-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RiB/YGd19LLg9BshV/ILL3DNOEyogSyHf9xVCsgYKAsSxANPyJ7oPHksmZyLs8Gw 7hBzadyfevTuMMN68HipGA== 0001144204-06-011241.txt : 20060322 0001144204-06-011241.hdr.sgml : 20060322 20060322171307 ACCESSION NUMBER: 0001144204-06-011241 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060322 DATE AS OF CHANGE: 20060322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAMS GOLF INC CENTRAL INDEX KEY: 0001059763 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 752320087 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24583 FILM NUMBER: 06704375 BUSINESS ADDRESS: STREET 1: 2801 EAST PLANO PARKWAY CITY: PLANO STATE: TX ZIP: 75074 BUSINESS PHONE: 9726739000 MAIL ADDRESS: STREET 1: 2801 EAST PLANO PARKWAY CITY: PLANO STATE: TX ZIP: 75074 10-K 1 v037990_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

0For the fiscal year ended December 31, 2005

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 0-24583

ADAMS GOLF, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	75-2320087
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

300 Delaware Avenue, Suite 572, Wilmington, Delaware	19801
(Address of principal executive offices)	(Zip Code)

(302) 427-5892

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock $.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes x No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one)

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes x No

The aggregate market value of the Registrant's common stock held by nonaffiliates of the Registrant at June 30, 2005 was $19,201,210 based on the closing sales price of $1.43 per share of the Registrant's common stock on the OTC Bulletin Board.

The number of outstanding shares of the Registrant's common stock, par value $.001 per share, was 22,844,153 on March 15, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the Registrant's definitive proxy statement, which will be filed on or before April 30, 2006, for the Annual Meeting of Stockholders to be held on or about May 17, 2006.

ADAMS GOLF, INC.

FORM 10-K

TABLE OF CONTENTS

PART I
	Item 1.	Business	Page 3
	Item 1A.	Risk Factors	Page 11
	Item 2.	Properties	Page 16
	Item 3.	Legal Proceedings	Page 17
	Item 4.	Submission of Matters to a Vote of Security Holders	Page 17

PART II
	Item 5.	Market for Registrant's Common Equity and Related Stockholders Matters and Issuer Purchases of Equity Securities	Page 18
	Item 6.	Selected Financial Data	Page 19
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	Page 20
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	Page 28
	Item 8.	Financial Statements and Supplementary Data	Page 29
	Item 9A.	Controls and Procedures	Page 29

PART III
	Item 10	Directors and Executive Officers of the Registrant	Page 30
	Item 11	Executive Compensation	Page 30
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page 30
	Item 13	Certain Relationships and Related Transactions	Page 30
	Item 14	Principal Accounting Fees and Services	Page 30

PART IV
	Item 15	Exhibits and Financial Statement Schedules	Page 31

Forward Looking Statements

This Annual Report contains "forward-looking statements" made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The statements include, but are not limited to: statements regarding pending litigation, statements regarding liquidity and our ability to increase revenues or achieve satisfactory operational performance, statements regarding our ability to satisfy our cash requirements and our ability to satisfy our capital needs, including cash requirements during the next twelve months, statements regarding our ability to produce products commercially acceptable to consumers and, statements using terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "seek" or "believe". Such statements reflect the Company's current view with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, the following:

--Product development difficulties;

--Product approval and conformity to governing body regulations;

--Assembly difficulties;

--Product introductions;

--Patent infringement risks;

--Uncertainty of the ability to protect intellectual property rights;

--Market demand and acceptance of products;

--The impact of changing economic conditions;

--The future market for our capital stock;

--The success of our marketing strategy;

--Our dependence on a limited number of customers;

--Business conditions in the golf industry;

--Reliance on third parties, including suppliers;

--The impact of market peers and their respective products;

--The actions of competitors, including pricing, advertising and product development risks concerning

future technology;

--The management of sales channels and re-distribution;

--The uncertainty of the results of pending litigation;

--The adequacy of the allowance for doubtful accounts, obsolete inventory and warranty reserves;

--The risk associated with the events unrecoverable under existing insurance policies; and

--The impact of operational restructuring on operating results and liquidity and one-time events and other

factors detailed in this Annual Report under "Risk Factors" in Item 1A, below.

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein. Except as required by federal securities laws, Adams Golf undertakes no obligation to publicly update or revise any written or oral forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this Annual Report. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.

Item 1. Business

General

Founded in 1987, Adams Golf, Inc. (the “Company” or “Adams Golf”) initially operated as a component supplier and contract manufacturer. Thereafter, the Company established its custom fitting operation. Today it designs, assembles, markets and distributes premium quality, technologically innovative golf clubs, including the RPM drivers and fairway woods, Ovation drivers and fairway woods, the Idea A2 and A2 OS irons, and Idea A2 I-woods, Idea, A1 and A1 Pro Irons and Idea i-Woods, the Tight Lies family of fairway woods, the Redline family of fairway woods and drivers, the Tight Lies GT and GT2 irons and i-Woods, the Tom Watson signature and Puglielli series of wedges, and certain accessories. The Company was incorporated in 1987 and re-domesticated in Delaware in 1990. The Company completed an internal reorganization in 1997 and now conducts its operations through several direct and indirect wholly-owned subsidiaries, agencies and distributorships.

Segments and Products

Adams Golf operates in a single segment within the golf industry (golf clubs and accessories) and offers more than one class of product within that segment. The Company currently offers the following classes of products:

Drivers

The Company currently offers a variety of different driver models based on the shape, size and material used in the club head. The Company's current driver heads are made of titanium, stainless steel and carbon fiber depending on the model. In November 2004, the Company introduced the Redline RPM series of drivers, which offers a 460cc titanium head with a carbon fiber crown. In March of 2005, the Company introduced the Redline RPM 430 Q driver. This driver has a 430 cc titanium head, a carbon fiber crown and 4 movable weights. In June of 2005, the Company introduced the Redline RPM 460 Dual driver. This driver has a 460 cc titanium head, a carbon fiber crown and 2 movable weights. Both of these driver heads are designed to maximize the distance, forgiveness and accuracy of the drive. The Redline RPM driver series is available in a variety of lofts and with a 60-gram graphite shaft. In addition to the new Redline RPM series, Adams Golf continues to offer the GT2 series of drivers.

Fairway Woods

In November 2004, the Company introduced its new Redline RPM series of fairway woods, which is available in a titanium or stainless steel head and a carbon fiber crown. The Redline RPM fairway wood series provides a high performance face designed to offer maximum distance and ease in hitting from all lies. Redline RPM Fairway woods are offered in a variety of lofts with a 75-gram graphite shaft. The Company offers a variety of individual hybrid irons in the recently introduced A2 and A2 OS line. These individual hybrid clubs are designed to combine the distance of a long iron with the playability of a fairway wood. The Company also offers the GT2 stainless steel fairway woods line. The Company continues to offer the Tight Lies Idea i-Wood and the GT i-Wood. The Company also continues to offer its Ovation and original Tight Lies fairway woods.

Irons

In September 2005, the Company launched its newest line of Idea Irons, A2 and A2 OS. The A2 irons are offered in an 8 piece men’s set, with two graphite-shafted hybrid irons integrated into the set. The A2 OS irons are offered in 3 different 8 piece configurations—one for men, one for women, and one for seniors. The Company also offers a 12 piece women’s set in the A2 OS line, which includes a 460 cc titanium driver, 2 fairway woods, an 8 piece women’s A2 OS iron set, a putter and a bag. A2 and A2 OS iron sets utilize A2 and A2 OS i-Woods -- a hybrid club that is part iron and part wood -- for long irons. A2 and A2 OS i-Woods are designed to combine the distance of a long iron with the playability of a fairway wood. Oversized hollow back irons are utilized for the mid irons. The center of gravity of hollow backed irons is placed low and to the back to deliver distance and accuracy. The short irons are oversized cavity back irons, which are designed for maximum control and feel. This hybrid set of A2 and A2 OS irons was designed to be truly easy to hit. The Company continues to sell several sets of irons under the Original Idea brand name.

Wedges and Other

As a complement to the Idea irons, Adams Golf offers the Tom Watson signature wedges with a classic profile and the newest line of wedges, Puglielli wedges, launched in September of 2005 . The Company also offers a line of golf bags, hats and other accessories.

Percentage of Net Sales by Product Class

	2005			2004			2003

Drivers		27.8	%		19.6	%		21.6	%
Fairway Woods		25.8			38.1			34.0
Irons		42.4			39.7			39.9
Wedges and Other		4.0			2.6			4.5

Total		100.0	%		100.0	%		100.0	%

The Company's growth and ultimate success depends, in large part, on its ability to develop and introduce new products that are accepted by consumers in the marketplace. Historically, a large portion of new golf club technologies and product designs have been met with consumer rejection. Certain products introduced by the Company have not met the level of consumer acceptance anticipated by management. No assurance can be given that the Company will be able to continue to design, manufacture and introduce new products that will meet with market acceptance. Failure by the Company to identify and develop innovative new products that achieve widespread market acceptance would adversely affect the Company's future growth and viability. Additionally, successful technologies, designs and product concepts are likely to be copied by competitors. Certain of the Company's products and technologies have been copied by competitors in the past, resulting in, among other things, the diversion of management's attention, confusion in the marketplace and price/margin erosion. The Company's operating results have fluctuated and could continue to fluctuate as a result of the number, timing and market acceptance of new product introductions by the Company and its competitors.

Design and Development

The Company's design and development team is responsible for developing, testing and introducing new technologies and product designs. This team is currently led by Tim Reed, Vice President-Research and Development. Prior to joining the Company, Mr. Reed spent over 18 years in the golf industry and, most notably, was responsible for all new product introductions at TearDrop Golf Company, which included TearDrop Putters and Tommy Armour and Ram brand golf clubs. Barney Adams, the Company's founder, non-executive Chairman and inventor of the Tight Lies fairway woods, consults with Adams Golf's in-house design development team.

Together with management, the design and development team engages in a four-step process to create new products.

Market Evaluation - Prior to development of any potential concepts, the Company's management team, in conjunction with the design and development team, performs an extensive evaluation of the current golf market to determine which particular product classes the Company will pursue for concept development. As a part of the market evaluation, the Company analyzes its current product offerings against current and anticipated competitor products with respect to consumer preferences. To determine consumer preferences, the Company utilizes its independent sales force, consumer surveys and market intelligence tools that solicit product and design characteristics desired by consumers. Once the consumer product and design characteristics are determined and evaluated, management and the design and development team determine the product classes and types of products that will be pursued for the upcoming season.

Performance Characteristics - For the product classes and the types of products to be offered within those classes, management evaluates the target market for its new concepts and the performance characteristics that are commensurate with the target market. Performance characteristics are always predicated on producing high quality, high performance products. Certain performance characteristics that are evaluated include easy playability, ball flight and spin objectives, desired weight and feel of the product and conformity to U.S. Golf Association ("USGA") golf equipment standards.

Patent Review - The Company considers patent protection for its technologies and product designs to be an important part of its development strategy; however, the Company may not seek patent protection for some of its technologies or product designs. The Company and its patent attorneys conduct a search of prior art and existing products to determine whether a new product idea may be covered by an existing patent. Patent review, depending upon the complexity of the design involved, generally requires between one and six months to complete; however, this stage of product development typically occurs in conjunction with one or more of the other three R&D steps.

Development - Concurrent with the patent review process, the design and development team begins to develop computer generated working designs incorporating the desired performance characteristics, which are then modeled using in-house rapid prototyping systems. During the development phase, substantial consideration is also given to optimal shaft performance, cosmetics and sound characteristics. Once prototypes are developed, they are subjected to stringent iterative testing requirements to determine if the product will deliver the desired performance. In certain circumstances, prototypes are distributed to consumers to solicit feedback with respect to specific product performance characteristics and intangible consumer perception. Using consumer feedback, subsequent modifications are made to the products to achieve the performance requirements desired by the identified target market.

Historically, the entire process from Market Evaluation through Development has taken from six to twelve months to complete.

The Company's research and development expenses were approximately $2,285,000, $1,847,000 and $1,721,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Patents

The Company's ability to compete effectively in the golf club market may depend on its ability to maintain the proprietary nature of its technologies and products. As of the date hereof, the Company holds 19 U.S. patents relating to certain of its products and proprietary technologies and has five patent applications pending. Assuming timely payment of maintenance fees, if any, the Company expects that the 19 currently issued patents will expire on various dates between 2009 and 2021. The Company holds patents with respect to the design of the Tight Lies fairway wood, the SC Series driver, the Tight Lies Idea and GT irons, including the Company's graphite tipped (GT) shaft, and the Tight Lies ST fairway wood and driver heads. There can be no assurance, however, as to the degree of protection afforded by these or any other patents held by the Company or as to the likelihood that patents will be issued from the pending patent applications. Moreover, the Company's patents may have limited commercial value or may lack sufficient breadth to adequately protect the aspects of the Company's products to which the patents relate. As of the date hereof, the Company holds four foreign patents and has two foreign patent applications pending. The U.S. patents held by the Company do not preclude competitors from developing or marketing products similar to the Company's products in international markets.

There can be no assurance that competitors, many of whom have substantially greater resources than the Company and have made substantial investments in competing products, will not apply for and obtain patents that will prevent, limit or interfere with the Company's ability to make and sell its products. The Company is aware of numerous patents held by third parties that relate to products competitive to the Company's. There is no assurance that these patents would not be used as a basis to challenge the validity of the Company's patent rights, to limit the scope of the Company's patent rights, or to limit the Company's ability to obtain additional or broader patent rights. A successful challenge to the validity of the Company's patents may adversely affect the Company's competitive position. Moreover, there can be no assurance that such patent holders or other third parties will not claim infringement by the Company with respect to current and future products. Because U.S. patent applications are held and examined in secrecy, it is also possible that presently pending U.S. applications will eventually issue with claims that may be infringed by the Company's products or technologies. The defense and prosecution of patent suits is costly and time-consuming, even if the outcome is favorable. This is particularly true in foreign countries where the expenses associated with such proceedings can be prohibitive. An adverse outcome in the defense of a patent suit could subject the Company to significant liabilities to third parties, require the Company and others to cease selling products, or require disputed rights to be licensed from third parties. Such licenses may not be available on satisfactory terms, if at all.

Despite the Company's efforts to protect its patent and other intellectual property rights, unauthorized parties have attempted and are expected to continue to attempt to copy all, or certain aspects of, the Company's products. Policing unauthorized use of the Company's intellectual property rights can be difficult and expensive, and while the Company generally takes appropriate action whenever it discovers any of its products or designs have been copied, knock-offs and counterfeit products are a persistent problem in the performance-oriented golf club industry. There can be no assurance that the Company's means of protecting its patent and other intellectual property rights will be adequate.

Raw Materials, Manufacturing and Assembly

The Company manages all stages of manufacturing, from sourcing to assembly, in order to maintain a high level of product quality and consistency. The Company establishes product specifications, selects the material used to produce the components, and tests the specifications of components received by the Company.

As part of the Company's quality control program, the Company reviews the quality assurance programs at the manufacturing facilities of its component part suppliers to monitor adherence to design specifications. In addition to the quality assurance conducted by the suppliers at their facilities, the Company also conducts random samples and performs testing of products received from the suppliers or produced at the Company's facility to ensure consistency with the Company's design specifications. Golf clubs are then built by the Company's assembly personnel using the appropriate component parts.

The Company has put into place a purchasing procedure that strives to negotiate effective terms with various vendors while continuing to ensure quality of components. The Company is continually re-evaluating existing vendors while testing potential new vendors for all the various product lines offered by the Company. At any time, the Company may purchase a substantial majority of its volume of a specific component part from a single vendor, but the Company continually strives to maintain a primary and several secondary suppliers for each component part. Substantially all of the Company's fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in China and Taiwan. Since many of our available component suppliers are located in close proximity in Asia, this concentration could adversely effect our ability to obtain components resulting from negative events such as, but not limited to, foreign government relations, import and export control, political unrest, disruptions or delays in shipments and changes in economic conditions and fluctuation in exchange rates.

The Company could, in the future, experience shortages of components or periods of increased price pressures, which could have a material adverse effect on the Company's business, results of operations, financial position and/or liquidity. To date, the Company has not experienced any material interruptions in supply from any sole supplier.

Marketing

The goals of the Company's marketing efforts are to build its brand identity and drive sales through its retail distribution channels. To accomplish these goals, Adams Golf currently uses golf-specific advertising, engages in promotional activities, and capitalizes on its relationships with well known professional golfers.

Endemic Advertising - The Company's primary advertising efforts focus on golf-specific advertising, which include advertising with television commercials that run during golf tournaments and advertising in golf-related magazines and certain newspapers. The Company also sponsors developmental professional tours and selected golf tournaments.

Promotional Activities - The Company engages in a variety of promotional activities to sell and market its products. Such activities have included consumer sweepstakes and promotional giveaways with certain purchases.

Relationships with Professional Golfers - The Company has entered into endorsement contracts with professional golfers on the PGA and Champions PGA Tours and believes that having a presence on these tours promotes the image of its product lines and builds brand awareness. In January 2005, the Company entered into a five year endorsement agreement with Tom Watson, which will expire on December 31, 2009. Under the terms of the agreement, Mr. Watson is entitled to an annual retainer and bonuses contingent on the levels of his performance in golf events. In exchange for the compensation noted above, Mr. Watson must meet and maintain certain performance requirements, which include, but are not limited to, exclusive use of the Company's products, participation in a minimum number of events and feedback on performance of the Company's products. In addition to the agreement with Mr. Watson, the Company has entered into endorsement agreements with other well-known professionals such as Bubba Dickerson, D.A. Weibring, Dana Quigley, Allen Doyle, Tom Jenkins, Des Smyth, Jerry Pate, R.W. Eaks and Jose Maria Canizares, which expire at various dates through 2009 and require the use of certain of the Company's products.

Markets and Methods of Distribution

The Company's net sales are primarily derived from sales to on- and off- course golf shops, sporting goods retailers, mass merchants and, to a lesser extent, international distributors. No assurances can be given that demand for the Company's current products or the introduction of new products will allow the Company to achieve historical levels of sales in the future.

Sales to Retailers - The Company sells a majority of its products to selected retailers. The Company believes its selective retail distribution strategy helps its retailers maintain profitable margins and maximize sales of the Company's products. For the year ended December 31, 2005, sales to U.S. specialty retailers, mass merchants, sporting goods retailers, and on course accounts accounted for approximately 86% of the Company's total net sales, as compared to approximately 89% for the year ended December 31, 2004. As products mature, they may be sold to alternative channels of distribution, which are not in direct competition with selected retailers for premier product lines.

Adams Golf maintains a field sales staff that at February 24, 2006 consisted of 47 independent sales representatives, one senior vice president, two regional vice presidents, a key accounts director and two regional sales managers, who are in regular personal contact with the Company's retail accounts (approximately 4,000 retailers). These sales representatives, sales managers and regional vice presidents are supported by eight inside sales representatives who maintain contact with the Company's retailers nationwide. The inside sales representatives also serve in a customer service capacity as the Company believes that superior customer service can significantly enhance its marketing efforts.

International Sales - International sales are made primarily in Europe, Canada, Japan and other Asian regions. International sales in Canada are made through an agency relationship. Commencing January 1, 2002, sales in Japan are made through an independent distributor. Prior to that date, sales were made through a wholly-owned subsidiary of the Company. Commencing November 1, 2002, sales in the United Kingdom are made through an independent distributor. International sales to other countries throughout the world are made through a network of approximately 30 independent distributors. For the years ended December 31, 2005, 2004 and 2003, international sales accounted for approximately 14.1%, 11.4% and 12.5%, respectively, of the Company's net sales.

Web Site - The Company maintains a Web site at www.adamsgolf.com, which allows the visitor to access certain information about the Company's products and heritage, locate retailers, inquire into careers, access corporate information related to corporate governance and news releases, and inquire about contacting the Company directly. The Company does not currently sell its products via its Web site.

Unauthorized Distribution of Counterfeit Clubs

Despite the Company's efforts to limit its distribution to selected retailers, some quantities of the Company's products have been found in unapproved outlets or distribution channels, including unapproved retailers conducting business on common internet auction sites. The existence of a "gray market" in the Company's products can undermine the sales of authorized retailers and foreign wholesale distributors who promote and support the Company's products and can injure the Company's image in the minds of its customers and consumers. Adams Golf makes efforts to limit or deter unauthorized distribution of its products, but does not believe the unauthorized distribution of its products can be totally eliminated. The Company does not believe that the unauthorized distribution of its clubs has had, or will have, a material adverse effect on the Company's results of operations, financial condition or competitive position, although there can be no assurance as to future effects resulting from the unauthorized distribution of its products.

In addition, the Company is occasionally made aware of the existence of counterfeit copies of its golf clubs, particularly in foreign markets. The Company takes action in these situations through local authorities and legal counsel where practical. The Company does not believe that the availability of counterfeit clubs has had or will have a material adverse effect on the Company's results of operations, financial condition and/or competitive position, although there can be no assurance as to future effects resulting from the unauthorized distribution of its products.

Industry Specific Requirements

The Company performs ongoing credit evaluation of its wholesale customers' financial condition and generally provides credit without the requirement of collateral from these customers. The Company measures each customer's financial strength using various key aspects such as, but not limited to, the customer's overall credit risk (via Dun and Bradstreet reports), payment history, track record for meeting payment plans, industry communications, the portion of the customer’s balance that is past due and other various items. The Company also looks at the overall aging of the receivables in total and relative to prior periods to determine the necessary reserve requirements. Periods will fluctuate depending on the strength of the customers and the change in mix of customer and their respective strength could affect the reserve disproportionately compared to the total change in the accounts receivable balance. The Company believes it has adequate reserves for potential credit losses. Due to industry sensitivity to consumer buying trends and available disposable income, the Company has in the past extended payment terms for specific retail customers. Issuance of these terms (i.e. greater than 30 days or specific dating) is dependent on the Company's relationship with the customer and the customer's payment history. Payment terms are extended to selected customers typically during off-peak times in the year in order to promote the Company's brand name and to assure adequate product availability often to coincide with planned promotions or advertising campaigns. Although a significant amount of the Company's sales are not affected by these terms, the extended terms do have a negative impact on the Company's financial position and liquidity. The Company expects to continue to selectively offer extended payment terms in the future, depending upon known industry trends and the Company's financial condition.

In addition to extended payment terms, the nature of the industry also requires that the Company carry a substantial level of inventory due to the lead times associated with purchasing components overseas coupled with the seasonality of customer demand. The Company's inventory balances were approximately $16,151,000 and $11,558,000 at December 31, 2005, and 2004, respectively. The increase in inventory levels over these dates is primarily a result of incremental purchasing of inventory for recently introduced product lines. A significant portion of the Company's inventory purchases are from one supplier representing approximately 52% and 60% for the year ended December 31, 2005 and 2004, respectively. This supplier and many other industry suppliers are located predominately in China. The Company does not anticipate any changes in the relationships with its suppliers; however, if such change were to occur, the Company has alternative sources available.

Major Customers

The Company is currently dependent on five customers, which collectively comprised approximately 26.0% of net revenues for the year ended December 31, 2005. Of these customers no individual customer represented greater than 5% but less than 10% of net revenues for the year ended December 31, 2005, and one customer represented greater than 10% but less than 15% of net revenues for the year ended December 31, 2005. For the year ended December 31, 2004, six customers comprised approximately 26.4% of net revenues for the year ended December 31, 2004. Of these customers one customer individually represented greater than 5% of net revenues for the year ended December 31, 2004, and no customers represented greater than 10% of net revenues for the year ended December 31, 2004. For the year ended December 31, 2003, eight customers comprised approximately 24.9% of net revenue, of which only one customer represented greater than 5% but less than 10%. The loss of an individual customer or a combination of these customers would have a material adverse effect on the Company's consolidated revenues, results of operations, financial condition and competitive market position.

Seasonality and Quarterly Fluctuations

Golf generally is regarded as a warm weather sport, and net sales of golf equipment have been historically strongest for the Company during the first and second quarters. In addition, net sales of golf clubs are dependent on discretionary consumer spending, which may be affected by general economic conditions. A decrease in consumer spending generally could result in decreased spending on golf equipment, which could have a material adverse effect on the Company's business, operating results and/or financial condition. In addition, the Company's future results of operations could be affected by a number of other factors, such as unseasonable weather patterns such as hurricanes, which interrupts our sales patterns and could generate hardships for customers in the effected area, demand for and market acceptance of the Company's existing and future products; new product introductions by the Company's competitors; competitive pressures resulting in lower than expected selling prices; and the volume of orders that are received and which can be fulfilled in a quarter. Any one or more of these factors could adversely affect the Company or result in the Company failing to achieve its expectations as to future sales or operating results.

Because most operating expenses are relatively fixed in the short term, the Company may be unable to adjust spending sufficiently in a timely manner to compensate for any unexpected sales shortfall that could materially adversely affect quarterly results of operations and liquidity. If technological advances by competitors or other competitive factors require the Company to invest significantly greater resources than anticipated in research and development or sales and marketing efforts, the Company's business, operating results and/or financial condition could be materially adversely affected. Accordingly, the Company believes that period-to-period comparisons of its results of operations should not be relied upon as an indication of future performance. In addition, the results of any quarter are not indicative of results to be expected for a full fiscal year. As a result of fluctuating operating results or other factors discussed in this report, in certain future quarters the Company's results of operations may be below the expectations of public market analysts or investors. In such event, the market price of the Company's common stock could be materially adversely affected.

Backlog

The amount of the Company's backlog orders at any particular time is affected by a number of factors, including seasonality and scheduling of the manufacturing and shipment of products. At February 24, 2006, the Company had current backorders of $1,901,000, or 3.4% of total net sales for 2005, and orders to be fulfilled at a future date, not to exceed the current year, of $6,823,000, or 12.1% of total net sales for 2005. At February 25, 2005, the Company had current backorders of $449,000, or 0.8% of total net sales for 2004, and orders to be fulfilled at a future date, not to exceed the then current year, of $2,411,000, or 4.2% of total net sales for 2004. The current increase in backorders is a result of increased product demand for our most recent product introduction, the RPM low profile fairway wood, which was launched in the first quarter of 2006. Management has concluded that, for this purpose, a backorder of greater than 10% of total annual net sales would be significant. The increase in orders to be fulfilled at a future date is a result of the recent product introductions of Idea A2 and A2 OS irons and RPM low profile fairway woods. Management does not anticipate that a significant level of orders will remain unfilled within the current fiscal year. In addition, the Company believes that the amount of its backlog is not an appropriate indicator of levels of future sales.

Competition

The golf club market is highly competitive. The Company competes with a number of established golf club manufacturers, some of which have greater financial and other resources than the Company. The Company's competitors include Callaway Golf Company, adidas-Salomon AG (Taylor Made - adidas Golf), Nike, Inc. (Nike Golf), Fortune Brands, Inc. (Titleist and Cobra) and Karsten Assembly Company (PING), among others. The Company competes primarily on the basis of performance, brand name recognition, quality and price. The Company believes that its ability to market its products through multiple distribution channels, including on- and off- course golf shops and other retailers, is important to the manner in which the Company competes. The purchasing decisions of many golfers are often the result of highly subjective preferences, which can be influenced by many factors, including, among others, advertising, media, promotions and product endorsements. These preferences may also be subject to rapid and unanticipated changes. The Company could face substantial competition from existing or new competitors who introduce and successfully promote golf clubs that achieve market acceptance. Such competition could result in significant price erosion or increased promotional expenditures, either of which could have a material adverse effect on the Company's business, operating results and/or financial condition. There can be no assurance that Adams Golf will be able to compete successfully against current and future sources of competition or that its business, operating results and/or financial condition will not be adversely affected by increased competition in the markets in which it operates.

The golf club industry is generally characterized by rapid and widespread imitation of popular technologies, designs and product concepts. Due to the success of the Tight Lies fairway woods, several competitors introduced products similar to the Tight Lies fairway woods. Should the Company's recently introduced product lines achieve widespread market success, it is reasonable to expect that the Company's current and future competitors would move quickly to introduce similar products that would directly compete with the new product lines. The Company may face competition from manufacturers introducing other new or innovative products or successfully promoting golf clubs that achieve market acceptance. The failure to successfully compete in the future could result in a material deterioration of customer loyalty and the Company's image, and could have a material adverse effect on the Company's business, results of operations, financial position and/or liquidity.

The introduction of new products by the Company or its competitors can be expected to result in closeouts of existing inventories at both the wholesale and retail levels. Such closeouts are likely to result in reduced margins on the sale of older products, as well as reduced sales of new products given the availability of older products at lower prices. As the new RPM product line of fairway woods and drivers were introduced, older product lines such as the original Tight Lies, Redline fairway woods and drivers and Tight Lies GT fairway woods and drivers experienced reductions in price at both wholesale and retail levels.

Domestic and Foreign Operations

Domestic and foreign net sales for the years ended December 31, 2005, 2004 and 2003 were comprised as follows:

		2005				2004				2003
Domestic	$	48,496,000	85.9	%	$	50,301,000	88.6	%	$	44,538,000	87.5	%
Foreign		7,928,000	14.1			6,461,000	11.4			6,341,000	12.5

Total	$	56,424,000	100.0	%	$	56,762,000	100.0	%	$	50,879,000	100.0	%

Foreign net sales are generated in various regions including, but not limited to, Canada (a majority of the Company's foreign sales), Europe, Japan, Australia, and South America. A change in the Company’s relationship with one or more of the customers or distributors could negatively impact the volume of foreign sales.

The Company's business is subject to the risks generally associated with doing business abroad, such as foreign government relations, foreign consumer preferences, import and export control, political unrest disruptions or delays in shipments and changes in economic conditions and fluctuation in exchange rates in which the Company purchases components or sells it products. Recent foreign events, including, without limitation, continuing U.S. military operations and the resulting instability in Iraq, could potentially cause a delay in imports or exports due to heightened security with customs.

Employees

At February 24, 2006, the Company had 124 full-time employees including 62 engaged in order fulfillment, 15 in research and development and quality control, 8 in sales support and 39 in management and administration. The Company's employees are not unionized. Management believes that its relations with its employees are good.

Item 1A. Risk Factors

The financial statements contained in this report and the related discussion describe and analyze the Company’s financial performance and condition for the periods indicated. For the most part, this information is historical. The Company’s prior results are not necessarily indicative of the Company’s future performance or financial condition. The Company therefore has included in this report a discussion of certain factors which could affect the Company’s future performance or financial condition. These factors could cause the Company’s future performance or financial condition to differ materially from its prior performance or financial condition or from management’s expectations or estimates of the Company’s future performance or financial condition.

Dependence on New Product Introductions; Uncertain Consumer Acceptance

The Company's ultimate success depends, in large part, on its ability to successfully develop and introduce new products widely accepted in the marketplace. Historically, a large portion of new golf club technologies and product designs have been met with consumer rejection. Certain products previously introduced by the Company have not met the level of consumer acceptance anticipated by management. No assurance can be given that the Company's current or future products will be met with consumer acceptance. Failure by the Company to timely identify and develop innovative new products that achieve widespread market acceptance would adversely affect the Company's continued success and viability. Additionally, successful technologies, designs and product concepts are likely to be copied by competitors. Accordingly, the Company's operating results could fluctuate as a result of the amount, timing, and market acceptance of new product introductions by the Company or its competitors. If the Company is unable to develop new products that will ultimately be widely accepted by a wide range of customers, it will have a material adverse effect on the Company’s business and results from operations.

The design of new golf clubs is also greatly influenced by the rules and interpretations of the USGA. Although the golf equipment standards established by the USGA generally apply only to competitive events sanctioned by the organization, the Company believes that it is critical for its future success that new clubs introduced by the Company comply with USGA standards. The Company invests significant resources in the development of new products and efforts to comply with USGA standards may hinder or delay development of the product and adversely effect revenues and customer demand. Additionally, increased costs associated with complying to USGA standards could reduce margins and adversely effect the results of operations.

Uncertainty Regarding Continuation of Profitability

While the Company generated net income during the years ended December 31, 2003, 2004 and 2005, it has not done so historically on a consistent basis. There can be no assurance that the Company will be able to increase or maintain revenues or continue such profitability on a quarterly or annual basis in the future. An inability to continue such improvements in the Company's financial performance could jeopardize the Company's ability to develop, enhance, and market products, retain qualified personnel, and take advantage of future opportunities or respond to competitive pressures.

Need for Additional Capital

No assurances can be given that the Company will have sufficient cash resources beyond twelve months or to fund our operations over a length of time. Historically, the Company has funded capital expenditures for operations through cash flow from operations. To the extent our cash requirements or assumptions change, the Company may have to raise additional capital and/or further curtail its operating expenses, including further operational restructurings. If the Company needs to raise additional funds through the issuance of equity securities, the percentage ownership of the stockholders of the Company would be reduced, stockholders could experience additional dilution, and/or such equity securities could have rights, preferences or privileges senior to the Company's common stock. Nevertheless, given the current market price for the Company's common stock and the state of the capital markets generally, the Company does not expect that it would be able to raise funds through the issuance of its capital stock in the foreseeable future. The Company may also find it difficult to secure additional debt financing beyond the current credit facility. There can be no assurance that financing will be available if needed on terms favorable to the Company, or at all. Accordingly, it is possible that the only sources of funding are current cash reserves, projected cash flows from operations and up to $10.0 million of borrowings available under the Company's revolving credit facility.

Increasing Competition

The golf club industry is generally characterized by rapid and widespread imitation of popular technologies, designs and product concepts. Due to the success of the Tight Lies fairway woods, several competitors introduced products similar to the Tight Lies fairway woods. Should the Company's recently introduced product lines achieve widespread market success, it is reasonable to expect that the Company's current and future competitors would move quickly to introduce similar products that would directly compete with the new product lines. The Company may face competition from manufacturers introducing other new or innovative products or successfully promoting golf clubs that achieve market acceptance. Accordingly, the Company's operating results could fluctuate as a result of amount, timing and market acceptance of new products introduced by the Company or the Company's competitors. The failure to successfully compete in the future could result in a material deterioration of customer loyalty and the Company's image, and could have a material adverse effect on the Company's business, results of operations, financial position and/or liquidity.

The introduction of new products by the Company or its competitors can be expected to result in closeouts of existing inventories at both the wholesale and retail levels. Such closeouts are likely to result in reduced margins on the sale of older products, as well as reduced sales of new products given the availability of older products at lower prices. As the new Idea A2 and A2 OS Irons and the Redline RPM product line of fairway woods and drivers were introduced, older product lines such as the original Tight Lies, Redline fairway woods and drivers, Ovation and Tight Lies GT fairway woods and drivers experienced reductions in price at both wholesale and retail levels.

Dependence on Key Personnel and Endorsements

The Company's success depends to an extent upon the performance of its management team, which includes the Company's Chief Executive Officer and President, Oliver G. (Chip) Brewer, III, who participates in all aspects of the Company's operations, including product development and sales efforts. The loss or unavailability of Mr. Brewer could adversely affect the Company's business and prospects. In addition, Mr. Tim Reed joined the management team in 2001 in the capacity of Vice President of Research and Development. Mr. Reed's inability to continue to lead his team to develop innovative products could also adversely affect the Company's business. With the exception of the Company's Chairman of the Board of Directors, B.H. (Barney) Adams, and Mr. Brewer, none of the Company's officers and employees are bound by employment agreements, and the relations of such officers and employees are, therefore, at will. The Company established key-men life insurance policies on the lives of Mr. Brewer and Mr. Reed; however, there can be no assurance that the proceeds of these policies could adequately compensate the Company for the loss of their services. In addition, there is strong competition for qualified personnel in the golf club industry, and the inability to continue to attract, retain and motivate other key personnel could adversely affect the Company's business, operating results and/or financial condition.

In the past, the Company has entered into endorsement arrangements with certain members of the PGA Tour and the Champions PGA Tour, including Tom Watson, Bubba Dickerson, D.A. Weibring, Dana Quigley, Allen Doyle, and other notable players. The loss of one or more of these endorsement arrangements could adversely affect the Company's marketing and sales efforts and, accordingly, its business, operating results and/or financial condition. From time to time, the Company negotiates with and signs endorsement contracts with either existing or new tour players. As is typical in the golf industry generally, the agreements with these professional golfers do not necessarily require that they use the Company's golf clubs at all times during the terms of the respective agreements, including, in certain circumstances, at times when the Company is required to make payments to them. The failure of certain individuals to use the Company's products on one or more occasions has resulted in negative publicity involving the Company. No assurance can be given that the Company's business would not be adversely affected in a material way by negative publicity or by the failure of its known professional endorsers to carry and use the Company's products.

Effectiveness of Marketing Strategy

The Company has designed it's marketing strategy to include advertising efforts in multiple media avenues such as television airtime on golf related events, product education for the consumer through an internet website, publications including periodicals and brochures, and in store media such as point of purchase displays and product introduction fact sheets. For the years ended December 31, 2005, 2004 and 2003, the Company spent approximately $5.0 million, $5.1 million and $3.5 million, respectively, on golf related events, publications and other methods of media. There can be no assurances that a fluctuation in the levels of investments in advertising spending will not result in material fluctuations in the sales of the Company's products.

Source of Supply

The Company has put into place a purchasing procedure that strives to negotiate effective terms with various vendors while continuing to ensure the quality of components. The Company is continually re-evaluating existing vendors while testing potential new vendors for all the various product lines offered by the Company. At any time, the Company may purchase a substantial majority of its volume of a specific component part from a single vendor, but the Company continually strives to maintain a primary and several secondary suppliers for each component part. Substantially all of the Company's fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in China and Taiwan. The Company could, in the future, experience shortages of components for reasons including but not limited to the suppliers production capacity or materials shortages, or periods of increased price pressures, which could have a material adverse effect on the Company's business, results of operations, financial position and/or liquidity.

The Company’s products require specific materials to meet design specification which include but are not limited to steel, titanium alloys, carbon fiber and rubber. The Company does not make these materials itself, and must rely on its supplier’s ability to obtain adequate quantities of the materials necessary for manufacturing and production. There can be no assurance that the Company will be able to do so at a reasonable price. An interruption in the supply of the materials used by the Company or a significant change in costs could have a material adverse effect on the Company.

Adequate Product Warranty Reserves

The Company provides a limited one year product warranty on all of its golf clubs with the exception of the graphite tip (GT) and BiMatrx steel tip (ST) shafts used in a variety of the Company's product lines. These shafts carry a five year warranty for defects in quality and workmanship. The Company closely monitors the level and nature of warranty claims, and, where appropriate, seeks to incorporate design and production changes to assure its customers of the highest quality available in the market. Significant increases in the incidence of such claims may adversely affect the Company's sales and its reputation with consumers. The Company establishes a reserve for warranty claims. There can be no assurance that this reserve will be sufficient if the Company were to experience an unusually high incidence of problems with its products.

Risks Associated with Intellectual Property Protection

Imitation of popular club design is widespread in the golf industry. No assurance can be given that other golf club manufacturers will not be able to successfully sell golf clubs that imitate the Company's products without infringing on the Company's copyrights, patents, trademarks or trade dress. Many of the Company's competitors have obtained patent, trademark, copyright or other protection of intellectual property rights pertaining to golf clubs. No assurance can be given that the Company will not be adversely affected by the assertion by competitors that the Company's designs infringe on such competitor's intellectual property rights. Litigation in respect to patents or other intellectual property matters, whether with or without merit, could be time-consuming to defend, result in substantial costs and diversion of management and other resources, cause delays or other problems in the marketing and sales of our products, or require the Company to enter into royalty or licensing agreements, any or all of which could have a material adverse effect on the business, operating results and financial condition. This effect could also include alteration or withdrawal of the Company's existing products and delayed introduction of new products.

The Company attempts to maintain the secrecy of its confidential business information, including engaging in the practice of having prospective vendors and suppliers sign confidentiality agreements when producing components of new technology. No assurance can be given that the Company's confidential business information will be adequately protected in all instances. The unauthorized use of the Company's confidential business information could adversely affect the Company.

Unauthorized Distribution and Counterfeit Clubs

Some quantities of the Company's products have been found in unapproved outlets or distribution channels, including unapproved retailers conducting business on common internet auction sites. The existence of a "gray market" in the Company's products can undermine the sales of authorized retailers and foreign wholesale distributors who promote and support the Company's products and can injure the Company's image in the minds of its customers and consumers. The Company does not believe the unauthorized distribution of its products can be totally eliminated. There can be no assurances that unauthorized distribution of the Company's clubs will not have a material adverse effect on the Company's results of operations, financial condition and/or competitive position.

In addition, the Company is occasionally made aware of the existence of counterfeit copies of its golf clubs, particularly in foreign markets. The Company takes action in these situations through local authorities and legal counsel where practical. However, the inability to effectively deter counterfeit efforts could have a material adverse effect on the Company's results of operations, financial condition and/or competitive position.

Accounts Receivable Customer Terms

Due to industry sensitivity to consumer buying trends and available disposable income, the Company has in the past extended payment terms for specific retail customers. Issuance of these terms (i.e. greater than 30 days or specific dating) is dependent on the Company's relationship with the customer and the customer's payment history typically during off-peak times in the year. These extended terms do have a negative impact on the Company's financial position and liquidity. In addition, the reserves established by the Company may not be adequate in the event that the customer's financial strength weakens significantly.

Sufficient Inventory Levels

In addition to extended payment terms to our customers, the nature of the industry also requires that the Company carry a substantial level of inventory due to the lead times associated with purchasing components overseas coupled with the seasonality of customer demand. The Company's inventory balances were approximately $16,151,000 and $11,558,000 at December 31, 2005 and December 31, 2004, respectively. If the Company were unable to maintain sufficient inventory to meet customer demand on a timely basis, the effect could result in cancellation of customer orders, loss of customers, and damage to the Company's reputation. In addition, carrying a substantial level of inventory has an adverse effect on the Company's financial position and liquidity.

Certain Risks of Conducting Business Abroad

The Company imports a significant portion of its component parts, including heads, shafts, headcovers, and grips from companies in China, Taiwan and Mexico. In addition, the Company sells its products to certain distributors located outside the United States. The Company's international business is currently centered in Canada, Europe and Asia, and management intends to focus its international efforts through agency and distributor relationships. International sales accounted for 14% of the Company’s net sales for the year ended December 31, 2005. The Company's business is subject to the risks generally associated with doing business abroad, such as foreign government relations, foreign consumer preferences, import and export control, political unrest, disruptions or delays in shipments and changes in economic conditions and exchange rates in countries in which the Company purchases components or sells its products. Recent foreign events, including, without limitation, continuing U.S. military operations and the resulting instability in Iraq, could potentially cause a delay in imports or exports due to heightened security with customs.

Seasonality and Quarterly Fluctuations

Golf generally is regarded as a warm weather sport, and net sales of golf equipment have been historically strongest for the Company during the first and second quarters. In addition, net sales of golf clubs are dependent on discretionary consumer spending, which may be affected by general economic conditions. A decrease in consumer spending generally could result in decreased spending on golf equipment, which could have a material adverse effect on the Company's business, operating results and/or financial condition. In addition, the Company's future results of operations could be affected by a number of other factors, such as unseasonable weather patterns such as hurricanes, which interrupt the sales patterns and could generate hardships for customers in the effected area, demand for and market acceptance of the Company's existing and future products; new product introductions by the Company's competitors; competitive pressures resulting in lower than expected selling prices; and the volume of orders that are received and that can be fulfilled in a quarter. Any one or more of these factors could adversely affect the Company or result in the Company failing to achieve its expectations as to future sales or operating results.

Rapid Growth, increased demand for product

If the Company is successful in obtaining rapid market growth for various golf clubs, the Company may be required to deliver large volumes of quality products to customers on a timely basis which could potentially require the Company to increase the production facility, increase purchasing of raw materials or finished goods, increase the size of the workforce, expand the quality control capabilities, or incur additional expenses associated with sudden increases in demand. Any combination of one or more of the listed factors could have a materially adverse effect on the Company’s operations and financial position.

Anti-Takeover Provisions

The Company's Certificate of Incorporation and Amended and Restated Bylaws (the "Bylaws") contain, among other things, provisions establishing a classified Board of Directors, authorizing shares of preferred stock with respect to which the Board of Directors of the Company has the power to fix the rights, preferences, privileges and restrictions without any further vote or action by the stockholders, requiring that all stockholder action be taken at a stockholders' meeting and establishing certain advance notice requirements in order for stockholder proposals or director nominations to be considered at such meetings. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"). In general this statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Such provision could delay, deter or prevent a merger, consolidation, tender offer, or other business combination or change of control involving the Company that some or a majority of the Company's stockholders might consider to be in its best interest, including offers or attempted takeovers that might otherwise result in such stockholders receiving a premium over the market price for the common stock. The potential issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of the Company, may discourage bids for the common stock at a premium over the market price of the common stock and may adversely affect the market price of and voting and other rights of the holders of the common stock. The Company has not issued and currently has no plans to issue shares of preferred stock.

Item 2. Properties

The Company's administrative offices and assembly facilities currently occupy approximately 65,000 square feet of space in Plano, Texas. This facility is leased by the Company pursuant to a lease agreement expiring in 2008 and may be extended for an additional five years. The Company maintains the right to terminate the lease if it moves to a larger facility owned by the current lessor. The Company believes that its current facilities will be sufficient for the foreseeable future.

Item 3. Legal Proceedings

Beginning in June 1999, the first of seven class action lawsuits was filed against the Company, certain of its current and former officers and directors, and the three underwriters of the Company's initial public offering ("IPO") in the United States District Court of the District of Delaware. The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with the Company's IPO. In particular, the complaints alleged that the Company's prospectus, which became effective July 9, 1998, was materially false and misleading in at least two areas. Plaintiffs alleged that the prospectus failed to disclose that unauthorized distribution of the Company's products (gray market sales) threatened the Company's long-term profits. Plaintiffs also alleged that the prospectus failed to disclose that the golf equipment industry suffered from an oversupply of inventory at the retail level, which had an adverse impact on the Company's sales. On May 17, 2000, these cases were consolidated into one amended complaint, and a lead plaintiff was appointed. The plaintiffs were seeking unspecified amounts of compensatory damages, interest and costs, including legal fees. On December 10, 2001, the United States District Court for the District of Delaware dismissed the consolidated, amended complaint. Plaintiffs appealed. On August 25, 2004, the appellate court affirmed the dismissal of plaintiffs' claims relating to oversupply of retail inventory, while reversing the dismissal of the claims relating to the impact of gray market sales and remanding those claims for further proceedings. This case is now in the discovery phase in the district court. As of February 1, 2006, the Company has participated in mediation and at this time no resolution has been reached.

The Company maintains directors' and officers' and corporate liability insurance to cover certain risks associated with these securities claims filed against the Company or its directors and officers. The Company has met the financial deductible of its directors' and officers' insurance policy for the period covering the time the class action lawsuit was filed. At this point in the legal proceedings, the Company cannot predict with any certainty, per the guidance in SFAS 5, that the events will conclude in the Company's favor and thus can not reasonably estimate any future liability.

On March 16, 2006, the Company became aware of a lawsuit filed against it in U.S. District Court in the Southern District of California by TaylorMade, a division of Adidas-Salomon AG. As of March 20, 2006, the Company has not been formally served with the lawsuit. The lawsuit alleges generally that the Company violated three patents held by TaylorMade (one design patent and two utility patents) in the manufacture of recent drivers. The design patent relates to ornamental aspects of the skirt and sole of certain TaylorMade clubs. The utility patents relate to 1) shallow grooves in a circular pattern on the face of certain TaylorMade metal woods and 2) a metal wood construction method attaching a composite crown to a club head body containing multiple ledges, a surface veil and a face plate. The Company is reviewing the allegations, and while it is too early to determine the final outcome or materiality of this matter, based on the information available at this time, the Company does not believe it has infringed any valid claims of TaylorMade and intends to strongly defend its technology and market positions. Adams Golf respects the valid intellectual property of all its competitors and expects the same in return. We are disappointed that TaylorMade has chosen to litigate. We have been discussing patent issues with TaylorMade for nearly a year. We had hoped to amicably resolve these issues and had recently provided TaylorMade with information in support of our positions. However, rather than address that information in private dialogue, TaylorMade has chosen to litigate. We intend to defend our positions aggressively and will strive to continue to manufacture innovative product that we hope is superior in the eyes of the consumer and thereby attracts the attention of our competitors.

From time to time, the Company is engaged in various other legal proceedings in the normal course of business. The ultimate liability, if any, for the aggregate amounts claimed cannot be determined at this time.

Item 4. Submission of Matters to a Vote of Security Holders

None

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock is currently listed and traded on the OTC Bulletin Board ("OTCBB") under the symbol "ADGO.OB." The prices in the table below represent the quarterly high and low sales price for the Company’s common stock as reported by the OTCBB. All price quotations represent prices between dealers, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

	High		Low
2005

First Quarter	$	1.70	$	1.27
Second Quarter		1.49		1.12
Third Quarter		1.56		1.25
Fourth Quarter		1.39		1.14

2004

First Quarter	$	1.40	$	0.72
Second Quarter		1.75		1.19
Third Quarter		1.35		1.00
Fourth Quarter		1.44		1.03

On March 15, 2006, the last reported sale price of the common stock on the OTCBB was $1.35 per share. At March 15, 2005 Adams Golf, Inc. had approximately 5,000 stockholders based on the number of holders of record and an estimate of the number of individual participants represented by security position listings.

The Company's listing on the OTCBB could adversely affect the ability or willingness of investors to purchase the common stock, which, in turn, would likely severely affect the market liquidity of the Company's securities. Given the current market price for the Company's common stock and the state of the capital markets generally, the Company does not expect that it would be able to raise funds through the issuance of our capital stock.

No dividends have been declared or paid relating to the Company's common stock, nor does the Company anticipate declaring dividends in the foreseeable future. The current credit facility does not limit the declaring or payment of dividends unless the Company were in default of the facility.

Equity Plan Compensation Information:

The following table sets forth information at December 31, 2005 regarding compensation plans under which the Company's equity securities are authorized for issuance.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		7,170,806	$	0.03		1,134,632
Equity compensation plans not approved by security holders		---		n/a		---

Total		7,170,806	$	0.03		1,134,632

Item 6. Selected Financial Data

The selected financial data presented below is derived from the Company's consolidated financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001, respectively. The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and related notes, and other financial information included elsewhere in this document.

	Year Ended December 31,

	2005		2004		2003		2002			2001
	(in thousands, except per share data)

Consolidated Statements of Operations Data:

Net sales	$	56,424	$	56,762	$	50,879	$	37,917		$	47,655

Operating income (loss)		2,045		3,100		2,137		(8,903	)		(13,185	)

Net income (loss)	$	3,240	$	3,078	$	2,003	$	(8,925	)	$	(13,409	)

Income (loss) per common share (1) : Basic	$	0.14	$	0.14	$	0.09	$	(0.40	)	$	(0.60	)
Diluted	$	0.12	$	0.12	$	0.08	$	(0.40	)	$	(0.60	)

Weighted average common shares (1):

Basic		22,734		22,554		22,480		22,480			22,480

Diluted		27,804		26,144		24,533		22,480			22,480

	December 31,

	2005		2004		2003		2002		2001
	(in thousands)

Consolidated Balance Sheet Data:

Total assets	$	44,102	$	38,378	$	30,054	$	26,438	$	34,810

Total debt (including current maturities)		--		--		--		--		--

Stockholders' equity	$	32,127	$	26,438	$	22,228	$	19,476	$	27,622

______________________


(1)	See Note 1 (k) of Notes to Consolidated Financial Statements for information concerning the calculation of income (loss) per common share and weighted average common shares outstanding.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company's net sales are primarily derived from sales to on- and off- course golf shops and sporting goods retailers and, to a lesser extent, international distributors and mass merchandisers. No assurances can be given that demand for the Company's current products or the introduction of new products will allow the Company to achieve historical levels of sales in the future.

As part of the Company's quality control program, the Company periodically reviews the quality assurance programs at the manufacturing facilities of its component part suppliers to monitor adherence to design specifications. Upon arrival at the Company's facilities in Plano, Texas, the components used in the Company's clubs are again checked to ensure consistency with the Company's design specifications. Golf clubs are then assembled using the appropriate component parts.

The Company has put into place a purchasing procedure that strives to negotiate effective terms with various vendors while continuing to ensure quality of components. The Company is continually re-evaluating existing vendors while testing potential new vendors for all the various product lines offered by the Company. At any time, the Company may purchase a substantial majority of its volume of a specific component part from a single vendor, but the Company strives to maintain a primary and several secondary suppliers for each component part. Substantially all of the Company's fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in China and Taiwan. Since many of our available component suppliers are located in close proximity in Asia, this concentration could adversely effect our ability to obtain components resulting from negative events such as, but not limited to, foreign government relations, import and export control, political unrest, disruptions or delays in shipments and changes in economic conditions and fluctuation in exchange rates.

Costs of the Company's clubs consist primarily of component parts, including the head, shaft and grip. To a lesser extent, the Company's cost of goods sold includes labor, occupancy and shipping costs in connection with the inspection, testing, assembly and distribution of its products and certain promotional and advertising costs given in the form of additional merchandise as consideration to customers.

Critical Accounting Policies and Estimates

The Company's discussion and analysis of its results of operations, financial condition and liquidity are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results may materially differ from these estimates under different assumptions or conditions. On an on-going basis, the Company reviews its estimates to ensure that the estimates appropriately reflect changes in its business.

Inventories

Inventories are valued at the lower of cost or market and primarily consist of finished golf clubs and component parts. Cost is determined using the first-in, first-out method. The inventory balance, which includes material, labor and assembly overhead costs, is recorded net of an estimated allowance for obsolete inventory. The estimated allowance for obsolete inventory is based upon management's understanding of market conditions and forecasts of future product demand. Accounting for inventories could result in material adjustments if market conditions and future demand estimates are significantly different than original assumptions, causing the reserve for obsolescence to be materially adversely affected.

Revenue Recognition

The Company recognizes revenue when the product is shipped. At that time, the title and risk of loss transfer to the customer, and collectability is reasonably assured. Collectability is evaluated on an individual customer basis taking into consideration historical payment trends, current financial position, results of independent credit evaluations and payment terms. Additionally, an estimate of product returns and warranty costs are recorded when revenue is recognized. Estimates are based on historical trends taking into consideration current market conditions, customer demands and product sell through. The Company also records estimated reductions in revenue for sales programs such as co-op advertising and spiff incentives. Estimates in the sales program accruals are based on program participation and forecast of future product demand. If actual sales returns and sales programs significantly exceed the recorded estimated allowances, the Company's sales would be adversely affected. The Company recognizes deferred revenue as a result of sales that have extended terms and a right of return of the product under a specified program. Once the product is paid for, the Company then records revenue.

Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. An estimate of uncollectable amounts is made by management using an evaluation methodolgy involving both overall and specific identification. The Company evaluates each individual customer and measures various key aspects of the customer such as, but not limited to, their overall credit risk (via Dun and Bradstreet reports), payment history, track record for meeting payment plans, industry communications, the portion of the customers balance that is past due and other various items. From an overall perspective, the Company also looks at the aging of the receivables in total and aging relative to prior periods to determine the necessary reserve requirements. Fluctuations in the reserve requirements will occur from period to period as the change in customer mix or strength of the customers could affect the reserve disproportionately compared to the total change in the accounts receivable balance. Based on management's assessment, the Company provides for estimated uncollectable amounts through a charge to earnings and a credit to the valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. The Company generally does not require collateral. Accounting for an allowance for doubtful accounts could be significantly affected as a result of a deviation in the Company's assessment of any one or more customers' financial strength. While only one customer represents greater than 10% but less than 15% and no customers represent greater than 15% of the total revenues, if a combination of customers were to become financially impaired, the financial results of the Company could be severely affected.

Product Warranty

The Company's golf equipment is sold under warranty against defects in material and workmanship for a period of one year with the exception of the graphite tipped (GT) and BiMatrx steel tipped (ST) shafts which carry a five year warranty. An allowance for estimated future warranty costs is recorded in the period products are sold. In estimating its future warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies, the historical frequency of claims, and the cost to replace or repair the product. Accounting for product warranty reserve could be adversely affected if one or more of the Company's products were to fail (i.e broken shaft, broken head, etc) to a significant degree above and beyond the Company's historical product failure rates, which determine the product warranty accruals.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted rates recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred income tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the historical operating results of the Company, management is unable to conclude on a more likely than not basis that all deferred income tax assets generated from net operating losses through December 31, 2002 and other deferred tax assets will be realized. Accordingly, the Company has recognized a valuation allowance equal to the entire deferred income tax asset.

Impairment of Long-Lived Assets

The Company follows the guidance in SFAS ("Statement of Financial Accounting Standards") 144 in reviewing long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the year ended December 31, 2005, there was no impairment of long-lived assets.

Key Performance Indicators

The Company's management team has defined and tracks performance against several key sales, operational and balance sheet performance indicators. Key sales performance indicators include, but are not limited to, the following:

--Daily sales by product group

--Daily sales by geography

--Sales by customer channel

--Gross margin performance

Tracking these sales performance indicators on a regular basis allows the Company to understand whether it is on target to achieve its internal sales plans.

Key operational performance indicators include, but are not limited to, the following:

--Product returns (dollars and percentage of sales)

--Product credits (dollars and percentage of sales)

--Units shipped per man-hour worked

--Orders shipped on time

--Expenses by department

--Freight cost by mode (dollars and dollars per unit)

Tracking these operational performance indicators on a regular basis allows the Company to understand whether it will achieve its expense targets and efficiently satisfy customer demand.

Key balance sheet performance indicators include, but are not limited to, the following:

--Days of sales outstanding

--Days of inventory (at cost)

--Days of payables outstanding

Tracking these balance sheet performance indicators on a regular basis allows the Company to understand its working capital performance and forecast cash flow and liquidity.

Results of Operations

The following table sets forth operating results expressed as a percentage of net sales for the periods indicated:

	Years Ended December 31,
	2005			2004			2003
Net sales		100.0	%		100.0	%		100.0	%
Cost of goods sold		53.7			50.4			53.6
Gross profit		46.3			49.6			46.4
Operating expenses:
Research and development expenses		4.0			3.3			3.4
Selling and marketing expenses		29.4			28.3			27.6
General and administrative expenses		12.5			12.6			11.8
Settlement expenses		(3.1	)		---			---
Restructuring expense		(0.1	)		---			(0.5	)
Total operating expenses		42.7			44.2			42.3
Operating income		3.6			5.4			4.1
Interest income, net		0.4			0.1			(0.0	)
Other income, net		1.9			0.2			0.1
Income before income taxes		5.9			5.7			4.2
Income tax expense		0.2			0.3			0.3
Net income		5.7	%		5.4	%		3.9	%

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Total net sales decreased to $56.4 million for the year ended December 31, 2005 from $56.8 million for the same comparable period of 2004 primarily resulting from maturing product lines which have decreased in overall sales coupled with a decrease in fairway wood revenue, partially offset by successful product introductions of the Idea A2 and A2 OS Irons and the RPM Dual series of drivers. Overall, product family life cycles generally range from one to three years and each product family varies in its life cycle as there are multiple factors influencing the life, such as, but not limited to, customer acceptance, competition and technology. Net sales of drivers increased to $15.7 million, or 27.8% of total net sales, for the year ended December 31, 2005 from $11.1 million, or 19.6% of total net sales, for the comparable period of 2004. A large portion of the driver net sales for the year ended December 31, 2005 was generated by the Redline RPM and RPM Dual product lines, which were introduced in fourth quarter of 2004 and second quarter of 2005, respectively, and Ovation drivers, which were introduced in the first quarter of 2005. This was offset by a decrease in maturing product line sales specifically the Redline product family and Tight Lies GT driver product family. Net sales of irons increased to $23.9 million, or 42.4% of total net sales, from $21.1 million, or 37.2% of total net sales, for the years ended December 31, 2005 and 2004, respectively. The increase was primarily generated from sales of the Company's Idea A2 and A2 OS irons, Original Idea irons and integrated iron sets while the prior period was primarily resulting from sales of the Original Idea irons and integrated iron sets. Net sales of fairway woods decreased to $14.5 million, or 25.8% of total net sales, from $21.6 million, or 38.1% of total net sales, for the years ended December 31, 2005 and 2004, respectively. The prior period's net sales were generated from Ovation fairway woods, Idea I-woods and Original Tight Lies fairway woods. This year the net sales were generated from Redline RPM fairway woods, Idea A2 and original I-woods and Original Tight Lies.

For the year ended December 31, 2005, no customers individually represented greater than 5% but less than 10% of total net sales, while one customer individually represented greater than 10% but less than 15% of total net sales. Should this customer or the Company's other customers fail to meet their obligations to the Company, the Company's results of operations and cash flows would be adversely impacted.

Net sales of the Company's products outside the U.S. increased to $7.9 million, or 14.1% of total net sales, from $6.5 million, or 11.4% of total net sales, for the years ended December 31, 2005 and 2004, respectively.

Cost of goods sold increased to $30.3 million, or 53.7% of total net sales, for the year ended December 31, 2005 from $28.6 million, or 50.4% of total net sales, for the comparable period of 2004. The increase as a percentage of total net sales is primarily due to changes in the product mix, coupled with decreases in fairway wood net pricing and increases in some component pricing.

Selling and marketing expenses increased to $16.6 million for the year ended December 31, 2005 from $16.1 million for the comparable period in 2004. The increase is primarily the result of additional personnel which resulted in incremental compensation related costs of $0.7 million partially offset by a reduction in overall marketing expenses, including advertising, research and direct commercial costs, of $0.3 million.

General and administrative expenses, including provisions for bad debts, decreased to $7.1 million for the year ended December 31, 2005 from $7.2 million for the comparable period in 2004. The decrease in administrative related costs is attributable to an increase in compensation expenses of $1.0 million offset by a decrease in bad debt expense of $1.0 million. The Company measures each customer's financial strength using various key aspects such as, but not limited to, the customer's overall credit risk (via Dun and Bradstreet reports), payment history, track record for meeting payment plans, industry communications, the portion of the customer’s balance that is past due and other various items. The Company also looks at the overall aging of the receivables in total and relative to prior periods to determine the necessary reserve requirements. Periods will fluctuate depending on the strength of the customers and the change in mix of customers and their respective strength could affect the reserve disproportionately compared to the total change in the accounts receivable balance.

Research and development expenses, primarily consisting of costs associated with development of new products, increased to $2.3 million from $1.8 million for the years ended December 31, 2005 and 2004, respectively, primarily resulting from continued strengthening of the R&D function, which lead to an increase in compensation expense of $0.4 million.

During 2005, the Company reversed settlement expense of $1.8 million, which is attributable to the reversal of the accrued expenses for the settlement agreement that was reached with Mr. Nick Faldo in regards to the dispute regarding provisions of his prior professional services agreement with Adams Golf. Because Mr. Faldo did not meet the conditions precedent to pay in his contract, the Company is no longer due to make any future payments.

Other income increased to $1.1 million for the year ended December 31, 2005 from $0.1 million for the comparable period in 2004 which is attributable to the one time receipt by the Company of a $965 thousand insurance claim paid by the Company's insurance carrier in connection with the embezzlement which occured during the period from 2001 through 2004. This event was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2004.

The Company's inventory balances were approximately $16.2 million and $11.6 million at December 31, 2005 and 2004, respectively. The increase in inventory levels is primarily a result of the increased purchasing related to the newly released A2 and A2 OS iron sets launched in the fourth quarter of 2005 and first quarter of 2006.

The Company's net accounts receivable balances were approximately $14.2 million and $9.3 million at December 31, 2005 and 2004, respectively. The increase is primarily due to the recent successful product launch of Idea A2 and A2 OS Irons and extended terms offered to some customers in 2005.

The Company's prepaid balances were approximately $0.8 million and $0.2 million at December 31, 2005 and 2004, respectively while the other assets balance was approximately $1.6 million and $0.0 million at December 31, 2005 and 2004, respectively. The increase in the prepaid and other assets is primarily associated with the Company's decision to prepay certain strategic marketing expenses. The short term portion of these marketing expenses is in prepaids and the long term portion is in other assets.

The Company's accounts payable balances were approximately $4.7 million and $3.9 million at December 31, 2005 and 2004, respectively. The increase in accounts payable is primarily associated with the extension of payment terms with key vendors.

As a result of the above, the Company reported net income of $3.2 million for the year ended December 31, 2005 compared to $3.1 million for the year ended December 31, 2004.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Total net sales increased to $56.8 million for the year ended December 31, 2004 from $50.9 million for the comparable period of 2003 primarily resulting from successful product introductions and customer acceptance of the Idea Irons, Ovation fairway woods and Redline and Redline RPM woods and drivers. Net sales of drivers increased to $11.1 million, or 19.6% of total net sales, for the year ended December 31, 2004 from $11.0 million, or 21.6% of total net sales, for the comparable period of 2003. A large portion of the driver net sales for the year ended December 31, 2004 was generated by the Redline product line, introduced in January 2003, which was partially offset by lower sales of maturing product lines. Net sales of irons increased to $21.1 million, or 37.2% of total net sales, from $20.3 million, or 39.9% of total net sales, for the years ended December 31, 2004 and 2003, respectively, primarily generated from sales of the Company's Idea irons and integrated iron sets. Net sales of fairway woods increased to $21.6 million, or 38.1% of total net sales, from $17.3 million, or 34.0% of total net sales, for the years ended December 31, 2004 and 2003, respectively, primarily resulting from the net sales generated from the recently introduced Ovation fairway woods.

For the year ended December 31, 2004, one customer individually represented greater than 5% but less than 10% of total net sales. Should this customer or the Company's other customers fail to meet their obligations to the Company, the Company's results of operations and cash flows would be adversely impacted.

Net sales of the Company's products outside the U.S. increased to $6.5 million, or 11.4% of total net sales, from $6.3 million, or 12.5% of total net sales, for the years ended December 31, 2004 and 2003, respectively.

Cost of goods sold increased to $28.6 million, or 50.4% of total net sales, for the year ended December 31, 2004 from $27.3 million, or 53.6% of total net sales, for the comparable period of 2003. The decrease as a percentage of total net sales is primarily due to changes in the product mix.

Selling and marketing expenses increased to $16.1 million for the year ended December 31, 2004 from $14.0 million for the comparable period in 2003. The increase is primarily the result of increased commissions expenses associated with a 12% increase in revenues ($0.5 million) coupled with additional advertising related costs of $1.5 million. Compensation expenses (not related to commissions) were higher by $0.1 million.

General and administrative expenses, including provisions for bad debts, increased to $7.2 million for the year ended December 31, 2004 from $6.0 million for the comparable period in 2003. The increase in administrative related costs is attributable to the increase in compensation expenses of $0.8 million and an increase in bad debt reserves of $0.7 million. The Company measures each customer's financial strength using various key aspects such as, but not limited to, the customer's overall credit risk (via Dun and Bradstreet reports), payment history, track record for meeting payment plans, industry communications, the portion of the customer’s balance that is past due and other various items. The Company also looks at the overall aging of the receivables in total and relative to prior periods to determine the necessary reserve requirements. Periods will fluctuate depending on the strength of the customers and the change in mix of customer and their respective strength could affect the reserve disproportionately compared to the total change in the accounts receivable balance. Although collections on healthy accounts have improved, the risk of uncertainty in collectablility of unfavorable accounts has resulted in an increase in bad debt reserves. Depreciation expense also decreased by $0.7 million due to the fact that many of the Company's fixed assets were purchased in 1998 and were fully depreciated by 2003.

Research and development expenses, primarily consisting of costs associated with development of new products, were $1.8 million and $1.7 million for the years ended December 31, 2004 and 2003, respectively.

The Company's inventory balances were approximately $11.6 million and $8.1 million at December 31, 2004 and 2003, respectively. The increase in inventory levels is primarily a result of the increased purchasing related to the newly released product lines launched in November 2004 and February 2005 in addition to improved payment terms negotiated with key vendors.

The Company's net accounts receivable balances were approximately $9.3 million and $10.4 million at December 31, 2004 and 2003, respectively. The decrease is primarily due to improved collection efforts on healthy accounts, partially offset by increased bad debt reserves on other unfavorable accounts.

The Company's accounts payable balances were approximately $3.9 million and $1.2 million at December 31, 2004 and 2003, respectively. The increase in accounts payable is primarily associated with the extension of payment terms with key vendors.

As a result of the above, the Company reported operating income of $3.1 million for the year ended December 31, 2004 compared to $2.1 million for the year ended December 31, 2003.

Disclosure of Contractual Obligations

The Company is obligated to make future payments under various contracts, including equipment capital leases and operating leases. The Company does not have any long-term debt or purchase commitment obligations. The following table summarized the Company's contractual obligations at December 31, 2005, reported by maturity of obligation.

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term Debt Obligations	$	--	$	--	$	--	$	--	$	--
Capital Lease Obligations		39,398		39,398		--		--		--
Operating Lease Obligations		1,151,719		473,987		677,732		--		--
Purchase Obligations		--		--		--		--		--
Other Long-term Liabilities Reflected on the Registrant's Balance sheet under GAAP		--		--		--		--		--

*Total*	$	1,191,117	$	513,385	$	677,732		--		--

Liquidity and Capital Resources

Cash and cash equivalents decreased to $10.7 million at December 31, 2005 from $16.4 million at December 31, 2004. The decrease is primarily due to cash used in operating activities. During the year, accounts receivable increased $4.9 million, inventory increased $4.5 million, prepaids increased $0.5 million, other current assets increased $1.6 million and other non-current liabilities decreased $0.4 million. This was partially offset with an increase in accrued expenses and accounts payable of $0.5 million.

Working capital increased at December 31, 2005 to $29.9 million compared to $26.2 million at December 31, 2004.

In February 2006, the Company signed a revolving credit agreement with Bank of Texas to provide up to $10.0 million in short term debt. The agreement is collateralized by all assets of the Company and requires, among other things, the Company to maintain certain financial performance levels relative to the cash flow leverage ratio and fixed charge coverage ratio. Interest on outstanding balances varies depending on the portion of the line that is used and accrues at a rate from prime less one percent to prime and is due quarterly. The prime interest rate at March 15, 2006 was 7.5%. As of March 15, 2006, the Company had no outstanding loan against the credit facility.

The Company's anticipated sources of liquidity over the next twelve months are expected to be cash reserves, projected cash flows from operations, and available borrowings under its credit facility. The Company anticipates that operating cash flows and current cash reserves will also fund capital expenditure programs. These capital expenditure programs can be suspended or delayed at any time with minimal disruption to the Company's operations if cash is needed in other areas of the Company's operations. In addition, cash flows from operations and cash reserves will be used to support ongoing purchases of component parts for the Company's current and future product lines. The expected operating cash flow, current cash reserves and borrowings available under its credit facility are expected to allow the Company to meet working capital requirements during periods of low cash flows resulting from the seasonality of the industry.

Management believes that sufficient resources will be available to meet the Company's cash requirements through the next twelve months. Cash requirements beyond twelve months are dependent on the Company's ability to introduce products that gain market acceptance and to manage working capital requirements. The Company has introduced new products and has taken steps to increase the market acceptance of these and its other products. If the Company's products fail to achieve appropriate levels of market acceptance, it is possible that the Company may have to raise additional capital and/or further reduce its operating expenses including further operational restructurings. If the Company needs to raise additional funds through the issuance of equity securities, the percentage ownership of the stockholders of the Company would be reduced, stockholders could experience additional dilution, or such equity securities could have rights, preferences or privileges senior to the Company's common stock. Nevertheless, given the current market price of the Company's common stock and the state of the capital markets generally, the Company does not expect that it will be able to raise funds through the issuance of its capital stock in the foreseeable future. The Company may also find it difficult to secure additional debt financing. There can be no assurance that financing will be available when needed on terms favorable to the Company, or at all. Accordingly, it is possible that the Company's only sources of funding are current cash reserves, projected cash flows from operations and up to $10.0 million of borrowings available under the Company's revolving credit facility.

If adequate funds are not available or not available on acceptable terms, the Company may be unable to continue operations; develop, enhance and market products; retain qualified personnel; take advantage of future opportunities; or respond to competitive pressures, any of which could have a material adverse effect on the Company's business, operating results, financial condition and/or liquidity.

New Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3, which requires all voluntary changes in accounting principles to be applied to the current period and retrospective application to prior periods unless it is impracticable to determine the period specific changes. The statement also applies to changes required by an accounting pronouncement in the unusual instance that a pronouncement does not include specific transition provisions. The purpose by the FASB was to improve upon the comparability of cross-border financial reporting with the International Accounting Standards Board. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt the provisions of this standard in the first quarter of 2006, and the Company believes that the overall impact to the financial statements will not be material.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rates

The Company, in the normal course of doing business, is exposed to market risk through changes in interest rates with respect to its cash equivalents. Cash and Cash equivalents at December 31, 2005 were $10,747,000. The average interest rate earned for the year end December 31, 2005 was 3.12%.

Additionally, the Company is exposed to interest rate risk from its Line of Credit (see Item 7 Management Discussion and Analysis, Liquidity and Capital Resources). Outstanding borrowings accrue interest, based upon the Company’s consolidated cash flow leverage ratio, ranging from the prime rate less one percent to prime rate.

Foreign Currency Fluctuations

In the normal course of business, the Company is exposed to foreign currency exchange rate risks that could impact the Company’s results of operations. The Company is exposed to foreign currency exchange rate risk inherent primarily in its sales commitments, anticipated sales and assets and liabilities denominated in currencies other than the U.S. dollar. The Company transacts business in several currencies worldwide, however all foreign transactions are transacted in U.S. dollar except for Canadian activities. The functional currency of the Company's Canadian operations is Canadian dollars. The accompanying consolidated financial statements have been expressed in United States dollars, the reporting currency of the Company. Reporting assets and liabilities of the Company's foreign operations have been translated at the rate of exchange at the end of each period. Revenues and expenses have been translated at the monthly average rate of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated in other comprehensive income (loss) in stockholders' equity. Gains or losses resulting from transactions that are made in a currency different from the functional currency are recognized in comprehensive income as they occur. Inventory purchases are invoiced by suppliers in U.S. dollar.

Item 8. Financial Statements and Supplementary Data

The financial statements are set forth herein under Item 15 commencing on page F-1. Schedule II to the consolidated financial statements is set forth herein under Item 15 on page S-1. In addition, supplementary financial information is required pursuant to the provisions of Regulation S-K, Item 302, and is set forth herein under Item 15, note 15 of the notes to Consolidated Financial Statements.

Item 9A. Controls and Procedures

Introduction

"Disclosure Controls and Procedures" are defined in Exchange Act Rules 13a -15(e) and 15d -15 (e) as the controls and procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified by the SEC's rules and forms. Disclosure Controls and Procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

"Internal Control Over Financial Reporting" is defined in Exchange Act Rules 13a -15(f) and 15d -15(f) as a process designed by, or under the supervision of, an issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by an issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. It includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of an issuer; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material adverse effect on the financial statements.

The Company has endeavored to design its Disclosure Controls and Procedures and Internal Controls Over Financial Reporting to provide reasonable assurances that their objectives will be met. All control systems are subject to inherent limitations, such as resource constraints, the possibility of human error, lack of knowledge or awareness, and the possibility of intentional circumvention of these controls. Furthermore, the design of any control system is based, in part, upon assumptions about the likelihood of future events, which assumptions may ultimately prove to be incorrect. As a result, no assurances can be made that the Company's control system will detect every error or instance of fraudulent conduct, which could have a material adverse impact on the Company's results of operations or financial condition.

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its Disclosure Controls and Procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's Disclosure Controls and Procedures as of the end of the period covered by this report were designed to ensure that material information relating to the Company is made known to the Chief Executive Officer and Chief Financial Officer by others within the Company, particularly during the period in which this report was being prepared, and that the Company's Disclosure Controls and Procedures were effective. There were no changes to the Company's Internal Controls Over Financial Reporting during the year ended December 31, 2005 that has materially affected or is reasonably likely to materially affect the Company's Internal Controls Over Financial Reporting.

In addition, it is the Company's policy to not participate in off-balance sheet transactions, including but not limited to special purpose entities.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this Item is incorporated by reference to the Company's Proxy Statement for the Annual Meeting of the Stockholders to be held on or about May 17, 2006 to be distributed to the stockholders on or before April 30, 2006 ("the 2006 Proxy Statement") under the respective captions, "Elections of Directors," "Stock Ownership - Section 16(a) Beneficial Ownership Reporting Compliance" and "Management-Executive Officers."

Item 11. Executive Compensation

The information required by this Item is incorporated by reference to the Company's 2006 Proxy Statement under the caption "Management-Compensation of Executive Officers."

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference to the Company's 2006 Proxy Statement under the caption "Stock Ownership-Beneficial Ownership of Certain Stockholders, Directors and Executive Officers."

Item 13. Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference to the Company's 2006 Proxy Statement under the captions "Management-Employment Contracts and Change in Control Agreements," "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions."

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated by reference to the Company's 2006 Proxy Statement under "Committees of Board of Directors; Meetings."

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) The following documents are filed as a part of this report following the signature page:


	*(1) Consolidated Financial Statements*

	Item		Page

	Index to Consolidated Financial Statements and Related Financial Statement Schedule		F-1
	Reports of Independent Registered Public Accounting Firms		F-2 - F-3
	Consolidated Balance Sheets as of December 31, 2005 and 2004		F-4
	Consolidated Statements of Operations for the Years ended December 31, 2005, 2004 and 2003		F-5
	Consolidated Statements of Stockholders' Equity for the Years ended December 31, 2005, 2004 and 2003		F-6 - F-7
	Consolidated Statements of Cash Flows for the Years ended December 31, 2005, 2004 and 2003		F-8
	Notes to Consolidated Financial Statements		F-9 - F-27

	*(2) Financial Statement Schedules*

	The financial statement schedule of the Company for the years ended December 31, 2005, 2004 and 2003 is filed as part of this Annual Report and should be read in conjunction with the Consolidated Financial Statements of the Company.

	Schedule II - Valuation and Qualifying Accounts		S-1
	All other schedules are have been omitted because such schedules are not required under the related instructions, or are not applicable, or because the information is not present, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

*(3) Exhibits*

The exhibits listed below are filed as a part of or incorporated by reference in this Annual Report. Where such filing is made by incorporation by reference to a previously filed document, such document is identified in parenthesis. See the Index of Exhibits included with the exhibits filed as a part of this Annual Report.

Exhibit	Description	Location

Exhibit 3.1	Amended and Restated Certificate of Incorporation	Incorporated by reference to Form S-1 File No. 333-51715 (Exhibit 3.1)

Exhibit 3.2	Amended and Restated By-laws	Incorporated by reference to Form S-1 File No. 333-51715 (Exhibit 3.2)

Exhibit 4.1	1998 Stock Incentive Plan of the Company dated February 26, 1998, as amended	Incorporated by reference to Form S-8 File No. 333-68129 (Exhibit 4.1)

Exhibit 4.2	1996 Stock Option Plan dated April 10, 1998	Incorporated by reference to Form S-1 File No.333-51715 (Exhibit 4.2)

Exhibit 4.3	Adams Golf, Ltd. 401(k) Retirement Plan	Incorporated by reference to Form S-1 File No.333-51715 (Exhibit 4.3)

Exhibit 4.4	1999 Non-Employee Director Plan of Adams Golf, Inc.	Incorporated by reference to 1999 Form 10-K (Exhibit 4.4)

Exhibit 4.5	1999 Stock Option Plan for Outside Consultants of Adams Golf, Inc.	Incorporated by reference to Form S-8 File No. 333-37320 (Exhibit 4.5)

Exhibit 4.6	2002 Stock Incentive Plan for Adams Golf, Inc.	Incorporated by reference to Annex A of the 2002 Proxy Statement (Annex A)

Exhibit 4.7	Form of Option Agreement under the 2002 Stock Option Plan of Adams Golf, Inc.	Incorporated by reference to Form S-8 File No. 333-112622 (Exhibit 4.7)

Exhibit 10.1	Settlement Agreement between Adams Golf, Ltd. And Nicholas A. Faldo	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (Exhibit 10.19)

Exhibit 10.2	Employment Agreement - Byron H. (Barney) Adams	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Exhibit 10.13)

Exhibit 10.3	Change of Control Agreement - Eric Logan	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (Exhibit 10.14)

Exhibit 10.4	Amendment dated September 1, 2003 to the Commercial Lease Agreement dated April 6, 1998, between Jackson-Shaw Technology Center II and the Company	Incorporated by reference to 2003 Form 10-K (Exhibit 10.12)

Exhibit 10.5	Extension of Revolving Line of Credit between Adams Golf, Inc and Bank of Texas	Incorporated by reference to 2004 Form 10-K (Exhibit 10.15)

Exhibit 10.6*	Employment Agreement - Oliver G. (Chip) Brewer	Incorporated by reference to 2004 Form 10-K (Exhibit 10.16)

Exhibit 10.7*	Golf Consultant Agreement - Thomas S. Watson	Incorporated by reference to 2004 Form 10-K (Exhibit 10.17)

Exhibit 10.8	Revolving Line of Credit between Adams Golf, Inc and Bank of Texas	Included in this filing

Exhibit 10.9	Employment Agreement - Byron H. (Barney) Adams	Included in this filing

Exhibit 21.1	Subsidiaries of the Registrant	Included in this filing

Exhibit 23.1	Consent of KBA Group LLP	Included in this filing

Exhibit 23.2	Consent of KPMG, LLP	Included in this filing

Exhibit 31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Included in this filing

Exhibit 31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Included in this filing

Exhibit 32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Included in this filing

___________________

* Confidential treatment has been requested with respect to certain provisions of this agreement.

(b) Exhibits

See Item 15(a)(3)

(c) Financial Statement Schedules

See Item 15(a)(2)

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ADAMS GOLF, INC., a Delaware corporation

Date: March 22, 2006		By: /S/ B.H. (BARNEY) ADAMS
		B.H. (Barney) Adams, Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: March 22, 2006		By: /S/ B.H. (BARNEY) ADAMS
		B.H. (Barney) Adams, Chairman of the Board

Date: March 22, 2006		By: /S/ OLIVER G. BREWER III
		Oliver G. (Chip) Brewer III
		Chief Executive Officer, President and Director

Date: March 22, 2006		By: /S/ ERIC LOGAN
		Eric Logan
		Chief Financial Officer
		(Principal Financial Officer)

Date: March 22, 2006		By: /S/ PAMELA J. HIGH
		Pamela J. High
		Controller
		(Principal Accounting Officer)

Date: March 22, 2006		By: /S/ MARK R. MULVOY
		Mark R. Mulvoy
		Director

Date: March 22, 2006		By: /S/ PAUL F. BROWN, JR.
		Paul F. Brown, Jr.
		Director

Date: March 22, 2006		By: /S/ STEPHEN R. PATCHIN
		Stephen R. Patchin
		Director

Date: March 22, 2006		By: /S/ ROBERT D. ROGERS
		Robert D. Rogers
		Director

Date: March 22, 2006		By: /S/ RUSSELL L. FLEISCHER
		Russell L. Fleischer
		Director

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND RELATED FINANCIAL STATEMENT SCHEDULE

	Page
Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms	F-2 - F-3

Consolidated Balance Sheets as of December 31, 2005 and 2004	F-4

Consolidated Statements of Operations for the Years ended December 31, 2005, 2004 and 2003	F-5

Consolidated Statements of Stockholders' Equity for the Years ended December 31, 2005, 2004 and 2003	F-6 - F-7

Consolidated Statements of Cash Flows for the Years ended December 31, 2005, 2004 and 2003	F-8

Notes to Consolidated Financial Statements	F-9 - F-27

Financial Statement Schedule

The financial statement schedule of the Company for the years ended December 31, 2005, 2004 and 2003 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of the Company.

Schedule II - Valuation and Qualifying Accounts	S-1

All other schedules are have been omitted because such schedules are not required under the related instructions, or are not applicable, or because the information is not present, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Adams Golf, Inc.:

We have audited the accompanying consolidated balance sheets of Adams Golf, Inc. and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule for the years ended December 31, 2005 and 2004. The consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adams Golf, Inc. and subsidiaries as of December 31, 2005 and 2004 and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/S/ KBA GROUP LLP
Dallas, Texas
February 3, 2006, except for note 18 which is March 16, 2006

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Adams Golf, Inc.:

We have audited the accompanying consolidated statements of operations, stockholder’s equity and cash flows of Adams Golf, Inc. and subsidiaries for the year ended December 31, 2003. In connection with our audit of the consolidated financial statements, we have also audited the financial statement schedule for the year ended December 31, 2003. The consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of Adams Golf, Inc. for the year ended December 31, 2003 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

	/S/ KPMG LLP

Dallas, Texas
January 28, 2004

F-3

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

ASSETS

	December 31,

	2005		2004

Current assets:
Cash and cash equivalents	$	10,747	$	16,367
Trade receivables, net		14,171		9,317
Inventories, net		16,151		11,558
Prepaid expenses		754		234
Other current assets		27		138
Total current assets		41,850		37,614

Property and equipment, net		630		720
Other assets		1,622		44
	$	44,102	$	38,378

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:
Accounts payable	$	4,691		$	3,876
Accrued expenses		7,284			7,584
Total current liabilities		11,975			11,460
Non-current liabilities		--			480
Total liabilities		11,975			11,940

Stockholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares; none issued		--			--
Common stock, $.001 par value; authorized 50,000,000 shares; 23,471,653 and 23,257,653 shares issued and 22,814,153 and 22,600,153 shares outstanding in 2005 and 2004, respectively		23			23
Additional paid-in capital		92,069			90,261
Deferred compensation		(2,570	)		(2,298	)
Accumulated other comprehensive income (loss)		888			(25	)
Accumulated deficit		(55,147	)		(58,387	)
Treasury stock, 657,500 common shares, at cost		(3,136	)		(3,136	)
Total stockholders' equity		32,127			26,438

Commitments and contingencies
	$	44,102		$	38,378

See accompanying notes to consolidated financial statements

F-4

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Years Ended December 31,

	2005			2004			2003

Net sales	$	56,424		$	56,762		$	50,879
Cost of goods sold		30,309			28,580			27,259
Gross profit		26,115			28,182			23,620

Operating expenses:
Research and development expenses		2,285			1,847			1,721
Selling and marketing expenses		16,571			16,061			14,027
General and administrative expenses		7,063			7,174			5,994
Reversal of settlement expenses (benefit)		(1,771	)		--			--
Reversal of restructuring expense (benefit)		(78	)		--			(259	)
Total operating expenses		24,070			25,082			21,483
Operating income		2,045			3,100			2,137

Other income (expense):
Interest income		236			81			9
Interest expense		(6	)		(13	)		(51	)
Other		1,052			76			25
Income before income taxes		3,327			3,244			2,120
Income tax expense		87			166			117
Net income	$	3,240		$	3,078		$	2,003


Income per common share : Basic	$	0.14		$	0.14		$	0.09

Diluted	$	0.12		$	0.12		$	0.08

See accompanying notes to consolidated financial statements

F-5

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Years ended December 31, 2005, 2004 and 2003

	Shares of Common Stock		Common Stock		Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Comprehensive Income		Cost of Treasury Stock			Total Stockholders' Equity

Balance, December 31, 2002		23,137,571		23	$	87,381		$	(671	)	$	(653	)	$	(63,468	)			$	(3,136	)	$	19,476
Comprehensive income:
Net income		--		--		--			--			--			2,003		$	2,003		--			2,003
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation		--		--		--			--			297			--			297		--			297
Comprehensive income		--		--		--			--			--			--		$	2,300		--			--
Stock option forfeitures		--		--		(65	)		65			--			--					--			--
Issuance of stock options		--		--		219			(219	)		--			--					--			--
Amortization of deferred compensation		--		--		--			452			--			--					--			452
Balance, December 31, 2003		23,137,571		23		87,535			(373	)		(356	)		(61,465	)				(3,136	)		22,228

Comprehensive income:
Net income		--		--		--			--			--			3,078		$	3,078		--			3,078
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation		--		--		--			--			331			--			331		--			331
Comprehensive income		--		--		--			--			--			--		$	3,409		--			--
Stock option forfeitures		--		--		(18	)		18			--			--					--			--
Stock options exercised		120,082		--		8			--			--			--					--			8
Issuance of stock options		--		--		2,736			(2,736	)		--			--					--			--
Amortization of deferred compensation		--		--		--			793			--			--					--			793
Balance, December 31, 2004		23,257,653		23		90,261			(2,298	)		(25	)		(58,387	)				(3,136	)		26,438

See accompanying notes to consolidated financial statements

(continued)

F-6

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Years ended December 31, 2005, 2004 and 2003

	Shares of Common Stock		Common Stock		Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Comprehensive Income		Cost of Treasury Stock			Total Stockholders' Equity

Balance, December 31, 2004		23,257,653		23	$	90,261		$	(2,298	)	$	(25	)	$	(58,387	)			$	(3,136	)	$	26,438
Comprehensive income:
Net income		--		--		--			--			--			3,240		$	3,240		--			3,240
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation		--		--		--			--			913			--			913		--			913
Comprehensive income		--		--		--			--			--			--		$	4,153		--			--
Stock option forfeitures		--		--		(9	)		9			--			--					--			--
Stock options exercised		214,000		--		40			--			--			--					--			40
Issuance of stock options		--		--		1,777			(1,777	)		--			--					--			--
Amortization of deferred compensation		--		--		--			1,496			--			--					--			1,496
Balance, December 31, 2005		23,471,653		23	$	92,069		$	(2,570	)	$	888		$	(55,147	)			$	(3,136	)	$	32,127

See accompanying notes to consolidated financial statements

F-7

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2005			2004			2003
Cash flows from operating activities:
Net income	$	3,240		$	3,078		$	2,003
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment and intangible assets		447			562			1,503
Amortization of deferred compensation		1,496			793			452
Provision for doubtful accounts		557			1,224			443
Changes in assets and liabilities:
Trade receivables		(5,411	)		(108	)		(2,342	)
Inventories		(4,593	)		(3,500	)		1,069
Prepaid expenses		(519	)		223			477
Income tax receivable		--			--			18
Other current assets		110			(131	)		127
Other assets		(1,579	)		--			98
Accounts payable		815			2,683			260
Accrued expenses		(303	)		1,569			660
Other non-current liabilities		(449	)		(79	)		(173	)
Net cash provided by (used in) operating activities		(6,189	)		6,314			4,595
Cash flows from investing activities:
Purchase of equipment		(338	)		(347	)		(308	)
Net cash used in investing activities		(338	)		(347	)		(308	)
Cash flows from financing activities:
Principal payments under capital lease obligation		(43	)		(59	)		(35	)
Exercise of stock options		39			8			--
Debt financing costs		(2	)		(15	)		(24	)
Net cash used in financing activities		(6	)		(66	)		(59	)

Effects of exchange rate changes on cash and cash equivalents		913			331			296
Net increase (decrease) in cash and cash equivalents		(5,620	)		6,232			4,524
Cash and cash equivalents at beginning of the year		16,367			10,135			5,611
Cash and cash equivalents at end of the year	$	10,747		$	16,367		$	10,135

Supplemental disclosure of cash flow information:
Interest paid	$	6		$	13		$	51

Income taxes paid	$	88		$	129		$	114

Supplemental disclosure of non-cash investing and financing activities - equipment financed with capital lease	$	15		$	--		$	152

See accompanying notes to consolidated financial statements.

F-8

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies

(a) General

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated in consolidation.

(b) Inventories

Inventories are valued at the lower of cost or market and primarily consist of finished golf clubs and component parts. Cost is determined using the first-in, first-out method. The inventory balance, which includes material, labor and assembly overhead costs, is recorded net of an estimated allowance for obsolete inventory. The estimated allowance for obsolete inventory is based upon management's understanding of market conditions and forecasts of future product demand. If the actual amount of obsolete inventory significantly exceeds the estimated allowance, the Company's costs of goods sold and gross profit and resulting net income or loss would be significantly adversely affected.

(c) Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. An estimate of uncollectable amounts is made by management using an evaluation methodolgy involving both overall and specific identification. The Company evaluates each individual customer and measures various key aspects of the customer such as, but not limited to, their overall credit risk (via Dun and Bradstreet reports), payment history, track record for meeting payment plans, industry communications, the portion of the customer’s balance that is past due and other various items. From an overall perspective, the Company also looks at the aging of the receivables in total and aging relative to prior periods to determine the necessary reserve requirements. Fluctuations in the reserve requirements will occur from period to period as the change in customer mix or strength of the customers could affect the reserve disproportionately compared to the total change in the accounts receivable balance. If a significant number of customers with significant receivable balances in excess of the allowance fail to make required payments, the Company's operating results would be significantly adversely affected. Based on management's assessment, the Company provides for estimated uncollectable amounts through a charge to earnings and a credit to the valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. The Company generally does not require collateral.

F-9

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies (continued)

(d) Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years. Maintenance and repairs are expensed as incurred. Significant replacements and betterments are capitalized.

(e) Revenue Recognition

(f) New Accounting Pronouncement

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3, which requires all voluntary changes in accounting principle to be applied to the current period and retrospective application to prior periods unless it is impracticable to determine the period specific changes. The statement also applies to changes required by an accounting pronouncement in the unusual instance that a pronouncement does not include specific transition provisions. The purpose by the FASB was to improve upon the comparability of cross-border financial reporting with the International Accounting Standards Board. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt the provisions of this standard in the first quarter of 2006, and the Company believes that the overall impact to the financial statements will not be material.

(g) Research and Development

Research and development costs consist of all costs incurred in planning, designing and testing of golf equipment, including salary costs related to research and development. These costs are expensed as incurred. The Company's research and development expenses were approximately $2,285,000, $1,847,000 and $1,721,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

(h) Advertising Costs

Advertising costs, included in selling and marketing expenses on the accompanying consolidated statements of operations, other than direct commercial costs, are expensed as incurred and totaled approximately $4,980,000, $5,067,000 and $3,478,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

F-10

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(1)

Summary of Significant Accounting Policies (continued)

(i) Product Warranty

The Company's golf equipment is sold under warranty against defects in material and workmanship for a period of one year with the exception of the graphite tipped (GT) and BiMatrx steel tipped (ST) shafts, which carry a five year warranty. An allowance for estimated future warranty costs is recorded in the period products are sold. In estimating its future warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies, the historical frequency of claims, and the cost to replace or repair the product. If the actual amount of warranty claims significantly exceeds the estimated allowance, the Company's costs of goods sold and gross profit and resulting net income or loss would be significantly adversely affected.

	Beginning Balance		Changes for payments made and estimated accruals (net)		Ending Balance
Year ended December 31, 2005	$	297		10	$	307
Year ended December 31, 2004	$	285		12	$	297

(j) Income Taxes

The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted rates recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In assessing the realizability of deferred income tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the historical operating results of the Company, management is unable to conclude on a more likely than not basis that all deferred income tax assets generated from net operating losses and other deferred tax assets through December 31, 2002 will be realized. Accordingly, the Company has recognized a valuation allowance equal to the entire deferred income tax asset.

F-11

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies (continued)

(k) Income Per Share

The weighted average common shares used for determining basic and diluted income per common share were 22,734,060 and 27,803,729, respectively, for the year ended December 31, 2005. The effect of all warrants and options to purchase shares of the Company's common stock for the year ended December 31, 2005 resulted in additional dilutive shares of 5,069,669.

The weighted average common shares used for determining basic and diluted income per common share were 22,553,722 and 26,144,444, respectively, for the year ended December 31, 2004. The effect of all warrants and options to purchase shares of the Company's common stock for the year ended December 31, 2004 resulted in additional dilutive shares of 3,590,722. For the year ended December 31, 2004, options exercisable for approximately 180,000 shares of common stock and warrants exercisable for 100,000 shares of common stock were excluded from the calculation of dilutive shares, as the effect of inclusion would have been antidilutive.

The weighted average common shares used for determining basic and diluted income per common share were 22,480,071 and 24,532,959, respectively, for the year ended December 31, 2003. The effect of all warrants and options to purchase shares of the Company's common stock for the year ended December 31, 2003 resulted in additional dilutive shares of 2,052,888. For the year ended December 31, 2003, options exercisable for approximately 1,823,730 shares of common stock and warrants exercisable for 100,000 shares of common stock were excluded from the calculation of dilutive shares, as the effect of inclusion would have been antidilutive.

(l) Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments.

(m) Impairment of Long-Lived Assets

The Company follows the guidance in Statement of Financial Accounting Standards SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in reviewing long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the years ended December 31, 2005, 2004 and 2003, there was no impairment of long-lived assets.

(n) Comprehensive Income

Comprehensive income consists of net income and unrealized gains and losses, net of related tax effect, on foreign currency translation adjustments and marketable securities.

F-12

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(1) Summary of Significant Accounting Policies (continued)

(o) Cash and Cash Equilivents

The Company considers all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents.

(p) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

(q) Segment Reporting

The Company is organized by functional responsibility and operates as a single segment and within that segment offers more than one class of product, in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

(r) Stock-Based Compensation

At December 31, 2005, the Company had one stock-based option plan that replaced four predecessor plans. The Company accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under this method, compensation expense is recorded on the date of grant to the extent that the current market price of the underlying stock exceeds the exercise price of the option. The Company has elected to continue to apply the intrinsic value-based method of accounting for employee stock option grants and complies with the disclosure requirements of SFAS No. 123 "Accounting for Stock-based Compensation" ("SFAS 123"), as amended by SFAS No. 148 "Accounting for Stock-based Compensation - Transition and Disclosure" ("SFAS 148"). Non-employee option grants are accounted for using the fair-value based method. The following table illustrates the effect on net income and income per share if the Company had applied the fair value recognition provisions of SFAS 123 and SFAS 148 to stock-based employee compensation for the years ended December 31, 2005, 2004 and 2003, respectively (in thousands, except for per share amounts):

F-13

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

Summary of Significant Accounting Policies (continued)

(r) Stock Compensation (continued)

	2005			2004			2003

Net income
As reported	$	3,240		$	3,078		$	2,003
Add: Stock-based compensation expense included in reported net income, net of related tax effects		1,496			793			452
Deduct: Total stock-based compensation expense determined under the fair value method		(1,505	)		(612	)		(479	)
Pro forma	$	3,231		$	3,259		$	1,976

Basic income per common share:
As reported	$	0.14		$	0.14		$	0.09
Pro forma	$	0.14		$	0.14		$	0.09

Diluted income per common share:
As reported	$	0.12		$	0.12		$	0.08
Pro forma	$	0.12		$	0.12		$	0.08

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, which established accounting standards for transactions where the entity exchanges equity instruments for goods and services. The revision of this statement focuses on the accounting for transactions where the entity obtains employee services in share-based payment transactions. This statement revision eliminates the alternative use of APB 25 intrinsic value method and requires that entities adopt the fair-value method for all share-based transactions. The Company will adopt the provisions of this standard on a modified prospective basis in the first quarter of 2006, and the Company believes that the overall impact to the financial statements will not be material.

(s) Foreign Currency Translation and Transactions

The functional currency of the Company's Canadian operations is Canadian dollars. The accompanying consolidated financial statements have been expressed in United States dollars, the reporting currency of the Company. Reporting assets and liabilities of the Company's foreign operations have been translated at the rate of exchange at the end of each period. Revenues and expenses have been translated at the monthly average rate of exchange in effect during the respective period. Gains and losses resulting from translation are accumulated in other comprehensive income (loss) in stockholders' equity. Gains or losses resulting from transactions that are made in a currency different from the functional currency are recognized in earnings as they occur. Inventory purchases are invoiced by suppliers in U.S. dollars.

(t) Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

F-14

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(2)

Trade Receivables, net

Trade receivables consist of the following at December 31, 2005 and 2004:

	2005			2004

Trade receivables	$	15,123		$	10,063
Allowance for doubtful accounts		(952	)		(746	)

	$	14,171		$	9,317

(3) Inventories

Inventories consist of the following at December 31, 2005 and 2004:

	2005		2004

Finished goods	$	7,453	$	8,119
Component parts		8,698		3,439

	$	16,151	$	11,558

Inventory is determined using the first-in, first-out method and is recorded at the lower of cost or market value. The inventory balance is comprised of the following: purchased raw materials or finished goods at their respective purchase costs; labor, assembly and other G&A expenses capitalized into overhead costs, which are then applied to each unit after work in process is completed; retained costs representing the excess of manufacturing and other G&A expenses that are not yet applied to finished goods; and an estimated allowance for obsolete inventory. At December 31, 2005 and 2004, inventories included $837,000 and $528,000 of consigned inventory, respectively, and $215,000 and $474,000 of inventory reserves, respectively.

(4) Property and Equipment, net

Property and equipment consist of the following at December 31, 2005 and 2004:

	2005			2004

Equipment	$	1,937		$	1,789
Computers and software		9,008			8,866
Furniture and fixtures		712			662
Leaseholds improvements		188			186
Accumulated depreciation and amortization		(11,215	)		(10,783	)

	$	630		$	720

F-15

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(5) Other Assets

Other assets, net, consist of the following at December 31, 2005 and 2004:

	2005		2004

Deposits		--		41
Long Term Endorsements		1,620		--
Other		2		3

	$	1,622	$	44

(6) Accrued Expenses

Accrued expenses consist of the following at December 31, 2005 and 2004:

	2005		2004

Payroll and commissions	$	1,362	$	1,020
Advertising		130		130
Product warranty expense and sales returns		1,546		1,120
Professional services		43		59
Settlement costs		--		1,322
Restructuring costs		--		71
Deferred revenue		1,895		1,317
Other		2,308		2,545

	$	7,284	$	7,584

(7) Restructuring

During 2002, the Company executed an operational restructuring plan, which resulted in the closure of the Adams Golf UK, Limited wholly owned subsidiary. The operational restructuring plan resulted in a restructuring charge of $850,000 for severance, a write off of goodwill and other related exit costs. Restructuring expense for 2003 and 2005 resulted in a benefit due to the release of liability from our previously recorded building lease and accounting and legal fees for the Adams Golf, UK subsidiary. The Company continues to sell its products in the UK through a third party distributor.

F-16

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(8)

Professional Services Agreement and Settlement Expense

In May 1998, Adams Golf, Ltd. entered into an agreement with Nicholas A. Faldo. The agreement provided that Mr. Faldo provide a variety of services to Adams Golf including endorsement and use of certain of Adams Golf Ltd.'s products. On November 6, 2000, Adams Golf announced that Mr. Faldo was in material breach of his contract for failure to use certain of the Company's products. From March 31, 2000 through November 6, 2000 (date declared in material breach), the Company ceased making royalty payments under the professional services agreement during which time the Company corresponded with Mr. Faldo in an attempt to cure his performance deficiencies. On August 25, 2001, an agreement was reached with Mr. Faldo in settlement of the dispute regarding provisions of his prior professional services agreement with Adams Golf. Under the terms of settlement, Mr. Faldo received $0.5 million upon execution and $0.5 million on July 15, 2002. In addition, Mr. Faldo was to receive a series of annual installments for the years 2003 through 2011 aggregating to $2.0 million. As a result, the Company established a liability representing the present value of the future obligation, which approximated $2,673,000, utilizing the Company's incremental borrowing rate of 6.04%. In addition, Mr. Faldo is entitled to receive up to an additional $2.0 million contingent on the Company reaching certain future financial performance thresholds. In accordance with the terms of the settlement, Mr. Faldo waived all future rights to accrued and unpaid royalties of $1.1 million associated with his prior professional services agreement with the Company. Therefore, $1,579,000 of settlement expense was incurred during the year ended December 31, 2001. The Company owed two $100,000 payments, one due at December 31, 2003 and one due at December 31, 2004. However, according to the terms of Mr. Faldo's contract, he must play a specified number of PGA sanctioned events and keep his PGA credentials. Because Mr. Faldo has failed to meet the contract requirements, the payment was not made at December 31, 2003 or December 31, 2004. During September 2005, the Company determined that it was appropriate to reverse the settlement liability previously accrued. Accordingly, the Company reversed approximately $1,339,000 and $449,000 in accrued expenses and other non-current liabilities.

(9)

Commitments and Contingencies

The Company is obligated under certain noncancellable operating leases for assembly, warehouse and office space. A summary of the minimum rental commitments under noncancellable leases is as follows:

Years ending
December 31,

2006	$	474
2007		450
2008		228
2009		---
2010		---

	$	1,152

F-17

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(9) Commitments and Contingencies (continued)

Rent expense was approximately $609,000, $473,000 and $515,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

F-18

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(10) Retirement Plan

In February 1998, the Company adopted the Adams Golf, Ltd. 401(k) Retirement Plan (the "Plan"), which covers substantially all employees. The Company matches 50% of employee contributions up to a maximum of 6% of the employee's compensation. For the years ended December 31, 2005, 2004 and 2003, the Company contributed approximately $135,000, $112,000 and $90,000, respectively, to the Plan.

(11) Liquidity

F-19

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(12) Income Taxes

Income tax expense (benefit) for the years ended December 31, 2005, 2004 and 2003 consists of the following:

	2005		2004		2003

Federal-current	$	83	$	162	$	3
State-current		4		4		114

	$	87	$	166	$	117

Actual income tax expense differs from the "expected" income tax expense (computed by applying the U.S. federal corporate tax rate of 35% to income before income taxes) for the years ended December 31, 2005, 2004 and 2003 as follows:

	2005			2004			2003

Computed "expected" tax benefit	$	1,165		$	1,134		$	702
State income taxes, net of federal tax expense		33			32			20
Change in valuation allowance for deferred tax assets		(1,242	)		(1,204	)		(748	)
Other		131			204			143

	$	87		$	166		$	117

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 2005 and 2004 are presented below:

	2005			2004

Deferred tax assets:
Allowance for doubtful accounts receivable	$	343		$	269
Product warranty and sales returns		557			403
Property and equipment		63			31
Other reserves		1,439			1,204
Settlement reserve		--			638
263A adjustment		128			146
Research and development tax credit carryforwards		306			306
Net operating loss carryforwards		15,458			16,546

Total deferred tax assets		18,294			19,543
Valuation allowance		(18,027	)		(19,269	)

Net deferred tax assets		267			274

Deferred tax liabilities:
Other		267			274

Total deferred tax liabilities		267			274

Net deferred taxes assets	$	--		$	--

F-20

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(12) Income Taxes (continued)

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

At December 31, 2005, the Company cannot determine based on a weighing of objective evidence that it is more likely than not that the remaining net deferred tax assets will be realized. As a result, as of December 31, 2005, the Company has established a valuation allowance for the deferred tax assets in excess of existing taxable temporary differences. The net change in the valuation allowance for the years ended December 31, 2005 and 2004 was a reduction in deferred tax assets of $1,242,000 and $1,204,000, respectively.

At December 31, 2005, the Company has net operating loss carryforwards for federal, foreign and state income tax purposes of approximately $42,938,000 and tax credit carryforwards of $306,000 which are available to offset future taxable income through 2022. The availability of approximately $785,000 of the net operating loss carryforwards to reduce future taxable income is limited to approximately $71,000 per year for the remaining life of the net operating losses, as a result of a change in ownership.

(13) Stockholders' Equity

(a) Employee Stock Option Plans

In April 1996, the Company adopted the 1996 Stock Option Incentive Plan (the "1996 Stock Option Plan"), pursuant to which stock options covering an aggregate of 800,000 shares of the Company's common stock may be granted. Options awarded under the 1996 Stock Option Plan (i) were generally granted at prices that equated to or were above fair market value on the date of grant; (ii) generally became exercisable over a period of one to four years; and (iii) generally expired ten years subsequent to award. Effective May 1, 2002, the 1996 stock option plan was terminated and the remaining 140,310 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

In February 1998, the Company adopted the 1998 Stock Incentive Plan (the "1998 Stock Option Plan"), pursuant to which stock options covering an aggregate of 1,800,000 shares (of which 900,000 shares were utilized as a direct stock grant to Mr. Faldo) of the Company's common stock were subject to grant. In May 2000, the Company's shareholders approved a request to increase the aggregate number of shares in the 1998 Stock Option Plan to 2,700,000. Options awarded under the Plan (i) generally became exercisable over a period of two to four years and (ii) generally expired five years subsequent to award. At December 31, 2002, 540,240 options had been granted at prices ranging from $0.75 to $5.50 of which 473,000 were made with exercise prices equal to the fair market value of the Company's stock at the date of grant. The 1998 grants were granted with exercise prices that were less than the fair market values of the Company's stock at $2.50 per share at the date of grant. Effective May 1, 2002, the 1998 stock option plan was terminated and the remaining 1,258,971 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

F-21

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(13) Stockholders' Equity (continued)

In May 1999, the shareholders of the Company adopted the 1999 Non-Employee Director Plan of Adams Golf, Inc. (the "Director Plan"), which allowed for 200,000 shares of the Company's stock to be issued to non-employee directors. At December 31, 2001, 90,000 options had been granted to various board members at exercise prices ranging from $0.63 to $4.75, which equaled the fair market value of the Company's common stock on the date of grant. These options vest equally on each of the first four anniversary dates from the date of grant and expire five years from the date of grant. Effective May 1, 2002, the Director Plan was terminated and the remaining 110,000 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

In November 1999, the Company adopted the 1999 Stock Option Plan for Outside Consultants (the "Consultant Plan"). The Consultant Plan allowed for the granting of up to 1,000,000 shares of the Company's common stock. At December 31, 2001, 355,800 options had been granted with exercise prices ranging from $0.38 to $2.27 per share at the date of grant. The vesting period varies from two to four years with options vesting equally on each of the anniversary dates from the date of grant and expire five years from the date of grant. Effective May 1, 2002, the Outside Consultants plan was terminated and the remaining 644,200 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

In May 2002, the Company adopted the 2002 Equity Incentive Plan for employees, outside directors and consultants. The plan allows for the granting of up to 2,500,000 shares of the Company's common stock at the inception of the plan, plus all shares remaining available for issuance under all predecessor plans on the effective date of this plan, and additional shares as defined in the plan. On May 1, 2002, the four predecessor plans described above were terminated and a total of 2,153,481 shares available for issuance under these predecessor plans were transferred to the Equity Incentive Plan. As shares forfeit or expire under the four predecessor plans, those shares become available under the 2002 Equity Incentive Plan. Since the initial transfer on May 1, 2002, an additional 806,040 shares were transferred to the Equity Incentive Plan. In addition, the plan automatically increases 1,000,000 shares available for granting on January 1 of each subsequent year for years 2003 through 2008. At December 31, 2005, 6,870,806 outstanding options had been granted with exercise prices at $0.01 per share at the date of grant. The vesting periods vary from six months to four years and the options expire ten years from the date of grant. At December 31, 2005, 1,134,632 shares remain available for grant, including forfeitures.

The following is a summary of stock options outstanding as of December 31, 2005:

			Weighted		Weighted				Weighted
Range of			Average		average				Average Vested
Exercise	Options		Remaining		Exercise price		Options		Exercise price
Prices	Outstanding		Contractual life		per share		Exercisable		per share

$0.01 - $0.30		6,870,806		8.03 years	$	0.01		4,354,786	$	0.01
$0.31 - $0.99		250,000		4.28 years		0.48		175,000		0.56
$1.00 - $1.97		50,000		8.40 years		1.20		12,500		1.20

		7,170,806		7.91 years	$	0.03		4,542,286	$	0.03

F-22

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(13) Stockholders' Equity (continued)

The per share weighted-average fair value of stock options granted during 2005, 2004 and 2003 was $1.38, $1.06 and $0.38, respectively, on the date of grant using the Black Scholes option pricing model with the following weighted-average assumptions: Risk free interest rate, 3.5%; expected life, 10 years; expected dividend yield, 0%; and daily annualized volatility, 111.4%, 118.1% and 120.0% in 2005, 2004 and 2003, respectively.

Operating expenses included in the consolidated statements of operations for the years ended December 31, 2005, 2004 and 2003 include total compensation expense associated with stock options and warrants of $1,496,000, $793,000 and $452,000, respectively, inclusive of compensation expense recorded under the provisions of SFAS No.123 of $0 for each of the years indicated.

A summary of stock option activity follows:

				Weighted
	Number of			Average
	Shares			Exercise price

Options outstanding at December 31, 2002		3,229,180		$	0.63
Options granted		1,316,007			0.05
Options forfeited (expired)		(135,000	)		0.38
Options exercised		(2,000	)		0.38

Options outstanding at December 31, 2003		4,408,187			0.46
Options granted		2,745,413			0.03
Options forfeited (expired)		(638,540	)		2.26
Options exercised		(118,082	)		0.07

Options outstanding at December 31, 2004		6,396,978			0.09
Options granted		1,294,161			0.01
Options forfeited (expired)		(306,333	)		1.32
Options exercised		(214,000	)		0.18

Options outstanding at December 31, 2005		7,170,806		$	0.03

(a) Common Stock Repurchase Program

In October 1998, the Board of Directors approved a plan whereby the Company is authorized to repurchase from time to time on the open market up to 2,000,000 shares of its common stock. At December 31, 1998, the Company had repurchased 657,500 shares of common stock at an average price per share of $4.77 for a total cost of approximately $3,136,000. The repurchased shares are held in treasury. No shares were repurchased during the years ended December 31, 2005, 2004 or 2003.

F-23

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(13) Stockholders' Equity (continued)

(b) Deferred Compensation

Due to the passage of The American Jobs Creation Act and the subsequent IRS Section 409A rules, stock options that were issued at a strike price less than market value at the date of grant will now be considered deferred compensation by the Internal Revenue Service and the individual who was granted the options will incur adverse tax consequences, including but not limited to excise taxes, unless the individual deems the future exercise date of the unvested stock options at December 31, 2004 and makes this election before December 31, 2005. As a result of the compliance with the American Job Creation Act, a summary of the elected future exercise dates is as follows:

Period of Exercise	Total Options to be exercised

2006		1,423,573
2007		1,194,667
2008		777,695
2009		360,000
2010		60,000
Beyond 2010		353,199

Total Options		4,169,134

(14) Segment Information

The Company generates substantially all revenues from the design, marketing and distribution of premium quality, technologically innovative golf clubs. The Company's products are distributed in both domestic and international markets. Net sales by customer domicile for these markets consisted of the following for the years ended December 31, 2005, 2004 and 2003:

	2005		2004		2003

United States	$	48,496	$	50,301	$	44,538
Rest of world		7,928		6,461		6,341

	$	56,424	$	56,762	$	50,879

F-24

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(14) Segment Information (continued)

The following table sets forth net sales by product class for the years ended December 31, 2005, 2004 and 2003:

	2005		2004		2003

Fairway woods	$	14,539	$	21,630	$	17,315
Drivers		15,673		11,142		10,992
Irons		23,919		21,107		20,319
Wedges and other		2,293		2,883		2,253

Total	$	56,424	$	56,762	$	50,879

(15) Quarterly Financial Results (unaudited)

Quarterly financial results for the years ended December 31, 2005 and 2004 are as follows:

	2005
	1^st Quarter		2^nd Quarter		3^rd Quarter			4^th Quarter

Net sales	$	16,798	$	19,792	$	10,180		$	9,654

Gross profit	$	8,853	$	9,029	$	4,153		$	4,080

Net income (loss)	$	3,490	$	1,182	$	(404	)	$	(1,028	)

Income (loss) per share
- basic	$	0.15	$	0.05	$	(0.02	)	$	(0.04	)
- diluted		0.13		0.04		(0.02	)		(0.04	)

		2004
		1^st Quarter		2^nd Quarter		3^rd Quarter			4^th Quarter

Net sales	$	17,798	$	19,695	$	10,950		$	8,319

Gross profit	$	9,736	$	9,793	$	4,951		$	3,702

Net income (loss)	$	2,513	$	2,061	$	61		$	(1,557	)

Income (loss) per share
- basic	$	0.11	$	0.09	$	0.00		$	(0.06	)
- diluted		0.10		0.08		0.00			(0.06	)

F-25

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2005 and 2004

(Tables in thousands, except share and per share amounts)

(16) Business and Credit Concentrations

The Company is currently dependent on five customers, which collectively comprised approximately 26.0% of net sales for the year ended December 31, 2005. Of these, no customer individually represented greater than 5% but less than 10% of net sales, while one customer individually represented greater than 10% but less than 15% of net sales for the year ended December 31, 2005. For the year ended December 31, 2004, six customers collectively comprised approximately 26.4% of net sales, of which one customer individually represented greater than 5% of net sales and no customers represented greater than 10% of net sales for the year ended December 31, 2004. For the year ended December 31, 2003, eight customers comprised approximately 24.9% of net sales, of which only one customer represented greater than 5% but less than 10% for the year ended December 31, 2003. The loss of an individual or a combination of these customers would have a material adverse effect on consolidated revenues, results of operations, financial condition and competitive market position.

A significant portion of the Company's inventory purchases are from one supplier. That supplier represents approximately 52% and 60% of total inventory purchases for the years ended December 31, 2005 and 2004, respectively. This supplier and many other industry suppliers are located in China. The Company does not anticipate any changes in the relationships with its suppliers; however, if such change were to occur, the Company has alternative sources available.

(17) Investigation and Recovery Efforts Regarding Misappropriation of Funds

On December 30, 2004, the Company reported through a Form 8-K filing that the Company had uncovered evidence suggesting a former employee embezzled approximately $970,000 between May, 2001 and November, 2004. The embezzled funds totaled approximately $286,000, $329,000, and $288,000 for the years ended December 31, 2004, 2003 and 2002, respectively, and were expensed in the years incurred. The Company involved its Audit Committee, its external auditors and outside legal counsel and believes that the extent of the fraud has been identified. The Company's insurance carrier has processed the claim under the Company's crime policy, and in March, 2005 the Company was granted a full recovery, less the deductible of $5,000, totaling $965,000, which is included in Other Income on the Statement of Operations. The Company received the funds on March 30, 2005 and recorded the recovery in the financial results of the first quarter of 2005.

F-26

(18 ) Subsequent Events

(a) Line of Credit

In February 2006, the Company signed a revolving credit agreement with Bank of Texas to provide up to $10.0 million in short term debt The agreement is collateralized by all assets of the Company and requires, among other things, the Company to maintain certain financial performance levels relative to the cash flow leverage ratio and fixed charge coverage ratio. Interest on outstanding balances varies depending on the portion of the line that is used and accrues at a rate from prime less one percent to prime and is due quarterly.

(b) Employment Agreement for Mr. Byron (Barney) H. Adams

In February 2006, the Company entered into a new employment agreement with Mr. Byron (Barney) H. Adams, the Company's Chairman of the Board of Directors. The agreement term is January 1, 2006 through December 31, 2008 and Mr. Adams will receive an annual salary and other related employee benefits. The full terms of the agreement are filed as an exhibit to the Company's Form 10-K Annual Report filing.

(c) Suit filed against AdamsGolf by TaylorMade

F-27

Schedule II

ADAMS GOLF, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

For the years ended December 31, 2005, 2004 and 2003

(Table in thousands)



	Balance at		Charged to						Balance at
	Beginning		cost and other						end of
Description	of period		expenses			Deductions(1)			period

Allowance for doubtful accounts:
Year ended December 31, 2005	$	746		557			351		$	952
Year ended December 31, 2004	$	332		1,510			1,096		$	746
Year ended December 31, 2003	$	662		772			1,102		$	332

Product warranty and sales returns:
Year ended December 31, 2005	$	1,120		742			316		$	1,546
Year ended December 31, 2004	$	1,015		437			332		$	1,120
Year ended December 31, 2003	$	566		415			(34	)	$	1,015

Inventory obsolescence
Year ended December 31, 2005	$	474		--			259		$	215
Year ended December 31, 2004	$	465		--			(9	)	$	474
Year ended December 31, 2003	$	726		--			261		$	465

Deferred tax asset/liability valuation:
Year ended December 31, 2005	$	19,269		(1,165	)		77		$	18,027
Year ended December 31, 2004	$	20,472		(1,134	)		69		$	19,269
Year ended December 31, 2003	$	21,219		(702	)		45		$	20,472

(1)	Represents uncollectible accounts charged against the allowance for doubtful accounts, actual costs incurred for warranty repairs and sales returns, and inventory items deemed obsolete charged against the inventory obsolescence reserve.

S-1

EX-10.8 2 v037990_ex10-8.htm

AMENDED AND RESTATED CREDIT AGREEMENT

This Amended and Restated Credit Agreement (the “Agreement”) is entered into as of January 23, 2006, by and among ADAMS GOLF, INC., a Delaware corporation; ADAMS GOLF HOLDING CORP, a Delaware corporation; ADAMS GOLF GP CORP, a Delaware corporation; ADAMS GOLF, LTD., a Texas limited partnership; ADAMS GOLF IP, LP, a Delaware limited partnership; and ADAMS GOLF MANAGEMENT CORP, a Delaware corporation (the “Borrowers”), whose address is 2801 E. Plano Parkway, Plano, Texas, 75074 and BANK OF TEXAS, N.A. (“Lender”) whose address is 5956 Sherry Lane, Suite 1100, Dallas, Texas 75225.

RECITALS:

WHEREAS, heretofore on February 13, 2004, Borrowers and Lender entered into that certain Credit Agreement, as amended by (a) First Amendment to Credit Agreement and Promissory Note dated as of February 10, 2005, among the Borrowers and Lender and (b) Second Amendment to Credit Agreement dated as of April 13, 2005, among Borrowers and Lender (said credit agreement as so amended is herein called the “Existing Credit Agreement”); and

WHEREAS, Borrower has requested additional extensions of credit and certain amendments to the Existing Credit Agreement, and Lender, subject to the terms hereof, has agreed to the same;

NOW, THEREFORE, in consideration to the mutual covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are acknowledged by each of the parties to this Agreement, the Borrowers and the Lender hereby agree that the Existing Credit Agreement is hereby amended and restated in its entirety to hereafter read as follows:

ARTICLE 1. DEFINED TERMS.

“Affiliate” means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of such Person; or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Person in question. The term “control” means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; provided, however, in no event shall the Lender be deemed an Affiliate of the Borrowers or any of its Subsidiaries or Affiliates.

“Authorization Documents” means, as to any Person which is not an individual, all appropriate evidences of the authority of such Person to execute, deliver and perform the Loan Documents to which it is a party, including, without limitation, as to any such Person which is a corporation, resolutions of its Board of Directors certified by its secretary or an assistant secretary, and a Certificate of Incumbency certified by its secretary or an assistant secretary certifying the names of the officers of such Person authorized to sign the Loan Documents to which it is a party.

“Authorized Officer” means, (a) with respect to the Corporate Borrowers, the President, Vice President, or Chief Financial Officer of each such respective Corporate Borrower and (b) with respect to the Partnership Borrowers, the President, Vice President, or Chief Financial Officer of the general partner of the Partnership Borrowers, in each case as designated in writing to Lender.

“Business Day” means a day (other than Saturday, Sunday or a legal holiday) on which commercial banks are open for business in Dallas, Texas.

“Capital Lease Obligation” means the amount of Debt under a lease of Property by a Person that would be shown as a liability on a balance sheet of such Person prepared for financial reporting purposes in accordance with GAAP.

“Capital Expenditure” means any expenditure by a Person for (a) an asset which will be used in a year or years subsequent to the year in which the expenditure is made and which asset is properly classified in relevant financial statements of such Person as equipment, real property, a fixed asset or a similar type of capitalized asset in accordance with GAAP or (b) an asset relating to or acquired in connection with an acquired business, and any and all acquisition costs related to (a) or (b) above.

“Cash Flow Leverage Ratio” means, in respect of a Person and for any period of determination, the ratio of (a) Funded Debt as of the period of determination to (b) EBITDA minus the sum of (i) cash taxes and (ii) distributions on a trailing twelve (12) month period from the period of determination.

“Charter Documents” means, as to any Person which is not an individual, as applicable, its articles/certificate of incorporation, bylaws, certificate of partnership, partnership agreement, certificate of formation, limited liability agreement, operating agreement and all shareholder agreements, voting trusts and similar arrangements evidencing the existence, good standing, governance and authority of such Person together with appropriate certificates of the appropriate governmental officials of the state of incorporation or formation of such Person as to the existence and good standing of such Person.

“Closing Date” means, the date upon which all of the conditions precedent set forth in Article 7 hereof have been performed by Borrowers to Lender’s satisfaction.

“Closing Documents” means a collective reference to (i) the Charter Documents and Authorization Documents of Borrowers, certified as of a Current Date; (ii) the Loan Documents, dated as of the Closing Date and executed and delivered by the appropriate Person; (iii) the Initial Borrowing Base Report certified by the Borrowers, as of a Current Date, and (iv) the Request for Loan executed by Borrowers.

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

“Collateral” means all property of any kind which is subject to a Lien in favor of Lender or which, under the terms of any Loan Documents, is or is purported to be encumbered by any Lien in favor of Lender or subject to any Lien in favor of Lender.

“Commitment” means the obligation of Lender to make the Loans to Borrowers pursuant to Section 2.1 up to an aggregate principal amount at any time outstanding of $10,000,000.00.

“Corporate Borrowers” means Adams Golf, Inc., Adams Golf Holding Corp, Adams Golf GP Corp, and Adams Golf Management Corp.

“Current Date” means a date which is within five (5) calendar days prior to the Closing Date.

“Current Maturities of Long-Term Indebtedness” means, in respect of a Person and as of any applicable date of determination thereof, that portion of Long-Term Indebtedness that should be classified as current in accordance with GAAP.

“Debt” means as to any Person at any time (without duplication): (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than ninety (90) days, (d) all Capital Lease Obligations of such Person, (e) all Debt or other obligations of others guaranteed by such Person, (f) all obligations secured by a Lien existing on property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person, (g) any other obligation for borrowed money or other financial accommodations which in accordance with GAAP would be shown as a liability on the balance sheet of such Person, (h) any repurchase obligation or liability of a Person with respect to accounts, chattel paper or notes receivable sold by such Person, (i) any liability under a sale and leaseback transaction that is not a Capital Lease Obligation, (j) any obligation under any so-called “synthetic leases”, (k) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers’ acceptances, surety or other bonds and similar instruments, and (m) all liabilities of such Person in respect of unfunded vested benefits under any Plan.

“Default” means any of the events or conditions specified in Section 6.1, whether or not any requirement for notice or lapse of time or any other condition has been satisfied.

“Default Interest Rate” has the meaning assigned to it in the Note.

“EBITDA” means an amount equal to Net Income plus the sum of taxes, Interest Expense, depreciation and amortization.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto.

“Event of Default” means any of the events or conditions specified in Section 6.1 provided that any requirement for notice or lapse of time or any other condition has been satisfied.

“Fixed Charge Coverage Ratio” means, in respect of a Person and for any period of determination, the ratio, computed on a trailing twelve (12) month period, of (a) EBITDA less the sum of (i) all unfinanced Capital Expenditures (ii) dividends and distributions paid and (iii) cash taxes paid (without benefit of any refunds), divided by (b) the sum of (i) Current Maturities of Long-Term Indebtedness (ii) Capital Lease Obligations, and (iii) Interest Expense (excluding capitalized interest).

“Funded Debt” means Debt described in clauses (a), (b), (d), (g), (i), and (j) of the definition of “Debt”.

“GAAP” means generally accepted accounting principles, applied on a consistent basis, as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements and pronouncements of the Financial Accounting Standards Board and/or their successors which are applicable in the circumstances as of the date in question; provided, however, for purposes of determining compliance with any covenant set forth in Article 4 of this Agreement, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in the Initial Financial Statements. Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

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

“Inactive Subsidiaries” has the meaning assigned that term in Section 3.22 hereof.

“Indebtedness” means the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Borrowers, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of Borrowers to Lender, whether direct or indirect, absolute or contingent, due or to because due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to Lender that are required to be paid by Borrowers pursuant hereto) or otherwise.

“Interest Expense” means, in respect of a Person and for any period, the interest expense of such Person for such period determined in accordance with GAAP.

“Law” means any law, regulation, rule, order, decree, license or permit, domestic or foreign.

“Lien” means any lien, mortgage, security interest, pledge, deposit, rights of vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, or any charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise.

“Loan Documents” means this Agreement, the Note, the Security Instruments, and all other certificates, documents and agreements executed in connection with this Agreement.

“Loans” means the loans made by Lender to Borrowers pursuant to Section 2.1.

“Long-Term Indebtedness” means, in respect of a Person and as of any applicable date of determination thereof, all Debt which should be classified as “funded indebtedness” or “long-term indebtedness” on a balance sheet of such Person as of such date in accordance with GAAP and Long-Term Indebtedness includes Capital Lease Obligations.

“Material Adverse Effect” means any set of circumstances or events which (a) is or could reasonably be expected to be material and adverse to the business, condition (financial or otherwise), operations, Property, assets, operations, prospects or profits of Borrowers, (b) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any of the Loan Documents or any of the transactions contemplated by the Loan Documents, (c) materially impairs or could reasonably be expected to materially impair the ability of Borrowers to pay the Indebtedness or to perform their respective obligations under any of the Loan Documents, (d) impairs or could reasonably be expected to impair the ability of Lender to enforce its legal rights and remedies under any of the Loan Documents, or (e) impairs or could reasonably be expected to impair the priority of the Liens under any Loan Document or the value of the Collateral.

“Maximum Rate” means the maximum lawful rate of interest permitted by applicable usury laws now or hereafter enacted which interest rate shall change when and as said laws change, to the extent permitted by said laws, effective on the day such change in said laws becomes effective, provided, however, that the term “Maximum Rate” means a rate equal to three (3) percentage points above the Prime Rate as it varies if there is no Maximum Rate.

“Net Income” means, for any period, the net income or net loss for such period of any Person, determined in accordance with GAAP; provided, however, there shall be excluded (a) any write-up of the value of any asset and (b) any non-cash items.

“Note” has the meaning assigned that term in Section 2.1.

“Partnership Borrowers” means Adams Golf, Ltd. and Adams Golf IP, LP.

“Permitted Liens” means (a) Liens in favor of Lender, (b) Liens for taxes, assessments and other governmental charges arising by law in the ordinary course of business for sums which are not yet due and payable, (c) Liens of mechanics, materialmen, warehousemen and other like Persons arising by law in the ordinary course of business for sums which are not yet due and payable, (d) Liens, not delinquent, created by statute in connection with worker’s compensation, unemployment insurance and social security obligations, (e) encumbrances consisting of minor easements, zoning restrictions or other restrictions on the use of real property that do not (individually or in the aggregate) materially affect the value of the assets encumbered or materially impair the ability of any Borrower to use the assets in its business, and (f) liens held by Tom Watson on the liquidated net assets including the inventory, accounts and account receivables of Adams Golf, Inc., and Adams Golf, Ltd., to the extent such liens have been subordinated to the liens held by Lender.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA.

“Person” means an individual, corporation, partnership, association, joint stock company, trust, estate, unincorporated organization or joint venture, or a court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity.

“Plan” means any employee benefit or other plan established or maintained by Borrowers and which is covered by Title IV of ERISA.

“Prime Rate” has the meaning set forth in the Note.

“Prohibited Transaction” means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code.

“Property” means any interest in any kind of property or assets, whether real, personal or mixed, or tangible or intangible.

“Reportable Event” means any of the events set forth in Section 4043 of ERISA.

“Security Instruments” has the meaning assigned to that term in Section 7.1.

“Stock” means all shares, options, interests, participations or other equivalents (howsoever designated) of or in a corporation, whether voting or non-voting, including, without limitation, common stock, warrants, preferred stock, convertible debentures, and all agreements, instruments, and documents convertible, in whole or in part, into any one or more of all of the foregoing.

“Subsidiary” means any corporation of which more than fifty percent (50%) of the issued and outstanding securities having ordinary voting power for the election of directors is owned or controlled, directly or indirectly, by a Borrower and/or one or more of its Subsidiaries.

“Termination Date” means January 23, 2009, unless sooner terminated pursuant to Section 6.2.

“UCC” means the Uniform Commercial Code, as enacted and in effect in the State of Texas.

ARTICLE 2. AMOUNT AND TERMS OF CREDIT.

2.1 The Commitment. Subject to, and upon the terms, conditions, covenants and agreements contained in this Agreement, Lender agrees to make Loans to Borrowers from time to time for a period from and after the date of this Agreement up to but not including the Termination Date in such amounts as Borrowers may request up to but not exceeding an aggregate principal sum at any time outstanding equal to the Commitment. Within such limits and during such period, Borrowers may borrow, repay, and re-borrow under this Agreement. To evidence the Loans, Borrowers will issue, execute and deliver an amended and restated promissory note (such note together with any and all renewals, extensions and/or rearrangements thereof is called the “Note”) dated as of the date of this Agreement in the principal amount of the Commitment and payable to the order of Lender on the Termination Date, and otherwise being in form and substance satisfactory to Lender. Unpaid principal of, and accrued interest on, the Loans shall be paid in accordance with the terms of the Note. Interest on the Loans shall accrue at the rates provided in Section 2.2.

2.2 Interest Rate. The unpaid principal amount of the Note shall, subject to the following sentence, bear interest as provided in the Note. If at any time the rate of interest specified in the Note would exceed the Maximum Rate but for the provisions thereof limiting interest to the Maximum Rate, then any subsequent reduction shall not reduce the rate of interest on the Loans below the Maximum Rate until the aggregate amount of interest accrued on the Loans equals the aggregate amount of interest which would have accrued on the Loans if the interest rate had not been limited by the Maximum Rate.

2.3 Request for Loans. Each Loan shall be made on the same Business Day as written notice in the form of the “Request for Loan” attached to this Agreement as Exhibit “A” duly completed and executed by an Authorized Officer of each Borrower is received by Lender if received by 12:00 p.m. (Dallas, Texas time) and on the next Business Day if received by Lender after 12:00 p.m. (Dallas, Texas time). If all conditions precedent to the Loan have been met, Lender will, on the date requested, make the Loan available to Borrowers by depositing the proceeds thereof into an account maintained at Lender as directed by Borrowers.

2.4 Mandatory Prepayments. If the unpaid principal balance of the Loans exceeds the Commitment, Borrowers shall immediately prepay the principal of the Loans in an amount at least equal to the excess. Each prepayment of principal under this Section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid under this Section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of the payment.

2.5 Computation of Interest. All payments of interest shall be computed on the per annum basis of a year of 360 days, but to the extent such computations of interest might cause the rate of interest to exceed the Maximum Rate, the interest shall be computed on the basis of a year of 365 or 366 days, as applicable.

2.6 Voluntary Prepayments. Borrowers may prepay the unpaid principal of the Note at any time in whole or from time to time in part, without premium or penalty, but with accrued interest to the date of prepayment on the amount so prepaid. Each prepayment of principal of the Note shall be applied to reduce the outstanding principal balance of the Note.

2.7 Joint and Several Liability of Borrowers.

(a) Each of the Borrowers are accepting joint and several liability under this Agreement, the Note, and the other Loan Documents in consideration of the financial accommodations to be provided by the Lender under this Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Indebtedness.

(b) Each of the Borrowers, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Indebtedness (including, without limitation, any Indebtedness arising under this Section 2.7), it being the intention of the parties hereto that all the Indebtedness shall be the joint and several Indebtedness of each of the Borrowers without preferences or distinction among them.

(c) If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Indebtedness as and when due in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, such Indebtedness.

(d) The Indebtedness of each Borrower constitutes the absolute and unconditional, full recourse Indebtedness of such Borrower enforceable against each such Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances whatsoever.

(e) Each Borrower hereby waives notice of acceptance of its joint and several liability, notice of any Loans issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, the Note, or any of the other Loan Documents (except for notices required under this Agreement and the other Loan Documents), notice of any action at any time taken or omitted by Lender under or in respect of any of the Indebtedness, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement, the Note, and the other Loan Documents (except as otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Indebtedness, the acceptance of any payment of any of the Indebtedness, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Lender at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement or any of the other Loan Documents, any and all other indulgences whatsoever by Lender in respect of any of the Indebtedness, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Indebtedness or the addition, substitution or release, in whole or in part, of any Borrower. The Indebtedness of each Borrower shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any Borrower or Lender. The joint and several liability of the Borrower hereunder shall continue in full force and effect notwithstanding any absorption, merger, or any other change whatsoever in the name, constitution or place of formation of any of the Borrower or Lender.

(f) Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against the other Borrowers with respect to any liability incurred by it under this Agreement, the Note or any of the other Loan Documents, any payments made by it to the Lender with respect to any of the Indebtedness or any collateral security therefor until such time as all of the Indebtedness has been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to Lender under this Agreement, the Note or any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Indebtedness arising hereunder or thereunder, to the prior payment in full in cash of the Indebtedness and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all Indebtedness shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor.

(g) Each Borrower hereby agrees that, after the occurrence and during the continuance of any Default or Event of Default, the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash of the Indebtedness. Each Borrower hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Indebtedness shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for the Lender for application to the Indebtedness.

(h) In addition to all such rights of indemnity and subrogation as the Borrowers may have under applicable law (but subject to Section 2.7(f)), the Borrowers agree that (i) in the event a payment shall be made by any Borrower under this Agreement, the Note or any of the other Loan Documents, the remaining Borrowers shall indemnify such Borrower for the full amount of such payment and such Borrower shall be subrogated to the rights of the person to whom such payment shall have been made to the extent of such payment and (b) in the event any assets of any Borrower shall be sold pursuant to any Loan Document to satisfy in whole or in part a claim of Lender, the remaining Borrowers shall indemnify such Borrower in an amount equal to the greater of the book value or the fair market value of the assets so sold.

(i) Each Borrower (a “Contributing Borrower”) agrees (subject to Section 2.7(f)) that, in the event a payment shall be made by any other Borrower under this Agreement, the Note or any other of the other Loan Documents or assets of any other Borrower shall be sold pursuant to any Loan Document to satisfy a claim, in whole or in part, of Lender and such other Borrower (the “Claiming Borrower”) shall have not been fully indemnified by the other Borrowers as provided in Section 2.7(h), the Contributing Borrowers shall indemnify the Claiming Borrower in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as the case may be, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Borrower on the date hereof and the denominator shall be the aggregate net worth of all the Borrowers on the date hereof. Any Contributing Borrower making any payment to a Claiming Borrower pursuant to this Section 2.7(i) shall be subrogated to the rights of such Claiming Borrower under Section 2.7(h) to the extent of such payment.

(j) No failure on the part of a Borrower to make the payments required by Section 2.7(h) or 2.7(i) (or any other payments required under applicable law or otherwise) shall in any respect limit the Indebtedness and liabilities of any Borrower with respect to its Indebtedness under this Agreement, the Note and the other Loan Documents, and each Borrower shall remain liable for the full amount of the Indebtedness.

2.8 Clean-Up Period. Borrower will cause the unpaid principal balance of the Note to be reduced to zero for at least a thirty (30) consecutive day period in each calendar year during the term of this Agreement.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES. In addition to any other representations or warranties made by Borrowers in any of the other Loan Documents, in order to induce Lender to enter into this Agreement and to make the Loans, Borrowers represent and warrant to Lender (which representations and warranties will survive the delivery of the Note and the making of the Loans) that:

3.1 Organization.

(a) Each Corporate Borrower is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to transact business in the State of Texas and in each other jurisdiction wherein the Property owned or the business transacted by it makes such qualification necessary.

(b) Each Partnership Borrower is a limited partnership duly formed and validly existing under the laws of the jurisdiction of its formation and is duly qualified to transact business in the State of Texas and in each other jurisdiction wherein the Property owned or the business transacted by it makes such qualification necessary.

3.2 Power and Authority. Each Borrower has full power and authority to enter into, execute and deliver the Loan Documents to which it is a party, to consummate the transactions contemplated in the Loan Documents to which it is a party, and to incur the obligations provided for in the Loan Documents, all of which have been duly authorized by all necessary and proper action.

3.3 Consents. No consent or approval of any public authority or third party, or of any stockholders or partners of Borrowers, as applicable, is required as a condition to the validity of any of the Loan Documents which has not been obtained.

3.4 Binding Obligations. The Loan Documents constitute legal, valid and binding obligations of each Borrower to the extent it is a party thereto, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

3.5 No Legal Bar, Etc. The execution and delivery of the Loan Documents, the performance by each Borrower of its obligations under the Loan Documents to which it is a party, and the consummation of the transactions contemplated by the Loan Documents, do not and will not (a) conflict with any provision of any Law, any Borrower’s Charter Documents, any agreement, judgment, license, order or permit applicable to or binding upon any Borrower or any of its Property, (b) result in the acceleration of any Debt owed by any Borrower, or (c) result in or require the creation of any Lien upon any Property of Borrower. No consent, approval, authorization, or order of, and no notice to or filing with, any court or governmental authority or third party is required in connection with the execution, delivery or performance of any of the Loan Documents or to consummate any transaction contemplated by the Loan Documents.

3.6 Trade Names, Place of Business. No Borrower has, during the preceding five (5) years, been known by or used any other name. The chief executive office and principal place of business of Borrowers are located at the address of Borrowers set forth above.

3.7 Proceedings. Except as disclosed in public filings by Adams Golf, Inc., there are no actions, suits or proceedings pending or, to the knowledge of Borrowers, threatened against or affecting any Borrower before any court or administrative agency which on the date of this Agreement has, or which if adversely determined against such Borrower could reasonably be expected to have, a Material Adverse Effect on the Borrowers taken as a whole.

3.8 Financial Statements. The financial statements of Borrowers which have been delivered to Lender prior to the date of this Agreement (the “Initial Financial Statements”) have been prepared in accordance with GAAP and present fairly the financial condition and results of the operation of Borrowers as at the dates and for the periods covered. Since [September 30, 2005], no adverse change has occurred in the condition, financial or otherwise, of Borrowers.

3.9 Investments and Guaranties. No Borrower has made investments in, advances to, or guaranties of the Debt of, any Person, except as disclosed in the Initial Financial Statements.

3.10 Debt. No Borrower has any Debt, except as disclosed in the Initial Financial Statements.

3.11 Taxes. All income taxes and other taxes due and payable by each Borrower through the date of this Agreement have been paid prior to becoming delinquent.

3.12 Title. Each Borrower has good and indefeasible title to all its Property, free and clear of any Liens and security interests, except for Permitted Liens.

3.13 No Defaults. No event or condition has occurred and is continuing which constitutes, or with notice or lapse of time (or both) would constitute, an Event of Default under this Agreement or any of the other Loan Documents.

3.14 Use of Proceeds. The proceeds of the Loans will be used solely for (a) working capital and other general corporate purposes and (b) subject to the limitations set forth in Section 5.7 of this Agreement, (i) the repurchase of treasury stock of the Borrowers and (ii) acquisitions to the extent permitted by the terms of Section 5.3.

3.15 Margin Securities. Under no circumstances will any part of the proceeds of the Loans be used directly or indirectly for the purpose, whether immediate, incidental, or ultimate, of purchasing, carrying or trading in any “margin stock” or any “margin securities” (as such terms are defined respectively in Regulation T, U or X promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any margin stock or margin securities. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock or margin securities.

3.16 Compliance With Laws. Each Borrower is conducting its business in material compliance with all applicable federal, state, and local Laws, including without limitation those pertaining to environmental matters; none of the operations of Borrowers are the subject of any federal, state or local investigation evaluating whether any material remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent into the environment; Borrowers have not, and (to the best knowledge of Borrowers) no other Person has, filed any notice under any federal, state or local Law indicating that Borrowers are responsible for the release into the environment, or the improper storage, of any hazardous or toxic waste, substance or constituent or that such waste, substance or constituent has been released, or is improperly stored, upon any Property of Borrowers; and Borrowers do not have any material contingent liability in connection with the release into the environment, or the improper storage, of any waste, substance or constituent.

3.17 Good Consideration. The Loan Documents and the transactions contemplated by the Loan Documents have been or will be executed, delivered and performed in good faith and in exchange for reasonably equivalent value.

3.18 Solvency. Borrowers (a) are not insolvent on the date of this Agreement and will not become insolvent as a result of entering into the Loan Documents, (b) do not intend to incur Debt that will be beyond their ability to pay as such Debt matures. Borrowers’ assets do not constitute unreasonably small capital to carry out their business as conducted and as proposed to be conducted.

3.19 ERISA. Borrowers are in compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan. No notice of intent to terminate a Plan has been filed, nor has any Plan been terminated. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. No Borrower has completely or partially withdrawn from a Multiemployer Plan. The Borrowers have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan do not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with ERISA. No Borrower has incurred any liability to the PBGC under ERISA.

3.20 Common Enterprise. The successful operation and condition of each of the Borrowers is dependent on the continued successful performance of the functions of the group of Borrowers as a whole and the successful operation of each of the Borrowers are dependent on the successful performance and operation of each other Borrower. Each Borrower expects to derive benefit (and its board of directors or other governing body has determined that it may reasonably be expected to derive benefit), directly and indirectly, from successful operations of each of the other Borrowers. Each Borrower expects to derive benefit (and the boards of directors or other governing body of each Borrower has determined that it may reasonably be expected to derive benefit), directly and indirectly, from the credit extended by the Lender to Borrowers hereunder, both in their separate capacities and as members of the group of companies. Each Borrower has determined that execution, delivery, and performance of this Agreement and any other Loan Documents to be executed by such Borrower is within its purpose, will be of direct and indirect benefit to such Borrower, and is in its best interest.

3.21 Depository Relationship. To induce the Lender to establish the interest rates provided in the Note, Borrowers will use Lender as its principal depository bank and the Borrowers covenant and agree to maintain Lender as their principal depository bank, including for the maintenance of business, cash management, and operating and administrative deposit accounts.

3.22 Closed/Inactive Subsidiaries.

(a) Adams Golf Foreign Sales Corp., Adams Golf Direct Responses, Ltd., and Adams Golf RAC Corp. have terminated their respective existences, and, as a result, are no longer direct or indirect Subsidiaries or Affiliates of Adams Golf, Inc.

(b) Adams Golf UK, Ltd. and Adams Golf Japan, Inc. (the “Inactive Subsidiaries”) are inactive and do not conduct business, own any assets, or have any Debt.

ARTICLE 4. AFFIRMATIVE COVENANTS AND AGREEMENTS. So long as the Commitment is available to Borrowers and until payment and performance in full of the Note and all other Indebtedness, unless Borrowers receive prior written approval of a deviation therefrom from Lender, Borrowers covenant and agree with Lender that:

4.1 Business and Financial Information. Borrowers will promptly furnish to Lender from time to time such information regarding the business and affairs and financial condition of Borrowers as Lender may reasonably request, and will furnish Lender:

(a) Monthly Financial Statements - as soon as available and in any event within thirty (30) days after the end of each calendar month during the term of this Agreement, the consolidated balance sheet (including, without limitation, a statement of contingent liabilities) of Borrowers as of the close of such calendar month and the consolidated statement of operations, cash flows and shareholders’ equity of Borrowers for such calendar month, setting forth, in each case in comparative form, the figures for the corresponding periods in the previous fiscal year as well as year-to-date figures, all in such detail as Lender may reasonably request and accompanied by a statement of an Authorized Officer certifying that the financial statements fairly present the financial position of Borrowers at the close of such period and the results of their operations for such period;

(b) Annual Financial Statements - as soon as available and in any event within one hundred twenty (120) days after the close of each fiscal year of Borrowers during the term of this Agreement, the audited consolidated balance sheet (including, without limitation, a statement of contingent liabilities) of Borrowers as at the end of such fiscal year and the audited consolidated statement of operations, cash flows and shareholders’ equity of Borrowers for such fiscal year, setting forth, in each case in comparative form, the figures for the previous fiscal year, all in reasonable detail and audited by independent certified public accountants of recognized national standing acceptable to Lender and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such financial statements fairly present the financial condition and results of operations of Borrowers in accordance with GAAP consistently applied;

(i) 10-Q quarterly reports within forty-five (45) days of filing and Form 10-K annual reports within one hundred twenty (120) days of filing;

(ii) any other filings made by any Borrower with the United States Securities and Exchange Commission and any successor thereto;

(iii) copies of Borrowers’ federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service; and

(iv) any other information that is provided by Adams Golf, Inc. to its shareholders.

(d) Notice of Default - immediately upon becoming aware of the existence of any event or condition which constitutes, or with notice or lapse of time (or both) would constitute, an Event of Default under this Agreement or any of the other Loan Documents, a written notice specifying the nature and period of existence of the default and what action Borrowers are taking or propose to take with respect thereto;

(e) Notice of Claimed Default - immediately upon becoming aware that any Person has given notice or taken any other action with respect to a claimed default under any promissory note, contract, agreement or undertaking to which any Borrower is a party or by which any Property of any Borrower may be bound or subject, a written notice specifying the notice given or action taken by such Person and the nature of the claimed default and what action such Borrower is taking or proposes to take with respect to the claimed default;

(f) Litigation - immediately upon becoming aware of any action, suit, or proceeding pending or threatened against or affecting any Borrower in any court or before any governmental authority, which if adversely determined could have a Material Adverse Effect, a written notice specifying the nature of the action, suit or proceeding and what action such Borrower is taking or proposes to take with respect to the action, suit or proceeding; and

(g) Material Adverse Effect - immediately upon becoming aware of any event, condition or circumstance that has, or could reasonably be expected to have, a Material Adverse Effect, a written notice specifying the nature of the event, condition or circumstance and what action Borrowers are taking or propose to take with respect to the event, condition or circumstance.

4.2 Compliance Certificate. Borrowers will furnish to Lender concurrently with the furnishing of the monthly and annual financial statements pursuant to Section 4.1 of this Agreement, a certificate in the form of certificate attached to this Agreement as Exhibit “B” signed by an Authorized Officer stating:

(a) that a review of the activities of Borrowers has been made under his supervision with a view to determining whether Borrowers have fulfilled all of their obligations under the Loan Documents; and

(b) that Borrowers have fulfilled all of their obligations under the Loan Documents and that all representations made in the Loan Documents continue to be true and correct (or specifying the nature of any change) or if Borrowers shall be in default, specifying any default and the nature and status of the default and showing in detail the computations required by the provisions of Section 4.14 and 4.15 based on the figures which appeared on the books of account of Borrowers at the close of the respective period.

4.3 Taxes; Debts; Etc. Each Borrower will (a) timely file all required tax returns, (b) pay all taxes, assessments, and other governmental charges or levies imposed upon it or upon its income, profits or Property, (c) pay when due, all trade debt owed by it on ordinary trade terms to vendors, suppliers and other Persons providing goods and services used by it in the ordinary course of its business, and (d) pay and discharge when due, all other Debt now or subsequently owed by it, unless the amount or applicability thereof is being contested in good faith by appropriate proceedings diligently conducted, provided adequate reserves for the payment thereof have been established in accordance with GAAP.

4.4 Maintenance of Existence. Each Borrower will maintain its existence, rights and franchises.

4.5 Maintenance of Properties. Each Borrower will maintain its tangible properties, real and personal, in good order and repair at all times.

4.6 Maintenance of Licenses, Etc.. Each Borrower will maintain in full force and effect at all times, and apply in a timely manner for renewal of, all of its licenses, approvals, permits, franchises, patents, copyrights, trademarks, service marks, and trade names necessary for the continuation of the operation of its business.

4.7 Compliance; Environmental Indemnity. Each Borrower will comply with, and conduct its business and affairs in compliance with, all federal, state, and local Laws, rules and governmental requirements, including, without limitation, those pertaining to pollution or other environmental matters and all ERISA requirements and obtain all permits, licenses, and other similar approvals required by all such Laws pertaining to the environment. Borrowers shall indemnify Lender and hold Lender harmless from and against any claim, loss or damage to which Lender is subjected as a result of any past, present or future existence, use, handling, storage, transportation or disposal of any hazardous wastes or substance or toxic substance by Borrowers. This indemnification shall survive the termination of this Agreement and the payment of the Indebtedness.

4.8 Insurance. Borrowers will maintain insurance with responsible insurance companies on such of their Properties, in such amounts and against such risks, as is customarily maintained by similar businesses operating in the same vicinity, specifically to include a policy of fire and extended coverage insurance covering all Property, business interruption insurance and liability insurance, all to be with such companies and in such amounts satisfactory to Lender and to name Lender as loss payee, and evidence of such insurance shall be supplied to Lender.

4.9 Reimbursement of Expenses. If Borrowers fail to pay any taxes, insurance premiums or other amounts they are required to pay under this Agreement, or any of the other Loan Documents, and Lender pays the amounts, upon such payment and demand, Borrowers will immediately reimburse Lender therefor and each amount paid by Lender shall constitute Indebtedness owed under this Agreement, shall be secured by the Loan Documents and shall accrue interest at the Maximum Rate from the date the amount is paid by Lender until the date the amount is repaid to Lender.

4.10 Financial Records; Inspection. Borrowers will maintain a system of accounting satisfactory to Lender and in accordance with GAAP, and permit Lender’s officers or authorized representatives to visit and inspect their books of account and other reports during normal business hours as often as Lender may desire.

4.11 Location of Books and Records. Unless written notice of another location is given to Lender, each Borrower will maintain the location of its books and records at the address of Borrower set forth above.

4.12 Compliance with Agreements. Each Borrower will comply, in all material respects, with all agreements, contracts, and instruments binding on it or affecting its properties or business, the noncompliance with which could have a Material Adverse Effect.

4.13 Further Assurances. The Borrowers will execute and deliver such further agreements and instruments and take such further action as may be reasonably requested by the Lender to carry out the provisions and purposes of this Agreement and the other Loan Documents and to create, preserve, and perfect the Liens of the Lender in the Collateral.

4.14 Cash Flow Leverage Ratio. Borrowers will at all times during the term of this Agreement maintain a Cash Flow Leverage Ratio of not greater than 3.00 to 1.00; provided, after the consummation of an acquisition of a Subsidiary as permitted by the terms of Section 5.3(ii), the EBITDA of such Subsidiary may be included in the computation of the Cash Flow Leverage Ratio in amounts satisfactory to Lender.

4.15 Fixed Charge Coverage Ratio. The Borrowers will at all times during the term of this Agreement maintain a Fixed Charge Coverage Ratio of not less than 1.25 to 1.0.

4.16 Subsidiaries. Borrowers shall notify Lender in writing of Borrowers’ intention to acquire any Person as permitted in Section 5.3(ii) of this Agreement and upon any such acquisition, Borrowers shall (a) cause such Person if it becomes a Subsidiary to execute and deliver to Lender (i) such agreements and documents as Lender deems necessary for the Subsidiary to be a party to this Agreement and the Note and be jointly and severally liable together with the Borrowers for the payment of the Indebtedness (ii) a security agreement and such other documents and agreements as Lender deems reasonably necessary, in order to grant Lender a perfected first priority security interest in all assets of the Subsidiary.

4.17 Acquisition of Assets by Borrowers. Borrowers shall notify Lender in writing of Borrowers’ intention to acquire any assets as permitted by the terms of Section 5.3(i) of this Agreement, and if such acquisition is consummated and to the extent Lender does not hold a valid perfected first priority security interest or lien in the assets so acquired, Borrowers will execute and deliver to Lender such security agreements, deeds of trust, mortgages, pledges and other instruments by hypothecation as Lender may deem necessary in order to grant Lender a perfected first priority security interest in and/or Lien upon such assets.

ARTICLE 5. NEGATIVE COVENANTS. So long as the Commitment is available to Borrowers and until payment and performance in full of the Note and all other Indebtedness, unless Borrowers receive prior written approval of a deviation therefrom from Lender (which approval will not be unreasonably withheld), Borrowers hereby covenant and agree with Lender that:

5.1 Liens. Borrowers will not grant, suffer or permit Liens on or security interests in any of their respective Properties, except Permitted Liens.

5.2 Loans, Advances. Borrower will not make any loans, advances, capital contributions or investments to or in any Person, except for (a) loans, advances and investments existing on the date of this Agreement which are reflected in the Initial Financial Statements and (b) advances and loans among the Borrowers.

5.3 Mergers, Etc. No Borrower will (a) amend its Charter Documents or otherwise change its name or structure, (b) reactivate any of the Inactive Subsidiaries or permit any of the Inactive Subsidiaries to conduct business, (c) form a subsidiary company, (d) consolidate with or merge into, or acquire any Person, (e) permit any Person to consolidate with or merge into, or acquire it, (f) acquire the Stock of any corporation, or (g) acquire all or substantially all of the assets and business of any Person or any division of any Person; provided, however, subject to the limitations of Section 5.7 of this Agreement the Borrowers may, at any time when no Default exists:

(i) acquire all or substantially all of the assets of any Person provided;

(aa) immediately after the consummation of the transaction and after giving effect thereto, no Default will exist; and

(bb) the Borrowers have complied with the provisions of Section 4.17 of this Agreement and shall have granted Lender perfected first priority security interests in and Liens on the assets and properties so acquired; and

(ii) acquire any Person, provided;

(aa) immediately after the consummation of the transaction and after giving effect thereto, no Default will exist;

(bb) the nature of the business of the Person so acquired is consistent with the current business operations of Borrowers;

(cc) immediately after the consummation of the transaction, and after giving effect thereto, the Person so acquired:

(1) is merged into a Borrower and such Borrower is the surviving and continuing entity; or

(2) becomes a Subsidiary of a Borrower; and

(dd) the Borrowers have complied with the provisions of Section 4.16 of this Agreement.

5.4 Disposition of Assets. No Borrower will sell, lease, assign or otherwise dispose of or transfer any of its Property except (a) Equipment which is worthless or obsolete or which is replaced by Equipment of equal suitability and value, provided the proceeds of the sale or other disposition are delivered to Lender for application to the Indebtedness and (b) inventory which is sold in the ordinary course of business on ordinary trade terms.

5.5 Dividends. During the existence of a Default, no Borrower will declare or pay any dividends or distributions (other than dividends payable in capital stock) on any shares of any class of capital stock, any partnership interests or other securities, or apply any of its Property or assets to the purchase, redemption or other retirement of any shares of any class of capital stock, any partnership interest or other security, or in any way amend its capital structure.

5.6 Nature of Business. No Borrower will change its name, address or the general character of business as conducted on the date of this Agreement, and no Borrower will engage in any type of business not reasonably related to its business as presently and normally conducted.

5.7 Repurchase of Stock and Acquisitions. Borrowers will not permit the consideration paid and to be paid for (a) the repurchase of Stock or other ownership interests of Borrowers and (b) the acquisitions permitted by the terms of Section 5.3, to exceed $10,000,000.00 in the aggregate during the term of this Agreement.

5.8 Capital Expenditures. Borrowers will not enter into any commitment to expend an amount for the acquisition or lease of any Property or asset whether tangible, intangible, fixed or capital including repairs, replacements and/or improvements, which are capitalized under GAAP which exceeds $1,000,000.00 in the aggregate during any fiscal year of Borrowers during the term of this Agreement.

5.9 ERISA Compliance. Borrowers will not adopt a Plan or amend an existing Plan that results in a material increase of benefits. Borrowers will not at any time permit any Plan maintained by them to:

(a) engage in any “prohibited transaction” or “reportable event”, as such terms are defined in ERISA;

(b) incur any accumulated funding deficiency; or

ARTICLE 6. EVENTS OF DEFAULT AND REMEDIES.

6.1 Events. Any of the following events shall be considered an “Event of Default” as that term is used in this Agreement:

(a) Borrowers default in the payment of any Indebtedness, whether principal or interest or any installment thereof, when due and payable;

(b) any statement, representation or warranty of any Borrower in any of the Loan Documents proves to have been incorrect or incomplete in any material respect when made;

(c) Any Borrower defaults in the due observance or performance of any of the covenants or agreements contained in Section 2.8, 4.1, 4.2, 4.3, 4.5, 4.6, 4.7, 4.9, 4.10, 4.11, 4.12, 4.16 or 4.17 of this Agreement and such default continues unremedied for a period of thirty (30) days after notice of such default is sent by Lender to Borrowers;

(d) Any Borrower defaults in the due observance or performance of any of the covenants or agreements contained in Section 4.4, 4.8, 4.14 or 4.15 in Article 5 of this Agreement or any Borrower defaults in the due observance or performance of any of its covenants or agreements contained in any of the other Loan Documents.

(e) any default or event of default occurs under any Loan Document and the same is not remedied within the applicable period of grace (if any) provided in the Loan Document;

(f) Any Borrower dissolves or terminates its existence or discontinues its usual business or is enjoined, restrained or in any way prevented by court order or order of any governmental authority from conducting all or any material part of its business and such order is not lifted within thirty (30) days;

(g) any involuntary case or other proceeding is commenced against any Borrower which seeks liquidation, reorganization or other relief with respect to it or its debts and liabilities under any bankruptcy, insolvency or similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or for the winding-up or liquidation of its affairs;

(h) Any Borrower commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to it or its debts and liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property or consents to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or makes a general assignment for the benefit of creditors, or fails generally to, or admits in writing its inability to, pay its debts generally as they become due or takes any action to authorize or effect any of the foregoing;

(i) Any Borrower defaults in the payment of principal of or interest on any of its Debt to any Person, the non-payment of which could have a Material Adverse Effect; or

(j) any event, condition or circumstance occurs which has a Material Adverse Effect and Lender has provided Borrowers with written notice of the occurrence of such event, condition, or circumstance.

6.2 Remedies Upon Default.

(a) Acceleration.

(i) Upon the occurrence of any Event of Default described in Section 6.1(f), (g), or (h), the Commitment and all other lending obligations, if any, of Lender under this Agreement shall immediately terminate, and the total unpaid principal amount of the Note together with interest then accrued and unpaid thereon and all other Indebtedness shall become immediately due and payable, all without demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other notice of default of any kind, all of which are expressly waived by Borrowers.

(ii) Upon the occurrence and at any time during the continuance of any other Event of Default specified in Section 6.1, Lender may, by written notice to Borrowers, (aa) declare the total unpaid principal amount of the Note together with interest then accrued and unpaid thereon and all other Indebtedness to be immediately due and payable without demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other notice of default of any kind, all of which are expressly waived by Borrowers, and/or (bb) terminate the Commitment and other lending obligations, if any, of Lender under this Agreement unless and until Lender shall reinstate the same in writing.

(b) Other Rights. In addition, upon the occurrence of any Event of Default, Lender may, at its election, do any one or more of the following:

(i) reduce any claim to judgment;

(ii) exercise the rights of offset and/or banker’s lien and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Lender to or for the credit or the account of each Borrower against any and all of the Indebtedness, irrespective of whether or not Lender shall have made any demand under this Agreement or the Note and although such Indebtedness may be unmatured;

(iii) foreclose any and all Liens in favor of Lender and/or otherwise realize upon any and all of the rights Lender may have in and to any Collateral, or any part thereof; or

(iv) exercise any and all other rights afforded by any applicable laws, or by the Loan Documents, at law or in equity, or otherwise, including but not limited to, the rights to bring suit or other proceedings before any court of competent jurisdiction, either for specific performance of any covenant or condition contained in the Loan Documents or in aid of the exercise of any right granted to Lender in the Loan Documents, all as Lender shall deem appropriate in its sole discretion.

6.3 No Waiver or Exhaustion. No waiver by Lender of any of its rights or remedies under this Agreement or under any of the Loan Documents shall be considered a waiver of any other or subsequent right or remedy of Lender; no delay or omission in the exercise or enforcement by Lender of any rights or remedies shall ever be construed as a waiver of any right or remedy of Lender; and no exercise or enforcement of any such rights or remedies shall ever be held to exhaust any right or remedy of Lender.

ARTICLE 7. CONDITIONS PRECEDENT.

7.1 Documents and Other Items to be Delivered. Lender has no obligation to make the first Loan unless Lender shall have received all of the following at Lender’s office in Dallas, Texas, all in form, substance and date satisfactory to Lender:

(a) the Note executed by Borrowers;

(b) the following instruments (the “Security Instruments”):

(i) one or more Security Agreements executed by Borrowers granting Lender a valid, first priority security interest in all assets, specified in such Security Agreements whether now owned or subsequently acquired and wherever located and the proceeds and products therefrom; and

(ii) one or more UCC-1 Financing Statements reflecting Borrowers, as Debtor, and Lender, as Secured Party, covering the personal property described in the Security Agreements.

(c) Release of Liens and UCC-3 Termination Statements executed by such Persons as Lender deems necessary to insure Lender’s first priority security interest in and to the Collateral;

(d) search certificates from the Secretaries of States of Delaware and Texas (and, upon request by Lender, such other governmental authorities as may be repositories in any state, county or parish where each Borrower conducts its business or where any Collateral may be located), setting forth all Uniform Commercial Code filings, financing statements, chattel mortgages, assignments and other pledges of personal property and any and all mechanics’ or repairmens’ liens and federal, state and county tax filings against each Borrower, which certificates shall be in form, scope and content satisfactory to Lender and accompanied by copies of the filed financial statements, chattel mortgages and/or assignments and shall confirm that the Collateral is free and clear of all pledges, assignments, security interest and liens other than those in favor of Lender;

(e) each other Closing Document executed by the appropriate Persons;

(f) Borrowers shall have established Lender as its principal depository bank in accordance with Section 3.21 in a manner acceptable to Lender; and

7.2 Additional Conditions Precedent. Lender has no obligation to make any Loan unless the following additional conditions precedent have been satisfied:

(a) all representations and warranties made by Borrowers in the Loan Documents are true on and as of the date of the Loan as if such representations and warranties had been made as of the date of the Loan;

(b) as of the date of the Loan no event or condition exists which constitutes, or with notice or lapse of time (or both) would constitute, an Event of Default under this Agreement;

(c) there has been no event, condition or circumstance which has or could reasonably be expected to have a Material Adverse Effect; and

(d) a duly executed Request for Loan has been provided to Lender.

ARTICLE 8. MISCELLANEOUS.

8.1 Enforceability. If any provision of this Agreement is held to be unenforceable, this Agreement shall be considered divisible and inoperative as to the provision to the extent it is deemed to be unenforceable, and in all other respects this Agreement shall remain in full force and effect; provided, however, that if the provision may be made enforceable by limitations thereof, then the provision shall be enforceable to the maximum extent permitted by law.

8.2 Performance; Notice. The Loan Documents are performable by Borrowers entirely in the county where Lender’s main office is located. Any notice required to be provided to Borrowers under this Agreement that is mailed postage prepaid to Borrowers c/o Adams Golf, Inc., 2801 E. Plano Parkway, Plano, Texas 75074 or at the most recent changed address on file with Lender at least ten (10) days before the time of the event to which the notice relates shall be deemed reasonable unless any longer period is required by Law.

8.3 Expenses. Borrowers hereby agree to pay on demand (a) all costs and expenses of Lender in connection with the preparation, negotiation, execution and delivery of the Loan Documents and any and all amendment, modifications, renewals, extensions and supplements to the Loan Documents including, without limitation, the reasonable fees and the expenses of legal counsel for Lender, (b) all costs and expenses of Lender in connection with the enforcement of any of the Loan Documents, including, without limitation, the reasonable fees and the expenses of legal counsel for Lender, (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental authority in respect of any of the Loan Documents, (d) all costs, expenses, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest or Lien contemplated by any of the Loan Documents, and (e) all other costs and expenses incurred by Lender in connection with any Loan Document including, without limitation, all costs, expenses and other charges incurred in connection with obtaining any audit or appraisal in respect of the Collateral.

8.4 Successors and Assigns. The terms of this Agreement shall be binding upon the heirs, executors, administrators, personal representatives, successors and assigns of Borrowers and Lender. Lender reserves the right to assign the Loan Documents in whole or in part to any person or entity. In the event more than one party executes this Agreement, the obligations of the parties under this Agreement shall be joint and several. Section headings in this Agreement are included solely for convenience, are not intended to be full or accurate descriptions of the content thereof and shall not be construed to enlarge, limit, or otherwise change the express provision thereof. Pronouns in masculine, feminine, or neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. If the Loan Documents are given in renewal and extension of a prior obligation to Lender, all Liens and other security interests granted to secure such prior obligation, if any, are hereby carried over and renewed to secure the Indebtedness.

8.5 Indemnification. BORROWERS SHALL INDEMNIFY LENDER AND ITS OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING ATTORNEYS’ FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, OR (C) ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, EXCEPT FOR LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES WHICH ARE CAUSED BY LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

8.6 Applicable Law; Submission To Process. THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE LOAN DOCUMENTS MAY BE GOVERNED BY THE LAWS OF THE UNITED STATES. NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT, THE NOTE, OR ANY OF THE OTHER LOAN DOCUMENTS TO THE CONTRARY, CHAPTER 346 OF THE TEXAS FINANCE CODE AS AMENDED SHALL NOT BE APPLICABLE TO THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER LOAN DOCUMENTS. BORROWERS HEREBY IRREVOCABLY SUBMIT THEMSELVES TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF TEXAS AND TO THE VENUE OF DALLAS COUNTY AND AGREE AND CONSENT THAT SERVICE OF PROCESS MAY BE MADE UPON THEM IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW.

8.7 Limitation On Interest. It is expressly stipulated and agreed to be the intent of Borrowers and Lender at all times to comply with the applicable Texas law governing the maximum rate or amount of interest payable on the Note or the Indebtedness (or applicable United States Federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially interpreted so as to render usurious any amount called for under the Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved or received with respect to the Indebtedness, or Lender’s exercise of the option to accelerate the maturity of the Note, or any prepayment by Borrowers results in Borrowers having paid or Lender having received any interest in excess of that permitted by applicable law, then it is Borrowers’ and Lender’s express intent that all excess amounts theretofore collected by Lender be credited on the principal balance of the Note and all other Indebtedness (or, if the Note and all other Indebtedness have been or would thereby be paid in full, refunded to Borrowers), and the provisions of the Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if the Note has been paid in full before the end of the stated term of the Note, then Borrowers and Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrowers that interest was received in an amount in excess of the Maximum Rate either refund such excess interest to Borrowers or credit such excess interest against any other Indebtedness then owing by Borrowers to Lender. Borrowers hereby agree that as a condition precedent to any claim seeking usury penalties against Lender, that Borrowers will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrowers or crediting such excess interest against any other indebtedness then owing by Borrowers to Lender. All sums contracted for, charged or received by Lender for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of the Indebtedness until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the Maximum Rate from time to time in effect and applicable to the Indebtedness for so long as debt is outstanding. In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain loan accounts and revolving triparty accounts) apply to the Indebtedness. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration. To the extent that Lender is relying on Chapter 303 of the Texas Finance Code, as amended, of the Revised Civil Statutes of Texas to determine the Maximum Rate payable on the Indebtedness, Lender will utilize the weekly ceiling from time to time in effect as provided in Chapter 303, as amended. To the extent United States Federal law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States Federal law instead of such Chapter 303, as amended, for the purpose of determining the Maximum Rate. Additionally, to the extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, implement any other method of computing the Maximum Rate under such Chapter 303 of the Finance Code, as amended, or under other applicable law by giving notice, if required, to Borrowers as provided by applicable law now or hereafter in effect. Borrowers and Lender hereby agree that any and all suits alleging the contracting for, charging or receiving of usurious interest shall lie in Dallas County, Texas, and each irrevocably waive the right to venue in any other county.

8.8 No Oral Agreements. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES.

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

8.10 Waiver Of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWERS AND LENDER HEREBY IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.

8.11 Participation. Borrowers hereby acknowledge and agree that Lender has and shall have the right at any time without the consent of or notice to Borrower to grant participations in all or part of the Indebtedness now or hereafter outstanding under this Agreement, the Note, or any of the other Loan Documents and any security interest and/or Liens on the Property of Borrowers now or hereafter granted by Borrowers to Lender as security for the payment and performance of such obligations. Borrowers hereby authorize Lender and each participant of Lender in the case of an Event of Default or demand for payment under this Agreement, to proceed directly by right of setoff, banker’s lien or otherwise against any assets of Borrowers, which may at the time of such Event of Default or demand for payment be in the hands of Lender or any such participant to the full extent of its interest in such obligations.

8.12 No Duty Or Special Relationship. Borrowers acknowledge that Lender has no duty to Borrowers with respect to the loan transactions set forth in the Loan Documents except as expressly provided for in this Agreement and the other Loan Documents, and acknowledge that no fiduciary, trust, or other special relationship exists between Lender and Borrowers.

8.13 Other Remedies Not Required. Borrower may be required to pay the Note in full without the assistance of any other party, or any collateral or security for the Note. Lender shall not be required to mitigate damages, file suit, or take any action to foreclose, proceed against or exhaust any collateral or security in order to enforce payment of the Note.

8.14 Inconsistencies And Conflicts. To the extent any irreconcilable conflicts or inconsistencies exist between the terms of this Agreement and any of the other Loan Documents, the terms of this Agreement shall govern and control.

8.15 Future Advances. No advance under the Note shall constitute a waiver of any of the conditions of Lender’s obligation to make further advances nor, in the event Borrowers are unable to satisfy any such condition, shall any such waiver have the effect of precluding Lender from thereafter declaring such inability to be a Default.

8.16 Lender’s Discretion. All matters hereunder that require Lender’s discretion, (including, without limitation, whether Borrowers have satisfied any condition precedent), Lender shall use its sole and reasonable discretion, except as otherwise provided for herein. Further, Lender may in its sole discretion waive any of its rights with respect to a particular Event of Default.

8.17 Business Loans. Borrowers warrant and represent to Lender, and to all other holders of any debt evidenced by the Note, that the loan evidenced by the Note is and shall be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use.

8.18 Representations and Warranties. All representations and warranties of Borrowers herein, and all covenants and agreements made by Borrowers herein made before the effective date of this Agreement, shall survive such date.

8.19 Binding Effect. All covenants and agreements of Borrowers under this Agreement shall bind the respective successors and assigns of Borrowers and shall inure to the benefit of Lender and its successors and assigns. The rights of Borrowers under this Agreement are not assignable.

8.20 No Waiver. No course of dealing on the part of Lender, or its officers or employees, nor any failure or delay by Lender with respect to exercising any of its rights, remedies, powers or privileges hereunder shall operate as a waiver thereof. No indulgence by Lender, or waiver of compliance with any of the terms, covenants, or provisions of this Agreement or the other Loan Documents, shall be construed as a waiver of Lender’s right to subsequently require strict performance by the Borrowers. The rights and remedies of the Lender under this Agreement and the other Loan Documents shall be cumulative and the exercise or partial exercise of any such rights or remedies shall not preclude the exercise of any other rights or remedies.

8.21 Amendment. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.

8.22 Severability. In the event any provision contained in any of the Loan Documents shall, for any reason, be held invalid, illegal or unenforceable in any respect, such provision shall be severed from the applicable Loan Document, and such invalidity, illegality or unenforceability shall not affect any other provision of the applicable Loan Document.

8.23 Counterparts. This Agreement may be executed in two or more counterparts, and it shall not be necessary that any one counterparts be executed by all of the parties hereto. Each fully or partially executed counterpart shall be deemed an original, but all such counterparts taken together shall constitute but one and the same instrument.

8.24 Further Assurances. Borrowers will execute and deliver such further instruments as may be deemed necessary or desirable by Lender to carry out the provisions and purposes of this Agreement and the other Loan Documents and to preserve and perfect the Liens of the Lender in the Collateral.

8.25 Right of Termination. Borrowers shall have the right to terminate this Agreement at any time, provided, that there is no Indebtedness owing at the time of such termination.

8.26 Confirmation. Each Borrower ratifies and confirms that the Security Instruments are and remain in full force and effect in accordance with their respective terms, that the Collateral is unimpaired by this Agreement, and that the Liens, security interests and other security or collateral held by Lender are hereby renewed, extended and carried forward to secure any and all the Indebtedness. Borrowers hereby agree that all applicable limitations periods with respect to the Note, the Security Instruments and the other Loan Documents are renewed and extended effective as of the date of this Agreement. Borrowers further acknowledge and agree that the term “Obligations”, as defined in the Security Agreement, shall include any and all Indebtedness as defined in this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

WITNESS THE EXECUTION HEREOF, as of the 9th day of February, 2006.

LENDER:

BANK OF TEXAS, N.A., a national banking association

By: /S/ JAMES E. SANGSTER

Name: James E. Sangster

Title: Senior Vice President

BORROWERS:

ADAMS GOLF, INC., a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: Chief Financial Officer

ADAMS GOLF HOLDING CORP., a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: Vice President

ADAMS GOLF GP CORP., a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: President

ADAMS GOLF, LTD., a Texas limited partnership

By: Adams Golf GP Corp, a Delaware corporation,

its sole General Partner

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: President

ADAMS GOLF IP LP, a Delaware corporation

By: Adams Golf GP Corp, a Delaware corporation,

its sole General Partner

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: President

ADAMS GOLF MANAGEMENT CORP., a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: Vice President

EXHIBIT “A”

REQUEST FOR LOAN

Reference is made to that certain Credit Agreement dated as of February __, 2004 (as from time to time amended, the “Agreement”), by and among Adams Golf, Inc., Adams Golf Holding Corp., Adams Golf GP Corp., Adams Golf, Ltd., Adams Golf IP, LP, and Adams Golf Management Corp. (“Borrowers”) and Bank of Texas, N.A. (“Lender”). Terms which are defined in the Agreement are used herein with the meanings given them in the Agreement. Pursuant to the terms of the Agreement, Borrowers hereby request Lender to make a Loan in the amount set forth below in Item (4) under the heading “Borrowing Information”.

To induce Lender to make the requested Loan, Borrowers hereby represent, warrant, acknowledge, and agree to and with Lender that:

(a) The officer of Borrowers signing this instrument is the duly elected, qualified and acting officer of Borrowers as indicated below such officer’s signature hereto having all necessary authority to act for Borrowers in making the request herein contained.

(b) All representations and warranties contained in the Agreement and in each of the other Loan Documents are true and correct in all respects on and as of the date hereof with the same force and effect as if made on and as of such date.

(c) All covenants and agreements contained in the Agreement and in each of the other Loan Documents to have been complied with and performed on or prior to the making of the requested Loan have been fully complied with and performed.

(d) No Default or Event of Default has occurred and is continuing or would result from the requested Loan.

(e) All conditions precedent to the advance of the requested Loan set forth in Article 7 of the Agreement have been satisfied.

(f) Since the date of the latest Compliance Certificate delivered to Lender, there has been no material adverse change in the Collateral or in the business, assets, operations, prospects or condition, financial or otherwise, of Borrowers.

IN WITNESS WHEREOF, this instrument is executed as of ____________________.

[BORROWERS]

By: ________________________________________

Printed Name: ________________________________

Title: _______________________________________

EXHIBIT “B”

COMPLIANCE CERTIFICATE

Reference is made to the Credit Agreement (the “Agreement”) dated as of February __, 2004, made by and between ADAMS GOLF, INC., ADAMS GOLF HOLDING CORP., ADAMS GOLF GP CORP., ADAMS GOLF, LTD., ADAMS GOLF IP, LP, and ADAMS GOLF MANAGEMENT CORP. (“Borrowers”) and BANK OF TEXAS, N.A. (“Lender”). Terms which are defined in the Agreement are used herein with the meanings given them in the Agreement. The undersigned hereby certifies that he is a duly elected, qualified, and acting officer of Borrower, and that:

(aa) a review of the activities of Borrowers has been made under his supervision with a view to determining whether Borrowers have fulfilled all of their obligations under the Agreement and the other Loan Documents;

(bb) Borrowers have fulfilled all of their obligations under the Agreement and the other Loan Documents and all representations and warranties made in the Agreement and the other Loan Documents are true and correct in all material respects on and as of the date hereof with the same force and effect as though made on and as of the date hereof;

(cc) no Default or Event of Default has occurred and is continuing as of the date hereof;

(dd) Borrowers are in compliance with the terms and conditions of all leases covering property upon which the Collateral is located and all such leases are in full force and effect; and

(ee) attached hereto as Schedule A is a report prepared by the undersigned setting forth information and calculations that demonstrate compliance (or noncompliance) with the covenants set forth in Section 4.14 and 4.15 of the Agreement.

IN WITNESS WHEREOF, this certificate is executed as of _________________.

By: ________________________________

Printed Name: ________________________

Title: _______________________________

SCHEDULE A

Borrower has complied with the covenants contained in Sections 4.14 and 4.15 of the Agreement as detailed below:

(a)	Actual Cash Flow Leverage Ratio	___ to 1.00

	Required Cash Flow Leverage Ratio	3.00 to 1.00

(b)	Actual Fixed Charge	___ to 1.00

	Required Fixed Charge1.25 to 1.00

AMENDED AND RESTATED PROMISSORY NOTE

$10,000,000.00	January 23, 2006

FOR VALUE RECEIVED, ADAMS GOLF, INC., a Delaware corporation, ADAMS GOLF HOLDING CORP, a Delaware corporation, ADAMS GOLF GP CORP, a Delaware corporation, ADAMS GOLF, LTD., a Texas limited partnership, ADAMS GOLF IP, LP, a Delaware limited partnership, and ADAMS GOLF MANAGEMENT CORP, a Delaware corporation (whether one or more, “Borrower”), having an address at 2801 E. Plano Parkway, Plano, Texas 75074, hereby promises to pay to the order of BANK OF TEXAS, N.A., a national banking association (together with its successors and assigns and any subsequent holders of this Promissory Note, the “Lender”), as hereinafter provided, the principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00) or so much thereof as may be advanced by Lender from time to time hereunder to or for the benefit or account of Borrower, together with interest thereon at the Note Rate (as hereinafter defined), and otherwise in strict accordance with the terms and provisions hereof.

ARTICLE 9.

DEFINITIONS

9.1 Definitions. As used in this Promissory Note, the following terms shall have the following meanings:

Applicable Margin: The Applicable Margin is the percent per annum set forth below, based on Borrower’s Cash Flow Coverage Ratio as set forth in the most recent compliance certificate received by Lender:

Applicable Margin


[Ratio]	For Prime Rate	For LIBOR
Equal to or less than 1.00 to 1.00	-1.00%	1.50%
Greater than 1.00 to 1.00 but less than 1.50 to 1.00	-0.75%	1.75%
Equal to 1.50 to 1.00 but less than 2.00 to 1.00	-0.50%	2.00%
Equal to 2.00 to 1.00 but less than 2.50 to 1.00	-0.25%	2.25%
Equal to 2.50 to 1.00 but less than 3.00 to 1.00	0.0%	2.50%

The Applicable Margin will be determined from Borrower’s most recent compliance certificate (or if no compliance certificate is required, Borrower’s most recent financial statements) received by Lender. The Applicable Margin will be in effect from the first day of the month following receipt of that certificate or financial statement until the first day of the month following receipt of the next compliance certificate or financial statement. Until Lender receives the first certificate or financial statement, the Applicable Margin will be -1.00% for Base Rate loans and 1.50% for LIBOR loans. Thereafter if any compliance certificate or financial statement is not delivered on time, the Applicable Margin from the date such certificate or financial statement was due until Lender receives it will be the highest level set forth above.

Applicable Rate: (i) In the case of a Portion bearing interest based upon the Base Rate, the Base Rate plus the Applicable Margin and (ii) in the case of a Portion bearing interest based upon LIBOR, LIBOR plus the Applicable Margin.

Base Rate: For any day, a rate of interest equal to the Prime Rate for such day.

Borrower: As identified in the introductory paragraph of this Note.

Business Day: A weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in Dallas, Texas are authorized or required by law to be closed. Unless otherwise provided, the term “days” when used herein shall mean calendar days.

Change: (i) any change after the date of this Note in the risk-based capital guidelines applicable to Lender or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Note that affects capital adequacy or the amount of capital required or expected to be maintained by Lender or any entity controlling Lender.

Charges: All fees, charges and/or any other things of value, if any, contracted for, charged, taken, received or reserved by Lender in connection with the transactions relating to this Note and the other Loan Documents, which are treated as interest under applicable law.

Debtor Relief Laws: Title 11 of the United States Code, as now or hereafter in effect, or any other applicable law, domestic or foreign, as now or hereafter in effect, relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement or composition, extension or adjustment of debts, or similar laws affecting the rights of creditors.

Default Interest Rate: A rate per annum equal to the Note Rate plus three percent (3%), but in no event in excess of the Maximum Rate.

Event of Default: As defined in the Loan Agreement.

Funding Indemnification: The amount (which shall be payable on Lender’s written demand notwithstanding any contrary provision in this Note) necessary to promptly compensate Lender for, and hold it harmless from, any loss, cost or expense incurred by it as a result of:

(a) any payment or prepayment of any Portion bearing interest based upon LIBOR on a day other than the last day of the relevant LIBOR Interest Period (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

(b) any failure by Borrower to prepay, borrow, continue or convert a Portion bearing or selected to bear interest based upon LIBOR on the date or in the amount selected by Borrower,

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such portion or from fees payable to terminate the deposits from which such funds were obtained. Borrower shall also pay any customary administrative fees charged by Lender in connection with the foregoing. For purposes of calculating amounts payable by Borrower to Lender hereunder, Lender shall be deemed to have funded the Portion based upon LIBOR by a matching deposit or other borrowing in the London inter-bank market for a comparable amount and for a comparable period, whether or not such Portion was in fact so funded.

Lender: As identified in the introductory paragraph of this Note.

LIBOR Banking Day: Any day on which commercial banks in the City of London, England are open for business and dealing in offshore dollars.

LIBOR Determination Date: A day that is three LIBOR Banking Days prior to the beginning of the relevant LIBOR Interest Period.

LIBOR Interest Period: A period of one, two or three months. The first day of the interest period must be a LIBOR Banking Day. The last day of the interest period and the actual number of days during the interest period will be determined by Lender using the practices of the London inter-bank market.

LIBOR: With respect to each LIBOR Interest Period, the rate (expressed as a percentage per annum and adjusted as described in the last sentence of this definition of LIBOR) for deposits in United States Dollars that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London, England time, on the related LIBOR Determination Date. If such rate does not appear on such screen or service, or such screen or service shall cease to be available, LIBOR shall be determined by Lender to be the offered rate on such other screen or service that displays an average British Bankers Association Interest Settlement Rate for deposits in United States Dollars (for delivery on the first day of such LIBOR Interest Period) for a term equivalent to such LIBOR Interest Period as of 11:00 a.m. on the relevant LIBOR Determination Date. If the rates referenced in the two preceding sentences are not available, LIBOR for the relevant LIBOR Interest Period will be determined by such alternate method or reasonably selected by Lender. LIBOR shall be adjusted from time to time in Lender’s sole discretion for then-applicable reserve requirements, deposit insurance assessment rates, marginal emergency, supplemental, special and other reserve percentages, and other regulatory costs.

Loan Agreement: The Amended and Restated Credit Agreement of even date herewith executed by Lender and Borrower.

Loan Documents: As defined in the Loan Agreement.

Maturity Date: January 23, 2009.

Maximum Rate: As defined in the Loan Agreement.

Note: This Promissory Note.

Note Rate: The rate equal to the lesser of (a) the Maximum Rate or (b) the Applicable Rate.

Payment Date: The first day of each and every January, April, July and October during the term of this Note and the last day of each LIBOR Interest Period.

Portion: Any principal amount bearing interest based upon the Base Rate or LIBOR.

Prime Rate: The rate of interest per annum set and published by BOK Financial Corporation on a daily basis from time to time as the BOKF National Prime Rate. The Prime Rate is not necessarily the lowest rate charged by Lender on its loans and is set by Lender in its sole discretion. If such prime rate shall cease to be published or is published infrequently or sporadically, then the Prime Rate shall be the rate of interest per annum established from time to time by Lender and designated as its base or prime rate, which may not necessarily be the lowest interest rate charged by Lender, and is set by Lender in its sole discretion. Borrower understands that Lender may make loans based on other rates as well.

Related Indebtedness: Any and all indebtedness paid or payable by Borrower to Lender pursuant to the Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, except such indebtedness which has been paid or is payable by Borrower to Lender under this Note.

Any capitalized term used in this Note and not otherwise defined herein shall have the meaning ascribed to each such term in the Loan Agreement. All terms used herein, whether or not defined in Section 1.1 hereof, and whether used in singular or plural form, shall be deemed to refer to the object of such term whether such is singular or plural in nature, as the context may suggest or require.

ARTICLE 10.

PAYMENT TERMS

10.1 Payment of Principal and Interest. All accrued but unpaid interest on the principal balance of this Note outstanding from time to time shall be payable on each Payment Date commencing April 1, 2006. The then outstanding principal balance of this Note and all accrued but unpaid interest thereon shall be due and payable on the Maturity Date. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of the Loan Documents; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. The unpaid principal balance of this Note at any time shall be the total amounts advanced hereunder by Lender less the amount of principal payments made hereon by or for Borrower, which balance may be endorsed hereon from time to time by Lender or otherwise noted in Lender’s records, which notations shall be, absent manifest error, conclusive evidence of the amounts owing hereunder from time to time.

10.2 Application. Except as expressly provided herein to the contrary, all payments on this Note shall be applied in the following order of priority: (i) the payment or reimbursement of any expenses, costs or obligations (other than the outstanding principal balance hereof and interest hereon) for which either Borrower shall be obligated or Lender shall be entitled pursuant to the provisions of this Note or the other Loan Documents, (ii) the payment of accrued but unpaid interest hereon, and (iii) the payment of all or any portion of the principal balance hereof then outstanding hereunder, in the direct order of maturity. If an Event of Default exists under this Note or under any of the other Loan Documents, then Lender may, at the sole option of Lender, apply any such payments, at any time and from time to time, to any of the items specified in clauses (i), (ii) or (iii) above without regard to the order of priority otherwise specified in this Section 2.2 and any application to the outstanding principal balance hereof may be made in either direct or inverse order of maturity.

10.3 Payments. All payments under this Note made to Lender shall be made in immediately available funds at 5956 Sherry Lane, Suite 1100, Dallas, Texas 75225 (or at such other place as Lender, in Lender’s sole discretion, may have established by delivery of written notice thereof to Borrower from time to time), without offset, in lawful money of the United States of America, which shall at the time of payment be legal tender in payment of all debts and dues, public and private. Payments by check or draft shall not constitute payment in immediately available funds until the required amount is actually received by Lender in full. Payments in immediately available funds received by Lender in the place designated for payment on a Business Day prior to 11:00 a.m. Dallas, Texas time at said place of payment shall be credited prior to the close of business on the Business Day received, while payments received by Lender on a day other than a Business Day or after 11:00 a.m. Dallas, Texas time on a Business Day shall not be credited until the next succeeding Business Day. If any payment of principal or interest on this Note shall become due and payable on a day other than a Business Day, such payment shall be made on the next succeeding Business Day. Any such extension of time for payment shall be included in computing interest which has accrued and shall be payable in connection with such payment.

10.4 Rate Selection, Etc. Borrower may select, subject to the terms and conditions set forth below, a Note Rate based upon either LIBOR or the Base Rate for the entire principal amount of this Note then outstanding or any Portion thereof. No more than three LIBOR Interest Periods may be outstanding at any time, and each Portion bearing interest based on LIBOR shall be at least $500,000.00. Borrower may designate the Portion to bear interest based upon LIBOR by giving Lender written notice of its selection before 11:00 a.m. (Dallas, Texas time) on the LIBOR Determination Date, which selection shall be irrevocable, for each LIBOR Interest Period. If an Event of Default has occurred and is continuing, the option to select LIBOR as a basis for the Note Rate shall be terminated. No LIBOR Interest Period may extend beyond the Maturity Date. Any Portion for which LIBOR Interest Period is not selected shall bear interest at a Note Rate based upon the Base Rate. The determination by Lender of the Note Rate shall, in the absence of manifest error, be conclusive and binding in all respects. Notwithstanding anything contained herein to the contrary, if (i) at any time, Lender determines (which determination shall be conclusive in the absence of manifest error) that any applicable law or regulation or any change therein or the interpretation or application thereof or compliance therewith by Lender (A) prohibits, restricts or makes impossible the charging of interest based on LIBOR or (B) shall make it unlawful for Lender to make or maintain the indebtedness evidenced by this Note in eurodollars, or (ii) at the time of or prior to the determination of the Note Rate, Lender determines (which determination shall be conclusive in the absence of manifest error) that by reason of circumstances affecting the London interbank market generally, (A) deposits in United States Dollars in the relevant amounts and of the relevant maturity are not available to Lender in the London interbank market, (B) the Note Rate does not adequately and fairly reflect the cost to Lender of making or maintaining the loan, due to changes in administrative costs, fees, tariffs and taxes and other matters outside of Lender’s reasonable control, or (C) adequate and fair means do not or will not exist for determining the Note Rate as set forth in this Note, then Lender shall give Borrower prompt notice thereof, and this Note shall bear interest, and continue to bear interest until Lender determines that the applicable circumstance described in the foregoing clauses (i) (A) or (B) or (ii) (A), (B) or (C) no longer pertains, at the Base Rate plus Applicable Margin.

10.5 Computation Period. Interest on the indebtedness evidenced by this Note shall be computed on the basis of a three hundred sixty (360) day year and shall accrue on the actual number of days elapsed for any whole or partial month in which interest is being calculated. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to the close of business on the Business Day received as provided in Section 2.3 hereof.

10.6 Prepayment. Borrower shall have the right to prepay, at any time and from time to time without fee, premium or penalty (except as noted below), all or any Portion of the outstanding principal balance hereof, provided, however, that (a) such prepayment shall also include any and all accrued but unpaid interest on the amount of principal being so prepaid through and including the date of prepayment, plus any other sums which have become due to Lender under the other Loan Documents on or before the date of prepayment, but which have not been fully paid and (b) any Funding Indemnification.

10.7 Unconditional Payment. Borrower is and shall be obligated to pay all principal, interest and any and all other amounts which become payable under this Note or under any of the other Loan Documents absolutely and unconditionally and without any abatement, postponement, diminution or deduction whatsoever and without any reduction for counterclaim or setoff whatsoever. If at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any Debtor Relief Law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand.

10.8 Partial or Incomplete Payments. Remittances in payment of any part of this Note other than in the required amount in immediately available funds at the place where this Note is payable shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in full in accordance herewith and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the full amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default in the payment of this Note.

10.9 Default Interest Rate, etc. For so long as any Event of Default exists under this Note or under any of the other Loan Documents, regardless of whether or not there has been an acceleration of the indebtedness evidenced by this Note, and at all times after the maturity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), and in addition to all other rights and remedies of Lender hereunder, interest shall accrue on the outstanding principal balance hereof at the Default Interest Rate, and such accrued interest shall be immediately due and payable. Borrower acknowledges that it would be extremely difficult or impracticable to determine Lender’s actual damages resulting from any late payment or Event of Default, and such late charges and accrued interest are reasonable estimates of those damages and do not constitute a penalty. If Lender determines that the amount of capital required or expected to be maintained by Lender or any entity controlling Lender, is increased as a result of a Change, then, within fifteen (15) days of demand by Lender, Borrower shall pay to Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital that Lender determines is attributable to this Note or the principal amount outstanding hereunder (after taking into account Lender’s policies as to capital adequacy).

ARTICLE 11.

EVENT OF DEFAULT AND REMEDIES

11.1 Event of Default. The occurrence or happening, at any time and from time to time, of any event or condition which constitutes an Event of Default under the Loan Agreement shall immediately constitute an “Event of Default” under this Note.

11.2 Remedies. Upon the occurrence of an Event of Default, Lender shall have the immediate right to exercise any and all rights and remedies afforded Lender under the Loan Documents, at law, or in equity.

ARTICLE 12.

GENERAL PROVISIONS

12.1 No Waiver; Amendment. No failure to accelerate the indebtedness evidenced by this Note by reason of an Event of Default hereunder, acceptance of a partial or past due payment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced by this Note or as a waiver of such right of acceleration or of the right of Lender thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted under this Note, under any of the other Loan Documents or by any applicable laws. Borrower hereby expressly waives and relinquishes the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. The failure to exercise any remedy available to Lender shall not be deemed to be a waiver of any rights or remedies of Lender under this Note or under any of the other Loan Documents, or at law or in equity. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part, unless Lender specifically, unequivocally and expressly agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, or modification is sought.

12.2 Waivers. EXCEPT AS SPECIFICALLY PROVIDED IN THE LOAN DOCUMENTS TO THE CONTRARY, BORROWER AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF NONPAYMENT OR NONPERFORMANCE, PROTEST, NOTICE OF PROTEST, NOTICE OF INTENT TO ACCELERATE, NOTICE OF ACCELERATION OR ANY OTHER NOTICES OR ANY OTHER ACTION. BORROWER AND ANY ENDORSERS OR GUARANTORS HEREOF SEVERALLY WAIVE AND RELINQUISH, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO THE BENEFITS OF ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, VALUATION, STAY, EXTENSION, REDEMPTION, APPRAISEMENT, EXEMPTION AND HOMESTEAD NOW OR HEREAFTER PROVIDED BY THE CONSTITUTION AND LAWS OF THE UNITED STATES OF AMERICA AND OF EACH STATE THEREOF, BOTH AS TO ITSELF AND IN AND TO ALL OF ITS PROPERTY, REAL AND PERSONAL, AGAINST THE ENFORCEMENT AND COLLECTION OF THE OBLIGATIONS EVIDENCED BY THIS NOTE OR BY THE OTHER LOAN DOCUMENTS.

12.3 Interest Provisions.

(a) Savings Clause. This Note is expressly made subject to the provisions of the Loan Agreement which more fully set out the limitations on how interest accrues hereon.

(b) Ceiling Election. To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Rate payable on the Note and/or any other portion of the Indebtedness, Lender will utilize the weekly ceiling from time to time in effect as provided in such Chapter 303, as amended. To the extent United States federal law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States federal law instead of such Chapter 303 for the purpose of determining the Maximum Rate. Additionally, to the extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, utilize any other method of establishing the Maximum Rate under such Chapter 303 or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect.

12.4 Further Assurances and Corrections. From time to time, at the request of Lender, Borrower will (i) promptly correct any defect, error or omission which may be discovered in the contents of this Note or in any other Loan Document or in the execution or acknowledgment thereof; (ii) execute, acknowledge, deliver, record and/or file (or cause to be executed, acknowledged, delivered, recorded and/or filed) such further documents and instruments (including, without limitation, further deeds of trust, security agreements, financing statements, continuation statements and assignments of rents) and perform such further acts and provide such further assurances as may be necessary, desirable, or proper, in Lender’s opinion, (A) to carry out more effectively the purposes of this Note and the Loan Documents and the transactions contemplated hereunder and thereunder, (B) to confirm the rights created under this Note and the other Loan Documents, (C) to protect and further the validity, priority and enforceability of this Note and the other Loan Documents and the liens and security interests created thereby, and (D) to subject to the Loan Documents any property of Borrower intended by the terms of any one or more of the Loan Documents to be encumbered by the Loan Documents; and (iii) pay all costs in connection with any of the foregoing.

12.5 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Texas.

12.6 Counting of Days. If any time period referenced hereunder ends on a day other than a Business Day, such time period shall be deemed to end on the next succeeding Business Day.

12.7 Relationship of the Parties. Notwithstanding any prior business or personal relationship between Borrower and Lender, or any officer, director or employee of Lender, that may exist or have existed, the relationship between Borrower and Lender is solely that of debtor and creditor, Lender has no fiduciary or other special relationship with Borrower, Borrower and Lender are not partners or joint venturers, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor.

12.8 Successors and Assigns. The terms and provisions hereof shall be binding upon and inure to the benefit of Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them. The terms “Borrower” and “Lender” as used hereunder shall be deemed to include their respective heirs, executors, legal representatives, successors, successors-in-title and assigns, whether by voluntary action of the parties, by operation of law or otherwise, and all other persons claiming by, through or under them.

12.9 Joint and Several Liability. If Borrower consists of more than one person or entity, each shall be jointly and severally liable to perform the obligations of Borrower under this Note.

12.10 Time is of the Essence. Time is of the essence with respect to all provisions of this Note and the other Loan Documents.

12.11 Headings. The Article, Section, and Subsection entitlements hereof are inserted for convenience of reference only and shall in no way alter, modify, define, limit, amplify or be used in construing the text, scope or intent of such Articles, Sections, or Subsections or any provisions hereof.

12.12 Controlling Agreement. In the event of any conflict between the provisions of this Note and the Loan Agreement, it is the intent of the parties hereto that the provisions of the Loan Agreement shall control. In the event of any conflict between the provisions of this Note and any of the other Loan Documents (other than the Loan Agreement), it is the intent of the parties hereto that the provisions of this Note shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of this Note and the other Loan Documents and that this Note and the other Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same.

12.13 Notices. All notices or other communications required or permitted to be given pursuant to this Note and the other Loan Documents shall be in writing and shall be considered as properly given if (i) mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, (ii) by delivering same in person to the intended addressee, (iii) by delivery to a reputable independent third party commercial delivery service for same day or next day delivery and providing for evidence of receipt at the office of the intended addressee, or (iv) by prepaid telegram, telex, telecopier or facsimile transmission to the addressee. Notice so mailed shall be effective upon its deposit with the United States Postal Service or any successor thereto; notice sent by such a commercial delivery service shall be effective upon delivery to such commercial delivery service; notice given by personal delivery shall be effective only if and when received by the addressee; and notice given by other means shall be effective only if and when received at the office or designated place or machine of the intended addressee. For purposes of notice, the addresses of the parties shall be as set forth herein; provided, however, that either party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of thirty (30) days’ prior notice to the other party in the manner set forth herein.

12.14 Costs of Collection. If any holder of this Note retains an attorney-at-law in connection with any Event of Default or at maturity or to collect, enforce, or defend this Note or any part hereof, or any other Loan Document in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Borrower sues any holder in connection with this Note or any other Loan Document and does not prevail, then Borrower agrees to pay to each such holder, in addition to the principal balance hereof and all interest hereon, all costs and expenses of collection or incurred by such holder or in any such suit or proceeding, including, but not limited to, reasonable attorneys’ fees.

12.15 Gender. All personal pronouns used herein, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural and vice versa.

12.16 Statement of Unpaid Balance. At any time and from time to time, Borrower will furnish promptly, upon the request of Lender, a written statement or affidavit, in form satisfactory to Lender, stating the unpaid balance of the indebtedness evidenced by this Note and the Related Indebtedness and that there are no offsets or defenses against full payment of the indebtedness evidenced by this Note and the Related Indebtedness and the terms hereof, or if there are any such offsets or defenses, specifying them.

12.17 Entire Agreement. THIS NOTE AND THE OTHER LOAN DOCUMENTS CONTAIN THE FINAL, ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND ALL PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, RELATIVE HERETO AND THERETO WHICH ARE NOT CONTAINED HEREIN OR THEREIN ARE SUPERSEDED AND TERMINATED HEREBY, AND THIS NOTE AND THE OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.

12.18 Amendment and Restatement. This Note is executed, in part, in amendment and restatement and not in novation of that certain promissory note dated April 13, 2005, in the stated principal amount of $5,000,000.00 executed by Borrower and payable to Lender and, in part, to evidence additional Loans to Borrower.

[NO FURTHER TEXT ON THE REMAINDER OF THE PAGE]

IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note as of the day and year first written above.

BORROWERS:

ADAMS GOLF, INC., a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: Chief Financial Officer

ADAMS GOLF HOLDING CORP, a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: Vice President

ADAMS GOLF GP CORP, a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: President

ADAMS GOLF, LTD., a Texas limited partnership

By: Adams Golf GP Corp, a Delaware corporation,

its sole General Partner

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: President

ADAMS GOLF IP LP, a Delaware corporation

By: Adams Golf GP Corp, a Delaware corporation,

its sole General Partner

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: President

ADAMS GOLF MANAGEMENT CORP., a Delaware corporation

By: /S/ ERIC T. LOGAN

Name: Eric Logan

Title: Vice President

Address of Lender for purposes

of notice hereunder:

Bank of Texas, N.A.

5956 Sherry Lane, Suite 1100

Dallas, Texas 75225

EX-10.9 3 v037990_ex10-9.htm

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) shall be effective on the 1st day of January, 2006 (the “Effective Date”), by and between Adams Golf, Inc. and its subsidiaries with its principal place of business at 2801 East Plano Parkway, Plano, Texas (collectively, the “Company”), and Mr. Barney Adams (the “Chairman”).

W I T N E S E T H:

WHEREAS, the Company desires to employ the Chairman in the capacity of non-executive Chairman of the Board of Directors;

WHEREAS, the Chairman desires and is willing to accept employment with the Company on the terms and subject to the conditions set forth below;

NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, the parties agree as follows:

1. EMPLOYMENT AND DUTIES.

During the term of this Agreement the Company shall employ the Chairman as its Chairman of the Board of Directors. The Chairman’s duties shall be those reasonably expected of a non-executive Chairman of the Board of Directors in a similarly capitalized corporation. Additionally, the Chairman shall participate in Public Relations efforts and consult on Research and Design as directed by the Chief Executive Officer and the Board of Directors. The Chairman shall devote his knowledge, skills, professional time, attention and energies to the Public Relations and Research and Design of Products for the Company in order to perform faithfully, competently and diligently any duty assigned to him by the Chief Executive Officer. Notwithstanding the foregoing, it is understood and agreed between the parties that the Chairman shall have no authority or duties over operational or executive matters other than as a voting member of the Board of Directors as provided in the by-laws of the Company. Pursuant to his duties hereunder, the Chairman will create and promote the Company’s goodwill among its customers, employees, suppliers, and other parties with whom it has business relationships.

2. TERM.

The term of this Agreement shall commence on the Effective Date and shall continue in effect through December 31, 2008 (the “Term”), unless earlier terminated pursuant to the provisions set forth in Section 5 of this Agreement. The Chairman’s termination or resignation pursuant to Section 5 of this Agreement shall not, in any way, prejudice the Chairman’s rights under this Agreement or as provided by Texas law.

Employment Agreement	Page 1 of 12

3. PLACE OF EMPLOYMENT.

The place of employment shall be at the Company’s principal office currently located in Plano, Texas; provided, however, that the Company may from time to time reasonably require the Chairman to travel temporarily to other locations on Company business.

4. COMPENSATION.

In consideration of all of the services to be rendered by the Chairman to the Company hereunder, the Company hereby agrees to pay the Chairman, and the Chairman hereby agrees to accept from the Company, the following compensation:

(a) Annual Base Salary. The Chairman shall be paid Two Hundred Fifty Four Thousand and Four Hundred ($254,400) dollars annually which will continue during the Term of this Agreement and which will be payable in equal installments in accordance with the Company’s general salary payment policies, but no less frequently than monthly (“Annual Base Salary”).

(b) Employee Benefit Plans.

(i) General. During the Term of this Agreement, the Chairman, and his “dependents” as that term may be defined under any applicable employee benefit plan of the Company, shall be entitled to participate in and receive benefits under any and all employee benefit plans and programs which are from time to time generally made available to executive employees of the Company.

(ii) Health Insurance. During the Term of this Agreement, the Company shall provide the Chairman, at the Company’s expense, with any health insurance plan provided to qualifying employees of the Company (identified as of the Effective Date as the “Adams Golf Ltd. Employee Medical Benefit Plan”), including any enhanced health insurance plan benefits which may be provided to qualifying executive employees of the Company (identified as of the Effective Date as “Exec-U-Care”).

(c) Expenses. During the Term of this Agreement, the Chairman shall be entitled to receive reimbursement for all reasonable expenses incurred by the Chairman in connection with the fulfillment of his duties herein, provided the Chairman has complied with all policies and procedures relating to the reimbursement of such expenses as may from time to time be established by the Company including, but not limited to, the providing of all supporting backup to such expenses as is required by the Internal Revenue Service. It is expressly agreed that reasonable expenses shall include the lease of a car at the Company’s expense. Any lease agreement for a car shall not bind the Company beyond the term of this Agreement.

(d) Office and Support Staff. During the Term of this Agreement, the Chairman shall be entitled to an office (but not necessarily the office historically used by the Chairman), furnishings, other appointments, and access to secretarial or other assistants (including without limitation, access to Ann Neff, his former assistant) as reasonably necessary to perform the Chairman’s duties and obligations as set forth herein and comparable to other similarly situated executive employees of the Company.

(e) Promotional Items. During the Term of this Agreement, the Chairman shall be entitled to provide Company products, at the Company’s expense (not to exceed a maximum of Five Thousand ($5,000) dollars annually), to customers, vendors, or suppliers as the Chairman in his sole discretion determines, provided that the Chairman’s objective is to enhance the business and goodwill of the Company.

5. TERMINATION OF AGREEMENT.

This Agreement (other than the provisions as applicable of Section 12, which shall survive such termination) may be terminated as provided herein:

(a) Termination by the Company for “Cause”. For purposes hereof, the Company shall have “Cause” to terminate the Chairman’s employment hereunder in any of the following events:

(i) the deliberate and intentional breach of any material provision of this Agreement, which breach the Chairman shall have failed to reasonably cure within thirty (30) days after the Chairman’s receipt of written notice from the Company specifying the specific nature of the Chairman’s breach; or

(ii) the deliberate and intentional engaging by the Chairman in gross misconduct that is materially and demonstrably harmful to the best interests, monetary or otherwise, of the Company; or

(iii) a conviction of the Chairman for a felony involving moral turpitude, fraud or deceit.

(b) Resignation by the Chairman Without “Good Reason”. The Chairman may resign from his employment with the Company for any reason upon sixty (60) days prior written notice to the Company. For purposes of this Agreement, a resignation by the Chairman shall be for “Good Reason” only upon the occurrence of one or more of the events described in subsection 5(d).

(c) Termination by the Company Without “Cause”. For purposes hereof, if the Company terminates the Chairman’s employment for any reason other than those listed in subsection 5(a), then such termination shall be without “Cause.”

(d) Resignation by the Chairman for “Good Reason”. The Chairman’s employment under this Agreement shall be deemed to have been terminated other than for Cause and for “Good Reason” (as herein so used), if the Chairman tenders his resignation within:

(i) thirty (30) days of the occurrence of any material breach by the Company of any of the terms of, or the failure to perform any covenant or agreement contained in this Agreement, which breach or failure to perform shall not have been cured by the Company within thirty (30) days after the Company’s receipt from the Chairman of written notice specifying in reasonable details the nature of the Company’s breach or failure to perform; or

(ii) thirty (30) days of the occurrence of any substantial reduction in title, position, reporting requirements, responsibilities, or duties of the Chairman, which occurrence shall not have been cured by the Company within thirty (30) days after the Company’s receipt from the Chairman of written notice specifying in reasonable details the nature of such occurrence; or

(iii) thirty (30) days of the occurrence of any reduction in the Annual Base Salary; or

(iv) thirty (30) days of the Company’s failure to obtain the full assumption in writing of this Agreement by any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of the Company’s business and/or assets not less than five (5) days prior to any sale, merger, consolidation, or other disposition of the Company’s business or assets; or

(v) delivery by the Company to the Chairman of written notice of the Company’s approval for the Chairman to tender his resignation with Good Reason.

(e) Termination on Death. In the event of the Chairman’s death, this Agreement will be deemed to have terminated on the date of his death.

(f) Termination on Disability. If the Chairman becomes unable to perform his duties as described herein due to injury, illness, or disability (physical or mental) during one (1) consecutive period of one hundred twenty (120) days, which incapacity is, in the Company’s judgment, prejudicial to the Company’s best interests, then the Company or the Chairman may terminate this Agreement. If the Chairman is incapacitated, then his legally designated representative may terminate this Agreement.

(g) Termination by Mutual Written Agreement. This Agreement and the Chairman’s employment with the Company may be terminated at any time by the mutual written agreement of the Chairman and the Company.

6. SEVERANCE.

Upon the termination of this Agreement, the Company agrees to make severance payments as follows:

(a) Termination by the Company for “Cause”. If the Company terminates this Agreement for “Cause” pursuant to subsection 5(a), then the Chairman shall not be entitled to any severance pay. However, in such event the Company shall pay to the Chairman his accrued but unpaid Annual Base Salary and any amount due (and not previously paid) to the Chairman under subsection 4(c) for reasonable expenses incurred by the Chairman in the performance of his duties hereunder.

(b) Resignation by the Chairman Without “Good Reason”. If the Chairman terminates this Agreement without “Good Reason” pursuant to subsection 5(b), then the Chairman shall not be entitled to any severance pay. However, in such event the Company shall pay to the Chairman his accrued but unpaid Annual Base Salary and any amount due (and not previously paid) to the Chairman under subsection 4(c) for reasonable expenses incurred by the Chairman in the performance of his duties hereunder.

(c) Termination by the Company Without “Cause” or Resignation by the Chairman for “Good Reason”. If the Company terminates this Agreement without “Cause” pursuant to subsection 5(c) or if the Chairman resigns for “Good Reason” pursuant to subsection 5(d), then the Company will pay the Chairman the following compensation and benefits:

(i) Severance Payment. A lump sum payment (the “Severance Payment”) in cash equal to one year’s Annual Base Salary at the then current rate in effect immediately prior to the Chairman’s termination or resignation. The Company shall make the Severance Payment beginning six (6) months after termination or resignation, and in twenty-four (24) semi-monthly installments to coincide with the Company’s salaried payroll schedule. Additionally, in such event the Company shall pay to the Chairman his accrued but unpaid Annual Base Salary as of the date of the termination or resignation, and any amount due (and not previously paid) to the Chairman under subsection 4(c) for reasonable expenses incurred by the Chairman in the performance of his duties hereunder.

(ii) Employee Benefit Plans, Including Without Limitation, Health Insurance. Upon the Chairman’s termination or resignation, the Company shall provide any benefit due to the Chairman in accordance with the terms and conditions of each Company-sponsored employee benefit plan in which the Chairman, and any of his dependants, participated prior to the date of his termination or resignation. Additionally, the Company shall provide health care plan benefits to the Chairman and his eligible dependents in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”).

The Company agrees that for a one year period following the date of the Chairman’s termination or resignation, the Company shall pay the COBRA premiums for all of the Chairman’s health insurance continuation coverage, provided that the Chairman elects such continuation coverage within sixty (60) days of his termination or resignation. Thereafter, if the Chairman is eligible and wishes to continue his COBRA coverage, the Chairman shall be solely responsible for payment of the entire COBRA premium during any applicable COBRA continuation period.

On a benefit by benefit basis, the Chairman may give written notice to the Company of his decision to decline election of continuation coverage, and then the Company shall pay to the Chairman a lump sum cash payment in an amount equal to the present value (using an 8% annual discount rate) of the projected cost to the Company of providing such benefit during a one year continuation period from the date of the Chairman’s termination or resignation. The aggregate amount of cash to which the Chairman is entitled pursuant to the preceding sentence shall be payable to the Chairman within sixty (60) days after the date of the termination or resignation of Chairman’s employment hereunder.

(iii) Unpaid Annual Base Salary and Expenses. The Company shall pay to the Chairman any accrued but unpaid Annual Base Salary and any amount due (and not previously paid) to the Chairman under subsection 4(c) for reasonable expenses incurred by the Chairman in the performance of his duties hereunder.

The Chairman’s subsequent death or disability shall in no way affect or limit the Company’s obligations under this Section.

(d) Termination on Death. If this Agreement terminates pursuant to the death of the Chairman under subsection 5(e), then the Company shall pay to the Chairman’s wife, if she has not predeceased him and if she is married to the Chairman on the date of his death, a lump sum payment (the “Widow Payment”) in cash equal to one year of the Chairman’s Annual Base Salary at the then current rate in effect at the time of the Chairman’s death, payable in twelve (12) equal monthly installments following the Chairman’s date of death. If the Chairman is not married at the time of his death or if the Chairman’s wife has predeceased the Chairman, then the Company shall make the Widow Payment to the Chairman’s estate. Additionally, in the event of the Chairman’s death, the Company shall pay to the Chairman’s wife, or his estate if she has predeceased him or is not married to him on the date of his death, the Chairman’s accrued but unpaid Annual Base Salary and any amount due (and not previously paid) to the Chairman under subsection 4(c) for reasonable expenses incurred by the Chairman in the performance of his duties hereunder.

(e) Termination on Disability. If the Company, the Chairman or the Chairman’s legally designated representative terminates this Agreement by reason of disability pursuant to subsection 5(f), then the Company shall pay to the Chairman the difference between (i) the Chairman’s Annual Base Salary at the then current rate in effect at the time of the Chairman’s disability, calculated on a monthly basis, and (ii) any disability compensation received by the Chairman (the “Disability Payments”). The Company’s obligation to make the Disability Payments described herein shall commence on the date this Agreement is terminated by reason of disability pursuant to subsection 5(f) and shall end on the first year anniversary of such date (the “Disability Payment Period”).

(f) Death While on Disability. If this Agreement is terminated by reason of disability pursuant to subsection 5(f) and the Chairman dies during the Disability Payment Period, the Company shall make the Widow Payment described in subsection 6(d) in lieu of making additional Disability Payments, provided that the Chairman’s wife has not predeceased him and she is married to the Chairman on the date of his death. If the Chairman is not married at the time of his death or if the Chairman’s wife has predeceased the Chairman, then the Company shall make the Widow Payment and any Disability Payments that have accrued but remain unpaid at the time of the Chairman’s death to the Chairman’s estate.

(g) Termination by Mutual Written Agreement. In the event that the Chairman and the Company shall terminate the Chairman’s employment by mutual written agreement, the Company shall pay such compensation and provide such benefits, if any, as the parties may mutually agree upon in writing.

7. COVENANTS AS TO CONFIDENTIAL INFORMATION AND COMPETITIVE CONDUCT.

The Chairman acknowledges and agrees as follows: (i) this Section 7 is necessary for the protection of the legitimate business interests of the Company, (ii) the restrictions contained in this Section 7 with regard to geographical scope, length of term and types of restricted activities are reasonable, (iii) the Chairman has received adequate and valuable new consideration as set forth herein for entering into this Agreement, and (iv) the Chairman’s expertise and capabilities are such that this obligation and the enforcement of it by injunction or otherwise will not adversely affect the Chairman’s ability to earn a livelihood.

(a) Confidentiality of Information and Nondisclosure. The Chairman acknowledges and agrees that his employment by the Company under this Agreement necessarily involves proprietary information pertaining to the business of the Company and its related entities. Accordingly, the Chairman agrees that at all times during the terms of this Agreement and at all times thereafter, he will not, directly or indirectly, without the express written approval of the Company, unless directed by applicable legal authority having jurisdiction over the Chairman, disclose to or use, or knowingly permit to be so disclosed or used, for the benefit of himself, any person, corporation or other entity other than the Company, except as required in the course of his employment:

(i) any information concerning any financial matters, customer relationships, competitive status, supplier matters, internal organizational matters, current or future plans, or other business affairs of or relating to the Company or its subsidiaries,

(ii) any management, operational, trade, technical or other secrets or any other proprietary information or other data of the Company or its subsidiaries,

(iii) any other information related to the Company or its related entities that the Chairman should reasonably believe will be damaging to the Company or its related entities and which has not been published and is not generally known outside of the Company.

The Chairman acknowledges that all of the foregoing constitutes confidential and/or proprietary information of the Company, which is the exclusive property of the Company. Excluded from this confidential and/or proprietary information of the Company shall be (i) information known by or generally available to the public through no breach by the Chairman of this Agreement and which the public may use without any direct or indirect obligation to the Company and (ii) information that documentary evidence demonstrates was independently developed by the Chairman.

(b) Restrictive Covenant. During the term of, and for a period of one (1) year (the “Restrictive Period”) after the termination of the Chairman’s employment other than by the Company without Cause or by the Chairman with Good Reason, the Chairman shall not render, directly or indirectly, services to (as an employee, consultant, independent contractor or in any other capacity) any person, firm, corporation, association or other entity which conducts the same or similar business as the Company or its subsidiaries at the date of the Chairman’s termination of employment within the states in which the Company or any of its subsidiaries is then doing business at the date of the Chairman’s termination of employment hereunder without the prior written consent of the Chief Executive Officer which may be withheld at his sole discretion. In the event that this Agreement expires after termination and is not renewed by the parties, the Restrictive Period shall not extend beyond the termination of employment unless the Company pays the Chairman an additional amount equal to one year’s Annual Base Salary, in which case it shall extend for a period of one (1) year. The Chairman further agrees that at no time during the Restrictive Period will the Chairman attempt to directly or indirectly solicit or hire employees of the Company or its subsidiaries or induce any of them to terminate their employment with the Company or any of the subsidiaries.

(c) Company Remedies. The Chairman acknowledges and agrees that any breach of this Agreement by him will result in immediate and irreparable harm to the Company and that the Company cannot be reasonably or adequately compensated by damages in an action at law. In the event of a breach by the Chairman of the provisions of this Section 7 as determined by an Arbitrator, the Company shall be entitled to, to the extent permitted by law, immediately to cease paying or providing the Chairman or his dependents any compensation or benefits provided pursuant to Sections 4 or 6 of this Agreement as liquidated damages, and also to obtain immediate injunctive relief restraining the Chairman from conduct in breach of the covenants contained in this Section 7. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach, including the recovery of damages from the Chairman under the provisions of Section 12.

8. AGREEMENT SURVIVES MERGER OR DISSOLUTION.

This Agreement shall not be terminated by the Company’s voluntary or involuntary dissolution or by any merger in which the Company is not the surviving or resulting corporation, or on any transfer of all or substantially all of the Company’s assets. In the event of any such merger or transfer of assets, the provisions of this Agreement shall be binding on and inure to the benefit of the surviving business entity or the business entity to which such assets shall be transferred and to the Chairman and his heirs.

9. OWNERSHIP OF INTANGIBLES.

In relation to the Company’s products, namely, standard golf clubs (including woods, irons, and putters), golf bags, and golf apparel, any processes, inventions, patents, copyrights, trademarks, and other intangible rights that may be conceived or developed by the Chairman, either alone or with others, during the term of Chairman’s employment, whether or not conceived or developed during Chairman’s working hours, and with respect to which the equipment, supplies, facilities, or trade secret information of the Company was used, or that relate at the time of conception or reduction to practice of the invention to the business of the Company or to the Company’s actual or demonstrably anticipated research and development, or that result from any work performed by Chairman for the Company, shall be the sole property of the Company. Chairman shall execute all documents, including patent applications and assignments, required by the Company to establish the Company’s rights under this Section.

10. INDEMNIFICATION BY THE COMPANY.

The Company shall, to the maximum extent permitted by law, indemnify and hold the Chairman harmless against expenses, including reasonable attorneys’ fees, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the Chairman’s employment by the Company. The Company shall advance to the Chairman any expense incurred in defending any such proceeding to the maximum extent permitted by law.

11. DISCLOSURE OF CUSTOMER INFORMATION AND SOLICITAITON OF OTHER EMPLOYEES PROHIBITED.

In the course of his employment, the Chairman will have access to confidential records and data pertaining to the Company’s customers and to the relationship between these customers and the Company’s account executives. Such information is considered secret and is disclosed to the Chairman in confidence. During his employment by the Company and for one (1) year after termination of that employment, the Chairman shall not directly or indirectly disclose or use any such information, except as required in the course of his employment by the Company. Nothing in this Section shall apply to gifts, meals, and entertainment if the Chairman’s objective is to enhance the business and goodwill of the Company.

12. ARBITRATION.

In the event of any controversy, dispute, or claim arising out of, or relating to, any of the provisions of this Agreement, the parties hereby agree that the matter or dispute shall be submitted to arbitration according to the National Rules for the Resolution of Employment Disputes of the American Arbitration Association. The arbitration shall be conducted in Dallas, Texas. The matter shall be decided by a single arbitrator selected according to such rules. The cost of arbitration shall be borne as the arbitrator determines. Each party shall bear its own respective attorneys’ fees during the arbitration, but the arbitrator may award all or part of the reasonable attorney’s fees incurred to the prevailing party. The results of the arbitration shall be binding upon both sides and no appeal shall be available therefrom. Notwithstanding this section, the Company may seek a temporary restraining order and a temporary injunction with regard to the enforcement of the provisions of Section 7 prior to or during the pendency of any such arbitration.

13. WAIVER OF BREACH.

Failure of any party to protest a breach by any other party or waiver by any party of a breach shall not operate as or be construed as a waiver of rights or remedies as to that breach and a waiver by any party of a breach shall not operate as or be construed as a waiver of rights or remedies as to any subsequent breach by any other party.

14. NON-RELIANCE.

Each party to this Agreement represents, warrants and acknowledges that in entering into this Agreement that it has not relied upon any act, representation, or warranty by any other party thereto, or by any of their representatives or attorneys, except as may be expressly contained in this Agreement. Each party further represents and warrants that he/it has thoroughly discussed all aspects of this Agreement with his/its attorneys, that he/it has had a reasonable time to review this Agreement, that he/it fully understands the provisions of this Agreement and the effect thereof and that he/it is entering into this Agreement voluntarily and of his/its own free will.

15. CONSTRUCTION OF AGREEMENT.

Wherever the context shall so require, all words herein in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural, and all plural words shall include the singular.

16. TEXAS LAW TO APPLY.

This Agreement shall be construed under and in accordance with the laws of the State of Texas, and all obligations of the parties created hereunder to be performed in Dallas County, Texas.

17. SEVERABILITY.

If any one or more of the provisions contained in this Agreement for any reason are held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision thereof and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

18. HEADINGS.

The headings used in this Agreement are used for administrative purposes only and do not constitute substantive matters to be considered in construing the terms of this Agreement.

19. ENTIRE AGREEMENT AND INTEGRATION.

This Agreement constitutes the entire agreement among the parties hereto relating to the subject matter hereof, and supersedes all prior agreements and understandings, whether oral or written, with respect to the same. No modification, alteration, amendment, or rescission of or supplement to this Agreement shall be valid or effective unless the same is in writing and signed by all parties hereto.

20. NOTICES.

Any parties’ address for notice may be changed by written notice delivered to the other party in accordance with this paragraph. Any notice by certified mail shall be deemed delivered upon actual receipt. Any notice or communication required or permitted hereunder shall be in writing and personally delivered or mailed by certified mail, return receipt requested, or delivered by an overnight express courier, addressed to the Company or the Chairman, as the case may be, at the addresses set forth below:

If to the Company:	Adams Golf, Inc. 2801 East Plano Parkway Plano, Texas 75074 Attn: President

If to the Chairman:	Mr. Barney Adams 5909 Haraby Court Dallas, Texas 75248

21. PARTIES BOUND.

This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, and assigns where permitted by this Agreement.

22. COUNTERPARTS.

This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original.

Executed by the parties on the date written below.

THE COMPANY:		ADAMS GOLF, INC.


Date: 2/16/06	By:	/S/ OLIVER G. BREWER
		Oliver Brewer Its: Chief Executive Officer and President


THE CHAIRMAN:

Date: 2/16/06	By:	/S/ BARNEY ADAMS
		Barney Adams

EX-21.1 4 v037990_ex21-1.htm

EXHIBIT 21.1

ADAMS GOLF, INC., A DELAWARE CORPORATION

SUBSIDIARIES

The Company conducts its operations through several direct and indirect wholly-owned subsidiaries, agencies and distributorships, including (i) Adams Golf Holding Corp., which holds limited partnership interest of certain indirect subsidiaries of the Company; (ii) Adams Golf GP Corp., which holds capital stock or general partnership interests, as applicable, of certain indirect subsidiaries to the Company; (iii) Adams Golf, Ltd., which operates the golf club design, assembly and retail sales business; (v) Adams Golf IP, L.P., which holds the intellectual property rights of the Company, and (vi) Adams Golf Management Corp., which provides management and consulting services to certain of the Company's indirect subsidiaries. A complete list of the Company's subsidiaries at March 22, 2006 is as follows:

Adams Golf, Ltd., a Texas limited partnership

Adams Golf Holding Corp., a Delaware corporation

Adams Golf GP Corp., a Delaware corporation

Adams Golf Management Corp., a Delaware corporation

Adams Golf IP, L.P., a Delaware limited partnership

Adams Golf U.K. Limited, a United Kingdom private limited company (dormant entity)

Adams Golf Japan, Inc. a Japan kabushiki kaisha (dormant entity)

EX-23.1 5 v037990_ex23-1.htm

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Adams Golf, Inc.:

We consent to incorporation by reference in Registration Statement No. 333-112622 on Form S-8 of Adams Golf, Inc. of our report dated February 3, 2006 relating to the consolidated balance sheet of Adams Golf, Inc. and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended, and the related financial statement schedule for the years ended December 31, 2005 and 2004, which report is included in the December 31, 2005 Annual Report on Form 10-K of Adams Golf, Inc.

/s/ KBA GROUP LLP

Dallas, Texas

March 22, 2006

EX-23.2 6 v037990_ex23-2.htm

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors

Adams Golf, Inc.:

We consent to incorporation by reference in Registration Statement No. 333-112622 on Form S-8 of Adams Golf Inc. of our report dated January 28, 2004 relating to the consolidated statements of operations, stockholders' equity and cash flows and the related financial statement schedule for the year ended December 31, 2003, which report is included in the December 31, 2005 Annual Report on Form 10-K of Adams Golf, Inc.

KPMG, LLP

March 22, 2006

EX-31.1 7 v037990_ex31-1.htm

Exhibit 31.1

CERTIFICATIONS

I, Oliver G. Brewer, certify that:

1. I have reviewed this annual report on Form 10-K of Adams Golf, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: March 22, 2006		By: /S/ OLIVER G. BREWER III
		Oliver G. Brewer, III
		Chief Executive Officer and President

EX-31.2 8 v037990_ex31-2.htm

Exhibit 31.2

CERTIFICATIONS

I, Eric Logan, certify that:

1. I have reviewed this annual report on Form 10-K of Adams Golf, Inc.;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: March 22, 2006		By: /S/ ERIC LOGAN
		Eric Logan
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1 9 v037990_ex32-1.htm

Exhibit 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Adams Golf, Inc., a Delaware corporation (the "Company"), does hereby certify that:

The Annual Report on Form 10-K for the year ended December 31, 2005 (the "Periodic Report") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

		ADAMS GOLF, INC.

Date: March 22, 2006		By: /S/ OLIVER G. BREWER III
		Oliver G. Brewer, III
		Chief Executive Officer and President

Date: March 22, 2006		By: /S/ ERIC LOGAN
		Eric Logan
		Chief Financial Officer
		(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Periodic Report or as a separate disclosure document

A signed original of this written statement required by Section 906 has been provided to Adams Golf, Inc. and will be retained by Adams Golf, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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