10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended October 31, 2007

OR

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

Commission file number 1-14229

QUIKSILVER, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0199426
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

15202 Graham Street
Huntington Beach, California
92649
(Address of principal executive offices)
(Zip Code)

(714) 889-2200
(Registrant’s telephone number, including area code)

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

Title of	Name of each exchange
each class	on which registered
Common Stock	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ     No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o     No þ

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. Yes þ     No o

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 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. þ

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.

Large Accelerated Filer þ     Accelerated Filer o     Non-Accelerated Filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o     No þ

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was approximately $1.66 billion as of April 30, 2007, the last business day of Registrant’s most recently completed second fiscal quarter.

As of December 18, 2007, there were 125,783,042 shares of the Registrant’s Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held March 28, 2008 are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
Item 1.	BUSINESS
	Introduction		1
	Segment Information		2
	Products and Brands		2
	Product Categories		3
	Product Design		3
	Promotion and Advertising		4
	Customers and Sales		4
	Retail Concepts		6
	Seasonality		7
	Production and Raw Materials		7
	Imports and Import Restrictions		8
	Trademarks, Licensing Agreements and Patents		8
	Competition		9
	Future Season Orders		9
	Employees		9
	Environmental Matters		10
	Available Information		10
Item 1A.	RISK FACTORS		10
Item 1B.	UNRESOLVED STAFF COMMENTS		17
Item 2.	PROPERTIES		18
Item 3.	LEGAL PROCEEDINGS		18
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		18
PART II
Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		19
Item 6.	SELECTED FINANCIAL DATA		19
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		21
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		35
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		36
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		36
Item 9A.	CONTROLS AND PROCEDURES		36
Item 9B.	OTHER INFORMATION		39
PART III
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		40
Item 11.	EXECUTIVE COMPENSATION		40
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		40
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		40
Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		40
PART IV
Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			42
SIGNATURES			80
EXHIBIT 2.3
EXHIBIT 2.4
EXHIBIT 10.9
EXHIBIT 10.35
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

Item 1. BUSINESS

Unless the context indicates otherwise, when we refer to “we”, “us”, “our”, or the “Company” in this Form 10-K, we are referring to Quiksilver, Inc. and its subsidiaries on a consolidated basis. Quiksilver, Inc. was incorporated in 1976 and was reincorporated in Delaware in 1986. Our fiscal year ends on October 31, and references to fiscal 2007, fiscal 2006 and fiscal 2005 refer to the years ended October 31, 2007, 2006 and 2005, respectively.

Introduction

We are a globally diversified company that designs, produces and distributes branded apparel, wintersports equipment, footwear, accessories and related products. Our apparel and footwear brands represent a casual lifestyle for young-minded people that connect with our boardriding culture and heritage, while our wintersports brands symbolize a long-standing commitment to technical expertise and competitive success on the mountains. We believe that surfing, skateboarding, snowboarding, skiing and other outdoor sports influence the apparel choices made by consumers as these activities are communicated to a global audience by television, the internet, movies and magazines. People are attracted to the venues in which these sports are performed and the values they represent, including individual expression, adventure and creativity.

Over the past 37 years, Quiksilver has been established as a leading global brand representing the casual, youth lifestyle associated with boardriding sports. Based on our fiscal 2007 revenues, we are the largest of the apparel and equipment companies that are identified with the sports of surfing, skateboarding and snowboarding. In July 2005, we acquired Skis Rossignol S.A. This acquisition added a collection of leading ski equipment brands to our company that we believe can be the foundation for a full range of technical ski apparel, sportswear and accessories. Rossignol is one of the world’s leading manufacturers of alpine skiing equipment, including skis, boots, bindings and poles. Also, as part of the acquisition, we acquired a majority interest in Roger Cleveland Golf Company, Inc. Our golf equipment operations were subsequently sold in December 2007 and are reported as discontinued operations in our consolidated financial statements.

We believe that our multiple authentic brands enable us to produce and market apparel, equipment, footwear, accessories and related products for consumers in a broad cross section of the outdoor market. Furthermore, we believe that our operations provide us with a diversified platform for continued growth and enhanced operating efficiencies.

Our products are sold in over 90 countries in a wide range of distribution channels, including surf shops, ski shops, skateboard shops, snowboard shops, our proprietary Boardriders Club shops, other specialty stores and select department stores. Our corporate and Americas’ headquarters are in Huntington Beach, California, while our European headquarters are in St. Jean de Luz and Moirans, France, and our Asia/Pacific headquarters are in Torquay, Australia.

In 2000, we acquired the international Quiksilver and Roxy trademarks from Quiksilver’s founders, and, in 2002, we acquired our licensees in Australia and Japan. Since 2000, we also have made several small acquisitions of other Quiksilver licensees. In May 2004, we acquired DC Shoes, Inc. to expand our presence in action sports-inspired footwear.

In October 2007, we entered into an agreement to sell our golf equipment business for a transaction value of $132.5 million. This transaction was completed in December 2007. As a result of this disposition, the following information has been adjusted to exclude our golf equipment operations. The golf equipment business has also been classified as a discontinued operation in our consolidated financial statements for all periods presented in this report.

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Segment Information

We operate in the outdoor market of the sporting goods industry. We have three operating segments, the Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the U.S. and Canada. The European segment includes revenues primarily from Western Europe. The Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand and Indonesia. Royalties earned from various licensees in other international territories are categorized in corporate operations. For information regarding the revenues, operating profits and identifiable assets attributable to our operating segments, see Note 15 of our consolidated financial statements.

Products and Brands

Our brands are focused on different sports within the outdoor market. Quiksilver and Roxy are rooted in the sport of surfing and are leading brands representing the boardriding lifestyle, which includes not only surfing, but also skateboarding and snowboarding. DC’s reputation is based on its technical shoes made for skateboarding. We have developed a portfolio of other brands also inspired by surfing, skateboarding and snowboarding. Our wintersports brands include Rossignol, Dynastar, Look, Lange and Kerma, which are focused on equipment for alpine skiing but have extended into other areas of wintersports, including snowboarding, freestyle skiing, Nordic skiing and technical outerwear.

Quiksilver

We have grown our Quiksilver brand from its origins as a line of boardshorts to now include shirts, walkshorts, t-shirts, fleece, pants, jackets, snowboardwear, footwear, hats, backpacks, wetsuits, watches, eyewear and other accessories. Quiksilver has also expanded its target market beyond young men to include boys, toddlers and infants. Quiksilveredition is our brand targeted at men. In fiscal 2007, the Quiksilver brand represented approximately 35% of our revenues.

Roxy

Our Roxy brand for young women is a surf-inspired collection that we introduced in 1991, and later expanded to include girls, with the Teenie Wahine and Roxy Girl brands, and infants. Roxy includes a full range of sportswear, swimwear, footwear, backpacks, snowboardwear, snowboards, snowboard boots, skis, ski boots, fragrance, beauty care, bedroom furnishings and other accessories for young women. In fiscal 2007, the Roxy brand accounted for approximately 31% of our revenues.

Rossignol and Other Wintersports Brands

Our Rossignol and other wintersports brands cover all of the major product categories in the ski and snowboard markets, including skis, bindings, boots and poles in the alpine category; skis, boots and bindings in the cross-country category; snowboards, snowboard boots and bindings; and technical ski apparel. With a long history of success in ski racing, these brands have developed a reputation for excellence, innovation and technical knowledge that have enabled them to appeal to multiple styles of skiing, including racing, all-mountain, freeride and freestyle. In fiscal 2007, the Rossignol and other wintersports brands accounted for approximately 16% of our revenues.

Our other wintersports brands include the following:

• Dynastar—Dynastar symbolizes technically specific skis for committed skiers to use in all the different experiences of alpine sports. Dynastar has a heritage of racing and performance.

• Lange—Lange is a ski boot brand, combining its race boot prowess with a commitment to building better, more comfortable boots for dedicated skiers of every type.

• Look—Look bindings have a winning history in alpine ski racing. The focus of the Look brand is the production of high quality, innovative release bindings that perform at the highest level.

• Kerma—We produce poles that complement our ski products from both a technical and aesthetic viewpoint under the Kerma brand.

• Lib Technologies, Gnu, Bent Metal—We address the core snowboard market through our Lib Technologies and Gnu brands of snowboards and accessories and Bent Metal snowboard bindings.

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DC

Our DC brand specializes in performance skateboard shoes, snowboard boots, sandals and apparel for both young men and juniors. We believe that DC’s skateboard-driven image and lifestyle is well positioned within the global outdoor youth market and has appeal beyond its core skateboard base. In fiscal 2007, the DC brand accounted for approximately 15% of our revenues.

Other Apparel Brands

In fiscal 2007, our other apparel brands represented approximately 3% of our revenues.

• Raisins, Radio Fiji, Leilani—Raisins and Radio Fiji are swimwear labels for the juniors market, while Leilani is our contemporary swimwear label.

• Hawk—Tony Hawk, the world-famous skateboarder, is the inspiration for our Hawk brand. Our Hawk brand targets boys and young men who identify with the skateboarding lifestyle and recognize Tony Hawk from his broad media and video game exposure.

Product Categories

The following table shows the approximate percentage of revenues from continuing operations attributable to each of our major product categories during the last three fiscal years:

	Percentage of Revenues
	2007(1)			2006(1)			2005(1)
Apparel		58	%		57	%		68	%
Footwear		15			12			11
Wintersports equipment		14			19			9
Accessories		13			12			12
		100	%		100	%		100	%

⁽¹⁾  These percentages were significantly impacted by our acquisition of Rossignol in July 2005.

Although our products are generally available throughout the year, demand for different categories of product changes in the different seasons of the year. Sales of shorts, short-sleeve shirts, t-shirts and swimwear are higher during the spring and summer seasons, and sales of pants, long-sleeve shirts, fleece, jackets, sweaters, wintersports equipment and technical outerwear are higher during the fall and holiday seasons.

We believe that the U.S. retail prices for our apparel products range from approximately $21 for a t-shirt and $48 for a typical short to $200 for a typical snowboard jacket. For European products, retail prices range from approximately $42 for a t-shirt and about $90 for a typical short to $280 for a basic snowboard jacket. Asia/Pacific t-shirts sell for approximately $40, while shorts sell for approximately $55 and a basic snowboard jacket sells for approximately $230. Retail prices for a typical skate shoe range from approximately $65 in the U.S. to approximately $105 in Europe. The typical price for adult skis with bindings ranges from $350 to $1,350.

Product Design

Our apparel, footwear and related accessories are designed for young-minded people who live a casual lifestyle. Innovative design, active fabrics and quality of workmanship are emphasized. Our design and merchandising teams create seasonal product ranges for each of our brands. These design groups constantly monitor local and global fashion trends. We believe our most valuable input comes from our own managers, employees, sponsored athletes and independent sales representatives who are actively involved in surfing, skateboarding, skiing, snowboarding and other sports in our core market. This connection with our core market continues to be the inspiration for our products and is key to our reputation for distinct and authentic design. Our design centers in California, Europe, Australia and Japan develop and share designs and merchandising themes and concepts that are globally consistent while reflecting local adaptations for differences in geography, culture and taste.

Rossignol has been successful over its history in developing technical enhancements in ski equipment. We will continue research and development efforts for our wintersports business enabling us to design

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and launch new products in response to changing demands and market expectations. We intend to continue to rely on the strong culture of technical expertise in the development of our products at our own facilities and at sub-contractor facilities.

Promotion and Advertising

The strength of our brands is based on many years of grassroots efforts that have established their legitimacy. We have always sponsored athletes that use our products in their outdoor sports, such as surfing, skiing, snowboarding, skateboarding and windsurfing, and have sponsored events that showcase these sports. Our technical excellence and the innovation of our products are validated when professional athletes compete with our equipment and succeed at a world-class level. Over time, our brands have become closely identified not only with the underlying sports they represent, but also with the way of life that is associated with those who are active in such sports. Accordingly, our advertising efforts are focused on promoting the sports and related lifestyle rather than advertising a specific product. As our sports and lifestyle have grown in popularity, not only in the United States but also internationally, the visibility of our brands has increased.

We have relationships with athletes worldwide. These include such well-known personalities as Kelly Slater, Lisa Andersen, Tom Carroll, Sofia Mulanovich, Chelsea Georgeson, Tony Hawk, Danny Way, Robbie Naish, Dave Mirra and Ricky Carmichael. Our relationships with athletes in the snow category include Alberto Tomba, Ted Ligety, Julia Mancuso, Manu Gaidet, Danny Kass, Todd Richards and Travis Rice. Along with these athletes, many of whom have achieved world champion status in their individual sports, we sponsor many amateurs and up-and-coming professionals. We believe that these athletes legitimize the performance of our products, form the basis for our advertising and promotional content, maintain a real connection with the core users of our products and create a general aspiration to the lifestyle that these athletes represent.

The events and promotions that we sponsor include world class boardriding events, such as Quiksilver’s Big Wave Invitational, which we believe is the most prestigious event among surfers, and the Roxy Pro, which we believe is the most visible women’s surf event of the pro season. We also sponsor many events in Europe, including the Slopestyle Pro snowboarding event and the Bowlriders skateboarding event, and our DC and Quiksilver athletes participate regularly in the Summer and Winter X-Games. Rossignol and our other wintersports brands receive international acclaim for winning on the world stage. In the 2006 Winter Olympics, our wintersports athletes won 36 medals, including 10 gold. In the 2007 Ski World Cup, our wintersports athletes won 35 medals, including 7 gold. Our wintersports brands continue to benefit from the publicity generated as sponsored athletes compete in the Ski World Cup, Winter Olympics, Freeride World Cup and Winter X-Games. In addition, we sponsor many regional and local events, such as surf camps and ski racing camps for beginners and enthusiasts, that reinforce the reputations of our brands as authentic among athletes and non-athletes alike.

Our brand messages are communicated through advertising, editorial content and other programming in both core and mainstream media. Coverage of our sports, athletes and related lifestyle form the basis of content for core magazines, such as Surfer, Surfing, Snowboard Canada, Transworld Skateboarding, Powder, Skieur and Freeride. Through our Quiksilver Entertainment division, we are bringing our lifestyle message to an even broader audience through television, films, books and co-sponsored events and products.

Customers and Sales

We sell our products in over 90 countries around the world. We believe that the integrity and success of our brands is dependent in part upon our careful selection of the retailers to whom we sell our products. Therefore, we maintain a strict and controlled distribution channel to uphold and grow the value of our brands.

The foundation of our business is the distribution of our products through surf shops, ski shops, skateboard shops, snowboard shops and our proprietary Boardriders Clubs shops where the environment communicates our brand messages and the sale of equipment is supported with technical

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knowledge and experience. This core distribution channel serves as a base of legitimacy and long-term loyalty to us and our brands. Most of these stores stand alone or are part of small chains.

Our products are also distributed through independent specialty or active lifestyle stores and specialty chains. This category includes chains in the United States such as Pacific Sunwear, Nordstrom, Zumiez, Chicks Sporting Goods and Journeys, as well as many independent active lifestyle stores and sports shops in the United States and around the world. A limited amount of our apparel, footwear and accessories products are distributed through select department stores, including Macy’s and Bloomingdales in the U.S.; Le Printemps and Galeries Lafayette in France; and Corte Ingles in Spain.

Many of our brands are sold through the same retail accounts; however, distribution can be different depending on the brand and demographic group. Our Quiksilver products are sold in the Americas to customers that have approximately 9,800 store locations combined. Likewise, Roxy products are sold in the Americas to customers with approximately 9,600 store locations. Most of these Roxy locations also carry Quiksilver product. In the Americas, DC products are carried in approximately 8,300 stores. Our swimwear brands (Raisins, Leilani and Radio Fiji) are found in approximately 8,800 stores in the Americas, including many small, specialty swim locations, while our wintersports equipment (Rossignol, Dynastar, Look, Lange, Kerma, Lib Technologies, Bent Metal and Gnu) is found in approximately 3,900 stores, including primarily ski and snowboard shops in the U.S. and Canada. Our apparel, footwear and accessories are found in approximately 6,800 store locations in Europe, and in approximately 3,900 store locations in Asia/Pacific, and in both cases primarily include Quiksilver, Roxy and DC. Our wintersports equipment is found in approximately 7,800 store locations in Europe.

Our European segment accounted for approximately 44%, 46% and 41% of our consolidated revenues during fiscal 2007, 2006 and 2005, respectively. Our Asia/Pacific segment accounted for approximately 11%, 11% and 13% of our consolidated revenues in fiscal 2007, 2006 and 2005 respectively. Other fiscal 2007 non-U.S. sales are in the Americas segment (i.e. Canada, Central and South America) and were approximately 7% of consolidated revenues.

The following table summarizes the approximate percentages of our fiscal 2007 revenues by distribution channel:

	Percentage of Revenues
Distribution Channel	Americas			Europe			Asia/Pacific			Consolidated
Core market shops		26	%		36	%		76	%		36	%
Specialty stores		44			42			15			40
Department stores		18			4			9			10
U.S. exports		12			—			—			6
Distributors		—			18			—			8
Total		100	%		100	%		100	%		100	%
Geographic segment		45	%		44	%		11	%		100	%

Our revenues are spread over a large wholesale customer base. During fiscal 2007, approximately 16% of our consolidated revenues were from our ten largest customers, and our largest customer accounted for approximately 4% of such revenues.

Our products are sold by approximately 500 independent sales representatives in the Americas, Europe and Asia/Pacific. In addition, we use approximately 140 local distributors in Europe, which include approximately 90 Rossignol distributors. Our other international businesses use approximately 30 distributors, primarily in Asia/Pacific and South America. Our sales representatives are generally compensated on a commission basis. We employ retail merchandise coordinators in the United States who travel between specified retail locations of our wholesale customers to further improve the presentation of our product and build our image at the retail level.

Our sales are globally diversified. The following table summarizes the approximate percentages of our revenues by geographic region (excluding licensees):

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	Percentage of Revenues
Geographic Region	2007			2006			2005
United States		38	%		36	%		40	%
Other Americas		7			7			6
France		15			16			15
United Kingdom and Spain		12			11			12
Other European countries		17			19			14
Asia/Pacific		11			11			13
Total		100	%		100	%		100	%

We generally sell our apparel, footwear and related accessories to customers on a net-30 to net-60 day basis in the Americas, and in Europe and Asia/Pacific on a net-30 to net-90 day basis depending on the country and whether we sell directly to retailers in the country or to a distributor. Some customers are on C.O.D. terms. For our wintersports business, our sales terms vary by country, distribution channel and customer. We generally sell our wintersports equipment on net-90 or greater terms. These terms are consistent with terms typically offered in the wintersports market. We generally do not reimburse our customers for marketing expenses, participate in markdown programs with our customers, or offer goods on consignment.

For additional information regarding our revenues, operating profits and identifiable assets attributable to our operating segments, see Note 15 of our consolidated financial statements.

Retail Concepts

Quiksilver concept stores (Boardriders Clubs) are an important part of our global retail strategy. These stores are stocked primarily with Quiksilver and Roxy product, and their proprietary design demonstrates our history, authenticity and commitment to surfing and other boardriding sports. We also have Roxy stores, which are dedicated to the juniors customer, Quiksilver Youth stores, Andaska shops in Europe that carry multiple brands in the outdoor market including our Rossignol brands, and other multibrand stores in Europe. In various territories, we also operate Quiksilver and Roxy shops that are part of larger department stores. These shops, which are typically smaller than a stand-alone shop but have many of the same operational characteristics, are referred to below as shop-in-shops.

We own 406 stores in selected markets that provide enhanced brand-building opportunities. In territories where we operated our wholesale businesses during fiscal 2007, we had 207 stores with independent retailers under license. We do not receive royalty income from these licensed stores. Rather, we provide the independent retailer with our retail expertise and store design concepts in exchange for the independent retailer agreeing to maintain our brands at a minimum of 80% of the store’s inventory. Certain minimum purchase obligations are also required. Furthermore, in our licensed and joint venture territories, such as China and Mexico, our licensees operate 56 Boardriders Clubs. We receive royalty income from sales in these stores based on the licensees’ revenues. We also distribute our products through outlet stores generally located in outlet malls in geographically diverse, non-urban locations. The total number of stores open at October 31, 2007 was 669. The unit count of both company-owned and licensed stores at October 31, 2007, excluding stores in licensed territories, is summarized in the following table:

	Number of Stores
	Americas				Europe				Asia/Pacific				Combined
	Company				Company				Company				Company
Store Concept	Owned		Licensed		Owned		Licensed		Owned		Licensed		Owned		Licensed
Boardriders Clubs		50		16		81		148		34		20		165		184
Shop-in-shops		—		—		59		—		22		—		81		—
Roxy stores		8		1		10		11		13		4		31		16
Outlet stores		50		—		29		2		25		1		104		3
Other stores		3		2		22		2		—				25		4
		111		19		201		163		94		25		406		207

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Seasonality

Our sales fluctuate from quarter to quarter primarily due to seasonal consumer demand patterns for different categories of our products, and due to the effect that the Christmas and holiday season has on the buying habits of our customers. The acquisition of Rossignol in July 2005 significantly increased our revenues, particularly between August and December.

	Consolidated Revenues
Dollar amounts in thousands	2007				2006				2005
Quarter ended January 31	$	528,677	22	%	$	518,558	24	%	$	342,142	20	%
Quarter ended April 30		557,227	23			466,150	21			425,593	25
Quarter ended July 31		560,930	23			483,696	22			372,488	21
Quarter ended October 31		779,201	32			731,830	33			594,305	34
	$	2,426,035	100	%	$	2,200,234	100	%	$	1,734,528	100	%

Production and Raw Materials

Our apparel, footwear and accessories are generally sourced separately for our Americas, Europe and Asia/Pacific operations. We own a sourcing office in Hong Kong that manages the majority of production for our Asia/Pacific business and some of our Americas and European production. We believe that as we expand the Hong Kong sourcing operations, more products can be sourced together and additional efficiencies can be obtained. Approximately 86% of our apparel, footwear and accessories are purchased or imported as finished goods from suppliers principally in Hong Kong, China and the far east, but also in Mexico, India, North Africa, Portugal and other foreign countries. After being imported, many of these products require embellishment such as screenprinting, dyeing, washing or embroidery. In the Americas, the remaining 14% of our production is manufactured by independent contractors from raw materials we provide, with a substantial majority of this manufacturing done in the U.S. and the balance in Mexico.

We manufacture wintersports equipment globally for our Americas, Europe and Asia/Pacific operations. Production of alpine skis, cross-country skis and snowboards is shared primarily between France and Spain, with some production in the United States. Alpine bindings are also produced in France with the support of a network of approved subcontractors. Ski boots and ski poles are manufactured primarily in Italy, with certain boot components provided by subcontractors in eastern European countries, primarily Romania. For fiscal 2007, approximately 18% of our wintersports equipment manufacturing was subcontracted. All products are manufactured based upon design specifications that we provide, whether they are purchased or imported as finished goods or produced from raw materials that we provide.

The majority of our apparel, footwear and accessories finished goods, as well as raw materials for apparel, accessories and wintersports equipment must be committed to and purchased prior to the receipt of customer orders. If we overestimate the demand for a particular product, excess production can generally be distributed in our outlet stores or through secondary distribution channels. If we overestimate a particular raw material, it can generally be used in garments for subsequent seasons or in garments for distribution through our outlet stores or secondary distribution channels. If we overestimate a particular raw material for our wintersports equipment production, it also can be used in subsequent seasons.

During fiscal 2007, no single contractor of finished goods accounted for more than 6% of our consolidated production. No single raw material supplier accounted for more than 6% of our expenditures for raw materials during fiscal 2007. We believe that numerous qualified contractors, finished goods and raw materials suppliers are available to provide additional capacity on an as-needed basis and that we enjoy favorable on-going relationships with these contractors and suppliers.

Although we continue to explore new sourcing opportunities for finished goods and raw materials, we believe we have established solid working relationships over many years with vendors who are financially

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stable and reputable, and who understand our product quality and delivery standards. As part of our efforts to reduce costs and enhance our sourcing efficiency, we have shifted increasingly to foreign suppliers. We research, test and add, as needed, alternate and/or back-up suppliers. However, in the event of any unanticipated substantial disruption of our relationship with, or performance by, key existing suppliers and/or contractors, there could be a short-term adverse effect on our operations.

Imports and Import Restrictions

We have for some time imported finished goods and raw materials for our domestic operations under multilateral and bilateral trade agreements between the U.S. and a number of foreign countries, including Hong Kong, India and China. These agreements impose quotas on the amount and type of textile and apparel products that are imported into the U.S. from the affected countries. We do not anticipate that these restrictions will adversely affect our operations since we would be able to meet our needs domestically or from other countries not affected by the restrictions.

In Europe, we operate in the European Union (“EU”) within which there are few trade barriers. We also operate under constraints imposed on imports of finished goods and raw materials from outside the EU, including quotas and duty charges. We do not anticipate that these restrictions will materially or adversely impact our operations since we have always operated under such constraints.

We retain independent buying agents, primarily in China, Hong Kong, India, Vietnam and other foreign countries to assist us in selecting and overseeing the majority of our independent third party manufacturing and sourcing of finished goods, fabrics, blanks and other products. In addition, these agents monitor quota and other trade regulations and perform some quality control functions. We also have approximately 250 employees in Hong Kong and China that are involved in sourcing and quality control functions to assist in monitoring and coordinating our overseas production.

By having employees in regions where we source our products, we enhance our ability to monitor factories to ensure their compliance with our standards of manufacturing practices. Our policies require every factory to comply with a code of conduct relating to factory working conditions and the treatment of workers involved in the manufacture of products.

Trademarks, Licensing Agreements and Patents

Trademarks

We own the “Quiksilver”, “Roxy” and famous mountain and wave and heart logos in virtually every country in the world. Other trademarks we own include “Raisins", “Radio Fiji”, “Leilani”, “Quiksilveredition”, “Hawk”, “Lib Tech”, “Gnu” and “Bent Metal”, "DCSHOECOUSA”, the “DC Star” logo and other trademarks. With the acquisition of Rossignol in 2005, we acquired the “Rossignol", “Dynastar", “Lange", “Look” and “Kerma” trademarks in countries around the world.

We apply for and register our trademarks throughout the world mainly for use on apparel, footwear and related accessories and for retail services. Our Rossignol trademarks have been registered for use on wintersports equipment, apparel and related accessories. We believe our trademarks and our other intellectual property are crucial to the successful marketing and sale of our products, and we attempt to vigorously prosecute and defend our rights throughout the world. Because of the success of our trademarks, we also maintain global anti-counterfeiting programs to protect our brands.

Licensing Agreements and Patents

We own rights throughout the world to use and license the Quiksilver and Roxy trademarks in substantially all apparel and related accessory product classifications and we directly operate all of the global Quiksilver and Roxy businesses with the exception of licensees in several countries, including Turkey, Argentina and Mauritius. We have also entered into a few joint venture arrangements with independent third parties to sell and distribute Quiksilver, Roxy and other branded products in various foreign territories, including Mexico and Brazil. In connection with these joint ventures, we license certain of our trademarks for use in connection with the sale and promotion of our products in these territories.

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In April 2005, we licensed our Hawk brand in the United States to Kohl’s Stores, Inc., a department store chain with over 700 stores. Under Kohl’s’ license agreement, Kohl’s has the exclusive right to manufacture and sell Hawk branded apparel and some related products in its U.S. stores and through its website. We receive royalties from Kohl’s based upon sales of Hawk branded products. Under the license agreement, we are responsible for product design and Kohl’s manages sourcing, distribution, marketing and all other functions relating to the Hawk brand. The license agreement has an initial term of five years, with three five-year extensions at Kohl’s’ option. We continue to manufacture and sell Hawk branded products outside of the United States.

Our patent portfolio has increased with the acquisition of Rossignol to include ski, ski boot and ski binding patents in addition to our existing patents and applications primarily related to wetsuits, skate shoes, watches, board shorts, snowboards and snowboard boots.

Competition

Competition is strong in the global beachwear, skateboard shoe, casual sportswear and wintersports markets in which we operate, and each territory can have different competitors. Our direct competitors in the United States differ depending on distribution channel. Our principal competitors in our core channel of surf shops and Boardriders Clubs in the United States include Billabong International Pty Ltd, Volcom, Inc., O’Neill, Inc. and Hurley International LLC. Our competitors in the department store and specialty store channels in the United States include Abercrombie & Fitch Co. and its Hollister brand. Our principal competitors in the skateboard shoe market are Sole Technology, Inc. and DVS Shoe Company. In Europe, our principal competitors in the core channel include O’Neill, Inc., Billabong International Pty Ltd., Rip Curl International Pty Ltd., Oxbow S.A. and Chimsee. In Australia, our primary competitors are Billabong International Pty Ltd. and Rip Curl International Pty Ltd. In broader European distribution, and in Asia/Pacific, our competitors also include brands such as Nike Inc., Adidas AG and Levi Strauss & Co. Competition is strong in the wintersports market. Our principal competitors both in the United States and Europe in the wintersports market include Amer Sports Corporation (Atomic, Salomon), Jarden Corp. (K2), Tecnica Group, Head N.V. and Burton Snowboards North America. Some of our competitors may be significantly larger and have substantially greater resources than we have.

We compete primarily on the basis of successful brand management, product design and quality born out of our ability to:

• maintain our reputation for authenticity in the core boardriding and outdoor sports lifestyle demographics;

• continue to develop and respond to global fashion and lifestyle trends in our core markets;

• create innovative, high quality and stylish product at appropriate price points;

• continue to develop leading technologies in ski equipment; and

• convey our outdoor sports lifestyle messages to consumers worldwide.

Future Season Orders

At the end of November 2007, our backlog totaled $652 million compared to $567 million the year before. Our backlog depends upon a number of factors and fluctuates based on the timing of trade shows and sales meetings, the length and timing of various international selling seasons, changes in foreign currency exchange rates and market conditions. The timing of shipments also fluctuates from year to year based on the production of goods and the ability to distribute our products in a timely manner. As a consequence, a comparison of backlog from season to season is not necessarily meaningful and may not be indicative of eventual shipments or forecasted revenues.

Employees

At October 31, 2007, we had approximately 9,600 employees, consisting of approximately 3,900 in the United States and Canada, approximately 3,900 in Europe and approximately 1,800 in Asia/Pacific. None of our domestic employees are represented by trade unions, and less than 50 of our foreign employees are represented by trade unions. Certain French employees are represented by workers councils who negotiate with management on behalf of the employees. Management is generally required to share its plans with the workers councils, to the extent that these plans affect the represented

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employees. We have never experienced a work stoppage and consider our working relationships with our employees and the workers councils to be good.

Environmental Matters

Some of our facilities and operations are subject to various federal, state and local environmental laws and regulations which govern, among other things, the use and storage of hazardous materials, the storage and disposal of solid and hazardous wastes, the discharge of pollutants into the air, water and land, and the cleanup of contamination. Some of our manufacturing operations involve the use of, among other things, inks, plastics, solvents and wood, and produce related byproducts and wastes. We have acquired businesses and properties in the past, and may do so again in the future. In the event we or our predecessors fail or have failed to comply with environmental laws, or cause or have caused a release of hazardous substances or other environmental damage, whether at our sites or elsewhere, we could incur fines, penalties or other liabilities arising out of such noncompliance, releases or environmental damage. Compliance with and liabilities under environmental laws and regulations did not have a significant impact on our capital expenditures, earnings or competitive position during the last three fiscal years.

Available Information

We file with the Securities and Exchange Commission (SEC) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, proxy statements and registration statements. The public may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically.

Our corporate website is http://www.quiksilverinc.com. We make available free of charge, on or through this website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. In addition, copies of the written charters for the committees of our board of directors, our Corporate Governance Guidelines, our Code of Ethics for Senior Financial Officers and our Code of Business Conduct and Ethics are also available on this website, and can be found under the Investor Relations and Corporate Governance links. Copies are also available in print, free of charge, by writing to Investor Relations, Quiksilver, Inc., 15202 Graham Street, Huntington Beach, California 92649. We may post amendments or waivers of our Code of Ethics for Senior Financial Officers and Code of Business Conduct and Ethics, if any, on our website. This website address is intended to be an inactive textual reference only, and none of the information contained on our website is part of this report or is incorporated in this report by reference.

Item 1A. RISK FACTORS

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer and the trading price of our common stock or our senior notes could decline. You should consider the following risks before deciding to invest in, or maintain your investment in, our common stock or senior notes.

The apparel, sporting goods and footwear industries are each highly competitive, and if we fail to compete effectively, we could lose our market position.

The apparel, sporting goods and footwear industries are each highly competitive. We compete against a number of domestic and international designers, manufacturers, retailers and distributors of apparel, sporting goods and footwear, some of whom are significantly larger and have significantly greater financial resources than we do. In order to compete effectively, we must (1) maintain the image of our brands and our reputation for authenticity in our core boardriding and outdoor sports markets; (2) be flexible and innovative in responding to rapidly changing market demands on the basis of brand image,

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style, performance and quality; and (3) offer consumers a wide variety of high quality products at competitive prices.

The purchasing decisions of consumers are highly subjective and can be influenced by many factors, such as brand image, marketing programs and product design. Several of our competitors enjoy substantial competitive advantages, including greater brand recognition and greater financial resources for competitive activities, such as sales and marketing and strategic acquisitions. The number of our direct competitors and the intensity of competition may increase as we expand into other product lines or as other companies expand into our product lines. Our competitors may enter into business combinations or alliances that strengthen their competitive positions or prevent us from taking advantage of such combinations or alliances. Our competitors also may be able to respond more quickly and effectively than we can to new or changing opportunities, standards or consumer preferences. Our results of operations and market position may be adversely impacted by our competitors and the competitive pressures in the apparel, sporting goods and footwear industries.

If we are unable to develop innovative and stylish products in response to rapid changes in consumer demands and fashion trends, we may suffer a decline in our revenues and market share.

The apparel, sporting goods and footwear industries are subject to constantly and rapidly changing consumer demands based on fashion trends and performance features. Our success depends, in part, on our ability to anticipate, gauge and respond to these changing consumer preferences in a timely manner while preserving the authenticity and quality of our brands.

Our future success will depend, in part, upon our continued ability to develop and introduce innovative products reflective of technological advances in the respective markets in which we compete. If we are unable to successfully introduce new outdoor sporting goods products, or if our competitors introduce superior products, customers may purchase outdoor sporting goods products from our competitors, which could adversely affect our revenues and results of operations.

As is typical with new products, market acceptance of new designs and products we may introduce is subject to uncertainty. In addition, we generally make decisions regarding product designs several months in advance of the time when consumer acceptance can be measured. If trends shift away from our products, or if we misjudge the market for our product lines, we may be faced with significant amounts of unsold inventory or other conditions which could have a material adverse effect on our results of operations.

The failure of new product designs or new product lines to gain market acceptance could also adversely affect our business and the image of our brands. Achieving market acceptance for new products may also require substantial marketing efforts and expenditures to expand consumer demand. These requirements could strain our management, financial and operational resources. If we do not continue to develop stylish and innovative products that provide better design and performance attributes than the products of our competitors, or if our future product lines misjudge consumer demands, we may lose consumer loyalty, which could result in a decline in our revenues and market share.

Changes in foreign currency exchange or interest rates could affect our revenues and costs.

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income, and product purchases of our international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to our variable rate debt. If we are unsuccessful in using various foreign currency exchange contracts or interest rate swaps to hedge these potential losses, our profits and cash flows could be significantly reduced. In some cases, as part of our risk management strategies, we may choose not to hedge our exposure to foreign currency exchange rate changes, or we may choose to maintain variable interest rate debt. If we misjudge these risks, there could be a material adverse effect on our operating results and financial position.

Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the

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translation of the statements of income and balance sheets of our international subsidiaries into U.S. dollars. We may use foreign currency exchange contracts to hedge the profit and loss effects of this translation effect; however, accounting rules do not allow us to classify these contracts as hedges, but require us to mark these contracts to fair value at the end of each financial reporting period and translate our revenues and expenses at average exchange rates during the period. As a result, the reported revenues and expenses of our international subsidiaries would decrease if the U.S. dollar increased in value in relation to other currencies, including the euro, Australian dollar or Japanese yen.

Our business could be harmed if we fail to maintain proper inventory levels.

We maintain an inventory of selected products that we anticipate will be in high demand. We may be unable to sell the products we have ordered in advance from manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs or the sale of excess inventory at discounted or closeout prices. These events could significantly harm our operating results and impair the image of our brands. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which might result in unfilled orders, negatively impact customer relationships, diminish brand loyalty and result in lost revenues, any of which could harm our business.

Future acquisitions and related financings may place a significant debt burden on us.

From time to time, we have pursued, and may continue to pursue, acquisitions which involve the incurrence of additional debt, such as was incurred in connection with our acquisitions of DC Shoes and Rossignol. If one or more acquisitions results in our becoming substantially more leveraged on a consolidated basis, our flexibility in responding to adverse changes in economic, business or market conditions may be adversely affected, which could have a material adverse effect on our results of operations.

Our significant debt obligations could limit our flexibility in managing our business and expose us to certain risks.

We are highly leveraged. Our high degree of leverage may have negative consequences to us, including the following:

• we may have difficulty satisfying our obligations under our senior notes or other indebtedness and, if we fail to comply with these requirements, an event of default could result;

• we have certain short term lines of credit that could be difficult to replace if not renewed;

• we may be required to dedicate a substantial portion of our cash flow from operations to required payments on indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures and other general corporate activities;

• covenants relating to our indebtedness may limit our ability to obtain additional financing for working capital, capital expenditures and other general corporate activities;

• covenants relating to our indebtedness may limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• we may be more vulnerable to the impact of economic downturns and adverse developments in our business; and

• we may be placed at a competitive disadvantage against any less leveraged competitors.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our revolving credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase or interest rate spreads widen, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows would decrease.

War, acts of terrorism, or the threat of either could have an adverse effect on our ability to procure our products and on the United States and/or international economies.

In the event of war or acts of terrorism or the escalation of existing hostilities, or if any are threatened, our ability to procure our products from our manufacturers for sale to our customers may be negatively affected. We import a substantial portion of our products from other countries. If it becomes difficult or

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impossible to import our products into the countries in which we sell our products, our sales and profit margins may be adversely affected. Additionally, war, military responses to future international conflicts and possible future terrorist attacks may lead to a downturn in the U.S. and/or international economies which could have a material adverse effect on our results of operations.

Our success is dependent on our ability to protect our worldwide intellectual property rights, and our inability to enforce these rights could harm our business.

Our success depends to a significant degree upon our ability to protect and preserve our intellectual property, including copyrights, trademarks, patents, service marks, trade dress, trade secrets and similar intellectual property. We rely on the intellectual property, patent, trademark and copyright laws of the United States and other countries to protect our proprietary rights. However, we may be unable to prevent third parties from using our intellectual property without our authorization, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States. The use of our intellectual property or similar intellectual property by others could reduce or eliminate any competitive advantage we have developed, causing us to lose sales or otherwise harm our business. From time to time, we resort to litigation to protect these rights, and these proceedings can be burdensome and costly and we may not prevail.

We have obtained some U.S. and foreign trademarks, patents and service mark registrations, and have applied for additional ones, but cannot guarantee that any of our pending applications will be approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge these or other registrations. A failure to obtain trademark, patent or service mark registrations in the United States and in other countries could limit our ability to protect our trademarks, patents and service marks and impede our marketing efforts in those jurisdictions. The loss of trademarks, patents and service marks, or the loss of the exclusive use of our trademarks, patents and service marks, could have a material adverse effect on our business, financial condition and results of operations. Accordingly, we devote substantial resources to the establishment and protection of our trademarks, patents and service marks on a worldwide basis and continue to evaluate the registration of additional trademarks, patents and service marks, as appropriate. We cannot assure you that our actions taken to establish and protect our trademarks, patents and service marks will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as violative of their trademark or other proprietary rights.

Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or prevent us from selling our products.

We cannot be certain that our products do not and will not infringe the intellectual property rights of others. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the intellectual property rights of third parties by us or our customers in connection with their use of our products. Any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our personnel. Moreover, should we be found liable for infringement, we may be required to enter into licensing agreements (if available on acceptable terms or at all) or to pay damages and cease making or selling certain products. Moreover, we may need to redesign or rename some of our products to avoid future infringement liability. Any of the foregoing could cause us to incur significant costs and prevent us from manufacturing or selling our products.

Our current executive officers and management are critical to our success, and the loss of any of these individuals could harm our business, brands and image.

We are heavily dependent on our current executive officers and management. We believe that our success depends to a significant degree upon the continued contributions of our executive officers and other key personnel, both individually and as a group. The loss of any of our executive officers or management or the inability to attract or retain qualified personnel could delay the development and introduction of new products, harm our ability to sell our products, damage the image of our brands and prevent us from executing our business strategy.

If we are unable to maintain and expand our endorsements by professional athletes, our ability to market and sell our products may be harmed.

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A key element of our marketing strategy has been to obtain endorsements from prominent athletes, which contributes to the authenticity and image of our brands. We believe that this strategy has been an effective means of gaining brand exposure worldwide and creating broad appeal for our products. We cannot assure you that we will be able to maintain our existing relationships with these individuals in the future or that we will be able to attract new athletes to endorse our products. Larger companies with greater access to capital for athlete sponsorships may in the future increase the cost of sponsorships for these athletes to levels we may choose not to match. If this were to occur, our sponsored athletes may terminate their relationships with us and endorse the products of our competitors and we may be unable to obtain endorsements from other comparable athletes.

We also are subject to risks related to the selection of athletes whom we choose to endorse our products. We may select athletes who are unable to perform at expected levels or who are not sufficiently marketable. In addition, negative publicity concerning any of our athletes could harm our brand and adversely impact our business. If we are unable in the future to secure prominent athletes and arrange athlete endorsements of our products on terms we deem to be reasonable, we may be required to modify our marketing platform and to rely more heavily on other forms of marketing and promotion, which may not prove to be effective. In either case, our inability to obtain endorsements from professional athletes could adversely affect our ability to market and sell our products, resulting in loss of revenues and a loss of profitability.

We could be negatively impacted if we fail to successfully integrate the businesses we acquire or we could be negatively impacted by any business dispositions.

We have acquired businesses that we believe can enhance our business opportunities and our growth prospects. All acquisitions involve risks that can materially and adversely affect our business and operating results. These risks include:

• distracting management from our business operations;

• losing key personnel and other employees;

• costs, delays, and inefficiencies associated with integrating acquired operations and personnel;

• the impairment of acquired assets and goodwill; and

• acquiring the contingent and other liabilities of the businesses we acquire.

In addition, acquired businesses may not provide us with increased business opportunities, or result in the growth that we anticipate. Furthermore, integrating acquired operations is a complex, time-consuming, and expensive process. Combining acquired operations may result in lower overall operating margins, greater stock price volatility, and quarterly earnings fluctuations. Cultural incompatibilities, career uncertainties, and other factors associated with such acquisitions may also result in the loss of employees. Failing to acquire and successfully integrate our acquired businesses, or failing to achieve the business synergies or other anticipated benefits, could materially adversely affect our business and results of operations.

For example, in July 2005 we acquired Rossignol, and we expect that the acquisition of Rossignol will result in certain synergies, business opportunities and growth prospects. We, however, may never realize these expected synergies, business opportunities and growth prospects. In addition, integrating operations continue to require significant efforts and expenses. Personnel may leave or be terminated because of the acquisition and our management’s time and attention may be diverted from their other responsibilities. If these or other factors limit our ability to successfully integrate the operations of Rossignol on a timely basis, our expectations of future results of operations, including certain cost savings and synergies expected to result from the acquisition, may not be achieved. In addition, if the growth and operating strategies of Rossignol are not effective, it could have a material adverse effect on our business, financial condition and results of operations.

We are also subject to risks and uncertainties as a result of our asset or other business dispositions. For example, we recently sold Roger Cleveland Golf Company, Inc. and certain international affiliates dedicated to our golf equipment business. Asset and business dispositions, such as this, require significant management time and attention, and may not provide the intended benefits to the company that are anticipated at the time of such dispositions. Business dispositions may also negatively affect the cost or other synergies of an otherwise consolidated business. If any of our asset or business

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dispositions do not have the benefits intended by such dispositions, our financial condition, results of operating and stock price may be negatively impacted.

Cyclical trends in apparel, sporting goods and footwear retailing could have a material adverse effect on our results of operations.

The apparel, sporting goods and footwear industries historically have been subject to substantial cyclical variations. As domestic and international economic conditions change, trends in discretionary consumer spending become unpredictable and could be subject to reductions due to uncertainties about the future. When consumers reduce discretionary spending, purchases of specialty apparel, footwear and sporting goods may decline. In addition, a general reduction in consumer discretionary spending due to a recession in the domestic and/or international economies or uncertainties regarding future economic prospects could have a material adverse effect on our results of operations.

As a result of our acquisition of Rossignol, we face greater challenges in managing several brands.

While we believe that we have significant experience in managing our apparel and footwear brands and their respective channels of distribution, with our acquisition of Rossignol, we have further penetrated the wintersports markets. If we are unable to effectively manage our multiple product lines in multiple markets, including our wintersports equipment manufacturing business, our profitability and cash flow may be reduced and our image and reputation could be harmed.

Employment related matters, such as unionization, may affect our profitability.

As of October 31, 2007, less than 50 of our employees were unionized, all outside of the United States, and certain French employees are represented by workers’ councils. We have little control over the union activities in these areas and could face difficulties in the future. There can be no assurance that we will not experience work stoppages or other labor problems in the future with our unionized employees, non-unionized employees or employees represented by workers councils or that we will be able to renew the collective bargaining agreements on similar or more favorable terms.

The demand for our products is seasonal and sales are dependent upon the weather.

Our revenues and operating results are subject to seasonal trends when measured on a quarterly basis. For example, sales of apparel products are typically lower during our first fiscal quarter when compared with our other fiscal quarters, while Rossignol’s sales have historically been higher between August and December at the peak of it’s winter equipment shipping activities. These trends are dependent on many factors, including the holiday seasons, weather, consumer demand, markets in which we operate and numerous other factors beyond our control. The seasonality of our business, unseasonable weather during our peak selling periods and/or misjudgment in consumer demands could have a material adverse effect on our financial condition and results of operations. For example, our financial results in the 2007 fiscal year were negatively impacted by unseasonably warm weather and by the lack of snow fall in many parts of the world which caused a significant reduction in our anticipated revenues and income in our wintersports equipment business. We expect these conditions to affect customer orders in the first quarter of fiscal 2008 and our wintersports equipment business continues to be vulnerable to the risk of unseasonable weather during future winter seasons.

Factors affecting international commerce and our international operations may seriously harm our financial condition.

We generate a majority of our revenues from outside of the United States, and we anticipate that revenue from our international operations could account for an increasingly larger portion of our revenues in the future. Our international operations are directly related to, and dependent on, the volume of international trade and foreign market conditions. International commerce and our international operations are subject to many risks, including:

• recessions in foreign economies;

• the adoption and expansion of trade restrictions;

• limitations on repatriation of earnings;

• difficulties in protecting our intellectual property or enforcing our intellectual property rights under the laws of other countries;

• longer receivables collection periods and greater difficulty in collecting accounts receivable;

• difficulties in managing foreign operations;

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• social, political and economic instability;

• unexpected changes in regulatory requirements;

• our ability to finance foreign operations;

• tariffs and other trade barriers; and

• U.S. government licensing requirements for exports.

The occurrence or consequences of any of these risks may restrict our ability to operate in the affected regions and decrease the profitability of our international operations, which may harm our financial condition.

We have established, and may continue to establish, joint ventures in various foreign territories, such as Brazil and Mexico, with independent third party business partners to distribute and sell Quiksilver, Roxy and other branded products in such territories. These joint ventures are subject to substantial risks and liabilities associated with their operations, as well as the risk that our relationships with our joint venture partners do not succeed in the manner that we anticipate. If our joint venture operations, or our relationships with our joint venture partners, are not successful, our results of operation and financial condition may be adversely affected.

If the popularity of the sports associated with our brands were to decrease, our revenues could be adversely affected and our results of operations could be impaired.

We generate a significant portion of our revenues from the sale of products directly associated with boardriding and wintersports. The demand for such products is directly related to the popularity of boardriding activities and wintersports and the number of respective participants worldwide. If the demand for boardriding and/or wintersports equipment, apparel, and accessories decreases, our revenues could be adversely affected and our results of operations could be impaired. In addition, if participation in boardriding and/or wintersports activities were to decrease, sales of many of our products could decrease.

Our industry is subject to pricing pressures that may adversely impact our financial performance.

We manufacture many of our products offshore because manufacturing costs are generally less primarily due to lower labor costs. Many of our competitors also source their product requirements offshore to achieve lower costs, possibly in locations with lower costs than our offshore operations, and those competitors may use these cost savings to reduce prices. To remain competitive, we must adjust our prices from time to time in response to these industry-wide pricing pressures. Our financial performance may be negatively affected by these pricing pressures if:

• we are forced to reduce our prices and we cannot reduce our production costs; or

• our production costs increase and we cannot increase our prices.

Changing international trade regulations and the elimination of quotas on imports of textiles and apparel may increase competition in the apparel industry.

Future quotas, duties or tariffs may have a material adverse effect on our business, financial condition and results of operations. We currently import raw materials and/or finished garments into the majority of countries in which we sell our apparel products. Substantially all of our import operations are subject to:

• quotas imposed by bilateral textile agreements between the countries where our apparel-producing facilities are located and foreign countries; and

• customs duties imposed by the governments where our apparel-producing facilities are located on imported products, including raw materials.

In addition, the countries in which our apparel products are manufactured or to which they are imported may from time to time impose additional new quotas, duties, tariffs, requirements as to where raw materials must be purchased, additional workplace regulations or other restrictions on our imports, or otherwise adversely modify existing restrictions. Adverse changes in these costs and restrictions could harm our business. We cannot assure you that future trade agreements will not provide our competitors with an advantage over us, or increase our costs, either of which could have a material adverse effect on our business, results of operations and financial condition.

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Our apparel-producing operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, and the activities and regulations of the World Trade Organization, referred to as the WTO. Generally, such trade agreements benefit our apparel business by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country. However, trade agreements can also impose requirements that negatively impact our apparel business, such as limiting the countries from which we can purchase raw materials and setting quotas on products that may be imported into the United States from a particular country.

We rely on third-party manufacturers and problems with, or loss of, our suppliers or raw materials could harm our business and results of operations.

Substantially all of our apparel products are produced by independent manufacturers. We face the risk that these third-party manufacturers with whom we contract to produce our products may not produce and deliver our products on a timely basis, or at all. We cannot be certain that we will not experience operational difficulties with our manufacturers, such as reductions in the availability of production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. The failure of any manufacturer to perform to our expectations could result in supply shortages for certain products and harm our business.

The capacity of our manufacturers to manufacture our products also is dependent, in part, upon the availability of raw materials. Our manufacturers may experience shortages of raw materials, which could result in delays in deliveries of our products by our manufacturers or in increased costs to us. Any shortage of raw materials or inability of a manufacturer to manufacture or ship our products in a timely manner, or at all, could impair our ability to ship orders of our products in a cost-efficient, timely manner and could cause us to miss the delivery requirements of our customers. As a result, we could experience cancellations of orders, refusals to accept deliveries or reductions in our prices and margins, any of which could harm our financial performance and results of operations.

In addition, substantially all of the raw materials for our wintersports equipment are sold to us by unaffiliated suppliers located primarily in Europe and Asia. We have no exclusive or significant long-term contracts with these suppliers and we compete with other companies for such suppliers’ output. Although we believe that we have established good relationships with such suppliers, the inability to maintain such relationships or to find additional sources to cover future growth could have a material adverse effect on our business.

Our failure to comply with, or the imposition of liability under, environmental laws and regulations could result in significant costs.

Some of our facilities and operations are subject to various environmental laws and regulations which govern, among other things, the use and storage of hazardous materials, the storage and disposal of solid and hazardous wastes, the discharge of pollutants into the air, water and land, and the cleanup of contamination. Violations of these requirements could result in significant fines or penalties being imposed on us. Discovery of contamination for which we are responsible, the enactment of new laws and regulations, or changes in how existing requirements are enforced, could require us to incur additional costs for compliance or subject us to unexpected liabilities. Any such costs or liabilities could have a material adverse effect on our business and results of operation.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

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Item 2. PROPERTIES

As of October 31, 2007, our principal facilities in excess of 40,000 rentable square feet, all of which are leased, are as follows:

				Current Lease
Location	Principal Use	Approximate Sq. Ft.		Expiration
Huntington Beach, California	Corporate headquarters		120,000		2023	*
Verrayes, Italy	Wintersports manufacturing		75,000		2016	*
Huntington Beach, California	Americas distribution center		225,000		2018	*
Huntington Beach, California	Americas distribution center		112,000		2018	*
Huntington Beach, California	Americas distribution center		100,000		2018	*
Huntington Beach, California	Americas distribution center		100,000		2018	*
Huntington Beach, California	Americas distribution center		75,000		2023	*
Mira Loma, California	Americas distribution center		683,000		2027	*
Vista, California	Corporate headquarters		98,000		2010
Ogden, Utah	Americas distribution center		104,000		2016
St. Jean de Luz, France	European headquarters		80,000		2011
St. Jean de Luz, France	European distribution center		100,000		2007
Rives, France	European distribution center		206,000		2016
Hendaye, France	European distribution center		100,000		2008
St. Etienne de St. Geoirs, France	European distribution center		270,000		2016
Moirans, France	European distribution center		130,000		2008
Torquay, Australia	Asia/Pacific headquarters		54,000		2024	*
Geelong, Australia	Asia/Pacific distribution center		81,000		2018	*

* Includes extension periods exercisable at our option.

As of October 31, 2007, we operated 111 retail stores in the Americas, 201 retail stores in Europe, and 94 retail stores in Asia/Pacific on leased premises. The leases for our facilities required aggregate annual rentals of approximately $95.1 million in fiscal 2007. We anticipate that we will be able to extend those leases that expire in the near future on terms satisfactory to us, or, if necessary, locate substitute facilities on acceptable terms. We believe that our corporate, distribution and retail leased facilities are suitable and adequate to meet our current needs.

Item 3. LEGAL PROCEEDINGS

We are involved from time to time in legal claims involving trademark and intellectual property, licensing, employee relations and contractual and other matters incidental to our business. We believe the resolution of any such matter currently pending will not have a material adverse effect on our financial condition or results of operations.

On February 27, 2007, a class action captioned Burnis L. Simon, Jr. v. Quicksilver, Inc. (sic), Case No. CV07-01326, was filed against us in the United States District Court for the Central District of California. The complaint alleges willful violation of the federal Fair and Accurate Credit Transactions Act (“FACTA”) based upon certain of our retail stores’ alleged electronic printing of receipts on which appeared more than the last five digits of customers’ credit or debit card numbers and/or the expiration of such customers’ credit or debit cards. The complaint seeks statutory damages of not less than $100 and not more than $1,000 for each violation, as well as unspecified punitive damages, attorneys’ fees and a permanent injunction from further engaging in violations of FACTA. The complaint does not allege that any class member has suffered actual damages. Similar complaints have been filed against a number of other retailers. We intend to vigorously defend against the claims asserted. However, the results of any litigation are inherently uncertain and we cannot assure that we will be able to successfully defend against such claims. We are currently unable to assess the extent of damages and/or other relief, if any, that could be awarded to the plaintiff class if it were to prevail.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted for a vote of our stockholders during the fourth quarter of the fiscal year ended October 31, 2007.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “ZQK.” The high and low sales prices of our common stock, as reported by the NYSE for the two most recent fiscal years, are set forth below.

	High		Low
Fiscal 2007
4th quarter ended October 31, 2007	$	15.21	$	12.50
3rd quarter ended July 31, 2007		14.53		12.43
2nd quarter ended April 30, 2007		14.65		11.20
1st quarter ended January 31, 2007		15.75		13.43
Fiscal 2006
4th quarter ended October 31, 2006	$	14.30	$	11.83
3rd quarter ended July 31, 2006		13.49		12.00
2nd quarter ended April 30, 2006		14.80		13.19
1st quarter ended January 31, 2006		14.26		11.34

We have historically reinvested our earnings in our business and have never paid a cash dividend. No change in this practice is currently being considered. Our payment of cash dividends in the future will be determined by our Board of Directors, considering conditions existing at that time, including our earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors. In addition, under the indenture related to our senior notes and under our principal credit agreement with a bank group, there are limits on the dividends and other payments that certain of our subsidiaries may pay to us and we must obtain the note holders and bank group’s prior consent to pay dividends to our shareholders above a pre-determined amount.

On December 18, 2007, there were approximately 740 holders of record of our common stock and an estimated 23,636 beneficial stockholders.

Item 6. SELECTED FINANCIAL DATA

The statement of income and balance sheet data shown below were derived from our consolidated financial statements. Our consolidated financial statements as of October 31, 2007 and 2006 and for each of the three years in the period ended October 31, 2007, included herein, have been audited by Deloitte & Touche LLP, our independent registered public accounting firm. You should read this selected financial data together with our consolidated financial statements and related notes, as well as the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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	Years Ended October 31,
Amounts in thousands, except ratios and
per share data	2007(1)(2)(3)			2006(1)(2)(3)			2005(2)(3)			2004(3)			2003
Statement of Income Data
Revenues, net	$	2,426,035		$	2,200,234		$	1,734,528		$	1,262,980		$	971,988
(Loss) income before provision for income taxes		(74,443	)		131,516			160,066			123,880			92,220
(Loss) income from continuing operations		(98,648	)		94,103			108,290			82,501			59,806
Loss from discontinued operations		(22,471	)		(1,087	)		(1,170	)		(1,132	)		(1,290	)
Net (loss) income		(121,119	)		93,016			107,120			81,369			58,516
(Loss) income per share from continuing operations (4)		(0.80	)		0.77			0.91			0.72			0.55
Loss per share from discontinued operations (4)		(0.18	)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Net (loss) income per share (4)		(0.98	)		0.76			0.90			0.71			0.54
(Loss) income per share from continuing operations, assuming dilution (4)		(0.80	)		0.74			0.87			0.69			0.53
Loss per share from discontinued operations, assuming dilution (4)		(0.18	)		(0.01	)		(0.01	)		(0.01	)		(0.01	)
Net (loss) income per share, assuming dilution (4)		(0.98	)		0.73			0.86			0.68			0.52
Weighted average common shares (4)		123,770			122,074			118,920			114,388			108,448
Weighted average common shares outstanding, assuming dilution (4)		123,770			127,744			124,335			119,288			113,270
Balance Sheet Data
Total assets	$	2,641,528		$	2,447,228		$	2,158,601		$	990,990		$	707,970
Working capital		631,857			568,596			458,857			343,100			286,625
Lines of credit		313,996			315,891			219,113			10,801			20,951
Long-term debt		806,434			664,929			651,896			173,513			123,419
Stockholders’ equity		886,613			881,127			732,882			588,244			446,508
Other Data
EBITDA(5)	$	232,725		$	262,089		$	221,961		$	157,034		$	121,590
Current ratio		1.7			1.7			1.7			2.6			3.0
Return on average stockholders’ equity(6)		(11.2	)		11.7			16.4			15.9			16.6

(1)	Fiscal 2007 and 2006 include stock compensation expense related to the adoption of Statement of Financial Accounting Standards No. 123(R). Refer to note 5 below.
(2)	Fiscal 2007, 2006 and 2005 include the operations of Rossignol since August 1, 2005. See Note 2 of our consolidated financial statements.
(3)	Fiscal 2007, 2006, 2005 and 2004 include the operations of DC since its acquisition effective May 1, 2004. See Note 2 of our consolidated financial statements.
(4)	Per share amounts and shares outstanding have been adjusted to reflect two-for-one stock splits effected on May 11, 2005 and May 9, 2003.
(5)	EBITDA is defined as income from continuing operations before (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) asset impairments. EBITDA is not defined under generally accepted accounting principles (“GAAP”), and it may not be comparable to similarly titled measures reported by other companies. We use EBITDA, along with GAAP measures, as a measure of profitability because EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax

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jurisdictions, the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization, and the effect of non-cash stock-based compensation expense. We believe it is useful to investors for the same reasons. EBITDA has limitations as a profitability measure in that it does not include the loss from discontinued operations, the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the effect of non-cash compensation expense and the effect of asset impairments. Following is a reconciliation of income from continuing operations to EBITDA:

	Years Ended October 31,
	2007			2006		2005		2004		2003
(Loss) income from continuing operations	$	(98,648	)	$	94,103	$	108,290	$	82,501	$	59,806
Income taxes		24,205			37,413		51,776		41,379		32,414
Interest		57,023			47,444		20,825		6,390		8,267
Depreciation and amortization		66,894			62,634		41,070		26,764		21,103
Non-cash stock compensation expense		16,899			20,495		—		—		—
Non-cash asset impairments		166,352			—		—		—		—
EBITDA	$	232,725		$	262,089	$	221,961	$	157,034	$	121,590

⁽⁶⁾ Computed based on income from continuing operations divided by the average of beginning and ending stockholders’ equity.

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with our consolidated financial statements and related notes, which are included in this report, and the “Risk Factors” information, set forth in Item 1A. above.

Overview

We began operations in 1976 as a California company making boardshorts for surfers in the United States under a license agreement with the Quiksilver brand founders in Australia. Our product offerings expanded in the 1980s as we grew our distribution channels. After going public in 1986 and purchasing the rights to the Quiksilver brand in the United States from our Australian licensor, we further expanded our product offerings and began to diversify. In 1991, we acquired the European licensee of Quiksilver and introduced Roxy, our surf brand for teenage girls. We also expanded in the 1990s by adding products for boys, girls, toddlers and men and we introduced our proprietary retail store concept, Boardriders Clubs, which displays the heritage and products of Quiksilver and Roxy. In 2000, we acquired the international Quiksilver and Roxy trademarks, and in 2002, we acquired our licensees in Australia and Japan. In May 2004, we acquired DC Shoes, Inc. to expand our presence in action sports-inspired footwear. In July 2005, we acquired Skis Rossignol, S.A., a wintersports and golf equipment manufacturer. Rossignol offers a full range of wintersports equipment under the Rossignol, Dynastar, Lange, Look and Kerma brands. The acquisition was effective July 31, 2005 and we included the operations of Rossignol in our results beginning on August 1, 2005. Brand building has been a key to our growth, and we have always maintained our roots in the boardriding lifestyle. Today our products are sold throughout the world, primarily in surf shops, snow shops, skate shops and specialty stores.

Over the past 37 years, Quiksilver has been established as a leading global brand representing the casual, youth lifestyle associated with boardriding sports. With our acquisition of Rossignol, we added a collection of leading ski equipment brands to our company that we believe can be the foundation for a full range of technical ski apparel, sportswear and accessories.

In October 2007, we entered into an agreement to sell our golf equipment business for a transaction value of $132.5 million. This transaction was completed in December 2007. As a result of this disposition, the following financial information has been adjusted to exclude our golf equipment operations. The golf equipment business has also been classified as a discontinued operation in our consolidated financial statements for all periods presented.

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Over the last five years, our revenues have grown from $972 million in fiscal 2003 to $2.43 billion in fiscal 2007. We operate in the outdoor market of the sporting goods industry in which we design, produce and distribute branded apparel, wintersports equipment, footwear, accessories and related products. We operate in three segments, the Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the U.S. and Canada. The European segment includes revenues primarily from Western Europe. The Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand and Indonesia. Royalties earned from various licensees in other international territories are categorized in corporate operations along with revenues from sourcing services for our licensees. Revenues by segment are as follows:

	Years Ended October 31,
In thousands	2007		2006		2005		2004		2003
Americas	$	1,092,076	$	939,370	$	801,836	$	612,859	$	489,425
Europe		1,070,053		1,002,475		709,510		496,276		386,226
Asia/Pacific		259,093		253,003		219,241		148,733		94,187
Corporate operations		4,813		5,386		3,941		5,112		2,150
Total revenues, net	$	2,426,035	$	2,200,234	$	1,734,528	$	1,262,980	$	971,988

We operate in markets that are highly competitive, and our ability to evaluate and respond to changing consumer demands and tastes is critical to our success. If we are unable to remain competitive and maintain our consumer loyalty, our business will be negatively affected. We believe that our historical success is due to the development of an experienced team of designers, artists, sponsored athletes, engineers, technicians, researchers, merchandisers, pattern makers, and contractors. Our team and the heritage and current strength of our brands has helped us remain competitive in our markets. Our success in the future will depend on our ability to continue to design products that are desirable in the marketplace and competitive in the areas of quality, brand image, technical specifications, distribution methods, price, customer service, and intellectual property protection.

Results of Operations

The table below shows certain components in our statements of operations and other data as a percentage of revenues:

	Years Ended October 31,
	2007			2006			2005
Statement of Income Data
Revenues, net		100.0	%		100.0	%		100.0	%
Gross profit		46.3			45.7			45.5
Selling, general and administrative expense		40.0			37.6			35.0
Asset impairments		6.9			¯			¯
Operating (loss) income		(0.6	)		8.1			10.5
Interest expense		2.4			2.1			1.2
Foreign currency, minority interest and other expense		0.1			0.0			0.1
Income (loss) before provision for income taxes		(3.1	)%		6.0	%		9.2	%
Other data
EBITDA (1)		9.6	%		11.9	%		12.8	%

⁽¹⁾ For a definition of EBITDA and a reconciliation of Income from continuing operations to EBITDA, see footnote (5) to the table under Item 6. Selected Financial Data.

Fiscal 2007 Compared to Fiscal 2006

Revenues

Our total net revenues increased 10% in fiscal 2007 to $2,426.0 million from $2,200.2 million in fiscal 2006 primarily as a result of increased unit sales. Revenues in the Americas increased 16%, European revenues increased 7%, and Asia/Pacific revenues increased 2%. To understand our European fiscal 2007 growth and better assess competitive performance, we believe it is important to consider revenues in euros as well, which is our functional currency in Europe. In euros, revenues decreased 3% in fiscal

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2007. This is lower than the 7% growth rate in U.S. dollars because the U.S. dollar was worth less in euros on average in fiscal 2007 compared to fiscal 2006. For consolidated financial statement reporting, Australian dollar results must be translated into U.S. dollar amounts at average exchange rates, but as with our European segment, this can distort performance when exchange rates change from year to year. In Australian dollars, revenues decreased 11% in fiscal 2007. This is lower than the 2% growth rate in U.S. dollars because the U.S. dollar was worth less in Australian dollars on average in fiscal 2007 compared to fiscal 2006.

Our net revenues can be categorized into two general classifications: apparel brands and equipment brands. Our apparel brand revenue classification includes Quiksilver, Roxy, DC and our other apparel brands of Hawk, Gotcha, Raisins, Leilani and Radio Fiji. Our equipment brand revenue classification includes our Rossignol and other wintersports brands, comprising Rossignol, Dynastar, Look, Lange, Kerma, Lib Technologies, Gnu and Bent Metal.

Our apparel brand revenues increased 20% to $2,042.0 million in fiscal 2007 from $1,708.8 million in fiscal 2006. This increase resulted from strength in our DC, Quiksilver and Roxy brands. DC’s growth was primarily in footwear and, to a lesser extent, its apparel and accessories products. Quiksilver and Roxy brand revenue growth came primarily from growth in apparel and, to a lesser extent, accessories and footwear products. Our wintersports equipment brand revenues decreased 22% to $379.2 million in fiscal 2007 from $486.0 million in fiscal 2006. This decrease in revenues was a result of decreased market demand caused by unseasonably warm weather and a lack of snowfall in many parts of Europe and the United States in the 2006/2007 winter season. The 2006/2007 season also had a negative impact on the beginning of the 2007/2008 snow season as preorders were down significantly from the prior year and less reorders are expected on the smaller base of preorders.

	Years Ended October 31,
	2007						2006
	Apparel		Equipment				Apparel		Equipment
In thousands	Brands		Brands		Total		Brands		Brands		Total
Americas	$	990,892	$	101,184	$	1,092,076	$	821,870	$	117,500	$	939,370
Europe		807,346		262,707		1,070,053		661,828		340,647		1,002,475
Asia/Pacific		243,797		15,296		259,093		225,111		27,892		253,003
Corporate operations		—		—		4,813		—		—		5,386
	$	2,042,035	$	379,187	$	2,426,035	$	1,708,809	$	486,039	$	2,200,234

In the Americas, our apparel brand revenues for fiscal year 2007 increased 21%, while our equipment brand revenues decreased 14% compared to fiscal 2006. In Europe, our apparel brand revenues for fiscal year 2007 increased 22% while our equipment brand revenues decreased 23% compared to fiscal 2006. In Asia/Pacific, our apparel brand revenues for fiscal 2007 increased 8%, while our equipment brand revenues decreased 45% compared to fiscal 2006.

Gross Profit

Our consolidated gross profit margin increased to 46.3% in fiscal 2007 from 45.7% in the previous year. The gross profit margin in the Americas increased to 40.7% from 39.9%, our European gross profit margin increased to 51.6% from 51.2%, and our Asia/Pacific gross profit margin increased to 47.3% from 45.9%. The increase in the Americas’ gross profit margin was primarily due to lower production costs and a higher percentage of sales through company owned retail stores where higher gross margins are generated. Our European and Asia/Pacific gross profit margin increases were primarily due to higher margins from our apparel brands, primarily as a result of the currency effect of sourcing goods in U.S. dollars, partially offset by lower margins on our equipment brands.

Selling, General and Administrative Expense

Selling, general and administrative expense increased 17% in fiscal 2007 to $971.4 million from $827.0 million in fiscal 2006. In the Americas, these expenses increased 21% to $340.5 million from $281.9 million, in Europe they increased 17% to $465.7 million from $396.9 million; and in Asia/Pacific they increased 13% to $106.3 million from $94.3 million for those same periods. As a percentage of revenues,

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selling, general and administrative expense increased to 40.0% of sales in fiscal 2007 compared to 37.6% in fiscal 2006. The increase in selling, general and administrative expense as a percentage of revenues was primarily caused by the cost of opening and operating additional retail stores, increased distribution costs and, to a lesser extent, costs recorded in continuing operations as a result of our termination of a consulting agreement with the former minority shareholder of Cleveland Golf.

Asset Impairments

Asset impairment charges totaled $166.4 million in fiscal 2007 compared to zero in fiscal 2006. Of these charges approximately $156.9 related to Rossignol related goodwill, approximately $6.9 million related to trademark impairment and approximately $2.6 million related to fixed asset impairments. The goodwill and intangible impairment charges were recorded as a result of our annual impairment test, where it was determined that the carrying values of certain Rossignol related asset groups were less than the estimated fair value of those same groups as of October 31, 2007.

Non-operating Expenses

Interest expense increased to $57.0 million in fiscal 2007 compared to $47.4 million in fiscal 2006 primarily as a result of the translation effect of euro denominated interest, higher borrowing levels on our lines of credit to finance increased working capital needs and, to a lesser extent, higher interest rates on our variable-rate debt in Europe and the United States.

Our foreign currency loss amounted to $1.8 million in fiscal 2007 compared to approximately zero in fiscal 2006. This current year loss resulted primarily from the foreign currency contracts that we used to mitigate the risk of translating the results of our international subsidiaries into U.S. dollars and the foreign exchange effect of certain non-U.S. dollar denominated liabilities.

Our income tax rate increased to (32.5)% in fiscal 2007 from 28.4% in fiscal 2006. The current year rate increased significantly due to the non-deductibility of the goodwill asset impairment recorded in fiscal 2007. This increase was partially offset by the higher impact of certain beneficial items included in our tax rate.

Income from continuing operations and EBITDA

Income from continuing operations in fiscal 2007 decreased to a $98.6 million loss, and earnings per share on a diluted basis decreased to a loss of $0.80 compared to income from continuing operations of $94.1 million and diluted earnings per share of $0.74 for fiscal 2006. EBITDA decreased to $232.7 million in fiscal 2007 compared to $262.1 million in fiscal 2006.

Fiscal 2006 Compared to Fiscal 2005

Revenues

Our total net revenues increased 27% in fiscal 2006 to $2,200.2 million from $1,734.5 million in fiscal 2005 primarily as a result of the Rossignol acquisition, increased unit sales and new products. Revenues in the Americas increased 17%, European revenues increased 41%, and Asia/Pacific revenues increased 15%. In euros, European revenues increased 44% in fiscal 2006. This is higher than the 41% growth rate in U.S. dollars because the U.S. dollar was worth more in euros on average in fiscal 2006 compared to fiscal 2005. In Australian dollars, revenues increased 18%. This is higher than the 15% growth rate in U.S. dollars because the U.S. dollar was worth more than the Australian dollar on average in fiscal 2006 compared to fiscal 2005. We completed the acquisition of Rossignol effective July 31, 2005, and these operations are included in our results for only three months in fiscal 2005, but a full year in fiscal 2006, resulting in consolidated revenue growth of 17% in fiscal 2006. Rossignol operates in all three of our operating segments, primarily producing wintersports equipment, and accounted for net revenues of $480.4 million in fiscal 2006 compared to $172.1 million in fiscal 2005.

Our apparel brand revenues increased 10% to $1,708.8 million in fiscal 2006 from $1,552.6 million in fiscal 2005. This increase resulted from strength in our Roxy, DC and Quiksilver brands. Quiksilver and Roxy brand revenue growth came primarily from growth in apparel and, to a lesser extent, footwear and accessories. DC’s growth was primarily in footwear and, to a lesser extent, its apparel and accessories products. Our wintersports equipment brand revenues increased to $486.0 million in fiscal 2006 from

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$177.9 million in fiscal 2005. The increase in wintersports equipment revenue was primarily due to the Rossignol acquisition as we had a full year of wintersports equipment operations in fiscal 2006 compared to three months in fiscal 2005.

	Years Ended October 31,
	2006						2005
	Apparel		Equipment				Apparel		Equipment
In thousands	Brands		Brands		Total		Brands		Brands		Total
Americas	$	821,870	$	117,500	$	939,370	$	746,954	$	54,882	$	801,836
Europe		661,828		340,647		1,002,475		590,665		118,845		709,510
Asia/Pacific		225,111		27,892		253,003		215,024		4,217		219,241
Corporate operations		—		—		5,386		—		—		3,941
	$	1,708,809	$	486,039	$	2,200,234	$	1,552,643	$	177,944	$	1,734,528

In the Americas, our apparel brand revenues for fiscal year 2006 increased 10%, while our equipment brand revenues increased 114% compared to fiscal 2005. In Europe, our apparel brand revenues for fiscal year 2006 increased 12% while our equipment brand revenues increased 187% compared to fiscal 2005. In Asia/Pacific, our apparel brand revenues for fiscal 2006 increased 5%, while our equipment brand revenues increased 561% compared to fiscal 2005. The increase in wintersports equipment revenue was primarily due to the Rossignol acquisition as we had a full year of wintersports equipment operations in fiscal 2006 compared to three months in fiscal 2005.

Gross Profit

Our consolidated gross profit margin increased to 45.7% in fiscal 2006 from 45.5% in the previous year. The gross profit margin in the Americas increased to 39.9% from 39.5%, our European gross profit margin increased to 51.2% from 50.9%, and our Asia/Pacific gross profit margin decreased to 45.9% from 49.9%. The increase in the Americas’ gross profit margin was primarily due to lower production costs, improved margins in our DC brand, and a higher percentage of sales through company owned retail stores where higher gross margins are generated, partially offset by higher sales from our wintersports equipment business, which operated at lower margins than our other businesses. Our European gross profit margin increased slightly due to a higher percentage of sales through company-owned retail stores. This increase was substantially offset by the impact of the lower margins from our Rossignol business. In Asia/Pacific, the gross profit margin decrease was primarily due to sales from our lower margin wintersports equipment business and lower margins on our other brands, partially offset by a higher percentage of sales through company-owned retail stores.

Selling, General and Administrative Expense

Selling, general and administrative expense increased 36% in fiscal 2006 to $827.0 million from $607.5 million in fiscal 2005. In the Americas, these expenses increased 22% to $281.9 million from $231.7 million, in Europe they increased 54% to $396.9 million from $257.9 million, and in Asia/Pacific they increased 19% to $94.3 million from $79.5 million for those same periods. As a percentage of revenues, selling, general and administrative expense increased to 37.6% of sales in fiscal 2006 compared to 35.0% in fiscal 2005. The increase in selling, general and administrative expense as a percentage of revenues is primarily due to $20.5 million in stock compensation expense recorded in the current period as a result of adopting Statement of Financial Accounting Standards “SFAS” No. 123(R) “Share-Based Payment” on November 1, 2005, the cost of additional retail stores and, to a lesser extent, a full year of our wintersports equipment business, which operated with slightly higher selling, general and administrative expenses as a percentage of revenues compared to our other businesses.

Non-operating Expenses

Interest expense increased to $47.4 million in fiscal 2006 compared to $20.8 million in fiscal 2005 primarily as a result of debt incurred and assumed in connection with the acquisition of Rossignol.

We had no foreign currency gain in fiscal 2006 compared to a foreign currency gain of $0.2 million in fiscal 2005. This current year change resulted primarily from the net effect of foreign currency contracts that we used to mitigate the risk of translating the results of our international subsidiaries into U.S. dollars.

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Our income tax rate decreased to 28.4% in fiscal 2006 from 32.3% in fiscal 2005. This improvement resulted primarily because a higher percentage of our fiscal 2006 profits were generated in countries with lower tax rates and from foreign tax credits.

Income from continuing operations and EBITDA

Income from continuing operations in fiscal 2006 was $94.1 million, and earnings per share on a diluted basis was $0.74 compared to income from continuing operations of $108.3 million and earnings per share on a diluted basis of $0.87 for fiscal 2005. EBITDA increased 18% in fiscal 2006 to $262.1 million compared to $222.0 million in fiscal 2006.

Financial Position, Capital Resources and Liquidity

We generally finance our working capital needs and capital investments with operating cash flows and bank revolving lines of credit. Multiple banks in the United States, Europe and Australia make these lines of credit available to us. Term loans are also used to supplement these lines of credit and are typically used to finance long-term assets. In July 2005, we issued $400 million in senior notes to fund a portion of the Rossignol purchase price and to refinance certain existing indebtedness.

Cash and cash equivalents totaled $74.3 million at October 31, 2007 versus $36.8 million at October 31, 2006. Working capital amounted to $631.9 million at October 31, 2007, compared to $568.6 million at October 31, 2006, an increase of 11%. We believe that our current cash balance, operating cash flows and current lines of credit are adequate to cover our cash needs for at least the next twelve months and that increases in our lines of credit can be obtained as needed to fund future growth. We have generated further liquidity of approximately $105.0 million from the sale of our golf equipment operations in December 2007.

Operating Cash Flows

Operating activities of continuing operations provided cash of $125.9 million in fiscal 2007 compared to cash used of $5.0 million in fiscal 2006. This improvement primarily relates to a decrease in cash used for inventory, accounts receivable and accounts payable of $112.4 million.

Operating activities of continuing operations used cash of $5.0 million in fiscal 2006 compared to cash provided of $6.7 million in fiscal 2005. This $11.7 million increase in cash used was primarily caused by an increase in inventories, net of accounts payable, which used cash of $37.7 million in fiscal 2006 compared to providing cash of $54.9 million in fiscal 2005, and an increase in cash used for other working capital components, which used cash of $70.3 million in fiscal 2006 compared to cash provided of $15.4 million in fiscal 2005. These increases in cash used were partially offset by an increase in cash profits, which provided $190.1 million of cash in fiscal 2006 compared to $162.2 million in fiscal 2005, and a decrease in cash used for accounts receivable growth, which used $87.1 million in cash in the current year compared to $225.8 million in fiscal 2005.

Capital Expenditures

We have historically avoided high levels of capital expenditures for our apparel manufacturing functions by using independent contractors for sewing and other processes such as washing, dyeing and embroidery. We perform the cutting process in-house for certain product categories in the Americas to enhance control and efficiency, and we screenprint a portion of our product in-house in both the Americas and in Europe. In our equipment business where we own and operate manufacturing facilities, our capital expenditures are higher.

Fiscal 2007 capital expenditures were $116.3 million, which was approximately $20.8 million higher than the $95.5 million we spent in fiscal 2006. In fiscal 2007, we increased our investment in company-owned retail stores, manufacturing equipment, warehouse equipment, and computer systems.

New company-owned retail stores are again part of our plans in fiscal 2008. Computer hardware and software will also be purchased to continuously improve our systems. Capital spending for these and other projects in fiscal 2008 is expected to range between $100 million and $125 million, depending on

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the pace of our retail expansion. We expect to fund our capital expenditures primarily from our operating cash flows, our credit facilities and also through the sale of certain assets held for sale in certain Rossignol subsidiaries in Europe.

Acquisitions and Dispositions

In connection with the acquisition of Rossignol, we have formulated the Rossignol Integration Plan (the “Plan”). The Plan covers the global operations of Rossignol and our existing businesses, and it includes the evaluation of facility relocations, nonstrategic business activities, redundant functions and other related items. As of October 31, 2007, we had recognized $62.5 million of liabilities related to the Plan, including employee relocation and severance costs, moving costs, and other costs related primarily to the consolidation of Rossignol’s administrative headquarters in Europe, the consolidation of Rossignol’s European distribution, the consolidation and realignment of certain European manufacturing facilities, and the relocation of our wintersports equipment sales and distribution operations in the United States. As of October 31, 2007, we have paid approximately $46.3 million related to these integration activities. If we have overestimated our integration costs, the excess will reduce goodwill in future periods. Conversely, if we have underestimated these costs, additional liabilities recognized will be recorded in earnings. Costs that are not associated with Rossignol but relate to activities or employees of our existing operations are not significant and are charged to earnings. Certain facilities owned by Rossignol are expected to be sold in connection with the Plan, while others are anticipated to be refinanced through sale-leaseback arrangements. Assets currently held for sale, primarily in the United States and France, totaled approximately $15.3 million at October 31, 2007. The sale of these properties is expected to generate approximately $26.0 million in cash in fiscal 2008 and 2009.

In fiscal 2005, we originally acquired a majority of our golf equipment business in connection with the Rossignol acquisition. In September 2007, we acquired the remaining 36.37% minority interest in Roger Cleveland Golf Company, Inc. for $17.5 million plus transaction costs. In October 2007, we entered into an agreement to sell our golf equipment business which includes Roger Cleveland Golf Company, Inc. and certain other related international subsidiaries for a transaction value of $132.5 million. We completed the sale in December 2007 and have used the net proceeds of approximately $105.0 million to repay existing indebtedness.

Effective May 1, 2004, we acquired DC for an initial purchase price of $98.3 million. The sellers also received $33.0 million in fiscal 2005 through fiscal 2007 based on the achievement of certain sales and earnings targets, and we have accrued an additional $19.0 million at October 31, 2007. This amount represents the final payment and is expected to be paid during fiscal 2008. All subsequent payments have been recorded against goodwill.

Debt Structure

We generally finance our working capital needs and capital investments with operating cash flows and bank revolving lines of credit. Multiple banks in the United States, Europe and Australia make these lines of credit available. Term loans are also used to supplement these lines of credit and are typically used to finance long-term assets. In July 2005, we issued $400 million in senior notes to fund a portion of the acquisition of Rossignol and to refinance certain existing indebtedness. Our debt structure includes short-term lines of credit and long-term loans as follows:

In thousands	U.S. Dollar		Non U.S. Dollar		Total
Americas short-term credit arrangements	$	—	$	17,811	$	17,811
European short-term credit arrangements		—		234,589		234,589
Asia/Pacific short-term credit arrangements		—		61,596		61,596
Short-term credit arrangements		—		313,996		313,996
Americas line of credit		129,700		—		129,700
European long-term debt		—		216,004		216,004
Senior Notes		400,000		—		400,000
Deferred purchase price obligation		—		43,649		43,649
Capital lease obligations and other borrowings		—		17,081		17,081
Long-term credit arrangements		529,700		276,734		806,434
Total	$	529,700	$	590,730	$	1,120,430

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In July 2005, we issued $400 million in senior notes, which bear a coupon interest rate of 6.875% and are due April 15, 2015. The senior notes were issued at par value and sold in accordance with Rule 144A and Regulation S. In December 2005, these senior notes were exchanged for publicly registered notes with identical terms. The senior notes are guaranteed on a senior unsecured basis by certain of our domestic subsidiaries that guarantee any of our indebtedness or our subsidiaries’ indebtedness, or are obligors under our existing Credit Facility (defined below). We may redeem some or all of the senior notes after April 15, 2010 at fixed redemption prices as set forth in the indenture. In addition, prior to April 15, 2008, we may redeem up to 35% of the senior notes with the proceeds from certain equity offerings at a redemption price set forth in the indenture.

The indenture for our senior notes includes covenants that limit our ability to, among other things: incur additional debt; pay dividends on our capital stock or repurchase our capital stock; make certain investments; enter into certain types of transactions with affiliates; limit dividends or other payments by our restricted subsidiaries to us; use assets as security in other transactions; and sell certain assets or merge with or into other companies. If we experience specific kinds of changes of control, we will be required to offer to purchase the senior notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. We currently are in compliance with these covenants. In addition, we have approximately $8.7 million in debt issuance costs included in other assets as of October 31, 2007.

In April 2005, we replaced our line of credit in the Americas with a new revolving credit facility, which has subsequently been amended (the “Credit Facility”). The Credit Facility expires April 2010 and provides for a secured revolving line of credit of up to $300 million (with our option to expand the facility to $350 million under certain conditions). The Credit Facility bears interest based on either LIBOR or an alternate base rate plus an applicable margin. The margin on the LIBOR rate is based on our fixed charge coverage ratio. The weighted average interest rate at October 31, 2007 was 6.7%. We paid certain financing fees that will be amortized over the expected life of the Credit Facility. The Credit Facility includes a $125.0 million sublimit for letters of credit and a $35.0 million sublimit for borrowings in certain foreign currencies. As of October 31, 2007, $164.7 million was outstanding under the Credit Facility in addition to outstanding letters of credit of $58.2 million. Of the amount outstanding, approximately $35.0 million represents outstanding borrowings of Roger Cleveland Golf Company, Inc. and are included in discontinued operations (Note 19).

The borrowing base is limited to certain percentages of our eligible accounts receivable and inventory. The Credit Facility contains customary restrictive covenants for facilities and transactions of this type, including, among others, certain limitations on: incurrence of additional debt and guarantees of indebtedness; creation of liens; mergers, consolidations or sales of substantially all of our assets; sales or other dispositions of assets; distributions or dividends and repurchases of our common stock; restricted payments, including without limitation, certain restricted investments; engaging in transactions with our affiliates and; sale and leaseback transactions. Our United States assets and a portion of the stock of QS Holdings, SARL, a wholly-owned international subsidiary, have been pledged as collateral and to secure our indebtedness under the Credit Facility. As of October 31, 2007, we were in compliance with these covenants.

In Canada, we have arrangements with banks that provide for approximately $22.0 million of short-term lines of credit. These lines of credit will be reviewed by the banks on various dates through 2008, and we believe the banks will continue to make these facilities available with substantially similar terms. The amount outstanding on these lines of credit at October 31, 2007 was $17.8 million at an average interest rate of 6.5%.

In Europe, we have arrangements with several banks that provide approximately $479.0 million for cash borrowings and letters of credit. These lines will be reviewed on various dates through 2008, and we believe that the banks will continue to make these facilities available. The amount outstanding on these lines of credit at October 31, 2007 was $234.6 million at an average interest rate of 4.7%. In addition, we have $33.5 million in letters of credit outstanding as of October 31, 2007.

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In Asia/Pacific, we have revolving lines of credit with banks that provide up to approximately $116.0 million for cash borrowings and letters of credit. These lines of credit will be reviewed by the banks on various dates through 2008, and we believe the banks will continue to make these facilities available with substantially similar terms. The amount outstanding on these lines of credit at October 31, 2007 was $61.6 million in addition to $6.4 million outstanding letters of credit at an average interest rate of 3.2%.

These line of credit commitments and agreements in the Americas, Europe and Asia/Pacific allow for total maximum cash borrowings and letters of credit of $917.0 million. Commitments totaling $617.0 million expire in fiscal 2008, while $300.0 million expire in fiscal 2010. We had $478.7 million of borrowings drawn on these lines of credit as of October 31, 2007, and letters of credit issued at that time totaled $98.1 million. Of the borrowings outstanding, $35.0 million relates to debt outstanding from our discontinued golf equipment business which was repaid in December 2007.

In Europe, we also have $216.0 million of long-term debt outstanding as of October 31, 2007. This debt is with several banks and contains covenants that are customary for such long-term indebtedness, including among other things, minimum financial ratios of net debt to shareholders’ equity and term debt to cash flow. At October 31, 2007, the overall weighted average interest rate on this long-term debt is 4.2%. Principal and interest payments are required either monthly, quarterly or annually, and the loans are due at various dates through 2010.

During fiscal 2007, we were out of compliance with certain profitability covenants on a 50.0 million euro term loan of a Rossignol subsidiary in Europe. As of October 31, 2007, this debt was approximately $72.1 million (50.0 million euros). We obtained a waiver from the bank for the fiscal year ended October 31, 2007 and additionally amended the existing agreement to remove these financial covenants through October 2008. Accordingly, we continue to classify this debt as long term as of October 31, 2007.

As part of the acquisition of Rossignol, we deferred a portion of the purchase price. This deferred purchase price obligation is expected to be paid in 2010 and accrues interest equal to the 3-month Euribor plus 2.35% (currently 7.0%) and is denominated in euros. The carrying amount of the obligation fluctuates based on changes in the exchange rate between euros and U.S. dollars. As of October 31, 2007, the deferred purchase price obligation totaled $43.6 million.

Our European and Asia/Pacific segments also have approximately $17.1 million in capital leases and other borrowings as of October 31, 2007.

Our financing activities provided $89.4 million, $95.5 million and $338.1 million of cash in fiscal 2007, 2006 and 2005, respectively, as debt was increased to fund the business acquisitions and capital expenditures discussed above.

Joint Ventures

We have entered into several joint venture arrangements with independent third parties to sell and distribute Quiksilver, Roxy and other branded products in various foreign territories, including Mexico and Brazil. In connection with these joint ventures, we have funded, and may continue to fund, a portion of the working capital required to finance these joint venture operations based on our ownership percentage in each joint venture. In addition, in certain circumstances the joint venture agreements provide that we are required to purchase the equity interests of our joint venture partners. The purchase price applicable to these obligations is typically based on formulas that will be used to value the joint ventures at the time of a purchase. Generally, it is not possible to determine in advance the amounts we may pay for these equity purchases since they are subject to many variables but we expect to purchase a controlling interest in our Brazilian joint venture in fiscal 2008 for a purchase price of approximately $8.0 million, of which 50% will be paid in cash and 50% in shares of our common stock.

Contractual Obligations and Commitments

We lease certain land and buildings under non-cancelable operating leases. The leases expire at various dates through 2017, excluding extensions at our option, and contain various provisions for rental adjustments including, in certain cases, adjustments based on increases in the Consumer Price Index. The leases generally contain renewal provisions for varying periods of time. We also have long-term debt

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and obligations related to business acquisitions. The former owners of DC were entitled to future payments if certain sales and earnings targets were achieved through October 31, 2007. In fiscal 2008, $19.0 million is expected to be paid based on the achievement of such targets and is reflected in our balance sheet at October 31, 2007 as a component of accrued liabilities. The former owners of Surfection are entitled to future payments of up to $9.7 million if certain performance targets are achieved through September 2008. In fiscal 2008, $7.4 million is expected to be paid based on the achievement of certain sales and earnings targets and is reflected in our balance sheet at October 31, 2007 as a component of accrued liabilities. Any of these future potential payments will be recorded against goodwill. Our deferred purchase price obligation related to the Rossignol acquisition totals $43.6 million and is included in long-term debt as of October 31, 2007. Our significant contractual obligations and commitments as of October 31, 2007, excluding any additional payments that may be due if these acquired businesses achieve certain performance targets in the future, are summarized in the following table:

	Payments Due by Period
			Two to		Four to		After
	One		Three		Five		Five
In thousands	Year		Years		Years		Years		Total
Operating lease obligations	$	85,963	$	149,881	$	121,931	$	166,393	$	524,168
Long-term debt obligations(1)		34,306		314,764		56,969		400,395		806,434
Professional athlete sponsorships(2)		25,764		12,278		3,230		1,500		42,772
Certain other obligations(3)		102,100		¯		¯		¯		102,100
	$	248,133	$	476,923	$	182,130	$	568,288	$	1,475,474

(1)	Excludes required interest payments. See Note 7 of Notes to Consolidated Financial Statements for interest terms.
(2)	We establish relationships with professional athletes in order to promote our products and brands. We have entered into endorsement agreements with professional athletes in sports such as skiing, surfing, skateboarding, snowboarding and windsurfing. Many of these contracts provide incentives for magazine exposure and competitive victories while wearing or using our products. It is not possible to determine the amounts we may be required to pay under these agreements as they are subject to many variables. The amounts listed are the approximate amounts of minimum obligations required to be paid under these contracts. The estimated maximum amount that could be paid under existing contracts is approximately $72.3 million and would assume that all bonuses, victories, etc. are achieved during a five-year period. The actual amounts paid under these agreements may be higher or lower than the amounts listed as a result of the variable nature of these obligations.
(3)	Certain other obligations include approximately $98.1 million of contractual letters of credit with maturity dates of less than one year. We also enter into unconditional purchase obligations with various vendors and suppliers of goods and services in the normal course of operations through purchase orders or other documentation or that are undocumented except for an invoice. Such unconditional purchase obligations are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services and are not reflected in this line item. In addition, in certain circumstances we are required to acquire additional equity interests from certain of our joint venture partners. The purchase price applicable to these obligations is typically based on formulas that will be used to value the joint venture operations at the time of purchase. These potential purchase amounts cannot be determined in advance and are not included in this line item, except for approximately $4.0 million related to the cash portion of the purchase of a controlling interest in Quiksilver Brazil which is expected to occur in fiscal 2008.

Trade Accounts Receivable and Inventories

Our trade accounts receivable were $760.4 million at October 31, 2007, versus $674.7 million the year before, an increase of 13%. Adjusting for the effects of foreign currency, accounts receivable increased 3%. Receivables in the Americas totaled $312.2 million, while European receivables totaled $364.3 million and Asia/Pacific receivables totaled $83.9 million. Among all three segments, accounts receivable increased primarily from increased revenue. Included in accounts receivable are approximately $42.4 million of Value Added Tax and Goods and Services Tax related to foreign accounts receivable. Such taxes are not reported as net revenues and as such, must be subtracted from accounts receivable to more accurately compute days sales outstanding.

Consolidated inventories totaled $447.3 million as of October 31, 2007, versus $389.7 million the year before, an increase of 15%. Adjusting for the effects of foreign currency, inventories increased approximately 7%. Inventories in the Americas totaled $178.3 million, while European inventories totaled $202.7 million and Asia/Pacific inventories totaled $66.3 million. Consolidated average inventory turnover from all businesses was approximately 3.0 at October 31, 2007 and 2006, respectively.

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Off Balance Sheet Arrangements

As of October 31, 2007, we did not have any significant off balance sheet arrangements.

Inflation

Inflation has been modest during the years covered by this report. Accordingly, inflation has had an insignificant impact on our sales and profits.

New Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”) which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 applies to all voluntary changes in accounting principles and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted this standard during the fiscal year ended October 31, 2007. The adoption of this standard did not have a material impact on our financial condition, results of operations or cash flows.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes ¯ an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the application of SFAS No. 109, “Accounting for Income Taxes,” by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in our financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We expect to adopt FIN 48 on November 1, 2007. We are currently assessing the impact the adoption of FIN 48 will have on our financial position and results of operations.

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. We adopted this standard during the fiscal year ended October 31, 2007. The adoption of this accounting pronouncement did not have a material effect on our consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. We expect to adopt this standard at the beginning of the our fiscal year ending October 31, 2009. The adoption of this accounting pronouncement is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. We expect to adopt this standard at the beginning of our fiscal year ending October 31, 2009. We have not determined the effect that the adoption of SFAS No. 159 will have on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS No. 141(R)”), which requires the Company to record fair value estimates of contingent consideration and certain other

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potential liabilities during the original purchase price allocation, expense acquisition costs as incurred and does not permit certain restructuring activities previously allowed under Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of purchase accounting. We will adopt this standard at the beginning of our fiscal year ending October 31, 2010 for all prospective business acquisitions. We have not determined the effect that the adoption of SFAS No. 141(R) will have on our consolidated financial statements but the impact will be limited to any future acquisitions beginning in fiscal 2010.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” (“SFAS No. 160”), which causes noncontrolling interests in subsidiaries to be included in the equity section of the balance sheet. We will adopt this standard at the beginning of our fiscal year ending October 31, 2010. We have not determined the effect that the adoption of SFAS No. 160 will have on our consolidated financial statements.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. To prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities. These estimates also affect our reported revenues and expenses. Judgments must also be made about the disclosure of contingent liabilities. Actual results could be significantly different from these estimates. We believe that the following discussion addresses the accounting policies that are necessary to understand and evaluate our reported financial results.

Revenue Recognition

Revenues are recognized when the risk of ownership and title passes to our customers. Generally, we extend credit to our customers and do not require collateral. None of our sales agreements with any of our customers provide for any rights of return. However, we do approve returns on a case-by-case basis at our sole discretion to protect our brands and our image. We provide allowances for estimated returns when revenues are recorded, and related losses have historically been within our expectations. If returns are higher than our estimates, our earnings would be adversely affected.

Accounts Receivable

It is not uncommon for some of our customers to have financial difficulties from time to time. This is normal given the wide variety of our account base, which includes small surf and ski shops, medium-sized retail chains, and some large department store chains. Throughout the year, we perform credit evaluations of our customers, and we adjust credit limits based on payment history and the customer’s current creditworthiness. We continuously monitor our collections and maintain a reserve for estimated credit losses based on our historical experience and any specific customer collection issues that have been identified. We also maintain credit insurance for a majority of our European wintersports equipment receivables that protects against the risk of customer default. Historically, our losses have been consistent with our estimates, but there can be no assurance that we will continue to experience the same credit loss rates that we have experienced in the past. Unforeseen, material financial difficulties of our customers could have an adverse impact on our profits.

Inventories

We value inventories at the cost to purchase and/or manufacture the product or the current estimated market value of the inventory, whichever is lower. We regularly review our inventory quantities on hand, and adjust inventory values for excess and obsolete inventory based primarily on estimated forecasts of product demand and market value. Demand for our products could fluctuate significantly. The demand for our products could be negatively affected by many factors, including the following:

• weakening economic conditions;

• terrorist acts or threats;

• unanticipated changes in consumer preferences;

• reduced customer confidence in the retail market; and

• unseasonable weather.

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Some of these factors could also interrupt the production and/or importation of our products or otherwise increase the cost of our products. As a result, our operations and financial performance could be negatively affected. Additionally, our estimates of product demand and/or market value could be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory.

Long-Lived Assets

We acquire tangible and intangible assets in the normal course of our business. We evaluate the recoverability of the carrying amount of these long-lived assets (including fixed assets, trademarks licenses and other amortizable intangibles) whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. Impairments are recognized in operating earnings. We continually use judgment when applying these impairment rules to determine the timing of the impairment tests, the undiscounted cash flows used to assess impairments, and the fair value of a potentially impaired asset. The reasonableness of our judgment could significantly affect the carrying value of our long-lived assets.

Goodwill

We evaluate the recoverability of goodwill at least annually based on a two-step impairment test. The first step compares the fair value of each reporting unit with its carrying amount including goodwill. If the carrying amount exceeds fair value, then the second step of the impairment test is performed to measure the amount of any impairment loss. Fair value is computed based on estimated future cash flows discounted at a rate that approximates our cost of capital. Such estimates are subject to change, and we may be required to recognize impairment losses in the future.

Income Taxes

Current income tax expense is the amount of income taxes expected to be payable for the current year. A deferred income tax asset or liability is established for the expected future consequences of temporary differences in the financial reporting and tax bases of assets and liabilities. We consider future taxable income and ongoing prudent and feasible tax planning strategies in assessing the value of our deferred tax assets. If we determine that it is more likely than not that these assets will not be realized, we would reduce the value of these assets to their expected realizable value, thereby decreasing net income. Evaluating the value of these assets is necessarily based on our judgment. If we subsequently determined that the deferred tax assets, which had been written down would, in our judgment, be realized in the future, the value of the deferred tax assets would be increased, thereby increasing net income in the period when that determination was made.

Stock-Based Compensation Expense

Effective November 1, 2005, we adopted the fair value recognition provisions of SFAS 123(R), using the modified prospective transition method, and therefore have not restated prior periods’ results. Under this method we recognize compensation expense for all stock-based payments granted after November 1, 2005 and prior to but not yet vested as of November 1, 2005, in accordance with SFAS 123(R). Under the fair value recognition provisions of SFAS 123(R), we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest using the graded vested method over the requisite service period of the award. Prior to SFAS 123(R) adoption, we accounted for stock-based payments under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and accordingly, we were not required to recognize compensation expense for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of highly subjective assumptions, including the expected life of the stock-based payment awards and stock price volatility. We use the Black-Scholes option-pricing model to value compensation expense. The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but the estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. See Note 10 to the Consolidated Financial Statements for a further discussion on stock-based compensation.

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Foreign Currency Translation

A significant portion of our revenues are generated in Europe, where we operate with the euro as our functional currency, and a smaller portion of our revenues are generated in Asia/Pacific, where we operate with the Australian dollar and Japanese yen as our functional currencies. Our European revenues in the United Kingdom are denominated in British pounds, and substantial portions of our European and Asia/Pacific product is sourced in U.S. dollars, both of which result in exposure to gains and losses that could occur from fluctuations in foreign exchange rates. Our assets and liabilities that are denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period. Gains and losses from translation of foreign subsidiary financial statements are included in accumulated other comprehensive income or loss.

As part of our overall strategy to manage our level of exposure to the risk of fluctuations in foreign currency exchange rates, we enter into various foreign exchange contracts generally in the form of forward contracts. For all contracts that qualify as cash flow hedges, we record the changes in the fair value of the derivatives in other comprehensive income. We also use other derivatives that do not qualify for hedge accounting to mitigate our exposure to currency risks. These derivatives are marked to fair value with corresponding gains or losses recorded in earnings.

Forward-Looking Statement

Various statements in this Form 10-K, or incorporated by reference into this Form 10-K in future filings by us with the SEC, in our press releases and in oral statements made by or with the approval of authorized personnel, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are indicated by words or phrases such as “anticipate”, “estimate”, “expect”, “seek”, “plan”, “may”, “project”, “we believe”, “currently envisions” and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Some of the factors that could affect our financial performance or cause actual results to differ from our estimates in, or underlying, such forward-looking statements are set forth under Item 1A. “Risk Factors.” Forward-looking statements include statements regarding, among other items:

• our ability to realize the benefits we anticipate from our acquisition of Rossignol;

• the impact of our substantial leverage on our ability to generate cash flows or obtain financing to fund our anticipated growth strategies, and the cost of such financing;

• our plans to expand internationally;

• our intention to introduce new products and enter into new joint ventures;

• our plans to open new retail stores;

• payments due on contractual commitments;

• future expenditures for capital projects;

• our ability to continue to maintain our brand image and reputation;

• our ability to remain compliant with our debt covenants;

• the integration of acquired businesses and future acquisitions;

• difficulties encountered with asset or subsidiary dispositions;

• general economic and business conditions;

• foreign exchange rate fluctuations; and

• changes in political, social and economic conditions and local regulations, particularly in Europe and Asia.

These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of the risks described in Item 1A. “Risk Factors”, and other factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this Form 10-K will, in fact, transpire.

34

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of risks. Two of these risks are foreign currency fluctuations and changes in interest rates that affect interest expense. (See also Note 16 of our consolidated financial statements).

Foreign Currency and Derivatives

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income and product purchases of our international subsidiaries that are denominated in currencies other than their functional currencies. We are also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to our variable rate debt. Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and financial position of our international subsidiaries. We use various foreign currency exchange contracts and intercompany loans as part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates. In addition, we use interest rate swaps to manage our exposure to the risk of fluctuations in interest rates.

Derivatives that do not qualify for hedge accounting but are used by management to mitigate exposure to currency risks are marked to fair value with corresponding gains or losses recorded in earnings. A loss of $1.8 million was recognized related to these types of contracts during fiscal 2007. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. As of October 31, 2007, we were hedging forecasted transactions expected to occur through October 2009. Assuming exchange rates at October 31, 2007 remain constant, $23.8 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 24 months.

On the date we enter into a derivative contract, we designate certain of the derivatives as a hedge of the identified exposure. We formally document all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for entering into various hedge transactions. We identify in this documentation the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicate how the hedging instrument is expected to hedge the risks related to the hedged item. We formally measure effectiveness of our hedging relationships both at the hedge inception and on an ongoing basis in accordance with our risk management policy. We will discontinue hedge accounting prospectively:

• if we determine that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item;

• when the derivative expires or is sold, terminated or exercised;

• if it becomes probable that the forecasted transaction being hedged by the derivative will not occur;

• because a hedged firm commitment no longer meets the definition of a firm commitment; or

• if we determine that designation of the derivative as a hedge instrument is no longer appropriate.

We enter into forward exchange and other derivative contracts with major banks and are exposed to foreign currency losses in the event of nonperformance by these banks. We anticipate, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, we do not obtain collateral or other security to support the contracts.

Translation of Results of International Subsidiaries

As discussed above, we are exposed to financial statement gains and losses as a result of translating the operating results and financial position of our international subsidiaries. We translate the local currency statements of income of our foreign subsidiaries into U.S. dollars using the average exchange rate during the reporting period. Changes in foreign exchange rates affect our reported profits and can distort comparisons from year to year. We use various foreign currency exchange contracts and intercompany loans to hedge the profit and loss effects of such exposure, but accounting rules do not allow us to hedge the actual translation of sales and expenses.

35

By way of example, when the U.S. dollar strengthens compared to the euro, there is a negative effect on our reported results for our European operating segment. It takes more profits in euros to generate the same amount of profits in stronger U.S. dollars. The opposite is also true. That is, when the U.S. dollar weakens there is a positive effect on our reported results from our European operating segment. Also, our U.S. wintersports equipment business sources their production primarily in euros and transacts their sales in U.S. dollars. If the dollar weakens, there is a negative impact on the profitability of our U.S. wintersports equipment business.

In fiscal 2007, the U.S. dollar weakened compared to the euro and the Australian dollar. As a result, our European revenues decreased 3% in euros compared to an increase of 7% in U.S. dollars. Asia/Pacific revenues decreased 11% in Australian dollars compared to an increase of 2% in U.S. dollars.

Interest Rates

Most of our lines of credit and long-term debt bear interest based on LIBOR and EURIBOR plus a credit spread. Effective interest rates, therefore, can move up or down depending on market conditions. The credit spreads are subject to change based on financial performance and market conditions upon refinancing. Interest expense also includes financing fees and related costs and can be affected by foreign currency movement upon translating non-U.S. dollar denominated interest into dollars for reporting purposes. The approximate amount of our remaining variable rate debt was $504.0 million at October 31, 2007, and the average effective interest rate at that time was 5.1%. If interest rates or credit spreads were to increase by 10%, our income before tax would be reduced by approximately $2.6 million based on these fiscal 2007 levels.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item appears beginning on page 41.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2007, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, and were operating at the reasonable assurance level as of October 31, 2007.

36

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter and year ended October 31, 2007 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our 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, and includes those policies and procedures that:

• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework” published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to evaluate the effectiveness of its internal control over financial reporting. Management has concluded that its internal control over financial reporting was effective as of the end of the most recent fiscal year. Deloitte & Touche LLP has issued an attestation report (see below) on our internal control over financial reporting.

The foregoing has been approved by our management, including our Chief Executive Officer and Chief Financial Officer, who have been involved with the assessment and analysis of our internal controls over financial reporting.

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors and Shareholders
Quiksilver, Inc.:

We have audited the internal control over financial reporting of Quiksilver, Inc. and subsidiaries (the “Company”) as of October 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (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 company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended October 31, 2007 of the Company and our report dated December 28, 2007 expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ Deloitte & Touche LLP

Costa Mesa, California
December 28, 2007

38

Item 9B. OTHER INFORMATION

None.

39

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required to be included by this item will be included under the headings “Election of Directors,” “Executive Compensation and Other Information,” and “Corporate Governance” in our proxy statement for the 2008 Annual Meeting of Stockholders. That information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2007.

We have adopted a Code of Ethics for Senior Financial Officers in compliance with applicable rules of the Securities and Exchange Commission that applies to all of our employees, including our principal executive officer, our principal financial officer and our principal accounting officer or controller, or persons performing similar functions. We have posted a copy of this Code of Ethics on our website, at http://www.quiksilverinc.com. We intend to disclose any amendments to, or waivers from, any provision of the Code of Ethics by posting such information on such website.

Item 11. EXECUTIVE COMPENSATION

The information required to be included by this item will be included under the heading “Executive Compensation and Other Information” in our proxy statement for the 2008 Annual Meeting of Stockholders. That information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2007.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required to be included by this item will be included under the heading “Ownership of Securities” in our proxy statement for the 2008 Annual Meeting of Stockholders. That information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2007.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required to be included by this item will be included under the headings “Related Party Transactions” and “Corporate Governance” in our proxy statement for the 2008 Annual Meeting of Stockholders. That information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2007.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required to be included by this item will be included under the heading “Independent Auditors” in our proxy statement for the 2008 Annual Meeting of Stockholders. That information is incorporated herein by reference to our proxy statement, which will be filed with the Securities and Exchange Commission within 120 days of our fiscal year ended October 31, 2007.

40

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

1.	Consolidated Financial Statements
	See “Index to Consolidated Financial Statements” on page 42
2.	Exhibits
	The Exhibits listed in the Exhibit Index, which appears immediately following the signature page and is incorporated herein by reference, are filed as part of this Annual Report on Form 10-K.

41

QUIKSILVER, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Audited consolidated financial statements of Quiksilver, Inc. as of and for each of the three years in the period ended October 31, 2007
Report of Independent Registered Public Accounting Firm	43
Consolidated Statements of Operations Years Ended October 31, 2007, 2006 and 2005	44
Consolidated Statements of Comprehensive Income Years Ended October 31, 2007, 2006 and 2005	44
Consolidated Balance Sheets October 31, 2007 and 2006	45
Consolidated Statements of Stockholders’ Equity Years Ended October 31, 2007, 2006 and 2005	46
Consolidated Statements of Cash Flows Years Ended October 31, 2007, 2006 and 2005	47
Notes to Consolidated Financial Statements	49

42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Quiksilver, Inc.

We have audited the accompanying consolidated balance sheets of Quiksilver, Inc. and subsidiaries (the “Company”) as of October 31, 2007 and 2006, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended October 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

We conducted our audits in accordance with the 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Notes 1 and 10 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation during the year ended October 31, 2006 as a result of adopting Statement of Financial Accounting Standards No. 123(R), “Share-based Payment.”

As discussed in Note 19, in October 2007 the Company entered into an agreement to sell its golf equipment business. The results of operations of this business are included in loss from discontinued operations in the accompanying consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of October 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 28, 2007 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP  

December 28, 2007 

Costa Mesa, California 

43

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended October 31, 2007, 2006 and 2005

In thousands, except per share amounts	2007			2006			2005
Revenues, net	$	2,426,035		$	2,200,234		$	1,734,528
Cost of goods sold		1,303,794			1,193,938			945,982
Gross profit		1,122,241			1,006,296			788,546
Selling, general and administrative expense		971,411			827,025			607,450
Asset impairments — Notes 5 and 6		166,352			—			—
Operating (loss) income		(15,522	)		179,271			181,096
Interest expense		57,023			47,444			20,825
Foreign currency loss (gain)		1,777			8			(160	)
Minority interest and other expense — Note 2		121			303			365
(Loss) income before provision for income taxes		(74,443	)		131,516			160,066
Provision for income taxes — Note 13		24,205			37,413			51,776
(Loss) income from continuing operations		(98,648	)		94,103			108,290
Loss from discontinued operations — Note 19		(22,471	)		(1,087	)		(1,170	)
Net (loss) income	$	(121,119	)	$	93,016		$	107,120
(Loss) income per share from continuing operations	$	(0.80	)	$	0.77		$	0.91
Loss per share from discontinued operations — Note 19		(0.18	)		(0.01	)		(0.01	)
Net (loss) income per share — Note 1	$	(0.98	)	$	0.76		$	0.90
(Loss) income per share from continuing operations, assuming dilution	$	(0.80	)	$	0.74		$	0.87
Loss per share from discontinued operations, assuming dilution — Note 19		(0.18	)		(0.01	)		(0.01	)
Net (loss) income per share, assuming dilution — Note 1	$	(0.98	)	$	0.73		$	0.86
Weighted average common shares outstanding — Note 1		123,770			122,074			118,920
Weighted average common shares outstanding, assuming dilution — Note 1		123,770			127,744			124,335

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended October 31, 2007, 2006 and 2005

In thousands	2007			2006			2005
Net (loss) income	$	(121,119	)	$	93,016		$	107,120
Other comprehensive income (loss):
Foreign currency translation adjustment		116,882			27,311			(14,694	)
Net (loss) gain on derivative instruments, net of tax of $10,368 (2007), $2,101 (2006) and $(5,468) (2005)		(21,859	)		(4,309	)		10,008
Comprehensive (loss) income	$	(26,096	)	$	116,018		$	102,434

See notes to consolidated financial statements.

44

QUIKSILVER, INC.

CONSOLIDATED BALANCE SHEETS
October 31, 2007 and 2006

In thousands, except share amounts	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	74,348		$	36,834
Trade accounts receivable, net — Note 3		760,430			674,734
Other receivables		70,101			34,190
Inventories — Note 4		447,282			389,663
Deferred income taxes — Note 13		62,197			81,434
Prepaid expenses and other current assets		25,219			26,844
Current assets held for sale — Note 19		73,685			89,483
Total current assets		1,513,262			1,333,182
Fixed assets, net — Note 5		347,322			277,974
Intangible assets, net — Notes 2 and 6		225,642			212,772
Goodwill — Notes 2, 6 and 15		417,283			475,495
Other assets		46,263			45,628
Non-current assets held for sale — Notes 12 and 19		91,756			102,177
Total assets	$	2,641,528		$	2,447,228
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit — Note 7	$	313,996		$	315,891
Accounts payable		286,807			214,901
Accrued liabilities — Note 8		227,840			192,169
Current portion of long-term debt — Note 7		34,306			24,621
Income taxes payable — Note 13		7,187			1,844
Liabilities related to assets held for sale — Note 19		11,269			15,160
Total current liabilities		881,405			764,586
Long-term debt — Notes 7 and 18		772,128			640,308
Deferred income taxes and other long-term liabilities — Note 13		48,466			86,811
Non-current liabilities related to assets held for sale — Notes 7 and 19		52,916			63,203
Total liabilities		1,754,915			1,554,908
Commitments and contingencies — Note 9
Minority interest — Note 2		—			11,193
Stockholders’ equity — Note 10:
Preferred stock, $.01 par value, authorized shares — 5,000,000; issued and outstanding shares — none		—			—
Common stock, $.01 par value, authorized shares — 185,000,000; issued shares — 128,340,538 (2007) and 126,401,836 (2006)		1,283			1,264
Additional paid-in capital		306,051			274,488
Treasury stock, 2,885,200 shares		(6,778	)		(6,778	)
Retained earnings		437,940			559,059
Accumulated other comprehensive income — Note 11		148,117			53,094
Total stockholders’ equity		886,613			881,127
Total liabilities and stockholders’ equity	$	2,641,528		$	2,447,228

See notes to consolidated financial statements.

45

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended October 31, 2007, 2006 and 2005

														Accumulated
					Additional									Other			Total
	Common Stock				Paid-in			Treasury			Retained			Comprehensive			Stockholders’
In thousands, except share amounts	Shares		Amounts		Capital			Stock			Earnings			Income (Loss)			Equity
Balance, November 1, 2004		120,339,046	$	1,203	$	200,118		$	(6,778	)	$	358,923		$	34,778		$	588,244
Exercise of stock options		1,447,010		14		6,528			—			—			—			6,542
Tax benefit from exercise of stock options		—		—		5,109			—			—			—			5,109
Employee stock purchase plan		157,298		2		1,644			—			—			—			1,646
Rossignol acquisition		2,150,038		22		28,885			—			—			—			28,907
Net income and other comprehensive income (loss)		—		—		—			—			107,120			(4,686	)		102,434
Balance, October 31, 2005		124,093,392		1,241		242,284			(6,778	)		466,043			30,092			732,882
Exercise of stock options		1,289,351		13		5,119			—			—			—			5,132
Tax benefit from exercise of stock options		—		—		3,976			—			—			—			3,976
Stock compensation expense		—		—		20,751			—			—			—			20,751
Restricted stock		800,000		8		(8	)		—			—			—			—
Employee stock purchase plan		219,093		2		2,366			—			—			—			2,368
Net income and other comprehensive income		—		—		—			—			93,016			23,002			116,018
Balance, October 31, 2006		126,401,836		1,264		274,488			(6,778	)		559,059			53,094			881,127
Exercise of stock options		1,804,515		18		10,351			—			—			—			10,369
Tax benefit from exercise of stock options		—		—		2,896			—			—			—			2,896
Stock compensation expense		—		—		17,210			—			—			—			17,210
Restricted stock		42,000		—		—			—			—			—			—
Employee stock purchase plan		92,187		1		1,106			—			—			—			1,107
Net (loss) and other comprehensive income		—		—		—			—			(121,119	)		95,023			(26,096	)
Balance, October 31, 2007		128,340,538	$	1,283	$	306,051		$	(6,778	)	$	437,940		$	148,117		$	886,613

See notes to consolidated financial statements.

46

QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2007, 2006 and 2005

In thousands	2007			2006			2005
Cash flows from operating activities:
Net (loss) income	$	(121,119	)	$	93,016		$	107,120
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss from discontinued operations		22,471			1,087			1,170
Depreciation and amortization		66,894			62,634			41,070
Stock-based compensation and tax benefit on option exercises		14,003			20,495			—
Provision for doubtful accounts		8,542			2,274			3,592
Loss on disposal of fixed assets		1,767			1,205			3,449
Foreign currency loss (gain)		1,292			(487	)		(221	)
Asset impairments		166,352			—			—
Interest accretion		—			—			1,319
Minority interest and equity in earnings		(210	)		883			—
Deferred income taxes		(2,254	)		9,027			4,679
Changes in operating assets and liabilities, net of effects from business acquisitions:
Trade accounts receivable		(42,715	)		(87,129	)		(225,787	)
Other receivables		(30,007	)		(10,522	)		8,960
Inventories		(18,521	)		(24,932	)		35,477
Prepaid expenses and other current assets		2,314			(7,037	)		(421	)
Other assets		(2,275	)		(3,216	)		(7,313	)
Accounts payable		48,782			(12,765	)		19,434
Accrued liabilities and other long-term liabilities		613			(26,032	)		6,514
Income taxes payable		9,947			(23,539	)		7,688
Cash provided by (used in) operating activities of continuing operations		125,876			(5,038	)		6,730
Cash used in operating activities of discontinued operations		(1,624	)		(3,260	)		(8,144	)
Net cash provided by (used in) operating activities		124,252			(8,298	)		(1,414	)
Cash flows from investing activities:
Proceeds from the sale of properties and equipment		17,355			5,113			—
Capital expenditures		(116,290	)		(95,516	)		(70,190	)
Business acquisitions, net of acquired cash — Note 2		(42,554	)		(38,434	)		(251,865	)
Cash used in investing activities of continuing operations		(141,489	)		(128,837	)		(322,055	)
Cash used in investing activities of discontinued operations		(19,001	)		(4,510	)		(668	)
Net cash used in investing activities		(160,490	)		(133,347	)		(322,723	)
Cash flows from financing activities:
Borrowings on lines of credit		156,189			312,403			122,976
Payments on lines of credit		(186,650	)		(220,431	)		(97,087	)
Borrowings on long-term debt		209,933			120,252			588,456
Payments on long-term debt		(104,358	)		(127,919	)		(284,453	)
Stock option exercises, employee stock purchases and tax benefit on option exercises		14,253			11,212			8,188
Cash provided by financing activities of continuing operations		89,367			95,517			338,080
Cash (used in) provided by financing activities of discontinued operations		(9,550	)		10,473			9,786
Net cash provided by financing activities		79,817			105,990			347,866
Effect of exchange rate changes on cash		(6,065	)		(3,109	)		(3,328	)
Net increase (decrease) in cash and cash equivalents		37,514			(38,764	)		20,401
Cash and cash equivalents, beginning of year		36,834			75,598			55,197
Cash and cash equivalents, end of year	$	74,348		$	36,834		$	75,598

     See notes to consolidated financial statements.

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QUIKSILVER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, 2007, 2006 and 2005

Supplementary cash flow information:
Cash paid during the year for:
Interest	$	59,354	$	47,319	$	18,835
Income taxes	$	16,004	$	52,608	$	34,458
Non-cash investing and financing activities:
Deferred purchase price obligation — Note 2	$	26,356	$	24,967	$	32,508
Common stock issued for business acquisitions - - Note 2	$	—	$	—	$	28,907

See notes to consolidated financial statements.

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QUIKSILVER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 2007, 2006 and 2005

Note 1 — Significant Accounting Policies

Company Business

Quiksilver, Inc. and its subsidiaries (the “Company”) design, produce and distribute branded apparel, wintersports equipment, footwear, accessories and related products. The Company’s apparel and footwear brands represent a casual lifestyle for young-minded people that connect with its boardriding culture and heritage, while its wintersports brands symbolize a long standing commitment to technical expertise and competitive success on the mountains. The Company’s Quiksilver, Roxy, DC Shoes and Hawk brands are synonymous with the heritage and culture of surfing, skateboarding and snowboarding, and its beach and water oriented swimwear brands include Raisins, Radio Fiji and Leilani. The Rossignol, Dynastar, Look, Lange, and Kerma brands are leaders in the alpine ski market, and the Company makes snowboarding equipment under its Rossignol, DC Shoes, Roxy, Lib Technologies, Gnu and Bent Metal labels. The Company’s products are sold in over 90 countries in a wide range of distribution channels, including surf shops, ski shops, skateboard shops, snowboard shops, its proprietary Boardriders Club shops, other specialty stores and select department stores. Distribution is primarily in the United States, Europe and Australia. The Company performs ongoing credit evaluations of its customers and generally does not require collateral.

The Company operates in markets that are highly competitive. The Company’s ability to evaluate and respond to changing consumer demands and tastes is critical to its success. The Company believes that consumer acceptance depends on product, image, design, fit and quality. Consequently, the Company has developed an experienced team of designers, artists, merchandisers, pattern makers, engineers, technicians, researchers and contractors that it believes has helped it remain in the forefront of design and technical expertise in the areas in which it competes. The Company believes, however, that its continued success will depend on its ability to promote its image and to design products acceptable to the marketplace.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Quiksilver, Inc. and subsidiaries, including Pilot, SAS and subsidiaries (“Quiksilver Europe”), Quiksilver Australia Pty Ltd. and subsidiaries (“Quiksilver Asia/Pacific” and “Quiksilver International”). Intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Cash Equivalents

Certificates of deposit and highly liquid short-term investments purchased with original maturities of three months or less are considered cash equivalents. Carrying values approximate fair value.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or market. Management regularly reviews the inventory quantities on hand and adjusts inventory values for excess and obsolete inventory based primarily on estimated forecasts of product demand and market value.

Fixed Assets

Furniture and other equipment, computer equipment, manufacturing equipment and buildings are recorded at cost and depreciated on a straight-line basis over their estimated useful lives, which generally range from two to twenty years. Leasehold improvements are recorded at cost and amortized over their estimated useful lives or related lease term, whichever is shorter. Land use rights for certain leased retail locations are amortized to estimated residual value.

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Long-Lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” In accordance with SFAS No. 144, management assesses potential impairments of its long-lived assets whenever events or changes in circumstances indicate that an asset’s carrying value may not be recoverable. An impairment loss is recognized when the carrying value exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. The Company recorded approximately $2.6 million in fixed asset impairments as of October 31, 2007 and determined that there was no impairment loss as of October 31, 2006 or 2005.

Goodwill and Intangible Assets

The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Intangible Assets.” Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually and also in the event of an impairment indicator. The annual impairment test is a fair value test as prescribed by SFAS No. 142 which includes assumptions such as growth and discount rates. The Company recorded approximately $156.9 million in goodwill impairment and approximately $6.9 million in other wintersports equipment brand trademark impairments as of October 31, 2007. Any subsequent impairment losses will also be reflected in operating income. The Company determined that there was no impairment loss as of October 31, 2006 or 2005.

Revenue Recognition

Revenues are recognized upon the transfer of title and risk of ownership to customers. Allowances for estimated returns and doubtful accounts are provided when revenues are recorded. Returns and allowances are reported as reductions in revenues, whereas allowances for bad debts are reported as a component of selling, general and administrative expense. Royalty income is recorded as earned.

Revenues in the Consolidated Statements of Operations include the following:

	Years Ended October 31,
In thousands	2007		2006		2005
Product shipments, net	$	2,418,951	$	2,195,754	$	1,732,688
Royalty income		7,084		4,480		1,840
	$	2,426,035	$	2,200,234	$	1,734,528

Promotion and Advertising

The Company’s promotion and advertising efforts include athlete sponsorships, world-class boardriding and skiing contests, magazine advertisements, retail signage, television programs, co-branded products, surf camps, skate park tours and other events. For the fiscal years ended October 31, 2007, 2006 and 2005, these expenses totaled $158.9 million, $156.0 million and $101.3 million, respectively. Advertising costs are expensed when incurred.

Research and Development

The Company engages in research and development activities to enable it to design and launch new products for its wintersports equipment businesses in order to respond to changing demands and market expectations. Research and development costs are expensed as incurred. Included in selling, general and administrative expense is approximately $11.2 million, $11.9 million and $3.1 million of research and development costs for the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

Warranties

The Company generally provides a one-year limited warranty against manufacturer’s defects on its wintersports equipment and records an estimate of such warranty costs when revenue is recorded. The Company’s standard warranty requires it to repair or replace the defective product returned to the Company during such warranty period. In estimating its future warranty obligations, the Company

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considers various factors, including its warranty policies and practices, the historical frequency of claims and the cost to replace or repair the products under warranty (see Note 8).

Stock-Based Compensation

Effective November 1, 2005, the Company adopted SFAS No. 123(R) “Share-Based Payment.” As a result, the Company recognizes compensation expense equal to the fair value of stock options or other share based payments. See Note 10 for a description of the impact of this standard on the Company’s financial statements.

Income Taxes

The Company accounts for income taxes using the asset and liability approach as promulgated by SFAS No. 109, “Accounting for Income Taxes.” Deferred income tax assets and liabilities are established for temporary differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities at tax rates expected to be in effect when such assets or liabilities are realized or settled. Deferred income tax assets are reduced by a valuation allowance if, in the judgment of the Company’s management, it is more likely than not that such assets will not be realized.

Net (Loss) Income per Share

The Company reports basic and diluted earnings per share (“EPS”). Basic EPS is based on the weighted average number of shares outstanding during the period, while diluted EPS additionally includes the dilutive effect of the Company’s outstanding stock options computed using the treasury stock method. For the years ended October 31, 2006 and 2005, the weighted average common shares outstanding, assuming dilution, includes 5,670,000 and 5,415,000, respectively, of dilutive stock options. For the year ended October 31, 2007 the potential dilutive effect of common stock equivalents was not included in the weighted average shares for the computation of diluted earnings per share, as the effect was antidilutive.

Stock Split

During fiscal 2005, the Company’s Board of Directors approved a two-for-one stock split that was effected May 11, 2005. All share and per share information has been restated to reflect the stock split.

Foreign Currency and Derivatives

The Company’s primary functional currency is the U.S. dollar, while Quiksilver Europe functions in euros and British pounds, and Quiksilver Asia/Pacific functions in Australian dollars and Japanese yen. Assets and liabilities of the Company denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated using the average exchange rate for the period.

Derivative financial instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the use and type of the derivative. The Company’s derivative financial instruments principally consist of foreign currency exchange contracts and interest rate swaps, which the Company uses to manage its exposure to the risk of foreign currency exchange rates and variable interest rates. The Company’s objectives are to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange and interest rates. The Company does not enter into derivative financial instruments for speculative or trading purposes.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity except those resulting from investments by, and distributions to, stockholders. Accordingly, the Company’s Consolidated Statements of Comprehensive Income include net (loss) income and foreign currency adjustments that arise from the translation of the financial statements of Quiksilver Europe and Quiksilver Asia/Pacific into U.S. dollars and fair value gains and losses on certain derivative instruments.

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The carrying value of the Company’s trade accounts receivable and accounts payable approximates its fair value due to their short-term nature. The carrying values of the Company’s lines of credit and long-term debt approximates their fair value as these borrowings consist primarily of a series of short-term notes at floating interest rates.

New Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”) which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 applies to all voluntary changes in accounting principles and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted this standard during the fiscal year ended October 31, 2007. The adoption of this standard did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes ¯ an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the application of SFAS No. 109, “Accounting for Income Taxes,” by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the Company’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company expects to adopt FIN 48 on November 1, 2007. The Company is currently assessing the impact the adoption of FIN 48 will have on its financial position and results of operations.

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive guidance on the SEC’s views regarding the process of quantifying materiality of financial statement misstatements. The Company adopted this standard during the fiscal year ended October 31, 2007. The adoption of this accounting pronouncement did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company expects to adopt this standard at the beginning of the Company’s fiscal year ending October 31, 2009. The adoption of this accounting pronouncement is not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (“SFAS No. 159”), which permits companies to choose to measure certain financial instruments and other items at fair value that are not currently required to be measured at fair value. The Company expects to adopt this standard at the beginning of the Company’s fiscal year ending October

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31, 2009. The Company has not determined the effect that the adoption of SFAS No. 159 will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS No. 141(R)”), which requires the Company to record fair value estimates of contingent consideration and certain other potential liabilities during the original purchase price allocation, expense acquisition costs as incurred and does not permit certain restructuring activities previously allowed under Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of purchase accounting. The Company will adopt this standard at the beginning of the Company’s fiscal year ending October 31, 2010 for all prospective business acquisitions. The Company has not determined the effect that the adoption of SFAS No. 141(R) will have on its consolidated financial statements but the impact will be limited to any future acquisitions beginning in fiscal 2010.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” (“SFAS No. 160”), which causes noncontrolling interests in subsidiaries to be included in the equity section of the balance sheet. The Company will adopt this standard at the beginning of the Company’s fiscal year ending October 31, 2010. The Company has not determined the effect that the adoption of SFAS No. 160 will have on its consolidated financial statements.

Note 2 — Business Acquisitions

In September 2007, the Company acquired the minority interest of Roger Cleveland Golf Company, Inc. (“Cleveland Golf”), the Company’s U.S. golf equipment operations. The Company had previously acquired 63.63% of Cleveland Golf as part of the acquisition of Rossignol in July 2005. The purchase price for the remaining minority interest of Cleveland Golf, excluding transaction costs, included a cash payment of $17.5 million at closing. The Company accounted for this transaction as a step acquisition and recorded 36.37% of fair value adjustments related to the acquisition of the remaining portion of Cleveland Golf. The Company also agreed to terminate all consulting arrangements with the former minority interest holders of Cleveland Golf and recorded an expense of approximately $3.6 million in contract termination costs. In October 2007, the Company entered into an agreement to sell its golf equipment business (Note 19).

Effective July 31, 2005, the Company acquired Skis Rossignol SA (“Rossignol”), a wintersports and golf equipment manufacturer. Rossignol offers a full range of wintersports equipment under the Rossignol, Dynastar, Lange, Look and Kerma brands. The Company has included the operations of Rossignol in its results since August 1, 2005. The purchase price, excluding transaction costs, included cash of approximately $208.3 million, approximately 2.2 million restricted shares of the Company’s common stock, valued at $28.9 million, a deferred purchase price obligation of approximately $32.5 million, a liability of approximately $16.9 million for the mandatory purchase of approximately 0.7 million outstanding public shares of Rossignol representing less than 5% of the share capital of Rossignol, and a liability of approximately $2.0 million for the estimated fair value of 0.1 million fully vested Rossignol stock options. Transaction costs totaled approximately $16.0 million. The valuation of the common stock issued in connection with the acquisition was based on its quoted market price for the five days before and after the announcement date, discounted to reflect the estimated effect of its trading restrictions. The deferred purchase price obligation is expected to be paid in 2010 and will accrue interest equal to the 3-month euro interbank offered rate (“Euribor”) plus 2.35% (currently 7.0%). The mandatory purchase of the remaining Rossignol shares was required under French law as the Company had obtained over 95% of the outstanding shares of Rossignol through a combination of share purchases, including a public tender offer. The purchase of these shares was completed in the quarter ended October 31, 2005 and the Company now owns 100% of the shares in Rossignol. Upon the future exercise of the Rossignol stock options, the Company will purchase the newly issued shares from the Rossignol stock option holders, retaining 100% ownership in Rossignol. These Rossignol stock options are treated as variable for accounting purposes and subsequent changes in the value of these stock options are recorded as compensation expense in the Company’s consolidated statement of income. Goodwill arises from synergies the Company believes can be achieved integrating Rossignol’s brands, products and

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operations with the Company’s, and is not expected to be deductible for income tax purposes. Amortizing intangibles consist of customer relationships, patents and athlete contracts with estimated useful lives of twenty, seven and two years, respectively. The acquired trademarks are non-amortizing as they have been determined to have indefinite lives.

The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of the Rossignol acquisition in accordance with the purchase method of accounting:

In thousands	July 31, 2005
Cash acquired	$	64,396
Accounts receivable		96,763
Inventory		232,525
Other current assets		21,548
Fixed assets		109,438
Deferred income taxes		3,572
Other assets		3,296
Amortizing intangible assets		20,400
Trademarks		94,700
Goodwill		292,168
Total assets acquired		938,806
Other liabilities		218,300
Long term debt and lines of credit		365,126
Deferred income taxes		40,657
Minority interest		10,109
Net assets acquired	$	304,614

In connection with the acquisition of Rossignol, the Company has formulated the Rossignol Integration Plan (the “Plan”). As of October 31, 2007 the Company has recognized approximately $62.5 million of liabilities related to the Plan. See Note 12 for further description of the Plan.

Effective August 1, 2005, the Company acquired 11 retail stores in Australia from Surfection Pty Ltd, Manly Boardriders Pty Ltd. and Sydney Boardriders Pty Ltd. (“Surfection”). The operations of Surfection have been included in the Company’s results since August 1, 2005. The initial purchase price, excluding transaction costs, included cash of approximately $21.4 million. Transaction costs totaled approximately $1.1 million. The sellers are entitled to additional payments if certain sales and margin targets are achieved. The amount of goodwill initially recorded for the transaction would increase if such contingent payments are made. As of October 31, 2007, approximately $7.4 million was accrued based on the achievement of these targets and additional payments ranging from zero to approximately $9.7 million may be paid through September, 2008. Goodwill arises from synergies the Company believes can be achieved through Surfection’s retail expertise and store presence in key locations in Australia, and is not expected to be deductible for income tax purposes. Amortizing intangibles consist of non-compete agreements with estimated useful lives of five years.

The following table summarizes the fair values of the assets acquired and the liabilities assumed at the date of the Surfection acquisition in accordance with the purchase method of accounting:

In thousands	August 31, 2005
Inventory and other current assets	$	3,239
Fixed assets		4,839
Amortizing intangible assets		450
Goodwill		21,393
Total assets acquired		29,921
Other liabilities		7,419
Net assets acquired	$	22,502

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The results of operations for each of the acquisitions are included in the Consolidated Statements of Income from their respective acquisition dates. Assuming these fiscal 2005 acquisitions had occurred as of November 1, 2004, unaudited pro forma consolidated net sales would have been $2,036.2 million for the year ended October 31, 2005. Unaudited pro forma net income would have been $19.0 million, respectively, for those same periods, and unaudited pro forma basic and diluted earnings per share would have been $0.16 and $0.15, respectively.

The Company paid cash of approximately $42.6 million during the year ended October 31, 2007, of which $20.2 million relates to a payment to the former owners of DC Shoes, Inc. and the remaining $22.4 million relates primarily to insignificant acquisitions of certain other distributors, licensees and retail store locations.

Note 3 — Allowance for Doubtful Accounts

The allowance for doubtful accounts, which includes bad debts and returns and allowances, consists of the following:

	Years Ended October 31,
In thousands	2007			2006			2005
Balance, beginning of year	$	29,246		$	28,787		$	11,367
Provision for doubtful accounts		8,542			2,274			3,592
Acquired balance		—			—			18,871
Deductions		(751	)		(1,815	)		(5,043	)
Balance, end of year	$	37,037		$	29,246		$	28,787

The provision for doubtful accounts represents charges to selling, general and administrative expense for estimated bad debts, whereas the provision for returns and allowance is reported as a reduction of revenues.

Note 4 — Inventories

Inventories consist of the following:

	Years Ended October 31,
In thousands	2007		2006
Raw materials	$	29,725	$	28,545
Work in process		12,223		12,949
Finished goods		405,334		348,169
	$	447,282	$	389,663

Note 5 — Fixed Assets

Fixed assets consist of the following:

	Years Ended October 31,
In thousands	2007			2006
Furniture and other equipment	$	177,837		$	143,565
Computer equipment		103,183			82,644
Manufacturing equipment		55,764			54,160
Leasehold improvements		124,612			103,218
Land use rights		46,306			37,291
Land and buildings		35,804			31,851
		543,506			452,729
Accumulated depreciation and amortization		(196,184	)		(174,755	)
	$	347,322		$	277,974

During the year ended October 31, 2007, the Company recorded approximately $2.6 million in fixed asset impairments.

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Note 6 — Intangible Assets and Goodwill

A summary of intangible assets is as follows:

	Years Ended October 31,
	2007							2006
In thousands	Gross Amount		Amorti- zation			Net Book Value		Gross Amount		Amorti- zation			Net Book Value
Amortizable trademarks	$	16,082	$	(4,329	)	$	11,753	$	7,159	$	(2,262	)	$	4,897
Amortizable licenses		12,354		(6,074	)		6,280		10,332		(4,047	)		6,285
Other amortizable intangibles		13,906		(6,282	)		7,624		13,767		(3,997	)		9,770
Non-amortizable trademarks		199,985		—			199,985		191,820		—			191,820
	$	242,327	$	(16,685	)	$	225,642	$	223,078	$	(10,306	)	$	212,772

As of October 31, 2007 and in connection with its annual goodwill impairment test, the Company remeasured the value of its intangible assets in accordance with SFAS No. 142 and noted that the carrying value was in excess of the estimated fair value. As a result, the Company recorded Rossignol related goodwill impairment charges of approximately $156.9 million and approximately $6.9 million in trademark impairments.

The change in non-amortizable trademarks is due primarily to foreign exchange fluctuations. Other amortizable intangibles primarily include non-compete agreements, patents and customer relationships. Certain trademarks and licenses will continue to be amortized by the Company using estimated useful lives of 10 to 25 years with no residual values. Intangible amortization expense for the fiscal years ended October 31, 2007 and 2006 was $5.3 million and $4.5 million, respectively. Annual amortization expense, based on the Company’s amortizable intangible assets as of October 31, 2007, is estimated to be approximately $4.0 million in the fiscal years ending October 31, 2008 through 2011 and approximately $3.2 million in the fiscal year ending October 31, 2012.

Goodwill arose primarily from the acquisitions of Rossignol, Quiksilver Europe, Quiksilver Asia/Pacific, DC and Surfection. Goodwill decreased approximately $58.2 million during the fiscal year ended October 31, 2007, with $159.7 million related to the Rossignol impairment. This decrease was offset by approximately $16.9 million related to the DC acquisition, $52.4 million related to foreign exchange fluctuations, and $32.2 million primarily related to other insignificant acquisitions. Goodwill increased $65.1 million during the fiscal year ended October 31, 2006, with $13.4 million related to the Rossignol acquisition, approximately $15.0 million related to the DC acquisition, and $36.7 million primarily related to other insignificant acquisitions and foreign exchange fluctuations.

Note 7 — Lines of Credit and Long-term Debt

A summary of lines of credit and long-term debt is as follows:

	Years Ended October 31,
In thousands	2007		2006
European short-term credit arrangements	$	234,589	$	261,593
Asia/Pacific short-term lines of credit		61,596		41,464
Americas short-term lines of credit		17,811		12,834
Americas Credit Facility		129,700		76,150
Americas long-term debt		—		4,305
European long-term debt		216,004		135,796
Senior Notes		400,000		400,000
Deferred purchase price obligation		43,649		34,701
Capital lease obligations and other borrowings		17,081		13,977
	$	1,120,430	$	980,820

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In July 2005, the Company issued $400 million in senior notes (“Senior Notes”), which bear a coupon interest rate of 6.875% and are due April 15, 2015. The Senior Notes were issued at par value and sold in accordance with Rule 144A and Regulation S. In December 2005, these Senior Notes were exchanged for publicly registered notes with identical terms. The Senior Notes are guaranteed on a senior unsecured basis by each of the Company’s domestic subsidiaries that guarantee any of its indebtedness or its subsidiaries’ indebtedness, or are obligors under its existing senior secured credit facility (the “Guarantors”). The Company may redeem some or all of the Senior Notes after April 15, 2010 at fixed redemption prices as set forth in the indenture related to such Senior Notes. In addition, prior to April 15, 2008, the Company may redeem up to 35% of the Senior Notes with the proceeds from certain equity offerings at a redemption price set forth in the indenture.

The Senior Notes indenture includes covenants that limit the ability of the Company and its restricted subsidiaries to, among other things: incur additional debt; pay dividends on their capital stock or repurchase their capital stock; make certain investments; enter into certain types of transactions with affiliates; limit dividends or other payments to the Company; use assets as security in other transactions; and sell certain assets or merge with or into other companies. If the Company experiences specific kinds of changes of control, it will be required to offer to purchase the Senior Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest. As of October 31, 2007, the Company was in compliance with these covenants. In addition, the Company has approximately $8.7 million in debt issuance costs included in other assets as of October 31, 2007.

In April 2005, the Company replaced its line of credit in the Americas with a new revolving credit facility, which was subsequently amended (the “Credit Facility”). The Credit Facility expires April 2010 and provides for a secured revolving line of credit of up to $300 million (with a Company option to expand the facility to $350 million under certain conditions). The Credit Facility bears interest based on either LIBOR or an alternate base rate plus an applicable margin. The margin on the LIBOR rate is based on the Company’s fixed charge coverage ratio. The weighted average interest rate at October 31, 2007 is 6.7%. The Credit Facility includes a $125.0 million sublimit for letters of credit and a $35 million sublimit for borrowings in certain foreign currencies. As of October 31, 2007, $164.7 million was outstanding under the Credit Facility, in addition to outstanding letters of credit of $58.2 million. Of the amount outstanding, approximately $35.0 million represents outstanding borrowings of Roger Cleveland Golf Company, Inc. and are included in discontinued operations (Note 19).

The borrowing base is limited to certain percentages of the eligible accounts receivable and inventory from participating subsidiaries. The Credit Facility contains customary restrictive covenants for facilities and transactions of this type, including, among others, certain limitations on: incurrence of additional debt and guarantees of indebtedness; creation of liens; mergers, consolidations or sales of substantially all of the Company’s assets; sales or other dispositions of assets; distributions or dividends and repurchases of the Company’s common stock; restricted payments, including without limitation, certain restricted investments; engaging in transactions with non-participating subsidiaries of the Company and; sale and leaseback transactions. The Company’s United States assets and a portion of the stock of QS Holdings, SARL, a wholly-owned international subsidiary, have been pledged as collateral and to secure the Company’s indebtedness under the Credit Facility. As of October 31, 2007, the Company was in compliance with such covenants.

In Canada, the Company has arrangements with banks that provide for approximately $22.0 million of short term lines of credit. These lines of credit will be reviewed by the banks on various dates through 2008, and the Company believes the banks will continue to make these facilities available with substantially similar terms. The amount outstanding on these lines of credit at October 31, 2007 was $17.8 million at an average interest rate of 6.5%.

Quiksilver Europe has revolving lines of credit with banks that provide up to $479.0 million for cash borrowings and letters of credit. At October 31, 2007, these lines of credit bore interest at an average rate of 4.7%, and $234.6 million was outstanding in addition to outstanding letters of credit of $33.5 million. The lines of credit will be reviewed by the banks on various dates in 2008, and the Company believes that these lines of credit will continue to be available.

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Quiksilver Asia/Pacific has revolving lines of credit with banks that provide up to $116.0 million for cash borrowings and letters of credit. These lines of credit will be reviewed by the banks on various dates through 2008, and the Company believes these lines of credit will continue to be available with substantially similar terms. The amount outstanding on these lines of credit at October 31, 2007 was $61.6 million in addition to $6.4 million outstanding letters of credit at an average interest rate of 3.2%.

Quiksilver Europe also has $216.0 million of long-term debt as of October 31, 2007. This debt is with several banks and contains covenants that are customary for such long-term indebtedness, including among other things, minimum financial ratios of net debt to shareholders’ equity and term debt to cash flow. At October 31, 2007, the overall weighted average interest rate on this long-term debt was 4.2%. Principal and interest payments are required either monthly, quarterly or annually, and the loans are due at various dates through 2010.

During fiscal 2007, the Company was out of compliance with certain profitability covenants on a 50.0 million euro term loan of a Rossignol subsidiary in Europe. As of October 31, 2007, this debt was approximately $72.1 million (50.0 million euros). The Company obtained a waiver from the bank for the fiscal year ended October 31, 2007 and additionally amended the existing agreement to remove these financial covenants through October 2008. Accordingly, the Company continues to classify this debt as long term as of October 31, 2007.

As part of the acquisition of Rossignol, the Company deferred a portion of the purchase price. This deferred purchase price obligation is expected to be paid in 2010 and accrues interest equal to the 3-month Euribor plus 2.35% (currently 7.0%) and is denominated in euros. The carrying amount of the obligation fluctuates based on changes in the exchange rate between euros and U.S. dollars. As of October 31, 2007, the deferred purchase price obligation totaled $43.6 million.

Quiksilver Europe and Asia/Pacific also have approximately $17.1 million in capital leases and other borrowings as of October 31, 2007.

Principal payments on long-term debt are due approximately as follows (in thousands):

2008	$	34,306
2009		35,511
2010		279,253
2011		35,756
2012		21,213
Thereafter		400,395
	$	806,434

Note 8 — Accrued Liabilities

Accrued liabilities consist of the following:

	Years Ended October 31,
In thousands	2007		2006
Accrued employee compensation and benefits	$	64,477	$	66,465
Accrued sales and payroll taxes		28,766		21,914
Derivative liability		38,804		2,456
Accrued interest		7,448		4,748
Amounts payable for business acquisitions		31,518		26,683
Integration Plan and Pre-acquisition Restructuring Plan liabilities (Note 12)		24,845		48,408
Other liabilities		31,982		21,495
	$	227,840	$	192,169

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The following table provides a reconciliation of the activity related to the Company’s reserve for warranty expense, which is included in other accrued expenses in the accompanying balance sheets as of October 31:

	Years Ended October 31,
In thousands	2007			2006
Beginning balance	$	2,431		$	2,375
Warranty expense		871			1,270
Repairs and replacements made		(1,062	)		(1,214	)
Ending balance	$	2,240		$	2,431

Note 9 — Commitments and Contingencies

Operating Leases

The Company leases certain land and buildings under long-term operating lease agreements. The following is a schedule of future minimum lease payments required under such leases as of October 31, 2007 (in thousands):

2008	$	85,963
2009		77,814
2010		72,067
2011		64,209
2012		57,722
Thereafter		166,393
	$	524,168

Total rent expense was $95.1 million, $74.5 million and $44.0 million for the years ended October 31, 2007, 2006 and 2005, respectively.

Professional Athlete Sponsorships

We establish relationships with professional athletes in order to promote our products and brands. We have entered into endorsement agreements with professional athletes in sports such as skiing, surfing, skateboarding, snowboarding and windsurfing. Many of these contracts provide incentives for magazine exposure and competitive victories while wearing or using our products. Such expenses are an ordinary part of our operations and are expensed as incurred. The following is a schedule of future estimated minimum payments required under such endorsement agreements as of October 31, 2007 (in thousands):

2008	$	25,764
2009		8,175
2010		4,103
2011		2,480
2012		750
Thereafter		1,500
	$	42,772

Litigation

The Company has been named in a class action lawsuit that alleges willful violation of the federal Fair and Accurate Credit Transaction Act based upon certain of the Company’s retail stores’ alleged electronic printing of receipts on which appeared more than the last five digits of customers’ credit or debit card number and/or the expiration date of such customers’ credit or debit card. The Company is currently unable to assess the extent of damages, if any, that could be awarded to the plaintiff class if it were to prevail. The Company intends to vigorously defend itself against the claims asserted. No provision has been made in the Company’s financial statements for the year ended October 31, 2007.

The Company is involved from time to time in legal claims involving trademark and intellectual property, licensing, employee relations and other matters incidental to our business. The Company believes the resolution of any such matter currently pending will not have a material adverse effect on its financial condition or results of operations.

Indemnities and Guarantees

During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These

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include (i) intellectual property indemnities to the Company’s customers and licensees in connection with the use, sale and/or license of Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, (iii) indemnities to vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company, and (iv) indemnities involving the accuracy of representations and warranties in certain contracts. The duration of these indemnities, commitments and guarantees varies, and in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets.

Note 10 — Stockholders’ Equity

In March 2000, the Company’s stockholders approved the Company’s 2000 Stock Incentive Plan (the “2000 Plan”), which generally replaced the Company’s previous stock option plans. Under the 2000 Plan, 33,444,836 shares are reserved for issuance over its term, consisting of 12,944,836 shares authorized under predecessor plans plus an additional 20,500,000 shares. The plan was amended in March 2007 to allow for the issuance of restricted stock and restricted stock units. The maximum number of shares that may be reserved for issuance of restricted stock or restricted stock unit awards is 800,000. Nonqualified and incentive options may be granted to officers and employees selected by the plan’s administrative committee at an exercise price not less than the fair market value of the underlying shares on the date of grant. Payment by option holders upon exercise of an option may be made in cash or, with the consent of the committee, by delivering previously outstanding shares of the Company’s common stock. Options vest over a period of time, generally three years, as designated by the committee and are subject to such other terms and conditions as the committee determines. Certain stock options have also been granted to employees of acquired businesses under other plans. The Company issues new shares for stock option exercises and restricted stock grants.

Changes in shares under option are summarized as follows:

	Years Ended October 31,
	2007					2006					2005
				Weighted Average					Weighted Average					Weighted Average
In thousands	Shares			Price		Shares			Price		Shares			Price
Outstanding, beginning of year		18,135,699		$	8.61		17,366,457		$	7.63		15,084,168		$	5.56
Granted		1,247,051			15.19		2,338,300			13.67		3,877,800			14.44
Exercised		(1,804,515	)		5.74		(1,289,351	)		3.99		(1,477,010	)		3.96
Canceled		(267,186	)		13.48		(279,707	)		11.70		(148,501	)		10.12
Outstanding, end of year		17,311,049			9.30		18,135,699			8.61		17,336,457			7.63
Options exercisable, end of year		12,395,513			7.56		11,177,173			6.29		9,161,422			4.77

The aggregate intrinsic value of options exercised, outstanding and exercisable as of October 31, 2007 is $15.8 million, $78.7 million and $75.7 million, respectively. The weighted average life of options outstanding and exercisable as of October 31, 2007 is 5.7 and 4.8 years, respectively.

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Outstanding stock options at October 31, 2007 consist of the following:

		Options Outstanding						Options Exercisable
				Weighted Average		Weighted Average				Weighted Average
Range of Exercise Prices		Shares		Remaining Life		exercise Price		Shares		exercise Price
				(Years)
$1.64 - $3.27			1,528,948		1.4	$	2.78		1,528,948	$	2.78
$3.28 - $4.91			3,488,754		3.2		3.92		3,488,754		3.92
$4.92 - $6.54			104,000		4.5		5.72		104,000		5.72
$6.55 - $8.18			2,253,011		5.2		6.82		2,253,011		6.82
$8.19 - $9.82			2,266,167		6.0		8.73		1,755,167		8.73
$9.83 - $11.45			760,668		6.5		11.07		613,334		11.05
$	11.46 - $14.72		5,627,501		7.6		14.02		2,481,635		14.07
$	14.73 - $16.36		1,282,000		8.9		15.68		170,664		16.31
			17,311,049		5.7		9.30		12,395,513		7.56

Changes in non-vested shares under option for the year ended October 31, 2007 are as follows:

				Weighted- Average Grant Date
	Shares			Fair Value
Non-vested, beginning of year		6,958,526		$	6.29
Granted		1,247,051			7.16
Vested		(3,081,938	)		5.92
Canceled		(208,103	)		6.72
Non-vested, end of year		4,915,536			6.71

Of the 4.9 million non-vested shares under option as of October 31, 2007, approximately 4.2 million are expected to vest over the life of these non-vested options.

As of October 31, 2007, there were 2,608,373 shares of common stock that were available for future grant. Of these shares, 918,000 are available for issuance of restricted stock.

On November 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123(R). Prior to November 1, 2005, the Company had accounted for stock-based payments under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion 25 and related interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.” In accordance with APB 25, no compensation expense was required to be recognized for options granted that had an exercise price equal to the market value of the underlying common stock on the date of grant.

Under the modified prospective method of SFAS No. 123(R), compensation expense was recognized during the years ended October 31, 2007 and 2006 and includes compensation expense for all stock-based payments granted prior to, but not yet vested as of November 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and compensation expense for all stock based payments granted after November 1, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company’s financial results for the prior periods have not been restated. Compensation expense was included as selling, general and administrative expense for fiscal 2007 and 2006. The impact on cost of goods sold was not significant. The adoption of SFAS No. 123(R) had no impact on the Company’s cash flows.

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Consistent with the valuation method used for the disclosure only provisions of SFAS No. 123, the Company is using the Black-Scholes option-pricing model to value compensation expense. Forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The expected term of options granted is derived from historical data on employee exercises. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. Expected volatility is based on the historical volatility of the Company’s stock. The fair value of each option grant was estimated as of the grant date using the Black-Scholes option-pricing model for the years ended October 31, 2007, 2006 and 2005 assuming risk-free interest rates of 4.8%, 4.5% and 4.5%, respectively, volatility of 43.0%, 44.9% and 48.7%, respectively, zero dividend yield, and expected lives of 5.6, 5.2 and 5.1 years, respectively. The weighted average fair value of options granted was $7.16, $6.32 and $7.51 for the years ended October 31, 2007, 2006, and 2005, respectively. The Company records stock compensation expense using the graded vested method over the vesting period, which is generally three years. As of October 31, 2007, the Company had approximately $10.1 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 2.6 years.

The reported net income and net income per share for the year ended October 31, 2005 has been presented below to reflect the impact of the adoption of SFAS No. 123(R) had the Company been required to adopt this standard on November 1, 2004.

	Year Ended
In thousands, except per share amounts	October 31, 2005
Income from continuing operations	$	108,290
Less stock-based employee compensation expense determined under the fair value based method, net of tax		12,442
Pro forma income from continuing operations	$	95,848
Income per share from continuing operations	$	0.91
Pro forma net income per share from continuing operations	$	0.81
Income per share from continuing operations, assuming dilution	$	0.87
Pro forma net income per share from continuing operations, assuming dilution	$	0.78

In March 2006, the Company’s shareholders approved the 2006 Restricted Stock Plan and in March 2007, the Company’s shareholders approved an amendment to the 2000 Stock Incentive Plan whereby restricted shares and restricted stock units can be issued from such plan. Stock issued under these plans vests over a period of time, generally three to five years, and may have certain performance based acceleration features which allow for earlier vesting.

Changes in restricted stock are as follows:

	Years Ended October 31,
	2007			2006
Outstanding, beginning of year		800,000			—
Granted		87,000			800,000
Vested		—			—
Forfeited		(45,000	)		—
Outstanding, end of year		842,000			800,000

Compensation expense is determined using the intrinsic value method and forfeitures are estimated at the date of grant based on historical rates and reduce the compensation expense recognized. The Company monitors the probability of meeting the restricted stock performance criteria and will adjust the amortization period as appropriate. As of October 31, 2007, there had been no acceleration of the amortization period. As of October 31, 2007, the Company had approximately $8.1 million of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 2.1 years.

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The Company began the Quiksilver Employee Stock Purchase Plan (the “ESPP”) in fiscal 2001, which provides a method for employees of the Company to purchase common stock at a 15% discount from fair market value as of the beginning or end of each purchasing period of six months, whichever is lower. The ESPP covers substantially all full-time domestic and Australian employees who have at least five months of service with the Company. Since the adoption of SFAS 123(R), compensation expense has been recognized for shares issued under the ESPP plan. During the years ended October 31, 2007, 2006 and 2005, 92,187, 219,093 and 157,298 shares of stock were issued under the plan with proceeds to the Company of $1.1 million, $2.4 million and $1.6 million, respectively.

During the years ended October 31, 2007 and 2006, the Company recognized total compensation expense related to options, restricted stock and ESPP shares of approximately $16.9 million and $20.5 million, respectively.

Note 11 — Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income include net income, changes in fair value of derivative instruments qualifying as cash flow hedges, the fair value of interest rate swaps and foreign currency translation adjustments. The components of accumulated other comprehensive income, net of tax, are as follows:

	Years Ended October 31,
In thousands	2007			2006
Foreign currency translation adjustment	$	171,923		$	55,041
(Loss) gain on cash flow hedges and interest rate swaps		(23,806	)		(1,947	)
	$	148,117		$	53,094

Note 12 — Rossignol Integration Plan and Pre-acquisition Restructuring Plan

In connection with the acquisition of Rossignol, the Company formulated the Rossignol Integration Plan (the “Plan”). The Plan covers the global operations of Rossignol and the Company’s existing businesses, and it includes the evaluation of facility relocations, nonstrategic business activities, redundant functions and other related items. As of October 31, 2007, the Company had recognized approximately $62.5 million of liabilities related to the Plan, including employee relocation and severance costs, moving costs, and other costs related primarily to the consolidation of Rossignol’s administrative headquarters in Europe, the consolidation of Rossignol’s European distribution, the consolidation and realignment of certain European manufacturing facilities, and the relocation of the Company’s wintersports equipment sales and distribution operations in the United States. These liabilities were included in the allocation of the purchase price for Rossignol in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” Emerging Issues Task Force (“EITF”) Issue No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination.” As of October 31, 2007, the Company also recognized approximately $1.4 million in inventory impairments relating to the realignment of its European manufacturing facilities. Costs that are not associated with the acquired company but relate to activities or employees of the Company’s existing operations are not significant and are charged to earnings. Certain land and facilities owned by the acquired company are expected to be sold during the next 12 months in connection with the Plan, while others are anticipated to be refinanced through sale-leaseback arrangements. Assets currently held for sale, primarily in France, totaled approximately $15.3 million at October 31, 2007. If the Company has overestimated these integration costs, the excess will reduce goodwill in future periods. If the Company has underestimated these integration costs, additional liabilities recognized will be recorded in earnings.

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Activity and liability balances recorded as part of the Plan are as follows:

				Facility
In thousands	Workforce			and Other			Total
Recorded in purchase price allocation	$	3,673		$	1,574		$	5,247
Adjustment to purchase price allocation		17,463			752			18,215
Cash payments		(17	)		(44	)		(61	)
Foreign currency translation		(83	)		(6	)		(89	)
Balance, October 31, 2005		21,036			2,276			23,312
Adjustment to purchase price allocation		33,998			5,085			39,083
Cash payments		(14,122	)		(2,512	)		(16,634	)
Foreign currency translation		2,559			88			2,647
Balance, October 31, 2006		43,471			4,937			48,408
Cash payments		(25,589	)		(4,005	)		(29,594	)
Foreign currency translation		4,213			635			4,849
Balance, October 31, 2007	$	22,095		$	1,567		$	23,663

Prior to the acquisition of Rossignol, a restructuring plan was announced related to Rossignol’s French manufacturing facilities (“Pre-acquisition Restructuring Plan”). The costs associated with the Pre-acquisition Restructuring Plan consist of termination benefits achieved through voluntary early retirement and voluntary termination of certain employees.

Activity and liability balances recorded as part of the Pre-acquisition Restructuring Plan are as follows:

In thousands	Workforce
Balance, October 31, 2005	$	9,447
Cash payments		(6,926	)
Adjustment to purchase price allocation		(1,015	)
Foreign currency translation		81
Balance, October 31, 2006		1,587
Cash payments		(570	)
Foreign currency translation		165
Balance, October 31, 2007	$	1,182

Note 13 — Income Taxes

A summary of the provision for income taxes from continuing operations is as follows:

	Years Ended October 31,
In thousands	2007			2006			2005
Current:
Federal	$	(882	)	$	4,245		$	9,701
State		(334	)		(319	)		2,489
Foreign		35,367			25,291			34,883
		34,151			29,217			47,073
Deferred:
Federal		(5,364	)		(1,212	)		2,379
State		(857	)		(228	)		997
Foreign		(3,725	)		9,636			1,327
		(9,946	)		8,196			4,703
Provision for income taxes	$	24,205		$	37,413		$	51,776

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A reconciliation of the effective income tax rate to a computed “expected” statutory federal income tax rate is as follows:

	Years Ended October 31,
	2007			2006			2005
Computed “expected” statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit		(0.4	)		(0.3	)		1.1
Foreign tax rate differential		(1.3	)		(7.1	)		(1.8	)
Foreign tax exempt income		10.7			(5.6	)		(2.0	)
Repatriation of foreign earnings, net of credits		(0.6	)		5.1			(0.5	)
Goodwill impairment		(72.3	)		—			—
Stock-based compensation		(2.8	)		1.6			—
Other		(0.8	)		(0.3	)		0.5
Effective income tax rate		(32.5	)%		28.4	%		32.3	%

The components of net deferred income taxes are as follows:

	Years Ended October 31,
In thousands	2007			2006
Deferred income tax assets:
Allowance for doubtful accounts	$	18,910		$	20,160
Other comprehensive income		35,049			5,915
Operating loss carryforwards		28,146			29,953
Nondeductible accruals and other		45,889			51,119
		127,994			107,147
Deferred income tax liabilities:
Depreciation and amortization		(17,898	)		(18,625	)
Intangibles		(54,277	)		(52,487	)
		(72,175	)		(71,112	)
Deferred income taxes		55,819			36,035
Valuation allowance		(22,422	)		(26,454	)
Net deferred income taxes	$	33,397		$	9,581

The tax benefits from the exercise of certain stock options are reflected as additions to paid-in capital.

Income (loss) before provision for income taxes includes $(5.4) million, $147.6 million and $124.6 million from foreign jurisdictions for the years ended October 31, 2007, 2006 and 2005, respectively. The Company does not provide for the U.S. federal, state or additional foreign income tax effects on certain foreign earnings that management intends to permanently reinvest. As of October 31, 2007, foreign earnings earmarked for permanent reinvestment totaled approximately $513.2 million.

At October 31, 2007, the Company has U.S. and state net operating loss carryforwards of approximately $2.2 million and $8.1 million, respectively, which will expire on various dates through 2027. In addition, the Company has foreign net operating loss carryforwards of approximately $75.1 million for the year ended October 31, 2007. Approximately $29.9 million will be carried forward until fully utilized, with the remaining $45.2 million expiring on various dates through 2027.

The change in valuation allowance of $4.0 million for fiscal 2007 relates primarily to the change in balances of acquired deferred tax assets that were offset by a full valuation allowance recorded in connection with the Rossignol Acquisition. Additional changes in valuation allowances were recorded in connection with certain net operating losses that were incurred during the year.

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Note 14 — Employee Plans

Retirement and additional pension plan benefits

The Company’s Skis Rossignol SAS subsidiary pays employees retirement indemnities in a lump sum at the date of retirement, which are calculated based on years of service and compensation levels. These liabilities are unfunded and are accounted for as a defined benefit obligation under SFAS No. 87, “Employers Accounting for Pensions.”

Pursuant to SFAS No. 87, the Company records a net periodic pension cost in its statement of income, which represents the cost of the pension benefit for the period. There are no unrecognized benefit obligations at October 31, 2007, 2006 and 2005. These amounts are determined using an assumed discount rate of 5.3%, 4.40% and 3.50%, an average salary increase of 2.00%, 2.00% and 2.25%, a turnover rate of 2.00%, and an inflation rate of 1.85%, 1.85% and 1.75% for the years ended October 31, 2007, 2006 and 2005 respectively. The following table summarizes the components of net periodic pension cost and the change in the benefit obligation:

	Year Ended October 31,
In thousands	2007			2006			2005
Net periodic pension cost:
Service cost	$	995		$	1,109		$	261
Interest charge		151			153			101
Realized actuarial (gains) losses during the period		(345	)		(529	)		61
	$	801		$	733		$	423
Benefit obligation:
Balance, beginning of period		9,342			9,984			9,704
Disbursements		(1,864	)		(1,375	)		(143	)
Net periodic pension costs		801			733			423
Balance, end of period	$	8,279		$	9,342		$	9,984

The following represents estimated future gross benefit payments related to the pension plan as of October 31, 2007:

In thousands
2008	$	562
2009		418
2010		370
2011		406
2012		448
Thereafter		6,075
	$	8,279

The Company maintains the Quiksilver 401(k) Employee Savings Plan and Trust (the “401(k) Plan”). This plan is generally available to all domestic employees with six months of service and is funded by employee contributions and periodic discretionary contributions from the Company, which are approved by the Company’s Board of Directors. The Company made contributions of $1.0 million, $0.9 million and $0.9 million to the 401(k) Plan for the years ended October 31, 2007, 2006 and 2005, respectively. The Company also made contributions of $0.1 million, $0.1 million and $0.2 million for the years ended October 31, 2007, 2006 and 2005, respectively, to 401(k) plans maintained on behalf of employees in certain Rossignol subsidiaries in the United States.

Employees of certain of the Company’s French subsidiaries including Na Pali SAS, Skis Rossignol SAS, Skis Dynastar SAS and Look Fixations, with three months of service are covered under French Profit Sharing Plans (the “French Profit Sharing Plans”), which are mandated by law. Compensation is earned

66

under the French Profit Sharing Plans based on statutory computations with an additional discretionary component. Funds are maintained by the Company and vest with the employees after five years, although earlier disbursement is optional if certain personal events occur or upon the termination of employment. Compensation expense of $4.1 million, $2.1 million and $3.2 million was recognized related to the French Profit Sharing Plans for the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

Note 15 — Segment and Geographic Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company’s management in deciding how to allocate resources and in assessing performance. The Company operates in the outdoor market of the sporting goods industry in which the Company designs, produces and distributes clothing, wintersports equipment, footwear, accessories and related products. The Company operates in three segments, the Americas, Europe and Asia/Pacific. The Americas segment includes revenues primarily from the United States and Canada, while the European segment includes revenues primarily from Western Europe, and the Asia/Pacific segment includes revenues primarily from Australia, Japan, New Zealand and Indonesia. Costs that support all three operating segments, including trademark protection, trademark maintenance and licensing functions are part of corporate operations. Corporate operations also includes sourcing income and gross profit earned from the sale of products to certain licensees. The Company’s largest customer accounts for approximately 4% of its revenues.

The Company produces different product lines within each geographical segment. The percentages of revenues attributable to each product line are as follows:

	Percentage of Revenues
	2007			2006			2005
Apparel		58	%		57	%		68	%
Footwear		15			12			11
Wintersports equipment		14			19			9
Accessories		13			12			12
		100	%		100	%		100	%

67

Information related to the Company’s operating segments is as follows:

In thousands	Years Ended October 31,
	2007			2006			2005
Revenues, net:
Americas	$	1,092,076		$	939,370		$	801,836
Europe		1,070,053			1,002,475			709,510
Asia/Pacific		259,093			253,003			219,241
Corporate operations		4,813			5,386			3,941
Consolidated	$	2,426,035		$	2,200,234		$	1,734,528
Gross profit:
Americas	$	444,286		$	375,022		$	316,778
Europe		551,738			512,909			361,172
Asia/Pacific		122,525			116,047			109,298
Corporate operations		3,692			2,318			1,298
Consolidated	$	1,122,241		$	1,006,296		$	788,546
Operating (loss) income:
Americas	$	68,232		$	93,132		$	85,049
Europe		(33,711	)		115,974			103,308
Asia/Pacific		5,114			21,723			29,800
Corporate operations		(55,157	)		(51,558	)		(37,061	)
Consolidated	$	(15,522	)	$	179,271		$	181,096
Identifiable assets:
Americas	$	897,029		$	851,260		$	813,549
Europe		1,313,311			1,198,803			977,057
Asia/Pacific		375,439			346,491			313,993
Corporate operations		55,749			50,674			54,002
Consolidated	$	2,641,528		$	2,447,228		$	2,158,601
Goodwill:
Americas	$	86,813		$	105,100		$	118,687
Europe		184,803			247,849			175,392
Asia/Pacific		145,667			122,546			129,037
Consolidated	$	417,283		$	475,495		$	423,116

France accounted for 34.5%, 34.1% and 36.2% of European net sales to unaffiliated customers for the years ended October 31, 2007, 2006 and 2005, respectively, while Spain accounted for 16.1%, 14.4% and 15.2%, respectively, and the United Kingdom accounted for 11.2%, 9.9% and 15.5%, respectively. Identifiable assets in the United States totaled $882.1 million as of October 31, 2007.

Note 16 — Derivative Financial Instruments

The Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to certain sales, royalty income, and product purchases of its international subsidiaries that are denominated in currencies other than their functional currencies. The Company is also exposed to foreign currency gains and losses resulting from domestic transactions that are not denominated in U.S. dollars, and to fluctuations in interest rates related to its variable rate debt. Furthermore, the Company is exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in the Company’s consolidated financial statements due to the translation of the operating results and financial position of the Company’s international subsidiaries. As part of its overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses various foreign currency exchange contracts and intercompany loans. In

68

addition, interest rate instruments are used to manage the Company’s exposure to the risk of fluctuations in interest rates.

Derivatives that do not qualify for hedge accounting but are used by management to mitigate exposure to currency risks are marked to fair value with corresponding gains or losses recorded in earnings. A loss of $1.8 million was recognized related to these types of contracts during fiscal 2007. For all qualifying cash flow hedges, the changes in the fair value of the derivatives are recorded in other comprehensive income. As of October 31, 2007, the Company was hedging transactions expected to occur through October 2009. Assuming exchange rates at October 31, 2007 remain constant, $23.8 million of losses, net of tax, related to hedges of these transactions are expected to be reclassified into earnings over the next 24 months.

On the date the Company enters into a derivative contract, management designates the derivative as a hedge of the identified exposure. The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for entering into various hedge transactions. In this documentation, the Company identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and indicates how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. The Company would discontinue hedge accounting prospectively (i) if management determines that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item, (ii) when the derivative expires or is sold, terminated, or exercised, (iii) if it becomes probable that the forecasted transaction being hedged by the derivative will not occur, (iv) because a hedged firm commitment no longer meets the definition of a firm commitment, or (v) if management determines that designation of the derivative as a hedge instrument is no longer appropriate. As a result of the expiration, sale, termination, or exercise of derivative contracts, the Company reclassified into earnings net losses (gains) of $8.3 million, $(0.8) million and $5.3 million during the fiscal years ended October 31, 2007, 2006 and 2005, respectively.

The Company enters into forward exchange and other derivative contracts with major banks and is exposed to credit losses in the event of nonperformance by these banks. The Company anticipates, however, that these banks will be able to fully satisfy their obligations under the contracts. Accordingly, the Company does not obtain collateral or other security to support the contracts.

A summary of derivative contracts at October 31, 2007 is as follows:

	Notional			Fair
In thousands	Amount		Maturity	Value
United States dollar	$	470,870	Nov. 2007 — Oct. 2009	$	(38,438	)
Canadian dollar		16,763	Dec. 2007 — Apr. 2008		353
Japanese yen		8,721	Dec. 2007 — Dec. 2008		(690	)
Interest rate instruments		23,775	Apr. 2008 — Sept. 2009		(29	)
	$	520,129		$	(38,804	)

69

Note 17 — Quarterly Financial Data (Unaudited)

A summary of quarterly financial data (unaudited) is as follows:

	Quarter Ended
In thousands, except per share amounts	January 31			April 30			July 31			October 31
Year ended October 31, 2007
Revenues, net	$	528,677		$	557,227		$	560,930		$	779,201
Gross profit		248,929			253,943			260,706			358,663
Income (loss) from continuing operations		6,809			(1,880	)		1,289			(104,866	)
Loss from discontinued operations		(4,336	)		(2,920	)		(9,156	)		(6,059	)
Net income (loss)		2,473			(4,800	)		(7,867	)		(110,925	)
Income (loss) per share from continuing operations, assuming dilution		0.05			(0.02	)		0.01			(0.84	)
Loss per share from discontinued operations, assuming dilution		(0.04	)		(0.02	)		(0.07	)		(0.05	)
Net income (loss) per share, assuming dilution		0.02			(0.04	)		(0.06	)		(0.89	)
Trade accounts receivable		566,065			543,532			561,388			760,430
Inventories		442,832			420,760			510,983			447,282
Year ended October 31, 2006
Revenues, net	$	518,558		$	466,150		$	483,696		$	731,830
Gross profit		238,251			209,223			228,526			330,296
Income from continuing operations		21,414			2,319			4,606			65,764
(Loss) income from discontinued operations		(2,811	)		1,410			730			(416	)
Net income		18,603			3,729			5,336			65,348
Income per share from continuing operations, assuming dilution		0.17			0.02			0.04			0.51
(Loss) income per share from discontinued operations, assuming dilution		(0.02	)		0.01			—			—
Net income per share, assuming dilution		0.15			0.03			0.04			0.51
Trade accounts receivable		500,858			439,898			455,553			674,734
Inventories		354,878			351,598			466,519			389,663

Note 18 — Condensed Consolidating Financial Information

In December 2005, the Company completed an exchange offer to exchange the Senior Notes for publicly registered notes with identical terms. Obligations under the Company’s Senior Notes are fully and unconditionally guaranteed by certain of its existing domestic subsidiaries.

The Company is required to present condensed consolidating financial information for Quiksilver, Inc. and its domestic subsidiaries within the notes to the consolidated financial statements in accordance with the criteria established for parent companies in the SEC’s Regulation S-X, Rule 3-10(f). The following condensed consolidating financial information presents the results of operations, financial position and cash flows of Quiksilver Inc., its Guarantor subsidiaries, its non-Guarantor subsidiaries and the eliminations necessary to arrive at the information for the Company on a consolidated basis as of October 31, 2007 and 2006 and for the years ended October 31, 2007, 2006 and 2005. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. During fiscal year 2007, the Company acquired the remaining minority interest share of Roger Cleveland Golf, Company, Inc. a guarantor subsidiary. As a result, Roger Cleveland Golf Company, Inc. is now included with wholly-owned guarantor subsidiaries for all periods presented.

70

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended October 31, 2007

				Wholly-
				owned			Non-
	Quiksilver,			Guarantor			Guarantor
In thousands	Inc.			Subsidiaries			Subsidiaries			Elimination			Consolidated
Revenues, net	$	19		$	956,031		$	1,517,741		$	(47,756	)	$	2,426,035
Cost of goods sold		—			570,605			750,813			(17,624	)		1,303,794
Gross profit		19			385,426			766,928			(30,132	)		1,122,241
Selling, general and administrative expense		59,086			280,793			661,420			(29,888	)		971,411
Asset impairments		—			35,508			130,844			—			166,352
Operating (loss) income		(59,067	)		69,125			(25,336	)		(244	)		(15,522	)
Interest expense		43,480			5,129			8,414			—			57,023
Foreign currency loss (gain)		3,008			1,629			(2,860	)		—			1,777
Minority interest and Other (income) expense		—			(73	)		194			—			121
(Loss) income before provision (benefit) for income taxes		(105,555	)		62,440			(31,084	)		(244	)		(74,443	)
(Benefit) provision for income taxes		(18,210	)		10,773			31,642			—			24,205
(Loss) income from continuing operations		(87,345	)		51,667			(62,726	)		(244	)		(98,648	)
Loss from discontinued operations		(386	)		(18,959	)		(2,686	)		(440	)		(22,471	)
Net (loss) income	$	(87,731	)	$	32,708		$	(65,412	)	$	(684	)	$	(121,119	)

71

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended October 31, 2006

				Wholly-owned		Non-
	Quiksilver,			Guarantor		Guarantor
In thousands	Inc.			Subsidiaries		Subsidiaries			Elimination			Consolidated
Revenues, net	$	592		$	856,939	$	1,391,837		$	(49,134	)	$	2,200,234
Cost of goods sold		—			518,894		699,535			(24,491	)		1,193,938
Gross profit		592			338,045		692,302			(24,643	)		1,006,296
Selling, general and administrative expense		49,142			263,665		538,686			(24,468	)		827,025
Operating (loss) income		(48,550	)		74,380		153,616			(175	)		179,271
Interest expense		38,301			3,933		5,210			—			47,444
Foreign currency (gain) loss		(730	)		43		695			—			8
Minority interest and other expense		—			—		303			—			303
(Loss) income before (benefit) provision for income taxes		(86,121	)		70,404		147,408			(175	)		131,516
(Benefit) provision for income taxes		(23,684	)		26,460		34,637			—			37,413
(Loss) income from continuing operations		(62,437	)		43,944		112,771			(175	)		94,103
Income (loss) from discontinued operations		—			539		(1,261	)		(365	)		(1,087	)
Net (loss) income	$	(62,437	)	$	44,483	$	111,510		$	(540	)	$	93,016

72

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended October 31, 2005

				Wholly-owned			Non-
	Quiksilver,			Guarantor			Guarantor
In thousands	Inc.			Subsidiaries			Subsidiaries			Elimination			Consolidated
Revenues, net	$	2,904		$	800,526		$	965,449		$	(34,351	)	$	1,734,528
Cost of goods sold		—			486,814			470,548			(11,380	)		945,982
Gross profit		2,904			313,712			494,901			(22,971	)		788,546
Selling, general and administrative expense		31,690			232,797			365,623			(22,660	)		607,450
Operating (loss) income		(28,786	)		80,915			129,278			(311	)		181,096
Interest expense		12,940			4,064			3,821			—			20,825
Foreign currency (gain) loss		(356	)		381			(185	)		—			(160	)
Minority interest and Other expense		—			—			365			—			365
(Loss) income before (benefit) provision for income taxes		(41,370	)		76,470			125,277			(311	)		160,066
(Benefit) provision for income taxes		(14,972	)		30,307			36,441			—			51,776
(Loss) income from continuing operations		(26,398	)		46,163			88,836			(311	)		108,290
Loss from discontinued operations		—			(543	)		(627	)		—			(1,170	)
Net (loss) income	$	(26,398	)	$	45,620		$	88,209		$	(311	)	$	107,120

73

CONDENSED CONSOLIDATING BALANCE SHEET

AT OCTOBER 31, 2007

				Wholly-owned			Non-
				Guarantor			Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries			Subsidiaries			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	12		$	13,254		$	61,082		$	—		$	74,348
Trade accounts receivable, net		—			248,392			512,038			—			760,430
Other receivables		775			13,574			55,752			—			70,101
Inventories		—			152,700			295,878			(1,296	)		447,282
Deferred income taxes		—			18,143			44,054			—			62,197
Prepaid expenses and other current assets		1,596			7,729			15,894			—			25,219
Current assets held for sale		—			53,044			21,662			(1,021	)		73,685
Total current assets		2,383			506,836			1,006,360			(2,317	)		1,513,262
Fixed assets, net		6,959			100,803			239,560			—			347,322
Intangible assets, net		2,626			47,282			175,734			—			225,642
Goodwill		—			126,437			290,846			—			417,283
Investment in subsidiaries		569,492			—			—			(569,492	)		—
Other assets		10,120			5,967			30,176			—			46,263
Non-current assets held for sale		—			72,679			19,077			—			91,756
Total assets	$	591,580		$	860,004		$	1,761,753		$	(571,809	)	$	2,641,528
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	—		$	—		$	313,996		$	—		$	313,996
Accounts payable		2,086			111,086			173,635			—			286,807
Accrued liabilities		20,287			41,986			165,567			—			227,840
Current portion of long-term debt		—			—			34,306			—			34,306
Income taxes payable		—			3,331			3,856			—			7,187
Intercompany balances		178,353			(6,389	)		(171,964	)		—			—
Current liabilities of assets held for sale		—			7,274			3,995			—			11,269
Total current liabilities		200,726			157,288			523,391			—			881,405
Long-term debt		400,000			129,700			242,428			—			772,128
Deferred income taxes and other long-term liabilities		—			10,548			37,918			—			48,466
Non-current liabilities of assets held for sale		—			52,812			104			—			52,916
Total liabilities		600,726			350,348			803,841			—			1,754,915
Minority Interest		—			—			—			—			—
Stockholders’/invested equity		(9,146	)		509,656			957,912			(571,809	)		886,613
Total liabilities and stockholders’ equity	$	591,580		$	860,004		$	1,761,753		$	(571,809	)	$	2,641,528

74

CONDENSED CONSOLIDATING BALANCE SHEET

AT OCTOBER 31, 2006

			Wholly-owned		Non-
			Guarantor		Guarantor
In thousands	Quiksilver, Inc.		Subsidiaries		Subsidiaries			Elimination			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	8	$	3,392	$	33,434		$	—		$	36,834
Trade accounts receivable, net		—		205,682		469,052			—			674,734
Other receivables		1,190		12,585		20,415			—			34,190
Inventories		—		142,807		248,125			(1,269	)		389,663
Deferred income taxes		—		14,241		67,193			—			81,434
Prepaid expenses and other current assets		1,703		9,909		15,232			—			26,844
Current assets held for sale				71,508		18,340			(365	)		89,483
Total current assets		2,901		460,124		871,791			(1,634	)		1,333,182
Fixed assets, net		6,343		83,379		188,252			—			277,974
Intangible assets, net		2,452		47,225		163,095			—			212,772
Goodwill		—		127,480		348,015			—			475,495
Investment in subsidiaries		561,992		—		—			(561,992	)		—
Other assets		10,909		4,707		30,012			—			45,628
Non-current assets held for sale		—		81,738		20,439			—			102,177
Total assets	$	584,597	$	804,653	$	1,621,604		$	(563,626	)	$	2,447,228
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Lines of credit	$	—	$	209	$	315,682		$	—		$	315,891
Accounts payable		2,303		89,045		123,553			—			214,901
Accrued liabilities		13,535		43,867		134,796			(29	)		192,169
Current portion of long-term debt		—		4,305		20,316			—			24,621
Income taxes payable		—		14,626		(12,782	)		—			1,844
Intercompany balances		72,386		55,117		(127,503	)		—			—
Current liabilities of assets held for sale		—		10,564		4,596			—			15,160
Total current liabilities		88,224		217,733		458,658			(29	)		764,586
Long-term debt		433,701		77,150		129,457			—			640,308
Deferred income taxes and other long-term liabilities		—		11,603		75,208			—			86,811
Non-current liabilities of assets held for sale		—		58,817		4,386			—			63,203
Total liabilities		521,925		365,303		667,709			(29	)		1,554,908
Minority interest		—		11,193		—			—			11,193
Stockholders’/invested equity		62,672		428,157		953,895			(563,597	)		881,127
Total liabilities and stockholders’ equity	$	584,597	$	804,653	$	1,621,604		$	(563,626	)	$	2,447,228

75

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended October 31, 2007

				Wholly-owned			Non-
				Guarantor			Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries			Subsidiaries			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(87,731	)	$	32,708		$	(66,096	)	$	(121,119	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss from discontinued operations		386			18,959			3,126			22,471
Depreciation and amortization		629			21,015			45,250			66,894
Stock-based compensation and tax benefit option exercises		14,003			—			—			14,003
Provision for doubtful accounts		—			3,767			4,775			8,542
Asset impairments		—			35,508			130,844			166,352
Other adjustments to reconcile net (loss) income		903			(6,866	)		6,558			595
Changes in operating assets and liabilities:
Trade accounts receivable		—			(46,478	)		3,763			(42,715	)
Inventories		—			(9,533	)		(8,988	)		(18,521	)
Other operating assets and liabilities		19,752			22,286			(12,664	)		29,374
Cash (used in) provided by operating activities of continuing operations		(52,058	)		71,366			106,568			125,876
Cash provided by operating activities of discontinued operations		386			1,272			(3,282	)		(1,624	)
Net cash (used in) provided by operating activities		(51,672	)		72,638			103,286			124,252
Cash flows from investing activities:
Proceeds from the sale of properties and equipment		—			4,463			12,892			17,355
Capital expenditures		(1,419	)		(42,066	)		(72,805	)		(116,290	)
Business acquisitions, net of cash acquired		(1,297	)		(20,628	)		(20,629	)		(42,554	)
Cash used in investing activities of continuing operations		(2,716	)		(58,231	)		(80,542	)		(141,489	)
Cash used in investing activities of discontinued operations		—			(18,771	)		(230	)		(19,001	)
Net cash used in investing activities		(2,716	)		(77,002	)		(80,772	)		(160,490	)
Cash flows from financing activities:
Borrowings on lines of credit		—			—			156,189			156,189
Payments on lines of credit		—			(209	)		(186,441	)		(186,650	)
Borrowings on long-term debt		—			123,250			86,683			209,933
Payments on long-term debt		—			(74,375	)		(29,983	)		(104,358	)
Proceeds from stock option exercises		14,253			—			—			14,253
Intercompany		40,139			(25,646	)		(14,493	)		—
Cash provided by financing activities of continuing operations		54,392			23,020			11,955			89,367
Cash used in financing activities of discontinued operations		—			(8,794	)		(756	)		(9,550	)
Net cash provided by financing activities		54,392			14,226			11,199			79,817
Effect of exchange rate changes on cash		—			—			(6,065	)		(6,065	)
Net increase in cash and cash equivalents		4			9,862			27,648			37,514
Cash and cash equivalents, beginning of period		8			3,392			33,434			36,834
Cash and cash equivalents, end of period	$	12		$	13,254		$	61,082		$	74,348

76

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended October 31, 2006

				Wholly-owned			Non-
				Guarantor			Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries			Subsidiaries			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(62,437	)	$	44,483		$	110,970		$	93,016
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss (income) from discontinued operations		—			(174	)		1,261			1,087
Depreciation and amortization		251			18,560			43,823			62,634
Stock-based compensation and tax benefit on option exercises		20,751			(256	)		—			20,495
Provision for doubtful accounts		—			(2,113	)		4,387			2,274
Other adjustments to reconcile net (loss) income		(68	)		1,245			9,451			10,628
Changes in operating assets and liabilities:
Trade accounts receivable		—			(11,865	)		(75,264	)		(87,129	)
Inventories		—			(33,809	)		8,877			(24,932	)
Other operating assets and liabilities		(1,138	)		5,708			(87,681	)		(83,111	)
Cash (used in) provided by operating activities of continuing operations		(42,641	)		21,779			15,824			(5,038	)
Cash used in operating activities of discontinued operations		—			(1,494	)		(1,766	)		(3,260	)
Net cash (used in) provided by operating activities		(42,641	)		20,285			14,058			(8,298	)
Cash flows from investing activities:
Proceeds from the sale of properties and equipment		—			13			5,100			5,113
Capital expenditures		(4,057	)		(35,111	)		(56,348	)		(95,516	)
Business acquisitions, net of cash acquired		(3,074	)		(8,812	)		(26,548	)		(38,434	)
Cash used in investing activities of continuing operations		(7,131	)		(43,910	)		(77,796	)		(128,837	)
Cash used in investing activities of discontinued operations		—			(1,950	)		(2,560	)		(4,510	)
Net cash used in investing activities		(7,131	)		(45,860	)		(80,356	)		(133,347	)
Cash flows from financing activities:
Borrowings on lines of credit		—			374			312,029			312,403
Payments on lines of credit		—			(6,727	)		(213,704	)		(220,431	)
Borrowings on long-term debt		—			62,781			57,471			120,252
Payments on long-term debt		(840	)		(24,012	)		(103,067	)		(127,919	)
Proceeds from stock option exercises		11,212			—			—			11,212
Intercompany		38,145			(29,442	)		(8,703	)		—
Cash provided by financing activities of continuing operations		48,517			2,974			44,026			95,517
Cash provided by financing activities of discontinued operations		—			4,713			5,760			10,473
Net cash provided by financing activities		48,517			7,687			49,786			105,990
Effect of exchange rate changes on cash		86			(522	)		(2,673	)		(3,109	)
Net decrease in cash and cash equivalents		(1,169	)		(18,410	)		(19,185	)		(38,764	)
Cash and cash equivalents, beginning of period		1,177			21,802			52,619			75,598
Cash and cash equivalents, end of period	$	8		$	3,392		$	33,434		$	36,834

77

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Year Ended October 31, 2005

				Wholly-owned			Non-
				Guarantor			Guarantor
In thousands	Quiksilver, Inc.			Subsidiaries			Subsidiaries			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(26,398	)	$	45,620		$	87,898		$	107,120
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Loss from discontinued operations		—			543			627			1,170
Depreciation and amortization		246			15,755			25,069			41,070
Provision for doubtful accounts		—			1,636			1,956			3,592
Other adjustments to reconcile net (loss) income		(224	)		2,932			6,518			9,226
Changes in operating assets and liabilities:
Trade accounts receivable		—			(64,035	)		(161,752	)		(225,787	)
Inventories		—			22,706			12,771			35,477
Other operating assets and liabilities		(5,495	)		19,870			20,487			34,862
Cash (used in) provided by operating activities of continuing operations		(31,871	)		45,027			(6,426	)		6,730
Cash used in by operating activities of discontinued operations		—			(8,144	)		—			(8,144	)
Net cash (used in) provided by operating activities		(31,871	)		36,883			(6,426	)		(1,414	)
Cash flows from investing activities:
Capital expenditures		(2,473	)		(30,094	)		(37,623	)		(70,190	)
Business acquisitions, net of cash acquired		(231,948	)		(11,885	)		(8,032	)		(251,865	)
Cash used in investing activities of continuing operations		(234,421	)		(41,979	)		(45,655	)		(322,055	)
Cash used in investing activities of discontinued operations		—			(668	)		—			(668	)
Net cash used in investing activities		(234,421	)		(42,647	)		(45,655	)		(322,723	)
Cash flows from financing activities:
Borrowings on lines of credit		—			6,208			116,768			122,976
Payments on lines of credit		—			(51,162	)		(45,925	)		(97,087	)
Borrowings on long-term debt		484,843			(32,370	)		135,983			588,456
Payments on long-term debt		(140,705	)		(50,738	)		(93,010	)		(284,453	)
Proceeds from stock option exercises		8,188			—			—			8,188
Intercompany		(81,518	)		135,860			(54,342	)		—
Cash provided by financing activities of continuing operations		270,808			7,798			59,474			338,080
Cash provided by financing activities of discontinued operations		—			9,786			—			9,786
Net cash provided by financing activities		270,808			17,584			59,474			347,866
Effect of exchange rate changes on cash		(2,269	)		493			(1,552	)		(3,328	)
Net increase in cash and cash equivalents		2,247			12,313			5,841			20,401
Cash and cash equivalents, beginning of period		(1,070	)		9,489			46,778			55,197
Cash and cash equivalents, end of period	$	1,177		$	21,802		$	52,619		$	75,598

78

Note 19 — Discontinued Operations

In October 2007, the Company entered into an agreement to sell its golf equipment business which includes Roger Cleveland Golf Company, Inc. and certain other related international subsidiaries for approximately $132.5 million. Majority ownership in this business was originally acquired in fiscal 2005 as part of the Rossignol acquisition. In September 2007, the Company acquired the remaining 36.37% minority interest in Roger Cleveland Golf Company, Inc. (Note 2). The golf equipment business assets are classified as held for sale and the operations of the golf equipment business are classified as discontinued operations for all periods presented. The Company closed this transaction during December 2007. The Company plans to use the net proceeds from this sale to repay existing indebtedness.

The operating results of discontinued operations included in the accompanying consolidated statements of operations were as follows:

In thousands	Years Ended October 31,
	2007			2006			2005
Revenues, net	$	162,173		$	162,054		$	46,341
Loss before income taxes		(20,487	)		(174	)		(1,720	)
Provision (benefit) for income taxes		1,984			913			(550	)
Loss from discontinued operations	$	(22,471	)	$	(1,087	)	$	(1,170	)

The loss from discontinued operations from fiscal 2007 includes asset impairments of $8.2 million.

The components of assets and liabilities of discontinued operations at October 31, 2007 are as follows:

In thousands	Year Ended October 31, 2007
Current assets:
Receivables, net	$	40,309
Inventories		26,415
Other current assets		6,961
	$	73,685
Non-current assets:
Fixed assets, net	$	3,619
Goodwill and intangible assets, net		72,540
Other assets		301
	$	76,460
Current liabilities:
Accounts payable	$	6,614
Other current liabilities		4,655
	$	11,269
Non-current liabilities:
Long-term debt	$	35,000
Other non-current liabilities		17,916
	$	52,916

79

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.

Date: December 28, 2007

QUIKSILVER, INC.
(Registrant)

By:	/s/ Robert B. McKnight, Jr.	By:	/s/ Brad L. Holman
	Robert B. McKnight, Jr.		Brad L. Holman
	Chairman of the Board and		Vice President of Accounting and
	Chief Executive Officer		Financial Reporting
	(Principal Executive Officer)		(Principal Accounting Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose signature appears below hereby constitutes and appoints Robert B. McKnight, Jr. and Brad L. Holman, each of them acting individually, as his attorney-in-fact, each with the full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming our signatures as they may be signed by our said attorney-in-fact and any and all amendments to this Annual Report on Form 10-K.

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:

Signatures	Title	Date Signed
/s/ Robert B. McKnight, Jr. Robert B. McKnight, Jr.	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)	December 28, 2007
/s/ Joseph Scirocco Joseph Scirocco	Chief Financial Officer (Principal Financial Officer)	December 28, 2007
/s/ Brad L. Holman Brad L. Holman	Vice President of Accounting and Financial Reporting (Principal Accounting Officer)	December 28, 2007
/s/ Bernard Mariette Bernard Mariette	President and Director	December 28, 2007
/s/ Charles S. Exon Charles Exon	Executive Vice President, General Counsel and Director	December 28, 2007
/s/ Douglas K. Ammerman Douglas K. Ammerman	Director	December 28, 2007

80

Signatures	Title	Date Signed
/s/ William M. Barnum, Jr. William M. Barnum, Jr.	Director	December 28, 2007
/s/ Charles E. Crowe Charles E. Crowe	Director	December 28, 2007
/s/ Michael H. Gray Michael H. Gray	Director	December 28, 2007
/s/ Timothy Harmon Timothy Harmon	Director	December 28, 2007
/s/ Heidi J. Ueberroth Heidi J. Ueberroth	Director	December 28, 2007

81

EXHIBIT INDEX

DESCRIPTION

Exhibit
Number
2.1	Stock Purchase Agreement between the Company and the Sellers of DC Shoes, Inc. dated March 8, 2004 (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed on May 18, 2004).
2.2	First Amendment to the Stock Purchase Agreement between the Company and the Sellers of DC Shoes, Inc. dated May 3, 2004 (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K filed on May 18, 2004).
2.3	Stock Purchase Agreement between the Roger Cleveland Golf Company, Inc., Rossignol Ski Company, Incorporated, the Company and SRI Sports Limited dated October 30, 2007.
2.4	Amendment No. 1 to the Stock Purchase Agreement between the Roger Cleveland Golf Company, Inc., Rossignol Ski Company, Incorporated, the Company and SRI Sports Limited dated December 7, 2007.
3.1	Restated Certificate of Incorporation of Quiksilver, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2004).
3.2	Certificate of Amendment of Restated Certificate of Incorporation of Quiksilver, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005).
3.3	Amended and Restated Bylaws of Quiksilver, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on December 7, 2007).
4.1	Indenture for the 6 7/8% Senior Notes due 2015 dated July 22, 2005, among Quiksilver, Inc., the subsidiary guarantors set forth therein and Wilmington Trust Company, as trustee, including the form of Global Note attached thereto (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed July 25, 2005).
10.1	Registration Rights Agreement for the 6 7/8% Senior Notes due 2015 dated as of July 22, 2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver, Inc. and the purchasers listed therein (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed July 25, 2005)
10.2	Purchase Agreement for the 6 7/8% Senior Notes due 2015 dated July 14, 2005, among Quiksilver, Inc., certain subsidiaries of Quiksilver, Inc. and the purchasers listed therein (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005).
10.3	English translation of Subscription Agreement for the 3.231% EUR 50,000,000 notes due July, 2010 dated July 11, 2005 among Skis Rossignol S.A. and certain subsidiaries and Societe Generale Bank & Trust (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2005).
10.4	Amended and Restated Credit Agreement, dated as of June 3, 2005, by and among the Company, Quiksilver Americas, Inc., the Lenders named therein, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities, Inc. as Sole Bookrunner and Sole Lead Arranger (the “Amended and Restated Credit Agreement”) (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005).
10.5	First Amendment to the Amended and Restated Credit Agreement dated October 28, 2005 (incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2005).

82

Exhibit
Number
10.6	Second Amendment to the Amended and Restated Credit Agreement dated January 17, 2006 (incorporated by reference to Exhibit 10.6 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2005).
10.7	Third Amendment to the Amended and Restated Credit Agreement dated March 27, 2006 (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006).
10.8	Fourth Amendment to Amended and Restated Credit Agreement dated December 22, 2006 (incorporated by reference to Exhibit 10.31 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006).
10.9	Fifth Amendment to Amended and Restated Credit Agreement dated December 5, 2007.
10.10	Form of Indemnity Agreement between Quiksilver, Inc. and individual directors and officers of Quiksilver, Inc. (incorporated by reference to Exhibit 10.8 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.11	Quiksilver, Inc. Annual Incentive Plan, as restated (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2005).(1)
10.12	Quiksilver, Inc. 2000 Stock Incentive Plan, as amended and restated, together with form Stock Option and Director Restricted Stock Agreements (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed for the quarter ended April 30, 2007).(1)
10.13	Standard Form of Employee Restricted Stock Agreement under the Quiksilver, Inc. 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 22, 2007). (1)
10.14	Quiksilver, Inc. 1996 Stock Option Plan, together with form Stock Option Agreements. (incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.15	Quiksilver, Inc. 1998 Nonemployee Directors’ Stock Option Plan, together with form Stock Option Agreement (incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2004).(1)
10.16	Employment Agreement between David Morgan and Quiksilver, Inc. dated December 22, 2006 (incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.17	Employment Agreement between Robert B. McKnight, Jr. and Quiksilver, Inc. dated May 25, 2005 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 27, 2005). (1)
10.18	Amendment to Employment Agreement between Robert B. McKnight, Jr. and Quiksilver, Inc. dated December 21, 2006 (incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.19	Employment Agreement between Bernard Mariette and Quiksilver, Inc. dated May 25, 2005 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on May 27, 2005). (1)
10.20	Amendment to Employment Agreement between Bernard Mariette and Quiksilver, Inc. dated December 21, 2006 (incorporated by reference to Exhibit 10.17 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.21	Employment Agreement between Charles S. Exon and Quiksilver, Inc. dated May 25, 2005 (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on May 27, 2005). (1)
10.22	Amendment to Employment Agreement between Charles S. Exon and Quiksilver, Inc. dated December 21, 2006 (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)

83

Exhibit
Number
10.23	Employment Agreement between Steven L. Brink and Quiksilver, Inc. dated May 25, 2005 (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on May 27, 2005). (1)
10.24	Amendment to Employment Agreement between Steven L. Brink and Quiksilver, Inc. dated December 21, 2006 (incorporated by reference to Exhibit 10.21 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.25	Separation Agreement between Steven L. Brink and Quiksilver, Inc. dated April 13, 2007 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 17, 2007). (1)
10.26	Employment Agreement between Joseph Scirocco and Quiksilver, Inc. dated April 12, 2007 (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on April 17, 2007). (1)
10.27	Quiksilver, Inc. 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on March 16, 2007). (1)
10.28	Quiksilver, Inc. Written Description of Nonemployee Director Compensation. (incorporated by reference to Exhibit 10.22 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.29	Quiksilver, Inc. Long Term Incentive Plan (incorporated by reference to Exhibit 10.20 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2004).(1)
10.30	Award grant under Quiksilver, Inc. Long-Term Incentive Plan dated January 25, 2006 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended January 31, 2006). (1)
10.31	Award grant under Quiksilver, Inc. Long-Term Incentive Plan dated December 20, 2006 (incorporated by reference to Exhibit 10.25 of the Company’s Annual Report on Form 10-K for the year ended October 31, 2006). (1)
10.32	Stock Purchase Agreement dated June 20, 2007 by and between Quiksilver, Inc., Rossignol Ski Company, Inc., Laurent Boix-Vives, Jeannine Boix-Vives, Christine Simon, Sylvie Bernard and Services Expansion International (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2007).
10.33	Restricted Stock Agreement by and between Quiksilver, Inc. and Douglas Ammerman dated June 7, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2007). (1)
10.34	Standard Form of Restricted Stock Issuance Agreement under the Quiksilver, Inc. 2006 Restricted Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 4, 2006). (1)
10.35	Amendments to executive officer base salaries effective as of November 1, 2007. (1)
21.1	Subsidiaries of Quiksilver, Inc.
23.1	Consent of Deloitte & Touche LLP
24.1	Power of Attorney (included on signature page).
31.1	Rule 13a-14(a)/15d-14(a) Certifications — Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certifications — Principal Financial Officer
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2003
32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2003

(1) Management contract or compensatory plan.

84

EX-2.3

Exhibit 2.3

STOCK PURCHASE AGREEMENT

BY AND AMONG

QUIKSILVER, INC.

ROSSIGNOL SKI COMPANY, INC.,

ROGER CLEVELAND GOLF COMPANY, INC.

and

SRI SPORTS LIMITED

Effective October 30, 2007

TABLE OF CONTENTS

	Page
ARTICLE I — PURCHASE AND SALE OF SHARES		1
1.1 Purchase and Sale		1
1.2 Purchase Price		1
1.3 Adjustments to Purchase Price		2
1.4 Closing		5
1.5 Closing Obligations		5
ARTICLE II — REPRESENTATIONS AND WARRANTIES OF QUIKSILVER		6
2.1 Organization and Good Standing		6
2.2 Authority; No Conflict		7
2.3 Capitalization		8
2.4 Financial Statements		8
2.5 Books and Records		9
2.6 Title to Properties; Encumbrances		9
2.7 Sufficiency of Assets		10
2.8 Accounts Receivable		10
2.9 Inventory		10
2.10 No Undisclosed Liabilities		10
2.11 Taxes		11
2.12 Employee Benefits		13
2.13 Compliance with Legal Requirements; Governmental Authorizations		16
2.14 Legal Proceedings; Orders		16
2.15 Absence of Certain Changes and Events		17
2.16 Contracts; No Defaults		19
2.17 Insurance		21
2.18 Environmental Matters		22
2.19 Employees		22
2.20 Labor Relations; Compliance		23
2.21 Intellectual Property		24
2.22 Certain Payments		28
2.23 Brokers or Finders		28
2.24 Suppliers and Customers		28
2.25 Foreign Corrupt Practices Act		29
2.26 Powers of Attorney		29
2.27 Guaranties		29
2.28 Relationships with Related Persons		29
ARTICLE III — REPRESENTATIONS AND WARRANTIES OF BUYER		29
3.1 Organization and Good Standing		29
3.2 Authority; No Conflict		29
3.3 Financing		30
3.4 Certain Proceedings		30
3.5 Investment Intent; Ability to Evaluate and Bear Risks		30

i

TABLE OF CONTENTS

	Page
3.6 Investigation by Buyer; Quiksilver’s and Seller’s Liability		30
3.7 Brokers or Finders		31
ARTICLE IV — COVENANTS OF QUIKSILVER, SELLER AND COMPANY PRIOR TO CLOSING DATE		31
4.1 Access and Investigation		31
4.2 Operation of the Businesses of the Acquired Companies		32
4.3 Negative Covenant		32
4.4 Notification		32
4.5 Antitrust Filings		33
4.6 Required Approvals		33
4.7 Charges, Fees and Prepayment Obligations; Guarantees		33
4.8 Consultations and Communications Regarding Employee Matters		33
4.9 Transfer of Certain Intellectual Property		34
4.10 Commercially Reasonable Efforts		34
4.11 Acquired Company Restructuring		34
4.12 Accounting Treatment		34
4.13 Consent of Landlord for Company Headquarters		34
ARTICLE V — COVENANTS OF BUYER PRIOR TO CLOSING DATE		34
5.1 Notification		34
5.2 Antitrust Filings		35
5.3 Required Approvals		35
5.4 Commercially Reasonable Efforts		35
ARTICLE VI — ADDITIONAL AGREEMENTS		35
6.1 Tax Returns and Transfer Taxes		35
6.2 Indemnification of Officers and Directors of Company		37
6.3 Other Intercompany Arrangements		37
6.4 Excluded Insurance Policies; Continued Product Liability Insurance		38
6.5 Settlement and General Release of the Buyer Released Parties		38
6.6 Litigation Support		39
6.7 Transition Services		40
6.8 Assumption of Automobile Leases		41
ARTICLE VII — CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE		41
7.1 Accuracy of Representations		41
7.2 Quiksilver’s, Seller’s and Company’s Performance		41
7.3 Consents		42
7.4 No Proceedings		42
7.5 No Injunction		42
7.6 HSR Act Waiting Period		42
7.7 Amended and Restated Credit Agreement Release		42

ii

TABLE OF CONTENTS

	Page
ARTICLE VIII — CONDITIONS PRECEDENT TO QUIKSILVER’S, SELLER’S AND COMPANY’S OBLIGATION TO CLOSE		42
8.1 Accuracy of Representations		43
8.2 Buyer’s Performance		43
8.3 No Injunction		43
8.4 HSR Act Waiting Period		43
8.5 Bank Consent		43
ARTICLE IX — TERMINATION		43
9.1 Termination Events		43
9.2 Effect of Termination		44
ARTICLE X — INDEMNIFICATION; REMEDIES		44
10.1 Survival; Right to Indemnification Not Affected by Knowledge		44
10.2 Indemnification and Payment of Damages by Quiksilver		44
10.3 Indemnification and Payment of Damages by Buyer		44
10.4 Time Limitations		45
10.5 Limitations on Amount—Quiksilver, Seller and Company		45
10.6 Exclusive Remedy		46
10.7 Procedure for Indemnification—Third Party Claims		46
10.8 Procedure for Indemnification—Other Claims		47
10.9 Interpretation		47
10.10 Tax Benefits		47
10.11 No Environmental Contribution		48
ARTICLE XI — GENERAL PROVISIONS		48
11.1 Expenses		48
11.2 Public Announcements		48
11.3 Confidentiality		49
11.4 Notices		49
11.5 Arbitration		50
11.6 Further Assurances		50
11.7 Waiver		51
11.8 Entire Agreement and Modification		51
11.9 Disclosure Letter		51
11.10 Assignments, Successors, and No Third-Party Rights		51
11.11 Severability		51
11.12 Time of Essence		52
11.13 Governing Law		52
11.14 Equitable Remedies		52
11.15 Independence of Agreements, Covenants, Representations and Warranties		52
11.16 Execution		52
11.17 Other Definitional and Interpretive Matters		52

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TABLE OF CONTENTS

LIST OF EXHIBITS
Exhibit A	Definitions
Exhibit B	Form Legal Opinion
Exhibit C	Resignations

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STOCK PURCHASE AGREEMENT

     This Stock Purchase Agreement (“Agreement”) is made as of October 30, 2007, by and among Quiksilver, Inc., a Delaware corporation (“Quiksilver”), Rossignol Ski Company, Inc., a Delaware corporation (“Seller”), Roger Cleveland Golf Company, Inc., a California corporation (“Company”), and SRI Sports Limited, a Japanese corporation (“Buyer”). For purposes of this Agreement, the terms set forth in Exhibit A shall have the meanings specified or referred to therein.

R E C I T A L S

     A. Seller owns all of the issued and outstanding shares of capital stock of the Company (the “Shares”).

     B. Buyer desires to purchase all of the Shares, and Seller desires to sell the Shares, on the terms and conditions set forth in this Agreement.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual representations, warranties and agreements contained herein, the parties hereto agree as follow:

ARTICLE I
PURCHASE AND SALE OF SHARES

     1.1 Purchase and Sale. Subject to the terms and conditions set forth in this Agreement, at the Closing, Seller will sell and transfer to Buyer, and Buyer will purchase from Seller, the Shares, which shall constitute all of the outstanding shares of capital stock of the Company, in exchange for the Purchase Price.

     1.2 Purchase Price.

          (a) The purchase price payable to Seller for the purchase and sale of the Shares (the “Purchase Price”) shall be $132,500,000 less (a) the Remaining Offset Amount and (b) the aggregate amount of the Change in Control Obligations (the Purchase Price as so reduced, the “Closing Cash Amount”). The Purchase Price and the Closing Cash Amount shall be subject to further adjustment as required pursuant to Section 1.3.

          (b) The parties acknowledge and agree that the Purchase Price has been determined on a cash free, debt-free basis and in furtherance thereof, agree that at the Closing, subject to the satisfaction or waiver of each of the conditions specified in Article VII, the following actions and payments shall be made in the following order:

          (i) all amounts owed by Quiksilver or its Affiliates (other than the Acquired Companies) to any of the Acquired Companies as of the Closing (the “Intercompany Receivables”) shall be offset against all amounts owed by any of the Acquired Companies to Quiksilver or any of its Affiliates (other than the Acquired Companies) as of the Closing, which shall include, without limitation (A) any accounts

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payable by any Acquired Company to Quiksilver or its Affiliates (other than the Acquired Companies) and (B) all indebtedness for borrowed money (and any interest thereon) payable by any Acquired Company to Quiksilver or its Affiliates (other than the Acquired Companies) (collectively, the “Intercompany Payables and Debt”). The amount by which the Intercompany Payables and Debt exceed the Intercompany Receivables shall hereinafter be referred to as the “Offset Amount”);

          (ii) all Acquired Company Cash shall be used to pay the Offset Amount and any indebtedness for borrowed money, and interest thereon, owed to any Person other than Quiksilver and its Affiliates (other than the Acquired Companies) (the “Third-Party Debt”). The amount by which the sum of the Offset Amount and the Third-Party Debt exceeds the Acquired Company Cash shall hereinafter be referred to as the “Remaining Offset Amount”);

          (iii) Buyer shall provide the Required Buyer Intercompany Loan and the Change in Control Obligation Loan to the Company by wire transfer of immediately available funds to an account designated by the Company;

          (iv) the Company shall pay the Remaining Offset Amount to the applicable Quiksilver Affiliate, as designated by Quiksilver, by wire transfer of immediately available funds;

          (v) the Company shall pay the Change in Control Obligations to the applicable employees by wire transfer of immediately available funds; and

          (vi) the Closing Cash Payment will be paid in accordance with Section  1.2(a).

     1.3 Adjustments to Purchase Price.

          (a) On or before a date not less than three (3) Business Days prior to the Closing Date, Quiksilver shall cause the Company to prepare and deliver to Buyer (i) an estimated consolidated balance sheet for the Acquired Companies as of 12:01 a.m. (local time) on the Closing Date (the “Estimated Closing Date Balance Sheet”), and (ii) a good faith estimate of the Company Working Capital as of the Closing (the “Estimated Closing Working Capital”), certified by the Company’s Chief Financial Officer as being (x) prepared in accordance with GAAP using the same accounting methods, policies, practices and procedures, with consistent classifications and estimation methodologies, as were used in the preparation of the Financial Statements, to the extent applicable and consistent with GAAP, (y) based on all information known to such Chief Financial Officer at such time and such other information then reasonably available to the Acquired Companies, Quiksilver or such Chief Financial Officer and (z) prepared after due inquiry of all personnel responsible for the preparation of financial information of the Acquired Companies in the ordinary course of business.

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          (b) On the Closing Date, (i) if the Estimated Closing Working Capital is less than $55.9 million, then the Purchase Price and Closing Cash Amount each shall be reduced by the dollar amount of such deficit or (ii) if the Estimated Closing Working Capital is greater than $61.9 million, then the Purchase Price and Closing Cash Amount each shall be increased by the dollar amount of such excess, but in no event shall the Purchase Price and Closing Cash Amount be increased by more than $4.2 million. The Purchase Price shall be subject to further adjustment following the Closing in accordance with Section 1.3(h) below.

          (c) Within the 45-day period immediately following the Closing Date, Quiksilver shall prepare and deliver to Buyer (i) a consolidated balance sheet of the Acquired Companies as of 12:01 a.m. (local time) on the Closing Date (the “Closing Date Balance Sheet”) and, (ii) a working capital statement (the “Closing Working Capital Statement”) setting forth Buyer’s calculation of the Company Working Capital as of the Closing (the “Closing Working Capital”). Unless disputed by Buyer in accordance with Section 1.3(d), the amount of Closing Working Capital shown on the Closing Working Capital Statement shall be the final and binding Closing Working Capital amount (the “Final Closing Working Capital Amount”). The Closing Date Balance Sheet and, the Closing Working Capital Statement each will be certified by the Quiksilver’s Chief Financial Officer as being prepared in accordance with GAAP using the same accounting methods, policies, practices and procedures, with consistent classifications and estimation methodologies, as were used in the preparation of the Financial Statements, to the extent applicable and consistent with GAAP, and will not include any changes in assets or liabilities as a result of purchase accounting adjustments arising from or resulting as a consequence of the transactions contemplated hereby. The Closing Working Capital will be calculated in a manner consistent with the calculation of Estimated Closing Working Capital in Section 1.3(a) above. In connection with the preparation of the Closing Date Balance Sheet and, Closing Working Capital Statement and, in the event that Quiksilver is required to include information regarding any of the Acquired Companies in its financial statements or otherwise in its filings with the Securities and Exchange Commission, Buyer shall provide Quiksilver with reasonable access to all relevant books and records and personnel of the Acquired Companies; provided, that such access shall be upon prior written notice to Buyer, shall be during normal business hours and shall, to the extent reasonably possible, not disrupt the operations of the Acquired Companies.

          (d) In the event that Buyer disputes the Closing Working Capital shown on the Closing Working Capital Statement, Buyer shall deliver to Quiksilver, within forty-five (45) days after receiving the Closing Working Capital Statement, a written notice of what Buyer believes is the correct Closing Working Capital (the “Dispute Notice”). The Dispute Notice shall set forth in reasonable detail the component or components which are in dispute and the basis of such dispute.

          (e) Buyer and Quiksilver shall negotiate in good faith to resolve any disagreement set forth in the Dispute Notice within thirty (30) days after Buyer has delivered the Dispute Notice to Buyer. If the parties resolve such dispute, then the Closing Working Capital agreed to by the parties shall be deemed, respectively, to be the Final Closing Working Capital Amount.

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          (f) If the parties do not reach a final resolution within thirty (30) days after Buyer has delivered the Dispute Notice to Quiksilver, unless the parties mutually agree to continue their efforts to resolve such differences, then such disagreements shall immediately be submitted for final and binding resolution to Ernst & Young, LLP to resolve such disagreements (the “Neutral Accountants”) in the manner provided below. Each of the parties shall make available to the Neutral Accountants all work papers and all other information and material in their possession relating to the matters in the Dispute Notice. Each party shall be permitted to present supporting materials to the Neutral Accountants (which supporting materials shall also be concurrently provided to the other party) within ten (10) Business Days of the submission of the dispute to the Neutral Accountants. Within five (5) Business Days of receipt of supporting materials, the receiving party may present responsive materials to the Neutral Accountants (which responsive materials shall also be concurrently provided to the other party). Each party may make an oral presentation to the Neutral Accountants (in which case, such presenting party shall notify the other party of such presentation, and the other party shall have the right to be present at such presentation) within twenty (20) Business Days of the submission of the dispute to the Neutral Accountants. In determining those items and amounts disputed by the parties in the Dispute Notice, the Neutral Accountants shall only consider the materials and oral presentations of the parties and those items and amounts set forth in the Dispute Notice as to which Buyer and Quiksilver have disagreed within the time periods and on the terms specified in this Section 1.3, and shall not conduct any independent review. The Neutral Accountants shall make their determinations within sixty (60) days of submission of the dispute to them. Such determinations by the Neutral Accountants shall be conclusive and binding upon the parties. Nothing herein shall be construed to authorize or permit the Neutral Accountants (i) to determine any questions or matters whatsoever under or in connection with this Agreement except as expressly set forth herein, or (ii) to apply any accounting methods, treatments, principles or procedures with respect to disputes under this Section 1.3 other than as described in this Section 1.3. If any dispute is submitted to the Neutral Accountants pursuant to this Section 1.3, the Final Closing Working Capital Amount shall not be finally determined until the Neutral Accountants have issued their final determination under this Section 1.3(f).

          (g) The fees and expenses of the Neutral Accountants shall be shared equally by Quiksilver and Buyer.

          (h) Upon final determination of the Final Closing Working Capital Amount, (i) if the Final Closing Working Capital Amount is less than $55.9 million, then the Purchase Price shall be reduced by the dollar amount of such deficit or (ii) if the Final Closing Working Capital Amount is greater than $61.9 million, then the Purchase Price shall be increased by the dollar amount of such excess, in each case taking into account any adjustment previously made pursuant to Section 1.3(b), but in no event shall the Purchase Price be increased pursuant to this Section 1.3(h) by more than the sum of $4.2 million plus the amount of any previous Purchase Price decrease pursuant to Section 1.3(b). Such adjustment amount (after taking into account any adjustment previously made to the Purchase Price pursuant to Section 1.3(b)) shall be paid by Seller to Buyer, in the case of a reduction to the Purchase Price, or by Buyer to Seller, in the case of an increase in the Purchase Price, within three (3) Business Days of the final determination of the Final Closing Working Capital Amount in immediately available funds to an account designated by the recipient.

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     1.4 Closing. The closing of the purchase and sale of the Shares provided for in this Agreement (the “Closing”) will take place, unless this Agreement has been previously terminated pursuant to Section 9.1 hereof, at the offices of Quiksilver’s counsel at 19900 MacArthur Boulevard, Suite 1050, Irvine, California 92612 at 10:00 a.m. (local time) on a mutually agreed date within five (5) Business Days after the satisfaction or (to the extent permitted by applicable law and this Agreement) waiver of the conditions set forth in Articles VII and VIII (other than those conditions to be satisfied or waived at the Closing), or at such other time and place as the parties may agree. The effective time of the Closing shall be 12:01 a.m. (local time) on the Closing Date. Subject to the provisions of Article IX, failure to consummate the purchase and sale of the Shares provided for in this Agreement on the date and time and at the place determined pursuant to this Section 1.4 will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement.

     1.5 Closing Obligations. At the Closing:

          (a) Quiksilver will cause to be delivered to Buyer:

          (i) certificate(s) representing the Shares, duly endorsed (or accompanied by duly executed stock powers) for transfer to Buyer;

          (ii) the certificates required by Sections 7.1 and 7.2(a), dated as of the Closing Date; and

          (iii) a legal opinion of Hewitt & O’Neil LLP, legal counsel to Quiksilver, in substantially the form attached as Exhibit B;

          (iv) written resignations of the individuals listed in Exhibit C, in form and substance reasonably acceptable to Buyer;

          (v) certificates dated as of the Closing Date from Quiksilver, Seller and/or the Company, as applicable, duly executed by such Person’s Secretary, certifying: (A) that attached thereto is a true, correct and complete copy of the Organizational Documents of the Company as in effect on the date of such certification; (B) that the Organizational Documents of the Company have not been amended since the delivery of this Agreement; and (C) that attached thereto is a true, correct and complete copy of all resolutions adopted by the board of directors and, where required, the stockholders of such Person authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and that all such resolutions are still in full force and effect; and

          (vi) a certificate executed by a duly authorized officer of Quiksilver certifying that upon consummation of the transactions contemplated hereby (including the actions and payments required pursuant to Section 1.2(b)), (a) the Acquired Companies will be free and clear of all indebtedness for borrowed money and any interest thereon owed to any Seller Affiliate or any other Person (other than Buyer) and (b) no Acquired Company will have outstanding any accounts receivable from or accounts

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payable to, any Seller Affiliate and (c) all Change in Control Obligations shall be paid in full.

(b) Buyer will cause to be delivered to Quiksilver and Seller:

               (i) by wire transfer, an amount equal to the Closing Cash Amount;

               (ii) the certificates required by Sections 8.1 and 8.2(a), dated as of the Closing Date; and

               (iii) a certificate dated as of the Closing Date from Buyer, duly executed by Buyer’s Secretary, certifying that attached thereto is a true, correct and complete copy of all resolutions adopted by the board of directors of Buyer and, if required, the stockholders of Buyer authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and that all such resolutions are still in full force and effect.

ARTICLE II
REPRESENTATIONS AND WARRANTIES OF QUIKSILVER

     Except as set forth in the attached Disclosure Letter (the “Disclosure Letter”) (which lists exceptions to the following representations and warranties and also contains matters required to be disclosed pursuant to this Article II, each of which corresponds to the numbered Sections contained in this Article II), Quiksilver represents and warrants to Buyer as of the date hereof and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case, as of the earlier date) as follows:

     2.1 Organization and Good Standing.

          (a) Section 2.1 of the Disclosure Letter contains a complete and accurate list for each Acquired Company of its name and its jurisdiction of organization, and other jurisdictions in which it is authorized to do business. Each of Quiksilver, Seller and each Acquired Company is duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization and each Acquired Company is duly qualified to do business as a foreign corporation in every jurisdiction in which the nature of its business or the location of its properties requires such qualification. Each Acquired Company has the requisite corporate power (or other organizational powers required) and authority to conduct its business as it is now being conducted and to own or use the properties and assets that it purports to own or use.

          (b) Quiksilver has made available to Buyer copies of the Organizational Documents of each Acquired Company, as currently in effect.

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     2.2 Authority; No Conflict.

          (a) This Agreement constitutes the legal, valid, and binding obligation of each of Quiksilver, Seller (with respect to this Agreement only) and the Company, enforceable against each of them in accordance with their terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereinafter in effect affecting creditors’ rights generally and general principles of equity. Each of Quiksilver, Seller (with respect to this Agreement only) and the Company has all the necessary corporate power (or other organizational powers required) and authority to, and has taken all necessary corporate actions necessary to authorize it to, enter into, execute and deliver this Agreement and to perform its obligations under this Agreement.

          (b) The execution and delivery of this Agreement will not, and the consummation or performance of any of the transactions contemplated herein by Quiksilver, Seller or the Acquired Companies will not, directly or indirectly (with or without notice or lapse of time):

          (i) conflict with, or result in a violation of (A) any provision of the Organizational Documents of Quiksilver, Seller or the Acquired Companies, or (B) any resolution adopted by the board of directors or the equity holders of Quiksilver, Seller or any Acquired Company;

          (ii) conflict with, or result in a material violation of, any Legal Requirement, Company Permit or any Order to which Quiksilver, Seller or any Acquired Company may be subject;

          (iii) conflict with, or result in a material violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by any Acquired Company or that otherwise relates to the business of, or any of the assets owned or used by, any Acquired Company;

          (iv) constitute a default or breach under, or give rise to a right of termination or acceleration of, or to a loss of any benefits by any Acquired Company under any Material Contract; or

          (v) result in the creation or imposition of any Encumbrance upon the assets or equity of any Acquired Company.

          (c) Neither Quiksilver, Seller nor any Acquired Company is or will be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated herein.

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     2.3 Capitalization. The authorized and outstanding equity securities of each Acquired Company are set forth in Section 2.3 of the Disclosure Letter. Seller will be, on the Closing Date, the record and beneficial owner and holder of all of the Shares, free and clear of all Encumbrances. Upon the transfer and delivery of the Shares to Buyer in accordance with this Agreement and payment therefor, Buyer will become the owner and holder of the Shares free and clear of all Encumbrances. On the Closing Date, all of the outstanding equity securities and other securities of each Acquired Company, other than the Company, will be owned of record and beneficially by one or more of the Acquired Companies, free and clear of all Encumbrances. All of the outstanding equity securities of each Acquired Company have been duly authorized and validly issued and are fully paid and nonassessable. No Acquired Company owns any equity securities or other securities of any Person (other than Acquired Companies) or any direct or indirect equity or ownership interest in any other business. There are no outstanding subscriptions, warrants, options, purchase rights, calls or commitments of any character relating to or entitling any Person to purchase or otherwise acquire the Shares or other securities or equity interests of the Acquired Companies. There are no outstanding or authorized equity appreciation, phantom stock or similar rights with respect to the Acquired Companies.

     2.4 Financial Statements.

          (a) Quiksilver has provided to Buyer (i) balance sheets of the Company as of October 31, 2006 (including the notes thereto, the “Audited Balance Sheet”), and the related statements of income and comprehensive income, stockholders’ equity, and cash flows for the twelve months ended October 31, 2006 (together with the Audited Balance Sheet, the “Audited Financial Statements”), together with the report thereon of Deloitte & Touche LLP, registered public accountants, and (ii) unaudited condensed balance sheets of the Company as of July 31, 2007 (together with the notes thereto, the “Interim Balance Sheet”), and the related condensed statements of operations and comprehensive income, and condensed statement of cash flows for the nine months then ended (together with the Interim Balance Sheet, the “Interim Financial Statements”). The Interim Financial Statements and the Audited Financial Statements (collectively, the “Financial Statements”) are complete and accurate in all material respects and fairly present in all material respects the financial condition, results of operations, stockholders’ equity, and cash flows of the Company as of the respective dates of and for the periods referred to in such Financial Statements, all in accordance with GAAP, subject in the case of the Interim Financial Statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse). The Financial Statements reflect the consistent application of such accounting principles throughout the periods involved.

          (b) Quiksilver has provided to Buyer the Pro Forma Consolidated Financial Statements. The Pro Forma Consolidated Financial Statements have been prepared diligently, taking into account the purpose for which such Pro Forma Consolidated Financial Statements have been created, and in accordance with GAAP, and do not contain any material misstatement as to the financial condition or results of operations of the Company and the other Acquired Companies, taken as a whole, as of the date and for the period to which they relate. The Pro Forma Consolidated Financial Statements reflect the consistent application of such accounting principles throughout the periods involved.

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          (c) The significant accounting policies of each Acquired Company are set forth in Section 2.4(c) of the Disclosure Letter.

     2.5 Books and Records. The accounting books and records, minute books, and stock record books of the Acquired Companies, copies of which have been delivered, or made available, to Buyer, are true and complete in all material respects. The minute books of the Acquired Companies contain materially accurate and complete records of all meetings held of, and corporate action taken by, the equity holders, the boards of directors, and committees of the boards of directors of the Acquired Companies. At the Closing, all such books and records will be in the possession of the Acquired Companies.

     2.6 Title to Properties; Encumbrances.

          (a) The Acquired Companies do not own, and have not previously owned, any real property. Section 2.6 of the Disclosure Letter contains a list of all real estate leasehold or similar interests owned by any Acquired Company. All current leases or subleases of the Acquired Companies are in full force and effect, are valid and effective in accordance with their respective terms, and there is not, under any of such lease or sublease, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a default) by the Acquired Companies or, to the Knowledge of Quiksilver, by the other party to such lease or sublease. Copies of such leases and subleases have been delivered, or made available, to Buyer. There is no pending or, to the Knowledge of Quiksilver, Threatened action that could reasonably be expected to interfere with the quiet enjoyment of any such lease or sublease by the Acquired Companies. No Acquired Company has been notified that it is in breach of any of its obligations under any lease or sublease. No Acquired Company has received any notice of violation or claimed violation of any applicable building, zoning, subdivision or other land use or similar Legal Requirement affecting any such lease or sublease.

          (b) The Acquired Companies own all the properties and assets (whether real, personal, or mixed and whether tangible or intangible) that they purport to own located in the facilities owned or operated by the Acquired Companies or reflected as owned in the books and records of the Acquired Companies, including all of the properties and assets reflected in the Interim Balance Sheet and the Pro Forma Balance Sheet (except for assets held under capitalized leases and personal property sold since the date of the Interim Balance Sheet in the ordinary course of business), and all of the properties and assets purchased or otherwise acquired by the Acquired Companies since the date of the Interim Balance Sheet (except for personal property acquired and sold since the date of the Interim Balance Sheet in the ordinary course of business). All material properties and material assets reflected in the Interim Balance Sheet and the Pro Forma Balance Sheet are free and clear of all Encumbrances. All of the tangible property of the Acquired Companies are (i) in good operating condition, normal wear and tear excepted, and (ii) suitable for the purposes for which it presently is used. As of the Closing, there will be no patents, trademarks or other tangible or intangible assets that have been or are currently used in the Business and that are owned by Quiksilver or an Affiliate of Quiksilver other than the Acquired Companies.

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     2.7 Sufficiency of Assets. All assets (including, without limitation, buildings, plants, structures, equipment, mechanical assets, computer systems, offices and software) of the Acquired Companies are (as applicable) in good operating condition and repair and are adequate for the uses to which they are being put, and none of such assets is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The tangible and intangible assets of the Acquired Companies are sufficient for the continued conduct of the Business immediately after the Closing in substantially the same manner as conducted prior to the Closing.

     2.8 Accounts Receivable. All accounts receivable of the Acquired Companies that are reflected on the Interim Balance Sheet or on the accounting records of the Acquired Companies as of the Closing Date (collectively, the “Accounts Receivable”) represent valid obligations arising from sales actually made or services actually performed in the ordinary course of business. There is no contest, claim or right of set-off, other than returns in the ordinary course of business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. The Accounts Receivable have been recorded in accordance with GAAP and in a manner consistent with historical practice. Quiksilver has made available to Buyer a complete and accurate list of all Accounts Receivable as of the date of the Interim Balance Sheet, which list sets forth the aging of such Accounts Receivable.

     2.9 Inventory. All Inventory of the Acquired Companies consists of a quality and quantity usable and salable in the ordinary course of business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value in the Interim Balance Sheet or on the accounting records of the Acquired Companies as of the Closing Date, as the case may be. All Inventory of the Acquired Companies that has not been written off has been priced at the lower of cost or market as of the Closing Date on a consistent basis in accordance with GAAP and the significant accounting policies disclosed in Section 2.4(c) to the Disclosure Letter. The quantities of each item of Inventory (whether raw materials, work in process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Acquired Companies.

     2.10 No Undisclosed Liabilities. The Acquired Companies have no liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) required to be reflected as liabilities on a balance sheet prepared in accordance with GAAP except for: (i) liabilities or obligations reflected or reserved against in the Pro Forma Consolidated Financial Statements and (ii) current liabilities incurred in the ordinary course of business since July 31, 2007. Since July 31, 2007, none of the Acquired Companies has experienced any loss contingencies (as such term is used in the most recent Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board).

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     2.11 Taxes.

          (a) All Tax Returns required to be filed by or on behalf of the Acquired Companies, either separately or as a member of a group of corporations, on or before the date hereof are true, correct and complete. All such Tax Returns that were required to be filed were duly and timely filed (taking into account any extension of time to file granted or obtained) and all Taxes (including, Taxes withheld from employees’ salaries and all other withholding Taxes and obligations and deposits required to be made by or with respect to the Acquired Companies) due have been timely paid, or to the extent not due and payable as of the date hereof, adequate provision for the payment thereof has been made. The charges, accruals, and reserves with respect to Taxes on the books, records and financial statements of the Acquired Companies, in the aggregate, are adequate (determined in accordance with GAAP) and are at least equal to the Acquired Companies’ liability for Taxes for all fiscal periods through the Closing Date.

          (b) Except as set forth in Section 2.11 of the Disclosure Letter:

          (i) No audit or other examination of any Tax Return of any of the Acquired Companies is presently in progress, nor have any of the Acquired Companies been notified of any request for such an audit or other examination.

          (ii) None of the assets of any of the Acquired Companies is subject to any liabilities relating to or attributable to Taxes. To the Knowledge of Quiksilver, no claim has been asserted relating to or attributable to Taxes, which, if adversely determined, would result in any liability on the assets of any of the Acquired Companies.

          (iii) None of the Acquired Companies has received any notice of a proposed assessment of Taxes, or executed any waiver of any statute of limitations on, or extending the period for, the assessment or collection of any Tax which is still in effect.

          (iv) There are no actions, suits, proceedings or claims now pending by or against any of the Acquired Companies in respect of any Taxes or assessments.

          (v) No claim has been made by an authority in a jurisdiction where an Acquired Company does not file Tax Returns that the Acquired Company is or may be subject to taxation by that jurisdiction.

          (vi) There is no outstanding power of attorney that is currently in force with respect to any matter relating to Taxes for which any of the Acquired Companies could be liable.

          (vii) None of the Acquired Companies is party to, bound by, or has any obligations under any tax sharing or allocation agreements, tax indemnification agreement or similar contract or arrangement, whether written or unwritten.

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          (c) None of the Acquired Companies:

          (i) has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code;

          (ii) has submitted a request for a private letter ruling (or comparable procedure under state or local law) to the IRS or any state or local taxing authority, which request has not yet been issued or denied;

          (iii) has agreed to, or is required to include in income, any adjustment pursuant to Section 482 of the Code (or similar provision of other law or regulations) (nor has any Tax authority proposed, or is any Tax authority considering, such adjustment); or

          (iv) is or has been required to make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).

          (d) None of the Acquired Companies has been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code (or any similar provision of state, local or foreign law), other than an affiliated group of which Quiksilver was the common parent. None of the Acquired Companies has any liability for the Taxes of any Person under Treasury Regulation Section 1.1502—6 (or any similar provision of state, local or foreign law), as a transferee or successor, by Contract, or otherwise, other than liabilities arising with respect to the affiliated group of corporations of which Quiksilver was the common parent.

          (e) At no time during the five-year period ending on the date hereof, was any Acquired Company a distributing corporation or a controlled corporation in a transaction intended to be governed by Section 355 of the Code.

          (f) None of the Acquired Companies will be required to include any item of income in, or exclude any item of deduction from, its taxable income for any taxable period (or portion thereof) ending after the date hereof as a result of any (i) change in method of accounting for a taxable period ending on or prior to the date hereof under Section 481(c) of the Code (or any corresponding or similar provision of state, local or foreign income Tax law); (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the date hereof; (iii) installment sale or open transaction disposition made on or prior to the date hereof; or (iv) prepaid amount received on or prior to the date hereof.

          (g) None of the Acquired Companies has an interest in or is subject to any joint venture, partnership, or other arrangement or contract which is treated as a partnership for U.S. federal income Tax purposes. None of the Acquired Companies is a successor to any other Person by way of merger, reorganization or similar transaction.

          (h) None of the Acquired Companies has made any payment(s), is obligated to make any payment(s) or is party to any agreement that could obligate it to make any payment(s) that would not be deductible under Section 280G of the Code.

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          (i) None of the assets of any of the Acquired Companies is treated as “tax-exempt use property” within the meaning of Section 168(h) of the Code.

          (j) Each of the Acquired Companies has disclosed on its Tax Returns all positions taken therein that could give rise to a substantial understatement of Tax within the meaning of Section 6662 of the Code.

          (k) Each of the Acquired Companies has disclosed all “reportable transactions” within the meaning of Treasury Regulation Section 1.6011-4(b) (or similar provision of state law) to which the Acquired Company has been a party.

     2.12 Employee Benefits.

          (a) Section 2.12 of the Disclosure Letter contains a list of all plans, agreements, arrangements or commitments (whether provided by insurance, self-insurance or otherwise) that are (i) employment, consulting or deferred compensation agreements; (ii) executive compensation, incentive, bonus, employee pension, profit-sharing, savings, retirement, stock option, stock purchase, or severance pay plans; (iii) life insurance, health, dental, vision, cafeteria benefit, dependent care, post-retirement benefit, worker’s compensation, unemployment benefit, disability or accident plans; (iv) holiday, vacation, leave of absence, or other bonus practice; (v) expense reimbursement, automobile or other transportation allowance; or (vi) any other employee benefit plans, agreements, arrangements or commitments, including, without limitation, any “employee benefit plan,” as defined in Section 3(3) of ERISA, maintained by any Acquired Company or with respect to which any Acquired Company has or in the future may have, any contribution or other Liability or obligation with respect to any current or former employees, directors or consultants of any Acquired Company or their beneficiaries. (collectively, the “Plans”). Section 2.12 of the Disclosure Schedule also contains a list of all Plans, maintained by Quiksilver or any direct or indirect subsidiary (other than an Acquired Company) of Quiksilver, pursuant to which employees, directors or consultants of any Acquired Company participated as of the date hereof.

          (b) No Acquired Company or any ERISA Affiliate has ever sponsored, maintained, contributed to or been required to contribute to, (i) an “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) that is subject to Title IV of ERISA or Section 412 of the Code, (ii) a “multiemployer plan” within the meaning of Sections 3(37) or 4001(a)(3) of ERISA (a “Multiemployer Plan”), or (iii) a multiple employer plan for which the Company would reasonably be expected to incur liability under Sections 4063 or 4064 of ERISA (a “Pension Plan”). No “reportable event,” as such term is defined in ERISA Section 4043(c), has occurred or is continuing with respect to any Pension Plan. No Pension Plan that is or was subject to Title IV of ERISA has been terminated; no Proceeding has been initiated to terminate any such Pension Plan; and no Acquired Companies have incurred, nor reasonably expects to incur, any Liability, whether to the Pension Benefit Guaranty Corporation (“PBGC”) or otherwise, except for required premium payments, which payments have been made when due, with respect to the termination of any Pension Plan. The market value of assets under each Pension Plan that is subject to Title IV of ERISA or Section 412 of the Code equals or exceeds the present value of all vested and nonvested liabilities thereunder determined in accordance with PBGC methods, factors and assumptions applicable to a Pension Plan terminating on the date of

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determination. No Acquired Companies have incurred or expects to incur “withdrawal liability” (as defined in ERISA Section 4201) under or with respect to any Pension Plan that is a Multiemployer Plan.

          (c) Each of the Acquired Companies has performed all obligations required to be performed by it under, is not in default under or in violation of, and, to the Knowledge of Quiksilver, no default or violation by any other party has occurred with respect to, any of the Plans. No breach of fiduciary duty has occurred, nor have the Acquired Companies or any “fiduciary” (as such term is defined in Section 3(21) of ERISA) with respect to the Plans has engaged in any conduct, that would result in the assessment of any excise Tax, Liability or penalty under Sections 4971 through 4980G of the Code or under Title I of ERISA, including, without limitation, ERISA Sections 502(i) and 502(l).

          (d) There has been no “prohibited transaction” (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan that is not exempt under Section 408 of ERISA.

          (e) None of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby (or such transactions in combination with any subsequent transactions or events) will (i) result in any current or former employee, director or consultant of the Acquired Companies becoming entitled to any deferred compensation, bonus or severance pay, materially increase or otherwise enhance any benefits otherwise payable by the Acquired Companies, (ii) result in the acceleration of time of payment or vesting, or an increase in the amount of any compensation due to any current or former employee, director or consultant of the Acquired Companies, (iii) result in forgiveness in whole or in part of any outstanding loans made by the Acquired Companies to any of their current or former employees, directors or consultants, or (iv) result in a payment that would be considered an “excess parachute payment” and treated as nondeductible under Section 280G of the Code or subject to the excise Tax under Section 4999 of the Code.

          (f) All contributions and other payments required to be made by any of the Acquired Companies to or under any Plan (or to any Person pursuant to the terms thereof) have been made when due, or, if not yet due, the amount of such payment or contribution obligation has been reflected on the Pro Forma Consolidated Financial Statements prior to the date of this Agreement. In addition, with respect to each Plan intended to include an arrangement described in Section 401(k) of the Code, the Acquired Companies have at all times made timely deposits of employee salary deferral contributions and participant loan repayments, as determined pursuant to regulations issued by the United States Department of Labor.

          (g) Each of the Plans intended to be “qualified” within the meaning of Section 401(a) of the Code has either (i) received a favorable determination letter issued by the IRS as to its qualified status, or (ii) has been established under a standardized master and prototype or volume submitter plan for which a favorable advisory letter or opinion letter issued by the IRS has been obtained by the plan sponsor and is valid as to the adopting employer, and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code is so exempt, and, to the Knowledge of Quiksilver, no events have occurred since the issuance of such letter that would be reasonably

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expected to adversely affect the tax-qualified status of such Plan or the exempt status of such trust.

          (h) Each Plan has at all times been maintained, administered, and operated in compliance with its terms, any collective bargaining agreement and all applicable Legal Requirements, including, without limitation, ERISA and the Code. With respect to the Plans, all Tax, annual reporting and other governmental filings required by ERISA and the Code have been timely filed with the appropriate Governmental Body (which were true, correct and complete as of the date filed) and all notices and disclosures have been timely provided to Plan participants.

          (i) None of the Plans that are “welfare plans” within the meaning of Section 3(1) of ERISA provide for any post-employment or retiree benefits in the form of medical, disability or life insurance, other than continuation coverage required to be provided under Section 4980B of the Code, Part 6 of Title I of ERISA, or applicable state law. No Plan is a voluntary employee benefit association under Section 501(a)(9) of the Code. The Acquired Companies are in compliance with (i) the requirements of the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the regulations promulgated thereunder and any similar state law, and (ii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.

          (j) Quiksilver has made available to Buyer true and correct copies of the following documents with respect to each Plan, where applicable: (i) all current plan documents and all amendments thereto, and the most recent summary plan descriptions, including any summary of material modifications, furnished to employees or their beneficiaries (ii) the three most recently filed annual reports (Form 5500 series), including all schedules, attachments and audited financial statements thereto, (iii) each current related trust agreement, insurance contract or other funding arrangement and all amendments thereto, (iv) the most recent favorable determination, opinion or advisory letter issued by the IRS with respect to the qualified status of such Plan, and any currently-pending application for such a letter, (v) the most recent actuarial report, valuation, or other financial statement relating to such Plan, (vi) written descriptions of any unwritten Plans, (vii) the three most recent nondiscrimination tests performed under the Code, and (viii) all filings made with any governmental entities, including but not limited to any filings under the IRS Employee Plans Compliance Resolution System or the Department of Labor Delinquent Filer Program or Voluntary Fiduciary Correction Program

          (k) Other than benefit claims under the Plans in the ordinary course of business, there are no actions, suits, investigations, audits, proceedings or litigation of any kind pending against, involving or, to the Knowledge of Quiksilver, Threatened against, any Plan, the Acquired Companies, by any Plan participant (or beneficiary thereof) or by any Governmental Body.

          (l) Each Plan that is a “nonqualified deferred compensation plan” (as defined in Section 409A(d)(1) of the Code) has been operated in compliance with Section 409A of the Code, including, without limitation, the final regulation issued thereunder and any other available guidance issued from the IRS as of the date hereof.

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          (m) With respect to each employee benefit plan, program, or other arrangement providing compensation or benefits to any employee or former employee of any of the Acquired Companies (or any dependent thereof) which is subject to the laws of any jurisdiction outside of the United States (the “Foreign Plans”): (i) such Foreign Plan has been maintained in all material respects in accordance with all applicable requirements and all Legal Requirements, (ii) if intended to qualify for special tax treatment, such Foreign Plan meets all requirements for such treatment, (iii) if intended or required to be funded and/or book-reserved, such Foreign Plan is fully funded and/or book reserved, as appropriate, based upon reasonable actuarial assumptions, and (iv) no material Liability exists or reasonably could be imposed upon the assets of any of the Acquired Companies by reason of such Foreign Plan.

     2.13 Compliance with Legal Requirements; Governmental Authorizations.

          (a) Each Acquired Company has conducted and currently is conducting its business and operations in compliance in all material respects with all Legal Requirements applicable to it.

          (b) No Acquired Company has received any notice from any Governmental Body regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement.

          (c) Each of the Acquired Companies is in possession of all authorizations, licenses, permits, certificates, approvals and clearances of any Governmental Entity (collectively, the “Company Permits”) necessary for the Acquired Company to carry on its business in substantially the same manner as it is being conducted as of the date hereof in all material respects. Each Company Permit is in full force and effect and the Acquired Companies are in compliance in all material respects with each Company Permit relating to them. No action, suit, proceeding, hearing, charge, complaint, claim, demand, or notice has been filed, commenced, or is pending or, to the Knowledge of Quiksilver, Threatened, to revoke, amend or limit any Company Permit.

     2.14 Legal Proceedings; Orders.

          (a) There is no pending Proceeding:

          (i) that has been commenced by or against any Acquired Company or that relates to any of the assets owned or used by any Acquired Company; or

          (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated herein.

To the Knowledge of Quiksilver, no Proceeding of the type noted in (a) above has been Threatened. Quiksilver has delivered to Buyer copies of all pleadings, correspondence, and other documents relating to each Proceeding listed in Section 2.14 of the Disclosure Letter.

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          (b) There is no Order to which any of the Acquired Companies, or any of the assets owned or used by any Acquired Company, is subject; and, to the Knowledge of Quiksilver, no officer, director, agent, or employee of any Acquired Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of any Acquired Company.

          (c) No Acquired Company is in default with respect to any Order by which any of them is bound or to which any of their property is subject.

          (d) There have been no Proceedings that (i) resulted in any criminal sanctions or (ii) within the last three (3) years, resulted in payments in excess of $50,000, in each case by or against any Acquired Company or any of their respective officers or directors in their capacity as officers or directors (whether as a result of a judgment, civil fine, settlement or otherwise).

     2.15 Absence of Certain Changes and Events. Since the date of the Interim Balance Sheet, (i) the Acquired Companies have conducted their businesses only in the ordinary course of business (ii) there has not been any Company Material Adverse Effect, and (iii) except as contemplated by this Agreement, none of the Acquired Companies has:

          (a) issued any notes, bonds or other debt securities, any equity securities or any securities exchangeable for or convertible into any equity securities;

          (b) borrowed any material amounts (except for ordinary course draws from existing borrowings) or entered into any other material liabilities which are not in the ordinary course of business;

          (c) sold (other than sales of Inventory in the ordinary course of business), leased, or otherwise disposed of any material asset or property of any Acquired Company or mortgaged, pledged, or imposed any Encumbrance on any material asset or property of any Acquired Company, tangible or intangible, including the sale, lease, or other disposition of any of the Intellectual Property Assets (other than in the ordinary course of business);

          (d) cancelled, compromised, waived, or released any material debt or claim, except for debts or claims cancelled, compromised, waived or released with customers, contractors, or subcontractors of the Acquired Companies in the ordinary course of business;

          (e) suffered any damage to or destruction or loss of any material asset or property;

          (f) other than in the ordinary course of business, paid any bonuses, or increased any salaries, or paid other compensation to any stockholder, director, officer, or employee or entered into any employment, severance, or similar Contract with any director, officer, or employee;

          (g) intentionally waived, cancelled or released any material right, claim or amount receivable except for rights waived in the ordinary course of business;

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          (h) made any change in its accounting principles, methods, practices or policies;

          (i) made any material capital expenditures outside the ordinary course of business;

          (j) guaranteed any obligations or liabilities of any Person;

          (k) entered into, terminated, or received notice of termination of any Contract or transaction involving a total remaining commitment by or to any Acquired Company of at least $100,000, other than in the ordinary course of business;

          (l) any material Tax election or settlement or compromise of any material Tax Liability or refund by any Acquired Company, other than Tax elections required by Legal Requirement, or change in any annual Tax accounting period or method of Tax accounting, filing of any material amendment to a Tax Return, entry into any closing agreement relating to any material Tax, surrender of any right to claim a material Tax refund, or consent to any extension or waiver of the statute of limitations period applicable to any material Tax claim or assessment;

          (m) accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) to which any of the Acquired Companies is a party or by which any of them is bound outside the ordinary course of business;

          (n) made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $50,000 or outside the ordinary course of business;

          (o) granted any license or sublicense of any rights under or with respect to any Intellectual Property Assets outside the ordinary course of business;

          (p) amended the Organizational Documents of any Acquired Company;

          (q) issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock;

          (r) declared, set aside or paid any stock dividend or stock distribution to any stockholder or member of the Acquired Companies with respect to its equity or purchased, redeemed or otherwise acquired any of its equity or any warrants, options or other rights to acquire its equity;

          (s) made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the ordinary course of business;

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          (t) entered into or adopted any employment, severance or change in control agreement, or any collective bargaining agreement (other than ordinary course at-will employment arrangements), or modified in any material respect the terms of any existing such contract, arrangement or agreement outside the ordinary course of business;

          (u) adopted, amended, modified or terminated any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement, or other benefit plan for the benefit of any current or former employees, directors or consultants of any Acquired Company, or otherwise taken any such action with respect to any Plan;

          (v) made or pledged to make any charitable or capital contribution outside the ordinary course of business; or

          (w) committed to any of the foregoing.

     2.16 Contracts; No Defaults.

          (a) Quiksilver has provided Buyer with a list of each Material Contract to which any Acquired Company is a party or by which any Acquired Company is bound. The following Contracts shall be deemed to be Material Contracts; any Contract that:

          (i) involves performance of services or delivery of goods or materials by one or more Acquired Companies of an amount or value in excess of $100,000 in the aggregate, other than sales Contracts entered into in the ordinary course of business;

          (ii) involves performance of services or delivery of goods or materials to one or more Acquired Companies of an amount or value in excess of $100,000 in the aggregate, other than purchases from vendors in the ordinary course of business;

          (iii) was not entered into in the ordinary course of business and that involves expenditures or receipts of one or more Acquired Companies in excess of $100,000 in the aggregate;

          (iv) is a lease, rental or occupancy agreement, license, installment and conditional sale agreement, or other Contract affecting the ownership of, leasing of, title to, use of, or any leasehold or other interest in, any real or personal property (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than $50,000 and with terms of less than one year);

          (v) is a licensing agreement or other Contract with respect to patents, trademarks, copyrights, or other intellectual property, other than standard non-disclosure agreements with employees and consultants regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets and other than entered in the ordinary course of business;

          (vi) is a joint venture or partnership involving a sharing of profits, losses, costs, or liabilities by any Acquired Company with any other Person;

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          (vii) contains covenants that purport to restrict the business activity of any Acquired Company or limits the freedom of any Acquired Company to engage in any line of business or to compete with any Person;

          (viii) requires any Acquired Company to incur in excess of $100,000 in the aggregate for capital expenditures;

          (ix) is a sales agency, marketing or distribution agreement of the Acquired Companies;

          (x) is an agreement by any Acquired Company to purchase any capital stock or other debt or equity securities of any Person;

          (xi) is an agreement (or group of related agreements) under which any Acquired Company has created, incurred, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation or under which it has imposed an Encumbrance on any of its assets, tangible or intangible;

          (xii) is an agreement of any Acquired Company concerning noncompetition or restricting any Acquired Company’s ability in any way to conduct its business or use its assets;

          (xiii) is a profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or change in control (exclusive of generally applicable severance policy) or other material plan or arrangement for the benefit of any of the Acquired Companies’ current or former stockholders, managers, directors, officers or employees;

          (xiv) is a collective bargaining agreement;

          (xv) is an employment agreement providing for payments to any Person in excess of $100,000, in the aggregate;

          (xvi) is a Contract between or among any Acquired Company on the one hand, and any Seller Affiliate on the other hand;

          (xvii) is an agreement for the engagement as an independent contractor of any individual by any Acquired Company providing for payments to such independent contractor in excess of $100,000, in the aggregate;

          (xviii) is an agreement with a term of at least one (1) year and that is not terminable at the option (without penalty) of the applicable Acquired Company upon ninety (90) days’ prior notice;

          (xix) is an agreement under which the consequences of a default or termination would have a Company Material Adverse Effect;

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          (xx) is a material amendment, supplement or modification of any of the foregoing.

          (b) Each Material Contract is in full force and effect and is valid and enforceable in accordance with its terms.

          (c) (i) each Acquired Company is in material compliance with all applicable terms and requirements of each Material Contract under which such Acquired Company has any obligation or liability or by which such Acquired Company or any of the assets owned or used by such Acquired Company is bound;

               (ii) to the Knowledge of Quiksilver, each other Person that has any obligation or liability under any Material Contract under which an Acquired Company has any rights is in full compliance with all applicable terms and requirements of such Material Contract;

               (iii) no event has occurred or circumstance exists that may give any Person (other than an Acquired Company) the right to exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Material Contract;

               (iv) no Acquired Company has given to or received from any other Person any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Material Contract.

          (d) None of Quiksilver, Seller nor any Affiliate (other than the Acquired Companies) thereof, has any rights under any Contract that relates to the Business of, or any of the assets owned or used by, any Acquired Company.

          (e) Seller has made available to Buyer true and complete copies (or in the case of oral agreements, a reasonably complete summary) of all Material Contracts together with any amendments or waivers thereto.

          (f) To the Knowledge of Quiksilver, no officer, director, agent, employee, consultant, or contractor of any Acquired Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the Business, or (B) assign to any Acquired Company or to any other Person any rights to any invention, improvement, or discovery.

          (g) To the Knowledge of Quiksilver, there are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to any Acquired Company under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation.

     2.17 Insurance. Quiksilver has provided Buyer with a list of (a) all material fire and casualty, general liability, business interruption, product liability, and sprinkler and water damage insurance policies maintained by, or on behalf of, the Acquired Companies, and (b) if policies have been issued to, but not received by, or on behalf of each of the Acquired

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Companies, binders relating to such policies (the “Insurance Policies”). Quiksilver has provided Buyer with a list of each outstanding claim under such policies related to the Acquired Companies for an amount in excess of $25,000. All of such Insurance Policies are legal, valid, binding and enforceable and in full force and effect and none of Acquired Companies is in breach or default with respect to its obligations under such Insurance Policies (including with respect to payment of premiums). To the Knowledge of Quiksilver, there are no circumstances that exist that would relieve the insurer of any obligation to provide coverage under any of the Insurance Policies.

     2.18 Environmental Matters.

          (a) To the Knowledge of Quiksilver, the Acquired Companies (i) are in compliance and are not subject to any liability with respect to any applicable Environmental Laws, (ii) are not subject to investigation, suit, claim, action or proceeding, pending or Threatened, relating to or arising under Environmental Laws, (iii) hold or have applied for all Environmental Permits necessary to conduct their current operations, and (iv) are in material compliance with their respective Environmental Permits.

          (b) No Acquired Company has received any written notice, demand, letter, claim or request for information alleging that the Acquired Company may be in violation of, or liable under, any Environmental Law.

          (c) To the Knowledge of Quiksilver, there have been no material releases of any Hazardous Substances at any of the properties leased or otherwise occupied by any Acquired Company which have resulted or may result in liability for any Acquired Company under any Environmental Laws.

          (d) There have been no Releases of any Hazardous Substances at any of the properties leased by any of the Acquired Companies during such Acquired Company’s leasehold which have resulted or may result in liability for such Acquired Company under any Environmental Laws. Section 2.18 of the Disclosure Schedule sets forth a true and complete list of all Hazardous Substances used by each Acquired Company in the operation of its business.

     2.19 Employees.

          (a) Quiksilver has made available to Buyer a list of the names of each officer, employee and independent contractor of an Acquired Company who is paid in excess of $50,000 annually, together with each such person’s position or function, annual current rate of compensation, and any entitlement to bonus, commission, severance or other additional compensation. Each independent contractor of an Acquired Company is properly classified as an independent contractor in accordance with all Legal Requirements. To the Knowledge of Quiksilver, no employee or director of any Acquired Company is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, between such employee or director and any other Person (“Proprietary Rights Agreement”) that in any way adversely affects or will adversely affect (i) the performance of his or her duties as an employee or director of the Acquired Companies, or (ii) the ability of any Acquired Company to conduct its business. To the Knowledge of

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Quiksilver, excluding the Knowledge of any individual as to himself or herself, no director, officer, or other key employee of any Acquired Company intends to terminate his or her employment with such Acquired Company.

          (b) Quiksilver has made available to Buyer complete and accurate copies of each written employment, consulting, compensation or similar agreement to which any Acquired Company is a party, all of which are listed in Schedule 2.19(b). Except as disclosed in Schedule 2.19(b), no Acquired Company is a party to or bound by any written agreement, any employment manual, employment handbook, employment practice or policy constituting a contractual obligation, or any consent decree, court order or statutory obligation (i) for the employment of or provision of services by any employee who is not terminable by the Acquired Company without penalty upon thirty (30) days’ notice or less, (ii) with any labor union, (iii) relating to the payment of any severance or termination payment, bonus or death benefit to any employee; or (iv) containing a “change in control” or “termination for good reason” provision. All employment manuals and employment handbooks that are applicable to the Employees are listed in Section 2.19(b) of the Disclosure Letter.

          (c) There are no loans or other obligations payable or owing to any employees or to any officers or directors of any Acquired Company, except salaries, wages, bonuses and salary advances and reimbursement of expenses incurred and accrued in the ordinary course of business. No loans or debts are payable or owing by any such persons to any Acquired Company, and no Acquired Company has guaranteed any of their loans or obligations.

          (d) There is no material dispute pending or, to the Knowledge of Quiksilver, Threatened between any Acquired Company and any of its current or former officers, directors, supervisory personnel or any employee or group of employees.

     2.20 Labor Relations; Compliance. No Acquired Company has been or is a party to any collective bargaining agreement. There has not been, there is not presently pending or existing, and to the Knowledge of Quiksilver, there is not Threatened, (a) any strike, slowdown, picketing, or work stoppage, (b) any Proceeding against or affecting any Acquired Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, including any charge or complaint filed by an employee or union with the National Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable Governmental Body, organizational activity, or other labor or employment dispute against or affecting any of the Acquired Companies or their premises, or (c) any activities or Proceedings initiated by or requested of any labor union to organize any employees of any Acquired Company or any application for certification of a collective bargaining agent. No event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute. Each Acquired Company has complied in all material respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. No Acquired Company is liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. No Acquired Company has a current employee who is on a legally protected leave of absence, or former employees with a legal or contractual right to reinstatement. No Acquired Company has

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direct or indirect liability with respect to any misclassification of any person as an independent contractor rather than as an employee, or with respect to any employee leased from another employer. Each of the Acquired Companies has complied with all obligations to provide information to and/or consult with any employee, employee representative, works counsel or trade union in relation to the transactions contemplated hereby including the works’ council (comité d’entreprise) of Riviera SNC.

     2.21 Intellectual Property.

          (a) Intellectual Property Assets. The term “Intellectual Property Assets” includes:

          (i) all fictional business names, trading names, registered and unregistered trademarks, service marks, domain names, and applications for any of the foregoing (collectively, “Marks”);

          (ii) all patents, patent applications, and inventions and discoveries that may be patentable (collectively, “Patents”);

          (iii) all registered copyrights and material unregistered copyrights in both published works and unpublished works (collectively, “Copyrights”); and

          (iv) all know-how, trade secrets, confidential information, customer lists, proprietary or custom-designed software, technical information, information technology, data, process technology, plans, drawings, and blue prints (collectively, “Trade Secrets”);

owned, used, or licensed by any Acquired Company as licensee or licensor.

          (b) Agreements. Section 2.21(b) of the Disclosure Letter contains a complete and accurate list of all Material Contracts relating to the Intellectual Property Assets to which any Acquired Company is a party or by which any Acquired Company is bound, except for any license implied by the sale of a product and perpetual, paid-up licenses for commonly available software programs with a value of less than $100,000 under which an Acquired Company is the licensee. There are no outstanding and, to the Knowledge of Quiksilver, no Threatened disputes or disagreements with respect to any such agreement.

          (c) Intellectual Property Rights

          (i) The use of any Intellectual Property Assets by the Acquired Companies has not infringed on any intellectual property rights or other proprietary rights of any third-party. Without limiting the foregoing, the current products of, and the conduct of the Business by, the Acquired Companies do not infringe upon the intellectual property rights or other proprietary rights of any third-party.

          (ii) In connection with the use of the Intellectual Property Assets by the Acquired Companies, except for software maintenance charges in the ordinary course

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of business, none of the Acquired Companies owes to any other Person any ongoing fee, royalty or other payment as a condition to the use of such Intellectual Property Assets.

          (iii) None of the Acquired Companies has entered into any written license or other Contract pursuant to which such Acquired Company has granted to any other Person the right to use any Intellectual Property Assets other than in the ordinary course of business. The Acquired Companies have taken reasonable efforts to maintain the confidentiality of all of their Intellectual Property Assets not publicly available and all other confidential information.

          (iv) The Acquired Companies have in a timely manner made all filings, affidavits, payments, and recordations required to obtain and maintain ownership of the Intellectual Property Assets registered by them or for which an application for registration is pending. There are no proceedings or actions pending before any Governmental Body (including, without limitation, the United States Patent and Trademark Office or any equivalent Governmental Body anywhere else in the world) challenging the ownership, validity or enforceability of the Intellectual Property Rights of the Acquired Companies and no such proceedings or actions have, to the Knowledge of Quiksilver, been Threatened. The Acquired Companies have taken all commercially reasonable steps to enforce their rights to the Intellectual Property Assets.

          (v) As of the Closing, the Acquired Companies will own all of the intellectual property necessary for or currently used in the Business and no Affiliate of Quiksilver (other than an Acquired Company) will own or have any rights in or to any intellectual property used in the Business.

          (vi) Neither the execution and delivery of this Agreement nor the consummation or performance of any of the transactions contemplated herein or therein by Quiksilver, Seller or the Acquired Companies will, directly or indirectly (with or without notice or lapse of time), result in the breach by any Acquired Company of, give any third party a right of termination of, or result in the loss of rights or diminution of rights with respect to Intellectual Property Rights.

          (d) Know-How Necessary for the Business

          (i) One or more of the Acquired Companies is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Assets.

          (ii) To the Knowledge of Quiksilver, no employee of any Acquired Company has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his or her work to anyone other than one or more of the Acquired Companies. Each current and former employee, consultant, officer and director of an Acquired Company who has had access to any portion of the

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Intellectual Property Assets is and has at all relevant times been a party to a written agreement with the applicable Acquired Company (A) under which such Person is obligated to disclose and transfer to such Acquired Company without the receipt by such Person of any additional value therefor, other than normal salary or fees for consulting services, all inventions, developments and discoveries that, during the period of employment with or performance of services for such Acquired Company, he or she makes or conceives, either solely or jointly with others, that relate to subject matter of his or her employment or engagement with such Acquired Company or relate to or are connected with the Business, products or projects of such Acquired Company, or involve the use of the time, material or facilities of such Acquired Company, (B) as a result of which all right, title and interest in and to all Intellectual Property Assets has been validly and effectively assigned to such Acquired Company and no officer, director, employee, consultant or agent of such Acquired Company retains any right, title or interest therein, and (C) under which such Person is obligated to keep confidential the confidential and proprietary information of the Acquired Companies, including but not limited to the Trade Secrets.

          (iii) None of the Acquired Companies (A) has received any notice or claim by any third party of any infringement, misappropriation or violation by any of the Acquired Companies of any third party’s intellectual property, industrial property, moral, publicity or privacy rights or (B) is involved in any litigation, suit or other proceeding with respect to any such claim.

     (e) Patents

          (i) Section 2.21(e) of the Disclosure Letter contains a complete and accurate list of all Patents, including the application or registration number, title, jurisdiction in which the application was made or from which registration issued, date of application or issuance, and names of all current applicant(s) and registered owners(s) (as applicable).

          (ii) One or more of the Acquired Companies is the owner of all right, title, and interest in and to each of the Patents, free and clear of all liens, security interests, charges, encumbrances, entities, and other adverse claims.

          (iii) All assignments of registered Patents and applications for registration of Patents to the Acquired Companies have been properly executed and recorded.

          (iv) All of the issued Patents and applications for Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), and all issued Patents are valid and enforceable.

          (v) No Patent has been or is now involved in any inventorship challenge, invalidity, interference, reissue, reexamination, or opposition proceeding.

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          (vi) To the Knowledge of Quiksilver, no Patent is infringed or has been challenged or threatened in any way.

     (f) Trademarks

          (i) Section 2.21(f) of the Disclosure Letter contains a complete and accurate list, including in the case of registered Marks or applications therefor, the application or registration number, title, jurisdiction in which the application was made or from which registration issued, date of application or registration, and names of all current applicant(s) and registered owners(s), and jurisdictions where registered (if applicable), of all (A) registered Marks, (B) applications for registration of Marks and (C) material unregistered Marks. One or more of the Acquired Companies is the owner of all right, title, and interest in and to each of the Marks, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims.

          (ii) All assignments of registered Marks and applications for registration of Marks to the Acquired Companies have been properly executed and recorded.

          (iii) All of the registered Marks and applications for registration of Marks listed in Section 2.21(f) of the Disclosure Letter are currently in compliance with all formal legal requirements (including payment of filing, examination, and maintenance fees), and are, to the Knowledge of Quiksilver, valid and enforceable.

          (iv) No Mark has been or is now involved in any opposition, invalidation, or cancellation and, to the Knowledge of Quiksilver, no such action is Threatened with the respect to any of the Marks.

          (v) To the Knowledge of Quiksilver, no Mark is infringed or has been challenged or threatened in any way.

     (g) Copyrights

          (i) Section 2.21(g) of the Disclosure Letter contains a complete and accurate list of all registered Copyrights, including registration number, title, jurisdiction from which registration issued, date of registration, and names of all current registered owners(s) (as applicable).

          (ii) Unless otherwise noted in Section 2.22(g) of the Disclosure Letter, one or more of the Acquired Companies is the owner of all right, title, and interest in and to each of the Copyrights, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims.

          (iii) All assignments of registered Copyrights to the Acquired Companies have been properly executed and recorded.

          (iv) All of the registered Copyrights are, to the Knowledge of Quiksilver, valid and enforceable.

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          (v) No registered Copyright has been or is now involved in any cancellation or similar proceeding and, to the Knowledge of Quiksilver, no such action is Threatened with the respect to any of the Copyrights.

          (vi) To the Knowledge of Quiksilver, no Copyright is infringed or has been challenged or threatened in any way.

     (h) Trade Secrets

          (i) The Acquired Companies have taken all reasonable precautions to protect the secrecy, confidentiality, and value of their Trade Secrets.

          (ii) One or more of the Acquired Companies has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to the Knowledge of Quiksilver, have not been used, divulged, or appropriated either for the benefit of any Person (other than one or more of the Acquired Companies) or to the detriment of the Acquired Companies.

     2.22 Certain Payments. No Acquired Company or, to the Knowledge of Quiksilver, director, officer, agent, or employee of any Acquired Company, or any other Person associated with or acting for or on behalf of any Acquired Company, directly or indirectly, has (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services in violation of any Legal Requirement, to obtain favorable treatment in securing business, (b) paid for favorable treatment for business secured, (c) obtained special concessions for or in respect of any Acquired Company, or (d) established or maintained any fund or asset that has not been recorded in the books and records of the Acquired Companies.

     2.23 Brokers or Finders. Quiksilver, Seller, the Acquired Companies and their agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement or the transactions contemplated hereby, other than fees owed to JP Morgan Securities, Inc. and its Affiliates, all of which will be paid by Quiksilver.

     2.24 Suppliers and Customers. Quiksilver has provided Buyer with a list of all customers and suppliers of the Acquired Companies who purchased more than $50,000 of Inventory from any of the Acquired Companies or sold more than $50,000 of products or services to any of the Acquired Companies during the Acquired Companies’ most recently completed fiscal year, together with the aggregate amount of the sales made to each such customer and purchases made from each such supplier during such fiscal year. No Acquired Company has received any written notice from any such listed supplier or customer that such supplier or customer intends to terminate its relationship with such Acquired Company or to materially decrease or limit its services or products to such Acquired Company or its purchases of Inventory of such Acquired Company.

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     2.25 Foreign Corrupt Practices Act. None of the Acquired Companies or any officer, director, employee, stockholder or agent of the Acquired Companies acting on behalf of the Acquired Companies, has done any act or authorized, directed or participated in any act, in violation of any provision of the United States Foreign Corrupt Practices Act of 1977, as amended, applied to such Person.

     2.26 Powers of Attorney. There are no outstanding powers of attorney executed by or on behalf of any of the Acquired Companies.

     2.27 Guaranties. None of the Acquired Companies is a guarantor or otherwise is liable for any liability or obligation (including indebtedness) of any other Person.

     2.28 Relationships with Related Persons. None of Quiksilver, the Seller nor any Affiliate thereof (other than the Acquired Companies) has any interest in any property (whether real, personal, or mixed and whether tangible or intangible), used in or pertaining to the Business. Except as set forth in Section 2.28 of the Disclosure Letter, none of Quiksilver, the Seller, nor any Affiliate thereof (other than the Acquired Companies) is a party to any Contract with, or has any claim or right against, any Acquired Company.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer represents and warrants to Quiksilver and Seller as follows:

     3.1 Organization and Good Standing. Buyer is a Japanese corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of organization.

     3.2 Authority; No Conflict.

          (a) This Agreement constitutes the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect affecting creditors’ rights generally and general principles of equity. Buyer has all necessary corporate power and authority to, and has taken all necessary corporate actions necessary to authorize it to, enter into, execute and deliver this Agreement and to perform its obligations under this Agreement.

          (b) The execution and delivery of this Agreement by Buyer will not, and the consummation or performance of any of the transactions contemplated herein by Buyer will not, give any Person the right to prevent, delay, or otherwise interfere with any of the transactions contemplated herein pursuant to:

               (i) any provision of Buyer’s Organizational Documents;

               (ii) any resolution adopted by the board of directors or shareholders of Buyer;

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               (iii) any Legal Requirement or Order to which Buyer may be subject; or

               (iv) any Contract to which Buyer is a party or by which Buyer may be bound.

Buyer is not and will not be required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the transactions contemplated herein.

     3.3 Financing.

          (a) Buyer has available to it, and on the Closing Date will have, funds in an amount sufficient to enable it (i) to consummate all the transactions contemplated herein, without any delay or restriction that would adversely impact the certainty of Buyer’s ability to so consummate, and (ii) pay all fees and expenses required to be paid in connection with such transactions.

          (b) Buyer has delivered to Quiksilver true and complete copies of all equity and debt commitments for financing to be used to complete the transactions contemplated by this Agreement and there are no other arrangements or agreements that in any way condition, restrict, impair or limit such financing (such as material adverse change, due diligence, delivery of legal opinions or contracts, or other specific conditions to drawing that are not within Buyer’s sole control). Each such commitment is valid, binding and in full force and effect. Each debt financing is extended by one or more lending institutions having at least a Standard & Poor’s long term issue rating of “A-” or a Moody’s equivalent rating. No event has occurred which, with or without notice, lapse of time or both, would reasonably be expected to constitute an event of default on the part of Buyer under the equity or debt financing documents that has not been waived or remedied to the satisfaction of the lenders or the equity investors. Buyer has fully paid any and all commitment fees or other fees on the dates and to the extent required by the equity or debt financing documents.

     3.4 Certain Proceedings. There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated herein. To the Knowledge of Buyer, no such Proceeding has been Threatened.

     3.5 Investment Intent; Ability to Evaluate and Bear Risks. Buyer is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. Buyer is able to bear the economic risk of holding the Shares for an indefinite period, and has knowledge and experience in financial and business matters such that it is capable of evaluating the risks of the investment in the Shares.

     3.6 Investigation by Buyer; Quiksilver’s and Seller’s Liability. Buyer has conducted its own independent investigation, review and analysis of the business, operations, assets, liabilities, results of operations, financial condition and prospects of the Acquired Companies, which investigation, review and analysis was done by Buyer and, to the extent Buyer deemed

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appropriate, by its representatives. None of the findings of Buyer, however, or the aforementioned investigation, review and analysis shall diminish or in any way detract from or affect Buyer’s ability to rely on or make a claim for breach of the representations and warranties set forth in Article II of this Agreement. In entering into this Agreement, Buyer acknowledges that it has relied solely upon the aforementioned investigation, review and analysis and not on any factual representations, warranties or assurances of Quiksilver, Seller, the Acquired Companies or their respective representatives (except the specific representations and warranties of Quiksilver set forth in Article II of this Agreement), and Buyer:

          (a) acknowledges that none of Quiksilver, Seller, the Acquired Companies or any of their respective directors, officers, stockholders, employees, Affiliates, agents, advisors or representatives makes or has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information (including the Due Diligence Information) provided or made available to Buyer or its directors, officers, employees, Affiliates, controlling persons, agents or representatives; and

          (b) agrees, to the fullest extent permitted by law, that none of Quiksilver, Seller, the Acquired Companies or any of their respective directors, officers, employees, stockholders, Affiliates, agents, advisors or representatives shall have any liability or responsibility whatsoever to Buyer or its directors, officers, employees, Affiliates, controlling persons, agents or representatives on any basis (including in contract or tort) based upon any information provided or made available, or statements made (including in materials furnished in the Due Diligence Information), to Buyer or its directors, officers, employees, affiliates, controlling persons, advisors, agents or representatives (or any omissions therefrom), including in respect of the specific representations and warranties of Seller set forth in this Agreement, except that the foregoing limitations shall not apply to (i) Quiksilver or Seller insofar as Quiksilver makes the specific representations and warranties set forth in Article II of this Agreement, but subject to the limitations and restrictions contained in Article X, or (ii) to the extent arising from fraud or intentional misrepresentation.

     3.7 Brokers or Finders. Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement other than fees owed to Daiwa Securities SMBC. Buyer will indemnify and hold Quiksilver and Seller harmless from any such payment alleged to be due by or through Buyer.

ARTICLE IV
COVENANTS OF QUIKSILVER, SELLER AND COMPANY
PRIOR TO CLOSING DATE

     4.1 Access and Investigation.

          (a) Subject to any Legal Requirement, between the date of this Agreement and the Closing Date, Quiksilver, Seller and the Company will, and will cause each Acquired Company and its representatives to, (a) afford Buyer and its representatives and prospective lenders and their representatives (collectively, “Buyer’s Advisors”) reasonable access during normal business hours to each Acquired Company’s personnel, properties, contracts, books and records, and other documents and data, (b) furnish Buyer and Buyer’s Advisors with copies of all such contracts, books and

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records, and other existing documents and data as Buyer may reasonably request, and (c) furnish Buyer and Buyer’s Advisors with such additional financial, operating, and other data and information as Buyer may reasonably request, in each case, so long as such actions (1) do not materially interfere with the business of the Acquired Companies and (2) would not violate any Legal Requirement. Without limiting the foregoing, between the date of this Agreement and the Closing Date, Quiksilver, Seller and the Company agree that Buyer shall be permitted (at Buyer’s sole cost and expense) to have a Phase I environmental study conducted at the Company’s premises located on the NWC of Skylab Road and Astronautics Drive, Huntington Beach, California, and agree to provide all reasonable cooperation in connection therewith.

          (b) Buyer agrees that neither Quiksilver, Seller nor the Company shall be deemed to have Knowledge of any actual or potential environmental Liabilities identified as a result of the Phase I environmental study conducted pursuant to paragraph (a) above, to the extent that such environmental Liabilities were not otherwise included within the knowledge of Quiksilver prior to the commencement of such Phase 1 environmental study.

     4.2 Operation of the Businesses of the Acquired Companies. Except as otherwise expressly provided herein, between the date of this Agreement and the Closing Date, Quiksilver, Seller and the Company will, and will cause the Acquired Companies to:

          (a) conduct the business of the Acquired Companies in the ordinary course of business;

          (b) use commercially reasonable efforts to preserve intact the current business organization of the Acquired Companies, and maintain the relations and goodwill with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Acquired Companies;

          (c) confer with Buyer concerning operational and technical matters of a material nature;

          (d) otherwise report periodically to Buyer concerning the status of the business, operations, and finances of the Acquired Companies as reasonably requested by Buyer.

     4.3 Negative Covenant. Except as otherwise expressly permitted by this Agreement or disclosed in Section 4.3 of the Disclosure Letter, between the date of this Agreement and the Closing Date, Quiksilver, Seller and the Company will not, and will cause each Acquired Company not to, without the prior consent of Buyer, take any affirmative action, or fail to take any commercially reasonable action within its control, as a result of which any of the changes or events listed in Section 2.15 would occur.

     4.4 Notification. Between the date of this Agreement and the Closing Date, Quiksilver will notify Buyer as soon as practicable in writing if Quiksilver becomes aware of any fact or condition that causes or constitutes a Breach of any of Quiksilver’s representations and warranties as of the date of this Agreement. During the same period, Quiksilver will notify

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Buyer as soon as practicable of the occurrence of any Breach of any covenant of Quiksilver, Seller or Company in this Article IV or of the occurrence of any event that may make the satisfaction of the conditions in Article VII impossible or unlikely. Notwithstanding anything herein to the contrary, no notice provided pursuant to this Section 4.4 shall limit or otherwise affect the remedies available hereunder to the party receiving such notice, or the representations or warranties of, or the conditions to the obligations of, the parties hereto.

     4.5 Antitrust Filings. As promptly as practicable after the date of this Agreement (and in any event, within twenty (20) days after the date hereof), Quiksilver will, in cooperation with Buyer, complete and file with the appropriate authorities all forms and documents required under any antitrust or competition laws and regulations of any applicable jurisdiction (including foreign jurisdictions) (collectively, “Antitrust Laws”), including, without limitation, the pre-merger notification forms and any other documents required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the “HSR Act”). It is agreed that Buyer and Quiksilver shall bear equally all filing fees due from the parties in connection with compliance with Antitrust Laws.

     4.6 Required Approvals. As promptly as practicable after the date of this Agreement, Quiksilver, Seller and the Company will, and will cause each Acquired Company to, (a) make all filings required by Legal Requirements (including, without limitation, such requirements in connection with the HSR Act, other Antitrust Laws and regulations of any applicable jurisdiction) to be made by them in order to consummate the transactions contemplated herein, and (b) make commercially reasonable efforts to obtain all consents required to be obtained by any Acquired Company to consummate the transactions contemplated hereby. Between the date of this Agreement and the Closing Date, Quiksilver, Seller and the Company will, and will cause each Acquired Company to, (i) reasonably cooperate with Buyer with respect to all filings that Buyer elects to make or is required by Legal Requirements to make in connection with the transactions contemplated herein, and (ii) reasonably cooperate with Buyer in obtaining all consents required by Buyer to consummate the transactions under this Agreement.

     4.7 Charges, Fees and Prepayment Obligations; Guarantees. Between the date of this Agreement and the Closing, Seller and Quiksilver will take such steps as are reasonably necessary to ensure that (a) no sums are owed or payable by the Acquired Companies following the Closing to any Person in the nature of a transfer charge, consent fee or processing fee with respect to any Contracts of the Acquired Companies, and (b) all guarantees of an Acquired Company for the benefit of Quiksilver or any of its Affiliates (that is not an Acquired Company) shall be removed.

     4.8 Consultations and Communications Regarding Employee Matters. Quiksilver, Company and Seller will cooperate with Buyer with respect to any required notification to or consultation with any Governmental Bodies, labor organizations, Work Councils or similar such bodies in connection with employee, labor or other matters. Quiksilver, Company and Seller will cooperate with Buyer in regard to any communications with employees and sales agents, even where such communications occur before the Closing Date. Quiksilver and Seller agree to use commercially reasonable efforts to obtain releases of the Acquired Companies, effective as of the Closing, from each of the individuals listed in Exhibit C; provided, however, that

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Quiksilver’s failure to obtain such releases despite using its commercially reasonable efforts shall not be deemed a breach of this Agreement.

     4.9 Transfer of Certain Intellectual Property. Between the date of this Agreement and the Closing, Quiksilver will take all actions reasonably necessary to transfer the “VAS” patents and the “Cleveland Golf” trademarks in France held by Quiksilver or its Affiliates (other than the Acquired Companies) to the Acquired Companies.

     4.10 Commercially Reasonable Efforts. Between the date of this Agreement and the Closing, Quiksilver, Seller and the Company will use their commercially reasonable efforts to cause the conditions in Articles VII and VIII to be satisfied.

     4.11 Acquired Company Restructuring. The parties acknowledge and agree that certain of the Acquired Companies are not direct subsidiaries of the Company as of the date of this Agreement. Prior to the Closing, Quiksilver and its Affiliates intend to restructure the ownership of the Acquired Companies to cause all of the Acquired Companies (other than the Company) to be direct or indirect wholly-owned subsidiaries of the Company (the “Restructuring”). Quiksilver agrees to discuss the details and timing of the Restructuring with Buyer, and consider in good faith any adjustments to such Restructuring that Buyer may reasonably request in order to avoid any adverse tax or accounting consequences to Buyer, or the Acquired Companies, including, without limitation, adjusting the Restructuring plan such that the shares of one or more of such Acquired Companies are not contributed or sold by Quiksilver (or its Affiliates) to the Company prior to Closing, but instead are directly purchased by Buyer or one of its Affiliates at Closing. Notwithstanding the foregoing, Quiksilver shall not be obligated to implement any of the suggested adjustments of Buyer if such adjustments would have any negative effect or impact on Quiksilver or its Affiliates (other than the Acquired Companies).

     4.12 Accounting Treatment. Quiksilver agrees that it will treat the payment of the Change in Control Obligations as an expense incurred immediately prior to Closing for purposes of its financial reporting.

     4.13 Consent of Landlord for Company Headquarters. Quiksilver will use its commercially reasonable efforts to obtain the consent of the landlord to the Company’s headquarters facility in Huntington Beach, California; provided, however, that Quiksilver’s failure to obtain such consent shall not be deemed to be a breach of this Agreement. Notwithstanding the foregoing, Quiksilver will indemnify and hold Buyer and the Acquired Companies harmless from any Damages that directly or indirectly result from or arise out of Quiksilver’s failure to obtain such consent.

ARTICLE V
COVENANTS OF BUYER PRIOR TO CLOSING DATE

     5.1 Notification. Between the date of this Agreement and the Closing Date, Buyer will notify Quiksilver as soon as practicable in writing if Buyer becomes aware of any fact or condition that causes or constitutes a Breach of any of Buyer’s representations and warranties as of the date of this Agreement. During the same period, Buyer will notify Quiksilver as soon as practicable of the occurrence of any Breach of any covenant of Buyer in this Article V or of the

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occurrence of any event that may make the satisfaction of the conditions in Article VIII impossible or unlikely. Notwithstanding anything herein to the contrary, no notice provided pursuant to this Section 5.1 shall limit or otherwise affect the remedies available hereunder to the party receiving such notice, or the representations or warranties of, or the conditions to the obligations of, the parties hereto.

     5.2 Antitrust Filings. As promptly as practicable after the date of this Agreement (and in any event, within twenty (20) days after the date hereof), Buyer will, in cooperation with Quiksilver, complete and file with the appropriate authorities all forms and documents required under all applicable Antitrust Laws, including, without limitation, the HSR Act. It is agreed that Buyer and Quiksilver shall bear equally all filing fees due from the parties in connection with compliance with the Antitrust Laws.

     5.3 Required Approvals. As promptly as practicable after the date of this Agreement, Buyer will (a) make all filings required by Legal Requirements (including, without limitation, such requirements in connection with the Antitrust Laws and regulations of any applicable jurisdiction) to be made by it to consummate the transactions contemplated herein, and (b) make commercially reasonable efforts to obtain all consents required to be obtained by Buyer to consummate the transactions contemplated hereby. Between the date of this Agreement and the Closing Date, Buyer will (i) reasonably cooperate with Quiksilver, Seller and the Company with respect to all filings that Quiksilver, Seller or the Company are required by Legal Requirements to make in connection with the transactions contemplated herein, and (ii) reasonably cooperate with Quiksilver, Seller and the Company in obtaining all consents required by Quiksilver, Seller and the Company to consummate the transactions under this Agreement.

     5.4 Commercially Reasonable Efforts         . Between the date of this Agreement and the Closing, Buyer will use its commercially reasonable efforts to cause the conditions in Articles VII and VIII to be satisfied.

ARTICLE VI
ADDITIONAL AGREEMENTS

     6.1 Tax Returns and Transfer Taxes.

          (a) Quiksilver’s Consolidated Income Tax Returns. Quiksilver shall, at its own expense, prepare and file, or cause to be prepared and filed, all Tax Returns (including amended Tax Returns) of the Acquired Companies that are income Tax Returns and are prepared on a consolidated, unitary, or combined basis and that include Quiksilver for all taxable periods ending on or before the Closing Date. Any Tax Returns prepared by Quiksilver for any taxable period ending on or prior to the Closing (including any amended Tax Returns) shall be prepared in a manner consistent with past practice (except as required by Legal Requirements) during the taxable periods ending on or prior to the Closing. Quiksilver shall timely pay, or cause to be paid, any such Taxes shown as due on such Tax Returns.

          (b) Other Returns. Buyer shall, at its own expense, prepare and file, or cause to be prepared and filed, all Tax Returns of the Acquired Companies (other than the Tax Returns that are prepared by Quiksilver pursuant to Section 6.1(a) above) that are required to be filed

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after the Closing with respect to taxable periods beginning on or before the Closing Date or any period commencing after the Closing, and, subject to the right to payment from Quiksilver pursuant to this Section, Buyer shall pay all Taxes shown as due on those Tax Returns. Quiksilver shall reimburse Buyer for all Taxes shown on Tax Returns of the Acquired Companies (other than the Tax Returns that are prepared by Quiksilver pursuant to Section 6.1(a) above) for all periods (or portions thereof) ending on or prior to the Closing Date which are filed after the Closing Date, but Quiksilver shall be credited for any estimated tax payments made by it prior to Closing. For Tax periods which begin before the Closing Date and end after the Closing Date (a “Straddle Period”), Quiksilver shall reimburse Buyer for an amount equal to the Pre-Closing Taxes due with respect to any such Tax Returns filed by the Acquired Companies and payable by such Acquired Companies. Quiksilver shall also reimburse Buyer for all costs and expenses incurred by Buyer or any of its Affiliates with respect to the preparation and filing of any Tax Returns of the Acquired Companies for any taxable period ending on or prior to the Closing Date and for a pro rata share of any Tax Returns of the Acquired Companies for a Straddle Period. Any amounts owed by Quiksilver to Buyer pursuant to this Section 6.1(b) shall be paid by Quiksilver within ten (10) days of Buyer’s request therefor. Buyer shall cause each Acquired Company to timely pay all such Taxes on or prior to their due date. With respect to a Straddle Period, such Pre-Closing Taxes shall be calculated as follows: For purposes of this Section 6.1(b), in the case of any Taxes that are imposed on a periodic basis and are payable for a Straddle Period, the portion of such Taxes that relates to the portion of the Straddle Period ending on or prior to the Closing Date shall (A) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days in the Straddle Period from the first day of the Straddle Period through and including the Closing Date, and the denominator of which is the number of days in the entire Straddle Period, and (B) in the case of any Taxes based upon or related to income or receipts, be deemed equal to the amount that would be payable if the relevant Straddle Period ended on the Closing Date, using the “closing of the books” method of accounting.

          (c) Amended Returns. Unless required by Legal Requirements, Buyer shall not (nor shall it cause or permit the Acquired Companies to) amend, refile or otherwise modify any Tax Return relating in whole or in part to the Acquired Companies with respect to any taxable year or period ending on or before the Closing Date, or that includes the Closing Date, without the prior written Consent of Quiksilver, not to be unreasonably withheld or delayed.

          (d) Tax Proceedings. In the event Buyer receives notice of any pending or Threatened Tax audits or assessments by any Tax authority or other disputes concerning Taxes with respect to which Quiksilver or its Affiliates may incur Liability under this Agreement, the party in receipt of such notice shall promptly notify Quiksilver of such matter in writing. Quiksilver shall have the right, at its own expense, to represent the interests of the Acquired Companies in any such Tax audit or administrative or court proceeding to the extent relating to Taxes for which Quiksilver is liable under this Agreement.

          (e) Cooperation on Tax Matters. Buyer, the Acquired Companies, and Quiksilver shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of all Tax Returns (including any amended Tax Return or claim for refund) and any audit, litigation, or other proceeding with respect to Taxes. Buyer and

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Quiksilver further agree to use commercially reasonable efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed.

          (f) Tax Sharing Agreements. All Tax sharing agreements or similar agreements, if any, between any of the Acquired Companies and any other Affiliate of Quiksilver shall be terminated as of the Closing Date and, after the Closing, none of the Acquired Companies, nor Quiksilver, nor any Affiliate thereof, shall be bound thereby or have any Liability thereunder and no payments (or any other obligations) that are owed by or to the Acquired Companies pursuant thereto shall be required to be made (or performed) thereunder.

          (g) Transfer Taxes. Quiksilver shall be responsible for and shall pay for all stock transfer Taxes, sales Taxes, documentary stamp Taxes, recording charges and other similar Taxes, if any, arising in connection with the sale of the Shares to Buyer. Each of the parties hereto shall prepare and file, and shall fully cooperate with each other party with respect to the preparation and filing of, any Tax Returns and other filings relating to any such Taxes or charges as may be required.

     6.2 Indemnification of Officers and Directors of Company.

          (a) From and after the Closing, Buyer agrees that it will, and it will cause each Acquired Company to, indemnify and hold harmless each present and former director and officer of an Acquired Company (the “D&O Indemnified Parties”), against any costs or expenses (including attorneys’ fees), judgments, fines, losses, claims, damages, liabilities or amounts paid in settlement incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the Closing, whether asserted or claimed prior to, at or after the Closing, to the fullest extent that the Company would have been permitted under its Organizational Documents and any indemnification agreements or arrangements in effect on the date hereof to indemnify such D&O Indemnified Parties subject to applicable Legal Requirements.

          (b) In the event that an Acquired Company or Buyer or any of their respective successors or assigns (i) consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision will be made so that the successors and assigns of the Company or Buyer will assume the obligations thereof set forth in this Section 6.2.

     6.3 Other Intercompany Arrangements. Except as otherwise expressly contemplated by this Agreement, all Contracts, whether written, oral or otherwise, which are solely between the Acquired Companies, on the one hand, and Quiksilver, Seller and their Affiliates (excluding the Acquired Companies), on the other hand, shall be terminated and of no further effect, simultaneously with the Closing without any further action or liability on the part of the parties thereto, including, without limitation, any promissory notes and interest bearing liabilities. Quiksilver and its Affiliates (other than the Acquired Companies) agree that, after the Closing,

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no Acquired Company sponsored athlete shall be required to use or wear any FIDRA apparel or item.

     6.4 Excluded Insurance Policies; Continued Product Liability Insurance.

          (a) Buyer shall not, and shall cause its Affiliates (including the Acquired Companies after the Closing) not to, assert, by way of claim, action, litigation or otherwise, any right to any Excluded Insurance Policy or any benefit under any such Excluded Insurance Policy. Quiksilver and its Affiliates (other than the Acquired Companies) shall retain all right, title and interest in and to the Excluded Insurance Policies, including the right to any credit or return premiums due, paid or payable in connection with the termination thereof; provided, however, that to the extent any returned premiums have been paid by an Acquired Company, such returned premiums shall belong to Buyer.

          (b) Promptly upon the Closing and except as otherwise provided herein, Buyer shall release, and shall cause its Affiliates, including the Acquired Companies, to release, all rights to all Excluded Insurance Policies that covered the Acquired Companies prior to the Closing Date. All Excluded Insurance Policies issued prior to the Closing Date in the name of or to the Acquired Companies shall remain with Quiksilver or its Affiliates (other than the Acquired Companies). Notwithstanding anything to the contrary herein, (i) if any Insurance Policy (including any Excluded Insurance Policy) is occurrence-based and provides coverage to an Acquired Company, or (ii) provides coverage to an Acquired Company in respect of an outstanding insurance claim, then the parties shall use commercially reasonable efforts to provide the benefits of such coverage to the applicable Acquired Companies. In furtherance of and without limiting the foregoing, Quiksilver shall and shall cause its Affiliates to (in each case, promptly upon the request of Buyer): (i) provide copies of any Excluded Insurance Policy to Buyer for the sole purposes of determining whether a potential claim may be covered thereunder, (ii) to the extent Buyer reasonably believes such potential claim would be covered under an Excluded Insurance Policy, submit such claim to the applicable insurance company and take all reasonable action to have such claim promptly processed; (iii) upon receipt by Quiksilver or its Affiliates of any proceeds received pursuant to an Excluded Insurance Policy in connection with the foregoing, remit such proceeds to the applicable Acquired Company within five (5) Business Days; and (iv) otherwise keep Buyer reasonably informed, and take any other action as may be reasonably requested by Buyer, in respect of the foregoing.

          (c) For a period of three (3) years after the Closing Date, Quiksilver agrees to maintain product liability insurance coverage for the benefit of the Acquired Companies (where the Acquired Companies are named beneficiaries under the Policy) in respect of products that were manufactured by the Acquired Companies prior to the Closing Date (the “Policy”). Buyer agrees to pay Quiksilver $75,000 to maintain such Policy. For avoidance of doubt, Quiksilver’s obligations pursuant to Section 6.4(b) shall apply to the Policy.

     6.5 Settlement and General Release of the Buyer Released Parties.

          (a) From and after the Closing, for the consideration set forth herein and for other due and valid consideration, the receipt and sufficiency of which is hereby acknowledged, Quiksilver and its Affiliates, to the extent acting in the capacity of an Affiliate, (collectively,

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“Seller Affiliates”) waive and finally release and forever discharge Buyer, the Acquired Companies and each of Buyer’s Affiliates, to the extent acting in the capacity of an Affiliate, (collectively, the “Buyer Released Parties”) from any and all claims, causes of action, damages, debts, liabilities, obligations, costs and expenditures of any kind and nature whatsoever, whether liquidated or contingent, known or unknown, which the Seller Affiliates may now have or may have had the right to assert against any of the Buyer Released Persons under any Contract between or among any Seller Affiliate and any Acquired Company, or pursuant to any action or failure to act by any of the Acquired Companies, in each case based on any matter, fact or event that occurred or existed on or prior to the Closing Date (collectively, the “Released Claims”); provided, however that the Released Claims will not include any rights arising under this Agreement.

          (b) From and after the Closing, Seller Affiliates and their successors and assigns, covenant not to sue or otherwise institute or cause to be instituted or in any way participate in any legal, administrative or other proceeding or action, in the United States or any foreign country, against any of the Buyer Released Parties with respect to any matter of any kind arising out of the Released Claims.

          (c) Each of Quiksilver and Seller has entered into this Agreement based on its own investigation and analysis and that of its attorneys and other advisors and expressly assumes the risk that facts may be unknown to or not understood by it. On entering into this release, neither Quiksilver nor Seller is relying upon any representation or warranty of Buyer or its agents or representatives other than as set forth in this Agreement.

          (d) Each of Quiksilver and Seller acknowledges that this waiver and release extends to all claims of every nature and kind, known or unknown, suspected or unsuspected, past, present or future, whether under foreign, federal, state or local law, arising from the Released Claims, and any and all rights granted to them under Section 1542 of the California Civil Code or any analogous law or rule of any country other than the U.S. or U.S. state law or federal law or regulation are hereby expressly waived. Said Section 1542 of the California Civil Code reads as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

     This Section 6.5 shall constitute a complete defense to any claim released herein and shall survive indefinitely, without restriction, qualification or limitation, notwithstanding anything in this Agreement to the contrary.

     6.6 Litigation Support. So long as any party actively is contesting or defending against any Proceeding in connection with (a) the transactions contemplated hereby or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving any Acquired Company, each other party will cooperate with such party and such party’s counsel in

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the contest or defense, make available their personnel, and provide such testimony and access to their books and records as will be reasonably necessary in connection with the contest or defense, at the sole cost and expense of the contesting or defending party (subject to any indemnification rights under Article X).

     6.7 Transition Services.

          (a) Commencing on the Closing Date, Quiksilver shall provide, either directly or through its Affiliates, to the Acquired Companies the Transition Services (as such term is defined below) for a period of no longer than twelve (12) months immediately following the Closing, unless a Transition Service is earlier terminated in accordance with the terms hereof.

          (b) Quiksilver agrees to use commercially reasonable efforts to provide Transition Services in substantially the same manner and at substantially the same level as such Transition Services were performed by Quiksilver and/or its Affiliates for the Business prior to the date hereof. Quiksilver shall give the Transition Services substantially the same priority as it accords its own operations. The Buyer may terminate any Transition Service by giving five (5) days’ prior written notice to Quiksilver. Any requested termination of a Transition Service pursuant to this Section 6.7 shall become effective at the end of such five (5) day notice period and Quiksilver and/or its Affiliates shall thereafter no longer be obligated to provide such Transition Service and the Buyer shall thereafter no longer be obligated to pay for such Transition Service. Any such termination of a particular Transition Service shall not affect Quiksilver’s obligation to provide any other Transition Service pursuant to this Section 6.7 that has not been so terminated. Furthermore, the parties agree to fully cooperate in good faith with each other in connection with the provision of the Transition Services and the matters related to or arising hereunder, including, without limitation, Quiksilver’s cooperation with the Acquired Companies to enable the Acquired Companies to establish their own infrastructure to perform the Transition Services independently of Quiksilver as soon as practicable after the Closing.

          (c) All Transition Services shall be provided by Quiksilver or its Affiliates at a cost equal to Quiksilver’s or its Affiliates’ costs for such items which shall be paid by Buyer on a monthly basis. Quiksilver and its Affiliates hereby agree that neither shall include a profit component in its charge for any Transition Service.

          (d) Quiksilver shall indemnify and hold harmless the Acquired Companies and their representatives and Affiliates from and against all Damages incurred or sustained by any Acquired Company where such Damages results from (i) the gross negligence or willful misconduct of, Quiksilver, its representatives, Affiliates or any third party performing Transition Services on behalf of Quiksilver, or (ii) the failure by Quiksilver to comply fully with its obligations to any Quiksilver or Affiliate employee or consultant, including, without limitation, payment of wages, provision of benefits, and payment of employment taxes. Quiksilver warrants that all Transition Services shall be performed in compliance with all Legal Requirements and agree to promptly correct any errors or omissions that arise in connection with the provision of the Transition Services. Quiksilver shall obtain and maintain all permits, approvals and licenses, and shall obtain any third party Consents, necessary or appropriate to perform its obligations in this Section and shall at all times comply with the terms and conditions of such permits,

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approvals and licenses or Consents and the costs of obtaining any permits, approvals, licenses, sublicenses or approvals and third party Consents, shall be borne by Quiksilver.

          (e) For the purposes of this Section 6.8, “Transition Services” shall mean the services that Quiksilver or its Affiliates (other than an Acquired Company) have regularly provided to any Acquired Company within the past sixty (60) days. In furtherance, but without limiting the foregoing, Quiksilver and/or its Affiliates shall (i) sublease to Buyer or its Affiliates, and permit the use of, the portion of the Mixed Use Foreign Offices and related office equipment and supplies currently used by personnel of the Business, (ii) provide the “back office” services, including, without limitation, accounting services, customer services and payroll, to Buyer in each Mixed Use Foreign Office (to the extent such services were utilized by the Acquired Company employees at any time within the past sixty (60) days prior to the date of this Agreement), and (iii) enable the employees of Cleveland Golf Canada to continue using the benefit plans of a Quiksilver Affiliate to the extent such benefits are provided prior to Closing and to provide any new employee of Cleveland Golf Canada the same benefits if hired during the 12-month period immediately following Closing.

     6.8 Assumption of Automobile Leases. Buyer hereby agrees to assume the automobile lease agreements utilized by Acquired Company employees prior to the date hereof that have been executed by a Quiksilver Affiliate. A list of such leases are set forth in the Disclosure Letter in Section 2.16(a).

ARTICLE VII
CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

     Buyer’s obligation to purchase the Shares and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

     7.1 Accuracy of Representations. Except as otherwise contemplated by this Agreement, all of Quiksilver’s representations and warranties contained in this Agreement must have been true and correct in all respects as of the date of this Agreement, and must be true and correct in all respects as of the Closing Date as if made on the Closing Date (except to the extent expressly made as of an earlier date, in which case as of the earlier date), except where the failure of such representations and warranties to be true and correct would not, individually or in the aggregate, reasonably be likely to result in a Company Material Adverse Effect, provided the representations and warranties contained in Section 2.3 must be true in all respects. Buyer shall have received a certificate signed on behalf of Quiksilver by the President or Chief Executive Officer of Quiksilver to such effect.

     7.2 Quiksilver’s, Seller’s and Company’s Performance.

          (a) All of the covenants and obligations that Quiksilver, Seller and the Company are required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been duly performed and complied with except where the failure to perform or to comply would not, individually or in the aggregate, reasonably be likely to have a material

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adverse effect on Buyer. Buyer shall have received a certificate signed on behalf of Quiksilver by the President or Chief Executive Officer of Quiksilver to such effect.

          (b) Each document required to be delivered pursuant to Section 1.5 must have been delivered.

     7.3 Consents. Each of the Key Consents must have been obtained and must be in full force and effect.

     7.4 No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against Buyer, or any of its Affiliates, any Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the transactions contemplated herein which could reasonably be expected to have a Buyer Material Adverse Effect or a Company Material Adverse Effect, or (b) that may have the effect of preventing, delaying or making illegal, any of the material transactions contemplated herein.

     7.5 No Injunction. There must not be in effect any Legal Requirement or any injunction or other Order that (a) prohibits the sale of the Shares by Seller to Buyer, and (b) has been adopted or issued, or has otherwise become effective, since the date of this Agreement.

     7.6 HSR Act Waiting Period. All applicable HSR Act and other Antitrust Laws waiting periods, if any, together with any extensions thereof, shall have expired or terminated.

     7.7 Amended and Restated Credit Agreement Release. In relation to the Amended and Restated Credit Agreement, dated June 3, 2005, Quiksilver shall provide evidence to Buyer’s reasonable satisfaction that (a) the Company has been fully released as guarantor from the Amended and Restated Credit Agreement among Quiksilver, Quiksilver Americas, Inc., JPMorgan Chase Bank and other lenders thereto dated June 3, 2005, as amended (the “Bank Agreement”); and (b) the security interests over the Company’s assets, pursuant to the Bank Agreement has been terminated.

ARTICLE VIII
CONDITIONS PRECEDENT TO QUIKSILVER’S, SELLER’S AND
COMPANY’S OBLIGATION TO CLOSE

     Seller’s obligation to sell the Shares and Quiksilver’s, Seller’s and the Company’s obligation to take the other actions required to be taken by them at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Quiksilver on behalf of Quiksilver, Seller and the Company, in whole or in part):

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     8.1 Accuracy of Representations. All of Buyer’s representations and warranties contained in this Agreement must have been true and correct in all material respects as of the date of this Agreement and must be true and correct in all material respects as of the Closing Date as if made on the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date). Quiksilver shall have received a certificate signed on behalf of Buyer by the President or Chief Executive Officer of Buyer to such effect.

     8.2 Buyer’s Performance.

          (a) All of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects. Quiksilver shall have received a certificate signed on behalf of Buyer by the President or Chief Executive Officer of Buyer to such effect.

          (b) Buyer must have delivered each of the documents required to be delivered by Buyer pursuant to Section 1.5 and must have paid the Closing Cash Amount.

     8.3 No Injunction. There must not be in effect any Legal Requirement or any injunction or other Order that (a) prohibits the sale of the Shares by Seller to Buyer and (b) has been adopted or issued, or has otherwise become effective, since the date of this Agreement.

     8.4 HSR Act Waiting Period. All applicable HSR Act and other Antitrust Laws waiting periods, if any, together with any extensions thereof, shall have expired or terminated.

     8.5 Bank Consent. Quiksilver shall have received the consent of Quiksilver’s bank lending group, to this Agreement and the transactions contemplated hereby.

ARTICLE IX
TERMINATION

     9.1 Termination Events. This Agreement may, by written notice given prior to or at the Closing to the other parties hereto, be terminated:

          (a) by Quiksilver if a material Breach of any provision of this Agreement has been committed by Buyer which (i) would result in a failure of a condition set forth in Section 8.1 or 8.2 and (ii) is not cured, or cannot be cured, in all material respects within thirty (30) days after written notice thereof; provided, however, that Quiksilver’s right to terminate this Agreement under this Section 9.1(a) shall not be available if, at the time of such intended termination, Buyer has the right to terminate this Agreement under Section 9.1(b) or (c);

          (b) by Buyer if a material Breach of any provision of this Agreement has been committed by (i) Quiksilver, (ii) Seller or (iii) the Company which (A) would result in a failure of a condition set forth in Section 7.1 or 7.2 and (B) is not cured, or cannot be cured, in all material respects within thirty (30) days after written notice thereof; provided, however, Buyer’s right to terminate this Agreement under this Section 9.1(b) shall not be available if, at the time of such intended termination, Quiksilver has the right to terminate this Agreement under Sections 9.1(a) or 9.1(c);

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          (c) (i) by Buyer if any of the conditions in Article VII have not been satisfied as of March 31, 2008 and Buyer has not waived such condition on or before the Closing Date; or (ii) by Quiksilver if any of the conditions in Article VIII has not been satisfied as of March 31, 2008 and Quiksilver has not waived such condition on or before the Closing Date; provided that the right to terminate this Agreement under this Section 9.1(c) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date; or

          (d) by mutual consent of Quiksilver and Buyer.

     9.2 Effect of Termination. Each party’s right of termination under Section 9.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 9.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 11.1, 11.3, 11.5 and 11.13 will survive; provided, however, that if this Agreement is terminated by a party because of the Breach of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

ARTICLE X
INDEMNIFICATION; REMEDIES

     10.1 Survival; Right to Indemnification Not Affected by Knowledge. All representations, warranties, covenants, and obligations in this Agreement and any certificate or document delivered pursuant to this Agreement will survive the Closing, except those of the Company, which shall terminate upon the Closing.

     10.2 Indemnification and Payment of Damages by Quiksilver. Quiksilver will indemnify and hold harmless Buyer and its representatives, stockholders and Affiliates (collectively, the “Buyer Indemnified Persons”) for, and will pay to the Buyer Indemnified Persons the amount of, any loss, liability, disbursements, deficiency, penalty, judgment, settlement, claim, damage, expense (including reasonable costs of investigation and defense and reasonable attorneys’ fees) (collectively, “Damages”), arising directly or indirectly from (a) any Breach of any representation or warranty contained in Article II (it being understood that, in determining the amount of Damages under this Section 10.2 from any breach of any representation or warranty, but not, for the avoidance of doubt, for purposes of determining whether there has been a breach, all references to “material” or “Company Material Adverse Effect” shall be deleted therefrom), (b) any Breach by Quiksilver, Seller or the Company of any covenant or obligation of Quiksilver, Seller or Company in this Agreement, or (c) Pre-Closing Taxes.

     10.3 Indemnification and Payment of Damages by Buyer. Buyer will indemnify and hold harmless Quiksilver, Seller, the Company and their respective representatives, stockholders and Affiliates (collectively, the “Seller Indemnified Persons”), and will pay to Quiksilver the amount of any Damages arising directly or indirectly from (a) any Breach of any representation

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or warranty contained in Article III (it being understood that, in determining the amount of Damages under this Section 10.3 from any breach of any representation or warranty, but not, for the avoidance of doubt, for purposes of determining whether there has been a breach, all references to “material” shall be deleted therefrom), or (b) any Breach by Buyer of any covenant or obligation of Buyer in this Agreement.

     10.4 Time Limitations. If the Closing occurs, neither Quiksilver nor Seller will have any Liability (for indemnification or otherwise) with respect to any representation or warranty under Article II or any covenant or obligation required by this Agreement to be performed on or prior to Closing, other than those in Sections 2.1, 2.2(a), 2.3, 2.11, 2.18 and 2.23, unless within eighteen (18) months following the Closing Date Buyer notifies Quiksilver in writing of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by Buyer; a claim with respect to Sections 2.1, 2.2(a), 2.3, 2.18 or 2.23 may be made at any time; and a claim with respect to Section 2.11 may be made at any time until all Tax liabilities of the Acquired Companies are decided by final determination of the Internal Revenue Service, judicial decision or upon thirty (30) days after the expiration of the statute of limitations, taking into account any waiver or extension of such applicable statute of limitation; The time limitations set forth in this Section 10.4 are expressly intended to shorten the statute of limitations which would otherwise be applicable to a claim by Buyer against Quiksilver or Seller under this Agreement.

     10.5 Limitations on Amount—Quiksilver, Seller and Company. Neither Quiksilver, Seller nor Company will have any Liability (for indemnification or otherwise) with respect to the matters described in Section 10.2(a) or, to the extent relating to any failure to perform or comply prior to the Closing Date, Section 10.2(b) until the total of all Damages with respect to such matters exceeds $1,000,000 (the “Seller Basket”), in which event, the right to be indemnified shall apply to the full amount of such Damages, including the Seller Basket. The obligation of Quiksilver to indemnify the Buyer Indemnified Persons shall be reduced to the extent that insurance proceeds in respect of the applicable indemnification claim have been actually received by the Buyer Indemnified Persons (net of any costs and expenses incurred in obtaining such insurance proceeds). If Quiksilver pays the Buyer Indemnified Persons for an indemnification claim and subsequently insurance proceeds in respect of such claim are collected by the Buyer Indemnified Persons, then the Buyer Indemnified Persons shall promptly remit the insurance proceeds to Quiksilver. The Buyer Indemnified Persons shall use reasonable efforts to obtain from any applicable insurance company any insurance proceeds in respect of any claim for which the Buyer Indemnified Persons seek indemnification under this Article X. In addition, the Buyer Indemnified Persons shall not have the right to indemnification for any individual breach pursuant to Section 10.2(a) resulting in Damages which are equal to or less than $50,000 (for the avoidance of doubt, all Damages that arise out of the same or related matter, fact, circumstance or event shall be aggregated together for purposes of determining whether the $50,000 and $1,000,000 thresholds are satisfied pursuant to this Section 10.5). Furthermore, any liability of Quiksilver, Seller or the Company hereunder (for indemnification or otherwise) shall terminate at such time as the aggregate amount of Damages paid to Buyer by Quiksilver, Seller or the Company equals Twenty-Five Million Two Hundred Thousand Dollars ($25,200,000) (the “Seller Cap”); provided, however, that in no event shall the Seller Basket or the Seller Cap apply to or limit the rights of the Buyer Indemnified Persons to be indemnified (i) pursuant to Section 10.2(a) for breaches of representations and warranties set forth in Sections 2.1, 2.2(a), 2.3, 2.11, 2.18 or 2.23, (ii) pursuant to Section 10.2(b) for any breach of Section 6.7, (iii) for Pre-

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Closing Taxes, or (iv) for claims by the Buyer Indemnified Persons against Quiksilver, Seller or the Company based on fraud or knowing, willful or intentional breaches of this Agreement. None of the findings of Buyer or its investigation, review and analysis of the Acquired Companies shall diminish or in any way detract from or affect Buyer’s ability to rely on or make a claim for breach of the representations and warranties set forth in Article II of this Agreement.

     10.6 Exclusive Remedy. After the Closing, the indemnities provided in this Article X shall constitute the sole and exclusive remedy of any Indemnified Party for Damages arising out of, resulting from or incurred in connection with the breach of any representation, warranty, covenant or agreement made by the parties in this Agreement; provided, however; that this exclusive remedy for Damages does not preclude a party from bringing an action for specific performance or other equitable remedy to require a party to perform its obligations under this Agreement. Without limiting the generality of the preceding sentence, no legal action sounding in tort, statute or strict liability may be maintained by any party. Notwithstanding anything to the contrary in this Section 10.6, in the event of fraud, or a fraudulent, knowing, willful or intentional breach of the representations, warranties, covenants or agreements contained herein by Quiksilver, Seller or Company, the Buyer Indemnified Persons shall have all remedies available at law or in equity (including for tort) with respect thereto.

     10.7 Procedure for Indemnification—Third Party Claims.

          (a) Promptly after receipt by an indemnified party under Sections 10.2 or 10.3 of notice of the commencement of any Proceeding against it, such indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnified party’s failure to give such notice.

          (b) If any Proceeding referred to in Section 10.7(a) is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party will, unless the claim involves Taxes, be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel reasonably satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under this Article X for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding. If the indemnifying party assumes the defense of a Proceeding, (i) it will be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party’s consent (such consent to not be unreasonably

46

withheld) unless (A) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, and (B) the sole relief provided is monetary damages that are paid in full by the indemnifying party; (iii) the indemnified party will have no liability with respect to any compromise or settlement of such claims effected without its consent; and (iv) such compromise or settlement includes as an unconditional term thereof, the giving by the claimant or plaintiff to the indemnified party a release from all liability in respect of such indemnifiable claim. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within thirty (30) days after the indemnified party’s notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party will be bound by any determination made in such Proceeding or any compromise or settlement effected by the indemnified party.

          (c) Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its Affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party will not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).

     10.8 Procedure for Indemnification—Other Claims. A claim for indemnification for any matter not involving a third-party claim may be asserted by written notice to the party from whom indemnification is sought.

     10.9 Interpretation. Damages shall be determined net of insurance proceeds, indemnity payments and other compensation to which the party or its Affiliates is entitled from Persons other than Quiksilver or Seller, in the case of Buyer, or other than Buyer, in the case of Quiksilver or Seller, in respect of such matter. If any amount related to Damages is subsequently recovered by a party, in whole or in part, from any third party (including any insurer or Taxing Authority) after indemnification by the other party, the amounts so recovered shall be promptly reimbursed to the party who provided such indemnification. Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement.

     10.10 Tax Benefits.

          (a) The amount of any Damage for which indemnification is provided shall be reduced to take account of any net Tax Benefit realized by an indemnified party arising from the incurrence or payment of any such Damage. If the indemnified party realizes any such Tax Benefit, then the indemnified party shall pay an amount to the indemnitor, at the time such Tax Benefit is realized, equal to the Tax Benefit, provided that in the event an amount payable by the indemnitor is reduced by the amount of such Tax Benefit and there is a disallowance of such Tax Benefit by a Governmental Body such that the indemnified party is not entitled to all or any portion of such Tax Benefit, then the indemnitor shall pay to the indemnified party the amount of

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the Tax Benefit that was disallowed. For purposes of this Agreement, the term “Tax Benefit” shall mean the amount of the reduction in the liability for Taxes as a result of the payment or accrual by any Person of any loss, expense, other amount or Tax. In computing the amount of any such Tax Benefit, the indemnified party shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt of any indemnity payment hereunder or the incurrence or payment of any indemnified Damage. A Tax Benefit will be considered to be realized for purposes of this Section 10.10 on (a) the date on which the Tax Benefit is received as a refund of Taxes, or (b) to the extent that the Tax Benefit is not received as a refund of Taxes but rather is claimed as an item that reduces liability for Taxes, the due date of the Tax Return that reflects such change in liability for Taxes.

          (b) Any indemnification payments made hereunder shall be considered, to the extent permissible under applicable law, as adjustments to the Purchase Price for all Tax purposes. In the event that any such payment does not constitute an adjustment to Purchase Price under any Tax law, the amount of such payment shall be grossed up to account for the amount of Tax due with respect to such payment, such that the recipient receives from the indemnifying party the full amount of the payment to which the recipient is entitled, net of any Taxes due with respect to such payment.

     10.11 No Environmental Contribution. The Buyer Indemnified Persons shall not be able to seek contribution from Quiksilver or any of its Affiliates under any requirements of or obligations imposed by any Environmental Laws and hereby waive all statutory rights against Quiksilver and each of its affiliates under the Environmental Laws; provided, this shall not limit in any manner the right of the Buyer Indemnified Persons to seek and obtain indemnification pursuant to the other provisions of this Agreement.

ARTICLE XI
GENERAL PROVISIONS

     11.1 Expenses. Except as otherwise expressly provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the transactions contemplated herein, including all fees and expenses of agents, representatives, counsel, and accountants.

     11.2 Public Announcements. Any public announcement or similar publicity with respect to this Agreement or the transactions contemplated herein will be issued, if at all, at such time and in such manner as Buyer and Quiksilver mutually determine, unless applicable Legal Requirements require otherwise. Unless consented to in writing by the other party in advance or required by Legal Requirements, prior to the Closing, Quiksilver and Buyer shall keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person. Quiksilver and Buyer will consult with each other concerning the means by which the Acquired Companies’ employees, customers, and suppliers and others having dealings with the Acquired Companies will be informed of the transactions contemplated herein or therein. Notwithstanding the foregoing, the parties acknowledge that Buyer and Quiksilver may disclose this Agreement and the transactions contemplated hereby in filings with the United States Securities and Exchange Commission, the New York Stock Exchange and the Tokyo Stock Exchange and any other applicable stock exchange without requiring any consent from any party

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if disclosure is so required; provided that Buyer (in the case of such disclosure by Quiksilver) shall have the right to review and comment on any such disclosure within a reasonable time prior to the filing of such disclosure, and Quiksilver (in the case of such disclosure by Buyer) shall have the right to review and comment on any such disclosure within a reasonable time prior to the filing of such disclosure.

     11.3 Confidentiality.

          (a) Between the date of this Agreement and the Closing Date, Buyer, Quiksilver, Seller and the Company will maintain in confidence, and will cause the directors, officers, employees, agents, and advisors of Buyer, Quiksilver, Seller and the Company to maintain in confidence, any written information obtained in confidence from another party or an Acquired Company in connection with this Agreement, or the transactions contemplated herein, unless (i) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (ii) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the transactions contemplated herein or therein, or (iii) the furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings. Notwithstanding the foregoing, each party acknowledges that Quiksilver or Buyer may disclose this Agreement, and the transactions contemplated hereby (1) in filings with the United States Securities and Exchange Commission, the New York Stock Exchange and the Tokyo Stock Exchange and any other applicable stock exchange, without requiring any consent from any other party if disclosure is so required, or (2) with respect to each of Buyer and Quiksilver, to its Affiliates, directors, officers, employees, agents or advisers (including, without limitation, attorneys, accountants, consultants, bankers, financial advisers and any representatives of such advisers) who have an obligation to keep such disclosures confidential; provided that with respect to any disclosure by either party with respect to (1) above, the other party shall have the right to review and comment on any such disclosure within a reasonable time prior to the filing of such disclosure. Without limiting the foregoing, Quiksilver and Seller shall not at any time after the Closing directly or indirectly make use of or, except to the extent required by Legal Requirements, divulge or otherwise disclose directly or indirectly, to any Person other than Buyer, any of the Acquired Companies’ customer lists, database information, business model, business plan, marketing plan, personnel information, technical data, record or financial information, or any other proprietary or confidential information.

          (b) If the transactions contemplated herein are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request, and the parties further acknowledge and agree to remain bound by the terms and conditions set forth in that certain Non-Disclosure Agreement dated August 7, 2007 between Buyer and Quiksilver.

     11.4 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt

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requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties):

If to Quiksilver, Seller or, prior to the Closing, Company:	Quiksilver, Inc. 15202 Graham Street Huntington Beach, CA 92649 Attention: General Counsel Facsimile: (714) 889-4250
With copy to (which shall not constitute notice):	Hewitt & O’Neil LLP 19900 MacArthur Blvd., Suite 1050 Irvine, CA 92612 Attention: Paul A. Rowe Facsimile: (949) 798-0511
If to Buyer:	SRI Sports Limited 609, 3-chome, wakinohama-cho Chuo-ku, Kobe 651-0072 Japan Attention: Kazuo Kinameri Facsimile: 81-78-265-3150
With copy to (which shall not constitute notice):	Morrison & Foerster LLP Shin-Marunouchi Building, 29th Floor, 1-5-1 Marunouchi, Chiyoda-ku, Tokyo 100-6529, Japan Attention: Gary M. Smith, Esq. and Randy S. Laxer, Esq. Facsimile: 81-3-3214-6512

     11.5 Arbitration. Except to the extent that the parties hereto shall be entitled to apply to the courts for mandatory or injunctive relief, any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or validity thereof, shall be settled by arbitration before three arbitrators in accordance with the then-current International Arbitration Rules of the American Arbitration Association and judgment upon the reward rendered by the arbitration may be entered in any court having jurisdiction thereof. Arbitrators shall be entitled to grant injunctive relief or order specific performance as well as damages. Any such arbitration will be held in the County of Orange, California. The language of the arbitration proceedings shall be English. The award of the arbitration tribunal shall be final and binding upon the parties.

     11.6 Further Assurances. The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement.

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     11.7 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

     11.8 Entire Agreement and Modification. This Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may be amended or modified in whole or in part at any time prior to the Closing Date by an agreement in writing between Buyer and Quiksilver.

     11.9 Disclosure Letter. The disclosures in the Disclosure Letter relate to the representations and warranties in the Section of the Agreement to which they expressly relate and to other representations or warranties in this Agreement, to the extent that such other representation and warranty would reasonably be expected to be pertinent to the disclosures made. Quiksilver may deliver an updated Disclosure Letter (the “Updated Disclosure Letter”) to Buyer immediately prior to the Closing updating the Disclosure Letter through the Closing. Quiksilver understands and agrees that the Updated Disclosure Letter shall be disregarded for purposes of determining whether any breach of a representation or warranty has occurred pursuant to Article II and Buyer’s indemnification rights pursuant to Section 10.2(a) shall be determined as if no Updated Disclosure Letter was delivered.

     11.10 Assignments, Successors, and No Third-Party Rights. No party may assign any of its rights under this Agreement without the prior consent of the other parties, which will not be unreasonably withheld, except that Buyer may assign any of its rights under this Agreement to any wholly-owned Subsidiary of Buyer provided that Buyer shall remain liable for all of its obligations hereunder. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns.

     11.11 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full

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force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

     11.12 Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

     11.13 Governing Law. This Agreement and all the transactions contemplated hereby, and all disputes between the parties under or related to this Agreement or the facts and circumstances leading to its execution, whether in contract, tort or otherwise, will be governed by and construed in accordance with the laws of the State of California without regard to conflicts of laws principles.

     11.14 Equitable Remedies. In addition to legal remedies, to the extent allowed pursuant to this Agreement or by law, in recognition of the fact that remedies at law may not be sufficient, the parties hereto (and their successors) shall be entitled to equitable remedies including, without limitation, specific performance and injunction.

     11.15 Independence of Agreements, Covenants, Representations and Warranties. All agreements and covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant, the fact that such action or condition is permitted by another agreement or covenant shall not affect the occurrence of such default, unless expressly permitted under an exception to such first agreement or covenant. In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of or a breach of a representation and warranty hereunder.

     11.16 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “.pdf” data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or e-mail signature page were an original thereof.

     11.17 Other Definitional and Interpretive Matters.

          (a) Unless otherwise expressly provided, for purposes of this Agreement, the following rules of interpretation shall apply:

          (i) Calculation of Time Period. When calculating the period of time before which, within which or following which, any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day.

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          (ii) Dollars. Any reference in this Agreement to “$” shall mean U.S. dollars.

          (iii) Exhibits/Schedules. The Exhibits and Schedules to this Agreement, including the Disclosure Letter, are hereby incorporated and made a part hereof and are an integral part of this Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Schedule or Exhibit but not otherwise defined therein shall be defined as set forth in this Agreement.

          (iv) Gender and Number. Any reference in this Agreement to gender shall include all genders, and words imparting the singular number only shall include the plural and vice versa.

          (v) Headings. The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement. All references in this Agreement to any “Section” are to the corresponding Section of this Agreement unless otherwise specified.

          (vi) Herein. The words such as “herein,” “hereinafter,” “hereof,” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires.

          (vii) Including. The word “including” or any variation thereof means (unless the context of its usage requires otherwise) “including, but not limited to,” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.

          (b) The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.

[Signature page follows]

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     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement effective as of the date first written above.

“QUIKSILVER”

QUIKSILVER, INC., a Delaware corporation

By:

Name:

Title:

“SELLER”

ROSSIGNOL SKI COMPANY, INC., a
California corporation

By:

Name:

Title:

“COMPANY”

ROGER CLEVELAND GOLF COMPANY,
INC., a California corporation

By:

Name:

Title:

“BUYER”

SRI SPORTS LIMITED, a Japanese
corporation

By:

Name:

Title:

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EXHIBIT A

DEFINITIONS

     “Accounts Receivable” — as defined in Section 2.8.

     “Acquired Companies” — collectively, the Company and Riviera SNC, Cleveland Deutschland GmbH, Belfry Golf Limited, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK.

     “Acquired Company Cash” — the aggregate amount of cash held in banking accounts of the Acquired Companies as of the Closing Date, excluding any cash held on behalf of another party.

     “Affiliate” — of any particular Person means any other Person controlling, controlled by or under common control with such Person. For purposes of this definition, “control” means the ability to direct the operation or management of a person, whether by contract, ownership of securities, status as director, officer or other position therein, or otherwise.

     “Agreement” — as defined in the first paragraph of this Agreement.

     “Antitrust Laws” — as defined in Section 4.5.

     “Audited Balance Sheet” — as defined in Section 2.4.

     “Audited Financial Statements” — as defined in Section 2.4(a).

     “Best Efforts” — the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible.

     “Breach” — a “Breach” of a representation, warranty, covenant, obligation, or other provision of this Agreement, or any instrument delivered pursuant to this Agreement will be deemed to have occurred if there is or has been any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision.

     “Business” — means the business of the Acquired Companies of providing golf clubs and golf equipment under Cleveland Golf and Never Compromise brand names.

     “Business Day” — any day that is not a Saturday, Sunday, legal holiday or other day on which banks are required to be closed in the State of California or Tokyo, Japan.

     “Buyer” — as defined in the first paragraph of this Agreement.

     “Buyer Material Adverse Effect” — any material adverse change in, or material adverse effect on, the business, financial condition or results of operations of Buyer; provided, however, that the effects of changes that are generally applicable to (a) the industries and markets in which Buyer operates, unless such change materially affects the Buyer in a materially disproportionate

Exhibit A-1

manner, (b) the United States, European or Japanese economies or (c) the securities markets generally shall be excluded from the determination of Buyer Material Adverse Effect; and provided, further, that any adverse effect on Buyer resulting from (x) the execution of this Agreement, (y) any public announcement permitted to be made hereunder relating to this Agreement or the transactions contemplated hereby, or (c) the consummation of the transactions contemplated herein shall be excluded from the determination of Buyer Material Adverse Effect.

     “Buyer Indemnified Persons” – as defined in Section 10.2.

     “Buyer’s Advisors” – as defined in Section 4.1.

     “Change in Control Obligations” – means the obligations arising as a result of the sale of the Shares to Buyer pursuant to this Agreement to pay (i) a CoC Bonus pursuant to that certain Change of Control and Severance Agreement, dated July 13, 2007, between the Company and William Bird, (ii) a CoC Bonus pursuant to that certain Change of Control Agreement, dated August 29, 2007, between the Company and Mark Perfetti, (iii) a CoC Bonus pursuant to that certain Change of Control Agreement, dated August 29, 2007, between the Company and Randy Romberg, and (iv) an Equity Value Bonus and an Enterprise Value Bonus pursuant to subparagraph (c) of that certain letter agreement, dated October 10, 2007, between the Company and Greg Hopkins.

     “Change in Control Obligation Loan” – a loan from Buyer to the Company to be made on the Closing Date in accordance with Section 1.2(b) in the amount equal to the aggregate amount of the Change of Control Obligations.

     “Closing” – as defined in Section 1.4.

     “Closing Cash Amount” – as defined in Section 1.2(a).

     “Closing Date” – the date on which the Closing actually takes place.

     “Closing Date Balance Sheet” – as defined in Section 1.3(c).

     “Closing Working Capital” – as defined in Section 1.3(c).

     “Closing Working Capital Statement” – as defined in Section 1.3(c).

     “Code” – the Internal Revenue Code of 1986, as amended.

     “Company” – as defined in the first paragraph of this Agreement.

     “Company Material Adverse Effect” – any material adverse change in, or material adverse effect on, the business, financial condition or results of operations of the Acquired Companies, taken as a whole; provided, however, that the effects of changes that are generally applicable to (a) the industries and markets in which the Acquired Companies operate, unless such change materially affects the Acquired Companies as a whole in a materially disproportionate manner, (b) the United States, European or Japanese economies or (c) the securities markets generally shall be excluded from the determination of Company Material

Exhibit A-2

Adverse Effect; and provided, further, that any adverse effect on the Acquired Companies resulting from (x) the execution of this Agreement, (y) any public announcement permitted to be made hereunder relating to this Agreement or the transactions contemplated hereby, or (c) the consummation of the transactions contemplated herein shall be excluded from the determination of Company Material Adverse Effect.

     “Company Permits” – as defined in Section 2.13(c).

     “Company Working Capital” – the Current Assets of the Acquired Companies on a consolidated basis over the Current Liabilities of the Acquired Companies on a consolidated basis.

     “Consent” – any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization).

     “Contract” – any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding.

     “Copyrights” – as defined in Section 2.21(a)(iii).

     “Current Assets” – the sum of the following: accounts receivable (less reserves for bad debt, doubtful accounts, returns, sales mark downs, allowances, write downs to fair market value, discounts and retailer chargebacks) of the Acquired Companies, and inventory of the Acquired Companies (priced at the lower of cost or market value as of the Closing Date, less reserves for stale, slow moving, obsolete or damaged inventory) . For the avoidance of doubt, Current Assets will not include intercompany receivables.

     “Current Liabilities” – accounts payable of the Acquired Companies. For the avoidance of doubt, Current Liabilities will not include accrued liabilities or intercompany payables.

     “D&O Indemnified Parties” – as defined in Section 6.2(a).

     “Damages” – as defined in Section 9.2.

     “Disclosure Letter” – the schedule delivered by Quiksilver to Buyer concurrently with the execution and delivery of this Agreement.

     “Dispute Notice” – as defined in Section 1.3(d).

     “Due Diligence Information” – information contained in that certain Intralinks data room made available to Buyer and information from management presentations, in each case, of a financial, accounting, fiscal, legal and operational nature concerning the Acquired Companies.

     “Encumbrance” – any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.

Exhibit A-3

     “Environment” – soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any other environmental medium or natural resource.

     “Environmental Law” – shall mean all civil and criminal, foreign, international, European Union, provincial, federal, state and local laws, rules, regulations, orders, ordinances and common law, which govern or relate to pollution, protection or restoration of the environment, natural resources, safety and health, releases or threatened releases of Hazardous Substances, solid or hazardous waste, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, release, transport or handling of Hazardous Substances and all laws and regulations with regard to record keeping, notification, disclosure and reporting requirements respecting Hazardous Substances, together with any Governmental Body interpretations of each of the foregoing.

     “ERISA” – the Employee Retirement Income Security Act of 1974 or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

     “Estimated Closing Date Balance Sheet” – as defined in Section 1.3(a).

     “Estimated Closing Working Capital” – as defined in Section 1.3(a).

     “Excluded Insurance Policies” – any insurance policy maintained by Quiksilver, Seller or any of their Affiliates other than those the premiums of which are paid directly by an Acquired Company.

     “Facilities” – any real property, leaseholds, or other interests owned or operated by any Acquired Company and any buildings, plants, structures, or equipment (including motor vehicles, tank cars, and rolling stock) owned or operated by any Acquired Company.

     “Final Closing Working Capital Amount” – as defined in Section 1.3(c).

     “Financial Statements” – as defined in Section 2.4(a).

     “Foreign Plans” – as defined in Section 2.12(m).

     “GAAP” – accounting principles generally accepted in the United States, applied on a consistent basis.

     “Governmental Authorization” – any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

     “Governmental Body” – any:

          (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature;

Exhibit A-4

          (b) federal, state, local, municipal, foreign, or other government;

          (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal);

          (d) multi-national organization or body; or

          (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

     “Hazardous Substances” – shall mean any chemicals, materials, substances and physical agents defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “infectious waste”, “hazardous materials,” “hazardous constituents,” “restricted hazardous materials,” “extremely hazardous substances,” “toxic substances,” “contaminants,” “pollutants,” “toxic pollutants,” or words of similar meaning and regulatory effect under any applicable Environmental Law, including, asbestos, radioactivity, lead paint, toxic mold, radon and polychlorinated biphenyls.

     “HSR Act” – as defined in Section 5.4.

     “Insurance Policies” – any insurance policy maintained by Quiksilver or any of its Affiliates.

     “Intellectual Property Assets” – as defined in Section 2.21.

     “Interim Balance Sheet” – as defined in Section 2.4(a).

     “Interim Financial Statements” – as defined in Section 2.4(a).

     “Inventory” – all inventory of products and parts owned by and in the physical possession of any Acquired Company.

     “IRS” – the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury.

     “Key Consents” – JP Morgan Bank Consent.

     “Knowledge” – an individual will be deemed to have “Knowledge” of a particular fact or other matter if (a) such individual is actually aware of such fact or other matter or (b) a prudent person should have been aware of such fact or other matter in the management of his or her business affairs after making due inquiry and exercising due diligence, which a prudent business person should have made or exercised, with respect thereto.

     A Person (other than an individual) will be deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving as a director or executive officer of such Person (or in any similar capacity) has Knowledge of such fact or other matter.

Exhibit A-5

     “Knowledge of Quiksilver” – includes not only the Knowledge of Quiksilver, but also the Knowledge of Seller, the Knowledge of the Company, of other officers (at a vice president or any equivalent or more senior level) of the Company and Todd Harman and Matt Yasumoto.

     “Legal Requirement” – any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty.

     “Liability” – with respect to any Person, any liability or obligation of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required to be accrued on the financial statements of such Person.

     “Marks” – as defined in Section 2.21(a)(i).

     “Material Contracts” – as defined in Section 2.16(a).

     “Mixed Use Foreign Offices” – means the offices leased by Quiksilver or its Affiliates (other than the Acquired Companies) and currently used by employees of (i) Riviera SNC in Saint Jean de Luz (European Headquarters), France and Mouguerre (European Headquarters), France, (ii) Cleveland Deutschland GmbH in Meisach, Germany, (Northern Europe Sales Management), and (iii) Cleveland Golf Asia YK in Tokyo, Japan (Japan Headquarters; Japan Warehouse) and Gunnma, Japan (Japan Warehouse).

     “Multiemployer Plan” – as defined in Section 2.12(b).

     “Neutral Accountants” – as defined in Section 1.3(f).

     “Order” – any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.

     “Organizational Documents” – (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (e) any amendment to any of the foregoing.

     “Patents” – as defined in Section 2.21(a)(ii).

     “PBGC” – as defined in Section 2.12(b).

     “Person” – any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body.

Exhibit A-6

     “Plans” – as defined in Section 2.12(a).

     “Pre-Closing Tax Period” – means any periods ending on or prior to the Closing Date.

     “Pre-Closing Taxes” – means (i) all liability for Taxes of the Acquired Companies for Pre-Closing Tax Periods; (ii) all liability resulting by reason of the several liability of the Acquired Companies pursuant to Treasury Regulation Section 1.1502-6 or any analogous state, local or foreign law or regulation, or by reason of the Acquired Companies having been a member of any consolidated, combined or unitary group on or prior to the Closing Date; (iii) all liability for Taxes attributable to any misrepresentation or breach of warranty made in Section 2.11; and (iv) all liability for Taxes attributable to any failure to comply with any of the covenants or agreements of former shareholders of the Acquired Companies or the Acquired Companies under this Agreement.

     “Pro Forma Consolidated Financial Statements” – the pro forma unaudited balance sheet of the Company and the other Acquired Companies as of July 31, 2007, and the related unaudited consolidated statement of income and cash flows for the nine-month period then ended, delivered to the Buyer on the date hereof and marked as such.

     “Proceeding” – any cause of action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

     “Purchase Price” – as defined in Section 1.2.

     “Quiksilver” – as defined in the first paragraph of this Agreement.

     “Required Buyer Intercompany Loan” – means a loan from Buyer to the Company to be made on the Closing Date in accordance with Section 1.2(b), in an amount equal to the Remaining Offset Amount.

     “Securities Act” – the Securities Act of 1933 or any successor law, and regulations and rules issued pursuant to that Act or any successor law.

     “Seller” – as defined in the first paragraph of this Agreement.

     “Seller Affiliates” – as defined in Section 6.5.

     “Seller Indemnified Persons” – as defined in Section 10.3.

     “Shares” – as defined in the Recitals of this Agreement.

     “Straddle Period” – as defined in Section 6.1.

     “Subsidiary” – means, with respect to any Person, any corporation, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (regardless of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time

Exhibit A-7

owned or controlled, directly or indirectly, by that Person or one or more of the other subsidiaries of that Person or a combination thereof or (ii) if a partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more direct or indirect subsidiaries of that Person or a combination thereof.

     “Tax” or “Taxes” – any federal, state, local, foreign income, alternative or add-on minimum tax, estimated, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, capital profits, lease, service, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profit taxes, customs, duties and other taxes, governmental fees and other like assessments and charges of any kind whatsoever, together with all interest, penalties, additions to tax and additional amounts with respect thereto, whether disputed or not.

     “Tax Benefits” – the sum of any increased deductions, losses, or credits then allowable or allowable in future years or decreases in income, gains or recapture of tax credits then allowable (including by way of amended Tax Returns) or allowable in future years, multiplied by the applicable relevant corporate income tax rate, and reduced, with respect to deductions, losses or credits allowable only in future years, by applying a discount rate of 8% from the earliest year in which such increased deductions, losses or credits would possibly be available.

     “Tax Return” – any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax.

     “Threatened” – a claim, Proceeding, dispute, action, or other matter will be deemed to have been “Threatened” if any demand or statement has been made in writing or any notice has been given in writing.

     “Trade Secrets” – as defined in Section 2.21(a)(iv).

Exhibit A-8

EXHIBIT B

FORM OF LEGAL OPINION

[DATE]

Re:                                                                                      

Mesdames and Gentlemen:

We have acted as counsel for Quiksilver, Inc., a Delaware corporation (“Quiksilver”), and Rossignol Ski Company, Inc., a Delaware corporation (“Rossignol”; together with Quiksilver, the “Sellers”), and Roger Cleveland Golf Company, Inc., a California corporation (the “Company”), in connection with the sale by the Sellers of all of the outstanding shares of the Company to SRI Sports Limited, a Japanese corporation (“SRI Sports”). This opinion is furnished to you pursuant to Section 1.5(a)(iv) of the Stock Purchase Agreement, dated October 30, 2007, by and among Quiksilver, Rossignol and SRI Sports (the “Stock Purchase Agreement”).

We are of the opinion that:

(a)	The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California, and has the corporate power and corporate authority to conduct its business as presently conducted.
(b)	Each of the Sellers is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware.
(c)	Each of Quiksilver, Rossignol and the Company has the corporate power and corporate authority to execute and deliver, and to perform and observe the provisions of, the Stock Purchase Agreement and, as applicable, the Transition Services Agreement as defined in the Stock Purchase Agreement (collectively, the “Documents”).
(d)	The Documents have each been duly authorized, executed and delivered by each of Quiksilver, Rossignol and the Company. The Documents constitute valid and binding obligations of each of Quiksilver, Rossignol and the Company enforceable against each of Quiksilver, Rossignol and the Company in accordance with their respective terms.
(e)	No registration with, consent or approval of, notice to, or other action by, any governmental entity is required on the part of any of Quiksilver, Rossignol or the Company for the execution, delivery or performance by any of Quiksilver, Rossignol or the Company of the Documents, or if required, such registration has been made, such consent or approval has been obtained, such notice has been given or such other appropriate action has been taken.

Exhibit B-1

(f) The execution, delivery and performance of the Documents by each of Quiksilver, Rossignol and the Company will not (i) violate any of Quiksilver, Rossignol or the Company’s Certificate of Incorporation or Articles of Incorporation, as the case may be; or (ii) violate the current Delaware General Corporation Law or any current California or federal statute, rule or regulation.

Exhibit B-2

EXHIBIT C

RESIGNATIONS [TO CONFIRM DD]

Roger Cleveland Golf Company, Inc. (California)

     Officers:

• Charles Exon – Secretary

     Directors:

• Charles Exon

• Frank Leavy

Riviera SNC (France)

     Officers:

• Peter Bloxham

     Directors:

• Peter Bloxham

Belfry Golf, Ltd (United Kingdom)

     Officers:

• Peter Bloxham

     Directors:

• Peter Bloxham

Cleveland Golf Canada Corp. (Canada)

     Officers:

• Charles Exon – President

• Bill Bussiere – Secretary

• Bill Bussiere – CFO

     Directors:

• Charles Exon

• Bill Bussiere

Cleveland Golf Asia YK (Japan)

     Officers:

•

     Directors:

• Charles Exon

• Matt Yasumoto

Exhibit C-1

EX-2.4

Exhibit 2.4

AMENDMENT NO. 1

TO STOCK PURCHASE AGREEMENT

     This Amendment No. 1, made as of December  , 2007 (this “Amendment”), amends the Stock Purchase Agreement (the “Stock Purchase Agreement”) made as of October 30, 2007, by and among Quiksilver, Inc., a Delaware corporation (“Quiksilver”), Rossignol Ski Company, Inc., a Delaware corporation (“Seller”), Roger Cleveland Golf Company, Inc., a California corporation (“Company”), and SRI Sports Limited, a Japanese corporation (“Buyer”). For purposes of this Amendment, capitalized terms used but not otherwise define herein shall have the meanings ascribed to such terms in the Stock Purchase Agreement.

RECITALS

     A. Section 4.11 of the Stock Purchase Agreement provides that the parties may agree to adjustments to the Restructuring (prior to the Closing), including without limitation, adjusting the Restructuring plan such that the shares of one or more of the Acquired Companies are not contributed or sold by Quiksilver (or its Affiliates) to the Company prior to Closing, but instead are directly purchased by Buyer at Closing.

     B. As part of the Restructuring, effective October 31, 2007, Riviera SNC was converted to a société par actions simplifiée under the laws of France and is now known as Riviera S.A.S. For purposes of this Amendment and the Stock Purchase Agreement, Riviera S.A.S. will continue to be referred to as Riviera SNC.

     C. The parties desire that pursuant to Section 4.11 of the Stock Purchase Agreement the Restructuring be adjusted to cause Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK to be direct wholly-owned subsidiaries of Seller, with Cleveland Deutschland GmbH and Belfry Golf remaining direct wholly-owned subsidiaries of Riviera SNC. Consequently, at the Closing, Buyer will purchase directly from Seller all of the outstanding shares of the Company, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK.

     D. Pursuant to Section 11.8 of the Stock Purchase Agreement, the Stock Purchase Agreement may be amended or modified in whole or in part at any time prior to the Closing Date by an agreement in writing between Buyer and Quiksilver.

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual representations, warranties and agreements contained herein and in the Stock Purchase Agreement, and in accordance with Section 11.8 of the Stock Purchase Agreement, the parties to the Stock Purchase Agreement agree as follow:

ARTICLE I
AMENDMENTS

     1.1 Amendment to Recital A. Recital A of the Stock Purchase Agreement is hereby deleted and amended to read in its entirety as follows:

“Seller owns all of the issued and outstanding shares of capital stock of the Company as of the date hereof, and Seller will own at the Closing all of the issued and outstanding shares of capital stock of each of the Company, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK (collectively, the “Shares”), and Riviera SNC owns as of the date hereof and will own at the Closing all of the issued and outstanding shares of capital stock of each of Belfry Golf Limited and Cleveland Deutschland GmbH.”

     1.2 Amendment to Section 1.1. Section 1.1 of the Stock Purchase Agreement is hereby deleted and amended to read in its entirety as follows:

“Subject to the terms and conditions set forth in this Agreement, at the Closing, Seller will sell and transfer to Buyer, and Buyer will purchase from Seller, the Shares, which shall constitute all of the outstanding shares of capital stock of each of the Company, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK, in exchange for the Purchase Price.”

     1.3 Amendments to Section 1.2. Sections 1.2 is hereby deleted and amended to read in their entirety as follows:

"(a) The purchase price payable to Seller for the purchase and sale of the Shares (the “Purchase Price”) shall be $132,500,000 less (a) the Offset Amount and (b) the aggregate amount of the Change in Control Obligations (the Purchase Price as so reduced, the “Closing Cash Amount”). The Purchase Price and the Closing Cash Amount shall be subject to further adjustment as required pursuant to Section 1.3.

(b) The parties acknowledge and agree that the Purchase Price has been determined on a cash-free, debt-free basis and in furtherance thereof, agree that, subject to the satisfaction or waiver of each of the conditions specified in Article VII, the following actions and payments shall be made in the following order:

     (i) On the fourth (4th) Business Day prior to the anticipated Closing Date as agreed by Quiksilver and Buyer (the “Anticipated Closing Date”), Quiksilver and its Affiliates (other than the Acquired Companies) shall:

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          (A) cause the Acquired Companies not to incur any additional Intercompany Payables and Debt (as defined below); and

          (B) not incur any additional Intercompany Receivables (as defined below).

          (C) For purposes of this Section 1.2:

               (1) Liabilities of the Acquired Companies to Quiksilver or any of its Affiliates (other than the Acquired Companies), including without limitation (a) any accounts payable by any Acquired Company to Quiksilver or its Affiliates (other than the Acquired Companies) and (b) any indebtedness for borrowed money (and any interest thereon) payable by any Acquired Company to Quiksilver or its Affiliates (other than the Acquired Companies) are collectively referred to as the “Intercompany Payables and Debt”.

               (2) Liabilities of Quiksilver or any of its Affiliates (other than the Acquired Companies) to any of the Acquired Companies are collectively referred to as the “Intercompany Receivables.”

               (3) The amount by which any indebtedness for borrowed money, and interest thereon, of the Acquired Companies owed to any Person other than Quiksilver and its Affiliates (other than the Acquired Companies) (“Third Party Debt”) and Intercompany Payables and Debt as of the Anticipated Closing Date exceeds the Intercompany Receivables as of the Anticipated Closing Date is referred to as the “Offset Amount”;

     (ii) Not less than three (3) Business Days prior to the Anticipated Closing Date, Quiksilver shall notify Buyer in writing of the following amounts, each as of the Anticipated Closing Date: (A) the Intercompany Payables and Debt; (B) the Intercompany Receivables; (C) the Offset Amount, including the exact amounts of the Offset Amount owed to Quiksilver and each of its Affiliates (other than the Acquired Companies), expressed in United States dollars (US$) calculated in accordance with Section 1.2(e), and identifying such Quiksilver Affiliates and their respective account information; and (D) the Change in Control Obligations, including the exact amounts, and calculations thereof, to be paid to the applicable employees;

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     (iii) Immediately prior to the Closing, Quiksilver and its Affiliates shall offset the Intercompany Payables and Debt and the Third Party Debt against the Intercompany Receivables (which remaining amount shall be the Offset Amount);

     (iv) On the Closing Date, Buyer shall pay on behalf of the applicable Acquired Companies their respective portions of the Offset Amount, by wire transfer of immediately available funds in amounts and to accounts designated by Quiksilver, with the total of all such wire transfers equaling the Offset Amount;

     (v) On the Closing Date, Buyer shall pay (A) the Closing Cash Amount less the CG Canada Escrow Amount (as defined herein) to Quiksilver by wire transfer of immediately available funds to an account designated by Quiksilver, and (B) the CG Canada Escrow Amount to the Escrow Agent (as defined herein) to an account designated by the Escrow Agent; and

     (vi) On the Closing Date, Buyer shall provide the principal amount of the Change in Control Obligation Loan to the Company by wire transfer of immediately available funds to an account of the Company designated by the Company.

(c) As promptly as reasonably practicable and no later than ten (10) Business Days after the Closing, the Company shall pay the Change in Control Obligations to the applicable employees by wire transfer of immediately available funds subject to any withholding, federal, state or local income, or other employment taxes and other payroll deductions required by applicable Legal Requirement; provided that payment of the Change in Control Obligation to Greg Hopkins shall be subject to his execution of a general release in favor of the Company as contemplated by his employment agreement with the Company.

(d) Within five (5) Business Days after the Closing, Buyer and Quiksilver shall determine as of 12:01 a.m. (local time) on the Closing Date in each location in which the applicable bank account is located, the aggregate cash balance of the bank accounts of the Acquired Companies, which for the avoidance of doubt shall be net of all outstanding checks or similar instruments issued on such bank accounts at such time but not yet reflected as a deduction in the cash balances of such bank accounts (the “Closing Acquired Company Cash”). An amount equal to the Closing Acquired Company Cash shall be promptly paid by Buyer, or an Affiliate of Buyer, to Quiksilver by wire transfer of immediately available funds to an account designated by Quiksilver.

4

(e) All amounts payable under this Section 1.2 shall be in United States dollars (US$) and shall be calculated, if and as necessary, based on the cross rates as reported by The Wall Street Journal (online edition) (the “Exchange Rates”) on the fourth (4th) Business Day prior to the Anticipated Closing Date.”

(f) In the event that the Closing does not occur within two (2) Business Days of the Anticipated Closing Date, Quiksilver and Buyer shall agree on a new Anticipated Closing Date and, for purposes of this Section 1.2, references to the Anticipated Closing Date shall mean such new Anticipated Closing Date.

     1.4 Amendment to Section 1.3. Section 1.3 of the Stock Purchase Agreement is hereby amended by the addition of Sub-section (i) as follows:

“For the avoidance of doubt, the term “consolidated” for the purposes of this Section 1.3 and the definition of Company Working Capital means the aggregated or combined balance sheets, statements of income or other financial statements of each of the Acquired Companies as if such Acquired Companies (other than the Company) were consolidated in the balance sheet, statement of income or other financial statements of the Company.”

     1.5 Amendments to Section 1.5.

(a) Section 1.5(a)(i) of the Stock Purchase Agreement is hereby deleted and amended to read in its entirety as follows:

“certificate(s) representing the Shares duly endorsed (or accompanied by duly executed stock powers), or other analogous transfer instruments or documentation to effect the transfer of the Shares to Buyer at the Closing under applicable Legal Requirements, with requisite stock or share transfer stamps, if any, attached;”

(b) Section 1.5(a)(v) of the Stock Purchase Agreement is hereby deleted and amended to read in its entirety as follows:

“certificates dated as of the Closing Date from Quiksilver, Seller and/or the Company, as applicable, duly executed by such Person’s Secretary, certifying: (A) that attached thereto is a true, correct and complete copy of the Organizational Documents of the Company, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK, as in effect on the date of such certification; (B) that the Organizational Documents of the Company, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK, have not been amended since the

5

delivery of this Agreement, except that the Organizational Documents of Riviera SNC have been amended to convert it to an SAS; and (C) that attached thereto is a true, correct and complete copy of all resolutions adopted by the boards of directors or other equivalent body and, where required, the stockholders of such Person authorizing the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and that all such resolutions are still in full force and effect; and . . .”

(c) Section 1.5(a)(vi) of the Stock Purchase Agreement is hereby deleted and amended to read in its entirety as follows:

“a certificate executed by a duly authorized officer of Quiksilver certifying that upon consummation of the transactions contemplated hereby (including the actions and payments required pursuant to Section 1.2(b)), (a) the Acquired Companies will be free and clear of all indebtedness for borrowed money and any interest thereon owed to any Seller Affiliate or any other Person (other than Buyer or an Acquired Company), (b) no Acquired Company will have outstanding any accounts receivable from, or accounts payable to, any Seller Affiliate, and (c) upon completion of the actions contemplated by Section 1.2(c) all Change in Control Obligations shall be paid in full.”

(d) Section 1.5 of the Stock Purchase Agreement is hereby amended by the addition of Sub-section (c) as follows:

“Buyer will cause to be delivered to each Quiksilver Affiliate designated by Quiksilver pursuant to Section 1.2(b)(iv), by wire transfer of immediately available funds, the portion of the Offset Amount applicable to such Quiksilver Affiliate, with the total of such wire transfers equaling the Required Buyer Intercompany Loan.”

(e) Article I of the Stock Purchase Agreement is hereby amended by the addition of Section 1.6 as follows:

“As soon as reasonably practicable and no later than ten (10) Business Days of Closing, Buyer will cause the Company to deliver to each of William Bird, Mark Perfetti, Randy Romberg and Greg Hopkins by wire transfer of immediately available funds, their applicable portion of the Change in Control Obligations in satisfaction of the Company’s obligation to pay the Change in Control Obligations set forth in Section 1.2(c), with the total of such wire transfers equaling the Change in Control Obligation Loan, subject to any withholding, federal, state and local income, or employment taxes and other payroll deductions required by

6

applicable Law; provided that payment of the Change in Control Obligation to Greg Hopkins shall be subject to his execution of a general release in favor of the Company as contemplated by his employment agreement with the Company.”

     1.6 Amendment to Section 2.3. The fourth (4^th) sentence of Section 2.3 of the Stock Purchase Agreement is hereby deleted and amended to read as follows:

“On the Closing Date, all of the outstanding equity securities of Belfry Golf Limited and Cleveland Deutschland GmbH will be owned of record and beneficially by Riviera SNC, free and clear of all Encumbrances.”

     1.7 Amendment to Section 4.11. Section 4.11 of the Stock Purchase Agreement is hereby deleted and amended to read as follows:

“The parties acknowledge and agree that none of the Acquired Companies, other than the Company, are direct subsidiaries of Seller as of the date of this Agreement. Prior to the Closing, Quiksilver and its Affiliates intend to restructure the ownership of the Acquired Companies to cause Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK to be direct wholly-owned subsidiaries of Seller (the “Restructuring”). For the avoidance of doubt, all of the issued and outstanding shares of stock of Belfry Golf Limited and Cleveland Deutschland GmbH shall be held by Riviera SNC as of the Closing. The allocation of the Purchase Price with respect to each of the Company, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK is set forth in Exhibit D.”

     Exhibit D to the Stock Purchase Agreement is attached hereto as Annex 1.

     1.8 Amendment to Exhibit A.

          (a) The definition of Required Buyer Intercompany Loan set forth in Exhibit A of the Stock Purchase Agreement is hereby deleted and amended to read as follows:

"'Required Buyer Intercompany Loan‘ — means the loans from Buyer to the Acquired Companies to be made on the Closing Date in accordance with Section 1.2(b) through the payment of each Acquired Company’s portion of the Offset Amount, in an aggregate amount equal to the Offset Amount.”

          (b) The definition of Current Liabilities set forth in Exhibit A of the Stock Purchase Agreement is hereby deleted and amended to read as follows:

"'Current Liabilities‘ — accounts payable of the Acquired Companies. For the avoidance of doubt, Current Liabilities will

7

not include accrued liabilities, intercompany payables, or the Change in Control Obligations.”

     1.9 Amendment to Article VI. A Section 6.9 is hereby added to the Stock Purchase Agreement as follows:

“6.9 Clearance Certificates.

(a) Seller agrees to take all reasonable steps to obtain and deliver to Buyer as soon as possible after the date hereof a certificate issued by the Minister of National Revenue (Canada) under subsection 116(2) or (4) of the Income Tax Act (Canada), as applicable, in respect of the sale of the outstanding shares of Cleveland Golf Canada Corp. (the “CG Canada Shares”) to Buyer with a certificate limit that is not less than the aggregate Purchase Price attributable to the CG Canada Shares as set forth in Exhibit D (the “CG Canada Price”).

(b) Buyer and Seller agree that Buyer shall hold back from the CG Canada Price an amount equal to 25% of the CG Canada Price (the “CG Canada Escrow Amount”) pending receipt of such certificate, and the CG Canada Escrow Amount in escrow under the terms of a Section 116 Escrow Agreement to be entered into by Buyer and Seller with a third-party escrow agent (the “Escrow Agent”) at or prior to the Closing. Buyer and Seller agree that such amounts shall be further disposed of under the terms of such Section 116 Escrow Agreement.

     1.10 Partial Waiver of Condition Precedent to Buyer’s Obligation to Close. Buyer hereby waives Quiksilver’s obligation pursuant to Sections 1.5(a)(iv) and 7.2(b) of the Stock Purchase Agreement to deliver at the Closing the written resignation of Matt Yasumoto as Representative Director of Cleveland Golf Asia YK; and Quiksilver agrees to cause Matt Yasumoto to rescind prior to the Closing his written resignation dated as of November 7, 2007, which would be effective upon the Closing.

[Remainder of this page left intentionally blank.]

8

ARTICLE II
GENERAL PROVISIONS

     2.1 Stock Purchase Agreement Remains in Full Force and Effect. Except as expressly amended or modified by this Amendment, all provisions of the Stock Purchase Agreement remain in full force and effect and nothing in this Amendment shall otherwise affect any other provision of the Stock Purchase Agreement or the rights and obligations of the parties thereto.

     2.2 Reference to Stock Purchase Agreement. Any reference to the Stock Purchase Agreement therein shall refer to the Stock Purchase Agreement as amended or modified by this Amendment.

     2.3 Conflicting Terms. In the event of any inconsistency or conflict between the Stock Purchase Agreement and this Amendment, the provisions of this Amendment shall govern and control.

     IN WITNESS WHEREOF, the parties have executed and delivered this Amendment effective as of the date first written above.

“QUIKSILVER”
QUIKSILVER, INC., a Delaware corporation
By:
Name:	Charles S. Exon
Title:	Secretary and General Counsel
“BUYER”
SRI SPORTS LIMITED, a Japanese corporation
By:
Name:	Ryochi Sawada
Title:	Representative Director and Chairman

SPA Amendment No. 1
Signature Page

Annex 1

This Annex 1 sets forth Exhibit D to the Stock Purchase Agreement.

EXHIBIT D

ALLOCATION OF PURCHASE PRICE

Acquired Company	Allocation (US$)
Cleveland Golf Canada Corp.		2,765,250
Cleveland Golf Asia YK		1,102,841
Riviera SNC		2,795,116
(incl. Belfry Golf Limited and Cleveland Deutschland GmbH)
Roger Cleveland Golf Company, Inc.		71,984,458

Annex – 1

EX-10.9

EXECUTION COPY

Exhibit 10.9

FIFTH AMENDMENT

     FIFTH AMENDMENT (this “Amendment”), dated as of December 5, 2007, to the Amended and Restated Credit Agreement dated as of June 3, 2005 (the “Credit Agreement”), among Quiksilver, Inc., a Delaware corporation, Quiksilver Americas, Inc., a California corporation, the several banks and other institutions from time to time parties thereto (the “Lenders”), Bank of America, N.A., as documentation agent, Union Bank of California, N.A., as syndication agent, JPMorgan Chase Bank, N.A., as US administrative agent for the US Lenders thereunder (in such capacity, the “US Administrative Agent”), JPMorgan Chase Bank, N.A., London Branch, as an alternate currency fronting lender, J.P. Morgan Europe Limited, as alternate currency fronting agent (in such capacity, the “Alternate Currency Fronting Agent”), and JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian administrative agent for the Canadian Lenders (in such capacity, the “Canadian Administrative Agent”).

W I T N E S S E T H:

     WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Borrowers;

     WHEREAS, the Borrowers have requested that certain provisions of the Credit Agreement be amended as set forth herein; and

     WHEREAS, the Lenders are willing to agree to such amendment on the terms set forth herein;

     NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the undersigned hereby agree as follows:

     I. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.

     II. Amendments to Section 1.1. The following definitions are hereby inserted in appropriate alphabetical order:

     “Cleveland Golf Sale”: the sale by Rossignol Ski Company, Inc. of 100% of the capital stock owned by it of Cleveland Golf, Riviera SNC, Cleveland Golf Canada Corp. and Cleveland Golf Asia YK (collectively, the “Cleveland Golf Entities”) in accordance with the terms of the Cleveland Golf Sale SPA.

     “Cleveland Golf Sale SPA”: that certain Stock Purchase Agreement, effective October 30, 2007, as amended by that certain Amendment No. 1, by and among Quiksilver, Rossignol Ski Company, Inc., Cleveland Golf and SRI Sports Limited.

     III. Amendment to Section 6.4. Section 6.4 is hereby amended by inserting the phrase “and Quiksilver and its Subsidiaries may consummate the Cleveland Golf Sale” immediately prior to the “.” at the end of said Section.

     IV. Amendment to Section 6.5. Section 6.5 is hereby amended by (1) inserting the phrase “(A)” prior to the word “unless” and (2) adding the phrase “and (B) except for the Cleveland Golf Sale” prior to the “.” at the end of said Section.

     V. Amendment to Section 6.7. Section 6.7 is hereby amended by (1) deleting the “and” at the end of clause (k), (2) deleting the “.” at the end of clause (l) and substituting in lieu thereof the phrase “; and” and (3) inserting a new clause (m) to read as follows:

“(m) investments by Quiksilver or the US Borrower in Foreign Subsidiaries made with the Net Proceeds of the Cleveland Golf Sale and in an aggregate amount not to exceed the Net Proceeds of the Cleveland Golf Sale minus the amount of the reduction in the Borrowing Base attributable to the Cleveland Golf Sale.”

     VI. Amendment to Section 6.8. Section 6.8 is hereby amended by inserting the parenthetical “(it being agreed that the restructuring of the Cleveland Golf Entities pursuant to the terms of the Cleveland Golf SPA is allowed pursuant to the terms of this Section 6.8)” immediately prior to the “.” at the end of said Section.

     VII. Effective Date. This Amendment shall become effective on the date (the “Effective Date”) on which the Borrowers and the requisite Lenders under the Credit Agreement shall have duly executed and delivered to the US Administrative Agent this Amendment.

     VIII. Representations and Warranties. The Borrowers hereby represent and warrants that (a) each of the representations and warranties in Article III of the Credit Agreement shall be, after giving effect to this Amendment, true and correct in all material respects as if made on and as of the Effective Date (unless such representations and warranties are stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date) and (b) after giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing.

     IX. Releases. The Lenders hereby agree that upon the consummation of the Cleveland Golf Sale (the “Cleveland Golf Sale Effective Date”), Cleveland Golf shall be released from any liability under the US Guarantee and the other Loan Documents to which it is a party. Also, the Lenders acknowledge that on the Cleveland Golf Sale Effective Date, the assets sold pursuant to the Cleveland Golf Sale and the assets of Cleveland Golf shall be released free and clear of the Lien and security interest under the Security Agreement. The Administrative Agent will, from and after the Cleveland Golf Sale Effective Date, deliver any collateral (including any chattel paper, certificated securities or instruments) then in its possession and any termination statements or documents as the US Borrower may from time to time reasonably request to effectuate, or reflect of public record, the release and discharge of the security interests pursuant to the terms of the Security Agreement. The US Borrower is, from and after the Cleveland Golf Sale Effective Date, authorized to file UCC-3 termination statements for each of the UCC financing statements naming Cleveland Golf as debtor relating to the liens securing the Obligations under the Credit Agreement and the other Loan Documents. All of the foregoing deliveries shall be at the expense of the US Borrower, with no liability to the Administrative Agent or any Lender, and with no representation or warranty by, or recourse to, the Administrative Agent or any Lender.

2

     X. No Other Amendments; Confirmation. Except as expressly amended hereby, the provisions of the Credit Agreement, as amended and restated, are and shall remain in full force and effect.

     XI. Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York.

     XII. Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Amendment may be delivered by facsimile transmission of the relevant signature pages hereof.

[signature pages follow]

3

     IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed and delivered by their duly authorized officers as of the date first above written.

QUIKSILVER, INC.

By:

Name:

Title:

QUIKSILVER AMERICAS, INC.

By:

Name:

Title:

Fifth Amendment Signature Page

JPMORGAN CHASE BANK, N.A., as US

Administrative Agent and as a Lender

By:

Name:

Title:

Fifth Amendment Signature Page

BANK OF AMERICA, N.A., as

Documentation Agent and as a Lender

By:

Name:

Title:

Fifth Amendment Signature Page

UNION BANK OF CALIFORNIA, N.A., as

Syndication Agent and as a Lender

By:

Name:

Title:

Fifth Amendment Signature Page

ALLIED IRISH BANK

By:

Name:

Title:

Fifth Amendment Signature Page

GENERAL ELECTRIC CAPITAL CORP.

By:

Name:

Title:

Fifth Amendment Signature Page

HSBC BANK USA, NATIONAL

ASSOCIATION

By:

Name:

Title:

Fifth Amendment Signature Page

ISRAEL DISCOUNT BANK OF NEW

YORK

By:

Name:

Title:

By:

Name:

Title:

Fifth Amendment Signature Page

CALYON NEW YORK BRANCH

By:

Name:

Title:

By:

Name:

Title:

Fifth Amendment Signature Page

NATIXIS (F/K/A NATEXIS BANQUES

POPULAIRES)

By:

Name:

Title:

By:

Name:

Title:

Fifth Amendment Signature Page

BNP-PARIBAS

By:

Name:

Title:

Fifth Amendment Signature Page

SOCIETE GENERALE

By:

Name:

Title:

Fifth Amendment Signature Page

SUMITOMO MITSUI BANKING

CORPORATION

By:

Name:

Title:

Fifth Amendment Signature Page

     The US Guarantors hereby consent and agree to this Amendment as of the date hereof and reaffirm their obligations under the US Security Agreement, the US Guarantee and the other Loan Documents to which they are party.

QS RETAIL, INC.

By:

Name:

Title:

QS WHOLESALE, INC.

By:

Name:

Title:

DC SHOES, INC.

By:

Name:

Title:

HAWK DESIGNS, INC.

By:

Name:

Title:

MERVIN MANUFACTURING, INC.

By:

Name:

Title:

FIDRA, INC.

By:

Name:

Title:

ROSSIGNOL SKI COMPANY

INCORPORATED

By:

Name:

Title:

Fifth Amendment Signature Page

SKIS DYNASTAR, INC.

By:

Name:

Title:

ROGER CLEVELAND GOLF COMPANY,

INC.

By:

Name:

Title:

Fifth Amendment Signature Page

EX-10.35

Exhibit 10.35

BASE SALARIES FOR EXECUTIVE OFFICERS

     On December 26, 2007, the Compensation Committee of the Board of Directors of Quiksilver, Inc. (the “Company”) approved new annual base salaries (effective as of November 1, 2007) for the Company’s named executive officers. The following table sets forth the annual base salary levels of the Company’s named executive officers for fiscal 2008:

Name and Position	Base Salary
Robert B. McKnight, Jr., Chief Executive Officer	$	1,075,000
Bernard Mariette, President	$	900,000
Charles S. Exon, Executive Vice President, Secretary and General Counsel	$	450,000
Joseph Scirocco, Executive Vice President, Chief Financial Officer	$	600,000
David H. Morgan, Executive Vice President, Chief Operating Officer	$	525,000

EX-21.1

EXHIBIT 21.1

QUIKSILVER, INC.
NAMES AND JURISDICTIONS OF SUBSIDIARIES
AS OF OCTOBER 31, 2007

Subsidiary Name	Jurisdiction
Fidra, Inc.	California
Hawk Designs, Inc.	California
Mervin Manufacturing, Inc.	California
Mt. Waimea, Inc.	California
QS Optics, Inc.	California
QS Retail, Inc.	California
Quiksilver Entertainment, Inc.	California
Quiksilver Wetsuits, Inc.	California
DC Shoes, Inc.	California
DC Direct, Inc.	California
Quiksilver Americas, Inc.	California
QS Wholesale, Inc.	California
Union Distribution LLC	California
Roger Cleveland Golf Company, Inc.	California
Quiksilver Alps LLC	California
Quiksilver Links LLC	California
QS Mexico Holdings	California
Rossignol Ski Company, Inc.	Delaware
Skis Dynastar, Inc.	Delaware
UMTT Pty Ltd.	Australia
Caribbean Pty Ltd.	Australia
Pavilion Productions Pty Ltd.	Australia
QSJ Holdings Pty Ltd.	Australia
Quiksilver Australia Pty Ltd.	Australia
Quiksilver International Pty Ltd.	Australia
Ug Manufacturing Co. Pty Ltd.	Australia
DC Shoes Australia Pty Ltd.	Australia
QS Retail Pty Ltd.	Australia
QS Retail (NZ) Limited	Australia
Rossignol Osterreich GMBH	Austria
Vanuatu GMBH	Austria
Hanalei NV	Belgium
Waimea NV	Belgium
Lumahai NV	Belgium
Cleveland Golf Canada Corp.	Canada
Quiksilver Canada Corp.	Canada
QS Retail Canada Corp.	Canada
Skis Rossignol Canada Ltd.	Canada
Skis Dynastar Canada Ltd.	Canada
Quiksilver Asia Sourcing (Shanghai) Co, Ltd.	China
Quiksilver Glorious Sun Licensing Ltd. (HK)	China
Quiksilver Glorious Sun Trading (SH) Ltd. Ft. (PRC)	China
Quiksilver Glorious Sun Apparels (HZ) Ltd.	China
Chloelys Investment Ltd.	Cyprus
Distribution s.r.o.	Czech Republic
Boardriders Club s.r.o.	Czech Republic
Cariboo SARL	France
Emerald Coast SA	France
Infoborn SARL	France

Subsidiary Name	Jurisdiction
Kokolo SARL	France
Na Pali SAS	France
Meribel SAS (fomerly known as Na Pali Entertainment SARL)	France
Na Pali Europe SARL	France
Omareef Europe SAS	France
Tavarua SCI	France
Echo Beach Café SARL	France
Tanna SARL	France
Marina Travels SARL	France
Zebraska SARL	France
Pilot SAS	France
Ski Expansion SAS	France
Skis Rossignol SAS	France
Skis Dynastar SAS	France
Look Fixations SAS	France
Tyax SNC	France
Riviera SNC	France
Tuamotu SARL	France
Kauai GMBH	Germany
Makaha GMBH	Germany
Rossignol Ski Deutschland GMBH	Germany
Cleveland Deutschland GMBH	Germany
Quiksilver Asia Sourcing Ltd.	Hong Kong
Quiksilver Greater China Ltd.	Hong Kong
Quiksilver Sourcing Australia	Hong Kong
Quiksilver Glorious Sun JV Ltd. (HK)	Hong Kong
Quiksilver Glorious Sun Mfg. (Longmen) Ltd. (PRC)	Hong Kong
Main Bridge	Hong Kong
PT Quiksilver Indonesia	Indonesia
Namotu Ltd.	Ireland
Haapiti SRL	Italy
Moorea SRL	Italy
Rossignol Lange SRL	Italy
Rossignol SCI SRL	Italy
Rossignol Ski Poles SRL	Italy
Montebianco Sport SRL	Italy
Quiksilver Japan KK	Japan
Groupe Rossignol KK	Japan
Cleveland Golf Asia YK	Japan
QS Holdings SARL	Luxembourg
Quiksilver Deluxe SARL	Luxembourg
Skis Rossignol Finance Luxembourg SA	Luxembourg
Quiksilver Mexico, S. de R.L. de C.V.	Mexico
Quiksilver Mexico Service, S. de R.L. de C.V.	Mexico
Pukalani BV	Netherlands
Tuvalu BV	Netherlands
Ug Manufacturing Co. Pty Ltd.	New Zealand
Rawaki sp. zoo	Poland
Mahia sp. Zoo	Poland
Kiribati Lda.	Portugal
Tarawa Lda.	Portugal
Santocha Ltd.	Russia
Quiksilver Singapore	Singapore
Boardriders Club Bratislava s.r.o.	Slovakia
New Pier Trading Ltd.	South Africa
SD Bakio SL	Spain

Subsidiary Name	Jurisdiction
Quiksilver Europa, SL	Spain
Sumbawa SL	Spain
Skis Rossignol De Espana SL	Spain
Besiberri Outdoor Company SL	Spain
Sunshine Diffusion SA	Switzerland
Longboarder Zurich GMBH	Switzerland
LISA Lange International SARL	Switzerland
Rossignol GMBH	Switzerland
QS Retail (Taiwan) Ltd.	Taiwan
QS Retail (Thailand) Ltd.	Thailand
Estacade Ltd.	United Kingdom
Lanai Ltd.	United Kingdom
Molokai Ltd.	United Kingdom
Belfry Golf Ltd.	United Kingdom

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-04169, No. 333-56593, No. 333-40328, No. 333-64106, No. 333-85204, No. 333-104462, No. 333-114845, No. 333-123858, No. 333-133229 and No. 333-141463 on Form S-8 of our report dated December 28, 2007, relating to the consolidated financial statements of Quiksilver, Inc., (the “Company”) which report expresses an unqualified opinion on the consolidated financial statements and includes explanatory paragraphs relating to (1) the adoption of Financial Accounting Standards No. 123(R), “Share-based Payment” in 2006 and (2) the presentation of the Company’s golf equipment business as discontinued operations and, our report on the effectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 10-K of Quiksilver, Inc. for the year ended October 31, 2007.

/s/ Deloitte & Touche LLP  

Costa Mesa, California 

December 28, 2007 

EX-31.1

EXHIBIT 31.1

§ 302 CERTIFICATION

          I, Robert B. McKnight, certify that:

     (1) I have reviewed this annual report on Form 10-K of Quiksilver, Inc.;

     (2) Based on my knowledge, this 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 report;

     (3) Based on my knowledge, the financial statements, and other financial information included in this 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

          b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

          c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

          d. 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 control over financial reporting.

Date: December 28, 2007	/s/ Robert B. McKnight, Jr.
	Robert B. McKnight, Jr.
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

§ 302 CERTIFICATION

          I, Joseph Scirocco, certify that:

     (1) I have reviewed this annual report on Form 10-K of Quiksilver, Inc.;

     (2) Based on my knowledge, this 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 report;

     (3) Based on my knowledge, the financial statements, and other financial information included in this 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

          b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

          c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

          d. 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 control over financial reporting.

Date: December 28, 2007	/s/ Joseph Scirocco
	Joseph Scirocco
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with the Annual Report of Quiksilver, Inc. (the “Company”) on Form 10-K for the period ended October 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert B. McKnight, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

     1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Robert B. McKnight, Jr.  

Robert B. McKnight, Jr. 

Chief Executive Officer 

December 28, 2007 

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with the Annual Report of Quiksilver, Inc. (the “Company”) on Form 10-K for the period ended October 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph Scirocco, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2003, that:

     1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Joseph Scirocco  

Joseph Scirocco 

Chief Financial Officer 

December 28, 2007