Exhibit 10.1

 

 

 

CALLAWAY GOLF COMPANY,

CALLAWAY GOLF SALES COMPANY, and

CALLAWAY GOLF BALL OPERATIONS, INC.,

as U.S. Borrowers and Canadian Facility Guarantors,

CALLAWAY GOLF CANADA LTD.,

as the Canadian Borrower, and

THE OTHER OBLIGORS PARTY HERETO

 

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

Dated as of July 22, 2011

$210,000,000

 

 

CERTAIN FINANCIAL INSTITUTIONS,

as Lenders,

BANK OF AMERICA, N.A.,

as Administrative Agent

UBS SECURITIES LLC,

as Syndication Agent

WELLS FARGO CAPITAL FINANCE, LLC,

as Documentation Agent

and

MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,

as Sole Lead Arranger and Sole Bookrunner

 

 

 

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TABLE OF CONTENTS

 

         Page  

1. Section 1.

  Definitions; Rules of Construction      1   

•        1.1

  Definitions      1   

•        1.2

  Accounting Terms      44   

•        1.3

  Uniform Commercial Code/PPSA      44   

•        1.4

  Certain Matters of Construction      45   

•        1.5

  Interpretation (Quebec)      46   

2. Section 2.

  Credit Facilities      46   

•        2.1

  Revolver Commitments      46   

•        2.2

  Intentionally Omitted      50   

•        2.3

  U.S. Letter of Credit Facility      50   

•        2.4

  Canadian Letter of Credit Facility      53   

3. Section 3.

  Interest, Fees and Charges      56   

•        3.1

  Interest      56   

•        3.2

  Fees      58   

•        3.3

  Computation of Interest, Fees, Yield Protection      59   

•        3.4

  Reimbursement Obligations      60   

•        3.5

  Illegality      60   

•        3.6

  Inability to Determine Rates      61   

•        3.7

  Increased Costs; Capital Adequacy      61   

•        3.8

  Mitigation      62   

•        3.9

  Funding Losses      62   

•        3.10

  Maximum Interest      63   

4. Section 4.

  Loan Administration      64   

•        4.1

  Manner of Borrowing and Funding Revolver Loans      64   

•        4.2

  Defaulting Lender      66   

•        4.3

  Number and Amount of LIBOR Loans; Determination of Rate      67   

•        4.4

  Borrower Agent      67   

•        4.5

  One Obligation      68   

•        4.6

  Effect of Termination      68   

5. Section 5.

  Payments      68   

•        5.1

  General Payment Provisions      68   

•        5.2

  Repayment of Revolver Loans      69   

•        5.3

  Intentionally Omitted      69   

•        5.4

  Payment of Other Obligations      69   

•        5.5

  Marshaling; Payments Set Aside      69   

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•        5.6

  Post-Default Allocation of Payments      70   

•        5.7

  Application of Payments      72   

•        5.8

  Loan Account; Account Stated      72   

•        5.9

  Taxes      72   

•        5.10

  Lender Tax Information      73   

•        5.11

  Guarantee by U.S. Facility Obligors      74   

•        5.12

  Currency Matters      76   

•        5.13

  Currency Fluctuations      77   

6. Section 6.

  Conditions Precedent      78   

•        6.1

  Conditions Precedent to Initial Loans      78   

•        6.2

  Conditions Precedent to All Credit Extensions      78   

7. Section 7.

  Collateral      79   

•        7.1

  Grant of Security Interest      79   

•        7.2

  Lien on Deposit Accounts; Cash Collateral      80   

•        7.3

  Intentionally Omitted      80   

•        7.4

  Certain After-Acquired Collateral      80   

•        7.5

  No Assumption of Liability      81   

•        7.6

  Further Assurances      81   

8. Section 8.

  Collateral Administration      81   

•        8.1

  Borrowing Base Certificates      81   

•        8.2

  Administration of Accounts      81   

•        8.3

  Administration of Inventory      82   

•        8.4

  Intentionally Omitted      83   

•        8.5

  Administration of Deposit Accounts      83   

•        8.6

  General Provisions      83   

•        8.7

  Power of Attorney      84   

9. Section 9.

  Representations and Warranties      85   

•        9.1

  General Representations and Warranties      85   

10. Section 10.

  Covenants and Continuing Agreements      92   

•        10.1

  Affirmative Covenants      92   

•        10.2

  Negative Covenants      98   

•        10.3

  Financial Covenants      108   

11. Section 11.

  Events of Default; Remedies on Default      108   

•        11.1

  Events of Default      108   

•        11.2

  Remedies upon Default      110   

•        11.3

  License      111   

•        11.4

  Setoff      111   

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•        11.5

  Remedies Cumulative; No Waiver      111   

•        11.6

  Judgment Currency      112   

12. Section 12.

  Agent      112   

•        12.1

  Appointment, Authority and Duties of Agent      112   

•        12.2

  Agreements Regarding Collateral and Field Examination Reports      114   

•        12.3

  Reliance By Agent      114   

•        12.4

  Action Upon Default      115   

•        12.5

  Ratable Sharing      115   

•        12.6

  Indemnification      115   

•        12.7

  Limitation on Responsibilities of Agent      116   

•        12.8

  Successor Agent and Co-Agents      116   

•        12.9

  Due Diligence and Non-Reliance      117   

•        12.10

  Remittance of Payments and Collections      117   

•        12.11

  Agent in its Individual Capacity      118   

•        12.12

  Agent Titles      118   

•        12.13

  Bank Product Providers      118   

•        12.14

  No Third Party Beneficiaries      118   

13. Section 13.

  Benefit of Agreement; Assignments      118   

•        13.1

  Successors and Assigns      118   

•        13.2

  Participations      119   

•        13.3

  Assignments      119   

•        13.4

  Replacement of Certain Lenders      120   

14. Section 14.

  Miscellaneous      121   

•        14.1

  Consents, Amendments and Waivers      121   

•        14.2

  Indemnity      122   

•        14.3

  Notices and Communications      122   

•        14.4

  Performance of Obligors’ Obligations      123   

•        14.5

  Credit Inquiries      123   

•        14.6

  Severability      123   

•        14.7

  Cumulative Effect; Conflict of Terms      123   

•        14.8

  Counterparts      123   

•        14.9

  Entire Agreement      124   

•        14.10

  Relationship with Lenders      124   

•        14.11

  Lender Loss Sharing Agreement.      124   

•        14.12

  No Advisory or Fiduciary Responsibility      126   

•        14.13

  Confidentiality      126   

•        14.14

  GOVERNING LAW      127   

•        14.15

  Consent to Forum; Judicial Reference      127   

•        14.16

  Waivers by Obligors      128   

•        14.17

  Patriot Act Notice      128   

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•        14.18

  Canadian Anti-Money Laundering Legislation      129   

•        14.19

  Reinstatement      129   

•        14.20

  Nonliability of Lenders      129   

•        14.21

  Amendment and Restatement      130   

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LIST OF EXHIBITS AND SCHEDULES

 

Exhibit A-1

   Form of Canadian Revolver Note

Exhibit A-2

   Form of U.S. Revolver Note

Exhibit B

   Assignment and Acceptance

Exhibit C

   Assignment Notice

Exhibit D

   Form of Compliance Certificate

Schedule E-1

   Existing Letters of Credit

Schedule 1.1

   Commitments of Lenders

Schedule 8.6.1

   Business Locations

Schedule 9.1.9

   Environmental Matters

Schedule 9.1.12

   ERISA Compliance

Schedule 9.1.13

   Names and Capital Structure

Schedule 9.1.21

   Labor Contracts

Schedule 10.2.1

   Existing Liens

Schedule 10.2.2

   Permitted Investments

Schedule 10.2.3

   Permitted Debt

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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

1. THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated as of July 22,
2011, among CALLAWAY GOLF COMPANY, a Delaware corporation (“Parent”), CALLAWAY
GOLF SALES COMPANY, a California corporation (“Callaway Sales”), CALLAWAY GOLF
BALL OPERATIONS, INC., a Delaware corporation (“Callaway Operations”, and
together with Parent and Callaway Sales, collectively, “U.S. Borrowers”),
CALLAWAY GOLF CANADA LTD., a Canada corporation (“Canadian Borrower” and
together with the U.S. Borrowers, collectively, “Borrowers”), the other Obligors
party to this Agreement from time to time, the financial institutions party to
this Agreement from time to time as lenders (collectively, “Lenders”), and BANK
OF AMERICA, N.A., a national banking association, as administrative agent for
the Lenders (“Agent”).

R E C I T A L S:

WHEREAS, Agent, the Lenders party thereto, the Borrowers, and the other Obligors
party hereto as of the date hereof have entered into that certain Loan and
Security Agreement dated as of June 30, 2011 (the “Original Loan Agreement”);

WHEREAS, the parties hereto have agreed to amend and restate in their entirety
the agreements contained in the Original Loan Agreement as amongst themselves;

WHEREAS, the Obligors have requested that: (i) the U.S. Lenders provide a credit
facility to the U.S. Borrowers; and (ii) the Canadian Lenders provide a credit
facility to the Canadian Borrower, in each case, to finance their mutual and
collective business enterprise;

WHEREAS, the applicable Lenders are willing to provide such credit facilities on
the terms and conditions set forth herein; and

WHEREAS, each Obligor hereby restates, ratifies and reaffirms each and every
term and condition set forth in the Original Loan Agreement, as amended and
restated hereby, and the other Loan Documents effective as of the date hereof;

NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto amend and
restate the Original Loan Agreement and agree as follows:

SECTION 1. DEFINITIONS; RULES OF CONSTRUCTION

1.1 Definitions. As used herein, the following terms have the meanings set forth
below:

2. Account: as defined in the UCC (and/or, with respect to any Accounts of a
Canadian Subsidiary, as defined in the PPSA), including all rights to payment
for goods sold or leased, or for services rendered.

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3. Account Debtor: a Person who is obligated under an Account, Chattel Paper or
General Intangible.

4. Acquisition: any transaction, or any series of related transactions,
consummated on or after the Original Agreement Closing Date, by which Parent,
directly or indirectly, acquires (a) any going business or all or substantially
all of the assets of any Person or division thereof, whether through purchase of
assets, merger, or otherwise or (b) in one transaction or as the most recent
transaction in a series of transactions, a majority (in number of votes) of the
Equity Interests of a Person which has ordinary voting power for the election of
directors or other similar management personnel of a Person (other than Equity
Interests having such power only by reason of the happening of a contingency) or
a majority of the outstanding Equity Interests of a Person.

5. Acquisition Cap: $0; provided, however, the Acquisition Cap shall be
increased to $25,000,000 on the first day of the month following the date Agent
has received evidence, in form and substance reasonably satisfactory to Agent,
that Fixed Charge Coverage Ratio for any trailing twelve month period ending
after the Original Agreement Closing Date is 1.0 to 1.0 or greater. For the
avoidance of doubt, any increase in the Acquisition Cap shall remain in effect
notwithstanding that Fixed Charge Coverage Ratio for any trailing twelve month
period after such increase takes effect shall be less than 1.0 to 1.0.

6. Affiliate: with respect to any Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified. “Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise. “Controlling” and
“Controlled” have correlative meanings.

7. Agent: as defined in the preamble to this Agreement.

8. Agent Indemnitees: Agent and its officers, directors, employees, Affiliates,
agents and attorneys.

9. Agent Professionals: attorneys, accountants, appraisers, auditors, business
valuation experts, environmental engineers or consultants, turnaround
consultants, and other professionals and experts retained by Agent.

10. Agreement: this Amended and Restated Loan and Security Agreement.

11. Allocable Amount: as defined in Section 5.11.3.

12. Anti-Terrorism Laws: any laws relating to terrorism or money laundering,
including the Patriot Act and the Proceeds of Crime Act.

13. Applicable Law: all laws, rules, regulations and governmental guidelines
with the force of law applicable to the Person, conduct, transaction, agreement
or matter in question, including all applicable statutory law, common law and
equitable principles, and all provisions

 

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of constitutions, treaties, statutes, rules, regulations, orders and decrees of
Governmental Authorities.

14. Applicable Lenders: with respect to the U.S. Borrowers, the U.S. Lenders,
and with respect to the Canadian Borrower, the Canadian Lenders.

15. Applicable Margin: with respect to any Type of Loan, the respective margin
set forth in the grid below (the “Pricing Grid”), as determined by the
Availability Ratio for the last calendar month:

 

Level

  

Availability

Ratio

   U.S. Base Rate
Loans     LIBOR Loans     Canadian BA
Rate Loans     Canadian
Prime Rate
Loans and
Canadian Base
Rate Loans  

I

   Greater than or equal to 67%      1.25 %      2.25 %      2.25 %      1.25 % 

II

   Less than 67% but greater than 33%      1.50 %      2.50 %      2.50 %     
1.50 % 

III

   Less than or equal to 33%      1.75 %      2.75 %      2.75 %      1.75 % 

16. Until the end of the twelfth full calendar month ending after the Original
Agreement Closing Date, margins shall be determined as if Level II were
applicable regardless of the Availability Ratio for the last calendar month.
Thereafter, margins shall be subject to increase or decrease based upon the
Availability Ratio for the prior calendar month, as determined by Agent. If, by
the first day of a calendar month, any Borrowing Base Certificate due in the
preceding calendar month has not been received, then, at the option of Agent or
Required Lenders, the margins shall be determined as if Level III were
applicable, from such day until the first day of the calendar month following
actual receipt.

17. Notwithstanding the foregoing: (a) on the first day of the month following
the date Agent has received evidence, in form and substance reasonably
satisfactory to Agent, that EBITDA for any trailing twelve month period ending
after the Original Agreement Closing Date was $25,000,000 or greater, but less
than $50,000,000, the Pricing Grid shall be as follows:

 

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Level

  

Availability

Ratio

   U.S. Base Rate
Loans     LIBOR Loans     Canadian BA
Rate Loans     Canadian
Prime Rate
Loans and
Canadian Base
Rate Loans  

I

   Greater than or equal to 67%      1.00 %      2.00 %      2.00 %      1.00 % 

II

   Less than 67% but greater than 33%      1.25 %      2.25 %      2.25 %     
1.25 % 

III

   Less than or equal to 33%      1.50 %      2.50 %      2.50 %      1.50 % 

18.

19. ; and (b) on the first day of the month following the date Agent has
received evidence, in form and substance reasonably satisfactory to Agent, that
EBITDA for any trailing twelve month period ending after the Original Agreement
Closing Date was $50,000,000 or greater, the Pricing Grid shall be as follows:

 

Level

  

Availability

Ratio

   U.S. Base Rate
Loans     LIBOR Loans     Canadian BA
Rate Loans     Canadian
Prime Rate
Loans and
Canadian Base
Rate Loans  

I

   Greater than or equal to 67%      0.75 %      1.75 %      1.75 %      0.75 % 

II

   Less than 67% but greater than 33%      1.00 %      2.00 %      2.00 %     
1.00 % 

III

   Less than or equal to 33%      1.25 %      2.25 %      2.25 %      1.25 % 

20.

21. For the avoidance of doubt, any reduction of the Pricing Grid under the
preceding clause (a) or (b) shall remain in effect notwithstanding that EBITDA
for any trailing twelve month period after such reduction takes effect shall be
less than $25,000,000 in the case of clause (a) or $50,000,000 in the case of
clause (b).

22. Approved Fund: any Person (other than a natural person) that is engaged in
making, purchasing, holding or otherwise investing in commercial loans and
similar extensions of credit in the Ordinary Course of Business, and is
administered or managed by a Lender, an entity that administers or manages a
Lender, or an Affiliate of either.

23. Asset Disposition: a sale, lease, license, consignment, transfer or other
disposition of Property of an Obligor or a Subsidiary, including a disposition
of Property in connection with a sale-leaseback transaction or synthetic lease.

 

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24. Assignment and Acceptance: an assignment agreement between a Lender and
Eligible Assignee, in the form of Exhibit B.

25. Assignment of Claims Act: Assignment of Claims Act of 1940, 31 U.S.C.
§ 3727, 41 U.S.C. § 15, as amended.

26. Availability: as of any date of determination, the sum of the U.S.
Availability plus the Canadian Availability.

27. Availability Ratio: the ratio (expressed as a percentage), for any calendar
month, of (a) the average daily Availability for such calendar month to (b) an
amount equal to the sum of (i) the average daily Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) for such calendar month, plus (ii) the average daily U.S. Borrowing
Base (without giving effect to the U.S. LC Reserve and the Canadian Overadvance
Loan Balance for purposes of this calculation) for such calendar month.

28. Bank of America: Bank of America, N.A., a national banking association, and
its successors and assigns.

29. Bank of America (Canada): Bank of America, N.A. (acting through its Canada
branch), and its successors and assigns.

30. Bank of America Indemnitees: Bank of America and its officers, directors,
employees, Affiliates, branches, agents and attorneys.

31. Bank Product: any of the following products, services or facilities extended
to any Obligor or Subsidiary by a Lender or any of its Affiliates: (a) Cash
Management Services; (b) products under Hedging Agreements; (c) commercial
credit card and merchant card services; (d) purchase cards (including so-called
“procurement cards” or “P-cards”), and (e) other banking products or services as
may be requested by any Obligor or Subsidiary unless otherwise agreed in writing
between such Obligor or Subsidiary and the provider of such products or
services, other than Letters of Credit.

32. Bank Product Debt: Debt and other obligations of an Obligor or Subsidiary
relating to Bank Products.

33. Board of Governors: the Board of Governors of the Federal Reserve System.

34. Borrowed Money: with respect to any Obligor or Subsidiary, without
duplication, its (a) Debt that (i) arises from the lending of money by any
Person to such Obligor or Subsidiary, (ii) is evidenced by notes, drafts, bonds,
debentures, credit documents or similar instruments, (iii) accrues interest or
is a type upon which interest charges are customarily paid (excluding trade
payables owing in the Ordinary Course of Business), or (iv) was issued or
assumed as full or partial payment for Property; (b) Capital Leases;
(c) reimbursement obligations with respect to letters of credit; and
(d) guaranties of any Debt of the foregoing types owing by another Person.

35. Borrower Agent: as defined in Section 4.4.

 

5

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36. Borrower Group: a group consisting of (i) the U.S. Borrowers or (ii) the
Canadian Borrower, as the context requires.

37. Borrowers: as defined in the preamble to this Agreement.

38. Borrowing: a group of Loans of one Type that are made on the same day or are
converted into Loans of one Type on the same day.

39. Borrowing Base: the Canadian Borrowing Base and/or the U.S. Borrowing Base,
as the context requires.

40. Borrowing Base Certificate: a U.S. Borrowing Base Certificate or a Canadian
Borrowing Base Certificate, as applicable.

41. Business Day: any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the laws of, or are in fact
closed in, North Carolina and New York, and if such day relates to: (a) a LIBOR
Loan, any such day on which dealings in Dollar deposits are conducted between
banks in the London interbank Eurodollar market, and (b) a Canadian Revolver
Loan, any such day on which banks in Toronto, Ontario, Canada are open for the
transaction of banking business.

42. CAM: as defined in Section 14.11(a)(i).

43. CAM Exchange: as defined in Section 14.11(a)(ii).

44. CAM Exchange Date: as defined in Section 14.11(a)(iii).

45. CAM Percentage: as defined in Section 14.11(a)(iv).

46. Calculation Date: as defined in Section 5.13.

47. Canadian Accounts Formula Amount: 85% of the Value of Eligible Accounts of
the Canadian Borrower.

48. Canadian Availability: as of any date of determination, the Canadian
Borrowing Base as of such date of determination minus the aggregate principal
amount of all Canadian Revolver Loans outstanding on such date of determination.

49. Canadian Availability Reserve: the sum (without duplication) of (a) the
Inventory Reserve with respect to the Canadian Borrower’s Inventory; (b) the
Canadian Rent and Charges Reserve; (c) the Canadian LC Reserve; (d) the Canadian
Bank Product Reserve; (e) all accrued Royalties of the Canadian Domiciled
Obligors, whether or not then due and payable by a Canadian Domiciled Obligor;
(f) the aggregate amount of liabilities secured by Liens upon Canadian Facility
Collateral that are senior to the Agent’s Liens (but imposition of any such
reserve shall not waive an Event of Default arising therefrom); (g) the Canadian
Priority Payables Reserve; (h) the Wage Earner Protection Act Reserve; (i) the
Canadian Dilution Reserve, and (j) such additional reserves, in such amounts and
with respect to such matters, as

 

6

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Agent in its Credit Judgment may elect to impose from time to time with respect
to the Canadian Borrowing Base.

50. Canadian BA Rate: with respect to each Interest Period for a Canadian BA
Rate Loan, the rate of interest per annum equal to the average rate applicable
to Canadian Dollar Bankers’ Acceptances having an identical or comparable term
as the proposed Canadian BA Rate Loan displayed and identified as such on the
display referred to as the “CDOR Page” (or any display substituted therefor) of
Reuter Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time
on such day (or, if such day is not a Business Day, as of 10:00 a.m. Toronto
time on the immediately preceding Business Day), plus five (5) basis points,
provided that if such rate does not appear on the CDOR Page at such time on such
date, the rate for such date will be the annual discount rate (rounded upward to
the nearest whole multiple of 1/100 of 1%) as of 10:00 a.m. Eastern time on such
day at which a Canadian chartered bank listed on Schedule 1 of the Bank Act
(Canada) as selected by Agent is then offering to purchase Canadian Dollar
Bankers’ Acceptances accepted by it having such specified term (or a term as
closely as possible comparable to such specified term), plus five (5) basis
points.

51. Canadian BA Rate Loan: a Canadian Revolver Loan, or portion thereof, funded
in Canadian Dollars and bearing interest calculated by reference to the Canadian
BA Rate.

52. Canadian Bank Product Reserve: the aggregate amount of reserves established
by Agent from time to time in its discretion in respect of Secured Bank Product
Obligations owing by the Canadian Domiciled Obligors and their Subsidiaries.

53. Canadian Base Rate: for any day, the rate of interest in effect for such day
as publicly announced from time to time by Bank of America (Canada) in Toronto,
Ontario as its “base rate” (the “base rate” being a rate set by Bank of America
(Canada) based on various factors including costs and desired return of Bank of
America (Canada), general economic conditions and other factors, and used as a
reference point for pricing loans in Dollars made at its “base rate”, which may
be priced at, above or below such announced rate.) Any change in the “base rate”
announced by Bank of America (Canada) shall take effect at the opening of
business on the day specified in the public announcement of such change. Each
interest rate based upon the Canadian Base Rate shall be adjusted simultaneously
with any change in the “base rate”. In the event that Bank of America (Canada)
(including any successor or assignee) does not at any time publicly announce a
“base rate”, then “Canadian Base Rate” shall mean the “base rate” publicly
announced by a Schedule 1 chartered bank in Canada selected by Agent.

54. Canadian Base Rate Loan: a Canadian Revolver Loan, or portion thereof,
funded in Dollars and bearing interest calculated by reference to the Canadian
Base Rate.

55. Canadian Borrower: as defined in the preamble to this Agreement.

56. Canadian Borrowing Base: on any date of determination, an amount equal to
the lesser of (a) the Maximum Canadian Facility Amount, minus the Canadian LC
Reserve, or (b) the sum of the Canadian Accounts Formula Amount, plus the
Canadian Inventory Formula Amount, minus the Canadian Availability Reserve.

 

7

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57. Canadian Borrowing Base Certificate: a certificate, in form and substance
satisfactory to Agent, by which the Canadian Borrower certifies calculation of
the Canadian Borrowing Base.

58. Canadian Cash Collateral Account: a demand deposit, money market or other
account established by Agent at Bank of America (Canada) or such other financial
institution as Agent may select in its discretion, which account shall be for
the benefit of the Canadian Facility Secured Parties and shall be subject to
Agent’s Liens securing the Canadian Facility Obligations.

59. Canadian Dilution Reserve: as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts of the Canadian
Borrower by 1% for each whole percentage point (or portion thereof) by which the
Dilution Percent is in excess of 5.0%.

60. Canadian Dollars or Cdn$: the lawful currency of Canada.

61. Canadian Domiciled Obligor: each Canadian Subsidiary which is at any time an
Obligor, and “Canadian Domiciled Obligors” means all such Persons, collectively.

62. Canadian Dominion Account: a special account established by the Canadian
Borrower at Bank of America (Canada) or another bank acceptable to Agent, over
which Agent has exclusive control for withdrawal purposes during any Dominion
Trigger Period.

Canadian Employee Benefits Legislation: the Employment Pensions Plan Act
(Alberta), Pension Benefits Standards Act (British Columbia), the Supplemental
Pension Plans Act (Quebec) and any Canadian federal, provincial or local
counterparts or equivalents, in each case, as applicable and as amended from
time to time.

63. Canadian Employee Plan: any payroll practice and other employee benefit
plan, policy, program, agreement or arrangement, including retirement, pension,
profit sharing, employment, individual consultant or other compensation
agreement, collective bargaining agreement, bonus or other incentive
compensation, retention, stock purchase, equity or equity-based compensation,
deferred compensation, change in control, severance, sick leave, vacation,
loans, salary continuation, hospitalization, health, life insurance, educational
assistance or other fringe benefit or perquisite plan, policy, agreement which
is or was sponsored, maintained or contributed to by, or required to be
contributed to by, a Canadian Domiciled Obligor, or with respect to which a
Canadian Domiciled Obligor has or could have any obligation or liability,
contingent or otherwise.

64. Canadian Facility Collateral: all Collateral that now or hereafter secures
(or is intended to secure) any of the Canadian Facility Obligations, including
Property of each Canadian Domiciled Obligor and each U.S. Domiciled Obligor.

65. Canadian Facility Guarantee: each guarantee agreement (including this
Agreement) at any time executed by a Canadian Facility Guarantor in favor of
Agent guaranteeing all or any portion of the Canadian Facility Obligations.

 

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66. Canadian Facility Guarantor: Parent, each Canadian Subsidiary and each U.S.
Subsidiary and each other Person (if any) who guarantees payment and performance
of any Canadian Facility Obligations.

67. Canadian Facility Obligations: all Obligations of the Canadian Facility
Obligors (excluding, for the avoidance of doubt, the Obligations of the U.S.
Domiciled Obligors as guarantors of any U.S. Facility Obligations).

68. Canadian Facility Obligor: each of the Canadian Borrower or any Canadian
Facility Guarantor, and “Canadian Facility Obligors” means all of such Persons,
collectively.

69. Canadian Facility Secured Parties: the Agent, the Canadian Issuing Bank, the
Canadian Lenders and the Secured Bank Product Providers who provide Bank
Products to the Canadian Facility Obligors and their Subsidiaries.

70. Canadian Inventory Formula Amount: the sum of: (a) the lesser of (i) 65% of
the Value of the Canadian Borrower’s Eligible Inventory, or (ii) 85% of the NOLV
Percentage of the Value of the Canadian Borrower’s Eligible Inventory, plus
(b) the lesser of (i) $2,000,000, (ii) 65% of the Value of the Canadian
Borrower’s Eligible In-Transit Inventory, or (iii) 85% of the NOLV Percentage of
the Value of the Canadian Borrower’s Eligible In-Transit Inventory.

71. Canadian Issuing Bank: Bank of America (Canada) or an Affiliate of Bank of
America (Canada).

72. Canadian LC Obligations: the sum (without duplication) of (a) all amounts
owing by the Canadian Borrower for any drawings under Letters of Credit; (b) the
stated amount of all outstanding Letters of Credit issued for the account of the
Canadian Borrower; and (c) all fees and other amounts owing with respect to
Letters of Credit issued for the account of the Canadian Borrower.

73. Canadian LC Reserve: the aggregate of all Canadian LC Obligations, other
than those that have been Cash Collateralized.

74. Canadian Lenders: Bank of America (Canada) and each other Lender that has
issued a Canadian Revolver Commitment (provided that such Person or an Affiliate
of such Person also has a U.S. Revolver Commitment). Each Canadian Lender shall
be a Canadian Qualified Lender.

75. Canadian Letter of Credit Subline: $5,000,000.

76. Canadian Letters of Credit: any standby or documentary letter of credit
issued by the Canadian Issuing Bank for the account of the Canadian Borrower, or
any indemnity, guarantee, exposure transmittal memorandum or similar form of
credit support issued by Agent or the Canadian Issuing Bank for the benefit of
the Canadian Borrower.

77. Canadian Multi-Employer Plan: each multi-employer plan, within the meaning
of the Regulations under the Income Tax Act (Canada).

 

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78. Canadian Overadvance: as defined in Section 2.15 hereof.

79. Canadian Overadvance Loan: a Canadian Revolver Loan made to the Canadian
Borrower when a Canadian Overadvance exists or is caused by the funding thereof.

80. Canadian Overadvance Loan Balance: on any date, the amount by which the
aggregate Canadian Revolver Exposure exceeds the amount of the Canadian
Borrowing Base on such date.

81. Canadian Pension Plan: a “registered pension plan,” as defined in the Income
Tax Act (Canada) and any other pension plan maintained or contributed to by, or
to which there is or may be an obligation to contribute by, any Obligor in
respect of its Canadian employees or former employees, excluding, for greater
certainty, a Canadian Multi-Employer Plan.

82. Canadian Prime Rate: on any date, the highest of (a) a fluctuating rate of
interest per annum equal to the rate of interest in effect for such day as
publicly announced from time to time by Bank of America (Canada) as its “Prime
Rate”, (b) the sum of 0.50% plus the Bank of Canada overnight rate, which is the
rate of interest charged by the Bank of Canada on one-day loans to financial
institutions, for such day, and (c) the sum of 1.00% plus the Canadian BA Rate
for a one month Interest Period as determined on such day. The “Canadian Prime
Rate” is a rate set by Bank of America (Canada) based upon various factors
including Bank of America (Canada)’s costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in such rate announced by Bank of America (Canada) shall take effect at the
opening of business on the day specified in the public announcement of such
change.

83. Canadian Prime Rate Loan: a Canadian Revolver Loan, or portion thereof,
funded in Canadian Dollars and bearing interest calculated by reference to the
Canadian Prime Rate.

84. Canadian Priority Payables Reserve: on any date of determination, a reserve
in such amount as Agent may determine which reflects the unpaid (when due) or
un-remitted (when due) payroll tax deductions, unpaid (when due) pension plan
contributions, employment insurance premiums, amounts deducted for vacation pay,
wages, workers’ compensation and other unpaid (when due) or unremitted (when
due) amounts by any Canadian Domiciled Obligor which would give rise to a Lien
with priority under Applicable Law over the Lien of Agent.

85. Canadian Qualified Lender: a financial institution that is not precluded
from being a Canadian Lender under the terms of the Bank Act (Canada) or other
applicable Canadian federal or provincial legislation.

86. Canadian Reimbursement Date: as defined in Section 2.4.2.

87. Canadian Rent and Charges Reserve: the aggregate of (a) all past due rent
and other amounts owing by an Obligor to any landlord, warehouseman, processor,
repairman, mechanic, shipper, freight forwarder, broker or other Person who
possesses any Canadian Facility Collateral or could assert a Lien on any
Canadian Facility Collateral; and (b)

 

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commencing three months after the Original Agreement Closing Date, a reserve at
least equal to three months’ rent and other charges that could be payable to any
such Person, unless it has executed a Lien Waiver.

88. Canadian Required Lenders: Canadian Lenders (subject to Section 4.2) having
(a) Canadian Revolver Commitments in excess of 50% of the aggregate Canadian
Revolver Commitments; and (b) if the Canadian Revolver Commitments have
terminated, Canadian Revolver Loans and Canadian LC Obligations in excess of 50%
of all outstanding Canadian Revolver Loans and Canadian LC Obligations;
provided, however, that the Canadian Revolver Commitments and Canadian Revolver
Loans of any Defaulting Lender shall be excluded from such calculation;
provided, further, that at any time there are: (i) 3 or more Canadian Lenders,
“Canadian Required Lenders” must include at least 3 Canadian Lenders, and
(ii) less than 3 Canadian Lenders, “Canadian Required Lenders” must include all
Canadian Lenders.

89. Canadian Revolver Commitment: for any Canadian Lender, its obligation to
make Canadian Revolver Loans and to participate in Canadian LC Obligations up to
the maximum principal amount shown on Schedule 1.1, or as hereafter determined
pursuant to each Assignment and Acceptance to which it is a party, as such
Canadian Revolver Commitment may be adjusted from time to time in accordance
with the provisions of Sections 2.1.4 or 11.2. “Canadian Revolver Commitments”
means the aggregate amount of such commitments of all Canadian Lenders.

90. Canadian Revolver Commitment Termination Date: the earliest of (a) the U.S.
Revolver Commitment Termination Date (without regard to the reason therefor),
(b) the date on which the Borrower Agent terminates or reduces to zero all of
the Canadian Revolver Commitments pursuant to Section 2.1.4, and (c) the date on
which the Canadian Revolver Commitments are terminated pursuant to Section 11.2.

91. Canadian Revolver Exposure: on any date, an amount equal to the sum of the
Dollar Equivalent of the Canadian Revolver Loans outstanding on such date plus
the Canadian LC Obligations on such date.

92. Canadian Revolver Loan: a Revolver Loan made by Canadian Lenders to Canadian
Borrower pursuant to Section 2.1.1(b), which Revolver Loan shall, if denominated
in Canadian Dollars, be either a Canadian BA Rate Loan or a Canadian Prime Rate
Loan and, if denominated in Dollars, shall be either a Canadian Base Rate Loan
or a LIBOR Loan, in each case as selected by the Borrower Agent, and any
Canadian Swingline Loan, Canadian Overadvance Loan or Protective Advance made to
or owed by the Canadian Borrower.

93. Canadian Revolver Notes: a promissory note executed by Canadian Borrower in
favor of a Canadian Lender in the form of Exhibit A-1, in the amount of such
Canadian Lender’s Canadian Revolver Commitment.

94. Canadian Security Agreement: each (a) general security agreement, security
agreement, deed of hypothec, pledge agreement, mortgage or similar agreement
pursuant to which any Canadian Domiciled Obligor grants to Agent, for the
benefit of the Canadian Facility Secured Parties, Liens upon its Property as
security for the Canadian Facility Obligations or (b)

 

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security agreement, deed of hypothec, pledge agreement, mortgage or similar
agreement pursuant to which any U.S. Domiciled Obligor grants to Agent, for the
benefit of the Secured Parties, Liens on its Property located in Canada or
otherwise subject to Canadian law as security for the Obligations.

95. Canadian Subsidiary: a Subsidiary of Parent incorporated or organized under
the laws of Canada or any province or territory of Canada.

96. Canadian Swingline Loan: any Borrowing of Canadian Base Rate Loans funded
with Agent’s funds, until such Borrowing is settled among the Canadian Lenders
or repaid by the Canadian Borrower.

97. Canadian Unused Line Fee Rate: a per annum rate equal to (a) 0.50%, if the
average daily balance of Canadian Revolver Loans and stated amount of Canadian
Letters of Credit was 50% or less of the Canadian Revolver Commitments during
the preceding calendar month, or (b) 0.375%, if such average daily balance was
more than 50% of the Canadian Revolver Commitments during the preceding calendar
month.

98. Capital Expenditures: all liabilities incurred or expenditures made by an
Obligor or Subsidiary for the acquisition of fixed assets, or any improvements,
replacements, substitutions or additions thereto with a useful life of more than
one year.

99. Capital Lease: any lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

100. Cash Collateral: cash, and any interest or other income earned thereon,
that is delivered to Agent to Cash Collateralize any Obligations.

101. Cash Collateral Account: the U.S. Cash Collateral Account and/or the
Canadian Cash Collateral Account, as the context may require.

102. Cash Collateralize: the delivery of cash to Agent, as security for the
payment of Obligations, in an amount equal to (a) with respect to LC
Obligations, 105% of the aggregate LC Obligations, and (b) with respect to any
inchoate, contingent or other Obligations (including Secured Bank Product
Obligations), Agent’s good faith estimate of the amount due or to become due,
including all fees and other amounts relating to such Obligations. “Cash
Collateralization” has a correlative meaning.

103. Cash Equivalents: (a) marketable obligations issued or unconditionally
guaranteed by, and backed by the full faith and credit of, the United States or
Canadian government, maturing within 12 months of the date of acquisition;
(b) certificates of deposit, time deposits and bankers’ acceptances maturing
within 12 months of the date of acquisition, and overnight bank deposits, in
each case which are issued by Bank of America or a commercial bank organized
under the laws of the United States, Canada, or any state or district of the
United States or province or territory of Canada thereof, rated A-1 (or better)
by S&P or P-1 (or better) by Moody’s at the time of acquisition, and (unless
issued by a Lender) not subject to offset rights; (c) repurchase obligations
with a term of not more than 30 days for underlying investments of the types
described in clauses (a) and (b) entered into with any bank described in

 

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clause (b); (d) commercial paper issued by Bank of America or rated A-1 (or
better) by S&P or P-1 (or better) by Moody’s, and maturing within nine months of
the date of acquisition; and (e) shares of any money market fund that has
substantially all of its assets invested continuously in the types of
investments referred to above, has net assets of at least $500,000,000 and has
the highest rating obtainable from either Moody’s or S&P.

104. Cash Management Services: any services provided from time to time by any
Lender or any of its Affiliates to any Obligor or Subsidiary in connection with
operating, collections, payroll, trust, or other depository or disbursement
accounts, including automated clearinghouse, e-payable, electronic funds
transfer, wire transfer, controlled disbursement, overdraft, depository,
information reporting, lockbox and stop payment services.

105. CERCLA: the Comprehensive Environmental Response Compensation and Liability
Act (42 U.S.C. § 9601 et seq.).

106. Change in Law: the occurrence, after the date hereof, of (a) the adoption,
taking effect or phasing in of any law, rule, regulation or treaty; (b) any
change in any law, rule, regulation or treaty or in the administration,
interpretation or application thereof; or (c) the making, issuance or
application of any request, guideline, requirement or directive (whether or not
having the force of law) by any Governmental Authority; provided that,
notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street
Reform and Consumer Protection Act and all requests, rules, guidelines or
directives thereunder or issued in connection therewith and (y) all requests,
rules, guidelines or directives promulgated by the Bank for International
Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States or foreign regulatory authorities, in
each case pursuant to Basel III, shall in each case be deemed to be a “Change in
Law,” regardless of the date enacted, adopted or issued.

107. Change of Control: (a) any “person” or “group” (as such terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding
any employee benefit plan of Parent or its Subsidiaries, and any person or
entity acting in its capacity as trustee, agent or other fiduciary or
administrator of any such plan) becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a
person or group shall be deemed to have “beneficial ownership” of all securities
that such person or group has the right to acquire (such right, an “option
right”), whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 35% or more of the Equity Interests of
Parent entitled to vote for members of the board of directors or equivalent
governing body of Parent on a fully-diluted basis (and taking into account all
such securities that such person or group has the right to acquire pursuant to
any option right); (b) during any period of 12 consecutive months, a majority of
the members of the board of directors or other equivalent governing body of
Parent ceases to be composed of individuals (i) who were members of that board
or equivalent governing body on the first day of such period, (ii) whose
election or nomination to that board or equivalent governing body was approved
by individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing
body or (iii) whose election or nomination to that board or other equivalent
governing body was approved by individuals referred to in clauses (i) and
(ii) above constituting at the time of such election or nomination at least a
majority of that board or

 

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equivalent governing body (excluding, in the case of both clause (ii) and clause
(iii), any individual whose initial nomination for, or assumption of office as,
a member of that board or equivalent governing body occurs as a result of an
actual or threatened solicitation of proxies or consents for the election or
removal of one or more directors by any person or group other than a
solicitation for the election of one or more directors by or on behalf of the
board of directors), or (c) Parent ceases to own and control, beneficially and
of record, directly or indirectly, all Equity Interests in all other Obligors.

108. Claims: all claims, liabilities, obligations, losses, damages, penalties,
judgments, proceedings, interest, costs and expenses of any kind (including
remedial response costs, reasonable attorneys’ fees and Extraordinary Expenses)
at any time (including after Full Payment of the Obligations or replacement of
Agent or any Lender) incurred by any Indemnitee or asserted against any
Indemnitee by any Obligor or other Person, in any way relating to (a) any Loans,
Letters of Credit, Loan Documents, or the use thereof or transactions relating
thereto, (b) any action taken or omitted in connection with any Loan Documents,
(c) the existence or perfection of any Liens, or realization upon any
Collateral, (d) exercise of any rights or remedies under any Loan Documents or
Applicable Law, or (e) failure by any Obligor to perform or observe any terms of
any Loan Document, in each case including all costs and expenses relating to any
investigation, litigation, arbitration or other proceeding (including an
Insolvency Proceeding or appellate proceedings), whether or not the applicable
Indemnitee is a party thereto.

109. Closing Date: as defined in Section 6.1.

110. Closing Date Availability: on any date of determination, an amount equal
to: (a) the sum of the Canadian Accounts Formula Amount, plus the Canadian
Inventory Formula Amount, minus the Canadian Availability Reserve, minus the
aggregate principal amount of Canadian Revolver Loans outstanding, in each case,
on such date of determination, plus (b) the sum of the U.S. Accounts Formula
Amount, plus the U.S. Inventory Formula Amount, minus the U.S. Availability
Reserve, minus the aggregate principal amount of U.S. Revolver Loans
outstanding, in each case, on such date of determination.

111. Code: the Internal Revenue Code of 1986.

112. Collateral: all Property described in Section 7.1, all Property described
in any Security Documents as security for any Obligations, and all other
Property that now or hereafter secures (or is intended to secure) any
Obligations.

113. Commitment: for any Lender, the aggregate amount of such Lender’s U.S.
Revolver Commitment and Canadian Revolver Commitment. “Commitments” means the
aggregate amount of all U.S. Revolver Commitments and Canadian Revolver
Commitments.

114. Compliance Certificate: a certificate, in the form of Exhibit D, by which
Borrowers certify compliance with Section 10.3 (such certificate to include a
calculation of the Fixed Charge Coverage Ratio whether or not a Covenant Trigger
Period is in effect).

115. Consolidated Tangible Assets: as of any date of determination, the
Consolidated Total Assets of Parent and its Subsidiaries minus consolidated
intangible assets of Parent and its Subsidiaries, all determined in accordance
with GAAP.

 

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116. Consolidated Total Assets: as of any date of determination, the
consolidated total assets of Parent and its Subsidiaries as of such date,
determined in accordance with GAAP.

117. Contingent Obligation: as to any Person, any (a) obligation, contingent or
otherwise, of such Person guaranteeing or having the economic effect of
guaranteeing any Debt or other obligation payable or performable by another
Person (the “primary obligor”) in any manner, whether directly or indirectly,
and including any obligation of such Person, direct or indirect, (i) to purchase
or pay (or advance or supply funds for the purchase or payment of) such Debt or
other obligation, (ii) to purchase or lease property, securities or services for
the purpose of assuring the obligee in respect of such Debt or other obligation
of the payment or performance of such Debt or other obligation, (iii) to
maintain working capital, equity capital or any other financial statement
condition or liquidity or level of income or cash flow of the primary obligor so
as to enable the primary obligor to pay such Debt or other obligation, or
(iv) entered into for the purpose of assuring in any other manner the obligee in
respect of such Debt or other obligation of the payment or performance thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), or (b) Lien on any assets of such Person securing any Debt or other
obligation of any other Person, whether or not such Debt or other obligation is
assumed by such Person. The amount of any Contingent Obligation shall be deemed
to be an amount equal to the stated or determinable amount of the related
primary obligation, or portion thereof, in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by the guaranteeing
Person in good faith.

118. Contractual Obligation: as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or other undertaking to
which such Person is a party or by which it or any of its property is bound.

119. Covenant Trigger Percentage: 12.5%; provided, however, Covenant Trigger
Percentage shall be reduced to 10% on the first day of the month following the
date Agent has received evidence, in form and substance reasonably satisfactory
to Agent, that EBITDA for any trailing twelve month period ending after the
Original Agreement Closing Date was $50,000,000 or greater. For the avoidance of
doubt, any reduction of the Covenant Trigger Percentage shall remain in effect
notwithstanding that EBITDA for any trailing twelve month period after such
reduction takes effect shall be less than $50,000,000.

120. Covenant Trigger Period: the period (a) commencing on the day that Trigger
Event Excess Availability is less than, at any time, the greater of
(i) $25,000,000, and (ii) an amount equal to the Covenant Trigger Percentage of
the sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S. Borrowing Base (without
giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance
for purposes of this calculation); and (b) continuing until, during the
preceding 30 consecutive days, Trigger Event Excess Availability has been
greater than, at all times, the greater of (i) $25,000,000, and (ii) an amount
equal to the Covenant Trigger Percentage of the sum of the Canadian Borrowing
Base (without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation).

 

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121. Credit Judgment: Agent’s judgment exercised in good faith, based upon its
consideration of any factor that it believes (a) could reasonably be expected to
adversely affect the quantity, quality, mix or value of Collateral (including
any Applicable Law that may inhibit collection of an Account), the
enforceability or priority of Agent’s Liens, or the amount that Agent and
Lenders could receive in liquidation of any Collateral; (b) provides a
reasonable basis to conclude that any collateral report or financial information
delivered by any Obligor is incomplete, inaccurate or misleading in any material
respect; (c) materially increases the likelihood of any Insolvency Proceeding
involving an Obligor; or (d) creates or could reasonably be expected to result
in a Default or Event of Default. In exercising such judgment, Agent may
consider any factors that could reasonably be expected to increase the credit
risk of lending to Borrowers on the security of the Collateral.

122. Credit Party: Agent, a Lender or an Issuing Bank; and “Credit Parties”
means Agent, Lenders and Issuing Banks.

123. Creditor Representative: under any Applicable Law, a receiver, interim
receiver, receiver and manager, trustee (including any trustee in bankruptcy),
custodian, conservator, administrator, examiner, sheriff, monitor, assignee,
liquidator, provisional liquidator, sequestrator or similar officer or
fiduciary.

124. CWA: the Clean Water Act (33 U.S.C. §§ 1251 et seq.).

125. Debt: as to any Person at a particular time, without duplication, all of
the following, whether or not included as indebtedness or liabilities in
accordance with GAAP: (a) all obligations of such Person for borrowed money and
all obligations of such Person evidenced by bonds, debentures, notes, loan
agreements or other similar instruments; (b) all direct or contingent
obligations of such Person arising under letters of credit (including standby
and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar
instruments; (c) all obligations of such Person to pay the deferred purchase
price of property or services (other than trade accounts payable and accrued
expenses arising in the Ordinary Course of Business); (d) indebtedness
(excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional
sales or other title retention agreements), whether or not such indebtedness
shall have been assumed by such Person or is limited in recourse; (e) Capital
Leases and Off-Balance Sheet Liabilities; (f) all Contingent Obligations of such
Person in respect of the foregoing clauses (a) through (e); and (g) in the case
of an Obligor, the Obligations.

126. Default: an event or condition that, with the lapse of time or giving of
notice, would constitute an Event of Default.

127. Default Rate: for any Obligation (including, to the extent permitted by
law, interest not paid when due), 2% plus the interest rate otherwise applicable
thereto.

128. Defaulting Lender: any Lender that, as determined by Agent, (a) has failed
to perform any funding obligations hereunder, and such failure is not cured
within three Business Days; (b) has notified Agent or any Borrower that such
Lender does not intend to comply with its funding obligations hereunder or has
made a public statement to the effect that it does not

 

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intend to comply with its funding obligations hereunder or under any other
credit facility; (c) has failed, within three Business Days following request by
Agent, to confirm in a manner satisfactory to Agent that such Lender will comply
with its funding obligations hereunder; or (d) has, or has a direct or indirect
parent company that has, become the subject of an Insolvency Proceeding or taken
any action in furtherance thereof; provided, however, that a Lender shall not be
a Defaulting Lender solely by virtue of a Governmental Authority’s ownership of
an equity interest in such Lender or parent company.

129. Deposit Account: as defined in the UCC (and/or with respect to any Deposit
Account located in Canada, any bank account with a deposit function).

130. Deposit Account Control Agreements: the deposit account control agreements
to be executed by each institution maintaining a Deposit Account for an Obligor,
in favor of Agent, for the benefit of Secured Parties.

131. Designated Obligations: as defined in Section 14.11(a)(v).

132. Dilution Percent: the percent, for any period determined by Agent, equal to
(a) bad debt write-downs or write-offs, discounts, returns, promotions, credits,
credit memos and other dilutive items with respect to Accounts of the U.S.
Borrowers (in the case of the U.S. Dilution Reserve) or the Canadian Borrower
(in the case of the Canadian Dilution Reserve), divided by (b) gross sales of
the U.S. Borrowers (in the case of the U.S. Dilution Reserve) or of the Canadian
Borrower (in the case of the Canadian Dilution Reserve).

133. Distribution: any declaration or payment of a distribution, interest or
dividend on any Equity Interest (other than payment-in-kind); any distribution,
advance or repayment of Debt to a holder of Equity Interests; or any purchase,
redemption, or other acquisition or retirement for value of any Equity Interest.

134. Document: as defined in the UCC (and/or with respect to any Document of a
Canadian Subsidiary, a “document of title” as defined in the PPSA).

135. Dollars: lawful money of the United States.

136. Dollar Equivalent: on any date, with respect to any amount denominated in
Dollars, such amount in Dollars, and with respect to any stated amount in a
currency other than Dollars, the amount of Dollars that Agent determines (which
determination shall be conclusive and binding absent manifest error) would be
necessary to be sold on such date at the applicable Exchange Rate to obtain the
stated amount of the other currency.

137. Dominion Account: with respect to the U.S. Domiciled Obligors, the U.S.
Dominion Account, and with respect to the Canadian Domiciled Obligors, the
Canadian Dominion Account.

138. Dominion Trigger Period: the period (a) commencing on the day that an Event
of Default occurs, or Trigger Event Excess Availability is less than, at any
time, the greater of (i) $25,000,000, and (ii) an amount equal to 12.5% of the
sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S.

 

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Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation) and (b) continuing
until, during the preceding 60 consecutive days, no Event of Default has existed
and Trigger Event Excess Availability has been greater than, at all times, the
greater of (i) $25,000,000, and (ii) an amount equal to 12.5% of the sum of the
Canadian Borrowing Base (without giving effect to the Canadian LC Reserve for
purposes of this calculation) and the U.S. Borrowing Base (without giving effect
to the U.S. LC Reserve and the Canadian Overadvance Loan Balance for purposes of
this calculation); provided that following the second termination of a Dominion
Trigger Period in any twelve (12) consecutive month period, no subsequent
Dominion Trigger Period shall be terminated until such time as no Event of
Default exists and Trigger Event Excess Availability has been greater than, at
all times, the greater of (i) $25,000,000, and (ii) an amount equal to 12.5% of
the sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S. Borrowing Base (without
giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance
for purposes of this calculation) for 365 consecutive days. Agent will endeavor
to provide copies of each notice of control Agent sends to any Dominion Account
bank to Borrower Agent substantially contemporaneously with providing such
notice to such Dominion Account bank; provided, however, that the failure of
Agent to provide a copy of any such notice to Borrower Agent shall not give rise
to any liability on the part of Agent and shall not affect the validity and
effectiveness of such notice.

139. EBITDA: determined on a consolidated basis for Parent and Subsidiaries, net
income, calculated before interest expense, non-cash stock compensation expense,
provision for income taxes, depreciation and amortization expense, other
non-cash expenses (except to the extent representing a reserve or accrual for
cash expenses in another period) of Borrower Agent and its subsidiaries
(including, without limitation, non-cash amounts related to any downsizing,
restructuring or partial close of any operations of Borrower Agent or any of its
subsidiaries), gains or losses arising from the sale of capital assets, gains
arising from the write-up of assets, and any extraordinary gains (in each case,
to the extent included in determining net income).

140. Eligible Account: an Account owing to a Borrower that arises in the
Ordinary Course of Business from the sale of goods or rendition of services, is
payable in Dollars (or, in the case of an Account owing to Canadian Borrower, in
Dollars or Canadian Dollars), and is deemed by Agent, in its Credit Judgment, to
satisfy the criteria set forth below. No Account shall be an Eligible Account if
(a) it is unpaid for more than 60 days after the original due date, or it is
unpaid for more than 150 days after the original invoice date; (b) 50% or more
of the Accounts owing by the Account Debtor are not Eligible Accounts under the
foregoing clause; (c) when aggregated with other Accounts owing by the Account
Debtor and such Account Debtor’s Affiliates, it exceeds 15% of the aggregate
Eligible Accounts (or such higher percentage as Agent may establish for the
Account Debtor and its Affiliates from time to time); (d) it does not conform
with a covenant or representation herein; (e) it is owing by a creditor or
supplier, or is otherwise subject to a potential offset, counterclaim, dispute,
deduction, discount, recoupment, reserve, defense, chargeback, credit or
allowance (but ineligibility shall be limited to the amount thereof); (f) an
Insolvency Proceeding has been commenced by or against the Account Debtor; or
the Account Debtor has failed, has suspended or ceased doing business, is
liquidating, dissolving or winding up its affairs, or is not Solvent; or the
Borrower that originated such Account is not able to bring suit or enforce
remedies against the Account Debtor through judicial process; (g) the Account
Debtor is organized or has its principal offices or assets outside the United
States or

 

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Canada; (h) it is owing by a Government Authority, unless the Account Debtor is
the United States or any department, agency or instrumentality thereof and the
Account has been assigned to Agent in compliance with the Assignment of Claims
Act or the Account Debtor is the federal government of Canada or any Crown
corporation, department, agency or instrumentality of Canada and Canadian
Borrower has complied, to the satisfaction of Agent, with the Financial
Administration Act; (i) it is not subject to a duly perfected, first priority
Lien in favor of Agent, or is subject to any other Lien; (j) the goods giving
rise to it have not been delivered to the Account Debtor, the services giving
rise to it have not been accepted by the Account Debtor, or it otherwise does
not represent a final sale; (k) it is evidenced by Chattel Paper or an
Instrument of any kind, or has been reduced to judgment; (l) its payment has
been extended or the Account Debtor has made a partial payment; (m) it arises
from a sale to an Affiliate, from a sale on a cash-on-delivery, bill-and-hold,
sale-or-return, sale-on-approval, consignment, or other repurchase or return
basis, or from a sale for personal, family or household purposes; (n) it
represents a progress billing or retainage, or relates to services for which a
performance, surety or completion bond or similar assurance has been issued; or
(o) it includes a billing for interest, fees or late charges, but ineligibility
shall be limited to the extent thereof. In calculating delinquent portions of
Accounts under clauses (a) and (b), credit balances more than 60 days old will
be excluded.

141. The criteria for Eligible Accounts set forth above may only be changed and
any new criteria for Eligible Accounts may only be established by Agent in its
Credit Judgment, based on: (i) an event, condition or other circumstance arising
after the date hereof, (ii) an event, condition or other circumstance existing
on the date hereof to the extent that the Agent has no knowledge thereof or its
effect on the Account, or (iii) facts, information, or circumstances provided to
or learned by Agent in the course of its administration of the facility,
including, without limitation, in connection with field exams, audits, reports
and other information received, and observance of Collateral and the Obligors’
business performance, in any case under clauses (i), (ii) or (iii), which
adversely affects or would reasonably be expected to adversely affect the
Accounts as determined by Agent in its Credit Judgment.

142. Eligible Assignee: a Person that is (i) a Lender or a U.S.-based Affiliate
of a Lender, (ii) if such Person is to hold U.S. Facility Obligations, an
Approved Fund; (iii) if such Person is to hold Canadian Facility Obligations, a
Canadian Qualified Lender and an Affiliate of a U.S. Lender; (iv) any other
financial institution approved by Agent and Borrower Agent (which approval by
Borrower Agent shall not be unreasonably withheld or delayed), that is organized
under the laws of the United States or Canada or any state, province or district
thereof, has total assets in excess of $5 billion, extends asset-based lending
facilities in its Ordinary Course of Business and whose becoming an assignee
would not constitute a prohibited transaction under Section 4975 of the Code or
any other Applicable Law; and (v) during any Event of Default, any Person
acceptable to Agent in its discretion.

143. Eligible Inventory: Inventory owned by a Borrower that Agent, in its Credit
Judgment, deems to satisfy the criteria set forth below. No Inventory shall be
Eligible Inventory unless it (a) is finished goods or raw materials, and not
packaging or shipping materials, labels, samples, display items, bags,
replacement parts or manufacturing supplies; (b) is not held on consignment, nor
subject to any deposit or down payment; (c) is in new and saleable condition and
is not damaged, defective, shopworn or otherwise unfit for sale; (d) is not
slow-moving (as

 

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determined by Agent from time to time), perishable, obsolete or unmerchantable,
and does not constitute returned or repossessed goods; (e) meets all standards
imposed by any Governmental Authority, and does not constitute hazardous
materials under any Environmental Law; (f) conforms with the covenants and
representations herein; (g) is subject to Agent’s duly perfected, first priority
Lien, and no other Lien; (h) is not consigned to any Person, and is within the
continental United States, in the case of Inventory of a U.S. Borrower, or
Canada, in the case of Inventory of the Canadian Borrower; (i) is not in transit
(other than, in the case of Inventory of a U.S. Borrower, in transit between
facilities of the U.S. Borrowers, or, in the case of Inventory of the Canadian
Borrower, in transit between facilities of the Canadian Borrower); (j) is not
subject to any warehouse receipt or negotiable Document; (k) is not subject to
any License or other arrangement that restricts such Borrower’s or Agent’s right
to dispose of such Inventory, unless Agent has received an appropriate Lien
Waiver; (l) is not located on leased premises or in the possession of a
warehouseman, processor, repairman, mechanic, shipper, freight forwarder or
other Person, unless the lessor or such Person has delivered a Lien Waiver or an
appropriate U.S. Rent and Charges Reserve (in the case of the U.S. Borrowers) or
a Canadian Rent and Charges Reserve (in the case of the Canadian Borrower) has
been established; and (m) is reflected in the details of a current perpetual
inventory report.

144. The criteria for Eligible Inventory set forth above may only be changed and
any new criteria for Eligible Inventory may only be established by Agent in its
Credit Judgment, based on: (i) an event, condition or other circumstance arising
after the date hereof, (ii) an event, condition or other circumstance existing
on the date hereof to the extent that the Agent has no knowledge thereof or its
effect on Inventory, or (iii) facts, information, or circumstances provided to
or learned by Agent in the course of its administration of the facility,
including, without limitation, in connection with field exams, audits, reports
and other information received, and observance of Collateral and the Obligors’
business performance, in any case under clauses (i), (ii) or (iii), which
adversely affects or would reasonably be expected to adversely affect the
Inventory as determined by Agent in its Credit Judgment.

145. Eligible In-Transit Inventory: Inventory consisting of finished goods owned
by a Borrower that would be Eligible Inventory if it were not subject to a
Document and in transit from a foreign location to a location of a Borrower
within the United States or Canada, and that Agent, in its Credit Judgment,
deems to be Eligible In-Transit Inventory. Without limiting the foregoing, no
Inventory shall be Eligible In-Transit Inventory unless it (a) is finished
goods, (b) has been delivered to a carrier in a foreign port or foreign airport
for receipt by a Borrower in the United States (in the case of the U.S.
Borrowers) or Canada (in the case of the Canadian Borrower) within sixty
(60) days of the date of determination, but which has not yet been received by
the applicable Borrower, (c) is subject to a negotiable Document showing Agent
(or, with the consent of Agent, the applicable Borrower) as consignee, which
Document is in the possession of Agent or such other Person as Agent shall
approve; (d) is fully insured in a manner satisfactory to Agent; (e) has been
identified to the applicable sales contract and title has passed to
the applicable Borrower; (f) is not sold by a vendor that has a right to
reclaim, divert shipment of, repossess, stop delivery, claim any reservation of
title or otherwise assert Lien rights against the Inventory, or with respect to
whom any Borrower is in default of any obligations; (g) is subject to purchase
orders and other sale documentation satisfactory to Agent; (h) is shipped by a
common carrier that is not affiliated with the vendor; and (i) is being handled
by a customs broker, freight-forwarder or other handler that has delivered a
Lien Waiver.

 

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146. Enforcement Action: any action to enforce any Obligations (other than
Secured Bank Product Obligations)or Loan Documents or to exercise any rights or
remedies relating to any Collateral (whether by judicial action, self-help,
notification of Account Debtors, exercise of setoff or recoupment, exercise of
any right to vote or act in an Obligor’s Insolvency Proceeding, or otherwise).

147. Environmental Laws: all Applicable Laws (including all programs, permits
and guidance promulgated by regulatory agencies), relating to public health (but
excluding occupational safety and health, to the extent regulated by OSHA) or
the protection or pollution of the environment, including CERCLA, RCRA, CWA and
the Environmental Protection Act (Ontario).

148. Environmental Notice: a notice (whether written or oral) from any
Governmental Authority or other Person of any possible noncompliance with,
investigation of a possible violation of, litigation relating to, or potential
fine or liability under any Environmental Law, or with respect to any
Environmental Release, environmental pollution or hazardous materials, including
any complaint, summons, citation, order, claim, demand or request for
correction, remediation or otherwise.

149. Environmental Release: a release as defined in CERCLA or under any other
Environmental Law.

150. Equity Interest: the interest of any (a) shareholder in a corporation;
(b) partner in a partnership (whether general, limited, limited liability or
joint venture); (c) member in a limited liability company; or (d) other Person
having any other form of equity security or ownership interest.

151. ERISA: the Employee Retirement Income Security Act of 1974.

152. ERISA Affiliate: any trade or business (whether or not incorporated) under
common control with an Obligor within the meaning of Section 414(b) or (c) of
the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).

153. ERISA Event: (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by any Obligor or ERISA Affiliate from a Pension 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) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan;
(e) any Obligor or ERISA Affiliate fails to meet any funding obligations with
respect to any Pension Plan or Multiemployer Plan, or requests a minimum funding
waiver; (f) an event or condition which constitutes grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability
under

 

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Title IV of ERISA, other than for PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon any Obligor or ERISA Affiliate.

154. Event of Default: as defined in Section 11.

155. Excess Amount: as defined in Section 5.13.

156. Exchange Rate: on any date of determination, with respect to Canadian
Dollars or another foreign currency in relation to Dollars, the Spot Rate for
Canadian Dollars or such other foreign currency, as applicable.

157. Excluded Stock Repurchases: any: (a) Preferred Stock Repurchases, and
(b) repurchases or redemptions of the Parent’s common stock to the extent
consummated when the Parent does not have any outstanding 7.50% Series B
Cumulative Perpetual Convertible Preferred Stock, $0.01 par value; provided,
however, that the aggregate amount under clauses (a) and (b) which shall be
deemed Excluded Stock Repurchases shall not exceed $140,000,000.

158. Excluded Tax: with respect to Agent, any Lender, any Issuing Bank or any
other recipient of a payment to be made by or on account of any Obligation,
(a) taxes imposed on or measured by its overall net income (however
denominated), and franchise taxes imposed on it (in lieu of net income taxes),
by the jurisdiction (or any political subdivision thereof) under the laws of
which such recipient is organized or in which its principal office is located
or, in the case of any Lender, in which its applicable Lending Office is
located; (b) any branch profits taxes imposed by the United States or any
similar tax imposed by any other jurisdiction in which Borrower Agent is
located; (c) any backup withholding tax required by the Code to be withheld from
amounts payable to a Lender that has failed to comply with Section 5.10; (d) in
the case of a Foreign Lender, any United States withholding tax that is
(i) required pursuant to laws in force at the time such Lender becomes a Lender
(or designates a new Lending Office) hereunder, or (ii) attributable to such
Lender’s failure or inability (other than as a result of a Change in Law) to
comply with Section 5.10, except to the extent that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new Lending
Office (or assignment), to receive additional amounts from Borrowers with
respect to such withholding tax; and (e) taxes imposed on it by reason of
Section 1471 or 1472 of the Code.

159. Existing Letters of Credit: those letter(s) of credit described on Schedule
E-1.

160. Extraordinary Expenses: all costs, expenses or advances that Agent or any
Lender may incur during a Default or Event of Default, or during the pendency of
an Insolvency Proceeding of an Obligor, including those relating to (a) any
audit, inspection, repossession, storage, repair, appraisal, insurance,
manufacture, preparation or advertising for sale, sale, collection, or other
preservation of or realization upon any Collateral; (b) any action, arbitration
or other proceeding (whether instituted by or against Agent, any Lender, any
Obligor, any representative of creditors of an Obligor or any other Person) in
any way relating to any Collateral (including the validity, perfection, priority
or avoidability of Agent’s Liens with respect to any Collateral), Loan
Documents, Letters of Credit or Obligations, including any lender liability or
other Claims; (c) the exercise, protection or enforcement of any rights or
remedies of Agent or any Lender in, or the monitoring of, any Insolvency
Proceeding; (d)

 

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settlement or satisfaction of any taxes, charges or Liens with respect to any
Collateral; (e) any Enforcement Action; (f) negotiation and documentation of any
modification, waiver, workout, restructuring or forbearance with respect to any
Loan Documents or Obligations; and (g) Protective Advances. Such costs, expenses
and advances include transfer fees, Other Taxes, storage fees, insurance costs,
permit fees, utility reservation and standby fees, legal fees, appraisal fees,
brokers’ fees and commissions, auctioneers’ fees and commissions, accountants’
fees, environmental study fees, wages and salaries paid to employees of any
Obligor or independent contractors in liquidating any Collateral, and travel
expenses. Notwithstanding the forgoing, absent a conflict of interest among
Lenders, Extraordinary Expenses shall not include (i) legal fees for more than
one counsel to the Lenders (plus any local counsel deemed necessary by the
Lenders) in addition to any counsel engaged by Agent or (ii) other costs,
expenses or advances incurred by any Lender to the extent unreasonably
duplicative of such costs, expenses or advances incurred by the Agent.

161. Facility Termination Date: June 30, 2016.

162. Federal Funds Rate: (a) the weighted average of interest rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers on the applicable Business Day (or on the preceding
Business Day, if the applicable day is not a Business Day), as published by the
Federal Reserve Bank of New York on the next Business Day; or (b) if no such
rate is published on the next Business Day, the average rate (rounded up, if
necessary, to the nearest 1/8 of 1%) charged to Bank of America on the
applicable day on such transactions, as determined by Agent.

163. Fee Letters: each fee letter agreement between Agent and Borrowers (or any
of them).

164. Financial Administration Act: Financial Administration Act (Canada) and all
regulations and schedules thereunder.

165. Fiscal Quarter: each period of three months, commencing on the first day of
a Fiscal Year.

166. Fiscal Year: the fiscal year of Parent and its Subsidiaries for accounting
and tax purposes, ending on December 31 of each year.

167. Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis
for Parent and its Subsidiaries for the most recent twelve calendar months, of
(a) EBITDA minus Capital Expenditures (except those financed with Borrowed Money
other than Revolver Loans) and cash taxes paid (which amount may not be less
than zero), to (b) Fixed Charges; provided, however, that solely for the
purposes of calculating the Fixed Charge Coverage Ratio under Section 10.3.1 and
Section 10.2.6(e)(ii)(D), Fixed Charges shall not include any Excluded Stock
Repurchases.

168. Fixed Charges: the sum of cash interest expense, principal payments made on
Borrowed Money, and Distributions made (other than Distributions made to
Obligors to the extent permitted hereunder).

 

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169. FLSA: the Fair Labor Standards Act of 1938.

170. Foreign Lender: any Lender that is (a) in the case of the U.S. Borrowers,
organized under the laws of a jurisdiction other than the laws of the United
States, or any state or district thereof and (b) in the case of the Canadian
Borrower, not a Canadian Qualified Lender.

171. Foreign Plan: any employee benefit plan or arrangement (a) maintained or
contributed to by any Obligor or Subsidiary that is not subject to the laws of
the United States or Canada; or (b) mandated by a government other than the
United States or Canada for employees of any Obligor or Subsidiary.

172. Foreign Subsidiary: a Subsidiary of Parent that is a “controlled foreign
corporation” under Section 957 of the Code.

173. Fronting Exposure: a Defaulting Lender’s Pro Rata share of U.S. LC
Obligations, Canadian LC Obligations, U.S. Swingline Loans, or Canadian
Swingline Loans, as applicable, except to the extent allocated to other Lenders
under Section 4.2.

174. FSCO: the Financial Services Commission of Ontario or like body in any
other province of Canada and any other Governmental Authority succeeding to the
functions thereof.

175. Full Payment: with respect to any Obligations, (a) the full and
indefeasible cash payment thereof in the applicable currency required hereunder,
including any interest, fees and other charges accruing during an Insolvency
Proceeding (whether or not allowed in the proceeding); (b) if such Obligations
are LC Obligations or inchoate or contingent in nature, Cash Collateralization
thereof (or delivery of a standby letter of credit acceptable to Agent in its
discretion, in the amount of required Cash Collateral); and (c) a release of any
Claims of Obligors against Agent, Lenders and Issuing Banks arising on or before
the payment date. No Loans shall be deemed to have been paid in full until all
Commitments related to such Loans have expired or been terminated.

176. GAAP: generally accepted accounting principles in effect in the United
States from time to time.

177. General Intangibles: as defined in the UCC (and/or with respect to any
General Intangible of a Canadian Subsidiary, an “intangible” as defined in the
PPSA).

178. Governmental Approvals: all authorizations, consents, approvals, licenses
and exemptions of, registrations and filings with, and required reports to, all
Governmental Authorities.

179. Governmental Authority: any federal, state, provincial, municipal, foreign
or other governmental department, agency, commission, board, bureau, court,
tribunal, instrumentality, political subdivision, or other entity or officer
exercising executive, legislative, judicial, regulatory or administrative
functions for or pertaining to any government or court, in each case whether it
is or is not associated with the United States, a state, district or territory
thereof, Canada, a province or territory thereof or any other foreign entity or
government.

 

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180. Guarantee: each guarantee agreement (including this Agreement and the
Canadian Facility Guarantee) executed by a Guarantor in favor of Agent
guaranteeing all or any portion of any Canadian Facility Obligation or U.S.
Facility Obligation.

181. Guarantor Payment: as defined in Section 5.11.3.

182. Guarantors: Canadian Facility Guarantors, U.S. Facility Guarantors, and
each other Person who guarantees payment or performance of any Obligations.

183. Hedging Agreement: an agreement relating to any swap, cap, floor, collar,
option, forward, cross right or obligation, or combination thereof or similar
transaction, with respect to interest rate, foreign exchange, currency,
commodity, credit or equity risk.

184. Immaterial Subsidiary: at any time, any Subsidiary of Parent that is not a
Material Subsidiary.

185. Indemnified Taxes: Taxes other than Excluded Taxes.

186. Indemnitees: Agent Indemnitees, Lender Indemnitees, Issuing Bank
Indemnitees and Bank of America Indemnitees.

187. Insolvency Proceeding: any case or proceeding or proposal commenced by or
against a Person under any state, provincial, federal or foreign law for, or any
agreement of such Person to, (a) the entry of an order for relief under the U.S.
Bankruptcy Code, or any other insolvency, debtor relief, bankruptcy,
receivership, debt adjustment law or other similar law (whether state,
provincial, federal or foreign), including the Bankruptcy and Insolvency Act
(Canada) and the Companies’ Creditors Arrangement Act (Canada); (b) the
appointment of a Creditor Representative or other custodian for such Person or
any part of its Property; or (c) an assignment or trust mortgage for the benefit
of creditors.

188. Intellectual Property: all intellectual and similar Property of a Person,
including inventions, designs, patents, copyrights, trademarks, service marks,
trade names, trade secrets, confidential or proprietary information, customer
lists, know-how, software and databases; all embodiments or fixations thereof
and all related documentation, applications, registrations and franchises; all
licenses or other rights to use any of the foregoing; and all books and records
relating to the foregoing.

189. Intellectual Property Claim: any claim or assertion (whether in writing, by
suit or otherwise) that an Obligor’s or Subsidiary’s ownership, use, marketing,
sale or distribution of any Inventory, Equipment, Intellectual Property or other
Property violates another Person’s Intellectual Property.

190. Interest Period: as defined in Section 3.1.4.

191. Inventory: as defined in the UCC (and/or with respect to any inventory
located in Canada, as defined in the PPSA), including all goods intended for
sale, lease, display or demonstration; all work in process; and all raw
materials, and other materials and supplies of any kind that are or could be
used in connection with the manufacture, printing, packing, shipping,

 

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advertising, sale, lease or furnishing of such goods, or otherwise used or
consumed in the applicable Obligor’s business (but excluding Equipment).

192. Inventory Reserve: reserves established by Agent in its Credit Judgment to
reflect factors that may negatively impact the Value of Inventory, including
change in salability, obsolescence, seasonality, theft, shrinkage, imbalance,
change in composition or mix, markdowns and vendor chargebacks.

193. Investment: as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other
acquisition of capital stock or other securities of another Person, (b) a loan,
advance or capital contribution to, Contingent Obligation in respect of Debt of,
assumption of Debt of, or purchase or other acquisition of any other Debt or
equity participation or interest in, another Person, including any partnership
or joint venture interest in such other Person, or (c) the purchase or other
acquisition (in one transaction or a series of transactions) of assets of
another Person that constitute a business unit. For purposes of covenant
compliance, the amount of any Investment shall be the amount actually invested,
without adjustment for subsequent increases or decreases in the value of such
Investment.

194. IRS: the United States Internal Revenue Service.

195. Issuing Bank Indemnitees: the Issuing Banks and their officers, directors,
employees, Affiliates, branches, agents and attorneys.

196. Issuing Banks: the U.S. Issuing Bank and the Canadian Issuing Bank.

197. LC Application: an application by Borrower Agent on behalf of a Borrower to
an Issuing Bank for issuance of a Letter of Credit, in form and substance
satisfactory to such Issuing Bank.

198. LC Conditions: the following conditions necessary for issuance of a Letter
of Credit: (a) each of the conditions set forth in Section 6; (b) after giving
effect to such issuance, total U.S. LC Obligations do not exceed the U.S. Letter
of Credit Subline, no U.S. Overadvance exists or would result therefrom and, if
no U.S. Revolver Loans are outstanding, the U.S. LC Obligations do not exceed
the U.S. Borrowing Base (without giving effect to the U.S. LC Reserve for
purposes of this calculation); (c) after giving effect to such issuance, total
Canadian LC Obligations do not exceed the Canadian Letter of Credit Subline, no
Canadian Overadvance exists or would result therefrom and, if no Canadian
Revolver Loans are outstanding, the Canadian LC Obligations do not exceed the
Canadian Borrowing Base (without giving effect to the Canadian LC Reserve for
purposes of this calculation); (d) the expiration date of such Letter of Credit
is (i) no more than 365 days from issuance, in the case of standby Letters of
Credit provided, however, that any standby Letter of Credit may provide for the
automatic extension thereof for any number of additional periods each of up to
365 days in duration, and (ii) no more than 120 days from issuance, in the case
of documentary Letters of Credit; (e) in the case of U.S. Letters of Credit, the
Letter of Credit and payments thereunder are denominated in Dollars; (f) in the
case of Canadian Letters of Credit, the Letter of Credit and payments thereunder
are denominated in Dollars or Canadian Dollars, as applicable; and (g) the form
of the proposed Letter of Credit is satisfactory to Agent and the applicable
Issuing Bank in their discretion.

 

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199. LC Documents: all documents, instruments and agreements (including LC
Requests and LC Applications) delivered by the Borrower Agent on behalf of a
Borrower or by any other Person to an Issuing Bank or Agent in connection with
the issuance, amendment or renewal of, or payment under, any Letter of Credit.

200. LC Obligations: the U.S. LC Obligations and the Canadian LC Obligations.

201. LC Request: a request for issuance of a Letter of Credit, to be provided by
the U.S. Borrowers or the Canadian Borrower or the Borrower Agent, as
applicable, to an Issuing Bank, in form satisfactory to Agent and such Issuing
Bank.

202. Lender Indemnitees: Lenders and their officers, directors, employees,
Affiliates, agents and attorneys.

203. Lenders: as defined in the preamble to this Agreement, including the U.S.
Lenders and the Canadian Lenders, Agent in its capacity as a provider of
Swingline Loans and any other Person who hereafter becomes a “Lender” pursuant
to an Assignment and Acceptance or in accordance with Section 2.1.7.

204. Lending Office: the office designated as such by the applicable Lender at
the time it becomes party to this Agreement or thereafter by notice to Agent and
Borrower Agent.

205. Letter of Credit: any U.S. Letter of Credit or Canadian Letter of Credit.

206. LIBOR: for any Interest Period with respect to a LIBOR Loan, the per annum
rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%),
determined by Agent at approximately 11:00 a.m. (London time) two Business Days
prior to commencement of such Interest Period, for a term comparable to such
Interest Period, equal to (a) the British Bankers Association LIBOR Rate (“BBA
LIBOR”), as published by Reuters (or other commercially available source
designated by Agent); or (b) if BBA LIBOR is not available for any reason, the
interest rate at which Dollar deposits in the approximate amount of the LIBOR
Loan would be offered by Bank of America’s London branch to major banks in the
London interbank Eurodollar market. If the Board of Governors imposes a Reserve
Percentage with respect to LIBOR deposits, then LIBOR shall be the foregoing
rate, divided by 1 minus the Reserve Percentage.

207. LIBOR Loan: each set of LIBOR Revolver Loans having a common length and
commencement of Interest Period.

208. LIBOR Revolver Loan: a Revolver Loan that bears interest based on LIBOR.

209. License: any license or agreement under which an Obligor or Subsidiary is
authorized to use Intellectual Property in connection with any manufacture,
marketing, distribution or disposition of Collateral, any use of Property or any
other conduct of its business.

210. Licensor: any Person from whom an Obligor obtains the right to use any
Intellectual Property.

 

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211. Lien: any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge, or preference, priority or other
security interest or preferential arrangement of any kind or nature whatsoever
in respect of property (including any conditional sale or other title retention
agreement and any financing lease having substantially the same economic effect
as any of the foregoing).

212. Lien Waiver: an agreement, in form and substance satisfactory to Agent, by
which (unless, in each case, otherwise agreed to by Agent in its sole
discretion) (a) for any material Collateral located on leased premises, the
lessor waives or subordinates any Lien it may have on the Collateral, and agrees
to permit Agent to enter upon the premises and remove the Collateral or to use
the premises to store or dispose of the Collateral; (b) for any Collateral held
by a warehouseman, processor, shipper, customs broker or freight forwarder, such
Person waives or subordinates any Lien it may have on the Collateral, agrees to
hold any Documents in its possession relating to the Collateral as agent for
Agent, and agrees to deliver the Collateral to Agent upon request; (c) for any
Collateral held by a repairman, mechanic or bailee, such Person acknowledges
Agent’s Lien, waives or subordinates any Lien it may have on the Collateral, and
agrees to deliver the Collateral to Agent upon request; and (d) for any
Collateral subject to a Licensor’s Intellectual Property rights, the Licensor
grants to Agent the right, vis-à-vis such Licensor, to enforce Agent’s Liens
with respect to the Collateral, including the right to dispose of it with the
benefit of the Intellectual Property, whether or not a default exists under any
applicable License.

213. Loan: a Revolver Loan.

214. Loan Account: the loan account established by each Lender on its books
pursuant to Section 5.8.

215. Loan Documents: this Agreement, Other Agreements and Security Documents.

216. Margin Stock: as defined in Regulation U of the Board of Governors.

217. Material Adverse Effect: (a) a material adverse change in, or a material
adverse effect upon, the operations, business, Properties, condition (financial
or otherwise) of Parent and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of any Borrower or Guarantor to perform its
obligations under any Loan Document to which it is a party; (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against any Borrower or Guarantor of any Loan Document to which it is a party or
on the validity or priority of Agent’s Liens on the Collateral; or (d) the
effect of any event or circumstance that, taken alone or in conjunction with
other events or circumstances, otherwise impairs the ability of Agent or any
Lender to enforce or collect any Obligations or to realize upon any material
portion of the Collateral.

218. Material Subsidiary: at any time, any Subsidiary of Parent (other than an
Obligor) (a) in which the aggregate Investments made by Parent and its
Subsidiaries (excluding Investments in the nature of inter-company receivables
payable by such Subsidiary arising in the Ordinary Course of Business for the
sale of Inventory and provision of services but, in the case of Investments in a
Foreign Subsidiary, including Investments in Subsidiaries of such Foreign

 

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Subsidiary other than any such receivables) exceed $20,000,000 or (b) that had
net annual sales during the four fiscal quarters most recently ended (calculated
on a Pro Forma Basis after giving effect to any Acquisition made during such
period) of $50,000,000 or more

219. Maximum Canadian Facility Amount: on any date of determination, the lesser
of (i) the Canadian Revolver Commitments on such date and (ii) $35,000,000 (or
such lesser amount after giving effect to any reductions in the Commitments
pursuant to and in accordance with Section 2.1.4); it being acknowledged and
agreed that at no time can the sum of the Maximum Canadian Facility Amount plus
the Maximum U.S. Facility Amount exceed the Maximum Facility Amount in effect at
such time.

220. Maximum Facility Amount: $210,000,000, or such greater or lesser amount as
shall then be in effect after giving effect to any reductions in the Commitments
pursuant to and in accordance with Section 2.1.4 and increases in the U.S.
Revolver Commitments pursuant to and in accordance with Section 2.1.7.

221. Maximum U.S. Facility Amount: on any date of determination, the lesser of
(i) the U.S. Revolver Commitments on such date and (ii) $175,000,000 (or such
greater or lesser amount after giving effect to any reductions in the
Commitments pursuant to and in accordance with Section 2.1.4 and increases in
the Commitments pursuant to and in accordance with Section 2.1.7; it being
acknowledged and agreed that at no time can the sum of the Maximum U.S. Facility
Amount plus the Maximum Canadian Facility Amount exceed the Maximum Facility
Amount in effect at such time.

222. Moody’s: Moody’s Investors Service, Inc., and its successors.

223. Multiemployer Plan: any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which any Obligor or ERISA Affiliate makes or is
obligated to make contributions, or during the preceding five plan years, has
made or been obligated to make contributions.

224. Net Proceeds: with respect to an Asset Disposition, proceeds (including,
when received, any deferred or escrowed payments) received by an Obligor or
Subsidiary in cash from such disposition, net of (a) reasonable and customary
costs and expenses actually incurred in connection therewith, including legal
fees and sales commissions; (b) amounts applied to repayment of Debt secured by
a Permitted Lien senior to Agent’s Liens on Collateral sold; (c) transfer or
similar taxes; and (d) reserves for indemnities, until such reserves are no
longer needed (after which, any such amounts previously held as reserves shall
become Net Proceeds when received).

225. NOLV Percentage: with respect to each category of each Borrower’s Inventory
(as determined by Agent from to time in its discretion) the net orderly
liquidation value of such Inventory, expressed as a percentage (such percentage
to be adjusted seasonally at such times consistent with the most recently
delivered appraisal, as determined by Agent), expected to be realized at an
orderly, negotiated sale held within a reasonable period of time, net of all
liquidation expenses, as determined from the most recent appraisal of such
Inventory performed by an appraiser and on terms satisfactory to Agent.

 

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226. Notes: each Revolver Note or other promissory note executed by a Borrower
to evidence any Obligations.

227. Notice of Borrowing: a Notice of Borrowing to be provided by Borrower Agent
to request a Borrowing of Revolver Loans, in form satisfactory to Agent.

228. Notice of Conversion/Continuation: a Notice of Conversion/Continuation to
be provided by Borrower Agent to request a conversion or continuation of any
Loans as LIBOR Loans or Canadian BA Rate Loans, in form satisfactory to Agent.

229. Noticed Hedge: Secured Bank Product Obligations arising under a Hedging
Agreement.

230. Obligations: all (a) principal of and premium, if any, on the Loans,
(b) U.S. LC Obligations and other obligations of the U.S. Facility Obligors with
respect to Letters of Credit, (c) Canadian LC Obligations and other obligations
of the Canadian Facility Obligors with respect to Letters of Credit,
(d) interest, expenses, fees, indemnification obligations, Extraordinary
Expenses and other amounts payable by Obligors under Loan Documents, (e) Secured
Bank Product Obligations, and (f) other Debts, obligations and liabilities of
any kind owing by Obligors pursuant to the Loan Documents, whether now existing
or hereafter arising, whether evidenced by a note or other writing, whether
allowed in any Insolvency Proceeding, whether arising from an extension of
credit, issuance of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, and whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary, or joint or several.

231. Obligor: each Borrower, Guarantor, or other Person that is liable for
payment of any Obligations or that has granted a Lien in favor of Agent on its
assets to secure any Obligations.

232. Obligor Group: a group consisting of (i) Canadian Facility Obligors or
(ii) U.S. Facility Obligors.

233. Off-Balance Sheet Liabilities: with respect to any Person, the (a) monetary
obligations of such Person under a so-called synthetic lease, off-balance sheet
or tax retention lease, if such obligations are considered indebtedness for
borrowed money for tax purposes but such lease is classified as an operating
lease under GAAP, but in any case excluding any obligations (i) that are
liabilities of any such Person as lessee under any operating lease so long as
the terms of such operating lease do not require any payment by or on behalf of
such Person at termination of such operating lease pursuant to a required
purchase by or on behalf of such Person of the property or assets subject to
such operating lease or (ii) under any arrangement pursuant to which such Person
guarantees or otherwise assures any other Person of the value of the property or
assets subject to such operating lease and (b) the monetary obligations under
any sale and leaseback transaction which does not create a liability on the
consolidated balance sheet of such Person.

234. Ordinary Course of Business: with respect to any Person, the ordinary
course of business of such Person, consistent with past practices.

 

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235. Organic Documents: with respect to any Person, its charter, certificate or
articles of incorporation, amalgamation or continuance, bylaws, articles of
organization, limited liability agreement, operating agreement, members
agreement, shareholders agreement, partnership agreement, certificate of
partnership, certificate of formation, memorandum of association, voting trust
agreement, or similar agreement or instrument governing the formation or
operation of such Person.

236. Original Agreement Closing Date: June 30, 2011.

237. Original Loan Agreement: as defined in the recitals hereto.

238. OSHA: the Occupational Safety and Hazard Act of 1970.

239. Other Agreement: each Note; LC Document; Fee Letters; Lien Waiver;
Borrowing Base Certificate, Compliance Certificate, financial statement or
report delivered hereunder; or other document, instrument or agreement (other
than this Agreement or a Security Document) now or hereafter delivered by an
Obligor or other Person to Agent or a Lender in connection with any transactions
relating hereto.

240. Other Taxes: all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment
made under any Loan Document or from the execution, delivery or enforcement of,
or otherwise with respect to, any Loan Document.

241. Overadvance: a Canadian Overadvance or U.S. Overadvance, as the context
requires.

242. Overadvance Loan: a Canadian Overadvance Loan and/or a U.S. Overadvance
Loan, as the context requires.

243. Parent: as defined in the preamble to this Agreement.

244. Participant: as defined in Section 13.2.

245. Patriot Act: the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L.
No. 107-56, 115 Stat. 272 (2001).

246. Payment Item: each check, draft or other item of payment payable to an
Obligor, including those constituting proceeds of any Collateral.

247. PBA: the Pension Benefits Act (Ontario) or any other Canadian federal or
provincial statute in relation to Canadian Pension Plans, and any regulations
thereunder, as amended from time to time.

248. PBGC: the Pension Benefit Guaranty Corporation.

 

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249. Pension Plan: any employee pension benefit plan (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to
Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA
Affiliate or to which the Obligor or ERISA Affiliate contributes or has an
obligation to contribute, or in the case of a multiple employer or other plan
described in Section 4064(a) of ERISA, has made contributions at any time during
the preceding five plan years.

250. Permitted Acquisition: any Acquisition by Parent or any of its Subsidiaries
where:

251. (a) the Board of Directors or authorized management committee of Parent or
of the applicable Subsidiary and of the Person whose assets or Equity Interests
are being acquired has approved such Acquisition;

252. (b) the business acquired in connection with such Acquisition is engaged in
one or more of the leisure goods, products and services businesses generally or
any business activities that are substantially similar, related, incidental or
complementary thereto;

253. (c) both before and after giving effect to such Acquisition and the Loans
and Letters of Credit (if any) requested to be made in connection therewith,
each of the representations and warranties in the Loan Documents is true and
correct in all material (except that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof) respects (except (i) any such
representation or warranty which relates to a specified prior date and (ii) to
the extent the Agent has been notified in writing by Borrower Agent that any
representation or warranty is not correct and the Required Lenders have
explicitly waived in writing compliance with such representation or warranty)
and no Default or Event of Default exists, will exist, or would result
therefrom;

254. (d) after giving effect to the Acquisition, the Parent and its Subsidiaries
will continue to be compliance with the covenants in this Agreement, determined
on a Pro Forma Basis;

255. (e) the purchase consideration payable in respect of all Permitted
Acquisitions (including the proposed Acquisition and including deferred payment
obligations) shall not exceed the Acquisition Cap in the aggregate; provided,
however, that no such Acquisition shall count against the Acquisition Cap if
either: (i) (A) average daily Trigger Event Excess Availability has been greater
than an amount equal to 15% of the sum of the Canadian Borrowing Base (without
giving effect to the Canadian LC Reserve for purposes of this calculation) and
the U.S. Borrowing Base (without giving effect to the U.S. LC Reserve and the
Canadian Overadvance Loan Balance for purposes of this calculation) during each
month for the six month period immediately prior to the consummation of such
Acquisition, (B) Trigger Event Excess Availability is greater than an amount
equal to 15% of the sum of the Canadian Borrowing Base (without giving effect to
the Canadian LC Reserve for purposes of this calculation) and the U.S. Borrowing
Base (without giving effect to the U.S. LC Reserve and the Canadian Overadvance
Loan Balance for purposes of this calculation) after giving effect to such
Acquisition, (C) the Borrowers believe in good faith that, on a Pro Forma Basis
as of the last day of each month during the six month period immediately
following the consummation of such

 

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Acquisition, they shall have projected Trigger Event Excess Availability of no
less than an amount equal to 15% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation), and (D) the Fixed Charge Coverage Ratio, on a Pro Forma Basis
after giving effect to such Acquisition (calculated on a trailing twelve month
basis recomputed for the most recent month for which financial statements have
been delivered) is not less than 1.0 to 1.0; or (ii) (A) average daily Trigger
Event Excess Availability has been greater than an amount equal to 25% of the
sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S. Borrowing Base (without
giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance
for purposes of this calculation) during each month for the six month period
immediately prior to the consummation of such Acquisition, (B) Trigger Event
Excess Availability is greater than an amount equal to 25% of the sum of the
Canadian Borrowing Base (without giving effect to the Canadian LC Reserve for
purposes of this calculation) and the U.S. Borrowing Base (without giving effect
to the U.S. LC Reserve and the Canadian Overadvance Loan Balance for purposes of
this calculation) after giving effect to such Acquisition, and (C) the Borrowers
believe in good faith that, on a Pro Forma Basis as of the last day of each
month during the six month period immediately following the consummation of such
Acquisition, they shall have projected Trigger Event Excess Availability of no
less than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation);

256. (f) as soon as available, but not less than 15 Business Days prior to such
Acquisition, Borrower Agent has provided Agent (i) notice of such Acquisition
and (ii) a copy of all available business and financial information reasonably
requested by Agent including pro forma financial statements, statements of cash
flow, financial covenant projections, and Availability projections;

257. (g) not later than: (i) 15 Business Days prior to the anticipated closing
date of such Acquisition, Borrower Agent shall have provided Agent with the then
current drafts of the acquisition agreement and other material documents
relative to such Acquisition, and (ii) 3 Business Days prior to the anticipated
closing date of such Acquisition, Borrower Agent shall have provided Agent with
the final copies of the acquisition agreement and other material documents
relative to such Acquisition;

258. (h) the assets being acquired (other than a de minimis amount of assets in
relation to the assets being acquired) are located within the United States or
Canada, or the Person whose Equity Interests are being acquired is organized in
a jurisdiction located within the United States or Canada; provided, however,
that this clause (h) shall not be applicable to any Acquisition if either:
(i) (A) average daily Trigger Event Excess Availability has been greater than an
amount equal to 15% of the sum of the Canadian Borrowing Base (without giving
effect to the Canadian LC Reserve for purposes of this calculation) and the U.S.
Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation) during each month for
the six month period immediately prior to the consummation of such Acquisition,
(B) Trigger Event Excess Availability is greater than an

 

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amount equal to 15% of the sum of the Canadian Borrowing Base (without giving
effect to the Canadian LC Reserve for purposes of this calculation) and the U.S.
Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation) after giving effect
to such Acquisition, (C) the Borrowers believe in good faith that, on a Pro
Forma Basis as of the last day of each month during the six month period
immediately following the consummation of such Acquisition, they shall have
projected Trigger Event Excess Availability of no less than an amount equal to
15% of the sum of the Canadian Borrowing Base (without giving effect to the
Canadian LC Reserve for purposes of this calculation) and the U.S. Borrowing
Base (without giving effect to the U.S. LC Reserve and the Canadian Overadvance
Loan Balance for purposes of this calculation), and (D) the Fixed Charge
Coverage Ratio, on a Pro Forma Basis after giving effect to such Acquisition
(calculated on a trailing twelve month basis recomputed for the most recent
month for which financial statements have been delivered) is not less than 1.0
to 1.0; or (ii) (A) average daily Trigger Event Excess Availability has been
greater than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation) during each month for the six month period immediately prior to the
consummation of such Acquisition, (B) Trigger Event Excess Availability is
greater than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation) after giving effect to such Acquisition, and (C) the Borrowers
believe in good faith that, on a Pro Forma Basis as of the last day of each
month during the six month period immediately following the consummation of such
Acquisition, they shall have projected Trigger Event Excess Availability of no
less than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation); and

259. (i) concurrently with such Acquisition, any Person required to become a
Guarantor or to execute or to deliver any Loan Document will do so in accordance
with the requirements of this Agreement.

In no event will assets acquired pursuant to a Permitted Acquisition constitute
assets eligible for inclusion in the Borrowing Base prior to completion of a
field examination, appraisal and other due diligence acceptable to Agent in its
discretion, and if such satisfactory field examination, appraisal and due
diligence is undertaken prior to the closing of such Acquisition, the assets
acquired pursuant to such Acquisition may be taken into account in the
applicable Borrowing Base (subject to all eligibility criteria) in determining
whether the foregoing conditions are satisfied.

260. Permitted Lien: as defined in Section 10.2.1.

261. Person: any individual, corporation, limited liability company, unlimited
liability company, partnership, joint venture, joint stock company, land trust,
business trust, unincorporated organization, Governmental Authority or other
entity.

 

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262. Plan: any employee benefit plan (as such term is defined in Section 3(3) of
ERISA) established by an Obligor or, with respect to any such plan that is
subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.

263. PPSA: the Personal Property Security Act (Ontario) and the regulations
thereunder; provided, however, if validity, perfection and effect of perfection
and non-perfection of Agent’s security interest in and Lien on any Collateral
are governed by the personal property security laws of any jurisdiction other
than Ontario, PPSA shall mean those personal property security laws (including
the Civil Code of Quebec) in such other jurisdiction for the purposes of the
provisions hereof relating to such validity, perfection, and effect of
perfection and non-perfection and for the definitions related to such
provisions, as from time to time in effect.

264. Preferred Stock Repurchase: a repurchase, redemption or other retirement
for value of all or a portion of the Parent’s outstanding 7.50% Series B
Cumulative Perpetual Convertible Preferred Stock, $0.01 par value.

265. Pro Forma Basis: with respect to compliance with any test or covenant
hereunder, in connection with or after the occurrence of an Acquisition,
compliance with such covenant or test after giving effect to any such
Acquisition as if such Acquisition had occurred on the first day of the relevant
test period (including pro forma adjustments arising out of events which are
directly attributable to the proposed Acquisition, are factually supportable and
are expected to have a continuing impact, in each case to be mutually and
reasonably agreed upon by Borrower Agent and Agent).

266. Pro Rata: (a) with respect to any U.S. Lender and in reference to its U.S.
Revolver Commitment, U.S. Facility Obligations or other matters (including
(A) payments of principal, accrued interest and fees related thereto,
(B) participations in U.S. LC Obligations and U.S. Swingline Loans,
(C) increases or reductions to the U.S. Revolver Commitments pursuant to
Section 2.1.4 or 2.1.7, and (D) obligations to pay or reimburse Agent for
Extraordinary Expenses owed by or in respect of the U.S. Facility Obligors or to
indemnify any Indemnitees for Claims relating to the U.S. Facility Obligors)
relating thereto, as applicable, a percentage (carried out to the ninth decimal
place) determined (i) while the U.S. Revolver Commitments are outstanding, by
dividing the amount of such U.S. Lender’s U.S. Revolver Commitment by the
aggregate amount of all U.S. Revolver Commitments, and (ii) at any other time,
by dividing the amount of such U.S. Lender’s U.S. Revolver Loans and U.S. LC
Obligations by the aggregate amount of all U.S. Revolver Loans and U.S. LC
Obligations; (b) with respect to any Canadian Lender and in reference to its
Canadian Revolver Commitment, Canadian Facility Obligations or other matters
(including (A) payments of principal, accrued interest and fees related thereto,
(B) participations in Canadian LC Obligations and Canadian Swingline Loans,
(C) reductions to the Canadian Revolver Commitments pursuant to Section 2.1.4,
and (D) obligations to pay or reimburse Agent for Extraordinary Expenses owed by
or in respect of the Canadian Facility Obligors or to indemnify any Indemnitees
for Claims relating to the Canadian Facility Obligors) relating thereto, as
applicable, a percentage (carried out to the ninth decimal place) determined
(i) while the Canadian Revolver Commitments are outstanding, by dividing such
Canadian Lender’s Canadian Revolver Commitment by the aggregate amount of all
Canadian Revolver Commitments, and (ii) at any other time, by dividing the
amount of such Canadian Lender’s Canadian Revolver Loans and Canadian LC
Obligations by the aggregate amount of all

 

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Canadian Revolver Loans and Canadian LC Obligations; and (c) with respect to any
Lender and in reference to any other matter relating to this Agreement or any
other Loan Document which is not governed by clause (a) or clause (b) preceding
of this definition (as reasonably determined by Agent from time to time), a
percentage (carried out in the ninth decimal place) determined (i) while any
Revolver Commitments are outstanding, by dividing the amount of such Lender’s
Revolver Commitments by the aggregate amount of all Revolver Commitments, and
(ii) at any other time, by dividing the amount of such Lender’s Loans and LC
Obligations by the aggregate amount of all Loans and LC Obligations.

267. Proceeds: as defined in Section 7.1.

268. Proceeds of Crime Act: the Proceeds of Crime (Money Laundering) and
Terrorist Financing Act (Canada) (or any successor statute), as amended from
time to time, and includes all regulations thereunder.

269. Properly Contested: with respect to any obligation of any Person, (a) the
obligation is subject to a bona fide dispute regarding amount or such Person’s
liability to pay; (b) the obligation is being properly contested in good faith
by appropriate proceedings promptly instituted and diligently pursued;
(c) appropriate reserves have been established in accordance with GAAP;
(d) non-payment could not have a Material Adverse Effect; (e) no Lien is imposed
on assets of such Person or its Affiliates in an aggregate amount in excess of
$1,000,000 for all such Liens, unless bonded and stayed to the reasonable
satisfaction of Agent; and (f) if the obligation results from entry of a
judgment or other order in an aggregate amount in excess of $1,000,000 for all
such obligations, such judgment or order is stayed pending appeal or other
judicial review.

270. Property: any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

271. Protective Advances: as defined in Section 2.1.6.

272. RCRA: the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i).

273. RDPRM: Quebec Register of Personal and Movable Real Rights or Registre des
droits personnels et reels mobiliers du Quebec.

274. Real Estate: all right, title and interest (whether as owner, lessor or
lessee) in any real Property or any buildings, structures, parking areas or
other improvements thereon.

275. Report: as defined in Section 12.2.3.

276. Reportable Event: any of the events set forth in Section 4043(c) of ERISA,
other than events for which the 30 day notice period has been waived.

277. Reporting Trigger Period: the period (a) commencing on the day that an
Event of Default occurs, or Trigger Event Excess Availability is less than, at
any time, the greater of (i) $35,000,000, and (ii) an amount equal to 15% of the
sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S.

 

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Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation); and (b) continuing
until, during the preceding 30 consecutive days, no Event of Default has existed
and Trigger Event Excess Availability has been greater than, at all times, the
greater of (i) $35,000,000, and (ii) an amount equal to 15% of the sum of the
Canadian Borrowing Base (without giving effect to the Canadian LC Reserve for
purposes of this calculation) and the U.S. Borrowing Base (without giving effect
to the U.S. LC Reserve and the Canadian Overadvance Loan Balance for purposes of
this calculation).

278. Required Lenders: Lenders (subject to Section 4.2) having (a) Revolver
Commitments in excess of 50% of the aggregate Revolver Commitments; and (b) if
the Revolver Commitments have terminated, Loans and LC Obligations in excess of
50% of all outstanding Loans and LC Obligations; provided, however, that the
Commitments and Loans of any Defaulting Lender shall be excluded from such
calculation; provided, further, that at any time there are: (i) 3 or more
Lenders, “Required Lenders” must include at least 3 Lenders, and (ii) less than
3 Lenders, “Required Lenders” must include all Lenders.

279. Reserve Percentage: the reserve percentage (expressed as a decimal, rounded
up to the nearest 1/8th of 1%) applicable to member banks under regulations
issued by the Board of Governors for determining the maximum reserve requirement
for Eurocurrency liabilities.

280. Reset Date: as defined Section 5.13.

281. Restrictive Agreement: an agreement (other than a Loan Document) that
conditions or restricts the right of any Borrower, Subsidiary or other Obligor
to incur or repay Borrowed Money, to grant Liens on any assets, to declare or
make Distributions, to modify, extend or renew any agreement evidencing Borrowed
Money, or to repay any intercompany Debt.

282. Revolver Commitment: a U.S. Revolver Commitment and/or a Canadian Revolver
Commitment, as the context requires. “Revolver Commitments” means the aggregate
of the U.S. Revolver Commitments and the Canadian Revolver Commitments.

283. Revolver Facilities: as defined in Section 14.11(a)(vi).

284. Revolver Loan: a U.S. Revolver Loan and/or a Canadian Revolver Loan, as the
context requires.

285. Revolver Notes: collectively, the U.S. Revolver Notes and the Canadian
Revolver Notes.

286. Royalties: all royalties, fees, expense reimbursement and other amounts
payable by an Obligor or a Subsidiary under a License.

287. S&P: Standard & Poor’s Ratings Services, a division of The McGraw-Hill
Companies, Inc., and its successors.

288. SEC: the Securities and Exchange Commission, or any Governmental Authority
succeeding to any of its principal functions.

 

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289. Secured Bank Product Obligations: Bank Product Debt owing to a Secured Bank
Product Provider, up to the maximum amount (in the case of any Secured Bank
Product Provider other than Bank of America and its Affiliates) specified by
such provider in writing to Agent, which amount may be established or increased
(by further written notice to Agent from time to time) as long as no Default or
Event of Default exists and no Overadvance would result from establishment of a
Canadian Bank Product Reserve or U.S. Bank Product Reserve, as applicable, for
such amount and all other Secured Bank Product Obligations.

290. Secured Bank Product Provider: (a) Bank of America or any of its
Affiliates; and (b) any other Lender or Affiliate of a Lender that is providing
a Bank Product, provided such provider delivers written notice to Agent, in form
and substance satisfactory to Agent, by the later of the Closing Date or 10 days
following creation of the Bank Product, (i) describing the Bank Product and
setting forth the maximum amount to be secured by the Collateral and the
methodology to be used in calculating such amount, and (ii) agreeing to be bound
by Section 12.13.

291. Secured Parties: Canadian Facility Secured Parties and/or U.S. Facility
Secured Parties, as the context requires.

292. Security Documents: this Agreement, the Guaranties, Canadian Security
Agreements, Deposit Account Control Agreements, and all other documents,
instruments and agreements now or hereafter securing (or given with the intent
to secure) any Obligations.

293. Senior Officer: the chairman of the board, director, president, chief
executive officer, chief financial officer or treasurer of a Borrower or, if the
context requires, an Obligor.

294. Settlement Report: a report delivered by Agent to the Applicable Lenders
summarizing the Revolver Loans and, if applicable, participations in LC
Obligations outstanding as of a given settlement date, allocated to the
Applicable Lenders on a Pro Rata basis in accordance with their Revolver
Commitments.

295. Solidary Claim: as defined in Section 12.1.1(b).

296. Solvent: as to any Person, such Person (a) owns Property whose fair salable
value is greater than the amount required to pay all of its debts (including
contingent, subordinated, unmatured and unliquidated liabilities); (b) owns
Property whose present fair salable value (as defined below) is greater than the
probable total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of such Person as they become absolute and matured;
(c) is able to pay all of its debts as they mature; (d) has capital that is not
unreasonably small for its business and is sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage; (e) is not “insolvent” within the meaning of Section 101(32) of the U.S.
Bankruptcy Code; and (f) has not incurred (by way of assumption or otherwise)
any obligations or liabilities (contingent or otherwise) under any Loan
Documents, or made any conveyance in connection therewith, with actual intent to
hinder, delay or defraud either present or future creditors of such Person or
any of its Affiliates. “Fair salable value” means the amount that could be
obtained for assets within a reasonable time, either through collection or
through sale under ordinary selling conditions by a capable and diligent seller
to an

 

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interested buyer who is willing (but under no compulsion) to purchase. In
addition to the foregoing, “Solvent” means, with respect to any Canadian
Subsidiary, that such Canadian Subsidiary is (i) adequately capitalized,
(ii) owns assets, the value of which, on a going concern basis, exceeds the
liabilities of such Person, (iii) will have sufficient working capital to pay
its debts as they become due, (iv) has not incurred (by way of assumption or
otherwise) any obligations or liabilities (contingent or otherwise) under any
Loan Documents, or made any conveyance in connection therewith, with actual
intent to hinder, delay or defraud either the present or future creditors of
such Subsidiary or any of its Affiliates, and (v) is not an “insolvent person”
as defined in the Bankruptcy and Insolvency Act (Canada).

297. Spot Rate: the exchange rate, as determined by Agent, that is applicable to
conversion of one currency into another currency, which is (a) the exchange rate
reported by Bloomberg (or other commercially available source designated by
Agent) as of the end of the preceding business day in the financial market for
the first currency; or (b) if such report is unavailable for any reason, the
spot rate for the purchase of the first currency with the second currency as in
effect during the preceding business day in Agent’s principal foreign exchange
trading office for the first currency.

298. Subsidiary: any entity at least 50% of whose voting securities or Equity
Interests are owned by the Parent (including indirect ownership by the Parent
through other entities in which the Parent directly or indirectly owns 50% of
the voting securities or Equity Interests).

299. Supermajority Lenders: Lenders (subject to Section 4.2) having (a) Revolver
Commitments in excess of 75% of the aggregate Revolver Commitments; and (b) if
the Revolver Commitments have terminated, Loans and LC Obligations in excess of
75% of all outstanding Loans and LC Obligations; provided, however, that the
Commitments and Loans of any Defaulting Lender shall be excluded from such
calculation.

300. Swingline Loans: the Canadian Swingline Loans and the U.S. Swingline Loans.

301. Taxes: all present or future taxes, levies, imposts, duties, deductions,
withholdings (including backup withholding), assessments, fees or other charges
imposed by any Governmental Authority, including any interest, additions to tax
or penalties applicable thereto.

302. Termination Event: (a) the whole or partial withdrawal of a Canadian
Subsidiary from a Canadian Pension Plan during a plan year; or (b) the filing of
a notice of interest to terminate in whole or in part a Canadian Pension Plan or
the treatment of a Canadian Pension Plan amendment as a termination or partial
termination; or (c) the institution of proceedings by any Governmental Authority
to terminate in whole or in part or have a trustee appointed to administer a
Canadian Pension Plan; or (d) any other event or condition which might
constitute grounds for the termination of or winding up, or partial termination
of or winding up, or the appointment of trustee to administer, any Canadian
Pension Plan.

303. Total Revolver Exposure: as of any date of determination, the sum of the
U.S. Revolver Exposure plus the Canadian Revolver Exposure.

304. Trademarks: any and all U.S. and foreign registered and unregistered
trademarks, service marks, trade names, logos, designs, trade dress and other
signifiers of origin, including

 

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licenses thereof (but, with respect to such licenses, only to the extent the
Obligors have the right to grant such sub-license without the consent of any
other party).

305. Transferee: any actual or potential Eligible Assignee, Participant or other
Person acquiring an interest in any Obligations.

306. Trigger Event Excess Availability: as of any date of determination, an
amount equal to the sum of: (a) U.S. Availability, plus (b) the lesser of
(i) Canadian Availability, and (ii) 25% of U.S. Availability, minus (c) the
aggregate amount, if any, of all trade payables of Obligors that are more than
60 days past due and all book overdrafts of Obligors in excess of historical
practices with respect thereto, in each case as determined by Agent in its
Credit Judgment.

307. Type: any type of a Loan (i.e., U.S. Base Rate Loan, LIBOR Loan, Canadian
BA Rate Loan, Canadian Base Rate Loan, or Canadian Prime Rate Loan) and, in the
case of LIBOR Loans and Canadian BA Rate Loans, the same Interest Period.

308. UCC: the Uniform Commercial Code as in effect in the State of New York or,
when the laws of any other jurisdiction govern the perfection or enforcement of
any Lien, the Uniform Commercial Code of such jurisdiction.

309. Unfunded Pension Liability: the excess of a Pension Plan’s benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Pension Plan’s assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year and includes any unfunded liability or solvency deficiency as
determined for the purposes of the PBA in respect of any Canadian Pension Plan.

310. uPlay: uPlay, Inc., a Delaware corporation.

311. U.S. Accounts Formula Amount: 85% of the Value of Eligible Accounts of the
U.S. Borrowers.

312. U.S. Availability: as of any date of determination, the U.S. Borrowing Base
as of such date of determination minus the aggregate principal amount of U.S.
Revolver Loans outstanding on such date of determination.

313. U.S. Availability Reserve: the sum (without duplication) of (a) the
Inventory Reserve with respect to the U.S. Borrowers’ Inventory; (b) the U.S.
Rent and Charges Reserve; (c) the U.S. LC Reserve; (d) the U.S. Bank Product
Reserve; (e) all accrued Royalties of the U.S. Facility Obligors, whether or not
then due and payable by a U.S. Facility Obligor; (f) the aggregate amount of
liabilities secured by Liens upon U.S. Facility Collateral that are senior to
the Agent’s Liens (but imposition of any such reserve shall not waive an Event
of Default arising therefrom); (g) the U.S. Dilution Reserve, (h) the Canadian
Overadvance Loan Balance, if any, outstanding on such date; and (i) such
additional reserves, in such amounts and with respect to such matters, as Agent
in its Credit Judgment may elect to impose from time to time with respect to the
U.S. Borrowing Base.

 

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314. U.S. Bank Product Reserve: the aggregate amount of reserves established by
Agent from time to time in its discretion in respect of Secured Bank Product
Obligations owing by the U.S. Domiciled Obligors and their Subsidiaries.

315. U.S. Bankruptcy Code: Title 11 of the United States Code.

316. U.S. Base Rate: for any day, a per annum rate equal to the greater of
(a) the U.S. Prime Rate for such day; (b) the Federal Funds Rate for such day,
plus 0.50%; or (c) LIBOR for a 30 day interest period as determined on such day,
plus 1.0%.

317. U.S. Base Rate Loan: a Revolver Loan that bears interest based on the U.S.
Base Rate.

318. U.S. Borrowers: as defined in the preamble to this Agreement.

319. U.S. Borrowing Base: on any date of determination, an amount equal to the
lesser of (a) the Maximum U.S. Facility Amount, minus the U.S. LC Reserve, minus
the Canadian Overadvance Loan Balance, if any, outstanding on such date; or
(b) the sum of the U.S. Accounts Formula Amount, plus the U.S. Inventory Formula
Amount, minus the U.S. Availability Reserve.

320. U.S. Borrowing Base Certificate: a certificate, in form and substance
satisfactory to Agent, by which the U.S. Borrowers certify calculation of the
U.S. Borrowing Base.

321. U.S. Cash Collateral Account: a demand deposit, money market or other
account established by Agent at Bank of America or such other financial
institution as Agent may select in its discretion, which account shall be for
the benefit of the U.S. Facility Secured Parties and shall be subject to Agent’s
Liens securing the U.S. Facility Obligations.

322. U.S. Dilution Reserve: as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts of the U.S.
Borrowers by one (1) percentage point for each whole percentage point (or
portion thereof) by which the Dilution Percent is in excess of 5.0%.

323. U.S. Domiciled Obligor: each of the Parent, any U.S. Borrower or any U.S.
Subsidiary which it is at any time an Obligor, and “U.S. Domiciled Obligors”
means all such Persons, collectively.

324. U.S. Dominion Account: a special account established by the U.S. Borrowers
at Bank of America or another bank acceptable to Agent, over which Agent has
exclusive control for withdrawal purposes during any Dominion Trigger Period.

325. U.S. Facility Collateral: all Collateral that now or hereafter secures (or
is intended to secure) any of the U.S. Facility Obligations, including Property
of each U.S. Domiciled Obligor.

 

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326. U.S. Facility Guarantee: each guarantee agreement (including this
Agreement) at any time executed by a U.S. Facility Guarantor in favor of Agent
guaranteeing all or any portion of the U.S. Facility Obligations.

327. U.S. Facility Guarantor: each U.S. Subsidiary other than uPlay (unless
uPlay becomes a Guarantor in accordance with Section 10.2.15) and each other
Person (if any) who guarantees payment and performance of any U.S. Facility
Obligations.

328. U.S. Facility Obligations: all Obligations of the U.S. Facility Obligors
(including, for the avoidance of doubt, the Obligations of the U.S. Domiciled
Obligors as guarantors of the Canadian Facility Obligations).

329. U.S. Facility Obligor: each of any U.S. Borrower or any U.S. Facility
Guarantor, and “U.S. Facility Obligors” means all of such Persons, collectively.

330. U.S. Facility Secured Parties: the Agent, the U.S. Issuing Bank, the U.S.
Lenders and the Secured Bank Product Providers who provide Bank Products to the
U.S. Facility Obligors and their Subsidiaries.

331. U.S. Inventory Formula Amount: the sum of: (a) the lesser of (i) 65% of the
Value of the U.S. Borrowers’ Eligible Inventory, or (ii) 85% of the NOLV
Percentage of the Value of the U.S. Borrowers’ Eligible Inventory; plus (b) the
lesser of (i) $8,000,000, (ii) 65% of the Value of the U.S. Borrowers’ Eligible
In-Transit Inventory, or (ii) 85% of the NOLV Percentage of the Value of the
U.S. Borrowers’ Eligible In-Transit Inventory.

332. U.S. Issuing Bank: Bank of America or an Affiliate or branch of Bank of
America

333. U.S. LC Obligations: the sum (without duplication) of (a) all amounts owing
by the U.S. Borrowers for any drawings under Letters of Credit; (b) the stated
amount of all outstanding Letters of Credit issued for the account of any U.S.
Borrower; and (c) all fees and other amounts owing with respect to Letters of
Credit issued for the account of any U.S. Borrower.

334. U.S. LC Reserve: the aggregate of all U.S. LC Obligations, other than those
that have been Cash Collateralized.

335. U.S. Lenders: Bank of America and each other Lender (other than Canadian
Lenders) party hereto.

336. U.S. Letter of Credit Subline: $20,000,000.

337. U.S. Letters of Credit: any standby or documentary letter of credit issued
by the U.S. Issuing Bank for the account of the U.S. Borrowers (or any U.S.
Borrower), or any indemnity, guarantee, exposure transmittal memorandum or
similar form of credit support issued by Agent or the U.S. Issuing Bank for the
benefit of any U.S. Borrower, and shall include the Existing Letters of Credit.

 

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338. U.S. Overadvance: as defined in Section 2.1.5.

339. U.S. Overadvance Loan: a U.S. Revolver Loan made to the U.S. Borrowers or
the amount owed by the U.S. Borrowers when a U.S. Overadvance exists or is
caused by the funding thereof.

340. U.S. Prime Rate: the rate of interest announced by Bank of America from
time to time as its prime rate. Such rate is set by Bank of America on the basis
of various factors, including its costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above or below such rate. Any change in such rate
announced by Bank of America shall take effect at the opening of business on the
day specified in the public announcement of such change.

341. U.S. Reimbursement Date: as defined in Section 2.3.2.

342. U.S. Rent and Charges Reserve: the aggregate of (a) all past due rent and
other amounts owing by an Obligor to any landlord, warehouseman, processor,
repairman, mechanic, shipper, freight forwarder, broker or other Person who
possesses any U.S. Facility Collateral or could assert a Lien on any U.S.
Facility Collateral; and (b) commencing three months after the Original
Agreement Closing Date, a reserve at least equal to three months’ rent and other
charges that could be payable to any such Person, unless it has executed a Lien
Waiver.

343. U.S. Required Lenders: U.S. Lenders (subject to Section 4.2) having
(a) U.S. Revolver Commitments in excess of 50% of the aggregate U.S. Revolver
Commitments; and (b) if the U.S. Revolver Commitments have terminated, U.S.
Revolver Loans and U.S. LC Obligations in excess of 50% of all outstanding U.S.
Revolver Loans and U.S. LC Obligations; provided, however, that the Commitments
and Loans of any Defaulting Lender shall be excluded from such calculation;
provided, further, that at any time there are: (i) 3 or more U.S. Lenders, “U.S.
Required Lenders” must include at least 3 U.S. Lenders, and (ii) less than 3
U.S. Lenders, “U.S. Required Lenders” must include all U.S. Lenders.

344. U.S. Revolver Commitment: for any U.S. Lender, its obligation to make U.S.
Revolver Loans and to participate in U.S. LC Obligations up to the maximum
principal amount shown on Schedule 1.1, or as hereafter determined pursuant to
each Assignment and Acceptance to which it is a party, as such U.S. Revolver
Commitment may be adjusted from time to time in accordance with the provisions
of Sections 2.1.4, 2.1.7, or 11.2. “U.S. Revolver Commitments” means the
aggregate amount of such commitments of all U.S. Lenders.

345. U.S. Revolver Commitment Termination Date: the earliest of (a) the Facility
Termination Date, (b) the date on which the Borrower Agent terminates or reduces
to zero the U.S. Revolver Commitments pursuant to Section 2.1.4, and (c) the
date on which the U.S. Revolver Commitments are terminated pursuant to
Section 11.2.

346. U.S. Revolver Exposure: on any date, an amount equal to the sum of the U.S.
Revolver Loans outstanding on such date plus the U.S. LC Obligations on such
date.

347. U.S. Revolver Loan: a Revolver Loan made by a U.S. Lender to a U.S.
Borrower pursuant to Section 2.1.1(a), which Loan shall be denominated in
Dollars and shall be either a

 

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U.S. Base Rate Loan or a LIBOR Loan, in each case as selected by Borrower Agent,
and any U.S. Swingline Loan, U.S. Overadvance Loan or Protective Advance made to
or owed by the U.S. Borrowers.

348. U.S. Revolver Notes: a promissory note executed by U.S. Borrowers in favor
of a U.S. Lender in the form of Exhibit A-2, in the amount of such U.S. Lender’s
U.S. Revolver Commitment.

349. U.S. Subsidiary: a Subsidiary of Parent that is organized under the laws of
a state of the United States or the District of Columbia.

350. U.S. Swingline Loan: any Borrowing of U.S. Base Rate Loans funded with
Agent’s funds, until such Borrowing is settled among the U.S. Lenders or repaid
by the U.S. Borrowers.

351. U.S. Unused Line Fee Rate: a per annum rate equal to (a) 0.50%, if the
average daily balance of U.S. Revolver Loans and stated amount of U.S. Letters
of Credit was 50% or less of the U.S. Revolver Commitments during the preceding
calendar month, or (b) 0.375%, if such average daily balance was more than 50%
of the U.S. Revolver Commitments during the preceding calendar month.

352. Value: (a) for Inventory, its Dollar Equivalent value determined on the
basis of the lower of cost or market, calculated on a first-in, first-out basis,
and excluding any portion of cost attributable to intercompany profit among
Borrowers and their Affiliates; and (b) for an Account, its Dollar Equivalent
face amount, net of any returns, rebates, discounts (calculated on the shortest
terms), credits, allowances or Taxes (including sales, excise or other taxes)
that have been or could be claimed by the Account Debtor or any other Person.

Wage Earner Protection Act Reserve: on any date of determination, a reserve
established from time to time by Agent in its Credit Judgment in such amount as
Agent determines reflects the amounts that may become due under the Wage Earner
Protection Program Act (Canada) with respect to the employees of any Obligor
employed in Canada which would give rise to a Lien with priority under
Applicable Law over the Lien of Agent.

1.2 Accounting Terms. Under the Loan Documents (except as otherwise specified
herein), all accounting terms shall be interpreted, all accounting
determinations shall be made, and all financial statements shall be prepared, in
accordance with GAAP applied on a basis consistent with the most recent audited
financial statements of Obligors delivered to Agent before the Original
Agreement Closing Date and using the same inventory valuation method as used in
such financial statements, except for any change required or permitted by GAAP
if Obligors’ certified public accountants concur in such change, the change is
disclosed to Agent, and Section 10.3 and any other provision hereof are amended
in a manner satisfactory to Required Lenders to take into account the effects of
the change, if any. No calculations under the Loan Documents shall give effect
to any such change prior to any such amendment.

1.3 Uniform Commercial Code/PPSA. As used herein, the following terms are
defined in accordance with the UCC in effect in the State of New York from time
to time: “Chattel Paper,” “Commercial Tort Claim,” “Equipment,” “Goods,”
“Instrument,” “Investment

 

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Property,” “Letter-of-Credit Right” and “Supporting Obligation” and, as such
terms relate to any such Property of any Canadian Domiciled Obligor, such terms
shall refer to such Property as defined in the PPSA.

1.4 Certain Matters of Construction. The terms “herein,” “hereof,” “hereunder”
and other words of similar import refer to this Agreement as a whole and not to
any particular section, paragraph or subdivision. Any pronoun used shall be
deemed to cover all genders. In the computation of periods of time from a
specified date to a later specified date, “from” means “from and including,” and
“to” and “until” each mean “to but excluding.” The terms “including” and
“include” shall mean “including, without limitation” and, for purposes of each
Loan Document, the parties agree that the rule of ejusdem generis shall not be
applicable to limit any provision. Section titles appear as a matter of
convenience only and shall not affect the interpretation of any Loan Document.
All references to (a) laws or statutes include all related rules, regulations,
interpretations, amendments and successor provisions; (b) any document,
instrument or agreement include any amendments, waivers and other modifications,
extensions or renewals (to the extent permitted by the Loan Documents); (c) any
section mean, unless the context otherwise requires, a section of this
Agreement; (d) any exhibits or schedules mean, unless the context otherwise
requires, exhibits and schedules attached hereto, which are hereby incorporated
by reference; (e) any Person include successors and assigns; (f) time of day
mean time of day at Agent’s notice address under Section 14.3.1; or
(g) discretion of Agent, any Issuing Bank or any Lender mean the sole and
absolute discretion of such Person. Except as expressly otherwise provided
herein, all calculations of Value, fundings of Loans, issuances of Letters of
Credit and payments of Obligations shall be in Dollars and, unless the context
otherwise requires, all determinations (including calculations of Borrowing Base
and financial covenants) made from time to time under the Loan Documents shall
be made in light of the circumstances existing at such time. Borrowing Base
calculations shall be consistent with historical methods of valuation and
calculation, and otherwise satisfactory to Agent (and not necessarily calculated
in accordance with GAAP). Obligors shall have the burden of establishing any
alleged negligence, misconduct or lack of good faith by Agent, any Issuing Bank
or any Lender under any Loan Documents. No provision of any Loan Documents shall
be construed against any party by reason of such party having, or being deemed
to have, drafted the provision. Whenever the phrase “to the best of an Obligor’s
knowledge” or words of similar import are used in any Loan Documents, it means
actual knowledge of a Senior Officer of such Obligor, or knowledge that a Senior
Officer of such Obligor would have obtained if he or she had engaged in good
faith and diligent performance of his or her duties, including reasonably
specific inquiries of employees or agents and a good faith attempt to ascertain
the matter to which such phrase relates.

1.5 Calculations. All references in the Loan Documents to Loans, Letters of
Credit, Obligations, Borrowing Base components and other amounts shall be
denominated in Dollars, unless expressly provided otherwise. The Dollar
equivalent of any amounts denominated or reported under a Loan Document in a
currency other than Dollars shall be determined by Agent on a daily basis, based
on the current Spot Rate. Borrowers shall report Value and other Borrowing Base
components to Agent in the currency invoiced by Obligors or shown in Obligors’
financial records, and unless expressly provided otherwise, shall deliver
financial statements and calculate financial covenants in Dollars.
Notwithstanding anything herein to the

 

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contrary, if any Obligation is funded and expressly denominated in a currency
other than Dollars, Obligors shall repay such Obligation in such other currency.

1.6 Interpretation (Quebec). For purposes of any Collateral located in the
Province of Quebec or charged by any deed of hypothec (or any other Loan
Document) and for all other purposes pursuant to which the interpretation or
construction of a Loan Document may be subject to the laws of the Province of
Quebec or a court or tribunal exercising jurisdiction in the Province of Québec,
(q) “personal property” shall be deemed to include “movable property”, (r) “real
property” shall be deemed to include “immovable property”, (s) “tangible
property” shall be deemed to include “corporeal property”, (t) “intangible
property” shall be deemed to include “incorporeal property”, (u) “security
interest” and “mortgage” shall be deemed to include a “hypothec”, (v) all
references to filing, registering or recording under the UCC or the PPSA shall
be deemed to include publication under the Civil Code of Québec, (w) all
references to “perfection” of or “perfected” Liens shall be deemed to include a
reference to the “opposability” of such Liens to third parties, (x) any “right
of offset”, “right of setoff” or similar expression shall be deemed to include a
“right of compensation”, (y) “goods” shall be deemed to include “corporeal
movable property” other than chattel paper, documents of title, instruments,
money and securities, and (z) an “agent” shall be deemed to include a
“mandatary”.

SECTION 2. CREDIT FACILITIES

2.1 Revolver Commitments.

2.1.1. Revolver Loans.

(a) U.S. Revolver Loans to U.S. Borrowers. Each U.S. Lender agrees, severally
and not jointly with the other U.S. Lenders, upon the terms and subject to the
conditions set forth herein, to make U.S. Revolver Loans to the U.S. Borrowers
on any Business Day during the period from the Closing Date to the U.S. Revolver
Commitment Termination Date, not to exceed in aggregate principal amount
outstanding at any time such U.S. Lender’s U.S. Revolver Commitment at such
time, which U.S. Revolver Loans may be repaid and reborrowed in accordance with
the terms and provisions of this Agreement; provided, however, that such U.S.
Lenders shall have no obligation to the U.S. Borrowers whatsoever to honor any
request for a U.S. Revolver Loan on or after the U.S. Revolver Commitment
Termination Date or if the amount of the proposed U.S. Revolver Loan exceeds
U.S. Availability on the proposed funding date for such U.S. Revolver Loan. Each
Borrowing of U.S. Revolver Loans shall be funded by the U.S. Lenders on a Pro
Rata basis. The U.S. Revolver Loans shall bear interest as set forth in
Section 3.1. Each U.S. Revolver Loan shall, at the option of the Borrower Agent,
be made or continued as, or converted into, part of one or more Borrowings that,
unless specifically provided herein, shall consist entirely of U.S. Base Rate
Loans or LIBOR Loans. The U.S. Revolver Loans shall be repaid in accordance with
the terms of this Agreement and shall be secured by all of the U.S. Facility
Collateral. U.S. Borrowers shall be jointly and severally liable to pay all of
the U.S. Revolver Loans. Each U.S. Revolver Loan shall be funded and repaid in
Dollars.

(b) Canadian Revolver Loans to Canadian Borrower. Each Canadian Lender agrees,
severally and not jointly with the other Canadian Lenders, upon the terms and
subject to

 

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the conditions set forth herein, to make Canadian Revolver Loans to the Canadian
Borrower on any Business Day during the period from the Closing Date to the
Canadian Revolver Commitment Termination Date, not to exceed in aggregate
principal amount outstanding at any time such Canadian Lender’s Canadian
Revolver Commitment at such time, which Canadian Revolver Loans may be repaid
and reborrowed in accordance with the terms and provisions of this Agreement;
provided, however, that such Canadian Lenders shall have no obligation to the
Canadian Borrower whatsoever to honor any request for a Canadian Revolver Loan
on or after the Canadian Revolver Commitment Termination Date or if the amount
of the proposed Canadian Revolver Loan exceeds Canadian Availability on the
proposed funding date for such Canadian Revolver Loan. Each Borrowing of
Canadian Revolver Loans shall be funded by the Canadian Lenders on a Pro Rata
basis. The Canadian Revolver Loans shall bear interest as set forth in
Section 3.1. Each Canadian Revolver Loan shall, at the option of the Borrower
Agent, be made or continued as, or converted into, part of one or more
Borrowings that, unless specifically provided herein, shall consist entirely of
Canadian Prime Rate Loans or Canadian BA Rate Loans if denominated in Canadian
Dollars, or shall consist entirely of Canadian Base Rate Loans or LIBOR Loans if
denominated in Dollars. The Canadian Revolver Loans shall be repaid in
accordance with the terms of this Agreement and shall be secured by all of the
Canadian Facility Collateral. Each Canadian Revolver Loan shall be funded in
Canadian Dollars or, at the option of the Borrower Agent, Dollars and repaid in
the same currency as the underlying Canadian Revolver Loan was made.

(c) Maximum Total Revolver Exposure. Notwithstanding anything to the contrary
contained in this Section 2.1.1, in no event shall any Borrower be entitled to
receive a Revolver Loan if, at the time of the proposed funding of such Loan
(and after giving effect thereto and all pending requests for Loans), the Total
Revolver Exposure exceeds (or would exceed) the lesser of the Maximum Facility
Amount and the Revolver Commitments.

2.1.2. Revolver Notes. The Revolver Loans made by each Lender and interest
accruing thereon shall be evidenced by the records of Agent and such Lender. At
the request of any Lender, the U.S. Borrowers and/or the Canadian Borrower shall
execute and deliver a U.S. Revolver Note and/or a Canadian Revolver Note,
respectively, to such Lender in the amount of such Lender’s applicable Revolver
Commitment(s).

2.1.3. Use of Proceeds. The proceeds of Revolver Loans shall be used by
Borrowers solely (a) to satisfy existing Debt on the Original Agreement Closing
Date; (b) to pay fees and transaction expenses associated with the closing of
this credit facility; (c) to pay Obligations in accordance with this Agreement;
and (d) for working capital and other lawful corporate purposes of Borrowers.

2.1.4. Voluntary Reduction or Termination of Revolver Commitments.

(a) The Canadian Revolver Commitments shall terminate on the Canadian Revolver
Commitment Termination Date and the U.S. Revolver Commitments shall terminate on
the U.S. Revolver Commitment Termination Date, in each case, unless sooner
terminated in accordance with this Agreement. Upon at least 10 days’ prior
written notice to Agent from the Borrower Agent, (i) U.S. Borrowers may, at
their option, terminate the U.S. Revolver Commitments and this credit facility
and/or (ii) the Canadian Borrower may, at its option,

 

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terminate the Canadian Revolver Commitment, in each case, without premium or
penalty (other than funding losses payable pursuant to Section 3.9). If the U.S.
Borrowers elect to reduce to zero or terminate the U.S. Revolver Commitments
pursuant to the previous sentence, the Canadian Revolver Commitments shall
automatically terminate concurrently with the termination of the U.S. Revolver
Commitments. Any notice of termination given by Borrowers pursuant to this
Section 2.1.4 shall be irrevocable but may be conditioned on a refinancing or
another material event. On the Canadian Revolver Commitment Termination Date,
the Canadian Borrower shall make Full Payment of all Canadian Facility
Obligations. On the U.S. Revolver Commitment Termination Date, the U.S.
Borrowers shall make Full Payment of all U.S. Facility Obligations.

(b) So long as (i) no Default or Event of Default then exists or would result
therefrom, and (ii) no U.S. Overadvance or Canadian Overadvance then exists or
would result therefrom, the Borrower Agent may permanently and irrevocably
reduce the Maximum Facility Amount by giving Agent at least 10 days’ prior
irrevocable written notice thereof from a Senior Officer of the Borrower Agent,
which notice shall (A) specify the date (which shall be a Business Day) and
amount of such reduction (which shall be in a minimum amount of $10,000,000 and
increments of $5,000,000 in excess thereof), (B) specify the allocation of such
reduction to, and the corresponding reductions of, each of the Maximum U.S.
Facility Amount and/or the Maximum Canadian Facility Amount (and the respective
U.S. Revolver Commitments and Canadian Revolver Commitments of the U.S. Lenders
and the Canadian Lenders, respectively, in respect thereof, each of which shall
be allocated to such Lenders on a Pro Rata basis at the time of such reduction)
and (C) certify the satisfaction of the foregoing conditions precedent
(including calculations thereof in reasonable detail) both as of the date of
such certificate and as of the effective date of any such proposed reduction. In
addition to and without limiting the generality of the foregoing, (1) each
reduction in the Maximum U.S. Facility Amount and the U.S. Revolver Commitments
shall in no event exceed U.S. Availability and shall be in a minimum amount of
$5,000,000 and increments of $1,000,000 in excess thereof and (2) each reduction
in the Maximum Canadian Facility Amount and the Canadian Revolver Commitments
shall in no event exceed Canadian Availability and shall be in a minimum amount
of $5,000,000 and increments of $1,000,000 in excess thereof.

2.1.5. Overadvances. If the aggregate U.S. Revolver Loans exceed the U.S.
Borrowing Base (a “U.S. Overadvance”) at any time, the excess amount shall be
payable by U.S. Borrowers on demand by Agent, but all such U.S. Revolver Loans
shall nevertheless constitute U.S. Facility Obligations secured by the U.S.
Facility Collateral. If the aggregate Canadian Revolver Loans exceed the
Canadian Borrowing Base (a “Canadian Overadvance”) at any time, the excess
amount shall be payable by Canadian Borrower on demand by Agent, but all such
Canadian Revolver Loans shall nevertheless constitute Canadian Facility
Obligations secured by the Canadian Facility Collateral. Agent may require the
Applicable Lenders to honor requests for Overadvance Loans and to forbear from
requiring the applicable Borrowers to cure an Overadvance, (a) when no other
Event of Default is known to Agent, as long as (i) the Overadvance does not
continue for more than 30 consecutive days (and no Overadvance may exist for at
least five consecutive days thereafter before further Overadvance Loans are
required), and (ii) the Overadvance is not known by Agent to exceed 7.5% of the
U.S. Borrowing Base with respect to the U.S. Borrowers, or 7.5% of the Canadian
Borrowing Base with respect to the Canadian Borrower; and (b) regardless of
whether an Event of Default exists, if Agent discovers

 

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an Overadvance not previously known by it to exist, as long as from the date of
such discovery the Overadvance does not continue for more than 30 consecutive
days. In no event shall Overadvance Loans be required that would cause the
outstanding U.S. Revolver Exposure to exceed the aggregate U.S. Revolver
Commitments or the outstanding Canadian Revolver Exposure to exceed the
aggregate Canadian Revolver Commitments. Any funding of an Overadvance Loan or
sufferance of an Overadvance shall not constitute a waiver by Agent or Lenders
of the Event of Default caused thereby. In no event shall any Borrower or other
Obligor be deemed a beneficiary of this Section nor authorized to enforce any of
its terms. Required Lenders may at any time revoke Agent’s authority to
knowingly make further Overadvance Loans by written notice to Agent

2.1.6. Protective Advances. Agent shall be authorized, in its discretion, at any
time that any conditions in Section 6 are not satisfied, and without regard to
the aggregate U.S. Revolver Commitments or the Canadian Revolver Commitments, to
make U.S. Base Rate Loans and Canadian Prime Rate Loans, as applicable (each a
“Protective Advance”) (a) up to an aggregate amount of 10% of the aggregate
Canadian Revolver Commitments (minus the aggregate amount of any outstanding
Canadian Overadvances), with respect to the Canadian Borrower, or 10% of the
aggregate U.S. Revolver Commitments (minus the aggregate amount of any
outstanding U.S. Overadvances), with respect to the U.S. Borrowers, outstanding
at any time, if Agent deems such Loans necessary or desirable to preserve or
protect Collateral, or to enhance the collectibility or repayment of
Obligations; or (b) to pay any other amounts chargeable to Obligors under any
Loan Documents, including costs, fees and expenses. Each Applicable Lender shall
participate in each Protective Advance on a Pro Rata basis. Required Lenders may
at any time revoke Agent’s authority to make further Protective Advances under
clause (a) by written notice to Agent. Absent such revocation, Agent’s
determination that funding of a Protective Advance is appropriate shall be
conclusive. All Protective Advances made by Agent with respect to U.S. Borrowers
shall be U.S. Facility Obligations, secured by the U.S. Facility Collateral and
shall be treated for all purposes as Extraordinary Expenses and all Protective
Advances made by Agent with respect to Canadian Borrower shall be Canadian
Facility Obligations, secured by the Canadian Facility Collateral and shall be
treated for all purposes as Extraordinary Expenses. In no event shall Protective
Advances be made by Agent if it would cause the outstanding U.S. Revolver
Exposure to exceed the aggregate U.S. Revolver Commitments or the outstanding
Canadian Revolver Exposure to exceed the aggregate Canadian Revolver
Commitments.

2.1.7. Increase in U.S. Revolver Commitments. Borrowers may request an increase
in the aggregate U.S. Revolver Commitments from time to time upon notice to
Agent, as long as (a) the requested increase is in a minimum amount of
$10,000,000 and is offered on the same terms as the existing U.S. Revolver
Commitments, except for fees mutually agreed upon by Borrowers and Agent,
(b) increases under this Section do not exceed $150,000,000 in the aggregate and
no more than 3 increases are made, (c) no reduction in Revolver Commitments
pursuant to Section 2.1.4 has occurred prior to the requested increase, and
(d) no Default or Event of Default shall have occurred and be continuing at the
time of such increase or result therefrom. Agent shall promptly notify U.S.
Lenders of the requested increase and, within 10 Business Days thereafter, each
U.S. Lender shall notify Agent if and to what extent such Lender commits to
increase its U.S. Revolver Commitment. Any U.S. Lender not responding within
such period shall be deemed to have declined an increase. If U.S. Lenders fail
to commit to the

 

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full requested increase, Eligible Assignees may issue additional U.S. Revolver
Commitments and become U.S. Lenders hereunder. Agent may allocate, in its
discretion, the increased U.S. Revolver Commitments among committing U.S.
Lenders and, if necessary, Eligible Assignees. Provided the conditions set forth
in Section 6.2 are satisfied, total U.S. Revolver Commitments shall be increased
by the requested amount (or such lesser amount committed by U.S. Lenders and
Eligible Assignees) on a date agreed upon by Agent and Borrower Agent, but no
later than 45 days following Borrowers’ increase request. Agent, Borrowers, and
new and existing Lenders shall execute and deliver such documents and agreements
as Agent deems appropriate to evidence the increase in and allocations of U.S.
Revolver Commitments. On the effective date of an increase, all outstanding U.S.
Revolver Loans, U.S. LC Obligations and other exposures under the U.S. Revolver
Commitments shall be reallocated among U.S. Lenders, and settled by Agent if
necessary, in accordance with U.S. Lenders’ adjusted shares of such U.S.
Revolver Commitments.

2.2 Intentionally Omitted.

2.3 U.S. Letter of Credit Facility.

2.3.1. Issuance of U.S. Letters of Credit. U.S. Issuing Bank shall issue U.S.
Letters of Credit from time to time until 30 days prior to the Facility
Termination Date (or until the U.S. Revolver Commitment Termination Date, if
earlier), on the terms set forth herein, including the following:

(a) Each U.S. Borrower acknowledges that U.S. Issuing Bank’s issuance of any
U.S. Letter of Credit is conditioned upon U.S. Issuing Bank’s receipt of a LC
Application with respect to the requested U.S. Letter of Credit, as well as such
other instruments and agreements as U.S. Issuing Bank may customarily require
for issuance of a letter of credit of similar type and amount. U.S. Issuing Bank
shall have no obligation to issue any U.S. Letter of Credit unless (i) U.S.
Issuing Bank receives a LC Request and LC Application at least three Business
Days prior to the requested date of issuance; (ii) each LC Condition is
satisfied; and (iii) if a Defaulting Lender that is a U.S. Lender exists, such
Lender or U.S. Borrowers have entered into arrangements satisfactory to Agent
and U.S. Issuing Bank to eliminate any Fronting Exposure associated with such
Lender. If, in sufficient time to act, U.S. Issuing Bank receives written notice
from U.S. Required Lenders that a LC Condition has not been satisfied, U.S.
Issuing Bank shall not issue the requested U.S. Letter of Credit. Prior to
receipt of any such notice, U.S. Issuing Bank shall not be deemed to have
knowledge of any failure of LC Conditions.

(b) U.S. Letters of Credit may be requested by a U.S. Borrower to support
obligations incurred in the Ordinary Course of Business, or as otherwise
approved by Agent. The renewal or extension of any U.S. Letter of Credit shall
be treated as the issuance of a new U.S. Letter of Credit, except that delivery
of a new LC Application shall be required at the discretion of U.S. Issuing
Bank.

(c) U.S. Borrowers assume all risks of the acts, omissions or misuses of any
U.S. Letter of Credit by the beneficiary. In connection with issuance of any
U.S. Letter of Credit, none of Agent, Issuing Banks or any Lender shall be
responsible for the existence,

 

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character, quality, quantity, condition, packing, value or delivery of any goods
purported to be represented by any Documents; any differences or variation in
the character, quality, quantity, condition, packing, value or delivery of any
goods from that expressed in any Documents; the form, validity, sufficiency,
accuracy, genuineness or legal effect of any Documents or of any endorsements
thereon; the time, place, manner or order in which shipment of goods is made;
partial or incomplete shipment of, or failure to ship, any goods referred to in
a U.S. Letter of Credit or Documents; any deviation from instructions, delay,
default or fraud by any shipper or other Person in connection with any goods,
shipment or delivery; any breach of contract between a shipper or vendor and a
U.S. Borrower; errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, telecopy, e-mail,
telephone or otherwise; errors in interpretation of technical terms; the
misapplication by a beneficiary of any U.S. Letter of Credit or the proceeds
thereof; or any consequences arising from causes beyond the control of Issuing
Banks, Agent or any Lender, including any act or omission of a Governmental
Authority. The rights and remedies of U.S. Issuing Bank under the Loan Documents
shall be cumulative. U.S. Issuing Bank shall be fully subrogated to the rights
and remedies of each beneficiary whose claims against U.S. Borrowers are
discharged with proceeds of any U.S. Letter of Credit.

(d) In connection with its administration of and enforcement of rights or
remedies under any U.S. Letters of Credit or LC Documents, U.S. Issuing Bank
shall be entitled to act, and shall be fully protected in acting, upon any
certification, documentation or communication in whatever form believed by U.S.
Issuing Bank, in good faith, to be genuine and correct and to have been signed,
sent or made by a proper Person. U.S. Issuing Bank may consult with and employ
legal counsel, accountants and other experts to advise it concerning its
obligations, rights and remedies, and shall be entitled to act upon, and shall
be fully protected in any action taken in good faith reliance upon, any advice
given by such experts. U.S. Issuing Bank may employ agents and attorneys-in-fact
in connection with any matter relating to U.S. Letters of Credit or LC
Documents, and shall not be liable for the negligence or misconduct of agents
and attorneys-in-fact selected with reasonable care.

(e) Obligors, Agent and Lenders hereby acknowledge and agree that all Existing
Letters of Credit shall constitute U.S. Letters of Credit under this Agreement
on and after the Original Agreement Closing Date with the same effect as if such
Existing Letters of Credit were issued by U.S. Issuing Bank at the request of
U.S. Borrowers on the Original Agreement Closing Date.

2.3.2. Reimbursement; Participations.

(a) If U.S. Issuing Bank honors any request for payment under a U.S. Letter of
Credit, U.S. Borrowers shall pay to U.S. Issuing Bank, on the same day (“U.S.
Reimbursement Date”), the amount paid by U.S. Issuing Bank under such U.S.
Letter of Credit, together with interest at the interest rate for U.S. Base Rate
Loans from the U.S. Reimbursement Date until payment by U.S. Borrowers. The
obligation of U.S. Borrowers to reimburse U.S. Issuing Bank for any payment made
under a U.S. Letter of Credit shall be absolute, unconditional, irrevocable, and
joint and several, and shall be paid without regard to any lack of validity or
enforceability of any U.S. Letter of Credit or the existence of any claim,
setoff, defense or other right that U.S. Borrowers may have at any time against
the beneficiary.

 

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Whether or not Borrower Agent submits a Notice of Borrowing, U.S. Borrowers
shall be deemed to have requested a Borrowing of U.S. Base Rate Loans in an
amount necessary to pay all amounts due U.S. Issuing Bank on any U.S.
Reimbursement Date and each U.S. Lender agrees to fund its Pro Rata share of
such Borrowing whether or not the U.S. Revolver Commitments have terminated, a
U.S. Overadvance exists or is created thereby, or the conditions in Section 6
are satisfied.

(b) Upon issuance of a U.S. Letter of Credit, each U.S. Lender shall be deemed
to have irrevocably and unconditionally purchased from U.S. Issuing Bank,
without recourse or warranty, an undivided Pro Rata interest and participation
in all U.S. LC Obligations relating to the U.S. Letter of Credit. If U.S.
Issuing Bank makes any payment under a U.S. Letter of Credit and U.S. Borrowers
do not reimburse such payment on the U.S. Reimbursement Date, Agent shall
promptly notify U.S. Lenders and each U.S. Lender shall promptly (within one
Business Day) and unconditionally pay to Agent, for the benefit of U.S. Issuing
Bank, the U.S. Lender’s Pro Rata share of such payment. Upon request by a U.S.
Lender, U.S. Issuing Bank shall furnish copies of any U.S. Letters of Credit and
LC Documents in its possession at such time.

(c) The obligation of each U.S. Lender to make payments to Agent for the account
of U.S. Issuing Bank in connection with U.S. Issuing Bank’s payment under a U.S.
Letter of Credit shall be absolute, unconditional and irrevocable, not subject
to any counterclaim, setoff, qualification or exception whatsoever, and shall be
made in accordance with this Agreement under all circumstances, irrespective of
any lack of validity or unenforceability of any Loan Documents; any draft,
certificate or other document presented under a U.S. Letter of Credit having
been determined to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect; or the
existence of any setoff or defense that any Obligor may have with respect to any
Obligations. U.S. Issuing Bank does not assume any responsibility for any
failure or delay in performance or any breach by any U.S. Borrower or other
Person of any obligations under any LC Documents. U.S. Issuing Bank does not
make to Lenders any express or implied warranty, representation or guaranty with
respect to the Collateral, LC Documents or any Obligor. U.S. Issuing Bank shall
not be responsible to any Lender for any recitals, statements, information,
representations or warranties contained in, or for the execution, validity,
genuineness, effectiveness or enforceability of any LC Documents; the validity,
genuineness, enforceability, collectibility, value or sufficiency of any
Collateral or the perfection of any Lien therein; or the assets, liabilities,
financial condition, results of operations, business, creditworthiness or legal
status of any Obligor.

(d) No Issuing Bank Indemnitee shall be liable to any Lender or other Person for
any action taken or omitted to be taken in connection with any LC Documents
except as a result of its actual gross negligence or willful misconduct. U.S.
Issuing Bank shall not have any liability to any Lender if U.S. Issuing Bank
refrains from any action under a Letter of Credit or LC Documents until it
receives written instructions from U.S. Required Lenders.

2.3.3. Cash Collateral. If any U.S. LC Obligations, whether or not then due or
payable, shall for any reason be outstanding at any time (a) that an Event of
Default exists, (b) that U.S. Availability is less than zero, or (c) within 10
Business Days prior to the U.S. Revolver Commitment Termination Date, then U.S.
Borrowers shall, at U.S. Issuing Bank’s or Agent’s

 

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request, Cash Collateralize the stated amount of all outstanding U.S. Letters of
Credit and pay to U.S. Issuing Bank the amount of all other U.S. LC Obligations.
U.S. Borrowers shall, on demand by U.S. Issuing Bank or Agent from time to time,
Cash Collateralize the Fronting Exposure of any Defaulting Lender which is a
U.S. Lender. If U.S. Borrowers fail to provide any Cash Collateral as required
hereunder, U.S. Lenders may (and shall upon direction of Agent) advance, as U.S.
Revolver Loans, the amount of the Cash Collateral required (whether or not the
U.S. Revolver Commitments have terminated, a U.S. Overadvance exists or the
conditions in Section 6 are satisfied).

2.3.4. Resignation of U.S. Issuing Bank. U.S. Issuing Bank may resign at any
time upon notice to Agent and U.S. Borrowers. On the effective date of such
resignation, U.S. Issuing Bank shall have no further obligation to issue, amend,
renew, extend or otherwise modify any Letter of Credit, but shall continue to
have all rights and obligations of an Issuing Bank hereunder, including under
Sections 2.3, 12.6 and 14.2, relating to any Letter of Credit issued prior to
such date. Agent shall promptly appoint a replacement U.S. Issuing Bank, which,
as long as no Default or Event of Default exists, shall be reasonably acceptable
to U.S. Borrowers.

2.4 Canadian Letter of Credit Facility.

2.4.1. Issuance of Canadian Letters of Credit. Canadian Issuing Bank shall issue
Canadian Letters of Credit from time to time until 30 days prior to the Facility
Termination Date (or until the Canadian Revolver Commitment Termination Date, if
earlier), on the terms set forth herein, including the following:

(a) Canadian Borrower acknowledges that Canadian Issuing Bank’s issuance of any
Canadian Letter of Credit is conditioned upon Canadian Issuing Bank’s receipt of
a LC Application with respect to the requested Canadian Letter of Credit, as
well as such other instruments and agreements as Canadian Issuing Bank may
customarily require for issuance of a letter of credit of similar type and
amount. Canadian Issuing Bank shall have no obligation to issue any Canadian
Letter of Credit unless (i) Canadian Issuing Bank receives a LC Request and LC
Application at least three Business Days prior to the requested date of
issuance; (ii) each LC Condition is satisfied; and (iii) if a Defaulting Lender
that is a Canadian Lender exists, such Lender or Canadian Borrower has entered
into arrangements satisfactory to Agent and Canadian Issuing Bank to eliminate
any Fronting Exposure associated with such Lender. If, in sufficient time to
act, Canadian Issuing Bank receives written notice from Canadian Required
Lenders that a LC Condition has not been satisfied, Canadian Issuing Bank shall
not issue the requested Canadian Letter of Credit. Prior to receipt of any such
notice, Canadian Issuing Bank shall not be deemed to have knowledge of any
failure of LC Conditions.

(b) Canadian Letters of Credit may be requested by Canadian Borrower to support
obligations incurred in the Ordinary Course of Business, or as otherwise
approved by Agent. The renewal or extension of any Canadian Letter of Credit
shall be treated as the issuance of a new Canadian Letter of Credit, except that
delivery of a new LC Application shall be required at the discretion of
Canadian. Issuing Bank.

(c) Canadian Borrower assumes all risks of the acts, omissions or misuses of any
Canadian Letter of Credit by the beneficiary. In connection with issuance of any
Canadian

 

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Letter of Credit, none of Agent, Issuing Banks or any Lender shall be
responsible for the existence, character, quality, quantity, condition, packing,
value or delivery of any goods purported to be represented by any Documents; any
differences or variation in the character, quality, quantity, condition,
packing, value or delivery of any goods from that expressed in any Documents;
the form, validity, sufficiency, accuracy, genuineness or legal effect of any
Documents or of any endorsements thereon; the time, place, manner or order in
which shipment of goods is made; partial or incomplete shipment of, or failure
to ship, any goods referred to in a Canadian Letter of Credit or Documents; any
deviation from instructions, delay, default or fraud by any shipper or other
Person in connection with any goods, shipment or delivery; any breach of
contract between a shipper or vendor and Canadian Borrower; errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors in
interpretation of technical terms; the misapplication by a beneficiary of any
Canadian Letter of Credit or the proceeds thereof; or any consequences arising
from causes beyond the control of Issuing Banks, Agent or any Lender, including
any act or omission of a Governmental Authority. The rights and remedies of
Canadian Issuing Bank under the Loan Documents shall be cumulative. Canadian
Issuing Bank shall be fully subrogated to the rights and remedies of each
beneficiary whose claims against Canadian Borrower are discharged with proceeds
of any Canadian Letter of Credit.

(d) In connection with its administration of and enforcement of rights or
remedies under any Canadian Letters of Credit or LC Documents, Canadian Issuing
Bank shall be entitled to act, and shall be fully protected in acting, upon any
certification, documentation or communication in whatever form believed by
Canadian Issuing Bank, in good faith, to be genuine and correct and to have been
signed, sent or made by a proper Person. Canadian Issuing Bank may consult with
and employ legal counsel, accountants and other experts to advise it concerning
its obligations, rights and remedies, and shall be entitled to act upon, and
shall be fully protected in any action taken in good faith reliance upon, any
advice given by such experts. Canadian Issuing Bank may employ agents and
attorneys-in-fact in connection with any matter relating to Canadian Letters of
Credit or LC Documents, and shall not be liable for the negligence or misconduct
of agents and attorneys-in-fact selected with reasonable care.

2.4.2. Reimbursement; Participations.

(a) If Canadian Issuing Bank honors any request for payment under a Canadian
Letter of Credit, Canadian Borrower shall pay to Canadian Issuing Bank, on the
same day (“Canadian Reimbursement Date”), the amount paid by Canadian Issuing
Bank under such Canadian Letter of Credit, together with interest at the
interest rate for Canadian Prime Rate Loans from the Canadian Reimbursement Date
until payment by Canadian Borrower. The obligation of Canadian Borrower to
reimburse Canadian Issuing Bank for any payment made under a Canadian Letter of
Credit shall be absolute, unconditional, irrevocable, and joint and several, and
shall be paid without regard to any lack of validity or enforceability of any
Canadian Letter of Credit or the existence of any claim, setoff, defense or
other right that Canadian Borrower may have at any time against the beneficiary.
Whether or not Borrower Agent submits a Notice of Borrowing, Canadian Borrower
shall be deemed to have requested a Borrowing of Canadian Prime Rate Loans in an
amount necessary to pay all amounts due Canadian Issuing Bank on any Canadian
Reimbursement Date and each Canadian Lender agrees to fund its Pro Rata share of
such Borrowing whether or not the Canadian Revolver Commitments have

 

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terminated, a Canadian Overadvance exists or is created thereby, or the
conditions in Section 6 are satisfied.

(b) Upon issuance of a Canadian Letter of Credit, each Canadian Lender shall be
deemed to have irrevocably and unconditionally purchased from Canadian Issuing
Bank, without recourse or warranty, an undivided Pro Rata interest and
participation in all Canadian LC Obligations relating to the Canadian Letter of
Credit. If Canadian Issuing Bank makes any payment under a Canadian Letter of
Credit and Canadian Borrower does not reimburse such payment on the Canadian
Reimbursement Date, Agent shall promptly notify Canadian Lenders and each
Canadian Lender shall promptly (within one Business Day) and unconditionally pay
to Agent, for the benefit of Canadian Issuing Bank, the Canadian Lender’s Pro
Rata share of such payment. Upon request by a Canadian Lender, Canadian Issuing
Bank shall furnish copies of any Canadian Letters of Credit and LC Documents in
its possession at such time.

(c) The obligation of each Canadian Lender to make payments to Agent for the
account of Canadian Issuing Bank in connection with Canadian Issuing Bank’s
payment under a Canadian Letter of Credit shall be absolute, unconditional and
irrevocable, not subject to any counterclaim, setoff, qualification or exception
whatsoever, and shall be made in accordance with this Agreement under all
circumstances, irrespective of any lack of validity or unenforceability of any
Loan Documents; any draft, certificate or other document presented under a
Canadian Letter of Credit having been determined to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or the existence of any setoff or defense that any
Obligor may have with respect to any Obligations. Canadian Issuing Bank does not
assume any responsibility for any failure or delay in performance or any breach
by Canadian Borrower or other Person of any obligations under any LC Documents.
Canadian Issuing Bank does not make to Lenders any express or implied warranty,
representation or guaranty with respect to the Collateral, LC Documents or any
Obligor. Canadian Issuing Bank shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties contained in,
or for the execution, validity, genuineness, effectiveness or enforceability of
any LC Documents; the validity, genuineness, enforceability, collectibility,
value or sufficiency of any Collateral or the perfection of any Lien therein; or
the assets, liabilities, financial condition, results of operations, business,
creditworthiness or legal status of any Obligor.

(d) No Issuing Bank Indemnitee shall be liable to any Lender or other Person for
any action taken or omitted to be taken in connection with any LC Documents
except as a result of its actual gross negligence or willful misconduct.
Canadian Issuing Bank shall not have any liability to any Lender if Canadian
Issuing Bank refrains from any action under a Letter of Credit or LC Documents
until it receives written instructions from Canadian Required Lenders.

2.4.3. Cash Collateral. If any Canadian LC Obligations, whether or not then due
or payable, shall for any reason be outstanding at any time (a) that an Event of
Default exists, (b) that Canadian Availability is less than zero, or (c) within
10 Business Days prior to the Canadian Revolver Commitment Termination Date,
then Canadian Borrower shall, at Canadian Issuing Bank’s or Agent’s request,
Cash Collateralize the stated amount of all outstanding Canadian Letters of
Credit and pay to Canadian Issuing Bank the amount of all other Canadian LC
Obligations. Canadian Borrower shall, on demand by Canadian Issuing Bank or
Agent from

 

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time to time, Cash Collateralize the Fronting Exposure of any Defaulting Lender
which is a Canadian Lender. If Canadian Borrower fails to provide any Cash
Collateral as required hereunder, Canadian Lenders may (and shall upon direction
of Agent) advance, as Canadian Revolver Loans, the amount of the Cash Collateral
required (whether or not the Canadian Revolver Commitments have terminated, a
Canadian Overadvance exists or the conditions in Section 6 are satisfied).

2.4.4. Resignation of Canadian Issuing Bank. Canadian Issuing Bank may resign at
any time upon notice to Agent and Canadian Borrower. On the effective date of
such resignation, Canadian Issuing Bank shall have no further obligation to
issue, amend, renew, extend or otherwise modify any Letter of Credit, but shall
continue to have all rights and obligations of an Issuing Bank hereunder,
including under Sections 2.4, 12.6 and 14.2, relating to any Letter of Credit
issued prior to such date. Agent shall promptly appoint a replacement Canadian
Issuing Bank, which, as long as no Default or Event of Default exists, shall be
reasonably acceptable to Canadian Borrower.

SECTION 3. INTEREST, FEES AND CHARGES

3.1 Interest.

3.1.1. Rates and Payment of Interest.

(a) The Obligations shall bear interest (i) if a U.S. Base Rate Loan, at the
U.S. Base Rate in effect from time to time, plus the Applicable Margin; (ii) if
a LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable
Margin; (iii) if a Canadian Prime Rate Loan, at the Canadian Prime Rate in
effect from time to time, plus the Applicable Margin, (iv) if a Canadian Base
Rate Loan, at the Canadian Base Rate in effect from time to time, plus the
Applicable Margin, (v) if a Canadian BA Rate Loan, at the Canadian BA Rate for
the applicable Interest Period, plus the Applicable Margin, (vi) if any other
U.S. Facility Obligation (including, to the extent permitted by law, interest
not paid when due), at the U.S. Base Rate in effect from time to time, plus the
Applicable Margin for U.S. Base Rate Loans; and (vii) if any other Canadian
Facility Obligation (including, to the extent permitted by law, interest not
paid when due), at the Canadian Prime Rate in effect from time to time, plus the
Applicable Margin for Canadian Prime Rate Loans. Interest shall accrue from the
date the Loan is advanced or the Obligation is incurred or payable, until paid
by the applicable Borrower(s). If a Loan is repaid on the same day made, one
day’s interest shall accrue.

(b) Interest on the Revolver Loans shall be payable in the currency (i.e.,
Dollars or Canadian Dollars, as the case may be) of the underlying Revolver
Loan.

(c) During an Insolvency Proceeding with respect to any Obligor, or during any
other Event of Default if Agent or Required Lenders in their discretion so
elect, Obligations shall bear interest at the Default Rate (whether before or
after any judgment). Each Obligor acknowledges that the cost and expense to
Agent and Lenders due to an Event of Default are difficult to ascertain and that
the Default Rate is a fair and reasonable estimate to compensate Agent and
Lenders for this.

 

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(d) Interest accrued on the Loans shall be due and payable in arrears, (i) on
the first day of each month; and (ii) on any date of prepayment, with respect to
the principal amount of Loans being prepaid. In addition, interest accrued on
the Canadian Revolver Loans shall be due and payable in arrears on the Canadian
Revolver Commitment Termination Date and interest accrued on the U.S. Revolver
Loans shall be due and payable in arrears on the U.S. Revolver Commitment
Termination Date. Interest accrued on any other Obligations shall be due and
payable as provided in the Loan Documents and, if no payment date is specified,
shall be due and payable on demand. Notwithstanding the foregoing, interest
accrued at the Default Rate shall be due and payable on demand.

3.1.2. Application of LIBOR to Outstanding Loans.

(a) Borrowers may on any Business Day, subject to delivery of a Notice of
Conversion/Continuation, elect to convert any portion of the U.S. Base Rate
Loans or the Canadian Base Rate Loans, as applicable, to, or to continue any
LIBOR Loan at the end of its Interest Period as, a LIBOR Loan. During any
Default or Event of Default, Agent may (and shall at the direction of Required
Lenders) declare that no Loan may be made, converted or continued as a LIBOR
Loan.

(b) Whenever Borrowers desire to convert or continue Loans as LIBOR Loans,
Borrower Agent shall give Agent a Notice of Conversion/Continuation, no later
than 11:00 a.m. at least three Business Days before the requested conversion or
continuation date. Promptly after receiving any such notice, Agent shall notify
each Applicable Lender thereof. Each Notice of Conversion/Continuation shall be
irrevocable, and shall specify the amount of Loans to be converted or continued,
the conversion or continuation date (which shall be a Business Day), and the
duration of the Interest Period (which shall be deemed to be 30 days if not
specified). If, upon the expiration of any Interest Period in respect of any
LIBOR Loans, Borrower Agent shall have failed to deliver a Notice of
Conversion/Continuation, Borrowers shall be deemed to have elected to convert
such Loans into U.S. Base Rate Loans (if owing by the U.S. Borrowers) or
Canadian Base Rate Loans (if owing by the Canadian Borrower).

3.1.3. Application of Canadian BA Rate to Outstanding Loans.

(a) Canadian Borrower may on any Business Day, subject to delivery of a Notice
of Conversion/Continuation and the other terms hereof, elect to convert any
portion of the Canadian Prime Rate Loans, or to continue any Canadian BA Rate
Loan at the end of its Interest Period as, a Canadian BA Rate Loan. During any
Default or Event of Default, Agent may (and shall at the direction of Required
Lenders) declare that no Loan may be made, converted or continued as a Canadian
BA Rate Loan.

(b) Whenever Canadian Borrower desires to convert or continue Loans as Canadian
BA Rate Loans, Borrower Agent shall give Agent a Notice of
Conversion/Continuation, no later than 11:00 a.m. at least three Business Days
before the requested conversion or continuation date. Promptly after receiving
any such notice, Agent shall notify each Canadian Lender thereof. Each Notice of
Conversion/Continuation shall be irrevocable, and shall specify the amount of
Loans to be converted or continued, the conversion or continuation date (which
shall be a Business Day), and the duration of the Interest Period

 

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(which shall be deemed to be one month if not specified). If, upon the
expiration of any Interest Period in respect of any Canadian BA Rate Loans,
Borrower Agent shall have failed to deliver a Notice of Conversion/Continuation
with respect thereto as required above, Canadian Borrower shall be deemed to
have elected to convert such Loans into Canadian Prime Rate Loans.

3.1.4. Interest Periods. In connection with the making, conversion or
continuation of any LIBOR Loans or Canadian BA Rate Loans, Borrower Agent shall
select an interest period (“Interest Period”) to apply, which interest period
shall be 30, 60, 90 or 180 days; provided, however, that:

(a) the Interest Period shall commence on the date the Loan is made or continued
as, or converted into, a LIBOR Loan or Canadian BA Rate Loan, and shall expire
on the numerically corresponding day in the calendar month at its end;

(b) if any Interest Period commences on a day for which there is no
corresponding day in the calendar month at its end or if such corresponding day
falls after the last Business Day of such month, then the Interest Period shall
expire on the last Business Day of such month; and if any Interest Period would
expire on a day that is not a Business Day, the period shall expire on the next
Business Day; and

(c) no Interest Period shall extend beyond: (i) the U.S. Revolver Commitment
Termination Date in the case of any Loan owing by the U.S. Borrowers, and
(ii) the Canadian Revolver Commitment Termination Date in the case of any Loan
owing by the Canadian Borrower.

3.1.5. Interest Rate Not Ascertainable. If Agent shall determine that on any
date for determining LIBOR or the Canadian BA Rate, due to any circumstance
affecting the London interbank market or the Canadian interbank bankers’
acceptances market, respectively, adequate and fair means do not exist for
ascertaining such rate on the basis provided herein, then Agent shall
immediately notify the Borrower Agent of such determination. Until Agent
notifies the Borrower Agent that such circumstance no longer exists, the
obligation of the Lenders to make LIBOR Loans or Canadian BA Rate Loans, as
applicable, shall be suspended, and no further Loans may be converted into or
continued as LIBOR Loans or Canadian BA Rate Loans, as applicable.

3.2 Fees.

3.2.1. Unused Line Fee.

(a) U.S. Borrowers shall pay to Agent, for the Pro Rata benefit of U.S. Lenders,
a fee equal to the U.S. Unused Line Fee Rate times the amount by which the U.S.
Revolver Commitments exceed the average daily balance of U.S. Revolver Loans and
stated amount of U.S. Letters of Credit during any month. Such fee shall be
payable in arrears, on the first day of each month and on the U.S. Revolver
Commitment Termination Date.

(b) Canadian Borrower shall pay to Agent, for the Pro Rata benefit of Canadian
Lenders, a fee equal to the Canadian Unused Line Fee Rate times the amount by
which the Canadian Revolver Commitments exceed the average daily balance of
Canadian Revolver

 

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Loans and stated amount of Canadian Letters of Credit during any month. Such fee
shall be payable in arrears, on the first day of each month and on the Canadian
Revolver Commitment Termination Date.

3.2.2. U.S. LC Facility Fees. The U.S. Borrowers shall pay (a) to Agent, for the
Pro Rata benefit of the U.S. Lenders, a fee equal to the per annum rate of the
Applicable Margin in effect for LIBOR Loans times the average daily stated
amount of U.S. Letters of Credit, which fee shall be payable monthly in arrears,
on the first day of each month; (b) to Agent, for its own account, a fronting
fee equal to 0.125% per annum on the stated amount of each U.S. Letter of
Credit, which fee shall be payable monthly in arrears, on the first day of each
month; and (c) to the U.S. Issuing Bank, for its own account, all customary
charges associated with the issuance, amending, negotiating, payment,
processing, transfer and administration of U.S. Letters of Credit, which charges
shall be paid as and when incurred. At the election of Agent or the U.S.
Required Lenders, during an Event of Default, the fee payable under clause
(a) shall be increased by 2% per annum.

3.2.3. Canadian LC Facility Fees. The Canadian Borrower shall pay (a) to Agent,
for the Pro Rata benefit of the Canadian Lenders, a fee equal to the per annum
rate of the Applicable Margin in effect for Canadian BA Rate Loans times the
average daily stated amount of Canadian Letters of Credit, which fee shall be
payable monthly in arrears, on the first day of each month; (b) to Agent, for
its own account, a fronting fee equal to 0.125% per annum on the stated amount
of each Canadian Letter of Credit, which fee shall be payable monthly in
arrears, on the first day of each month; and (c) to the Canadian Issuing Bank,
for its own account, all customary charges associated with the issuance,
amending, negotiating, payment, processing, transfer and administration of
Canadian Letters of Credit, which charges shall be paid as and when incurred. At
the election of Agent or the Canadian Required Lenders, during an Event of
Default, the fee payable under clause (a) shall be increased by 2% per annum.

3.2.4. Other Fees. Borrowers shall pay such other fees as described in the Fee
Letters.

3.3 Computation of Interest, Fees, Yield Protection. All interest, as well as
fees and other charges calculated on a per annum basis, shall be computed for
the actual days elapsed, based on a year of 360 days, or, in the case of
interest based on the Canadian Prime Rate or Canadian BA Rate, on the basis of a
365 day year, as the case may be. Each determination by Agent of any interest,
fees or interest rate hereunder shall be final, conclusive and binding for all
purposes, absent manifest error. All fees shall be fully earned when due and
shall not be subject to rebate, refund or proration. All fees payable under
Section 3.2 are compensation for services and are not, and shall not be deemed
to be, interest or any other charge for the use, forbearance or detention of
money. A certificate as to amounts payable by any Borrower under Section 3.4,
3.5, 3.7, 3.9 or 5.9, submitted to the Borrower Agent by Agent or the affected
Lender or Issuing Bank, as applicable, shall be final, conclusive and binding
for all purposes, absent manifest error, and the Borrowers shall pay such
amounts to the appropriate party within 10 days following receipt of the
certificate. For the purposes of the Interest Act (Canada), the yearly rate of
interest to which any rate calculated on the basis of a period of time different
from the actual number of days in the year (360 days, for example) is equivalent
is the stated rate multiplied by the actual number of days in the year (365 or
366, as applicable) and divided by the number of days in the

 

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shorter period (360 days, in the example), and the parties hereto acknowledge
that there is a material distinction between the nominal and effective rates of
interest and that they are capable of making the calculations necessary to
compare such rates and that the calculations herein are to be made using the
nominal rate method and not on any basis that gives effect to the principle of
deemed reinvestment of interest.

3.4 Reimbursement Obligations. Borrowers within each Borrower Group shall
reimburse Agent and each Lender for all Extraordinary Expenses incurred by Agent
or such Lender in reference to such Borrower Group or its related Obligations or
Collateral. In addition to such Extraordinary Expenses, such Borrowers shall
also reimburse Agent for all legal, accounting, appraisal, consulting, and other
fees, costs and expenses incurred by it in connection with (a) negotiation and
preparation of any Loan Documents, including any amendment or other modification
thereof; (b) administration of and actions relating to any Collateral for its
Obligations, Loan Documents and transactions contemplated thereby, including any
actions taken to perfect or maintain priority of Agent’s Liens on any such
Collateral, to maintain any insurance required hereunder or to verify such
Collateral; and (c) subject to any limits of Section 10.1.1(b), each inspection,
audit or appraisal with respect to any Obligor within such Borrowers’ related
Obligor Group or Collateral securing such Obligor Group’s Obligations, whether
prepared by Agent’s personnel or a third party. All legal, accounting and
consulting fees shall be charged to Borrowers by Agent’s professionals at their
full hourly rates, regardless of any reduced or alternative fee billing
arrangements that Agent, any Lender or any of their Affiliates may have with
such professionals with respect to this or any other transaction. If, for any
reason (including inaccurate reporting on financial statements, a Borrowing Base
Certificate, or a Compliance Certificate), it is determined that a higher
Applicable Margin, U.S. Unused Line Fee Rate, or Canadian Unused Line Fee Rate
should have applied to a period than was actually applied, then the proper
margin shall be applied retroactively and the applicable Borrowers shall
immediately pay to Agent, for the Pro Rata benefit of Applicable Lenders, an
amount equal to the difference between the amount of interest and fees that
would have accrued using the proper margin and the amount actually paid. All
amounts payable by Borrowers under this Section shall be due on demand.

3.5 Illegality. If any Lender determines that any Applicable Law has made it
unlawful, or that any Governmental Authority has asserted that it is unlawful,
for any Lender or its applicable Lending Office to make, maintain or fund LIBOR
Loans or Canadian BA Rate Loans, or to determine or charge interest rates based
upon LIBOR or the Canadian BA Rate, or any Governmental Authority has imposed
material restrictions on the authority of such Lender to purchase or sell, or to
take deposits of, Dollars in the London interbank market, or Canadian Dollars
through bankers’ acceptances, then, on notice thereof by such Lender to Agent,
any obligation of such Lender to make or continue LIBOR Loans or Canadian BA
Rate Loans, as applicable, or to convert Base Rate Loans or Canadian Base Rate
Loans to LIBOR Loans or Canadian Prime Rate Loans to Canadian BA Rate Loans, as
applicable, shall be suspended until such Lender notifies Agent that the
circumstances giving rise to such determination no longer exist. Upon delivery
of such notice, the applicable Borrower(s) with respect to such Loans shall
prepay or, if applicable, convert all LIBOR Loans of such Lender to Base Rate
Loans or Canadian Base Rate Loans or all Canadian Prime Rate Loans to Canadian
BA Rate Loans, as applicable, either on the last day of the Interest Period
therefor, if such Lender may lawfully continue to maintain such LIBOR Loans or
Canadian BA Rate Loans to such day, or

 

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immediately, if such Lender may not lawfully continue to maintain such LIBOR
Loans or Canadian BA Rate Loans. Upon any such prepayment or conversion, the
applicable Borrower(s) with respect to such Loans shall also pay accrued
interest on the amount so prepaid or converted.

3.6 Inability to Determine Rates. If the U.S. Required Lenders, with respect to
U.S. Revolver Loans, or the Canadian Required Lenders, with respect to Canadian
Revolver Loans, notify Agent for any reason in connection with a request for a
Borrowing of, or conversion to or continuation of, a LIBOR Loan or a Canadian BA
Rate Loan that (a) Dollar deposits or bankers’ acceptances are not being offered
to, as regards LIBOR, banks in the London interbank Eurodollar market or, as
regards Canadian BA Rate, Persons in Canada, for the applicable amount and
Interest Period of such Loan, (b) adequate and reasonable means do not exist for
determining LIBOR or the Canadian BA Rate for the requested Interest Period, or
(c) LIBOR or the Canadian BA Rate for the requested Interest Period does not
adequately and fairly reflect the cost to such Lenders of funding such Loan,
then Agent will promptly so notify the Borrower Agent and each Applicable
Lender. Thereafter, the obligation of the Applicable Lenders to make or maintain
the affected LIBOR Loans or Canadian BA Rate Loans shall be suspended until
Agent (upon instruction by the U.S. Required Lenders or Canadian Required
Lenders, as applicable) revokes such notice. Upon receipt of such notice, the
Borrower Agent may revoke any pending request for a Borrowing of, conversion to
or continuation of a LIBOR Loan or a Canadian BA Rate Loan or, failing that,
will be deemed to have submitted a request for a U.S. Base Rate Loan or a
Canadian Prime Rate Loan.

3.7 Increased Costs; Capital Adequacy.

3.7.1. Change in Law. If any Change in Law shall:

(a) impose, modify or deem applicable any reserve, special deposit, compulsory
loan, insurance charge or similar requirement against assets of, deposits with
or for the account of, or credit extended or participated in by, any Lender
(except any reserve requirement reflected in LIBOR or the Canadian BA Rate) or
any Issuing Bank;

(b) subject any Lender or any Issuing Bank to any Tax with respect to any Loan,
Loan Document, Letter of Credit or participation in LC Obligations, or change
the basis of taxation of payments to such Lender or such Issuing Bank in respect
thereof (except for Indemnified Taxes or Other Taxes covered by Section 5.9 and
the imposition of, or any change in the rate of, any Excluded Tax payable by
such Lender or such Issuing Bank); or

(c) impose on any Lender or any Issuing Bank or the London interbank market or
the Canadian bankers’ acceptances market any other condition, cost or expense
affecting any Loan, Loan Document, Letter of Credit, participation in LC
Obligations, or Commitment;

and the result thereof shall be to increase the cost to such Lender of making or
maintaining any LIBOR Loan or Canadian BA Rate Loan (or of maintaining its
obligation to make any such Loan), or to increase the cost to such Lender or
such Issuing Bank of participating in, issuing or maintaining any Letter of
Credit (or of maintaining its obligation to participate in or to issue any
Letter of Credit), or to reduce the amount of any sum received or receivable by
such Lender or

 

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such Issuing Bank hereunder (whether of principal, interest or any other amount)
then, upon request of such Lender or such Issuing Bank, the Borrower(s) of any
Borrower Group with respect to such Commitments, Loans, Letters of Credit or
participations in LC Obligations) will pay to such Lender or such Issuing Bank,
as applicable, such additional amount or amounts as will compensate such Lender
or such Issuing Bank, as applicable, for such additional costs incurred or
reduction suffered.

3.7.2. Capital Adequacy. If any Lender or any Issuing Bank determines that any
Change in Law affecting such Lender or such Issuing Bank or any Lending Office
of such Lender or such Lender’s or such Issuing Bank’s holding company, if any,
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender’s, such Issuing Bank’s or holding company’s capital as
a consequence of this Agreement, or such Lender’s or such Issuing Bank’s
Commitments, Loans, Letters of Credit or participations in LC Obligations, to a
level below that which such Lender, such Issuing Bank or holding company could
have achieved but for such Change in Law (taking into consideration such
Lender’s, such Issuing Bank’s and holding company’s policies with respect to
capital adequacy), then from time to time the Borrowers (or the applicable
Borrower(s) of any Borrower Group with respect to such Commitments, Loans,
Letters of Credit or participations in LC Obligations) will pay to such Lender
or such Issuing Bank, as the case may be, such additional amount or amounts as
will compensate it or its holding company for any such reduction suffered.

3.7.3. Compensation. Failure or delay on the part of any Lender or any Issuing
Bank to demand compensation pursuant to this Section shall not constitute a
waiver of its right to demand such compensation, but the Borrower(s) of any
Borrower Group shall not be required to compensate a Lender or an Issuing Bank
for any increased costs incurred or reductions suffered more than nine months
prior to the date that such Lender or such Issuing Bank notifies the Borrower
Agent of the Change in Law giving rise to such increased costs or reductions and
of such Lender’s or such Issuing Bank’s intention to claim compensation therefor
(except that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the nine-month period referred to above shall be
extended to include the period of retroactive effect thereof).

3.8 Mitigation. If any Lender gives a notice under Section 3.5 or requests
compensation under Section 3.7, or if the Borrower(s) of any Borrower Group are
required to pay additional amounts with respect to a Lender under Section 5.9,
then such Lender shall use reasonable efforts to designate a different Lending
Office or to assign its rights and obligations hereunder to another of its
offices, branches or Affiliates, if, in the judgment of such Lender, such
designation or assignment (a) would eliminate the need for such notice or reduce
amounts payable or to be withheld in the future, as applicable; and (b) would
not subject such Lender to any unreimbursed cost or expense and would not
otherwise be disadvantageous to such Lender or unlawful. The Borrower(s) of each
affected Borrower Group shall pay all reasonable costs and expenses incurred by
any Lender that has issued a Commitment to such Borrower Group in connection
with any such designation or assignment.

3.9 Funding Losses. If for any reason (other than default by a Lender) (a) any
Borrowing of, or conversion to or continuation of, a LIBOR Loan or a Canadian BA
Rate Loan does not occur on the date specified therefor in a Notice of Borrowing
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Conversion/Continuation (whether or not withdrawn), (b) any repayment or
conversion of a LIBOR Loan or a Canadian BA Rate Loan occurs on a day other than
the end of its Interest Period, (c) a Lender (other than a Defaulting Lender) is
required to assign a LIBOR Loan or Canadian BA Rate Loan prior to the end of its
Interest Period pursuant to Section 13.4, or (d) the Borrower(s) of any Borrower
Group fail(s) to repay a LIBOR Loan or a Canadian BA Rate Loan when required
hereunder, then such applicable Borrower(s) shall pay to Agent its customary
administrative charge and to each Applicable Lender all losses and expenses that
it sustains as a consequence thereof, including loss of anticipated profits and
any loss or expense arising from liquidation or redeployment of funds or from
fees payable to terminate deposits of matching funds. The Lenders shall not be
required to purchase Dollar deposits in the London interbank market or any other
offshore Dollar market to fund any LIBOR Loan or to transact in bankers’
acceptances to make any Canadian BA Rate Loan, but the provisions hereof shall
be deemed to apply as if each Applicable Lender had purchased such deposits to
fund its LIBOR Loans or Canadian BA Rate Loans, as applicable.

3.10 Maximum Interest. Notwithstanding anything to the contrary contained in any
Loan Document, the interest paid or agreed to be paid under the Loan Documents
shall not exceed the maximum rate of non-usurious interest permitted by
Applicable Law (“maximum rate”). If Agent or any Lender shall receive interest
in an amount that exceeds the maximum rate, the excess interest shall be applied
to the principal of the Obligations of the Borrower Group to which such excess
interest relates or, if it exceeds such unpaid principal, refunded to such
Borrower Group. In determining whether the interest contracted for, charged or
received by Agent or a Lender exceeds the maximum rate, such Person may, to the
extent permitted by Applicable Law, (a) characterize any payment that is not
principal as an expense, fee or premium rather than interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate,
allocate and spread in equal or unequal parts the total amount of interest
throughout the contemplated term of the Obligations hereunder. Without limiting
the generality of the foregoing provisions of this Section 3.10, if any
provision of any of the Loan Documents would obligate any Canadian Domiciled
Obligor to make any payment of interest with respect to the Canadian Facility
Obligations in an amount or calculated at a rate which would be prohibited by
Applicable Law or would result in the receipt of interest with respect to the
Canadian Facility Obligations at a criminal rate (as such terms are construed
under the Criminal Code (Canada)), then, notwithstanding such provision, such
amount or rates shall be deemed to have been adjusted with retroactive effect to
the maximum amount or rate of interest, as the case may be, as would not be so
prohibited by law or so result in a receipt by the applicable recipient of
interest with respect to the Canadian Facility Obligations at a criminal rate,
such adjustment to be effected, to the extent necessary, as follows: (i) first,
by reducing the amount or rates of interest required to be paid by the Canadian
Domiciled Obligors to the applicable recipient under the Loan Documents; and
(ii) thereafter, by reducing any fees, commissions, premiums and other amounts
required to be paid by the Canadian Domiciled Obligors to the applicable
recipient which would constitute interest with respect to the Canadian Facility
Obligations for purposes of Section 347 of the Criminal Code (Canada).
Notwithstanding the foregoing, and after giving effect to all adjustments
contemplated thereby, if the applicable recipient shall have received an amount
in excess of the maximum permitted by that section of the Criminal Code
(Canada), then the Canadian Domiciled Obligors shall be entitled, by notice in
writing to Agent, to obtain reimbursement from the applicable recipient in an
amount equal to such excess, and, pending such reimbursement, such amount shall
be deemed to be an amount payable by the applicable

 

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recipient to the applicable Canadian Domiciled Obligor. Any amount or rate of
interest with respect to the Canadian Facility Obligations referred to in this
Section 3.10 shall be determined in accordance with generally accepted actuarial
practices and principles as an effective annual rate of interest over the term
that any Loans to the Canadian Borrower remain outstanding on the assumption
that any charges, fees or expenses that fall within the meaning of “interest”
(as defined in the Criminal Code (Canada)) shall, if they relate to a specific
period of time, be pro rated over that period of time and otherwise be pro rated
over the period from the Original Agreement Closing Date to the date of Full
Payment of the Canadian Facility Obligations, and, in the event of a dispute, a
certificate of a Fellow of the Canadian Institute of Actuaries appointed by
Agent shall be conclusive for the purposes of such determination.

SECTION 4. LOAN ADMINISTRATION

4.1 Manner of Borrowing and Funding Revolver Loans.

4.1.1. Notice of Borrowing.

(a) Whenever Borrowers within a Borrower Group desire funding of a Borrowing of
Revolver Loans, Borrower Agent shall give Agent a Notice of Borrowing. Such
notice must be received by Agent no later than 11:00 a.m. (i) on the Business
Day of the requested funding date, in the case of U.S. Base Rate Loans, Canadian
Prime Rate Loans or Canadian Base Rate Loans, and (ii) at least three Business
Days prior to the requested funding date, in the case of LIBOR Loans or Canadian
BA Rate Loans. Notices received after 11:00 a.m. shall be deemed received on the
next Business Day. Each Notice of Borrowing shall be irrevocable and shall
specify (A) the amount of the Borrowing, (B) the requested funding date (which
must be a Business Day), (C) whether the Borrowing is to be made as a U.S. Base
Rate Loan or a LIBOR Loan, in the case of a Borrowing by the U.S. Borrowers, or
as a Canadian Base Rate Loan, a LIBOR Loan, a Canadian Prime Rate Loan or a
Canadian BA Rate Loan, in the case of the Canadian Borrower, (D) in the case of
LIBOR Loans or Canadian BA Rate Loans, the duration of the applicable Interest
Period (which shall be deemed to be 30 days if not specified), and (E) in the
case of a Borrowing by the Canadian Borrower, whether such Loan is to be
denominated in Dollars or Canadian Dollars.

(b) Unless payment is otherwise timely made by Borrowers within a Borrower
Group, the becoming due of any amount required to be paid with respect to any of
the Obligations of the Obligor Group to which such Borrower Group belongs
(whether principal, interest, fees or other charges, including Extraordinary
Expenses, LC Obligations, Cash Collateral and Secured Bank Product Obligations)
shall be deemed to be a request for Revolver Loans by such Borrower Group on the
due date, in the amount of such Obligations and shall bear interest at the per
annum rate applicable hereunder to U.S. Base Rate Loans, in the case of such
Obligations owing by any U.S. Facility Obligor, or to Canadian Prime Rate Loans,
in the case of such Obligations owing by a Canadian Domiciled Obligor. The
proceeds of such Revolver Loans shall be disbursed as direct payment of the
relevant Obligation. In addition, Agent may, at its option, charge such
Obligations of an Obligor Group against any operating, investment or other
account of an Obligor within such Obligor Group maintained with Agent or any of
its Affiliates.

 

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(c) If Borrowers within a Borrower Group establish a controlled disbursement
account with Agent or any branch or Affiliate of Agent, then the presentation
for payment of any check, ACH or electronic debit, or other payment item at a
time when there are insufficient funds to cover it shall be deemed to be a
request for Revolver Loans by such Borrower Group on the date of such
presentation, in the amount of such payment item, and shall bear interest at the
per annum rate applicable hereunder to U.S. Base Rate Loans, in the case of
insufficient funds owing by any U.S. Facility Obligor, or to Canadian Prime Rate
Loans, in the case of insufficient funds owing by a Canadian Domiciled Obligor.
The proceeds of such Revolver Loans may be disbursed directly to the controlled
disbursement account or other appropriate account.

4.1.2. Fundings by Lenders. Each Applicable Lender shall timely honor its
Revolver Commitment by funding its Pro Rata share of each Borrowing of Revolver
Loans that is properly requested hereunder. Except for Borrowings to be made as
Swingline Loans, Agent shall endeavor to notify the Applicable Lenders of each
Notice of Borrowing (or deemed request for a Borrowing) by 12:00 noon on the
proposed funding date for U.S. Base Rate Loans, Canadian Base Rate Loans or
Canadian Prime Rate Loans, or by 3:00 p.m. at least two Business Days before any
proposed funding of LIBOR Loans or Canadian BA Rate Loans. Each Applicable
Lender shall fund to Agent such Lender’s Pro Rata share of the Borrowing to the
account specified by Agent in immediately available funds not later than 2:00
p.m. on the requested funding date, unless Agent’s notice is received after the
times provided above, in which case Lender shall fund its Pro Rata share by
11:00 a.m. on the next Business Day. Subject to its receipt of such amounts from
the Applicable Lenders, Agent shall disburse the proceeds of the Revolver Loans
as directed by Borrower Agent. Unless Agent shall have received (in sufficient
time to act) written notice from an Applicable Lender that it does not intend to
fund its Pro Rata share of a Borrowing, Agent may assume that such Lender has
deposited or promptly will deposit its share with Agent, and Agent may disburse
a corresponding amount to the applicable Borrower(s). If an Applicable Lender’s
share of any Borrowing or of any settlement pursuant to Section 4.1.3(b) is not
received by Agent, then the Borrowers within the applicable Borrower Group agree
to repay to Agent on demand the amount of such share, together with interest
thereon from the date disbursed until repaid, at the rate applicable to such
Borrowing.

4.1.3. Swingline Loans; Settlement.

(a) Agent may, but shall not be obligated to, advance U.S. Swingline Loans to
the U.S. Borrowers, up to an aggregate outstanding amount equal to 10% of the
aggregate U.S. Revolver Commitments, unless the funding is specifically required
to be made by all U.S. Lenders hereunder. Each U.S. Swingline Loan shall
constitute a U.S. Base Rate Loan for all purposes, except that payments thereon
shall be made to Agent for its own account. The obligation of the U.S. Borrowers
to repay U.S. Swingline Loans shall be evidenced by the records of Agent and
need not be evidenced by any promissory note. Agent (acting through its Canada
branch) may, but shall not be obligated to, advance Canadian Swingline Loans to
the Canadian Borrower, up to an aggregate outstanding amount equal to 10% of the
aggregate Canadian Revolver Commitments, unless the funding is specifically
required to be made by all Canadian Lenders hereunder. Each Canadian Swingline
Loan shall constitute a Canadian Prime Rate Revolver Loan or a Canadian Base
Rate Loan, as applicable, for all purposes, except that payments thereon shall
be made to Agent (acting through its Canada branch) for its own account. The
obligation of the Canadian Borrower to repay Canadian Swingline Loans shall be
evidenced

 

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by the records of Agent (acting through its Canada branch) and need not be
evidenced by any promissory note.

(b) Settlement of Swingline Loans and other Revolver Loans among Lenders and
Agent shall take place on a date determined from time to time by Agent (but at
least weekly), in accordance with the Settlement Report delivered by Agent to
Lenders. Between settlement dates, Agent may in its discretion apply payments on
Revolver Loans to Swingline Loans, regardless of any designation by any Borrower
or any provision herein to the contrary. Each Lender’s obligation to make
settlements with Agent is absolute and unconditional, without offset,
counterclaim or other defense, and whether or not the Commitments have
terminated, an Overadvance exists or the conditions in Section 6 are satisfied.
If, due to an Insolvency Proceeding with respect to a Borrower or otherwise, any
U.S. Swingline Loan may not be settled among the U.S. Lenders hereunder, then
each U.S. Lender shall be deemed to have purchased from Agent a Pro Rata
participation in such Loan and shall transfer the amount of such participation
to Agent, in immediately available funds, within one Business Day after Agent’s
request therefor. If, due to an Insolvency Proceeding with respect to a Borrower
or otherwise, any Canadian Swingline Loan may not be settled among the Canadian
Lenders hereunder, then each Canadian Lender shall be deemed to have purchased
from Agent a Pro Rata participation in such Loan and shall transfer the amount
of such participation to Agent, in immediately available funds, within one
Business Day after Agent’s request therefore.

4.1.4. Notices. Borrowers may request, convert or continue Loans, select
interest rates and transfer funds based on telephonic or e-mailed instructions
to Agent. Borrowers shall confirm each such request by prompt delivery to Agent
of a Notice of Borrowing or Notice of Conversion/Continuation, if applicable,
but if it differs materially from the action taken by Agent or Lenders, the
records of Agent and Lenders shall govern. Neither Agent nor any Lender shall
have any liability for any loss suffered by a Borrower as a result of Agent or
any Lender acting upon its understanding of telephonic or e-mailed instructions
from a person believed in good faith by Agent or any Lender to be a person
authorized to give such instructions on a Borrower’s behalf.

4.2 Defaulting Lender.

4.2.1. Reallocation of Pro Rata Share; Amendments. For purposes of determining
Lenders’ obligations to fund or participate in Loans or Letters of Credit, Agent
may exclude the Commitments and Loans of any Defaulting Lender(s) from the
calculation of Pro Rata shares. A Defaulting Lender shall have no right to vote
on any amendment, waiver or other modification of a Loan Document, except as
provided in Section 14.1.1(c).

4.2.2. Payments; Fees. Agent may, in its discretion, receive and retain any
amounts payable to a Defaulting Lender under the Loan Documents, and a
Defaulting Lender shall be deemed to have assigned to Agent such amounts until
all Obligations owing to Agent, non-Defaulting Lenders and other Secured Parties
have been paid in full. Agent may apply such amounts to the Defaulting Lender’s
defaulted obligations, use the funds to Cash Collateralize such Lender’s
Fronting Exposure, or readvance the amounts, in accordance with this Agreement,
to the Borrowers of the Borrower Group to which such defaulted obligations
relate. A Lender shall not be entitled to receive any fees accruing hereunder
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Defaulting Lender, and the unfunded portion of its Commitment shall be
disregarded for purposes of calculating the unused line fees under
Section 3.2.1. If any LC Obligations owing to a Defaulted Lender are reallocated
to other Lenders, fees attributable to such LC Obligations under Section 3.2.2
and Section 3.2.3, as applicable, shall be paid to such Lenders. Agent shall be
paid all fees attributable to LC Obligations that are not reallocated.

4.2.3. Cure. Borrowers, Agent and Issuing Banks may agree in writing that a
Lender is no longer a Defaulting Lender. At such time, Pro Rata shares shall be
reallocated without exclusion of such Lender’s Commitments and Loans, and all
outstanding Revolver Loans, LC Obligations and other exposures under the
Revolver Commitments shall be reallocated among Lenders and settled by Agent
(with appropriate payments by the reinstated Lender) in accordance with the
readjusted Pro Rata shares. Unless expressly agreed by Borrowers, Agent and
Issuing Banks, no reinstatement of a Defaulting Lender shall constitute a waiver
or release of claims against such Lender. The failure of any Lender to fund a
Loan, to make a payment in respect of LC Obligations or otherwise to perform its
obligations hereunder shall not relieve any other Lender of its obligations, and
no Lender shall be responsible for default by another Lender.

4.3 Number and Amount of LIBOR Loans and Canadian BA Rate Loans; Determination
of Rate. With respect to the U.S. Borrowers, (i) no more than 10 Borrowings of
LIBOR Loans may be outstanding at any time, and all LIBOR Loans to U.S.
Borrowers having the same length and beginning date of their Interest Periods
shall be aggregated together and considered one Borrowing for this purpose, and
(ii) each Borrowing of LIBOR Loans when made, continued or converted shall be in
a minimum amount of $1,000,000 or an increment of $1,000,000, in excess thereof.
With respect to the Canadian Borrower, (x) no more than 5 Borrowings of LIBOR
Loans may be outstanding at any time, and all LIBOR Loans having the same length
and beginning date of their Interest Periods shall be aggregated together and
considered one Borrowing for this purpose, (y) no more than 5 Borrowings of
Canadian BA Rate Loans may be outstanding at any time, and all Canadian BA Rate
Loans having the same length and beginning date of their Interest Periods shall
be aggregated together and considered one Borrowing for this purpose, and
(z) each Borrowing of such Loans when made, continued or converted shall be in a
minimum amount of $1,000,000 (or, in the case of Canadian BA Rate Loans,
Cdn$1,000,000) or an increment of $1,000,000 (or, in the case of Canadian BA
Rate Loans, Cdn$1,000,000), in excess thereof. Upon determining LIBOR or the
Canadian BA Rate for any Interest Period requested by the Borrower Agent on
behalf of a Borrower Group, Agent shall promptly notify the Borrower Agent
thereof by telephone or electronically and, if requested by the Borrower Agent,
shall confirm any telephonic notice in writing

4.4 Borrower Agent. Each Borrower and other Obligor hereby designates Callaway
Golf Company, a Delaware corporation (“Borrower Agent”) as its representative
and agent for all purposes under the Loan Documents, including requests for
Loans and Letters of Credit, designation of interest rates, delivery or receipt
of communications, preparation and delivery of Borrowing Base and financial
reports, receipt and payment of Obligations, requests for waivers, amendments or
other accommodations, actions under the Loan Documents (including in respect of
compliance with covenants), and all other dealings with Agent, any Issuing Bank
or any Lender. Borrower Agent hereby accepts such appointment. Agent and Lenders
shall be entitled to rely upon, and shall be fully protected in relying upon,
any notice or communication

 

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(including any notice of borrowing) delivered by Borrower Agent on behalf of any
Borrower. Agent and Lenders may give any notice or communication with a Borrower
or other Obligor hereunder to Borrower Agent on behalf of such Borrower or other
Obligor. Each of Agent, Issuing Banks and Lenders shall have the right, in its
discretion, to deal exclusively with Borrower Agent for any or all purposes
under the Loan Documents. Each Borrower and other Obligor agrees that any
notice, election, communication, representation, agreement or undertaking made
on its behalf by Borrower Agent shall be binding upon and enforceable against
it.

4.5 One Obligation. The Loans, LC Obligations and other Obligations of the
applicable Borrower(s) of each Borrower Group and their respective Guarantors
shall constitute one general obligation of such Borrower(s) of such Borrower
Group and their respective Guarantors and (unless otherwise expressly provided
in any Loan Document) shall be secured by Agent’s Lien upon all Collateral of
such Borrower(s) of such Borrower Group and their respective Guarantors;
provided, however, that each Credit Party shall be deemed to be a creditor of,
and the holder of a separate claim against, each Borrower or other Obligor to
the extent of any Obligations jointly or severally owed by such Borrower or
other Obligor to such Credit Party.

4.6 Effect of Termination. On the effective date of any termination of any of
the Commitments, all Obligations with respect thereto shall be immediately due
and payable, and any Lender may terminate its and its Affiliates’ Bank Products.
All undertakings of Borrowers contained in the Loan Documents shall survive any
termination, and Agent shall retain its Liens in the Collateral and all of its
rights and remedies under the Loan Documents until Full Payment of the
Obligations. Notwithstanding Full Payment of the Obligations, Agent shall not be
required to terminate its Liens in any Collateral unless, with respect to any
damages Agent may incur as a result of the dishonor or return of Payment Items
applied to Obligations, Agent receives (a) a written agreement satisfactory to
Agent, executed by Borrowers and any Person whose advances are used in whole or
in part to satisfy the Obligations, indemnifying Agent and Lenders from such
damages; and (b) such Cash Collateral as Agent, in its discretion, deems
appropriate to protect against such damages. Sections 2.3, 2.4, 3.4, 3.6, 3.7,
3.9, 5.5, 5.9, 5.10, 12, 14.2 and this Section, and the obligation of each
Obligor and Lender with respect to each indemnity given by it in any Loan
Document, shall survive Full Payment of the Obligations and any release relating
to this credit facility.

SECTION 5. PAYMENTS

5.1 General Payment Provisions. All payments of Obligations shall be made
without offset, counterclaim or defense of any kind, free of (and without
deduction for) any Taxes, and in immediately available funds, not later than
12:00 noon on the due date. Any payment after such time shall be deemed made on
the next Business Day. Any payment of a LIBOR Loan or a Canadian BA Rate Loan
prior to the end of its Interest Period shall be accompanied by all amounts due
under Section 3.9. Any prepayment of Loans by a Borrower Group shall be applied
first to U.S. Base Rate Loans, Canadian Base Rate Loans or Canadian Prime Rate
Loans, as applicable, of such Borrower Group and then to LIBOR Loans or Canadian
BA Rate Loans, as applicable, of such Borrower Group. All payments with respect
to any U.S. Facility Obligations shall be made in Dollars and all payments with
respect to any Canadian

 

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Facility Obligations shall be made in Canadian Dollars or, if any portion of
such Canadian Facility Obligations is denominated in Dollars, then in Dollars.

5.2 Repayment of Revolver Loans. All U.S. Revolver Loans shall be due and
payable in full on the U.S. Revolver Commitment Termination Date and all
Canadian Revolver Loans shall be due and payable in full on the Canadian
Revolver Commitment Termination Date, in each case unless payment is sooner
required hereunder. Revolver Loans may be prepaid from time to time, without
penalty or premium, subject to, in the case of LIBOR Loans and Canadian BA Rate
Loans, Section 3.9. If any Asset Disposition includes the disposition of
Accounts or Inventory of an Obligor, then Net Proceeds equal to the greater of
(a) the net book value of such Accounts and Inventory, or (b) the reduction in
the applicable Borrowing Base (i.e., the U.S. Borrowing Base in the case of an
Asset Disposition with respect to Accounts or Inventory of the U.S. Borrowers
and the Canadian Borrowing Base in the case of an Asset Disposition with respect
to Accounts or Inventory of the Canadian Borrower) upon giving effect to such
disposition, shall be applied to the applicable Revolver Loans (i.e., the U.S.
Revolver Loans in the case of an Asset Disposition of Accounts or Inventory of
the U.S. Borrowers and the Canadian Revolver Loans in the case of an Asset
Disposition with respect to the Accounts or Inventory of the Canadian Borrower).
Notwithstanding anything herein to the contrary, if an Overadvance exists
(including as a result of any Asset Disposition), the applicable Borrower(s)
(i.e., the U.S. Borrowers in the case of a U.S. Overadvance and the Canadian
Borrower in the case of a Canadian Overadvance) shall, on the sooner of Agent’s
demand or the first Business Day after any such Borrower has knowledge thereof,
repay the outstanding applicable Revolver Loans (i.e., the U.S. Revolver Loans
in the case of a U.S. Overadvance and the Canadian Revolver Loans in the case of
a Canadian Overadvance) in an amount sufficient to reduce the principal balance
of such Revolver Loans to the applicable Borrowing Base (i.e., the U.S.
Borrowing Base in the case of a U.S. Revolver Loans and the Canadian Borrowing
Base in the case of Canadian Revolver Loans).

5.3 Intentionally Omitted.

5.4 Payment of Other Obligations. Obligations other than Loans, including LC
Obligations and Extraordinary Expenses, shall be paid by Borrowers as provided
in the Loan Documents or, if no payment date is specified, on demand.

5.5 Marshaling; Payments Set Aside. None of Agent or Lenders shall be under any
obligation to marshal any assets in favor of any Obligor or against any
Obligations. If any payment by or on behalf of Borrowers or any other Obligor is
made to Agent, any Issuing Bank or any Lender, or Agent, any Issuing Bank or any
Lender exercises a right of setoff, and such payment or the proceeds of such
setoff or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by Agent, such Issuing Bank or such Lender in its
discretion) to be repaid to a Creditor Representative or any other Person, then
to the extent of such recovery, the Obligation originally intended to be
satisfied, and all Liens, rights and remedies relating thereto, shall be revived
and continued in full force and effect as if such payment had not been made or
such setoff had not occurred.

 

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5.6 Post-Default Allocation of Payments.

5.6.1. Allocation. Notwithstanding anything herein to the contrary, during an
Event of Default, monies to be applied to the Obligations, whether arising from
payments by or on behalf of any Obligor, realization on Collateral, setoff or
otherwise, shall be allocated as follows:

(a) with respect to monies, payments, Property or Collateral of or from any U.S.
Domiciled Obligor:

(i) first, to all costs and expenses, including Extraordinary Expenses, owing to
Agent;

(ii) second, to all Extraordinary Expenses owing to any U.S. Lender;

(iii) third, to all amounts owing to Agent on U.S. Swingline Loans;

(iv) fourth, to all amounts owing to U.S. Issuing Bank on account of U.S. LC
Obligations;

(v) fifth, to all Obligations constituting fees (other than Secured Bank Product
Obligations) owing by any U.S. Domiciled Obligor (exclusive of any such amounts
owing by the Canadian Domiciled Obligors which are guaranteed by the U.S.
Domiciled Obligors);

(vi) sixth, to all U.S. Facility Obligations constituting interest (other than
Secured Bank Product Obligations) owing by any U.S. Domiciled Obligor (exclusive
of any such amounts owing by the Canadian Domiciled Obligors which are
guaranteed by the U.S. Domiciled Obligors);

(vii) seventh, to Cash Collateralize the U.S. LC Obligations;

(viii) eighth, to all U.S. Revolver Loans and Noticed Hedges (solely to the
extent such Noticed Hedges were reserved for by Agent under the U.S. Borrowing
Base immediately prior to the time of such allocation) of any U.S. Domiciled
Obligor, including Cash Collateralization of Noticed Hedges (solely to the
extent such Noticed Hedges were reserved for by Agent under the U.S. Borrowing
Base immediately prior to the time of such allocation) of any U.S. Domiciled
Obligor;

(ix) ninth, to all other U.S. Facility Obligations (exclusive of any such
amounts owing by the Canadian Domiciled Obligors which are guaranteed by the
U.S. Domiciled Obligors); and

(x) tenth, to be applied in accordance with clause (b) below, to the extent
there are insufficient funds for the Full Payment of all Obligations owing by
any Canadian Domiciled Obligor.

 

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(b) with respect to monies, payments, Property or Collateral of or from any
Canadian Domiciled Obligor, together with any allocations pursuant to subclause
(ix) of clause (a) above:

(i) first, to all costs and expenses, including Extraordinary Expenses, owing to
Agent, to the extent owing by any Canadian Domiciled Obligor;

(ii) second, to all Extraordinary Expenses owing to any Canadian Lender;

(iii) third, to all amounts owing to Agent (acting through its Canada branch) on
Canadian Swingline Loans;

(iv) fourth, to all amounts owing to the Canadian Issuing Bank on account of
Canadian LC Obligations;

(v) fifth, to all Canadian Facility Obligations constituting fees (other than
Secured Bank Product Obligations);

(vi) sixth, to all Canadian Facility Obligations constituting interest (other
than Secured Bank Product Obligations);

(vii) seventh, to Cash Collateral the Canadian LC Obligations;

(viii) eighth, to all Canadian Revolver Loans and Noticed Hedges of any Canadian
Domiciled Obligor (solely to the extent such Noticed Hedges were reserved for by
Agent under the Canadian Borrowing Base immediately prior to the time of such
allocation), including Cash Collateralization of Noticed Hedges (solely to the
extent such Noticed Hedges were reserved for by Agent under the Canadian
Borrowing Base immediately prior to the time of such allocation) of any Canadian
Domiciled Obligor; and

(ix) ninth, to all other Canadian Facility Obligations.

Amounts shall be applied to each category of Obligations set forth above until
Full Payment thereof and then to the next category. If amounts are insufficient
to satisfy a category, they shall be applied on a pro rata basis among the
Obligations in the category. Amounts distributed with respect to any Secured
Bank Product Obligations shall be the lesser of the maximum Secured Bank Product
Obligations last reported to Agent or the actual Secured Bank Product
Obligations as calculated by the methodology reported to Agent for determining
the amount due. Agent shall have no obligation to calculate the amount to be
distributed with respect to any Secured Bank Product Obligations, and may
request a reasonably detailed calculation of such amount from the applicable
Secured Party. If a Secured Party fails to deliver such calculation within five
days following request by Agent, Agent may assume the amount to be distributed
is zero. The allocations set forth in this Section are solely to determine the
rights and priorities of Agent and Secured Parties as among themselves, and may
be changed by agreement among them without the consent of any Obligor. This
Section is not for the benefit of or enforceable by any Borrower.

 

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5.6.2. Erroneous Application. Agent shall not be liable for any application of
amounts made by it in good faith and, if any such application is subsequently
determined to have been made in error, the sole recourse of any Lender or other
Person to which such amount should have been made shall be to recover the amount
from the Person that actually received it (and, if such amount was received by
any Lender, such Lender hereby agrees to return it).

5.7 Application of Payments. The ledger balance in the main Dominion Account of
each Borrower Group as of the end of a Business Day shall be applied to the
Obligations of such Borrower Group at the beginning of the next Business Day,
during any Dominion Trigger Period. If, at the end of a Business Day, after
giving effect to such application, if any, a credit balance exists, the balance
shall not accrue interest in favor of Borrowers and shall be made available to
Borrowers of the applicable Borrower Group as long as the Obligations have not
been accelerated on account of an Event of Default. During any Dominion Trigger
Period, each Borrower and other Obligor irrevocably waives the right to direct
the application of any payments or Collateral proceeds, and agrees that Agent
shall have the continuing, exclusive right to apply and reapply same against the
Obligations, in such manner as Agent deems advisable.

5.8 Loan Account; Account Stated.

5.8.1. Loan Account. Agent shall maintain, in accordance with its usual and
customary practices, an account or accounts (“Loan Account”) evidencing the Debt
of each of the Borrower(s) within each Borrower Group resulting from each Loan
made to such Borrower Group or issuance of a Letter of Credit for the account of
such Borrower(s) from time to time. Any failure of Agent to record anything in
any Loan Account, or any error in doing so, shall not limit or otherwise affect
the obligations of the applicable Borrower(s) to pay any amount owing hereunder.
Agent may maintain a single Loan Account in the name of the Borrower Agent, and
each Borrower and other Obligor confirms that such arrangement shall have no
effect on the joint and several character of its liability for the Obligations
as and to the extent provided herein or in the other Loan Documents.

5.8.2. Entries Binding. Entries made in any Loan Account shall constitute
presumptive evidence of the information contained therein. If any information
contained in the Loan Account is provided to or inspected by any Person, then
such information shall be conclusive and binding on such Person for all purposes
absent manifest error, except to the extent such Person notifies Agent in
writing within 30 days after receipt or inspection that specific information is
subject to dispute.

5.9 Taxes.

5.9.1. Payments Free of Taxes. All payments by or on behalf of any Obligor
hereunder shall be free and clear of and without withholding or deduction for
any Taxes. If Applicable Law requires any Obligor or Agent to withhold or deduct
any Tax (including backup withholding or withholding Tax), the withholding or
deduction shall be based on information provided pursuant to Section 5.10 and
Agent shall pay the amount withheld or deducted to the relevant Governmental
Authority. If the withholding or deduction is made on account of Indemnified
Taxes or Other Taxes, the sum payable by the applicable Borrowers or other
Obligors shall be increased so that Agent, each Lender and each Issuing Bank, as
applicable,

 

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receives an amount equal to the sum it would have received if no such
withholding or deduction (including withholdings or deductions applicable to
additional sums payable under this Section) had been made. In addition,
Borrowers and the other Obligors shall timely pay all Other Taxes to the
relevant Governmental Authorities.

5.9.2. Payment. Obligors shall indemnify, hold harmless and reimburse (within 10
days after demand therefor) Agent, Lenders and Issuing Banks for any Indemnified
Taxes or Other Taxes (including those attributable to amounts payable under this
Section) paid by Agent, any Lender or any Issuing Bank, with respect to any
Obligations of such Borrower’s Borrower Group, Letters of Credit of such
Borrower’s Borrower Group or Loan Documents, whether or not such Taxes were
properly asserted by the relevant Governmental Authority, and including all
penalties, interest and reasonable expenses relating thereto, as well as any
amount that a Lender or an Issuing Bank fails to pay indefeasibly to Agent under
Section 5.10. A certificate as to the amount of any such payment or liability
delivered to Borrower Agent by Agent, or by a Lender or an Issuing Bank (with a
copy to Agent), shall be conclusive, absent manifest error. As soon as
practicable after any payment of Taxes by any Obligor, Borrower Agent shall
deliver to Agent a receipt from the Governmental Authority or other evidence of
payment satisfactory to Agent.

5.10 Lender Tax Information.

5.10.1. Status of Lenders. Each Lender shall deliver documentation and
information to Agent and Borrower Agent, at the times and in form required by
Applicable Law or reasonably requested by Agent or Borrower Agent, sufficient to
permit Agent or Borrowers to determine (a) whether or not payments made with
respect to Obligations are subject to Taxes, (b) if applicable, the required
rate of withholding or deduction, and (c) such Lender’s entitlement to any
available exemption from, or reduction of, applicable Taxes for such payments or
otherwise to establish such Lender’s status for withholding tax purposes in the
applicable jurisdiction.

5.10.2. Documentation. If a Borrower is resident for tax purposes in the United
States, any Lender that is a “United States person” within the meaning of
section 7701(a)(30) of the Code shall deliver to Agent and Borrower Agent IRS
Form W-9 or such other documentation or information prescribed by Applicable Law
or reasonably requested by Agent or Borrower Agent to determine whether such
Lender is subject to backup withholding or information reporting requirements.
If any Foreign Lender is entitled to any exemption from or reduction of
withholding tax for payments with respect to the U.S. Facility Obligations, it
shall deliver to Agent and Borrower Agent, on or prior to the date on which it
becomes a Lender hereunder (and from time to time thereafter upon request by
Agent or Borrower Agent, but only if such Foreign Lender is legally entitled to
do so), (a) IRS Form W-8BEN claiming eligibility for benefits of an income tax
treaty to which the United States is a party; (b) IRS Form W-8ECI; (c) IRS Form
W-8IMY and all required supporting documentation; (d) in the case of a Foreign
Lender claiming the benefits of the exemption for portfolio interest under
section 881(c) of the Code, IRS Form W-8BEN and a certificate showing such
Foreign Lender is not (i) a “bank” within the meaning of section 881(c)(3)(A) of
the Code, (ii) a “10 percent shareholder” of any Obligor within the meaning of
section 881(c)(3)(B) of the Code, or (iii) a “controlled foreign corporation”
described in section 881(c)(3)(C) of the Code; or (e) any other form prescribed
by Applicable Law as a basis for claiming exemption from or a reduction in
withholding tax, together with such

 

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supplementary documentation necessary to allow Agent and Borrowers to determine
the withholding or deduction required to be made.

5.10.3. Lender Obligations. Each Lender and each Issuing Bank shall promptly
notify Borrower Agent and Agent of any change in circumstances that would change
any claimed Tax exemption or reduction. Each Lender and each Issuing Bank, in
each case severally and not jointly with the other Lenders and/or applicable
Issuing Bank, shall indemnify, hold harmless and reimburse (within 10 days after
demand therefor) the affected Borrower to which such Lender or such Issuing Bank
(as applicable) has issued a Commitment and Agent for any Taxes, losses, claims,
liabilities, penalties, interest and expenses (including reasonable attorneys’
fees) incurred by or asserted against such affected Borrower or Agent by any
Governmental Authority due to such Lender’s or such Issuing Bank’s failure to
deliver, or inaccuracy or deficiency in, any documentation required to be
delivered by it pursuant to this Section. Each Lender and each Issuing Bank
authorizes Agent to set off any amounts due to Agent under this Section against
any amounts payable to such Lender or such Issuing Bank under any Loan Document.

5.11 Guarantee by U.S. Facility Obligors.

5.11.1. Joint and Several Liability. Each U.S. Domiciled Obligor agrees that it
is jointly and severally liable for, and absolutely and unconditionally
guarantees to the Secured Parties the prompt payment and performance of, all
Obligations and all agreements of each other Obligor under the Loan Documents,
and that it is a U.S. Facility Guarantor and a Canadian Facility Guarantor
hereunder. Each U.S. Domiciled Obligor agrees that its guaranty or guarantee of
obligations as a U.S. Facility Guarantor and as a Canadian Facility Guarantor
hereunder, as applicable, constitute a continuing guaranty or guarantee of
payment and not of collection, that such obligations shall not be discharged
until Full Payment of all Obligations, and that such obligations are absolute
and unconditional, irrespective of (a) the genuineness, validity, regularity,
enforceability, subordination or any future modification of, or change in, any
Obligations or Loan Document, or any other document, instrument or agreement to
which any Obligor is or may become a party or be bound; (b) the absence of any
action to enforce this Agreement (including this Section) or any other Loan
Document, or any waiver, consent or indulgence of any kind by any Secured Party
with respect thereto; (c) the existence, value or condition of, or failure to
perfect a Lien or to preserve rights against, any security or guaranty or
guarantee for the Obligations or any action, or the absence of any action, by
any Secured Party in respect thereof (including the release of any security or
guaranty or guarantee); (d) the insolvency of any Obligor; (e) any election by
Agent or any Lender in an Insolvency Proceeding for the application of
Section 1111(b)(2) of the U.S. Bankruptcy Code; (f) any borrowing or grant of a
Lien by any other Obligor, as debtor-in-possession under Section 364 of the U.S.
Bankruptcy Code, under Applicable Law or otherwise; (g) the disallowance of any
claims of any Secured Party against any Obligor for the repayment of any
Obligations under Section 502 of the U.S. Bankruptcy Code or otherwise; or
(h) any other action or circumstances that might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor, except Full Payment of
all Obligations.

 

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5.11.2. Waivers.

(a) Each U.S. Domiciled Obligor expressly waives all rights that it may have now
or in the future under any statute, at common law, in equity or otherwise, to
compel Agent or Lenders to marshal assets or to proceed against any Obligor,
other Person or security for the payment or performance of any Obligations
before, or as a condition to, proceeding against such Obligor. Each U.S.
Domiciled Obligor waives all defenses available to a surety, guarantor or
accommodation co-obligor other than Full Payment of all Obligations. It is
agreed among each U.S. Domiciled Obligor, Agent and Lenders that the provisions
of this Section 5.11 are of the essence of the transaction contemplated by the
Loan Documents and that, but for such provisions, Agent and Lenders would
decline to make Loans and issue Letters of Credit. Each U.S. Domiciled Obligor
acknowledges that its guaranty pursuant to this Section is necessary to the
conduct and promotion of its business, and can be expected to benefit such
business.

(b) Agent and Lenders may, in their discretion, pursue such rights and remedies
as they deem appropriate, including realization upon Collateral (including any
Real Estate owned by any Obligor) by judicial foreclosure or non-judicial sale
or enforcement, without affecting any rights and remedies under this
Section 5.11. If, in taking any action in connection with the exercise of any
rights or remedies, Agent or any Lender shall forfeit any other rights or
remedies, including the right to enter a deficiency judgment against any U.S.
Domiciled Obligor or other Person, whether because of any Applicable Laws
pertaining to “election of remedies” or otherwise, each U.S. Domiciled Obligor
consents to such action and waives any claim based upon it, even if the action
may result in loss of any rights of subrogation that any U.S. Domiciled Obligor
might otherwise have had. Any election of remedies that results in denial or
impairment of the right of Agent or any Lender to seek a deficiency judgment
against any U.S. Domiciled Obligor shall not impair any other U.S. Domiciled
Obligor’s obligation to pay the full amount of the Obligations. Each U.S.
Domiciled Obligor waives all rights and defenses arising out of an election of
remedies, such as nonjudicial foreclosure with respect to any security for the
Obligations, even though that election of remedies destroys such U.S. Domiciled
Obligor’s rights of subrogation against any other Person. Agent may bid all or a
portion of the Obligations at any foreclosure or trustee’s sale or at any
private sale, and the amount of such bid need not be paid by Agent but shall be
credited against the Obligations. The amount of the successful bid at any such
sale, whether Agent or any other Person 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 5.11, notwithstanding that any present or future law or court
decision 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.

5.11.3. Extent of Liability; Contribution.

(a) Notwithstanding anything herein to the contrary, each U.S. Domiciled
Obligor’s liability under this Section 5.11 shall be limited to the greater of
(i) all amounts for which such U.S. Domiciled Obligor is primarily liable, as
described below, and (ii) such U.S. Domiciled Obligor’s Allocable Amount.

 

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(b) If any U.S. Domiciled Obligor makes a payment under this Section 5.11 of any
Obligations (other than amounts for which such U.S. Domiciled Obligor is
primarily liable) (a “Guarantor Payment”) that, taking into account all other
Guarantor Payments previously or concurrently made by any other U.S. Domiciled
Obligor, exceeds the amount that such U.S. Domiciled Obligor would otherwise
have paid if each U.S. Domiciled Obligor had paid the aggregate Obligations
satisfied by such Guarantor Payments in the same proportion that such U.S.
Domiciled Obligor’s Allocable Amount bore to the total Allocable Amounts of all
U.S. Domiciled Obligors, then such U.S. Domiciled Obligor shall be entitled to
receive contribution and indemnification payments from, and to be reimbursed by,
each other U.S. Domiciled Obligor for the amount of such excess, pro rata based
upon their respective Allocable Amounts in effect immediately prior to such
Guarantor Payment. The “Allocable Amount” for any U.S. Domiciled Obligor shall
be the maximum amount that could then be recovered from such U.S. Domiciled
Obligor under this Section 5.11 without rendering such payment voidable under
Section 548 of the U.S. Bankruptcy Code or under any applicable state fraudulent
transfer or conveyance act, or similar statute or common law.

(c) Nothing contained in this Section 5.11 shall limit the liability of any
Obligor to pay Loans made directly or indirectly to that Obligor (including
Loans advanced to any other Obligor and then re-loaned or otherwise transferred
to, or for the benefit of, such Obligor), LC Obligations relating to Letters of
Credit issued to support such Obligor’s business, and all accrued interest,
fees, expenses and other related Obligations with respect thereto, for which
such Obligor shall be primarily liable for all purposes hereunder. Agent and
Lenders shall have the right, at any time in their discretion, to condition
Loans and Letters of Credit upon a separate calculation of borrowing
availability for each Borrower and to restrict the disbursement and use of such
Loans and Letters of Credit to such Borrower.

5.11.4. Joint Enterprise. Each Obligor has requested that Agent and Lenders make
the credit facilities available to the applicable Borrowers on a combined basis,
in order to finance Borrowers’ business most efficiently and economically.
Obligors’ business is a mutual and collective enterprise, and the successful
operation of each Obligor is dependent upon the successful performance of the
integrated group. The Obligors believe that the credit facilities provided to
the applicable Borrowers under this Agreement will enhance the borrowing power
of each Borrower and ease administration of such credit facilities, all to their
mutual advantage. Obligors acknowledge that Agent’s and Lenders’ willingness to
extend credit and to administer the Collateral as provided under the Loan
Documents is done solely as an accommodation to Obligors and at Obligors’
request.

5.11.5. Subordination. Each Obligor hereby subordinates any claims, including
any rights at law or in equity to payment, subrogation, reimbursement,
exoneration, contribution, indemnification or set off, that it may have at any
time against any other Obligor, howsoever arising, to the Full Payment of all
Obligations.

5.12 Currency Matters. Dollars are the currency of account and payment for each
and every sum at any time due from Borrowers hereunder unless otherwise
specifically provided in this Agreement, any other Loan Document or otherwise
agreed to by Agent. The parties hereto hereby agree as follows:

 

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(a) Each repayment of a Revolver Loan or LC Obligation or a part thereof shall
be made in the currency in which such Revolver Loan or LC Obligation is
denominated at the time of that repayment;

(b) Each payment of interest shall be made in the currency in which the
principal or other sum in respect of which such interest is denominated;

(c) Each payment of fees by a U.S. Borrower pursuant to Section 3.2 shall be in
Dollars;

(d) Each payment of fees by Canadian Borrower pursuant to Section 3.2 shall be
in Dollars;

(e) Each payment in respect of Extraordinary Expenses and any other costs,
expenses and indemnities shall be made in the currency in which the same were
incurred by the party to whom payment is to be made; and

(f) Any amount expressed to be payable in Canadian Dollars shall be paid in
Canadian Dollars.

No payment to any Credit Party (whether under any judgment or court order or
otherwise) shall discharge the obligation or liability of the Obligor in respect
of which it was made unless and until such Credit Party shall have received Full
Payment in the currency in which such obligation or liability is payable
pursuant to the above provisions of this Section 5.12. To the extent that the
amount of any such payment shall, on actual conversion into such currency, be
less than the full amount of such obligation or liability (actual or contingent)
expressed in that currency, such Obligor (together with the other Obligors who
are liable thereunder or obligated therefor) agrees to indemnify and hold
harmless such Credit Party with respect to the amount of such deficiency, with
such indemnity surviving the termination of this Agreement and any legal
proceeding, judgment or court order pursuant to which the original payment was
made which resulted in such deficiency. To the extent that the amount of any
such payment to a Credit Party shall, upon an actual conversion into such
currency, exceed such obligation or liability, actual or contingent, expressed
in that currency, such Credit Party shall return such excess to the Borrower
Agent.

5.13 Currency Fluctuations. On each Business Day or such other date determined
by Agent (the “Calculation Date”), Agent shall determine the Exchange Rate as of
such date. The Exchange Rate so determined shall become effective on the first
Business Day immediately following such determination (a “Reset Date”) and shall
remain effective until the next succeeding Reset Date. On each Reset Date, Agent
shall determine the Dollar Equivalent of the Canadian Revolver Exposure. If, on
any Reset Date, the Total Revolver Exposure exceeds the total amount of the
Commitments on such date or the Canadian Revolver Exposure on such date exceeds
the lesser of the Canadian Borrowing Base or the Canadian Revolver Commitments
on such date (the amount of any such excess referred to herein as the “Excess
Amount”) then (i) Agent shall give notice thereof to Borrower Agent and Lenders
and (ii) within one (1) Business Day thereafter, Borrowers shall cause such
excess to be eliminated, either by repayment of Revolver Loans or depositing of
Cash Collateral with Agent with respect to LC Obligations and

 

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until such Excess Amount is repaid, Lenders shall not have any obligation to
make any Loans and the Issuing Banks shall not have any obligation to issue any
Letters of Credit.

SECTION 6. CONDITIONS PRECEDENT

6.1 Conditions Precedent to Initial Loans. In addition to the conditions set
forth in Section 6.2, Agent, the Issuing Banks and the Lenders shall not be
required to fund any requested Loan, issue any Letter of Credit or otherwise
extend credit to any Borrower hereunder, until the date (“Closing Date”) that
each of the following conditions has been satisfied:

(a) Notes shall have been executed by each Borrower within a Borrower Group and
delivered to each Applicable Lender that requests issuance of a Note. Each other
Loan Document shall have been duly executed and delivered to Agent by each of
the signatories thereto, and each Obligor shall be in compliance with all terms
thereof.

(b) Borrowers shall have paid all fees and expenses to be paid to Agent and
Lenders on the Closing Date.

6.2 Conditions Precedent to All Credit Extensions. Agent, Issuing Banks and
Lenders shall not be required to fund any Loans, arrange for issuance of any
Letters of Credit or grant any other accommodation to or for the benefit of
Borrowers, unless the following conditions are satisfied:

(a) No Default or Event of Default shall exist at the time of, or result from,
such funding, issuance or grant;

(b) The representations and warranties of each Obligor in the Loan Documents
shall be true and correct on the date of, and upon giving effect to, such
funding, issuance or grant (except for representations and warranties that
expressly relate to an earlier date);

(c) All conditions precedent in any other Loan Document shall be satisfied; and

(d) With respect to issuance of a Letter of Credit, the LC Conditions shall be
satisfied.

Each request (or deemed request) by Borrower Agent or any Borrower for funding
of a Loan, issuance of a Letter of Credit or grant of an accommodation shall
constitute a representation by Borrowers that the foregoing conditions are
satisfied on the date of such request and on the date of such funding, issuance
or grant. As an additional condition to any funding, issuance or grant, Agent
shall have received such other information, documents, instruments and
agreements as it deems appropriate in connection therewith.

 

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SECTION 7. COLLATERAL

7.1 Grant of Security Interest.

7.1.1. To secure the prompt payment and performance of: (a) all Obligations
(including, without limitation, all Obligations of the Guarantors), each U.S.
Domiciled Obligor hereby grants to Agent, for the benefit of the Secured
Parties, and (b) all Canadian Facility Obligations (including, without
limitation, all Canadian Facility Obligations of each Canadian Facility
Guarantor), each Canadian Domiciled Obligor hereby grants to Agent, for the
benefit of the Canadian Facility Secured Parties, in each case of clause (a) and
(b), a continuing security interest in and Lien upon all of the following
Property of such Obligor, whether now owned or hereafter acquired, and wherever
located:

(i) all Accounts;

(ii) all Inventory;

(iii) all Deposit Accounts (including all cash, cash equivalents, financial
assets, negotiable instruments and other evidence of payment, and other funds on
deposit therein or credited thereto);

(iv) all securities accounts (including any and all Investment Property held
therein or credited thereto);

(v) all monies, whether or not in the possession or under the control of Agent,
a Lender, or a bailee or Affiliate of Agent or a Lender that were derived from
or consist of any of the Property described in this Section 7.1.1, and any Cash
Collateral;

(vi) all Supporting Obligations of any of the Property described in this
Section 7.1.1;

(vii) all Instruments, Documents and Chattel Paper, in each case only to the
extent evidencing or governing any of the Property described in this
Section 7.1.1;

(viii) all accessions to, substitutions for, and all replacements, products, and
cash and non-cash proceeds of the foregoing, including proceeds of and unearned
premiums with respect to insurance policies, and claims against any Person for
loss, damage or destruction of any of the Property described in this
Section 7.1.1 (the “Proceeds”); and

(ix) all books and records (including customer lists, files, correspondence,
tapes, computer programs, print-outs and computer records) pertaining to any of
the Property described in this Section 7.1.1, and any General Intangibles to the
extent evidencing or governing any of the Property described in this
Section 7.1.1.

 

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7.2 Lien on Deposit Accounts; Cash Collateral.

7.2.1. Deposit Accounts. To further secure the prompt payment and performance
of: (a) all Obligations (including, without limitation, all Obligations of the
Guarantors), each U.S. Domiciled Obligor hereby grants to Agent, for the benefit
of the Secured Parties, and (b) all Canadian Facility Obligations (including,
without limitation, all Canadian Facility Obligations of each Canadian Facility
Guarantor), each Canadian Domiciled Obligor hereby grants to Agent, for the
benefit of the Canadian Facility Secured Parties, in each case of clause (a) and
(b), a continuing security interest in and Lien on all amounts credited to any
Deposit Account of such Obligor, including any sums in any blocked or lockbox
accounts or in any accounts into which such sums are swept. Each Obligor hereby
authorizes and directs each bank or other depository to deliver to Agent, upon
request, all balances in any Deposit Account maintained by such Obligor, without
inquiry into the authority or right of Agent to make such request.

7.2.2. Cash Collateral. Any Cash Collateral may be invested, at Agent’s
discretion (and with the consent of Borrowers, as long as no Event of Default
exists), but Agent shall have no duty to do so, regardless of any agreement or
course of dealing with any Obligor, and shall have no responsibility for any
investment or loss. To further secure the prompt payment and performance of all:
(a) Obligations (including, without limitation, all Obligations of the
Guarantors), each U.S. Domiciled Obligor hereby grants to Agent, for the benefit
of the Secured Parties, and (b) Canadian Facility Obligations (including,
without limitation, all Canadian Facility Obligations of each Canadian Facility
Guarantor), each Canadian Domiciled Obligor hereby grants to Agent, for the
benefit of the Canadian Facility Secured Parties, in each case of clause (a) and
(b), a continuing security interest in and Lien on all Cash Collateral held from
time to time and all proceeds thereof, whether such Cash Collateral is held in a
Cash Collateral Account or elsewhere. Agent may apply Cash Collateral of a U.S.
Domiciled Obligor to the payment of any Obligations, and may apply Cash
Collateral of a Canadian Domiciled Obligor to the payment of any Canadian
Facility Obligations, in each case, in such order as Agent may elect, as they
become due and payable. Each Cash Collateral Account and all Cash Collateral
shall be under the sole dominion and control of Agent. No U.S. Domiciled Obligor
or other Person claiming through or on behalf of any U.S. Domiciled Obligor
shall have any right to any Cash Collateral, until Full Payment of all
Obligations. No Canadian Domiciled Obligor or other Person claiming through or
on behalf of any Canadian Domiciled Obligor shall have any right to any Cash
Collateral, until Full Payment of all Canadian Facility Obligations.

7.3 Intentionally Omitted.

7.4 Certain After-Acquired Collateral. Borrowers shall promptly notify Agent in
writing if, after the Original Agreement Closing Date, any Obligor obtains any
interest in any Collateral consisting of Deposit Accounts, Chattel Paper,
Documents, Instruments, Investment Property or Letter-of-Credit Rights and, upon
Agent’s request, shall promptly take such actions as Agent deems appropriate to
effect Agent’s duly perfected, first priority Lien upon such Collateral,
including obtaining any appropriate possession, control agreement or Lien
Waiver. If any Collateral is in the possession of a third party, at Agent’s
request, Borrowers shall obtain an acknowledgment that such third party holds
the Collateral for the benefit of Agent.

 

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7.5 No Assumption of Liability. The Liens on the Collateral granted hereunder
are given as security only and shall not subject Agent or any Lender to, or in
any way modify, any obligation or liability of any Obligor relating to any
Collateral.

7.6 Further Assurances. Promptly upon request, Obligors shall deliver such
instruments, assignments, title certificates, or other documents or agreements,
and shall take such actions, as Agent deems appropriate under Applicable Law to
evidence or perfect its Lien on any Collateral, or otherwise to give effect to
the intent of this Agreement. Each Obligor authorizes Agent to file any
financing statement that Agent deems desirable to preserve and perfect Agent’s
security interest in the Collateral of such Obligor, and ratifies any action
taken by Agent before the Original Agreement Closing Date to effect or perfect
its Lien on any Collateral.

SECTION 8. COLLATERAL ADMINISTRATION

8.1 Borrowing Base Certificates. By the 15th day of each month, Borrower Agent
shall deliver to Agent (and Agent shall promptly deliver same to Lenders) a U.S.
Borrowing Base Certificate and a Canadian Borrowing Base Certificate, in each
case, prepared as of the close of business of the previous month, and at such
other times as Agent may request; provided that during any Reporting Trigger
Period, Borrower Agent shall also be required to deliver to Agent weekly U.S.
Borrowing Base Certificates and Canadian Borrowing Base Certificates by the 3rd
Business Day of each week which begins during such Reporting Trigger Period, in
each case, prepared as of the close of business on the last Business Day of the
previous week (in the case of matters other than those related to Inventory) or
of the close of business of the previous month (in the case of matters relating
to Inventory). All calculations of U.S. Availability or Canadian Availability in
any Borrowing Base Certificate shall originally be made by Borrower Agent and
certified by a Senior Officer of Borrower Agent, provided that Agent may from
time to time review and adjust any such calculation (a) to reflect its
reasonable estimate of declines in value of any Collateral, due to collections
received in any Dominion Account or otherwise; (b) to adjust advance rates to
reflect changes in dilution, quality, mix and other factors affecting
Collateral; and (c) to the extent the calculation is not made in accordance with
this Agreement or does not accurately reflect the U.S. Availability Reserve
and/or the Canadian Availability Reserve. The U.S. Borrowing Base Certificate
shall set forth the calculation of the U.S. Borrowing Base in Dollars and the
Canadian Borrowing Base shall set forth the calculation of the Canadian
Borrowing Base in both Canadian Dollars and the Dollar Equivalent thereof along
with the Exchange Rate used to determine such Dollar Equivalent.

8.2 Administration of Accounts.

8.2.1. Records and Schedules of Accounts. Each Obligor shall keep accurate and
complete records of its Accounts, including all payments and collections
thereon, and shall submit to Agent sales, collection, reconciliation and other
reports in form satisfactory to Agent, on such periodic basis as Agent may
request. Borrower Agent shall also provide to Agent, on or before the 15th day
of each month, a detailed aged trial balance of all Accounts of each Borrower as
of the end of the preceding month, specifying each Account’s Account Debtor name
and address, amount, invoice date and due date, showing any discount, allowance,
credit, authorized return or dispute, and including such proof of delivery,
copies of invoices and invoice registers, copies of related documents, repayment
histories, status reports and other information as Agent

 

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may reasonably request. If Accounts of any Borrower Group in an aggregate face
amount of $2,500,000 or more cease to be Eligible Accounts, Borrower Agent shall
notify Agent of such occurrence promptly (and in any event within one Business
Day) after any Obligor has knowledge thereof.

8.2.2. Taxes. If an Account of any Obligor includes a charge for any Taxes,
Agent is authorized, in its discretion, to pay the amount thereof to the proper
taxing authority for the account of such Obligor and to charge the Borrowers of
the applicable Borrower Group therefor; provided, however, that neither Agent
nor Lenders shall be liable for any Taxes that may be due from any Obligor or
with respect to any Collateral.

8.2.3. Account Verification. Whether or not a Default or Event of Default
exists, Agent shall have the right at any time, in the name of Agent, any
designee of Agent or any Obligor, to verify the validity, amount or any other
matter relating to any Accounts of Obligors by mail, telephone or otherwise.
Obligors shall cooperate fully with Agent in an effort to facilitate and
promptly conclude any such verification process.

8.2.4. Maintenance of Dominion Account. Obligors shall maintain Dominion
Accounts pursuant to lockbox or other arrangements acceptable to Agent. Obligors
shall obtain an agreement (in form and substance satisfactory to Agent) from
each lockbox servicer and Dominion Account bank, establishing Agent’s control
over and Lien in the lockbox or Dominion Account, which may be exercised by
Agent during any Dominion Trigger Period, requiring immediate deposit of all
remittances received in the lockbox to a Dominion Account, and waiving offset
rights of such servicer or bank, except for customary administrative charges. If
a Dominion Account is not maintained with Bank of America or Bank of America
(Canada), as applicable, Agent may, during any Dominion Trigger Period, require
immediate transfer of all funds in such account to a Dominion Account maintained
with Bank of America or Bank of America (Canada), as applicable. Agent and
Lenders assume no responsibility to any Obligor for any lockbox arrangement or
Dominion Account, including any claim of accord and satisfaction or release with
respect to any Payment Items accepted by any bank.

8.2.5. Proceeds of Collateral. Obligors shall request in writing and otherwise
take all necessary steps to ensure that all payments on Accounts or otherwise
relating to Collateral are made directly to a Dominion Account (or a lockbox
relating to a Dominion Account). If any Obligor receives cash or Payment Items
with respect to any Collateral, it shall hold same in trust for Agent and
promptly (not later than the next Business Day) deposit same into a Dominion
Account.

8.3 Administration of Inventory.

8.3.1. Records and Reports of Inventory. Each Obligor shall keep accurate and
complete records of its Inventory, including costs and daily withdrawals and
additions, and shall submit to Agent inventory and reconciliation reports in
form satisfactory to Agent, on such periodic basis as Agent may request. Each
Obligor shall conduct periodic cycle counts consistent with historical
practices, and shall provide to Agent a report based on each such count promptly
upon completion thereof, together with such supporting information as Agent may
request.

 

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8.3.2. Returns of Inventory. No Obligor shall return any Inventory to a
supplier, vendor or other Person, whether for cash, credit or otherwise, unless
(a) such return is in the Ordinary Course of Business; (b) no Default, Event of
Default or Overadvance exists or would result therefrom; (c) Agent is promptly
notified if the aggregate Value of all Inventory returned in any month exceeds
$5,000,000; and (d) any payment received by an Obligor for a return during any
Dominion Trigger Period is promptly remitted to Agent for application to the
Obligations.

8.3.3. Acquisition, Sale and Maintenance. No Obligor shall acquire or accept any
Inventory on consignment or approval, and each Obligor shall take all steps to
assure that all Inventory is produced in accordance with Applicable Law,
including the FLSA. Except to the extent permitted by Section 10.2.5(b) in the
case of consignments, no Obligor shall sell any Inventory on consignment or
approval or any other basis under which the customer may return or require an
Obligor to repurchase such Inventory. Each Obligor shall use, store and maintain
all Inventory with reasonable care and caution, in accordance with applicable
standards of any insurance and in conformity with all Applicable Law, and,
except in cases of good faith disputes, shall make current rent payments (within
applicable grace and cure periods provided for in leases) at all locations where
any Collateral is located.

8.4 Intentionally Omitted.

8.5 Administration of Deposit Accounts. Within ninety (90) days of the Original
Agreement Closing Date, each Obligor shall take all actions necessary to
establish Agent’s control of all Deposit Accounts (including Dominion Accounts)
and securities accounts maintained by such Obligor; provided, however, that such
control shall not be required for the following (collectively, the “Excluded
Deposit Accounts”): (a) an account exclusively used for payroll, payroll taxes
or employee benefits, and (b) at any time during which an Event of Default does
not exist, an account containing not more than $250,000, provided that the
aggregate amounts contained in all such accounts referred to in this clause
(b) for which Agent does not have control at any time shall not exceed
$1,000,000. The applicable Obligor shall be the sole account holder of each
Deposit Account or securities account and shall not allow any other Person
(other than Agent) to have control over a Deposit Account, securities account or
any Property deposited therein. Each of the Obligors shall promptly notify Agent
in writing of any opening or closing of a Deposit Account or securities account
and, concurrently with the opening thereof, shall ensure that such account
(except an Excluded Deposit Accounts) is subject to a fully executed Deposit
Account Control Agreement or, in the case of a securities account, similar
control agreement in favor of Agent and acceptable to Agent.

8.6 General Provisions.

8.6.1. Location of Collateral. All tangible items of Collateral, other than
Inventory in transit (including in transit to or from a manufacturing facility),
shall at all times be kept by Obligors at the business locations for such
Obligors set forth in Schedule 8.6.1, except that Obligors may (a) make sales or
other dispositions of Collateral in accordance with Section 10.2.5; and (b) move
Collateral to another location in the United States or, in the case of a
Canadian Domiciled Obligor, in Canada (subject to Agent being granted a first
priority Lien (subject to Permitted Liens) if none has been previously granted
in such province or territory), in

 

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each case, upon 15 Business Days’ prior written notice to Agent

8.6.2. Insurance of Collateral; Condemnation Proceeds.

(a) Each Obligor shall maintain insurance with respect to the Collateral,
covering casualty, hazard, theft, malicious mischief, flood and other risks, in
amounts, with endorsements and with insurers (with a Best’s Financial Strength
Rating of at least A_ VII, unless otherwise approved by Agent) satisfactory to
Agent. All proceeds under each policy shall be payable to Agent. From time to
time upon request, Borrower Agent shall deliver to Agent the originals or
certified copies of its insurance policies. Unless Agent shall agree otherwise,
each policy shall include satisfactory endorsements (i) showing Agent as lender
first loss payee (with respect to property policies only); (ii) requiring at
least 30 days prior written notice to Agent in the event of cancellation of the
policy for any reason whatsoever; and (iii) specifying that the interest of
Agent shall not be impaired or invalidated by any act or neglect of any Obligor
or the owner of the Property, nor by the occupation of the premises for purposes
more hazardous than are permitted by the policy. If any Obligor fails to provide
and pay for any insurance, Agent may, at its option, but shall not be required
to, procure the insurance and charge Borrowers therefor. Each Obligor agrees to
deliver to Agent, promptly as rendered, copies of all reports made to insurance
companies. While no Event of Default exists, Obligors may settle, adjust or
compromise any insurance claim, as long as the proceeds are delivered to Agent
in accordance with Section 8.6.2(b). If an Event of Default exists, only Agent
shall be authorized to settle, adjust and compromise any claims involving any
Collateral.

(b) Any proceeds of insurance relating to the Collateral and any awards arising
from condemnation of any Collateral shall be paid to Agent for application to
the Obligations in accordance with the terms hereof.

8.6.3. Protection of Collateral. All expenses of protecting, storing,
warehousing, insuring, handling, maintaining and shipping any Collateral, all
Taxes payable with respect to any Collateral (including any sale thereof), and
all other payments required to be made by Agent to any Person to realize upon
any Collateral, shall be borne and paid by Borrowers. Agent shall not be liable
or responsible in any way for the safekeeping of any Collateral, for any loss or
damage thereto (except for reasonable care in its custody while Collateral is in
Agent’s actual possession), for any diminution in the value thereof, or for any
act or default of any warehouseman, carrier, forwarding agency or other Person
whatsoever, but the same shall be at Obligors’ sole risk.

8.6.4. Defense of Title to Collateral. Each Obligor shall at all times defend
its title to Collateral and Agent’s Liens therein against all Persons, claims
and demands whatsoever, except Permitted Liens.

8.7 Power of Attorney. Each Obligor hereby irrevocably constitutes and appoints
Agent (and all Persons designated by Agent) as such Obligor’s true and lawful
attorney (and agent-in-fact), coupled with an interest, for the purposes
provided in this Section. Agent, or Agent’s designee, may, without notice and in
either its or a an Obligor’s name, but at the cost and expense of the Borrowers:

 

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(a) Endorse an Obligor’s name on any Payment Item or other proceeds of
Collateral (including proceeds of insurance) that come into Agent’s possession
or control; and

(b) During an Event of Default, (i) notify any Account Debtors of the assignment
of their Accounts, demand and enforce payment of Accounts, by legal proceedings
or otherwise, and generally exercise any rights and remedies with respect to
Accounts; (ii) settle, adjust, modify, compromise, discharge or release any
Accounts or other Collateral, or any legal proceedings brought to collect
Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral
upon such terms, for such amounts and at such times as Agent deems advisable;
(iv) collect, liquidate and receive balances in Deposit Accounts or securities
accounts, and take control, in any manner, of any proceeds of Collateral;
(v) prepare, file and sign an Obligor’s name to a proof of claim or other
document in a bankruptcy or other Insolvency Proceeding of an Account Debtor, or
to any notice, assignment or satisfaction of Lien or similar document;
(vi) receive, open and dispose of mail addressed to an Obligor where the
addressor is any Account Debtor or where the addressor is not identifiable with
certainty, and notify postal authorities to deliver any such mail to an address
designated by Agent; (vii) endorse any Chattel Paper, Document, Instrument,
invoice, freight bill, bill of lading, or other document or agreement relating
to any Accounts, Inventory or other Collateral; (viii) use an Obligor’s
stationery and sign its name to verifications of Accounts and notices to Account
Debtors; (ix) use the information recorded on or contained in any data
processing, electronic or information systems relating to any Collateral;
(x) make and adjust claims under insurance policies; (xi) take any action as may
be necessary or appropriate to obtain payment under any letter of credit,
banker’s acceptance or other instrument for which an Obligor is a beneficiary;
and (xii) take all other actions as Agent deems appropriate to fulfill any
Obligor’s obligations under the Loan Documents.

SECTION 9. REPRESENTATIONS AND WARRANTIES

9.1 General Representations and Warranties. To induce Agent and Lenders to enter
into this Agreement and to make available the Commitments, Loans and Letters of
Credit, each Obligor represents and warrants that:

9.1.1. Existence, Qualification and Power; Compliance with Applicable Laws. Each
Obligor and each Subsidiary (a) is duly organized or formed, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
organization, (b) has all requisite power and authority and all requisite
governmental licenses, authorizations, consents and approvals to (i) own its
assets and carry on its business and (ii) execute, deliver and perform its
obligations under the Loan Documents to which it is a party, (c) is duly
qualified and is licensed and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification or license, and (d) is in
compliance with all Applicable Laws; except in each case referred to in clause
(b)(i), (c) or (d), to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect.

9.1.2. Authorization; No Contravention. The execution, delivery and performance
by each Obligor of each Loan Document to which such Person is party, have been
duly authorized by all necessary corporate or other organizational action, and
do not and will not (a) contravene the terms of any of such Person’s Organic
Documents; (b) conflict with or result

 

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in any breach of or contravention under (i) any Contractual Obligation to which
such Person is a party or by which it is bound, the termination or adverse
modification of which could reasonably be expected to have a Material Adverse
Effect, or (ii) any order, injunction, writ or decree of any Governmental
Authority or any arbitral award to which such Person or its property is subject;
(c) result in the creation of any Lien (other than Permitted Liens), or
(d) violate any Applicable Law.

9.1.3. Governmental Authorization; Other Consents. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, any Obligor of
this Agreement or any other Loan Document except for such approvals, consents,
exemptions, authorizations, actions, notices and filings which have been
obtained, taken, given or made and are in full force and effect. All necessary
import, export or other licenses, permits or certificates for the import or
handling of any goods or other Collateral have been procured and are in effect,
and Obligors and Subsidiaries have complied with all foreign and domestic laws
with respect to the shipment and importation of any goods or Collateral, except
where noncompliance could not reasonably be expected to have a Material Adverse
Effect.

9.1.4. Binding Effect. This Agreement has been, and each other Loan Document,
when delivered hereunder, will have been, duly executed and delivered by each
Obligor that is party thereto. This Agreement constitutes, and each other Loan
Document when so delivered will constitute, a legal, valid and binding
obligation of such Obligor, enforceable against each Obligor that is party
thereto in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors’ rights generally or by equitable principles relating to
enforceability.

9.1.5. Financial Statements; No Material Adverse Effect.

(a) The consolidated and consolidating balance sheets, and related statements of
income, cash flow and shareholder’s equity, of Parent and its Subsidiaries that
have been and are hereafter delivered to Agent and Lenders (i) are prepared in
accordance with GAAP consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein; (ii) fairly present the financial
positions and results of operations of Parent and Subsidiaries at the dates and
for the periods indicated, except as otherwise expressly noted therein; and
(iii) show all material indebtedness and other liabilities, direct or
contingent, of Parent and its Subsidiaries as of the date thereof, including
liabilities for taxes, material commitments and Debt, to the extent required by
GAAP to be shown on such financial statements.

(b) Since December 31, 2010, there has been no change in the condition,
financial or otherwise, of any Borrower or any Subsidiary that could reasonably
be expected to have a Material Adverse Effect.

(c) Each Borrower is Solvent and Parent and the Subsidiaries on a consolidated
basis are Solvent.

 

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9.1.6. Litigation. Except as disclosed in Note 17 to the Condensed Consolidated
Financial Statements contained in Borrower Agent’s Annual Report on Form 10-K
filed with the SEC on March 3, 2011 and Note 12 to the Condensed Consolidated
Financial Statements contained in Borrower Agent’s Quarterly Report on Form 10-Q
filed with the SEC on May 2, 2011, there are no actions, suits, proceedings,
claims or disputes pending or, to the knowledge of any Obligor, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, by or against any Borrower or any Subsidiaries or against any of
their properties or revenues that (a) purport to affect or pertain to this
Agreement or any other Loan Document, or any of the transactions contemplated
hereby, or (b) either individually or in the aggregate, if determined adversely,
could reasonably be expected to have a Material Adverse Effect.

9.1.7. No Default. No Borrower or Subsidiary is in default under or with respect
to any Contractual Obligation that could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. No Default
or Event of Default has occurred and is continuing or would result from the
consummation of the transactions contemplated by this Agreement or any other
Loan Document.

9.1.8. Ownership of Property; Liens. Each Borrower and each Subsidiary has good
record and marketable title in fee simple to, or valid leasehold interests in,
all real Property necessary or used in the ordinary conduct of its business
(other than minor defects in title as could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect), and all
personal Property, including all Property reflected in any financial statements
delivered to Agent or Lenders, in each case free of Liens except Permitted
Liens. Each Borrower and each Subsidiary has paid and discharged all lawful
claims that, if unpaid, could become a Lien on its Properties, other than
Permitted Liens. All Liens of Agent in the Collateral are duly perfected, first
priority Liens, subject only to Permitted Liens that are expressly allowed to
have priority over Agent’s Liens.

9.1.9. Environmental Compliance. Borrowers and Subsidiaries conduct in the
Ordinary Course of Business a review of the effect of existing Environmental
Laws and claims alleging potential liability or responsibility for violation of
any Environmental Law on their respective businesses, operations and properties,
and as a result thereof the Obligors have reasonably concluded that, except as
specifically disclosed on Schedule 9.1.9, such Environmental Laws and claims
could not, individually or in the aggregate reasonably be expected to have a
Material Adverse Effect.

9.1.10. Insurance. The properties of Borrowers and Subsidiaries are insured with
financially sound and reputable insurance companies not Affiliates of any
Obligor, in such amounts (after giving effect to any self-insurance compatible
with the following standards), with such deductibles and covering such risks as
are customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the applicable Borrower or the applicable
Subsidiary operates.

9.1.11. Taxes. Each Borrower and each Subsidiary has filed all federal, state
and material local tax returns and other material reports that it is required by
law to file, and has paid, or made provision for the payment of, all Taxes upon
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are due and payable, except to the extent being Properly Contested. The
provision for Taxes on the books of each Borrower and each Subsidiary is
adequate for all years not closed by applicable statutes, and for its current
Fiscal Year.

9.1.12. ERISA; Canadian Pension Plan Compliance. Except as disclosed on Schedule
9.1.12:

(a) Each Plan is in compliance in all material respects with the applicable
provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is
intended to qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS or an application for such a letter is
currently being processed by the IRS with respect thereto and, to the best
knowledge of Obligors, nothing has occurred which would prevent, or cause the
loss of, such qualification. Parent and each ERISA Affiliate has made all
required contributions to each Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.

(b) There are no pending or, to the best knowledge of Obligors, threatened
claims, actions or lawsuits, or action by any Governmental Authority, with
respect to any Plan that could be reasonably be expected to have a Material
Adverse Effect. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan that has resulted or
could reasonably be expected to result in a Material Adverse Effect.

(c) No Canadian Borrower or any Canadian Subsidiary provides benefits to retired
Canadian Employees or to beneficiaries or dependents of retired Canadian
Employees. Except as would not reasonably be expected to result in a Material
Adverse Effect, Canadian Borrower and each Canadian Subsidiary is in compliance
with all Requirements of Law and all Canadian Employee Benefits Legislation and
health and safety, workers compensation, employment standards, labor relations,
health insurance, employment insurance, protection of personal information,
human rights laws and any Canadian federal, provincial or local counterparts or
equivalents in each case, as applicable to the Canadian Employees and as amended
from time to time.

(d) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no
Pension Plan has any Unfunded Pension Liability; (iii) neither Parent nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (iv) neither Parent nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and
no event has occurred which, with the giving of notice under Section 4219 of
ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with
respect to a Multiemployer Plan; and (v) neither Parent nor any ERISA Affiliate
has engaged in a transaction that could be subject to Sections 4069 or 4212(c)
of ERISA.

(e) Canadian Borrower and Canadian Subsidiaries are in compliance with the
requirements of the PBA and other federal, provincial or state laws with respect
to each Canadian Pension Plan, except where the failure to so comply would not
reasonably be expected to have a Material Adverse Effect. No fact or situation
that may reasonably be expected to result

 

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in a Material Adverse Effect exists in connection with any Canadian Pension
Plan. Neither Canadian Borrower nor any of Canadian Subsidiary has any material
withdrawal liability in connection with a Plan. No Termination Event has
occurred. Each Canadian Pension Plan has no solvency deficiency and is fully
funded as required under the most recent actuarial valuation filed with the
applicable Governmental Authority pursuant to generally accepted actuarial
practices and principles. No fact or circumstance exists that could adversely
affect the tax-exempt status of a Canadian Pension Plan. No Lien has arisen,
choate or inchoate, in respect of Canadian Borrower or Canadian Subsidiaries or
their property in connection with any Canadian Plan (save for contribution
amounts not yet due).

(f) With respect to any Foreign Plan, except as could not reasonably be expected
to have a Material Adverse Effect, (i) all employer and employee contributions
required by law or by the terms of the Foreign Plan have been made, or, if
applicable, accrued, in accordance with normal accounting practices; (ii) the
fair market value of the assets of each funded Foreign Plan, the liability of
each insurer for any Foreign Plan funded through insurance, or the book reserve
established for any Foreign Plan, together with any accrued contributions, is
sufficient to procure or provide for the accrued benefit obligations with
respect to all current and former participants in such Foreign Plan according to
the actuarial assumptions and valuations most recently used to account for such
obligations in accordance with applicable generally accepted accounting
principles; and (iii) it has been registered as required and has been maintained
in good standing with applicable regulatory authorities.

9.1.13. Subsidiaries. Schedule 9.1.13 shows, for each Borrower and each
Subsidiary, its name and its jurisdiction of organization. Schedule 9.1.13
shows, for each Subsidiary of Parent, its authorized and issued Equity
Interests, the holders of its Equity Interests, and all agreements binding on
such holders with respect to their Equity Interests. Except as disclosed on
Schedule 9.1.13, in the five years preceding the Original Agreement Closing
Date, no Borrower or Subsidiary has acquired any substantial assets from any
other Person nor been the surviving entity in a merger, amalgamation or
combination. Each Borrower has good title to its Equity Interests in its
Subsidiaries, and all such Equity Interests are duly issued, fully paid and
non-assessable. There are no outstanding purchase options, warrants,
subscription rights, agreements to issue or sell, convertible interests, phantom
rights or powers of attorney relating to Equity Interests of any Subsidiary of
Parent.

9.1.14. Margin Regulations; Investment Company Act.

(a) No Borrower or Subsidiary is engaged, principally or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any Margin Stock. No Loan proceeds or Letters of Credit will be used by
Borrowers to purchase or carry, or to reduce or refinance any Debt incurred to
purchase or carry, any Margin Stock or for any related purpose, in each case, in
violation of Regulations T, U or X of the Board of Governors.

(b) None of the Borrowers is or is required to be registered as an “investment
company” under the Investment Company Act of 1940.

 

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9.1.15. Disclosure. No written report, financial statement, certificate or other
written information furnished by or on behalf of any Obligor to Agent or any
Lender in connection with the transactions contemplated hereby and the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) taken as a whole contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
information, the Borrowers represent only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time (it
being understood that projections are subject to significant uncertainties and
contingencies, many of which are beyond the Borrowers’ control, and that no
assurance can be given the projections will be realized).

9.1.16. Compliance with Laws. Each Borrower and each Subsidiary is in compliance
in all material respects with the requirements of all Applicable Laws and all
orders, writs, injunctions and decrees applicable to it or to its Properties,
except in such instances in which (a) such requirement of Applicable Law or
order, writ, injunction or decree is being contested in good faith by
appropriate proceedings diligently conducted or (b) the failure to comply
therewith, either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. Except as would not reasonably be
expected to have a Material Adverse Effect, no Inventory has been produced in
violation of the FLSA.

9.1.17. Intellectual Property; Licenses, Etc. To the best knowledge of Obligors
and except as disclosed in Note 17 to the Condensed Consolidated Financial
Statements contained in Borrower Agent’s Annual Report on Form 10-K filed with
the SEC on March 3, 2011 and Note 12 to the Condensed Consolidated Financial
Statements contained in Borrower Agent’s Quarterly Report on Form 10-Q filed
with the SEC on May 2, 2011, or as could not reasonably be expected to have a
Material Adverse Effect, Borrowers and Subsidiaries own, or possess the right to
use, all material Intellectual Property, without conflict with the rights of any
other Person. To the best knowledge of Obligors, no slogan or other advertising
device, product, process, method, substance, part or other material now employed
by any Borrower or any Subsidiary infringes upon any valid, proprietary rights
held by any other Person that could result in a claim, that, if successful,
could reasonably be expected to have a Material Adverse Effect. Except as
disclosed in Note 17 to the Condensed Consolidated Financial Statements
contained in Borrower Agent’s Annual Report on Form 10-K filed with the SEC on
March 3, 2011 and Note 12 to the Condensed Consolidated Financial Statements
contained in Borrower Agent’s Quarterly Report on Form 10-Q filed with the SEC
on May 2, 2011, no claim or litigation regarding any of the foregoing is pending
or, to the best knowledge of the Obligors, threatened, which, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Borrower Agent has disclosed to the Agent as of the
Original Agreement Closing Date (i) all Royalties or other compensation paid by
any Borrower or Subsidiary to any Person with respect to any Intellectual
Property and (ii) all Intellectual Property owned, used or licensed by, or
otherwise subject to any interests of, any Borrower or Subsidiary.

9.1.18. Accounts. Agent may rely, in determining which Accounts are Eligible
Accounts, on all statements and representations made by Borrowers with respect
thereto. Borrowers warrant, with respect to each Account at the time it is shown
as an Eligible Account in a Borrowing Base Certificate, that:

 

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(a) it is genuine and in all respects what it purports to be, and is not
evidenced by a judgment;

(b) it arises out of a completed, bona fide sale and delivery of goods or
rendition of services in the Ordinary Course of Business, and substantially in
accordance with any purchase order, contract or other document relating thereto;

(c) it is for a sum certain, maturing as stated in the invoice covering such
sale or rendition of services, a copy of which has been furnished or is
available to Agent on request;

(d) it is not subject to any offset, Lien (other than Agent’s Lien), deduction,
defense, dispute, counterclaim or other adverse condition except as arising in
the Ordinary Course of Business and disclosed to Agent; and it is absolutely
owing by the Account Debtor, without contingency in any respect;

(e) no purchase order, agreement, document or Applicable Law restricts
assignment of the Account to Agent (regardless of whether, under the UCC or
PPSA, the restriction is ineffective), and the applicable Borrower is the sole
payee or remittance party shown on the invoice;

(f) no extension, compromise, settlement, modification, credit, deduction or
return has been authorized with respect to the Account, except discounts or
allowances granted in the Ordinary Course of Business for prompt payment that
are reflected on the face of the invoice related thereto and in the reports
submitted to Agent hereunder; and

(g) to the best of Borrowers’ knowledge, (i) there are no facts or circumstances
that are reasonably likely to impair the enforceability or collectibility of
such Account; (ii) the Account Debtor had the capacity to contract when the
Account arose, continues to meet the applicable Borrower’s customary credit
standards, is Solvent, is not contemplating or subject to an Insolvency
Proceeding, and has not failed, or suspended or ceased doing business; and
(iii) there are no proceedings or actions threatened or pending against any
Account Debtor that could reasonably be expected to have a material adverse
effect on the Account Debtor’s financial condition.

9.1.19. Brokers. There are no brokerage commissions, finder’s fees or investment
banking fees payable in connection with any transactions contemplated by the
Loan Documents.

9.1.20. Trade Relations. Except as would not reasonably be expected to have a
Material Adverse Effect, there exists no actual or threatened termination,
limitation or modification of any business relationship between any Borrower or
Subsidiary and any customer or supplier, or any group of customers or suppliers,
who individually or in the aggregate are material to the business of such
Borrower or Subsidiary.

9.1.21. Labor Relations. Except as described on Schedule 9.1.21, no Obligor is
party to or bound by any collective bargaining agreement. Except as would not
reasonably be expected to have a Material Adverse Effect, there are no material
grievances, disputes or controversies with any union or other organization of
any Borrower’s or Subsidiary’s employees,

 

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or, to any Obligor’s knowledge, any asserted or threatened strikes, work
stoppages or demands for collective bargaining.

9.1.22. OFAC. No Obligor (i) is a person whose property or interest in property
is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224
of September 23, 2001 Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)), (ii) engages in any dealings or transactions prohibited by Section 2 of
such executive order, or is otherwise associated with any such person in any
manner violative of Section 2, or (iii) is a person on the list of Specially
Designated Nationals and Blocked Persons or subject to the limitations or
prohibitions under any other U.S. Department of Treasury’s Office of Foreign
Assets Control regulation or executive order.

SECTION 10. COVENANTS AND CONTINUING AGREEMENTS

10.1 Affirmative Covenants. As long as any Commitments or Obligations are
outstanding, each Obligor shall, and shall cause each Subsidiary to:

10.1.1. Financial Statements. Deliver to Agent (with sufficient copies for each
Lender), in form and detail satisfactory to Agent and the Required Lenders:

(a) as soon as available, but in any event within 90 days after the end of each
Fiscal Year of Parent, balance sheets as at the end of such Fiscal Year, and the
related statements of income or operations, shareholders’ equity and cash flows
for such Fiscal Year, on a consolidated and consolidating basis for Parent and
its Subsidiaries, setting forth in each case in comparative form the figures for
the previous Fiscal Year, all in reasonable detail and prepared in accordance
with GAAP, which consolidated statements shall be audited and accompanied by a
report and opinion of an independent certified public accountant or chartered
accountant, as applicable, of nationally recognized standing, which report and
opinion shall be prepared in accordance with generally accepted auditing
standards and shall not be subject to any “going concern” or like qualification
or exception or any qualification or exception as to the scope of such audit;

(b) as soon as available, but in any event within 45 days after the end of each
of the first three fiscal quarters of each Fiscal Year of Parent, unaudited
balance sheets as at the end of such fiscal quarter, and the related statements
of income or operations, shareholders’ equity and cash flows for such fiscal
quarter and for the portion of Parent’s fiscal year then ended, on a
consolidated and consolidating basis for Parent and its Subsidiaries, setting
forth in each case in comparative form the figures for the corresponding fiscal
quarter of the previous fiscal year and the corresponding portion of the
previous fiscal year, all in reasonable detail, certified by the chief financial
officer of Borrower Agent as fairly presenting the financial condition, results
of operations, shareholders’ equity and cash flows of Parent and its
Subsidiaries in accordance with GAAP, subject only to normal year-end audit
adjustments and the absence of footnotes; and

(c) as soon as available, and in any event within 30 days after the end of each
month other than the last month of each fiscal quarter of Parent, unaudited
balance sheets as at

 

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the end of such month, and the related statements of income or operations for
such month and for the portion of Parent’s fiscal year then ended, on a
consolidated basis for Parent and its Subsidiaries, setting forth in each case
in comparative form the figures for the corresponding month of the previous
fiscal year and the corresponding portion of the previous fiscal year, all in
reasonable detail, certified by the chief financial officer of Borrower Agent as
fairly presenting the financial condition, results of operations, shareholders’
equity and cash flows of Parent and its Subsidiaries in accordance with
historical practices.

10.1.2. Certificates; Other Information. Deliver to Agent, for delivery to each
Lender, in form and detail satisfactory to Agent and the Required Lenders:

(a) concurrently with the delivery of the financial statements referred to in
Sections 10.1.1(a), (b) and (c), or more frequently if requested by Agent when a
Default or Event of Default exists, a duly completed Compliance Certificate
signed by the chief financial officer of the Borrower Agent;

(b) concurrently with the delivery of financial statements under
Section 10.1.1(a), copies of any detailed audit reports, management letters or
recommendations submitted to the board of directors (or the audit committee of
the board of directors) of Parent by independent accountants in connection with
the accounts or books of Borrowers or any Subsidiary, or any audit of any of
them;

(c) promptly after the same are available, copies of each annual report, proxy
or financial statement or other report or communication sent to the stockholders
of Parent, and copies of all annual, regular, periodic and special reports and
registration statements which any Obligor may file or be required to file with
the Securities and Exchange Commission or any provincial securities commission
or regulator, and not otherwise required to be delivered to Agent pursuant
hereto;

(d) promptly following the Agent’s request therefor, all documentation and other
information that the Agent reasonably requests on its behalf or on behalf of any
Lender in order to comply with its ongoing obligations under applicable “know
your customer” and anti-money laundering rules and regulations, including the
Patriot Act and the Proceeds of Crime Act;

(e) promptly following the Agent’s request therefor, copies of (i) any documents
described in Section 101(k)(1) of ERISA that any Borrower or any of its ERISA
Affiliates may request with respect to any Multiemployer Plan and (ii) any
notices described in Section 101(l)(1) of ERISA that any Borrowers or any of its
ERISA Affiliates may request with respect to any Plan or Multiemployer Plan;
provided that if any Borrower or any of its ERISA Affiliates have not requested
such documents or notices from the administrator or sponsor of the applicable
Plan or Multiemployer Plan prior to the Agent’s request therefor, a Borrower or
one of its ERISA Affiliates shall promptly make a request for such documents or
notices from such administrator or sponsor and shall provide copies of such
documents and notices promptly after receipt thereof and promptly after the
sending or filing thereof, copies of any annual report to be filed in connection
with any Canadian Pension Plan;

 

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(f) promptly after Borrower Agent has notified Agent of any intention by
Borrowers to treat the Loans and/or Letters of Credit and related transactions
as being a “reportable transaction” (within the meaning of Treasury Regulation
Section 1.6011-4), a duly completed copy of IRS Form 8886 or any successor form;

(g) not later than 30 days after the end of each Fiscal Year, projections of
Parent’s consolidated balance sheets, results of operations, cash flow, U.S.
Availability and Canadian Availability for the next Fiscal Year, month by month;

(h) at Agent’s request, a listing of each Obligor’s trade payables, specifying
the trade creditor and balance due, and a detailed trade payable aging, all in
form satisfactory to Agent;

(i) within 45 days of the end of each fiscal quarter of Parent, or more
frequently if requested by Agent when a Default or Event of Default exists:
(i) all Royalties or other compensation (to the extent not previously disclosed
to Agent in writing) paid by any Borrower or Subsidiary to any Person with
respect to any Intellectual Property, and (ii) all Intellectual Property (to the
extent not previously disclosed to Agent in writing) owned, used or licensed by,
or otherwise subject to any interests of, any Borrower or Subsidiary; and

(j) promptly, such additional information regarding the Collateral or the
business, financial or corporate affairs of Borrowers or any Subsidiary, or
compliance with the terms of the Loan Documents, as Agent or any Lender may from
time to time reasonably request.

Documents required to be delivered pursuant to Section 10.1.1(a) or (b) or
Section 10.1.2(c) (to the extent any such documents are included in materials
otherwise filed with the SEC) may be delivered electronically and if so
delivered, shall be deemed to have been delivered on the date (i) on which
Borrower Agent posts such documents, or provides a link thereto on Borrower
Agent’s website; or (ii) on which such documents are posted on Borrower Agent’s
behalf on IntraLinks/IntraAgency or another relevant website, if any, to which
Agent and each Lender have access (whether a commercial, third-party website or
whether sponsored by Agent); provided that: (i) if any Lender so requests, the
Borrower Agent shall deliver paper copies or electronic copies via electronic
mail of such documents to Agent or any Lender that requests Borrower Agent to
deliver such paper or electronic copies until a written request to cease
delivering paper or electronic copies is given by Agent or such Lender and
(ii) Borrower Agent shall notify (which may be by facsimile or electronic mail)
Agent and each Lender of the posting of any such documents. Notwithstanding
anything contained herein, in every instance Borrower Agent shall be required to
provide paper copies of the Compliance Certificates required by
Section 10.1.2(a) to Agent and each of the Lenders. Except for such Compliance
Certificates, Agent shall have no obligation to request the delivery or to
maintain copies of the documents referred to above, and in any event shall have
no responsibility to monitor compliance by Borrower Agent with any such request
for delivery, and each Lender shall be solely responsible for requesting
delivery to it or maintaining its copies of such documents.

10.1.3. Notices. Notify Agent and each Lender:

 

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(a) Within five (5) Business Days after the occurrence of a Default or Event of
Default under Section 11.1(f) and promptly after the occurrence of any other
Default or Event of Default;

(b) Promptly of any matter that has resulted or could reasonably be expected to
result in a Material Adverse Effect, including, if applicable (i) breach or
non-performance of, or any default under, a Contractual Obligation of any
Borrower or any Subsidiary; (ii) any dispute, litigation, investigation,
proceeding or suspension between any Borrower or any Subsidiary and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting any Borrower or any
Subsidiary, including pursuant to any applicable Environmental Laws;

(c) Promptly of the occurrence of any ERISA Event or Termination Event;

(d) Promptly of any material change in accounting policies or financial
reporting practices by any Borrower or any Subsidiary;

(e) Promptly after obtaining knowledge of any pending or threatened labor
dispute, strike or walkout, or the expiration of any material labor contract
that, in each case, materially and adversely affects any Obligor or any
Subsidiary;

(f) Promptly of any judgment affecting any Obligor in an amount exceeding the
Dollar Equivalent of $5,000,000;

(g) Promptly after the discharge or any withdrawal or resignation by Borrowers’
accountants; and

(h) At least 30 days prior to any opening of a new office or place of business
where Collateral will be located.

Each notice pursuant to this Section shall be accompanied by a statement of a
Senior Officer of Borrower Agent setting forth details of the occurrence
referred to therein and stating what action Borrowers have taken and proposes to
take with respect thereto. Each notice pursuant to Section 10.1.3 shall describe
with particularity any and all provisions of this Agreement and any other Loan
Document that have been breached.

10.1.4. Payment of Obligations. Pay and discharge as the same shall become due
and payable, all its obligations and liabilities in an aggregate amount in
excess of $10,000,000, including (a) all Taxes and tax liabilities, assessments
and governmental charges or levies upon it or its Properties, unless such Taxes
are being Properly Contested; provided, that all such Taxes, tax liabilities,
assessments, governmental charges and levies shall be paid and discharged prior
to the date on which a Lien on any Collateral shall attach in an aggregate
amount in excess of $250,000 for all federal tax liens and $2,500,000 for all
other liens which is senior to Agent’s Lien; (b) all lawful claims which, if
unpaid, would by law become a Lien upon its property; and (c) all Debt, as and
when due and payable, but subject to any subordination provisions contained in
any instrument or agreement evidencing such Debt.

10.1.5. Preservation of Existence, Etc. (a) Preserve, renew and maintain in full

 

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force and effect its legal existence and good standing under the laws of the
jurisdiction of its organization except in a transaction permitted by
Section 10.2.4 or 10.2.5; (b) take all reasonable action to maintain all rights,
privileges, permits, licenses and franchises necessary or desirable in the
normal conduct of its business, except to the extent that failure to do so could
not reasonably be expected to have a Material Adverse Effect; and (c) preserve
or renew all of its registered patents, trademarks, trade names and service
marks, the non-preservation of which could reasonably be expected to have a
Material Adverse Effect.

10.1.6. Maintenance of Properties. (a) Except for any downsizing, restructuring,
closure or partial closure of the golf ball manufacturing operations of
Borrowers in existence on the Original Agreement Closing Date, maintain,
preserve and protect all of its material properties and material equipment
necessary in the operation of its business in good working order and condition,
ordinary wear and tear excepted; and (b) make all necessary repairs thereto and
renewals and replacements thereof except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.

10.1.7. Maintenance of Insurance. In addition to the insurance required
hereunder with respect to Collateral, maintain insurance with insurers (with a
Best Rating of at least A7, unless otherwise approved by Agent) satisfactory to
Agent, with respect to the Properties and business of Borrowers and Subsidiaries
of such type (including product liability, workers’ compensation, larceny,
embezzlement, or other criminal misappropriation insurance), in such amounts,
and with such coverages and deductibles as are customary for companies similarly
situated.

10.1.8. Compliance with Laws. Comply in all material respects with the
requirements of all Applicable Laws and all orders, writs, injunctions and
decrees applicable to it or to its business or property, except in such
instances in which (a) such requirement of Applicable Law or order, write,
injunction or decree is being contested in good faith by appropriate proceedings
diligently conducted; or (b) the failure to comply therewith could not
reasonably be expected to have a Material Adverse Effect. Materially comply with
all Anti-Terrorism Laws.

10.1.9. Books and Records. Maintain proper books of record and account, in which
full, true and correct entries in conformity with GAAP consistently applied
shall be made of all financial transactions and matters involving the assets and
business of each Borrower and each Subsidiary, as the case may be; and
(b) maintain such books of record and account in material conformity with all
applicable requirements of any Governmental Authority having regulatory
jurisdiction over each Borrower and each Subsidiary, as the case may be.

10.1.10. Inspections; Appraisals.

(a) Permit Agent from time to time, subject (except when a Default or Event of
Default exists) to reasonable notice and normal business hours, to visit and
inspect the Properties of any Borrower or Subsidiary, inspect, audit and make
extracts from any Borrower’s or Subsidiary’s books and records, and discuss with
its officers, employees, agents, advisors and independent accountants such
Borrower’s or Subsidiary’s business, financial condition, assets, prospects and
results of operations. Lenders may participate in any such visit or inspection,
at

 

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their own expense. Neither Agent nor any Lender shall have any duty to any
Borrower to make any inspection, nor to share any results of any inspection,
appraisal or report with any Borrower. Borrowers acknowledge that all
inspections, appraisals and reports are prepared by Agent and Lenders for their
purposes, and Borrowers shall not be entitled to rely upon them.

(b) Reimburse Agent for all charges, costs and expenses of Agent in connection
with (i) examinations of any Obligor’s books and records or any other financial
or Collateral matters as Agent deems appropriate, up to two times per calendar
year; and (ii) appraisals of Inventory, up to two times per calendar year;
provided, however, that: (A) Borrowers shall reimburse Agent for all charges,
costs and expenses in connection with a third appraisal in any calendar year if
such appraisal is commenced during any Reporting Trigger Period; (B) Borrowers
shall reimburse Agent for all charges, costs and expenses in connection with a
third examination in any calendar year if such examination is commenced during
any Reporting Trigger Period; and (C) if an examination or appraisal is
initiated during a Default or Event of Default, all charges, costs and expenses
therefor shall be reimbursed by Borrowers without regard to such limits.
Borrowers agree to pay Agent’s then standard charges for examination activities,
including the standard charges of Agent’s internal examination and appraisal
groups, as well as the charges of any third party used for such purposes.

10.1.11. Use of Proceeds. Use the proceeds of the Loans or other extensions of
credit (a) to refinance existing indebtedness, (b) to issue standby or
commercial letters of credit and (c) to finance ongoing working capital needs
and for general corporate purposes (including Permitted Acquisitions and
Preferred Stock Repurchases) not in contravention of any Applicable Law or of
any Loan Document.

10.1.12. Additional Guarantors. Promptly notify Agent upon any Person becoming a
Subsidiary and (a) cause (i)(A) each U.S. Subsidiary and (B) any Foreign
Subsidiary that loses its status as a “controlled foreign corporation” under
Section 957 of the Code promptly to execute and deliver to Agent a Guarantee
(including, if requested by Agent, a joinder to this Agreement in form and
substance satisfactory to Agent) in favor of Agent for the benefit of the
Secured Parties, and (ii) each Canadian Subsidiary to execute and deliver to
Agent a Canadian Facility Guarantee (including, if requested by Agent, a joinder
to this Agreement in form and substance satisfactory to Agent) in favor of Agent
for the benefit of the Canadian Secured Parties, (b) cause such Guarantor to
deliver to the Agent such certificates of resolutions or other action,
incumbency certificates and/or other certificates of Senior Officers or other
authorized Persons of such Subsidiary as Agent may require evidencing the
identity, authority and capacity of each Senior Officer or other authorized
Person thereof in connection with the Guarantee or Canadian Facility Guarantee,
as applicable, to which such Subsidiary is a party and such additional and other
documents and certifications as Agent may reasonably require to evidence that
such Subsidiary is duly organized or formed and is validly existing, in good
standing and qualified to engage in business, in each case to the extent
applicable, in jurisdictions reasonably identified by Agent, and (c) cause such
Guarantor to execute and deliver such documents, instruments and agreements and
to take such other actions as Agent shall require to evidence and perfect a Lien
in favor of Agent (for the benefit of Secured Parties (in the case of a
Subsidiary described in clause (1)(A) above) and the Canadian Secured Parties
(in the case of a Subsidiary described in clause (1)(B) above)) on all assets of
such Person which are the same type as the

 

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Collateral, including delivery of legal opinions, in form and substance
satisfactory to Agent, as it shall deem appropriate.

10.1.13. Landlord and Storage Agreements. Upon request, provide Agent with
copies of all existing agreements, and promptly after execution thereof provide
Agent with copies of all future agreements, between an Obligor and any landlord,
warehouseman, processor, shipper, bailee or other Person that owns any premises
at which any Collateral may be kept or that otherwise may possess or handle any
Collateral.

10.1.14. Licenses. (a) Keep each License affecting any Collateral (including the
manufacture, distribution or disposition of Inventory) or any other material
Property of Borrowers and Subsidiaries in full force and effect except to the
extent that failure to do so could not reasonably be expected to have a Material
Adverse Effect; (b) pay all Royalties when due except as would not materially
adversely affect the value of the Collateral; and (d) notify Agent of any
default or breach asserted by any Person to have occurred under any License
which breach would materially adversely affect the value of the Collateral.

10.2 Negative Covenants. As long as any Commitments or Obligations are
outstanding, each Obligor shall not, and shall cause each Subsidiary not to:

10.2.1. Liens. Create, incur, assume or suffer to exist any Lien upon any of its
Property, whether now owned or hereafter acquired, other than the following
(collectively, “Permitted Liens”):

(a) Liens in favor of Agent;

(b) Liens existing on the Original Agreement Closing Date that are listed on
Schedule 10.2.1;

(c) Liens for taxes, fees, assessments or other governmental charges not yet due
or being Properly Contested;

(d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other
like Liens arising in the Ordinary Course of Business which are not overdue for
a period of more than 30 days or which are being Properly Contested;

(e) pledges or deposits in the Ordinary Course of Business in connection with
workers’ compensation, unemployment insurance and other social security
legislation, other than any Lien imposed by ERISA;

(f) deposits or other Liens to secure the performance of bids, trade contracts
and leases (other than Debt), statutory obligations, surety bonds (other than
bonds related to judgments or litigation), performance bonds and other
obligations of a like nature incurred in the Ordinary Course of Business;

(g) easements, rights-of-way, restrictions and other similar encumbrances
affecting Real Estate which, in the aggregate, are not substantial in amount,
and which do not in

 

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any case materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the applicable
Person;

(h) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies as
to deposit accounts or other funds maintained with a creditor depository
institution;

(i) Liens securing judgments for the payment of money not constituting an Event
of Default under Section 11.1(g) or securing appeal or other surety bonds
related to such judgments (so long as such judgments do not constitute an Event
of Default under Section 11.1(g));

(j) Liens securing Debt permitted under Section 10.2.3(e); provided that
(i) such Liens do not at any time encumber any property other than the property
financed by such Debt and (ii) the Debt secured thereby does not exceed, on the
date of acquisition, the cost or fair market value, whichever is lower, of the
property being acquired;

(k) any Lien existing on any property or asset (other than Accounts and
Inventory) prior to the acquisition thereof by any Obligor or any Subsidiary or
existing on any property or asset (other than Accounts and Inventory) of any
Person that becomes an Obligor or Subsidiary after the date hereof prior to the
time such Person becomes an Obligor or Subsidiary; provided that (i) such Lien
is not created in contemplation of or in connection with such acquisition or
such Person becoming an Obligor or Subsidiary, as the case may be, (ii) such
Lien shall not apply to any other property or assets of the Obligor or
Subsidiary, (iii) such Lien shall secure only those obligations which it secures
on the date of such acquisition or the date such Person becomes an Obligor or
Subsidiary, as the case may be, (iv) all obligations secured by a Lien permitted
under this clause (k) shall not exceed an aggregate amount of $25,000,000 at any
one time outstanding, and (v) if requested by Agent, such Liens will be subject
to an intercreditor agreement, in form and substance satisfactory to Agent;

(l) extensions, renewals and replacements of Liens referred to in clauses
(a) through (k) above, provided that the property covered thereby is not
increased and any renewal or extension of the obligations secured or benefited
thereby is permitted by Section 10.2.3;

(m) Liens (other than on Accounts and Inventory of a Borrower or Guarantor)
arising under leases, subleases, licenses and rights to use granted to others
and permitted under Section 10.2.5(f); and

(n) Liens (other than on Accounts and Inventory of a Borrower or Guarantor) not
expressly permitted by clauses (a) through (m) above and as to which the
aggregate amount of obligations secured thereby does not exceed $50,000,000 at
any one time.

10.2.2. Investments. Make any Investments, except:

(a) advances to officers, directors and employees of the Obligors and
Subsidiaries for travel, entertainment, relocation and analogous ordinary
business purposes;

 

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(b) Investments in Subsidiaries to the extent existing on the Closing Date and
other Investments in existence on the Original Agreement Closing Date and set
forth on Schedule 10.2.2;

(c) Investments by: (i) a U.S. Borrower in another U.S. Borrower; (ii) a U.S.
Domiciled Obligor (other than a U.S. Borrower) in another U.S. Domiciled
Obligor; (iii) a U.S. Domiciled Obligor in the Canadian Borrower so long as:
(A) the aggregate amount of such Investments shall not exceed $10,000,000 at any
time outstanding, and (B) no Event of Default has occurred and is continuing at
the time of such Investment, or would result therefrom; (iv) a U.S. Domiciled
Obligor in Callaway de México, S.A. de C.V. so long as such Investments are in
the Ordinary Course of Business and consistent with historical practices;
(v) any Canadian Domiciled Obligor in a Borrower; (vi) a Borrower in a Guarantor
or Subsidiary that is not a Borrower or Guarantor so long as: (A) the aggregate
amount of such Investments shall not exceed: (I) $3,000,000 in any calendar
year, and (II) $10,000,000 at any time outstanding, and (B) no Event of Default
has occurred and is continuing at the time of such Investment, or would result
therefrom; and (vii) a Subsidiary that is not a Borrower or Guarantor in any
other Subsidiary;

(d) Investments consisting of extensions of credit in the nature of accounts
receivable or notes receivable arising from the grant of trade credit in the
Ordinary Course of Business, and Investments received in satisfaction or partial
satisfaction thereof from financially troubled account debtors to the extent
reasonably necessary in order to prevent or limit loss;

(e) Investments consisting of Permitted Acquisitions;

(f) Investments pursuant to Hedging Agreements otherwise permitted hereunder;

(g) Investments in Cash Equivalents; and

(h) so long as no Event of Default has occurred and is continuing or would
result therefrom, any other Investments (other than an Acquisition) in an
aggregate amount not to exceed $10,000,000 in any twelve month period and not to
exceed $25,000,000 during the term of the Agreement (such limitations,
collectively, the “Investment Cap”); provided, however, that no such Investment
shall count against the Investment Cap if either: (i) (A) average daily Trigger
Event Excess Availability has been greater than an amount equal to 15% of the
sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S. Borrowing Base (without
giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance
for purposes of this calculation) during each month for the six month period
immediately prior to the consummation of such Investment, (B) Trigger Event
Excess Availability is greater than an amount equal to 15% of the sum of the
Canadian Borrowing Base (without giving effect to the Canadian LC Reserve for
purposes of this calculation) and the U.S. Borrowing Base (without giving effect
to the U.S. LC Reserve and the Canadian Overadvance Loan Balance for purposes of
this calculation) after giving effect to such Investment, (C) the Borrowers
believe in good faith that, on a pro forma basis as of the last day of each
month during the six month period immediately following the consummation of such
Investment, they shall have projected Trigger Event Excess Availability of no
less than an

 

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amount equal to 15% of the sum of the Canadian Borrowing Base (without giving
effect to the Canadian LC Reserve for purposes of this calculation) and the U.S.
Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation), and (D) the Fixed
Charge Coverage Ratio, on a pro forma basis after giving effect to such
Investment (calculated on a trailing twelve month basis recomputed for the most
recent month for which financial statements have been delivered) is not less
than 1.0 to 1.0; or (ii) (A) average daily Trigger Event Excess Availability has
been greater than an amount equal to 25% of the sum of the Canadian Borrowing
Base (without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation) during each month for the six month period immediately prior to the
consummation of such Investment, (B) Trigger Event Excess Availability is
greater than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation) after giving effect to such Investment, and (C) the Borrowers
believe in good faith that, on a pro forma basis as of the last day of each
month during the six month period immediately following the consummation of such
Investment, they shall have projected Trigger Event Excess Availability of no
less than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation).

10.2.3. Debt. Create, incur, guarantee or suffer to exist any Debt, except:

(a) the Obligations;

(b) Debt outstanding on the Original Agreement Closing Date and listed on
Schedule 10.2.3;

(c) Debt consisting of unsecured intercompany loans among Parent and any
Subsidiary or unsecured guarantees of Parent or any Subsidiary in respect of
Debt of Parent or any Subsidiary so long as, in each case, the corresponding
Investment is permitted under Section 10.2.2;

(d) Debt of Parent or any Subsidiary existing or arising under any Hedging
Agreement, provided that such Hedging Agreement was entered into by such Person
to hedge risks arising in the Ordinary Course of Business and not for
speculative purposes;

(e) Debt in respect of Capital Leases, Off-Balance Sheet Liabilities and
purchase money obligations for fixed or capital assets; provided, however, that
the aggregate amount of all such Debt at any one time outstanding shall not
exceed $25,000,000;

(f) Debt that is in existence when a Person becomes a Subsidiary or that is
secured by an asset when acquired by a Borrower or Subsidiary, as long as such
Debt was not incurred in contemplation of such Person becoming a Subsidiary or
such acquisition, and does not exceed $25,000,000 in the aggregate at any time;

 

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(g) Debt of any wholly owned Subsidiary to Parent or another wholly owned
Subsidiary constituting the purchase price in respect of intercompany transfers
of goods and services made in the Ordinary Course of Business to the extent
otherwise permitted by Section 10.2.8 and not constituting Debt for borrowed
money;

(h) Debt of Parent or any Subsidiary in connection with guaranties resulting
from endorsement of negotiable instruments in the Ordinary Course of Business;

(i) Debt on account of surety bonds and appeal bonds in connection with the
enforcement of rights or claims of Parent or its Subsidiaries or in connection
with judgments not resulting in an Event of Default under Section 11.1(g);

(j) any refinancings, refundings, renewals or extensions of Debt permitted
pursuant to Sections 10.2.3(b) and (e); provided that (i) the amount of such
Debt is not increased at the time of such refinancing, refunding, renewal or
extension except by an amount equal to a reasonable premium or other reasonable
amount paid, and fees and expenses reasonably incurred, in connection with such
refinancing and by an amount equal to any existing commitments unutilized
thereunder, and (ii) Debt subordinated to the Obligations is not refinanced
except on subordination terms at least as favorable to Agent and the Lenders and
no more restrictive on Parent and its Subsidiaries than the subordinated Debt
being refinanced;

(k) Bank Product Debt (other than Debt arising under Hedging Agreements);

(l) Debt that is not included in any of the preceding clauses of this Section,
is not secured by a Lien, or is secured by a lien permitted by
Section 10.2.1(n), and does not exceed $50,000,000 in the aggregate at any time;

(m) other Debt that is not included in any of the preceding clauses of this
Section so long as such Debt: (i) is not secured by a Lien, (ii) has a maturity
date that is at least 6 months after the Facility Termination Date, and
(iii) does not have scheduled amortization in excess of 10% per year; and

(n) Debt to the Person, or the beneficial holders of Equity Interests in the
Person, whose assets or Equity Interests are acquired in a Permitted Acquisition
where such Debt (i) is payable in full no sooner than three years from the date
of such Acquisition, (ii) is repayable in installments of no more than one-third
of the initial amount in any year after the date of such Permitted Acquisition,
(iii) bears interest and fees that are consistent with then available market
rates for such Debt, (iv) is not secured by a Lien and (v) does not exceed
(together with all other Debt incurred under this clause (n)) $25,000,000 in the
aggregate at any time.

10.2.4. Fundamental Changes.

(a) Merge, amalgamate, dissolve, liquidate, consolidate with or into another
Person, or dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to or in favor of any Person, except that, so long as no
Default exists or would result therefrom:

 

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(i) any Subsidiary may merge or amalgamate with Parent or any other Subsidiary,
provided that, (A) in a merger in which a U.S. Borrower is involved, such U.S.
Borrower is the continuing or surviving Person, (B) in a merger or amalgamation
in which the Canadian Borrower is involved (other than with a U.S. Borrower),
the Canadian Borrower is the continuing or surviving Person, (C) in a merger in
which a U.S. Domiciled Obligor (other than a U.S Borrower) is involved (other
than with a Borrower), the U.S. Domiciled Obligor is the continuing or surviving
Person, and (D) in a merger or amalgamation in which a Canadian Domiciled
Obligor (other than the Canadian Borrower) is involved (other than with a U.S.
Domiciled Obligor or the Canadian Borrower), the Canadian Domiciled Obligor is
the continuing or surviving Person;

(ii) any Subsidiary which is not an Obligor may dispose of all or substantially
all of its assets (upon voluntary liquidation or otherwise) to its immediate
parent or another Obligor;

(iii) any Immaterial Subsidiary may be wound up, liquidated or dissolved; and

(iv) Parent and its Subsidiaries may make those Asset Dispositions permitted by
Section 10.2.5; or

(b) Change its name; change its tax, charter or other organizational
identification number; or change its form or state of organization without 10
Business Days’ prior written notice to Agent.

10.2.5. Disposition of Assets. Make any Asset Disposition or enter into any
agreement to make any Asset Disposition, except:

(a) Asset Dispositions of obsolete or worn out property, whether now owned or
hereafter acquired, in the Ordinary Course of Business;

(b) sales of Inventory in the Ordinary Course of Business, and consignments of
Inventory in the Ordinary Course of Business so long as the aggregate Value of
all such consigned Inventory at any one time does not exceed $15,000,000;

(c) Asset Dispositions of Equipment or Real Estate to the extent that (i) such
property is exchanged for credit against the purchase price of similar
replacement property or (ii) the proceeds of such disposition are reasonably
promptly applied to the purchase price of such replacement property;

(d) Asset Dispositions by (i) any U.S. Borrower to any other U.S. Borrower,
(ii) any U.S. Domiciled Obligor (other than a U.S. Borrower) to any other U.S.
Domiciled Obligor, (iii) any Canadian Domiciled Obligor in a U.S. Borrower, and
(iv) any Subsidiary that is not a Borrower or Guarantor in any other Subsidiary;

(e) (i) Asset Dispositions permitted by Section 10.2.4, (ii) Investments
permitted by Section 10.2.2, and (iii) Distributions permitted by
Section 10.2.6;

 

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(f) leases, subleases, licenses and rights to use granted to others in the
Ordinary Course of Business and not otherwise prohibited by this Agreement so
long as such leases, subleases, licenses and rights to use do not materially
adversely affect the conduct by Parent and its Subsidiaries of their core golf
products business or the value of the Collateral;

(g) Asset Dispositions made in connection with the closure, downsizing,
restructuring, closure or partial closure of the golf ball manufacturing
operations of Parent;

(h) (i) Asset Dispositions of excess Real Estate and related assets made in
connection with the consolidation of business activities in other locations and
(ii) sale and leaseback transactions involving Real Estate and related assets;
and

(i) other Asset Dispositions (other than with respect to Accounts and Inventory)
in an aggregate amount in any fiscal year not to exceed 5% of the Consolidated
Tangible Assets of Parent and its Subsidiaries as of the end of the most
recently ended fiscal year of Parent;

provided, however, that any Asset Disposition pursuant to clauses (a) through
(i) shall be for fair market value; provided, further, that Parent or any of its
Subsidiaries may enter into an agreement to make an Asset Disposition otherwise
prohibited by this Section 10.2.5 if failure to consummate such Asset
Disposition would not result in a liability or Debt otherwise prohibited by this
Agreement and the consummation of the Asset Disposition contemplated by such
agreement is conditioned upon either the termination of this Agreement or
receipt of the prior written consent of the Agent and the Required Lenders.

10.2.6. Distributions. Declare or make, directly or indirectly, any
Distribution, or incur any obligation (contingent or otherwise) to do so, except
that:

(a) (i) a U.S. Borrower may make Distributions to another U.S. Borrower; (ii) a
U.S. Domiciled Obligor (other than a U.S. Borrower) may make Distributions to
another U.S. Domiciled Obligor; (iii) a Canadian Domiciled Obligor may make
Distributions to a Borrower; and (iv) a Subsidiary that is not a Borrower or
Guarantor may make Distributions to Parent or any Subsidiary;

(b) Parent and each Subsidiary may declare and make dividend payments or other
distributions payable solely in the common stock or other Equity Interests of
such Person;

(c) so long as no Event of Default has occurred and is continuing or would
result therefrom, Parent and each Subsidiary may purchase, redeem or otherwise
acquire shares of its common stock or other Equity Interests or warrants or
options to acquire any such Equity Interests with the proceeds received from the
substantially concurrent issue of new shares of its common stock or other Equity
Interests;

(d) Parent may purchase Equity Interests in any Obligor or options with respect
to Equity Interests in any Obligor held by employees or management of any
Obligor in connection with the termination of employment of such employees or
management so long as: (i) the aggregate amount of such purchases do not exceed
$5,000,000 in any fiscal year of Parent,

 

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and (ii) no Event of Default has occurred and is continuing at the time of any
such purchase or would result therefrom; and

(e) so long as no Event of Default has occurred and is continuing or would
result therefrom, Parent and its Subsidiaries may make other Distributions in an
aggregate amount not to exceed (collectively, the “Distributions Cap”):
(X) $20,000,000 during each year, or (Y) solely until such time as the Agent has
received evidence, in form and substance reasonably satisfactory to Agent, that
Fixed Charge Coverage Ratio for any trailing twelve month period ending after
the Original Agreement Closing Date is 1.0 to 1.0 or greater, $5,000,000 during
any calendar quarter (for the avoidance of doubt, once such condition is met,
the limitation in this clause (Y) shall no longer be applicable notwithstanding
that Fixed Charge Coverage Ratio for any trailing twelve month period thereafter
shall be less than 1.0 to 1.0); provided, however, that no such Distribution
shall count against the Distributions Cap if at the time such Distribution is
declared (subject to the last sentence of this clause (e)) either:
(i) (A) average daily Trigger Event Excess Availability has been greater than an
amount equal to 17.5% of the sum of the Canadian Borrowing Base (without giving
effect to the Canadian LC Reserve for purposes of this calculation) and the U.S.
Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation) during each month for
the six month period immediately prior to the making of such Distribution,
(B) Trigger Event Excess Availability is greater than an amount equal to 17.5%
of the sum of the Canadian Borrowing Base (without giving effect to the Canadian
LC Reserve for purposes of this calculation) and the U.S. Borrowing Base
(without giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan
Balance for purposes of this calculation) after giving effect to such
Distribution, (C) the Borrowers believe in good faith that, on a pro forma basis
as of the last day of each month during the six month period immediately
following the making of such Distribution, they shall have projected Trigger
Event Excess Availability of no less than an amount equal to 17.5% of the sum of
the Canadian Borrowing Base (without giving effect to the Canadian LC Reserve
for purposes of this calculation) and the U.S. Borrowing Base (without giving
effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance for
purposes of this calculation), and (D) the Fixed Charge Coverage Ratio, on a pro
forma basis after giving effect to such Distribution (calculated on a trailing
twelve month basis recomputed for the most recent month for which financial
statements have been delivered) is not less than 1.1 to 1.0; or (ii) (A) average
daily Trigger Event Excess Availability has been greater than an amount equal to
30% of the sum of the Canadian Borrowing Base (without giving effect to the
Canadian LC Reserve for purposes of this calculation) and the U.S. Borrowing
Base (without giving effect to the U.S. LC Reserve and the Canadian Overadvance
Loan Balance for purposes of this calculation) during each month for the six
month period immediately prior to the making of such Distribution, (B) Trigger
Event Excess Availability is greater than an amount equal to 30% of the sum of
the Canadian Borrowing Base (without giving effect to the Canadian LC Reserve
for purposes of this calculation) and the U.S. Borrowing Base (without giving
effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance for
purposes of this calculation) after giving effect to such Distribution, (C) the
Borrowers believe in good faith that, on a pro forma basis as of the last day of
each month during the six month period immediately following the making of such
Distribution, they shall have projected Trigger Event Excess Availability of no
less than an amount equal to 30% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance

 

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Loan Balance for purposes of this calculation), (D) the Fixed Charge Coverage
Ratio (calculated on a trailing twelve month basis for the most recent month for
which financial statements have been delivered) is not less than 1.0 to 1.0, and
(E) Trigger Event Excess Availability is greater than $50,000,000 after giving
effect to such Distribution. Any Distribution permitted when declared under this
clause (e) may be paid without limitation so long as Borrower Agent notifies
Agent in writing at the time such Distribution is declared and Agent establishes
a Canadian Availability Reserve or U.S. Availability Reserve (as determined by
Agent in its discretion) in the amount of such Distribution (it being understood
that such Canadian Availability Reserve or U.S. Availability Reserve, as
applicable, would be released by Agent at the time such Distribution related
thereto was paid).

10.2.7. Change in Nature of Business. Engage in any material line of business
substantially different from those lines of business conducted by Parent and its
Subsidiaries on the date hereof, one or more of the leisure goods, products and
services businesses generally or, in each case, any business substantially
related or incidental thereto.

10.2.8. Affiliate Transactions. Enter into any transaction of any kind with any
Affiliate of Parent, except (a) transactions between or among: (i) the U.S.
Borrowers, (ii) the U.S. Domiciled Obligors (other than any U.S. Borrower),
(iii) the Canadian Domiciled Obligors, and (iv) Subsidiaries that are not
Borrowers or Guarantors; (b) transactions constituting Investments in
Subsidiaries as permitted by Section 10.2.2, (c) transactions constituting Debt
among Parent or any of its Subsidiaries, in each case as permitted by
Section 10.2.3; (d) transactions among Parent or any of its Subsidiaries, in
each case as permitted by Section 10.2.4 or Section 10.2.5, (e) transactions
constituting Distributions permitted by Section 10.2.6, (f) transactions
constituting reasonable fees and compensation paid to (including issuance and
grants of securities and stock options, employment agreements and stock option
and ownership plans for the benefit of, and indemnities provided on behalf of)
officers, directors, employees and consultants of Parent or any Subsidiary,
(g) constituting loans or advances to employees and officers of Parent and its
Subsidiaries to the extent permitted by Section 10.2.2(a), and (h) transactions
with Affiliates in the Ordinary Course of Business, upon fair and reasonable
terms fully disclosed to Agent and no less favorable than would be obtained in a
comparable arm’s-length transaction with a non-Affiliate.

10.2.9. Burdensome Agreements. Enter into any Contractual Obligation (other than
this Agreement or any other Loan Document) that limits the ability (a) of any
Subsidiary to make Distributions to any Borrower or any Guarantor or to
otherwise transfer property to any Borrower or any Guarantor, (b) of Parent or
any Subsidiary to incur or repay the Obligations, (c) of Parent or any
Subsidiary to grant Liens on any Collateral in favor of the Agent for the
benefit of the Lenders, or (d) of any U.S. Subsidiary or Canadian Subsidiary to
guarantee the Obligations; provided, that the restrictions set forth herein
shall not apply to (i) customary restrictions on transfers of property subject
to a capital lease as set forth in such capital lease; (ii) customary
restrictions with respect to a Subsidiary (other than a Borrower) pursuant to an
agreement that has been entered into for the sale or disposition (not otherwise
prohibited by this Agreement or any other Loan Document) of all or substantially
all of the capital stock or assets of such Subsidiary; (iii) customary
prohibitions on assignment in any contract or lease; and (iv) customary net
worth provisions contained in leases and other agreements entered into by a
Subsidiary in the Ordinary Course of Business.

 

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10.2.10. Restrictions on Payment of Certain Debt. Make any (a) payments (whether
voluntary or mandatory, or a prepayment, redemption, retirement, defeasance or
acquisition) with respect to any Debt which is subordinated to the Obligations,
except regularly scheduled payments of principal, interest and fees, but only to
the extent permitted under any subordination agreement relating to such Debt
(and a Senior Officer of Borrower Agent shall certify to Agent, not less than
five Business Days prior to the date of payment, that all conditions under such
agreement have been satisfied); or (b) any voluntary payments with respect to
any Borrowed Money (other than the Obligations and any intercompany obligations)
prior to its due date; provided, however, that the restriction set forth in
clause (b) shall not apply to any payment if either: (i) (A) average daily
Trigger Event Excess Availability has been greater than an amount equal to 17.5%
of the sum of the Canadian Borrowing Base (without giving effect to the Canadian
LC Reserve for purposes of this calculation) and the U.S. Borrowing Base
(without giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan
Balance for purposes of this calculation) during each month for the six month
period immediately prior to the making of such payment, (B) Trigger Event Excess
Availability is greater than an amount equal to 17.5% of the sum of the Canadian
Borrowing Base (without giving effect to the Canadian LC Reserve for purposes of
this calculation) and the U.S. Borrowing Base (without giving effect to the U.S.
LC Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation) after giving effect to such payment, (C) the Borrowers believe in
good faith that, on a pro forma basis as of the last day of each month during
the six month period immediately following the making of such payment, they
shall have projected Trigger Event Excess Availability of no less than an amount
equal to 17.5% of the sum of the Canadian Borrowing Base (without giving effect
to the Canadian LC Reserve for purposes of this calculation) and the U.S.
Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation), and (D) the Fixed
Charge Coverage Ratio, on a pro forma basis after giving effect to such payment
(calculated on a trailing twelve month basis recomputed for the most recent
month for which financial statements have been delivered) is not less than 1.0
to 1.0; or (ii) (A) average daily Trigger Event Excess Availability has been
greater than an amount equal to 25% of the sum of the Canadian Borrowing Base
(without giving effect to the Canadian LC Reserve for purposes of this
calculation) and the U.S. Borrowing Base (without giving effect to the U.S. LC
Reserve and the Canadian Overadvance Loan Balance for purposes of this
calculation) during each month for the six month period immediately prior to the
making of such payment, (B) Trigger Event Excess Availability is greater than an
amount equal to 25% of the sum of the Canadian Borrowing Base (without giving
effect to the Canadian LC Reserve for purposes of this calculation) and the U.S.
Borrowing Base (without giving effect to the U.S. LC Reserve and the Canadian
Overadvance Loan Balance for purposes of this calculation) after giving effect
to such payment, and (C) the Borrowers believe in good faith that, on a pro
forma basis as of the last day of each month during the six month period
immediately following the making of such payment, they shall have projected
Trigger Event Excess Availability of no less than an amount equal to 25% of the
sum of the Canadian Borrowing Base (without giving effect to the Canadian LC
Reserve for purposes of this calculation) and the U.S. Borrowing Base (without
giving effect to the U.S. LC Reserve and the Canadian Overadvance Loan Balance
for purposes of this calculation).

10.2.11. Organic Documents. Amend, modify or otherwise change any of its Organic
Documents as in effect on the Original Agreement Closing Date where such
amendment, modification or other change would have a Material Adverse Effect.

 

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10.2.12. Tax Consolidation. File or consent to the filing of any consolidated
income tax return with any Person other than Borrowers and Subsidiaries.

10.2.13. Accounting Changes. Make any material change in accounting treatment or
reporting practices, except as required by GAAP and in accordance with
Section 1.2; or change its Fiscal Year.

10.2.14. Activities of uPlay. Unless Borrowers cause uPlay to become a Guarantor
hereunder in accordance with Section 10.1.12, uPlay will not (a) engage in any
business or activity or (b) own any assets or have any liabilities (other than
liabilities reasonably incurred in connection with its maintenance of its
existence).

10.3 Financial Covenants. As long as any Commitments or Obligations are
outstanding, Borrowers shall:

10.3.1. Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio,
measured on a month-end basis, of at least 1.0 to 1.0 as of (a) the end of the
last month immediately preceding the occurrence of any Covenant Trigger Period
for which financial statements have most recently been delivered pursuant to
Section 10.1.1, and (b) the end of each month for which financial statements are
delivered pursuant to Section 10.1.1 during any Covenant Trigger Period.

SECTION 11. EVENTS OF DEFAULT; REMEDIES ON DEFAULT

11.1 Events of Default. Each of the following shall be an “Event of Default”
hereunder, if the same shall occur for any reason whatsoever, whether voluntary
or involuntary, by operation of law or otherwise:

(a) An Obligor fails to pay (i) when due (whether at stated maturity, on demand,
upon acceleration or otherwise) any amount of principal of any Loan or any
reimbursement obligation in respect of any LC Obligation, or (ii) any interest
on any Loan or any fee or any other amount (other than an amount referred to in
clause (a)(i) above), when and as the same shall become due and payable
hereunder or under any other Loan Document (whether at stated maturity, on
demand, upon acceleration or otherwise), and such failure shall continue
unremedied for a period of three Business Days;

(b) Any representation, warranty or other written statement of an Obligor made
in connection with any Loan Documents or transactions contemplated thereby is
incorrect or misleading in any material respect when given;

(c) An Obligor breaches or fail to perform any covenant contained in
Section 7.2, 7.4, 7.6, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1, 10.1.2, 10.1.10, 10.2
or 10.3;

(d) An Obligor breaches or fails to perform any other covenant contained in any
Loan Documents, and such breach or failure is not cured within 30 days after a
Senior Officer of such Obligor has knowledge thereof or receives notice thereof
from Agent, whichever is sooner; provided, however, that such notice and
opportunity to cure shall not apply if the breach or failure to perform is not
capable of being cured within such period;

 

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(e) A Guarantor repudiates, revokes or attempts to revoke its Guarantee; an
Obligor or third party denies or contests the validity or enforceability of any
Loan Documents or Obligations, or the perfection or priority of any Lien granted
to Agent; or any Loan Document ceases to be in full force or effect for any
reason (other than a waiver or release by Agent and Lenders);

(f) Any breach or default of an Obligor occurs under any Hedging Agreement, or
any document, instrument or agreement to which it is a party or by which it or
any of its Properties is bound, relating to any Debt (other than the
Obligations) in excess of the Dollar Equivalent of $10,000,000, if the maturity
of or any payment with respect to such Debt may be accelerated or demanded due
to such breach;

(g) Any judgment or order for the payment of money is entered against an Obligor
and is unsatisfied for a period of more than 30 days in an amount that exceeds,
individually or cumulatively with all other unsatisfied judgments or orders
against all Obligors, the Dollar Equivalent of $5,000,000 (net of any insurance
coverage therefor acknowledged in writing by the insurer), unless a stay of
enforcement of such judgment or order is in effect, by reason of a pending
appeal or otherwise;

(h) A loss, theft, damage or destruction occurs with respect to any Collateral
if the amount not covered by insurance (either individually or in the aggregate)
exceeds the Dollar Equivalent of $2,500,000;

(i) An Obligor is enjoined, restrained or in any way prevented by any
Governmental Authority from conducting any material part of its business and
such enjoinment, restraint or prevention could reasonably be expected to have a
Material Adverse Effect; an Obligor suffers the loss, revocation or termination
of any material license, permit, lease or agreement necessary to its business
and such loss, revocation or termination could reasonably be expected to have a
Material Adverse Effect; there is a cessation of any material part of an
Obligor’s business for a material period of time and such cessation could
reasonably be expected to have a Material Adverse Effect; any material
Collateral or Property of an Obligor is taken or impaired through condemnation
and such taking or impairment could reasonably be expected to have a Material
Adverse Effect; a Borrower agrees to or commences any liquidation, dissolution
or winding up of its affairs; or a Borrower is not Solvent;

(j) Any Obligor generally fails to pay, or admits in writing its inability or
refusal to pay, its debts as they become due; or an Insolvency Proceeding is
commenced by any Obligor; any Obligor agrees to, commences or is subject to a
liquidation, dissolution or winding up of its affairs; any Obligor makes an
offer of settlement, extension, proposal (or files a notice of intention to make
a proposal), plan of arrangement or composition to its unsecured creditors
generally; a Creditor Representative is appointed to take possession of any
substantial Property of or to operate or sell any of the business of any
Obligor; or an Insolvency Proceeding is commenced against any Obligor and such
Obligor consents to the institution of the proceeding against it, such petition
commencing the proceeding is not timely contested by such Obligor, such petition
is not dismissed within 30 days after its filing, or an order for relief is
entered in the proceeding;

 

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(k) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan
that has resulted or could reasonably be expected to result in liability of an
Obligor to a Pension Plan, Multiemployer Plan or PBGC in an aggregate amount in
excess of $10,000,000, or that constitutes grounds for appointment of a trustee
for or termination by the PBGC of any Pension Plan or Multiemployer Plan; an
Obligor or ERISA Affiliate fails to pay when due any installment payment with
respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of $10,000,000; or any event
similar to the foregoing occurs or exists with respect to a Foreign Plan;

(l) (A) a Termination Event shall occur or any Canadian Multi-Employer Plan
shall be terminated, in each case, in circumstances which would result or could
reasonably be expected to result in a Canadian Facility Obligor required to make
a contribution to or in respect of a Canadian Pension Plan or a Canadian
Multi-Employer Plan in an aggregate amount in excess of $2,500,000 or results in
the appointment, by FSCO, of an administrator to wind up a Canadian Pension
Plan, (B) any Canadian Domiciled Obligor is in default with respect to any
required contributions to a Canadian Pension Plan or fails to eliminate a
solvency deficiency or keep such plan fully funded; or (C) any Lien arises (save
for contribution amounts not yet due) in connection with any Canadian Pension
Plan; or

(m) A Change of Control occurs.

11.2 Remedies upon Default. If an Event of Default described in Section 11.1(j)
occurs with respect to any Obligor, then to the extent permitted by Applicable
Law, all Obligations (other than Secured Bank Product Obligations) shall become
automatically due and payable and all Commitments shall terminate, without any
action by Agent or notice of any kind. In addition, or if any other Event of
Default exists, Agent may in its discretion (and shall upon written direction of
Required Lenders) do any one or more of the following from time to time:

(a) declare any Obligations (other than Secured Bank Product Obligations)
immediately due and payable, whereupon they shall be due and payable without
diligence, presentment, demand, protest or notice of any kind, all of which are
hereby waived by Borrowers to the fullest extent permitted by law;

(b) terminate, reduce or condition any Commitment, or make any adjustment to the
Borrowing Base;

(c) require Obligors to Cash Collateralize LC Obligations, Secured Bank Product
Obligations and other Obligations that are contingent or not yet due and
payable, and, if Obligors fail promptly to deposit such Cash Collateral, Agent
may (and shall upon the direction of Required Lenders) advance the required Cash
Collateral as Revolver Loans (whether or not an Overadvance exists or is created
thereby, or the conditions in Section 6 are satisfied); and

(d) exercise any other rights or remedies afforded under any agreement, by law,
at equity or otherwise, including the rights and remedies of a secured party
under the UCC and the PPSA. Such rights and remedies include the rights to
(i) take possession of any Collateral; (ii) require Obligors to assemble
Collateral, at Obligors’ expense, and make it available to Agent at a place
designated by Agent; (iii) enter any premises where Collateral is

 

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located and store Collateral on such premises until sold (and if the premises
are owned or leased by an Obligor, Obligors agree not to charge for such
storage); and (iv) sell or otherwise dispose of any Collateral in its then
condition, or after any further manufacturing or processing thereof, at public
or private sale, with such notice as may be required by Applicable Law, in lots
or in bulk, at such locations, all as Agent, in its discretion, deems advisable.
Each Obligor agrees that 10 days notice of any proposed sale or other
disposition of Collateral by Agent shall be reasonable. Agent shall have the
right to conduct such sales on any Obligor’s premises, without charge, and such
sales may be adjourned from time to time in accordance with Applicable Law.
Agent shall have the right to sell, lease or otherwise dispose of any Collateral
for cash, credit or any combination thereof, and Agent may purchase any
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of the purchase price, may credit bid and set off the amount of
such price against the Obligations.

11.3 License. Agent is hereby granted an irrevocable, non-exclusive and
royalty-free license exercisable at any time following the occurrence and during
the continuation of an Event of Default, to any or all Trademarks owned by the
Obligors solely for purposes of advertising for sale, marketing, selling,
collecting, completing manufacture of, or otherwise exercising any rights or
remedies with respect to, any Collateral.

11.4 Setoff. At any time during an Event of Default, Agent, Issuing Banks,
Lenders, and any of their Affiliates are authorized, to the fullest extent
permitted by Applicable Law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final, in whatever currency) at any
time held and other obligations (in whatever currency) at any time owing by
Agent, such Issuing Bank, such Lender or such Affiliate to or for the credit or
the account of an Obligor against any Obligations, irrespective of whether or
not Agent, such Issuing Bank, such Lender or such Affiliate shall have made any
demand under this Agreement or any other Loan Document and although such
Obligations may be contingent or unmatured or are owed to a branch or office of
Agent, such Issuing Bank, such Lender or such Affiliate different from the
branch or office holding such deposit or obligated on such indebtedness. The
rights of Agent, each Issuing Bank, each Lender and each such Affiliate under
this Section are in addition to other rights and remedies (including other
rights of setoff) that such Person may have.

11.5 Remedies Cumulative; No Waiver.

11.5.1. Cumulative Rights. All agreements, warranties, guaranties, indemnities
and other undertakings of Obligors under the Loan Documents are cumulative and
not in derogation of each other. The rights and remedies of Agent and Lenders
are cumulative, may be exercised at any time and from time to time, concurrently
or in any order, and are not exclusive of any other rights or remedies available
by agreement, by law, at equity or otherwise. All such rights and remedies shall
continue in full force and effect until Full Payment of all Obligations.

11.5.2. Waivers. No waiver or course of dealing shall be established by (a) the
failure or delay of Agent or any Lender to require strict performance by
Obligors with any terms of the Loan Documents, or to exercise any rights or
remedies with respect to Collateral or otherwise; (b) the making of any Loan or
issuance of any Letter of Credit during a Default, Event of Default or other
failure to satisfy any conditions precedent; or (c) acceptance by Agent or any
Lender of any payment or performance by an Obligor under any Loan Documents in a
manner

 

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other than that specified therein. It is expressly acknowledged by Obligors that
any failure to satisfy a financial covenant on a measurement date shall not be
cured or remedied by satisfaction of such covenant on a subsequent date.

11.6 Judgment Currency. If, for purposes of obtaining judgment in any court, it
is necessary to convert a sum from the currency provided under a Loan Document
(“Agreement Currency”) into another currency, the Spot Rate shall be used as the
rate of exchange. Notwithstanding any judgment in a currency (“Judgment
Currency”) other than the Agreement Currency, an Obligor shall discharge its
obligation in respect of any sum due under a Loan Document only if, on the
Business Day following receipt by Agent or any Secured Party of payment in the
Judgment Currency, Agent or such Secured Party can use the amount paid to
purchase the sum originally due in the Agreement Currency. If the purchased
amount is less than the sum originally due, such Obligor agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify Agent and Secured
Parties against such loss. If the purchased amount is greater than the sum
originally due, Agent or such Secured Party shall return the excess amount to
such Obligor (or to the Person legally entitled thereto).

SECTION 12. AGENT

12.1 Appointment, Authority and Duties of Agent.

12.1.1. Appointment and Authority.

(a) Each Secured Party appoints and designates Bank of America as Agent under
all Loan Documents. Agent may, and each Secured Party authorizes Agent to, enter
into all Loan Documents to which Agent is intended to be a party and accept all
Security Documents, for the benefit of Secured Parties. Each Secured Party
agrees that any action taken by Agent, Required Lenders, U.S. Required Lenders,
or Canadian Required Lenders in accordance with the provisions of the Loan
Documents, and the exercise by Agent or Required Lenders of any rights or
remedies set forth therein, together with all other powers reasonably incidental
thereto, shall be authorized by and binding upon all Secured Parties. Without
limiting the generality of the foregoing, Agent shall have the sole and
exclusive authority to (a) act as the disbursing and collecting agent for
Lenders with respect to all payments and collections arising in connection with
the Loan Documents; (b) execute and deliver as Agent each Loan Document,
including any intercreditor or subordination agreement, and accept delivery of
each Loan Document from any Obligor or other Person; (c) act as collateral agent
for Secured Parties for purposes of perfecting and administering Liens under the
Loan Documents, and for all other purposes stated therein; (d) manage, supervise
or otherwise deal with Collateral; and (e) take any Enforcement Action or
otherwise exercise any rights or remedies with respect to any Collateral under
the Loan Documents, Applicable Law or otherwise. The duties of Agent shall be
ministerial and administrative in nature, and Agent shall not have a fiduciary
relationship with any Secured Party, Participant or other Person, by reason of
any Loan Document or any transaction relating thereto. Agent alone shall be
authorized to determine whether any Accounts or Inventory constitute Eligible
Accounts, Eligible Inventory or Eligible In-Transit Inventory, whether to impose
or release any reserve, or whether any conditions to funding or to issuance of a
Letter of Credit have been satisfied, which determinations and judgments, if
exercised in good faith, shall exonerate Agent from liability to any Lender or
other Person for any error in judgment.

 

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(b) For the purposes of creating a solidarité active in accordance with Article
1541 of the Civil Code of Quebec between each Secured Party, taken individually,
on the one hand, and the Agent, on the other hand, each Obligor and each such
Secured Party acknowledge and agree with the Agent that such Secured Party and
the Agent are hereby conferred the legal status of solidary creditors of each
such Obligor in respect of all Obligations owed by each such Obligor to the
Agent and such Secured Party hereunder and under the other Loan Documents
(collectively, the “Solidary Claim”) and that, accordingly, but subject (for the
avoidance of doubt) to Article 1542 of the Civil Code of Quebec, each
such Obligor is irrevocably bound towards the Agent and each Secured Party in
respect of the entire Solidary Claim of the Agent and such Secured Party. As a
result of the foregoing, the parties hereto acknowledge that the Agent and each
Secured Party shall at all times have a valid and effective right of action for
the entire Solidary Claim of the Agent and such Secured Party and the right to
give full acquittance for it. Accordingly, and without limiting the generality
of the foregoing, the Agent, as solidary creditor with each Secured Party, shall
at all times have a valid and effective right of action in respect of the
Solidary Claim and the right to give a full acquittance for same. By its
execution of the Loan Documents to which it is a party, each such Obligor not a
party hereto shall also be deemed to have accepted the stipulations hereinabove
provided. The parties further agree and acknowledge that such Liens (hypothecs)
under the Security Documents and the other Loan Documents shall be granted to
the Agent, for its own benefit and for the benefit of the Secured Parties, as
solidary creditor as hereinabove set forth.

12.1.2. Duties. Agent shall not have any duties except those expressly set forth
in the Loan Documents. The conferral upon Agent of any right shall not imply a
duty to exercise such right, unless instructed to do so by Lenders in accordance
with this Agreement.

12.1.3. Agent Professionals. Agent may perform its duties through agents and
employees. Agent may consult with and employ Agent Professionals, and shall be
entitled to act upon, and shall be fully protected in any action taken in good
faith reliance upon, any advice given by an Agent Professional. Agent shall not
be responsible for the negligence or misconduct of any agents, employees or
Agent Professionals selected by it with reasonable care.

12.1.4. Instructions of Required Lenders. The rights and remedies conferred upon
Agent under the Loan Documents may be exercised without the necessity of joinder
of any other party, unless required by Applicable Law. Agent may request
instructions from Required Lenders or other Secured Parties with respect to any
act (including the failure to act) in connection with any Loan Documents, and
may seek assurances to its satisfaction from Secured Parties of their
indemnification obligations against all Claims that could be incurred by Agent
in connection with any act. Agent shall be entitled to refrain from any act
until it has received such instructions or assurances, and Agent shall not incur
liability to any Person by reason of so refraining. Instructions of Required
Lenders shall be binding upon all Secured Parties, and no Secured Party shall
have any right of action whatsoever against Agent as a result of Agent acting or
refraining from acting in accordance with the instructions of Required Lenders.
Notwithstanding the foregoing, instructions by and consent of specific parties
shall be required to the extent provided in Section 14.1.1. In no event shall
Agent be required to take any action that, in its opinion, is contrary to
Applicable Law or any Loan Documents or could subject any Agent Indemnitee to
personal liability.

 

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12.2 Agreements Regarding Collateral and Field Examination Reports.

12.2.1. Lien Releases; Care of Collateral. Secured Parties authorize Agent to
release any Lien with respect to any Collateral (a) upon Full Payment of the
Obligations; (b) that is the subject of an Asset Disposition which Borrowers
certify in writing to Agent is a disposition permitted hereunder or a Lien which
Borrowers certify is a Permitted Lien entitled to priority over Agent’s Liens
(and Agent may rely conclusively on any such certificate without further
inquiry); (c) that does not have, when aggregated with all other released
Collateral under this clause (c) in any calendar year, a book value greater than
$5,000,000; or (d) with the written consent of all Lenders. Secured Parties
authorize Agent to subordinate its Liens to any Lien permitted under
Section 10.2.1(j). Agent shall have no obligation to assure that any Collateral
exists or is owned by a Borrower, or is cared for, protected, insured or
encumbered, nor to assure that Agent’s Liens have been properly created,
perfected or enforced, or are entitled to any particular priority, nor to
exercise any duty of care with respect to any Collateral.

12.2.2. Possession of Collateral. Agent and Secured Parties appoint each Lender
as agent (for the benefit of Secured Parties) for the purpose of perfecting
Liens in any Collateral held or controlled by such Lender, to the extent such
Liens are perfected by possession or control. If any Lender obtains possession
or control of any Collateral, it shall notify Agent thereof and, promptly upon
Agent’s request, deliver such Collateral to Agent or otherwise deal with it in
accordance with Agent’s instructions.

12.2.3. Reports. Agent shall promptly forward to each Lender, when complete,
copies of any field audit, examination or appraisal report prepared by or for
Agent with respect to any Obligor or Collateral (“Report”). Each Lender agrees
(a) that neither Bank of America nor Agent makes any representation or warranty
as to the accuracy or completeness of any Report, and shall not be liable for
any information contained in or omitted from any Report; (b) that the Reports
are not intended to be comprehensive audits or examinations, and that Agent or
any other Person performing any audit or examination will inspect only specific
information regarding Obligations or the Collateral and will rely significantly
upon the applicable Obligors’ books and records as well as upon representations
of the applicable Obligors’ officers and employees; and (c) to keep all Reports
confidential and strictly for such Lender’s internal use, and not to distribute
any Report (or the contents thereof) to any Person (except: (i) to such Lender’s
Participants, attorneys and accountants, (ii) to the extent requested by any
governmental, regulatory or self-regulatory authority purporting to have
jurisdiction over it or its Affiliates, or (iii) to the extent required by
Applicable Law or by any subpoena or other legal process) or use any Report in
any manner other than administration of the Loans and other Obligations. Each
Lender shall indemnify and hold harmless Agent and any other Person preparing a
Report from any action such Lender may take as a result of or any conclusion it
may draw from any Report, as well as from any Claims arising as a direct or
indirect result of Agent furnishing a Report to such Lender.

12.3 Reliance By Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any certification, notice or other communication
(including those by telephone, telex, telegram, telecopy or e-mail) believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person, and upon the advice and statements of Agent Professionals. Agent shall
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instruction, notice or other communication under any Loan Document, and shall
not be liable for any delay in acting.

12.4 Action Upon Default. Agent shall not be deemed to have knowledge of any
Default or Event of Default, or of any failure to satisfy any conditions in
Section 6, unless it has received written notice from a Borrower or Required
Lenders specifying the occurrence and nature thereof. If any Lender acquires
knowledge of a Default, Event of Default or failure of such conditions, it shall
promptly notify Agent and the other Lenders thereof in writing. Each Secured
Party agrees that, except as otherwise provided in any Loan Documents or with
the written consent of Agent and Required Lenders, it will not take any
Enforcement Action, accelerate Obligations (other than Secured Bank Product
Obligations), or exercise any right that it might otherwise have under
Applicable Law to credit bid at foreclosure sales, UCC or PPSA sales or other
similar dispositions of Collateral or to assert any rights relating to any
Collateral.

12.5 Ratable Sharing. No Lender shall set off against any Dominion Account
without the prior consent of Agent. If any Lender shall obtain any payment or
reduction of any Obligation, whether through set-off or otherwise, in excess of
its share of such Obligation, determined on a Pro Rata basis or in accordance
with Section 5.6.1, as applicable, such Lender shall forthwith purchase from
Agent, the U.S. Issuing Bank (if such Obligation is a U.S. Facility Obligation),
the Canadian Issuing Bank (if such Obligation is a Canadian Facility Obligation)
and the other Lenders such participations in the affected Obligation as are
necessary to cause the purchasing Lender to share the excess payment or
reduction on a Pro Rata basis or in accordance with Section 5.6.1, as
applicable. If any of such payment or reduction is thereafter recovered from the
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. Notwithstanding
the foregoing, if a Defaulting Lender obtains a payment or reduction of any
Obligation, it shall immediately turn over the amount thereof to Agent for
application under Section 4.2.2 and it shall provide a written statement to
Agent describing the Obligation affected by such payment or reduction. No Lender
shall set off against any Dominion Account without the prior consent of the
Agent

12.6 Indemnification. EACH LENDER SHALL INDEMNIFY AND HOLD HARMLESS AGENT
INDEMNITEES AND ISSUING BANK INDEMNITEES, TO THE EXTENT NOT REIMBURSED BY
OBLIGORS, ON A PRO RATA BASIS, AGAINST ALL CLAIMS THAT MAY BE INCURRED BY OR
ASSERTED AGAINST ANY SUCH INDEMNITEE (OTHER THAN CLAIMS THAT ARE CAUSED BY THE
GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE), PROVIDED THAT ANY
CLAIM AGAINST AN AGENT INDEMNITEE RELATES TO OR ARISES FROM ITS ACTING AS OR FOR
AGENT (IN THE CAPACITY OF AGENT). In Agent’s discretion, it may reserve for any
Claims made against an Agent Indemnitee or Issuing Bank Indemnitee, and may
satisfy any judgment, order or settlement relating thereto, from proceeds of
Collateral prior to making any distribution of Collateral proceeds to Secured
Parties. If Agent is sued by any Creditor Representative, debtor-in-possession
or other Person for any alleged preference or fraudulent transfer, then any
monies paid by Agent in settlement or satisfaction of such proceeding, together
with all interest, costs and expenses (including attorneys’ fees) incurred in
the defense of same, shall be promptly reimbursed to Agent by each Lender to the
extent of its Pro Rata share.

 

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12.7 Limitation on Responsibilities of Agent. Agent shall not be liable to any
Secured Party for any action taken or omitted to be taken under the Loan
Documents, except for losses directly and solely caused by Agent’s gross
negligence or willful misconduct. Agent does not assume any responsibility for
any failure or delay in performance or any breach by any Obligor, Lender or
other Secured Party of any obligations under the Loan Documents. Agent does not
make any express or implied representation, warranty or guarantee to Secured
Parties with respect to any Obligations, Collateral, Loan Documents or Obligor.
No Agent Indemnitee shall be responsible to Secured Parties for any recitals,
statements, information, representations or warranties contained in any Loan
Documents; the execution, validity, genuineness, effectiveness or enforceability
of any Loan Documents; the genuineness, enforceability, collectibility, value,
sufficiency, location or existence of any Collateral, or the validity, extent,
perfection or priority of any Lien therein; the validity, enforceability or
collectibility of any Obligations; or the assets, liabilities, financial
condition, results of operations, business, creditworthiness or legal status of
any Obligor or Account Debtor. No Agent Indemnitee shall have any obligation to
any Secured Party to ascertain or inquire into the existence of any Default or
Event of Default, the observance or performance by any Obligor of any terms of
the Loan Documents, or the satisfaction of any conditions precedent contained in
any Loan Documents.

12.8 Successor Agent and Co-Agents.

12.8.1. Resignation; Successor Agent. Subject to the appointment and acceptance
of a successor Agent as provided below, Agent may resign at any time by giving
at least 30 days written notice thereof to Lenders and Borrower Agent. Upon
receipt of such notice, Required Lenders shall have the right to appoint a
successor Agent which shall be (a) a U.S. Lender or an Affiliate of a U.S.
Lender; or (b) a commercial bank that is organized under the laws of the United
States or any state or district thereof, has a combined capital surplus of at
least $200,000,000 and (provided no Default or Event of Default exists) is
reasonably acceptable to Borrower Agent. If no successor agent is appointed
prior to the effective date of the resignation of Agent, then Agent may appoint
a successor agent from among Lenders or, if no Lender accepts such role, Agent
may appoint Required Lenders as successor Agent. Upon acceptance by a successor
Agent of an appointment to serve as Agent hereunder, or upon appointment of
Required Lenders as successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the powers and duties of the retiring
Agent without further act, and the retiring Agent shall be discharged from its
duties and obligations hereunder but shall continue to have the benefits of the
indemnification set forth in Sections 12.6 and 14.2. Notwithstanding any Agent’s
resignation, the provisions of this Section 12 shall continue in effect for its
benefit with respect to any actions taken or omitted to be taken by it while
Agent. Any successor to Bank of America by merger or acquisition of stock or
this loan shall continue to be Agent hereunder without further act on the part
of the parties hereto, unless such successor resigns as provided above.

12.8.2. Separate Collateral Agent. It is the intent of the parties that there
shall be no violation of any Applicable Law denying or restricting the right of
financial institutions to transact business in any jurisdiction. If Agent
believes that it may be limited in the exercise of any rights or remedies under
the Loan Documents due to any Applicable Law, Agent may appoint an additional
Person who is not so limited, as a separate collateral agent or co-collateral
agent. If Agent so appoints a collateral agent or co-collateral agent, each
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intended to be available to Agent under the Loan Documents shall also be vested
in such separate agent. Secured Parties shall execute and deliver such documents
as Agent deems appropriate to vest any rights or remedies in such agent. If any
collateral agent or co-collateral agent shall die or dissolve, become incapable
of acting, resign or be removed, then all the rights and remedies of such agent,
to the extent permitted by Applicable Law, shall vest in and be exercised by
Agent until appointment of a new agent.

12.9 Due Diligence and Non-Reliance. Each Lender acknowledges and agrees that it
has, independently and without reliance upon Agent or any other Lenders, and
based upon such documents, information and analyses as it has deemed
appropriate, made its own credit analysis of each Obligor and its own decision
to enter into this Agreement and to fund Loans and participate in LC Obligations
hereunder. Each Secured Party has made such inquiries as it feels necessary
concerning the Loan Documents, Collateral and Obligors. Each Secured Party
acknowledges and agrees that the other Secured Parties have made no
representations or warranties concerning any Obligor, any Collateral or the
legality, validity, sufficiency or enforceability of any Loan Documents or
Obligations. Each Secured Party will, independently and without reliance upon
any other Secured Party, and based upon such financial statements, documents and
information as it deems appropriate at the time, continue to make and rely upon
its own credit decisions in making Loans and participating in LC Obligations,
and in taking or refraining from any action under any Loan Documents. Except for
notices, reports and other information expressly requested by a Lender, Agent
shall have no duty or responsibility to provide any Secured Party with any
notices, reports or certificates furnished to Agent by any Obligor or any credit
or other information concerning the affairs, financial condition, business or
Properties of any Obligor (or any of its Affiliates) which may come into
possession of Agent or its Affiliates.

12.10 Remittance of Payments and Collections.

12.10.1. Remittances Generally. All payments by any Lender to Agent shall be
made by the time and on the day set forth in this Agreement, in immediately
available funds. If no time for payment is specified or if payment is due on
demand by Agent and request for payment is made by Agent by 11:00 a.m. on a
Business Day, payment shall be made by Lender not later than 2:00 p.m. on such
day, and if request is made after 11:00 a.m., then payment shall be made by
11:00 a.m. on the next Business Day. Payment by Agent to any Secured Party shall
be made by wire transfer, in the type of funds received by Agent. Any such
payment shall be subject to Agent’s right of offset for any amounts due from
such payee under the Loan Documents.

12.10.2. Failure to Pay. If any Secured Party fails to pay any amount when due
by it to Agent pursuant to the terms hereof, such amount shall bear interest
from the due date until paid at the rate determined by Agent as customary in the
banking industry for interbank compensation. In no event shall Obligors be
entitled to receive credit for any interest paid by a Secured Party to Agent,
nor shall any Defaulting Lender be entitled to interest on any amounts held by
Agent pursuant to Section 4.2.

12.10.3. Recovery of Payments. If Agent pays any amount to a Secured Party in
the expectation that a related payment will be received by Agent from an Obligor
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related payment is not received, then Agent may recover such amount from each
Secured Party that received it. If Agent determines at any time that an amount
received under any Loan Document must be returned to an Obligor or paid to any
other Person pursuant to Applicable Law or otherwise, then, notwithstanding any
other term of any Loan Document, Agent shall not be required to distribute such
amount to any Lender. If any amounts received and applied by Agent to any
Obligations are later required to be returned by Agent pursuant to Applicable
Law, each Lender shall pay to Agent, on demand, such Lender’s Pro Rata share of
the amounts required to be returned.

12.11 Agent in its Individual Capacity. As a Lender, Bank of America shall have
the same rights and remedies under the other Loan Documents as any other Lender,
and the terms “Lenders,” “Required Lenders,” “U.S. Required Lenders,” “Canadian
Required Lenders” or any similar term shall include Bank of America in its
capacity as a Lender. Bank of America and its Affiliates may accept deposits
from, lend money to, provide Bank Products to, act as financial or other advisor
to, and generally engage in any kind of business with, Obligors and their
Affiliates, as if Bank of America were not Agent hereunder, without any duty to
account therefor to Lenders. In their individual capacities, Bank of America and
its Affiliates may receive information regarding Obligors, their Affiliates and
their Account Debtors (including information subject to confidentiality
obligations), and each Secured Party agrees that Bank of America and its
Affiliates shall be under no obligation to provide such information to any
Secured Party, if acquired in such individual capacity.

12.12 Agent Titles. Each Lender, other than Bank of America, that is designated
(on the cover page of this Agreement or otherwise) by Bank of America as an
“Agent” or “Arranger” of any type shall not have any right, power,
responsibility or duty under any Loan Documents other than those applicable to
all Lenders, and shall in no event be deemed to have any fiduciary relationship
with any other Lender.

12.13 Bank Product Providers. Each Secured Bank Product Provider, by delivery of
a notice to Agent of a Bank Product, agrees to be bound by Section 5.6 and this
Section 12. Each Secured Bank Product Provider shall indemnify and hold harmless
Agent Indemnitees, to the extent not reimbursed by Obligors, against all Claims
that may be incurred by or asserted against any Agent Indemnitee in connection
with such provider’s Secured Bank Product Obligations, unless such Claim is
caused by the gross negligence or willful misconduct of such Agent Indemnitee.

12.14 No Third Party Beneficiaries. This Section 12 is an agreement solely among
Secured Parties and Agent, and shall survive Full Payment of the Obligations.
This Section 12 does not confer any rights or benefits upon Obligors or any
other Person. As between Obligors and Agent, any action that Agent may take
under any Loan Documents or with respect to any Obligations shall be
conclusively presumed to have been authorized and directed by Secured Parties.

SECTION 13. BENEFIT OF AGREEMENT; ASSIGNMENTS

13.1 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of Obligors, Agent, Lenders, Secured Parties, and their respective
successors and assigns,

 

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except that (a) no Obligor shall have the right to assign its rights or delegate
its obligations under any Loan Documents; and (b) any assignment by a Lender
must be made in compliance with Section 13.3. Agent may treat the Person which
made any Loan as the owner thereof for all purposes until such Person makes an
assignment in accordance with Section 13.3. Any authorization or consent of a
Lender shall be conclusive and binding on any subsequent transferee or assignee
of such Lender.

13.2 Participations.

13.2.1. Permitted Participants; Effect. Any Lender may, in the Ordinary Course
of Business and in accordance with Applicable Law, at any time sell to a
financial institution (“Participant”) a participating interest in the rights and
obligations of such Lender under any Loan Documents. Despite any sale by a
Lender of participating interests to a Participant, such Lender’s obligations
under the Loan Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for performance of such obligations,
such Lender shall remain the holder of its Loans and Commitments for all
purposes, all amounts payable by Obligors shall be determined as if such Lender
had not sold such participating interests, and Obligors and Agent shall continue
to deal solely and directly with such Lender in connection with the Loan
Documents. Each Lender shall be solely responsible for notifying its
Participants of any matters under the Loan Documents, and Agent and the other
Lenders shall not have any obligation or liability to any such Participant. A
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 5.9 unless Borrower Agent agrees otherwise
in writing.

13.2.2. Voting Rights. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, waiver or other
modification of any Loan Documents other than that which forgives principal,
interest or fees, reduces the stated interest rate or fees payable with respect
to any Loan or Commitment in which such Participant has an interest, postpones
the Canadian Revolver Commitment Termination Date (if such Participant has an
interest in the Canadian Revolver Commitments) or U.S. Revolver Commitment
Termination Date (if such Participant has an interest in the U.S. Revolver
Commitments), or any date fixed for any regularly scheduled payment of
principal, interest or fees on such Loan or Commitment, or releases any
Borrower, Guarantor or substantial portion of the Collateral.

13.2.3. Benefit of Set-Off. Obligors agree that each Participant shall have a
right of set-off in respect of its participating interest to the same extent as
if such interest were owing directly to a Lender, and each Lender shall also
retain the right of set-off with respect to any participating interests sold by
it. By exercising any right of set-off, a Participant agrees to share with
Lenders all amounts received through its set-off, in accordance with
Section 12.5 as if such Participant were a Lender.

13.3 Assignments.

13.3.1. Permitted Assignments. A Lender may assign to an Eligible Assignee any
of its rights and obligations under the Loan Documents, as long as (a) each
assignment is of a constant, and not a varying, percentage of the transferor
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the Loan Documents and, in the case of a partial assignment, is in a minimum
principal amount of $10,000,000 (unless otherwise agreed by Agent in its
discretion) and integral multiples of $1,000,000 in excess of that amount;
(b) except in the case of an assignment in whole of a Lender’s rights and
obligations, the aggregate amount of the Commitments retained by the transferor
Lender is at least $10,000,000 (unless otherwise agreed by Agent in its
discretion); and (c) the parties to each such assignment shall execute and
deliver to Agent, for its acceptance and recording, an Assignment and
Acceptance. Nothing herein shall limit the right of a Lender to pledge or assign
any rights under the Loan Documents to (i) any Federal Reserve Bank or the
United States Treasury as collateral security pursuant to Regulation A of the
Board of Governors and any Operating Circular issued by such Federal Reserve
Bank, or (ii) counterparties to swap agreements relating to any Loans; provided,
however, that any payment by Obligors to the assigning Lender in respect of any
Obligations assigned as described in this sentence shall satisfy Obligors’
obligations hereunder to the extent of such payment, and no such assignment
shall release the assigning Lender from its obligations hereunder.

13.3.2. Effect; Effective Date. Upon delivery to Agent of an assignment notice
in the form of Exhibit C and a processing fee of $3,500 (unless otherwise agreed
by Agent in its discretion), the assignment shall become effective as specified
in the notice, if it complies with this Section 13.3. From such effective date,
the Eligible Assignee shall for all purposes be a Lender under the Loan
Documents, and shall have all rights and obligations of a Lender thereunder.
Upon consummation of an assignment, the transferor Lender, Agent and Borrowers
shall make appropriate arrangements for issuance of replacement and/or new
Notes, as applicable. The transferee Lender shall comply with Section 5.10 and
deliver, upon request, an administrative questionnaire satisfactory to Agent.

13.3.3. Certain Assignees. No assignment or participation may be made to an
Obligor, Affiliate of an Obligor, Defaulting Lender or natural person. In
connection with any assignment by a Defaulting Lender, such assignment shall be
effective only upon payment by the Eligible Assignee or Defaulting Lender to
Agent of an aggregate amount sufficient, upon distribution (through direct
payment, purchases of participations or other compensating actions as Agent
deems appropriate), (a) to satisfy all funding and payment liabilities then
owing by the Defaulting Lender hereunder, and (b) to acquire its Pro Rata share
of all Loans and LC Obligations. If an assignment by a Defaulting Lender shall
become effective under Applicable Law for any reason without compliance with the
foregoing sentence, then the assignee shall be deemed a Defaulting Lender for
all purposes until such compliance occurs.

13.4 Replacement of Certain Lenders. If a Lender (a) fails to give its consent
to any amendment, waiver or action for which consent of all Lenders was required
and Required Lenders consented, or (b) is a Defaulting Lender, then, in addition
to any other rights and remedies that any Person may have, Agent or Borrower
Agent may, by notice to such Lender within 120 days after such event, require
such Lender to assign all of its rights and obligations under the Loan Documents
to Eligible Assignee(s), pursuant to appropriate Assignment and Acceptance(s),
within 20 days after the notice. Agent is irrevocably appointed as
attorney-in-fact to execute any such Assignment and Acceptance if the Lender
fails to execute it. Such Lender shall be entitled to receive, in cash,
concurrently with such assignment, all amounts owed to it under the Loan
Documents, including all principal, interest and fees through the date of
assignment (but excluding any prepayment charge).

 

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SECTION 14. MISCELLANEOUS

14.1 Consents, Amendments and Waivers.

14.1.1. Amendment. No modification of any Loan Document, including any extension
or amendment of a Loan Document or any waiver of a Default or Event of Default,
shall be effective without the prior written agreement of the Required Lenders
or of Agent (with the consent of Required Lenders) and each Obligor party to
such Loan Document; provided, however, that

(a) without the prior written consent of Agent, no modification shall be
effective with respect to any provision in a Loan Document that relates to any
rights, duties or discretion of Agent;

(b) without the prior written consent of each affected Issuing Bank, no
modification shall be effective with respect to any LC Obligations, Section 2.3,
Section 2.4, or any other provision in a Loan Document that relates to any
rights, duties or discretion of such affected Issuing Bank;

(c) without the prior written consent of each affected Lender, including a
Defaulting Lender, no modification shall be effective that would (i) increase
the Commitment of such Lender; (ii) reduce the amount of, or waive or delay
payment of, any principal, interest or fees payable to such Lender (except as
provided in Section 4.2); (iii) extend the Commitment of such Lender, or
(iv) amend this clause (c);

(d) without the prior written consent of all Lenders (except any Defaulting
Lender), no modification shall be effective that would (i) extend the U.S.
Revolver Commitment Termination Date, the Canadian Revolver Commitment
Termination Date or the Facility Termination Date, (ii) alter Section 5.6, 7.1
(except to add Collateral) or 14.1.1; (iii) amend the definition of Pro Rata,
Supermajority Lenders, or Required Lenders; (iv) increase any advance rate;
(v) release Collateral with a book value greater than $5,000,000 during any
calendar year, except as currently contemplated by the Loan Documents; or
(vi) release any Obligor from liability for any Obligations;

(e) without the prior written consent of the Supermajority Lenders, no
modification shall be effective that would amend the definition of U.S.
Borrowing Base (or any defined term used in such definition) to the extent that
any such amendment results in more credit being made available to U.S.
Borrowers, or Canadian Borrowing Base (or any defined term used in such
definition) to the extent that any such amendment results in more credit being
made available to the Canadian Borrower;

(f) without the prior written consent of a Secured Bank Product Provider, no
modification shall be effective that affects its relative payment priority under
Section 5.6;

(g) without the prior written consent of all Lenders, (i) the Obligations shall
not be subordinated to any other obligations, and (ii) Agent shall not agree to
subordinate its Liens in the Collateral to any other Liens except to the extent
contemplated by Section 12.2.1; and

 

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(h) without the prior written consent of all: (i) U.S. Lenders, amend the
definition of U.S. Required Lenders, and (ii) Canadian Lenders, amend the
definition of Canadian Required Lenders.

14.1.2. Limitations. The agreement of Obligors shall not be necessary to the
effectiveness of any modification of a Loan Document that deals solely with the
rights and duties of Lenders, Agent and/or Issuing Banks as among themselves.
Only the consent of the parties to the Fee Letters or any agreement relating to
a Bank Product shall be required for any modification of such agreement, and any
non-Lender that is party to a Bank Product agreement shall have no right to
participate in any manner in modification of any other Loan Document. Any waiver
or consent granted by Agent or Lenders hereunder shall be effective only if in
writing and only for the matter specified.

14.1.3. Payment for Consents. No Obligor will, directly or indirectly, pay any
remuneration or other thing of value, whether by way of additional interest, fee
or otherwise, to any Lender (in its capacity as a Lender hereunder) as
consideration for agreement by such Lender with any modification of any Loan
Documents, unless such remuneration or value is concurrently paid, on the same
terms, on a Pro Rata basis to all Lenders providing their consent.

14.2 Indemnity. EACH OBLIGOR SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES
AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE,
INCLUDING CLAIMS ASSERTED BY ANY OBLIGOR OR OTHER PERSON OR ARISING FROM THE
NEGLIGENCE OF AN INDEMNITEE. In no event shall any party to a Loan Document have
any obligation thereunder to indemnify or hold harmless an Indemnitee with
respect to a Claim that is determined in a final, non-appealable judgment by a
court of competent jurisdiction to result from the gross negligence or willful
misconduct of such Indemnitee.

14.3 Notices and Communications.

14.3.1. Notice Address. Subject to Section 4.1.4, all notices and other
communications by or to a party hereto shall be in writing and shall be given to
any Obligor, at Borrower Agent’s address shown on the signature pages hereof,
and to any other Person at its address shown on the signature pages hereof (or,
in the case of a Person who becomes a Lender after the Closing Date, at the
address shown on its Assignment and Acceptance), or at such other address as a
party may hereafter specify by notice in accordance with this Section 14.3. Each
such notice or other communication shall be effective only (a) if given by
facsimile transmission, when transmitted to the applicable facsimile number, if
confirmation of receipt is received; (b) if given by mail, three Business Days
after deposit in the mail, with first-class postage pre-paid, addressed to the
applicable address; or (c) if given by personal delivery, when duly delivered to
the notice address with receipt acknowledged. Notwithstanding the foregoing, no
notice to Agent pursuant to Section 2.1.4, 2.3, 2.4, 3.1.2, 4.1.1 or 5.3.3 shall
be effective until actually received by the individual to whose attention at
Agent such notice is required to be sent. Any written notice or other
communication that is not sent in conformity with the foregoing provisions shall
nevertheless be effective on the date actually received by the noticed party.
Any notice received by Borrower Agent shall be deemed received by all Obligors.

 

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14.3.2. Electronic Communications; Voice Mail. Electronic mail and internet
websites may be used only for routine communications, such as financial
statements, Borrowing Base Certificates and other information required by
Section 10.1.2, administrative matters, distribution of Loan Documents, and
matters permitted under Section 4.1.4. Agent and Lenders make no assurances as
to the privacy and security of electronic communications. Electronic and voice
mail may not be used as effective notice under the Loan Documents.

14.3.3. Non-Conforming Communications. Agent and Lenders may rely upon any
notices purportedly given by or on behalf of any Obligor even if such notices
were not made in a manner specified herein, were incomplete or were not
confirmed, or if the terms thereof, as understood by the recipient, varied from
a later confirmation. Each Obligor shall indemnify and hold harmless each
Indemnitee from any liabilities, losses, costs and expenses arising from any
telephonic communication purportedly given by or on behalf of an Obligor.

14.4 Performance of Obligors’ Obligations. Agent may, in its discretion at any
time and from time to time, at the applicable Borrowers’ expense, pay any amount
or do any act required of an Obligor under any Loan Documents or otherwise
lawfully requested by Agent to (a) enforce any Loan Documents or collect any
Obligations; (b) protect, insure, maintain or realize upon any Collateral; or
(c) defend or maintain the validity or priority of Agent’s Liens in any
Collateral, including any payment of a judgment, insurance premium, warehouse
charge, finishing or processing charge, or landlord claim, or any discharge of a
Lien. All payments, costs and expenses (including Extraordinary Expenses) of
Agent under this Section shall be reimbursed to Agent by Borrowers, on demand,
with interest from the date incurred to the date of payment thereof at the
Default Rate applicable to U.S. Base Rate Loans. Any payment made or action
taken by Agent under this Section shall be without prejudice to any right to
assert an Event of Default or to exercise any other rights or remedies under the
Loan Documents.

14.5 Credit Inquiries. Each Obligor hereby authorizes Agent and Lenders (but
they shall have no obligation) to respond to usual and customary credit
inquiries from third parties concerning any Obligor or Subsidiary.

14.6 Severability. Wherever possible, each provision of the Loan Documents shall
be interpreted in such manner as to be valid under Applicable Law. If any
provision is found to be invalid under Applicable Law, it shall be ineffective
only to the extent of such invalidity and the remaining provisions of the Loan
Documents shall remain in full force and effect.

14.7 Cumulative Effect; Conflict of Terms. The provisions of the Loan Documents
are cumulative. The parties acknowledge that the Loan Documents may use several
limitations, tests or measurements to regulate similar matters, and they agree
that these are cumulative and that each must be performed as provided. Except as
otherwise provided in another Loan Document (by specific reference to the
applicable provision of this Agreement), if any provision contained herein is in
direct conflict with any provision in another Loan Document, the provision
herein shall govern and control.

14.8 Counterparts. Any Loan Document may be executed in counterparts, each of
which shall constitute an original, but all of which when taken together shall
constitute a single contract. This Agreement shall become effective when Agent
has received counterparts bearing

 

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the signatures of all parties hereto. Delivery of a signature page of any Loan
Document by telecopy or other electronic means shall be effective as delivery of
a manually executed counterpart of such agreement.

14.9 Entire Agreement. Time is of the essence of the Loan Documents. The Loan
Documents constitute the entire contract among the parties relating to the
subject matter hereof, and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.

14.10 Relationship with Lenders. The obligations of each Lender hereunder are
several, and no Lender shall be responsible for the obligations or Commitments
of any other Lender. Amounts payable hereunder to each Lender shall be a
separate and independent debt. It shall not be necessary for Agent or any other
Lender to be joined as an additional party in any proceeding for such purposes.
Nothing in this Agreement and no action of Agent, Lenders or any other Secured
Party pursuant to the Loan Documents or otherwise shall be deemed to constitute
Agent and any Secured Party to be a partnership, association, joint venture or
any other kind of entity, nor to constitute control of any Obligor.

14.11 Lender Loss Sharing Agreement. Definitions. As used in this Section 14.11,
the following terms shall have the following meanings:

(i) CAM: the mechanism for the allocation and exchange of interests in the
Loans, participations in Letters of Credit and collections thereunder
established under Section 14.11(b).

(ii) CAM Exchange: the exchange of the U.S. Lenders’ interests and the Canadian
Lenders’ interests provided for in Section 14.11(b).

(iii) CAM Exchange Date: the first date after the Closing Date on which there
shall occur (a) any event described in Section 11.1(j) with respect to any
Borrower, or (b) an acceleration of Loans and termination of the Commitments
pursuant to Section 11.2.

(iv) CAM Percentage: as to each Lender, a fraction, (a) the numerator of which
shall be the aggregate amount of such Lender’s Commitments immediately prior to
the CAM Exchange Date and the termination of the Commitments, and (b) the
denominator of which shall be the amount of the Commitments of all the Lenders
immediately prior to the CAM Exchange Date and the termination of the
Commitments.

(v) Designated Obligations: all Obligations of the Borrowers with respect to
(a) principal and interest under the U.S. Revolver Loans, Canadian Revolver
Loans, Overadvance Loans and Protective Advances, (b) unreimbursed drawings
under Letters of Credit and interest thereon, and (c) fees under Sections 3.2.1,
3.2.2(a), and 3.2.3(a).

(vi) Revolver Facilities: the facility established under the U.S. Revolver
Commitments and the Canadian Revolver Commitments, and Revolver Facility means
any one of such Revolver Facilities.

 

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(b) CAM Exchange.

(i) On the CAM Exchange Date,

(A) the U.S. Revolver Commitments and the Canadian Revolver Commitments shall
have terminated in accordance with Section 11.2,

(B) each U.S. Lender shall fund its participation in any outstanding Protective
Advances in accordance with Section 2.1.6, and each Canadian Lender shall fund
its participation in any outstanding Protective Advances in accordance with
Section 2.1.6,

(C) each U.S. Lender shall fund its participation in any unreimbursed drawings
made under the applicable Letters of Credit pursuant to Section 2.3.2(b), and
each Canadian Lender shall fund its participation in any unreimbursed drawings
made under the applicable Letters of Credit pursuant to Section 2.4.2(b), and

(D) the Lenders shall purchase at par interests (in Dollars) in the Designated
Obligations under each Revolver Facility (and shall make payments to Agent for
reallocation to other Lenders to the extent necessary to give effect to such
purchases) and shall assume the obligations to reimburse the applicable Issuing
Bank for unreimbursed drawings under outstanding Letters of Credit under such
Revolver Facility such that, in lieu of the interests of each Lender in the
Designated Obligations under the U.S. Revolver Commitments and the Canadian
Revolver Commitments in which it shall participate immediately prior to the CAM
Exchange Date, such Lender shall own an interest equal to such Lender’s CAM
Percentage in each component of the Designated Obligations immediately following
the CAM Exchange.

(ii) Each Lender and each Person acquiring a participation from any Lender as
contemplated by Section 13.2 hereby consents and agrees to the CAM Exchange.
Each Borrower agrees from time to time to execute and deliver to Lenders all
such promissory notes and other instruments and documents as Agent shall
reasonably request to evidence and confirm the respective interests and
obligations of Lenders after giving effect to the CAM Exchange, and each Lender
agrees to surrender any promissory notes originally received by it in connection
with its Loans under this Agreement to Agent against delivery of any promissory
notes so executed and delivered; provided that the failure of any Lender to
deliver or accept any such promissory note, instrument or document shall not
affect the validity or effectiveness of the CAM Exchange.

 

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(iii) As a result of the CAM Exchange, from and after the CAM Exchange Date,
each payment received by Agent pursuant to any Loan Document in respect of any
of the Designated Obligations shall be distributed to Lenders, pro rata in
accordance with their respective CAM Percentages.

(iv) In the event that on or after the CAM Exchange Date, the aggregate amount
of the Designated Obligations shall change as a result of the making of a
disbursement under a Letter of Credit by any Issuing Bank that is not reimbursed
by the applicable Borrowers, then each Lender shall promptly reimburse such
Issuing Bank for its CAM Percentage of such unreimbursed payment.

(c) Notwithstanding any other provision of this Section 14.11, Agent and each
Lender agree that if Agent or a Lender is required under Applicable Law to
withhold or deduct any taxes or other amounts from payments made by it hereunder
or as a result hereof, such Person shall be entitled to withhold or deduct such
amounts and pay over such taxes or other amounts to the applicable Governmental
Authority imposing such tax without any obligation to indemnify Agent or any
Lender with respect to such amounts and without any other obligation of gross up
or offset with respect thereto and there shall be no recourse whatsoever by
Agent or any Lender subject to such withholding to Agent or any other Lender
making such withholding and paying over such amounts, but without diminution of
the rights of Agent or such Lender subject to such withholding as against
Borrowers and the other Obligors to the extent (if any) provided in this
Agreement and the other Loan Documents. Any amounts so withheld or deducted
shall be treated as, for the purpose of this Section 14.11, having been paid to
Agent or such Lender with respect to which such withholding or deduction was
made.

14.12 No Advisory or Fiduciary Responsibility. In connection with all aspects of
each transaction contemplated by any Loan Document, Obligors acknowledge and
agree that (a)(i) this credit facility and any related arranging or other
services by Agent, any Lender, any of their Affiliates or any arranger are
arm’s-length commercial transactions between Obligors and such Person;
(ii) Obligors have consulted their own legal, accounting, regulatory and tax
advisors to the extent they have deemed appropriate; and (iii) Obligors are
capable of evaluating, and understand and accept, the terms, risks and
conditions of the transactions contemplated by the Loan Documents; (b) each of
Agent, Lenders, their Affiliates and any arranger is and has been acting solely
as a principal and, except as expressly agreed in writing by the relevant
parties, has not been, is not, and will not be acting as an advisor, agent or
fiduciary for Obligors, any of their Affiliates or any other Person, and has no
obligation with respect to the transactions contemplated by the Loan Documents
except as expressly set forth therein; and (c) Agent, Lenders, their Affiliates
and any arranger may be engaged in a broad range of transactions that involve
interests that differ from those of Obligors and their Affiliates, and have no
obligation to disclose any of such interests to Obligors or their Affiliates. To
the fullest extent permitted by Applicable Law, each Obligor hereby waives and
releases any claims that it may have against Agent, Lenders, their Affiliates
and any arranger with respect to any breach of agency or fiduciary duty in
connection with any transaction contemplated by a Loan Document.

14.13 Confidentiality. Each of Agent, Lenders and Issuing Banks shall maintain
the confidentiality of all Information (as defined below), except that
Information may be disclosed (a) to its Affiliates, and to its and their
partners, directors, officers, employees, agents, advisors

 

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and representatives (provided such Persons are informed of the confidential
nature of the Information and instructed to keep it confidential); (b) to the
extent requested by any governmental, regulatory or self-regulatory authority
purporting to have jurisdiction over it or its Affiliates; (c) to the extent
required by Applicable Law or by any subpoena or other legal process; (d) to any
other party hereto; (e) in connection with any action or proceeding, or other
exercise of rights or remedies, relating to any Loan Documents or Obligations;
(f) subject to an agreement containing provisions substantially the same as this
Section, to any Transferee or any actual or prospective party (or its advisors)
to any Bank Product; (g) with the consent of Borrower Agent; or (h) to the
extent such Information (i) becomes publicly available other than as a result of
a breach of this Section or (ii) is available to Agent, any Lender, any Issuing
Bank or any of their Affiliates on a nonconfidential basis from a source other
than Obligors. Notwithstanding the foregoing, Agent and Lenders may publish or
disseminate general information describing this credit facility, including the
names and addresses of Obligors and a general description of Obligors’
businesses, and may use Obligors’ logos, trademarks or product photographs in
advertising materials. As used herein, “Information” means all information
received from an Obligor or Subsidiary relating to it or its business that is
identified as confidential when delivered. Any Person required to maintain the
confidentiality of Information pursuant to this Section shall be deemed to have
complied if it exercises the same degree of care that it accords its own
confidential information. Each of Agent, Lenders and Issuing Banks acknowledges
that (i) Information may include material non-public information concerning an
Obligor or Subsidiary; (ii) it has developed compliance procedures regarding the
use of material non-public information; and (iii) it will handle such material
non-public information in accordance with Applicable Law, including federal,
state, provincial and territorial securities laws.

14.14 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS
OTHERWISE SPECIFIED, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATION LAW AND FEDERAL LAWS RELATING
TO NATIONAL BANKS).

14.15 Consent to Forum; Judicial Reference.

14.15.1. Forum. EACH OBLIGOR HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER NEW YORK, NEW
YORK, IN ANY PROCEEDING OR DISPUTE RELATING IN ANY WAY TO ANY LOAN DOCUMENTS,
AND AGREES THAT ANY SUCH PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH
COURT. EACH OBLIGOR IRREVOCABLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT
IT MAY HAVE REGARDING SUCH COURT’S PERSONAL OR SUBJECT MATTER JURISDICTION,
VENUE OR INCONVENIENT FORUM. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE
OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.3.1. Nothing herein
shall limit the right of Agent or any Lender to bring proceedings against any
Obligor in any other court, nor limit the right of any party to serve process in
any other manner permitted by

 

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Applicable Law. Nothing in this Agreement shall be deemed to preclude
enforcement by Agent of any judgment or order obtained in any forum or
jurisdiction.

14.15.2. Judicial Reference. If any controversy or claim among the parties
relating in any way to any Obligations or Loan Documents, including any alleged
tort, shall be pending before any court sitting in or with jurisdiction over
California or applying California law, then at the request of any party such
proceeding shall be referred by the court to a referee (who shall be an active
or retired judge) to hear and determine all issues in such proceeding (whether
of fact or law) and to report a statement of decision for adoption by the court.
Nothing in this Section shall limit any right of Agent or any other Secured
Party to exercise self-help remedies, such as setoff, foreclosure or sale of any
Collateral, or to obtain provisional or ancillary remedies from a court of
competent jurisdiction before, during or after any judicial reference. The
exercise of a remedy does not waive the right of any party to resort to judicial
reference. At Agent’s option, foreclosure under a mortgage or deed of trust may
be accomplished either by exercise of power of sale thereunder or by judicial
foreclosure.

14.16 Waivers by Obligors. To the fullest extent permitted by Applicable Law,
each Obligor waives (a) the right to trial by jury (which Agent and each Lender
hereby also waives) in any proceeding or dispute of any kind relating in any way
to any Loan Documents, Obligations or Collateral; (b) presentment, demand,
protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any commercial paper, accounts,
documents, instruments, chattel paper and guaranties at any time held by Agent
on which an Obligor may in any way be liable, and hereby ratifies anything Agent
may do in this regard; (c) notice prior to taking possession or control of any
Collateral; (d) any bond or security that might be required by a court prior to
allowing Agent to exercise any rights or remedies; (e) the benefit of all
valuation, appraisement and exemption laws; (f) any claim against Agent, any
Issuing Bank or any Lender, on any theory of liability, for special, indirect,
consequential, exemplary or punitive damages (as opposed to direct or actual
damages) in any way relating to any Enforcement Action, Obligations, Loan
Documents or transactions relating thereto; and (g) notice of acceptance hereof.
Each Obligor acknowledges that the foregoing waivers are a material inducement
to Agent, Issuing Banks and Lenders entering into this Agreement and that they
are relying upon the foregoing in their dealings with Obligors. Each Obligor has
reviewed the foregoing waivers with its legal counsel and has knowingly and
voluntarily waived its jury trial and other rights following consultation with
legal counsel. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.

14.17 Patriot Act Notice. Agent and Lenders hereby notify Obligors that pursuant
to the requirements of the Patriot Act, the Proceeds of Crime Act and other
applicable anti-money laundering, anti-terrorist financing, government sanction
and “know your client” policies, regulations, laws or rules (the Proceeds of
Crime Act and such other applicable policies, regulations, laws or rules,
collectively, including any guidelines or orders thereunder, “AML Legislation”),
Agent and Lenders are required to obtain, verify and record information that
identifies each Obligor, including its legal name, address, tax ID number and
other information that will allow Agent and Lenders to identify it in accordance
with the Patriot Act and the AML Legislation. Agent and Lenders will also
require information regarding each personal guarantor, if any, and may require
information regarding Obligors’ management and owners, such as legal

 

128

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name, address, social security number and date of birth. Each Obligor shall
promptly provide all such information, including supporting documentation and
other evidence, as may be reasonably requested by any Lender or any prospective
assignee or participant of a Lender, in order to comply with the Patriot Act
and/or the applicable AML Legislation, whether now or hereafter in existence.

14.18 Canadian Anti-Money Laundering Legislation. If the Agent has ascertained
the identity of any Canadian Facility Obligor or any authorized signatories of
any Canadian Facility Obligor for the purposes of applicable AML Legislation,
then the Agent: (a) shall be deemed to have done so as an agent for each
Canadian Lender, and this Agreement shall constitute a “written agreement” in
such regard between each Canadian Lender and the Agent within the meaning of the
applicable AML Legislation; and (b) shall provide to each Canadian Lender copies
of all information obtained in such regard without any representation or
warranty as to its accuracy or completeness. Notwithstanding the preceding
sentence and except as may otherwise be agreed in writing, each of the Canadian
Lenders agrees that Agent has no obligation to ascertain the identity of the
Canadian Facility Obligors or any authorized signatories of the Canadian
Facility Obligors on behalf of any Canadian Lender, or to confirm the
completeness or accuracy of any information it obtains from any Canadian
Facility Obligor or any such authorized signatory in doing so.

14.19 Reinstatement. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against any Obligor
for liquidation or reorganization, should any Obligor become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of such Obligor’s assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Obligations, or any part thereof, is, pursuant to
Applicable Law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Obligations, whether as a “voidable preference”,
“fraudulent conveyance” or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.

14.20 Nonliability of Lenders. Neither the Agent, any Issuing Bank nor any
Lender undertakes any responsibility to any Obligor to review or inform any
Obligor of any matter in connection with any phase of any Obligor’s business or
operations. Each Obligor agrees, on behalf of itself and each other Obligor,
that neither the Agent, any Issuing Bank nor any Lender shall have liability to
any Obligor (whether sounding in tort, contract or otherwise) for losses
suffered by any Obligor in connection with, arising out of or in any way related
to any of the transactions contemplated and the relationship established by the
Loan Documents, or any act, omission or event occurring in connection therewith,
unless it is determined in a final, non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought or a breach of
obligations under this Agreement by the party from which recovery is sought.
NEITHER THE AGENT NOR ANY LENDER SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM
THE USE BY OTHERS OF ANY INFORMATION OR OTHER MATERIALS

 

129

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OBTAINED THROUGH INTRALINKS OR OTHER SIMILAR INFORMATION TRANSMISSION SYSTEMS IN
CONNECTION WITH THIS AGREEMENT.

14.21 Amendment and Restatement.

14.21.1. This Agreement amends and restates in its entirety the Original Loan
Agreement and, upon the effectiveness of this Agreement, the terms and
provisions of the Original Loan Agreement shall, subject to Section 14.21.3, be
superseded hereby.

14.21.2. Notwithstanding the amendment and restatement of the Original Loan
Agreement by this Agreement, all of the Obligations under the Original Loan
Agreement which remain outstanding as of the date hereof, shall constitute
Obligations owing hereunder. This Agreement is given in substitution for the
Original Loan Agreement, and not as payment of the Obligations of the Borrowers
thereunder, and is in no way intended to constitute a novation of the Original
Loan Agreement.

14.21.3. Upon the effectiveness of this Agreement, unless the context otherwise
requires, each reference to the Original Loan Agreement in any of the Loan
Documents and in each document, instrument or agreement executed and/or
delivered in connection therewith shall mean and be a reference to this
Agreement. Except as expressly modified as of the Closing Date, all of the other
Loan Documents shall remain in full force and effect and are hereby ratified and
confirmed.

[Remainder of page intentionally left blank; signatures begin on following page]

 

130

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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the
date set forth above.x

 

CALLAWAY GOLF COMPANY,

a Delaware corporation, as a U.S. Borrower, U.S. Facility Guarantor, and
Canadian Facility Guarantor

By:   /s/ Bradley J. Holiday Name:   Bradley J. Holiday Title:  

Senior Executive Vice President and

Chief Financial Officer

Address:  

2180 Rutherford Road

Carlsbad, California 92008

Attn: General Counsel

Fax: 709-930-5022

 

CALLAWAY GOLF SALES COMPANY,

a California corporation, as a U.S. Borrower, U.S. Facility Guarantor, and
Canadian Facility Guarantor

By:   /s/ Bradley J. Holiday Name:   Bradley J. Holiday Title:   Director
Address:  

2180 Rutherford Road

Carlsbad, California 92008

Attn: General Counsel

Fax: 709-930-5022

[Signature Page to Amended and Restated Loan and Security Agreement]

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

CALLAWAY GOLF BALL OPERATIONS, INC.,

a Delaware corporation, as a U.S. Borrower, U.S. Facility Guarantor, and
Canadian Facility Guarantor

By:   /s/ Bradley J. Holiday Name:   Bradley J. Holiday Title:   Director
Address:  

2180 Rutherford Road

Carlsbad, California 92008

Attn: General Counsel

Fax: 709-930-5022

 

CALLAWAY GOLF CANADA LTD.,

a Canada corporation, as the Canadian Borrower

By:   /s/ Bradley J. Holiday Name:   Bradley J. Holiday Title:   Director
Address:  

2180 Rutherford Road

Carlsbad, California 92008

Attn: General Counsel

Fax: 709-930-5022

[Signature Page to Amended and Restated Loan and Security Agreement]

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

CALLAWAY GOLF INTERACTIVE, INC.

a Texas corporation, as a U.S. Facility Guarantor and Canadian Facility
Guarantor

By:   /s/ Bradley J. Holiday Name:   Bradley J. Holiday Title:   Director
Address:  

2180 Rutherford Road

Carlsbad, California 92008

Attn: General Counsel

Fax: 709-930-5022

 

CALLAWAY GOLF INTERNATIONAL SALES COMPANY,

a California corporation, as a U.S. Facility Guarantor and Canadian Facility
Guarantor

By:   /s/ Bradley J. Holiday Name:   Bradley J. Holiday Title:   Director
Address:  

2180 Rutherford Road

Carlsbad, California 92008

Attn: General Counsel

Fax: 709-930-5022

[Signature Page to Amended and Restated Loan and Security Agreement]

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

BANK OF AMERICA, N.A.,

as Agent and a U.S. Lender

By:   /s/ Todd Eggertsen Name:   Todd Eggertsen Title:   Senior Vice President
Address:  

55 S. Lake Ave., Suite 900

Pasadena, California 91101

Attn: Todd Eggertsen or Callaway Account Executive

Telecopy: (626) 584-4602

 

BANK OF AMERICA, N.A.

(acting through its Canada branch), as a Canadian Lender

By:   /s/ Medina Sales de Andrade Name:   Medina Sales de Andrade Title:   Vice
President Address:  

181 Bay Street

Toronto, Ontario, M5J2V8

Attn: Teresa Tsui

Fax: (312) 453-4041

[Signature Page to Amended and Restated Loan and Security Agreement]

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

UBS LOAN FINANCE LLC,

as a U.S. Lender

By:   /s/ Irja R. Otsa Name:   Irja R. Otsa Title:   Associate Director By:  
/s/ Mary E. Evans Name:   Mary E. Evans Title:   Associate Director   Address:  

677 Washington Blvd., 6th Floor

Stamford, CT 06901

Attn: Joselin Fernandes

Fax: (203) 719-3390

Email: DL-BPS-Loan-admin@UBS.com

 

UBS AG CANADA BRANCH,

as a Canadian Lender

By:   /s/ Irja R. Otsa Name:   Irja R. Otsa Title:   Associate Director By:  
/s/ Mary E. Evans Name:   Mary E. Evans Title:   Associate Director   Address:  

677 Washington Blvd., 6th Floor

Stamford, CT 06901

Attn: Joselin Fernandes

Fax: (203) 719-3390

Email: DL-BPS-Loan-admin@UBS.com

[Signature Page to Amended and Restated Loan and Security Agreement]

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WELLS FARGO BANK N.A.,

as a U.S. Lender

By:   /s/ Sanat Amladi Name:   Sanat Amladi Title:   Authorized Signatory
Address:  

2450 Colorado Ave., Suite 3000 W.

Santa Monica, CA 90404

Attn: Terry Luh, Relationship Manager

Fax: (855) 475-1938

 

WELLS FARGO CAPITAL FINANCE CORPORATION CANADA,

as a Canadian Lender

By:   /s/ Domenic Cosentino Name:   Domenic Cosentino Title:   Vice President
Address:  

40 King Street West, Suite 2500

Toronto, Ontario M5H3Y2

Attn: Terry Luh, Relationship Manager

Fax: (855) 475-1938

With a copy to:  

2450 Colorado Ave., Suite 3000 W.

Santa Monica, CA 90404

Attn: Terry Luh, Relationship Manager

Fax: (855) 475-1938

[Signature Page to Amended and Restated Loan and Security Agreement]

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SUNTRUST BANK,

as a U.S. Lender

By:   /s/ Jamie Hurley Name:   Jamie Hurley Title:   Director Address:  

303 Peachtree Street NE, 23rd Floor

Atlanta, GA 30308

Attn: Steve Metts

Fax: (404) 813-5890

 

SUNTRUST BANK,

as a Canadian Lender

By:   /s/ Jamie Hurley Name:   Jamie Hurley Title:   Director Address:  

303 Peachtree Street NE, 23rd Floor

Atlanta, GA 30308

Attn: Steve Metts

Fax: (404) 813-5890

 

U.S. BANK NATIONAL ASSOCIATION,

as a U.S. Lender

By:   /s/ Joyce P. Dorsett Name:   Joyce P. Dorsett Title:   Vice President
Address:  

SW Oak Street, 4th Floor

Portland, OR 97204

Attn: Joyce Dorsett

Fax: (503) 275-5428

[Signature Page to Amended and Restated Loan and Security Agreement]

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

U.S. BANK NATIONAL ASSOCIATION,

CANADA BRANCH,

as a Canadian Lender

By:   /s/ Joseph Rauhala Name:   Joseph Rauhala Title:   Principal Officer
Address:  

120 Adelaide Street W., Suite 2300

Toronto, Ontario M5H1T1

Attn: Joseph Rauhala

Fax: (503) 275-5428

        (416) 306-3545

[Signature Page to Amended and Restated Loan and Security Agreement]

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EXHIBIT A-1

to

Amended and Restated

Loan and Security Agreement

CANADIAN REVOLVER NOTE

 

[Date]   $___________________   New York, New York

CALLAWAY GOLF CANADA LTD., a Canadian corporation (the “Canadian Borrower”), for
value received, hereby unconditionally promises to pay to the order of
________________________ (the “Canadian Lender”), the principal sum of
______________________________ DOLLARS ($___________), or such lesser amount as
may be advanced by or owed to the Canadian Lender as Canadian Revolver Loans and
owing as Canadian LC Obligations from time to time under the Loan Agreement
described below, together with all accrued and unpaid interest thereon. Terms
are used herein as defined in the Amended and Restated Loan and Security
Agreement dated as of July [__], 2011, among Callaway Golf Company, Callaway
Golf Sales Company, Callaway Golf Ball Operations, Inc., the Canadian Borrower,
certain Affiliates of the Canadian Borrower, Bank of America, N.A., as Agent,
the Canadian Lender and certain other financial institutions, as such agreement
may be amended, modified, supplemented, renewed or extended from time to time
(the “Loan Agreement”).

Principal of and interest on this Note from time to time outstanding shall be
due and payable as provided in the Loan Agreement. This Note is issued pursuant
to and evidences Canadian Revolver Loans and Canadian LC Obligations under the
Loan Agreement, to which reference is made for a statement of the rights and
obligations of the Canadian Lender and the duties and obligations of the
Canadian Borrower. The Loan Agreement contains provisions for acceleration of
the maturity of this Note upon the happening of certain stated events, and for
the borrowing, prepayment and reborrowing of amounts upon specified terms and
conditions.

The holder of this Note is hereby authorized by the Canadian Borrower to record
on a schedule annexed to this Note (or on a supplemental schedule) the amounts
owing with respect to Canadian Revolver Loans and Canadian LC Obligations, and
the payment thereof. Failure to make any notation, however, shall not affect the
rights of the holder of this Note or any obligations of the Canadian Borrower
hereunder or under any other Loan Documents.

Time is of the essence of this Note. The Canadian Borrower and all endorsers,
sureties and guarantors of this Note hereby severally waive demand, presentment
for payment, protest, notice of protest, notice of intention to accelerate the
maturity of this Note, diligence in collecting, the bringing of any suit against
any party, and any notice of or defense on account of any extensions, renewals,
partial payments or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity. The Canadian Borrower agrees to pay,
and to save the holder of this Note harmless against, any liability for the
payment of all costs and expenses in connection therewith (including without
limitation reasonable attorneys’ fees) if this Note is collected by or through
an attorney-at-law.

In no contingency or event whatsoever shall the amount paid or agreed to be paid
to the holder of this Note for the use, forbearance or detention of money
advanced hereunder exceed the highest lawful rate permitted under Applicable
Law. If any such excess amount is inadvertently paid by the Canadian Borrower or
inadvertently received by the holder of this Note, such excess shall be returned
to the Canadian Borrower or credited as a payment of principal, in accordance
with the Loan Agreement. It is the intent hereof that the Canadian Borrower not
pay or contract to pay, and that holder of this Note not

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

receive or contract to receive, directly or indirectly in any manner whatsoever,
interest in excess of that which may be paid by the Canadian Borrower under
Applicable Law.

This Note shall be governed by the laws of the State of New York, without giving
effect to any conflict of law principles (but giving effect to federal laws
relating to national banks).

IN WITNESS WHEREOF, this Revolver Note is executed as of the date set forth
above.

 

CALLAWAY GOLF CANADA LTD.,

a Canadian corporation

By:     Name:     Title:    

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

EXHIBIT A-2

to

Amended and Restated

Loan and Security Agreement

U.S. REVOLVER NOTE

 

[Date]   $___________________   New York, New York

CALLAWAY GOLF COMPANY, a Delaware corporation, CALLAWAY GOLF SALES COMPANY, a
California corporation and CALLAWAY GOLF BALL OPERATIONS, INC., a Delaware
corporation (collectively, “U.S. Borrowers”), for value received, hereby
unconditionally promise to pay, on a joint and several basis, to the order of
____________________________ (“U.S. Lender”), the principal sum of
______________________________ DOLLARS ($___________), or such lesser amount as
may be advanced by U.S. Lender as U.S. Revolver Loans and owing as U.S. LC
Obligations from time to time under the Loan Agreement described below, together
with all accrued and unpaid interest thereon. Terms are used herein as defined
in the Amended and Restated Loan and Security Agreement dated as of July [__],
2011, among U.S. Borrowers, Callaway Golf Canada Ltd., certain Affiliates of
U.S. Borrowers, Bank of America, N.A., as Agent, U.S. Lender, and certain other
financial institutions, as such agreement may be amended, modified,
supplemented, renewed or extended from time to time ( the “Loan Agreement”).

Principal of and interest on this Note from time to time outstanding shall be
due and payable as provided in the Loan Agreement. This Note is issued pursuant
to and evidences U.S. Revolver Loans and U.S. LC Obligations under the Loan
Agreement, to which reference is made for a statement of the rights and
obligations of U.S. Lender and the duties and obligations of U.S. Borrowers. The
Loan Agreement contains provisions for acceleration of the maturity of this Note
upon the happening of certain stated events, and for the borrowing, prepayment
and reborrowing of amounts upon specified terms and conditions.

The holder of this Note is hereby authorized by U.S. Borrowers to record on a
schedule annexed to this Note (or on a supplemental schedule) the amounts owing
with respect to U.S. Revolver Loans and U.S. LC Obligations, and the payment
thereof. Failure to make any notation, however, shall not affect the rights of
the holder of this Note or any obligations of U.S. Borrowers hereunder or under
any other Loan Documents.

Time is of the essence of this Note. Each U.S. Borrower and all endorsers,
sureties and guarantors of this Note hereby severally waive demand, presentment
for payment, protest, notice of protest, notice of intention to accelerate the
maturity of this Note, diligence in collecting, the bringing of any suit against
any party, and any notice of or defense on account of any extensions, renewals,
partial payments, or changes in any manner of or in this Note or in any of its
terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity. U.S. Borrowers jointly and severally
agree to pay, and to save the holder of this Note harmless against, any
liability for the payment of all costs and expenses in connection therewith
(including without limitation reasonable attorneys’ fees) if this Note is
collected by or through an attorney-at-law.

In no contingency or event whatsoever shall the amount paid or agreed to be paid
to the holder of this Note for the use, forbearance or detention of money
advanced hereunder exceed the highest lawful rate permitted under Applicable
Law. If any such excess amount is inadvertently paid by U.S. Borrowers

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

or inadvertently received by the holder of this Note, such excess shall be
returned to U.S. Borrowers or credited as a payment of principal, in accordance
with the Loan Agreement. It is the intent hereof that U.S. Borrowers not pay or
contract to pay, and that holder of this Note not receive or contract to
receive, directly or indirectly in any manner whatsoever, interest in excess of
that which may be paid by U.S. Borrowers under Applicable Law.

This Note shall be governed by the laws of the State of New York, without giving
effect to any conflict of law principles (but giving effect to federal laws
relating to national banks).

IN WITNESS WHEREOF, this Revolver Note is executed as of the date set forth
above.

 

Attest:    

CALLAWAY GOLF COMPANY,

a Delaware corporation

    Secretary           By     [Seal]       Title: Attest:    

CALLAWAY GOLF SALES COMPANY,

a California corporation

    Secretary           By     [Seal]       Title: Attest:    

CALLAWAY GOLF BALL OPERATIONS, INC.,

a Delaware corporation

    Secretary           By     [Seal]       Title:

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

EXHIBIT B

to

Amended and Restated

Loan and Security Agreement

ASSIGNMENT AND ACCEPTANCE

Reference is made to the Amended and Restated Loan and Security Agreement dated
as of July [__], 2011, as amended (“Loan Agreement”), among CALLAWAY GOLF
COMPANY, a Delaware corporation (“Parent”), CALLAWAY GOLF SALES COMPANY, a
California corporation (“Callaway Sales”), CALLAWAY GOLF BALL OPERATIONS, INC.,
a Delaware corporation (“Callaway Operations”, and together with Parent and
Callaway Sales, collectively, “U.S. Borrowers”), CALLAWAY GOLF CANADA LTD., a
Canada corporation (“Canadian Borrower” and together with the U.S. Borrowers,
collectively, “Borrowers”), the other Obligors from time to time party thereto,
BANK OF AMERICA, N.A., as administrative agent (“Agent”) for the financial
institutions from time to time party to the Loan Agreement (“Lenders”), and such
Lenders. Terms are used herein as defined in the Loan Agreement.

______________________________________ (“Assignor”) and
_________________________ _____________ (“Assignee”) agree as follows:

1. Assignor hereby assigns to Assignee and Assignee hereby purchases and assumes
from Assignor (a) a principal amount of $________ of Assignor’s outstanding U.S.
Revolver Loans and $___________ of Assignor’s participations in U.S. LC
Obligations, (b) a principal amount of $______ of Assignor’s outstanding
Canadian Revolver Loans and $_____________ of Assignor’s participations in
Canadian LC Obligations, (c) the amount of $__________ of Assignor’s U.S.
Revolver Commitment (which represents ____% of the total U.S. Revolver
Commitments), and (d) the amount of $____________ of Assignor’s Canadian
Revolver Commitment (which represents __% of the total Canadian Revolver
Commitments), (the foregoing items being, collectively, the “Assigned
Interest”), together with an interest in the Loan Documents corresponding to the
Assigned Interest. This Agreement shall be effective as of the date (the
“Effective Date”) indicated in the corresponding Assignment Notice delivered to
Agent, provided such Assignment Notice is executed by Assignor, Assignee, Agent
and Borrower Agent, if applicable. From and after the Effective Date, Assignee
hereby expressly assumes, and undertakes to perform, all of Assignor’s
obligations in respect of the Assigned Interest, and all principal, interest,
fees and other amounts which would otherwise be payable to or for Assignor’s
account in respect of the Assigned Interest shall be payable to or for
Assignee’s account, to the extent such amounts accrue on or after the Effective
Date.

2. Assignor (a) represents that as of the date hereof, prior to giving effect to
this assignment, its U.S. Revolver Commitment is $                , the
outstanding balance of its U.S. Revolver Loans and participations in U.S. LC
Obligations is $                , its Canadian Revolver Commitment is
$                , the outstanding balance of its Canadian Revolver Loans and
participations in Canadian LC Obligations is $_______; (b) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Agreement or as to the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Agreement or any other instrument
or document furnished pursuant thereto, other than that Assignor is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; and (c) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of Obligors or the performance by Obligors of their
obligations under

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

the Loan Documents. [Assignor is attaching the Note[s] held by it and requests
that Agent exchange such Note[s] for new Notes payable to Assignee [and
Assignor].]

3. Assignee (a) represents and warrants that it is legally authorized to enter
into this Assignment and Acceptance; (b) confirms that it has received copies of
the Loan Agreement and such other Loan Documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (c) agrees that it shall, independently and
without reliance upon Assignor and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents; (d) confirms that it is an
Eligible Assignee; (e) appoints and authorizes Agent to take such action as
agent on its behalf and to exercise such powers under the Loan Agreement as are
delegated to Agent by the terms thereof, together with such powers as are
incidental thereto; (f) agrees that it will observe and perform all obligations
that are required to be performed by it as a “Lender” under the Loan Documents;
and (g) represents and warrants that the assignment evidenced hereby will not
result in a non-exempt “prohibited transaction” under Section 406 of ERISA.

4. This Agreement shall be governed by the laws of the State of New York. If any
provision is found to be invalid under Applicable Law, it shall be ineffective
only to the extent of such invalidity and the remaining provisions of this
Agreement shall remain in full force and effect.

5. Each notice or other communication hereunder shall be in writing, shall be
sent by messenger, by telecopy or facsimile transmission, or by first-class
mail, shall be deemed given when sent and shall be sent as follows:

 

  (a) If to Assignee, to the following address (or to such other address as
Assignee may designate from time to time):

 

    _____________________

    _____________________

    _____________________

 

  (b) If to Assignor, to the following address (or to such other address as
Assignor may designate from time to time):

 

    _____________________

    _____________________

    _____________________

    _____________________

Payments hereunder shall be made by wire transfer of immediately available
Dollars as follows:

If to Assignee, to the following account (or to such other account as Assignee
may designate from time to time):

 

    __________________________

    __________________________

    ABA No.___________________

    __________________________

    Account No.________________

    Reference: _________________

If to Assignor, to the following account (or to such other account as Assignor
may designate from time to

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

time):

 

    __________________________

    __________________________

    ABA No.___________________

    __________________________

    Account No.________________

    Reference: _________________

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

IN WITNESS WHEREOF, this Assignment and Acceptance is executed as of
_____________.

 

(“Assignee”) By       Title:

 

(“Assignor”) By       Title:

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

EXHIBIT C

to

Amended and Restated

Loan and Security Agreement

ASSIGNMENT NOTICE

Reference is made to (1) the Amended and Restated Loan and Security Agreement
dated as of July [__], 2011, as amended (“Loan Agreement”), among CALLAWAY GOLF
COMPANY, a Delaware corporation (“Parent”), CALLAWAY GOLF SALES COMPANY, a
California corporation (“Callaway Sales”), CALLAWAY GOLF BALL OPERATIONS, INC.,
a Delaware corporation (“Callaway Operations”, and together with Parent and
Callaway Sales, collectively, “U.S. Borrowers”), CALLAWAY GOLF CANADA LTD., a
Canada corporation (“Canadian Borrower” and together with the U.S. Borrowers,
collectively, “Borrowers”), the other Obligors from time to time party thereto,
BANK OF AMERICA, N.A., as administrative agent (“Agent”) for the financial
institutions from time to time party to the Loan Agreement (“Lenders”), and such
Lenders; and (2) the Assignment and Acceptance dated as of ____________, 20__
(“Assignment Agreement”), between __________________ (“Assignor”) and
____________________ (“Assignee”). Terms are used herein as defined in the Loan
Agreement.

Assignor hereby notifies Borrower Agent and Agent of Assignor’s intent to assign
to Assignee pursuant to the Assignment Agreement (a) a principal amount of
$________ of Assignor’s outstanding U.S. Revolver Loans and $___________ of
Assignor’s participations in U.S. LC Obligations, (b) a principal amount of
$______ of Assignor’s outstanding Canadian Revolver Loans and $__________ of
Assignor’s participations in Canadian LC Obligations, (c) the amount of
$__________ of Assignor’s U.S. Revolver Commitment (which represents ____% of
the total U.S. Revolver Commitments), and (d) the amount of $______ of
Assignor’s Canadian Revolver Commitment (which represents __% of the total
Canadian Revolver Commitments) (the foregoing items being, collectively, the
“Assigned Interest”), together with an interest in the Loan Documents
corresponding to the Assigned Interest1. This Agreement shall be effective as of
the date (the “Effective Date”) indicated below, provided this Assignment Notice
is executed by Assignor, Assignee, Agent and, if applicable, Borrower Agent.
Pursuant to the Assignment Agreement, Assignee has expressly assumed all of
Assignor’s obligations under the Loan Agreement to the extent of the Assigned
Interest, as of the Effective Date.

For purposes of the Loan Agreement, Agent shall deem (a) Assignor’s U.S.
Revolver Commitment to be reduced by $                , and Assignee’s U.S.
Revolver Commitment to be increased by $                , and (b) Assignor’s
Canadian Revolver Commitment to be reduced by $                , and Assignee’s
Canadian Revolver Commitment to be increased by $                .

The address of Assignee to which notices and information are to be sent under
the terms of the Loan Agreement is:

 

    ___________________

    ___________________

    ___________________

    ___________________

 

1 

Minimum assignment amounts are as set forth in Section 13.3.1 of the Loan
Agreement.

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

The address of Assignee to which payments are to be sent under the terms of the
Loan Agreement is shown in the Assignment and Acceptance.

This Notice is being delivered to Borrower Agent and Agent pursuant to
Section 13.3 of the Loan Agreement. Please acknowledge your acceptance of this
Notice by executing and returning to Assignee and Assignor a copy of this
Notice.

IN WITNESS WHEREOF, this Assignment Notice is executed as of _____________.

 

(“Assignee”) By       Title:

 

(“Assignor”) By       Title:

ACKNOWLEDGED AND AGREED,

AS OF THE DATE SET FORTH ABOVE:

BORROWER AGENT:*

 

  By       Title:

 

* No signature required if Assignee is a Lender, a U.S. based Affiliate of a
Lender, if such Person is to hold U.S. Facility Obligations, an Approved Fund,
or if such Person is to hold Canadian Facility Obligations, a Canadian Qualified
Lender and an Affiliate of a U.S. Lender, or if an Event of Default exists.

 

BANK OF AMERICA, N.A.,

as Agent

By       Title:

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

EXHIBIT D

to

Amended and Restated

Loan and Security Agreement

FORM OF COMPLIANCE CERTIFICATE

Financial Statement Date: ________________

 

To: Bank of America, N.A., as Administrative Agent

Ladies and Gentlemen:

Reference is made to that certain Amended and Restated Loan and Security
Agreement, dated as of July [__], 2011 (as amended, restated, extended,
supplemented or otherwise modified in writing from time to time, the
“Agreement”; the terms defined therein being used herein as therein defined),
among Callaway Golf Company, a Delaware corporation (“Parent”), Callaway Golf
Sales Company, a California corporation (“Callaway Sales”), Callaway Golf Ball
Operations, Inc., a Delaware corporation (“Callaway Operations”, and together
with Parent and Callaway Sales, collectively, “U.S. Borrowers”), Callaway Golf
Canada Ltd., a Canada corporation (“Canadian Borrower” and together with the
U.S. Borrowers, collectively, “Borrowers”), the other Obligors party thereto
from time to time, the financial institutions party thereto from time to time as
lenders (collectively, “Lenders”), and Bank of America, N.A., a national banking
association, as administrative agent for the Lenders (“Agent”).

The undersigned Senior Officer hereby certifies as of the date hereof that
he/she is the ____________________ _______________________________ of the
Parent, and that, as such, he/she is authorized to execute and deliver this
Certificate to Agent on the behalf of the Parent, and that:

[Use following paragraph 1 for fiscal year-end financial statements]

1. Attached hereto as Schedule 1 are the year-end financial statements required
by Section 10.1.1(a) of the Agreement for the Fiscal Year of Parent ended as of
the above date, together with the report and opinion of an independent certified
public accountant required by such section.

[Use following paragraph 1 for fiscal quarter-end financial statements]

1. Attached hereto as Schedule 1 are the interim management financial statements
required by Section 10.1.1(b) of the Agreement for the fiscal quarter of Parent
ended as of the above date. Such financial statements fairly present the
financial condition, results of operations, shareholders’ equity and cash flows
of Parent and its Subsidiaries in accordance with GAAP as at such date and for
such period, subject only to normal year-end audit adjustments and the absence
of footnotes.

[Use following paragraph 1 for fiscal month-end financial statements]

1. Attached hereto as Schedule 1 are the interim management financial statements
required by Section 10.1.1(c) of the Agreement for the fiscal month of Parent
ended as of the above date. Such

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

financial statements fairly present the financial condition, results of
operations, shareholders’ equity and cash flows of Parent and its Subsidiaries
in accordance with historical practices as of such date for such period.

2. The undersigned has reviewed and is familiar with the terms of the Agreement
and has made, or has caused to be made under his/her supervision, a detailed
review of the transactions and condition (financial or otherwise) of the Parent
and its Subsidiaries during the accounting period covered by the attached
financial statements.

3. There exists no event or circumstance which is or which with the passage of
time, the giving of notice, or both would constitute an Event of Default, as
that term is defined in the Loan Agreement, or, if such an event or circumstance
exists, a writing attached hereto specifies the nature thereof, the period of
existence thereof and the action that Borrowers or the other applicable Obligors
have taken or propose to take with respect thereto.

4. The representations and warranties of the Parent and its Subsidiaries
contained in Section 9 of the Agreement, and/or any representations and
warranties of the Borrowers or any other Obligor that are contained in any
document furnished at any time under or in connection with the Loan Documents,
are true and correct on and as of the date hereof, except to the extent that
such representations and warranties specifically refer to an earlier date, in
which case they are true and correct as of such earlier date.

5. The financial covenant analyses and information set forth on Schedule 2
attached hereto are true and accurate on and as of the date of this
Certificate.2

IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
_____________, _____.

 

CALLAWAY GOLF COMPANY,

as Parent

By:     Name:     Title:    

 

2 

To be provided whether or not a Covenant Trigger Period is in effect.

 

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

1.      Section 10.3.1 – Fixed Charge Coverage Ratio

  

A.     EBITDA

  

1.      net income:

   $ ___________   

2.      plus interest expense:

   $ ___________   

3.      plus non-cash stock compensation expense:

   $ ___________   

4.      plus provision for income taxes:

   $ ___________   

5.      plus depreciation and amortization:

   $ ___________   

6.      plus other non-cash expenses (except to the extent representing a
reserve or accrual for cash expenses in another period):

   $ ___________   

7.      minus gains or

  

         plus losses arising from the sale of capital assets:

   $ ___________   

8.      minus gains arising from the write-up of assets:

   $ ___________   

9.      minus extraordinary gains:

   $ ___________   

10.    Total EBITDA:

   $ ___________   

B.     Fixed Charges

  

1.      Cash interest expense:

   $ ___________   

2.      plus principal payments on Borrowed Money:

   $ ___________   

3.      plus Distributions:

   $ ___________   

4.      Total Fixed Charges:

   $ ___________   

C.     Ratio

  

1.      EBITDA:

   $ ___________   

2.      minus Capital Expenditures (except those financed with Borrowed Money
other than Revolver Loans):

   $ ___________   

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

3.      minus cash taxes paid:

   $ ___________   

         divided by

  

4.      Fixed Charges:

   $ ___________   

5.      minus any Excluded Stock Repurchases:

   $ ___________   

6.      Fixed Charge Coverage Ratio:

     _________ to 1.0   

         Minimum Required: 1.00 to 1.00

  

         In compliance?3 Yes _____ No _____

  

 

3 

Only required if Covenant Trigger Period is in effect.

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

SCHEDULE E-1

Existing Letters of Credit

 

Issuer

  

Beneficiary

   Outstanding (USD)      Expiration  

Bank of America

   Safety National Casualty Company      500,000         February 8, 2012   

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

SCHEDULE 1.1

Commitments of Lenders

 

Lender

   U.S. Revolver
Commitment      Canadian Revolver
Commitment      Total
Commitments  

Bank of America, N.A.

   $ 54,166,666.67       $ 0       $ 54,166,666.67   

Bank of America, N.A. (acting through its Canada branch)

   $ 0       $ 10,833,333.33       $ 10,833,333.33   

UBS Loan Finance LLC

   $ 41,666,666.67       $ 0       $ 41,666,666.67   

UBS AG Canada Branch

   $ 0       $ 8,333,333.33       $ 8,333,333.33   

Wells Fargo Bank, N.A.

   $ 41,666,666.67       $ 0       $ 41,666,666.67   

Wells Fargo Capital Finance Corporation Canada

   $ 0       $ 8,333,333.33       $ 8,333,333.33   

SunTrust Bank

   $ 20,833,333.33       $ 4,166,666.67       $ 25,000,000.00   

U.S. Bank National Association

   $ 16,666,666.67       $ 0       $ 16,666,666.67   

U.S. Bank National Association, Canada Branch

   $ 0       $ 3,333,333.33       $ 3,333,333.33      

 

 

    

 

 

    

 

 

 

Total:

   $ 175,000,000.00       $ 35,000,000.00       $ 210,000,000.00      

 

 

    

 

 

    

 

 

 

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

SCHEDULE 8.6.1

Business Locations

Callaway Golf Company

1. 2285 Rutherford Road, Carlsbad, CA 92008

2. 5928 Pascal Court, Carlsbad, CA 92008

3. 5960 Pascal Court, Carlsbad, CA 92008

4. 5891 Dryden Place, Lot 23, Carlsbad, CA 92008

5. 2180 Rutherford Road, Carlsbad, CA 92008

6. 2081 Faraday Avenue, Carlsbad, CA 92008

7. 700 Henrietta Creek Rd., Roanoke, TX 76262

Callaway Golf Canada, Ltd.

1. 250 Courtland Avenue, Concord, Ontario, Canada L4K4N3 (until August 31, 2011)

2. Suite 101, 675 Cochrane Drive, West Tower, Markham, Ontario, Canada L3R 0B8
(as of September 1, 2011)

3. 9700 Goreway Dr., Brampton, Ontario, Canada L6P 0M7

4. 1275 Kingsway Avenue, Port Coquitlam, British Columbia, Canada V3C 1S2

Callaway Golf Interactive, Inc.

1. 9013 Tuscany Way, Bldg. 1, Suite 110, Austin, TX 78754

Callaway Golf Sales Company

1. 8936 Oak Grove Road, Fort Worth, TX 76115

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

SCHEDULE 9.1.9

Environmental Matters

None.

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

SCHEDULE 9.1.12

ERISA Compliance

None.

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

SCHEDULE 9.1.13

Names and Capital Structure

I. Parent

 

Entity

  

State or Country
of Organization

  

Mergers,

Amalgamations or

Combinations in

the Last Five

Years

Callaway Golf Company

   Delaware    Acquired certain assets and liabilities of uPlay, LLC on December
31, 2008.

II. Subsidiaries

 

Entity

   State or
Country of
Organization   

Authorized/Issued Equity Interests

  

Holders of Equity Interests

   Holders’
Agreements
with
Respect to
Equity
Interests    Mergers,
Amalgamations
or
Combinations
in the Last Five
Years

Callaway Golf

Interactive, Inc.

   Texas   

Authorized:

10,000,000

Issued: 7,265,284

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Sales Company

   California   

Authorized:

10,000

Issued: 10,000

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

International

Sales Company

   California   

Authorized:

1,000,000

Issued: 1,000

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Canada Ltd.

   Canada   

Authorized:

Unlimited

Issued: 1,100

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Europe Ltd.

   United
Kingdom   

Authorized:

3,179,875

Issued: 3,179,875

  

Callaway Golf

European Holding Company Ltd. (100%)

   None.    None.

Callaway Golf

(Germany) GmbH

   Germany   

Authorized: 1

Issued: 1

  

Callaway Golf

European Holding Company Ltd. (100%)

   None.    None.

Callaway Golf

Kabushiki Kaisha

   Japan   

Authorized: 1,600

Issued: 1,000

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Korea Ltd.

   Korea   

Authorized: N/A

Issued: N/A

  

Callaway Golf

Company (99%);

Callaway Golf

International Sales Company (1%)

   None.    None.

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

Entity

   State or
Country of
Organization   

Authorized/Issued Equity Interests

  

Holders of Equity Interests

   Holders’
Agreements
with
Respect to
Equity
Interests    Mergers,
Amalgamations
or
Combinations
in the Last Five
Years

Callaway Golf

(Shanghai)

Trading Co., Ltd.

   China   

Authorized: N/A

Issued: N/A

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

South Pacific Pty Ltd.

   Australia   

Authorized:

Unlimited

Issued: 4,677,400

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Ball Operations, Inc.

   Delaware   

Authorized:

1,000

Issued: 1,000

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Cyprus Co. Ltd.

   The
Republic
of
Cyprus   

Authorized:

7,425

Issued: 2,000

  

Callaway Golf

International Sales Company (100%)

   None.    None.

Callaway Golf

European Holding Company Ltd.

   United
Kingdom   

Authorized:

1,000

Issued: 597

  

Callaway Golf

Cyprus Co. Ltd. (100%)

   None.    None.

Callaway Golf

(Guangzhou)

Technology Service Co., Ltd.

   China   

Authorized: N/A

Issued: N/A

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

Malaysia Sdn. Bhd.

   Malaysia   

Authorized:

5,000,000

Issued: 1,500,000

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

(Thailand) Ltd.

   Thailand   

Authorized:

200,000

Issued: 200,000

  

Callaway Golf

Company (99.999%)

Callaway Golf Ball Operations, Inc. (.0005%)

Callaway Golf Interactive, Inc. (.0005%)

   None.    None. uPlay, Inc.    Delaware   

Authorized: 1,000

Issued: 100

  

Callaway Golf

Company (100%)

   None.    None.

Callaway Golf

India Private Ltd.

   India   

Authorized:

50,000

Issued: 36,000

  

Callaway Golf

International Sales Company (99.988889%)

uPlay, Inc. (0.011111%)

   None.    None. Callaway de Mexico, S.A. de C.V    Mexico   

Authorized:

Unlimited

Issued: 1,000

  

Callaway Golf

Company (99.9%); Callaway Golf International Sales Company (0.1%)

   None.    None.

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

SCHEDULE 9.1.21

Labor Contracts

Collective bargaining agreement between Callaway Golf Ball Operations, Inc. and
International Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths,
Forgers and Helpers A.F.L.-C.I.O and its Local Lodge 1851 concerning the
Chicopee, Massachusetts manufacturing plant, as amended by a memorandum of
agreement supplementing the collective bargaining agreement on September 13,
2010. The agreement became effective October 1, 2008, and expires September 30,
2011. The agreement automatically renews on a year-to-year basis unless
terminated. Approximately 245 employees are covered by this agreement.

Collective bargaining agreement between Callaway Golf Canada Ltd. and National
Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW)
and its Local 462. The agreement became effective on August 1, 2009, and expires
on July 31, 2012. Approximately 67 employees are covered by this agreement. (The
operations covered by this collective bargaining agreement are in the process of
being wound down and terminated in accordance with an agreement with CAW dated
December 13, 2010.)

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

SCHEDULE 10.2.1

Existing Liens

 

State of Lien Filing

  

Debtor

  

Secured Party

   Filing Number

Delaware

   Callaway Golf Company    Sharp Electronics    3276486 1

Delaware

   Callaway Golf Company    U.S. Bancorp    6368536 9

Delaware

   Callaway Golf Company    Banc of America Leasing & Capital LLC    2008
0968899

Delaware

   Callaway Golf Company    Toyota Motor Credit Corporation    2008 1284767

Delaware

   Callaway Golf Company    Toyota Motor Credit Corporation    2009 3361042

Delaware

   Callaway Golf Company    Ikon Financial Services    2009 0073400

Delaware

   Callaway Golf Company    Ikon Financial Services    2009 0073418

Delaware

   Callaway Golf Company    Ikon Financial Services    2010 2845760

Delaware

   Callaway Golf Company    Raymond Leasing Corp.    2010 2853343

Delaware

   Callaway Golf Company    Timepayment Corporation    2011 1466260

California

   Callaway Golf Company    Gelco Corporation d/b/a GE Fleet Services   
10-7242907941

California

   Callaway Golf Company    Timepayment Corporation    10-7253794523

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

State of Lien Filing

  

Debtor

  

Secured Party

   Filing Number

California

   Callaway Golf Company    Assignor: EMC Corporation; Assignee: SG Equipment
Finance USA Corp.    11-7263928958

Delaware

   The Top-Flite Golf Company    NMHG Financial Services Inc.    5370559 8

Ontario

   Callaway Golf Canada Ltd.    DCFS Canada Corp. and Mercedes Benz Financial   
665420427
(registration no.
201010261946
1531 4248)

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

SCHEDULE 10.2.2

Permitted Investments

 

Investor Entity

  

Investment

  

Investment Amount

Callaway Golf Company    Qingdao Sun Tech Sporting Goods Co., Ltd. and
affiliates (loan agreement)    $2,187,587 (USD) Callaway Golf Company   
Top-Golf International, Inc.    18.26% equity ownership of Top-Golf. Callaway
Golf Company    Lone Cypress Company, LLC.    $ 2,000,000 (USD)

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

SCHEDULE 10.2.3

Permitted Debt

In each case, in the amount set forth in the applicable Information Certificate:

 

Nature of Obligation

  

Creditor

  

Entity

Capital Lease, Postage Meter

   Pitney Bowes    Callaway Golf Company

Capital Lease, IT Servers

   EMC    Callaway Golf Company

Intercompany Loan

   Callaway Golf Interactive, Inc.    Callaway Golf Company

Intercompany Loan

   Callaway Golf European Holding Co. Ltd.    Callaway Golf Company

Bank Guarantee

   Green Square Property Development    Callaway Golf South Pacific Pty Ltd.

Bank Guarantee

   Credit Suisse    Callaway Golf Europe Ltd.

Bank Guarantee (VAT)

   Den norske Bank    Callaway Golf Europe Ltd.

Bank Guarantee (import duties)

   Den norske Bank    Callaway Golf Europe Ltd.

Bond Guarantee (import duties)

   Barclays PLC    Callaway Golf Europe Ltd.

Car Leasing

   Volvo Leasing GMBH    Callaway Golf Europe Ltd.

Eidg. Oberzoll

   VAT Guarantee    Callaway Golf Europe Ltd.

Canada AMEX Guarantee

   AMEX Bank of Canada    Callaway Golf Canada Ltd.

Intercompany Long-Term Loan

   Callaway Golf Company    Callaway Golf Canada Ltd.

Intercompany Short-Term Loan

   Callaway Golf Company    Callaway Golf Canada Ltd.

Customs Bond for Duty and GST payments

   Canada Customs    Callaway Golf Canada Ltd.