exv10wxaqy



 





Exhibit 10
(aq)




 





ASHWORTH, INC.,




together with any of its Subsidiaries now or in the future party hereto,




as Borrowers




 




 



LOAN AND SECURITY AGREEMENT




Dated as of January 11, 2008




$55,000,000



 



 



BANK OF AMERICA, N.A.,




as Lender




 















 





TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	SECTION 1 DEFINITIONS; RULES OF CONSTRUCTION
	 	 	1	 
	 
	 	 	 	 
	1.1 Definitions
	 	 	1	 
	1.2 Accounting Terms
	 	 	25	 
	1.3 Uniform Commercial Code
	 	 	25	 
	1.4 Certain Matters of Construction
	 	 	26	 
	 
	 	 	 	 
	SECTION 2 CREDIT FACILITIES
	 	 	27	 
	 
	 	 	 	 
	2.1 Revolver Commitment
	 	 	27	 
	2.2 [Intentionally Deleted]
	 	 	28	 
	2.3 Letter of Credit Facility
	 	 	28	 
	 
	 	 	 	 
	SECTION 3 INTEREST, FEES AND CHARGES
	 	 	30	 
	 
	 	 	 	 
	3.1 Interest
	 	 	30	 
	3.2 Fees
	 	 	31	 
	3.3 Computation of Interest, Fees, Yield Protection
	 	 	31	 
	3.4 Reimbursement Obligations
	 	 	32	 
	3.5 Illegality
	 	 	32	 
	3.6 Inability to Determine Rates
	 	 	32	 
	3.7 Increased Costs; Capital Adequacy
	 	 	33	 
	3.8 Mitigation
	 	 	34	 
	3.9 Funding Losses
	 	 	34	 
	3.10 Maximum Interest
	 	 	34	 
	 
	 	 	 	 
	SECTION 4 LOAN ADMINISTRATION
	 	 	34	 
	 
	 	 	 	 
	4.1 Manner of Borrowing and Funding Revolver Loans
	 	 	34	 
	4.2 Number and Amount of LIBOR Loans; Determination of Rate
	 	 	35	 
	4.3 Borrower Agent
	 	 	35	 
	4.4 One Obligation
	 	 	36	 
	4.5 Effect of Termination
	 	 	36	 
	 
	 	 	 	 
	SECTION 5 PAYMENTS
	 	 	36	 
	 
	 	 	 	 
	5.1 General Payment Provisions
	 	 	36	 
	5.2 Repayment of Revolver Loans
	 	 	36	 
	5.3 [Intentionally Deleted]
	 	 	37	 
	5.4 Payment of Other Obligations
	 	 	37	 
	5.5 Marshaling; Payments Set Aside
	 	 	37	 
	5.6 Application of Payments
	 	 	37	 
	5.7 Loan Account; Account Stated
	 	 	37	 
	5.8 Taxes
	 	 	37	 
	5.9 Nature and Extent of Each Borrower’s Liability
	 	 	38	 
	 
	 	 	 	 
	SECTION 6 CONDITIONS PRECEDENT
	 	 	40	 
	 
	 	 	 	 
	6.1 Conditions Precedent to Initial Loans
	 	 	40	 
	6.2 Conditions Precedent to All Credit Extensions
	 	 	42	 
	6.3 Limited Waiver of Conditions Precedent
	 	 	42	 
















 






	 	 	 	 	 
	 	 	Page
	SECTION 7 COLLATERAL
	 	 	42	 
	 
	 	 	 	 
	7.1 Grant of Security Interest
	 	 	42	 
	7.2 Lien on Deposit Accounts; Cash Collateral
	 	 	43	 
	7.3 [Intentionally Deleted]
	 	 	44	 
	7.4 Other Collateral
	 	 	44	 
	7.5 No Assumption of Liability
	 	 	44	 
	7.6 Further Assurances; Extent of Liens
	 	 	44	 
	7.7 Foreign Subsidiary Stock. Excluded Assets
	 	 	44	 
	 
	 	 	 	 
	SECTION 8 COLLATERAL ADMINISTRATION
	 	 	45	 
	 
	 	 	 	 
	8.1 Borrowing Base Certificates
	 	 	45	 
	8.2 Administration of Accounts
	 	 	45	 
	8.3 Administration of Inventory
	 	 	46	 
	8.4 Administration of Equipment
	 	 	47	 
	8.5 Administration of Deposit Accounts
	 	 	47	 
	8.6 General Provisions
	 	 	48	 
	8.7 Power of Attorney
	 	 	49	 
	 
	 	 	 	 
	SECTION 9 REPRESENTATIONS AND WARRANTIES
	 	 	50	 
	 
	 	 	 	 
	9.1 General Representations and Warranties
	 	 	50	 
	9.2 Complete Disclosure
	 	 	55	 
	 
	 	 	 	 
	SECTION 10 COVENANTS AND CONTINUING AGREEMENTS
	 	 	55	 
	 
	 	 	 	 
	10.1 Affirmative Covenants
	 	 	55	 
	10.2 Negative Covenants
	 	 	58	 
	 
	 	 	 	 
	SECTION 11 EVENTS OF DEFAULT; REMEDIES ON DEFAULT
	 	 	63	 
	 
	 	 	 	 
	11.1 Events of Default
	 	 	63	 
	11.2 Remedies upon Default
	 	 	65	 
	11.3 License
	 	 	66	 
	11.4 Setoff
	 	 	66	 
	11.5 Remedies Cumulative; No Waiver
	 	 	66	 
	 
	 	 	 	 
	SECTION 12 MISCELLANEOUS
	 	 	67	 
	 
	 	 	 	 
	12.1 Consents, Amendments and Waivers
	 	 	67	 
	12.2 Indemnity
	 	 	67	 
	12.3 Notices and Communications
	 	 	67	 
	12.4 Performance of Borrowers’ Obligations
	 	 	68	 
	12.5 Credit Inquiries
	 	 	69	 
	12.6 Severability
	 	 	69	 
	12.7 Cumulative Effect; Conflict of Terms
	 	 	69	 
	12.8 Counterparts
	 	 	69	 
	12.9 Entire Agreement
	 	 	69	 
	12.10 No Control; No Advisory or Fiduciary Responsibility
	 	 	69	 
	12.11 Confidentiality
	 	 	70	 
	12.12 [Intentionally Omitted]
	 	 	70	 
	12.13 GOVERNING LAW
	 	 	70	 
	12.14 Consent to Forum; Arbitration
	 	 	70	 
	12.15 Waivers by Borrowers
	 	 	72	 






(ii)









 






	 	 	 	 	 
	 	 	Page
	12.16 Patriot Act Notice
	 	 	72	 
	12.17 Judgment Currency
	 	 	72	 






LIST OF SCHEDULES




	 	 	 
	Schedule E

	 	Existing Letters of Credit
	Schedule G-1

	 	Subsidiary Guarantors
	Schedule P-1

	 	Permitted Asset Disposition
	Schedule P-2

	 	Permitted Capital Leases
	Schedule P-3

	 	Permitted Investments
	Schedule 6.1(h)

	 	Foreign Qualifications
	Schedule 8.2.6

	 	Canadian Accounts
	Schedule 8.5

	 	Deposit Accounts
	Schedule 8.6.1

	 	Business Locations
	Schedule 9.1.4

	 	Names and Capital Structure
	Schedule 9.1.5

	 	Former Names and Companies
	Schedule 9.1.9

	 	Surety Obligations
	Schedule 9.1.12

	 	Patents, Trademarks, Copyrights and Licenses
	Schedule 9.1.15

	 	Environmental Matters
	Schedule 9.1.17

	 	Litigation
	Schedule 9.1.19

	 	Pension Plans
	Schedule 9.1.21

	 	Labor Relations
	Schedule 10.1.12

	 	Post-Closing Covenants
	Schedule 10.2.1(d)

	 	Borrowed Money
	Schedule 10.2.2

	 	Existing Liens
	Schedule 10.2.17

	 	Existing Affiliate Transactions






(iii)









 





LOAN AND SECURITY AGREEMENT




     THIS LOAN AND SECURITY AGREEMENT is dated as of January 11, 2008, among ASHWORTH, INC., a
Delaware corporation (“Parent”), those of Parent’s Subsidiaries now or in the future
signatory hereto (each such Subsidiary and Parent, individually a “Borrower”, and collectively,
“Borrowers”), and BANK OF AMERICA, N.A., a national banking association (“Lender”).



R E C I T A L S:




     Borrowers have requested that Lender provide a credit facility to Borrowers to finance their
mutual and collective business enterprise. Lender is willing to provide the credit facility on the
terms and conditions set forth in this Agreement.



     NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:



SECTION 1 DEFINITIONS; RULES OF CONSTRUCTION





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



     Account: as defined in the UCC, including all rights to payment for goods sold or
leased, or for services rendered.



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



     Accounts Formula Amount: 85% of the Value of Eligible Accounts; provided,
however, that such percentage shall be reduced by 1.0% for each whole percentage point
(after rounding any partial percentage point to the nearest whole percentage point) that the
Dilution Percent exceeds 5.0%.



     Acquisition Consideration: the purchase consideration for any Permitted Acquisition
(other than Equity Interests in Parent) and all other payments paid to or for the benefit of any
seller by any Borrower or any Subsidiary in exchange for, or as part of, or in connection with, any
Permitted Acquisition, whether paid in cash or properties or otherwise and whether payable at or
prior to the consummation of such Permitted Acquisition or deferred for payment at any future time,
whether or not any such future payment is subject to the occurrence of any contingency, and
includes any and all payments representing the purchase price and any assumptions of Debt,
“earn-outs” and other agreements to make any payment the amount of which is, or the terms of
payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow
or profits (or the like) of any person or business; provided that any such future payment that is
subject to a contingency shall be considered Acquisition Consideration only to the extent of the
reserve, if any, required under GAAP at the time of such sale to be established in respect thereof
by any Borrower or any Subsidiary.



     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.



     Allocable Amount: as defined in Section 5.9.3.



     Anti-Terrorism Laws: any laws relating to terrorism or money laundering, including
the Patriot Act.



     Applicable Inventory Advance Rate: 70% during each Seasonal Advance Rate Period; and
65% at all other times.



     Applicable Law: all laws, rules, regulations and governmental guidelines applicable
to the Person, conduct, transaction, agreement or matter in question, including all applicable
statutory law, common law and equitable principles, and all provisions of constitutions, treaties,
statutes, rules, regulations, orders and decrees of Governmental Authorities.



     Applicable Margin: with respect to any Type of Loan, the margin set forth below, as
determined by the Fixed Charge Coverage Ratio for the last Fiscal Quarter with respect to which
financial statements have been delivered pursuant to Section 10.1.2:



	 	 	 	 	 	 	 
	 	 	 	 	Base Rate	 	LIBOR
	 	 	Fixed Charge	 	Revolver	 	Revolver
	Level	 	Coverage Ratio	 	Loans	 	Loans
	I
	 	> 1.40:1.00
	 	0.00%
	 	1.25%
	II
	 	> 1.20:1.00 <
1.40:1.00
	 	0.00%
	 	1.50%
	III
	 	< 1.20:1.00
	 	0.00%
	 	1.75%





Until May 1, 2008, margins shall be determined as if Level I were applicable. Thereafter, the
margins shall be subject to increase or decrease upon receipt by Lender pursuant to Section 10.1.2
of the financial statements and corresponding Compliance Certificate for the last Fiscal Quarter,
which change shall be effective on the first day of the calendar month following receipt. If, by
the first day of a month, any financial statements and Compliance Certificate due in the preceding
month have not been received, then 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.




     Ashworth Store I: Ashworth Store I, Inc., a Delaware corporation.



     Ashworth Store II: Ashworth Store II, Inc., a Delaware corporation.



     Ashworth Store III: Ashworth Store III, Inc., a Delaware corporation.



     Ashworth UK: Ashworth U.K., Ltd.



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



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     Availability: the Borrowing Base minus the principal balance of all Revolver Loans.



     Availability Block: $5,000,000.



     Availability Reserve: the sum (without duplication) of (a) the Inventory Reserve;
(b) the Rent and Charges Reserve; (c) the LC Reserve; (d) the Bank Product Reserve; (e) all accrued
Royalties, whether or not then due and payable by a Borrower; (f) the aggregate amount of
liabilities secured by Liens upon Collateral that are senior to Lender’s Liens (but imposition of
any such reserve shall not waive an Event of Default arising therefrom); (g) the Availability
Block; and (h) such additional reserves, in such amounts and with respect to such matters, as
Lender in its Credit Judgment may elect to impose from time to time.



     Back-Up LC: the Letter of Credit issued hereunder for the benefit of Union Bank of
California, which Back-Up L/C shall (i) be in the initial face (but declining) amount of, and
(ii) only support drawings made under, the Existing Letters of Credit.



     Bank Product: any of the following products, services or facilities extended to any
Borrower or Subsidiary by Lender or any of its Affiliates: (a) Cash Management Services;
(b) products under Hedging Agreements; (c) commercial credit card and merchant card services; and
(d) leases and other banking products or services as may be requested by any Borrower or
Subsidiary, other than Letters of Credit or the Real Estate Term Loan or the UK Loan Facility.



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



     Bank Product Reserve: the aggregate amount of reserves established by Lender from
time to time in its reasonable discretion in respect of Bank Product Debt.



     Bankruptcy Code: Title 11 of the United States Code.



     Base Rate: the rate of interest announced by Lender from time to time as its prime
rate. Such rate is a rate set by Lender based upon 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 announced rate. Any change in such rate
announced by Lender shall take effect at the opening of business on the day specified in the public
announcement of such change.



     Base Rate Loan: any Loan that bears interest based on the Base Rate.



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



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



     Borrowed Money: with respect to any Obligor, without duplication, its (a) Debt that
(i) arises from the lending of money by any Person to such Obligor, (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 or taxes 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.



-3-









 





     Borrower Agent: as defined in Section 4.3.



     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.



     Borrowing Base: on any date of determination, an amount equal to the lesser of
(a) the Revolver Commitment, minus the LC Reserve, or (b) the sum of the Accounts Formula
Amount, plus the Inventory Formula Amount, minus the Availability Reserve,
minus all outstanding obligations under the UK Loan Facility.



     Borrowing Base Certificate: a certificate, in substantially the form agreed to by
Lender and Borrower Agent prior to the date hereof or otherwise in form and substance reasonably
satisfactory to Lender, by which Borrowers certify calculation of the Borrowing Base.



     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
California, and if such day relates to a LIBOR Loan, any such day on which dealings in Dollar
deposits are conducted between banks in the London interbank Eurodollar market.



     Capital Expenditures: all liabilities incurred, expenditures made or payments due
(whether or not made) by a Borrower or Subsidiary for the acquisition of any fixed assets, or any
improvements, replacements, substitutions or additions thereto with a useful life of more than one
year, including the principal portion of Capital Leases, but excluding proceeds of Asset
Dispositions re-invested in the business of the Borrower or Subsidiary making such Asset
Disposition to the extent such re-investment is permitted hereunder. For purposes of this
definition, the purchase price of equipment or other fixed assets that are purchased simultaneously
with the trade-in of existing assets or with insurance proceeds shall be included in Capital
Expenditures only to the extent of the net amount by which such purchase price exceeds the credit
granted by the seller of such assets for the assets being traded in at such time or the amount of
such insurance proceeds, as the case may be.



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



     Capital Lease Lien: a Lien that secures a Capital Lease, encumbering only the assets
leased with such Capital Lease and accessions to, and products and proceeds (including insurance
condemnation proceeds) of, such leased assets.



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



     Cash Collateral Account: a demand deposit, money market or other account maintained
with Lender and subject to Lender’s Liens.



     Cash Collateralize: the delivery of cash to Lender, 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 other Obligations (including Obligations arising under
Bank Products) other than contingent Obligations, Lender’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.



-4-









 





     Cash Equivalents: (a) marketable obligations issued or unconditionally guaranteed by,
and backed by the full faith and credit of, the United States 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 a commercial bank organized under the laws of the United States or any state or
district 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 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 meeting the qualifications specified in clause (b);
(d) commercial paper 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.



     Cash Management Services: any services provided from time to time by Lender or any of
its Affiliates to any Borrower 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.



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



     Change in Law: the occurrence, after the date hereof, of (a) the adoption or taking
effect 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 by any Governmental
Authority; or (c) the making or issuance of any request, guideline or directive (whether or not
having the force of law) by any Governmental Authority.



     Change of Control: (a) Parent ceases to own and control, beneficially and of record,
directly or indirectly, all Equity Interests in any Material Obligor (except in connection with a
merger or consolidation permitted under Section 10.2.9); (b) a change in the majority of
directors of Parent, unless approved by the then majority of directors; or (c) all or substantially
all of the assets of a Subsidiary of the Parent or a Borrower are sold or transferred (except in
connection with a merger or consolidation permitted under Section 10.2.9) without providing
Lender at least 30 day’s prior written notice of such sale and obtaining the written consent of
Lender which consent shall not be unreasonably withheld.



     Claims: all 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) incurred by or asserted against any Indemnitee 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 to be taken by any Indemnitee 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



-5-









 







Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is a
party thereto.



     Closing Date: as defined in Section 6.1.



     Code: the Internal Revenue Code of 1986.



     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; provided, however, that the term “Collateral”
shall not include, and no security interest hereunder or any other Loan Documents shall attach to,
any Excluded Assets.



     Commitment Termination Date: the earliest to occur of (a) the Revolver Termination
Date; (b) the date on which Borrowers terminate the Revolver Commitment pursuant to Section 2.1.3;
or (c) the date on which the Revolver Commitment is terminated pursuant to Section 11.2.



     Commitments: the Revolver Commitment.



     Compliance Certificate: a certificate, in form and substance reasonably satisfactory
to Lender, by which Borrowers certify compliance with Sections 10.1.2 and calculate the applicable
Level for the Applicable Margin.



     Contingent Obligation: any obligation of a Person arising from a guaranty, indemnity
or other assurance of payment or performance of any Debt, lease, dividend or other obligation
(“primary obligations”) of another obligor (“primary obligor”) in any manner,
whether directly or indirectly, including any obligation of such Person under any (a) guaranty,
endorsement, co-making or sale with recourse of an obligation of a primary obligor; (b) obligation
to make take-or-pay or similar payments regardless of nonperformance by any other party to an
agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor, (ii) to
supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure
working capital, equity capital, net worth or solvency of the primary obligor, (iv) to purchase
Property or services for the purpose of assuring the ability of the primary obligor to perform a
primary obligation, or (v) otherwise to assure or hold harmless the holder of any primary
obligation against loss in respect thereof. The amount of any Contingent Obligation shall be
deemed to be the stated or determinable amount of the primary obligation (or, if less, the maximum
amount for which such Person may be liable under the instrument evidencing the Contingent
Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with
respect thereto. For the avoidance of doubt, (i) the Specified Payments are not Contingent
Obligations and (ii) each Borrower’s obligation under Section 5.9.1 are not Contingent Obligations.



     Credit Judgment: Lender’s judgment exercised reasonably and 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, the enforceability or priority of
Lender’s Liens, or the amount that Lender could reasonably be expected to receive in liquidation of
any Collateral (including any such Collateral consisting of Inventory subject to a License that
restricts Lender’s right to dispose of such Inventory, unless Lender has received an appropriate
Lien Waiver); (b) demonstrates 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



-6-









 







could reasonably be expected to result in a Default or Event of Default. In exercising such
judgment, Lender may consider any factors related to the Borrowers and the business of the
Borrowers that could reasonably be expected to increase the credit risk of lending to Borrowers on
the security of the Collateral.



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



     Debt: as applied to any Person, without duplication, (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 obligations of such person to pay the
deferred purchase price of property or services (other than deferred compensation and trade
accounts payable, in each case in the ordinary course of business); (c) Capital Leases; (d) all
Contingent Obligations; (e) all reimbursement obligations in connection with letters of credit
issued for the account of such Person; and (f) in the case of a Borrower, the Obligations. The
Debt of a Person shall include any recourse Debt of any partnership in which such Person is a
general partner or joint venturer. For the avoidance of doubt, the Specified Payments do not
constitute Debt.



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



     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.



     Deposit Account Control Agreements: the Deposit Account control agreements to be
executed by each institution maintaining a Deposit Account for a Borrower, in favor of Lender, as
security for the Obligations.



     Dilution Percent: the percent, determined for Borrowers’ most recently completed 12
months, equal to (a) all non-cash reductions to Accounts, including, but not limited to, bad debt
write-downs or write-offs, discounts, returns, promotions, credits, credit memos and other dilutive
items with respect to Accounts, divided by (b) gross collections.



     Distribution: any declaration or payment of a distribution, interest or dividend on
any Equity Interest; any distribution, advance or repayment of Debt to a holder of Equity Interests
(in its capacity as such); or any purchase, redemption, or other acquisition or retirement for
value of any Equity Interest, in each case other than payment-in-kind and other than dividend
payments or other distributions payable solely in the common stock or other common equity interests
of the person making such dividend or other distribution. For the avoidance of doubt, Specified
Payments shall not constitute Distributions.



     Dollars: lawful money of the United States.



     Dominion Account: a special account established by Borrowers at Lender or a bank
acceptable to Lender, over which Lender has exclusive control for withdrawal purposes.



     EBITDA: determined on a consolidated basis for Borrowers and Subsidiaries, net
income, calculated before interest expense, provision for income taxes, depreciation and
amortization expense, gains or extraordinary charges or non-cash charges 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 or deducted, as applicable, in determining net income).



-7-









 





     EDC: Ashworth EDC, LLC, a Delaware limited liability company.



     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 Canadian
Dollars and is not excluded by the criteria set forth in the next succeeding sentence. No Account
shall be an Eligible Account if (a) it is unpaid for more than 60 days after the original due date,
or more than 120 days after the original invoice date; (b) 50% or more of the Accounts owing by the
Account Debtor are not Eligible Accounts under clause (a) of this definition; (c) when aggregated
with other Accounts owing by the Account Debtor, it exceeds 20% of the aggregate Eligible Accounts
(or such higher percentage as Lender may establish for the Account Debtor 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; (g) the Account Debtor is
organized or has its principal offices or assets outside the United States or Canada; (h) it is
owing by the United States or any department, agency or instrumentality thereof, unless the Account
has been assigned to Lender in compliance with the Assignment of Claims Act; (i) it is not subject
to a duly perfected, first priority Lien in favor of Lender, or is subject to any other Lien (other
than customary chargeback rights, and Permitted Liens specified in Sections 10.2.2(c), (d) and (g)
and subject, in the case of the first priority nature of Lender’s Lien, to such specified Permitted
Liens having priority by operation of applicable law over the Lien of the Lender); (j) the goods
giving rise to it have not been delivered to and accepted by 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, the Account Debtor has made a partial
payment, or it arises from a sale on a cash-on-delivery basis; (m) it arises from a sale to an
Affiliate, or from a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval,
consignment, or other repurchase or return basis; (n) it represents a progress billing or
retainage; 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 past due or more than 120 days from the invoice date for
such Account will be excluded.



     Eligible In-Transit Inventory: Inventory 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 the Borrower within the United States or Canada, and that is not excluded by the following
criteria. No Inventory shall be Eligible In-Transit Inventory unless it (a) is subject to a
negotiable Document showing Lender (or, with the consent of Lender, the applicable Borrower) as
consignee, which Document is in the possession of Lender or such other Person as Lender shall
approve; (b) is fully insured in a manner satisfactory to Lender; (c) has been identified to the
applicable sales contract and title has passed to the Borrower; (d) 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; (e) is subject to purchase orders and other sale documentation
satisfactory to Lender; (f) is shipped by a common carrier that is not affiliated with the vendor;
and (g) is being handled by a customs broker, freight-forwarder or other handler that has delivered
a Lien Waiver.



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     Eligible Inventory: Inventory owned by a Borrower that is not excluded by the
following criteria. No Inventory shall be Eligible Inventory unless it (a) is finished goods, and
not raw materials or work-in-process, 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 greater than 12 months old), 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
Lender’s duly perfected, first priority Lien, and no other Lien (other than the Permitted Liens
specified in Section 10.2.2(c), (d) and (g) and subject, in the case of the first priority nature
of Lender’s Lien, to such specified Permitted Liens having priority by operation of applicable law
over the Lien of the Lender); (h) is within the continental United States or Canada, is not in
transit except between locations of Borrowers, and is not consigned to any Person; (i) is not
subject to any warehouse receipt or negotiable Document; (j) [intentionally deleted] (k) 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 Rent and Charges Reserve has been established; and (l) is reflected in the
details of a current perpetual inventory report (provided, that Inventory that is
in-transit or that is “pack and hold” Inventory does not need to meet the conditions of this clause
(l)).



     Eligible Slow Moving Inventory: Inventory owned by a Borrower (a) that would be
Eligible Inventory if it were not greater than 12 months old, (b) that is less than 24 months old.



     Enforcement Action: any action to enforce any Obligations or Loan Documents or to
realize upon any Collateral (whether by judicial action, self-help, notification of Account
Debtors, exercise of setoff or recoupment, or otherwise).



     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 and CWA.



     Environmental Notice: a written notice 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.



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



     Equity Interest: the ownership 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.



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     ERISA: the Employee Retirement Income Security Act of 1974.



     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).



     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) the failure by any Obligor or ERISA Affiliate to meet any funding obligations with
respect to any Pension Plan or Multiemployer Plan; (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
Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA,
upon any Obligor or ERISA Affiliate.



     Event of Default: as defined in Section 11.



     Excluded
Assets: (a) real property and any fixtures attached or appurtenant thereto,
(b) any rights or property acquired by an Obligor under, or subject to, a lease, contract, or
license, if and for so long as the grant of a Lien under Section 7.1 would constitute or result in
(x) the abandonment, invalidation or unenforceability of any right, title or interest of such
Obligor therein or (y) a breach or termination pursuant to the terms of, or a default under, any
such lease, contract, or license (other than to the extent that any restriction on such assignment
would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any
successor provision or provisions) of any relevant jurisdiction or any other Applicable Law or
principles of equity), (c) any insurance or condemnation proceeds from any of the foregoing to the
extent required to be maintained for the benefit of, and paid over to, a Person other than Parent,
Borrowers or their Affiliates, (d) any insurance or condemnation proceeds covering any real
property leased by an Obligor or fixtures attached or appurtenant thereto to the extent required to
be maintained for the benefit of, and paid over to, the applicable landlord; any insurance or
condemnation proceeds from any of the foregoing, (e) any insurance or condemnation proceeds
covering any real property leased by an Obligor or fixtures attached or appurtenant thereto to the
extent required to be maintained for the benefit of, and paid over to, the applicable landlord;
provided, however, that at such time as the condition causing such abandonment, invalidation or
unenforceability shall be no longer in effect with respect to any property, such property shall no
longer constitute Excluded Assets, (f) so long as the Real Estate Term Loan or any other Debt
outstanding under the Real Estate Term Loan documents are
outstanding, the Equity Interests in EDC, and (g) the Union Bank Cash
Collateral Account described on Schedule P-3.



     Excluded Tax: with respect to Lender or any other recipient of a payment to be made
by or on account of any Obligation, 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



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organized or in which its principal office is located or, in the case of Lender, in which its
applicable lending office is located.



     Existing Credit Agreement: the Revolving/Term Loan Credit Agreement dated as of
July 6, 2004 among Parent, as Borrower thereunder, Union Bank of California, N.A., as
Administrative Agent, and the other lenders party thereto, as amended.



     Existing Letters of Credit: the letters of credit issued under the Existing Credit
Agreement and identified on Schedule E.



     Extraordinary Expenses: all costs, expenses or advances that Lender may incur with
respect to the Obligations 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 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 Lender’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
Lender in, or the monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of any
taxes, charges or Liens with respect to any Collateral; (e) any Enforcement Action; and
(f) negotiation and documentation of any modification, waiver, workout, restructuring or
forbearance with respect to any Loan Documents or Obligations. 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.



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



     Fiscal Year: the fiscal year of Borrowers and Subsidiaries for accounting and tax
purposes, ending on October 31 of each year.



     Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for
Borrowers and Subsidiaries, of (a) EBITDA minus Capital Expenditures (except those financed
with Borrowed Money other than Revolver Loans) and cash taxes paid, to (b) Fixed Charges. Such
ratio shall be measured on a Fiscal Year to date basis for measurement dates prior to the end of
Fiscal Year 2008, and on a most recent four Fiscal Quarter basis for measurement dates thereafter.



     Fixed Charges: the sum of interest expense (other than payment-in-kind), principal
payments made by any Obligor on Borrowed Money (other than the Obligations and the obligations
under the UK Loan Facility), and Distributions made by Parent.



     FLSA: the Fair Labor Standards Act of 1938.



-11-









 





     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
(b) mandated by a government other than the United States for employees of any Obligor or
Subsidiary.



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



     Full Payment: with respect to any Obligations, (a) if such Obligations are
Obligations other than (i) LC Obligations, (ii) Obligations arising under Bank Products, or (iii)
contingent indemnity Obligations, the full cash payment thereof, including any interest, fees and
other charges accruing during an Insolvency Proceeding (whether or not allowed in the proceeding);
and (b) if such Obligations are LC Obligations or Obligations arising under Bank Products, Cash
Collateralization thereof (or delivery of a standby letter of credit acceptable to Lender in its
discretion, in the amount of required Cash Collateral). The Revolver Loans shall not be deemed to
have been paid in full until the Revolver Commitment has expired or been terminated.



     GAAP: generally accepted accounting principles in effect in the United States from
time to time, including any changes permitted under such principles as set forth in Section 1.2.



     Gekko: Gekko Brands, LLC, an Alabama limited liability company.



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



     Governmental Authority: any federal, state, 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
associated with the United States, a state, district or territory thereof, or a foreign entity or
government.



     Guarantor Payment: as defined in Section 5.9.3.



     Guarantors: Each of Parent’s Subsidiaries set forth on Schedule G-1 and each other
Person who guarantees payment or performance of any Obligations.



     Guaranty: each guaranty agreement executed by a Guarantor in favor of Lender.



     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.



     Immaterial Tax: a state or local Tax obligation of an Obligor, with respect to which
the amount of all such Taxes is less than $500,000.



     Indemnified Taxes: Taxes other than Excluded Taxes.



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



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     Insolvency Proceeding: any case or proceeding commenced by or against a Person under
any state, federal or foreign law for, or any agreement of such Person to, (a) the entry of an
order for relief under the Bankruptcy Code, or any other insolvency, debtor relief or debt
adjustment law; (b) the appointment of a receiver, trustee, liquidator, administrator, conservator
or other custodian for such Person or any part of its Property; or (c) an assignment or trust
mortgage for the benefit of creditors.



     Insurance Assignment: each collateral assignment of insurance pursuant to which an
Obligor assigns to Lender such Obligor’s rights under business interruption or other insurance
policies as Lender reasonably deems appropriate, as security for the Obligations.



     Intellectual Property: all intellectual 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.



     Intellectual Property Claim: any claim or assertion (whether in writing, by suit or
otherwise) that a Borrower’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.



     Intercompany Subordination Agreement: the Intercompany Subordination Agreement
executed by Parent, Borrowers and each of their Subsidiaries in form and substance satisfactory to
Lender.



     Interest Period: as defined in Section 3.1.3.



     Inventory: as defined in the UCC, 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, advertising, sale, lease or furnishing of such goods, or otherwise used or
consumed in a Borrower’s business (but excluding Equipment).



     Inventory Formula Amount: the least of (i) $45,000,000; (ii) the sum of (x) the
Applicable Inventory Advance Rate times the Value of Eligible Inventory; plus (y) the Applicable
Inventory Advance Rate times the Value of Eligible In-Transit Inventory plus (z) the Slow Moving
Inventory Advance Rate times the Value of Eligible Slow Moving Inventory, or (iii) 85% of the
product of (y) NOLV Percentage multiplied by (z) the sum of (1) the Value of Eligible Inventory
plus (2) the Value of Eligible In-Transit Inventory plus (3) the Value of Eligible Slow Moving
Inventory.



     Inventory Reserve: reserves established by Lender 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.



     Inverse Inventory Advance Rate: for LC Obligations relating to documentary Letters of
Credit issued to support Borrowers’ purchase of Inventory, a percentage equal to 100% minus
the Applicable Inventory Advance Rate.



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     Investment: any acquisition of all or substantially all assets of a Person; any
acquisition of record or beneficial ownership of any Equity Interests of a Person; or any advance
or capital contribution to or other investment in a Person.



     IRS: the United States Internal Revenue Service.



     LC Application: an application by Borrower Agent to Lender for issuance of a Letter
of Credit, in form and substance reasonably satisfactory to Lender.



     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
LC Obligations do not exceed the Letter of Credit Subline, no Overadvance exists and, if no
Revolver Loans are outstanding, the LC Obligations do not exceed the Borrowing Base (without giving
effect to the LC Reserve for purposes of this calculation); (c) 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,
(ii) no more than 120 days from issuance, in the case of documentary Letters of Credit, and
(iii) at least 20 Business Days prior to the Revolver Termination Date; (d) the Letter of Credit
and payments thereunder are denominated in Dollars; and (e) the purpose and form of the proposed
Letter of Credit is satisfactory to Lender in its reasonable discretion.



     LC Documents: all documents, instruments and agreements (including LC Requests and LC
Applications) delivered by Borrowers or any other Person to Lender in connection with issuance,
amendment or renewal of, or payment under, any Letter of Credit.



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



     LC Request: a request for issuance of a Letter of Credit, to be provided by Borrower
Agent, in form reasonably satisfactory to Lender.



     LC Reserve: the aggregate of all LC Obligations, other than (a) those that have been
Cash Collateralized and (b) if no Default or Event of Default exists, those constituting charges
owing to Lender. For purposes of this definition, (x) in the case of documentary Letters of Credit
issued to support Borrowers’ purchase of Eligible In-Transit Inventory (and so long as such Letters
of Credit have not become bankers acceptances), the reserve shall be limited to (i) the Inverse
Inventory Advance Rate times (ii) the amount of LC Obligations attributable to such
documentary Letters of Credit and (y) in the case of all other Letters of Credit (including the
Back-Up LC) and bankers acceptances, the reserve shall equal 100% of the face amount of all
outstanding Letters of Credit and bankers acceptances.



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



     Letter of Credit: any standby or documentary letter of credit (including the Back-Up
LC) issued by Lender for the account of a Borrower, or any indemnity, guarantee, exposure
transmittal memorandum or similar form of credit support issued by Lender for the benefit of a
Borrower.



-14-









 





     Letter of Credit Subline: $15,000,000.



     LIBOR: for any Interest Period with respect to a LIBOR Loan, the per annum rate of
interest (rounded upward, if necessary, to the nearest 1/100th of 1%), determined by Lender 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 Lender); 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 Lender’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.



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



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



     License: any license or agreement under which an Obligor 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.



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



     Lien: any Person’s interest in Property securing an obligation owed to, or a claim
by, such Person, whether such interest is based on common law, statute or contract, including
liens, security interests, pledges, hypothecations, statutory trusts, reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Property.



     Lien Waiver: an agreement, in form and substance reasonably satisfactory to Lender,
by which (a) for any material Collateral located on leased premises, the lessor waives or
subordinates any Lien it may have on the Collateral to the Lien of Lender, and agrees to permit
Lender 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 to the Lien of Lender, agrees to hold any Documents in its possession relating to the
Collateral as agent for Lender, and agrees to deliver the Collateral to Lender upon request;
(c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Lender’s
Lien, waives or subordinates any Lien it may have on the Collateral to the Lien of Lender, and
agrees to deliver the Collateral to Lender upon request; and (d) for any Collateral subject to a
Licensor’s Intellectual Property rights, the Licensor grants to Lender the right, vis-à-vis such
Licensor, to enforce Lender’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.



     Loan: a Revolver Loan.



-15-









 





     Loan Account: the loan account established by Lender on its books pursuant to
Section 5.7.



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



     Loan Year: each calendar year commencing on the Closing Date and on each anniversary
of the Closing Date.



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



     Material Adverse Effect: the effect of any event or circumstance that, taken alone or
in conjunction with other events or circumstances, (a) has or could be reasonably expected to have
a material adverse effect on the business, operations, Properties, prospects or condition
(financial or otherwise) of the Obligors taken as a whole, on the value of any material Collateral,
on the enforceability of any Loan Documents, or on the validity or priority of Lender’s Liens on
any Collateral; (b) impairs the ability of the Obligors taken as a whole, to perform any material
obligations under the Loan Documents, including repayment of any Obligations; or (c) otherwise
impairs the ability of Lender to enforce or collect any Obligations or to realize upon any
Collateral.



     Material Contract: any agreement or arrangement to which a Borrower or Subsidiary is
party (other than the Loan Documents) (a) for which breach, termination, nonperformance or failure
to renew could reasonably be expected to have a Material Adverse Effect; or (b) that relates to
Subordinated Debt, or Debt in an aggregate amount of $100,000 or more.



     Material Obligor: any Obligor other than Ashworth Store III and Ashworth Store II.



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



     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.



     Net Proceeds: with respect to an Asset Disposition, proceeds (including, when
received, any deferred or escrowed payments) received by a Borrower 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 Lender’s Liens on Collateral sold; (c) transfer or similar
taxes; and (d) reserves for indemnities, until such reserves are no longer needed; provided, that
“Net Proceeds” shall not include proceeds of or constituting Excluded Assets.



     NOLV Percentage: the net orderly liquidation value of Inventory, expressed as a
percentage, 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
Borrowers’ Inventory performed by an appraiser and on terms reasonably satisfactory to Lender.



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



-16-









 





     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, in form
satisfactory to Lender.



     Obligations: all (a) principal of and premium, if any, on the Loans, (b) LC
Obligations and other obligations of Obligors with respect to Letters of Credit, (c) interest,
expenses, fees and other sums payable by Obligors under Loan Documents, (d) obligations of Obligors
under any indemnity for Claims, (e) Extraordinary Expenses, (f) Bank Product Debt, and (g) other
Debts, obligations and liabilities of any kind owing by any Obligor to Lender 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; provided, however, that the Obligations shall not include any obligations under the UK
Loan Facility.



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



     Operating Cash: cash on hand at Borrowers’ retail locations and held in local cash
accounts for such retail locations.



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



     OSHA: the Occupational Safety and Hazard Act of 1970.



     Other Agreement: each LC Document; Lien Waiver; Borrowing Base Certificate,
Compliance Certificate, the Intercompany Subordination Agreement, 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 Lender in connection
with any transactions relating hereto.



     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.



     Overadvance: as defined in Section 2.1.4.



     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).



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



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     PBGC: the Pension Benefit Guaranty Corporation.



     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.



     Permitted Acquisition: any transaction for the (a) acquisition of all or
substantially all of the property of any Person, or of any business or division of any Person; or
(b) acquisition (including by merger or consolidation) of all or substantially all of the Equity
Interests of any Person that becomes a Subsidiary after giving effect to such transaction; provided
that each of the following conditions shall be met:




     (i) no Default or Event of Default then exists or would result therefrom;




     (ii) after giving effect to such transaction, Availability is at least $5,000,000;




     (iii) no Borrower or Subsidiary shall, in connection with any such transaction, assume
or remain liable with respect to any Debt of the related seller, except to the extent
permitted under Section 10.2.1;




     (iv) the Person or business to be acquired shall be, or shall be engaged in, a business
of the type that Borrowers and the Subsidiaries are permitted to be engaged in under Section
10.2.16 and the property acquired in connection with any such transaction shall be made
subject to the Lien of the Security Documents and shall be free and clear of any Liens,
other than Permitted Liens;




     (v) the Board of Directors of the Person to be acquired shall not have indicated
publicly its opposition to the consummation of such acquisition (which opposition has not
been publicly withdrawn);




     (vi) all transactions in connection therewith shall be consummated in all material
respects in accordance with all Applicable Law;




     (vii) with respect to any transaction, unless Lender shall otherwise agree, Borrowers
shall have provided Lender with (A) historical financial statements for the last three
fiscal years (or, if less, the number of years since formation) of the Person or business to
be acquired (audited if available without undue cost or delay) and unaudited financial
statements thereof for the most recent interim period which are available, (B) reasonably
detailed projections for the succeeding five years pertaining to the Person or business to
be acquired and updated projections for Parent and the Subsidiaries after giving effect to
such transaction, (C) a reasonably detailed description of all material information relating
thereto and copies of all material documentation pertaining to such transaction, and (D) all
such other information and data relating to such transaction or the person or business to be
acquired as may be reasonably requested by Lender;




     (viii) at least 10 Business Days prior to the proposed date of consummation of the
transaction, Borrowers shall have delivered to Lender a certificate of a Senior Officer



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certifying that (A) such transaction complies with this definition, and (B) such
transaction could not reasonably be expected to result in a Material Adverse Effect;




     (ix) the Acquisition Consideration for such acquisition shall not exceed $5,000,000,
and the aggregate amount of the Acquisition Consideration for all Permitted Acquisitions
since the Closing Date shall not exceed $25,000,000;




     (x) prior to the date of consummation of the transaction, Lender shall have received
and approved all acquisition documents, UCC and lien searches, opinions and other documents
as requested by Lender;




     (xi) For proposed Permitted Acquisitions other than those permitted under subsection
(xiii), the Fixed Charge Coverage Ratio immediately prior to and after giving effect to such
Permitted Acquisition shall be no less than 1.10:1.00;




     (xii) No more than two Permitted Acquisitions shall be entered into or consummated
during any Fiscal Year after the first Loan Year;




     (xiii) No more than one Permitted Acquisitions shall be entered into or consummated
during the first Loan Year, and in no event shall such Permitted Acquisition in the First
Loan Year have a cash portion of any Acquisition Consideration for such acquisition exceed
$250,000;




     (xiv) Borrowers have provided Lender with forecasted balance sheets, profit and loss
statements, and cash flow statements of the Person or related to the assets to be acquired,
all prepared on a basis consistent with such Person’s or assets’ historical financial
statements, together with appropriate supporting details and a statement of underlying
assumptions for the 3 year period following the date of the proposed acquisition (on a year
by year basis, and for the 1 year period following the date of the proposed acquisition, on
a month by month basis), in form and substance (including as to scope and underlying
assumptions) reasonably satisfactory to Lender;




     (xv) 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 Interest is being acquired is organized in a jurisdiction located within the
United States or Canada;




     (xvi) For proposed acquisitions other than those permitted under subsection (xiii),
Borrower Agent has provided Lender with written notice of the proposed acquisition at least
30 Business Days prior to the anticipated closing date of the proposed acquisition and, not
later than 5 Business Days prior to the anticipated closing date of the proposed
acquisition, copies of the acquisition agreement and other material documents relative to
the proposed acquisition, which agreement and documents must be reasonably acceptable to
Lender; and




     (xvii) the subject assets or Equity Interests, as applicable, are being acquired
directly by an Obligor, and (i) in the case of an asset acquisition, such Obligor shall have
executed and delivered or authorized, as applicable, any and all documentation reasonably
requested by the Lender in order to include the newly acquired assets within the collateral
hypothecated under the Loan Documents, and (ii) in the case of an



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acquisition of Equity Interests, such Obligor shall have complied with Section 10.1.9
of the Agreement.



     Notwithstanding the foregoing, the Accounts and Inventory of the Person being acquired or
comprising the assets being acquired shall not be considered for inclusion in the Borrowing Base
until a field audit or appraisal of such Person or such assets has been completed to the
satisfaction of Lender.



     Permitted Asset Disposition: as long as no Default or Event of Default exists and all
Net Proceeds are remitted to Lender (if and to the extent required by Section 5.2), an Asset
Disposition that is (a) sale of Inventory in the ordinary course of business; (b) a disposition of
Inventory or other Property that is obsolete, unmerchantable or otherwise not used or useful in the
ordinary course of business; (c) termination of a lease of real or personal Property that is not
necessary for the ordinary course of business, could not reasonably be expected to have a Material
Adverse Effect; (d) leases of real or personal property in the ordinary course of business;
(e) mergers and consolidations in compliance with Section 10.2.9; (f) the unwinding of any Hedging
Agreement; (g) any Asset Disposition from any Subsidiary to any Borrower; (h) Investments in
compliance with Section 10.2.5; (i) dispositions of Property identified on Schedule P-1; (j)
Distributions in compliance with Section 10.2.4; (k) the creation of any Permitted Lien; (l)
dispositions of Accounts in connection with the compromise, settlement or collection thereof in the
ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or
similar arrangements; (m) licenses of Intellectual Property granted by Borrowers or any Subsidiary
in the ordinary course of business; (n) Investments in compliance with Section 10.2.5; (n) other
dispositions that, in the aggregate during any 12 month period, have a fair market or book value
(whichever is more) of $750,000 or less; (o) the sale of Inventory by Parent to Ashworth UK in the
ordinary course of business and consistent with past practices; or (p) approved in writing by
Lender.



     Permitted Capital Leases: (i) Capital Leases of Borrowers and Subsidiaries set forth
on Schedule P-2, and (ii) other Capital Leases of Borrowers and Subsidiaries so long as the
aggregate amount of such other Capital Leases does not exceed $1,000,000 at any time outstanding.



     Permitted Contingent Obligations: Contingent Obligations (a) arising from
endorsements of Payment Items for collection or deposit in the ordinary course of business;
(b) arising from Hedging Agreements permitted hereunder; (c) existing on the Closing Date, and any
extension or renewal thereof that does not increase the amount of such Contingent Obligation when
extended or renewed; (d) incurred in the ordinary course of business with respect to surety, appeal
or performance bonds, or other similar obligations; (e) arising from customary indemnification
obligations in favor of purchasers in connection with dispositions of Equipment permitted
hereunder; (f) arising under the Loan Documents; (g) in respect of a guaranty of Debt or other
obligations permitted hereunder; (h) product warranties in the ordinary course of business; or
(i) in addition to the foregoing, in an aggregate amount of $100,000 or less at any time.



     Permitted Distributions: (a) any Borrower or Subsidiary may make Distributions to an
officer or employee for salary, travel expenses, commissions and similar items in the ordinary
course of business; (b) any Borrower or Subsidiary may purchase, redeem or otherwise acquire shares
of its common stock or other common equity interests or warrants or options to acquire any such
shares with the proceeds received from the substantially concurrent issue of new shares



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of its common stock or other common equity interests; (c) any Borrower or Subsidiary may
purchase, redeem or otherwise acquire shares of its common stock or other of its common equity
interests or warrants or options to acquire any such shares with the proceeds received from the
substantially concurrent issue of new shares of its common stock or other of its common equity
interests; (d) Parent may (i) repurchase, redeem, or otherwise acquire for value Equity Interests
of Parent held by present or former officers, directors or employees (or their transferees, estates
or beneficiaries under their estates) upon their death, disability, retirement, severance or
termination of employment or service or pursuant to any management equity plan or stock option plan
or any other management or employee benefit plan, agreement or arrangement; provided that
the aggregate cash consideration paid for all such repurchases, redemptions and acquisitions shall
not exceed, without duplication, in any calendar year, $500,000, (ii) make repurchases of Equity
Interests deemed to occur upon the exercise of stock options if the Equity Interests represent a
portion of the exercise price thereof, (iii) make cash payments in lieu of the issuance of
fractional shares in connection with the exercise of warrants, options or other securities
convertible into or exchangeable for Equity Interests of Parent; and (e) any Borrower or Subsidiary
may declare and make other Distributions so long as no Default or Event of Default exists before
and immediately after declaring and making such Distribution, and after giving effect thereto
Availability is at least $8,000,000.



     Permitted Investments: (a) Investments existing on the Closing Date
and set forth on Schedule P-3; (b) Cash Equivalents that, in the case of an Obligor, are subject to
Lender’s Lien and control, pursuant to documentation in form and substance reasonably satisfactory
to Lender; (c) loans and advances permitted under Section 10.2.7; (d) Investments by any Borrower
in any other Borrower and Investments by any Subsidiary in any Borrower; (e) Investments received
in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and
disputes with, customers and suppliers; (f) endorsement of negotiable instruments held for
collection in the ordinary course of business; (g) lease, utility and other similar deposits in the
ordinary course of business; (h) Investments in Hedging Agreements, (i) Investments made by any
Borrower or any Subsidiary as a result of consideration received in connection with a Permitted
Asset Disposition made in compliance with Section 10.2.6, (j) Permitted Contingent Obligations; (k)
Permitted Acquisitions (and any deposits required in connection therewith); (l) at any time after
the First Loan Year, additional Investments which do not exceed $10,000,000.00 in the aggregate at
any time provided that at the time of such Investment under this clause (l) no Event of Default
exists or would exist after giving effect to such Investment, after giving effect thereto
Availability is at least $8,000,000; and (m) deposit accounts that, in the case of an Obligor, are,
except as otherwise permitted hereunder, subject to Lender’s Lien and control, pursuant to
documentation in form and substance reasonably satisfactory to Lender. The amount of any Investment
outstanding at any time pursuant to clause (l) hereunder (x) shall not include any appreciation in
the value of any such Investment occurring after the acquisition or making of such Investment and
(y) shall be deemed to be reduced upon the disposition or repayment of or return on any such
Investment, by an amount equal to the return of capital or principal with respect to such
Investment to the applicable Person, less the reasonable cost of the disposition of such Investment
and net of taxes.



     Permitted Lien: as defined in Section 10.2.2.



     Permitted Purchase Money Debt: Purchase Money Debt of Borrowers and Subsidiaries that
is unsecured or secured only by a Purchase Money Lien, as long as the aggregate amount does not
exceed $1,000,000 at any time and its incurrence does not violate Section 10.2.3.



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



     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.



     Properly Contested: with respect to any obligation of an Obligor, (a) the obligation
is subject to a bona fide dispute regarding amount or the Obligor’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, nor result in forfeiture or sale of any
assets of the Obligor; (e) no Lien is imposed on assets of the Obligor, unless bonded and stayed to
the reasonable satisfaction of Lender; and (f) if the obligation results from entry of a judgment
or other order, such judgment or order is stayed pending appeal or other judicial review.



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



     Purchase Money Debt: (a) Debt (other than the Obligations) for payment of any of the
purchase price of fixed assets; (b) Debt (other than the Obligations) incurred within 180 days
before or after acquisition of any fixed assets, for the purpose of financing any of the purchase
price thereof; and (c) any renewals, extensions or refinancings (but not increases) thereof.



     Purchase Money Lien: a Lien that secures Purchase Money Debt, encumbering only the
fixed assets acquired with such Debt and accessions to, and products and proceeds (including
insurance condemnation proceeds) of, such acquired assets.



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



     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.



     Real Estate Term Loan: the “Loan” as defined in that certain Loan Agreement, dated as
of April 2, 2004 (as amended, restated, replaced, supplemented or otherwise modified from time to
time,), between Bank of America, N.A., a national banking association, having an address at 214
North Tryon Street, Charlotte, North Carolina 28255 and Ashworth EDC, LLC, a Delaware limited
liability company having an address at 2765 Loker Avenue West, Carlsbad, California 92008.



     Refinancing Conditions: the following conditions for Refinancing Debt: (a) it is in
an aggregate principal amount that does not exceed the principal amount of the Debt being extended,
renewed or refinanced (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, extension or
renewal and by an amount equal to any existing commitments unutilized thereunder); (b) it has a
final maturity no sooner than the Debt being extended, renewed or refinanced; (c) if applicable, it
is subordinated to the Obligations at least to the same



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extent as the Debt being extended, renewed or refinanced; (d) the representations, covenants
and defaults applicable to it are, taken as a whole, no less favorable to Borrowers than those
applicable to the Debt being extended, renewed or refinanced as determined in good faith by
Parent’s board of directors; (e) no additional Property or, if applicable, class of Property is
subjected to a Lien to secure it; (f) no additional Person or, if applicable, category of Person is
obligated on such Debt (except for Permitted Contingent Obligations arising from the guaranty of
such Debt); and (g) upon giving effect to it, no Default or Event of Default exists.



     Refinancing Debt: Borrowed Money that is the result of an extension, renewal or
refinancing of Debt permitted under Section 10.2.1(b), (d) ,(f), or (h) .



     Reimbursement Date: as defined in Section 2.3.2.



     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 Collateral or could assert a Lien on any
Collateral; and (b) 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; provided,
however, that for the first 60 days after the Closing Date, the amount of any Rent and
Charges Reserve for any leased location with respect to which the Borrower is still diligently
pursuing a Lien Waiver shall be $0.



     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.



     Reserve Percentage: the reserve percentage (expressed as a decimal, rounded upward to
the nearest 1/100th of 1%) applicable to member banks under regulations issued from time to time by
the Board of Governors for determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently
referred to as “Eurocurrency liabilities”).



     Restricted Investment: any Investment by a Borrower or Subsidiary that is not a
Permitted Investment.



     Revolver Commitment: Lender’s obligation to make Revolver Loans and to issue Letters
of Credit in an amount up to $55,000,000.



     Revolver Loan: a loan made pursuant to Section 2.1.



     Revolver Termination Date: January 11, 2012.



     Royalties: all royalties, fees, expense reimbursement and other amounts payable by a
Borrower under a License.



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



     Seasonal Advance Rate Period: the period (but no more than one period) during any
Fiscal Year (a) commencing upon notice from Borrowers to Agent, which notice may only be given on
(x) or after January 1 and before May 15 of such Fiscal Year and (y) so long as no



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Default or Event of Default then exists, and (b) continuing until the earliest of (x) 4 months
from the giving of such notice, (y) a Default or Event of Default shall occur, or (z) June 1 of
such Fiscal Year.



     Secured Parties: Lender and providers of Bank Products.



     Security Documents: the Guaranties, the Deed of Hypothec, the UK Charge over Shares,
Deposit Account Control Agreements, and all other documents, instruments and agreements now or
hereafter securing (or given with the intent to secure) any Obligations.



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



     Slow Moving Inventory Advance Rate: 65% during the first Loan Year; 43% during the
second Loan Year; 22% during the third Loan Year; and 0% thereafter.



     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 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 interested
buyer who is willing (but under no compulsion) to purchase.



     Specified Payments: (i) guaranteed earn-out payments to executives of Gekko pursuant
to Executive Employment Agreements by and between Gekko as in effect on the date hereof and as
previously disclosed to Lender, the total amount of which payments shall not exceed in the
aggregate, $3,500,000, and (ii) payments to executives (other than those specified in subsection
(i) above) of Gekko pursuant to such Executive Employment Agreements which are based on the
performance of such executives.



     Subordinated Debt: Debt incurred by a Borrower that is expressly subordinate and
junior in right of payment to Full Payment of all Obligations, and is on terms (including maturity,
interest, fees, repayment, covenants and subordination) satisfactory to Lender.



     Subsidiary: any entity more than 50% of whose voting securities or Equity Interests
is owned by a Borrower or any combination of Borrowers (including indirect ownership by a Borrower
through other entities in which such Borrower directly or indirectly owns more than 50% of the
voting securities or Equity Interests).



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



     Trademark Security Agreement: each trademark security agreement pursuant to which an
Obligor grants a Lien to Lender on such Obligor’s interests in trademarks, as security for the
Obligations.



     Type: any type of a Loan (i.e., Base Rate Loan or LIBOR Loan) that has the same
interest option and, in the case of LIBOR Loans, the same Interest Period.



     UCC: the Uniform Commercial Code as in effect in the State of California or, when the
laws of any other jurisdiction govern the perfection or enforcement of any Lien, the Uniform
Commercial Code or any other applicable law (including the Civil Code of Quebec) of such
jurisdiction.



     UK Loan Document: any document, agreement, or instrument evidencing the loans under
the UK Loan Facility, or any guaranty or security therefor.



     UK Loan Facility: the loan facility now or in the future provided by Lender to
Ashworth UK, including, without limitation, any present or future guarantees thereof provided by
any Borrower or Subsidiary.



     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.



     Upstream Payment: a Distribution by a Subsidiary to any Obligor or any Obligor to
another Obligor (and, in the case of a Distribution by a non-wholly-owned Subsidiary, to any
Obligor and any Subsidiary and to each other owner of capital stock or other equity interests of
such Subsidiary on a pro rata basis based on their relative ownership interests).



     Value: (a) for Inventory, its 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 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.




     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 Borrowers delivered to Lender
before the 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 Borrowers’ certified public
accountants concur in such change, and the change is disclosed to Lender.




     1.3 Uniform Commercial Code. As used herein, the following terms are defined in
accordance with the UCC in effect in the State of California from time to time: “Chattel



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Paper,” “Commercial Tort Claim,” “Deposit Account,” “Document,” “Equipment,” “General
Intangibles,” “Goods,” “Instrument,” “Investment Property,” “Letter-of-Credit Right” and
“Supporting Obligation.”




     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 Lender’s notice
address under Section 12.3.1; or (g) discretion of Lender mean its reasonable discretion. 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 reasonably satisfactory to Lender (and not necessarily calculated in accordance with
GAAP). 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
Borrowers’ knowledge” or words of similar import are used in any Loan Documents, it means actual
knowledge of a Senior Officer, or knowledge that a Senior Officer 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.



     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 Quebec, (i) ”personal
property” shall be deemed to include “movable property”, (ii) ”real property” shall be deemed to
include “immovable property” and an “easement” shall be deemed to include a “servitude”,
(iii) ”tangible property” shall be deemed to include “corporeal property”, (iv) ”intangible
property” shall be deemed to include “incorporeal property”, (v) ”security interest” and “mortgage”
shall be deemed to include a “hypothec”, (vi) all references to filing, registering or recording
under the UCC shall be deemed to include publication under the Civil Code of Quebec, and all
references to releasing any Lien shall be deemed to include a release, discharge and mainlevee of a
hypothec, (vii) all references to “perfection” of or “perfected” Liens shall be deemed to include a
reference to the “opposability” of such Liens to third parties, (viii) any “right of offset”,
“right of setoff” or similar expression shall be deemed to include a “right of



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compensation”, (ix) ”goods” shall be deemed to include “corporeal movable property” other than
chattel paper, documents of title, instruments, money and securities, and (x) an “agent” shall be
deemed to include a “mandatary”.



SECTION 2 CREDIT FACILITIES





     2.1 Revolver Commitment.



          2.1.1 Revolver Loans. Lender agrees, on the terms set forth herein, to make Revolver
Loans to Borrowers in an aggregate amount up to the Revolver Commitment, from time to time through
the Commitment Termination Date. The Revolver Loans may be repaid and reborrowed as provided
herein. In no event shall Lender have any obligation to honor a request for a Revolver Loan if the
unpaid balance of Revolver Loans outstanding at such time (including the requested Loan) would
exceed the Borrowing Base.




          2.1.2 Use of Proceeds. The proceeds of Revolver Loans shall be used by Borrowers
solely (a) to satisfy existing Debt; (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 general corporate purposes of Borrowers, including
Permitted Acquisitions.




          2.1.3 Voluntary Reduction or Termination of Revolver Commitment.




          (a) The Revolver Commitment shall terminate on the Revolver Termination Date, unless sooner
terminated in accordance with this Agreement. Upon at least 15 days prior written notice to
Lender, Borrowers may, at their option, terminate the Revolver Commitment and this credit facility.
Any notice of termination given by Borrowers shall be irrevocable; provided that a notice of
termination delivered by Borrowers may state that such notice is conditioned upon the effectiveness
of other credit facilities, in which case such notice may be revoked by Borrowers (by notice to
Lender on or prior to the specified effective date) if such condition is not satisfied. On the
termination date, Borrowers shall make Full Payment of all Obligations.




          (b) [Intentionally Deleted].




          (c) Concurrently with any reduction or termination of the Revolver Commitment occurring during
the first Loan Year or second Loan Year, for whatever reason (including an Event of Default),
Borrowers shall pay to Lender, as liquidated damages for loss of bargain (and not as a penalty), an
amount equal to (i) 1% of the Revolver Commitment being reduced or terminated. No termination
charge shall be payable if termination occurs on or after the first day of the third Loan Year, or
the termination is in connection with the repayment in full of the Obligations with the proceeds of
a credit facility provided in full by the commercial banking division of Lender, or with respect to
which such division is the sole administrative agent.




          2.1.4 Overadvances. If the aggregate Revolver Loans exceed the Borrowing Base
(“Overadvance”) or the Revolver Commitment at any time, the excess amount shall be payable
by Borrowers on demand by Lender, but all such Revolver Loans shall nevertheless constitute
Obligations secured by the Collateral and entitled to all benefits of the Loan



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Documents. Any funding or sufferance of an Overadvance shall not constitute a waiver of the
Event of Default caused thereby.





     2.2 [Intentionally Deleted]




     2.3 Letter of Credit Facility.



          2.3.1 Issuance of Letters of Credit. Lender agrees to issue or extend Letters of
Credit (including the Back-Up LC which shall be issued on the Closing Date) from time to time until
20 Business Days prior to the Revolver Termination Date (or until the Commitment Termination Date,
if earlier), on the terms set forth herein, including the following:




          (a) Each Borrower acknowledges that Lender’s willingness to issue any Letter of Credit is
conditioned upon its receipt of a LC Application with respect to the requested Letter of Credit, as
well as such other instruments and agreements as Lender may customarily require for issuance of a
letter of credit of similar type and amount. Lender shall have no obligation to issue any Letter
of Credit unless (i) it receives a LC Request and LC Application at least three Business Days prior
to the requested date of issuance; and (ii) each LC Condition is satisfied.




          (b) Letters of Credit may be requested by a Borrower only (i) to support obligations of such
Borrower incurred in the ordinary course of business; or (ii) for other purposes as Lender may
approve from time to time in writing. The renewal or extension of any Letter of Credit shall be
treated as the issuance of a new Letter of Credit, except that delivery of a new LC Application
shall be required at the reasonable discretion of Lender.




          (c) Borrowers assume all risks of the acts, omissions or misuses of any Letter of Credit by
the beneficiary. In connection with issuance of any Letter of Credit, Lender shall not 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
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 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 Letter of Credit or the proceeds thereof; or any consequences arising from
causes beyond the control of Lender, including any act or omission of a Governmental Authority.
Lender shall be fully subrogated to the rights and remedies of each beneficiary whose claims
against Borrowers are discharged with proceeds of any Letter of Credit.




          (d) In connection with its administration of and enforcement of rights or remedies under any
Letters of Credit or LC Documents, Lender shall be entitled to act, and shall be fully protected in
acting, upon any certification, documentation or communication in whatever form believed by Lender,
in good faith, to be genuine and correct and to have been signed, sent or made by a proper Person.
Lender may consult with and employ legal counsel, accountants



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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. Lender may employ agents and attorneys-in-fact in connection
with any matter relating to 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) If the Borrower Agent so requests in any applicable LC Application, the Lender may, in its
sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension
provisions (each, an “Auto-Extension Letter of Credit”); provided that any such
Auto-Extension Letter of Credit must permit the Lender to prevent any such extension at least once
in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by
giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice
Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is
issued. Unless otherwise directed by the Lender, the Borrowers shall be required to make request
to the Lender for any such extension within 5 Business Days prior to the termination date of such
Letter of Credit; provided, however, that the Lender shall not permit any such
extension if (A) the Lender has determined that it would not be permitted, or would have no
obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the
terms hereof, or (B) one or more of the applicable conditions specified in Section 6 is not then
satisfied.




          (f) Notwithstanding the provisions of this Section 2 (including without limitation Sections
2.3.1 and 2.3.2), Lender shall not be exonerated from any liability to any Borrower resulting from
its gross negligence or willful misconduct.




          2.3.2 Reimbursement. If Lender honors any request for payment under a Letter of
Credit, Borrowers shall pay to Lender, without duplication, on the same day (“Reimbursement
Date”), the amount paid under such Letter of Credit, together with interest at the interest
rate for Base Rate Revolver Loans from the Reimbursement Date until payment by Borrowers. The
obligation of Borrowers to reimburse Lender for any payment made under a 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 Letter of Credit or the existence of any claim,
setoff, defense or other right that Borrowers may have at any time against the beneficiary.
Whether or not Borrower Agent submits a Notice of Borrowing, Borrowers shall be deemed to have
requested a Borrowing of Base Rate Revolver Loans in an amount necessary to pay all amounts due on
any Reimbursement Date.




          2.3.3 Cash Collateral.




               (i) If any 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 and is continuing, (b) that
Availability is less than zero, or (c) after the Commitment Termination Date, then Borrowers shall,
at Lender’s request, Cash Collateralize the stated amount of all outstanding Letters of Credit and
pay to Lender the amount of all other LC Obligations. If Borrowers fail to provide Cash Collateral
as required herein, Lender may advance, as Revolver Loans, the amount of the Cash Collateral
required.



               (ii) If Borrower Agent request that any Letter of Credit be renewed pursuant to
Section 2.2.2(e) which causes the expiration date of such Letter of Credit to



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be after the Commitment Termination Date, before such renewal becomes effective, Borrower
shall Cash Collateralize the stated amount of such Letter of Credit.



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 Base Rate Loan, at the 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; and (iii) if any other Obligation (other than the LC
Obligations and Bank Product Debt) (including, to the extent permitted by law, interest not paid
when due), at the Base Rate in effect from time to time, plus the Applicable Margin for Base Rate
Revolver Loans. Interest shall accrue from the date the Loan is advanced or the Obligation is
incurred or payable, until paid by Borrowers. If a Loan is repaid on the same day made, one day’s
interest shall accrue.




          (b) During an Insolvency Proceeding with respect to any Borrower, or during any other Event of
Default if Lender in its discretion so elects, Obligations (other than the LC Obligations and Bank
Product Debt) shall bear interest at the Default Rate (whether before or after any judgment). Each
Borrower acknowledges that the cost and expense to Lender due to an Event of Default are difficult
to ascertain and that the Default Rate is a fair and reasonable estimate to compensate Lender for
this.




          (c) Interest accrued on the Loans shall be due and payable in arrears, (i) on the first day of
each month; (ii) on any date of prepayment, with respect to the principal amount of Loans being
prepaid; and (iii) on the 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 Base Rate Loans 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, Lender may 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 Lender a Notice of Conversion/Continuation, no later than 11:00 a.m. at least three
Business Days before the requested conversion or continuation date. 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 one month if not specified). If, upon the
expiration of any Interest Period in respect of any LIBOR Loans, Borrowers shall have failed to
deliver a Notice of Conversion/Continuation, they shall be deemed to have elected to convert such
Loans into Base Rate Loans.




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          3.1.3 Interest Periods. In connection with the making, conversion or continuation of
any LIBOR Loans, Borrowers shall select an interest period (“Interest Period”) to apply,
which interest period shall be one, two, three or six months; 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, 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 the Revolver Termination Date.




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





     3.2 Fees.



          3.2.1 Unused Line Fee. Borrowers shall pay to Lender a fee equal to 0.25% per annum
times the amount by which the Revolver Commitment exceeds the sum of (i) the average actual daily
balance of Revolver Loans and stated amount of Letters of Credit during any month, plus (ii) the
Availability Block. Such fee shall be payable in arrears, on the first day of each month and on
the Commitment Termination Date.




          3.2.2 LC Facility Fees. Borrowers shall pay to Lender (a) a fee equal to the
Applicable Margin in effect for LIBOR Revolver Loans times the average actual daily stated amount
of Letters of Credit, which fee shall be payable monthly in arrears, on the first day of each
month; (b) a fronting fee equal to 0.125% per annum on the stated amount of each Letter of Credit,
which fee shall be payable monthly in arrears, on the first day of each month; and (c) all
customary charges associated with the issuance, amending, negotiating, payment, processing,
transfer and administration of Letters of Credit, which charges shall be paid as and when incurred.
During an Event of Default, the fee payable under clause (a) shall be increased by 2% per annum.




          3.2.3 Closing Fee. Borrowers shall pay to Lender a closing fee of $137,500, which
shall be paid concurrently with the funding of the initial Loans hereunder.





     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. Each determination by Lender 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



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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 Borrowers under Section 3.4, 3.6, 3.7, 3.9 or 5.8,
setting forth the calculation thereof in reasonable detail, submitted to Borrower Agent by Lender
shall be final, conclusive and binding for all purposes, absent manifest error, and Borrowers
shall pay such amounts to the appropriate party within 10 Business Days following receipt of the
certificate.




     3.4 Reimbursement Obligations. Borrowers shall reimburse Lender for all
Extraordinary Expenses. Borrowers shall also reimburse Lender 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, Loan Documents
and transactions contemplated thereby, including any actions taken to perfect or maintain priority
of Lender’s Liens on any Collateral, to maintain any insurance required hereunder or to verify
Collateral; and (c) subject to the limits of Section 10.1.1(b), each inspection, audit or
appraisal with respect to any Obligor or Collateral, whether prepared by Lender’s personnel or a
third party. If, for any reason (including inaccurate reporting on financial statements or a
Compliance Certificate), it is determined that a higher Applicable Margin should have applied to a
period than was actually applied, then the proper margin shall be applied retroactively and
Borrowers shall immediately pay to Lender 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.
If it is determined within 30 days after an adjustment in the Applicable Margin that the
Applicable Margin should have been adjusted to a lower Applicable Margin, then the proper margin
shall be applied retroactively and Lender shall pay to Borrowers an amount equal to the difference
between the amount of interest that would have accrued using the proper margin, such adjustment
payment shall only be made by Lender if the reason for the application of the incorrect Applicable
Margin is a result of calculation mistakes made by Borrowers on a Compliance Certificate (and not
mistakes or inaccurate reporting on financial statements), and Borrower notifies Lender of such
mistake within 30 days after such incorrect adjustment to the Applicable Margin. All amounts
payable by Borrowers under this Section shall be due on demand.




     3.5 Illegality. If Lender determines that any Applicable Law has made it unlawful,
or that any Governmental Authority has asserted that it is unlawful, for Lender to make, maintain
or fund LIBOR Loans, or to determine or charge interest rates based upon LIBOR, or any
Governmental Authority has imposed material restrictions on the authority of Lender to purchase or
sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by
Lender to Borrower Agent, any obligation of Lender to make or continue LIBOR Loans or to convert
Base Rate Loans to LIBOR Loans shall be suspended until Lender notifies Borrower Agent that the
circumstances giving rise to such determination no longer exist. Upon delivery of such notice,
Borrowers shall prepay or, if applicable, convert all LIBOR Loans to Base Rate Loans, either on
the last day of the Interest Period therefor, if Lender may lawfully continue to maintain LIBOR
Loans to such day, or immediately, if Lender may not lawfully continue to maintain LIBOR Loans.
Upon any such prepayment or conversion, Borrowers shall also pay accrued interest on the amount so
prepaid or converted.




     3.6 Inability to Determine Rates. If Lender notifies Borrower Agent for any reason
in connection with a request for a Borrowing of, conversion to or continuation of, a



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LIBOR Loan that (a) Dollar deposits are not being offered to banks in the London interbank
Eurodollar market for the applicable amount and Interest Period of such Loan, (b) adequate and
reasonable means do not exist for determining LIBOR for the requested Interest Period, or
(c) LIBOR for the requested Interest Period does not adequately and fairly reflect the cost to
Lender of funding such Loan, then the obligation of Lender to make or maintain LIBOR Loans shall
be suspended until it revokes the notice. Upon receipt of the notice, Borrower Agent may revoke
any pending request for a Borrowing of, conversion to or continuation of a LIBOR Loan or, failing
that, will be deemed to have submitted a request for a Base 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, Lender (except any reserve requirement reflected in LIBOR);




          (b) subject Lender to any Tax with respect to any Loan, Loan Document or Letter of Credit, or
change the basis of taxation of payments to Lender in respect thereof (except for Indemnified Taxes
or Other Taxes covered by Section 5.8 and the imposition of, or any change in the rate of, any
Excluded Tax payable by Lender); or




          (c) impose on Lender or the London interbank market any other condition, cost or expense
affecting any Loan, Loan Document or Letter of Credit; and the result thereof shall be to increase
the cost to Lender of making or maintaining any LIBOR Loan (or of maintaining its obligation to
make any such Loan), or to increase the cost to Lender of issuing or maintaining any Letter of
Credit (or of maintaining its obligation to issue any Letter of Credit), or to reduce the amount of
any sum received or receivable by Lender hereunder (whether of principal, interest or any other
amount) then, upon request by Lender pursuant to a certificate as set forth in Section 3.3,
Borrowers will pay to Lender such additional amount or amounts as will compensate Lender for such
additional costs incurred or reduction suffered.




          3.7.2 Capital Adequacy. If Lender determines that any Change in Law affecting Lender
or its holding company regarding capital requirements has or would have the effect of reducing the
rate of return on Lender’s or such holding company’s capital as a consequence of this Agreement,
Commitments, Loans or Letters of Credit to a level below that which Lender or such holding company
could have achieved but for such Change in Law (taking into consideration Lender’s and such holding
company’s policies with respect to capital adequacy), then from time to time upon request pursuant
to a certificate as set forth in Section 3.3 Borrowers will pay to Lender 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 Lender to demand compensation
pursuant to this Section shall not constitute a waiver of its right to demand such compensation,
but Borrowers shall not be required to compensate Lender for any increased costs incurred or
reductions suffered more than nine months prior to the date that Lender notifies Borrower Agent of
the Change in Law giving rise to such increased costs or reductions and of Lender’s intention to
claim compensation therefor (except that, if the Change in Law giving rise



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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 Lender gives a notice under Section 3.5 or requests compensation
under Section 3.7, or if Borrowers are required to pay additional amounts under Section 5.8, then
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 Lender, such designation or assignment (a) would eliminate the need for such notice or
reduce amounts payable in the future, as applicable; and (b) would not subject Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to Lender. Borrowers
agree to pay all reasonable costs and expenses incurred by Lender in connection with any such
designation or assignment.




     3.9 Funding Losses. If for any reason (a) any Borrowing of, or conversion to or
continuation of, a LIBOR Loan does not occur on the date specified therefor in a Notice of
Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (b) any repayment or
conversion of a LIBOR Loan occurs on a day other than the end of its Interest Period, or
(c) Borrowers fail to repay a LIBOR Loan when required hereunder, then Borrowers shall pay to
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. Lender shall not be required to
purchase Dollar deposits in the London interbank market or any other offshore Dollar market to
fund any LIBOR Loan, but the provisions hereof shall be deemed to apply as if Lender had purchased
such deposits to fund its LIBOR Loans.




     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 Lender shall receive interest in an amount that exceeds the maximum rate, the excess interest
shall be applied to the principal of the Obligations or, if it exceeds such unpaid principal,
refunded to Borrowers. In determining whether the interest contracted for, charged or received by
Lender exceeds the maximum rate, Lender 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.



SECTION 4 LOAN ADMINISTRATION





     4.1 Manner of Borrowing and Funding Revolver Loans.



          4.1.1 Notice of Borrowing.




          (a) Whenever Borrowers desire funding of a Borrowing of Revolver Loans, Borrower Agent shall
give Lender a Notice of Borrowing. Such notice must be received by Lender no later than 11:00 a.m.
(i) on the Business Day of the requested funding date, in the case of Base Rate Loans, and (ii) at
least three Business Days prior to the requested funding date, in the case of LIBOR 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




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amount of the Borrowing, (B) the requested funding date (which must be a Business Day),
(C) whether the Borrowing is to be made as Base Rate Loans or LIBOR Loans, and (D) in the case of
LIBOR Loans, the duration of the applicable Interest Period (which shall be deemed to be one month
if not specified).




          (b) Unless payment is otherwise timely made by Borrowers, the becoming due of any Obligations
(whether principal, interest, fees or other charges, including Extraordinary Expenses, LC
Obligations, Cash Collateral and Bank Product Debt) shall be deemed to be a request for Base Rate
Revolver Loans on the due date, in the amount of such Obligations. The proceeds of such Revolver
Loans shall be disbursed as direct payment of the relevant Obligation. In addition, Lender may, at
its option, charge such Obligations against any operating, investment or other account of a
Borrower maintained with Lender or any of its Affiliates.




          (c) If Borrowers establish a controlled disbursement account with Lender or any of its
Affiliates, then the presentation for payment of any check or other item of payment drawn on such
account at a time when there are insufficient funds to cover it shall be deemed to be a request for
Base Rate Revolver Loans on the date of such presentation, in the amount of the check and items
presented for payment. The proceeds of such Revolver Loans may be disbursed directly to the
controlled disbursement account or other appropriate account.




          4.1.2 Fundings. Lender shall fund each Borrowing on the applicable funding date and,
subject to the terms of this Agreement, shall disburse the proceeds as directed by Borrower Agent.




          4.1.3 Notices. Each Borrower authorizes Lender to extend, convert or continue Loans,
effect selections of interest rates, and transfer funds to or on behalf of Borrowers based on (and
Lender agrees to honor subject to any conditions set forth herein) telephonic or e-mailed
instructions. Borrowers shall confirm each such request by prompt delivery to Lender of a Notice
of Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs in any material
respect from the action taken by Lender, the records of Lender shall govern. Lender shall not have
any liability for any loss suffered by a Borrower as a result of Lender acting upon its
understanding of telephonic or e-mailed instructions from a person believed in good faith to be a
person authorized to give such instructions on a Borrower’s behalf.





     4.2 Number and Amount of LIBOR Loans; Determination of Rate.



     No more than six Borrowings of LIBOR Loans may be outstanding at any time, and each Borrowing
of LIBOR Loans when made shall be in a minimum amount of $500,000, or an increment of $250,000 in
excess thereof. Upon determining LIBOR for any Interest Period requested by Borrowers, Lender
shall promptly notify Borrowers thereof by telephone or electronically and, if requested by
Borrowers, shall confirm any telephonic notice in writing.




     4.3 Borrower Agent. Each Borrower hereby designates Parent (“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



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dealings with Lender. Borrower Agent hereby accepts such appointment. Lender shall be
entitled to rely upon, and shall be fully protected in relying upon, any notice or communication
(including any notice of borrowing) delivered by Borrower Agent on behalf of any Borrower. Lender
may give any notice or communication with a Borrower hereunder to Borrower Agent on behalf of such
Borrower. Lender shall have the right, in its discretion, to deal exclusively with Borrower Agent
for any or all purposes under the Loan Documents. Each Borrower 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.




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




     4.5 Effect of Termination. On the effective date of any termination of the Revolver
Commitment, all outstanding Obligations shall be immediately due and payable, and each Secured
Party may terminate its Bank Products. All undertakings of Borrowers contained in the Loan
Documents shall survive any termination until Full Payment of the Obligations, and Lender shall
retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents
until Full Payment of the Obligations. The provisions of Sections 2.3, 3.4, 3.6, 3.7, 3.9, 5.5,
5.8, 12.2 and this Section, and the obligation of each Obligor 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 in
Dollars, without offset, counterclaim or defense of any kind, free of (and without deduction for)
any Indemnified Taxes or Other 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.
If any payment under the Loan Documents shall be stated to be due on a day other than a Business
Day, the due date shall be extended to the next Business Day and such extension of time shall be
included in any computation of interest and fees. Any payment of a LIBOR Loan prior to the end of
its Interest Period shall be accompanied by all amounts due under Section 3.9. Any prepayment of
Loans shall be applied first to Base Rate Loans and then to LIBOR Loans; provided,
however, that as long as no Event of Default exists, prepayments of LIBOR Loans may, at
the option of Borrowers and Lender, be held by Lender as Cash Collateral and applied to such Loans
at the end of their Interest Periods.




     5.2 Repayment of Revolver Loans. Revolver Loans shall be due and payable in full on
the Revolver Termination Date, unless payment is sooner required hereunder. Revolver Loans may be
prepaid from time to time, without penalty or premium. If any Asset Disposition includes the
disposition of Accounts or Inventory (other than sales of Inventory in the ordinary course of
business), then Net Proceeds equal to the greater of (a) the net book value of such Accounts and
Inventory, or (b) the reduction in the Borrowing Base upon giving effect to such disposition,
shall be applied to the Revolver Loans. Notwithstanding anything herein to the contrary, if an
Overadvance exists, Borrowers shall, on the sooner of Lender’s demand or the first Business Day
after any Borrower has knowledge thereof, repay the outstanding Revolver



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Loans in an amount sufficient to reduce the principal balance of Revolver Loans to the
Borrowing Base.




     5.3 [Intentionally Deleted].




     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. Lender shall have no obligation to marshal any
assets in favor of any Obligor or against any Obligations. If any payment by or on behalf of
Borrowers is made to Lender, or 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
Lender in its discretion) to be repaid to a trustee, receiver 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.




     5.6 Application of Payments. At all times commencing on the Closing Date the ledger
balance in the main Dominion Account as of the end of a Business Day shall be applied to the
Obligations at the beginning of the next Business Day. If, as a result of such application, a
credit balance exists, the balance shall not accrue interest in favor of Borrowers and shall be
made available to Borrowers as long as no Default or Event of Default exists. Each Borrower
irrevocably waives the right to direct the application of any payments or Collateral proceeds, and
agrees that Lender shall have the continuing, exclusive right to apply and reapply same against
the Obligations, in such manner as Lender deems advisable, notwithstanding any entry by Lender in
its records.




     5.7 Loan Account; Account Stated.



          5.7.1 Loan Account. Lender shall maintain in accordance with its usual and customary
practices an account or accounts (“Loan Account”) evidencing the Debt of Borrowers
resulting from each Loan or issuance of a Letter of Credit from time to time. Any failure of
Lender to record anything in the Loan Account, or any error in doing so, shall not limit or
otherwise affect the obligation of Borrowers to pay any amount owing hereunder. Lender may
maintain a single Loan Account in the name of Borrower Agent, and each Borrower confirms that such
arrangement shall have no effect on the joint and several character of its liability for the
Obligations.




          5.7.2 Entries Binding. Entries made in the 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
Lender in writing within 30 days after receipt or inspection that specific information is subject
to dispute.





     5.8 Taxes.




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          5.8.1 Payments Free of Taxes. Any and all payments by any Obligor on account of any
Obligations shall be made free and clear of and without reduction or withholding for any
Indemnified Taxes or Other Taxes, provided that if an Obligor shall be required by
Applicable Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then
(a) the sum payable shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section) Lender receives an
amount equal to the sum it would have received had no such deductions been made; (b) the Obligor
shall make such deductions; and (c) Borrowers shall timely pay the full amount deducted to the
relevant Governmental Authority in accordance with Applicable Law. Without limiting the foregoing,
Borrowers shall timely pay all Other Taxes to the relevant Governmental Authorities if and to the
extent required by Applicable Law.




          5.8.2 Payment. Borrowers shall indemnify, hold harmless and reimburse Lender, within
10 days after demand therefor, pursuant to a certificate complying with Section 3.3, for the full
amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed
or asserted on or attributable to amounts payable under this Section) paid by Lender with respect
to any Obligations, Letters of Credit or Loan Documents, and any penalties, interest and reasonable
expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other
Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability setting forth the calculation thereof in
reasonable detail delivered to Borrower Agent by Lender shall be conclusive absent manifest error.
As soon as practicable after any payment of Indemnified Taxes or Other Taxes by a Borrower,
Borrower Agent shall deliver to Lender a receipt issued by the Governmental Authority evidencing
such payment or other evidence of payment reasonably satisfactory to Lender.




          5.8.3 Refunds. If Lender receives a refund of any Indemnified Taxes or Other Taxes as
to which it has been indemnified by any Borrower or with respect to which any Borrower has paid
additional amounts hereunder, Lender shall pay to Borrower Agent an amount equal to such refund
(but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers
hereunder with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of
all out-of-pocket costs and expenses of Lender incurred in obtaining such refund, and without
interest (other than any interest paid by the relevant Governmental Authority with respect to such
refund).




     5.9 Nature and Extent of Each Borrower’s Liability.



          5.9.1 Joint and Several Liability. Each Borrower agrees that it is jointly and
severally liable for, and absolutely and unconditionally guarantees to Lender the prompt payment
and performance of, all Obligations and all agreements under the Loan Documents. Each Borrower
agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and
performance and not of collection, that such obligations shall not be discharged until Full Payment
of the 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 Lender with respect thereto; (c) the existence, value or condition of, or
failure to perfect a Lien or to preserve rights against,



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any security or guaranty for the Obligations or any action, or the absence of any action, by
Lender in respect thereof (including the release of any security or guaranty); (d) the insolvency
of any Obligor; (e) any election by Lender in an Insolvency Proceeding for the application of
Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of a Lien by any other
Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (g) the
disallowance of any claims of Lender against any Obligor for the repayment of any Obligations under
Section 502 of the 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.




          5.9.2 Waivers.




          (a) Each Borrower 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 Lender 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 Borrower. Each Borrower waives all defenses
available to a surety, guarantor or accommodation co-obligor other than Full Payment of all
Obligations. It is agreed among each Borrower and Lender that the provisions of this Section 5.9
are of the essence of the transaction contemplated by the Loan Documents and that, but for such
provisions, Lender would decline to make Loans and issue Letters of Credit. Each Borrower
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) Lender may, in its discretion, pursue such rights and remedies as it deems appropriate,
including realization upon Collateral or any Real Estate by judicial foreclosure or non-judicial
sale or enforcement, without affecting any rights and remedies under this Section 5.9. If, in
taking any action in connection with the exercise of any rights or remedies, Lender shall forfeit
any other rights or remedies, including the right to enter a deficiency judgment against any
Borrower or other Person, whether because of any Applicable Laws pertaining to “election of
remedies” or otherwise, each Borrower 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 Borrower might
otherwise have had. Any election of remedies that results in denial or impairment of the right of
Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower’s
obligation to pay the full amount of the Obligations. Each Borrower 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 Borrower’s rights
of subrogation against any other Person. Lender 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 Lender but shall be credited against the Obligations. The amount of the successful bid at any
such sale, whether Lender 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 5.9, notwithstanding that any present or future law or
court decision may have the effect of reducing the amount of any deficiency claim to which Lender
might otherwise be entitled but for such bidding at any such sale.




          5.9.3 Extent of Liability; Contribution.




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          (a) Notwithstanding anything herein to the contrary, each Borrower’s liability under this
Section 5.9 shall be limited to the greater of (i) all amounts for which such Borrower is primarily
liable, as described below, and (ii) such Borrower’s Allocable Amount.




          (b) If any Borrower makes a payment under this Section 5.9 of any Obligations (other than
amounts for which such Borrower is primarily liable) (a “Guarantor Payment”) that, taking
into account all other Guarantor Payments previously or concurrently made by any other Borrower,
exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the
aggregate Obligations satisfied by such Guarantor Payments in the same proportion that such
Borrower’s Allocable Amount bore to the total Allocable Amounts of all Borrowers, then such
Borrower shall be entitled to receive contribution and indemnification payments from, and to be
reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their
respective Allocable Amounts in effect immediately prior to such Guarantor Payment. The
“Allocable Amount” for any Borrower shall be the maximum amount that could then be
recovered from such Borrower under this Section 5.9 without rendering such payment voidable under
Section 548 of the Bankruptcy Code or under any applicable state fraudulent transfer or conveyance
act, or similar statute or common law.




          (c) Nothing contained in this Section 5.9 shall limit the liability of any Borrower to pay
Loans made directly or indirectly to that Borrower (including Loans advanced to any other Borrower
and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower), LC
Obligations relating to Letters of Credit issued to support such Borrower’s business, and all
accrued interest, fees, expenses and other related Obligations with respect thereto, for which such
Borrower shall be primarily liable for all purposes hereunder. Lender shall have the right, at any
time during the existence of a Default or Event of Default, in its 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.




          5.9.4 Joint Enterprise. Each Borrower has requested that Lender make this credit
facility available to Borrowers on a combined basis, in order to finance Borrowers’ business most
efficiently and economically. Borrowers’ business is a mutual and collective enterprise, and
Borrowers believe that consolidation of their credit facility will enhance the borrowing power of
each Borrower and ease the administration of their relationship with Lender, all to the mutual
advantage of Borrowers. Borrowers acknowledge and agree that Lender’s willingness to extend credit
to Borrowers and to administer the Collateral on a combined basis, as set forth herein, is done
solely as an accommodation to Borrowers and at Borrowers’ request.




          5.9.5 Subordination. Each Borrower 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.




SECTION 6 CONDITIONS PRECEDENT




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



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          (a) Each other Loan Document shall have been duly executed and delivered to Lender by each of
the signatories thereto, and each Obligor shall be in compliance with all terms thereof.




          (b) Lender shall have received acknowledgments of all filings or recordations necessary to
perfect its Liens in the Collateral, as well as UCC and Lien searches and other evidence reasonably
satisfactory to Lender that such Liens are the only Liens upon the Collateral, except Permitted
Liens.




          (c) [intentionally deleted]




          (d) Lender shall have received duly executed agreements establishing each Dominion Account,
controlled disbursement account and related lockbox, in form and substance, and with financial
institutions, reasonably satisfactory to Lender.




          (e) Lender shall have received certificates, in form and substance reasonably satisfactory to
it, from a knowledgeable Senior Officer of Parent certifying that, after giving effect to the
initial Loans and transactions hereunder, (i) Parent together with its Subsidiaries, is Solvent;
(ii) no Default or Event of Default exists; (iii) the representations and warranties set forth in
Section 9 are true and correct; and (iv) Parent and each other Borrower has complied with all
agreements and conditions to be satisfied by it under the Loan Documents.




          (f) Lender shall have received a certificate of a duly authorized officer of each Obligor,
certifying (i) that attached copies of such Obligor’s Organic Documents are true and complete, and
in full force and effect, without amendment except as shown; (ii) that an attached copy of
resolutions authorizing execution and delivery of the Loan Documents is true and complete, and that
such resolutions are in full force and effect, were duly adopted, have not been amended, modified
or revoked, and constitute all resolutions adopted with respect to this credit facility; and
(iii) to the title, name and signature of each Person authorized to sign the Loan Documents.
Lender may conclusively rely on this certificate until it is otherwise notified by the applicable
Obligor in writing.




          (g) Lender shall have received a written opinion of Gibson, Dunn & Crutcher LLP, as well as
Canadian, and any other local counsel to Borrowers or Lender, in form and substance reasonably
satisfactory to Lender.




          (h) Lender shall have received copies of the charter documents of each Obligor, certified by
the Secretary of State or other appropriate official of such Obligor’s jurisdiction of
organization. Lender shall have received good standing certificates for each Obligor, issued by
the Secretary of State or other appropriate official of such Obligor’s jurisdiction of organization
and each jurisdiction identified on Schedule 6.1(h).




          (i) Lender shall have received copies of policies or certificates of insurance for the
insurance policies carried by Borrowers, all in compliance with the Loan Documents.




          (j) Lender shall have completed its business, financial and legal due diligence of Obligors,
including a roll-forward of its previous field examination, with results reasonably satisfactory to
Lender. No material adverse change in the financial condition of any Obligor or in the quality,
quantity or value of any Collateral shall have occurred since October 31, 2006.




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          (k) Borrowers shall have paid all fees and expenses to be paid to Lender on the Closing Date.




          (l) Lender shall have received a Borrowing Base Certificate prepared as of November 30, 2007.
Upon giving effect to the initial funding of Loans and issuance of Letters of Credit, and the
payment by Borrowers of all fees and expenses incurred in connection herewith as well as any
payables stretched beyond their customary payment practices, Availability shall be at least
$5,300,000.




     6.2 Conditions Precedent to All Credit Extensions. Lender shall not be required to
fund any Loans, issue 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;




          (d) No event shall have occurred or circumstance exist that has or could reasonably be
expected to have a Material Adverse Effect; and




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



Each request (or deemed request) by Borrowers 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, Lender shall have received
such other information, documents, instruments and agreements as it reasonably deems appropriate in
connection therewith.




     6.3 Limited Waiver of Conditions Precedent. If Lender funds any Loans, issues any
Letters of Credit or grants any other accommodation when any conditions precedent are not
satisfied (regardless of whether the lack of satisfaction was known or unknown at the time), it
shall not operate as a waiver of (a) the right of Lender to insist upon satisfaction of all
conditions precedent with respect to any subsequent funding, issuance or grant; nor (b) any
Default or Event of Default due to such failure of conditions or otherwise.



SECTION 7 COLLATERAL




     7.1 Grant of Security Interest. To secure the prompt payment and performance of all
Obligations, each Borrower hereby grants to Lender a continuing security interest in and Lien upon
all personal Property of such Borrower, including all of the following Property (subject to
Section 7.7), whether now owned or hereafter acquired, and wherever located:



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          (a) all Accounts;




          (b) all Chattel Paper, including electronic chattel paper;




          (c) all Commercial Tort Claims;




          (d) all Deposit Accounts;




          (e) all Documents;




          (f) all General Intangibles, including Intellectual Property;




          (g) all Goods, including Inventory, Equipment and fixtures;




          (h) all Instruments;




          (i) all Investment Property;




          (j) all Letter-of-Credit Rights;




          (k) all Supporting Obligations;




          (l) all monies, whether or not in the possession or under the control of Lender, or a bailee
or Affiliate of Lender, including any Cash Collateral;




          (m) 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
Collateral; and




          (n) all books and records (including customer lists, files, correspondence, tapes, computer
programs, print-outs and computer records) pertaining to the foregoing;




     7.2 Lien on Deposit Accounts; Cash Collateral.



          7.2.1 Deposit Accounts. To further secure the prompt payment and performance of all
Obligations, each Borrower hereby grants to Lender a continuing security interest in and Lien upon
all amounts (other than Excluded Assets) credited to any Deposit Account of such Borrower,
including any sums (other than Excluded Assets) in any blocked or lockbox accounts or in any
accounts into which such sums are swept. Each Borrower authorizes and directs each bank or other
depository to deliver to Lender, on a daily basis, all balances in each Deposit Account maintained
by such Borrower with such depository for application to the Obligations then outstanding. Each
Borrower irrevocably appoints Lender as such Borrower’s attorney-in-fact to collect such balances
to the extent any such delivery is not so made.




          7.2.2 Cash Collateral. Any Cash Collateral may be invested, at Lender’s discretion,
in Cash Equivalents, but Lender shall have no duty to do so, regardless of any agreement or course
of dealing with any Borrower, and shall have no responsibility for any investment or loss. Each
Borrower hereby grants to Lender a security interest in all Cash Collateral held from time to time
and all proceeds thereof, as security for the Obligations, whether such Cash Collateral is held in
a Cash Collateral Account or elsewhere. Lender may





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apply Cash Collateral to the payment of any Obligations, in such order as Lender 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 Lender. No Borrower or other Person claiming through or on behalf
of any Borrower shall have any right to any Cash Collateral, until Full Payment of all Obligations
except that when the conditions giving rise to any requirement for Cash Collateral no longer exist,
such Cash Collateral shall be returned to the applicable Borrower.




     7.3 [Intentionally Deleted]



     7.4 Other Collateral.



          7.4.1 Commercial Tort Claims. Borrowers shall promptly notify Lender in writing if
any Borrower has a Commercial Tort Claim (other than, as long as no Default or Event of Default
exists, a Commercial Tort Claim for less than $250,000) and, upon Lender’s request, shall promptly
take such actions as Lender deems appropriate to confer upon Lender a duly perfected, first
priority Lien upon such claim.




          7.4.2 Certain After-Acquired Collateral. Borrowers shall promptly notify Lender in
writing if, after the Closing Date, any Borrower obtains any interest in any Collateral (which in
the aggregate exceeds $100,000) consisting of Deposit Accounts, Chattel Paper, Documents,
Instruments, Intellectual Property, Investment Property or Letter-of-Credit Rights and, upon
Lender’s request, shall promptly take such actions as Lender deems appropriate to effect Lender’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 Lender’s request, Borrowers shall obtain an acknowledgment that such third party holds
the Collateral for the benefit of Lender.




     7.5 No Assumption of Liability. The Lien on Collateral granted hereunder is given as
security only and shall not subject Lender to, or in any way modify, any obligation or liability
of Borrowers relating to any Collateral.



     7.6 Further Assurances; Extent of Liens. Promptly upon request, Borrowers shall
deliver such instruments, assignments, title certificates, or other documents or agreements, and
shall take such actions, as Lender reasonably 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 Borrower authorizes Lender to file any financing statement that indicates the
Collateral as “all assets (other than Excluded Assets)” or “all personal property (other than
Excluded Assets)” of such Borrower, or words to similar effect, and ratifies any action taken by
Lender before the Closing Date to effect or perfect its Lien on any Collateral. All of Lender’s
Liens on Collateral (and all evidences of such Liens), whether effected hereunder or under any
other Loan Document, are granted to Lender as agent for the benefit of all Secured Parties.



     7.7 Foreign Subsidiary Stock. Excluded Assets. (i) Notwithstanding Section 7.1, the
Collateral shall include only 65% of the voting stock of any Foreign Subsidiary. No security
interest is granted with respect to, and no security interest hereunder or any other Loan Document
shall attach to, any Excluded Assets.



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SECTION 8 COLLATERAL ADMINISTRATION




     8.1 Borrowing Base Certificates. By the 15th day of each month (or such later time
as Lender may approve (via e-mail or otherwise)), Borrowers shall deliver to Lender a Borrowing
Base Certificate prepared as of the close of business of the previous month, and at such other
times as Lender may request. All calculations of Availability in any Borrowing Base Certificate
shall originally be made by Borrowers and certified by a Senior Officer, provided that Lender 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 the Dominion Account or
otherwise; (b) reflect changes in dilution in accordance with the Dilution Percentage and the
Accounts Formula Amount and (c) to the extent the calculation is not made in accordance with this
Agreement or does not accurately reflect the Availability Reserve.



     8.2 Administration of Accounts.



          8.2.1 Records and Schedules of Accounts. Each Borrower shall keep accurate and
complete records of its Accounts, including all payments and collections thereon, and shall submit
to Lender sales, collection, reconciliation (including a reconciliation from the general ledger to
agings) and other reports in form reasonably satisfactory to Lender, on such periodic basis as
Lender may request. Each applicable Borrower shall also provide to Lender, on or before the 15th
day of each month, a detailed aged trial balance of all Accounts 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 Lender may reasonably request. If Accounts in
an aggregate face amount of $200,000 or more cease to be Eligible Accounts, Borrowers shall notify
Lender of such occurrence promptly (and in any event within two Business Days) after any Borrower
has knowledge thereof.




          8.2.2 Taxes. If an Account of any Borrower includes a charge for any Taxes, Lender is
authorized, in its discretion, to pay the amount thereof to the proper taxing authority for the
account of such Borrower and to charge Borrowers therefor; provided, however, that Lender shall not
be liable for any Taxes that may be due from Borrowers or with respect to any Collateral.




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




          8.2.4 Maintenance of Dominion Account. Borrowers shall maintain Dominion Accounts
pursuant to lockbox or other arrangements acceptable to Lender. Borrowers shall obtain an
agreement (in form and substance reasonably satisfactory to Lender) from each lockbox servicer and
Dominion Account bank, establishing Lender’s control over and Lien in the lockbox or Dominion
Account, requiring daily 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 Lender, Lender may require daily transfer of all funds
in such account to a Dominion Account maintained with





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Lender. Lender does not assume any responsibility to Borrowers 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. Borrowers shall request in writing and otherwise take
all commercially reasonable 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).
Except as otherwise set forth in Section 8.2.6, if any Borrower or Subsidiary receives cash or
Payment Items with respect to any Collateral, it shall hold same in trust for Lender and promptly
(not later than the next Business Day) deposit same (other than Operating Cash consisting of cash
on hand held at a retail location) into a Dominion Account.




          8.2.6 Excluded Bank Accounts; Operating Cash. Notwithstanding any provision of this
Section 8.2 or any other provision of any Loan Document to the contrary, (A) Borrowers and
Subsidiaries may maintain accounts used exclusively for workers compensation, payroll, 401(k) and
employee health insurance and trust accounts that are not a part of the cash management and control
systems described herein (and not subject to a Deposit Account Control Agreement) provided that no
Obligor shall accumulate or maintain cash in such accounts as of any date of determination in
excess of checks outstanding against such accounts as of that date and amounts necessary to meet
minimum balance requirements (B) Obligors may maintain local cash accounts that are not a part of
the cash management and control systems described herein (and not subject to a Deposit Account
Control Agreement) which individually do not contain funds in excess of $25,000 and, together with
all other such local cash accounts, do not contain funds in excess of $500,000; and monies in any
such account in excess of such amounts shall be swept within 3 Business Days to a Dominion Account
(or a lockbox relating to a dominion account); (C) Obligors may maintain Operating Cash on hand
with respect to their retail locations in amounts not to exceed the amounts the Obligors have
maintained in the ordinary course of business; (D) Borrowers may maintain the deposit accounts set
forth on Schedule 8.2.6 subject only to springing cash management and control systems as reasonably
requested by Lender, so long as the balance of any such account does not exceed $250,000 at any
time; (E) Ashworth UK may maintain bank accounts in the United Kingdom which shall not be
subject to the cash management and control systems described herein;
and (F) Borrowers may maintain the Union Bank Cash Collateral
Account referred to on Schedule P-3.




     8.3 Administration of Inventory.



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




          8.3.2 Returns of Inventory. No Borrower 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) Lender is promptly notified if the aggregate Value of all Inventory





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returned in any month exceeds $200,000; and (d) any payment received by a Borrower for a
return is promptly remitted to Lender for application to the Obligations.




          8.3.3 Acquisition, Sale and Maintenance. No Borrower shall acquire or accept more
than $50,000 at any one time (valued at the applicable Borrower’s cost) of any Inventory on
consignment or approval, unless the same is identified to Lender and excluded from the Borrowing
Base, and shall take all steps to assure that all Inventory is produced in accordance with
Applicable Law, including the FLSA. No Borrower shall sell any Inventory on consignment or
approval or any other basis (other than customary rights of return) under which the customer may
return or require a Borrower to repurchase such Inventory. Borrowers 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 shall make current rent payments (within
applicable grace periods provided for in leases) at all locations where any Collateral is located.




     8.4 Administration of Equipment.



          8.4.1 Records and Schedules of Equipment. Each Borrower shall keep accurate and
complete records of its Equipment, including kind, quality, quantity, cost, acquisitions and
dispositions thereof, and at any time a Default or Event of Default exists shall submit to Lender,
on such periodic basis as Lender may request, a current schedule thereof, in form reasonably
satisfactory to Lender. Promptly upon request, Borrowers shall deliver to Lender evidence of their
ownership or interests in any Equipment.




          8.4.2 Dispositions of Equipment. No Borrower shall sell, lease or otherwise dispose
of any Equipment, without the prior written consent of Lender, other than (a) a Permitted Asset
Disposition; and (b) disposal, sale or replacement of Equipment that is worn, damaged or obsolete
with Equipment of like function and value, if the replacement Equipment is acquired substantially
contemporaneously with such disposition and is free of Liens.




          8.4.3 Condition of Equipment. The Equipment is in good operating condition and
repair, and all necessary replacements and repairs have been made so that the value and operating
efficiency of the Equipment is preserved at all times, reasonable wear and tear excepted. Each
Borrower shall ensure that the Equipment is mechanically and structurally sound, and capable of
performing the functions for which it was designed, in accordance with manufacturer specifications.
No Borrower shall permit any Equipment to become affixed to real Property unless any landlord or
mortgagee delivers a Lien Waiver.




     8.5 Administration of Deposit Accounts. Schedule 8.5 sets forth all Deposit Accounts
maintained by Borrowers, including all Dominion Accounts. Each Borrower shall take all actions
necessary to establish Lender’s control of each such Deposit Account (except as permitted by
Section 8.2.6 and with respect to any account containing not more than $25,000 at any time). Each
Borrower shall be the sole account holder of each Deposit Account and shall not allow any other
Person (other than Lender) to have control over a Deposit Account or any Property deposited
therein. Except as permitted by Section 8.2.6, each Borrower shall promptly notify Lender of any opening or closing of a Deposit
Account and, with the consent of Lender, will amend Schedule 8.5 to reflect same.



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     8.6 General Provisions.



          8.6.1 Location of Collateral. All tangible items of Collateral, other than Inventory
in transit, shall at all times be kept by Borrowers at the business locations set forth in Schedule
8.6.1, except that Borrowers may (a) make sales or other dispositions of Collateral in accordance
with Section 10.2.6; and (b) move Collateral to another location in the United States or Canada
other than a location listed on Schedule 8.6.1, so long as Borrowers give 30 Business Days prior
written notice to Lender and take all steps necessary pursuant to Section 7.6 to perfect Lender’s
security interest in such Collateral prior to it being moved to a new location.




          8.6.2 Insurance of Collateral; Condemnation Proceeds.




          (a) Each Borrower shall maintain insurance with respect to the Collateral, covering casualty,
hazard, public liability, theft, malicious mischief, flood (if necessary) and other risks, in
amounts, with endorsements and with insurers (with a Best Rating of at least A7, unless otherwise
approved by Lender) reasonably satisfactory to Lender. All proceeds under each such policy (other
than proceeds constituting Excluded Assets) shall be payable to Lender. From time to time upon
request, Borrowers shall deliver to Lender the originals or certified copies of its insurance
policies and updated flood plain searches. Unless Lender shall agree otherwise, each policy shall
include reasonably satisfactory endorsements (i) showing Lender as sole loss payee or additional
insured, as appropriate (except with respect to insurance proceeds constituting Excluded Assets);
(ii) requiring 30 days prior written notice to Lender in the event of cancellation of the policy
for any reason whatsoever; and (iii) specifying that the interest of Lender shall not be impaired
or invalidated by any act or neglect of any Borrower 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
Borrower fails to provide and pay for any insurance required hereunder or under Section 10.1.7,
Lender may, at its option, but shall not be required to, procure the insurance and charge Borrowers
therefor. Each Borrower agrees to deliver to Lender, promptly as rendered, copies of all reports
made to insurance companies. While no Event of Default exists, Borrowers may settle, adjust or
compromise any insurance claim, as long as the proceeds are delivered to Lender. If an Event of
Default exists, only Lender shall be authorized to settle, adjust and compromise such claims
(except claims in respect of Excluded Assets).




          (b) Any proceeds of insurance (other than proceeds from workers’ compensation or D&O insurance
and other than proceeds constituting Excluded Assets) and any awards arising from condemnation of
any Collateral shall be paid to Lender. Any such proceeds or awards that relate to Inventory shall
be applied to payment of the Revolver Loans, and then to any other Obligations outstanding.




          (c) If requested by Borrowers in writing within 60 days after Lender’s receipt of any
insurance proceeds or condemnation awards relating to any loss or destruction of Collateral
consisting of Equipment or Real Estate which are to be payable to Lender pursuant to clauses (a)
and (b), Borrowers may use such proceeds or awards to repair or replace such Equipment or Real
Estate (and until so used, the proceeds shall be held by Lender as Cash Collateral) as long as
(i) no Default or Event of Default exists; (ii) such repair or replacement is promptly undertaken
and concluded, in accordance with plans reasonably satisfactory to Lender; (iii) replacement
buildings are constructed on the sites of the original casualties and are of comparable size,
quality and utility to the destroyed buildings; (iv) the repaired or replaced





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Property is free of Liens, other than Permitted Liens; and (v) Borrowers comply with
disbursement procedures for such repair or replacement as Lender may reasonably require.




          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 Lender to
any Person to realize upon any Collateral, shall be borne and paid by Borrowers. Lender 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 Lender’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
Borrowers’ sole risk.




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




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



          (a) Endorse a Borrower’s name on any Payment Item or other proceeds of Collateral (including
proceeds of insurance) that come into Lender’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 Lender deems advisable; (iv) take control, in any manner, of any
proceeds of Collateral; (v) prepare, file and sign a Borrower’s name to a proof of claim or other
document in a bankruptcy 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 a Borrower, and notify
postal authorities to change the address for delivery thereof to such address as Lender may
designate; (vii) endorse any Chattel Paper, Document, Instrument, invoice, freight bill, bill of
lading, or similar document or agreement relating to any Accounts, Inventory or other Collateral;
(viii) use a Borrower’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 equipment
and computer hardware and software relating to any Collateral; (x) make and adjust claims under
policies of insurance; (xi) take any action as may be necessary or appropriate to obtain payment
under any letter of credit or banker’s acceptance for which a Borrower is a beneficiary; and
(xii) take all other actions as Lender deems appropriate to fulfill any Borrower’s obligations
under the Loan Documents.




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SECTION 9 REPRESENTATIONS AND WARRANTIES




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



          9.1.1 Organization and Qualification. Each Borrower and Subsidiary is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization. Each
Borrower and Subsidiary is duly qualified, authorized to do business and in good standing as a
foreign corporation in each jurisdiction where failure to be so qualified could reasonably be
expected to have a Material Adverse Effect.




          9.1.2 Power and Authority. Each Obligor is duly authorized to execute, deliver and
perform its Loan Documents. The execution, delivery and performance of the Loan Documents have
been duly authorized by all necessary action, and do not (a) require any consent or approval of any
holders of Equity Interests of any Obligor, other than those already obtained; (b) contravene the
Organic Documents of any Obligor; (c) violate in any material respect or cause a material default
under any Applicable Law or Material Contract; or (d) result in or require the imposition of any
Lien (other than Permitted Liens) on any Property of any Obligor.




          9.1.3 Enforceability. Each Loan Document is a legal, valid and binding obligation of
each Obligor party thereto, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights
generally.




          9.1.4 Capital Structure. Schedule 9.1.4 shows, for each Borrower and Subsidiary, its
name, its jurisdiction of organization, its authorized and issued Equity Interests as of the date
hereof (except with respect to Parent), the holders of its Equity Interests as of the date hereof
(except with respect to Parent), and to the knowledge of Parent, all agreements as of the date
hereof binding on such holders with respect to their Equity Interests. Each Borrower has good
title to its Equity Interests in its Subsidiaries, subject only to Lender’s Lien and Permitted
Liens, and all such Equity Interests are duly issued, fully paid and non-assessable. As of the
date hereof, except as set forth on Schedule 9.1.4, there are no outstanding options to purchase,
warrants, subscription rights, agreements to issue or sell, convertible interests, phantom rights
or powers of attorney relating to any Equity Interests of any Borrower or Subsidiary.




          9.1.5 Corporate Names; Locations. During the five years preceding the Closing Date,
except as shown on Schedule 9.1.5, no Borrower or Subsidiary has been known as or used any
corporate, fictitious or trade names, has been the surviving corporation of a merger or
combination, or has acquired any substantial part of the assets of any Person. The chief executive
offices and other places of business of Borrowers and Subsidiaries are shown on Schedule 8.6.1.




          9.1.6 Title to Properties; Priority of Liens. Each Borrower and Subsidiary has good
and marketable title to (or valid leasehold interests in) all of its Real Estate, and good title to
valid leasehold interests in, or valid license to use all of its personal Property, including all
Property reflected in any financial statements delivered to Lender, in each case free of Liens
except Permitted Liens. Each Borrower and Subsidiary has paid and discharged all lawful claims
that, if unpaid, could become a Lien on its Properties, other than Permitted Liens. All





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Liens of Lender in the Collateral are duly perfected, first priority Liens, subject only to
Permitted Liens that are expressly allowed to have priority over Lender’s Liens under this
Agreement or that have priority by operation of Applicable Law.




          9.1.7 Accounts. Lender 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:




          (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 Lender on request;




          (d) it is not subject to any offset, Lien (other than Lender’s Lien and Permitted Liens set
forth in Section 10.2.2 (c)), deduction, defense, dispute, counterclaim or other adverse condition
except as arising in the ordinary course of business and disclosed to Lender; 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 Lender (regardless of whether, under the UCC, 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 Lender 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.




          9.1.8 Financial Statements. The consolidated balance sheets, and related statements
of operations, cash flow and stockholder’s equity, of Borrowers and Subsidiaries that have been and
are hereafter delivered to Lender, are prepared in accordance with GAAP, and fairly present the
financial positions and results of operations of Borrowers and Subsidiaries at the dates and for
the periods indicated, subject, in the case of unaudited financial statements, to changes resulting
from audit and year-end adjustments and the absence of footnotes. All projections delivered from
time to time to Lender have been prepared in good faith, based on





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assumptions believed by Borrowers to be reasonable at the time made in light of the
circumstances at such time. Since October 31, 2006, there has been no change in the condition,
financial or otherwise, of any Borrower or Subsidiary that could reasonably be expected to have a
Material Adverse Effect. Material Obligors, taken as a whole, are Solvent.




          9.1.9 Surety Obligations. Except as set forth in Schedule 9.1.9, no Borrower or
Subsidiary is obligated as surety or indemnitor under any bond or other contract that assures
payment or performance of any obligation of any Person, except as permitted hereunder.




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




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




          9.1.12 Intellectual Property. Each Borrower and Subsidiary owns or has the lawful
right to use all Intellectual Property necessary for the conduct of its business, without conflict
with any rights of others. Except as would not reasonably be expected to have a Material Adverse
Effect, there is no pending or, to any Borrower’s knowledge, threatened Intellectual Property Claim
with respect to any Borrower, any Subsidiary or any of their Property (including any Intellectual
Property). Except as disclosed on Schedule 9.1.12 or as otherwise disclosed to Lender in writing,
no Borrower or Subsidiary pays or owes any Royalty or other compensation to any Person with respect
to any Intellectual Property in excess of $100,000 per year with respect to each such Person. All
Intellectual Property owned, used or licensed by, or otherwise subject to any interests of, any
Borrower or Subsidiary is shown on Schedule 9.1.12.




          9.1.13 Governmental Approvals. Except as could not reasonably be expected to have a
Material Adverse Effect, each Borrower and Subsidiary has, is in compliance with, and is in good
standing with respect to, all Governmental Approvals necessary to conduct its business and to own,
lease and operate its Properties. 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 Borrowers 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.




          9.1.14 Compliance with Laws. Each Borrower and Subsidiary has duly complied, and its
Properties and business operations are in compliance, in all material respects with all Applicable
Law, except where noncompliance could not reasonably be expected to have a Material Adverse Effect.
Except as could not reasonably be expected to have a Material Adverse Effect, there have been no
citations, notices or orders of noncompliance issued to any Borrower or Subsidiary under any
Applicable Law. No Inventory has been produced in violation of the FLSA.




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          9.1.15 Compliance with Environmental Laws. Except as disclosed on Schedule 9.1.15, or
as would not reasonably be expected to have a Material Adverse Effect, no Borrower’s or
Subsidiary’s past or present operations, Real Estate or other Properties are subject to any
federal, state or local investigation to determine whether any remedial action is needed to address
any environmental pollution, hazardous material or environmental clean-up. Except as would not
reasonably be expected to have a Material Adverse Effect, no Borrower or Subsidiary has received
any Environmental Notice. Except as would not reasonably be expected to have a Material Adverse
Effect, no Borrower or Subsidiary has any contingent liability with respect to any Environmental
Release, environmental pollution or hazardous material on any Real Estate now or previously owned,
leased or operated by it.




          9.1.16 Burdensome Contracts. No Borrower or Subsidiary is a party or subject to any
contract, agreement or charter restriction that could reasonably be expected to have a Material
Adverse Effect.




          9.1.17 Litigation. Except as shown on Schedule 9.1.17, there are no proceedings or
investigations pending or, to any Borrower’s knowledge, threatened against any Borrower or
Subsidiary, or any of their businesses, operations, Properties, prospects or conditions, that
(a) relate to any Loan Documents or transactions contemplated thereby; or (b) could reasonably be
expected to have a Material Adverse Effect. No Borrower or Subsidiary is in default with respect
to any order, injunction or judgment of any Governmental Authority.




          9.1.18 No Defaults. No event or circumstance has occurred or exists that constitutes
a Default or Event of Default.




          9.1.19 ERISA. Except as disclosed on Schedule 9.1.19:




          (a) Each Plan is in compliance in all material respects with the applicable provisions of
ERISA, the Code, and other federal and 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 knowledge of Borrowers, nothing has occurred which would prevent, or cause the loss of, such
qualification. Each Obligor and 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 knowledge of Borrowers, threatened claims, actions or
lawsuits, or action by any Governmental Authority, with respect to any Plan that could 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 in or
could reasonably be expected to have a Material Adverse Effect.




          (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan
has any Unfunded Pension Liability; (iii) no Obligor or 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) no Obligor or 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





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result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) no Obligor or ERISA Affiliate has engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.




          (d) With respect to any Foreign Plan, (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.




          9.1.20 Trade Relations. 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 could
reasonably be expected to have a Material Adverse Effect. There exists no condition or
circumstance that could reasonably be expected to impair the ability of any Borrower or Subsidiary
to conduct its business at any time hereafter in substantially the same manner as conducted on the
Closing Date.




          9.1.21 Labor Relations. Except as set forth on Schedule 9.1.21, no Borrower or
Subsidiary is party to or bound by any collective bargaining agreement, management agreement or
consulting agreement which Borrowers’ obligations thereunder exceeds $500,000. There are no
grievances, disputes or controversies with any union or other organization of any Borrower’s or
Subsidiary’s employees, or, to any Borrower’s knowledge, any asserted or threatened strikes, work
stoppages or demands for collective bargaining that could individually or in the aggregate
reasonably be expected to have a Material Adverse Effect.




          9.1.22 Payable Practices. Except as would not reasonably be expected to have a
Material Adverse Effect, no Borrower or Subsidiary has made any material change in its historical
accounts payable practices from those in effect on the Closing Date.




          9.1.23 Not a Regulated Entity. No Obligor is (a) an “investment company” or a “person
directly or indirectly controlled by or acting on behalf of an investment company” within the
meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Federal Power
Act, the Interstate Commerce Act, any public utilities code or any other Applicable Law regarding
its authority to incur Debt.




          9.1.24 Margin Stock. 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 governed by Regulations T, U or X of the Board of Governors.




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     9.2 Complete Disclosure. None of the representations or warranties made by any
Borrower in the Loan Documents as of the date such representations and warranties are made or
deemed made, considering each of the foregoing in the context in which it was made and together
with all other representations, warranties and written statements theretofore furnished by such
Obligor to the Lender in connection with the Loan Documents, contains any untrue statement of a
material fact or omits any material fact required to be stated therein or necessary to make such
representation, warranty or written statement, in light of the circumstances under which it is
made, not misleading as of the time when made or delivered; provided that the Borrowers’
representation and warranty as to any forecast, projection or other statement regarding future
performance, future financial results or other future development is limited to the fact that such
forecast, projection or statement was prepared in good faith on the basis of information and
assumptions that the Borrowers believed to be reasonable as of the date such material was prepared
(it being understood that the projections are subject to significant uncertainties and
contingencies, many of which are beyond the Borrowers’ control, and that no assurance can be given
that the projections will be realized).



SECTION 10 COVENANTS AND CONTINUING AGREEMENTS




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



          10.1.1 Inspections; Appraisals.




          (a) Permit Lender 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 on a confidential basis with its officers, employees, agents, advisors and
independent accountants such Borrower’s or Subsidiary’s business, financial condition, assets,
prospects and results of operations. Lender shall not 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 Lender for its
purposes, and Borrowers shall not be entitled to rely upon them.




          (b) Reimburse Lender for all its reasonable charges, costs and expenses in connection with
(i) examinations of any Obligor’s books and records or any other financial or Collateral matters as
Lender reasonably deems appropriate, up to twice per Loan Year; and (ii) appraisals of Inventory up
to one time per Loan Year; provided, however, that 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. Subject to and without limiting the foregoing,
Borrowers specifically agree to pay Lender’s then standard charges (such standard charges as of the
Closing Date are $850 per day per person plus out of pocket expenses) for each day that an employee
of Lender or its Affiliates is engaged in any examination activities, and shall pay the standard
charges of Lender’s internal appraisal group. This Section shall not be construed to limit
Lender’s right to conduct examinations or to obtain appraisals at any time in its reasonable
discretion, nor to use third parties for such purposes.




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          10.1.2 Financial and Other Information. Keep adequate records and books of account
with respect to its business activities, in which proper entries are made in accordance with GAAP
reflecting all financial transactions; and furnish to Lender:




          (a) as soon as available, and in any event within 120 days after the close of each Fiscal
Year, consolidated balance sheets of Parent and its Subsidiaries as of the end of such Fiscal Year
and the related consolidated statements of operations, cash flow and stockholders’ equity for such
Fiscal Year, on a consolidated basis for Borrowers and Subsidiaries, which consolidated statements
shall be audited and certified (without qualification as to scope, “going concern” or similar
items) by a firm of independent certified public accountants of recognized standing selected by
Borrowers and reasonably acceptable to Lender, and shall set forth in comparative form
corresponding figures for the preceding Fiscal Year and other information acceptable to Lender (the
documents required to be delivered pursuant to this clause (a) shall be deemed to have been
delivered on the date on which such documents are posted on the Securities and Exchange
Commission’s website at www.sec.gov;




          (b) commencing with the 3rd month of each Fiscal Year, as soon as available, and in any event
within 30 days after the end of each month (but within 45 days after the last month in each fiscal
quarter and by February 15th with respect to November and December of the preceding
year), unaudited balance sheets as of the end of such month and the related statements of
operations and cash flow for such month and for the portion of the Fiscal Year then elapsed, on a
consolidated basis for Borrowers and Subsidiaries, setting forth in comparative form corresponding
figures for the preceding Fiscal Year and certified by the chief financial officer of Borrower
Agent as prepared in accordance with GAAP and fairly presenting the financial position and results
of operations for such month and period, subject to normal year-end adjustments and the absence of
footnotes (the documents required to be delivered pursuant to this clause (b) shall be deemed to
have been delivered on the date on which such documents are posted on the Securities and Exchange
Commission’s website at www.sec.gov;




          (c) concurrently with delivery of financial statements under clauses (a) and (b) above, a
Compliance Certificate executed by a Senior Officer of Borrower Agent;




          (d) concurrently with delivery of financial statements under clause (a) above, copies of all
management letters (if available) and other material reports submitted to Borrowers by their
accountants in connection with such financial statements;




          (e) not later than 45 days after the end of each Fiscal Year, projections of Borrowers’
consolidated balance sheets, results of operations, cash flow and Availability for the next Fiscal
Year, month by month;




          (f) concurrently with the delivery of Borrowing Base Certificates pursuant to Section 8.1, a
listing of each Borrower’s trade payables (excluding the trade payables with respect to the
Borrowers’ operations in Canada), specifying the trade creditor and balance due, and a detailed
trade payable aging, all in form satisfactory to Lender;




          (g) promptly after the sending or filing thereof, copies of any proxy statements, financial
statements or reports that any Borrower has sent to its stockholders; copies of any regular,
periodic and special reports or registration statements or prospectuses that any Borrower files
with the Securities and Exchange Commission or any other Governmental





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Authority, or any securities exchange; and copies of any press releases or other statements
made available by a Borrower to the public concerning material changes to or developments in the
business of such Borrower (the documents required to be delivered pursuant to this clause (g) shall
be deemed to have been delivered on the date on which such documents are posted on the Securities
and Exchange Commission’s website at www.sec.gov;




          (h) promptly after the sending or filing thereof, copies of any annual report to be filed in
connection with each Plan or Foreign Plan; and




          (i) such other reports and information (financial or otherwise) as Lender may reasonably
request from time to time in connection with any Collateral or any Borrower’s, Subsidiary’s or
other Obligor’s financial condition or business.




          10.1.3 Notices. Notify Lender in writing, promptly after a Borrower’s obtaining
knowledge thereof, of any of the following that affects an Obligor: (a) the threat or commencement
of any proceeding or investigation that would reasonably be expected to have a Material Adverse
Effect; (b) any pending or threatened labor dispute, strike or walkout, or the expiration of any
material labor contract that could reasonably be expected to have a Material Adverse Effect;
(c) any default under or termination of a Material Contract; (d) the existence of any Default or
Event of Default; (e) any judgment in an amount exceeding $200,000; (f) the assertion of any
Intellectual Property Claim, that could reasonably be expected to have a Material Adverse Effect;
(g) any violation or asserted violation by Parent or its Subsidiaries of any Applicable Law
(including ERISA, OSHA, FLSA, or any Environmental Laws), that could reasonably be expected to have
a Material Adverse Effect; (h) any Environmental Release by an Obligor or on any Property owned,
leased or occupied by an Obligor; or receipt of any Environmental Notice that could reasonably be
expected to have a Material Adverse Effect; (i) the occurrence of any ERISA Event; (j) the
discharge of or any withdrawal or resignation by Borrowers’ independent accountants; or (k) any
opening of a new office or place of business where any Borrowers’ Accounts, Inventory or Borrower’s
books and records are located, at least 30 days after such opening.




          10.1.4 Landlord and Storage Agreements. Upon request, provide Lender with copies of
all existing material agreements, and promptly after execution thereof provide Lender 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.




          10.1.5 Compliance with Laws. Comply with all Applicable Laws, including ERISA,
Environmental Laws, FLSA, OSHA, Anti-Terrorism Laws, and laws regarding collection and payment of
Taxes, and maintain all Governmental Approvals necessary to the ownership of its Properties or
conduct of its business, unless failure to comply (other than failure to comply with Anti-Terrorism
Laws) or maintain could not reasonably be expected to have a Material Adverse Effect.




          10.1.6 Taxes. Pay and discharge all Taxes prior to the date on which they become
delinquent or penalties attach, unless such Taxes are being Properly Contested or constitute
Immaterial Taxes.




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          10.1.7 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 Lender) reasonably satisfactory to Lender, (a) 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;
and (b) business interruption insurance in an amount not less than $50,000,000, with deductibles
and subject to an Insurance Assignment reasonably satisfactory to Lender.




          10.1.8 Licenses. Except as would not reasonably be expected to have a Material
Adverse Effect, keep each material 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; promptly notify Lender of any proposed material modification
to any such License, or entry into any new material License, in each case at least 30 days prior to
its effective date; pay all Royalties when due unless being contested in good faith; and notify
Lender of any default or breach asserted by any Person to have occurred under any material License.




          10.1.9 Future Subsidiaries. Promptly notify Lender upon any Person becoming a
Subsidiary and, if such Person is not a Foreign Subsidiary, cause it to guaranty the Obligations in
a manner satisfactory to Lender, and to execute and deliver such documents, instruments and
agreements and to take such other actions as Lender shall reasonably require to evidence and
perfect a Lien in favor of Lender on all assets of such Person, including delivery of such legal
opinions, in form and substance reasonably satisfactory to Lender, as it shall reasonably deem
appropriate.




          10.1.10 Merger of Ashworth Store III. Parent shall cause Ashworth Store III, formally
to be merged into Parent within 180 days of the Closing Date. Prior to the date of such merger,
Ashworth Store III shall neither hold nor receive any material assets, debt or equity, nor engage
in any business other than winding up and merging into Parent (and any activity reasonably related
thereto).




          10.1.11 Post-Closing Covenants. Each Borrower shall satisfy each of the covenants set
forth in Schedule 10.1.12 within the time periods specified therein.




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



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




          (a) the Obligations;




          (b) Subordinated Debt;




          (c) Permitted Purchase Money Debt and Permitted Capital Leases;




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          (d) Borrowed Money as identified on Schedule 10.2.1(d) (other than the Obligations,
Subordinated Debt and Permitted Purchase Money Debt), but only to the extent outstanding on the
Closing Date and not satisfied with proceeds of the initial Loans;




          (e) Bank Product Debt;




          (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
$1,000,000 in the aggregate at any time;




          (g) Permitted Contingent Obligations;




          (h) the Real Estate Term Loan in the maximum outstanding amount of up to the principal amount
of $11,650,000 and the Debt outstanding under the UK Loan Facility;




          (i) Refinancing Debt as long as each Refinancing Condition is satisfied;




          (j) Investments that are not Restricted Investments;




          (k) Hedging Agreements permitted under Section 10.2.15;




          (l) Debt in respect of (i) workers’ compensation claims or obligations in respect of health,
disability or other employee benefits or property, casualty or liability insurance or
self-insurance or completion, bid, performance, appeal or surety bonds issued for the account of
any Borrower or Subsidiary, bankers acceptances and other similar obligations not constituting
Borrowed Money that are incurred in the ordinary course of business, and (ii) guarantees of, or
obligations of any Borrower or any Subsidiary with respect to letters of credit supporting, any
obligations described in clause (m);




          (m) Debt arising from the honoring by a bank or other financial institution of a check, draft
or similar instrument (except in the case of daylight overdrafts) drawn against insufficient funds
in the ordinary course of business; provided, however, that such Debt is extinguished within five
Business Days of incurrence;




          (n) Debt arising in connection with endorsement of instruments for deposit in the ordinary
course of business;




          (o) Debt with respect to the deferred purchase price due to the seller for any Permitted
Acquisition, provided that such Debt is subordinated to the Obligations on terms reasonably
acceptable to Lender;




          (p) Debt arising from agreements of any Borrower or any Subsidiary providing for
indemnification, adjustment of purchase price, earn-outs or similar obligations, in each case,
incurred or assumed in connection with the disposition or acquisition of any Subsidiary or any
other business or assets, other than guarantees of Debt incurred by any Person acquiring all or any
portion of such Subsidiary, business or assets for the purpose of financing such acquisition;




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          (q) Unsecured Debt assumed in connection with Permitted Acquisitions in an aggregate amount
not to exceed $1,000,000 at any time outstanding;




          (r) Debt that is not included in any of the preceding clauses of this Section, is not secured
by a Lien and does not exceed $1,000,000 in the aggregate at any time.




          10.2.2 Permitted Liens. Create or suffer to exist any Lien upon any of its Property,
except the following (collectively, “Permitted Liens”):




          (a) Liens granted pursuant to the Security Documents and other Liens in favor of Lender;




          (b) Purchase Money Liens securing Permitted Purchase Money Debt and Capital Lease Liens
securing Permitted Capital Leases;




          (c) Liens for Taxes not yet past due or being Properly Contested;




          (d) statutory Liens, such as carriers’, warehousemen’s, materialmen’s, workmen’s, suppliers’,
repairmen’s and mechanics’ Liens and other similar Liens (other than Liens for Taxes or imposed
under ERISA and Landlord’s and Lessors’ Liens) arising in the ordinary course of business, but only
if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested,
and (ii) such Liens do not materially impair the value or use of the Property or materially impair
operation of the business of any Borrower or Subsidiary;




          (e) (i) Liens incurred or deposits or pledges made in the ordinary course of business to
secure the performance of tenders, bids, leases, contracts (except those relating to Borrowed
Money), statutory obligations and other similar obligations, or arising as a result of progress
payments under government contracts, as long as such Liens are at all times junior to Lender’s
Liens, and (ii) pledges and deposits made in the ordinary course of business in compliance with
workers’ compensation, unemployment insurance and other social security laws or regulations, other
than any Liens for Taxes or imposed by ERISA;




          (f) (i) landlords’ and lessors’ Liens in respect of rent not in default and (ii) Liens arising
in the ordinary course of business that are subject to Lien Waivers;




          (g) Liens arising by virtue of a judgment or judicial order against any Borrower or
Subsidiary, or any Property of a Borrower or Subsidiary, as long as such Liens are adequately
bonded and any appropriate legal proceedings which may have been duly initiated for the review of
such judgment have not been finally terminated or the period within which the proceedings may be
initiated has not expired;




          (h) easements, rights-of-way, restrictions (including zoning restrictions), covenants,
licenses, encroachments, protrusions or other agreements of record, and other similar charges or
encumbrances on Real Estate, that do not secure any Debt and do not interfere with the ordinary
course of business;




          (i) normal and customary rights of setoff upon deposits in favor of depository institutions,
and Liens of a collecting bank on Payment Items in the course of collection; and




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          (j) existing Liens shown on Schedule 10.2.2 and any Lien granted as a replacement or
substitute therefor; provided that any such replacement or substitute Lien (i) except as permitted
by Section 10.2.1, does not secure an aggregate amount of Debt, if any, greater than that secured
on the Closing Date and (ii) is not expanded beyond the property or categories of property subject
thereto on the Closing Date;




          (k) leases or subleases of the properties of any Borrower or Subsidiary granted by such Person
to third parties, in each case entered into in the ordinary course of business so long as such
leases or subleases do not, individually or in the aggregate, (i) interfere in any material respect
with the ordinary conduct of the business of any Borrower or Subsidiary or (ii) materially impair
the use (for its intended purposes) or the value of the property subject thereto;




          (l) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to
cash and Cash Equivalents on deposit in one or more accounts maintained by any Borrower or
Subsidiary, in each case granted in the ordinary course of business in favor of the bank or banks
or security intermediary with which such accounts are maintained, securing amounts owing to such
bank or securities intermediary including with respect to cash management and operating account
arrangements, including those involving pooled accounts and netting arrangements; provided that,
unless such Liens are non-consensual and arise by operation of law, in no case shall any such Liens
secure (either directly or indirectly) the repayment of any Debt;




          (m) Liens on fixed assets acquired in connection with a Permitted Acquisition so long as such
Liens were existing at the time of such Acquisition by a Borrower or Subsidiary and were not
incurred, extended or renewed in contemplation of such Acquisition; provided that (i) the
Debt secured by such Lien is permitted under Section 10.2.1, (ii) the Lien shall attach solely to
the property acquired, and (iii) at the time of acquisition of such fixed assets, the aggregate
amount remaining unpaid on all Debt secured by Liens on such fixed assets whether or not assumed by
a Borrower or Subsidiary shall not exceed an amount equal to the fair market value at the time of
acquisition of such fixed assets;




          (n) Liens in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods;




          (o) Liens securing Refinancing Debt permitted sunder Section 10.2.1.




          (p) Liens on property of and Equity Interests in a Foreign Subsidiary securing Debt of such
Foreign Subsidiary permitted under Section 10.2.1(h);




          (q) Liens incidental to the conduct of the business or the ownership of the assets of any
Borrower or Subsidiary that (x) were not incurred in connection with Borrowed Money, (y) do not in
the aggregate materially detract from the value of the assets subject thereto or materially impair
the use thereof in the operation of such business and (z) do not secure obligations aggregating in
excess of $500,000.




          10.2.3 [Intentionally deleted].




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          10.2.4 Distributions; Upstream Payments. Declare or make any Distributions, except
the Borrowers and their Subsidiaries may declare and pay Upstream Payments and Permitted
Distributions.




          10.2.5 Restricted Investments. Make any Restricted Investment.




          10.2.6 Disposition of Assets. Make any Asset Disposition, except a Permitted Asset
Disposition, a disposition of Equipment under Section 8.4.2, or a transfer of Property by a
Subsidiary or Obligor to a Borrower.




          10.2.7 Loans. Make any loans or other advances of money to any Person, except
(a) advances to an officer or employee for salary, travel expenses, commissions and similar items
in the ordinary course of business; (b) prepaid expenses and extensions of trade credit made in the
ordinary course of business; (c) deposits with financial institutions permitted hereunder; (d) as
long as no Default or Event of Default exists, intercompany loans by a Subsidiary to a Borrower,
(e) Permitted Investments, and (f) a Loan by a Borrower to Ashworth UK, provided that not more than
$4,000,000 of such loans may be outstanding at any one time.




          10.2.8 Restrictions on Payment of Certain Debt. (a) Make any payments (whether
voluntary or mandatory, or a prepayment, redemption, retirement, defeasance or acquisition) with
respect to any Subordinated Debt, 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 Lender, not less than five Business Days prior
to the date of payment, that all conditions under such agreement have been satisfied); or (b) if an
Event of Default has occurred and is continuing or will result after giving effect thereto, make
any voluntary prepayment of Borrowed Money (other than the Obligations or the Debt outstanding
under the UK Loan Facility) prior to the due date for any payments under the agreements evidencing
such Debt as in effect on the Closing Date (or as amended thereafter with the consent of Lender).




          10.2.9 Fundamental Changes. Merge, combine or consolidate with any Person, or
liquidate, wind up its affairs or dissolve itself, in each case whether in a single transaction or
in a series of related transactions, except for mergers or consolidations of a wholly-owned
Subsidiary into a Borrower or the merger set forth in Section 10.1.11; change its name or conduct
business under any fictitious name without giving Lender 30 days advance written notice thereof;
change its tax, charter or other organizational identification number; or change its form or state
of organization without giving Lender 30 days advance written notice thereof.




          10.2.10 Subsidiaries. Form or acquire any Subsidiary after the Closing Date, except
in accordance with Sections 10.1.9 and 10.2.5; or permit any existing Subsidiary to issue any
additional Equity Interests except director’s qualifying shares.




          10.2.11 Organic Documents. Amend, modify or otherwise change any of its Organic
Documents except for any amendment, modification or other change that does not adversely affect
Lender or any duty to pay the Obligations.




          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.




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          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 [Intentionally Omitted].




          10.2.15 Hedging Agreements. Enter into any Hedging Agreement, except to hedge risks
arising in the ordinary course of business and not for speculative purposes.




          10.2.16 Conduct of Business. Engage in any business, other than its business as
conducted on the Closing Date and any activities incidental thereto and business reasonably related
and/or complementary thereto.




          10.2.17 Affiliate Transactions. Enter into or be party to any transaction with an
Affiliate, except (a) transactions contemplated by the Loan Documents; (b) payment of reasonable
compensation to officers and employees for services actually rendered (including, without
limitation, Specified Payments), and loans and advances permitted by Section 10.2.7; (c) payment of
customary directors’ fees and indemnities; (d) transactions solely among Borrowers and/or Borrowers
and Ashworth UK as set forth in Section 10.2.7; (e) transactions with Affiliates that were
consummated prior to the Closing Date, as shown on Schedule 10.2.17; (f) transactions with
Affiliates in the ordinary course of business, upon fair and reasonable terms fully disclosed to
Lender and no less favorable than would be obtained in a comparable arm’s-length transaction with a
non-Affiliate; (g) Permitted Distributions; (h) Permitted Investments; (i) Permitted Asset
Dispositions, (j) payment of administrative or related expenses of Ashworth UK in the ordinary
course of business and consistent with past practices, and (k) real property lease payments to EDC
with respect to Borrower’s facility located in Oceanside, California.




          10.2.18 Plans. Become party to any Multiemployer Plan or Foreign Plan, other than any
in existence on the Closing Date.




          10.2.19 Amendments to Subordinated Debt. Amend, supplement or otherwise modify any
document, instrument or agreement relating to any Subordinated Debt, if such modification
(a) increases the principal balance of such Debt, or increases any required cash payment payable
prior to the Full Payment of all Obligations; (b) accelerates the date on which any installment of
principal or any interest is due, or adds any additional redemption, put or prepayment provisions;
(c) shortens the final maturity date or otherwise accelerates amortization; (d) increases the
interest rate; (e) increases or adds any fees or charges; (f) modifies any covenant in a manner or
adds any representation, covenant or default that is more onerous or restrictive in any material
respect for any Borrower or Subsidiary, or that is otherwise materially adverse to any Borrower,
any Subsidiary or Lender; or (g) results in the Obligations not being fully benefited by the
subordination provisions thereof.




          10.2.20 Financial Covenants. [Intentionally Deleted]




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:




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          (a) A Borrower fails to pay (i) when and as required to be paid hereunder, any amount of
principal or interest of any Loan or any reimbursement of any drawing under a Letter of Credit, or
(ii) within five Business Days after the same becomes due, any other amount payable hereunder or
under any other Loan Document;




          (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) A Borrower breaches or fail to perform any covenant contained in Sections 2.1.4, 6.3, 7.4,
7.6, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1(a), 10.1.2, or 10.2;




          (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 Lender, whichever is sooner;




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




          (f) Any “Event of Default” occurs under the Real Estate Term Loan, any UK Loan Document, or
any other 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 $500,000, if
the maturity of or any payment with respect to such Debt may be accelerated or demanded due to such
“Event of Default”;




          (g) Any judgment or order for the payment of money is entered against an Obligor in an amount
that exceeds, individually or cumulatively with all unsatisfied judgments or orders against all
Obligors, $500,000 (net of any insurance coverage therefor not disputed by the insurer), and the
same shall remain undischarged, unvacated or unbonded for a period of 30 consecutive days
consecutive days during which execution shall not be effectively stayed, 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 exceeds $500,000;




          (i) Any Material Obligor is enjoined, restrained or in any way prevented by any Governmental
Authority from conducting any material part of its business; any Material Obligor suffers the loss,
revocation or termination of any material license, permit, lease or agreement necessary to its
business; there is a cessation of any material part of any Material Obligor’s business for a
material period of time; any material Collateral or Property of the Obligors (taken as a whole) is
taken or impaired through condemnation; any Material Obligor agrees to or commences any
liquidation, dissolution or winding up of its affairs; or Material Obligors, taken as a whole cease
to be Solvent;




          (j) An Insolvency Proceeding is commenced by any Material Obligor; any Material Obligor makes
an offer of settlement, extension or composition to its unsecured creditors generally; a trustee is
appointed to take possession of any substantial Property of or to





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operate any of the business of any Material Obligor; or an Insolvency Proceeding is commenced
against any Material Obligor and: the Obligor consents to institution of the proceeding, the
petition commencing the proceeding is not timely controverted by the Obligor, the petition is not
dismissed within 30 days after filing, or an order for relief is entered in the proceeding;




          (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, 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; or any event similar to the foregoing occurs or
exists with respect to a Foreign Plan;




          (l) An Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a
felony committed in the conduct of the Obligor’s business, or (ii) violating any state or federal
law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal
Exportation of War Materials Act) that could lead to forfeiture of any material Property or any
material Collateral; or




          (m) A Change of Control occurs; or any event occurs or condition exists that has a Material
Adverse Effect.




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



          (a) declare any 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 the Obligations including the LC Obligations and
Obligations in respect of Bank Products but excluding other contingent Obligations such as rights
to indemnification as to which no claim has been made, and, if Obligors fail promptly to deposit
such Cash Collateral, Lender may 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. Such rights and
remedies include the rights to (i) take possession of any Collateral; (ii) require Borrowers to
assemble Collateral, at Borrowers’ expense, and make it available to Lender at a place designated
by Lender; (iii) enter any premises where Collateral is located and store Collateral on such
premises until sold (and if the premises are owned or leased by a Borrower, Borrowers agree not to
charge for such storage); and (iv) sell or otherwise dispose of any





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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 Lender, in its discretion, deems advisable. Each Borrower agrees that 10
days notice of any proposed sale or other disposition of Collateral by Lender shall be reasonable.
Lender 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. Lender shall have
the right to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination
thereof, and Lender may purchase any Collateral at public or, if permitted by law, private sale
and, in lieu of actual payment of the purchase price, may set off the amount of such price against
the Obligations.




     11.3 License. Except (i) with respect to Intellectual Property constituting Excluded
Assets, or (ii) as prohibited by any agreement (including any License) with respect to any
Intellectual Property, Lender is hereby granted an irrevocable, non-exclusive license or other
right to use, license or sub-license (without payment of royalty or other compensation to any
Person), effective at any time that a Default or Event of Default has occurred and is continuing,
any or all Intellectual Property of Borrowers, computer hardware and software, trade secrets,
brochures, customer lists, promotional and advertising materials, labels, packaging materials and
other Property, in 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, Lender and its 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 Lender or such
Affiliate to or for the credit or the account of an Obligor against any Obligations, irrespective
of whether or not 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 Lender or such Affiliate different from the branch or office holding such
deposit or obligated on such indebtedness. The rights of 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 covenants, conditions, provisions, warranties,
guaranties, indemnities and other undertakings of Borrowers contained in the Loan Documents are
cumulative and not in derogation or substitution of each other. In particular, the rights and
remedies of Lender are cumulative, may be exercised at any time and from time to time, concurrently
or in any order, and shall not be exclusive of any other rights or remedies that Lender may have,
whether under any agreement, by law, at equity or otherwise.




          11.5.2 Waivers. The failure or delay of Lender to require strict performance by
Borrowers with any terms of the Loan Documents, or to exercise any rights or remedies with respect
to Collateral or otherwise, shall not operate as a waiver thereof nor as establishment of a course
of dealing. All rights and remedies shall continue in full force and effect until Full Payment of
all Obligations. No modification of any terms of any Loan Documents (including any waiver thereof)
shall be effective, unless such modification is specifically provided in a writing directed to
Borrowers and executed by Lender, and such modification shall be applicable





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only to the matter specified. No waiver of any Default or Event of Default shall constitute a
waiver of any other Default or Event of Default that may exist at such time, unless expressly
stated. If Lender accepts performance by any Obligor under any Loan Documents in a manner other
than that specified therein, or during any Default or Event of Default, or if Lender shall delay or
exercise any right or remedy under any Loan Documents, such acceptance, delay or exercise shall not
operate to waive any Default or Event of Default nor to preclude exercise of any other right or
remedy.




SECTION 12 MISCELLANEOUS




     12.1 Consents, Amendments and Waivers.



          12.1.1 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of Borrowers, Lender, and their respective successors and assigns, except that (i) no
Borrower shall have the right to assign its rights or delegate its obligations under any Loan
Documents and (ii) no assignment by Lender (other than an assignment to Lender’s Affiliates) of its
rights and obligations hereunder shall be effective without the prior written consent of Parent
which shall not be unreasonably withheld or delayed and shall be deemed given if no objection is
made within 15 Business Days after notice of the proposed assignment by Lender; provided
that if a Default or an Event of Default exists, Lender may assign any of its rights and
obligations without Parent’s consent.




          12.1.2 Amendments and Other Modifications. 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 Lender and each Obligor party to
such Loan Document. However, only the consent of the parties to a Bank Product shall be required
for any modification of such agreement, and no Affiliate of Lender that is party to a Bank Product
agreement shall have any other right to consent to or participate in any manner in modification of
any other Loan Document. The funding of any Loans or issuance of any Letters of Credit during a
Default or Event of Default shall not be deemed to constitute a waiver of such Default or Event of
Default, nor to establish a course of dealing. Any waiver or consent granted by Lender hereunder
shall be effective only if in writing, and then only in the specific instance and for the specific
purpose for which it is given.




     12.2 Indemnity. EACH BORROWER SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES
AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS
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.



     12.3 Notices and Communications.



          12.3.1 Notice Address. Subject to Section 4.1.3, all notices and other communications
by or to a party hereto shall be in writing and shall be given to any Borrower, 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 at such other address as a party may hereafter





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specify by notice in accordance with this Section 12.3. 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 U.S. 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; or (d) if given by electronic communication in accordance with
Section 12.3.2, as provided in such Section. Notwithstanding the foregoing, no notice to Lender
pursuant to Section 2.1.3, 2.3, 3.1.2, or 4.1.1 shall be effective until actually received by the
individual to whose attention at Lender 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 Borrowers.




          12.3.2 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 for execution, and matters permitted under Section 4.1.3. Lender makes no
assurances as to the privacy and security of electronic communications. Voice mail may not be used
as effective notice under the Loan Documents. Unless Parent and Lender otherwise agree, (i)
notices and other communications sent to an e-mal address shall be deemed received upon the
sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt
requested” function, as available, return e-mail or other written acknowledgement); provided that
if such notice or other communication is not sent during the normal business hours of the
recipient, such notice or communication shall be deemed to have been sent at the opening of
business on the next business day for the recipient, and (ii) notices or communications posted to
an Internet or intranet website shall be deemed received upon the deemed receipt by the intended
recipient at its e-mail address as described in the foregoing clause (i) of notification that such
notice or communication is available and identifying the website address therefor.




          12.3.3 Non-Conforming Communications. Lender may rely upon any notices purportedly
given by or on behalf of any Borrower 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 Borrower 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 a Borrower.




     12.4 Performance of Borrowers’ Obligations. Lender may, in its reasonable discretion
at any time and from time to time, at Borrowers’ expense, pay any amount or do any act required of
a Borrower under any Loan Documents or otherwise lawfully requested by Lender (and, in any such
case, not paid or performed by an Obligor within 10 days after written request therefor by Lender)
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 Lender’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 Lender under this Section shall be
reimbursed by Borrowers, on demand, with interest from the date incurred to the date of payment
thereof at the Default Rate applicable to Base Rate Revolver Loans. Any payment made or action
taken by Lender under this Section shall be



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without prejudice to any right to assert an Event of Default or to exercise any other rights
or remedies under the Loan Documents.




     12.5 Credit Inquiries. Each Borrower hereby authorizes Lender (but it shall have no
obligation) to respond to usual and customary credit inquiries from third parties concerning any
Borrower or Subsidiary.



     12.6 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.



     12.7 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.



     12.8 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 Lender has executed it and received
counterparts bearing the signatures of all other parties hereto. Delivery of a signature page of
any Loan Document by telecopy or electronic communication (e.g., pdf files delivered via email)
shall be effective as delivery of a manually executed counterpart of such agreement.



     12.9 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.



     12.10 No Control; No Advisory or Fiduciary Responsibility. Nothing in any Loan
Document and no action of Lender pursuant to any Loan Document shall be deemed to constitute
control of any Obligor by Lender. In connection with all aspects of each transaction contemplated
by any Loan Document, Borrowers acknowledge and agree that (a)(i) this credit facility and all
related services by Lender or its Affiliates are arm’s-length commercial transactions between
Borrowers and such Person; (ii) Borrowers have consulted their own legal, accounting, regulatory
and tax advisors to the extent they have deemed appropriate; and (iii) Borrowers are capable of
evaluating and understanding, and do understand and accept, the terms, risks and conditions of the
transactions contemplated by the Loan Documents; (b) each of Lender and its Affiliates is and has
been acting solely as a principal in connection with this credit facility, is not the financial
advisor, agent or fiduciary for Borrowers, 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) Lender and its Affiliates may be engaged in a broad range of
transactions that involve interests that differ from Borrowers and their Affiliates, and have no
obligation to disclose any of such interests to Borrowers or their Affiliates. To the fullest
extent permitted by Applicable Law, each Borrower hereby waives and releases any claims that it
may have against Lender and its



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Affiliates with respect to any breach or alleged breach of agency or fiduciary duty in
connection with any aspect of any transaction contemplated by a Loan Document.




     12.11 Confidentiality. Lender agrees to maintain the confidentiality of all
Information (as defined below), except that Information may be disclosed (a) to its Affiliates and
to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors
and representatives (it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep such Information
confidential); (b) to the extent requested by any regulatory authority purporting to have
jurisdiction over it (including any self-regulatory authority, such as the National Association of
Insurance Commissioners); (c) to the extent required by Applicable Law or by any subpoena or
similar legal process; (d) to any other party hereto; (e) in connection with the exercise of any
remedies, the enforcement of any rights, or any action or proceeding relating to any Loan
Documents; (f) subject to an agreement containing provisions substantially the same as those of
this Section, to any potential or actual transferee of any interest in a Loan Document or any
actual or prospective party (or its advisors) to any Bank Product; (g) with the consent of the
Borrower; or (h) to the extent such Information (i) becomes publicly available other than as a
result of a breach of this Section or (ii) becomes available to Lender or any of its Affiliates on
a nonconfidential basis from a source other than Borrowers. Notwithstanding the foregoing, Lender
may issue and disseminate to the public general information describing this credit facility,
including the names and addresses of Borrowers and a general description of Borrowers’ businesses,
and may use Borrowers’ names in advertising and other promotional materials. For purposes of this
Section, “Information” means all information received from an Obligor or Subsidiary
relating to it or its business, other than any information that is available to Lender on a
nonconfidential basis prior to disclosure by the Obligor or Subsidiary. Lender 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 and state securities laws.



     12.12 [Intentionally Omitted]



     12.13 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE
SPECIFIED, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO FEDERAL LAWS RELATING TO NATIONAL BANKS).



     12.14 Consent to Forum; Arbitration.



          12.14.1 Forum. EACH BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER LOS ANGELES, CALIFORNIA, 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 BORROWER 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





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IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION
12.3.1. Nothing herein shall limit the right of 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
Applicable Law. Nothing in this Agreement shall be deemed to preclude enforcement by Lender of any
judgment or order obtained in any forum or jurisdiction.




          12.14.2 Arbitration. Notwithstanding any other provision of this Agreement to the
contrary, any controversy or claim among the parties relating in any way to any Obligations or Loan
Documents, including any alleged tort, shall at the request of any party hereto be determined by
binding arbitration conducted in accordance with the United States Arbitration Act (Title 9 U.S.
Code). Arbitration proceedings will be determined in accordance with the Act, the then-current
rules and procedures for the arbitration of financial services disputes of the American Arbitration
Association (“AAA”), and the terms of this Section. In the event of any inconsistency, the terms
of this Section shall control. If AAA is unwilling or unable to serve as the provider of
arbitration or to enforce any provision of this Section, Lender may designate another arbitration
organization with similar procedures to serve as the provider of arbitration. The arbitration
proceedings shall be conducted in Los Angeles, California. The arbitration hearing shall commence
within 90 days of the arbitration demand and close within 90 days thereafter. The arbitration
award must be issued within 30 days after close of the hearing (subject to extension by the
arbitrator for up to 60 days upon a showing of good cause), and shall include a concise written
statement of reasons for the award. The arbitrator shall give effect to applicable statutes of
limitation in determining any controversy or claim, and for these purposes, service on AAA under
applicable AAA rules of a notice of claim is the equivalent of the filing of a lawsuit. Any
dispute concerning this Section or whether a controversy or claim is arbitrable shall be determined
by the arbitrator. The arbitrator shall have the power to award legal fees to the extent provided
by this Agreement. Judgment upon an arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief or pursuant to a
provisional or ancillary remedy shall not constitute a waiver of the right of any party, including
the plaintiff, to submit the controversy or claim to arbitration if any other party contests such
action for judicial relief. No controversy or claim shall be submitted to arbitration without the
consent of all parties if, at the time of the proposed submission, such controversy or claim
relates to an obligation secured by Real Estate, but if all parties do not consent to submission of
such a controversy or claim to arbitration, it shall be determined as provided in the next
sentence. At the request of any party, a controversy or claim that is not submitted to arbitration
as provided above shall be determined by judicial reference; and if such an election is made, the
parties shall designate to the court a referee or referees selected under the auspices of the AAA
in the same manner as arbitrators are selected in AAA sponsored proceedings and the presiding
referee of the panel (or the referee if there is a single referee) shall be an active attorney or
retired judge; and judgment upon the award rendered by such referee or referees shall be entered in
the court in which proceeding was commenced. None of the foregoing provisions of this Section
shall limit the right of Lender 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, after or during any arbitration proceeding. The exercise of a remedy does not
waive the right of any party to resort to arbitration or reference. At Lender’s option,
foreclosure under a real estate mortgage may be accomplished either by exercise of power of sale
thereunder or by judicial foreclosure.




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     12.15 Waivers by Borrowers. To the fullest extent permitted by Applicable Law, each
Borrower waives (a) the right to trial by jury (which 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 Lender on which a Borrower may in
any way be liable, and hereby ratifies anything Lender 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 Lender to exercise any rights or remedies; (e) the benefit of all
valuation, appraisement and exemption laws; (f) any claim against 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 Borrower
acknowledges that the foregoing waivers are a material inducement to Lender entering into this
Agreement and that Lender is relying upon the foregoing in its dealings with Borrowers. Each
Borrower 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.



     12.16 Patriot Act Notice. Lender hereby notifies Borrowers that pursuant to the
requirements of the Patriot Act, Lender is required to obtain, verify and record information that
identifies each Borrower, including its legal name, address, tax ID number and other information
that will allow Lender to identify it in accordance with the Patriot Act. Lender will also
require information regarding each personal guarantor, if any, and may require information
regarding Borrowers’ management and owners, such as legal name, address, social security number
and date of birth.



     12.17 Judgment Currency. If for the purpose of obtaining judgment in any court it is
necessary to convert an amount due hereunder in the currency in which it is due (the “Original
Currency”) into another currency (the “Second Currency”), the rate of exchange applied shall be
that at which, in accordance with normal banking procedures, Lender could purchase in the New York
foreign exchange market, the Original Currency with the Second Currency on the date two (2)
Business Days preceding that on which judgment is given. Each Obligor agrees that its obligation
in respect of any Original Currency due from it hereunder or under any other Loan Document to
which it is party shall, notwithstanding any judgment or payment in such other currency, be
discharged only to the extent that, on the Business Day following the date Lender receives payment
of any sum so adjudged to be due hereunder in the Second Currency, Lender may, in accordance with
normal banking procedures, purchase, in the New York foreign exchange market, the Original
Currency with the amount of the Second Currency so paid; and if the amount of the Original
Currency so purchased or could have been so purchased is less than the amount originally due in
the Original Currency, each Obligor agrees as a separate obligation and notwithstanding any such
payment or judgment to indemnify Lender and the Lenders against such loss. The term “rate of
exchange” in this Section 12.17 means the spot rate at which Lender, in accordance with normal
practices, is able on the relevant date to purchase the Original Currency with the Second
Currency, and includes any premium and costs of exchange payable in connection with such purchase.



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          IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set forth
above.




	 	 	 	 	 	 	 
	 	 	LENDER:	 	 
	 
	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 /s/ John Tolle	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	John Tolle	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	Vice President	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 
	 	 	 	Bank of America, N.A.	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	55 South Lake Avenue, Suite 900	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	Pasadena, CA 91101	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Attn: John Tolle

Telecopy: (626) 584-4601	 	 
	 
	 	 	 	 	 	 
	 	 	BORROWERS:	 	 
	 
	 	 	 	 	 	 
	 	 	ASHWORTH, INC.,

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Edward J. Fadel	 	 
	 

	 	Name:
	 	Edward J. Fadel	 	 
	 

	 	Title:
	 	President	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425
	 	 






 









 





	 	 	 	 	 	 	 
	 	 	ASHWORTH STORE I, INC.,

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Halina Balys	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Halina Balys	 	 
	 

	 	Title:
	 	VP, Corporate Secretary and Compliance Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	Ashworth Store I, Inc.,

c/o Ashworth, Inc.

2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425	 	 
	 
	 	 	 	 	 	 
	 	 	ASHWORTH STORE II, INC.,

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Halina Balys	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Halina Balys	 	 
	 

	 	Title:
	 	VP, Corporate Secretary and Compliance Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	Ashworth Store II, Inc.,

c/o Ashworth, Inc.

2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425	 	 
	 
	 	 	 	 	 	 
	 	 	ASHWORTH ACQUISITION CORP.,

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Halina Balys	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Halina Balys	 	 
	 

	 	Title:
	 	VP, Corporate Secretary and Compliance Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	Ashworth Acquisition Corp.,

c/o Ashworth, Inc.

2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425
	 	 






2









 





	 	 	 	 	 	 	 
	 	 	GEKKO BRANDS, L.L.C.,

an Alabama limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Halina Balys	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Halina Balys	 	 
	 

	 	Title:
	 	Manager	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	Gekko Brands, L.L.C.,

c/o Ashworth, Inc.

2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425	 	 
	 
	 	 	 	 	 	 
	 	 	KUDZU, L.L.C.,

an Alabama limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Halina Balys	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Halina Balys	 	 
	 

	 	Title:
	 	Manager	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	Kudzu, L.L.C.,

c/o Ashworth, Inc.

2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425	 	 
	 
	 	 	 	 	 	 
	 	 	THE GAME, LLC,

an Alabama limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Halina Balys	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Halina Balys	 	 
	 

	 	Title:
	 	Manager	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 

	 	 	 	The Game, LLC,

c/o Ashworth, Inc.

2765 Loker Avenue West

Carlsbad, CA 92010

Attn: Halina Balys

Telecopy: (760) 476-8425
	 	 







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