Document:

Exhibit 4.3

 

Genworth Life and Annuity Insurance Company

 

Funding Agreement

 

POLICYHOLDER: 
Genworth Global Funding Trust 2008-28, its successors and permitted assignees

 

POLICY NUMBER: GS-R6044

 

EFFECTIVE DATE: May 30,
2008

 

ISSUE STATE:  Virginia

 

Genworth
Life and Annuity Insurance Company (“GLAIC”) (which term includes its
successors and permitted assignees) and the Policyholder hereby agree to the
terms of this funding agreement (this “Policy”).  This Policy, including the attached
Accumulation Fund Schedule, and any amendments thereto, constitutes the entire
contract between GLAIC and the Policyholder.  
This Policy is delivered in the Issue State and governed by the laws of
that state.

 

In witness whereof, GLAIC
and the Policyholder have agreed to this Policy as of the Effective Date and
caused the same to be in full force and effect.

 

	
  /s/ Thomas E. Duffy

  	
   

  	
  /s/Pamela S. Schutz

  
	
  Secretary

  	
   

  	
  President

  

 

Genworth Life and Annuity
Insurance Company

6610 West Broad Street

Richmond, VA  23230

1-800-635-8056

 

 

Table of Contents

 

Section 1 –
Accumulation Fund – Establishment and Operation

 

Section 2 – Payments
From the Accumulation Fund

 

Section 3 –
Termination of Agreement

 

Section 4 – General
Provisions

 

Section 5 –
Definitions

 

 

SECTION 1 –
ACCUMULATION FUND – ESTABLISHMENT AND OPERATION

 

1.1        POLICY PAYMENTS. 
The Policyholder agrees to pay to GLAIC in the currency specified in the
Accumulation Fund Schedule (the “Specified Currency”), and by wire transfer,
the Net Deposit Amount on the Deposit Date. 
Regardless of the Effective Date of the Policy or the Deposit Date
specified in the Accumulation Fund Schedule, this Policy shall become effective
only upon the receipt by GLAIC, or its designee, of the Net Deposit Amount.

 

1.2        ESTABLISHMENT OF THE
ACCUMULATION FUND.  Upon the receipt by GLAIC of the Net Deposit
Amount, GLAIC will establish an Accumulation Fund.  The Accumulation Fund is a general account
record that reflects the Fund Balance under this Policy.  GLAIC is neither a trustee nor a fiduciary
with respect to the Accumulation Fund. 
The Net Deposit Amount is allocated to GLAIC’s general account for
investment but all funds received under this Policy will become the exclusive
property of GLAIC without any duty or requirement for segregation or separate investment.  The Fund Balance is not affected by the
investment results of the assets held in the general account.

 

1.3        INTEREST ON THE
ACCUMULATION FUND.  The Guaranteed Rate for the Accumulation Fund
is effective until the Fund Balance is paid in full to the Policyholder.  Interest is credited based upon the
methodology specified in the Accumulation Fund Schedule.

 

1.4        VALUE OF THE
ACCUMULATION FUND.  The Fund Balance on any given day equals the Deposit
Amount plus interest, if any, credited thereon at the Guaranteed Rate, less any
payments made under Section 2 of the Policy.

 

SECTION 2 – PAYMENTS
FROM THE ACCUMULATION FUND

 

2.1        PERIODIC
PAYMENTS.  GLAIC will pay the Policyholder the amounts
specified in the Accumulation Fund Schedule as Periodic Payouts, including the
Maturity Payout, on the dates specified  (subject
to Section 4.7).  Such payment
amounts are adjusted to reflect any other payment payable under this Section of
the Policy.  The interest factor used in
making such adjustments is the Guaranteed Rate.

 

2.2        OPTIONAL REPAYMENT.  If so indicated in the Accumulation Fund
Schedule, GLAIC shall pay to the Policyholder the amount the Policyholder needs
to redeem or repay any notes or other instruments issued by the Policyholder
and backed by this Policy, pursuant to any limited right of redemption or
repayment contained in such note or instrument. 
GLAIC may require reasonable evidence that the redemption or repayment
request satisfies all the terms and conditions described in the prospectus,
prospectus supplement and/or pricing supplement applicable to such note or
other instrument.  Additional
restrictions, if any, on the Policyholder’s reimbursement rights under this Section may
be included in the Accumulation Fund Schedule.

 

1

 

2.3        OPTIONAL REDEMPTION.  If so indicated in the Accumulation Fund
Schedule, GLAIC may elect to
pay the Policyholder all or any part of the Fund Balance on the Call Dates
specified in the Accumulation Fund Schedule. 
Unless otherwise provided in the Accumulation Fund Schedule, GLAIC will
give the Policyholder at least thirty-five (35) calendar days and no more than
seventy-five (75) calendar days notice of its intent to make such
pre-payment.  No adjustment will be made
to the amount of such payment, unless such adjustment is specifically provided
for in the Accumulation Fund Schedule.

 

2.4        MATURITY PAYMENTS.  GLAIC shall pay the Policyholder the Fund
Balance on the Maturity Date.

 

2.5        FORM OF PAYMENT.  All payments GLAIC makes to the Policyholder
will be made in the Specified Currency, by wire transfer, unless otherwise
agreed in writing by the parties hereto. Unless otherwise stated in the
Accumulation Fund Schedule, all payments GLAIC makes will be net of any
applicable withholding or deduction for or on account of any present or future
taxes, duties, levies, assessments or other governmental charges of whatever
nature imposed or levied by or on behalf of any governmental authority having
the power to tax.  Unless otherwise
specified in the Accumulation Fund Schedule, such net payments fully satisfy
GLAIC’s obligation to the Policyholder with respect to the full amount due.

 

SECTION 3 –
TERMINATION OF AGREEMENT

 

3.1        AUTOMATIC
TERMINATION/ACCELERATION.  This Policy
terminates with respect to the Accumulation Fund when the Fund Balance is zero
and GLAIC’s obligations hereunder shall automatically accelerate upon the
occurrence of an Event of Default described in Section 3.3(a).

 

3.2        EARLY
TERMINATION/ACCELERATION.  The Policyholder may
accelerate this Policy by giving GLAIC not less than two (2) Business Days’
written notice upon the occurrence of an Event of Default specified in Section 3.3
b., c. or d. below.  GLAIC may accelerate
this Policy, in whole but not in part, by giving the Policyholder not less than
forty-five (45) days’, but no more than seventy-five (75) days’, prior written
notice of the occurrence of a Tax Event as described in Section 3.4,
provided, however that this Policy shall not be terminated until the Fund
Balance has been paid to the Policyholder in full.

 

3.3        EVENTS OF DEFAULT. 
An Event of Default occurs if:

 

a.     GLAIC is
dissolved or a resolution is passed or proceeding is instituted for the
winding-up, liquidation or similar arrangement of GLAIC (other than pursuant to
a consolidation, amalgamation or merger);

 

b.     GLAIC
breaches any material obligation, representation or certification contained
herein, provided that there is no bona fide dispute as to whether such breach
has occurred and that such breach continues for fifteen (15) Business Days
following the Policyholder’s written notice to GLAIC of such breach;

 

2

 

c.     GLAIC fails to make any required Periodic Payout
(other than the Maturity Payout) described in the Accumulation Fund Schedule or
any other payment described in Sections 2.2 or 2.3 of this Policy or any other
funding agreement GLAIC issues in connection with the Program, and such failure
continues for seven (7) Business Days after the due date thereof;

 

d.     GLAIC fails to make the Maturity Payout described in
the Accumulation Fund Schedule or in any other funding agreement GLAIC issues
in connection with the Program and such failure is continuing as of the end of
the Business Day following the due date thereof.

 

3.4        TAX EVENT.  A “Tax Event” occurs if GLAIC has received an
opinion of independent legal counsel stating in effect that there is more than
an insubstantial risk that as a result of 
any amendment to, or change (including any announced prospective change)
in, the laws (or regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or any amendment to, or
change in, an interpretation or application of any such laws or regulations by
any governmental authority in the United States, which amendment or change is
enacted, promulgated, issued or announced on or after the Deposit Date, the
Policyholder is or will be within ninety (90) days of the date thereof, (1) subject
to an entity level U.S. federal income tax with respect to interest accrued or
received on this Policy or (2) subject to more than a de minimis amount of
taxes, duties or other governmental charges.

 

Notwithstanding anything to the
contrary in this Section 3, if GLAIC shall comply in all respects with the
requirements of this Section 3, but an event of default has occurred with
respect to the notes backed by the Policy and as a result payments with respect
to the notes have been accelerated, otherwise than by reason of any default
under this Policy by GLAIC, no Event of Default (as defined above) under this
Policy shall be deemed to have occurred, no payments with respect to this Policy
shall be accelerated and GLAIC will remain obligated to make payments under
this Policy as if no Event of Default had occurred with respect to the notes.

 

SECTION 4 – GENERAL
PROVISIONS

 

4.1        PAYMENT UPON TERMINATION.  Unless otherwise specified in the Accumulation
Fund Schedule, GLAIC shall pay the Policyholder the Fund Balance on the
Maturity Date.  Such payment fully
discharges GLAIC’s obligation to the Policyholder under this Policy.

 

4.2        DISCLAIMER OF
RESPONSIBILITY.  GLAIC’s only liability
is as set out in this Policy, including the Accumulation Fund Schedule attached
hereto.  In performing its obligations
under this Policy, GLAIC is not acting as a fiduciary or agent for the
Policyholder or anyone else regardless of whether or not they are directly or
indirectly associated with the Policyholder.

 

4.3        NOTICES.  All agreements, notices, directions, consents,
elections or other communication (“Notices”) required by this Policy must be in
writing, directed to the applicable address designated on the face page.  Any such Notices may be given by facsimile
transmission or other acceptable electronic means.  All Notices are effective when received.

 

3

 

4.4        AMENDMENTS.  This Policy may be amended only by mutual
written agreement between the parties hereto.

 

4.5        CONFLICT.  To the extent that there is a conflict in
terms between the Policy and the Accumulation Fund Schedule, the Accumulation
Fund Schedule will control the conduct of the parties.

 

4.6        TRANSFERABILITY/ASSIGNMENT.  This Policy and the Accumulation Fund
established pursuant to it may solely be sold, assigned, transferred or pledged
in accordance with, and for the purposes contemplated by, the documents and
agreements governing the establishment and operation of the Program.  GLAIC will maintain a record of ownership of
this Policy on its books and records.

 

4.7        PAYMENTS BY
GLAIC.  When this Policy provides that GLAIC will
make a payment to the Policyholder, such payment shall be made to the
Policyholder or to the agent the Policyholder designates.  Unless otherwise specified in the
Accumulation Fund Schedule, if a payment date is not a Business Day, GLAIC will
pay such amount on the next Business Day.

 

4.8        WAIVER BY GLAIC.  At the Policyholder’s request, GLAIC may
waive any terms, conditions or adjustments provided for in this Policy.  Any such waiver is subject to any limitations
GLAIC specifies in making the waiver and does not require GLAIC to grant
similar future waivers to the Policyholder or anyone else.  A failure or delay in exercising a right
under this Policy does not waive GLAIC’s right or ability to assert such right
in the future.

 

4.9        MUTUAL REPRESENTATIONS.  The parties mutually represent and warrant,
each to the other, that:

 

a.     This Policy is its legal, valid and binding
obligation, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditor’s
rights, and subject, as to enforceability, to general principals of equity,
regardless of whether enforcement is sought in proceeding in equity or law;

 

b.     It has the power to enter into this Policy and to
consummate the transactions contemplated hereby;

 

c.     All information provided in connection with this
Policy is, to the best of its knowledge and belief, true, correct and complete;

 

d.     The execution and the delivery of this Policy and the
performance of obligations hereunder do not and will not constitute or result
in a default, breach or violation, of the terms or provisions of its
certificate, articles or charter of incorporation, declaration of trust,
by-laws or any agreement, instrument, mortgage, judgment, injunction or order
applicable to it or any of its property.

 

4

 

4.10      TAX PROVISIONS.  The Policyholder and each transferee and
assignee of this Policy, to the extent required by law, agree to provide GLAIC
with any properly completed tax forms that are needed for GLAIC to satisfy its
tax reporting obligations with respect to amounts held under this Policy.  This Policy is intended to be ignored for
U.S. federal, state and local income and franchise tax purposes. To the extent
it cannot be ignored, GLAIC and the Policyholder and each transferee and
assignee of this Policy agree to treat this Policy as GLAIC’s debt obligation
for U.S. federal, state and local income and franchise tax purposes.

 

SECTION 5 – DEFINITIONS

 

5.1        POLICY DEFINITIONS. 
The following terms have the meanings indicated:

 

“Accumulation
Fund” is the
accounting record GLAIC will establish under this Policy as described in Section 1.2.

 

“Accumulation
Fund Schedule” is
attached to this Policy and establishes the terms of the Accumulation Fund.

 

“Business
Day” is any day,
other than Saturday or Sunday, that is neither a legal holiday nor a day on
which commercial banks are authorized or required by law, regulation or
executive order to close, or are otherwise closed, in each Business Day City
specified in the Accumulation Fund Schedule.

 

“Call
Date” is the day
or days prior to the Stated Maturity Date, if any, specified in the
Accumulation Fund Schedule attached to this Policy, on which GLAIC may elect to
pay the Policyholder all or any part of the Fund Balance.  If no Call Date is indicated in an
Accumulation Fund Schedule, GLAIC will pay to the Policyholder the Fund Balance
prior to the Stated Maturity Date only to the extent provided in Section 3.2.

 

“Deposit
Amount” is the
amount GLAIC credits to the Accumulation Fund on the Deposit Date as set forth
in the Accumulation Fund Schedule.

 

“Deposit
Date” is the
date, specified in the Accumulation Fund Schedule, on which GLAIC receives the
Net Deposit Amount.

 

“Event
of Default” has
the meaning described in Section 3.3.

 

“Fund
Balance” is the
value of the Accumulation Fund, determined pursuant to Section 1.4.

 

“Guaranteed
Rate” is the
interest rate, if any, applied to the Accumulation Fund, as stated in the
Accumulation Fund Schedule.

 

“Indenture” is that certain indenture agreement,
made between the Policyholder and the Indenture Trustee related to the notes to
be supported by this Policy as such agreement may be amended, supplemented or
replaced from time to time.

 

5

 

“Indenture
Trustee” is the
party specified as trustee under the Indenture, or its successor.

 

“Maturity
Date” is the
earlier of (i) the Stated Maturity Date and (ii) each date on which
the Fund Balance is payable in full to the Policyholder pursuant to an Event of
Default, Optional Repayment, Optional Redemption or otherwise.  Unless otherwise indicated in the
Accumulation Fund Schedule, if any of the foregoing dates is not a Business
Day, the Maturity Date is the next following Business Day.  Interest accrues during such delay only if
specified in the Accumulation Fund Schedule.

 

“Net
Deposit Amount”
is the amount GLAIC receives from the Policyholder on the Deposit Date as set
forth in the Accumulation Fund Schedule.

 

“Program” is the Genworth Global Funding program,
as described in the prospectus relating thereto, including the applicable
prospectus supplement or pricing supplement or in any amendment thereto.

 

“Stated
Maturity Date” is
the date, as set forth on the Accumulation Fund Schedule, when the Fund Balance
is originally due and payable to the Policyholder.

 

“Tax
Event” has the
meaning described in Section 3.4.

 

5.2        OTHER DEFINITIONS. 
Other capitalized terms appearing in this Policy have the meanings indicated
on the Policy’s face page or in the Accumulation Fund Schedule.

 

6

 

GLAIC

Accumulation
Fund Schedule – Fixed Rate

 

Policy
Number: GS-R6044

 

	
  Deposit
  Date:

  	
   

  	
  May 30, 2008 or
  the date the deposit is actually received by GLAIC

  
	
   

  	
   

  	
   

  
	
  Specified
  Currency:

  	
   

  	
  United
  States Dollars

  
	
   

  	
   

  	
   

  
	
  Deposit
  Amount:

  	
   

  	
  $9,022,000.00

  
	
   

  	
   

  	
   

  
	
  Net
  Deposit Amount:

  	
   

  	
  $8,796,450.00

  
	
   

  	
   

  	
   

  
	
  Stated
  Maturity Date:

  	
   

  	
  May 15, 2033

  
	
   

  	
   

  	
   

  
	
  Guaranteed
  Rate:

  	
   

  	
  6.20%

  
	
   

  	
   

  	
   

  
	
  Crediting
  Period:

  	
   

  	
  The
  first Crediting Period shall be a short period commencing on the Deposit Date
  to but excluding November 15, 2008. Each subsequent Crediting Period
  shall be the semi-annual period occurring between the 15th of each
  May and November thereafter. The final Crediting Period will be the
  period from and including November 15, 2032, to but excluding May 15,
  2033.

  
	
   

  	
   

  	
   

  
	
  Interest
  Crediting:

  	
   

  	
  Interest
  is credited based upon a 30/360 basis,
  applied to the Fund Balance each day.

  
	
   

  	
   

  	
   

  
	
  Periodic
  Payouts:

  	
   

  	
  On
  the 15th of each May and November,
  GLAIC will pay the Policyholder all accrued and unpaid interest (if such date
  is not a Business Day, the Periodic Payout will be made on the next following
  Business Day, and in such cases the amount of interest shall not be adjusted
  for non-Business Days) (each, an “Interest Payment Date”); provided, however, that
  the final Periodic Payout shall be on the Maturity Date, on which date all
  accrued and unpaid interest will be paid.

  
	
   

  	
   

  	
   

  
	
  Optional
  Repayment:

  	
   

  	
  Optional
  Repayments under Section 2.2 of the Policy may be made solely with
  respect to the “Survivor’s Option” described in Pricing Supplement No. 033
  dated May 19, 2008 to the Prospectus Supplement dated December 9,
  2005 related to the Program.

  

 

	
  Call
  Terms:

  	
   

  	
  Under
  Section 2.3 of the Policy, GLAIC may elect to pay the Policyholder all
  of the Fund Balance on May 15, 2013, or as of any date thereafter when a
  Periodic Payout is due (the “Call Dates”).

  
	
   

  	
   

  	
   

  
	
  Maturity
  Payout:

  	
   

  	
  On
  the Maturity Date, GLAIC will pay to the Policyholder the Fund Balance. If
  such date is not a Business Day, the Maturity Payout will be made on the next
  following Business Day; provided, however, that interest shall not accrue beyond the
  Maturity Date.

  
	
   

  	
   

  	
   

  
	
  Business
  Day City(s):

  	
   

  	
  New York, New York

  
	
   

  	
   

  	
   

  
	
  Other
  Terms:

  	
   

  	
  None

  

 

*********************

 

The calculation of the Guaranteed Rate and all
other payment terms of this Policy will be determined in the manner described
in the “Description of the Notes” section in the Prospectus Supplement.

 

*********************

 

 

	
  GENWORTH LIFE AND
  ANNUITY
 INSURANCE COMPANY

  	
  GENWORTH GLOBAL FUNDING
  TRUST 2008-28

  
	
   

  	
   

  
	
  By:

  	
   /s/ Pamela C.
  Asbury

  	
   

  	
  By*:

  	
   /s/ Patricia M.
  Child

  
	
   

  	
  Pamela C. Asbury

  	
   

  	
  Patricia M. Child

  
	
   

  	
   

  	
   

  	
   

  
	
  Official Title:

  	
  Vice President

  	
   

  	
  Official Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  May 28,
  2008

  	
   

  	
  Date:

  	
  May 28,
  2008

  
								

 

* It is expressly
understood and agreed that (a) this Policy is executed and delivered by
U.S. Bank National Association (“USB”) not individually or personally, but
solely as Trustee of the Genworth Global Funding Trust 2008-28 in the exercise
of powers and authority conferred and vested in it (b) each of the
representations, undertakings and agreements herein made on the part of the
Trust is made and intended not

 

 

as personal
representations, undertakings and agreements by USB but is made and intended
for the purpose of binding only the Trust, (c) nothing herein contained
shall be construed as creating any liability on USB individually or personally,
to perform any covenant either express or implied contained herein, all such
liability, if any being expressly waived by the parties hereto and by any
person claiming by, through or under the parties hereto and (d) under no
circumstances shall USB be personally liable for the payment of any
indebtedness or expenses of the Trust or be liable for the breach or failure of
any obligation, representation, warrant or covenant made or undertaken by the
Trust under this Policy or any other related documents.

 

*********************Exhibit 10.1

 

***PORTIONS
OF THIS EXHIBIT MARKED BY BRACKETS (“[***]”) OR OTHERWISE INDICATED HAVE BEEN
OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.  THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***

 

LICENSE AGREEMENT

 

This
License Agreement (this “Agreement”) is entered into as of the date of the last signature (“Effective
Date”), by and between Callaway Golf Company, a Delaware corporation (“Callaway
Golf”) and Sport Haley, Inc., a Colorado corporation (“Licensee”).

 

RECITALS

 

A.            Licensee wishes to receive an
exclusive license to use certain of Callaway Golf’s trademarks to develop,
manufacture, market and distribute apparel pursuant to this Agreement.

 

B.            Callaway Golf is willing to license
and allow Licensee to use certain of its trademarks on such products only upon
the terms and conditions set forth in this Agreement.

 

AGREEMENT

 

In
consideration of the foregoing recitals which are hereby incorporated herein,
the covenants hereinafter set forth, and other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties agree as
follows:

 

Article 1.               Grant
of Trademark Licenses

 

1.1           Grant of Exclusive License.  For the term of this Agreement and subject to
the other terms and conditions of this Agreement, Callaway Golf hereby grants
to Licensee an exclusive in the Territory (hereafter defined),
non-transferable, non-assignable, terminable (in accordance with the terms of
this Agreement), royalty-bearing right and license to use the Licensed
Trademarks (hereafter defined) solely in connection with developing,
manufacturing, marketing and distributing the Exclusive Products (hereafter
defined) only in the Authorized Distribution Channels (hereafter defined) throughout
the Territory.  Callaway Golf reserves
the right to use and/or license others to use the Licensed Trademarks in the
Territory on any products not specifically listed as Exclusive Products herein.  Callaway Golf represents and warrants that it
has the full rights, ownership and power to grant an exclusive license to
Licensee to use the Licensed Trademarks and to develop, manufacture, market and
distribute the Licensed Products in the Territory.

 

1.2           NOT USED

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

1

 

1.3           No Sublicense.  Except as specifically set forth in Article 9
hereof, this Agreement does not confer upon Licensee a right to sublicense,
assign, or transfer any of the contractual rights or licenses granted to
Licensee under this Agreement without Callaway Golf’s prior written consent,
and any attempted sublicense, assignment or transfer in contravention of this Section shall
automatically be null and void.

 

1.4           Territory.  For purposes of this Agreement, the term “Territory”
shall mean the specific countries or territories listed in Exhibit A.  Unless otherwise agreed by Callaway Golf in a
separate writing, Licensee agrees not to sell products bearing a Licensed
Trademark in any country in the Territory unless and until such Licensed
Trademark: (i) has been registered in such country for all such products;
or (ii) an application to register such Licensed Trademark for all such
products is pending in such country for all such products.  The filing and prosecution of trademark
applications for registrations shall be in Callaway Golf’s sole discretion and,
if deemed necessary by Callaway Golf, shall be filed or prosecuted by Callaway
Golf in accordance with Section 6.3 below.

 

1.5           Licensed Trademarks.

 

(a)           For purposes of this Agreement, the
term “Licensed Trademarks” shall mean those trademarks listed in Exhibit B
and those additional trademarks subsequently added to Exhibit B by
Callaway Golf in its sole discretion from time to time.  Callaway Golf, in its sole discretion from
time to time, by written notice to Licensee may delete one or more of the
Licensed Trademarks listed in Exhibit B other than the BEN HOGAN trademark
(i) if Callaway Golf discontinues the marketing of substantially all
products associated with such Licensed Trademarks, (ii) Callaway Golf
determines that the use of such Licensed Trademark is no longer consistent with
its then current marketing strategy or (iii) a claim or lawsuit is
asserted or instituted against Callaway Golf with respect to such Licensed
Trademarks.  Upon Callaway Golf’s
deletion of any such marks, Licensee shall cease using such marks and shall
thereafter no longer have any rights in or to such marks.

 

(b)           Except as otherwise set forth herein,
Licensee shall not use the Licensed Trademarks in connection with designing,
sourcing, manufacturing, advertising, promoting, distributing or selling any
product or service, directly, indirectly or in any other manner, other than the
Licensed Products.  Except for such
licenses and rights as are specifically granted in or pursuant to this
Agreement, Licensee shall have no rights, express or implied, in the Licensed
Trademarks, any other patent, trademark, service mark, copyright, trade dress
or any goodwill derived from or associated therewith or any other intellectual
property rights of Callaway Golf.

 

1.6           Products.  For purposes of this Agreement, (i) the
terms “Exclusive Products” shall mean those products designated as such in Exhibit C
and (ii) the term “Licensed Products” shall mean the Exclusive Products
bearing the Licensed Trademarks.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

2

 

1.7           Authorized Distribution Channels.  For purposes of this Agreement, the term “Authorized
Distribution Channels” shall mean those retailers and/or other entities
described in Exhibit D to which Licensee is permitted to sell or
distribute the Licensed Products. 
Licensee shall not sell or distribute Licensed Products bearing the
Licensed Trademarks to any person or entity outside of the Authorized
Distribution Channels in the Territory except as authorized in accordance with Exhibit D
of this Agreement.  Unless
approved by Callaway Golf in advance and in writing, and except for Licensee’s
and its customers’ Internet activities in effect as of the Effective Date,
which activities may not be expanded without the prior written approval of
Callaway Golf in each instance, Licensee may not sell Licensed Products through
the Internet and shall use its best efforts to prevent its customers in the
Authorized Distribution Channels from selling Licensed Products through the
Internet.

 

1.8           Callaway Golf Sales.

 

(a)           The foregoing notwithstanding,
Callaway Golf reserves the right to use and/or license others to use the
Licensed Trademarks on any Exclusive Products solely for gifts and promotions
to Callaway Golf employees, on-site guests and endorsers, including without
limitation, professional athletes and celebrities (“Internal Exclusive Products”),
provided that (except for such sales of Internal Exclusive Products) Callaway
Golf shall not be permitted to resell any such Internal Exclusive Products in
the Territory and provided that for all Internal Exclusive Products Callaway
Golf desires to order for sales, gifts or promotion to employees or on-site
guests within the Territory, Licensee shall act as the exclusive supplier of
such Internal Exclusive Products.

 

(b)           Licensee shall sell Licensed Products
(including any Exclusive Products ordered by Callaway Golf from Licensee) to
Callaway Golf pursuant to this Section 1.8 at prices and terms not to
exceed the most favorable prices and terms it sells Licensed Products to the
Authorized Distribution Channels, less any amounts equal to the royalty rate
with respect to such Licensed Product (no Royalties shall be payable to
Callaway Golf with respect to any sales of the Licensed Products to Callaway
Golf).

 

1.9           Sole Dealings.  Licensee agrees that, during the Term of this
Agreement, it will not enter into any agreement or arrangement with any
competitors of Callaway Golf to develop, market, and/or sell footwear products
including, without limitation, orthotic products, bearing the marks of Licensee
and a competitor without the prior written consent of Callaway Golf.

 

Article 2.               Royalties

 

2.1           Amount of Royalty.  Licensee shall pay, in United States Dollars,
royalties to Callaway Golf for all Net Sales (as defined below) of Licensed
Products in the amounts set forth in Exhibit E  and
subject to the provisions of Section 2.2 of this Agreement.  No royalties shall be payable to Callaway
Golf with respect to any sales 

 

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3

 

and/or
shipments to Callaway Golf or its subsidiaries. 
For purposes of this Agreement, “Net Sales” shall mean Licensee’s gross
sales (the gross invoice amount billed customers) of Licensed Products, less
any discounts and allowances actually shown on the invoice and further, less
any bona fide returns (net of all returns actually made or allowed as supported
by credit memoranda actually issued to the customer).  No costs incurred in the manufacturing,
selling, advertising, and distribution of the Licensed Products shall be
deducted nor shall any deduction be allowed for any uncollectible accounts or
allowances.

 

2.2           Minimum Royalties.  In order to induce Callaway Golf to enter
into this Agreement, Licensee shall pay to Callaway Golf royalties in an amount
at least equal to the minimum annual royalties set forth in Exhibit F (the
“Minimum Annual Royalties”) for the selling periods listed therein as
follows.  To the extent the actual
royalties paid for a given selling period are less than the Minimum Annual
Royalties for such selling period, Licensee shall pay the difference between
the Minimum Annual Royalties for such selling period and the actual royalties
paid for such selling period.  The
payment of such difference shall accompany the first royalty payment described
below payable following the end of the immediately preceding selling
period.   The Minimum Annual Royalties
are for each selling period as indicated and may not be offset by royalties
paid for a prior selling period (if applicable) even if the prior periods
actual royalties exceeded the required minimums.  Minimum Annual Royalties which exceed the
actual royalties for a given period may not be used as an offset against actual
or minimum royalties payable for a future selling period (if applicable).

 

2.3           Payment of Royalties; Related
Reports.  Royalty Payments hereunder
shall be due and payable in four (4) quarterly installments by the dates
set forth in Exhibit E with the first installment for each period being
made with respect to the first three (3) months of the selling period, the
second installment for each period being made with respect to the second three (3) months
of the selling period, third installment for each period being made with
respect to the third three (3) months of the selling period and the fourth
installment for each period being made with respect to the fourth three (3) months
of the selling period.  Along with each
such payment, Licensee shall send to Callaway Golf a report summarizing Net
Sales of Licensed Products, listed in units and dollars, and categorized by (i) each
Authorized Distribution Channel, (ii) each type of Licensed Product, (iii) giveaways
and promotions (with respect to which no royalty shall be payable) and (iv) sales
to Callaway Golf during the applicable selling period (with respect to which no
royalty is payable).  Such report shall
also include a detailed computation of the royalty payments (including the
MSRP, Net Sales and number of units sold for each category of Licensed Product
and the amount of any applicable taxes withheld) due to Callaway Golf for that
three-month period.  When submitting each
royalty payment to Callaway Golf, Licensee shall also provide a report
indicating open orders for Licensed Products by month for the next six (6) months.

 

2.4           Manner of Payment.  All payments provided for herein shall be
paid to Callaway Golf as directed by Callaway Golf in writing from time to
time.  At least ten (10) days prior
to the payment to Callaway Golf of any amount due under this Agreement, 

 

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4

 

Licensee
shall notify Callaway Golf in writing of the amount to be paid and the date of
payment.  Within seven (7) days of
its receipt of such notice, Callaway Golf shall provide Licensee with written
instructions as to how payment should be made. 
If no payment instructions are received from Callaway Golf, then payment
shall be made as directed in the most recent payment instruction received from
Callaway Golf.  Any payments which are
not timely remitted as provided for in this Article shall bear interest at
the lesser of the announced prime rate of the Wells Fargo Bank, San Francisco,
California then in effect plus two percent (2%) or the maximum rate allowed by
law, and such interest shall begin to accrue as of the first day when said payment
was initially due.  Callaway Golf’s
acceptance of any payment hereunder shall not affect its right to challenge the
amount of such payment.

 

2.5           Tax Withholding.  If Licensee is required by applicable law or
treaty (including without limitation the United States-Japan Double Taxation
Convention) to withhold income taxes from the payments to be made to Callaway
Golf hereunder, it must do so at the lowest rate allowed by such law or
treaty.  If any such amounts are required
to be withheld, Licensee shall promptly effect timely payment thereof to the
appropriate governmental authority and shall promptly transmit to Callaway Golf
official tax receipts or other official evidence of payment issued by such
governmental authority, along with such other information as Callaway Golf
shall reasonably request.

 

2.6           Books and Record and Audit Right.  Licensee agrees to keep (and, if applicable,
shall use commercially reasonable efforts to cause its authorized
subcontractors to keep), maintain and preserve, for the term of this Agreement
and for a period of three (3) years thereafter, complete and accurate
books of account and records memorializing all transactions relating to this
Agreement, including, without limitation, invoices, correspondence, inventory,
accounting, banking and financial records (collectively, “Records”).  Such Records shall, if applicable, be
maintained in accordance with accounting principles generally accepted in the
United States of America.  Callaway Golf
and its duly authorized representatives shall have the right, after the giving
of at least five (5) days advance written notice and at all reasonable
hours of the business day, to examine and audit all Licensed Products Records
and all other relevant documents and materials in Licensee’s possession or
control (or, if applicable, in Licensee’s authorized subcontractors’ control)
relating directly or indirectly to its performance under this Agreement, in
order to determine its compliance with all of the provisions of this
Agreement.  In the event the audit
discloses an underpayment to Callaway Golf, Licensee (or, if applicable,
Licensee’s authorized subcontractors) will forthwith pay Callaway Golf the
difference with interest thereon at the rate set forth in Section 2.4 for
late payments and such interest shall begin to accrue as of the first day when
said underpayment was originally due. 
Callaway Golf shall pay the fees and costs of any such audit, provided,
however, that in the event the audit discloses an underpayment greater than two
percent (2%) of the amount of royalty due Callaway Golf for any royalty payment
period, the fees and costs of the audit shall be paid by Licensee.  In the event the audit discloses an
overpayment by Licensee to Callaway Golf, Callaway Golf, at Licensee’s option,
shall refund the overpayment or apply it to the 

 

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5

 

next
period’s royalty payment, in either case with interest at the rate set forth in
Section 2.4 for late payments, beginning at the date the payment was
initially received.

 

2.7           Financial Statements.  Within ninety (90) days after the end of each
of Licensee’s fiscal years while this Agreement is in effect, and upon the
request of Callaway Golf, Licensee shall deliver to Callaway Golf a copy of its
financial statements (including a balance sheet, income statement, and such
other statements as are reasonably requested by Callaway Golf) prepared in
accordance with accounting principles generally accepted in United States of
America and audited by a reputable auditing firm. Further, Licensee shall
notify Callaway Golf in writing of any adverse material change in Licensee’s
financial condition that will likely affect its performance under this
Agreement at the time such material change occurs or when Licensee learns of
the possibility of such a change, whichever is sooner.  Callaway Golf agrees to treat such financial
statements as the Proprietary Information of Licensee (as such term is defined
in Article 10 hereof) and shall not disclose such information except as
permitted in Article 10 of this Agreement. The foregoing delivery and
notification requirements in this Section 2.7 shall be deemed satisfied by
Licensee’s timely filing with the Securities and Exchange Commission (“SEC”) of
its Forms 10-Q, 10-K, 8-K or amendments thereof on the SEC’s EDGAR filing
system and providing Callaway Golf with copies thereof as and when so requested
by Callaway Golf.

 

2.8           Notice of Change in Control.  Licensee shall provide Callaway Golf with at
least forty-five (45) days notice (“Change Notice”) prior to consummation of a
transaction or completion of an event that would constitute a Change of Control
of Licensee.  For purposes of this
Agreement, “Change of Control” means: (a) when a person or entity
acquires, after the Effective Date, directly or indirectly, beneficial
ownership of (i) thirty percent (30%) or more of the then outstanding
voting stock of Licensee; or (ii) securities exchangeable or convertible
into voting stock of Licensee equal to or greater than thirty percent (30%) of
the outstanding voting stock of Licensee based upon the number of shares of
voting stock outstanding as of the date of issuance of the exchangeable or
convertible securities; (b) when a reorganization, merger, or
consolidation of Licensee with any other person or entity results in a change
of thirty percent (30%) or more of the direct or indirect beneficial ownership
of the then outstanding voting stock of Licensee; (c) upon the sale or
other disposition by Licensee of all or substantially all of Licensee’s assets;
or (d) when individuals who, as of the Effective Date constitute the board
of directors of Licensee cease for any reason to constitute at least a majority
of the board of directors of Licensee. 
Notwithstanding the foregoing, Callaway Golf acknowledges that Licensee’s
securities are publicly traded, and agrees that Licensee shall be deemed to
have given Callaway Golf timely Change Notice under this Section 2.8 if
Licensee does so within four (4) business days following the earlier of (y) Licensee’s
knowledge that a Change of Control is likely within forty-five (45) days, or (z) the
filing by any person or entity with the SEC on the EDGAR filing system of
consummation of a transaction or completion of an event (or intent to
consummate a transaction or complete an event) that would constitute a Change
of Control of Licensee.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

6

 

Article 3.               Product
Development and Quality Control

 

3.1           Licensee Acknowledgement.  Licensee acknowledges that Callaway Golf has
made a substantial investment in developing golf products with high quality and
design and in developing and fostering an image and reputation of high quality,
design, prestige and integrity under the Licensed Trademarks, and that the
consuming public and industry now associate the Licensed Trademarks with
products of consistently high quality and design.  It is intended by the parties that the
Licensed Products will be a high quality line of goods consistent with the
existing reputation of Callaway Golf. 
Licensee further acknowledges that the terms and conditions of this
Agreement are reasonable and necessary to assure that all Licensed Products
sold under this Agreement consistently conform to high quality and design
standards.

 

3.2           Design Standards.  Licensee shall be responsible for the design
and sourcing of the Licensed Products. 
Standards developed by Licensee for the Licensed Products shall be of
the highest level and subject to review and approval by Callaway Golf in its
discretion.  If Licensee elects to
perform design and sourcing functions in-house, Licensee shall set up a design
space for Callaway Golf separate and apart from the design space for other
Licensee products.  If Licensee elects to
use third-parties for design and sourcing, such third-parties must enter into a
Subcontractor Agreement as set forth in Article 9 unless such requirement
is waived by Callaway Golf in writing, in each instance.  Licensee shall from time to time solicit logo
requirements and concepts from Callaway Golf. 
Callaway Golf shall collaborate with Licensee, at Licensee’s reasonable
request, with regard to fabric, color, model and style of the Licensed
Products.  Licensee shall keep Callaway
Golf reasonably informed of its design activities.

 

3.3           Design Meetings.  Callaway Golf and Licensee shall, if
requested by Callaway Golf, for each season, have the following formal seasonal
product development meetings: 1) Concept Meeting; 2) Design Review Meeting; and
3) Final Adoption Meeting.  Licensee
shall also collaborate with Callaway Golf by inviting Callaway Golf to
participate in other meetings as appropriate and/or as reasonably requested by
Callaway Golf from time to time.  During each
Concept Meeting the parties shall discuss and share line direction and concepts
for Licensed Products and take such other actions as are reasonably requested
by Callaway Golf.  During each Design
Review Meeting the parties shall discuss, share and review line art, pricing,
rough samples and marketing plans and take such other actions as are reasonably
requested by Callaway Golf.  Subject to
the procedures set forth in Section 3.8, during each Final Adoption
Meeting Licensee shall present for written approval by Callaway Golf the final
samples, final line plan and final marketing plan for the Licensed Products and
Licensee shall take such other actions as are reasonably requested by Callaway
Golf.  Approvals by Callaway Golf shall
be in Callaway Golf’s sole discretion.

 

3.4           Use of Licensed Trademarks.  Each Licensed Product must use one or more of
the Licensed Trademarks.  Except for the
Licensed Trademarks, the Licensed Products may not contain or otherwise use any
trademarks, service marks, trade names 

 

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7

 

or
trade dress of Licensee or any other person or entity without the prior written
consent of Callaway Golf.  Any other mark
proposed for use with the Licensed Products must be submitted to Callaway Golf
for its prior review and written approval in its sole discretion.   The placement and location of the Licensed
Trademarks on the Licensed Products shall be as specified in Exhibit B of
this Agreement, which may be amended from time to time upon the mutual
agreement of the parties.

 

3.5           Security Guidelines.  As a material term of this Agreement,
Licensee agrees that it shall maintain at its various facilities, and shall
similarly require that its subcontractors (if applicable) also maintain, (a) adequate
security systems and systems for accounting to protect against theft and/or
loss of any Callaway Golf tangible or intangible property (including any
specifications related thereto) and the Licensed Trademarks (collectively, “Callaway
Golf Property”), and (b) adequate security systems and systems for
accounting for the Licensed Products, and to protect against theft and/or loss
of the Licensed Products.  Licensee
agrees to promptly implement, at its expense, any adjustments and/or changes to
such systems as required by Callaway Golf (“Security Requirements”).  During the term of this Agreement and any
extended term hereof, Licensee shall also take all necessary measures to
prevent theft or loss from Licensee’s facilities of all Licensed Products being
manufactured for Callaway Golf (including all component parts thereof), and
Callaway Golf Property.  Licensee will
also take all necessary measures to prevent the unauthorized production of
Licensed Products and Callaway Golf Property in Licensee’s facilities (“overruns”)
and the entry of such overruns into the marketplace.  Licensee also agrees to assist Callaway Golf
in its efforts to prevent counterfeiting of the Licensed Products and Callaway
Golf Property by immediately reporting to Callaway Golf any information it
obtains concerning the counterfeiting of such Licensed Products and Callaway
Golf Property, and by cooperating fully in Callaway Golf’s investigations of
the counterfeiting of the Licensed Products and/or Callaway Golf Property.  Licensee’s failure to implement and to adhere
to the provisions of this Section shall be grounds for termination of this
Agreement pursuant to Section 8.2(a)(vi) of this Agreement.

 

3.6           Security Audit.  At Callaway Golf’s request, at any time upon
reasonable notice to Licensee, Licensee will allow (and/or require its
authorized subcontractors to allow, if applicable), Callaway Golf to inspect
and audit Licensee’s (and/or its authorized subcontractors, if applicable)
premises, security systems and/or systems for accounting for Licensed Products
and Callaway Golf Property and provide written documentation of the systems and
their operation to ensure compliance with the Security Requirements.  In the event that Callaway Golf finds it
necessary to investigate theft or loss of its 
products or other Callaway Golf property from Licensee, or establish
that overruns produced by Licensee are available in the marketplace, Callaway
Golf will be entitled to recover from Licensee (e.g. by price reduction,
credit, offset, invoice, or otherwise) all their investigative costs, as well
as all legal fees required to oversee said investigations, to include attorney
fees associated with any civil or criminal litigation that might result.  Licensee also agrees that, for each component
recovered by Callaway Golf or law enforcement authorities that can be
established as either having been stolen from Licensee, or manufactured on
Licensee’s premises as “overrun” product, Callaway Golf 

 

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8

 

will
be entitled to reimbursement by Licensee at a rate of two (2) times the
average wholesale purchase price paid to Licensee by Licensee’s customers in
the preceding six (6) month period for the component in question.

 

3.7           Manufacturing Processes Audit.  During the term of this Agreement, Callaway
Golf and their duly authorized representatives will have the right during
reasonable business hours upon advance written notice to Licensee to inspect
and audit the manufacturing processes of Licensee (including, if applicable,
the manufacturing processes of Licensee’s subcontractors at both the secondary
and tertiary tier level) to ensure that the manufacture of the Licensed
Products is in compliance with the terms of this Agreement.

 

3.8           Product Approval.

 

(a)           In the development of the Licensed
Products, and prior to Licensee sourcing, marketing, manufacturing or
distributing any Licensed Product, Licensee shall submit to Callaway Golf for
Callaway Golf’s prior written approval and consent, which approval and consent
shall not be unreasonably withheld, the line art, fabric swatches, labels,
hangtags, and sourcing plan for each proposed Licensed Product, including
component, logo and color direction (a “Design Submission”).  Each Design Submission submitted shall show
how the Licensed Trademark will be applied and how it will look.  Each such Design Submission shall include a
written transmittal conspicuously including the statement “FAILURE TO EXPRESSLY
DISAPPROVE OF THE ENCLOSED DESIGN SUBMISSION WITHIN FIFTEEN (15) DAYS SHALL
RESULT IN A DEEMED APPROVAL OF THIS DESIGN SUBMISSION.”  Callaway Golf shall have fifteen (15)
calendar days following its receipt of a new Design Submission within which to
approve or disapprove in its sole and absolute discretion such Design
Submission, including without limitation the form and appearance of the
Licensed Trademarks on the proposed Licensed Product.  If Licensee does not receive written approval
from Callaway Golf within such fifteen-day period, such Design Submission shall
be deemed to be approved, provided a representative of the Callaway Golf
Licensing Department has acknowledged in writing (including e-mail) the receipt
of such Design Submission.

 

(b)           If a Design Submission is approved,
then prior to sourcing, marketing, manufacturing or distributing the Licensed
Product, Licensee shall submit to Callaway Golf for Callaway Golf’s prior
written approval and consent, which approval and consent shall not be unreasonably
withheld, a production sample of each Licensed Product which must conform to
the Design Submission approved by Callaway Golf (an “Exhibition Display Sample”).  Each Exhibition Display Sample submitted must
include the applicable Licensed Trademark. 
Each such Exhibition Display Sample shall include a written transmittal
conspicuously including the statement “FAILURE TO EXPRESSLY DISAPPROVE OF THE
ENCLOSED EXHIBITION DISPLAY SAMPLE WITHIN TEN (10) DAYS SHALL RESULT IN A
DEEMED APPROVAL OF THIS EXHIBITION DISPLAY SAMPLE.”  Callaway Golf shall have ten (10) calendar
days following its receipt of a new Exhibition Display Sample within which to
approve or disapprove in its sole and absolute discretion such Exhibition
Display Sample, including without limitation 

 

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9

 

the
form and appearance of the Licensed Trademarks. 
If Licensee does not receive written approval from Callaway Golf within
such ten-day period, such Exhibition Display Sample shall be deemed to be
approved.

 

3.9           Manufacturing Standards.  Licensee represents and warrants that the
Licensed Products shall conform in all material respects to the specifications,
data, samples and/or other information furnished to Callaway Golf and, without
limiting the foregoing, that the Licensed Products shall be merchantable, of
good material and workmanship, and free from any material defects. Licensee
shall not sell any Licensed Product bearing a Licensed Trademark that materially
differs from the sample previously approved by Callaway Golf without obtaining
Callaway Golf’s prior written approval. 
Licensee further warrants and represents that it will under all
circumstances, and will use commercially reasonable efforts to cause its
suppliers or subcontractors to: (i) comply with all applicable laws,
including labor and employment laws and industry standards in the countries
where Licensee does business, including, but not limited to, compliance with
all laws and industry standards regarding minimum wage, overtime, workplace
safety, maximum hours and benefits, and will use fair employment practices as
defined by such applicable laws and industry standards; (ii) provide at
least one (1) day off in every seven (7) day period, except as
required from time to time to meet urgent business needs; (iii) not hire
any employee under the age of fourteen, under the age interfering with
compulsory schooling, or under the minimum age established by law, whichever is
greater; (iv) provide employees with a safe, healthy and humane workplace,
free of harassment; (v) provide safe and healthy housing, when residential
housing is provided to employees; (vi) employ persons whose presence is
voluntary and not use prison labor or forced labor (indentured, bonded or
otherwise), or corporal punishment or other forms of mental or physical
coercion as a form of discipline of employees; (vii) recognize and respect
the right of employees to exercise their lawful rights of collective bargaining
and free association, including whether or not to join a given association; (viii) not
discriminate in hiring, paying, promoting, or terminating employees on grounds
of race, religion, national origin, political affiliation, sexual preference,
disability or gender, and instead hire, pay, promote, and terminate employees
on the basis of their ability to do the job; (ix) comply with all
applicable environmental laws, rules, regulations, and standards applicable to
Licensee’s operations, and observe environmentally conscious practices in all
locations where it operates; (x) cooperate with local, national and
foreign customs authorities and drug enforcement agencies to guard against
illegal shipments of drugs; and (xi) comply with customs laws and in
particular, establish and maintain programs regarding illegal transshipment of
the Licensed Products.  During the term
of this Agreement, Callaway Golf and their respective duly authorized
representatives will have the right during reasonable business hours upon
advance written notice to  inspect and
audit Licensee’s compliance with this provision.

 

3.10         Quality Inspections.  Callaway Golf shall have the right at any
time, upon five (5) days advance notice in the case of Licensee, and upon
whatever terms are set forth in any Callaway Golf approved Subcontractor
Agreement (hereafter defined) in the case of Licensee’s suppliers or
subcontractors, or upon reasonable advance notice, not 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

10

 

to
exceed thirty (30) days, in the event the requirement of a Subcontractor
Agreement has been waived by Callaway Golf in writing for a particular supplier
or subcontractor, to conduct during regular business hours an examination, at
Licensee’s facilities or the facilities of Licensee’s suppliers or
subcontractors, of the Licensed Products and the records and facilities at or
from which the same are designed, manufactured, stored or distributed to
determine whether the Licensed Products conform in all material respects to the
Licensed Products approved by Callaway Golf and to confirm Licensee’s,
compliance with the terms of this Agreement and its suppliers’ and
subcontractors’ compliance with the terms of any written Subcontractor
Agreement.

 

3.11         Non-Conforming Products.  If at any time during the term of this
Agreement the Licensed Products fail to conform in any material respect to the
standards of quality in materials, design, workmanship, use, advertising, and
promotion approved by Callaway Golf, then Callaway Golf or its authorized
representative shall so notify Licensee in writing, specifying the nature of
the quality problems.  Upon such
notification Licensee shall promptly cease to use the Licensed Trademarks on such
nonconforming Licensed Products and shall not sell such nonconforming products
until the standards of quality have been met to the reasonable satisfaction of
Callaway Golf.

 

Unless
otherwise directed in writing by Callaway Golf, Licensee shall destroy all
Licensed Products which are not to be delivered in the normal course of
business for any reason, including, without limitation, manufacturing overruns,
and rejected products or components, as well as any Licensed Products that are
returned to Licensee for any reason and are not to be re-worked and redelivered
in the normal course of business.  The
destruction shall be by cutting and shredding so that parts are unrecognizable
as Licensed Products or product components.

 

3.12         Intellectual Property Infringement
Warranty.  Other than intellectual
property rights with respect to the Licensed Trademarks, Licensee represents
and warrants that no intellectual property rights (including without limitation
patents, trade secrets, trade dress, trademarks and copyrights) or other rights
of any third-party are infringed by the design, manufacture, shipment,
importation, sale or use of any Licensed Product.  Except as expressly permitted by the
provisions of Section 4.2 below, Licensee further represents and warrants
that it does not design, prototype, manufacture or sell any products for itself
or any other person which are competitive with or confusingly similar to the
Licensed Products or any enhancements or improvements thereto, or any products
which infringe on any patents, trade secrets, trademarks, trade names or trade
dress rights of Callaway Golf or its subsidiaries.

 

3.13         Product Clearance.  Licensee shall be responsible, at its sole
cost and expense, for intellectual property clearance of each Licensed Product
(excluding the Licensed Trademarks) to confirm non-infringement of third-party
intellectual property rights.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

11

 

Article 4.               Merchandising
and Distribution

 

4.1           Commercially Reasonable Efforts.  Beginning on the Effective Date and
continuing for the remainder of the term of this Agreement, Licensee shall
exercise its best efforts to market, promote and sell the Licensed Products in
the Territory within the Authorized Distribution Channels in accordance with
the terms of this Agreement. Except as otherwise expressly provided herein,
Licensee shall not sell or distribute the Licensed Products or use the Licensed
Trademarks for purposes of advertising, marketing or promotion outside the
Territory.  Callaway Golf acknowledges
and agrees that Licensee may source the Licensed Products outside of the
Territory for sale within the Territory.

 

4.2           Sole Brand.  The Licensed Products bearing the Licensed
Trademarks shall be Licensee’s sole brand for golf and golf lifestyle inspired
products including without limitation the types of goods set forth on Exhibit C
(collectively, “Golf-Related Products”) designed, sourced, manufactured,
advertised, promoted, distributed or sold by Licensee in the Territory.  During the term of this Agreement, Licensee
shall not, directly or indirectly, through itself or third parties, design,
source, manufacture, advertise, promote, distribute or sell any product
bearing, or associated with, the trademark, logo or service mark of a company
(other than Callaway Golf) which produces or sells any golf products or
Golf-Related Products anywhere in the Territory.  In no event may Licensee sell the Licensed Products
as “loss leaders,” or otherwise use the Licensed Products, to promote the sale
of Licensee or other third-party products. 
Notwithstanding the foregoing, Callaway Golf will not unreasonably
withhold its approval or consent to Licensee’s distribution or sale of men’s
apparel under the Sport Haley brand utilizing only the Sport Haley trademark
and such other model or style names that are not in any way confusingly similar
to the Licensed Trademarks or other trademarks used by Callaway Golf, but only
if Callaway Golf, in its reasonable judgment, determines that such men’s
apparel under the Sport Haley brand will not materially compete with the
Licensed Products nor materially impair Licensee’s ability to perform its
duties and obligations under this Agreement including, without limitation, its
ability to achieve sales levels for the Licensed Products necessary to produce
royalties exceeding one hundred percent (100%) of the Minimum Annual Royalties
in any one (1) year.

 

4.3           Personnel.  Licensee shall use its best efforts to employ
by the Effective Date and maintain during the term of this Agreement, the
following personnel: (i) General Manager, (ii) Director of Design and
(iii) Director of Sales.  All such
personnel must be full-time employees of Licensee and be qualified for such
positions with a level of background and experience in the industry
commensurate with such positions and must devote their full working time and
efforts to the Licensed Products pursuant to this Agreement.

 

4.4           Closeouts.

 

(a)           Licensee shall not sell any Licensed
Products as closeouts until the season for which the Licensed Products were
intended has ended without the express written consent of Callaway Golf.  The parties acknowledge that each season
lasts 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

12

 

approximately
six (6) months from the date a Licensed Product is first shipped into any
of the Authorized Distribution Channels.

 

(b)           Any excess inventory of Licensed
Products existing after the close of the season for which the Licensed Products
were intended has ended may only be sold through the Authorized Distribution
Channels unless approved by Callaway Golf in advance in its sole discretion.

 

(c)           Callaway Golf and Licensee agree that
Licensee shall pay a reduced royalty rate on Closeout sales.  For purposes of this Agreement “Closeout”
shall mean a markdown of at least [***] off net wholesale.  With respect to Closeout sales, Licensee
shall pay Callaway Golf royalties equal to [***] of Closeout Net Sales for up
to a maximum of [***] of the total Net Sales for all of the Territories
combined.  Licensee shall include in the
reports that it provides to Callaway Golf pursuant to Section 2.3 of this
Agreement an additional line item disclosing the total amount of Closeout Net
Sales for each of the Territories.

 

4.5           Customer Service.  Licensee shall establish on or before the
Effective Date a toll-free number for Licensed Products sales and customer
service.  Licensee shall provide the same
high level of customer service with respect to the Licensed Products that
Callaway Golf provides to its customers.

 

4.6           Callaway Golf Endorsers.  Licensee may use Callaway Golf professional
athletes and celebrities as approved in advance in writing by Callaway Golf for
print ads, points of purchase and other in-store signage only pursuant to the
terms of a separate, signed written agreement by Callaway Golf, Licensee and
the Callaway Golf athlete or celebrity Licensee wishes to use.  Nothing contained herein shall make it
mandatory for Callaway Golf or an athlete or celebrity to execute such an
agreement, nor shall any such agreement result in any monetary cost to Callaway
Golf.  Upon request of Callaway Golf,
Licensee shall participate in professional endorsement opportunities, unless
such participation would result in Licensee expenditures exceeding the Minimum
Advertising Expenditures (defined in Section 4.7(a)).

 

4.7           Minimum Advertising Expenditures.

 

(a)           Licensee shall spend, at a minimum,
the amounts set forth in Exhibit G (“Minimum Advertising Expenditures”)
for the annual selling periods indicated therein on the advertising and
promotion of the Licensed Products.  Such
expenditures are limited to those directly related to advertising and promotion
of the Licensed Products and do not include sales representatives’ travel
expenses, training or other business-related expenses.  Approved advertising expenditures include
amounts paid to a third party associated with any of the following: (i) print,
television, radio, Internet and other media advertisements; (ii) advertising
agency fees and co-op fees specific to the Callaway Golf brand; (iii) advertising
translation expenses; (iv) photography and video expenses; (v) and
such other items as may be approved by Callaway Golf in writing.  Approved promotional expenditures include
amounts paid to a third party associated with any of the following: (i) catalogs,
brochures, literature, films and tapes; (ii) display 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

13

 

stands
and accessories; (iii) customer incentives; (iv) promotion, press and
public relations; (v) endorsements and expenses directly related to
participation in professional endorsement opportunities requested by Callaway
Golf; (vi) trade shows, exhibitions and sales meetings; and (vii) other
expenses directly related to marketing the Licensed Products or approved by
Callaway Golf in writing.  No amount of
Licensee’s general or administrative charges or overhead shall be included as
part of the required advertising expenditures. 
Advertising and promotional expenditures paid to Licensee affiliates
shall not count toward the Minimum Advertising Expenditures unless approved in
writing by Callaway Golf in advance.  “Affiliate”
as used herein shall mean any entity which controls, is controlled by or is
under common control with Licensee.

 

(b)           Within thirty (30) days of the end of
each annual selling period set forth on Exhibit G during the term of this
Agreement, Licensee shall send Callaway Golf a report itemizing the advertising
expenses incurred as required in this Section. 
Failure of Licensee to make the required advertising expenditures shall
constitute a material breach of this Agreement allowing Callaway Golf to
terminate this Agreement pursuant to Section 8.2(a)(vi).

 

(c)           For purposes of meeting its
obligations under Section 4.7(a) and (b), Licensee shall have the
right to pay some or all of the Minimum Advertising Expenditures directly to
Callaway Golf for use by Callaway Golf to use in its discretion to promote the
Licensed Products alone or in combination with other Callaway Golf products.

 

(d)           To the extent Net Sales are not
calculated until after a particular calendar year has closed and/or Net Sales
exceed Licensee’s target Net Sales for a given year, any additional required
expenditures shall be added to Licensee’s required advertising and promotional
expenditures for the following calendar year and shall be incurred within the
first 150 days of that calendar year.

 

4.8           NOT USED

 

4.9           Business Review.

 

(a)           Licensee shall prepare and present to
Callaway Golf not less than twice per year a business review, which describes
in reasonable detail sales performance and advertising, promotional, staffing
and product development activities undertaken by Licensee during the prior six (6) months,
together with Licensee’s sales forecasts and advertising, promotional, staffing
and product development plans for the ensuing six (6) months.  Unless otherwise agreed by Callaway Golf and
Licensee, the business reviews will occur on or about April 30 and October 31
of each year.

 

(b)           In addition to the obligations
contained in subsection (a) of this Section, Licensee’s chief executive
officer (or a designee that is reasonably acceptable to Callaway Golf) shall
meet at least quarterly with Callaway Golf personnel to discuss products, sales
performance and other merchandising issues relating to the Licensed 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

14

 

Products.  In preparation for and in connection with
such meetings, Licensee shall provide detailed sales reports for each store or
similar entity and other information as may be requested by Callaway Golf from
time to time.  Each party shall bear its
own expenses in connection with such meetings.

 

4.10         Internet Site.  If requested by Callaway Golf, Licensee shall
establish and maintain at Licensee’s own cost and expense an Internet site
featuring Licensed Products.  The
contents of the Internet site must be approved by Callaway Golf in writing in
advance.  If requested by Callaway Golf,
such Licensee Internet site shall contain a link to Callaway Golf’s Internet
sites.  Licensee hereby consents to
Callaway Golf providing a link on its Internet sites directly to the Licensee
Internet site for Licensed Products.

 

Article 5.               Ancillary
Use of Licensed Trademarks by Licensee

 

5.1           Marketing Materials.  Licensee is authorized to use the Licensed
Trademarks in the Territory in marketing material related to the Licensed
Products including the use of the Licensed Trademarks in publicity,
advertising, signs, product brochures, and other forms of advertising
(collectively, “Marketing Materials”), subject to the terms and conditions of
this Agreement and Callaway Golf’s then current guidelines for the use of
Callaway Golf’s trademarks (the “Guidelines”) and the then current sales
policies or other instructions regarding merchandising requirements for
Callaway Golf customers with respect to products bearing the Licensed
Trademarks (the “Sales Policies”). 
Licensee shall comply in all material respects with all the Guidelines
and Sales Policies that are in effect and shall not, without the prior written
consent of Callaway Golf, sell the Licensed Products to any Authorized
Distribution Channel that does not fully comply with the Guidelines and Sales
Policies.  Licensee shall promptly notify
Callaway Golf of any Authorized Distribution Channel not complying with the
Guidelines and Sales Policies that are in effect after Licensee becomes aware
of such non-compliance.

 

5.2           Prior Review of Materials.  Marketing Materials of Licensee and any
Authorized Distribution Channel that (i) use the Licensed Trademarks or
refer to Callaway Golf and (ii) are prepared by or at the request of
Licensee, an Authorized Distribution Channel or their support personnel, shall
be subject to Callaway Golf’s prepublication review and written approval, which
approval shall not be unreasonably withheld, with respect to, but not limited
to, content, style, appearance, composition, timing and media.  At least two (2) copies of all such
Marketing Materials shall be provided to Callaway Golf at least fifteen (15)
calendar days prior to placing the material for publication or use.  Each such marketing sample shall include a
written transmittal conspicuously including the statement “FAILURE TO EXPRESSLY
DISAPPROVE OF THE ENCLOSED MARKETING MATERIAL WITHIN FIFTEEN (15) DAYS SHALL
RESULT IN A DEEMED APPROVAL OF THIS MARKETING MATERIAL.”  If approval or disapproval is not received
within such period, such materials shall be deemed approved, provided a
representative of the Callaway Golf Licensing Department has acknowledged in
writing (including e-mail) the receipt of such Marketing Materials.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

15

 

5.3           Dissemination of Materials.  Upon request of Callaway Golf, Licensee will
disseminate, from time to time, to all Authorized Distribution Channels who
prepare or commission the preparation of Marketing Materials, Callaway Golf’s
Guidelines which are then in effect under this Agreement.  Licensee shall also require its own personnel
and all Authorized Distribution Channels to follow such Guidelines.  Licensee shall use its best efforts to cause
personnel in each Authorized Distribution Channel to furnish to Callaway Golf
copies of all Marketing Materials which use the Licensed Trademarks or refer to
Callaway Golf.

 

5.4           Callaway Golf Endorsers.  Licensee may use Callaway Golf professional
athletes and celebrities (“Callaway Golf Endorser(s)”) only for print
advertising and point of purchase materials as approved in advance by Callaway
Golf, as evidenced by the execution of a separate written agreement between
Callaway Golf, Licensee, and the Callaway Golf Endorser(s) Licensee wishes
to use.  This provision shall not be
construed as mandating Callaway Golf and/or the Callaway Golf Endorser(s) to
execute such an agreement, nor shall any such agreement result in any monetary
cost to Callaway Golf.

 

Article 6.               Protection
of Licensed Trademarks

 

6.1           Ownership Rights.  Licensee acknowledges and agrees that
Callaway Golf is the owner of the Licensed Trademarks and Licensee shall not
during the term of this Agreement or thereafter, directly or indirectly,
through itself or third parties contest or challenge Callaway Golf’s rights in
the Licensed Trademarks.  Licensee shall
not at any time use the Licensed Trademarks in any manner in derogation of
Callaway Golf’s rights therein or claim any rights in the Licensed Trademarks
adverse to Callaway Golf.  Licensee also
agrees that any and all rights that may be acquired by the use of the Licensed
Trademarks by Licensee, including but not limited to any goodwill associated
with the use of the Licensed Trademarks, shall inure to the sole benefit of
Callaway Golf.  Licensee agrees to
execute all papers reasonably requested by Callaway Golf to effect further
registration of, maintenance and renewal of the Licensed Trademarks and, if
requested by Callaway Golf and at Callaway Golf’s expense, to record Licensee
as a registered user of the Licensed Trademarks.  Except for the Approved Uses, as defined
below, and as otherwise agreed by Callaway Golf in writing, Licensee shall not
use the Licensed Trademarks or any part thereof as a corporate name, domain
name, e-mail address, trade name, service mark, fictitious business name or
d.b.a., nor directly or indirectly use any name or mark, resembling,
confusingly similar, deceptive or misleading with respect to the Licensed
Trademarks.  For purposes of this
Agreement, Callaway Golf acknowledges and agrees that it has approved the
following uses by Licensee of the Licensed Trademarks: the trade name “Ben
Hogan Apparel Group,” the domain names “Behogan.com,” “Benhoganapparel.com,” “Bhogan.com”
for web site addresses and email addresses (together, constituting the “Approved
Uses”).  Upon the expiration or sooner
termination of this Agreement, Licensee shall cease any further use of such
Approved Uses and will execute and deliver to Callaway Golf such documents and
instruments as are requested by Callaway Golf to assign any or all of such 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

16

 

Approved
Uses to Callaway Golf.  Licensee further
acknowledges that it has no ownership interest in any of the logos, designs and
marks which constitute or are part of the Licensed Trademarks.  Licensee hereby quitclaims to Callaway Golf
any right, title or interest it has or may acquire through operation of law or
otherwise with respect to the Licensed Trademarks, any and all logos, designs
and marks in which the Licensed Trademarks may appear and all goodwill
associated therewith.  During the Term
(as defined below) of this Agreement, and at all times thereafter, Licensee
shall not use any name, logo or design identified with, identical to,
confusingly similar to, deceptive or misleading with respect to, or which makes
reference to, in any manner whatsoever, the Licensed Trademarks or any one of
them, except to the extent permitted by this Agreement or specifically approved
by Callaway Golf in writing in its sole and absolute discretion.  This section shall survive the expiration or
termination of this Agreement for any reason.

 

6.2           No Registration.  Licensee further agrees not to directly or
indirectly, through itself or third parties, register the Licensed Trademarks
in any country, or register any name or mark resembling, confusingly similar
to, deceptive or misleading with respect to the Licensed Trademarks.  If any application for registration is or has
been filed in any country by Licensee that relates to any name or mark which
resembles, is confusingly similar to, deceptive or misleading with respect to
the Licensed Trademarks, Licensee shall immediately abandon any such
application or registration or, at Callaway Golf’s sole and absolute
discretion, assign it to Callaway Golf. 
Licensee shall reimburse Callaway Golf for all reasonable costs and
expense of any opposition, cancellation or related legal proceedings, including
reasonable attorneys’ fees, incurred by Callaway Golf or its authorized
representative, in connection with any such registration or application by
Licensee.  This section shall survive the
expiration or termination of this Agreement for any reason.

 

6.3           Prosecution and Maintenance of
Licensed Trademarks.  Callaway Golf
is solely responsible for all trademark prosecution and maintenance decisions,
efforts and fees, including but not limited to conferring with relevant
domestic and foreign counsel, communicating with relevant domestic and foreign
trademark offices, filing new applications, affidavits, extensions and other
necessary or appropriate documents, submitting application fees, extension
fees, renewal fees, attorneys’ fees and other necessary disbursements.  All prosecution and maintenance of Licensed
Trademarks shall be in Callaway Golf’s sole discretion and expense.

 

6.4           Infringement of Licensed
Trademarks.  In the event that
Licensee learns of any infringement or threatened infringement of the Licensed
Trademarks, Licensee shall promptly notify Callaway Golf or its authorized
representative in writing giving particulars thereof and Licensee shall provide
available information (and any information not readily available which may be
compiled without unreasonable burden or expense) and assistance to Callaway
Golf or its authorized representative in the event that Callaway Golf
determines that proceedings should be commenced.  Any such proceedings (including out-of-pocket
disbursements of Licensee) shall be at the expense of Callaway Golf, and any
recoveries shall belong to Callaway Golf. 
Except for Callaway Golf’s 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

17

 

indemnification
obligations pursuant to Article 7 of this Agreement, nothing in this
Agreement or otherwise shall be deemed to require Callaway Golf (or to permit
Licensee) to enforce or defend the Licensed Trademarks against others.

 

6.5           Compliance with Law.  In the performance of this Agreement,
Licensee shall comply with all applicable laws and regulations, including those
laws and regulations particularly pertaining to the proper use and designation
of the Licensed Trademarks in the Territory. 
Should Licensee be or become aware of any applicable laws or regulations
that are inconsistent with the provisions of this Agreement, Licensee shall
promptly notify Callaway Golf in writing of such inconsistency.  Callaway Golf may, at its option, waive the
performance of such inconsistent provisions or make such modifications to this
Agreement as may be required to comply with any applicable laws or regulations.

 

6.6           Media.  Other than to authorized subcontractors,
Licensee shall not transfer any Licensed Trademarks by way of any medium to any
other party.  For purposes of this
Agreement, “medium” shall include (but not be limited to): (i) images
printed or otherwise applied to paper (such as typed, printed, written, or
faxed images); (ii) images recorded in digital form (including, but not
limited to, files created by word processor, paintbrush and/or graphics
software) and stored in removable media (including, but not limited to, compact
disc (“CD”), zip disk, memory card/stick/flash media, floppy disk), fixed media
(including, but not limited to, computer hard disk), or sent via electronic
mail (including attachments thereto) or otherwise downloaded via the internet,
and/or modem (e.g., telephone, cable modem, etc.); and (iii) line art.

 

Licensee shall treat the
media upon which the Licensed Trademarks are delivered to and/or stored by
Licensee with the utmost level of care and security.  Licensee shall store all such media in a
secure location.  For purposes of this
Agreement, a “secure location” shall include, but not be limited to:  (i) for items in tangible format, such
as on paper or floppy disk, a locked room or file cabinet accessible only to a
limited number of Licensee’s employees on a strict “need to know” basis; and (ii) for
items stored in electronic format, such as on hard disk or other
electronically-recorded files, a personal computer in a locked room or other
secure area accessible only to a limited number of Licensee’s employees on a
strict “need to know” basis, who could access the information only after
inputting the appropriate password to unlock the file in question.

 

Callaway
Golf may, at any time, in its discretion, request the destruction of any and
all media in Licensee’s possession which bears or otherwise contains the
Licensed Trademarks.  If so requested,
Licensee shall provide Callaway Golf with a certificate signed by an officer of
Licensee confirming such destruction.

 

Article 7.               Indemnification
and Insurance

 

7.1           Callaway Golf’s Obligations.  Callaway Golf shall defend, indemnify and
hold Licensee and Licensee’s authorized subcontractors and customers harmless
from and against any and all claims, suits, liabilities, damages, losses and
expenses, 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

18

 

including
reasonable attorneys’ fees (collectively “Losses”), incurred by Licensee and/or
Licensee’s authorized subcontractors and customers by reason of or arising out
of any alleged infringements of any rights of third parties in the Territory
resulting from the use of any of the Licensed Trademarks in the Territory.  The foregoing indemnity shall not apply to
jurisdictions for which Callaway Golf has given Licensee notice that Callaway
Golf believes use of the Licensed Marks in such jurisdictions may conflict with
the rights of third party(ies) or give rise to other legal claims.  As of the Effective Date, Callaway Golf is
not aware of any such conflicts in any part of the Territory.

 

7.2           Infringement by Use of Licensed
Trademarks.  In the event that
Licensee learns that any third party alleges or claims that use of the Licensed
Trademarks on or in connection with the Licensed Products is likely to cause
deception or confusion to the public, or is likely to dilute or infringe any
intellectual property right of any third party, Licensee shall promptly notify
Callaway Golf or its authorized representative in writing giving the
particulars thereof and Licensee shall provide all available information (and
any information not readily available which may be compiled without
unreasonable burden or expense) and assistance to Callaway Golf or its
authorized representative.  Callaway Golf
in its sole and absolute discretion shall have the right to control, defend and
settle any claims or actions based on use of the Licensed Trademarks.  The costs of any such defense shall be at the
expense of Callaway Golf.

 

7.3           Licensee’s Obligations.  Licensee shall indemnify, defend and hold
Callaway Golf harmless from and against any Losses resulting from or arising
out of third party claims relating to the design, manufacture, shipment,
importation, sale or use of the Licensed Products (including intellectual
property infringement, strict liability and breach of warranty claims), or
third party claims relating to the negligence, product liability, breach of
warranty or willful misconduct by Licensee or its employees, suppliers,
subcontractors, independent contractors or agents, including but not limited to
Losses arising out of third party claims relating to the development, manufacture,
advertising, marketing, distribution, sale or handling of the Licensed Products
or any improper or unauthorized use of the Licensed Trademarks.

 

7.4           Other Infringement.  In the event that Licensee learns that any
third party alleges or claims that the design, manufacture, shipment,
importation, sale or use of any Licensed Product infringes any intellectual
property or other right of any third party for reasons other than use of the
Licensed Trademarks (an “Infringement Claim”), Licensee shall promptly notify
Callaway Golf or its authorized representative in writing giving particulars
thereof and Licensee shall provide all available information (and any
information not readily available which may be compiled without unreasonable
burden or expense) and assistance to Callaway Golf or its authorized
representative.

 

(a)           If such Infringement Claim identifies
or names Callaway Golf as an infringer or defendant, then Callaway Golf in its
sole and absolute discretion shall have the right to control (including without
limitation the selection and direction of counsel), defend and settle any such
Infringement Claim.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

19

 

(b)           If such Infringement Claim does not
identify or name Callaway Golf as an infringer or defendant, and Callaway Golf,
in its discretion, believes an adverse decision on such Infringement Claim may
have a legal effect on Callaway Golf (e.g., collateral estoppel, res judicata,
etc.), then Callaway Golf in its sole and absolute discretion shall have the
right to control (including without limitation the selection and direction of
counsel), defend and settle any such Infringement Claim.

 

(c)           If such Infringement Claim does not
identify or name Callaway Golf as an infringer or defendant, and Callaway Golf,
in its discretion, believes an adverse decision on such Infringement Claim will
not have a legal effect on Callaway Golf (e.g., collateral estoppel, res
judicata, etc.), then Licensee shall have the obligation to use its best
efforts to defend and settle any such Infringement Claim.  Any settlement shall require the prior
written approval of Callaway Golf, which approval shall not be unreasonably
withheld.

 

(d)           The costs of any defense or
settlement of any Infringement Claim, including those controlled by Callaway
Golf, shall be the sole responsibility of Licensee.

 

7.5           Requirements for Indemnification.  It shall be a requirement that any party
seeking indemnification (“Indemnitee”) from the other (“Indemnitor”) pursuant
to this Article 7 must: (i) promptly inform the Indemnitor in writing
of the details of such claim; (ii) reasonably cooperate with Indemnitor
with respect to defense and/or settlement of such claim; (iii) relinquish
control of defense and/or settlement of such claim to Indemnitor; and (iv) not
engage in any negotiations to or enter into any settlement of such claim
without the consent of Indemnitor.

 

7.6.          Insurance.  Licensee agrees that, throughout the Term and
for not less than three (3) years following the expiration or termination
of this Agreement, it will maintain comprehensive general liability insurance,
including blanket contractual liability and personal injury liability, and
insurance against claims based upon products liability for the Licensed
Products and against other claims covered by the indemnification provisions of
this Article 7, in an amount of not less than Two Million U.S. Dollars
($2,000,000.00) combined single limit.  Such insurance will be written on
an occurrence policy form with an insurance company with a current Best rating
of A, XII or better.  Licensee will cause its insurance policies to be in
force from and after the Effective Date and endorsed to include Callaway Golf
and its affiliates and their respective officers, directors, employees and
agents as additional insureds thereunder.  Such endorsement will stipulate
that the required coverages will not be reduced or canceled without thirty (30)
calendar days prior written notice to Callaway Golf.  Such endorsement will
also stipulate that it is the primary coverage and any other insurance in force
for the additional insureds will act as excess coverage only and will not be
required to contribute in the payment of any claim made thereunder to the
extent of the limits of liability afforded by Licensee’s insurance. 
Evidence of such coverage will be supplied to Callaway Golf within thirty (30)
calendar days following the Effective Date and during the same time period of
every year thereafter during the Term.  If Licensee fails to comply with
any insurance requirement, and such failure continues for a period of thirty 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

20

 

(30)
days following Callaway Golf’s written notice to Licensee, Callaway Golf at its
election may immediately terminate this Agreement without further notice,
notwithstanding anything in this Agreement to the contrary.  In the event
Callaway Golf at any time believes Licensee’s existing insurance coverage does
not provide adequate protection, Callaway Golf may, in its sole but reasonable
discretion, require Licensee to increase the amount of required coverage to a
level deemed adequate by Callaway Golf.

 

Article 8.               Term
and Termination

 

8.1           Term.  Unless sooner terminated in accordance with
the terms of this Agreement, this Agreement shall commence on the Effective
Date and shall continue in effect until December 31, 2013 (the “Term”).  Upon expiration of the Term, this Agreement
shall expire.  The parties acknowledge
that upon termination or expiration of this Agreement (whether prior to, or
upon expiration of, the Term, or at any other time), Callaway Golf shall have
no obligation to reimburse or otherwise pay Licensee any amount in connection
with, or as a result of, such termination or expiration.

 

8.2           Licensee Default.

 

(a)           The occurrence of any of the
following events, conditions or circumstances shall constitute a “Licensee
Default” under this Agreement:

 

(i)            Licensee fails to make any payment
when due hereunder and such payment is not made within fifteen (15) days after
Callaway Golf sends Licensee written notice of such nonpayment as provided in Section 11.2
below.

 

(ii)           Licensee fails to achieve sales
levels for the Licensed Products necessary to produce royalties exceeding
[***]% of the Minimum Annual Royalties in any one (1) year.

 

(iii)          a Change in Control (as such term is
defined in Section 2.8 of this Agreement) of Licensee to which Callaway
Golf did not provide its prior written consent.

 

(iv)          a Force Majeure Event (as defined
below) which prevents, hinders, or delays Licensee’s performance of this
Agreement continues for one hundred twenty (120) successive days.

 

(v)           The commencement of any proceeding,
voluntary or involuntary, in bankruptcy or insolvency by or against Licensee
which remains unstayed for, or is not dismissed within, a period of thirty (30)
days, including any proceeding under the U.S. bankruptcy laws, or in the event
of the appointment, with or without Licensee’s consent, of a receiver or an
assignee for the benefit of creditors, or if Licensee becomes otherwise
bankrupt or insolvent (however evidenced) or is unable to pay its debts as they
become due.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

21

 

(vi)          Any material breach by Licensee of any
of the other terms, covenants, agreements or conditions contained herein
(including, without limitation, Licensee’s failure to provide the sales reports
required by this Agreement or Licensee’s failure to provide a copy of any
executed Subcontractor Agreement) and such breach continues for thirty (30)
days after Callaway Golf sends Licensee written notice of such breach.

 

(vii)         Upon the occurrence of a Licensee
Default, then Callaway Golf shall have the right, in addition to all other
rights granted hereunder, or by law, equity or otherwise, to terminate this
Agreement by giving to Licensee written notice of termination.  The termination date shall be stated within
such notice and shall be no less than the expiration of any applicable cure
period referred to above. Upon the termination of this Agreement, all rights
and licenses granted to Licensee hereunder shall cease, except as otherwise
specifically set forth herein, but without prejudice to any claims which Callaway
Golf may have against Licensee for any Licensee Default.

 

(b)           Without limiting any other right of
Callaway Golf under this Agreement, the parties hereto expressly agree that if
Licensee (or its suppliers or subcontractors) uses any Licensed Trademark in
breach of any term of this Agreement, it will cause irreparable harm to
Callaway Golf and that Callaway Golf’s remedies at law in the event of such
breach would be inadequate, and accordingly in the event of any such breach, a
restraining order or injunction or both may be issued against such party.

 

8.3           Callaway Golf Default.

 

(a)           The occurrence of any of the
following events, conditions or circumstances shall constitute a “Callaway Golf
Default” under this Agreement:

 

(i)            a Force Majeure Event (as defined
below) which prevents, hinders, or delays Callaway Golf’s performance of this
Agreement continues for one hundred twenty (120) successive days.

 

(ii)           any material breach by Callaway Golf
of any of the other terms, covenants, agreements or conditions contained herein
and such breach continues for thirty (30) days after Callaway Golf receives
written notice of such breach.

 

(b)           Upon the occurrence of a Callaway
Golf Default, then Licensee shall have the right, in addition to all other
rights granted hereunder, or by law, equity or otherwise, to terminate this
Agreement by giving to Callaway Golf written notice of termination.  The termination date shall be stated within
such notice and shall be no less than the expiration of any applicable cure
period referred to above.  Upon the
termination of this Agreement, all rights and licenses granted to Licensee
hereunder shall cease, except as otherwise specifically set forth herein, but
without prejudice to any claims which Licensee may have against Callaway Golf
for any Callaway Golf Default.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

22

 

8.4           Effect of Expiration or
Termination.

 

(a)           Upon expiration or termination of
this Agreement, Licensee shall cease manufacturing (including promptly
notifying and using its best efforts to cause all authorized subcontractors to
cease manufacturing) Licensed Products and to destroy any excess materials,
including without limitation, hangtags and labels, bearing any Licensed Trademarks.  If a Licensed Product is in the process of
being made at the time of such notice, it may be completed and shipped as
ordered by Licensee pursuant to this Agreement. 
So long as Licensee is not in default under any of the terms and
conditions hereof at the time of expiration or termination of this Agreement,
during the Sell-Off Period (as defined below), Licensee shall continue to
comply with the terms and conditions of this Agreement, specifically including
without limitation the payment of Royalties and the submission of royalty
reports with regard to the sale of such products.  Specifically, Licensee shall deliver to
Callaway Golf a written report in the form furnished to Licensee by Callaway
Golf, certified as complete and correct by an authorized representative of
Licensee, setting forth the following:

 

(i)            within fifteen (15) days following
expiration or termination, a report of all open purchase orders received prior
to such expiration or termination, specifying the details of such purchase orders
and the anticipated shipping dates for such orders;

 

(ii)           within sixty (60) days following
expiration or termination, a report of all inventory expected to exceed amounts
needed to fulfill open purchase orders; and

 

(iii)          within one hundred twenty (120) days
following expiration or termination, a final report of the status of all
inventory, manufacturing and shipping activities, as well as all open purchase
orders, their outstanding balances, and the anticipated shipping schedule for
all outstanding balances.

 

(b)           So long as Licensee is not in default
under any of the terms and conditions hereof at the time of expiration or
termination of this Agreement, Licensee shall use its commercially reasonable
efforts to sell any remaining Licensed Product inventory.  For purposes of this Agreement, the “Sell-Off
Period” shall mean a period, which shall equal three (3) months in
duration after the expiration or termination of this Agreement, during which
Licensee is permitted to sell its inventory of Licensed Products as provided
herein.  Notwithstanding anything to the
contrary contained herein, Licensee shall cease all sales and delivery of the
Licensed Products after expiration of the Sell-Off Period, except to Callaway
Golf as set forth below.

 

(c)           Upon expiration of the Sell-Off
Period, Callaway Golf, in its sole and absolute discretion, may purchase some
or all of the Licensed Products then remaining in Licensee’s possession (the “Residual
Inventory”) at Licensee’s actual cost. 
To enable Callaway Golf to determine whether to purchase any or all of
the Residual Inventory, Licensee shall provide to Callaway Golf within twenty
(20) days of the 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

23

 

expiration
of the Sell-Off Period a list of such Residual Inventory in such detail as
Callaway Golf shall reasonably request. Within fifteen (15) days of its receipt
of such inventory list, Callaway Golf shall notify Licensee whether it desires
to purchase any of the Residual Inventory. 
Callaway Golf shall be required to pay the purchase price for any such
purchased Residual Inventory within thirty (30) days of the date of delivery to
Callaway Golf of the purchased Residual Inventory.  Any purchased Residual Inventory delivered to
Callaway Golf in damaged or otherwise unacceptable condition may be returned to
Licensee at Licensee’s expense and Callaway Golf shall be entitled to a refund
for such returned inventory.

 

(d)           At Callaway Golf’s option, to be
exercised by Callaway Golf in its sole discretion, any Residual Inventory not
purchased by Callaway Golf shall be destroyed by Licensee at Licensee’s
expense; or Licensee shall have the right to sell all Residual Inventory not
purchased by Callaway Golf through secondary distribution channels (approved in
advance and in writing by Callaway Golf) for a period of ninety (90) days after
the Sell-Off Period.  Within ten (10) days
after such ninety day period, Licensee shall destroy any and all unpurchased
Residual Inventory.

 

(e)           Termination or expiration of this
Agreement shall not relieve the parties of any remaining liability, obligations
or rights as should appropriately survive termination of this Agreement.  Without limiting the generality of the
foregoing, sections 2.6 (Books and Records and Audit Right), 3.6 (Security
Audit), 3.12 (Intellectual Property Infringement Warranty), Article 6
(Protection of Licensed Trademarks), Article 7 (Indemnification), Section 8.4
(Effect of Termination or Expiration), 8.5 (Limitation of Damages), Article 9
(Sublicensing), Article 10 (Confidentiality of Information and Use
Restriction), Article 11 (Miscellaneous) of this agreement shall expressly
survive termination or expiration of this Agreement for any reason.

 

8.5           Limitation of Damages.  In no event shall Callaway Golf or Licensee
or any of their respective officers, directors, shareholders, employees,
agents, independent contractors, representatives, or affiliates be liable
(whether in contract, warranty, strict liability, tort or otherwise) for any
special, punitive, incidental, consequential or similar damages, including any
lost profits, arising out of its or their performance or nonperformance of this
Agreement.

 

Article 9.               Sublicensing

 

9.1           Subcontractor Agreement.  Subject to Callaway Golf’s prior written
consent, Licensee may grant a sublicense to a reputable subcontractor(s) to
design, manufacture and sell specified Licensed Products (“Authorized
Sublicensed Products”) provided such subcontractor enters into, and agrees to
the terms of, a form of Subcontractor Limited Trademark Sublicense Agreement
substantially in the form set forth in Exhibit I of this Agreement (“Subcontractor
Agreement”) unless Callaway Golf, in its sole discretion,  waives compliance with this requirement with
respect to any one or more Subcontractor(s), in each instance.  Licensee may not make any changes to the
Subcontractor Agreement (except for completing information regarding the
parties) 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

24

 

without
the prior written consent of Callaway Golf. 
Licensee shall use its best efforts to ensure its subcontractors comply
with the terms of the Subcontractor Agreement. 
Authorized subcontractors shall be listed in Exhibit H of this Agreement,
as may be amended in writing by the parties from time to time.  Licensee shall promptly provide Callaway Golf
with a copy of each executed Subcontractor Agreement it enters into with its
authorized subcontractors.  Licensee
shall promptly send copies of all executed Subcontractor Agreements to Callaway
Golf’s Licensing Department at the address listed in Section 11.2 of this
Agreement.

 

9.2           Liability of Licensee for
Subcontractors’ Actions.  Except as
otherwise provided herein, Licensee shall be liable to Callaway Golf for all
liability resulting from the action or inaction of its suppliers or
subcontractors.  Licensee shall use its
best efforts (including, if necessary, termination) to ensure that its
suppliers and subcontractors comply with the terms of the Subcontractor
Agreement, including, but not limited to, provisions regarding employment, and
restrictions prohibiting the design, prototyping, manufacturing or selling of
any products for the benefit of the authorized subcontractor or any other person
which are confusingly similar to the Licensed Products or any enhancements or
improvements thereto, or any products which infringe on any patents,
trademarks, trade names or trade dress rights of Callaway Golf or its
subsidiaries or which incorporate a design that is confusingly similar to the
Licensed Trademarks.

 

Article 10.            Confidentiality
of Information and Use Restriction

 

10.1         Nondisclosure.

 

(a)           Each party agrees that any
Proprietary Information (as defined below) of the other party to which such
party becomes privy as a result of this Agreement shall not be divulged or
disclosed to any third party without the express and prior written consent of
the other party.  In addition, each party
agrees to use such Proprietary Information only during the term of this
Agreement and only in a manner that is consistent with the purposes of this
Agreement.  In the event either party
(the “Disclosing Party”) believes that it is legally required to disclose any
of the other party’s Proprietary Information, such Disclosing Party shall give
prompt and reasonable written notice to the other party prior to disclosing
such Proprietary Information to a third party and, if and to the extent so
requested in writing by the other party, the Disclosing Party shall take (at the
other party’s expense) such legally permissible steps as are reasonably
necessary or appropriate to protect the Proprietary Information, including, but
not limited to, seeking orders from a court of competent jurisdiction
preventing disclosure or limiting disclosure of such Proprietary Information.

 

(b)           Each party shall hold in confidence
all Proprietary Information received from the other party until and/or unless
any of the provisions of Section 10.1(d) apply.  Upon the termination of this Agreement and
upon the written request of the other party, each party shall promptly return
any written embodiment of any Proprietary Information of the other party in its
possession, custody or control to the other party 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

25

 

(including
any information stored electronically). 
In addition, upon the termination of this Agreement for any reason,
neither party will directly or indirectly use or exploit the Proprietary
Information of the other party for any purpose whatsoever.

 

(c)           “Proprietary Information” shall mean
information, whether written or oral, not generally available to the public
relating to the trademarks or the business of either party.  Without limiting the foregoing, Proprietary
Information includes the non-public concepts and ideas involved in the products
designed, manufactured and/or sold by either party, whether patentable or not,
and includes, but is not limited to, the non-public strategies, business plans,
product plans, customer information, subcontractor information, processes,
formulas, and techniques disclosed by one party to the other or observed or
deduced by either party.

 

(d)           “Proprietary Information” shall not
include any information which: (i) was in the lawful and unrestricted
possession of the party receiving the information prior to its disclosure by
the disclosing party; (ii) is or becomes generally available to the public
as a result of acts other than those of the receiving party after receiving it;
(iii) has been received lawfully and in good faith by the receiving party
from a third party who did not derive it from the disclosing party; or (iv) is
shown by acceptable evidence to have been independently developed by the
receiving party.

 

(e)           Notwithstanding the foregoing
confidentiality provisions, Licensee agrees that Callaway Golf may during the
term of this Agreement and upon prior notice to Licensee disclose Licensee’s
current and prospective designs to third-parties so that Callaway Golf may coordinate
its global business efforts.

 

Article 11.            Miscellaneous

 

11.1         Miscellaneous Representations and
Warranties by Licensee.  Licensee
represents and warrants as follows, which representations shall be true and
correct on the Effective Date and through the Initial Term and any renewal
term:

 

(a)           Organization.  Licensee is a corporation duly organized,
validly existing and in good standing under the laws of the state or country of
its incorporation first written above with full power to enter into this
Agreement.

 

(b)           Authority.  The execution and delivery of this Agreement
has been duly authorized and approved by all requisite action and the
consummation of the transactions contemplated hereby will be duly authorized
and approved by all requisite action of Licensee, and no other authorizations
or approvals, whether of governmental bodies or otherwise, will be necessary in
order to enable Licensee to enter into or to comply with the terms of this
Agreement.

 

(c)           Binding Effect of Documents.  This Agreement, upon execution and delivery
thereof by Licensee, will have been duly entered into by Licensee, and will
constitute legal, valid and binding obligations of Licensee.  Neither this Agreement nor 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

26

 

anything
to be done under this Agreement violates or shall violate any contract,
document, understanding, agreement or instrument to which Licensee is a party
or by which it is bound.

 

(d)           Business Practices.  Licensee shall: (i) conduct business in
a manner that reflects favorably at all times on Callaway Golf and Callaway
Golf’s goodwill and reputation; (ii) avoid deceptive, misleading or
unethical business practices; (iii) make no false or misleading
representation with regard to Callaway Golf or Callaway Golf products; and (iv) not
solicit offers from any customer that engages in illegal or deceptive trade
practices or any practices proscribed under this Agreement or under the laws,
regulations or practices of the Territory.

 

11.2         Notices and Reports.  All notices and reports required or permitted
pursuant to this Agreement shall be in writing and delivered by (i) Federal
Express, United Parcel Service or DHL (“Express Carrier”), each postage
pre-paid and sent via overnight delivery (or if overnight delivery is not
available, then the soonest delivery offered by such carrier) or (ii) confirmed
fax message followed by delivery by Express Carrier of a copy of the
notice.  All such notices shall be
addressed to Callaway Golf or Licensee at their addresses and fax numbers as
listed herein or to such other address as either party may from time to time
advise in writing in accordance with this section.

 

	
  Callaway
  Golf Company

  2180
  Rutherford Road

  Carlsbad,
  CA 92008-7328

  Attn:
  Vice President Global Licensing & Accessories

  Tel:
  [***]

  Fax:
  [***]

  	
   

  	
  Sport Haley, Inc.

  4600 East 48th Avenue

  Denver, Colorado 80216

  Attn: President & Chief
  Executive Officer

  Tel: [***]

  Fax: [***]

  
	
   

  	
   

  	
   

  
	
  With
  a copy to:

  	
   

  	
  With a copy to:

  
	
   

  	
   

  	
   

  
	
  Callaway
  Golf Company

  2180
  Rutherford Road

  Carlsbad,
  CA 92008-7328

  Attn:
  Legal Department

  Tel:
  [***]

  Fax:
  [***]

  	
   

  	
  Steven
  W. McDonald, Esq.

  Berliner
  McDonald P.C.

  5670
  Greenwood Plaza Blvd., Suite 418

  Greenwood
  Village, CO 80111-2408

  Tel:
  [***]

  Fax:
  [***]

  

 

All
notices required or permitted under this Agreement which are addressed as
provided in this section, if delivered by facsimile, shall be effective upon
transmission provided a confirmation copy is sent by Express Carrier and upon
confirmed delivery if sent by Express Carrier. 
All notices and reports shall be written in English.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

27

 

11.3         Entire Agreement; Governing Law.

 

(a)           The provisions of this Agreement
contain the entire agreement between the parties relating to the subject matter
hereof and supersede all prior agreements or understandings between the parties
with respect to its subject matter including, without limitation, the May 3,
2001 license agreement between Spalding Sports Worldwide, Inc. and
Licensee, as amended; provided,
however, that this Agreement does not supersede or affect the effectiveness of
that certain letter agreement between Callaway Golf and Licensee, dated January 11,
2008 and signed by Licensee on March 27, 2008, concerning the termination
of Licensee’s rights to the TOP-FLITE® trademark.  This Agreement may not be released,
discharged, abandoned, changed or modified in any manner except by an
instrument in writing signed by the parties.

 

(b)           This Agreement will be governed by
and interpreted under the laws of the State of California (U.S.A.) and the
United States of America, without regard to choice of law principles.

 

11.4         Governmental Licenses, Permits and
Approvals.  Except with regard to the
Licensed Trademarks, Licensee, at its expense, shall be responsible for
obtaining and maintaining all licenses, permits and approvals which are
required by all appropriate governmental authorities in connection with this
Agreement and the distribution of the Licensed Products in the Territory.  Licensee shall furnish to Callaway Golf
written evidence from such governmental authorities of any such licenses,
permits, clearances, authorizations, approvals, registration or recording.

 

11.5         Only Licensing Relationship.  Nothing contained herein shall be construed
to constitute either party as a partner, employee or general agent of the other
party nor shall either party have any authority to bind the other except as
expressly provided for herein.  The
parties shall remain independent contractors. 
The officers, agents and employees of one party shall not be considered
agents or employees of the other. 
Neither party has any power or authority to make any statement or
representation or to incur any debt, obligation or liability on behalf of the
other party, and each party agrees not to hold itself out or permit others to
hold themselves out as having such authority.

 

11.6         Assignability.  Neither party may assign, encumber or in any
way transfer or delegate any interest, right or duty under this Agreement
without the prior written consent of the other, which consent may be withheld
for any reason or no reason except that Callaway Golf may assign this Agreement
without Licensee’s consent to any direct or indirect subsidiary or affiliate to
which it assigns the Licensed Trademarks or to any other entity that purchases
all or substantially all of the assets of that portion of Callaway Golf to
which the Licensed Products or the subject matter of this Agreement pertains.

 

11.7         Binding Nature.  This Agreement shall be binding on the heirs,
successors, subsidiaries and permitted assigns of the parties hereto.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

28

 

11.8         Waiver.  The waiver by either party or the failure by
either party to claim a breach or default of any provision of this Agreement
shall not constitute a waiver of any subsequent breach or default.  Nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.

 

11.9         Unenforceable Provision.  If any provision of this Agreement violates
or is unenforceable under any applicable law of any jurisdiction in which
activities hereunder are performed, that provision shall be deemed void and the
remaining provisions shall remain in full force and effect.  In lieu of such void provision, there shall
automatically be added a substitute valid provision as near to the intent and
purpose of the void provision as is possible.

 

11.10       Attorney’s Fees.  Except as otherwise specifically provided
herein, in any dispute, whether or not litigation is commenced, the prevailing
party shall be entitled to its costs and expenses incurred, including
reasonable attorneys’ fees.

 

11.11       Counterparts.  This Agreement may be executed by the parties
hereto in several counterparts, and each such counterpart shall be deemed to be
an original and all such counterparts shall together constitute one and the
same agreement.

 

11.12       Interpretation.  The language in this Agreement shall in all
cases be construed as a whole and in accordance with its fair meaning.  This Agreement shall not be construed for or
against either party as a result of the initial preparation or drafting by a
party of any provision hereof.

 

11.13       Headings; Exhibits.  The headings of the sections are inserted for
convenience of reference only and are not intended to affect the meaning or
interpretation of this Agreement.  All
Exhibits to this Agreement are hereby incorporated herein.  All capitalized defined terms used in the
Exhibits but not defined in the Exhibits shall have the meanings defined in
this Agreement.

 

11.14       Force Majeure.  If the performance of any part of this
Agreement by either party is prevented, hindered or delayed by reason of any
cause beyond the control of such party, which shall include war, mobilization,
revolution, civil commotion, riot, strike, lockout, flood, hurricane, act of
God or public enemy, restriction or restraint imposed by law, rule, regulation
or order by government authority, or interruption of transportation facilities
(“Force Majeure Event”), the party affected shall promptly provide notice
thereof to the other party and shall be excused from such performance to the
extent that it is necessarily prevented, hindered or delayed thereby during the
continuance of any such happening or event; provided, however, that the party
affected shall use commercially reasonable efforts to resume the performance of
its obligations under this Agreement.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

29

 

11.15       Dispute Resolution.

 

(a)           The parties desire to resolve
disputes arising out of this Agreement without litigation.  Accordingly, except for an action seeking a
temporary restraining order or injunction related to the purposes of this
Agreement, a suit to compel compliance with this dispute resolution process, or
the entry and enforcement of any judgment on any arbitration award, the parties
agree to meet and negotiate in good faith to resolve any dispute arising under
this Agreement.  The location, format,
frequency, duration and conclusion of these discussions shall be left to the
discretion of the parties.  Except as
otherwise provided, the discussions will commence within thirty days after
written notice of a dispute from any party.

 

(b)           Except as otherwise provided, if a
determination is made by any party that continuation of the negotiation process
is not warranted, the dispute shall be submitted to mediation by a mediator in
San Diego County pursuant to the Commercial Mediation Rules of the
American Arbitration Association.  Any
party may demand such mediation in writing in accordance with the procedures
set out in those rules, which shall commence within sixty (60) days of such
demand.

 

(c)           Except as otherwise provided, if a
determination is made by any party that continuation of the mediation process
is not warranted or if all of the matters in dispute are not resolved through
mediation, the dispute shall be submitted to binding arbitration by an
arbitrator mutually agreed upon by the parties or, if no arbitrator is mutually
selected within sixty days of a written demand therefor, then by a retired
judge from the Judicial Arbitration and Mediation Service/Endispute (“JAMS”)
office located in San Diego, California, who shall have the powers to hear
motions, control discovery, conduct hearings and otherwise do all that is
necessary to resolve the matter.  The
arbitration shall be held in San Diego County. 
The arbitration award shall be final and binding, and judgment on the
award may be entered in any court having jurisdiction thereof.  It is expressly understood that the parties
have chosen arbitration to avoid the burdens, costs and publicity of a court
proceeding, and the arbitrator is expected to handle all aspects of the matter,
including discovery and any hearings, in such a way as to minimize the expense,
time, burden and publicity of the process, while assuring a fair and just
result.  In particular, the parties
expect that the arbitrator will limit discovery by controlling the amount of
discovery that may be taken (e.g., the number of depositions or
interrogatories) and by restricting the scope of discovery to only those
matters clearly relevant to the dispute. 
It is further understood that any award of punitive damages by the
arbitrator would be inconsistent with the commercial purposes of the Agreement
and the status of the parties with respect to one another, and therefore
neither the arbitrator nor any other tribunal is authorized or empowered to
award punitive damages in any proceeding based upon this Agreement or the
dealings hereby.

 

(d)           Nothing herein is intended to limit
the right of either party to bring an action in the national courts of any
country or state to enforce any patent, trademark, copyright or other
intellectual property rights under the national laws of such country or state.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

30

 

[Remainder
of Page Left Blank Intentionally; Signatures on Following Page]

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

31

 

IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
by its duly authorized representative as of the Effective Date.

 

	
  SPORT
  HALEY, INC.

  	
   

  	
  CALLAWAY
  GOLF COMPANY

  
	
  a
  Colorado corporation

  	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  Donald W. Jewell

  	
   

  	
   

  	
  By:
  

  	
  /s/
  Steven C. McCracken

  	
   

  
	
   

  	
  Donald
  W. Jewell

  	
   

  	
   

  	
  Steven
  C. McCracken

  
	
   

  	
  President
  and Chief Executive Officer

  	
   

  	
   

  	
  Senior
  Executive Vice President and Chief Administrative Officer 

  
	
   

  	
   

  	
   

  
	
  Date
  Signed: May 20, 2008

  	
   

  	
  Date
  Signed: May 27, 2008

  
							

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

32

 

EXHIBIT
INDEX

 

	
  Exhibit A:

  	
   

  	
  Territory

  
	
   

  	
   

  	
   

  
	
  Exhibit B:

  	
   

  	
  Licensed
  Trademarks

  
	
   

  	
   

  	
   

  
	
  Exhibit C:

  	
   

  	
  Licensed
  Products

  
	
   

  	
   

  	
   

  
	
  Exhibit D:

  	
   

  	
  Authorized
  Distribution Channels

  
	
   

  	
   

  	
   

  
	
  Exhibit E:

  	
   

  	
  Royalties

  
	
   

  	
   

  	
   

  
	
  Exhibit F:

  	
   

  	
  Minimum
  Annual Royalties

  
	
   

  	
   

  	
   

  
	
  Exhibit G:

  	
   

  	
  Minimum
  Advertising Expenditures

  
	
   

  	
   

  	
   

  
	
  Exhibit H:

  	
   

  	
  Authorized
  Subcontractors

  
	
   

  	
   

  	
   

  
	
  Exhibit I:

  	
   

  	
  Form of
  Subcontractor Agreement

  

 

*** CONFIDENTIAL TREATMENT
REQUESTED ***

 

33

 

EXHIBIT A

 

TERRITORY

 

The Territory is
described as comprising the following: 
United States, its territories and possessions, Canada, Mexico, United
Kingdom, European Union, Aruba, Cayman Islands, Jamaica, Dominican Republic,
Bahamas and British Virgin Islands

 

No additions or
other modifications may be made to the Territory unless in the form of a
written amendment to this Agreement executed by both parties.

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

34

 

EXHIBIT B

 

LICENSED TRADEMARKS

 

The Licensed
Trademark(s) which Licensee will be permitted to apply to the Licensed
Products in accordance with this Agreement is/are shown below:

 

[Ben Hogan®]

 

[BH]

 

Such Licensed
Trademark(s) shall be applied to the Licensed Products as follows:  By stamping, embroidering, sewing or printing
them directly on the Licensed Products

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

35

 

EXHIBIT C

 

LICENSED PRODUCTS

 

EXCLUSIVE
PRODUCTS

 

Men’s
golf-inspired knit tops, pants, shorts, sweaters, vests, the original Ben Hogan
“driving hat”, outerwear/rainwear and the following golf-inspired men’s apparel
products: sport coats/blazers, neckwear, sport and dress shirts (wovens)

 

NON-EXCLUSIVE
PRODUCTS

 

None

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

36

 

EXHIBIT D

 

AUTHORIZED DISTRIBUTION CHANNELS

 

Licensee is
authorized to distribute the Licensed Products to “green grass” and upscale “off-course”
golf specialty accounts, and upscale department stores.  Prior to any distribution of the Licensed
Products by Licensee to any retailers other than “green grass” and upscale “off-course”
golf specialty accounts, Licensee will submit to Callaway Golf, for its
approval, a list of such retailers selected by Licensee to sell the Licensed
Products.  Callaway Golf shall not
unreasonably withhold or delay its approval of such list.

 

Callaway Golf
acknowledges and approves Licensee’s Internet site which promotes and markets
the Licensed Products as of the Effective Date. 
However, any material changes to that site are subject to Callaway Golf’s
further approval.

 

No modifications
of the Authorized Distribution Channels (other than as described above) will be
effective unless they are in the form of a written amendment to this Agreement,
executed by both parties.

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

37

 

EXHIBIT E

 

ROYALTIES

 

	
  Selling
  Period

  	
   

  	
  Royalty
  Rate

  As % of
  Net Sales

  	
   

  	
  Quarterly

  Payment
  Dates

  
	
  Entire Term

  	
   

  	
  [***]% of Net
  Sales

  	
   

  	
   

  	
  Q1 -
  April 30

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Q2 -
  July 31

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Q3 -
  October 31

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Q4 -
  January 31

  

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

38

 

EXHIBIT F

 

MINIMUM ANNUAL ROYALTIES

 

	
  Period

  	
   

  	
  Minimum
  Annual Royalties (US$)

  
	
  2008

  	
   

  	
  $[***]

  
	
  2009

  	
   

  	
  $[***]

  
	
  2010

  	
   

  	
  $[***]

  
	
  2011

  	
   

  	
  $[***]

  
	
  2012

  	
   

  	
  $[***]

  
	
  2013

  	
   

  	
  $[***]

  

 

*** CONFIDENTIAL
TREATMENT REQUESTED ***

 

39

 

EXHIBIT G

 

MINIMUM ADVERTISING EXPENDITURES

 

	
  Period

  	
   

  	
  Minimum
  Required Expenditure (US$)

  
	
  EntireTerm

  	
   

  	
  [***]% of Net
  Sales

  

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

40

 

EXHIBIT H

 

AUTHORIZED SUBCONTRACTORS

 

The following are Licensee’s authorized subcontractors, as of the
Effective Date (subject to such subcontractors’ execution of the Subcontractor
Agreement):

 

[SPECIFY THE FOLLOWING FOR EACH SUBCONTRACTOR:

 

FULL LEGAL NAME OF BUSINESS

FULL ADDRESS

TELEPHONE NUMBER

FAX NUMBER

CONTACT NAME]

 

[***]

 

[***]

 

[***]

 

[***]

 

[***]

 

[***]

 

[***]

 

***
CONFIDENTIAL TREATMENT REQUESTED ***

 

41

 

EXHIBIT I

 

FORM OF SUBCONTRACTOR
AGREEMENT

 

SUBCONTRACTOR  LIMITED TRADEMARK SUBLICENSE AGREEMENT

 

This
Subcontractor Limited Trademark Sublicense Agreement (“Agreement”) is made and
entered into as of
                          (“Effective
Date”), by and between [MANUFACTURER’S FULL LEGAL NAME], a [MANUFACTURER’S
STATE OF INCORPORATION] (“Manufacturer”), and [SUBCONTRACTOR’S FULL LEGAL
NAME],  a [SUPPLIER’S STATE OF
INCORPORATION]  (“Subcontractor”).

 

RECITALS

 

A.            Callaway Golf Company, a Delaware
corporation (“Callaway Golf”) has used and is the owner of the trademarks
described in Schedule 1 attached hereto and made a part hereof (the “Licensed
Trademarks”).  Callaway Golf has
registered and/or has applied for trademark registration of the Licensed Trademarks
in one or more countries throughout the world.

 

B.            Callaway Golf has granted
Manufacturer a limited, non-exclusive license to use the Licensed Trademarks on
certain products.

 

C.            Manufacturer wishes to utilize
Subcontractor to manufacture certain of the products in accordance with
specifications established by Callaway Golf, and in all cases meeting Callaway
Golf’s quality control standards.

 

D.            In connection with such
manufacturing, Subcontractor will require the use of the Licensed
Trademarks.  Manufacturer is willing to
sublicense and allow Subcontractor to use the Licensed Trademarks, subject to
the terms and conditions set forth in this Agreement.

 

AGREEMENT

 

In
consideration of the foregoing Recitals, the covenants hereinafter set forth,
and other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:

 

1.             GRANT
OF LICENSE

 

Subject
to the terms and conditions of this Agreement, Manufacturer hereby grants to
Subcontractor a limited, non-transferable, non-exclusive license and right to
apply the Licensed Trademarks to certain products as designated by the
Manufacturer as set forth on Schedule 2 attached hereto and made a part hereof
(the “Products”) and to sell or otherwise provide the Products bearing the
Licensed Trademarks (hereinafter, the “Licensed Products”) solely to
Manufacturer.  The sale, 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

giveaway,
display, exhibition or other transfer of Licensed Products to any party other
than Manufacturer, shall be a violation of this Agreement and grounds for
immediate termination hereof, as well as entitling Manufacturer and Callaway
Golf to pursue any and all available legal and equitable remedies.  Except as specifically granted herein, Subcontractor
shall have no rights, express or implied, in the Licensed Trademarks or any
other patent, trademark, service mark, trade dress, design, copyright or other
proprietary or intellectual property rights of Callaway Golf.

 

2.             TERM AND
TERMINATION

 

(a)           Term.  The license granted hereunder shall commence
on the Effective Date and shall remain in effect until the Manufacturer
terminates it.

 

(b)           Termination.

 

                (i)            Manufacturer may, in its sole discretion, with or without
cause, terminate this Agreement and revoke the license hereby granted at any
time without incurring any liability to Subcontractor.

 

                (ii)           Callaway Golf has the right, at any time in its sole
discretion, to require Manufacturer to terminate this Subcontractor
Agreement.  Subcontractor agrees that
upon termination of that certain Manufacturing and Trademark License Agreement
between Manufacturer and Callaway Golf for any reason whatsoever, this
Agreement (and the license granted the Subcontractor hereby) shall immediately
terminate and Callaway Golf shall have no liability to Subcontractor; provided,
however, that Callaway Golf shall have the right, in its sole and absolute
discretion, to elect to continue this Agreement or to enter into a new
Subcontractor Agreement directly with Subcontractor.

 

(c)           Survival of Obligations.  Upon termination or expiration of the license
granted under this Agreement by operation of law or otherwise, all rights
(including the right to use the Licensed Trademarks), privileges and
obligations arising from this Agreement (except the obligations of  Sections 2(c), 3, 4, 6, 7, 8, 10, 14, 16(c) and 16(f) of
this Agreement) also shall terminate. 
The obligations set forth in the Sections enumerated above shall survive
the expiration or earlier termination of this Agreement.

 

3.             NON-COMPETITION

 

Subcontractor
shall not design, prototype, sample, manufacture or sell any products for
itself or any other person confusingly similar to the Licensed Products or any
enhancements or improvements thereto, or any products which infringe on any
patents, trademarks, trade names or trade dress rights of Callaway Golf or its
subsidiaries or which incorporate a design that is similar to the Licensed
Trademarks.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

4.             AUDIT AND
INSPECTIONS; WORKFORCE

 

(a)           Maintenance of Records.  During the term of this Agreement and for a
period of three (3) years thereafter, Subcontractor shall keep maintain
and preserve complete and accurate books of account and records covering all
transactions relating to this Agreement, including, without limitation,
invoices, correspondence, inventory accounting, banking and financial records (“Records”).

 

(b)           Audit of Records.  During the term of this Agreement and for a
period of three (3) years thereafter, Manufacturer, Callaway Golf and/or
their duly authorized representatives will have the right during reasonable
business hours upon advance written notice to Subcontractor to inspect and
audit the Records to ensure Subcontractor’s compliance with the terms of this
Agreement.

 

(c)           Adverse Material Change in
Condition.  Subcontractor shall
notify Manufacturer and Callaway Golf in writing of any adverse material change
in Subcontractor’s financial condition that will likely affect its performance
under this Agreement at the time such material change occurs or when
Subcontractor learns of the possibility of such a change, whichever is sooner.

 

(d)           Security Audit.  Subcontractor shall maintain at its various
facilities security systems and systems for accounting for Products, to
adequately protect the Products and Callaway Golf’s and/or Manufacturer’s
tooling or other equipment or property (including the Specifications) and
trademarks (collectively referred to herein as “Property”) against loss or
theft.  At Manufacturer’s and/or Callaway
Golf’s request, at any time upon reasonable notice to Subcontractor,
Subcontractor will allow for Manufacturer and/or Callaway Golf to inspect and
audit Subcontractor’s premises, security systems and/or systems for accounting
for Products and Property and provide written documentation of the systems and
their operation.  Subcontractor agrees to
promptly implement, at its expense, any new procedures, adjustments and/or
changes to such systems as required by Manufacturer and/or Callaway Golf.  Subcontractor’s failure to implement any such
new procedures, adjustments and/or changes shall be grounds for termination of
this Agreement pursuant to Section 2(b) of this Agreement.

 

(e)           Prevention of Unauthorized
Production and Theft.  During the term of this Agreement
and any extended term hereof, Subcontractor will take all necessary measures to
prevent the theft or loss from Subcontractor’s facilities of all Products being
manufactured for Manufacturer (including all component parts thereof), and
Property.  Subcontractor will also take
all necessary measures to prevent the unauthorized production of Products and
Property in Subcontractor’s facilities (“overruns”) and the entry of such
products into the marketplace. 
Subcontractor also agrees to assist Manufacturer and/or Callaway Golf in
their efforts to prevent counterfeiting of Callaway Golf products and Property
by immediately reporting to Manufacturer and Callaway Golf any information it
obtains concerning the counterfeiting of Callaway Golf products and Property,
and by cooperating fully in any investigations by Manufacturer and/or Callaway
Golf of the counterfeiting of Callaway Golf products and Property.

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

In
the event that Manufacturer and/or Callaway Golf finds it necessary to
investigate theft or loss of its products and other Property from
Subcontractor, or establishes that overruns produced by Subcontractor are
available in the marketplace, Manufacturer and Callaway Golf will be entitled
to recover from Subcontractor (e.g. by price reduction, credit, offset,
invoice, or otherwise) all its investigative costs, as well as all attorney
fees required to oversee said investigations, to include attorney fees
associated with any civil or criminal litigation that might result.  Subcontractor also agrees that, for each
component recovered by Callaway Golf or law enforcement authorities that can be
established as either having been stolen from Subcontractor, or manufactured on
Subcontractor’s premises as “overrun” product, Callaway Golf will be entitled
to reimbursement by Subcontractor at a rate of two times the purchase price
normally paid to Subcontractor by Callaway Golf for the component in question.

 

(f)            Manufacturing Processes Audit.  During the term of this Agreement,
Manufacturer and/or Callaway Golf and their duly authorized representatives
will have the right during reasonable business hours upon advance written
notice to Subcontractor to inspect and audit the manufacturing processes of
Subcontractor to ensure that the manufacture of the Products is in compliance
with the terms of this Agreement.

 

(g)           Subcontractor Conduct.  Subcontractor agrees that it will under all
circumstances:  (i) comply with all
applicable laws, including labor and employment laws and industry standards in
the countries Subcontractor does business, including, but not limited to,
compliance with all laws and industry standards regulating minimum wage,
overtime, workplace safety, maximum hours and benefits, and will use fair
employment practices as defined by such applicable laws and industry standards;
(ii) provide at least one day off in every seven (7) day period,
except as required from time to time to meet urgent business needs; (iii) not
hire any employee under the age of fourteen (14), under the age interfering
with compulsory schooling, or under the minimum age established by law,
whichever is greater; (iv) provide employees with a safe, healthy and
humane workplace, free of harassment; (v) provide safe and healthy
housing, when residential housing is provided to employees; (vi) employ
persons whose presence is voluntary and not use prison labor or forced labor,
indentured bonded or otherwise, or corporal punishment or other forms of mental
or physical coercion as a form of discipline of employees; (vii) recognize
and respect the right of employees to exercise their lawful rights of
collective bargaining and free association, including whether or not to join a
given association; (viii) not discriminate in hiring, paying, promoting or
terminating employees on grounds of race, religion, national origin, political
affiliation, sexual preference, disability or gender, and instead hire, pay,
promote and terminate employees on the basis of their ability to do the job; (ix) comply
with all applicable environmental laws, rules, regulations and standard
applicable to Subcontractor’s operations, and observe environmentally conscious
practices in all locations where they operate; (x) cooperate with local,
national and foreign customs authorities and drug enforcement agencies to guard
against illegal shipment of drugs; and (xi) comply with customs laws and in
particular, establish and maintain programs regarding illegal transshipment of
Products.  During the term of this
Agreement, Manufacturer, Callaway 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

Golf
and their respective duly authorized representatives will have the right during
reasonable business hours upon advance written notice to Subcontractor to
inspect and audit Subcontractor’s compliance with this provision.

 

5.             QUALITY CONTROL;
REPORTS

 

(a)           Compliance with Standards.  The parties agree that prompt delivery, high
quality products and effective customer service by Subcontractor are of the
greatest importance in the distribution and sale of Licensed Products hereunder
and are the essence of this Agreement. 
Subcontractor acknowledges that Manufacturer is entering into this
Agreement with the expectation that the Licensed Products will be of the highest
quality, consistent with Callaway Golf’s specifications and quality control
standards.  Subcontractor shall apply the
Licensed Trademarks only to Products which have been manufactured in accordance
with the directions, specifications and quality control standards in materials,
design and workmanship specifically approved by Callaway Golf, in its sole
discretion.

 

(b)           Samples.  Subcontractor agrees to furnish to
Manufacturer random samples of Licensed Products taken from regular production,
along with specimens of all packaging, as Manufacturer may request from time to
time and at no cost to Manufacturer, for inspections and tests to assure
conformance of the Licensed Products to Callaway Golf’s standards.  Such samples shall become the property of
Manufacturer upon delivery.

 

(c)           Subcontractor Certification.  Subcontractor acknowledges that throughout
the term of this Agreement, Subcontractor shall continue to comply in all
respects with the supplier criteria established under Callaway Golf’s vendor
certification program, as determined by Callaway Golf in its sole
discretion.  Subcontractor will allow
Callaway Golf to engage in activities such as unannounced on-site inspections
of its facilities in order to monitor compliance with this Agreement and
Callaway Golf’s supplier criteria.

 

(d)           Activity Reports.  During the term of this Agreement, within 30
days of the end of each quarter, Subcontractor shall submit an activity report
to Callaway Golf for such quarter listing all shipments of the Licensed
Products by the Subcontractor to the Manufacturer, and copies of the invoices
related thereto.  Such reports shall be
submitted to Callaway Golf’s Licensing Department at the Callaway Golf address
shown in Section 11 of this Agreement.

 

6.             PRODUCT
WARRANTY, DEFECTS AND RETURNS

 

(a)           Warranty.  Subcontractor represents and warrants
that:  (i) the Licensed Products
will not infringe upon the patent, trademark, service marks, trade name, trade
dress, design, copyright or any other proprietary or intellectual property
rights of any third party; and (ii) the Licensed Products will conform to
the specifications, data, samples and/or other information furnished to
Manufacturer and approved by 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

Callaway
Golf and, without limiting the foregoing, that the Licensed Products shall be
merchantable, of good material and workmanship and free from any defects.

 

(b)           Destruction of
Unused or Defective Products.  Unless
otherwise directed by Callaway Golf, Subcontractor shall destroy all Licensed
Products which are not to be delivered to Manufacturer in the normal course of
business for any reason, including, without limitation, manufacturing overruns
and rejected products or components, as well as any Licensed Products that are
returned to Subcontractor by Manufacturer for any reason and are not to be
re-worked and re-delivered to its customers in the normal course of
business.  The destruction of the
Licensed Products shall be by cutting and shredding so that the parts are
unrecognizable as Licensed Products or product components.

 

7.             PROTECTION OF
LICENSED RIGHTS

 

(a)           Ownership of Rights.  Subcontractor acknowledges that Callaway Golf
is the owner of the Licensed Trademarks and the goodwill attaching to the
Licensed Trademarks.  Subcontractor also
agrees that any and all rights that may be acquired by the use of the Licensed
Trademarks by Subcontractor shall inure to the sole benefit of Callaway
Golf.  Subcontractor agrees to execute
all documents and/or instruments reasonably requested by Callaway Golf to
effect further registration of, maintenance and renewal of the Licensed
Trademarks and, if requested by Callaway Golf, to record Subcontractor as a
registered user of the Licensed Trademarks.

 

(b)           No Warranties.  Neither Callaway Golf nor Manufacturer makes
any representations and disclaims any warranties, express or implied, regarding
ownership of any rights in or the validity of the Licensed Trademarks.

 

(c)           Use of Licensed Trademarks.

 

(i)            Subcontractor shall not use the
Licensed Trademarks or any part thereof as part of a corporate name, trade
name, internet domain name, email address, d.b.a., etc. and shall use them only
on the Licensed Products.  Subcontractor
shall not use any other trademark, logo or name that is confusingly similar to or
identified with Callaway Golf or its subsidiaries or the Licensed
Trademarks.  Subcontractor shall not use
the Licensed Trademarks in conjunction with any other trademark, word or
symbol, without the prior written consent of Callaway Golf, in its sole discretion,
nor shall Subcontractor use the Licensed Trademarks in any manner that may
reflect adversely on the Licensed Trademarks, the good name of Callaway Golf or
any of its programs or policies. 
Subcontractor is not authorized to and is expressly prohibited from
using the Licensed Trademarks in publicity or advertising, including, but not
limited to, use on Subcontractor’s website, letterhead, signs, brochures and
other printed or electronic materials, without the prior written consent of
Callaway Golf, in its sole discretion.

 

(ii)           Other than to Manufacturer,
Subcontractor shall not transfer any Licensed Trademarks by way of any medium
to any other party.  For purposes of 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

this
Agreement, “medium” shall include (but not be limited to):  (i) images printed or otherwise applied
to paper (such as typed, printed, written, or faxed images); (ii) images
recorded in digital form (including, but not limited to, files created by word
processor, paintbrush, and/or graphics software) and stored in removable media
(including, but not limited to, compact disc (“CD”), zip disk, memory
card/stick/flash media, floppy disk), fixed media (including, but not limited
to, computer hard disk), or sent via electronic mail (including attachments
thereto) or otherwise downloaded via the internet, and/or telephone line (e.g.,
via modem); and (iii) line art.

 

(iii)          Subcontractor shall treat the media
upon which the Licensed Trademarks are delivered to an/or stored by
Subcontractor with the utmost level of care and security.  Subcontractor shall store all such media in a
secure location.  For purposes of this
Agreement, a “secure location” shall include, but not be limited to:  (i) for items in tangible format, such
as on paper or floppy disk, a “secure location” would be a locked room or file
cabinet accessible only to a limited number of Subcontractor’s employees on a
strict “need to know” basis; and (ii) for items stored in electronic
format, such as on hard disk or other electronically-recorded files, a “secure
location” would be on a personal computer in a locked room or other secure area
accessible only to a limited number of Subcontractor’s employees on a strict “need
to know” basis, who could access the information only after inputting the
appropriate password to unlock the file in question.

 

(iv)          The Licensed Trademarks shall be used
as shown in Callaway Golf’s Style Guide. 
Subcontractor shall not manipulate or otherwise change the Licensed
Trademarks in any way.

 

(v)           Callaway Golf may, at any time, in
its discretion, request the destruction of any and all media in Subcontractor’s
possession which bears or otherwise contains the Licensed Trademarks.  If so requested, Subcontractor shall provide
Callaway Golf with a certificate signed by an officer of Subcontractor confirming
such destruction.

 

(d)           No Registration.  Subcontractor further agrees not to register
the Licensed Trademarks or any name or mark resembling or confusingly similar
to the Licensed Trademarks in any state or country.  If any application for registration is or has
been filed in any state or country by Subcontractor which relates to any name
or mark which, in the sole opinion of Callaway Golf, is confusingly similar,
deceptive or misleading with respect to the Licensed Trademarks, Subcontractor
shall immediately abandon any such application or registration or, at Callaway
Golf’s sole discretion, assign it to Callaway Golf. Subcontractor shall
reimburse Callaway Golf for all costs and expenses of any opposition,
cancellation or related legal proceedings, including attorneys’ fees, incurred
by Callaway Golf or its authorized representative in connection with any such
registration or application.

 

(e)           No Contest.  Neither Subcontractor nor any of its
employees, officers, directors or agents shall, during the term and after the
expiration or termination 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

of
this Agreement, directly or indirectly contest or aid others in contesting or
do anything or aid others in doing anything which might impair the validity of
or the ownership rights of Callaway Golf in the Licensed Trademarks or dilute
the nature of the Licensed Trademarks, or the goodwill in the Licensed
Trademarks, except as may be required pursuant to the order of a court or
governmental agency.

 

(f)            Infringement.  In the event that Subcontractor learns of any
infringement, threatened infringement or illegal use of the Licensed
Trademarks, or that any third party alleges or claims that the Licensed
Trademarks are liable to cause deception or confusion to the public, or that
the Licensed Trademarks are liable to dilute or infringe any right of any third
party, Subcontractor shall immediately notify Callaway Golf giving the
particulars thereof.  In the event that
Callaway Golf decides in its sole discretion that proceedings should be
commenced or defended, Subcontractor shall provide necessary information and
assistance to Callaway Golf or its authorized representative, including, but
not limited to, access to all of Subcontractor’s records, files and other
information regarding the purchase, manufacture, distribution, and sale of the
Licensed Products or the use of the Licensed Trademarks.  Any such proceedings shall be at the expense
of Callaway Golf, and any recoveries shall belong to Callaway Golf.  Nothing herein, however, shall be deemed to
require Callaway Golf, or to permit Subcontractor, to enforce the Licensed
Trademarks against others.  Subcontractor
shall not take any action to prevent infringements, imitations or illegal uses
of the Licensed Trademarks without the prior written consent of Callaway Golf.

 

8.                                      CONFIDENTIALITY
OF INFORMATION

 

(a)           Non-Disclosure.  Subcontractor agrees that any Proprietary
Information (as hereinafter defined) which Subcontractor receives as a result
of this Agreement or otherwise shall not be divulged or disclosed to any other
party without the prior express written consent of Callaway Golf. In addition,
Subcontractor shall hold in confidence any Proprietary Information and agrees
to use Proprietary Information only during the term of this Agreement in a
manner consistent with the purposes of this Agreement.  In the event Subcontractor believes that it
is legally required to disclose any Proprietary Information, Subcontractor
shall give reasonable notice to Callaway Golf prior to disclosure to a third
party and shall take such legally permissible steps as are reasonably necessary
to protect the Proprietary Information, including, but not limited to, seeking
orders from a court of competent jurisdiction preventing disclosure or limiting
disclosure thereof.  Upon the expiration
or earlier termination of this Agreement, Subcontractor shall promptly return
to Callaway Golf, or, with Callaway Golf’s prior written consent, shall destroy
all written (including that which is contained on computers) Proprietary
Information in its possession, custody or control, regardless of the source of
such information or material.

 

(b)           Proprietary Information.  “Proprietary Information” shall mean
information, whether written, oral, or in computer/machine readable form, not
generally available to the public relating to the Licensed Trademarks, Licensed
Products, or products or business of Callaway Golf or its subsidiaries. Without
limiting the foregoing, 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

it
includes the concepts and ideas involved in the products designed and
manufactured by Callaway Golf or its subsidiaries or upgrades of such products,
whether patentable or not, and includes, but is not limited to, all designs,
processes, formulas, manuals and techniques disclosed by Callaway Golf or
Manufacturer to Subcontractor or observed by Subcontractor, whether or not
related to the Licensed Products.

 

9.             AGREEMENT PERSONAL

 

Except for Callaway Golf
which is a third party beneficiary hereunder, the benefit of this Agreement
shall be personal to Subcontractor who shall not subcontract, transfer or
assign the same or any of its rights or obligations hereunder, nor grant or
purport to grant any sublicense with respect to the Licensed Trademarks (and
any purported subcontract, transfer or assignment shall automatically be null
and void).  Subcontractor shall conduct
all manufacturing, packaging and storage of the Licensed Products at its
facilities and shall not contract with any other person or entity to manufacture,
package or store the Licensed Products.

 

10.          INJUNCTIVE RELIEF

 

Subcontractor acknowledges
that the Proprietary Information has been developed or obtained by the
investment of significant time, effort and expense and provides Callaway Golf
with a significant competitive advantage in its business.  Moreover, Subcontractor acknowledges that the
Licensed Trademarks represent the goodwill of Callaway Golf.  If Subcontractor:  (a) fails to comply with any of the
confidentiality obligations hereunder, or (b) fails to comply with any of
the provisions contained in this Agreement pertaining to the use or
restrictions on use of the Licensed Trademarks, Subcontractor agrees that in
either event Callaway Golf will suffer immediate, irreparable harm for which
monetary damages will provide inadequate compensation.  Accordingly, Subcontractor agrees that
Callaway Golf will be entitled, in addition to any other remedies available to
it, at law or in equity, to immediate injunctive relief to specifically enforce
the terms of this Agreement.

 

11.                               NOTICES

 

Any
material, copy, sample, specimen, payment, report or notice required or
permitted to be given under this Agreement shall be given in writing,
certified, return receipt requested or registered and postage prepaid, or by
confirmed facsimile message, overnight delivery by nationally recognized
courier service or personal delivery, and shall be directed by one party to the
others at their respective address as follows unless otherwise provided for in
this Agreement:

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

	
  Manufacturer:

  	
   

  
	
   

  	
   

  
	
  «Company»

  	
   

  
	
  «Address1»

  	
   

  
	
  «Address2»

  	
   

  
	
  «Address3»

  	
   

  
	
  Telephone:

  	
  «WorkPhone»

  
	
  Facsimile:

  	
  «Fax»

  
	
  Attention:

  	
  «PointofContact»

  
	
   

  
	
  Subcontractor:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
   

  
	
  Attention:

  	
   

  	
   

  
	
   

  	
   

  
	
  with a copy to:

  	
   

  
	
   

  	
   

  
	
  Callaway Golf Company

  	
   

  
	
  2180 Rutherford Road

  	
   

  
	
  Carlsbad, California 92008-8815

  	
   

  
	
  Telephone: [***]

  	
   

  
	
  Facsimile: [***]

  	
   

  
	
  Attention: Licensing Department

  	
   

  
	
   

  	
   

  
	
  Callaway Golf Company

  	
   

  
	
  2180 Rutherford Road

  	
   

  
	
  Carlsbad, California 92008-8815

  	
   

  
	
  Telephone: [***]

  	
   

  
	
  Facsimile: [***]

  	
   

  
	
  Attention: Legal Department

  	
   

  
				

 

Any
party may change its address to which notices or requests shall be directed by
written notice to the parties, but until such change of address has been
received, any notice or request sent to the above address shall be valid.

 

12.                               COMPLIANCE
WITH LAWS

 

In the
performance of this Agreement, Subcontractor shall comply with all applicable
laws and regulations, including those pertaining to the proper use and 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

designation of the Licensed Trademarks and including those
pertaining to the manufacturing, labeling, and distribution of Licensed
Products. Should Subcontractor become aware of any applicable laws or
regulations that are inconsistent with the provisions of this Agreement,
Subcontractor shall immediately notify Manufacturer and Callaway Golf of such
inconsistency. Manufacturer and Callaway Golf may, at each of their option,
either waive the performance of such inconsistent provisions, make such
modifications to this Agreement as may be mutually agreed upon by the parties
hereto, or terminate the license and rights granted hereunder.

 

13.          GOVERNMENTAL LICENSES, PERMITS AND APPROVALS

 

Subcontractor, at its
expense, shall be responsible for obtaining and maintaining all licenses,
permits and approvals which are required by all appropriate governmental
authorities in connection with this Agreement, and complying with any
requirements of such governmental authorities for the registration or recording
of this Agreement. Subcontractor shall furnish to Manufacturer and Callaway
Golf written evidence from such governmental authorities of any such licenses,
permits, clearances, authorizations, approvals, registration or recording.

 

14.          DISPUTE RESOLUTION

 

Subcontractor agrees to be
joined in any proceeding brought between Manufacturer and Callaway Golf
relating to the subject matter of that certain Manufacturing and Trademark
License Agreement between Manufacturer and Callaway Golf and further agrees to
the jurisdiction in which such legal proceeding is brought.

 

 

	
   

  	
   

  
	
  (Subcontractor
  Initials)

  	
   

  

 

15.          WAIVER

 

Subcontractor
expressly waives and disclaims any additional or superior rights under this
Agreement or as a result of any efforts of Subcontractor pursuant to this
Agreement, as against Callaway Golf.

 

16.          MISCELLANEOUS

 

(a)           Section Headings.  The headings of the Sections hereof are
included for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.

 

(b)           Entire Agreement; Conflicts.  This Agreement contains the entire agreement
between Manufacturer and Subcontractor relating to the subject matter hereof,
including the use by Subcontractor of the Licensed Trademarks and the
manufacture and sale of the Licensed Products by Subcontractor, and supersedes
all 

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

prior
agreements and understandings, oral or written, between the parties.  This Agreement may not be released,
discharged, abandoned, changed or modified in any manner except by an
instrument in writing signed by the parties. 
In the event of any conflict between this Agreement and the provisions
of any other agreement involving Subcontractor and Manufacturer, including but
limited to, any applicable Callaway Golf Purchase Order, the provisions of this
Agreement shall prevail.

 

(c)           Governing Law.  The construction and performance of this
Agreement will be governed by the laws of the State of California (U.S.A.),
without regard to choice of law principles.

 

(d)           Independent Contractor.  It is understood and agreed by the parties
hereto that this Agreement does not create a fiduciary relationship between
Manufacturer and Subcontractor, and is not intended to make either party a
general or special agent, joint venturer, partner, or employee of the other for
any purpose. Subcontractor, therefore, shall have no authority to act for or on
behalf of Manufacturer, or to commit Manufacturer to any contractual
obligation, or to extend any warranty or make any representation on behalf of
Manufacturer.  Similarly, Manufacturer
shall have no authority to act for or on behalf of Subcontractor or any of its
affiliates, or to commit Subcontractor or any of its affiliates to any
contractual obligation, or to extend any warranty or make any representation on
behalf of Subcontractor or any of its affiliates.  Neither Manufacturer nor Subcontractor shall
be obligated by or have any liability under any agreements or representations
made by the other which are not expressly authorized hereunder. Subcontractor
shall not take any action or make any commitment for which it has no authority.

 

(e)           Severability.  If any provision of this Agreement violates
or is unenforceable under any applicable law of any jurisdiction in which
activities hereunder are performed, that provision shall be deemed void and the
remaining provisions shall remain in full force and effect.

 

(f)            Legal Fees.  In any dispute, whether or not litigation is
commenced, the prevailing party shall be entitled to its costs and expenses
incurred, including reasonable legal fees.

 

[INTENTIONALLY LEFT BLANK]

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

(g)           Counterparts.  The parties hereto in several counterparts
may execute this Agreement, and each such counterpart shall be deemed to be an
original and all such counterparts shall together constitute one and the same
agreement.

 

IN
WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representative as of the
Effective Date.

 

	
  [Manufacturer]

  	
   

  	
  Subcontractor:

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Date:

  	
   

  
												

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

SCHEDULE 1

 

LICENSED TRADEMARKS

 

*** CONFIDENTIAL TREATMENT REQUESTED ***

 

 

SCHEDULE 2

 

APPROVED PRODUCTS

 

	
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*** CONFIDENTIAL TREATMENT REQUESTED ***

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