exv10w5



 






Exhibit 10.5




FOURTH AMENDMENT TO REVOLVING/TERM LOAN CREDIT AGREEMENT




     This Fourth Amendment to Revolving/Term Loan Credit Agreement (this “Amendment”) is entered
into as of January 26, 2006, by and between Ashworth, Inc., a Delaware corporation (“Borrower”),
each lender from time to time party to the Credit Agreement (as defined below) (collectively, the
“Lenders” and individually, a “Lender), and UNION BANK OF CALIFORNIA, N.A., as Agent and as U.K.
Security Trustee (in such capacity, “Agent”).



RECITALS




     Borrower, Agent and the Lenders are parties to that certain Revolving/Term Loan Credit
Agreement dated as of July 6, 2004, as amended from time to time, including by that certain First
Amendment to Revolving/Term Loan Credit Agreement dated as of September 3, 2004 and that certain
Second Amendment to Revolving/Term Loan Credit Agreement dated as of May 27, 2005 and that certain
Third Amendment to Revolving/Term Loan Credit Agreement dated as of September 8,2005 (collectively,
the “Credit Agreement”). The parties desire to amend the Credit Agreement in accordance with the
terms of this Amendment. Unless otherwise defined, all initially capitalized terms in this
Amendment shall be as defined in the Credit Agreement.



     NOW, THEREFORE, the parties agree as follows:



     1. The following definitions hereby are amended and/or added to Section 1.01 of the Credit
Agreement:




     “Applicable Rate” means, from time to time, the following percentages per
annum, based upon the ratio of average daily Funded Debt to EBITDA (the “Financial
Covenant”) as set forth in the most recent Compliance Certificate received by Agent
pursuant to Section 6.02(b):



Applicable Rate




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Pricing Level	 	 	Funded Debt to EBITDA	 	 	Commitment Fee	 	 	Eurodollar Rate	 	 	Base Rate +
	 	 	 	Ratio	 	 	 	 	 	+	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	Letters of Credit	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	1

	 	 	Less than or equal to
1.50:1.00
	 	 	 	0.175	%	 	 	 	1.25	%	 	 	 	0.00	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2

	 	 	Less than or equal to
2:00:1.00 but greater
than 1.50:1.00
	 	 	 	0.175	%	 	 	 	1.50	%	 	 	 	0.00	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	3

	 	 	Less than or equal to
2.25:1.00 but greater
than 2.00:1.00
	 	 	 	0.25	%	 	 	 	1.75	%	 	 	 	0.00	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4

	 	 	Less than or equal to
3.00:1.00 but greater
than 2.25:1.00
	 	 	 	0.375	%	 	 	 	2.00	%	 	 	 	0.25	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	4

	 	 	Greater than 3.00:1.00
	 	 	 	0.375	%	 	 	 	2.25	%	 	 	 	0.25	%







     Any increase or decrease in the Applicable Rate resulting from a change in the
Financial Covenant shall become effective commencing on the 5* Business Day immediately
following the date a Compliance Certificate is delivered pursuant to Section
6.02(b): provided, howeve, that if no Compliance Certificate is
delivered when due in accordance with such Section, then Pricing Level 5 shall apply
commencing on the 5th Business Day following the date such Compliance



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Certificate was required to have been delivered until the 5th Business Day
immediately following the date a Compliance Certificate is delivered.




     “Revolving Loan Commitment” means $42,500,000. The respective Pro Rata Shares
of the Lenders with respect to the Revolving Loan Commitment are set forth in Schedule 2.01.




     Term Loan Commitment” means $6,833,000. The respective Pro Rata Shares of the
Lenders with respect to the Term Loan Commitment are set forth in Schedule 2.01.



     2. Lenders hereby waive Borrower’s compliance with Section 6.12(a), (b), (e) and (g) of the
Credit Agreement, solely for the period ended (and as such provisions were in effect as of) October
31, 2005.



     3. Section 2.01 (c) hereby is added to the Credit Agreement to read as follows:



               ”(c) Borrowing Base. Notwithstanding any other provision of this Agreement, Bank
shall not be obligated to advance funds under the Revolving Loan at any time that Borrower’s
aggregate obligations to Bank thereunder exceed the sum of (a) seventy five percent (75%) of
Borrower’s Eligible Accounts, and (b) fifty-five percent (55%) of Borrower’s Eligible Inventory. If
at any time Borrower’s obligations to Bank under the referenced facilities exceed the sum so
permitted, Borrower shall immediately repay to Bank such excess.



                         (1) Accounts and Eligible Accounts. The term “Accounts” means all presently
existing and hereafter arising accounts receivable, contract rights, chattel paper, and all other
forms of obligations owing to Borrower, payable in United States dollars, arising out of the sale
or lease of goods, or the rendition of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower, and Borrower’s books and records relating to any
of the foregoing.




            The term “Eligible Accounts” means those Accounts, net of finance charges, which have
been validly assigned to Bank and strictly comply with all Borrower’s representations and
warranties to Bank, but Eligible Accounts shall not include any Account:




(a) With respect to which the account debtor is an officer,
shareholder, director, employee or agent of Borrower;




(b) With respect to which the account debtor is a subsidiary of, related to,
or affiliated or has common officers or directors with Borrower;




(c) Relating to goods placed on consignment, guaranteed sale or other terms
by reason of which payment by the account debtor may be conditional;




(d) With respect to which the account debtor is not a resident of the United
States or Canada;




(e) With respect to which the account debtor is a Federal, state or local
governmental entity or agency, unless Bank, in its sole discretion, has
agreed to the contrary in writing and Borrower, if necessary or desirable,
has complied with the Federal Assignment of Claims Act of 1940 or any
applicable state statute or municipal ordinance of similar purpose and effect
with respect thereto;




(f) With respect to which Borrower is or may become liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower;



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(g) With respect to which there is asserted a defense,
counterclaim, discount or setoff, whether well-founded or otherwise, except
for those discounts, allowances and returns arising in the ordinary course
of Borrower’s business;




(h) With respect to which the account debtor becomes insolvent, fails
to pay its debts as they mature or goes out of business, or which is owed by
an account debtor which has become the subject of a proceeding under any
provision of the United States Bankruptcy Code, as amended, or under any
other bankruptcy or insolvency law, including but not limited to assignments
for the benefit of creditors, formal or informal moratoriums, compositions
or extensions with all or substantially all of its creditors;




(i) Owed by any account debtor with respect to which twenty-five
percent (25%) or more of the aggregate dollar amount of its Accounts are not
paid within sixty (60) days of due date;




(j) That is not paid by the account debtor within sixty (60) days of due date;




(k) That portion of the Accounts owed by any single account debtor
which exceeds fifteen percent (15%) of all Borrower’s Accounts; and




(1) Which Bank deems ineligible.




(2) Inventory and Eligible Inventory. The term “Inventory” means all present
and hereafter acquired inventory of Borrower wherever located, including but not limited to
all present and future goods held for sale or lease or to be furnished under a contract of
service and all raw materials, work in progress or materials used or consumed in a business,
finished goods and all proceeds and products or any of the foregoing, all guaranties and
other security therefor, and all of Borrower’s present and future books and records relating
thereto (including computer-stored information and all software relating thereto) and all
contract rights with third parties relating to the maintenance of any such books, records
and information.




The term “Eligible Inventory” means that portion of Borrower’s Inventory of finished goods
consisting of Borrower’s main line(s) of business products, which is (a) owned by Borrower
free and clear of all Liens except those in favor of Bank, (b) held for sale by Borrower and
normally and currently saleable in the ordinary course of Borrower’s business, (c) of good
and merchantable quality, free from defects, (d) located only at locations of which Bank is
notified in writing, and (e) subject to a first priority security interest in favor of Bank.
Except to the extent sold at Borrower’s outlet stores, Eligible Inventory does not include
work in process, spare parts, returned items, damaged, defective or recalled items, items
unfit for further processing, obsolete or unmerchantable items, items used as salesperson’s
samples or demonstrators, Inventory held in stock more than twelve (12) months, or Inventory
which Bank otherwise deems ineligible.”



     4. Section 2.07(b) of the Credit Agreement hereby is amended and restated in its entirety to
read as follows:




     “(b) Term Loan. Borrower shall repay to Lenders on each Term Loan
Amortization Date, commencing January 31, 2006, equal installments of principal in the
amount of $125,000.00, plus all accrued interest, on account of the Term Loan, with the
entire unpaid principal balance and all accrued and unpaid interest due in full on the
Maturity Date.”



     5. Section 6.02(g) hereby is added to the Credit Agreement to read as follows:




-3-









 









     “(g) Within fifteen (15) days after the close of each calendar month, a copy
of Borrower’s detailed monthly accounts receivable aging and a Borrowing Base Certificate,
executed by Borrower’s chief financial officer or other duly authorized officer of Borrower,
in form acceptable to Bank, accurately reporting the amounts of Borrower’s Accounts,
Eligible Accounts, Inventory and Eligible Inventory, as the Borrowing Base may require.”



     6. The following sentence hereby is added to the end of Section 6.10 of the Credit
Agreement to read as follows:




     “Permit representatives and independent contractors of Agent and each Lender to audit
and appraise Borrower’s Accounts and Inventory, all at the expense of Borrower and at such
reasonable times during normal business hours and as often as may be reasonably desired, but
not more frequently than annually (in addition to any audit and/or appraisal in connection
with this Amendment), upon seven days advance written notice to Borrower, provided,
however, that when a Default exists Agent or any Lender (or any of their respective
representatives or independent contractors) may do any of the foregoing at the expense of
Borrower at any time during normal business hours, without advance notice, and more
frequently than annually.”



     7. Section 6.12(a) of the Credit Agreement, effective beginning with the period ending
January 31, 2006, hereby is amended and restated in its entirety to read as follows:




     “(a) Tangible Net Worth. Maintain on a consolidated basis Tangible Net
Worth equal to at least the sum of the following:




     (i) Seventy Five Million Dollars ($75,000,000); plus




     (ii) the sum of 90% of net income after income taxes (without
subtracting losses) earned in each quarterly accounting period commencing after
January 31,2006; plus




     (iii) the net proceeds from any equity securities issued after the date
of this Agreement.”



     8. Section 6.12(b) of the Credit Agreement hereby is amended and restated in its entirety to
read as follows:




     “(b) Intentionally Omitted.”



     9. Section 6.12(c) of the Credit Agreement hereby is amended and restated in its entirety to
read as follows:




     “(c) Quick Ratio. Maintain at all times on a consolidated basis a ratio of
Quick Assets to current liabilities (including the Outstanding Amount of Loans and L/C
Obligations) of at least .90:1.00, except for the fiscal quarters ending January 31 and
April 30, as to which the ratio of Quick Assets to current liabilities (including the
Outstanding Amount of Loans and L/C Obligations) shall be at least 0.75:1.00.”



     10. Section 6.12(e) of the Credit Agreement hereby is amended and restated in its entirety to
read as follows:




     “(e) Capital Expenditures. Not to spend or incur obligations
(including the total amount of any capital leases) to acquire fixed assets for more
than Seven Million Dollars ($7,000,000) in any single fiscal year on a consolidated
basis.”



-4-









 





     11. Section 6.12(f) of the Credit Agreement hereby is amended and restated in its
entirety to read as follows:




               “(f) Intentionally Omitted.”



     12. Section 6.12(g) of the Credit Agreement hereby is amended and restated in its entirety to
read as follows:




               “(g) Fixed Charge Coverage Ratio. Not to permit the Fixed Charge Coverage
Ratio as of the last day of any fiscal quarter to be less than 1.25 to 1.00; provided that,
(A) for the fiscal quarter ending January 31, 2006, the Fixed Charge Coverage Ratio shall
not be less than 0.80 to 1.00; and (B) for purposes of determining the Fixed Charge Coverage
Ratio only, (x) Borrower’s Inventory write-down of $4,400,000 shall be added back to EBITDA
through Borrower’s fiscal quarter ending April 30, 2006; and (y) Borrower’s Maintenance
Capital Expenditures shall be $4,000,000 through Borrower’s fiscal quarter ending October
31, 2006.”



     13. Exhibit C to the Credit Agreement hereby is replaced in its entirety with Exhibit C
attached hereto.



     14. No course of dealing on the part of Lenders, Agent or its officers, nor any failure or
delay in the exercise of any right by Agent or any Lender, shall operate as a waiver thereof, and
any single or partial exercise of any such right shall not preclude any later exercise of any such
right. Agent’s or Lenders’ failure at any time to require strict performance by Borrower of any
provision of any Loan Document shall not affect any right of Lenders or Agent thereafter to demand
strict compliance and performance. Any suspension or waiver of a right must be in writing signed by
an officer of Agent, in accordance with the terms of the Credit Agreement.



     15. The Credit Agreement, as amended hereby, shall be and remain in full force and effect in
accordance with its respective terms and hereby is ratified and confirmed in all respects. Except
as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not
operate as a waiver of, or as an amendment of, any right, power, or remedy of Agent or Lenders
under the Credit Agreement, as in effect prior to the date hereof.



     16. Borrower represents and warrants that the Representations and Warranties contained in the
Credit Agreement are true and correct as of the date of this Amendment, and that no Event of
Default has occurred and is continuing.



-5-









 





     17. As a condition to the effectiveness of this Amendment, Agent shall have
received, in form and substance satisfactory to Agent, the following:



                    (a) this Amendment, duly executed by Borrower;



                    (b) a fee in the amount of $125,000, which may be debited from any of
Borrower’s accounts;



                    (c) Agent’s fees and expenses incurred in connection with the inventory audit and appraisal of
Borrower’s accounts, be debited from any of Borrower’s accounts;



                    (d) all reasonable Attorney Costs incurred through the date of this Amendment, which may
be debited from any of Borrower’s accounts; and



                    (e) amended and restated promissory notes payable to each Lender, which shall be delivered to
Lenders within five (5) Business Days of the date hereof;



                    (f) an Intellectual Property Security Agreement, which shall be executed and delivered to
Agent within five (5) Business Days of the date hereof; and



                    (g) such other documents, and completion of such other matters, as Agent may reasonably deem
necessary or appropriate.



     18. This Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.



[Balance of Page Intentionally Left Blank]]




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     IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date
above written.



	 	 	 	 	 
	 	 	
	 
	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, NA, as Agent
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, N.A., as U.K. Security
Trustee
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	UNION BANK OF CALIFORNIA, N.A... as a Lender
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 





[Signature Page to Fourth Amendment to

Revolving/Term Loan Credit Agreement




[Signatures Continued Next Page]




 









 





	 	 	 	 	 
	 	 	BANK OF THE WEST
	 
	 	 	 	 
	 

	 	By:
	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 	 	COLUMBUS BANK AND TRUST
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 






[Signature Page to Fourth Amendment to

Revolving/Term Loan Credit Agreement]





 










 






EXHIBIT C




FORM OF COMPLIANCE CERTIFICATE




Financial Statement Date:




To:     UNION BANK OF CALIFORNIA, N.A., as Agent




Ladies and Gentlemen:




     Reference is made to that certain Revolving/Term Loan Credit Agreement, dated as of July 6,
2004 (as amended, restated, extended, supplemented or otherwise modified in writing from time to
time, the “Agreement” the terms defined therein being used herein as therein defined),
among Ashworth, Inc. (“Borrower”). Lenders from time to time party thereto, and UNION BANK
OF CALIFORNIA, N.A., as Agent.



     The undersigned Responsible Officer, solely in such capacity, hereby certifies as of the date hereof that
he/she is the                                        of Borrower, and that, as such, he/she is
authorized to execute and deliver this Certificate to Agent on behalf of Borrower, and that:



[Use following for fiscal year-end financial statements]




     1. Attached hereto as Schedule 1 are the year-end audited financial statements
required by
Section 6.01 (a) of the Agreement for the fiscal year of Borrower ended as of the above
date, together with the report and opinion of an independent certified public accountant required
by such section.



[Use following for fiscal quarter-end financial statements]




     1. Attached hereto as Schedule 1 are the unaudited financial statements required by
Section 6.01(b) of the Agreement for the fiscal quarter of Borrower ended as of the above
date. Such financial statements fairly present the financial condition, results of operations and
cash flows of Borrower and its Subsidiaries in accordance with GAAP as at such date and for such
period, subject only to normal year-end audit adjustments and the absence of footnotes.



     2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made,
or has caused to be made under his/her supervision, a detailed review of the transactions and
condition (financial or otherwise) of Borrower during the accounting period covered by the
attached financial statements.



     3. A review of the activities of Borrower during such fiscal period has been made under the
supervision of the undersigned with a view to detemnining whether during such fiscal period
Borrower performed and observed all its Obligations under the Loan Documents, and



(select one:]




     [to the best knowledge of the undersigned during such fiscal period, Borrower performed and
observed each covenant and condition of the Loan Documents applicable to it.]



~or~




     [the following covenants or conditions have not been performed or observed and the following
is a list of each such Default or Event of Default and its nature and status:]



     4. The representations and warranties of the Borrower contained in Article V of the
Agreement, or which are contained in any document furnished at any time under or in connection
with the
Loan Documents, are true and correct on and as of the date hereof, except to the extent that such



					
	 	 	 	 	 
	 
	 	C - 1
	 	UBOC/Ashworth







 









 







representations and warranties specifically refer to an earlier date, in which case they are
true and correct as of such earlier date, and except that for purposes of this Compliance
Certificate, the representations and warranties contained in subsections (a) and (b) of Section
5.05 of the Agreement shall be deemed to refer to the most recent statements furnished pursuant
to clauses (a) and (b), respectively, of Section 6.01 of the Agreement, including the
statements in connection with which this Compliance Certificate is delivered.




     5. The financial covenant analyses and information set forth on Schedule 2 attached
hereto are true
and accurate on and as of the date of this Certificate.



IN WITNESS WHEREOF, the undersigned has executed this Certificate as of                     ,




	 	 	 	 	 
	 	ASHWORTH, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 



					
	 	 	 	 	 
	 
	 	C — 2
	 	 







 









 








					
	 
	 	For the Quarter/Year ended
	 	(“Statement Date”)






SCHEDULE 2

to the Compliance Certificate





	I.	 	Section 6.12(a) — Tangible Net Worth.





	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	A.	 	Tangible Net Worth at Statement Date:	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	1.	 	 	Total Assets:
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	2.	 	 	Total Liabilities:
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	3.	 	 	Total Net Intangibles:
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	4.	 	 	Tangible Net Worth (Line I.A.1 less Line I.A.2 less
line1.A.3):
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	B.
	 	 	1.	 	 	$75,000,000,* plus
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	2.	 	 	the sum of 90% of net income after income taxes (without
subtracting losses) earned in each quarterly accounting period commencing
after January 31, 2006, plus
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	3.	 	 	the net proceeds from any equity securities issued after
the date of the Agreement, plus
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	4.	 	 	Minimum Required Tangible Net Worth (I.B. 1 plus I.B.2
plus I.B.3)
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	C.	 	Excess (deficient) for covenant compliance (Line I.A.4 less
I.B.4):	 	$                    








 




			
	*	 	commencing with the period ending January 31, 2006






	II.	 	Section 6.12(b) — Intentionally Omitted.
	 
	 	 	 






	III.	 	Section 6.12(c) — Quick Ratio.





	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	A.	 	Quick Assets	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	1.	 	 	cash, plus
	 	$                    
	 

	 	 	 	 	2.	 	 	short-term cash investments, plus
	 	$                    
	 

	 	 	 	 	3.	 	 	net trade receivables, plus
	 	$                    
	 

	 	 	 	 	4.	 	 	marketable securities not classified as long-term

investment
	 	$                    
	 

	 	 	 	 	5.	 	 	Total Quick Assets
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	B.	 	Current Liabilities	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	C.	 	Outstanding Amount of L/C Obligations	 	 






					
	 	 	 	 	 
	 
	 	C-1
	 	 






 









 





	 	 	 	 	 	 	 	 	 
	 	 	D.	 	Outstanding Amount of Loans (revolving line of credit)	 	 
	 

	 	 	 	 	 	 	 	 
	 	 	E.	 	Ratio (Line III.A.5 + sum of Line III.B + C + D):	 	to 1.0
	 

	 	 	 	 	 	 	 	 
	 	 	Minimum Required:	 	0.75:1.0 for fiscal quarters ending January 31 and April 30	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	0.90:1.00 otherwise	 	 







	IV.	 	Applicable Rate — Funded Debt to EBITDA Ratio.





	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	A.1	 	 	Funded Debt (quarterly)	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Average daily outstandings under Notes to Lenders	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Average daily of all L/C Obligations	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	all outstanding liabilities for borrowed money plus other interest-bearing

liabilities, including current and long-term liabilities (i.e., capitalized
leases and real estate debt)	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2.	 	 	Total Funded Debt (Lines IV.A.1 a + b + c)	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	B.	 	 	EBITDA:
	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	1.	 	 	net income
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	2.	 	 	less income or plus loss from discounted operations and
extraordinary items, plus
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	3.	 	 	income taxes, plus
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	4.	 	 	depreciation, depletion and amortization
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	5.	 	 	Total EBITDA (Line IV B 1 + 2 +3 + 4)
	 	$                    
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	C.	 	 	Ratio (Line IV.A.2 + Line IV.B.4):	 	to 1.0







 










 






Applicable Rate




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Pricing Level	 	Funded Debt to	 	Commitment Fee	 	Eurodollar Rate	 	 	 	 
	 	 	EBITDA Ratio	 	 	 	 	 	+	 	 	 	 
	 	 	 	 	 	 	 	 	Letters of Credit Base Rate +	 	 	 	 
	1

	 	Less than or equal
to 1.50:1.00
	 	 	0.175	%	 	 	1.25	%	 	 	0.00	%
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2

	 	Less than or equal
to 2.00:1.00 but
greater than
1.50:1.00
	 	 	0.175	%	 	 	1.50	%	 	 	0.00	%
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Less than or equal
to 2.25:1:00 but
greater than
2.00:1.00
	 	 	0.25	%	 	 	1.75	%	 	 	0.00	%
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Less than or equal
to 3.00:1:00 but
greater than
2.25:1.00
	 	 	0.375	%	 	 	2.00	%	 	 	0.25	%
	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	Greater than
3.00:1.00
	 	 	0.375	%	 	 	2.25	%	 	 	0.25	%






     Any increase or decrease in the Applicable Rate resulting from a change in the Financial
Covenant shall become effective commencing on the 5th Business Day immediately following the date a
Compliance Certificate is delivered pursuant to Section 6.02(b^: provided,
however, that if no Compliance Certificate is delivered when due in accordance with such
Section, then Pricing Level 4 shall apply commencing on the 5th Business Day following the date
such Compliance Certificate was required to have been delivered until the 5th Business Day
following the date a Compliance Certificate is delivered.



	 	 	 	 	 	 	 
	V.	 	Section 6.12(d) — Lease and Rental Expense.
	 	 	A.	 	aggregate payments due under operating leases for

personal property in connection with the

Oceanside Distribution Center) for fiscal year

ending
	 
	 	 	 	 	 	 
	 

	 	B.
	 	Maximum permitted lease expenses for fiscal year:
	 	$1,950,000
	 
	 	 	 	 	 	 
	 

	 	C.
	 	Excess (deficiency) for covenant compliance (Line V.A -
V.B):
	 	$                    
	 
	 	 	 	 	 	 
	VI.	 	Section 6.12(e) — Capital Expenditures.
	 
	 	 	 	 	 	 
	 

	 	A.
	 	Obligations incurred (including capital leases) for fixed
assets during fiscal year to date	 	 
	 
	 	 	 	 	 	 
	 

	 	B.
	 	Maximum permitted capital expenditures ($7,000,000 in

any single year)	 	 
	 
	 	 	 	 	 	 
	 

	 	C.
	 	Excess (deficient) for covenant compliance (Line VI .A -
VLB):	 	 
	 
	 	 	 	 	 	 
	VII.	 	Section 6.12(f) — Intentionally Omitted.
	 
	 	 	 	 	 	 
	VIII.	 	Section 6.12(g) — Fixed Charge Coverage Ratio
	 
	 	 	 	 	 	 
	 

	 	A.
	 	EBITDA (enter EBITDA from Line IV.B 5, above)
fplus $4,400,000 add-back for Inventory
write-down,
through 4/30/06]	 	 
	 
	 	 	 	 	 	 
	 

	 	B.
	 	Maintenance Capital Expenditures	 	 
	 

	 	 	 	[$4,000,000 through 10/31/061	 	 
	 
	 	 	 	 	 	 
	 

	 	C.
	 	Cash Income Taxes	 	 






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	 	D.
	 	Interest Expense
	 	$
	 
	 	 	 	 	 	 
	 

	 	E.
	 	Current Portion of Long Term Debt
	 	$
	 
	 	 	 	 	 	 
	 

	 	F.
	 	Ratio (sum of Line VIII.A — B — C + sum of Line VIII. D + E)	 	 
	 
	 	 	 	 	 	 
	Minimum Required [other than QE 1/31/06]: 1.25:1.00
	 
	 	 	 	 	 	 
	Minimum Required [onlyQE 1/31/06]: 0.80:1.00
	 
	 	 	 	 	 	 
	IX.	 	Section 7.02(f) — Additional Investments
	 
	 	 	 	 	 	 
	 

	 	A.
	 	As of the date hereof amount of additional Investments
$                     
	 	$
	 
	 	 	 	 	 	 
	 

	 	B.
	 	Maximum permitted at any time $1,000,000	 	 
	 
	 	 	 	 	 	 
	X.	 	Section 7.06(d) — Stock Repurchases
	 
	 	 	 	 	 	 
	 

	 	A.
	 	As of the date hereof, amount of stock repurchases in
current fiscal year
	 	$_
	 
	 	 	 	 	 	 
	 

	 	B.
	 	Maximum permitted in any fiscal year $1,000,000	 	 
	 
	 	 	 	 	 	 
	XL	 	Section 7.03(e)
 — Additional capitalized lease and purchase money obligations
	 
	 	 	 	 	 	 
	 

	 	A.
	 	As of the date hereof, amount of capitalized lease and
purchase money obligations
	 	$
	 
	 	 	 	 	 	 
	 

	 	B.
	 	Maximum permitted in any fiscal year $3,000,000.
	 	$







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