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Exhibit 4.4(a)  

CREDIT AND SECURITY AGREEMENT  

 BY AND BETWEEN  

 2ND SWING, INC.  

 AND  

 WELLS FARGO BUSINESS CREDIT, INC.  

 NOVEMBER 21, 2002  

  
 

    Table of Contents    
    

	ARTICLE I DEFINITIONS	 	1
	 	Section 1.1 Definitions	 	1
	 	Section 1.2 Other Definitional Terms; Rules of Interpretation	 	8
	

ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY	
 	

8
	 	Section 2.1 Revolving Advances	 	8
	 	Section 2.2 Procedures for Requesting Advances	 	8
	 	Section 2.3 Intentionally Deleted	 	9
	 	Section 2.4 Increased Costs; Capital Adequacy; Funding Exceptions	 	9
	 	Section 2.5 Letters of Credit	 	10
	 	Section 2.6 Special Account	 	10
	 	Section 2.7 Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement	 	10
	 	Section 2.8 Obligations Absolute	 	11
	 	Section 2.9 Inventory Appraisals	 	11
	 	Section 2.10 Interest; Minimum Interest Charge; Default Interest; Participations; Usury	 	11
	 	Section 2.11 Fees	 	12
	 	Section 2.12 Time for Interest Payments; Payment on Non-Banking Days; Computation of Interest and Fees	 	13
	 	Section 2.13 Collateral Account; Application of Payments	 	14
	 	Section 2.14 Discretionary Nature of this Facility; Termination by the Lender; Automatic Renewal	 	14
	 	Section 2.15 Voluntary Prepayment; Termination of the Credit Facility by the Borrower	 	14
	 	Section 2.16 Mandatory Prepayment	 	14
	 	Section 2.17 Revolving Advances to Pay Obligations	 	15
	 	Section 2.18 Use of Proceeds	 	15
	 	Section 2.19 Liability Records	 	15
	

ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF	
 	

16
	 	Section 3.1 Grant of Security Interest	 	16
	 	Section 3.2 Notification of Account Debtors and Other Obligors	 	16
	 	Section 3.3 Assignment of Insurance	 	16
	 	Section 3.4 Occupancy	 	16
	 	Section 3.5 License	 	17
	 	Section 3.6 Financing Statement	 	17
	 	Section 3.7 Setoff	 	17
	 	Section 3.8 Collateral	 	17
	

ARTICLE IV CONDITIONS OF WILLINGNESS TO CONSIDER LENDING	
 	

18
	 	Section 4.1 Conditions Precedent to Lender's Willingness to Consider Making the Initial Revolving Advance and Letter of Credit	 	18
	 	Section 4.2 Conditions Precedent to All Advances and Letters of Credit	 	19
	

ARTICLE V REPRESENTATIONS AND WARRANTIES	
 	

20
	 	Section 5.1 Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification Number	 	20
	 	Section 5.2 Capitalization	 	20
	 	Section 5.3 Authorization of Borrowing; No Conflict as to Law or Agreements	 	20
	 	Section 5.4 Legal Agreements	 	20
	 	Section 5.5 Subsidiaries	 	20
	 	Section 5.6 Financial Condition; No Adverse Change	 	20
	 	Section 5.7 Litigation	 	21
	 	Section 5.8 Regulation U	 	21
	 	Section 5.9 Taxes	 	21
	 	 	 

 

	 	Section 5.10 Titles and Liens	 	21
	 	Section 5.11 Intellectual Property Rights	 	21
	 	Section 5.12 Plans	 	22
	 	Section 5.13 Default	 	22
	 	Section 5.14 Environmental Matters	 	23
	 	Section 5.15 Submissions to Lender	 	23
	 	Section 5.16 Financing Statements	 	23
	 	Section 5.17 Rights to Payment	 	23
	 	Section 5.18 Financial Solvency	 	 
	

ARTICLE VI COVENANTS	
 	

24
	 	Section 6.1 Reporting Requirements	 	24
	 	Section 6.2 Financial Covenants	 	26
	 	Section 6.3 Permitted Liens; Financing Statements	 	27
	 	Section 6.4 Indebtedness	 	27
	 	Section 6.5 Guaranties	 	28
	 	Section 6.6 Investments and Subsidiaries	 	28
	 	Section 6.7 Dividends and Distributions	 	28
	 	Section 6.8 Salaries	 	28
	 	Section 6.9 Changes in Senior Management	 	28
	 	Section 6.10 Books and Records; Inspection and Examination	 	29
	 	Section 6.11 Account Verification	 	29
	 	Section 6.12 Compliance with Laws	 	29
	 	Section 6.13 Payment of Taxes and Other Claims	 	29
	 	Section 6.14 Maintenance of Properties	 	29
	 	Section 6.15 Insurance	 	30
	 	Section 6.16 Preservation of Existence	 	30
	 	Section 6.17 Delivery of Instruments, etc.	 	30
	 	Section 6.18 Sale or Transfer of Assets; Suspension of Business Operations	 	30
	 	Section 6.19 Consolidation and Merger; Asset Acquisitions	 	30
	 	Section 6.20 Sale and Leaseback	 	30
	 	Section 6.21 Restrictions on Nature of Business	 	31
	 	Section 6.22 Accounting	 	31
	 	Section 6.23 Discounts, etc.	 	31
	 	Section 6.24 Plans	 	31
	 	Section 6.25 Place of Business; Name	 	31
	 	Section 6.26 Constituent Documents; S Corporation Status	 	31
	 	Section 6.27 Store Locations	 	31
	 	Section 6.28 Performance by the Lender	 	31
	

ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES	
 	

32
	 	Section 7.1 Events of Default	 	32
	 	Section 7.2 Rights and Remedies	 	33
	 	Section 7.3 Certain Notices	 	34
	

ARTICLE VIII MISCELLANEOUS	
 	

34
	 	Section 8.1 No Waiver; Cumulative Remedies; Compliance with Laws	 	34
	 	Section 8.2 Amendments, Etc.	 	34
	 	Section 8.3 Addresses for Notices; Requests for Accounting	 	34
	 	Section 8.4 Intentionally Deleted	 	35
	 	Section 8.5 Further Documents	 	35
	 	Section 8.6 Costs and Expenses	 	35
	 	 	 

ii

 

	 	Section 8.7 Indemnity	 	35
	 	Section 8.8 Participants	 	36
	 	Section 8.9 Execution in Counterparts; Telefacsimile Execution	 	36
	 	Section 8.10 Retention of Borrower's Records	 	36
	 	Section 8.11 Binding Effect; Assignment; Complete Agreement; Exchanging Information	 	36
	 	Section 8.12 Severability of Provisions	 	36
	 	Section 8.13 Headings	 	37
	 	Section 8.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial	 	37

iii

 
 

CREDIT AND SECURITY AGREEMENT    
    

Dated
as of November 21, 2002 

        2ND
SWING, INC., a Minnesota corporation (the "Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as
follows: 

 
 

ARTICLE I    
    
    DEFINITIONS    
    

        Section 1.1    Definitions.    For all purposes of this Agreement, except as otherwise expressly provided, the
following terms shall have the meanings assigned to them in this Section or in the Section referenced after such term: 

        "Accounts"
means all of the Borrower's accounts, as such term is defined in the UCC, including each and every right of the Borrower to the payment of money, whether such right to payment
now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any contract or agreement, whether such right to payment is created, generated or earned by the Borrower or by some other person
who subsequently transfers such person's interest to the Borrower, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all Liens) which the Borrower may at any time have by law or agreement against any account debtor or other obligor obligated to make any such
payment or against any property of such account debtor or other obligor; all including but not limited to all present and future
accounts, contract rights, loans and obligations receivable, chattel papers, bonds, notes and other debt instruments, tax refunds and rights to payment in the nature of general intangibles. 

        "Advance"
means a Revolving Advance. 

        "Affiliate"
or "Affiliates" means any Person controlled by, controlling or under common control with the Borrower, including any Subsidiary of the Borrower. For purposes of this
definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise. 

        "Agreement"
means this Credit and Security Agreement. 

        "Availability"
means the difference of (i) the Borrowing Base and (ii) the sum of (A) the outstanding principal balance of the Revolving Note and (B) the L/C
Amount. 

        "Banking
Day" means a day on which the Federal Reserve Bank of New York is open for business.

        "Base
Rate" means the rate of interest publicly announced from time to time by Wells Fargo Bank National Association at its principal office in San Francisco as its "prime rate", with
the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for
loans making reference thereto. 

        "Book
Net Worth" means the aggregate of the owners' equity in the Borrower, determined in accordance with GAAP. 

        "Borrowing
Base" means at any time and subject to change from time to time in the Lender's sole discretion, the lesser of: 

        (a)   the
Maximum Line; or 

 

        (b)   during
the period April 1 through August 31 of each year, the sum of: 

        (i)    the
lesser of (A) 40% of Eligible Used Inventory or (B) $1,750,000, plus 

        (ii)   the
lesser of (A) 40% of Eligible New Inventory or (B) $1,500,000; less 

        (iii)  $400,000
(the "Availability Reserve"); less 

        (iv)  a
rent reserve of $25,000 per location for which no satisfactory landlord's disclaimer and consent has been obtained (the "Rent Reserve"). . 

        (c)   during
the period September 1 through March 31 of each year, the sum of: 

        (i)    the
lesser of (A) 50% of Eligible Used Inventory or (B) $1,750,000, plus 

        (v)   the
lesser of (A) 50% of Eligible New Inventory or (B) $1,500,00; less 

        (vi)  $400,000
(the "Availability Reserve"); less 

        (vii) a
rent reserve of $30,000 per location for which no satisfactory landlord's disclaimer and consent has been obtained. . 

        "Capital
Expenditures" means for a period, any expenditure of money during such period for the lease, purchase or other acquisition of any capital asset, or for the lease of any other
asset whether payable currently or in the future. 

        "Collateral"
means all of the Borrower's Accounts, chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property,
letter-of-credit rights, letters of credit, all sums on deposit in any Collateral Account; together with (i) all substitutions and replacements for and products of any
of the foregoing; (ii) in the case of all goods, all accessions; (iii) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in
connection with any goods; (iv) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods; (v) all collateral subject to the Lien of any
Security Document; (vi) any money, or other assets of the Borrower that now or hereafter come into the possession, custody, or control of the Lender; (vii) all sums on deposit in the
Special Account; and (viii) proceeds of any and all of the foregoing. 

        "Collateral
Account" means the "Lender Account" as defined in the Collateral Account Agreement. 

        "Collateral
Account Agreement" means the Collateral Account Agreement by and among the Borrower, Wells Fargo Bank Minnesota and the Lender, of even date herewith. 

        "Constituent
Documents" means with respect to any Person, as applicable, such Person's certificate of incorporation, articles of incorporation, by-laws, certificate of
formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement
governing such Person's existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person's owners. 

        "Credit
Facility" means the discretionary credit facility being made available to the Borrower by the Lender under Article II. 

        "Current
Maturities of Long Term Debt" means as of a given date, the amount of the Borrower's long-term debt and capitalized leases which became due during the
one-year period ending on the designated date.

        "Debt"
means of a Person as of a given date, all items of indebtedness or liability which in accordance with GAAP would be included in determining total liabilities as shown on the
liabilities 

2

 

side
of a balance sheet for such Person and shall also include the aggregate payments required to be made by such Person at any time under any lease that is considered a capitalized lease under GAAP. 

        "Debt
Service Coverage Ratio" means the ratio of (i) the sum of (A) Funds from Operations and (B) Interest Expense  minus (C) Capital Expenditures to (ii) the sum of (A) Current
Maturities of Long Term Debt and (B) Interest Expense. 

        "Default"
means an event that, with giving of notice or passage of time or both, would constitute an Event of Default. 

        "Default
Period" means any period of time beginning on the day a Default or Event of Default occurs and ending on the date the Lender notifies the Borrower in writing that such Default
or Event of Default has been cured or waived. 

        "Default
Rate" means an annual interest rate equal to two percent (2.0%) over the Floating Rate, which interest rate shall change when and as the Floating Rate changes. 

        "Director"
means a director if the Borrower is a corporation, a governor if the Borrower is a limited liability company, or a general partner if the Borrower is a partnership. 

        "ERISA"
means the Employee Retirement Income Security Act of 1974. 

        "ERISA
Affiliate" means any trade or business (whether or not incorporated) that is a member of a group which includes the Borrower and which is treated as a single employer under
Section 414 of the IRC. 

        "Earnings
Before Taxes" means net income from operations but including extraordinary losses. 

        "Eligible
Inventory" means all Inventory of the Borrower, at the lower of cost or market value as determined in accordance with GAAP; but excluding any Inventory having any of the
following characteristics: 

        (i)    Inventory
that is: in-transit; located at any warehouse, job site or other premises not approved by the Lender in writing; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other document of title; on consignment from any Person; on consignment to any Person or subject to any bailment unless such consignee
or bailee has executed an agreement with the Lender; 

        (ii)   Supplies,
packaging, maintenance parts or sample or demo Inventory; 

        (iii)  Work-in-process
Inventory; 

        (iv)  Inventory
that is damaged, obsolete, slow moving or not currently saleable in the normal course of the Borrower's operations; 

        (v)   Inventory
that the Borrower has returned, has attempted to return, is in the process of returning or intends to return to the vendor thereof; 

        (vi)  Used
Inventory except golf clubs; 

        (vii) Inventory
manufactured by the Borrower pursuant to a license unless the applicable licensor has agreed in writing to permit the Lender to exercise its rights and
remedies against such Inventory; 

        (viii) Inventory
that is subject to a Lien in favor of any Person other than the Lender; and 

        (xiv) Inventory
otherwise deemed ineligible by the Lender in its sole discretion. 

3

 

        "Eligible
New Inventory" means Eligible Inventory consisting solely of new golf clubs and accessories. 

        "Eligible
Used Inventory" means Eligible Inventory consisting solely of used golf clubs. 

        "Environmental
Law" means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment. 

        "Equipment"
means all of the Borrower's equipment, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts, tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the Lender by the Borrower. 

        "Event
of Default" has the meaning specified in Section 7.1. 

        "Financial
Covenants" means the covenants set forth in Section 6.2.

        "Floating
Rate" means an annual interest rate equal to the sum of the Base Rate plus two and three-quarters percent (2.75%), which interest rate shall change when and as the Base Rate
changes. 

        "Funding
Date" has the meaning given in Section 2.1. 

        "Funds
From Operations" means for a given period, the sum of (i) Net Income, (ii) depreciation and amortization, (iii) deferred income taxes, and (iv) other
non-cash items, each as determined for such period in accordance with GAAP. 

        "GAAP"
means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 5.6. 

        "General
Intangibles" means all of the Borrower's general intangibles, as such term is defined in the UCC, whether now owned or hereafter acquired, including all present and future
Intellectual Property Rights, customer or supplier lists and contracts, manuals, operating instructions, permits, franchises, the right to use the Borrower's name, and the goodwill of the Borrower's
business. 

        "Hazardous
Substances" means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law. 

        "IRC"
means the Internal Revenue Code of 1986. 

        "Infringe"
means when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights. 

        "Intellectual
Property Rights" means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in
connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works. 

        "Interest
Expense" means for a fiscal year-to-date period, the Borrower's total gross interest expense during such period (excluding interest income), and shall
in any event include (i) interest expensed (whether or not paid) on all Debt, (ii) the amortization of debt discounts, (iii) the amortization of all fees payable in connection
with the incurrence of Debt to the extent included in interest expense, and (iv) the portion of any capitalized lease obligation allocable to interest expense. 

4

 

        "Inventory"
means all of the Borrower's inventory, as such term is defined in the UCC, whether now owned or hereafter acquired, whether consisting of whole goods, spare parts or
components, supplies or materials, whether acquired, held or furnished for sale, for lease or under service contracts or for manufacture or processing, and wherever located. 

        "Investment
Property" means all of the Borrower's investment property, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund shares, money market shares and U.S. Government securities. 

        "Issuer"
means the issuer of any Letter of Credit. 

        "L/C
Amount" means the sum of (i) the aggregate face amount of any issued and outstanding Letters of Credit and (ii) the unpaid amount of the Obligation of Reimbursement. 

        "L/C
Application" means an application and agreement for letters of credit in a form acceptable to the Issuer and the Lender. 

        "Letter
of Credit" has the meaning specified in Section 2.5. 

        "Licensed
Intellectual Property" has the meaning given in Section 5.11(c). 

        "Lien"
means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of
each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter
acquired and whether arising by agreement or operation of law. 

        "Loan
Documents" means this Agreement, the Note, the Security Documents and any L/C Application. 

        "Material
Adverse Effect" means any of the following: 

        (i)    a
material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of the Borrower; 

        (ii)   a
material adverse effect on the ability of the Borrower to perform its obligations under the Loan Documents; 

        (iii)  a
material adverse effect on the ability of the Lender to enforce the Obligations or to realize the intended benefits of the Security Documents, including a material
adverse effect on the validity or enforceability of any Loan Document, or on the status, existence, perfection, priority (subject to Permitted Liens) or enforceability of any Lien securing payment or
performance of the Obligations; or 

        (iv)  any
claim against the Borrower or threat of litigation which if determined adversely to the Borrower would cause the Borrower to be liable to pay an amount exceeding
$100,000 or would be an event described in clauses (i), (ii) and (iii) above. 

        "Maturity
Date" has the meaning given in Section 2.14. 

        "Maximum
Line" means $2,500,000, which amount shall be reduced to $2,000,000 on December 31, 2002 unless Borrower has obtained Offering Proceeds of not less than $5,000,000. 

        "Minimum
Interest Charge" has the meaning given in Section 2.10(c). 

        "Multiemployer
Plan" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate contributes or is obligated to contribute. 

5

 

        "Net
Income" means fiscal year-to-date after-tax net income from continuing operations as determined in accordance with GAAP. 

        "Note"
means the Revolving Note. 

        "Obligation
of Reimbursement" has the meaning given in Section 2.7(a). 

        "Obligations"
means the Note, the Obligation of Reimbursement and each and every other debt, liability and obligation of every type and description which the Borrower may now or at any
time hereafter owe to the Lender, whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including all indebtedness of the Borrower arising under any Credit Document or guaranty between the Borrower and the Lender, whether now in effect or
hereafter entered into. 

        "Offering
Proceeds" means the aggregate net proceeds available to the Borrower from new equity after the date of this Agreement. 

        "Officer"
means with respect to the Borrower, an officer if the Borrower is a corporation, a manager if the Borrower is a limited liability company, or a partner if the Borrower is a
partnership. 

        "Original
Maturity Date" means December 31, 2003. 

        "Owned
Intellectual Property" has the meaning given in Section 5.11(a). 

        "Owner"
means with respect to the Borrower, each Person having legal or beneficial title to an ownership interest in the Borrower or a right to acquire such an interest. 

        "Pension
Plan" means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate and covered by Title IV of ERISA. 

        "Permitted
Lien" has the meaning given in Section 6.3(a). 

        "Person"
means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof. 

        "Plan"
means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate. 

        "Premises"
means all premises where the Borrower conducts its business and has any rights of possession, including the premises legally described in Exhibit C attached hereto. 

        "Reportable
Event" means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the Pension Benefit Guaranty Corporation. 

        "Revolving
Advance" has the meaning given in Section 2.1. 

        "Revolving
Note" means the Borrower's revolving promissory note, payable to the order of the Lender in substantially the form of Exhibit A hereto. 

        "Security
Documents" means this Agreement, the Collateral Account Agreement and any other document delivered to the Lender from time to time to secure the Obligations. 

        "Security
Interest" has the meaning given in Section 3.1. 

6

 

        "Special
Account" means a specified cash collateral account maintained by a financial institution acceptable to the Lender in connection with Letters of Credit, as contemplated by
Section 2.6. 

        "Subordination
Agreement" means the Subordination Agreement of even date herewith, executed by David R. Pomije in the Lender's favor and acknowledged by the Borrower, and any other
subordination agreement accepted by the Lender from time to time. 

        "Subsidiary"
means any corporation of which more than 50% of the outstanding shares of capital stock having general voting power under ordinary circumstances to elect a majority of the
board of Directors of such corporation, irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries. 

        "Tax
Expense" means as of any date, the state and federal income taxes recorded by the Borrower for the year-to-date period ending on such date. 

        "Termination
Date" means the earliest of (i) the Maturity Date, (ii) the date the Borrower terminates the Credit Facility, or (iii) the date the Lender demands
payment of the Obligations. 

        "UCC"
means the Uniform Commercial Code as in effect in the state designated in Section 8.14 as the state whose laws shall govern this Agreement, or in any other state whose laws
are held to govern this Agreement or any portion hereof. 

7

  

        "Wells
Fargo Bank Minnesota" means Wells Fargo Bank Minnesota, National Association. 

        Section 1.2    Other Definitional Terms; Rules of Interpretation.    The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP. All terms defined in the UCC and not otherwise defined herein have the meanings assigned to them in the UCC. References to
Articles, Sections, subsections, Exhibits, Schedules and the like, are to Articles, Sections and subsections of, or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". Unless the context in which used herein otherwise clearly requires, "or"
has the inclusive meaning represented by the phrase "and/or". Defined terms include in the singular number the plural and in the plural number the singular. Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof (and, if applicable, in
accordance with the terms hereof and the other Loan Documents), except where otherwise explicitly provided, and reference to any promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor. Reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or interpretation means as amended, modified,
codified, replaced or reenacted, in whole or in part, and in effect on the determination date, including rules and regulations promulgated thereunder. 

 
 

ARTICLE II    
    
    AMOUNT AND TERMS OF THE CREDIT FACILITY    
    

        Section 2.1    Revolving Advances.    The Lender may, in its sole discretion, make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to the Termination Date, on the terms and subject to the conditions herein set
forth (the "Revolving Advances"). The Lender shall not consider any request for a Revolving Advance to the extent the amount of the requested Revolving Advance exceeds Availability. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving Note and shall be secured by the
Collateral. Within the limits set forth in this Section 2.1, the Borrower may request Revolving Advances, prepay pursuant to Section 2.15 and request additional Revolving Advances. 

        Section 2.2    Procedures for Requesting Advances.    The Borrower shall comply with the following procedures
in requesting Revolving Advances: 

        (a)    Time for Requests.    The Borrower shall request each Advance not later than
11:00 a.m., Minneapolis, Minnesota time on the Banking Day which is the date the Advance is to be made. Each such request shall be effective upon receipt by the Lender, shall be in writing or
by telephone or telecopy transmission, to be confirmed in writing by the Borrower if so requested by the Lender, shall be by (i) an Officer of the Borrower; or (ii) a person designated
as the Borrower's agent by an Officer of the Borrower in a writing delivered to the Lender; or (iii) a person whom the Lender reasonably believes to be an Officer of the Borrower or such a
designated agent. The Borrower shall repay all Advances even if the Lender does not receive such confirmation and even if the person requesting an Advance was not in fact authorized to do so. Any
request for an Advance, whether written or telephonic, shall be deemed to be a representation by the Borrower that the conditions set forth in Section 4.2 have been satisfied as of the time of
the request. 

        (b)    Disbursement.    Upon fulfillment of the applicable conditions set forth in
Article IV and the Lender's determination to make the Advance, the Lender shall disburse the proceeds of the requested Advance by crediting the same to the Borrower's demand deposit account
maintained 

8

 

with
Wells Fargo Bank Minnesota unless the Lender and an Officer of the Borrower shall agree in writing to another manner of disbursement. 

        Section 2.3    Intentionally Deleted.    

        Section 2.4    Increased Costs; Capital Adequacy; Funding Exceptions.    

        (a)    Increased Costs; Capital Adequacy.    If the Lender determines at any time that its Return has been reduced as
a result of any Rule Change, such Lender may so notify the Borrower and require the Borrower, beginning fifteen (15) days after such notice, to pay it the amount necessary to restore its Return
to what it would have been had there been no Rule Change. For purposes of this Section 2.4: 

        (i)    "Capital
Adequacy Rule" means any law, rule, regulation, guideline, directive, requirement or request regarding capital adequacy, or the interpretation or administration
thereof by any governmental
or regulatory authority, central bank or comparable agency, whether or not having the force of law, that applies to any Related Lender, including rules requiring financial institutions to maintain
total capital in amounts based upon percentages of outstanding loans, binding loan commitments and letters of credit. 

        (ii)   "L/C
Rule" means any law, rule, regulation, guideline, directive, requirement or request regarding letters of credit, or the interpretation or administration thereof by
any governmental or regulatory authority, central bank or comparable agency, whether or not having the force of law, that applies to any Related Lender, including those that impose taxes, duties or
other similar charges, or mandate reserves, special deposits or similar requirements against assets of, deposits with or for the account of, or credit extended by any Related Lender, on letters of
credit. 

        (iii)  "Related
Lender" includes (but is not limited to) the Lender, any parent of the Lender, any assignee of any interest of the Lender hereunder and any participant in the
Credit Facility. 

        (iv)  "Return",
for any period, means the percentage determined by dividing (i) the sum of interest and ongoing fees earned by the Lender under this Agreement during
such period, by (ii) the average capital such Lender is required to maintain during such period as a result of its being a party to this Agreement, as determined by such Lender based upon its
total capital requirements and a reasonable attribution formula that takes account of the Capital Adequacy Rules and L/C Rules then in effect, costs of issuing or maintaining any Advance or Letter of
Credit and amounts received or receivable under this Agreement or the Notes with respect to any Advance or Letter of Credit. Return may be calculated for each calendar quarter and for the shorter
period between the end of a calendar quarter and the date of termination in whole of this Agreement. 

        (vi)  "Rule
Change" means any change in any Capital Adequacy Rule Rule, or L/C Rule occurring after the date of this Agreement, or any change in the interpretation or
administration thereof by any governmental or regulatory authority, but the term does not include any changes that at the Funding Date are scheduled to take place under the existing Capital Adequacy
Rules, or L/C Rules or any increases in the capital that the Lender is required to maintain to the extent that the increases are required due to a regulatory authority's assessment of that Lender's
financial condition. 

The
initial notice sent by the Lender shall be sent as promptly as practicable after such Lender learns that its Return has been reduced, shall include a demand for payment of the amount necessary to
restore such Lender's Return for the quarter in which the notice is sent, and shall state in reasonable detail the cause for the reduction in its Return and its calculation of the 

9

 

amount
of such reduction. Thereafter, such Lender may send a new notice during each calendar quarter setting forth the calculation of the reduced Return for that quarter and including a demand for
payment of the amount necessary to restore its Return for that quarter. The Lender's calculation in any such notice shall be conclusive and binding absent demonstrable error. 

        Section 2.5    Letters of Credit.    

        (a)   The
Lender may, in its sole discretion, cause an Issuer to issue, from the Funding Date to the Termination Date, one or more irrevocable standby or documentary letters
of credit (each, a "Letter of Credit") for the Borrower's account by guaranteeing payment of the Borrower's obligations or being a co-applicant. The Lender shall not consider requests to
cause an Issuer to issue any Letter of Credit if the face amount of the Letter of Credit to be issued would exceed the lesser of: 

        (i)    $0
less the L/C Amount, or 

        (ii)   Availability.

Each
Letter of Credit, if any, shall be issued pursuant to a separate L/C Application entered into between the Borrower and the Lender for the benefit of the Issuer, completed in a manner satisfactory
to the Lender and the Issuer. The terms and conditions set forth in each such L/C Application shall supplement the terms and conditions hereof, but if the terms of any such L/C Application and the
terms of this Agreement are inconsistent, the terms hereof shall control. 

        (b)   No
Letter of Credit shall be issued with an expiry date later than the Termination Date in effect as of the date of issuance. 

        (c)   Any
request to cause an Issuer to issue a Letter of Credit shall be deemed to be a representation by the Borrower that the conditions set forth in Section 4.2
have been satisfied as of the date of the request. 

        Section 2.6    Special Account.    If the Credit Facility is terminated for any reason while any Letter of
Credit is outstanding, the Borrower shall thereupon pay the Lender in immediately available funds for deposit in the Special Account an amount equal to the L/C Amount. The Special Account shall be an
interest bearing account maintained for the Lender by any financial institution acceptable to the Lender. Any interest earned on amounts deposited in the Special Account shall be credited to the
Special Account. The Lender may apply amounts on deposit in the Special Account at any time or from time to time to the Obligations in the Lender's sole discretion. The Borrower may not withdraw any
amounts on deposit in the Special Account as long as the Lender maintains a security interest therein. The Lender agrees to transfer any balance in the Special Account to the Borrower when the Lender
is required to release its security interest in the Special Account under applicable law. 

        Section 2.7    Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement.    The Borrower
acknowledges that the Lender, as co-applicant, will be liable to the Issuer for reimbursement of any and all draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrower shall pay to the Lender any and all amounts required to be paid under the applicable L/C Application, when and as required to be paid
thereby, and the amounts designated below, when and as designated: 

        (a)   The
Borrower shall pay to the Lender on the day a draft is honored under any Letter of Credit a sum equal to all amounts drawn under such Letter of Credit plus any and
all reasonable charges and expenses that the Issuer or the Lender may pay or incur relative to such draw and the applicable L/C Application, plus interest on all such amounts, charges and expenses as
set forth below (the Borrower's obligation to pay all such amounts is herein referred to as the "Obligation of Reimbursement"). 

10

 

        (b)   Whenever
a draft is submitted under a Letter of Credit, the Borrower authorizes the Lender to make a Revolving Advance in the amount of the Obligation of Reimbursement
and to apply the proceeds of such Revolving Advance thereto. Such Revolving Advance shall be repayable in accordance with and be treated in all other respects as a Revolving Advance hereunder. 

        (c)   If
a draft is submitted under a Letter of Credit when the Borrower is unable, because a Default Period exists or for any other reason, to obtain a Revolving Advance to
pay the Obligation of Reimbursement, the Borrower shall pay to the Lender on demand and in immediately available funds, the amount of the Obligation of Reimbursement together with interest, accrued
from the date of the draft until payment in full at the Default Rate. Notwithstanding the Borrower's inability to obtain a Revolving Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to discharge the Obligation of Reimbursement and all accrued but unpaid interest thereon. 

        (d)   The
Borrower's obligation to pay any Revolving Advance made under this Section 2.7, shall be evidenced by the Revolving Note and shall bear interest as provided
in Section 2.10. 

        Section 2.8    Obligations Absolute.    The Borrower's obligations arising under Section 2.7 shall be
absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of Section 2.7, under all circumstances whatsoever, including (without limitation) the following
circumstances: 

        (a)   any
lack of validity or enforceability of any Letter of Credit or any other agreement or instrument relating to any Letter of Credit (collectively the "Related
Documents"); 

        (b)   any
amendment or waiver of or any consent to departure from all or any of the Related Documents; 

        (c)   the
existence of any claim, setoff, defense or other right which the Borrower may have at any time, against any beneficiary or any transferee of any Letter of Credit (or
any persons or entities for whom any such beneficiary or any such transferee may be acting), or other person or entity, whether in connection with this Agreement, the transactions contemplated herein
or in the Related Documents or any unrelated transactions; 

        (d)   any
statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever; 

        (e)   payment
by or on behalf of the Issuer under any Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of such
Letter of Credit; or 

        (f)    any
other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 

        Section 2.9    Inventory Appraisals.    The Lender may from time to time (but not more often than quarterly
unless a Default or Event of Default has occurred and is continuing) obtain at the Borrower's expense an appraisal of Inventory by an appraiser acceptable to the Lender in its sole discretion. If the
forced liquidation value of the Eligible Inventory as shown on any such appraisal is less than 70% of the aggregate outstanding principal balance of the Revolving Note plus the L/C Amount, the
Borrower shall immediately prepay the Revolving Advances to the extent necessary to cause the aggregate outstanding principal balance of the Revolving Note plus the L/C Amount to be no more than 70%
of such appraisal amount. 

        Section 2.10    Interest; Minimum Interest Charge; Default Interest; Participations; Usury.    

        (a)    Note.    Except as set forth in Subsections (d) and (g), the outstanding
principal balance of the Note shall bear interest at the Floating Rate. 

11

 

        (c)    Minimum Interest Charge.    Notwithstanding the interest payable pursuant to Subsection
(a), the Borrower shall pay to the Lender interest of not less than $100,000 per Loan Year (the "Minimum Interest Charge") during the term of this Agreement, and the Borrower shall pay any deficiency
between the Minimum Interest Charge and the amount of interest otherwise calculated under Subsection (a) on each anniversary of the Funding Date and on the Termination Date. As used in this
subsection (c), "Loan Year" means each one-year period ending on an anniversary of the Funding Date. The Minimum Interest Charge shall not be payable in the Loan Year that the credit
facility is transferred to an affiliate of the Lender. 

        (b)    Default Interest Rate.    Upon notice to the Borrower from the Lender from time to
time, the principal of the Advances outstanding from time to time shall bear interest at the Default Rate, effective as of the first day of the fiscal month during which any Default Period begins
through the last day of such Default Period. The Lender's election to charge the Default Rate shall be in its sole discretion and shall not be a waiver of any of its other rights and remedies. The
Lender's election to charge interest at the Default Rate for less than the entire period during which the Default Rate may be charged shall not be a waiver of its right to later charge the Default
Rate for the entire such period. 

        (e)    Participations.    If any Person shall acquire a participation in the Advances or the
Obligation of Reimbursement, the Borrower shall be obligated to the Lender to pay the full amount of all interest calculated under this Section 2.10, along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person elects to accept interest with respect to its participation at a lower rate than that calculated under this Section 2.10, or
otherwise elects to accept less than its prorata share of such fees, charges and other amounts due under this Agreement. 

        (f)    Usury.    In any event no rate change shall be put into effect which would result in a
rate greater than the highest rate permitted by law. Notwithstanding anything to the contrary contained in any Loan Document, all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no contingency or event whatsoever shall the total liability for payments in the nature of interest, additional interest and other
charges exceed the applicable limits imposed by any applicable usury laws. If any payments in the nature of interest, additional interest and other charges made under any Loan Document are held to be
in excess of the limits imposed by any applicable usury laws, it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder, and the indebtedness evidenced
hereby shall be reduced by such amount so that the total liability for payments in the nature of interest, additional interest and
other charges shall not exceed the applicable limits imposed by any applicable usury laws, in compliance with the desires of the Borrower and the Lender. This provision shall never be superseded or
waived and shall control every other provision of the Loan Documents and all agreements between the Borrower and the Lender, or their successors and assigns. 

        Section 2.11    Fees.    

        (a)    Origination Fee.    The Borrower shall pay the Lender a fully earned and
non-refundable origination fee of $25,000, due and payable upon the execution of this Agreement. 

        (b)    Audit Fees.    The Borrower shall pay the Lender, on demand, audit fees in connection
with any audits or inspections conducted by or on behalf of the Lender of any Collateral or the Borrower's operations or business at the rates established from time to time by the Lender as its audit
fees (which fees are currently $100 per hour per auditor), together with all actual out-of-pocket costs and expenses incurred in conducting any such audit or inspection. 

12

 

        (c)    Letter of Credit Fees.    The Borrower shall pay to the Lender a fee with respect to
each Letter of Credit, if any, accruing on a daily basis and computed at the annual rate to be determined by the Lender of the aggregate amount that may then be drawn under it assuming compliance with
all conditions for drawing (the "Aggregate Face Amount"), from and including the date of issuance of such Letter of Credit until such date as such Letter of Credit shall terminate by its terms or be
returned to the Lender, due and payable monthly in arrears on the first day of each month and on the Termination Date; provided,  however that during
Default Periods, in the Lender's sole discretion and without waiving any of its other rights and remedies, such fee shall increase
by two percent (2.0%) of the Aggregate Face Amount. The foregoing fee shall be in addition to any and all fees, commissions and charges of the Issuer with respect to or in connection with such Letter
of Credit. 

        (d)    Letter of Credit Administrative Fees.    The Borrower shall pay to the Lender, on
written demand, the administrative fees charged by the Issuer in connection with the honoring of drafts under any Letter of Credit, amendments thereto, transfers thereof and all other activity with
respect to the Letters of Credit at the then-current rates published by the Issuer for such services rendered on behalf of customers of the Issuer generally. 

        (e)    Termination Fees.    If the Credit Facility is terminated (i) by the Lender
during a Default Period that begins before a Maturity Date, (ii) by the Borrower (A) as of a date other than a Maturity Date or (B) as of a Maturity Date but without the Lender
having received written notice of such termination at
least 90 days before such Maturity Date, the Borrower shall pay to the Lender a fee in an amount equal to a percentage of the Maximum Line as follows: (A) two percent (2.0%) if the
termination occurs on or before the first anniversary of the Funding Date; (B) one percent (1.0%) if the termination occurs after the first anniversary of the Funding Date. 

        (f)    Waiver of Termination Fees.    The Borrower will not be required to pay the termination
fees otherwise due under subsection if such termination is made because of refinancing by an affiliate of the Lender. 

        (g)    Other Fees.    The Lender may from time to time, upon five (5) days prior notice
to the Borrower during a Default Period, charge additional fees for Revolving Advances made and Letters of Credit issued in excess of Availability, for late delivery of reports, in lieu of imposing
interest at the Default Rate, and for other reasons. The Borrower's request for a Revolving Advance or the issuance of a Letter of Credit at any time after such notice is given and such five
(5) day period has elapsed shall constitute the Borrower's agreement to pay the fees described in such notice. 

        Section 2.12    Time for Interest Payments; Payment on Non-Banking Days; Computation of Interest and
Fees    

        (a)    Time For Interest Payments.    Interest shall be due and payable in arrears on the last
day of each month and on the Termination Date. 

        (b)    Payment on Non-Banking Days.    Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Banking Day, such payment may be made on the next succeeding Banking Day, and such extension of time shall in such case be included in the computation
of interest on the Advances or the fees hereunder, as the case may be. 

        (c)    Computation of Interest and Fees.    Interest accruing on the outstanding principal
balance of the Advances and fees hereunder outstanding from time to time shall be computed on the basis of actual number of days elapsed in a year of 360 days. 

13

 

        Section 2.13    Collateral Account; Application of Payments.    

        (a)    Collateral Account.    

        (i)    The
Borrower shall also deposit all cash proceeds of Collateral directly to the Collateral Account. Until so deposited, the Borrower shall hold all such payments and
cash proceeds in trust for and as the property of the Lender and shall not commingle such property with any of its other funds or property. All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the Obligations. 

        (ii)   All
items deposited in the Collateral Account shall be subject to final payment. If any such item is returned uncollected, the Borrower will immediately pay the Lender,
or, for items deposited in the Collateral Account, the bank maintaining such account, the amount of that item, or such bank at its discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable as an endorser on all items deposited in the Collateral Account, whether or not in fact endorsed by the Borrower. 

        (b)    Application of Payments.    

        (i)    The
Borrower may, from time to time, in accordance with the Collateral Account Agreement, cause funds in the Collateral Account to be transferred to the Lender's general
account for payment of the Obligations. Except as provided in the preceding sentence, amounts deposited in the Collateral Account shall not be subject to withdrawal by the Borrower, except after full
payment and discharge of all Obligations. 

        (ii)   All
payments to the Lender shall be made in immediately available funds and shall be applied to the Obligations upon receipt by the Lender. Funds received from the
Collateral Account shall be deemed to be immediately available. The Lender may hold all payments not constituting immediately available funds for three (3) additional days before applying them
to the Obligations. 

        Section 2.14    Discretionary Nature of this Facility; Termination by the Lender; Automatic Renewal.    This
Agreement contains the terms and conditions upon which the Lender presently expects to make Advances to the Borrower. Each Advance shall be in the Lender's sole discretion, and the Lender need not
show that an adverse change has occurred in the Borrower's condition, financial or otherwise, or that any of the conditions of Article IV have not been met, in order to refuse to make any
requested Advance or to demand payment of the Obligations. The Lender may at any time terminate the Credit Facility whereupon the Lender shall no longer consider requests for Advances under this
Agreement. Unless terminated by the Lender at any time or by the Borrower pursuant to Section 2.15, the Credit Facility shall remain in effect until the Original Maturity Date and, thereafter,
shall automatically renew for successive one year periods (the Original Maturity Date and each anniversary date thereof to which the Credit Facility has been automatically renewed, is herein referred
to as a "Maturity Date"). 

        Section 2.15    Voluntary Prepayment; Termination of the Credit Facility by the Borrower.    Except as
otherwise provided herein, the Borrower may prepay the Advances in whole at any time or from time to time in part. The Borrower may terminate the Credit Facility at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender termination fees in accordance with Section 2.11(e). Subject to termination of the Credit Facility and
payment and performance of all Obligations, the Lender shall, at the Borrower's expense, release or terminate the Security Interest and the Security Documents to which the Borrower is entitled by law. 

        Section 2.16    Mandatory Prepayment.    Without notice or demand, if the sum of the outstanding principal
balance of the Revolving Advances plus the L/C Amount shall at any time exceed the Borrowing Base, the Borrower shall (i) first, immediately prepay the Revolving Advances to the extent
necessary to eliminate such excess; and (ii) if prepayment in full of the Revolving Advances is 

14

 

insufficient
to eliminate such excess, pay to the Lender in immediately available funds for deposit in the Special Account an amount equal to the remaining excess. Any payment received by the Lender
under this Section 2.16 or under Section 2.15 may be applied to the Obligations, in such order and in such amounts as the Lender, in its discretion, may from time to time determine. 

        Section 2.17    Revolving Advances to Pay Obligations.    Notwithstanding anything in Section 2.1, the
Lender may, in its discretion at any time or from time to time, without the Borrower's request and even if the conditions set forth in Section 4.2 would not be satisfied, make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time due and payable. 

        Section 2.18    Use of Proceeds.    The Borrower shall use the proceeds of Advances and each Letter of Credit
for ordinary working capital purposes. 

        Section 2.19    Liability Records.    The Lender may maintain from time to time, at its discretion, records as
to the Obligations. All entries made on any such record shall be presumed correct until the Borrower establishes the contrary. Upon the Lender's demand, the Borrower will admit and certify in writing
the exact principal balance of the Obligations that the Borrower then asserts to be outstanding. Any billing statement or accounting rendered by the Lender shall be conclusive and fully binding on the
Borrower unless the Borrower gives the Lender specific written notice of exception within 30 days after receipt. 

15

  

 
 

ARTICLE III    
    
    SECURITY INTEREST; OCCUPANCY; SETOFF    
    

        Section 3.1    Grant of Security Interest.    The Borrower hereby pledges, assigns and grants to the Lender a
lien and security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of the Obligations. Upon request by the Lender, the
Borrower will grant the Lender a security interest in all commercial tort claims it may have against any Person. 

        Section 3.2    Notification of Account Debtors and Other Obligors.    The Lender may at any time (whether or
not a Default Period then exists) notify any account debtor or other person obligated to pay the amount due that such right to payment has been assigned or transferred to the Lender for security and
shall be paid directly to the Lender. The Borrower will join in giving such notice if the Lender so requests. At any time after the Borrower or the Lender gives such notice to an account debtor or
other obligor, the Lender may, but need not, in the Lender's name or in the Borrower's name, (a) demand, sue for, collect or receive any money or property at any time payable or receivable on
account of, or securing, any such right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the United States Postal Service to
change the address for delivery of the Borrower's mail to any address designated by the Lender, otherwise intercept the Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for the Borrower's account or forwarding such mail to the Borrower's last known address. 

        Section 3.3    Assignment of Insurance.    As additional security for the payment and performance of the
Obligations, the Borrower hereby assigns to the Lender any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto,
and the Borrower hereby directs the issuer of any such policy to pay all such monies directly to the Lender. At any time, whether or not a Default Period then exists, the Lender may (but need not), in
the
Lender's name or in the Borrower's name, execute and deliver proof of claim, receive all such monies, endorse checks and other instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy. 

        Section 3.4    Occupancy.    

        (a)   The
Borrower hereby irrevocably grants to the Lender the right to take exclusive possession of the Premises at any time during a Default Period. 

        (b)   The
Lender may use the Premises only to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of goods that are Collateral and for
other purposes that the Lender may in good faith deem to be related or incidental purposes. 

        (c)   The
Lender's right to hold the Premises shall cease and terminate upon the earlier of (i) payment in full and discharge of all Obligations and termination of the
Credit Facility, and (ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers. 

        (d)   The
Lender shall not be obligated to pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises; provided, however,
that if the Lender does pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises, the Borrower shall reimburse the Lender promptly for the full
amount 

16

 

thereof.
In addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees, duties, imposts, charges and expenses at any time incurred by or imposed upon the Lender by reason of the
execution, delivery, existence, recordation, performance or enforcement of this Agreement or the provisions of this Section 3.4. 

        Section 3.5    License.    Without limiting the generality of any other Security Document, the Borrower hereby
grants to the Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of the Borrower for the purpose of:
(a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality
standards previously adopted by the Borrower for its own manufacturing and subject to the Borrower's reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of
any or all Collateral during any Default Period. 

        Section 3.6    Financing Statement.    The Borrower authorizes the Lender to file from time to time where
permitted by law, such financing statements against collateral described as "all personal property" or describing specific items of collateral including commercial tort claims as the Lender deems
necessary or useful to perfect the Security Interest. A carbon, photographic or other reproduction of this Agreement or of any financing statements signed by the Borrower is sufficient as a financing
statement and may be filed as a financing statement in any state to perfect the security interests granted hereby. For this purpose, the following information is set forth: 

Name
and address of Debtor: 

2nd
Swing, Inc.

5810 Baker Road

Minnetonka, MN 55345

Federal Employer Identification No. 41-1870348

Organizational Identification No. 9O-620 

Name
and address of Secured Party: 

Wells
Fargo Business Credit, Inc.

MAC N9312-040

Sixth and Marquette

Minneapolis, Minnesota 55479

Federal Employer Identification No. 41-1237652 

        Section 3.7    Setoff.    The Lender may at any time or from time to time, at its sole discretion and without
demand and without notice to anyone, setoff any liability owed to the Borrower by the Lender, whether or not due, against any Obligation, whether or not due. In addition, each other Person holding a
participating interest in any Obligations shall have the right to appropriate or setoff any deposit or other liability then owed by such Person to the Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had lent directly to the Borrower the amount of such participating interest. 

        Section 3.8    Collateral.    This Agreement does not contemplate a sale of accounts, contract rights or
chattel paper, and, as provided by law, the Borrower is entitled to any surplus and shall remain liable for any deficiency. The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third person, and the Lender need not otherwise preserve, protect, insure or care for any Collateral. The Lender shall not be
obligated to preserve any rights the Borrower may have against prior parties, to realize on the Collateral at all or in any particular manner or order or to apply any cash proceeds of the Collateral
in any particular order 

17

 

of
application. The Lender has no obligation to clean-up or otherwise prepare the Collateral for sale. The Borrower waives any right it may have to require the Lender to pursue any third
person for any of the Obligations. 

 
 

ARTICLE IV    
    
    CONDITIONS OF WILLINGNESS TO CONSIDER LENDING    
    

        Section 4.1    Conditions Precedent to Lender's Willingness to Consider Making the Initial Revolving Advance and Letter of
Credit.    The Lender's willingness to consider making the initial Advance hereunder or to cause any Letters of Credit to be issued shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form and substance satisfactory to the Lender: 

        (a)   This
Agreement, properly executed by the Borrower. 

        (b)   The
Note, properly executed by the Borrower. 

        (c)   A
true and correct copy of any and all leases pursuant to which the Borrower is leasing the Premises, together with a landlord's disclaimer and consent with respect to
each such lease; provided that for each landlord disclaimer and consent that is not obtained, the Lender will establish a Borrowing Base reserve as set forth in the definition of Borrowing Base. 

        (d)   A
true and correct copy of any and all mortgages pursuant to which the Borrower has mortgaged the Premises, together with a mortgagee's disclaimer and consent with
respect to each such mortgage. 

        (e)   A
true and correct copy of any and all agreements pursuant to which the Borrower's property is in the possession of any Person other than the Borrower, together with, in
the case of any goods held by such Person for resale, (i) a consignee's acknowledgment and waiver of Liens, (ii) UCC financing statements sufficient to protect the Borrower's and the
Lender's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement against such Person and covering property similar to the Borrower's
other than the Borrower, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such secured party. 

        (f)    An
acknowledgment and waiver of Liens from each warehouse in which the Borrower is storing Inventory. 

        (g)   A
true and correct copy of any and all agreements pursuant to which the Borrower's property is in the possession of any Person other than the Borrower, together with,
(i) an acknowledgment and waiver of Liens from each subcontractor who has possession of the Borrower's goods from time to time, (ii) UCC financing statements sufficient to protect the
Borrower's and the Lender's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement covering such Person's property other than the
Borrower, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrower and the Lender sufficient to protect the Borrower's and the Lender's
interests in the Borrower's goods from any claim by such secured party. 

        (h)   The
Collateral Account Agreement, properly executed by the Borrower and Wells Fargo Bank Minnesota. 

        (i)    Control
agreements, properly executed by the Borrower and each bank at which the Borrower maintains deposit accounts. 

18

 

        (j)    The
Subordination Agreement, properly executed by David J. Pomije and acknowledged by the Borrower. 

        (k)   Current
searches of appropriate filing offices showing that (i) no Liens have been filed and remain in effect against the Borrower except Permitted Liens or Liens
held by Persons who have agreed in writing that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to the Lender, and
(ii) the Lender has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing. 

        (l)    A
certificate of the Borrower's Secretary or Assistant Secretary certifying that attached to such certificate are (i) the resolutions of the Borrower's Directors
and, if required, Owners, authorizing the execution, delivery and performance of the Loan Documents, (ii) true, correct and complete copies of the Borrower's Constituent Documents, and
(iii) examples of the signatures of the Borrower's Officers or agents authorized to execute and deliver the Loan Documents and other instruments, agreements and certificates, including Advance
requests, on the Borrower's behalf. 

        (m)  A
current certificate issued by the Secretary of State of Minnesota, certifying that the Borrower is in compliance with all applicable organizational requirements of the
State of Minnesota. 

        (n)   Evidence
that the Borrower is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of
the business transacted by it makes such licensing or qualification necessary. 

        (o)   A
certificate of an Officer of the Borrower confirming, in his personal capacity, the representations and warranties set forth in Article V. 

        (p)   An
opinion of counsel to the Borrower, addressed to the Lender. 

        (q)   Certificates
of the insurance required hereunder, with all hazard insurance containing a lender's loss payable endorsement in the Lender's favor and with all liability
insurance naming the Lender as an additional insured. 

        (r)   Payment
of the fees and commissions due under Section 2.11 through the date of the initial Advance or Letter of Credit and expenses incurred by the Lender through
such date and required to be paid by the Borrower under Section 8.6, including all legal expenses incurred through the date of this Agreement. 

        (s)   Evidence
that after making the initial Revolving Advance, satisfying all obligations owed to the prior lender, satisfying all trade payables older than 30 days
past due, book overdrafts and closing costs, Availability plus the Availability Reserve shall be not less than $1,000,000 minus the Rent Reserve. 

        (t)    Such
other documents as the Lender in its sole discretion may require. 

        Section 4.2    Conditions Precedent to All Advances and Letters of Credit.    The Lender will not consider any
request for an Advance or to cause a Letter of Credit to be issued unless: 

        (a)   the
representations and warranties contained in Article V are correct on and as of the date of such Advance or issuance of a Letter of Credit as though made on
and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; and 

        (b)   no
event has occurred and is continuing, or would result from such Advance or issuance of a Letter of Credit which constitutes a Default or an Event of Default. 

19

 

 
 

ARTICLE V    
    
    REPRESENTATIONS AND WARRANTIES

        The
Borrower represents and warrants to the Lender as follows: 

        Section 5.1    Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification
Number.    The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota and is duly licensed or
qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary.
The Borrower has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents. During
its existence, the Borrower has done business solely under the names set forth in Schedule 5.1 and all of the Borrower's records relating to its business or the Collateral are kept at that
location. The Borrower's chief executive office and principal place of business is located at the address set forth in Schedule 5.1. All Inventory and Equipment is located at that location or
at one of the other locations listed in Schedule 5.1. The Borrower's federal employer identification number is correctly set forth in Section 3.6. 

        Section 5.2    Capitalization.    Schedule 5.2 constitutes a correct and complete list of all ownership
interests of the Borrower and rights to acquire ownership interests including the record holder, number of interests and percentage interests on a fully diluted basis and an organizational chart
showing the ownership structure of all Subsidiaries of the Borrower. 

        Section 5.3    Authorization of Borrowing; No Conflict as to Law or Agreements.    The execution, delivery and
performance by the Borrower of the Loan Documents and the borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's Owners; (ii) require any authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or any third party, except such authorization, consent, approval, registration, declaration, filing or notice as has been
obtained, accomplished or given prior to the date hereof; (iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or of the Borrower's Constituent Documents; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound
or affected; or (v) result in, or require, the creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower. 

        Section 5.4    Legal Agreements.    This Agreement constitutes and, upon due execution by the Borrower, the
other Loan Documents will constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. 

        Section 5.5    Subsidiaries.    Except as set forth in Schedule 5.5 hereto, the Borrower has no
Subsidiaries. 

        Section 5.6    Financial Condition; No Adverse Change.    The Borrower has furnished to the Lender its audited
financial statements for its fiscal year ended December 31, 2001 and unaudited financial statements for the fiscal-year-to-date period ended
September 30, 2002, and those statements fairly present the Borrower's financial condition on the dates thereof and the results of its operations and cash flows for the periods then ended and
were prepared in accordance with generally accepted accounting principles. Since the date of the most recent financial statements, there has been no change in the Borrower's business, properties or
condition (financial or otherwise) which has had a Material Adverse Effect. 

20

 

        Section 5.7    Litigation.    There are no actions, suits or proceedings pending or, to the Borrower's
knowledge, threatened against or affecting the Borrower or any of its Affiliates or the properties of the Borrower
or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or any
of its Affiliates, would have a Material Adverse Effect. 

        Section 5.8    Regulation U.    The Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 

        Section 5.9    Taxes.    The Borrower and its Affiliates have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld by each of them. The Borrower and its Affiliates have filed all federal, state and local tax returns which to the
knowledge of the Officers of the Borrower or any Affiliate, as the case may be, are required to be filed, and the Borrower and its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by any of them to the extent such taxes have become due. 

        Section 5.10    Titles and Liens.    The Borrower has good and absolute title to all Collateral free and clear
of all Liens other than Permitted Liens. No financing statement naming the Borrower as debtor is on file in any office except to perfect only Permitted Liens. 

        Section 5.11    Intellectual Property Rights.    

        (a)    Owned Intellectual Property.    Schedule 5.11 is a complete list of all patents,
applications for patents, trademarks, applications for trademarks, service marks, applications for service marks, mask works, trade dress and copyrights for which the Borrower is the registered owner
(the "Owned Intellectual Property"). Except as disclosed on Schedule 5.11, (i) the Borrower owns the Owned Intellectual Property free and clear of all restrictions (including covenants
not to sue a third party), court orders, injunctions, decrees, writs or Liens, whether by written agreement or otherwise, (ii) no Person other than the Borrower owns or has been granted any
right in the Owned Intellectual Property, (iii) all Owned Intellectual Property is valid, subsisting and enforceable and (iv) the Borrower has taken all commercially reasonable action
necessary to maintain and protect the Owned Intellectual Property. 

        (b)    Agreements with Employees and Contractors.    The Borrower has entered into a legally
enforceable agreement with each of its employees and subcontractors obligating each such Person to assign to the Borrower, without any additional compensation, any Intellectual Property Rights
created, discovered or invented by such Person in the course of such Person's employment or engagement with the Borrower (except to the extent prohibited by law), and further requiring such Person to
cooperate with the Borrower, without any additional compensation, in connection with securing and enforcing any Intellectual Property Rights therein; provided, however, that the foregoing shall not
apply with respect
to employees and subcontractors whose job descriptions are of the type such that no such assignments are reasonably foreseeable. 

        (c)    Intellectual Property Rights Licensed from Others.    Schedule 5.11 is a
complete list of all agreements under which the Borrower has licensed Intellectual Property Rights from another Person ("Licensed Intellectual Property") other than readily available,
non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks
("Off-the-shelf Software") and a summary of any ongoing payments the Borrower is obligated to make with respect thereto. Except as disclosed on Schedule 5.11 and in
written agreements copies of which have been given to the Lender, the 

21

 

Borrower's
licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by written agreement or otherwise.
Except as disclosed on Schedule 5.11, the Borrower is not obligated or under any liability whatsoever to make any payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights. 

        (d)    Other Intellectual Property Needed for Business.    Except for
Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned Intellectual Property and the Licensed Intellectual Property constitute all Intellectual Property
Rights used or necessary to conduct the Borrower's business as it is presently conducted or as the Borrower reasonably foresees conducting it. 

        (e)    Infringement.    Except as disclosed on Schedule 5.11, the Borrower has no
knowledge of, and has not received any written claim or notice alleging, any Infringement of another Person's Intellectual Property Rights (including any written claim that the Borrower must license
or refrain from using the Intellectual Property Rights of any third party) nor, to the Borrower's knowledge, is there any threatened claim or any reasonable basis for any such claim. 

        Section 5.12    Plans.    Except as disclosed to the Lender in writing prior to the date hereof, neither the
Borrower nor any ERISA Affiliate (i) maintains or has maintained any Pension Plan, (ii) contributes or has contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC
or applicable state law). Neither the Borrower nor any ERISA Affiliate has received any notice or has any knowledge to the effect that it is not in full compliance with any of the requirements of
ERISA, the IRC or applicable state law with respect to any Plan. No Reportable Event exists in connection with any Pension Plan. Each Plan which is intended to qualify under the IRC is so qualified,
and no fact or circumstance exists which may have an adverse effect on the Plan's tax-qualified status. Neither the Borrower nor any ERISA Affiliate has (i) any accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (ii) any liability under Section 4201 or 4243 of ERISA for
any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan or (iii) any liability or knowledge of any facts or
circumstances which could result in any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan
(other than routine claims for benefits under the Plan). 

        Section 5.13    Default.    The Borrower is in compliance with all provisions of all agreements, instruments,
decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a Material Adverse Effect. 

22

  

        Section 5.14    Environmental Matters.    

        (a)   To
the Borrower's best knowledge, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any material
liability or obligation for either the Borrower or the Lender under common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled,
leaked, discharged, emitted or released in, on or under the Premises in such a way as to create any such material liability. 

        (b)   To
the Borrower's best knowledge, the Borrower has not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law. 

        (c)   There
are not and there never have been any requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation, relating in any way
to the Premises or the Borrower, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending. 

        (d)   To
the Borrower's best knowledge, the Borrower's businesses are and have in the past always been conducted in all material respects in accordance with all Environmental
Laws and all licenses, permits and other authorizations required pursuant to any Environmental Law and necessary for the lawful and efficient operation of such businesses are in the Borrower's
possession and are in full force and effect. No permit required under any Environmental Law is scheduled to expire within 12 months and there is no threat that any such permit will be
withdrawn, terminated, limited or materially changed. 

        (e)   To
the Borrower's best knowledge, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation
and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database. 

        (f)    The
Borrower has delivered to Lender all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the
Premises or Borrower's businesses. 

        Section 5.15    Submissions to Lender.    All financial and other information provided to the Lender by or on
behalf of the Borrower in connection with the Borrower's request for the credit facilities contemplated hereby is (i) true and correct in all material respects, (ii) does not omit any
material fact necessary to make such information not misleading and, (iii) as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results. 

        Section 5.16    Financing Statements.    The Borrower has authorized the filing of financing statements
sufficient when filed to perfect the Security Interest and the other security interests created by the Security Documents. When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral which is capable of being perfected by filing financing statements. None of the Collateral is or will become a fixture on
real estate, unless a sufficient fixture filing is in effect with respect thereto. 

        Section 5.17    Rights to Payment.    Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the account debtor or other obligor named therein or in the Borrower's records pertaining thereto as being obligated to pay such obligation. 

23

 

 
 

ARTICLE VI    
    
    COVENANTS    
    

        So long as the Obligations shall remain unpaid, or the Credit Facility shall remain outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing: 

        Section 6.1    Reporting Requirements.    The Borrower will deliver, or cause to be delivered, to the Lender
each of the following, which shall be in form and detail acceptable to the Lender: 

        (a)    Annual Financial Statements.    As soon as available, and in any event within
90 days after the end of each fiscal year of the Borrower, the Borrower will deliver, or cause to be delivered, to the Lender, the
Borrower's audited financial statements with the unqualified opinion of independent certified public accountants selected by the Borrower and acceptable to the Lender, which annual financial
statements shall include the Borrower's balance sheet as at the end of such fiscal year and the related statements of the Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if the Lender so requests, on a consolidating and consolidated basis to include any Affiliates, all in reasonable detail and prepared in accordance with GAAP, together with
(i) copies of all management letters prepared by such accountants; (ii) a report signed by such accountants stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or Event of Default and all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the Financial Covenants; and (iii) a certificate of the Borrower's chief financial officer stating that such financial statements have been prepared in accordance
with GAAP, fairly represent the Borrower's financial position and the results of its operations, and whether or not such officer has knowledge of the occurrence of any Default or Event of Default and,
if so, stating in reasonable detail the facts with respect thereto. 

        (b)    Monthly Financial Statements.    As soon as available and in any event within
22 days after the end of each month, the Borrower will deliver to the Lender an unaudited/internal balance sheet and statements of income and retained earnings of the Borrower as at the end of
and for such month and for the year to date period then ended, prepared, if the Lender so requests, on a consolidating and consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject to year-end audit adjustments; and
accompanied by a certificate of the Borrower's chief financial Officer, substantially in the form of Exhibit B hereto stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments and fairly represent the Borrower's financial position and the results of its operations, (ii) whether or not such
officer has knowledge of the occurrence of any Default or Event of Default not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and
(iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the Financial Covenants. 

        (c)    Collateral Reports.    Weekly, or more frequently if the Lender so requires, the
Borrower will deliver to the Lender an inventory certification report, and a calculation of the Borrower's Inventory and Eligible Inventory as at the end of such time period. 

        (d)    Projections.    At least 30 days before the beginning of each fiscal year of the
Borrower, the Borrower will deliver to the Lender the projected balance sheets and income statements for each month of such year, each in reasonable detail, representing the Borrower's good faith
projections and certified by the Borrower's chief financial Officer as being the most accurate projections available and identical to the projections used by the Borrower for internal planning 

24

 

purposes,
together with a statement of underlying assumptions and such supporting schedules and information as the Lender may in its discretion require. 

        (e)    Litigation.    Immediately after the commencement thereof, the Borrower will deliver to
the Lender notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower (i) of the type described in Section 5.14(c) or
(ii) which seek a monetary recovery against the Borrower in excess of $100,000. 

        (f)    Defaults.    As promptly as practicable (but in any event not later than five business
days) after an Officer of the Borrower obtains knowledge of the occurrence of any Default or Event of Default, the Borrower will deliver to the Lender notice of such occurrence, together with a
detailed statement by a responsible Officer of the Borrower of the steps being taken by the Borrower to cure the effect thereof. 

        (g)    Plans.    As soon as possible, and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, the Borrower will deliver to the Lender a statement of the Borrower's chief financial
Officer setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation. As soon as possible, and in any event within 10 days after the Borrower fails to make any quarterly contribution required with respect to any Pension Plan
under Section 412(m) of the IRC, the Borrower will deliver to the Lender a statement of the Borrower's chief financial Officer setting forth details as to such failure and the action which the
Borrower proposes to take with respect thereto, together with a copy of any notice of such failure required to be provided to the Pension Benefit Guaranty Corporation. As soon as possible, and in any
event with 10 days after the Borrower knows or has reason to know that it has or is reasonably expected to have any liability under Section 4201 or 4243 of ERISA for any withdrawal,
partial withdrawal, reorganization or other event under any Multiemployer Plan, the Borrower will deliver to the Lender a statement of the Borrower's chief financial Officer setting forth details as
to such liability and the action which Borrower proposes to take with respect thereto. 

        (h)    Disputes.    Promptly upon knowledge thereof, the Borrower will deliver to the Lender
notice of (i) any disputes or claims by the Borrower's customers exceeding $50,000 individually or $100,000 in the aggregate during any fiscal year. 

        (i)    Officers and Directors.    Promptly upon knowledge thereof, the Borrower will deliver
to the Lender notice any change in the persons constituting the Borrower's Officers and Directors. 

        (j)    Collateral.    Promptly upon knowledge thereof, the Borrower will deliver to the Lender
notice of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of payment thereof. 

        (k)    Commercial Tort Claims.    Promptly upon knowledge thereof, the Borrower will deliver
to the Lender notice of any commercial tort claims it may bring against any person, including the name and address of each defendant, a summary of the facts, an estimate of the Borrower's damages,
copies of any
complaint or demand letter submitted by the Borrower, and such other information as the Lender may request. 

        (l)    Intellectual Property.    

        (i)    The
Borrower will give the Lender 30 days prior written notice of its intent to acquire material Intellectual Property Rights; except for transfers permitted
under Section 6.18, the Borrower will give the Lender 30 days prior written notice of its intent to dispose of material Intellectual Property Rights; and upon request, shall provide the
Lender with copies of all applicable documents and agreements. 

25

 

        (ii)   Promptly
upon knowledge thereof, the Borrower will deliver to the Lender notice of (A) any Infringement of its Intellectual Property Rights by others,
(B) claims that the Borrower is Infringing another Person's Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of its Intellectual
Property Rights. 

        (iii)  Promptly
upon receipt, the Borrower will give the Lender copies of all registrations and filings with respect to its Intellectual Property Rights. 

        (m)    Reports to Owners.    Promptly upon their distribution, the Borrower will deliver to
the Lender copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its Owners. 

        (n)    SEC Filings.    Promptly after the sending or filing thereof, the Borrower will deliver
to the Lender copies of all regular and periodic reports which the Borrower shall file with the Securities and Exchange Commission or any national securities exchange. 

        (o)    Violations of Law.    Promptly upon knowledge thereof, the Borrower will deliver to the
Lender notice of the Borrower's violation of any law, rule or regulation, the non-compliance with which could materially and adversely affect the Borrower's business or its financial
condition. 

        (p)    Other Reports.    From time to time, with reasonable promptness, the Borrower will
deliver to the Lender any and all receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other material, reports, records or information as the Lender may request. 

        Section 6.2    Financial Covenants.    

        (a)    Minimum Cash Balance.    The Borrower will maintain, during each period described
below, deposit accounts and short-term marketable securities ("Cash"), determined as at the end of each month, at not less than the amount set forth below: 

	Period
 
	 	Minimum Cash if Offering Proceeds are greater than $15,000,000

	December 31, 2002	 	$	10,000,000
	January 31, 2002	 	$	7,500,000
	February 28, 2003	 	$	7,500,000
	March 31, 2003	 	$	7,500,000
	April 30, 2003	 	$	2,500,000
	May 31, 2003	 	$	2,500,000
	June 30, 2003	 	$	2,500,000
	July 31, 2003	 	$	2,500,000
	August 31, 2003	 	$	2,500,000
	September 30, 2003	 	$	2,500,000
	October 31, 2003	 	$	2,500,000
	November 30, 2003	 	$	2,500,000
	December 31, 2003	 	$	2,500,000

        If
Offering Proceeds are between $7,500,000 and $15,000,000, the monthly minimum Cash will be $2,500,000 for each month after receipt of the Offering Proceeds. If Offering Proceeds are
less than $7,500,000, no minimum Cash will be required. 

26

 

        (b)    Minimum Earnings Before Taxes.    The Borrower will achieve during each period
described below, Earnings Before Taxes, of not less than the amount set forth opposite such period: 

	Period
 
	 	Minimum Earnings Before Taxes If Offering Proceeds are less than

$15,000,000
	 	Minimum Earnings Before Taxes if Offering Proceeds at least

$15,000,000
	 
	November 30, 2002	 	<$	1,947,000	>	<$	2,103,000	>
	December 31, 2002	 	<$	2,544,000	>	<$	2,647,000	>
	January 31, 2002	 	<$	542,000	>	<$	602,000	>
	February 28, 2003	 	<$	962,000	>	<$	1,097,000	>
	March 31, 2003	 	<$	1,290,000	>	<$	1,524,000	>
	April 30, 2003	 	<$	1,290,000	>	<$	1,752,000	>
	May 31, 2003	 	<$	1,327,000	>	<$	1,898,000	>
	June 30, 2003	 	<$	1,046,000	>	<$	1,706,000	>
	July 31, 2003	 	<$	756,000	>	<$	1,159,000	>
	August 31, 2003	 	<$	477,000	>	<$	645,000	>
	September 30, 2003	 	<$	490,000	>	<$	578,000	>
	October 31, 2003	 	<$	899,000	>	<$	1,103,000	>
	November 30, 2003	 	<$	1,333,000	>	<$	1.627,000	>
	December 31, 2003	 	<$	1,705,000	>	<$	2,193,000	>

        (c)    Capital Expenditures.    If Offering Proceeds are at least $15,000,000, the Borrower
will not incur or contract to incur Capital Expenditures of more than $2,750,000 in the aggregate during any fiscal year beginning in 2003. If Offering Proceeds are less than $15,000,000, the Borrower
will not incur or
contract to incur Capital Expenditures of more than $30,000 in the aggregate during November and December 2002 and not more than $250,000 during fiscal year 2003. 

        Section 6.3    Permitted Liens; Financing Statements.    

        (a)   The
Borrower will not create, incur or suffer to exist any Lien upon or of any of its assets, now owned or hereafter acquired, to secure any indebtedness;  excluding, however, from the operation of the foregoing, the following (collectively, "Permitted
Liens"): 

        (i)    in
the case of any of the Borrower's property which is not Collateral, covenants, restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently conducted; 

        (ii)   Liens
in existence on the date hereof and listed in Schedule 6.3 hereto, securing indebtedness for borrowed money permitted under Section 6.4; 

        (iii)  the
Security Interest and Liens created by the Security Documents; and 

        (iv)  purchase
money Liens relating to the acquisition of machinery and equipment of the Borrower not exceeding the lesser of cost or fair market value thereof and so long as
no Default Period is then in existence and none would exist immediately after such acquisition. 

        (b)   The
Borrower will not amend any financing statements in favor of the Lender except as permitted by law. Any authorization by the Lender to any Person to amend financing
statements in favor of the Lender shall be in writing. 

        Section 6.4    Indebtedness.    The Borrower will not incur, create, assume or permit to exist any indebtedness
or liability on account of deposits or advances or any indebtedness for borrowed money 

27

 

or
letters of credit issued on the Borrower's behalf, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, except: 

        (a)   indebtedness
arising hereunder; 

        (b)   indebtedness
of the Borrower in existence on the date hereof and listed in Schedule 6.4 hereto; and 

        (c)   indebtedness
relating to Permitted Liens. 

        Section 6.5    Guaranties.    The Borrower will not assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person, except: 

        (a)   the
endorsement of negotiable instruments by the Borrower for deposit or collection or similar transactions in the ordinary course of business; and 

        (b)   guaranties,
endorsements and other direct or contingent liabilities in connection with the obligations of other Persons, in existence on the date hereof and listed in
Schedule 6.4 hereto. 

        Section 6.6    Investments and Subsidiaries.    The Borrower will not purchase or hold beneficially any stock
or other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, including any
partnership or joint venture, except: 

        (a)   investments
in direct obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors Corporation
or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve
System having deposits in excess of $100,000,000 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation); 

        (b)   travel
advances or loans to the Borrower's Officers and employees not exceeding at any one time an aggregate of $15,000; 

        (c)   advances
in the form of progress payments, prepaid rent not exceeding three (3) months or security deposits; and 

        (d)   current
investments in the Subsidiaries in existence on the date hereof and listed in Schedule 5.5 hereto. 

        Section 6.7    Dividends and Distributions.    The Borrower will not declare or pay any dividends (other than
dividends payable solely in stock of the Borrower) on any class of its stock or make any payment on account of the purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly. 

        Section 6.8    Salaries.    The Borrower will not pay excessive or unreasonable salaries, bonuses, commissions,
consultant fees or other compensation; or increase the salary, bonus, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families, by
more than 10% in any one year, either individually or for all such persons in the aggregate, or pay any such increase from any source other than profits earned in the year of payment; provided,
however, the Borrower may increase Officer salaries by 30% in 2003 if the Offering Proceeds are at least $7,500,000. 

        Section 6.9    Changes in Senior Management.    The Borrower will not change its senior management without the
prior written consent of the Lender. 

28

 

        Section 6.10    Books and Records; Inspection and Examination.    The Borrower will keep accurate books of
record and account for itself pertaining to the Collateral and pertaining to the Borrower's business and financial condition and such other matters as the Lender may from time to time request in which
true and complete entries will be made in accordance with GAAP and, upon the Lender's request, will permit any officer, employee, attorney or accountant for the Lender to audit, review, make extracts
from or copy any and all company and financial books and records of the Borrower at all times during ordinary business hours, to send and discuss with account debtors and other obligors requests for
verification of amounts owed to the Borrower, and to discuss the Borrower's affairs with any of its Directors, Officers, employees or agents. The Borrower hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to Lender, at the Borrower's expense, all financial information, books and records, work papers, management reports and other information in their possession
regarding the Borrower. The Borrower will permit the Lender, or its employees, accountants, attorneys or agents, to examine and inspect any Collateral or any other property of the Borrower at any time
during ordinary business hours. 

        Section 6.11    Account Verification.    The Lender may at any time and from time to time send or require the
Borrower to send requests for verification of accounts or notices of assignment to account debtors and other obligors. The Lender may also at any time and from time to time telephone account debtors
and other obligors to verify accounts. 

        Section 6.12    Compliance with Laws.    

        (a)   The
Borrower will (i) comply with the requirements of applicable laws and regulations, the non-compliance with which would materially and adversely
affect its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance. 

        (b)   Without
limiting the foregoing undertakings, the Borrower specifically agrees that it will comply with all applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any Environmental Laws, and will not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any
material liability or obligation under the common law of any jurisdiction or any Environmental Law. 

        Section 6.13    Payment of Taxes and Other Claims.    The Borrower will pay or discharge, when due,
(a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against
the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and
(c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon any properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made. 

        Section 6.14    Maintenance of Properties.    

        (a)   The
Borrower will keep and maintain the Collateral and all of its other properties necessary or useful in its business in good condition, repair and working order
(normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts; provided, however, that nothing in this Section 6.14 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the Borrower's judgment, desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender. The Borrower will take all commercially reasonable steps necessary to protect and maintain its Intellectual Property Rights. 

29

 

        (b)   The
Borrower will defend the Collateral against all Liens, claims or demands of all Persons (other than the Lender) claiming the Collateral or any interest therein. The
Borrower will keep all Collateral free and clear of all Liens except Permitted Liens. The Borrower will take all commercially reasonable steps necessary to prosecute any Person Infringing its
Intellectual Property Rights and to defend itself against any Person accusing it of Infringing any Person's Intellectual Property Rights. 

        Section 6.15    Insurance.    The Borrower will obtain and at all times maintain insurance with insurers
believed by the Borrower to be responsible and reputable, in such amounts and against such risks as may from time to time be required by the Lender, but in all events in such amounts and against such
risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower operates. Without limiting the generality of the
foregoing, the Borrower will at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may reasonably request, with any loss payable to the Lender to the extent of its interest, and all policies of such insurance
shall contain a lender's loss payable endorsement for the Lender's benefit. All policies of liability insurance required hereunder shall name the Lender as an additional insured. 

        Section 6.16    Preservation of Existence.    The Borrower will preserve and maintain its existence and all of
its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner. 

        Section 6.17    Delivery of Instruments, etc.    Upon request by the Lender, the Borrower will promptly deliver
to the Lender in pledge all instruments, documents and chattel paper constituting Collateral, duly endorsed or assigned by the Borrower. 

        Section 6.18    Sale or Transfer of Assets; Suspension of Business Operations.    The Borrower will not sell,
lease, assign, transfer or otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii) any Collateral or any interest therein
(whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and will not liquidate, dissolve or suspend business
operations. The Borrower will not transfer any part of its ownership interest in any Intellectual Property Rights and will not permit any agreement under which it has licensed Licensed Intellectual
Property to lapse, except that the Borrower may transfer such rights or permit such agreements to lapse if it shall have reasonably determined that the applicable Intellectual Property Rights are no
longer useful in its business. If the Borrower transfers any Intellectual Property Rights for value, the Borrower will pay over the proceeds to the Lender for application to the Obligations. The
Borrower will not license any other Person to use any of the Borrower's Intellectual Property Rights, except that the Borrower may grant licenses in the ordinary course of its business in connection
with sales of Inventory or provision of services to its customers. 

        Section 6.19    Consolidation and Merger; Asset Acquisitions.    The Borrower will not consolidate with or
merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any
other Person. 

        Section 6.20    Sale and Leaseback.    The Borrower will not enter into any arrangement, directly or
indirectly, with any other Person whereby the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred. 

30

  

        Section 6.21    Restrictions on Nature of Business.    The Borrower will not engage in any line of business
materially different from that presently engaged in by the Borrower and will not purchase, lease or otherwise acquire assets not related to its business. 

        Section 6.22    Accounting.    The Borrower will not adopt any material change in accounting principles other
than as required by GAAP. The Borrower will not adopt, permit or consent to any change in its fiscal year. 

        Section 6.23    Discounts, etc.    After notice from the Lender, the Borrower will not grant any discount,
credit or allowance to any customer of the Borrower or accept any return of goods sold. The Borrower will not at any time modify, amend, subordinate, cancel or terminate the obligation of any account
debtor or other obligor of the Borrower. 

        Section 6.24    Plans.    Unless disclosed to the Lender pursuant to Section 5.12, neither the Borrower
nor any ERISA Affiliate will (i) adopt, create, assume or become a party to any Pension Plan, (ii) incur any obligation to contribute to any Multiemployer Plan, (iii) incur any
obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law) or (iv) amend any Plan in a
manner that would materially increase its funding obligations. 

        Section 6.25    Place of Business; Name.    The Borrower will not transfer its chief executive office or
principal place of business, or move, relocate, close or sell any business location. The Borrower will not permit any tangible Collateral or any records pertaining to the Collateral to be located in
any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name or jurisdiction of organization. 

        Section 6.26    Constituent Documents; C Corporation Status.    The Borrower will not amend its Constituent
Documents. The Borrower will not become an S Corporation. 

        Section 6.27    Store Locations.    The Borrower will promptly provide the Lender information regarding new or
discontinued store locations and, for each new store location, shall provide the Lender with a copy of the lease and shall obtain a satisfactory landlord's disclaimer and consent with respect with
such
lease, provided that for any store location for which no landlord's disclaimer and consent is obtained, the Lender shall establish a Borrowing Base reserve as set forth in the definition of Borrowing
Base. 

        Section 6.28    Performance by the Lender.    If the Borrower at any time fails to perform or observe any of
the foregoing covenants contained in this Article VI or elsewhere herein, and if such failure shall continue for a period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.13 and 6.15, immediately upon the occurrence of such failure, without notice or lapse of time), the Lender may, but need not, perform
or observe such covenant on behalf and in the name, place and stead of the Borrower (or, at the Lender's option, in the Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including the payment of taxes, the satisfaction of Liens, the performance of obligations owed to account debtors or other
obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lender in connection with
or as a result of the performance or observance of such agreements or the taking of such action by the Lender, together with interest thereon from the date expended or incurred at the Default Rate. To
facilitate the Lender's performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's
attorney in 

31

 

fact
(which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of
the Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed,
delivered or endorsed by the Borrower under this Section 6.28. 

 
 

ARTICLE VII    
    
    EVENTS OF DEFAULT, RIGHTS AND REMEDIES    
    

        Section 7.1    Events of Default.    Notwithstanding that the Lender may demand immediate payment of the
Obligations at any time, whether or not a Default Period then exists, and without waiving or limiting in any respect the Lender's right to so demand payment of the Obligations at any time, this
Agreement sets forth a non-exclusive list of certain critical events after the occurrence of which the
Lender expects that it would demand immediate payment of the Obligations and exercise its remedies. "Event of Default", wherever used herein, means any one of the following events: 

        (a)   Default
in the payment of the Obligations on demand or on any portion of the Obligations that otherwise becomes due and payable; 

        (b)   Default
in the performance, or breach, of any covenant or agreement of the Borrower contained in this Agreement; 

        (c)   Any
Financial Covenant shall become inapplicable due to the lapse of time and the failure to amend any such covenant to cover future periods; 

        (d)   The
Borrower shall be or become insolvent, or admit in writing its or his inability to pay its or his debts as they mature, or make an assignment for the benefit of
creditors; or the Borrower shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application or consent of the Borrower, as the case may be; or the Borrower shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it or him under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against the Borrower; or any judgment, writ, warrant of attachment or execution or similar process
shall be issued or levied against a substantial part of the property of the Borrower; 

        (e)   A
petition shall be filed by or against the Borrower under the United States Bankruptcy Code naming the Borrower as debtor; 

        (f)    Any
representation or warranty made by the Borrower in this Agreement, or by the Borrower (or any of its Officers) in any agreement, certificate, instrument or financial
statement or other statement contemplated by or made or delivered pursuant to or in connection with this Agreement or any such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective; 

        (g)   The
rendering against the Borrower of an arbitration award, final judgment, decree or order for the payment of money in excess of $100,000 and the continuance of such
arbitration award, judgment, decree or order unsatisfied and in effect for any period of 30 consecutive days without a stay of execution; 

        (h)   A
default under any bond, debenture, note or other evidence of material indebtedness of the Borrower owed to any Person other than the Lender, or under any indenture or
other instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the expiration of the applicable 

32

 

period
of grace, if any, specified in such evidence of indebtedness, indenture, other instrument, lease or contract; 

        (i)    Any
Reportable Event, which the Lender determines in good faith might constitute grounds for the termination of any Pension Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Pension Plan, shall have occurred and be continuing 30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by an appropriate United States District Court to administer any Pension Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; or the Borrower or any ERISA Affiliate shall have filed for a distress termination of any
Pension Plan under Title IV of ERISA; or the Borrower or any ERISA Affiliate shall have failed to make any quarterly contribution required with respect to any Pension Plan under Section 412(m)
of the IRC, which the Lender determines in good faith may by itself, or in combination with any such failures that the Lender may determine are likely to occur in the future, result in the imposition
of a Lien on the Borrower's assets in favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization or other event occurs with respect to a Multiemployer Plan which results or could
reasonably be expected to result in a material liability of the Borrower to the Multiemployer Plan under Title IV of ERISA. 

        (j)    An
event of default shall occur under any Security Document; 

        (k)   The
Borrower shall liquidate, dissolve, terminate or suspend its business operations or otherwise fail to operate its business in the ordinary course, or sell or attempt
to sell all or substantially all of its assets, without the Lender's prior written consent; 

        (l)    Default
in the payment of any amount owed by the Borrower to the Lender other than any indebtedness arising hereunder; 

        (m)  The
Borrower shall take or participate in any action which would be prohibited under the provisions of any Subordination Agreement or make any payment on the
Subordinated Indebtedness (as defined in the Subordination Agreement) that any Person was not entitled to receive under the provisions of the Subordination Agreement; 

        (n)   Any
event or circumstance with respect to the Borrower shall occur such that the Lender shall believe in good faith that the prospect of payment of all or any part of
the Obligations or the performance by the Borrower under the Loan Documents is impaired or any material adverse change in the business or financial condition of the Borrower shall occur; or 

        (o)   Any
breach, default or event of default by or attributable to any Affiliate under any agreement between such Affiliate and the Lender shall occur. 

        Section 7.2    Rights and Remedies.    As provided in Section 2.14, the Lender may, at any time, refuse
to make any requested Advance, demand payment of the Advances or terminate the Credit Facility, whether or not a Default Period then exists. In addition, during any Default Period, the Lender may
exercise any or all of the following rights and remedies: 

        (a)   the
Lender may, by notice to the Borrower, declare the Obligations to be forthwith due and payable, whereupon all Obligations shall become and be forthwith due and
payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which the Borrower hereby expressly waives; 

        (b)   the
Lender may, without notice to the Borrower and without further action, apply any and all money owing by the Lender to the Borrower to the payment of the Obligations; 

33

 

        (c)   the
Lender may exercise and enforce any and all rights and remedies available upon default to a secured party under the UCC, including the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral (with or without giving any warranties as to the Collateral, title to the Collateral or similar warranties), and, in connection
therewith, the Borrower will on demand assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties; 

        (d)   the
Lender may make demand upon the Borrower and, forthwith upon such demand, the Borrower will pay to the Lender in immediately available funds for deposit in the
Special Account pursuant to Section 2.16 an amount equal to the aggregate maximum amount available to be drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder; 

        (e)   the
Lender may exercise and enforce its rights and remedies under the Loan Documents; and 

        (f)    the
Lender may exercise any other rights and remedies available to it by law or agreement. 

Notwithstanding
the foregoing, upon the occurrence of an Event of Default described in subsections (e) or (f) of Section 7.1, the Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind. If the Lender sells any of the Collateral on credit, the Obligations will be reduced only to the extent of payments actually
received. If the purchaser fails to pay for the Collateral, the Lender may resell the Collateral and shall apply any proceeds actually received to the Obligations. 

        Section 7.3    Certain Notices.    If notice to the Borrower of any intended disposition of Collateral or any
other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 8.3) at least ten calendar
days before the date of intended disposition or other action. 

 
 

ARTICLE VIII    
    
    MISCELLANEOUS    
    

        Section 8.1    No Waiver; Cumulative Remedies; Compliance with Laws.    No failure or delay by the Lender in
exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law. The Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and such compliance will not be considered adversely to
affect the commercial reasonableness of any sale of the Collateral. 

        Section 8.2    Amendments, Etc.    No amendment, modification, termination or waiver of any provision of any
Loan Document or consent to any departure by the Borrower therefrom or any release of a Security Interest shall be effective unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any
other or further notice or demand in similar or other circumstances. 

        Section 8.3    Addresses for Notices; Requests for Accounting.    Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for under the Loan 

34

 

Documents
shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, or
(d) transmitted by telecopy, in each case addressed or telecopied to the party to whom notice is being given at its address or telecopier number as set forth below next to its signature or, as
to each party, at such other address or telecopier number as may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section.
All such notices, requests, demands and other communications shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy, except that notices or requests to the Lender pursuant to any
of the provisions of Article II shall not be effective until received by the Lender. All requests under Section 9-210 of the UCC (i) shall be made in a writing signed
by a person authorized under Section 2.2(b), (ii) shall be personally delivered, sent by registered or certified mail, return receipt requested, or by overnight courier of national
reputation (iii) shall be deemed to be sent when received by the Lender and (iv) shall otherwise comply with the requirements of Section 9-210. The Borrower requests
that the Lender respond to all such requests which on their face appear to come from an authorized individual and releases the Lender from any liability for so responding. The Borrower shall pay
Lender the maximum amount allowed by law for responding to such requests. 

        Section 8.4    Intentionally Deleted.    

        Section 8.5    Further Documents.    The Borrower will from time to time execute and deliver or endorse any and
all instruments, documents, conveyances, assignments, security agreements, financing statements, control agreements and other agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's rights under the Loan Documents (but any failure to request or assure that the Borrower executes, delivers or endorses any
such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security Interest, regardless of whether any such item was or was not executed, delivered
or endorsed in a similar context or on a prior occasion). 

        Section 8.6    Costs and Expenses.    The Borrower shall pay on demand all costs and expenses, including
reasonable attorneys' fees, incurred by the Lender in connection with the Obligations, this Agreement, the Loan Documents, any Letter of Credit and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration,
performance, collection and enforcement of the Obligations and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security
Interest. 

        Section 8.7    Indemnity.    In addition to the payment of expenses pursuant to Section 8.6, the
Borrower shall indemnify, defend and hold harmless the Lender, and any of its participants, parent corporations,
subsidiary corporations, affiliated corporations, successor corporations, and all present and future officers, directors, employees, attorneys and agents of the foregoing (the "Indemnitees") from and
against any of the following (collectively, "Indemnified Liabilities"): 

        (i)    any
and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents or
the making of the Advances; 

        (ii)   any
claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Section 5.14 proves to be incorrect in any
respect or as a result of any violation of the covenant contained in Section 6.12(b); and 

        (iii)  any
and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees
and disbursements of 

35

 

counsel)
in connection with the foregoing and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party thereto, which may be imposed
on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents or the use or intended use
of the proceeds of the Advances. 

If
any investigative, judicial or administrative proceeding arising from any of the foregoing is brought against any Indemnitee, upon such Indemnitee's request, the Borrower, or counsel designated by
the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless may be held
to be unenforceable because it violates any law or public policy, the Borrower shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities
which is permissible under applicable law. The Borrower's obligation under this Section 8.7 shall survive the termination of this Agreement and the discharge of the Borrower's other obligations
hereunder. 

        Section 8.8    Participants.    The Lender and its participants, if any, are not partners or joint venturers,
and the Lender shall not have any liability or responsibility for any obligation, act or omission of any of its participants. All rights and powers specifically conferred upon the Lender may be
transferred or delegated to any of the Lender's participants, successors or assigns. 

        Section 8.9    Execution in Counterparts; Telefacsimile Execution.    This Agreement and other Loan Documents
may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one
and the same instrument. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 

        Section 8.10    Retention of Borrower's Records.    The Lender shall have no obligation to maintain any
electronic records or any documents, schedules, invoices, agings, or other papers delivered to the Lender by the Borrower or in connection with the Loan Documents for more than four months after
receipt by the Lender. 

        Section 8.11    Binding Effect; Assignment; Complete Agreement; Exchanging Information.    The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent. To the extent permitted by law, the Borrower waives and will not assert against any assignee any claims, defenses or
set-offs which the Borrower could assert against the Lender. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together with
the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. All
nonpublic information regarding the Borrower and its Affiliates obtained or possessed by the Lender shall remain confidential, except that the Lender may share any information in its possession
regarding the Borrower and its Affiliates with the Lender's participants, accountants, lawyers and other advisors, and with all direct and indirect subsidiaries of Wells Fargo & Company, each
of which shall keep such information confidential from non-Wells Fargo entities. 

        Section 8.12    Severability of Provisions.    Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 

36

 

        Section 8.13    Headings.    Article, Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 

        Section 8.14    Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.    The Loan Documents shall be
governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of Minnesota. The parties hereto hereby (i) consent to the personal jurisdiction of the
state and
federal courts located in the State of Minnesota in connection with any controversy related to this Agreement; (ii) waive any argument that venue in any such forum is not convenient,
(iii) agree that any litigation initiated by the Lender or the Borrower in connection with this Agreement or the other Loan Documents may be venued in either the State or Federal courts located
in Hennepin County, Minnesota; and (iv) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. 

THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

The rest of this page has been intentionally left blank.

37

        IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. 

	2ND SWING, INC.	 	2ND SWING, INC.
	5810 Baker Road	 	 	 	 
	Minnetonka, MN 55345	 	By	 	 
	Telecopier: 952-345-3777

Attention: _______________

e-mail: _______________	 	 	 	
 Stanley A. Bodine

Its Chief Executive Officer
	

Wells Fargo Business Credit, Inc	
 	

WELLS FARGO BUSINESS CREDIT, INC.
	

MAC N9312-040	
 	

By	
 	

 
	Sixth and Marquette

Minneapolis, MN 55479

Telecopier: 6120673-8589

Attention: Sean P. Olmstead

e-mail: sean.p.olmstead@wellsfargo.com	 	 	 	
 Sean P. Olmstead

An Officer

Table of Exhibits and Schedules  

	Exhibit A	 	Form of Revolving Note
	

Exhibit B	
 	

Compliance Certificate
	

Exhibit C	
 	

Premises
	

Schedule 5.1	
 	

Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral
	

Schedule 5.2	
 	

Capitalization and Organizational Chart
	

Schedule 5.5	
 	

Subsidiaries
	

Schedule 5.11	
 	

Intellectual Property Disclosures
	

Schedule 6.3	
 	

Permitted Liens
	

Schedule 6.4	
 	

Permitted Indebtedness and Guaranties

Exhibit A to Credit and Security Agreement 

REVOLVING NOTE  

	$2,500,000.00	 	Minneapolis, Minnesota

November 21, 2002

        For
value received, the undersigned, 2ND SWING, INC., a Minnesota corporation (the "Borrower"), hereby promises to pay ON DEMAND, and if demand is not sooner made,
then as provided in the Credit Agreement (defined below), to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Two Million Five
Hundred Thousand Dollars ($2,500,000.00) or, if less, the aggregate unpaid principal amount of all Revolving Advances made by the Lender to the Borrower under the Credit Agreement (defined below)
together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement of even date herewith (the "Credit Agreement") by and between the Lender and the
Borrower. The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement. 

        This
Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Revolving Note referred to in the
Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. 

        The
Borrower shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Note is not paid when due, whether or not legal proceedings are commenced. 

        Presentment
or other demand for payment, notice of dishonor and protest are expressly waived. 

	 	2ND SWING, INC.
	

 	

By	

 
	 	 	
 Stanley A. Bodine

Its Chief Executive Officer

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Table of Contents

CREDIT AND SECURITY AGREEMENT

ARTICLE I DEFINITIONS

ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY

ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF

ARTICLE IV CONDITIONS OF WILLINGNESS TO CONSIDER LENDING

ARTICLE V REPRESENTATIONS AND WARRANTIES

ARTICLE VI COVENANTS

ARTICLE VII EVENTS OF DEFAULT, RIGHTS AND REMEDIES

ARTICLE VIII MISCELLANEOUSQuickLinks
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Exhibit 4.4(b)  

 
 

FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
  AND WAIVER OF DEFAULT    
    

        This Amendment, dated as of February 28, 2003, is made by and between 2ND SWING, INC., a Minnesota corporation (the "Borrower"), and
WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"). 

Recitals  

        The Borrower and the Lender are parties to a Credit and Security Agreement dated as of November 21, 2002 (the "Credit Agreement"). Capitalized terms used
in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. 

        The
Borrower has requested that certain amendments be made to the Credit Agreement, which the Lender is willing to make pursuant to the terms and conditions set forth herein. 

        NOW,
THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, it is agreed as follows: 

        1.    Defined Terms.    Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have
the same meanings as defined therein, unless otherwise defined herein. In addition, Section 1.1 of the Credit Agreement is amended by adding or amending, as the case may be, the following
definitions: 

        "Borrowing
Base" means at any time and subject to change from time to time in the Lender's sole discretion, the lesser of: 

        (a)   the
Maximum Line; or 

        (b)   during
the period April 1 through August 31 of each year, the sum of: 

        (i)    the
lesser of (A) 40% of Eligible Used Inventory or (B) $1,750,000, plus 

        (ii)   the
lesser of (A) 40% of Eligible New Inventory or (B) $1,500,000. 

        (c)   during
the period September 1 through March 31 of each year, the sum of: 

        (i)    the
lesser of (A) 50% of Eligible Used Inventory or (B) $1,750,000, plus 

        (iii)  the
lesser of (A) 50% of Eligible New Inventory or (B) $1,500,000. 

        The
definition of "Eligible Inventory" is amended to delete clause (vi) in its entirety and replace it with the following: 

        (vi)  Used
Inventory except golf clubs; provided that eligible used Inventory will be reduced by (a) $400,000 divided by the applicable Borrowing Base advance rate
(the "Availability Reserve") and (b) a rent reserve of $25,000 divided by the applicable Borrowing Base advance rate per location for which no satisfactory landlord's disclaimer and consent has
been obtained (the "Rent Reserve"). 

        "Floating
Rate" means an annual interest rate equal to the sum of the Base Rate plus three and three-quarters percent (3.75%), which interest rate shall change when and as the Base Rate
changes. 

        "Maximum
Line" means $2,500,000. 

        "Original
Maturity Date" means March 31, 2004. 

        "Subordination
Agreement" means the Amended and Restated Subordination Agreement dated January 27, 2003, executed by David R. Pomije in the Lender's favor and acknowledged by the
Borrower, and any other subordination agreement accepted by the Lender from time to time. 

 

        2.    Covenants.    Section 6.2 of the Credit Agreement is hereby amended by deleting Subsections 6.2(a),
6.2(b) and 6.2(c) set forth in the original Credit Agreement and replacing and superceding such Subsections as set forth below: 

        (a)    Minimum Earnings Before Taxes.    The Borrower will achieve during each period
described below, Earnings Before Taxes, of not less than the amount set forth opposite such period: 

	Period Ended
 
	 	Minimum Earnings Before Taxes
	 
	January 26, 2003	 	<$	725,000	>
	February 23, 2003	 	<$	1,305,000	>
	March 30, 2003	 	<$	1,906,000	>
	April 27, 2003	 	<$	2,077,000	>
	May 25, 2003	 	<$	2,119,000	>
	June 29, 2003	 	<$	1,948,000	>
	July 27, 2003	 	<$	1,533,000	>
	August 24, 2003	 	<$	1,205,000	>
	September 28, 2003	 	<$	1,228,000	>
	October 26, 2003	 	<$	1,705,000	>
	November 23, 2003	 	<$	2,290,000	>
	December 29, 2003	 	<$	2,885,000	>
	January 25, 2004	 	<$	722,000	>
	February 22, 2004	 	<$	1,273,000	>
	March 29, 2004	 	<$	1,629,000	>

        (b)    Capital Expenditures.    The Borrower will not incur or contract to incur Capital
Expenditures of more than $875,000 in the aggregate during fiscal year 2003 or more than $65,000 in the aggregate during fiscal year 2004. 

        (c)    New Covenants.    The Borrower and the Lender shall agree to new covenant levels for
the financial covenants set forth in this Section 6.2 within thirty (30) days after the Borrower has raised an aggregate of $5,000,000 in new equity after the date of the First
Amendment. 

        In
addition, Section 6.4 is hereby amended to add the following clause (d) as permitted indebtedness: 

        (d)   Indebtedness
subject to Subordination Agreement between a subordinated creditor and the Lender satisfactory to the Lender in its sole discretion, including, without
limitation, indebtedness to David R. Pomije in the current amount of $8,000,000. 

        3.    No Other Changes.    Except as explicitly amended by this Amendment, all of the terms and conditions of the
Credit Agreement shall remain in full force and effect and shall apply to any advance or letter of credit thereunder. 

        4.    Waiver of Defaults.    The Borrower is in default of Section 6.8 of the Credit Agreement relating to
salaries (the "Existing Default") by reason of an increase in P. Simon Kallal's salary by 50% from $80,000 to $120,000, which exceeds the 10% limitation set forth in Section 6.8 Upon the terms
and subject to the conditions set forth in this Amendment, the Lender hereby waives the Existing Default. This waiver shall be effective only in this specific instance and for the specific purpose for
which it is given, and this waiver shall not entitle the Borrower to any other or further waiver in any similar or other circumstances. 

2

 

        5.    Conditions Precedent.    This Amendment, and the waiver set forth in Paragraph 4 hereof, shall be
effective when the Lender shall have received an executed original hereof, together with each of the following, each in substance and form acceptable to the Lender in its sole discretion: 

        (a)   The
Acknowledgment and Agreement of Subordinated Creditor set forth at the end of this Amendment, duly executed by the Subordinated Creditor. 

        (b)   Such
other matters as the Lender may require. 

        6.    Representations and Warranties.    The Borrower hereby represents and warrants to the Lender as follows: 

        (a)   The
Borrower has all requisite power and authority to execute this Amendment and to perform all of its obligations hereunder, and this Amendment has been duly executed
and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. 

        (b)   The
execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action and do not (i) require any
authorization, consent or approval by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any provision of any law, rule or
regulation or of any order, writ, injunction or decree presently in effect, having applicability to the Borrower, or the articles of incorporation or by-laws of the Borrower, or
(iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected. 

        (c)   All
of the representations and warranties contained in Article V of the Credit Agreement are correct on and as of the date hereof as though made on and as of such
date, except to the extent that such representations and warranties relate solely to an earlier date. 

        7.    References.    All references in the Credit Agreement to "this Agreement" shall be deemed to refer to the Credit
Agreement as amended hereby; and any and all references in the Security Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. 

        8.    No Other Waiver.    Except as set forth in Paragraph 4
hereof, the execution of this Amendment and acceptance of any documents related hereto shall not be deemed to be a waiver of any Default or Event of
Default under the Credit Agreement or breach, default or event of default under any Security Document or other document held by the Lender, whether or not known to the Lender and whether or not
existing on the date of this Amendment. 

        9.    Release.    The Borrower, and the Subordinated Creditor by signing the Acknowledgment and Agreement of
Subordinated Creditor set forth below, each hereby absolutely and unconditionally releases and forever discharges the Lender, and any and all participants, parent corporations, subsidiary
corporations, affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all of the present and former directors, officers, agents and employees of any of the
foregoing, from any and all claims, demands or causes of action of any kind, nature or description, whether arising in law or equity or upon contract or tort or under any state or federal law or
otherwise, which the Borrower or such Subordinated Creditor has had, now has or has made claim to have against any such person for or by reason of any act, omission, matter, cause or thing whatsoever
arising from the beginning of time to and including the date of this Amendment, whether such claims, demands and causes of action are matured or unmatured or known or unknown; provided that nothing
herein shall be deemed to change any of the terms of the Subordination Agreement dated January 27, 2003, executed by the Subordinated Creditor in favor of the Lender (the "Subordination
Agreement"), or to 

3

 

release
either the Subordinated Creditor or the Lender from any obligation under the Subordination Agreement, which Subordination Agreement remains in full force and effect. 

        10.    Costs and Expenses.    The Borrower hereby reaffirms its agreement under the Credit Agreement to pay or
reimburse the Lender on demand for all costs and expenses incurred by the Lender in connection with the Loan Documents, including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower specifically agrees to pay all fees and disbursements of counsel to the Lender for the services performed by such counsel in
connection with the preparation of this Amendment and the documents and instruments incidental hereto. The Borrower hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of any loan, for the purpose of paying any such fees,
disbursements, costs and expenses. 

        11.    Miscellaneous.    This Amendment and the Acknowledgment and Agreement of Subordinated Creditor may be executed
in any number of counterparts, each of which when so executed and delivered shall be deemed an original and all of which counterparts, taken together, shall constitute one and the same instrument. 

        IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. 

	WELLS FARGO BUSINESS CREDIT, INC.	 	2ND SWING, INC.
	

By	
 	

/s/ Sean P. Olmstead
 Sean P. Olmstead

An Officer	
 	

By	
 	

/s/ Stanley A. Bodine
 Stanley A. Bodine

Its Chief Executive Officer

4

 
 

ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITOR    
    

        The undersigned, a subordinated creditor of 2nd Swing, Inc. (the "Borrower") to Wells Fargo Business Credit, Inc. (the "Lender")
pursuant to a Subordination Agreement dated as of January 27, 2003, each, a "Subordination Agreement"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents
to the terms (including without limitation the release set forth in paragraph 9 of the Amendment) and execution thereof; (iii) reaffirms his obligations to the Lender pursuant to the
terms of his Subordination Agreement; and (iv) acknowledges that the Lender may amend, restate, extend, renew or otherwise modify the Loan Documents and any indebtedness or agreement of the
Borrower, or enter into any agreement or extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the obligations of the
undersigned under his Subordination Agreement. 

	 	 	/s/ David R. Pomije
 David R. Pomije
	 	 	 

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FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER OF DEFAULT

ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITOR

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