Document:

Exhibit 10.4

 

Exhibit 10.4

AGREEMENT RE: CHANGE IN CONTROL

     This AGREEMENT RE: CHANGE IN CONTROL (this “Agreement”) is dated as of September 16, 2005 and
is entered into by and between Peter Holmberg (“Executive”) and Ashworth, Inc., a Delaware
corporation (the “Company”).

Background

     The Company believes that because of its position in the industry, financial resources and
historical operating results there is a possibility that the Company may become the subject of a
Change in Control (as defined below), either now or at some time in the future.

     The Company believes that it is in the best interest of the Company and its stockholders to
foster Executive’s objectivity in making decisions with respect to any pending or threatened Change
in Control of the Company and to assure that the Company will have the continued dedication and
availability of Executive, notwithstanding the possibility, threat or occurrence of a Change in
Control. The Company believes that these goals can best be accomplished by alleviating certain of
the risks and uncertainties with regard to Executive’s financial and professional security that
would be created by a pending or threatened Change in Control and that inevitably would distract
Executive and could impair his ability to objectively perform his duties for and on behalf of the
Company. Accordingly, the Company believes that it is appropriate and in the best interest of the
Company and its stockholders to provide to Executive compensation arrangements upon a Change in
Control that lessen Executive’s financial risks and uncertainties and that are reasonably
competitive with those of other corporations.

     With these and other considerations in mind, the Compensation Committee of the Company has
authorized the Company to enter into this Agreement with the Executive to provide the protections
set forth herein for Executive’s financial security following a Change in Control.

     NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable
consideration the receipt of which is hereby acknowledged, it is hereby agreed as follows:

Agreement

     1. Term of Agreement. This Agreement shall be effective from the date first written
above and, subject to the provisions of Section 4, shall extend to (and thereupon automatically
terminate) one (1) day after Executive’s termination of employment with the Company for any reason.
No termination of this Agreement shall limit, alter or otherwise affect Executive’s rights
hereunder with respect to a Change in Control which has occurred prior to such termination,
including without limitation Executive’s right to receive the various benefits hereunder.

     2. Purpose of Agreement. The purpose of this Agreement is to provide that, in the
event of a “Change in Control,” Executive may become entitled to receive certain additional
benefits, as described herein, in the event of his termination under specified circumstances.

     3. Change in Control. As used in this Agreement, the phrase “Change in Control” shall
mean:

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          (i) Except as provided by subparagraph (iii) hereof, the acquisition (other than from the
Company) by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (excluding, for this purpose,
the Company or its subsidiaries, or any executive benefit plan of the Company or its subsidiaries
which acquires beneficial ownership of voting securities of the Company), of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or
more of either the then outstanding shares of common stock or the combined voting power of the
Company’s then outstanding voting securities entitled to vote generally in the election of
directors; or

          (ii) Individuals who, as of the date hereof, constitute the Board of Directors of the Company
(as of the date hereof the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board of Directors of the Company, provided that any person becoming a director
subsequent to the date hereof whose election, or nomination for election by the Company’s
stockholders, is or was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board (other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest relating to the election
of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or

          (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation
with any other person, entity or corporation, other than

     (1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of another entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the Company or such
other entity outstanding immediately after such merger or consolidation, or

     (2) a merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no person acquires forty percent (40%) or more of the
combined voting power of the Company’s then outstanding voting securities; or

          (iv) Approval by the stockholders of the Company of a plan of complete liquidation of the
Company or an agreement for the sale or other disposition by the Company of all or substantially
all of the Company’s assets.

     4. Effect of a Change in Control. In the event of a Change in Control, Sections 6
through 11 of this Agreement shall become applicable to Executive. These Sections shall continue to
remain applicable until the third anniversary of the date upon which the Change in Control occurs.
On such third anniversary date, and provided that the employment of Executive has not been
terminated on account of a Qualifying Termination (as defined in Section 5 below), this Agreement
shall terminate and be of no further force or effect.

     5. Qualifying Termination. If within one (1) year following, or within ninety (90)
days prior to, a Change in Control Executive’s employment with the Company and its affiliated
companies is terminated, such termination shall be conclusively considered a “Qualifying
Termination” unless:

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     (a) Executive voluntarily terminates his employment with the Company and its affiliated
companies. Executive, however, shall not be considered to have voluntarily
terminated his employment with the Company and its affiliated companies if he elects to
terminate his employment because his overall compensation plan is reduced or adversely
modified in any material respect or his authority or duties are materially changed. For
such purposes, Executive’s authority or duties shall be considered to have been “materially
changed” if, without Executive’s express and voluntary written consent, there is any
substantial diminution or adverse modification in his title, status, overall position, or
responsibilities.

     (b) The termination is on account of Executive’s death or Disability. For such
purposes, “Disability” shall mean a physical or mental incapacity as a result of which
Executive becomes unable to continue the performance of his responsibilities for the Company
and its affiliated companies for a period of three (3) months.

     (c) Executive is involuntarily terminated for “Cause.” For this purpose, “Cause” shall
mean:

     1. Executive’s willful and deliberate refusal to comply with a lawful,
instruction of the CEO or Board of Directors, which refusal is not remedied by
Executive within a reasonable period of time after his receipt of written notice
from the Company identifying the refusal, so long as the instruction is consistent
with the scope and responsibilities of Executive’s position;

     2. Executive’s act or acts of personal dishonesty;

     3. Executive’s conviction of a felony;

     4. Executive’s violation of the Company’s policies and/or code of conduct;

     5. Executive’s violation of any confidentiality or non-competition agreement
with the Company or any Affiliate of the Company; or

     6. The willful engaging by Executive in misconduct which is injurious to the
Company.

     6. Severance Payment. If Executive’s employment is terminated as a result of a
Qualifying Termination, the Company shall pay Executive within thirty (30) days after the
Qualifying Termination a cash lump sum equal to one (1) times Executive’s annual base salary (the
“Severance Payment”).

     (a) For purposes of this Agreement, Executive’s “base salary” shall equal the
Executive’s highest annual salary rate with the Company within the three year period ending
on the date of Executive’s Qualifying Termination.

     (b) In lieu of a cash lump sum, Executive may, in his sole discretion, elect to receive
the Severance Payment provided by this Section in equal annual installments over
three (3) years. Such installments shall be paid to Executive on each anniversary
of the date of Executive’s Qualifying Termination, beginning with the first such anniversary
and continuing on each such anniversary thereafter until fully paid. Such election to
receive the Severance Payment in installments may be made and/or revoked by Executive at any
time prior to the occurrence of a Change in Control by written notice to the Board of
Directors of the Company. Upon the occurrence of a Change in Control,

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any such election to receive the Severance Payment in installments that has been made
and not revoked prior to the Change in Control shall be irrevocable and binding on both the
Company and Executive. In the event that at the time of a Change in Control there is not in
effect an election by Executive to receive the Severance Payment in installments, such
Severance Payment shall be paid to Executive in a single cash lump sum as provided in
subparagraph (a) above.

     (c) The Severance Payment hereunder is in lieu of any severance payment that Executive
might otherwise be entitled to from the Company in the event of a Change in Control under
the Company’s applicable severance pay policies, if any, or under any other oral or written
agreement; provided, however, that Executive shall continue to be entitled
to receive the severance pay benefits under the Company’s applicable policies, if any, or
under another written agreement if and to the extent Executive’s termination is not a
Qualifying Termination after, or within ninety (90) days prior to, a Change in Control.

     7. Indemnification for Excise Tax. In the event that Executive becomes entitled to
receive a Severance Payment in accordance with the provisions of Section 6 above, and such
Severance Payment and any other benefits or payments (including transfers of property) that
Executive receives, or is to receive, pursuant to this Agreement or any other agreement, plan or
arrangement with the Company in connection with a Change in Control of the Company (“Other
Benefits”) shall be subject to the tax imposed pursuant to Section 4999 of the Internal Revenue
Code of 1986, as amended (the “Code”)(or any successor thereto) or any comparable provision of
state law (an “Excise Tax”), the following rules shall apply:

     (a) The Company shall pay to Executive, within thirty (30) days after the Executive’s
Qualifying Termination, an additional amount (the “Gross-Up Payment”) such that the net
amount retained by Executive, after deduction of any Excise Tax with respect to the
Severance Payment or the Other Benefits and any federal, state and local income tax, FICA
tax, and Excise Tax upon such Gross-Up Payment, is equal to the amount that would have been
retained by Executive if such Excise Tax were not applicable. It is intended that Executive
shall not suffer any loss or expense resulting from the assessment of any Excise Tax or the
Company’s reimbursement of Executive for payment of any such Excise Tax.

     (b) For purposes of determining whether any of the Severance Payments or Other Benefits
will be subject to an Excise Tax and the amount of such Excise Tax, (i) any other payments
or benefits received or to be received by Executive in connection with a Change in Control
of the Company or Executive’s termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the Company, any person
whose actions result in a Change in Control or any person affiliated with the Company or
such person) shall be treated as “parachute payments” within the meaning of Section
280G(b)(2) of the Code (or any successor thereto), and all “excess parachute payments”
within the meaning of Section 280G(b)(l) of the Code (or any successor thereto) shall be
treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the
Company’s independent auditors and acceptable to Executive such other payments or benefits
(in whole or in part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code (or any successor thereto),
(ii) the amount of the Severance Payments and Other Benefits which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the
Severance Payments or

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Other Benefits or (B) the amount of excess parachute payments within the meaning of
Sections 280G(b)(l) and (4) of the Code (or any successor or successors thereto), after
applying clause (i), above, and (iii) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the Company’s independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code (or any successor or
successors thereto).

     (c) For purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality of Executive’s
residence on the date of the Executive’s Qualifying Termination, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such state and
local taxes.

     (d) In the event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of the Executive’s Qualifying Termination,
the Executive shall repay to the Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code (or any successor thereto) (the “Applicable Rate”). In the event
that the Excise Tax is determined to exceed the amount taken into account hereunder at the
time of such Qualifying Termination (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment in respect of such excess (plus interest, determined at
the Applicable Rate, payable with respect to such excess) at the time that the amount of
such excess is finally determined.

     8. Rights and Obligations Prior to a Change in Control. Prior to the date which is
ninety (90) days before a Change in Control, the rights and obligations of Executive with respect
to his employment by the Company shall be determined in accordance with the policies and procedures
adopted from time to time by the Company and the provisions of any written employment contract in
effect between the Company and Executive from time to time. This Agreement deals only with certain
rights and obligations of Executive subsequent, or within ninety (90) days prior to, a Change in
Control, and the existence of this Agreement shall not be treated as raising any inference with
respect to what rights and obligations exist prior to the date which is ninety (90) days before a
Change in Control. Unless otherwise expressly set forth in a separate written employment agreement
between Executive and the Company, the employment of Executive is expressly at-will, and Executive
or the Company may terminate Executive’s employment with the Company at any time and for any
reason, with or without cause, provided that if such termination occurs within ninety (90) days
prior to or one (1) year after a Change in Control and constitutes a Qualifying Termination (as
defined in Section 5 above) the provisions of this Agreement shall govern the payment of the
Severance Payment and certain other benefits as provided herein.

     9. Non-Exclusivity of Rights. Subject to Section 6(c) hereof, nothing in this
Agreement shall prevent or limit Executive’s continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its affiliated
companies and for which Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as Executive may have under any stock option or other agreements with the Company or
any of its affiliated companies. Except as otherwise provided in Section 6(c)

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hereof, amounts which are vested benefits or which Executive is otherwise entitled to receive
under any plan or program of the Company or any of its affiliated companies at or subsequent to the
date of any Qualified Termination shall be payable in accordance with such plan or program.

     10. Full Settlement. The Company’s obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counter-claim, recoupment, defense or other claim, right or action which the Company may
have against Executive or others. In no event shall Executive be obligated to seek other
employment or to take any other action by way of mitigation of the amounts payable to Executive
under any of the provisions of this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses which Executive may reasonably incur as a result of
Executive’s successful collection efforts to receive amounts payable hereunder, or as a result of
any contest (regardless of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about the amount of any
payment pursuant to this Section).

     11. Successors.

     (a) This Agreement is personal to Executive, and without the prior written consent of
the Company shall not be assignable by Executive other than by will or the laws of descent
and distribution. This Agreement shall inure to the benefit of and be enforceable by
Executive’s legal representatives.

     (b) The rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the Company.

     12. Governing Law. This Agreement is made and entered into in the State of
California, and the internal laws of California shall govern its validity and interpretation in the
performance by the parties hereto of their respective duties and obligations hereunder.

     13. Modifications. This Agreement may be amended or modified only by an instrument in
writing executed by all of the parties hereto.

     14. Dispute Resolution: Executive and the Company will utilize a system of binding
arbitration to resolve all disputes that may arise out of the employment context. Both the Company
and Executive agree that any claim, dispute, and/or controversy that either Executive may have
against the Company (or its owners, directors, officers, managers, employees, agents, and parties
affiliated with its employee benefit and health plans) or the Company may have against Executive,
arising from, related to, or having any relationship or connection whatsoever with Executive’s
seeking employment with, employment by, or other association with the Company, shall be submitted
to and determined exclusively by binding arbitration under the Federal Arbitration Act, in
conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec 1280 et
seq., including section 1283.05 and all of the Act’s other mandatory and permissive rights to
discovery). Included within the scope of this Agreement are all disputes, whether based on tort,
contract, statute (including, but not limited to, any claims or discrimination and harassment,
whether they be based on the California Fair Employment and Housing Act, Title VII of the Civil
Rights Act of 1964, as amended, or any other state or federal law or regulation), equitable law, or
otherwise. However, nothing herein shall prevent Executive from filing and pursuing proceedings
before the California Department of Fair Employment and Housing, or the United States Equal
Employment Opportunity Commission (although if Executive chooses to pursue a claim following the
exhaustion of such administrative remedies,

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that claim would be subject to the provisions of this Agreement). In addition to any other
requirements imposed by law, the arbitrator selected shall be a retired California Superior Court
Judge and shall be subject to disqualification on the same grounds as would apply to a judge of
such court. To the extent applicable in civil actions in California courts, the following shall
apply and be observed: all rules of pleading (including the right of demurrer), all rules of
evidence, and all rights to resolution of the dispute by means of motions for summary judgment,
judgment on the pleadings, and judgment under Code of Civil Procedure Section 631.8. Resolution of
the dispute shall be based solely upon the law governing the claims and defenses pleaded, and the
arbitrator may not invoke any basis (including but not limited to, notions of “just cause”) other
than such controlling law. The arbitrator shall have the immunity of a judicial officer from civil
liability when acting in the capacity of an arbitrator, which immunity supplements any other
existing immunity. Likewise, all communications during or in connection with the arbitration
proceedings are privileged in accordance with Cal. Civil Code Section 47(b). As reasonably
required to allow full use and benefit of this agreement’s modification to the Act’s procedures,
the arbitrator shall extend the times set by the Act for the giving of notices and setting of
hearings. Awards shall include the arbitrator’s written reasoned opinion.

     15. Notices. Any notice or communications required or permitted to be given to the
parties hereto shall be delivered personally or be sent by United States registered or certified
mail, postage prepaid and return receipt requested, and addressed or delivered as follows, or at
such other addresses the party addressed may have substituted by notice pursuant to this Section:

	 	 	 	 	 
	 

	 	Ashworth, Inc.
	 	Peter Holmberg
	 

	 	2765 Loker Avenue West
	 	2339 42nd Ave.
	 

	 	Carlsbad, California 92010
	 	Seattle, WA 98112
	 

	 	Attn: President	 	 

     16. Captions. The captions of this Agreement are inserted for convenience and do not
constitute a part hereof.

     17. Severability. In case any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein and there shall be deemed substituted for such invalid,
illegal or unenforceable provision such other provision as will most nearly accomplish the intent
of the parties to the extent permitted by the applicable law. In case this Agreement, or any one
or more of the provisions hereof, shall be held to be invalid, illegal or unenforceable within any
governmental jurisdiction or subdivision thereof, this Agreement or any such provision thereof
shall not as a consequence thereof be deemed to be invalid, illegal or unenforceable in any other
governmental jurisdiction or subdivision thereof.

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

     IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first written above in Carlsbad, California.

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	Dated: September 16, 2005	 	ASHWORTH, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Randall L. Herrell, Sr.
	 	 	 	 	 
	 

	 	 	 	     Randall L. Herrel, Sr.
	 
	 	 	 	 
	 

	 	Title:
	 	Chairman, President and CEO
	 
	 	 	 	 
	Dated: September 16, 2005	 	PETER HOLMBERG
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Peter Holmberg
	 	 	 	 	 
	 

	 	 	 	     Peter Holmberg

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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]]

-6-

 

     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	 	 

C-3

 

	 	 	 	 	 	 	 
	 

	 	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.
	 	$

C-4

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