agent following any Event of Default; provided,
that Agent shall not be liable to any Lender for any failure to do so.

 

(f)                                    Actions in Concert.  Anything in this
Agreement to the contrary notwithstanding, each Lender hereby agrees with each
other Lender that no Lender shall take any action to protect or enforce its
rights arising out of this Agreement or the Notes (including exercising any
rights of setoff) without first obtaining the prior written consent of Agent and
Requisite Lenders, it being the intent of Lenders that any such action to
protect or enforce rights under this Agreement and the Notes shall be

 

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taken in concert and at the direction or with the consent of Agent or Requisite
Lenders.  Agent is authorized to issue all notices to be issued by or on behalf
of the Lenders with respect to any Subordinated Debt.

 

SECTION 9.

 

MISCELLANEOUS

 

9.1.                              Indemnities.  Borrowers agree, jointly and
severally, to indemnify, pay, and hold Agent, each Lender, each L/C Issuer and
their respective officers, directors, employees, agents, and attorneys (the
“Indemnitees”) harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs and
expenses (including all reasonable fees and expenses of counsel to such
Indemnitees) of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Indemnitee as a result of such Indemnitees being a
party to this Agreement or the transactions consummated pursuant to this
Agreement or otherwise relating to any of the Related Transactions; any other
act, event or transaction related, contemplated in or attendant to any of the
foregoing; provided, that Borrowers shall have no obligation to an Indemnitee
hereunder with respect to liabilities to the extent resulting from the gross
negligence or willful misconduct of that Indemnitee as determined by a court of
competent jurisdiction.  If and to the extent that the foregoing undertaking may
be unenforceable for any reason, Borrowers agree to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.

 

9.2.                              Amendments and Waivers.

 

(a)                                  Except for actions expressly permitted to
be taken by Agent, no amendment, modification, termination or waiver of any
provision of this Agreement or any other Loan Document, or any consent to any
departure by any Credit Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by Borrowers, and by Requisite Lenders
or all affected Lenders, as applicable.  Except as set forth in clause
(b) below, all such amendments, modifications, terminations or waivers requiring
the consent of any Lenders shall require the written consent of Requisite
Lenders.

 

(b)                                 No amendment, modification, termination or
waiver shall, unless in writing and signed by Agent and each Lender directly
affected thereby:  (i) increase the principal amount of any Lender’s Commitment
(which action shall be deemed only to affect those Lenders whose Commitments are
increased and may be approved by Requisite Lenders, including those Lenders
whose Commitments are increased); (ii) reduce the principal of, rate of interest
on or Fees payable with respect to any Loan or Letter of Credit Obligations of
any affected Lender; (iii) extend any scheduled payment date or final maturity
date of the principal amount of any Loan of any affected Lender; (iv) waive,
forgive, defer, extend or postpone any payment of interest or Fees as to any
affected Lender (which action shall be deemed only to affect those Lenders to
whom such payments are made); (v)  all or substantially all of the Guarantees or
all or substantially all of the Collateral (which action shall be deemed to
directly affect all Lenders); (vi) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Loans that shall be required for
Lenders or any of them to take any action hereunder; and (vii) amend or waive
this Section 9.2 or the definition of the term “Requisite Lenders” insofar as
such definition affects the substance of this Section 9.2.  Furthermore, no
amendment, modification, termination or waiver affecting the rights or duties of
Agent or L/C Issuer under this Agreement or any other Loan Document, including
any release of any Guarantee or Collateral requiring a writing signed by all
Lenders, shall be effective unless in writing and signed by Agent or L/C Issuer,
as the case may be, in addition to Lenders required hereinabove to take such
action.  No amendment, modification or waiver of this Agreement or any Loan
Document altering the ratable treatment of Obligations arising under

 

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Secured Rate Contracts resulting in such Obligations being junior in right of
payment to principal on the Loans or resulting in Obligations owing to any
Secured Swap Provider becoming unsecured (other than releases of Liens permitted
in accordance with the terms hereof), in each case in a manner adverse to any
Secured Swap Provider, shall be effective without the written consent of such
Secured Swap Provider or, in the case of a Secured Rate Contract provided or
arranged by GE Capital or an Affiliate of GE Capital, GE Capital.  Each
amendment, modification, termination or waiver shall be effective only in the
specific instance and for the specific purpose for which it was given.  No
amendment, modification, termination or waiver shall be required for Agent to
take additional Collateral pursuant to any Loan Document.  No amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the holder of that Note.  No notice
to or demand on any Credit Party in any case shall entitle such Credit Party or
any other Credit Party to any other or further notice or demand in similar or
other circumstances.  Any amendment, modification, termination, waiver or
consent effected in accordance with this Section 9.2 shall be binding upon each
holder of the Notes at the time outstanding and each future holder of the Notes.

 

9.3.                              Notices.

 

(a)                                  Addresses.  All notices, demands, requests,
directions and other communications required or expressly authorized to be made
by this Agreement shall, whether or not specified to be in writing but unless
otherwise expressly specified to be given by any other means, be given in
writing and (i) addressed to the respective party as set forth below and
otherwise to the party to be notified at its address specified opposite its name
on the signature page of any applicable Assignment Agreement, (ii) posted to
Intralinks® (to the extent such system is available and set up by or at the
direction of the Agent or (prior to posting) in an appropriate location by
uploading such notice, demand, request, direction or other communication to
www.intralinks.com, faxing it to 866-545-6600 with an appropriate bar-coded fax
coversheet or using such other means of posting to Intralinks® as may be
available and reasonably acceptable to the Agent prior to such posting,
(iii) posted to any other E-System set up by or at the direction of the Agent in
an appropriate location or (iv) addressed to such other address as shall be
notified in writing (A) in the case of the Borrowers, the Agent and the Swing
Line Lender, to the other parties hereto and (B) in the case of all other
parties, to the Borrowers and the Agent.  Transmission by electronic mail
(including E-Fax, even if transmitted to the fax numbers set forth in clause
(i) above) shall not be sufficient or effective to transmit any such notice
unless such transmission is an available means to post to any E-System.

 

Notices shall be addressed as follows:

 

If to Borrower Representative:

GOLFSMITH INTERNATIONAL, INC.

 

11000 North IH-35

 

Austin, Texas 78753

 

ATTN: Sue Gove

 

Fax: (512) 821-4992

 

 

With a copy to:

First Atlantic Capital, Ltd.

 

135 East 57th Street

 

New York, New York 10022

 

ATTN: James Grover

 

Fax: (212) 207-8842

 

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With a copy to:

White & Case LLP

 

1155 Avenue of the Americas

 

New York, New York 10036

 

ATTN: Joseph Brazil

 

Fax: (212) 354-8113

 

 

If to Agent or GE Capital:

GENERAL ELECTRIC CAPITAL CORPORATION

 

125 Summer Street, 12th Floor

 

Boston, MA 02110

 

ATTN: Golfsmith Account Officer

 

Fax: (617) 261-1222

 

 

With a copy to:

GENERAL ELECTRIC CAPITAL CORPORATION

 

201 Merritt 7

 

P.O. Box 5201

 

Norwalk, CT 06856-5201

 

ATTN: General Counsel

 

Fax: (203) 956-4216

 

 

If to a Lender:

To the address set forth on the signature page hereto or in the applicable
Assignment Agreement

 

(b)                                 Effectiveness.  All communications described
in Subsection (a) above and all other notices, demands, requests and other
communications made in connection with this Agreement shall be effective and be
deemed to have been received (i) if delivered by hand, upon personal delivery,
(ii) if delivered by overnight courier service, one Business Day after delivery
to such courier service, (iii) if delivered by mail, when deposited in the mails
and, (iv) if delivered by facsimile (other than to post to an E-System pursuant
to Subsection (a)(ii) or (a)(iii) above), upon sender’s receipt of confirmation
of proper transmission, and (v) if delivered by posting to any E-System, on the
later of the date of such posting in an appropriate location and the date access
to such posting is given to the recipient thereof in accordance with the
standard procedures applicable to such E-System; provided, however, that no
communications to the Agent pursuant to Section 2 or Section 8 shall be
effective until received by the Agent.

 

(c)                                  Electronic Transmissions.

 

(i)                                     Authorization.  Subject to the
provisions of Subsection (a), each of the Agent, the Borrowers, the Lenders, the
L/C Issuers and each of their authorized representatives is authorized (but not
required) to transmit, post or otherwise make or communicate, in its sole
discretion, Electronic Transmissions in connection with any Loan Document and
the transactions contemplated therein.  Each of Holdings, the Borrowers and each
Credit Party hereby acknowledges and agrees, and each of Holdings and the
Borrowers shall cause each other Credit Party to acknowledge and agree, that the
use of Electronic Transmissions is not necessarily secure and that there are
risks associated with such use, including risks of interception, disclosure and
abuse and each indicates it assumes and accepts such risks by hereby authorizing
the transmission of Electronic Transmissions.

 

(ii)                                  Signatures.  Subject to the provisions of
Subsection (a) above, (A) no posting to any E-System shall be denied legal
effect merely because it is made electronically, (B) each E-Signature on any
such posting shall be deemed sufficient to satisfy any requirement for a
“signature” and

 

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(C) each such posting shall be deemed sufficient to satisfy any requirement for
a “writing”, in each case including pursuant to any Loan Document, any
applicable provision of any UCC, the federal Uniform Electronic Transactions
Act, the Electronic Signatures in Global and National Commerce Act and any
substantive or procedural requirement of law governing such subject matter,
(ii) each such posting that is not readily capable of bearing either a signature
or a reproduction of a signature may be signed, and shall be deemed signed, by
attaching to, or logically associating with such posting, an E-Signature, upon
which each Credit Party may rely and assume the authenticity thereof, (iii) each
such posting containing a signature, a reproduction of a signature or an
E-Signature shall, for all intents and purposes, have the same effect and weight
as a signed paper original and (iv) each party hereto or beneficiary hereto
agrees not to contest the validity or enforceability of any posting on any
E-System or E-Signature on any such posting under the provisions of any
applicable requirement of law requiring certain documents to be in writing or
signed; provided, however, that nothing herein shall limit such party’s or
beneficiary’s right to contest whether any posting to any E-System or
E-Signature has been altered after transmission.

 

(iii)                               Separate Agreements.  All uses of an
E-System shall be governed by and subject to, in addition to Subsections (a) and
(b) and this Subsection (c), separate terms and conditions posted or referenced
in such E-System and related contractual obligations executed by Credit Parties
in connection with the use of such E-System.

 

(iv)                              LIMITATION OF LIABILITY.  ALL E-SYSTEMS AND
ELECTRONIC TRANSMISSIONS SHALL BE PROVIDED “AS IS” AND “AS AVAILABLE”.  NONE OF
AGENT OR ANY OF ITS AFFILIATES WARRANTS THE ACCURACY, ADEQUACY OR COMPLETENESS
OF ANY E-SYSTEMS OR ELECTRONIC TRANSMISSION, AND EACH DISCLAIMS ALL LIABILITY
FOR ERRORS OR OMISSIONS THEREIN.  NO WARRANTY OF ANY KIND IS MADE BY THE AGENT
OR ANY OF ITS AFFILIATES IN CONNECTION WITH ANY E-SYSTEMS OR ELECTRONIC
COMMUNICATION, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM
VIRUSES OR OTHER CODE DEFECTS.  Each of Holdings, the Borrowers and each Credit
Party agrees (and each of Holdings and the Borrowers shall cause each other
Credit Party to agree) that the Agent has no responsibility for maintaining or
providing any equipment, software, services or any testing required in
connection with any Electronic Transmission or otherwise required for any
E-System.

 

9.4.                              Failure or Indulgence Not Waiver; Remedies
Cumulative.  No failure or delay on the part of Agent or any Lender to exercise,
nor any partial exercise of, any power, right or privilege hereunder or under
any other Loan Documents shall impair such power, right, or privilege or be
construed to be a waiver of any Default or Event of Default.  All rights and
remedies existing hereunder or under any other Loan Document are cumulative to
and not exclusive of any rights or remedies otherwise available.

 

9.5.                              Marshaling; Payments Set Aside.  Neither Agent
nor any Lender shall be under any obligation to marshal any assets in payment of
any or all of the Obligations.  To the extent that Borrowers make payment(s) or
Agent enforces its Liens or Agent or any Lender exercises its right of set-off,
and such payment(s) or the proceeds of such enforcement or set-off is
subsequently invalidated, declared to be fraudulent or preferential, set aside,
or required to be repaid by anyone, then to the extent of such recovery, the
Obligations or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or set-off had
not occurred.

 

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9.6.                              Severability.  The invalidity, illegality, or
unenforceability in any jurisdiction of any provision under the Loan Documents
shall not affect or impair the remaining provisions in the Loan Documents.

 

9.7.                              Lenders’ Obligations Several; Independent
Nature of Lenders’ Rights.  The obligation of each Lender hereunder is several
and not joint and no Lender shall be responsible for the obligation or
commitment of any other Lender hereunder.  In the event that any Lender at any
time should fail to make a Loan as herein provided, the Lenders, or any of them,
at their sole option, may make the Loan that was to have been made by the Lender
so failing to make such Loan.  Nothing contained in any Loan Document and no
action taken by Agent or any Lender pursuant hereto or thereto shall be deemed
to constitute Lenders to be a partnership, an association, a joint venture or
any other kind of entity.  The amounts payable at any time hereunder to each
Lender shall be a separate and independent debt.

 

9.8.                              Headings.  Section and subsection headings are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purposes or be given substantive effect.

 

9.9.                              Applicable Law.  THIS AGREEMENT AND EACH OF
THE OTHER LOAN DOCUMENTS WHICH DOES NOT EXPRESSLY SET FORTH APPLICABLE LAW SHALL
BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.

 

9.10.                        Successors and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns except that Borrowers may not assign their
rights or obligations hereunder without the written consent of all Lenders which
assignment without such consent shall be void.

 

9.11.                        No Fiduciary Relationship; Limited Liability.  No
provision in the Loan Documents and no course of dealing between the parties
shall be deemed to create any fiduciary duty owing to any Credit Party by Agent
or any Lender.  Each Credit Party agrees that neither Agent nor any Lender shall
have liability to any Credit Party (whether sounding in tort, contract or
otherwise) for losses suffered by any Credit Party in connection with, arising
out of, or in any way related to the transactions contemplated and the
relationship established by the Loan Documents, or any act, omission or event
occurring in connection therewith, unless and to the extent that it is
determined that such losses resulted from the gross negligence or willful
misconduct of the party from which recovery is sought as determined by a final
non-appealable order by a court of competent jurisdiction.  Neither Agent nor
any Lender shall have any liability with respect to, and each Credit Party
hereby waives, releases and agrees not to sue for, any special, indirect or
consequential damages suffered by any Credit Party in connection with, arising
out of, or in any way related to the Loan Documents or the transactions
contemplated thereby.

 

9.12.                        Construction.  Agent, each Lender, Borrowers and
each other Credit Party acknowledge that each of them has had the benefit of
legal counsel of its own choice and has been afforded an opportunity to review
the Loan Documents with its legal counsel and that the Loan Documents shall be
construed as if jointly drafted by Agent, each Lender, Borrowers and each other
Credit Party.

 

9.13.                        Confidentiality.  Agent and each Lender agree to
keep confidential any non-public information delivered pursuant to the Loan
Documents and not to disclose such information to Persons other than to
potential assignees or participants or to direct or contractual counterparties
to any Secured Rate Contracts or to Persons employed by or engaged by Agent, a
Lender, a Lender’s assignees or participants or direct or contractual
counterparties to any Secured Rate Contracts including

 

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attorneys, auditors, professional consultants, rating agencies, insurance
industry associations and portfolio management services in each case who agree
to be bound to the provisions of this Section 9.13.  The confidentiality
provisions contained in this Section 9.13 shall not apply to disclosures
(i) required to be made by Agent or any Lender to any regulatory or governmental
agency or pursuant to legal process or (ii) consisting of general portfolio
information that does not identify Borrowers.  The obligations of Agent and
Lenders under this Section 9.13 shall supersede and replace the obligations of
Agent and Lenders under any confidentiality agreement in respect of this
financing executed and delivered by Agent or any Lender prior to the date
hereof.

 

9.14.                        CONSENT TO JURISDICTION.  BORROWERS AND CREDIT
PARTIES HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN NEW YORK COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREE THAT, SUBJECT TO
AGENT’S  ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS  SHALL BE LITIGATED IN SUCH COURTS. 
BORROWERS AND CREDIT PARTIES EXPRESSLY SUBMIT AND CONSENT TO THE JURISDICTION OF
THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON CONVENIENS.  BORROWERS
AND CREDIT PARTIES HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWERS AND CREDIT
PARTIES BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO
BORROWER REPRESENTATIVE, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE
SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.  IN ANY
LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS OF BORROWERS, CREDIT PARTIES OR ANY OF THEIR AFFILIATES
SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF BORROWERS OR SUCH CREDIT
PARTIES FOR PURPOSES OF ALL APPLICABLE LAW OR COURT RULES REGARDING THE
PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A DEPOSITION, AT
TRIAL OR OTHERWISE).  BORROWERS AND CREDIT PARTIES AGREE THAT AGENT’S OR ANY
LENDER’S COUNSEL IN ANY SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF
THESE INDIVIDUALS AS IF UNDER CROSS-EXAMINATION AND THAT ANY DISCOVERY
DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING AS IF IT WERE AN
EVIDENCE DEPOSITION.  BORROWERS AND CREDIT PARTIES IN ANY EVENT WILL USE ALL
COMMERCIALLY REASONABLE EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION
PROCEEDING, AT THE TIME AND IN THE MANNER REQUESTED BY AGENT OR ANY LENDER, ALL
PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR OTHER FORM) OR OTHER
THINGS UNDER THEIR CONTROL AND RELATING TO THE DISPUTE.

 

9.15.                        WAIVER OF JURY TRIAL.  BORROWERS, CREDIT PARTIES,
AGENT  AND EACH LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.  BORROWERS, CREDIT PARTIES, AGENT AND EACH LENDER
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS.  BORROWERS, CREDIT PARTIES, AGENT AND EACH
LENDER WARRANT AND REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS
JURY WAIVER WITH

 

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LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS.

 

9.16.                        Survival of Warranties and Certain Agreements.  All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loans, issuances of
Letters of Credit and the execution and delivery of the Notes.  Notwithstanding
anything in this Agreement or implied by law to the contrary, the agreements of
Borrowers set forth in Sections 1.3(g), 1.10, 1.11 and 9.1 shall survive the
repayment of the Obligations and the termination of this Agreement.

 

9.17.                        Entire Agreement.  This Agreement, the Notes and
the other Loan Documents embody the entire agreement among the parties hereto
and supersede all prior commitments, agreements, representations, and
understandings, whether oral or written, relating to the subject matter hereof,
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto.  All Exhibits,
Schedules and Annexes referred to herein are incorporated in this Agreement by
reference and constitute a part of this Agreement.

 

9.18.                        Counterparts; Effectiveness.  This Agreement and
any amendments, waivers, consents or supplements may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all of
which counterparts together shall constitute but one in the same instrument. 
This Agreement shall become effective upon the execution of a counterpart hereof
by each of the parties hereto.

 

9.19.                        Replacement of Lenders.

 

(a)                                  Within ninety (90) days after receipt by
Borrower Representative of written notice and demand from any Lender for payment
pursuant to Section 1.10 or 1.11 or, as provided in this Section 9.19(c), in the
case of certain refusals by any Lender to consent to certain proposed
amendments, modifications, terminations or waivers with respect to this
Agreement that have been approved by Requisite Lenders (any such Lender
demanding such payment or refusing to so consent being referred to herein as an
“Affected Lender”), Borrowers may, at their option, notify Agent and such
Affected Lender of its intention to do one of the following:

 

(i)                                     Borrowers may obtain, at Borrowers’
expense, a replacement Lender (“Replacement Lender”) for such Affected Lender,
which Replacement Lender shall be a Qualified Assignee or otherwise reasonably
satisfactory to Agent.  In the event Borrowers obtain a Replacement Lender that
will purchase all outstanding Obligations owed to such Affected Lender and
assume its Commitments hereunder within ninety (90) days following notice of
Borrowers’ intention to do so, the Affected Lender shall sell and assign all of
its rights and delegate all of its obligations under this Agreement to such
Replacement Lender in accordance with the provisions of Section 8.1, provided
that Borrowers have reimbursed such Affected Lender for any administrative fee
payable pursuant to Section 8.1 and, in any case where such replacement occurs
as the result of a demand for payment pursuant to Section 1.10 or 1.11, paid all
amounts required to be paid to such Affected Lender pursuant to Section 1.10 or
1.11 through the date of such sale and assignment; or

 

(ii)                                  Borrowers may, with Agent’s consent,
prepay in full all outstanding Obligations owed to such Affected Lender and
terminate such Affected Lender’s Pro Rata Share of the Revolving Loan
Commitment, in which case the Revolving Loan Commitment will be reduced by the
amount of such Pro Rata Share.  Borrowers shall, within ninety (90) days
following notice of their intention to do so, prepay in full all outstanding
Obligations owed to such Affected Lender (including, in any case where such
prepayment occurs as the result of a demand for payment for increased costs,
such

 

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Affected Lender’s increased costs for which it is entitled to reimbursement
under this Agreement through the date of such prepayment), and terminate such
Affected Lender’s obligations under the Revolving Loan Commitment.

 

(b)                                 In the case of a Non-Funding Lender pursuant
to Section 8.5(a), at Borrower Representative’s request, Agent (without any
obligation to do so), a Qualified Assignee or a Person reasonably acceptable to
Agent shall have the right with Agent’s consent (such consent not to be
unreasonably withheld or delayed) to purchase from any Non-Funding Lender, and
each Non-Funding Lender agrees that it shall, at Agent’s request, sell and
assign to Agent, such Qualified Assignee or such Person, all of the Loans and
Commitments of that Non-Funding Lender for an amount equal to the principal
balance of all Loans held by such Non-Funding Lender and all accrued interest
and Fees with respect thereto through the date of sale, such purchase and sale
to be consummated pursuant to an executed Assignment Agreement.  Notwithstanding
the foregoing, with respect to a Lender that is a Non-Funding Lender or an
Impacted Lender, the Borrowers or Agent may obtain a Replacement Lender and
execute an Assignment on  behalf of such Non-Funding Lender or Impacted Lender
at any time and without prior notice to such Non-Funding Lender or Impacted
Lender and cause its Loans and Commitments to be sold and assigned at par.

 

(c)                                  If, in connection with any proposed
amendment, modification, waiver or termination pursuant to Section 9.2 (a
“Proposed Change”) requiring the consent of all affected Lenders, the consent of
Requisite Lenders is obtained, but the consent of Lenders whose consent is
required is not obtained (any such Lender whose consent is not obtained as
described in this clause (c) being referred to as a “Non-Consenting Lender”),
then, so long as Agent is not a Non-Consenting Lender, at Borrower
Representative’s request, Agent (without any obligation to do so), a Qualified
Assignee, or another Person reasonably acceptable to Agent, shall have the right
with Agent’s consent (such consent not to be unreasonably withheld or delayed)
to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders
agree that they shall sell and assign to Agent, the respective Qualified
Assignee or such other Person, as applicable, all of the Loans and Commitments
of such Non-Consenting Lenders for an amount equal to the principal balance of
all Loans held by the Non-Consenting Lenders and all accrued interest and Fees
with respect thereto through the date of sale, such purchase and sale to be
consummated pursuant to an executed Assignment Agreement.

 

9.20.                        Delivery of Termination Statements.  Upon payment
in full in cash and performance of all of the Obligations (other than
indemnification Obligations), termination of the Commitments and a release of
all claims against Agent and Lenders, and so long as no suits, actions
proceedings, or claims are pending or threatened against any Indemnitee
asserting any damages, losses or liabilities that are indemnified liabilities
hereunder, Agent shall deliver to Borrower Representative termination
statements, and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.

 

9.21.                        Amendment and Restatement.  This Agreement amends
and restates in its entirety the Credit Agreement, dated as of October 15, 2002
(as amended, supplemented or otherwise modified to the date hereof, the
“Existing Credit Agreement”), among Borrowers, the Credit Parties party thereto,
Agent and the Lenders party thereto, and upon the effectiveness of this
Agreement, the terms and provisions of the Existing Credit Agreement shall,
subject to this Section 9.21, be superseded hereby.  All references to the
“Credit Agreement” contained in the Loan Documents delivered in connection with
the Existing Credit Agreement or this Agreement shall, and shall be deemed to,
refer to this Agreement.  Notwithstanding the amendment and restatement of the
Existing Credit Agreement by this Agreement, the Obligations of the Borrowers
and the other Credit Parties outstanding under the Existing Credit Agreement and
the other Loan Documents as of the Closing Date shall remain outstanding and
shall

 

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constitute continuing Obligations and shall continue as such to be secured by
the Collateral.  Such Obligations shall in all respects be continuing and this
Agreement shall not be deemed to evidence or result in a novation or repayment
and reborrowing of such Obligations.  The Liens securing payment of the
Obligations under the Existing Credit Agreement, as amended and restated in the
form of this Agreement, shall in all respects be continuing, securing the
payment of all Obligations.

 

SECTION 10.

 

CROSS-GUARANTY

 

10.1.                        Cross-Guaranty.  Each Borrower hereby agrees that
such Borrower is jointly and severally liable for, and hereby absolutely and
unconditionally guarantees to Agent and Lenders and their respective successors
and assigns, the full and prompt payment (whether at stated maturity, by
acceleration or otherwise) and  performance of, all Obligations owed or
hereafter owing to Agent and Lenders by each other Borrower.  Each Borrower
agrees that its guaranty obligation hereunder is a continuing guaranty of
payment and performance and not of collection, that its obligations under this
Section 10 shall not be discharged until payment and performance, in full, of
the Obligations has occurred, and that its obligations under this Section 10
shall be absolute and unconditional, irrespective of, and unaffected by,

 

(a)                                  the genuineness, validity, regularity,
enforceability or any future amendment of, or change in, this Agreement, any
other Loan Document or any other agreement, document or instrument to which any
Borrower is or may become a party;

 

(b)                                 the absence of any action to enforce this
Agreement (including this Section 10) or any other Loan Document or the waiver
or consent by Agent and Lenders with respect to any of the provisions thereof;

 

(c)                                  the existence, value or condition of, or
failure to perfect its Lien against, any security for the Obligations or any
action, or the absence of any action, by Agent and Lenders in respect thereof
(including the release of any such security);

 

(d)                                 the insolvency of any Credit Party; or

 

(e)                                  any other action or circumstances that
might otherwise constitute a legal or equitable discharge or defense of a surety
or guarantor.

 

Each Borrower shall be regarded, and shall be in the same position, as principal
debtor with respect to the Obligations guaranteed hereunder.

 

10.2.                        Waivers by Borrowers.  Each Borrower expressly
waives all rights it may have now or in the future under any statute, or at
common law, or at law or in equity, or otherwise, to compel Agent or Lenders to
marshal assets or to proceed in respect of the Obligations guaranteed hereunder
against any other Credit Party, any other party or against any security for the
payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, such Borrower.  It is agreed among each
Borrower, Agent and Lenders that the foregoing waivers are of the essence of the
transaction contemplated by this Agreement and the other Loan Documents and
that, but for the provisions of this Section 10 and such waivers, Agent and
Lenders would decline to enter into this Agreement.

 

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10.3.                        Benefit of Guaranty.  Each Borrower agrees that the
provisions of this Section 10 are for the benefit of Agent and Lenders and their
respective successors, transferees, endorsees and assigns, and nothing herein
contained shall impair, as between any other Borrower and Agent or Lenders, the
obligations of such other Borrower under the Loan Documents.

 

10.4.                        Waiver of Subrogation, Etc.  Notwithstanding
anything to the contrary in this Agreement or in any other Loan Document, and
except as set forth in Section 10.7, each Borrower hereby expressly and
irrevocably waives any and all rights at law or in equity to subrogation,
reimbursement,  exoneration, contribution, indemnification or set off and any
and all defenses available to a surety, guarantor or accommodation co-obligor. 
Each Borrower acknowledges and agrees that this waiver is intended to benefit
Agent and Lenders and shall not limit or otherwise affect such Borrower’s
liability hereunder or the enforceability of this Section 10, and that Agent,
Lenders and their respective successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this Section 10.4.

 

10.5.                        Election of Remedies.  If Agent or any Lender may,
under applicable law, proceed to realize its benefits under any of the Loan
Documents giving Agent or such Lender a Lien upon any Collateral, whether owned
by any Borrower or by any other Person, either by judicial foreclosure or by
non-judicial sale or enforcement, Agent or any Lender may, at its sole option,
determine which of its remedies or rights it may pursue without affecting any of
its rights and remedies under this Section 10.  If, in the exercise of any of
its rights and remedies, Agent or any Lender shall forfeit any of its rights or
remedies, including its right to enter a deficiency judgment against any
Borrower or any other Person, whether because of any applicable laws pertaining
to “election of remedies” or the like, each Borrower hereby consents to such
action by Agent or such Lender and waives any claim based upon such action, even
if such action by Agent or such Lender shall result in a full or partial loss of
any rights of subrogation that each Borrower might otherwise have had but for
such action by Agent or such Lender.  Any election of remedies that results in
the denial or impairment of the right of Agent or any Lender to seek a
deficiency judgment against any Borrower shall not impair any other Borrower’s
obligation to pay the full amount of the Obligations.  In the event Agent or any
Lender shall bid at any foreclosure or trustee’s sale or at any private sale
permitted by law or the Loan Documents, Agent or such Lender may bid all or less
than the amount of the Obligations and the amount of such bid need not be paid
by Agent or such Lender but shall be credited against the Obligations.  The
amount of the successful bid at any such sale, whether Agent, Lender or any
other party is the successful bidder, shall be conclusively deemed to be the
fair market value of the Collateral and the difference between such bid amount
and the remaining balance of the Obligations shall be conclusively deemed to be
the amount of the  Obligations guaranteed under this Section 10, notwithstanding
that any present or future law or court decision or ruling may have the effect
of reducing the amount of any deficiency claim to which Agent or any Lender
might otherwise be entitled but for such bidding at any such sale.

 

10.6.                        Limitation.  Notwithstanding any provision herein
contained to the contrary, each Borrower’s liability under this Section 10
(which liability is in any event in addition to amounts for which such Borrower
is primarily liable under Section 1) shall be limited to an amount not to exceed
as of any date of determination the greater of:

 

(a)                                  the net amount of all Loans advanced to any
other Borrower under this Agreement and then re-loaned or otherwise transferred
to, or for the benefit of, such Borrower; and

 

(b)                                 the amount that could be claimed by Agent
and Lenders from such Borrower under this Section 10 without rendering such
claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy
Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform
Fraudulent Conveyance Act or similar statute or common law after taking into
account, among other

 

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things, such Borrower’s right of contribution and indemnification from each
other Borrower under Section 10.7.

 

10.7.                        Contribution with Respect to Guaranty Obligations.

 

(a)                                  To the extent that any Borrower shall make
a payment under this Section 10 of all or any of the Obligations (other than
Loans made to that Borrower for which it is primarily liable) (a “Guarantor
Payment”) that, taking into account all other Guarantor Payments then previously
or concurrently made by any other Borrower, exceeds the amount that such
Borrower would otherwise have paid if each Borrower had paid the aggregate
Obligations satisfied by such Guarantor Payment in the same proportion that such
Borrower’s “Allocable Amount” (as defined below) (as determined immediately
prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each
of the Borrowers as determined immediately prior to the making of such Guarantor
Payment, then, following indefeasible payment in full in cash of the Obligations
and termination of the Commitments, such Borrower shall be entitled to receive
contribution and indemnification payments from, and be reimbursed by, each other
Borrower for the amount of such excess, pro rata based upon their respective
Allocable Amounts in effect immediately prior to such Guarantor Payment.

 

(b)                                 As of any date of determination, the
“Allocable Amount” of any Borrower shall be equal to the maximum amount of the
claim that could then be recovered from such Borrower under this Section 10
without rendering such claim voidable or avoidable under Section 548 of Chapter
11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent
Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common
law.

 

(c)                                  This Section 10.7 is intended only to
define the relative rights of Borrowers and nothing set forth in this
Section 10.7 is intended to or shall impair the obligations of Borrowers, 
jointly and severally, to pay any amounts as and when the same shall become due
and payable in accordance with the terms of this Agreement, including
Section 10.1.  Nothing contained in this Section 10.7 shall limit the liability
of any Borrower to pay the Loans made directly or indirectly to that Borrower
and accrued interest, Fees and expenses with respect thereto for which such
Borrower shall be primarily liable.

 

(d)                                 The parties hereto acknowledge that the
rights of contribution and indemnification hereunder shall constitute assets of
the Borrower to which such contribution and indemnification is owing.

 

(e)                                  The rights of the indemnifying Borrowers
against other Credit Parties under this Section 10.7 shall be exercisable upon
the full and indefeasible payment of the Obligations and the termination of the
Commitments.

 

10.8.                        Liability Cumulative.  The liability of Borrowers
under this Section 10 is in addition to and shall be cumulative with all
liabilities of each Borrower to Agent and Lenders under this Agreement and the
other Loan Documents to which such Borrower is a party or in respect of any
Obligations or obligation of the other Borrower, without any limitation as to
amount, unless the instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.

 

[SIGNATURES CONTINUE ON FOLLOWING PAGES.]

 

65

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Witness the due execution hereof by the respective duly authorized officers of
the undersigned as of the date first written above.

 

 

BORROWERS:

 

 

 

GOLFSMITH INTERNATIONAL, L.P.

 

By: Golfsmith GP L.L.C., as General Partner

 

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

GOLFSMITH NU, L.L.C.

 

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:    Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

GOLFSMITH USA, L.L.C.

 

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:    Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

SIGNATURE PAGE TO GOLFSMITH CREDIT AGREEMENT

 

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CREDIT PARTIES:

 

 

 

GOLFSMITH INTERNATIONAL, INC.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

GOLFSMITH INTERNATIONAL HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH GP HOLDINGS, INC.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

GOLFSMITH HOLDINGS, L.P.

 

By Golfsmith GP Holdings, Inc., as General Partner

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

GOLFSMITH GP, L.L.C.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

GOLFSMITH DELAWARE, L.L.C.

 

 

 

 

 

By:

/s/ Martin E. Hanaka

 

Name:

Martin E. Hanaka

 

Title:

Chairman and Chief Executive Officer

 

SIGNATURE PAGE TO GOLFSMITH CREDIT AGREEMENT

 

--------------------------------------------------------------------------------

 

 

GOLFSMITH CANADA, L.L.C.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH EUROPE, L.L.C.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

GOLFSMITH LICENSING, L.L.C.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

 

 

 

 

GOLFSMITH INCENTIVE SERVICES, L.L.C.

 

 

 

 

 

By:

/s/ Sue E. Gove

 

Name:  Sue E. Gove

 

Title:   Executive Vice President, Chief Operating Officer and Chief Financial
Officer

 

SIGNATURE PAGE TO GOLFSMITH CREDIT AGREEMENT

 

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GENERAL ELECTRIC CAPITAL CORPORATION,

 

as Agent, an L/C Issuer and a Lender

 

 

 

By:

/s/ Peter Foley

 

Name:   Peter Foley

 

its Duly Authorized Signatory

 

SIGNATURE PAGE TO GOLFSMITH CREDIT AGREEMENT

 

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ANNEX A

 

to

 

CREDIT AGREEMENT

 

DEFINITIONS

 

Capitalized terms used in the Loan Documents shall have (unless otherwise
provided elsewhere in the Loan Documents) the following respective meanings and
all references to Sections, Exhibits, Schedules or Annexes in the following
definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the
Agreement:

 

“Account Debtor” means any Person who may become obligated to any Credit Party
under, with respect to, or on account of, an Account, Chattel Paper or General
Intangibles (including a payment intangible).

 

“Accounting Changes” means:  (a) changes in accounting principles required by
GAAP and implemented by Holdings or any of its Subsidiaries; (b) changes in
accounting principles recommended by Holdings’ certified public accountants and
implemented by Holdings or any of its Subsidiaries; and (c) changes in carrying
value of Holdings’ or any of its Subsidiaries’ assets, liabilities or equity
accounts resulting from (i) the application of purchase accounting principles
(A.P.B. 16 and/or 17 and EITF 88-16 and FASB 109) to the Related Transactions or
(ii) as the result of any other adjustments that, in each case, were applicable
to, but not included in, the Pro Forma.

 

“Accounts” means all “accounts,” as such term is defined in the Code, now owned
or hereafter acquired by any Credit Party, including (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments), (including
any such obligations that may be characterized as an account or contract right
under the Code), (b) all of each Credit Party’s rights in, to and under all
purchase orders or receipts for goods or services, (c) all of each Credit
Party’s rights to any goods represented by any of the foregoing (including
unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), (d) all rights
to payment due to any Credit Party for property sold, leased, licensed, assigned
or otherwise disposed of, for a policy of insurance issued or to be issued, for
a secondary obligation incurred or to be incurred, for energy provided or to be
provided, for the use or hire of a vessel under a charter or other contract,
arising out of the use of a credit card or charge card, or for services rendered
or to be rendered by such Credit Party or in connection with any other
transaction (whether or not yet earned by performance on the part of such Credit
Party), (e) all healthcare insurance receivables, and (f) all collateral
security of any kind, now or hereafter in existence, given by any Account Debtor
or other Person with respect to any of the foregoing.

 

“Acquisition Agreement” means the Agreement and Plan of Merger, dated
September 23, 2002, between Holdings, BGA Acquisition Corp. and GII.

 

“Activation Event” has the meaning ascribed to it in Annex F.

 

“Activation Notice” has the meaning ascribed to it in Annex F.

 

“Advances” means any Revolving Credit Advance or Swing Line Advance, as the
context may require.

 

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“Affected Lender” has the meaning ascribed to it in Section 9.19(a).

 

“Affiliate” means, with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or
other fiduciary, 10% or more of the Stock having ordinary voting power in the
election of directors of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person, (c) each of such
Person’s officers, directors, joint venturers and partners and (d) in the case
of Borrowers, the immediate family members, spouses and lineal descendants of
individuals who are Affiliates of any Borrower.  For the purposes of this
definition, “control” of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise; provided, however, that the term “Affiliate” shall specifically
exclude Agent and each Lender.

 

“Agent” means GE Capital in its capacity as Agent for Lenders or its successor
appointed pursuant to Section 8.2.

 

“Agreement” means the Credit Agreement (including all schedules, subschedules,
annexes and exhibits hereto), as the same may be amended, supplemented, restated
or otherwise modified from time to time.

 

“Allocable Amount” has the meaning ascribed to it in Section 10.7.

 

“Applicable L/C Margin” means the per annum fee, from time to time in effect,
payable with respect to outstanding Letter of Credit Obligations as determined
by reference to Section 1.2(a).

 

“Applicable Margins” means collectively the Applicable L/C Margin, the
Applicable Revolver Index Margin and the Applicable Revolver LIBOR Margin.

 

“Applicable Revolver Index Margin” means the per annum interest rate margin from
time to time in effect and payable in addition to the Index Rate applicable to
the Revolving Loan, as determined by reference to Section 1.2(a).

 

“Applicable Revolver LIBOR Margin” means the per annum interest rate from time
to time in effect and payable in addition to the LIBOR Rate applicable to the
Revolving Loan, as determined by reference to Section 1.2(a).

 

“Approved Fund” means, with respect to any Lender, any Person (other than a
natural Person) that (a) is or will be engaged in making, purchasing, holding or
otherwise investing in commercial loans and similar extensions of credit in the
ordinary course of its business and (b) is advised or managed by (i) such
Lender, (ii) any Affiliate of such Lender or (iii) any Person (other than an
individual) or any Affiliate of any Person (other than an individual) that
administers or manages such Lender.

 

“Asset Disposition” means the disposition whether by sale, lease, transfer,
loss, damage, destruction, casualty, condemnation or otherwise of any of the
following:  (a) any of the Stock or other equity or ownership interest of any of
Holdings or any of its Subsidiaries or (b) any or all of the assets of Holdings
or any of its Subsidiaries other than sales of Inventory in the ordinary course
of business.

 

“Assignment Agreement” has the meaning ascribed to it in Section 8.1(a).

 

A-2

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“Base Real Estate Appraisal” means, as to each parcel of Eligible Real Estate,
the appraisal conducted by Cushman & Wakefield of the value of such parcel of
Eligible Real Estate, each such appraisal dated as of a date prior to the
Closing Date.

 

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11
U.S.C. §§ 101 et seq. or other applicable bankruptcy, insolvency or similar
laws.

 

“Blocked Account Agreement” has the meaning ascribed to it in Annex F.

 

“Blocked Accounts” has the meaning ascribed to it in Annex F.

 

“Borrower” and “Borrowers” have the respective meanings ascribed to them in the
preamble to the Agreement.

 

“Borrower Representative” means GII in its capacity as Borrower Representative
pursuant to the provisions of Section 1.13.

 

“Borrowing Availability” means as of any date of determination the lesser of
(i) the Maximum Amount and (ii) the Borrowing Base, in each case, less the sum
of (a) the Revolving Loans then outstanding (including, without duplication, the
outstanding balance of Letter of Credit Obligations and the Swing Line Loan then
outstanding), and (b) Reserves required by Agent in its reasonable credit
judgment.

 

“Borrowing Base” means, as of any date of determination by Agent, from time to
time, an amount equal to:

 

(a)           90% of the book value of Borrowers’ Eligible Accounts at such
time; plus

 

(b)           the lesser of (i) 70% of the cost of Borrowers’ Eligible Inventory
or (y) up to 90% of the “net orderly liquidation value” of Borrowers’ Eligible
Inventory; plus

 

(c)           63% of the Fair Market Value (as shown on the Most Recent
Appraisal) of Eligible Real Estate; minus

 

(d)           any Reserves except to the extent already deducted therefrom.

 

“Borrowing Base Certificate” has the meaning ascribed to it in Section 4.1(d).

 

“Business Day” means any day that is not a Saturday, a Sunday or a day on which
banks are required or permitted to be closed in the States of New York, Texas or
Illinois and in reference to LIBOR Loans shall mean any such day that is also a
LIBOR Business Day.

 

“Cash Management Systems” has the meaning ascribed to it in Section 2.10.

 

“Capital Expenditures” means, with respect to any Person, all expenditures (by
the expenditure of cash or the incurrence of Indebtedness) by such Person during
any measuring period for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.

 

“Capital Lease” means, with respect to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee that, in accordance
with GAAP, would be required to be classified and accounted for as a capital
lease on a balance sheet of such Person.

 

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“Capital Lease Obligation” means, with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.

 

“Cash Equivalents” means:  (i) marketable securities (A) issued or directly and
unconditionally guaranteed as to interest and principal by the United States
government or (B) issued by any agency of the United States government the
obligations of which are backed by the full faith and credit of the United
States, in each case maturing within one (1) year after acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after acquisition
thereof and having, at the time of acquisition, a rating of at least A-1 from
S&P or at least P-1 from Moody’s; (iii) commercial paper maturing no more than
one year from the date of acquisition and, at the time of acquisition, having a
rating of at least A-1 from S&P or at least P-1 from Moody’s; (iv) certificates
of deposit or bankers’ acceptances issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that is at least (A) “adequately
capitalized” (as defined in the regulations of its primary Federal banking
regulator) and (B) has Tier 1 capital (as defined in such regulations) of not
less than $250,000,000, in each case maturing within one year after issuance or
acceptance thereof; and (v) shares of any money market mutual or similar funds
that (A) has substantially all of its assets invested continuously in the types
of investments referred to in clauses (i) through (iv) above, (B) has net assets
of not less than $500,000,000 and (C) has the highest rating obtainable from
either S&P or Moody’s.

 

“Certificate of Exemption” has the meaning ascribed to it in Section 1.11(c).

 

“Change of Control” means any of the following:  (a) any person or group of
persons, (within the meaning of the Securities Exchange Act of 1934), other than
Atlantic Equity Partners III, L.P. and/or other investment funds controlled by
First Atlantic, shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934) of 30% or more of the issued and outstanding
shares of Stock of Holdings having the right to vote for the election of
directors of Holdings under ordinary circumstances; (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such
period constituted the board of directors of Holdings (together with any new
directors whose election by the board of directors of Holdings or whose
nomination for election by the Stockholders of Holdings was approved by a vote
of at least a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office; or
(c) Holdings ceases to own and control all of the economic and voting rights
associated with all of the outstanding Stock of Borrowers.

 

“Charges” means all federal, state, county, city, municipal, local, foreign or
other governmental taxes (including premiums and other amounts owed to the PBGC
at the time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations,
(c) the employees, payroll, income or gross receipts of any Credit Party,
(d) any Credit Party’s ownership or use of any properties or other assets, or
(e) any other aspect of any Credit Party’s business.

 

“Chattel Paper” means any “chattel paper,” as such term is defined in the Code,
including electronic chattel paper, now owned or hereafter acquired by any
Credit Party, wherever located.

 

“Closing Checklist” means the schedule, including all appendices, exhibits or
schedules thereto, listing certain documents and information to be delivered in
connection with the Agreement, the

 

A-4

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other Loan Documents and the transactions contemplated thereunder, substantially
in the form attached hereto as Annex C.

 

“Closing Date” means June 20, 2006.

 

“Code” means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of New York; provided, that to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or remedies with
respect to, Agent’s or any Lender’s Lien on any Collateral is governed by the
Uniform Commercial Code as enacted and in effect in a jurisdiction other than
the State of New York, the term “Code” shall mean the Uniform Commercial Code as
enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority or remedies
and for purposes of definitions related to such provisions.

 

“Collateral” means the property covered by the Security Agreement, the Mortgages
and the other Collateral Documents and any other property, real or personal,
tangible or intangible, now existing or hereafter acquired, that may at any time
be or become subject to a security interest or Lien in favor of Agent, on behalf
of itself and Lenders, to secure the Obligations or any portion thereof.

 

“Collateral Documents” means the Security Agreement, the Pledge Agreements, the
Guaranties, the Mortgages, the Patent Security Agreements, the Trademark
Security Agreements, the Copyright Security Agreements and all similar
agreements entered into guaranteeing payment of, or granting a Lien upon
property as security for payment of, the Obligations or any portion thereof.

 

“Commitment Termination Date” means the earliest of (a) June 9, 2014, (b) the
date of termination of Lenders’ obligations to make Advances and to incur Letter
of Credit Obligations or permit existing Loans to remain outstanding pursuant to
Section 6.3, and (c) the date of (i) indefeasible prepayment in full by
Borrowers of the Loans, (ii) the cancellation and return (or stand-by guarantee)
of all Letters of Credit or the cash collateralization of all Letter of Credit
Obligations pursuant to Section 1.5(g), and (iii) the permanent reduction of the
Commitments to zero dollars ($0).

 

“Commitments” means (a) as to any Lender, the aggregate of such Lender’s
Revolving Loan Commitment as set forth on Annex B to the Agreement or in the
most recent Assignment Agreement executed by such Lender and (b) as to all
Lenders, the aggregate of all Lenders’ Revolving Loan Commitments which
aggregate commitment shall be Ninety Million Dollars ($90,000,000) on the First
Amendment Effective Date, as such Commitments may be reduced, amortized or
adjusted from time to time in accordance with the Agreement.

 

“Compliance Certificate” has the meaning ascribed to it in Section 4.1(k).

 

“Consolidated Fixed Charges” means, with respect to the Credit Parties on a
consolidated basis for any applicable period of twelve months, (a) the aggregate
of all cash interest expense paid or accrued during such period, plus
(b) scheduled payments of principal with respect to Indebtedness during such
period, plus (c) Capital Expenditures during such period plus (d) income taxes
paid or payable in cash with respect to such fiscal period.

 

“Consolidated Fixed Charge Coverage Ratio” means, with respect to the Credit
Parties on a consolidated basis for any applicable period of twelve months, the
ratio of EBITDA to Consolidated Fixed Charges.

 

A-5

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“Consolidated Net Income” means, consolidated net income of Holdings during the
measuring period excluding: (i) the income (or deficit) of any Person accrued
prior to the date it became a Subsidiary of, or was merged or consolidated into,
Holdings or any of Holdings’ Subsidiaries; (ii) the income (or deficit) of any
Person (other than a Subsidiary) in which Holdings have an ownership interest,
except to the extent any such income has actually been received by Borrowers or
any of their Subsidiaries in the form of cash dividends or distributions;
(iii) the undistributed earnings of any Subsidiary of Holdings to the extent
that the declaration or payment of dividends or similar distributions by such
Subsidiary is not at the time permitted by the terms of any contractual
obligation or requirement of law applicable to such Subsidiary; (iv) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such period;
(v) any net gain attributable to the write-up of any asset; (vi) any net gain
from the collection of the proceeds of life insurance policies; (vii) any net
gain arising from the acquisition of any securities, or the extinguishment of
any Indebtedness, of Holdings or any of their Subsidiaries; (viii) in the case
of a successor to Holdings or any of their Subsidiaries by consolidation or
merger or as a transferee of its assets, any earnings of such successor prior to
such consolidation, merger or transfer of assets and (ix) any deferred credit
representing the excess of equity in any Subsidiary of Holdings at the date of
acquisition of such Subsidiary over the cost to Holdings of the investment in
such Subsidiary.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability of that Person:  (i) with respect to Guaranteed Indebtedness and with
respect to any Indebtedness, lease, dividend or other obligation of another
Person if the purpose or intent of the Person incurring such liability, or the
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings; (iii) under
any foreign exchange contract, currency swap agreement, interest rate swap
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates,
(iv) any agreement, contract or transaction involving commodity options or
future contracts, (v) to make take-or-pay or similar payments if required
regardless of nonperformance by any other party or parties to an agreement, or
(vi) pursuant to any agreement to purchase, repurchase or otherwise acquire any
obligation or any property constituting security therefor, to provide funds for
the payment or discharge of such obligation or to maintain the solvency,
financial condition or any balance sheet item or level of income of another. 
The amount of any Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed.

 

“Contractual Obligations” means, as applied to any Person, any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject including the Related
Transactions Documents.

 

“Copyright License” means any and all rights nor owned or hereafter acquired by
any Credit Party under any written agreement granting any right to use any
Copyright or Copyright registration.

 

“Copyright Security Agreements” means the Copyright Security Agreements made in
favor of Agent, on behalf of itself and Lenders, by each applicable Credit
Party.

 

“Copyrights” means all of the following now owned or hereafter adopted or
acquired by any Credit Party: (a) all copyrights and General Intangibles of like
nature (whether registered or unregistered), all registrations and recordings
thereof, and all applications in connection therewith,

 

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including all registrations, recordings and applications in the United States
Copyright Office or in any similar office or agency of the United States, any
state or territory thereof, or any other country or any political subdivision
thereof; and (b) all reissues, extensions or renewals thereof.

 

“Credit Parties” means Holdings, Borrowers, each Subsidiary of each Borrower,
GII, each other Subsidiary of GII that executes this Agreement as a “Credit
Party” or executes a Guaranty or who grants a Lien on all or part of its assets
to secure all of part of the Obligations.

 

“Default” means any event that, with the passage of time or notice or both,
would, unless cured or waived, become an Event of Default.

 

“Default Rate” has the meaning ascribed to it in Section 1.2(d).

 

“Disbursement Account” has the meaning ascribed to it in Section 1.1(e).

 

“Disclosure Schedules” means the Schedules prepared by Borrower Representative
and denominated as Schedules 1.1(b) through 5.18 in the index to the Agreement.

 

“Documents” means any “document,” as such term is defined in the Code, including
electronic documents, now owned or hereafter acquired by any Credit Party,
wherever located.

 

“Dollars” or “$” means lawful currency of the United States of America.

 

“Domestic Subsidiary” means each Subsidiary of Holdings that is organized under
the laws of the United States or a state thereof.

 

“EBITDA” shall mean Consolidated Net Income, less (in each case to the extent
included in the calculation of Consolidated Net Income, but without
duplication): (i) income tax credits; (ii) interest income; (iii) gain from
extraordinary items (net of loss from extraordinary items); (iv) any aggregate
net gain (but not any aggregate net loss) arising from the sale, exchange or
other disposition of capital assets (including any fixed assets, whether
tangible or intangible, all inventory sold in conjunction with the disposition
of fixed assets and all securities); and (v) any other non-cash gains, plus (in
each case to the extent deducted in the calculation of Consolidated Net Income,
but without duplication): (i) any provision for income taxes; (ii) cash interest
expense; (iii) depreciation and amortization; (iv) amortized debt discount; and
(v) any deduction as the result of any grant to any members of the management of
Holdings or any of its Subsidiaries of any Stock.

 

“Electronic Transmission” means each document, instruction, authorization, file,
information and any other communication transmitted, posted or otherwise made or
communicated by e-mail or E-Fax, or otherwise to or from an E-System or other
equivalent service.

 

“Eligible Accounts” has the meaning ascribed to it in Schedule 1 to Exhibit
4.1(d).

 

“Eligible Inventory” has the meaning ascribed to it in Schedule 1 to Exhibit
4.1(d).

 

“Eligible Real Estate” means all Real Estate which meets all of the following
criteria: (a) such Real Estate is owned by a Borrower, (b) such Real Estate is
subject to a valid and enforceable first priority lien (subject to Permitted
Encumbrances) in favor of Agent for the benefit of itself and Lenders (or in
favor of such other trustee as may be required or desired under local law), (c)
to the extent requested by Agent, the applicable Borrower shall have delivered
to Agent title insurance policies, current as-built surveys, zoning letters or
an opinion of local counsel with respect to compliance with zoning

 

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matters and certificates of occupancy or such other evidence of the absence of
outstanding notices of violations and other building code regulation issues as
Agent shall otherwise require, in each case reasonably satisfactory in form and
substance to Agent, and (d) such Real Estate is not otherwise unacceptable to
Agent in its reasonable credit judgment, whether for environmental reasons or
otherwise.  Agent shall have the right to establish, modify, or eliminate
Reserves against Eligible Real Estate from time to time in its reasonable credit
judgment after notice to Borrowers.  In addition, Agent reserves the right, at
any time and from time to time after the Closing Date after notice to Borrowers,
to adjust any of the criteria set forth above, to establish new criteria in its
reasonable credit judgment, subject to the approval of Requisite Lenders, in the
case of new criteria which have the effect of making more credit available.

 

“Environmental Laws” means all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules, standards and regulations, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation).  Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§
9601 et seq.) (“CERCLA”); the Hazardous Materials Transportation Authorization
Act of 1994 (49 U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42
U.S.C. §§ 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et
seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water
Pollution Control Act (33 U.S.C. §§ 1251 et seq.); the Occupational Safety and
Health Act (29 U.S.C. §§ 651 et seq.); and the Safe Drinking Water Act (42
U.S.C. §§ 300(f) et seq.), and any and all regulations promulgated thereunder,
and all analogous state, local and foreign counterparts or equivalents and any
transfer of ownership notification or approval statutes.

 

“Environmental Liabilities” means, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.

 

“Environmental Permits” means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.

 

“Equipment” means all “equipment,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located and, in any
event, including all such Credit Party’s machinery and equipment, including
processing equipment, conveyors, machine tools, data processing and computer
equipment, including embedded software and peripheral equipment and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all

 

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manuals, drawings, instructions, warranties and rights with respect thereto, and
all products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any regulations promulgated thereunder.

 

“ERISA Affiliate” means, with respect to any Credit Party, any trade or business
(whether or not incorporated) that, together with such Credit Party, are treated
as a single employer within the meaning of Sections 414(b) of the IRC, and for
the purpose of Section 302 of ERISA and/or Section 412, 4971, 4977 and/or each
“applicable Section” under Section 414 (t)(2) of the IRC, within the meaning of
Sections 414(b), (c), (m) or (o) of the IRC.

 

“ERISA Event” means, with respect to any Credit Party or any ERISA Affiliate,
(a) any event described in Section 4043(c) of ERISA with respect to a Title IV
Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a Title IV
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title
IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party
or ERISA Affiliate to make when due required contributions to a Multiemployer
Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other
event or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA; or (i)
the revocation of a Qualified Plan’s qualification or tax exempt status by the
IRS; or (j) the termination of a Plan described in Section 4064 of ERISA.

 

“E-Signature” means the process of attaching to or logically associating with an
Electronic Transmission an electronic symbol, encryption, digital signature or
process (including the name or an abbreviation of the name of the party
transmitting the Electronic Transmission) with the intent to sign, authenticate
or accept such Electronic Transmission.

 

“E-System” means any electronic system, including Intralinks® and any other
Internet or extranet-based site, whether such electronic system is owned,
operated or hosted by the Agent or any other Person, providing for access to
data protected by passcodes or other security system.

 

“ESOP” means a Plan that is intended to satisfy the requirements of Section
4975(e)(7) of the IRC.

 

“Event of Default” has the meaning ascribed to it in Section 6.1.

 

“Existing Credit Agreement” has the meaning ascribed to it in Section 9.21.

 

“Fair Labor Standards Act” means the Fair Labor Standards Act, 29 U.S.C. §201 et
seq.

 

“Federal Funds Rate” means, for any day, a floating rate equal to the weighted
average of the rates on overnight federal funds transactions among members of
the Federal Reserve System, as determined by Agent in its sole discretion, which
determination shall be final, binding and conclusive (absent manifest error).

 

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“Federal Reserve Board” means the Board of Governors of the Federal Reserve
System.

 

“Fees” means any and all fees payable to Agent or any Lender pursuant to the
Agreement or any of the other Loan Documents.

 

“Fee Letters” means the GE Capital Fee Letter.

 

“Financial Statements” means the consolidated income statements, statements of
cash flows and balance sheets of Holdings and its Subsidiaries delivered in
accordance with Section 4.1.

 

“First Amendment to Credit Agreement” means that certain First Amendment to
Amended and Restated Credit Agreement, dated as of September 26, 2007, by and
among Borrowers, the other Credit Parties, Agent and Lenders.”

 

“First Amendment Effective Date means the date on which the conditions precedent
to the effectiveness of the First Amendment to Credit Agreement are satisfied
and the First Amendment to Credit Agreement becomes effective.”

 

“First Atlantic” means First Atlantic Capital, Ltd., a Delaware corporation.

 

“Fiscal Month” means any of the monthly accounting periods of Holdings of each
Fiscal Year measured on a 4-4-5 basis such that the first and second Fiscal
Months of each Quarter consist of 4 weeks and the third Fiscal Month of each
Fiscal Quarter consists of 5 weeks and each month ends on a Saturday.

 

“Fiscal Quarter” means any of the quarterly accounting periods of Holdings
measured on a 4-4-5 basis such that each Fiscal Quarter consists of precisely 13
weeks and each month ends on a Saturday, such Fiscal Quarters ending on or about
March 31, June 30, September 30 and December 31 of each year.

 

“Fiscal Year” means any of the annual accounting periods of Holdings ending on
the Saturday closest to December 31 of each year.

 

“Fixtures” means all “fixtures” as such term is defined in the Code, now owned
or hereafter acquired by any Credit Party.

 

“Foreign Lender” has the meaning ascribed to it in Section 1.11(c).

 

“Foreign Subsidiary” means any Subsidiary of Holdings that is not a Domestic
Subsidiary.

 

“Funding Date” has the meaning ascribed to it in Section 7.2.

 

“GAAP” means generally accepted accounting principles in the United States of
America, consistently applied.

 

“GE Capital” has the meaning ascribed to it in the preamble of the Agreement.

 

“GECM” has the meaning ascribed to it in the preamble of this Agreement.

 

“GE Capital Fee Letter” has the meaning ascribed to it in Section 1.3(a).

 

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“General Intangibles” means “general intangibles,” as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, including all
right, title and interest that such Credit Party may now or hereafter have in or
under any Contractual Obligation, all payment intangibles, customer lists,
Licenses, Copyrights, Trademarks, Patents, and all applications therefor and
reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned
premiums), uncertificated securities, chooses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments, rights to
receive dividends, distributions, cash, Instruments and other property in
respect of or in exchange for pledged Stock and Investment Property, rights of
indemnification, all books and records, correspondence, credit files, invoices
and other papers, including all tapes, cards, computer runs and other papers and
documents in the possession or under the control of such Credit Party or any
computer bureau or service company from time to time acting for such Credit
Party.

 

“GII” has the meaning ascribed thereto in the recitals to the Agreement.

 

“GII Guaranty” means the Amended and Restated Guaranty of even date herewith
executed by GII in favor of Agent, on behalf of itself and the Lenders.

 

“Golfsmith Europe” means Golfsmith Europe, LLC, a Delaware limited liability
company.

 

“Golfsmith Licensing” means Golfsmith Licensing, LLC, a Delaware limited
liability company.

 

“Goods” means any “goods,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located, including embedded
software to the extent included in “goods” as defined in the Code, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

 

“Guaranteed Indebtedness” means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease,
dividend, or other obligation (“primary obligation”) of any other Person (the
“primary obligor”) in any manner, including any obligation or arrangement of
such Person to (a) purchase or repurchase any such primary obligation, (b)
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
condition of the primary obligor, (c) purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, (d) protect the beneficiary of such arrangement from loss (other
than product warranties given in the ordinary course of business) or (e)
indemnify the owner of such primary obligation against loss in respect thereof. 
The amount of any

 

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Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the
lesser at such time of (x) the stated or determinable amount of the primary
obligation in respect of which such Guaranteed Indebtedness is incurred and (y)
the maximum amount for which such Person may be liable pursuant to the terms of
the instrument embodying such Guaranteed Indebtedness, or, if not stated or
determinable, the maximum reasonably anticipated liability (assuming full
performance) in respect thereof.

 

“Guaranties” means, collectively, the Amended and Restated Holdings Guaranty,
the Amended and Restated GII Guaranty, each Amended and Restated Subsidiary
Guaranty and any other guaranty executed by any Guarantor in favor of Agent and
Lenders in respect of the Obligations.

 

“Guarantor Payment” has the meaning ascribed to it on Section 10.7.

 

“Guarantors” means Holdings, GII, each Domestic Subsidiary of GII (other than a
Borrower), and each other Person, if any, that executes a guaranty or other
similar agreement in favor of Agent, for itself and the ratable benefit of
Lenders, in connection with the transactions contemplated by the Agreement and
the other Loan Documents.

 

“Hazardous Material” means any substance, material or waste that is regulated
by, or forms the basis of liability now or hereafter under, any Environmental
Laws, including any material or substance that is (a) defined as a “solid
waste,” “hazardous waste,” “hazardous material,” “hazardous substance,”
“dangerous goods,” “extremely hazardous waste,”  “restricted hazardous waste,”
“pollutant,” “contaminant,” “hazardous constituent,” “special waste,” “toxic
substance” or other similar term or phrase under any Environmental Laws, or (b)
petroleum or any fraction or by-product thereof, asbestos, polychlorinated
biphenyls (PCB’s), or any radioactive substance.

 

“Holdings” has the meaning ascribed thereto in the recitals to the Agreement.

 

“Holdings Guaranty” means the Amended and Restated Guaranty of even date
herewith executed by Holdings in favor of Agent, on behalf of itself and
Lenders.

 

“Impacted Lender” means any Lender that fails promptly to provide Agent, upon
Agent’s request, satisfactory assurance that such Lender will not become a
Non-Funding Lender.

 

“Indebtedness” means, with respect to any Person, without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business that are unsecured and not overdue by more than six (6) months unless
being contested in good faith, (b) all reimbursement and other obligations with
respect to letters of credit, bankers’ acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including

 

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accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (i)
“earnouts” and similar payment obligations, and (j) the Obligations.

 

“Indemnitees” has the meaning ascribed to it in Section 9.1.

 

“Indenture” means the senior secured notes trust indenture by and between the
U.S. Bank Trust National Association as trustee and GII, dated as of October 15,
2002.

 

“Index Rate” means, for any day, a floating rate equal to the highest of (i) the
rate publicly quoted from time to time by The Wall Street Journal as the “base
rate on corporate loans posted by at least 75% of the nation’s 30 largest banks”
(or, if The Wall Street Journal ceases quoting a base rate of the type
described, the highest per annum rate of interest published by the Federal
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
“Selected Interest Rates” as the Bank prime loan rate or its equivalent), (ii)
the Federal Funds Rate plus 300 basis points per annum, and (iii) the sum of the
LIBOR Rate for a LIBOR Period of three months plus the excess of the Applicable
Revolver LIBOR Margin over the Applicable Revolver Index Margin.  Each change in
any interest rate provided for in the Agreement based upon the Index Rate shall
take effect at the time of such change in the Index Rate.

 

“Index Rate Loan” means a Loan or portion thereof bearing interest by reference
to the Index Rate.

 

“Initial Public Offering” means the initial public offering of Holdings’ Stock
pursuant to an effective registration statement filed with the SEC .

 

“Instruments” means all “instruments,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located, and, in any
event, including all certificated securities, all certificates of deposit, and
all promissory notes and other evidences of indebtedness, other than instruments
that constitute, or are a part of a group of writings that constitute, Chattel
Paper.

 

“Intellectual Property” means any and all Licenses, Patents, Copyrights,
Trademarks, and the goodwill associated with such Trademarks.

 

“Intercompany Note” has the meaning ascribed to it in Section 3.1.

 

“Intercompany Subordination Agreement” means the subordination agreement,
substantially in the form of Exhibit A3 hereto, of even date herewith, by and
among the Credit Parties.

 

“Interest Payment Date” means (a) as to any Index Rate Loan, the first Business
Day of each month to occur while such Loan is outstanding, and (b) as to any
LIBOR Loan, the last day of the applicable LIBOR Period; provided, that in the
case of any LIBOR Period greater than one month in duration, interest shall be
payable at one month intervals and on the last day of such LIBOR Period; and
provided, further, that, in addition to the foregoing, each of (x) the date upon
which all of the Commitments have been terminated and the Loans have been paid
in full and (y) the Commitment Termination Date shall be deemed to be an
“Interest Payment Date” with respect to any interest that has then accrued under
the Agreement.

 

“Inventory” means any “inventory,” as such term is defined in the Code, now
owned or hereafter acquired by any Credit Party, wherever located, including
inventory, merchandise, goods and other personal property that are held by or on
behalf of any Credit Party for sale or lease or are furnished

 

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or are to be furnished under a contract of service, or that constitute raw
materials, work in process, finished goods, returned goods, supplies or
materials of any kind, nature or description used or consumed or to be used or
consumed in such Credit Party’s business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including all supplies
and embedded software.

 

“Investment” means (i) any direct or indirect purchase or other acquisition by
Borrowers or any of their Subsidiaries of any Stock, or other ownership interest
in, any other Person, and (ii) any direct or indirect loan, advance or capital
contribution by Borrowers or any of their Subsidiaries to any other Person,
including all indebtedness and accounts receivable from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business.

 

“Investment Property” means all “investment property,” as such term is defined
in the Code, now owned or hereafter acquired by any Credit Party, wherever
located, including: (i) all securities, whether certificated or uncertificated,
including stocks, bonds, interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all
securities entitlements of any Credit Party,  including the rights of such
Credit Party to any securities account and the financial assets held by a
securities intermediary in such securities account and any free credit balance
or other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts of any Credit Party; (iv) all commodity
contracts of any Credit Party; and (v) all commodity accounts held by any Credit
Party.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder.

 

“IRS” means the United States Internal Revenue Service.

 

“L/C Issuer” means GE Capital or a Subsidiary thereof or a bank or other legally
authorized Person selected by or reasonably acceptable to Agent in its sole
discretion, in such Person’s capacity as an issuer of Letters of Credit
hereunder.

 

“L/C Sublimit” has the meaning ascribed to it in Section 1.1(d).

 

“Lenders” means, collectively, the Swingline Lender and any other financial
institution or other Person that (a) is listed on the signature pages hereof as
a “Lender” or (b) from time to time becomes a party hereto by execution of an
Assignment Agreement, in each case together with its successors.

 

“Letter of Credit Fee” has the meaning ascribed to it in Section 1.3(d).

 

“Letter of Credit Obligations” means all outstanding obligations incurred by
Agent and Lenders at the request of Borrower Representative, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance of Letters of Credit by L/C Issuers or the purchase of a participation
as set forth in Section 1.1(d) with respect to any Letter of Credit.  The amount
of such Letter of Credit Obligations shall equal the maximum amount that may be
payable by Agent and Lenders thereupon or pursuant thereto.

 

“Letters of Credit” means documentary or standby letters of credit issued for
the account of Borrowers by L/C Issuers, and bankers’ acceptances issued by
Borrowers, for which Agent and Lenders have incurred Letter of Credit
Obligations.

 

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“LIBOR Breakage Fee” means an amount equal to the amount of any losses,
expenses, liabilities (including, without limitation, any loss (including
interest paid) and lost opportunity cost in connection with the re-employment of
such funds) that any Lender may sustain as a result of (i) any default by any
Borrower in making any borrowing of, conversion into or continuation of any
LIBOR Loan following Borrower Representative’s delivery to Agent of any LIBOR
Loan request in respect thereof or (ii) any payment of a LIBOR Loan on any day
that is not the last day of the LIBOR Period applicable thereto (regardless of
the source of such prepayment and whether voluntary, by acceleration or
otherwise). For purposes of calculating amounts payable to a Lender under
Section 1.3(e), each Lender shall be deemed to have actually funded its relevant
LIBOR Loan through the purchase of a deposit bearing interest at LIBOR in an
amount equal to the amount of that LIBOR Loan and having a maturity and
repricing characteristics comparable to the relevant LIBOR Period; provided,
however, that each Lender may fund each of its LIBOR Loans in any manner it sees
fit, and the foregoing assumption shall be utilized only for the calculation of
amounts payable under Section 1.3(e).

 

“LIBOR Business Day” means a Business Day on which banks in the City of London
are generally open for interbank or foreign exchange transactions.

 

“LIBOR Loans” means a Loan or any portion thereof bearing interest by reference
to the LIBOR Rate.

 

“LIBOR Period” means, with respect to any LIBOR Loan, each period commencing on
a LIBOR Business Day selected by Borrower Representative pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower Representative’s irrevocable notice to Agent as set forth in Section
1.2(e); provided, that the foregoing provision relating to LIBOR Periods is
subject to the following:

 

(a)           if any LIBOR Period would otherwise end on a day that is not a
LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding
LIBOR Business Day unless the result of such extension would be to carry such
LIBOR Period into another calendar month in which event such LIBOR Period shall
end on the immediately preceding LIBOR Business Day;

 

(b)           any LIBOR Period that would otherwise extend beyond the date set
forth in clause (a) of the definition of “Commitment Termination Date” shall end
two (2) LIBOR Business Days prior to such date;

 

(c)           any LIBOR Period that begins on the last LIBOR Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such LIBOR Period) shall end on the last
LIBOR Business Day of a calendar month;

 

(d)           Borrower Representative shall select LIBOR Periods so that there
shall be no more than 7 separate LIBOR Loans in existence at any one time.

 

“LIBOR Rate” means for each LIBOR Period:

 

(a)           a rate of interest determined by Agent equal to the offered rate
per annum for deposits in United States Dollars for the applicable LIBOR Period
that appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time), two
(2) LIBOR Business Days prior to the first day of such LIBOR Period (unless such
date is not a Business Day, in which event the next succeeding Business Day will
be used).

 

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(b)           a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day that is two (2) LIBOR Business Days prior to
the beginning of such LIBOR Period (including basic, supplemental, marginal and
emergency reserves under any regulations of the Federal Reserve Board or other
Governmental Authority having jurisdiction with respect thereto, as now and from
time to time in effect) for Eurocurrency funding (currently referred to as
“Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board that are
required to be maintained by a member bank of the Federal Reserve System.

 

If such interest rates shall cease to be available from Telerate News Service,
the LIBOR Rate shall be determined from such financial reporting service or
other information as shall be available to Agent.

 

“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by any
Credit Party.

 

“Lien” means any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement (other than the arrangements with respect to cash deposits
made on the Closing Date in connection with the satisfaction and payment in full
of the Senior Notes), lien, charge, claim, security interest, easement or
encumbrance, or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any lease or title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of, or agreement to give, any
financing statement perfecting a security interest under the Code or comparable
law of any jurisdiction).

 

“Litigation” has the meaning ascribed to it in Section 4.1(i).

 

“Loan Account” has the meaning ascribed to it in Section 1.9.

 

“Loan Documents” means the Agreement, the Notes, the Collateral Documents, the
Fee Letters and all other agreements, instruments, documents and certificates
identified in the Closing Checklist executed and delivered to, or in favor of,
Agent or any Lenders and including all other pledges, powers of attorney,
consents, assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of any Credit Party, or
any employee of any Credit Party, and delivered to Agent or any Lender in
connection with the Agreement or the transactions contemplated thereby.  Any
reference in the Agreement or any other Loan Document to a Loan Document shall
include all appendices, exhibits or schedules thereto, and all amendments,
restatements, supplements or other modifications thereto, and shall refer to the
Agreement or such Loan Document as the same may be in effect at any and all
times such reference becomes operative.

 

“Loans” means the Revolving Loan and the Swing Line Loan.

 

“LP” means Golfsmith International, L.P., a Delaware limited partnership.

 

“Master Documentary Agreement” means a Master Agreement for Documentary Letters
of Credit between an L/C Issuer and Borrowers, substantially in the form of
Exhibit A1.

 

“Master Standby Agreement” means a Master Agreement for Standby Letters of
Credit between an L/C Issuer and Borrowers, substantially in the form of Exhibit
A2.

 

“Material Adverse Effect” means a material adverse effect on (a) the business,
assets, results of operations, or financial condition of the Credit Parties
taken as a whole, (b) Borrowers’ ability to

 

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pay any of the Loans or any of the other Obligations in accordance with the
terms of the Agreement, (c) the Collateral or Agent’s Liens, on behalf of itself
and Lenders, on the Collateral or the priority of such Liens, or (d) Agent’s or
any Lender’s rights and remedies under the Agreement and the other Loan
Documents.

 

“Maximum Amount” means, as of any date of determination, an amount equal to the
Revolving Loan Commitment of all Lenders as of that date.

 

“Maximum Lawful Rate” has the meaning ascribed to it in Section 1.2(f).

 

“Moody’s” means Moody’s Investor’s Services, Inc.

 

“Mortgaged Properties” has the meaning assigned to it in Annex C.

 

“Mortgages” means each of the mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, collateral assignments of leases or other real estate
security documents delivered by any Credit Party to Agent on behalf of itself
and Lenders with respect to the Mortgaged Properties, all in form and substance
reasonably satisfactory to Agent.

 

“Most Recent Real Estate Appraisal” means for each of the Eligible Real Estate
properties, the Base Real Estate Appraisal of such Eligible Real Estate, or if
an updated appraisal has been obtained, the most recently dated appraisal of
such Eligible Real Estate.

 

“Multiemployer Plan” means a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is making,
is obligated to make or, for the five year period immediately following the
latest date on which any Credit Party or ERISA Affiliate, made or had been
obligated to make, contributions on behalf of participants who are or were
employed by any of them.

 

“Net Proceeds” means cash proceeds received by Borrowers or any of their
Subsidiaries from any Asset Disposition (including insurance proceeds, awards of
condemnation, and payments under notes or other debt securities received in
connection with any Asset Disposition), net of (i) the costs of such Asset
Disposition (including taxes attributable to such sale, lease or transfer) and
(ii) amounts applied to repayment of Indebtedness (other than the Obligations)
secured by a Lien on the asset or property disposed.

 

“Non-Consenting Lender” has the meaning ascribed to it in Section 9.19(c).

 

“Non-Funding Lender” has the meaning ascribed to it in Section 8.5(a).

 

“Notes” means, collectively, the Revolving Notes and the Swing Line Note.

 

“Notice of Conversion/Continuation” has the meaning ascribed to it in Section
1.2(e).

 

“Notice of Revolving Credit Advance” has the meaning ascribed to it in Section
1.1(a).

 

“NU” means Golfsmith NU, LLC, a Delaware limited liability company.

 

“Obligations” means all loans, advances, debts, liabilities and obligations, for
the performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such amounts
are liquidated or determinable), including

 

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obligations pursuant to Letter of Credit Obligations, owing by any Credit Party
to Agent, any Lender or any Secured Swap Provider, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, whether or not
evidenced by any note, agreement, letter of credit agreement or other
instrument, arising under the Agreement, any of the other Loan Documents or any
Secured Rate Contract.  This term includes all principal, interest (including
all interest that accrues after the commencement of any case or proceeding by or
against any Credit Party in bankruptcy, whether or not allowed in such case or
proceeding), Fees, Charges, expenses, attorneys’ fees and any other sum
chargeable to any Credit Party under the Agreement, any of the other Loan
Documents or any Secured Rate Contract.

 

“Other Lender” has the meaning ascribed to it in Section 8.5(d).

 

“Overadvance” has the meaning ascribed to it in Section 1.1(a).

 

“Patent License” means rights under any written agreement now owned or hereafter
acquired by any Credit Party granting any right with respect to any invention on
which a Patent is in existence.

 

“Patent Security Agreements” means the Patent Security Agreements made in favor
of Agent, on behalf of itself and Lenders, by each applicable Credit Party.

 

“Patents” means all of the following in which any Credit Party now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or any other country, and (b) all reissues, continuations,
continuations-in-part or extensions thereof.

 

“Payment Account” has the meaning ascribed to it in Annex F.

 

“PBGC” means the Pension Benefit Guaranty Corporation.

 

“Pension Plan” means a Plan described in Section 3(2) of ERISA.

 

“Permitted Acquisition” means any acquisition by a Borrower or a wholly-owned
transitory special purpose domestic Subsidiary of a Borrower (created in
accordance with the provisions of Section 3.13) of (i) all or substantially all
of the assets of a Target, which assets are located in the United States or (ii)
100% of the Stock of a Target incorporated under the laws of any State in the
United States or the District of Columbia to the extent that each of the
following conditions shall have been satisfied:

 

(a)           to the extent the Permitted Acquisition will be financed in whole
or in part with the proceeds of any Loan, the conditions set forth in Section
7.2 and, if applicable, Section 7.3, shall have been satisfied;

 

(b)           Borrowers shall have furnished to Agent and Lenders at least ten
(10) Business Days prior to the consummation of such Permitted Acquisition an
executed term sheet and/or commitment letter (setting forth in reasonable detail
the terms and conditions of such Permitted Acquisition) and, at the reasonable
request of Agent, such other information and documents that Agent may reasonably
request, including, without limitation, executed counterparts of the respective
agreements, documents or instruments pursuant to which such Permitted
Acquisition is to be

 

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consummated (including, without limitation, any related management, non-compete,
employment, option or other material agreements), any schedules to such
agreements, documents or instruments and all other material ancillary
agreements, instruments and documents to be executed or delivered in connection
therewith;

 

(c)           the Credit Parties (including the Target and any new Subsidiary
that shall become a Credit Party) shall execute and deliver such Collateral
Documents and other documents reasonably requested by Agent in order to create,
perfect and protect Agent’s Lien, for the benefit of Lenders, on the assets of
the Target;

 

(d)           such Permitted Acquisition shall not be hostile and shall have
been approved by the board of directors (or other similar body) and/or the
stockholders or other equityholders of the Target;

 

(e)           no Default or Event of Default shall then exist or would exist
after giving effect thereto;

 

(f)            average daily Borrowing Availability for the 30 day period prior
to the consummation of such Permitted Acquisition, and projected average daily
Borrowing Availability for the 30 day period after the consummation of such
Permitted Acquisition (after giving effect to such Acquisition), shall be not
less than $10,000,000;

 

(g)           the total consideration paid or payable (including without
limitation, any deferred payment but excluding consideration in the form of (or
from proceeds of issuances of) Holdings common Stock) for all Permitted
Acquisitions consummated during any year shall not exceed $7,500,000; and

 

(h)           the Target has EBITDA, subject to proforma adjustments reasonably
acceptable to the Agent, for the most recent four quarters prior to the
acquisition date for which financial statements are available, greater than or
equal to zero.

 

Notwithstanding the consummation of any Permitted Acquisition, no Inventory,
Accounts or Real Estate acquired as part of any Permitted Acquisition shall be
included in the Borrowing Base until such time as Agent shall have completed a
Collateral field audit with respect to such Collateral, with results
satisfactory to Agent.

 

“Permitted Encumbrances” means the following encumbrances: (a) Liens for taxes
or assessments or other governmental Charges not yet due and payable; (b)
pledges or deposits of money securing statutory obligations under workmen’s
compensation, unemployment insurance, social security or public liability laws
or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of
money  securing bids, tenders, contracts (other than contracts for the payment
of money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) inchoate and unperfected workers’, mechanics’ 
or similar liens arising in the ordinary course of business, so long as such
Liens attach only to Equipment, Fixtures and/or Real Estate; (e) carriers’,
warehousemen’s, suppliers’ or other similar possessory liens arising in the
ordinary course of business and securing liabilities in an outstanding aggregate
amount not in excess of $50,000 at any time, so long as such Liens attach only
to Inventory; (f) deposits securing, or in lieu of, surety, appeal or customs
bonds in proceedings to which any Credit Party is a party; (g) any attachment or
judgment lien not constituting an Event of Default under Section 6.1; (h) zoning
restrictions, easements, licenses, or other restrictions on the use of any Real
Estate or other minor irregularities in title (including leasehold title)
thereto, so long as the same do not materially impair the use, value, or
marketability of such Real Estate; (i) presently existing or hereafter created
Liens in favor of Agent, on behalf of Lenders; (j) Liens existing on the date
hereof and renewal, and extensions thereof which Liens are set forth on Schedule
3.2; (k) Liens securing Indebtedness

 

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permitted by Section 3.1(d), provided that the Liens attach only to the assets
financed by such Indebtedness; (l) any Lien (i) existing on Equipment prior to
the acquisition thereof by any Borrower or any of its Subsidiaries, or existing
on Equipment of any Person that becomes a Subsidiary after the date hereof prior
to the time such Person becomes a Subsidiary; provided that (A) such Lien is not
created in contemplation of or in connection with such acquisition or such
Person becoming a Subsidiary, as the case may be, (B) such Lien shall not attach
or apply to any other property or assets of any Borrower or any of its
Subsidiaries, and (C) such Lien shall secure only those obligations which it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary, as the case may be; or (ii) arising out of the refinancing,
extension, renewal or refunding of any Indebtedness secured by any such Liens;
(m) Licenses, sublicenses, leases or subleases involving Intellectual Property
not otherwise in violation of this Agreement; (n) deposits in escrow accounts
for customary purchase price adjustments, earn-outs and indemnities in
connection with Permitted Acquisitions; and (o) Liens arising from precautionary
financing statement filings with respect to operating leases entered into by any
Credit Party in the ordinary course of business.

 

“Person” means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).

 

“Plan” means, at any time, an “employee benefit plan,” as defined in Section
3(3) of ERISA, that any Credit Party or ERISA Affiliate maintains, contributes
to or has an obligation to contribute to on behalf of participants who are or
were employed by any Credit Party.

 

“Pledge Agreement” means the various Amended and Restated Pledge Agreements,
each dated on or after the date hereof executed by Holdings, GII, each Borrower
and each other Credit Party in favor of Agent, on behalf of itself and Lenders,
pledging all Stock of any Credit Party owned by such Person and the Intercompany
Note.

 

“Pro Forma” means the unaudited consolidated balance sheets of Holdings and its
Subsidiaries prepared in accordance with GAAP as of the Closing Date after
giving effect to the Related Transactions, a copy of which has been provided to
the Agent.

 

“Pro Rata Share” means with respect to all matters relating to any Lender (a)
with respect to the Revolving Loan, the percentage obtained by dividing (i) the
Revolving Loan Commitment of that Lender by (ii) the aggregate Revolving Loan
Commitments of all Lenders and (b) with respect to all Loans on and after the
Commitment Termination Date, the percentage obtained by dividing (i) the
aggregate outstanding principal balance of the Loans held by that Lender, by
(ii) the outstanding principal balance of the Loans held by all Lenders, as such
percentages may be adjusted by assignments pursuant to Section 8.1.

 

“Projections” means Holdings’, and its Subsidiaries’ forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements and; (c) cash
flow statements consistent with the historical Financial Statements of
Borrowers, together with appropriate supporting details and a statement of
underlying assumptions.

 

“Proposed Change” has the meaning ascribed to it in Section 9.19(c).

 

“Qualified Assignee” means (a) any Lender, any Affiliate of any Lender and, with
respect to any Lender that is an investment fund that invests in commercial
loans, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such

 

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Lender or by an Affiliate of such investment advisor, and (b) any commercial
bank, savings and loan association or savings bank or any other entity which is
an “accredited investor” (as defined in Regulation D under the Securities Act of
1933) which extends credit or buys loans as one of its businesses, including
insurance companies, mutual funds, lease financing companies and commercial
finance companies, in each case, which has a rating of BBB or higher from S&P
and a rating of Baa2 or higher from Moody’s at the date that it becomes a Lender
and which, through its applicable lending office, is capable of lending to
Borrowers without the imposition of any withholding or similar taxes; provided
that no Person determined by Agent to be acting in the capacity of a vulture
fund or distressed debt purchaser shall be a Qualified Assignee and no Person or
Affiliate of such Person (other than a Person that is already a Lender) holding
Subordinated Debt or Stock issued by any Credit Party shall be a Qualified
Assignee.

 

“Qualified Plan” means a Pension Plan that is intended to be tax-qualified under
Section 401(a) of the IRC.

 

“Rate Contracts” means swap agreements (as such term is defined in Section 101
of the Bankruptcy Code) and any other agreements or arrangements designed to
provide protection against fluctuations in interest or currency exchange rates.

 

“Real Estate” has the meaning ascribed to it in Section 5.12.

 

“Refunded Swing Line Loan” has the meaning ascribed to it in Section
1.1(c)(iii).

 

“Related Transactions” means the incurrence of Loans on the Closing Date, the
retirement of the Senior Notes, the consummation of Initial Public Offering, the
execution and delivery of the Loan Documents, the payment of all Fees, costs and
expenses associated with all of the foregoing and the execution and delivery of
all of the Related Transactions Documents.

 

“Related Transactions Documents” means the Loan Documents and all security
agreements, mortgages, deeds of trust and other agreements or instruments
executed in connection with the Related Transactions.

 

“Relationship Bank” has the meaning ascribed to it in Annex F.

 

“Release” means any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material in
the indoor or outdoor environment, including the movement of Hazardous Material
through or in the air, soil, surface water, ground water or property.

 

“Replacement Lender” has the meaning ascribed to it in Section 9.19(a).

 

“Requisite Lenders” means Lenders having (a) more than 50% of the Commitments of
all Lenders, or (b) if the Commitments have been terminated, more than 50% of
the aggregate outstanding amount of the Loans.

 

“Reserves” means, with respect to the Borrowing Base (a) reserves established by
Agent from time to time after notice to Borrowers against Eligible Accounts and
Eligible Inventory pursuant to Exhibit 4.1(d) and (b) such other reserves
against Eligible Accounts, Eligible Inventory or Borrowing Availability that
Agent may, in its reasonable credit judgment after notice to Borrowers,
establish from time to time; provided, that Reserves associated with (i) gift
card liability shall be equal to 25% of Borrowers’ book value thereof and (ii)
customer deposits shall be equal to 50% of Borrowers’ book value thereof. 
Without limiting the generality of the foregoing, Reserves established to ensure
the

 

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payment of accrued Interest Expenses or Indebtedness shall be deemed to be a
reasonable exercise of Agent’s credit judgment.

 

“Restricted Payment” means, with respect to any Credit Party (a) the declaration
or payment of any dividend or the incurrence of any liability to make any other
payment or distribution of cash or other property or assets in respect of Stock;
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of such Credit Party’s Stock or any other payment or
distribution made in respect thereof, either directly or indirectly; (c) any
payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim for rescission with
respect to, any Subordinated Debt; (d) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire Stock of such Credit Party now or hereafter
outstanding; (e) any payment of a claim for the rescission of the purchase or
sale of, or for material damages arising from the purchase or sale of, any
shares of such Credit Party’s Stock or of a claim for reimbursement,
indemnification or contribution arising out of or related to any such claim for
damages or rescission; (f) any payment, loan, contribution, or other transfer of
funds or other property to any Stockholder of such Credit Party other than
payment of compensation in the ordinary course of business to Stockholders who
are employees of such Credit Party; and (g) any payment of management fees (or
other fees of a similar nature), indemnification payments and out-of-pocket
expenses in connection therewith by such Credit Party to any Stockholder of such
Credit Party or its Affiliates.

 

“Retiree Welfare Plan” means, at any time, a Welfare Plan that provides for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant’s termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.

 

“Revolving Credit Advance” has the meaning ascribed to it in Section 1.1(a).

 

“Revolving Lenders” means those Lenders having a Revolving Loan Commitment.

 

“Revolving Loan(s)” means, at any time, the sum of (i) the aggregate amount of
Revolving Credit Advances outstanding to Borrowers (including Swing Line
Advances) plus (ii) the aggregate Letter of Credit Obligations incurred on
behalf of Borrowers.  Unless the context otherwise requires, references to the
outstanding principal balance of the Revolving Loan shall include the
outstanding balance of Letter of Credit Obligations.

 

“Revolving Loan Commitment” means (a) as to any Lender, the commitment of such
Lender to make its Pro Rata Share of Revolving Credit Advances or incur its Pro
Rata Share of Letter of Credit Obligations (including, in the case of the Swing
Line Lender, its commitment to make Swing Line Advances as a portion of its
Revolving Loan Commitment) as set forth on Annex B or in the most recent
Assignment Agreement, if any, executed by such Lender and (b) as to all Lenders,
the aggregate commitment of all Lenders to make the Revolving Credit Advances
(including, in the case of the Swing Line Lender, Swing Line Advances) or incur
Letter of Credit Obligations, which aggregate commitment shall be Ninety Million
Dollars ($90,000,000) on the First Amendment Effective Date, as such amount may
be adjusted, if at all, from time to time in accordance with the Agreement.

 

“Revolving Notes” has the meaning ascribed to it in Section 1.1(a).

 

“S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill
Companies, Inc.

 

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“Second Amendment to Credit Agreement” means that certain Second Amendment to
Amended and Restated Credit Agreement, dated as of July 9, 2010, by and among
Borrowers, the other Credit Parties, Agent and Lenders.

 

“Second Amendment Effective Date” means the date on which the conditions
precedent to the effectiveness of the Second Amendment to Credit Agreement are
satisfied and the Second Amendment to Credit Agreement becomes effective.

 

“Secured Rate Contract” means any Rate Contract between a Borrower and the
counterparty thereto, which (i) has been provided or arranged by GE Capital or
an Affiliate of GE Capital, or (ii) Agent has acknowledged in writing
constitutes a “Secured Rate Contract” hereunder.

 

“Secured Swap Provider” means (i) a Lender or an Affiliate of a Lender (or a
Person who was a Lender or an Affiliate of a Lender at the time of execution and
delivery of a Rate Contract) who has entered into a Secured Rate Contract with a
Borrower, or (ii) a Person with whom Borrower has entered into a Secured Rate
Contract provided or arranged by GE Capital or an Affiliate of GE Capital, and
any assignee thereof.

 

“Security Agreement” means the various Amended and Restated Security Agreements
dated on or after the Closing Date entered into by and among Agent, on behalf of
itself and Lenders, Holdings, GII and the other Credit Parties signatory
thereto.

 

“Senior Notes” means the 8.375% senior secured notes of GII due 2009 issued
pursuant to the Indenture in the original aggregate principal amount of not more
than $93,750,000, together with any “Exchange Notes” (as defined in the
Indenture) issued in exchange therefor so long as any such Exchange Notes
replace such Senior Notes dollar for dollar.

 

“Settlement Date” has the meaning ascribed to it in Section 8.5(a)(ii).

 

“Software” means all “software” as such term is defined in the Code, now owned
or hereafter acquired by any Credit Party, other than software embedded in any
category of Goods, including all computer programs and all supporting
information provided in connection with a transaction related to any program.

 

“Solvent” means, with respect to any Person on a particular date, that on such
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including subordinated and contingent liabilities, of
such Person; (b) the present fair saleable value of the assets of such Person is
not less than the amount that will be required to pay the probable liability of
such Person on its debts and liabilities, including subordinated and contingent
liabilities as they become absolute and matured; (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
an unreasonably small capital.  The amount of contingent liabilities (such as
Litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can be reasonably be expected
to become an actual or matured liability.

 

“Statement” has the meaning ascribed to it in Section 4.1(b).

 

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“Stock” means all shares, options, warrants, general or limited partnership
interests, membership interests or other equivalents (regardless of how
designated and regardless whether represented by a certificate or not) of or in
a corporation, partnership, limited liability company or equivalent entity
whether voting or nonvoting, including common stock, preferred stock or any
other “equity security” (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934).

 

“Stockholder” means, with respect to any Person, each holder of Stock of such
Person.

 

“Subordinated Debt” means any Indebtedness of any Credit Party subordinated to
the Obligations in a manner and form reasonably satisfactory to Agent, as to
right and time of payment and as to any other rights and remedies thereunder.

 

“Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than 50% of the outstanding Stock having ordinary voting power
to elect a majority of the board of directors of such corporation (irrespective
of whether, at the time, Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person or one or more Subsidiaries of such Person, or with
respect to which any such Person has the right to vote or designate the vote of
50% or more of such Stock whether by proxy, agreement, operation of law or
otherwise, and (b) any partnership or limited liability company in which such
Person and/or one or more Subsidiaries of such Person shall have an interest
(whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner.  Unless the context otherwise
requires, each reference to a Subsidiary shall be a reference to a Subsidiary of
a Borrowers.

 

“Subsidiary Guaranty” means the Amended and Restated Subsidiary Guaranty of even
date herewith executed by one or more Subsidiaries of Holdings in favor of
Agent, on behalf of itself and Lenders.

 

“Swing Line Advance” has the meaning ascribed to it in Section 1.1(c).

 

“Swing Line Availability” has the meaning ascribed to it in Section 1.1(c).

 

“Swing Line Commitment” means the commitment of the Swing Line Lender to make
Swing Line Advances as set forth on Annex B to the Agreement, which commitment
constitutes a subfacility of the Revolving Loan Commitment of the Swing Line
Lender.

 

“Swing Line Lender” means GE Capital.

 

“Swing Line Loan” means at any time, the aggregate amount of Swing Line Advances
outstanding to Borrower.

 

“Swing Line Note” has the meaning ascribed to it in Section 1.1(c).

 

“Target” means any other Person or business unit or asset group of any other
Person acquired or proposed to be acquired in a Permitted Acquisition.

 

“Taxes” has the meaning ascribed to it in Section 1.11.

 

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“Termination Date” means the date on which (a) the Loans have been indefeasibly
repaid in full, (b) all other Obligations (other than contingent indemnification
obligations to the extent no unsatisfied claim has been asserted) under the
Agreement and the other Loan Documents have been paid in full in cash, (c) all
Letter of Credit Obligations have been cash collateralized in the amount set
forth in Section 1.5(g), cancelled or backed by standby letters of credit
acceptable to Agent and (d) no Borrower shall have any further right to borrow
any monies under the Agreement.

 

“Title IV Plan” means a Pension Plan (other than a Multiemployer Plan), that is
covered by Title IV of ERISA, and that any Credit Party or ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.

 

“Trademark Security Agreements” means the Trademark Security Agreements made in
favor of Agent, on behalf of itself and Lenders, by each applicable Credit
Party.

 

“Trademark License” means rights under any written agreement now owned or
hereafter acquired by any Credit Party granting any right to use any Trademark.

 

“Trademarks” means all of the following now owned or hereafter adopted or
acquired by any Credit Party: (a) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, internet domain names, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.

 

“Unfunded Pension Liability” means, at any time, the aggregate amount, if any,
of the sum of (a) the amount by which the present value of all accrued benefits
under each Title IV Plan exceeds the fair market value of all assets of such
Title IV Plan allocable to such benefits in accordance with Title IV of ERISA,
all determined as of the most recent valuation date for each such Title IV Plan
using the actuarial assumptions for funding purposes in effect under such Title
IV Plan, and (b) for a period of 5 years following a transaction which might
reasonably be expected to be covered by Section 4069 of ERISA, the liabilities
(whether or not accrued) that could be avoided by any Credit Party or any ERISA
Affiliate as a result of such transaction.

 

“USA” means Golfsmith USA, LLC, a Delaware limited liability company.

 

“Welfare Plan” means a Plan described in Section 3(1) of ERISA.

 

Rules of construction with respect to accounting terms used in the Agreement or
the other Loan Documents shall be as set forth or referred to in this Annex A. 
All other undefined terms contained in any of the Loan Documents shall, unless
the context indicates otherwise, have the meanings provided for by the Code to
the extent the same are used or defined therein; in the event that any term is
defined differently in different Articles or Divisions of the Code, the
definition contained in Article or Division 9 shall control.  Unless otherwise
specified, references in the Agreement or any of the Appendices to a Section,
subsection or clause refer to such Section, subsection or clause as contained in
the Agreement.  The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented, and not to any particular section, subsection or
clause contained in the Agreement or any such Annex, Exhibit or Schedule.

 

A-25

--------------------------------------------------------------------------------

 

Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
feminine and neuter genders.  The words “including”, “includes” and “include”
shall be deemed to be followed by the words “without limitation”; the word “or”
is not exclusive; references to Persons include their respective successors and
assigns (to the extent and only to the extent permitted by the Loan Documents)
or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related
regulations shall include any amendments of the same and any successor statutes
and regulations.  Whenever any provision in any Loan Document refers to the
knowledge (or an analogous phrase) of any Credit Party, such words are intended
to signify that such Credit Party has actual knowledge or awareness of a
particular fact or circumstance or that such Credit Party, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.  Except as otherwise provided therein, all definitions of
agreements and instruments shall mean such agreements or instruments as amended,
modified or supplemented (and in the case of instruments, replaced, renewed or
substituted) from time to time in accordance with their respective terms and the
terms of the Loan Documents.

 

A-26

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ANNEX B

to

CREDIT AGREEMENT

 

PRO RATA SHARES AND COMMITMENT AMOUNTS

 

 

 

Lender(s)

Revolving Loan Commitment (including a Swing Line Commitment of $10,000,000)

$90,000,000 (100%)

 

General Electric Capital Corporation

 

B-1

--------------------------------------------------------------------------------

 

ANNEX C

to

CREDIT AGREEMENT

 

CLOSING CHECKLIST

 

A.            DOCUMENTS

 

1.             Credit Agreement:  This Agreement or counterparts hereof shall
have been duly executed by, and delivered to, each Credit Party, Agent and
Lenders.

 

2.             Notes:  Duly executed originals of the Revolving Notes and the
Swing Line Note for each Lender, dated the Closing Date, if requested by such
Lender.

 

3.             Security Agreements:  Duly executed originals of Security
Agreements executed by each Credit Party, dated the Closing Date, and all
instruments, documents and agreements executed pursuant thereto.

 

4.             Mortgages:  Within 45 days following the Closing Date: Mortgages
covering all of the Real Estate (the “Mortgaged Properties”) together with:
(a) title insurance policies, current as-built surveys, zoning letters and
certificates of occupancy, in each case reasonably satisfactory in form and
substance to Agent, in its sole discretion; (b) evidence that counterparts of
the Mortgages have been recorded in all places to the extent necessary or
desirable, in the reasonable judgment of Agent, to create a valid and
enforceable first priority lien (subject to Permitted Encumbrances) on each
Mortgaged Property in favor of Agent for the benefit of itself and Lenders (or
in favor of such other trustee as may be required or desired under local law);
and (c) an opinion of counsel in each state in which any Mortgaged Property is
located in form and substance and from counsel reasonably satisfactory to
Agent.;

 

5.             Appraisals.  Agent shall have received appraisals as to all
Inventory and as to each parcel of Real Estate owned by each Credit Party, each
of which shall be in form and substance reasonably satisfactory to Agent.

 

6.             Insurance:  Satisfactory evidence that the insurance policies
required by Section 2.2 are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements,
as reasonably requested by Agent, in favor of Agent, on behalf of Lenders.

 

7.             Security Interests and Code Filings

 

(a)           Evidence satisfactory to Agent that Agent (for the benefit of
itself and Lenders) has a valid and perfected first priority security interest
in the Collateral, including (i) such documents duly executed (and/or authorized
for filing) by each Credit Party (including financing statements under the Code
and other applicable documents under the laws of any jurisdiction with respect
to the perfection of Liens) as Agent may request in order to perfect its
security interests in the Collateral and (ii) copies of Code search reports
listing all effective financing statements that name any Credit Party as debtor,
together with copies of such financing statements, none of which shall cover the
Collateral, except for those relating to Permitted Encumbrances.

 

C-1

--------------------------------------------------------------------------------

 

(b)           UCC-3 or other appropriate termination statements, in form and
substance reasonably satisfactory to Agent releasing all liens on the Collateral
of each Credit Party, and termination of all blocked account agreements, bank
agency agreements or other similar agreements or arrangements or arrangements in
favor of any creditors other than Lenders.

 

8.             Intellectual Property Security Agreements:  Duly executed
originals of a Patent Security Agreement and Trademark Security Agreement, each
dated the Closing Date and signed by each Credit Party that owns Trademarks.

 

9.             Initial Borrowing Base Certificate:  Duly executed originals of
an initial Borrowing Base Certificate.

 

10.           Cash Management Systems; Blocked Account Agreements:  Evidence
satisfactory to Agent that, as of the Closing Date, Cash Management Systems
complying with Annex F have been established and are currently being maintained
in the manner set forth in such Annex F.

 

11.           Certificate of Formation and Good Standing:  For each Credit
Party, (a) its articles or certificate of incorporation or certificate of
formation, as applicable, and all amendments thereto, (b) good standing
certificates (including verification of tax status) in its state of
incorporation or formation, as applicable, and (c) good standing certificates
(including verification of tax status) and certificates of qualification to
conduct business in each jurisdiction where its ownership or lease of property
or the conduct of its business requires such qualification, each dated a recent
date prior to the Closing Date and certified by the applicable Secretary of
State or other authorized Governmental Authority.

 

12.           By-laws and Resolutions:  For each Credit Party, (a) its by-laws
or operating agreement, as applicable, together with all amendments thereto and
(b) resolutions of such Person’s Board of Directors or Board of Members, as
applicable, approving and authorizing the execution, delivery and performance of
the Loan Documents to which it is a party and the transactions to be consummated
in connection therewith, each certified as of the Closing Date by such Person’s
secretary or an assistant secretary as being in full force and effect without
any modification or amendment.

 

13.           Incumbency Certificates:  For each Credit Party, signature and
incumbency certificates of the officers of such Person executing any of the Loan
Documents, certified as of the Closing Date by such Person’s secretary or an
assistant secretary as being true, accurate, correct and complete.

 

14.           Opinions of Counsel:  Duly executed originals of an opinion of
White & Case LLP, counsel for the Credit Parties, dated the Closing Date.

 

15.           Pledge Agreements:  Duly executed originals of each of the Pledge
Agreements accompanied by (as applicable) share certificates representing all of
the outstanding Stock being pledged pursuant to such Pledge Agreement and stock
powers for such share certificates executed in blank, and duly executed control
letters from each of the Credit Parties that is a limited partnership or a
limited liability company in form and substance reasonably satisfactory to
Agent.

 

16.           Intercompany Subordination Agreement:  Duly executed originals of
the Intercompany Subordination Agreement.

 

17.           Accountants’ Letter:  A letter from the Credit Parties to the
independent auditors authorizing the independent certified public accountants of
the Credit Parties to communicate with Agent and

 

C-2

--------------------------------------------------------------------------------

 

Lenders in accordance with Section 2.3 and acknowledging Lenders’ reliance on
the auditor’s certification of past and future Financial Statements.

 

18.           Appointment of Agent for Service:  Evidence that CT Corporation
has been appointed as each Credit Party’s agent for service of process in New
York.

 

19.           Guaranties:  Duly executed originals of each Guaranty dated the
Closing Date, and all documents, instruments and agreements executed pursuant
thereto.

 

20.           Officer’s Certificate:  Duly executed originals of a certificate
of an authorized officer of each Credit Party, dated the Closing Date, stating
that, since December 31, 2005 (a) no event or condition has occurred or is
existing which could reasonably be expected to have a Material Adverse Effect;
or (b) no Litigation has been commenced against such Credit Party which could
reasonably be expected to have a Material Adverse Effect or challenge any of the
transactions contemplated by the Agreement and the other Loan Documents.

 

21.           Waivers:  Within 90 days after the Closing Date, landlord waivers
and consents, bailee letters and mortgagee agreements, in each case as required
pursuant to Section 2.6.

 

22.           Environmental Reports:  Agent shall have received such
environmental review and audit reports with respect to the Real Estate of any
Credit Party as Agent shall have requested.

 

23.           Audited Financials; Financial Condition:  The Financial
Statements, Projections and other materials set forth in Section 5.5, all
certified by an authorized officer of Holdings or a Borrower, as appropriate. 
Agent shall have further received a certificate of an authorized officer of each
Credit Party, based on the Pro Forma and Projections, to the effect that
(a) such Borrower will be Solvent upon the consummation of the transactions
contemplated herein; (b) the Pro Forma fairly presents the financial condition
of such Credit Party as of the date thereof after giving effect to the
transactions contemplated by the Loan Documents and the Related Transactions;
and (c) the Projections are based upon estimates and assumptions stated therein,
all of which such Credit Party believes to be reasonable and fair in light of
current conditions and current facts known to such Credit Party and, as of the
Closing Date, reflect such Credit Party’s good faith and reasonable estimates of
its future financial performance and of the other information projected therein
for the period set forth therein.

 

24.           Pro Forma:  Copies of the Pro Forma in form and substance
reasonably satisfactory to the Agent.

 

25.           Approvals:  Copies of any third-party, Governmental Authority or
other regulatory approvals and consents necessary to consummate the Revolving
Credit Facility and the Related Transactions.

 

26.           Related Transaction Documents:

 

(a)           Evidence that the Senior Notes have been satisfied through the
payment of cash in accordance with the provisions of the Indenture.

 

(b)           Lien releases with respect to each Lien held by or for the benefit
of the holders of the Senior Notes.

 

27.           Other Documents:  Such other certificates, documents and
agreements respecting any Credit Party as Agent may reasonably request.

 

C-3

--------------------------------------------------------------------------------

 

B.            NON-DOCUMENTARY CONDITIONS

 

28.           Payment of Fees:  Borrowers shall have paid the Fees required to
be paid on the Closing Date, including but not limited to such Fees specified in
the GE Capital Fee Letter and reasonable expenses and attorneys’ fees described
in Section 1.3(g).

 

29.           Consummation of Related Transactions

 

(a)           Initial Public Offering:  Agent shall have received evidence
satisfactory to it that (i) the Initial Public Offering shall have occurred and
(ii) Holdings shall have received proceeds in an amount not less than
$70,000,000.

 

(b)           Retirement of Senior Notes:  Agent shall have received evidence
satisfactory to it that the Senior Notes shall have been satisfied
simultaneously with the Closing Date in full through the payment of cash in
accordance with the provisions of the indenture governing the Senior Notes and
all obligations thereunder and all Liens on Collateral in connection therewith
shall have been terminated.

 

Other Requirements:  Such other requirements of any Credit Party as Agent may
reasonably request.

 

C-4

--------------------------------------------------------------------------------

 

ANNEX D

to

CREDIT AGREEMENT

 

PRO FORMA

 

[Insert Pro Forma]

 

D-1

--------------------------------------------------------------------------------

 

ANNEX F

 

to

 

CREDIT AGREEMENT

 

CASH MANAGEMENT SYSTEMS

 

Borrowers shall, and shall cause each other Credit Party to, establish and
maintain the Cash Management Systems described below:

 

(a)           On or before the Closing Date and until the Termination Date, the
Credit Parties shall establish blocked accounts (“Blocked Accounts”) at one or
more of the banks set forth in Disclosure Schedule (5.16) (each, a “Relationship
Bank”) and shall deposit and cause each of their Subsidiaries to deposit or
cause to be deposited promptly, and in any event no later than the first
Business Day after the date of receipt thereof, all cash, checks, drafts or
other similar items of payment relating to or constituting payments made in
respect of any and all Collateral into such Blocked Accounts.

 

(b)           On or before the Closing Date, each Relationship Bank at which a
Blocked Account is maintained shall have entered into tri-party blocked account
agreements with Agent, for the benefit of itself and Lenders, and the applicable
Borrower and Subsidiaries thereof, as applicable, in form and substance
reasonably acceptable to Agent (each a “Blocked Account Agreement”).  Each such
Blocked Account Agreement shall provide, among other things, that (i) all items
of payment deposited in such Blocked Account and proceeds thereof deposited in
the applicable Blocked Account are held by such bank as agent or
bailee-in-possession for Agent, on behalf of itself and Lenders, (ii) the bank
executing such agreement has no rights of setoff or recoupment or any other
claim against such account, as the case may be, other than for payment of its
service fees and other charges directly related to the administration of such
account and for returned checks or other items of payment, and (iii) such bank
agrees, from and after the receipt of a notice (an “Activation Notice”) from
Agent (which Activation Notice Agent covenants and agrees may be given by Agent
only at any time at which (1) Borrowing Availability is less than fifteen
percent (15%) of the Borrowing Base, or (2) an Event of Default has occurred and
is continuing (any of the foregoing being referred to herein as an “Activation
Event”) and which Activation Notice shall be revoked by Agent, if the Activation
Event was of the type described in clause (1) above, at such time, if any, as
Borrowing Availability shall have been greater than fifteen percent (15%) of the
Borrowing Base for 30 consecutive days and, if the Activation Event was of the
type described in clause (2) above, upon the cure or waiver, if any, of the
Event of Default causing the Activation Event, so long as in each case, no
additional or other Events of Default shall have occurred and be continuing), to
forward immediately all amounts in each Blocked Account to a deposit account
designated by Agent (the “Payment Account”).

 

(c)           So long as no Default or Event of Default has occurred and is
continuing, Credit Parties may amend Schedule 5.16 to add or replace a
Relationship Bank or Blocked Account; provided, that (i) Agent shall have
consented in writing in advance to the opening of such deposit account with the
relevant bank and (ii) prior to the time of the opening of such account, the
applicable Credit Party and such bank shall have executed and delivered to Agent
a Blocked Account Agreement, in the form required by this Annex F or otherwise
in form and substance reasonably satisfactory to Agent. Each Credit Party shall
close any of its deposit accounts (and establish replacement deposit accounts in
accordance with the foregoing sentence) promptly and in any event within thirty
(30) days following notice from Agent that the creditworthiness of any bank
holding a deposit account is no longer acceptable in Agent’s reasonable
judgment, or as promptly as practicable and in any event within sixty (60) days
following notice from Agent that the operating performance, funds transfer or
availability procedures or performance with

 

F-1

--------------------------------------------------------------------------------

 

respect to deposit accounts of the bank holding such deposit accounts or Agent’s
liability under any Blocked Account Agreement with such bank is no longer
acceptable in Agent’s reasonable judgment.

 

(d)           The Blocked Accounts shall be cash collateral accounts, with all
cash, checks and other similar items of payment in such accounts securing
payment of the Loans and all other Obligations, and in which the applicable
Credit Party shall have granted a Lien to Agent, on behalf of itself and
Lenders, pursuant to the Security Agreement.

 

(e)           All amounts deposited in the Payment Account shall be deemed
received by Agent in accordance with Section 1.4 and shall be applied (and
allocated) by Agent in accordance with Section 1.5(e).  In no event shall any
amount be so applied unless and until such amount shall have been credited in
immediately available funds to the Payment Account.

 

(f)            Notwithstanding the provisions of this Annex F, the Credit
Parties may maintain bank accounts in the ordinary course of business other than
Blocked Accounts which (i) if maintained in the United States, may at any time
contain funds not to exceed the minimum amounts required to be maintained in
such accounts plus such additional amounts as shall be forwarded to a Blocked
Account within one Business Day of deposit in such account, (ii) if maintained
in Canada, may at any time contain funds not to exceed the Canadian dollar
equivalent of $500,000 in the aggregate for all such accounts maintained in
Canada and (iii) if maintained in Europe, may at any time contain funds not to
exceed the local currency equivalent of $750,000 in the aggregate for all such
accounts maintained in Europe.

 

F-2

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EXHIBIT 4.1(d)

 

BORROWING BASE CERTIFICATE

 

Date:      \                  ,

 

This Certificate is given by [Golfsmith International, Inc., a Delaware
corporation (“Borrower Representative”)] pursuant to subsection 4.1(d) of that
certain Amended and Restated Credit Agreement dated as of June 20, 2006 among
Holdings, Borrowers, the other Credit Parties party thereto, the Lenders from
time to time party thereto and General Electric Capital Corporation, as agent
for the Lenders (as such agreement may be further amended, restated,
supplemented or otherwise modified from time to time the “Credit Agreement”). 
Capitalized terms used herein without definition shall have the meanings set
forth in the Credit Agreement.

 

The undersigned is duly authorized to execute and deliver this Certificate on
behalf of Holdings.  By executing this Certificate such officer hereby certifies
to Agent and Lenders that:

 

(a)           Attached hereto as Schedule 1 is a calculation of the proposed
Borrowing Base as of the above date;

 

(b)           Based on such schedule, the proposed Borrowing Base as of the
above date is:

 

$                       

 

(c)           Agent shall have the right to establish or modify or eliminate
Reserves against Eligible Accounts and Eligible Inventory from time to time in
its reasonable credit judgment based on events or occurrences after the Closing
Date that adversely affect the collectibility of Accounts or the saleability of
Inventory.  In addition, Agent reserves the right at any time after notice to
Borrowers to adjust any of the criteria set forth below and to establish new
criteria in its reasonable credit judgment, subject to the approval of Requisite
Lenders in the case of adjustments which have the effect of making more credit
available.  Borrower Representative acknowledges that the exercise by Agent of
any right pursuant to this clause (c) shall have the effect of adjusting the
proposed Borrowing Base set forth above.

 

IN WITNESS WHEREOF, Borrower has caused this Certificate to be executed by its
                                 this          day of                       ,
        .

 

 

GOLFSMITH INTERNATIONAL, INC.

 

 

 

 

 

By:

 

 

Its:

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 4.1(k)

 

COMPLIANCE CERTIFICATE

 

GOLFSMITH INTERNATIONAL [HOLDINGS], INC. AND ITS SUBSIDIARIES

 

Date:             ,     

 

This Certificate is given by [Golfsmith International [Holdings], Inc.]
(“Borrower Representative”) pursuant to Section 4.1(k) of that certain Amended
and Restated Credit Agreement dated as of June 20, 2006 among Borrower
Representative, Borrowers, the other Credit Parties party thereto, the Lenders
from time to time party thereto and General Electric Capital Corporation, as
agent for the Lenders (as such agreement may be further amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”). 
Capitalized terms used herein without definition shall have the meanings set
forth in the Credit Agreement.

 

The undersigned is duly authorized to execute and deliver this Certificate on
behalf of Borrower Representative.  By executing this Certificate such officer
hereby certifies to Agent and Lenders that:

 

(a)           the financial statements delivered with this Certificate in
accordance with Section 4.1(a) and/or 4.1(b) of the Credit Agreement fairly
present in all material respects the results of operations and financial
condition of Holdings and its Subsidiaries as of the dates of such financial
statements, subject in the case of interim financial statements, the absence of
footnotes and normal year-end adjustments;

 

(b)           I have reviewed the terms of the Credit Agreement and have made,
or caused to be made under my supervision, a review in reasonable detail of the
transactions and conditions of the Credit Parties during the accounting period
covered by such financial statements;

 

(c)           such review has not disclosed the existence during or at the end
of such accounting period, and I have no knowledge of the existence as of the
date hereof, of any condition or event that constitutes a Default or an Event of
Default, except as set forth on Schedule 1 hereto, which includes a description
of the nature and period of existence of such Default or an Event of Default and
what action Borrower has taken, is taking and proposes to take with respect
thereto;

 

(d)           except as set forth on Schedule 1 hereto, each Borrower is in
compliance with the covenants contained in Sections 3.1, 3.3, 3.4, 3.5, 3.7 and
3.8 of the Credit Agreement, as demonstrated on Schedule 1 hereto;

 

(e)           Omitted.

 

(f)            Omitted.

 

(g)           except as set forth on Schedule 3 hereto, subsequent to the date
of the most recent Certificate submitted by Borrower Representative pursuant to
Section 4.1(k) of the Credit Agreement, no Credit Party has (i) changed its name
as it appears in official filings in the jurisdiction of its organization, (ii)
changed its chief executive office, principal place of business, corporate
offices, warehouses or locations at which Collateral is held or stored, or the
location of its records concerning Collateral, (iii) changed the type of entity
that it is, (iv) changed (or has had changed) its organization identification
number, if any, issued by its jurisdiction of organization, (v) changed its
jurisdiction of organization, (vi)

 

--------------------------------------------------------------------------------

 

changed the end of its Fiscal Year, or (vii) formed any new Subsidiary or
entered into any partnership or joint venture with any other Person; and

 

(h)           except as set forth on Schedule 4 hereto, subsequent to the date
of the most recent Certificate submitted by Borrower pursuant to Section 4.1(k)
of the Credit Agreement, there has been no event which would alter any of the
disclosures set forth on Schedule 5.4(b) of the Credit Agreement.

 

IN WITNESS WHEREOF, Borrower Representative has caused this Certificate to be
executed by its                                      this          day of
                      ,         .

 

 

 

GOLFSMITH INTERNATIONAL, INC.

 

 

 

 

 

 

 

 

By

 

 

 

Its

 

 

--------------------------------------------------------------------------------

 

INVESTMENTS
(Section 3.3)

 

Section 3.3(d): Loans and advances to employees for moving, traveling and other
similar expenses in the ordinary course of business:

 

 

Actual in the aggregate

 

$

 

 

 

 

 

Permitted in the aggregate

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

 

 

 

Section 3.3(e): Capital contributions to wholly-owned domestic Subsidiaries:

 

 

Actual in the aggregate

 

$

 

 

 

 

 

Permitted in the aggregate

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

 

 

 

Section 3.3(f): Investments in Golfsmith Europe:

 

 

Actual in the aggregate

 

$

 

 

 

 

 

Permitted in the aggregate

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

 

 

 

Section 3.3(o): Other permitted Investments:

 

 

Actual in the aggregate

 

$

 

 

 

 

 

Permitted in the aggregate

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

--------------------------------------------------------------------------------

 

CONTINGENT OBLIGATIONS
(Section 3.4)

 

Section 3.4(g): Contingent Obligations incurred in the ordinary course of
business with respect to surety and appeal bonds, performance and
return-of-money bonds and other similar obligations:

 

 

Actual in the aggregate

 

$

 

 

 

 

 

Permitted in the aggregate

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

 

 

 

Section 3.4(k): Other Contingent Obligations not otherwise permitted in Sections
3.4(a) through (j):

 

 

Actual in the aggregate

 

$

 

 

 

 

 

Permitted in the aggregate

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

7

--------------------------------------------------------------------------------

 

RESTRICTED JUNIOR PAYMENTS
(Section 3.5)

 

Dividends paid to Holdings to permit repurchase of Stock:

 

 

 

 

 

 

Actual (current Fiscal Year)

 

$

 

 

 

 

 

Current (current Fiscal Year)

 

$

 

 

 

 

 

In Compliance

 

Yes/No

 

8

--------------------------------------------------------------------------------

 

DISPOSAL OF ASSETS
(Section 3.7)

 

Describe any Asset Dispositions made during the period (list each transaction by
market value of assets sold):

 

 

 

 

$

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

$

 

 

 

 

Permitted Asset Dispositions in a single transaction or series of related
transactions (asset market value)

 

$

 

 

 

In Compliance

 

Yes/No

 

 

 

Aggregate market value of Asset Dispositions in Fiscal Year

 

$

 

 

 

Permitted aggregate market value of Asset Dispositions in Fiscal Year

 

$

 

 

 

In Compliance

 

Yes/No

 

9

--------------------------------------------------------------------------------

 

CONDITIONS OR EVENTS WHICH CONSTITUTE A DEFAULT OR
EVENT OF DEFAULT

 

[If any condition or event exists that constitutes a Default or Event of
Default, specify nature and period of existence and what action Borrowers have
taken, is taking or proposes to take with respect thereto; if no condition or
event exists, state “None.”]

 

10

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EXHIBIT 1.1(a)(i)
to
CREDIT AGREEMENT

 

FORM OF REVOLVING NOTE
(Multi-Borrower)

 

New York, New York

 

$65,000,000

 

FOR VALUE RECEIVED, each of the undersigned (each individually a “Borrower” and
collectively, the “Borrowers”), HEREBY JOINTLY AND SEVERALLY PROMISES TO PAY to
the order of                                                (“Lender”), at the
offices of GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as
Agent for Lenders (“Agent”), at its address at 335 Madison Avenue, New York, New
York, or at such other place as Agent may designate from time to time in
writing, in lawful money of the United States of America and in immediately
available funds, the amount of SIXTY-FIVE MILLION DOLLARS AND NO CENTS
($65,000,000) or, if less, the aggregate unpaid amount of all Revolving Credit
Advances made to the undersigned under the “Credit Agreement” (as hereinafter
defined).  All capitalized terms used but not otherwise defined herein have the
meanings given to them in the Credit Agreement or in Annex A thereto.

 

This Revolving Note is one of the Revolving Notes issued pursuant to that
certain Amended and Restated Credit Agreement dated as of June 20, 2006, by and
among Borrowers, the other Persons named therein as Credit Parties, Agent,
Lender and the other Persons signatory thereto from time to time as Lenders
(including all annexes, exhibits and schedules thereto, and as from time to time
further amended, restated, supplemented or otherwise modified, the “Credit
Agreement”), and is entitled to the benefit and security of the Credit
Agreement, the Security Agreement and all of the other Loan Documents referred
to therein.  Reference is hereby made to the Credit Agreement for a statement of
all of the terms and conditions under which the Loans evidenced hereby are made
and are to be repaid.  The date and amount of each Revolving Credit Advance made
by Lenders to Borrowers, the rates of interest applicable thereto and each
payment made on account of the principal thereof, shall be recorded by Agent on
its books; provided that the failure of Agent to make any such recordation shall
not affect the obligations of Borrowers to make a payment when due of any amount
owing under the Credit Agreement or this Revolving Note in respect of the
Revolving Credit Advances made by Lender to Borrowers.

 

The principal amount of the indebtedness evidenced hereby shall be payable in
the amounts and on the dates specified in the Credit Agreement, the terms of
which are hereby incorporated herein by reference.  Interest thereon shall be
paid until such principal amount is paid in full at such interest rates and at
such times, and pursuant to such calculations, as are specified in the Credit
Agreement. The terms of the Credit Agreement are hereby incorporated herein by
reference.

 

If any payment on this Revolving Note becomes due and payable on a day other
than a Business Day, the payment thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.

 

Upon the occurrence and during the continuance of any Event of Default, this
Revolving Note may, as provided in the Credit Agreement, and without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other legal requirement of any kind (all of which are hereby
expressly waived by Borrowers), be declared, and immediately shall become, due
and payable.

 

--------------------------------------------------------------------------------

 

Time is of the essence of this Revolving Note.

 

Except as provided in the Credit Agreement, this Revolving Note may not be
assigned by Lender to any Person.

 

THIS REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES (EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).

 

 

GOLFSMITH INTERNATIONAL, L.P.

 

By: Golfsmith GP L.L.C., as General Partner

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

GOLFSMITH NU, L.L.C.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

GOLFSMITH USA, L.L.C.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

--------------------------------------------------------------------------------

 

EXHIBIT 1.1(a)(ii)
to
CREDIT AGREEMENT

 

FORM OF NOTICE OF REVOLVING CREDIT ADVANCE

 

                      ,

 

General Electric Capital Corporation,
for itself, as Lender, and as Agent
for Lenders

500 West Monroe Street

Chicago, Illinois 60661

 

Attention:

 

Golfsmith International, Inc.

 

 

Account Manager

 

Ladies and Gentlemen:

 

The undersigned, Golfsmith International, Inc. (“Borrower Representative”)
refers to the Credit Agreement, dated as of June 20, 2006 (the “Credit
Agreement,” the terms defined therein being used herein as therein defined), by
and among the undersigned, the other persons named therein as Borrowers, the
other Credit Parties signatory thereto, General Electric Capital Corporation,
for itself, as a Lender, and as Agent for Lenders, and other Lenders, and hereby
gives you notice, irrevocably, pursuant to Section 1.1(a) of the Credit
Agreement, that the undersigned hereby requests a Revolving Credit Advance under
the Credit Agreement, and in that connection sets forth below the information
relating to such Revolving Credit Advance as required by Section 1.1(a) of the
Credit Agreement:

 

(i)            The date of the requested Revolving Credit Advance is
                    ,         .

 

(ii)           The aggregate amount of the requested Revolving Credit Advance is
$                        .

 

(iii)          The requested Revolving Credit Advance is [an Index Rate Loan] [a
LIBOR Loan with a LIBOR Period of                 ].

 

(iv)          The requested Revolving Credit Advance is to be sent to:

 

[Name of Bank]
[City of Bank]
Beneficiary:
Account No.:  [number]
ABA No.:  [number]
Attn:  [name]

 

(v)           The Requested Revolving Credit Advance is made on behalf of
[Golfsmith International, L.P./Golfsmith NU, L.L.C./Golfsmith USA, L.L.C.] and
is not made on behalf of any other Person.

 

--------------------------------------------------------------------------------

 

The undersigned hereby certifies that all of the statements contained in Section
7.2 of the Credit Agreement are true and correct in all material respects on the
date hereof, and will be true in all material respects on the date of the
requested Revolving Credit Advance, before and after giving effect thereto and
to the application of the proceeds therefrom.

 

 

GOLFSMITH INTERNATIONAL, INC.

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 1.1(c)

to

CREDIT AGREEMENT

 

FORM OF SWING LINE NOTE

(Multi-Borrower)

 

 

 

New York, New York

$10,000,000

 

June 20, 2006

 

FOR VALUE RECEIVED, each of the undersigned (each individually a “Borrower” and
collectively, the “Borrowers”), HEREBY JOINTLY AND SEVERALLY PROMISES TO PAY to
the order of GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation
(“Swing Line Lender”) at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a
Delaware corporation, as Agent (in such capacity, the “Agent”) at the Agent’s
address at 335 Madison Avenue, New York, New York, or at such other place as
Agent may designate from time to time in writing, in lawful money of the United
States of America and in immediately available funds, the amount of TEN MILLION
DOLLARS AND NO CENTS ($10,000,000) or, if less, the aggregate unpaid amount of
all Swing Line Advances made to the undersigned under the “Credit Agreement” (as
hereinafter defined).  All capitalized terms used but not otherwise defined
herein have the meanings given to them in the Credit Agreement or in Annex A
thereto.

 

This Swing Line Note is issued pursuant to that certain Amended and Restated
Credit Agreement dated as of June 20, 2006 by and among Borrowers, the other
Persons named therein as Credit Parties, Agent, Swing Line Lender and the other
Persons signatory thereto from time to time as Lenders (including all annexes,
exhibits and schedules thereto and as from time to time further amended,
restated, supplemented or otherwise modified, the “Credit Agreement”), and is
entitled to the benefit and security of the Credit Agreement, the Security
Agreement and all of the other Loan Documents.  Reference is hereby made to the
Credit Agreement for a statement of all of the terms and conditions under which
the Loans evidenced hereby are made and are to be repaid.  The date and amount
of each Swing Line Advance made by Swing Line Lender to Borrowers, the rate of
interest applicable thereto and each payment made on account of the principal
thereof, shall be recorded by Agent on its books; provided that the failure of
Agent to make any such recordation shall not affect the obligations of Borrowers
to make a payment when due of any amount owing  under the Credit Agreement or
this Swing Line Note in respect of the Swing Line Advances made by Swing Line
Lender to Borrowers.

 

The principal amount of the indebtedness evidenced hereby shall be payable in
the amounts and on the dates specified in the Credit Agreement, the terms of
which are hereby incorporated herein by reference.  Interest thereon shall be
paid until such principal amount is paid in full at such interest rates and at
such times, and pursuant to such calculations, as are specified in the Credit
Agreement.  The terms of the Credit Agreement are hereby incorporated herein by
reference.

 

If any payment on this Swing Line Note becomes due and payable on a day other
than a Business Day, the payment thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.

 

Upon the occurrence and during the continuance of any Event of Default, this
Swing Line Note may, as provided in the Credit Agreement, and without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other legal requirement of any kind (all of which are hereby
expressly waived by Borrowers), be declared, and immediately shall become, due
and payable.

 

--------------------------------------------------------------------------------

 

Time is of the essence of this Swing Line Note.

 

Except as provided in the Credit Agreement, this Swing Line Note may not be
assigned by Lender to any Person.

 

THIS SWING LINE NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES (EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).

 

 

 

GOLFSMITH INTERNATIONAL, L.P.

 

By: Golfsmith GP L.L.C., as General Partner

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

GOLFSMITH NU, L.L.C.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

 

 

GOLFSMITH USA, L.L.C.

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

--------------------------------------------------------------------------------

 

EXHIBIT 1.2(e)
to
CREDIT AGREEMENT

 

FORM OF NOTICE OF CONVERSION/CONTINUATION

 

Reference is made to that certain Amended and Restated Credit Agreement dated as
of June 20, 2006 by and among the undersigned (“Borrower Representative”), the
other Persons named therein as Borrowers, the other Persons named therein as
Credit Parties, General Electric Capital Corporation (“Agent”) and the Lenders
from time to time signatory thereto (including all annexes, exhibits or
schedules thereto, and as from time to time further amended, restated,
supplemented or otherwise modified, the “Credit Agreement”).  Capitalized terms
used herein without definition are so used as defined in the Credit Agreement.

 

Borrower Representative hereby gives irrevocable notice, pursuant to Section
1.2(e) of the Credit Agreement, of its request to:

 

(a)           on [  date  ] convert $[                ]of the aggregate
outstanding principal amount of the [              ] Loan, bearing interest at
the [                ] Rate, into a(n) [                ] Loan [and, in the case
of a LIBOR Loan, having a LIBOR Period of [          ] month(s)];

 

[(b)          on [  date  ] continue $[                ]of the aggregate
outstanding principal amount of the [              ] Loan, bearing interest at
the LIBOR Rate, as a LIBOR Loan having a LIBOR Period of [          ] month(s)].

 

Borrower Representative certifies that the conversion and/or continuation of the
Loans requested above is for the separate account(s) of the following
Borrowers[s] in the following [respective] amount[s]:  [Name: 
$                          ] and [Name:  $                              ].

 

Borrower Representative hereby (i) certifies that all of the statements
contained in Section 7.2 of the Credit Agreement are true and correct in all
material respects on the date hereof, and will be true in all material respects
on the date of the requested conversion/continuation, before and after giving
effect thereto and (ii) reaffirms the cross-guaranty provisions set forth in
Section 10 of the Credit Agreement and the guaranty and continuance of Agent’s
Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents.

 

 

GOLFSMITH INTERNATIONAL, INC.

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

Exhibit 1.11(c)

 

NON-BANK CERTIFICATE

 

Reference is hereby made to the Credit Agreement, dated as of June 20, 2006,
among Golfsmith International, L.P., Golfsmith NU L.L.C., and Golfsmith USA
L.L.C.as Borrowers, the other persons party thereto that are designated as
credit parties, General Electric Capital Corporation as Agent, L/C Issuer and a
Lender, the other financial institutions party thereto, and GE Capital Markets,
Inc., as Sole Lead Arranger and Bookrunner (as amended from time to time, the
“Credit Agreement”).  Pursuant to the provisions of Section 1.11(c) of the
Credit Agreement, the undersigned hereby certifies that it is not (i) a “bank”
as such term is used in Section 881(c)(3)(A) of the Internal Revenue Code of
1986, as amended (the “Code”), (ii) a 10-percent shareholder within the meaning
of Section 871(h)(3)(B) of the Code, and (iii) a controlled foreign corporation
receiving interest from a related person within the meaning of Section
881(c)(3)(C) of the Code.

 

The undersigned shall promptly notify the Borrowers and the Agent if any of the
representations and warranties made herein are no longer true and correct.

 

 

 

[NAME OF LENDER]

 

 

 

 

 

By

 

 

 

Name:

 

 

Title:

 

 

 

Date:                           ,            

 

 

 

--------------------------------------------------------------------------------

 

EXHIBIT 8.1
to
CREDIT AGREEMENT

 

ASSIGNMENT AGREEMENT

 

This Assignment Agreement (this “Agreement”) is made as of
                           ,          by and between
                                                                     (“Assignor
Lender”) and                                                  (“Assignee
Lender”) and acknowledged and consented to by GENERAL ELECTRIC CAPITAL
CORPORATION, as agent (“Agent”).  All capitalized terms used in this Agreement
and not otherwise defined herein will have the respective meanings set forth in
the Credit Agreement as hereinafter defined.

 

RECITALS:

 

WHEREAS, Golfsmith International Holdings, Inc., a Delaware corporation,
Golfsmith International, Inc., a Delaware corporation, and all domestic
subsidiaries thereof (“Credit Parties”), Agent, Assignor Lender and other
Persons signatory thereto as Lenders have entered into that certain Amended and
Restated Credit Agreement dated as of June 20, 2006 (as further amended,
restated, supplemented or otherwise modified from time to time, the “Credit
Agreement”) pursuant to which Assignor Lender has agreed to make certain Loans
to, and incur certain Letter of Credit Obligations for, Borrowers;

 

WHEREAS, Assignor Lender desires to assign to Assignee Lender [all/a portion] of
its interest in the Loans (as described below), the Letter of Credit Obligations
and the Collateral and to delegate to Assignee Lender [all/a portion] of its
Commitments and other duties with respect to such Loans, Letter of Credit
Obligations and Collateral;

 

WHEREAS, Assignee Lender desires to become a Lender under the Credit Agreement
and to accept such assignment and delegation from Assignor Lender; and

 

WHEREAS, Assignee Lender desires to appoint Agent to serve as agent for Assignee
Lender under the Credit Agreement.

 

NOW, THEREFORE, in consideration of the premises and the agreements, provisions,
and covenants herein contained, Assignor Lender and Assignee Lender agree as
follows:

 

1.             ASSIGNMENT, DELEGATION, AND ACCEPTANCE

 

1.1           Assignment.  Assignor Lender hereby transfers and assigns to
Assignee Lender, without recourse and without representations or warranties of
any kind (except as set forth in Section 3.2), [all/such percentage] of Assignor
Lender’s right, title, and interest in the Revolving Loan, including Letter of
Credit Obligations, Loan Documents and the Collateral as will result in Assignee
Lender having as of the Effective Date (as hereinafter defined) a Pro Rata Share
thereof, as follows:

 

Assignee Lender’s Loans

 

Principal Amount

 

Pro Rata Share

 

 

 

 

 

 

 

Revolving Loan

 

$

                        

 

 

%

 

--------------------------------------------------------------------------------

 

1.2           Delegation.  Assignor Lender hereby irrevocably assigns and
delegates to Assignee Lender [all/a portion] of its Commitments and its other
duties and obligations as a Lender under the Loan Documents equivalent to the
Pro Rata Shares set forth above.

 

1.3           Acceptance by Assignee Lender.  By its execution of this
Agreement, Assignee Lender irrevocably purchases, assumes and accepts such
assignment and delegation and agrees to be a Lender with respect to the
delegated interest under the Loan Documents and to be bound by the terms and
conditions thereof.  By its execution of this Agreement, Assignor Lender agrees,
to the extent provided herein, to relinquish its rights and be released from its
obligations and duties under the Credit Agreement.

 

1.4           Effective Date.  Such assignment and delegation by Assignor Lender
and acceptance by Assignee Lender will be effective and Assignee Lender will
become a Lender under the Loan Documents as of [the date of this
Agreement][               ,         ] (“Effective Date”) and upon payment of the
Assigned Amount and the Assignment Fee (as each term is defined below). 
[Interest and Fees accrued prior to the Effective Date are for the account of
Assignor Lender, and Interest and Fees accrued from and after the Effective Date
are for the account of Assignee Lender.]

 

2.             INITIAL PAYMENT AND DELIVERY OF NOTES

 

2.1           Payment of the Assigned Amount.  Assignee Lender will pay to
Assignor Lender, in immediately available funds, not later than 12:00 noon (New
York time) on the Effective Date, an amount equal to its Pro Rata Share of the
then outstanding principal amount of the Loans as set forth above in Section 1.1
[together with accrued interest, fees and other amounts as set forth on Schedule
2.1] (the “Assigned Amount”).

 

2.2           Payment of Assignment Fee.  [Assignor Lender and/or Assignee
Lender] will pay to Agent, for its own account in immediately available funds,
not later than 12:00 noon (New York time) on the Effective Date, the assignment
fee in the amount of $3,500 (the “Assignment Fee”) as required pursuant to
Section 8.1(a) of the Credit Agreement.

 

2.3           Execution and Delivery of Notes.  Following payment of the
Assigned Amount and the Assignment Fee, Assignor Lender will deliver to Agent
the Notes previously delivered to Assignor Lender for redelivery to Borrowers
and Agent will obtain from Borrowers for delivery to [Assignor Lender and]
Assignee Lender, new executed Notes evidencing Assignee Lender’s [and Assignor
Lender’s respective] Pro Rata Share[s] in the Revolving Loan after giving effect
to the assignment described in Section 1.  Each new Note will be issued in the
aggregate maximum principal amount of the [applicable] Commitment [of the Lender
to whom such Note is issued] OR [the Assignee Lender].

 

3.             REPRESENTATIONS, WARRANTIES AND COVENANTS

 

3.1           Assignee Lender’s Representations, Warranties and Covenants. 
Assignee Lender hereby represents, warrants, and covenants the following to
Assignor Lender and Agent:

 

(a)           This Agreement is a legal, valid, and binding agreement of
Assignee Lender, enforceable according to its terms;

 

(b)           The execution and performance by Assignee Lender of its duties and
obligations under this Agreement and the Loan Documents will not require any
registration with, notice to, or consent or approval by any Governmental
Authority;

 

--------------------------------------------------------------------------------

 

(c)           Assignee Lender is familiar with transactions of the kind and
scope reflected in the Loan Documents and in this Agreement;

 

(d)           Assignee Lender has made its own independent investigation and
appraisal of the financial condition and affairs of each Credit Party, has
conducted its own evaluation of the Loans and Letter of Credit Obligations, the
Loan Documents and each Credit Party’s creditworthiness, has made its decision
to become a Lender to Borrowers under the Credit Agreement independently and
without reliance upon Assignor Lender or Agent, and will continue to do so;

 

(e)           Assignee Lender is entering into this Agreement in the ordinary
course of its business, and is acquiring its interest in the Loans and Letter of
Credit Obligations for its own account and not with a view to or for sale in
connection with any subsequent distribution; provided, however, that at all
times the distribution of Assignee Lender’s property shall, subject to the terms
of the Credit Agreement, be and remain within its control;

 

(f)            No future assignment or participation granted by Assignee Lender
pursuant to Section 8.1 of the Credit Agreement will require Assignor Lender,
Agent, or Borrower to file any registration statement with the Securities and
Exchange Commission or to apply to qualify under the blue sky laws of any state;

 

(g)           Assignee Lender has no loans to, written or oral agreements with,
or equity or other ownership interest in any Credit Party;

 

(h)           Assignee Lender will not enter into any written or oral agreement
with, or acquire any equity or other ownership interest in, any Credit Party
without the prior written consent of Agent; and

 

(i)            As of the Effective Date, Assignee Lender (i) is entitled to
receive payments of principal and interest in respect of the Obligations without
deduction for or on account of any taxes imposed by the United States of America
or any political subdivision thereof, (ii) is not subject to capital adequacy or
similar requirements under Section 1.10(a) of the Credit Agreement, (iii) does
not require the payment of any increased costs under Section 1.10(b) of the
Credit Agreement, and (iv) is not unable to fund LIBOR Loans under Section
1.10(b) of the Credit Agreement, and Assignee Lender will indemnify Agent from
and against all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, or expenses that result from Assignee Lender’s failure
to fulfill its obligations under the terms of Section 1.11(c) of the Credit
Agreement or from any other inaccuracy in the foregoing.

 

3.2           Assignor Lender’s Representations, Warranties and Covenants. 
Assignor Lender hereby represents, warrants and covenants the following to
Assignee Lender:

 

(a)           Assignor Lender is the legal and beneficial owner of the Assigned
Amount;

 

(b)           This Agreement is a legal, valid and binding agreement of Assignor
Lender, enforceable according to its terms;

 

(c)           The execution and performance by Assignor Lender of its duties and
obligations under this Agreement and the Loan Documents will not require any
registration with, notice to or consent or approval by any Governmental
Authority;

 

--------------------------------------------------------------------------------

 

(d)           Assignor Lender has full power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill the
obligations hereunder and to consummate the transactions contemplated hereby;

 

(e)           Assignor Lender is the legal and beneficial owner of the interests
being assigned hereby, free and clear of any adverse claim, lien, encumbrance,
security interest, restriction on transfer, purchase option, call or similar
right of a third party; and

 

(f)            This Assignment by Assignor Lender to Assignee Lender complies,
in all material respects, with the terms of the Loan Documents.

 

4.             LIMITATIONS OF LIABILITY

 

Neither Assignor Lender (except as provided in Section 3.2) nor Agent makes any
representations or warranties of any kind, nor assumes any responsibility or
liability whatsoever, with regard to (a) the Loan Documents or any other
document or instrument furnished pursuant thereto or the Loans, Letter of Credit
Obligations or other Obligations, (b) the creation, validity, genuineness,
enforceability, sufficiency, value or collectibility of any of them, (c) the
amount, value or existence of the Collateral,  (d) the perfection or priority of
any Lien upon the Collateral, or (e) the financial condition of any Credit Party
or other obligor or the performance or observance by any Credit Party of its
obligations under any of the Loan Documents.  Neither Assignor Lender nor Agent
has or will have any duty, either initially or on a continuing basis, to make
any investigation, evaluation, appraisal of, or any responsibility or liability
with respect to the accuracy or completeness of, any information provided to
Assignee Lender which has been provided to Assignor Lender or Agent by any
Credit Party.  Nothing in this Agreement or in the Loan Documents shall impose
upon the Assignor Lender or Agent any fiduciary relationship in respect of the
Assignee Lender.

 

5.             FAILURE TO ENFORCE

 

No failure or delay on the part of Agent or Assignor Lender in the exercise of
any power, right, or privilege hereunder or under any Loan Document will impair
such power, right, or privilege or be construed to be a waiver of any default or
acquiescence therein.  No single or partial exercise of any such power, right,
or privilege will preclude further exercise thereof or of any other right,
power, or privilege.  All rights and remedies existing under this Agreement are
cumulative with, and not exclusive of, any rights or remedies otherwise
available.

 

6.             NOTICES

 

Unless otherwise specifically provided herein, any notice or other communication
required or permitted to be given will be in writing and addressed to the
respective party as set forth below its signature hereunder, or to such other
address as the party may designate in writing to the other.

 

7.             AMENDMENTS AND WAIVERS

 

No amendment, modification, termination, or waiver of any provision of this
Agreement will be effective without the written concurrence of Assignor Lender,
Agent and Assignee Lender.

 

8.             SEVERABILITY

 

Whenever possible, each provision of this Agreement will be interpreted in such
manner as to be effective and valid under applicable law.  In the event any
provision of this Agreement is or is held to be

 

--------------------------------------------------------------------------------

 

invalid, illegal, or unenforceable under applicable law, such provision will be
ineffective only to the extent of such invalidity, illegality, or
unenforceability, without invalidating the remainder of such provision or the
remaining provisions of the Agreement.  In addition, in the event any provision
of or obligation under this Agreement is or is held to be invalid, illegal, or
unenforceable in any jurisdiction, the validity, legality, and enforceability of
the remaining provisions or obligations in any other jurisdictions will not in
any way be affected or impaired thereby.

 

9.             SECTION TITLES

 

Section and Subsection titles in this Agreement are included for convenience of
reference only, do not constitute a part of this Agreement for any other
purpose, and have no substantive effect.

 

10.           SUCCESSORS AND ASSIGNS

 

This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns.

 

11.           APPLICABLE LAW

 

THIS AGREEMENT WILL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE.

 

12.           COUNTERPARTS

 

This Agreement and any amendments, waivers, consents, or supplements may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which, when so executed and delivered, will be
deemed an original and all of which shall together constitute one and the same
instrument.

 

[Signature page follows]

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
written above.

 

ASSIGNEE LENDER:

 

ASSIGNOR LENDER:

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

By:

 

Title:

 

 

Title:

 

 

 

 

 

 

 

Notice Address:

 

Notice Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACKNOWLEDGED AND CONSENTED TO:

 

 

 

 

 

GENERAL ELECTRIC CAPITAL

 

 

CORPORATION, AS AGENT

 

 

 

 

 

By:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

[GOLFSMITH INTERNATIONAL, INC.] (If Borrower Representative consent is required,
pursuant to Section 8.1 of the Credit Agreement)

 

 

 

By:

 

 

 

Title:

 

 

 

 

--------------------------------------------------------------------------------