Exhibit 10.2
EXECUTION COPY
 
 
NOTE PURCHASE AGREEMENT
by and among
NAUTILUS, INC.
and
THE PURCHASERS IDENTIFIED ON
ANNEX A ATTACHED HERETO
September 3, 2010
 
 
 
 
 
 
 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS
 
 
 
Page
ARTICLE 1 DEFINITIONS
1
 
 
 
 
 
1.1
 
 
Certain Definitions
1
 
 
 
 
 
1.2
 
 
Accounting Principles
7
 
 
 
 
 
1.3
 
 
Other Definitional Provisions; Construction
7
 
 
 
 
 
ARTICLE 2 ISSUE AND SALE OF NOTES
8
 
 
 
 
 
2.1
 
 
Authorization and Issuance of the Notes
8
 
 
 
 
 
2.2
 
 
Sale and Purchase
8
 
 
 
 
 
2.3
 
 
The Closing
8
 
 
 
 
 
ARTICLE 3 REPAYMENT OF THE NOTES
8
 
 
 
 
 
3.1
 
 
Accretion Rates and Interest Payments
8
 
 
 
 
 
3.2
 
 
Repayment of the Notes
8
 
 
 
 
 
3.3
 
 
Optional Redemption of Notes
8
 
 
 
 
 
3.4
 
 
Notice of Optional Redemption
9
 
 
 
 
 
3.5
 
 
Home Office Payment
9
 
 
 
 
 
3.6
 
 
Taxes
9
 
 
 
 
 
3.7
 
 
Maximum Lawful Rate
10
 
 
 
 
 
3.8
 
 
Certain Waivers
11
 
 
 
 
 
3.9
 
 
Joint and Several Liability of the Issuers
11
 
 
 
 
 
ARTICLE 4 CONDITIONS
12
 
 
 
 
 
4.1
 
 
Conditions to Purchase of Notes
12
 
 
 
 
 
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE ISSUERS
13
 
 
 
 
 
5.1
 
 
Existence and Power of Issuers
13
 
 
 
 
 
5.2
 
 
Authorization by Issuers
13
 
 
 
 
 
5.3
 
 
Governmental Approvals
13
 
 
 
 
 
5.4
 
 
Binding Obligations
13
 
 
 
 
 
5.5
 
 
Litigation
14
 
 
 
 
 
5.6
 
 
No Default
14
 
 
 
 
 
5.7
 
 
Margin Regulations
14
 
 
 
 
 

 
 
 
 

i
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS
(continued)
 
 
 
 
Page
5.8
 
 
Compliance With Laws
 
14
 
 
 
 
 
 
 
5.9
 
 
Title to Properties
 
14
 
 
 
 
 
 
 
5.10
 
 
Taxes
 
14
 
 
 
 
 
 
 
5.11
 
 
Financial Condition
 
14
 
 
 
 
 
 
 
5.12
 
 
Solvency
 
14
 
 
 
 
 
 
 
5.13
 
 
Labor Relations
 
14
 
 
 
 
 
 
 
5.14
 
 
Intellectual Property; Licenses, Etc
 
15
 
 
 
 
 
 
 
5.15
 
 
Brokers' Fees
 
15
 
 
 
 
 
 
 
5.16
 
 
Full Disclosure
 
15
 
 
 
 
 
 
 
5.17
 
 
Similar Offerings
 
15
 
 
 
 
 
 
 
5.18
 
 
No General Solicitation
 
15
 
 
 
 
 
 
 
5.19
 
 
Private Offering; Consents and Approvals
 
15
 
 
 
 
 
 
 
5.20
 
 
Absolute Reliance on the Representations and Warranties
 
15
 
 
 
 
 
 
 
 ARTICLE 6 TRANSFER OF NOTES
 
15
 
 
 
 
 
 
 
6.1
 
 
Restricted Securities
 
15
 
 
 
 
 
 
 
6.2
 
 
Legends; Purchasers' Representations
 
15
 
 
 
 
 
 
 
6.3
 
 
Transfer of Notes
 
16
 
 
 
 
 
 
 
6.4
 
 
Replacement of Lost Notes
 
16
 
 
 
 
 
 
 
6.5
 
 
No Other Representations Affected
 
16
 
 
 
 
 
 
 
ARTICLE 7 COVENANTS
 
17
 
 
 
 
 
 
 
7.1
 
 
Affirmative Covenants
 
17
 
 
 
 
 
 
 
7.2
 
 
Negative Covenants
 
18
 
 
 
 
 
 
 
ARTICLE 8 EVENTS OF DEFAULT
 
22
 
 
 
 
 
 
 
8.1
 
 
Event of Default
 
22
 
 
 
 
 
 
 
8.2
 
 
Consequences of Event of Default
 
23
 
 
 
 
 
 
 
 ARTICLE 9 MISCELLANEOUS
 
23
 
 
 
 
 
 
 
9.1
 
 
Successors and Assigns
 
23
 
 
 
 
 
 
 
9.2
 
 
Modifications and Amendments
 
23
 
 
 
 
 
 
 
9.3
 
 
No Implied Waivers; Cumulative Remedies; Writing Required
 
24
 
 
 
 
 
 
 

 
 
 

ii
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

 
TABLE OF CONTENTS
(continued)
 
 
 
 
Page
9.4
 
 
Reimbursement of Expenses
 
24
 
 
 
 
 
 
 
9.5
 
 
Holidays
 
24
 
 
 
 
 
 
 
9.6
 
 
Notices
 
24
 
 
 
 
 
 
 
9.7
 
 
Survival
 
25
 
 
 
 
 
 
 
9.8
 
 
Governing Law
 
25
 
 
 
 
 
 
 
9.9
 
 
Jurisdiction; Consent to Service of Process
 
25
 
 
 
 
 
 
 
9.10
 
 
Jury Trial Waiver
 
26
 
 
 
 
 
 
 
9.11
 
 
Severability
 
26
 
 
 
 
 
 
 
9.12
 
 
Headings
 
26
 
 
 
 
 
 
 
9.13
 
 
Indemnity
 
26
 
 
 
 
 
 
 
9.14
 
 
Counterparts
 
26
 
 
 
 
 
 
 
9.15
 
 
Integration
 
26
 
 
 
 
 
 
 
9.16
 
 
Subordination
 
26
 
 
 
 
 
 
 
9.17
 
 
Confidentiality
 
26
 
 
 
 
 
 
 
9.18
 
 
Waiver of Consequential Damages
 
27
 
 
 
 
 
 
 
9.19
 
 
Payments Set Aside
 
27
 
 
 
 
 
 
 
9.20
 
 
No Duties Among Purchasers
 
27
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

iii
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

NOTE PURCHASE AGREEMENT
$6,096,996.21 Aggregate Principal Amount At Maturity of
Notes of the Issuers
Due December 31, 2012
THIS NOTE PURCHASE AGREEMENT (this “ Agreement ”), dated as of September 3,
2010, is by and among Nautilus, Inc., a Washington corporation (“ Nautilus ”),
and the note purchasers that are now and hereafter at any time parties hereto
and are listed in Annex A (or any amendment or supplement thereto) attached
hereto (each, a “ Purchaser ” and, collectively, “ Purchasers ”). Capitalized
terms used and not defined elsewhere in this Agreement are defined in Article 1
hereof.
RECITALS
A. Nautilus has proposed selling the Notes to Purchasers on the Closing Date in
the aggregate principal amount at maturity of $6,096,996.21 ($5.0 million of
gross proceeds to Nautilus) to provide for working capital, capital expenditures
and other general corporate purposes of Nautilus.
B. Purchasers are willing to purchase such Notes from Nautilus upon the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto, in consideration of the premises and their
mutual covenants and agreements herein set forth and intending to be legally
bound hereby, covenant and agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions . In addition to other words and terms defined elsewhere
in this Agreement, the following words and terms have the meanings set forth
below (and such meanings shall be equally applicable to both the singular and
plural form of the terms defined, as the context may require):
“ Accounts ” shall mean all accounts (as defined in RCW 62A.9A-102(a)(2) (or any
successor statute)) of the Issuers.
“ Accreted Value ” means, as of any date (the “ Specified Date ”), the amount
provided below for each $1,000 principal amount at maturity of the Notes.
Note Purchase Agreement
(1) if the Specified Date occurs on one of the following dates (each, an “
Accrual Date ”), the Accreted Value will equal the amount set forth below for
such Accrual Date:
 
 
 
 
Accrual Date
 
Accreted Value
February 28, 2011
 
$
830.16
 
 
August 31, 2011
 
$
855.06
 
 
February 29, 2012
 
$
895.68
 
 
August 31, 2012
 
$
953.90
 
 
December 31, 2012
 
$
1,000.00
 
 

(2) if the Specified Date occurs before the first Accrual Date, the Accreted
Value will equal the sum of (A) the original issue price of the Notes and (B) an
amount equal to the product of (x) the Accreted Value for the first Accrual Date
less such original issue price multiplied by (y) a fraction, the numerator of
which is the number of days from the Closing Date to the Specified Date, using a
360-day year of twelve 30-day months, and the denominator of which is the number
of days elapsed from the Closing Date to the first Accrual Date, using a 360-

1
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

day year of twelve 30-day months;
(3) if the Specified Date occurs between two Accrual Dates, the Accreted Value
will equal the sum of (A) the Accreted Value for the Accrual Date immediately
preceding such Specified Date and (B) an amount equal to the product of (x) the
Accreted Value for the immediately following Accrual Date less the Accreted
Value for the immediately preceding Accrual Date multiplied by (y) a fraction,
the numerator of which is the number of days from the immediately preceding
Accrual Date to the Specified Date, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(4) if the Specified Date occurs after December 31, 2012, the Accreted Value
will equal $1,000.
“ Affiliate ” shall mean as to any Person (a) that directly or indirectly
controls, is controlled by, or is under common control with any of the Issuers;
provided that, Affiliate will not include Persons that would otherwise be
Affiliates solely because of common control by any of the Nautilus' shareholders
if such Persons are portfolio companies independently operated by such
shareholders, (b) that directly or indirectly owns or holds 10 percent or more
of any class of voting stock of any Issuer, or (c) 10 percent or more of the
voting stock of which is directly or indirectly owned or held by any Issuer. The
term “control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities or interests, by contract, or
otherwise.
“ Agreement ” shall mean this Note Purchase Agreement, as the same may be
amended, restated, supplemented or otherwise modified from time to time.
“ Bankruptcy Code ” shall mean the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. §101, et seq. ), as amended and in effect from time to time, and the
regulations issued from time to time thereunder.
“ Business ” shall have the business of designing, developing, sourcing and
marketing cardiovascular and strength fitness products and related accessories
for consumer home use, primarily in the United States and Canada.
Note Purchase Agreement
“ Business Day ” shall mean any day other than a Saturday, Sunday or other day
on which banking institutions in New York, New York are authorized or required
by law to close.
“ Capital Expenditures ” shall mean, with respect to any measurement period in
question, all capital expenditures of the Issuers (including, but not limited
to, expenditures under Capital Leases), as determined in accordance with GAAP.
“ Capital Expenditure Limitation ” shall have the meaning assigned to such term
in Section 7.2(l) hereof.
“ Capital Lease ” shall mean any lease of property (real, personal, or mixed)
that in accordance with GAAP should be capitalized on the lessee's balance
sheet.
“ Capital Stock ” shall mean, with respect to any Person, all (a) shares,
interests, participations or other equivalents (howsoever designated) of capital
stock and other equity or ownership interests of such Person and (b) rights
(other than debt securities convertible into capital stock or other equity
interests), warrants or options to acquire any such capital stock or other
equity interests.
“ Change in Control ” shall mean that (a) a majority of the directors of
Nautilus shall be Persons other than Persons (i) for whose election proxies
shall have been solicited by the board of directors of Nautilus or for whose
appointment or election is otherwise approved or ratified by the board of
directors of Nautilus or (ii) who are then serving as directors appointed by the
board of directors to fill vacancies on the board of directors caused by death
or resignation (but not by removal) or to fill newly-created directorships or
(b) any “person” or “group” (as such terms are used in Section 13(d) of the
Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a
person or group shall be deemed to have “beneficial ownership” of all securities
that such person or group has the right to acquire whether such right is
immediately exercisable or only after the passage of time), directly or
indirectly, of Voting Stock of Nautilus (or other securities convertible into
such Voting Stock) representing 35 percent or more of the combined voting power
of all Voting Stock of Nautilus (provided that any Voting Stock held by
Sherborne shall be excluded from calculation for the purposes of this clause
(b)).

2
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

“ Closing ” shall mean the closing of the purchase and sale of the Notes
pursuant to this Agreement.
“ Closing Date ” shall mean the date on which all conditions precedent set forth
in Article 4 are satisfied or waived by all Purchasers.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
“ Confidential Information ” shall have the meaning assigned to such term in
Section 9.17 hereof.
“ Consumer Protection Laws ” shall mean any and all applicable federal, state,
and local statutes, laws, regulations, rules, and ordinances (whether now
existing or hereafter enacted or promulgated), and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders, including common
law rulings and determinations, relating to consumer credit or the protection of
consumers, including, but not limited to, the Consumer Credit Protection Act.
“ Continuing Business Net Income ” means, for any measurement period in
question, the net income of Issuers arising from the Business for such period,
determined in accordance with GAAP, but in any event the following items shall
be excluded or deducted from such net income arising from the Business: (a) any
after tax gain or loss resulting from dispositions of assets outside of the
ordinary course of business, (b) earnings of any Subsidiary accrued prior to the
date it became a Subsidiary, (c) any deferred credit or other credit
representing any excess of the equity of any Subsidiary at the date of
acquisition thereof over the amount invested in such Subsidiary, (d) the net
earnings of any entity (other than a Subsidiary) in which the Issuers have an
ownership interest, except to the extent such net earnings actually shall have
been received by the Issuers in the form of cash distributions, (e) any reversal
of any contingency reserve, except to the extent that the Issuers received cash
associated with such reversal during the period in which the reversal occurred,
and (f) to the extent not included in clauses (a) through (e) above, any
extraordinary or non-recurring gains or losses.
“ Contractual Obligations ” means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its Property is bound.
“ Debt to Tangible Net Worth ” shall mean, as of any date in question, the ratio
of (a) total Indebtedness on the balance sheet of any Issuer to (b) the fair
market value of all assets on the balance sheet of any Issuer except for
(i) goodwill, including any amounts representing the excess of the purchase
price paid for assets or stock acquired over the value assigned thereto on the
balance sheet of any Issuer, (ii) patents, trademarks, trade names, copyrights
and other intellectual property, (iii) shares of Capital Stock of any Issuer,
(iv) loans and notes receivable from officers, employees, stockholders, or
directors of any Issuer or any Affiliate or Subsidiary of any Issuer,
(v) deferred expenses, and (vi) any other intangible asset of any Issuer that
should be classified as such on the balance sheet of any Issuer in accordance
with GAAP, less all liabilities on the balance sheet of any Issuer.
“ Default ” shall mean any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
“ Dollars ”, “dollars” and “$” each shall mean lawful money of the United States
of America.
“ Domestic Subsidiary ” shall mean, with respect to any Person, a Subsidiary of
such Person, which Subsidiary is incorporated or otherwise organized under the
laws of a state of the United States of America.
“ Eligible Commercial Accounts Receivable ” shall have the meaning given to such
term in the Senior Credit Agreement.
“ Eligible Consumer Finance Accounts Receivable ” shall have the meaning given
to such term in the Senior Credit Agreement.
“ Environmental Laws ” shall mean any and all applicable federal, state, and
local environmental, health, or safety statutes, laws, regulations, rules, and
ordinances (whether now existing or hereafter enacted or promulgated), and all
applicable judicial, administrative, and regulatory decrees, judgments, and
orders, including common law rulings and determinations, relating to injury to,
or the protection of, human health or the environment, including, without
limitation, all requirements pertaining to reporting, licensing, permitting,
investigation, remediation, and

3
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

removal of emissions, discharges, releases, or threatened releases of Hazardous
Materials into the environment, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of such
Hazardous Materials.
“ ERISA ” shall mean The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the same from time to time
may be supplemented or amended and remain in effect.
“ Event of Default ” shall mean any of the events of default described in
Section 8.1 hereof.
“ Excluded Tax ” means with respect to any Purchaser (a) taxes imposed on or
measured by its overall net income (however denominated), and franchise taxes
imposed on it (in lieu of net income taxes), in each case imposed on any
Purchaser as a result of a present or former connection between such Purchaser
and the jurisdiction of the Governmental Authority imposing such tax or any
political subdivision or taxing authority thereof or therein (other than such
connection arising solely from any Purchaser having executed, delivered, become
a party to, or performed its obligations or received a payment under, or
enforced or received a security interest under, the Purchase Documents); (b) any
branch profits taxes imposed by the United States or any similar tax imposed by
any other jurisdiction in which any Purchaser is located; (c) (i) taxes that are
directly attributable to the failure (other than as a result of a change in any
requirement of law rule, regulation or treaty or in the administration,
interpretation or application thereof by any Governmental Authority) by any
Purchaser to deliver the documentation required to be delivered pursuant to
Section 3.6(f) and (ii) withholding taxes to the extent that the obligation to
withhold amounts existed on the date that such Person became a “Purchaser” under
this Agreement in the capacity under which such Person makes a claim under
subsection 3.6(b), except in each case to the extent such Person is a direct or
indirect assignee of any other Purchaser that was entitled, at the time the
assignment to such Person became effective, to receive additional amounts under
subsection 3.6(b); and (d) any United States federal withholding tax that would
not have been imposed but for a failure by such recipient (or any financial
institution through which any payment is made to such recipient) to comply with
the applicable requirements of FATCA.
“ FATCA ” means sections 1471, 1472, 1473 or 1474 of the Code and the United
States Treasury Regulations or published guidance with respect thereto.
“ Federal Reserve Board ” means the Board of Governors of the Federal Reserve
System, or any entity succeeding to any of its principal functions.
“ Fiscal Year ” or “ fiscal year ” shall mean each 12-month period ending on
December 31st of each year.
“ Funded Indebtedness ” means, on the measurement date in question, without
duplication, (a) Indebtedness for borrowed money, (b) Indebtedness in respect of
Capital Leases, (c) all obligations of the Person in question in respect of
letters of credit, (d) all other interest-bearing obligations of the Person in
question that, in accordance with GAAP, should be included as a liability on the
consolidated balance sheet of the Person in question, and (e) all Guaranties
executed with respect to any of the obligations described in items (a) through
(d) of this definition.
“ GAAP ” shall mean the generally accepted accounting principles issued by the
American Institute of Certified Public Accountants in effect in the United
States at the time of application to the provisions of this Agreement.
“ Government Approval ” means an approval, permit, license, authorization,
certificate, or consent of any Governmental Authority.
“ Governmental Authority ” shall mean the government of the United States, or
any state or any foreign country or any political subdivision of any thereof, or
any branch, department, agency, instrumentality, court, tribunal, or regulatory
authority that constitutes a part of or exercises any sovereign power of any of
the foregoing.
“ Guaranties ” means all guaranties, endorsements (other than endorsements of
negotiable instruments for collection in the ordinary course of business), or
other contingent or surety liabilities with respect to obligations of others,
whether or not reflected on the balance sheet of the Person in question,
including any obligation to furnish funds, directly or indirectly (whether by
virtue of partnership arrangements, by agreement to keep-well, or otherwise),
through the purchase of goods, supplies, or services, or by way of stock
purchase, capital contribution, advance, or loan, or to enter into a contract
for any of the foregoing, for the purpose of payment of obligations of any other

4
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

Person.
“ Hazardous Materials ” shall mean any substance (a) the presence of which
requires notification, removal, or remediation under any Environmental Law;
(b) that is or becomes defined as a “hazardous waste,” “hazardous material,” or
“hazardous substance” under any present or future Environmental Law, or
amendments thereto, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601,
et seq.) and any applicable local statutes and the regulations promulgated
thereunder; (c) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, or otherwise hazardous and that is or becomes
regulated pursuant to any Environmental Law; or (d) without limitation, that
contains gasoline, diesel fuel, or other petroleum products, asbestos, or
polychlorinated biphenyls.
“ Indebtedness ” shall mean, with respect to the Person in question, (a) all
obligations of such Person for borrowed money or other extensions of credit,
whether secured or unsecured, absolute or contingent, including, without
limitation, unmatured reimbursement obligations with respect to letters of
credit, and all obligations representing the deferred purchase price of
property, (b) all obligations evidenced by bonds, notes, debentures, or other
similar instruments, (c) all obligations secured by any Lien on property owned
or acquired by the Person, (d) that portion of all obligations arising under
leases that is required to be capitalized on the balance sheet of the Person,
(e) all Guaranties executed by such Person, and (f) all other obligations that,
in accordance with GAAP, should be included as a liability in the balance sheet
of the Person.
“ Indemnified Taxes ” means any Taxes (other than Excluded Taxes) imposed on a
Purchaser with respect to a payment under the Purchase Documents.
“ Insolvency Proceeding ” shall mean (a) any case, action or proceeding before
any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshaling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; in each case in clauses (a) and (b) above, undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
“ Inventory ” shall mean means all inventory (as defined in RCW
62A.9A-102(a)(48), or any successor statute) of the Issuers.
“ Investment ” shall mean the purchase or acquisition of any share of Capital
Stock, partnership interest, limited liability company interest, evidence of
indebtedness, or other equity security of any other Person (including any
Subsidiary or Affiliate), any loan, advance, or extension of credit (excluding
Accounts arising in the ordinary course of business) to, or contribution to the
capital of, any other Person (including any Subsidiary or Affiliate), any
securities or commodities futures contracts held, any other investment in any
other Person (including any Subsidiary or Affiliate), and the making of any
commitment or acquisition of any option to make an Investment.
“ Issuers ” shall mean Nautilus initially and thereafter shall include any
Subsidiary of Nautilus that becomes a co-issuer hereunder pursuant to
Section 7.1(i) .
“ IRS ” shall mean the Internal Revenue Service of the United States and any
successor thereto.
“ Lien ” shall mean any mortgage, trust deed, pledge, charge, hypothecation,
assignment, deposit arrangement, security interest, attachment, garnishment,
execution, encumbrance (including, but not limited to, easements, rights of way,
and the like), lien (statutory or other), security agreement, transfer intended
as security (including, without limitation, any conditional sale or other title
retention agreement, the interest of a lessor under a Capital Lease, or any
financing lease having substantially the same economic effect as any of the
foregoing), or other voluntary or involuntary lien or charge upon (or affecting
the revenues of) any real property or personal property.
“ Margin Stock ” shall mean “margin stock” as such term is defined in
Regulation T, U or X of the Federal Reserve Board.
“ Material Adverse Effect ” shall mean: (a) a material adverse effect on the
business, assets, operations, or financial condition of any Issuer, (b) a
material impairment of the ability of any Issuer to pay or perform its
obligations under the Purchase Documents in accordance with the terms thereof or
(c) a material impairment of

5
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

Purchasers' rights and remedies under the Purchase Documents.
“ Non-U.S. Purchaser ” means each Purchaser that is not a United States person
as defined in Section 7701(a)(30) of the Code.
“ Notes ” shall have the meaning assigned to such term in Section 2.1 hereof.
“ Obligations ” shall mean all obligations under the Notes, and other
Indebtedness, advances, debts, liabilities, obligations, covenants and duties
owing by Nautilus or any Subsidiary of Nautilus that becomes a co-issuer
pursuant to Section 7.1(i) hereunder to the Purchasers, or any other Person
required to be indemnified, that arises under any Purchase Document, whether or
not for the payment of money, whether arising by reason of an extension of
credit, loan, guaranty, indemnification or in any other manner, whether direct
or indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising and however acquired.
“ Other Taxes ” shall have the meaning assigned to such term in Section 3.6
hereof.
“ Patriot Act ” shall mean the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L.
107-56, as amended.
“ Permitted Liens ” shall have the meaning assigned to such term in Section
7.2(a) hereof.
“ Person ” shall mean an individual, sole proprietorship, partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental Authority, or
other entity of whatever nature.
“ Purchase Documents ” shall mean this Agreement, the Notes and all other
agreements, instruments and documents delivered in connection herewith or
therewith, as any or all of the foregoing may be supplemented or amended from
time to time.
“ Purchaser ” shall have the meaning assigned to such term in the introductory
paragraph hereto and in Section 6.2 hereof and includes any Person that becomes
a Purchaser by way of assignment, transfer or otherwise. With respect to any
right or action to be taken by Purchasers under this Agreement, the word
“Purchasers” shall mean all Purchasers, unless such word is included within the
term “Requisite Purchasers”, in which case the meaning of that term shall apply.
“ Requisite Purchasers ” shall mean, at any time, Purchasers owning an aggregate
unpaid principal amount of greater than 50% of the aggregate Accreted Value of
all the Notes outstanding at such time.
“ Restricted Payments ” means any dividend, distribution, or other similar
payment (whether in cash or property) by the Issuers, and any purchase,
redemption, retirement, or other acquisition for value of any capital stock or
other ownership interests of the Issuers, whether now or hereafter outstanding,
or of any options, warrants, or similar rights to purchase such capital stock or
other ownership interests, or any security convertible into or exchangeable for
such capital stock or other ownership interests.
“ SEC ” shall mean the U.S. Securities and Exchange Commission.
“ Securities Act ” shall mean the Securities Act of 1933, as amended.
“ Senior Credit Agreement ” shall mean that certain Credit Agreement, by and
between Nautilus and the Senior Lender, dated March 8, 2010, as such may be
amended or modified from time to time in compliance with the provisions of the
Subordination Agreement, and any agreement evidencing a successive refunding or
refinancing of the Indebtedness incurred thereunder, in each case subject to the
terms and conditions of the Subordination Agreement.
“ Senior Credit Documents ” shall mean the Senior Credit Agreement and all other
documents, agreements and instruments evidencing or pertaining to all or any
portion of the Indebtedness incurred thereunder (including, without limitation,
all “Loan Documents” as defined in the Senior Credit Agreement), including
amendments, modifications, renewals and extensions thereof and all agreements or
instruments evidencing successive refundings or refinancings of such
Indebtedness, in each case subject to the terms and conditions of the
Subordination Agreement.

6
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

“ Senior Lender ” shall collectively mean the lender and letter of credit issuer
from time to time party to the Senior Credit Agreement or to any agreement
evidencing a successive refunding or refinancing of the Indebtedness incurred
thereunder, in each case subject to the terms and conditions of the
Subordination Agreement.
“ Sherborne ” shall mean Sherborne Investors GP, LLC and its Affiliates.
“ Solvent ” shall mean, with respect to any Person on a particular date, that on
such date (a) the fair value of the property of such Person, taken as a going
concern, is greater than the total amount of liabilities, including contingent
liabilities, of such Person; (b) the present fair salable value of the assets of
such Person, taken as a going concern, is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured; (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (d) such Person is not engaged in
a business or transaction, and is not about to engage in a business or
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities (such as litigation,
guaranties and pension plan liabilities) at any time shall be computed as the
amount that, in light of all facts and circumstances existing at the time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
“ Subordination Agreement ” shall have the meaning assigned to such term in
Section 4.1(c) hereof.
“ Subsidiary ” shall mean any corporation, association, limited liability
company, joint stock company, business trust, or other similar organization of
which 50 percent or more of the ordinary voting power for the election of a
majority of the members of the board of directors or other governing body of
such entity is held or controlled by any Issuer; or any other such organization
the management of which is directly or indirectly controlled by such Issuer
through the exercise of voting power or otherwise; or any joint venture or
partnership in which such Issuer has a 50 percent or greater ownership interest.
“ Taxes ” shall mean any present or future tax, assessment, duty, levy, impost,
fee, deduction or withholding or other charge now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority on any property,
revenue, income, or franchise of any Person, and any interest, additions to tax
or penalty with respect to any of the foregoing.
“ U.S. Purchaser ” means each Purchaser that is a United States person as
defined in Section 7701(a)(30) of the Code.
“ United States ” and “ U.S. ” each shall mean the United States of America.
“ Voting Stock ” means Capital Stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even though the right to
so vote has been suspended by the happening of a contingency.
1.2 Accounting Principles .
(a) All accounting terms not specifically or completely defined herein shall be
construed in conformity with, and all financial data (including financial ratios
and other financial calculations) required to be submitted pursuant to this
Agreement shall be prepared in conformity with, GAAP applied on a consistent
basis, as in effect from time to time.
(b) If at any time any change in GAAP would affect the computation of any
financial ratio or requirement set forth in any Purchase Document or any Senior
Credit Document, and the Issuers and the Senior Lender amend such ratio or
requirement in the Senior Credit Documents to preserve the original intent
thereof in light of such change in GAAP, the Issuers and the Purchasers agree to
promptly make conforming (after giving effect to the cushions in effect as of
the Closing Date) amendments to the Purchase Documents.
1.3 Other Definitional Provisions; Construction . Whenever the context so
requires, neuter gender includes the masculine and feminine, the singular number
includes the plural and vice versa. The words “hereof”, “herein” and “hereunder”
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not in any particular provision of this Agreement, and
references to section, article, annex, schedule, exhibit and like references are
references to this Agreement unless otherwise specified. A Default or Event of
Default shall

7
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

“continue” or be “continuing” until such Default or Event of Default has been
cured or waived by (i) all Purchasers to the extent required by Section 9.3 ,
(ii) the applicable Purchaser with respect to any Default or Event of Default
under Section 8.1 hereof consisting of a failure to pay principal or interest on
any Note held by such Purchaser and (iii) the Requisite Purchasers in all other
instances. References in this Agreement to any Persons shall include such
Persons' successors and permitted assigns.
ARTICLE 2
ISSUE AND SALE OF NOTES
2.1 Authorization and Issuance of the Notes . Nautilus has duly authorized the
issuance and sale to Purchasers (or nominee of any Purchaser) of $6,096,996.21
in aggregate principal amount at maturity of its Increasing Rate Senior Discount
Notes Due December 31, 2012 (including any Notes issued in substitution therefor
pursuant to Sections 6.3 and 6.4 hereof, the “ Notes ”), to be substantially in
the form of the Note attached hereto as Exhibit A .
2.2 Sale and Purchase . Subject to the terms and conditions and in reliance upon
the representations, warranties and agreements set forth herein, on the Closing
Date Nautilus shall sell to Purchasers, and each Purchaser shall purchase from
Nautilus, in an amount equal to its respective pro rata portion of the Notes as
set forth on Annex A , the Notes in the aggregate principal amount at maturity
set forth in Section 2.1 hereof for $5,000,000 in the aggregate.
2.3 The Closing . Delivery of and payment for the Notes (the “ Closing ”) shall
be made at the offices of Paul, Hastings, Janofsky & Walker LLP, New York, New
York, commencing at 10:00 a.m., local time, on September 3, 2010, or at such
place or on such other date as may be mutually agreeable to the Issuer and
Purchasers. The date and time of the Closing as finally determined pursuant to
this Section 2.3 are referred to herein as the “ Closing Date .” Delivery of the
Notes shall be made to Purchasers against payment of the purchase price therefor
and any other amounts payable pursuant to Section 4.1(e) hereof, by wire
transfer of immediately available funds in the manner agreed to by the Issuer
and Purchasers. The Notes shall be issued in such name or names and in such
permitted denomination or denominations as set forth in Annex A .
ARTICLE 3
REPAYMENT OF THE NOTES
3.1 Accretion Rates and Interest Payments .
(a) Interest will accrete on the outstanding Accreted Value of the Notes at a
rate equal to (i) 2.5% per annum from the Closing Date through February 28,
2011; (ii) 6.0% per annum from March 1, 2011 through August 31, 2011; (iii) 9.5%
per annum from September 1, 2011 through February 29, 2012; (iv) 13.0% per annum
from March 1, 2012 through August 31, 2012; and (v) 14.5% per annum thereafter,
as such applicable rate may be increased in accordance with Section 8.2(c) .
Accreted interest shall be automatically capitalized and added to the Accreted
Value of the Notes on February 28, 2011, August 31, 2011, February 29, 2012 and
August 31, 2012 and in each case shall thereafter accrue interest in accordance
with the terms of this Agreement. Interest on the Notes will be computed on the
basis of a year of 360 days, composed of 12, 30-day months, and the actual
number of days elapsed.
3.2 Repayment of the Notes . The Issuers covenant and agree to repay Purchasers
the unpaid principal balance of the Notes in full, together with all accreted
and unpaid interest, fees and other amounts due hereunder, on December 31, 2012;
provided , however , that such scheduled maturity date shall be automatically
extended (without the consent of, or any action required by the Issuers or the
Purchasers) by a number of days that the maturity date of the Senior Credit
Agreement is extended; provided , further , that such scheduled maturity date
may not be extended by more than 180 days without the consent of each Purchaser.
3.3 Optional Redemption of Notes . Subject to the terms of this Section 3.3 , on
or after the date hereof, the Issuers may ratably prepay the Purchasers the
outstanding principal amount of the Notes in whole or in part in multiples of
$100,000, or such lesser amount as is then outstanding, at any time at a price
equal to the Accreted Value of the Notes as of the Specified Date of such
repayment. Unless the Issuers default in the payment of the redemption price,
interest will cease to accrete on the Notes or portions thereof called for
redemption on the applicable redemption date. Upon surrender of a Note that is
redeemed in part, the Issuers will issue, if requested by the Purchasers, at the
Issuers' expense, a new Note equal in principal amount at maturity to the
unredeemed portion of

8
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

the Note surrendered.
3.4 Notice of Optional Redemption . If the Issuers shall elect to redeem any
Notes pursuant to Section 3.3 hereof, the Issuers shall give notice of such
prepayment to Purchasers and each holder of the Notes to be prepaid not less
than ten (10) days prior to the date fixed for redemption, specifying (a) the
date on which such redemption is to be made, (b) the principal amount at
maturity of such Notes to be redeemed on such date, and (c) the Accreted Value
of the Notes to the date set for redemption. Such notice shall be accompanied by
a certificate of the president or the chief financial officer of Nautilus that
such redemption is being made in compliance with Section 3.3 hereof. Each
redemption under this Section 3.4 shall consist of all amounts specified in such
notice.
3.5 Home Office Payment . The Issuers will pay all sums becoming due on any Note
for principal and interest to Purchasers, pro rata in accordance with the
respective percentages of the Notes set forth on Annex A , by the method and at
the address specified for such purpose in Annex A , or by such other method or
at such other address as Purchasers shall have from time to time specified to
the Issuers in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that promptly after
payment or prepayment in full of any Note, each holder of a Note shall surrender
such Note for cancellation to the Issuers at their respective principal
executive offices.
3.6 Taxes .
(a) Any and all payments by the Issuers hereunder or under the Notes or other
Purchase Documents that are made to or for the benefit of the Purchasers shall
be made free and clear of and without deduction for any and all present or
future Indemnified Taxes.
(b) If any Indemnified Taxes shall be required by law to be deducted from or in
respect of any amount payable under any Purchase Document to any Purchaser
(i) such amount shall be increased as necessary to ensure that, after all
required deductions for Indemnified Taxes are made (including deductions
applicable to any increases to any amount under this Section 3.6 ), such
Purchaser receives the amount it would have received had no such deductions been
made, (ii) the Issuers shall make such deductions, (iii) the Issuers shall
timely pay the full amount deducted to the relevant taxing authority or other
authority in accordance with applicable requirements of law and (iv) within
30 days after such payment is made, the Issuers shall deliver to the relevant
Purchaser an original or certified copy of a receipt evidencing such payment.
(c) In addition, each Issuer agrees to pay any present or future stamp,
documentary, excise, property, court, intangible, recording, filing or similar
Tax, charges or similar levies imposed by any applicable requirement of law or
Governmental Authority and all liabilities with respect thereto (including by
reason of any delay in payment thereof), in each case arising from the
execution, delivery, performance, enforcement, or perfection of a security
interest under, or registration of, or otherwise with respect to, the Purchase
Documents or any transaction contemplated therein (collectively, but excluding
Excluded Taxes, the “ Other Taxes ”). Within 30 days after the date of any
payment of Indemnified Taxes or Other Taxes by the Issuer, the Issuer shall
furnish to the relevant Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
(d) The Issuers shall reimburse and indemnify, within 30 days after receipt of
demand therefor, each Purchaser for all Indemnified Taxes and Other Taxes
(including any Indemnified Taxes and Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.6) paid by such Purchaser and any
liabilities arising therefrom or with respect thereto, whether or not such
Indemnified Taxes or Other Taxes were correctly or legally asserted; provided,
that the Issuers shall not be required to compensate any Purchaser pursuant to
this Section 3.6(d) for penalties, interest or other additions with respect to
any Tax paid more than 180 days prior to the date that such Purchaser notifies
the Issuers, in writing, of the Tax, and of such Purchaser's intention to claim
compensation therefor. Payment of this indemnification shall be made within
30 days from the date the Purchasers provide the Issuers with a certificate
setting forth in reasonable detail the calculation of the amount and type of
such Taxes. Any such certificate submitted by the Purchasers in good faith to
the Issuers shall, absent manifest error, be final, conclusive, and binding on
all parties.
(e) Any Purchaser claiming any additional amounts payable pursuant to this
Section 3.6 shall use its commercially reasonable efforts (consistent with its
internal policies and requirements of law) to change the jurisdiction of its
lending office if such a change would reduce any such additional amounts and
would not, in the sole determination of such Purchaser, be otherwise
disadvantageous to such Purchaser.

9
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

(f)
(i) Each Non-U.S. Purchaser that is entitled to an exemption from, or reduction
of, United States withholding tax shall (y) on or prior to the date such
Non-U.S. Purchaser becomes a “Non-U.S. Purchaser” hereunder and (z) from time to
time if requested by the Issuers, provide the Issuers with two completed
originals of each of the following, as applicable: (A) Forms W-8ECI (claiming
exemption from U.S. withholding tax because the income is effectively connected
with a U.S. trade or business), W-8BEN (claiming exemption from, or a reduction
of, U.S. withholding tax under an income tax treaty)
and/or W-8IMY or any successor forms, (B) in the case of a Non-U.S. Purchaser
claiming exemption under Sections 871(h) or 881(c) of the Code, Form W-8BEN
(claiming exemption from U.S. withholding tax under the portfolio interest
exemption) or any successor form and a certificate in form and substance
acceptable to the Issuers that such Non-U.S. Purchaser is not (1) a “bank”
within the meaning of Section 881(c)(3)(A) of the Code, (2) a “10 percent
shareholder” of the Issuers within the meaning of Section 881(c)(3)(B) of the
Code or (3) a “controlled foreign corporation” described in Section 881(c)(3)(C)
of the Code or (C) any other applicable document prescribed by the IRS
certifying as to the entitlement of such Non-U.S. Purchaser to such exemption,
or reduced rate, from United States withholding tax with respect to all payments
to be made to such Non-U.S. Purchaser under the Purchase Documents. Unless the
Issuers have received forms or other documents satisfactory to them indicating
that payments under the Purchase Documents to or for a Non-U.S. Purchaser are
not subject to United States withholding tax or are subject to such tax at a
rate reduced by an applicable tax treaty, the Issuers shall withhold amounts
required to be withheld by applicable requirements of law from such payments at
the applicable statutory rate. Notwithstanding any other provision of this
paragraph, a Non-U.S. Purchaser shall not be required to deliver any form
pursuant to this paragraph that such Non-U.S. Purchaser is not legally able to
deliver.
(ii) Each U.S. Purchaser shall (y) on or prior to the date such U.S. Purchaser
becomes a “U.S. Purchaser” hereunder and (z) from time to time if requested by
the Issuer, provide the Issuer with two completed originals of Form W-9
(certifying that such U.S. Purchaser is entitled to an exemption from U.S.
backup withholding tax) or any successor form. Notwithstanding any other
provision of this paragraph, a U.S. Purchaser shall not be required to deliver
any form pursuant to this paragraph that such U.S. Purchaser is not legally able
to deliver.
(iii) In addition, if a payment made to a Purchaser with respect to the Purchase
Documents would be subject to U.S. federal withholding Tax imposed by FATCA if
such Purchaser fails to comply with the applicable reporting requirements of
FATCA (including those contained in section 1471(b) or 1472(b) of the Code, as
applicable), such Purchaser shall deliver to the Issuers any documentation
required by law or reasonably requested by the Issuers sufficient for the
Issuers to comply with their obligations under FATCA and to determine that such
Purchaser has complied with such applicable reporting requirements.
(g) If any Purchaser determines in its sole discretion that it has received a
refund of any Indemnified Taxes or Other Taxes as to which it has been
indemnified by the Issuers or with respect to which the Issuers have paid
additional amounts pursuant to this Section 3.6 , it shall pay to the Issuers an
amount equal to such refund (but only to the extent of indemnity payments made,
or additional amounts paid, by the Issuers under this Section 3.6 with respect
to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of such Purchaser, and without interest (other than any
interest paid by the relevant Governmental Authority with respect to such
refund), provided that the Issuers, upon the request of such Purchaser, agrees
to repay the amount paid over to the Issuers (plus any penalties, interest or
other charges imposed by the relevant Governmental Authority) to the Purchaser
in the event such Purchaser is required to repay such refund to such
Governmental Authority. This paragraph shall not be construed to require any
Purchaser to make available its tax returns (or any other information relating
to its taxes which it deems confidential) to the Issuers or to any other Person.
3.7 Maximum Lawful Rate . This Agreement, the Notes and the other Purchase
Documents are hereby limited by this Section 3.7 . In no event, whether by
reason of acceleration of the maturity of the amounts due hereunder or
otherwise, shall interest and fees contracted for, charged, received, paid or
agreed to be paid to Purchasers exceed the maximum amount permissible under such
applicable law. If, from any circumstance whatsoever, interest and fees would
otherwise be payable to Purchasers in excess of the maximum amount permissible
under such applicable law, the interest and fees shall be reduced to the maximum
amount permitted under applicable law. If from any circumstance, Purchasers
shall have received anything of value deemed interest by applicable law in
excess of the

10
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

maximum lawful amount, an amount equal to any excess of interest shall be
applied to the reduction of the principal amount of the Notes, in such manner as
may be determined by Purchasers, and not to the payment of fees or interest, or
if such excessive interest exceeds the unpaid balance of the principal amount of
the Notes, such excess shall be refunded to the Issuers.
3.8 Certain Waivers . The Issuers unconditionally waive (a) any rights to
presentment, demand, protest or (except as expressly required hereby) notice of
any kind, and (b) any rights of rescission, setoff, counterclaim or defense to
payment under the Notes or otherwise that the Issuers may have or claim against
any Purchaser or any prior Purchaser.
3.9 Joint and Several Liability of the Issuers . To the extent that any
Subsidiary of Nautilus becomes a co-issuer hereunder pursuant to Section 7.1(i)
:
(a) Each Issuer is accepting joint and several liability hereunder and under the
other Purchase Documents in consideration of the financial accommodations to be
provided by the Purchasers under this Agreement, for the mutual benefit,
directly and indirectly, of each Issuer and in consideration of the undertakings
of the other Issuers to accept joint and several liability for the Obligations.
(b) Each Issuer, jointly and severally, hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several
liability with the other Issuers, with respect to the payment and performance of
all of the Obligations (including, without limitation, any Obligations arising
under this Section 3.9 ), it being the intention of the parties hereto that all
the Obligations shall be the joint and several obligations of each Issuer
without preferences or distinction among them.
(c) If and to the extent that any Issuer shall fail to make payment with respect
to any of the Obligations as and when due or to perform any of the Obligations
in accordance with the terms thereof, then in each such event the other Issuers
will, without duplication, make such payment with respect to, or perform, such
Obligation.
(d) The Obligations of each Issuer under the provisions of this Section 3.9
constitute the absolute and unconditional, full recourse Obligations of each
Issuer enforceable against each Issuer to the full extent of its properties and
assets.
(e) Except as otherwise expressly provided in this Agreement, each Issuer hereby
waives notice of acceptance of its joint and several liability, notice of the
occurrence of any Default or Event of Default or of any demand for any payment
under this Agreement, notice of any action at any time taken or omitted by the
Purchasers under or in respect of any of the Obligations, any requirement of
diligence or to mitigate damages and, generally, to the extent permitted by
applicable law, all demands, notices and other formalities of every kind in
connection with this Agreement (except as otherwise provided in this Agreement).
Each Issuer hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the
acceptance of any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent or other action or acquiescence by
the Purchasers at any time or times in respect of any default by any Issuer in
the performance or satisfaction of any term, covenant, condition or provision of
this Agreement, any and all other indulgences whatsoever by the Purchasers in
respect of any of the Obligations, and the taking, addition, substitution or
release, in whole or in part, at any time or times, of any security for any of
the Obligations or the addition, substitution or release, in whole or in part,
of any Issuer. Without limiting the generality of the foregoing, each Issuer
assents to any other action or delay in acting or failure to act on the part of
the Purchasers with respect to the failure by any Issuer to comply with any of
its respective Obligations, including, without limitation, any failure strictly
or diligently to assert any right or to pursue any remedy or to comply fully
with applicable laws or regulations thereunder, which might, but for the
provisions of this Section 3.9 afford grounds for terminating, discharging or
relieving any Issuer, in whole or in part, from any of its Obligations under
this Section 3.9 , it being the intention of each Issuer that, so long as any of
the Obligations hereunder remain unsatisfied, the Obligations of each Issuer
under this Section 3.9 shall not be discharged except by performance and then
only to the extent of such performance. The Obligations of each Issuer under
this Section 3.9 shall not be diminished or rendered unenforceable by any
winding up, reorganization, arrangement, liquidation, reconstruction or similar
proceeding with respect to any Issuer or Purchaser.
(f) Each Issuer represents and warrants to Purchasers that such Issuer is
currently informed of the financial condition of the other Issuers and of all
other circumstances which a diligent inquiry would reveal and which bear upon
the risk of nonpayment of the Obligations. Each Issuer further represents and
warrants to Purchasers that such Issuer has read and understands the terms and
conditions of the Purchase Documents. Each Issuer hereby covenants

11
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

that such Issuer will continue to keep informed of such Issuer's financial
condition, the financial condition of other guarantors and of all other
circumstances which bear upon the risk of nonpayment or nonperformance of the
Obligations.
(g) The provisions of this Section 3.9 are made for the benefit of the
Purchasers and their successors, nominees and assigns, and may be enforced by it
or them from time to time against any or all Issuers as often as occasion
therefor may arise and without requirement on the part of any such Purchaser,
successor or assign first to marshal any of its or their claims or to exercise
any of its or their rights against any Issuer or to exhaust any remedies
available to it or them against any Issuer or to resort to any other source or
means of obtaining payment of any of the Obligations hereunder or to elect any
other remedy. The provisions of this Section 3.9 shall remain in effect until
all of the Obligations (other than contingent indemnification Obligations to the
extent no claim giving rise thereto has been asserted) shall have been paid in
full or otherwise fully satisfied. If at any time, any payment, or any part
thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by any Purchaser upon the insolvency,
bankruptcy or reorganization of any Issuer, or otherwise, the provisions of this
Section 3.9 will forthwith be reinstated in effect, as though such payment had
not been made.
(h) Each Issuer hereby agrees that it will not enforce any of its rights of
contribution or subrogation against any other Issuer with respect to any
liability incurred by it hereunder or under any of the other Purchase Documents,
any payments made by it to Purchasers with respect to any of the Obligations
until such time as all of the Obligations (other than contingent indemnification
Obligations to the extent no claim giving rise thereto has been asserted) have
been paid in full in cash. Any claim which any Issuer may have against any other
Issuer with respect to any payments to any Purchaser hereunder or under any
other Purchase Documents are hereby expressly made subordinate and junior in
right of payment, without limitation as to any increases in the Obligations
arising hereunder or thereunder, to the prior payment in full in cash of the
Obligations (other than contingent indemnification Obligations to the extent no
claim giving rise thereto has been asserted) and, in the event of any
insolvency, bankruptcy, receivership, liquidation, reorganization or other
similar proceeding under the laws of any jurisdiction relating to any Issuer,
its debts or its assets, whether voluntary or involuntary, all such Obligations
(other than contingent indemnification Obligations to the extent no claim giving
rise thereto has been asserted) shall be paid in full in cash before any payment
or distribution of any character, whether in cash, securities or other property,
shall be made to any other Issuer therefor.
ARTICLE 4
CONDITIONS
4.1 Conditions to Purchase of Notes . The obligation of Purchasers to purchase
and pay for the Notes is subject to the satisfaction or waiver, prior to or at
the Closing, of the following conditions:
(a)  Representations and Warranties True . The representations and warranties
contained in Article 5 hereof shall be true and correct in all material respects
at and as of the Closing Date as though then made, except (i) to the extent of
changes caused by the transactions expressly contemplated herein and (ii) for
representations and warranties that are by their terms already qualified by
materiality or Material Adverse Effect, which representations and warranties
described in this clause (ii) shall be true and correct in all respects.
(b)  Material Adverse Effect . There will have been no Material Adverse Effect
since June 30, 2010.
(c)  Subordination Agreement . Purchasers, the Senior Lender and the Issuers
shall have executed a subordination and intercreditor agreement (the “
Subordination Agreement ”) on terms reasonably satisfactory to Purchasers.
(d)  Closing Documents . The Issuers shall have delivered or caused to be
delivered to Purchasers all of the following documents in form and substance
reasonably satisfactory to Purchasers:
(i) one or more Notes (as designated by Purchasers pursuant to Section 2.1 and
Annex A hereof) in aggregate original principal amounts at maturity as set forth
herein, duly completed and executed by the Issuers;
(ii) a certificate of good standing dated not more than fourteen (14) days prior
to the Closing Date for each Issuer, issued by its jurisdiction of organization;

12
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

(iii) a copy of the certificate of incorporation of each Issuer, certified by
the appropriate governmental official of the jurisdiction of its organization as
of a date not more than fourteen (14) days prior to the Closing Date;
(iv) a copy of the By-laws of each Issuer, certified as of the Closing Date by
the secretary or assistant secretary of such Issuer;
(v) certificates of the secretary or assistant secretary of each Issuer,
certifying as to the names and true signatures of the officers or other
authorized person of such Issuer authorized to sign the Purchase Documents to be
delivered by it hereunder;
(vi) copies of the resolutions duly adopted by the board of directors of each
Issuer authorizing the execution, delivery and performance by it of the Purchase
Documents to which it is a party, and the consummation of the transactions
contemplated hereby evidenced thereby, respectively, certified as of the Closing
Date by its secretary or assistant secretary; and
(vii) an opinion of Kirkland & Ellis LLP, counsel to the Issuers, in form and
substance reasonably satisfactory to Purchasers.
(e)  Purchasers' Fees and Expenses . On the Closing Date, the Issuers shall have
paid all fees and expenses (to the extent invoiced prior to the Closing Date) of
Purchasers payable by the Issuers pursuant to Section 9.4 hereof.
(f)  Legal Investment . On the Closing Date, Purchasers' purchases of the Notes
shall not be prohibited by any applicable law, rule or regulation of any
Governmental Authority (including, without limitation, Regulations T, U or X of
the Federal Reserve Board) as a result of the promulgation or enactment thereof
or any changes therein, or change in the interpretation thereof by any
Governmental Authority.
Any condition specified in this Section 4.1 may be waived by Purchasers;
provided , however , that no such waiver will be effective against any Purchaser
unless it is set forth in writing, executed by such Purchaser.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE ISSUERS
The Issuers represents and warrants to the Purchasers as follows:
5.1 Existence and Power of Issuers . Each Issuer is a corporation duly organized
and existing under the laws of the state of its incorporation and is qualified
to do business in each jurisdiction where the failure to be so qualified could
be reasonably likely to result in a Material Adverse Effect. Each Issuer has
full power, authority, and legal right to carry its businesses as presently
conducted, to own and operate its properties and assets, and to execute,
deliver, and perform this Agreement and the other Purchase Documents.
5.2 Authorization by Issuers . The execution, delivery, and performance by each
Issuer of this Agreement, the Notes, and the other Purchase Documents, have been
duly authorized by all necessary corporate action of each Issuer, does not
require shareholder approval, or the approval or consent of any trustee or the
holders of any Indebtedness of any Issuer, does not contravene any law,
regulation, rule, or order binding on any Issuer, or any of the Issuers'
organizational documents, and do not contravene the provisions of or constitute
a default under any indenture, mortgage, material contract, or other material
agreement or instrument to which any Issuer is a party, or by which any Issuer
(or any of its properties) may be bound or affected.
5.3 Governmental Approvals . No Government Approval or filing or registration
with any Governmental Authority is required for the making and performance by
each Issuer of this Agreement or any Purchase Document, or in connection with
any of the transactions contemplated hereby, except those that have been
obtained or made and are in full force and effect. Each Issuer has obtained all
Governmental Approvals that are necessary or required in connection with the
conduct of such Issuer's business, except any Governmental Approvals the failure
to obtain which could not be reasonably likely to result in a Material Adverse
Effect.
5.4 Binding Obligations . This Agreement, the Notes, and the other Purchase
Documents have been duly executed and delivered by each Issuer and constitute
the legal, valid, and binding obligations of each Issuer. This Agreement, the
Notes, and the other Purchase Documents are enforceable against each Issuer and
its property in

13
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally, and except as the remedy of specific
performance, or the remedy of injunctive relief, is subject to the discretion of
the court before which any proceeding therefor may be brought.
5.5 Litigation . Except as specifically disclosed in Schedule 5.5 , there are no
actions, proceedings, investigations, or claims against or affecting any Issuer
now pending before any court, arbitrator, or Governmental Authority, which
individually or in the aggregate, could be reasonably likely to result in a
Material Adverse Effect.
5.6 No Default . No Default or Event of Default exists or would result from the
issuance of the Notes. None of the Issuers nor any of their respective
Subsidiaries is in breach of or default under any agreement to which it is a
party, or that is binding on it (or any of its respective assets), except to the
extent any such breach or default could not be reasonably likely to result in a
Material Adverse Effect.
5.7 Margin Regulations . The Issuers are not engaged principally or as one of
the Issuers' important activities in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Federal Reserve Regulation U), and no part of the proceeds of any Revolving Loan
will be used to purchase or carry any such margin stock, or to extend credit to
others for the purpose of purchasing or carrying any such margin stock, or for
any other purpose that violates the applicable provisions of any Federal Reserve
Regulation. If requested to do so by the Purchasers, the Issuers will furnish to
the Purchasers a statement conforming with the requirements of Regulation U.
5.8 Compliance With Laws . The Issuers are in compliance in all respects with
all laws, regulations, rules, and orders of Governmental Authorities applicable
to the Issuers, or to the Issuers' operations or property (including, but not
limited to, Environmental Laws, Consumer Protection Laws and ERISA), except any
thereof whose validity is being contested in good faith by appropriate
proceedings upon stay of execution of the enforcement thereof and except to the
extent any non-compliance could not be reasonably likely to result in a Material
Adverse Effect.
5.9 Title to Properties . Each Issuer has good and marketable title to all of
its material properties and assets. The properties and assets of each Issuer is
subject to no Liens, other than Permitted Liens.
5.10 Taxes . Each Issuer has timely filed all federal and state and all other
material tax returns and reports required of such Issuer and has paid all
material Taxes that are due and payable (except to the extent such Taxes are
being properly contested in good faith by appropriate legal proceedings). The
charges and accruals on the books of each Issuer in respect of Taxes for all
fiscal periods to date are accurate in all material respects. Taxes not yet due
have been provided for as a reserve on the books of each Issuer to the extent
required under GAAP. There are no claims or assessments against any Issuer by
any Governmental Authority with respect to any Taxes, except any claims or
assessments that could not be reasonably likely to result in a Material Adverse
Effect.
5.11 Financial Condition .
(a) Each Issuer has delivered to Purchasers such Issuer's report on Form 10-K
for the fiscal year ended December 31, 2009 and its Form 10-Q for fiscal quarter
ending June 30, 2010 as filed with the SEC, and the financial statements
contained in such reports present fairly in all material respects such Issuer's
financial condition and results of operations for the periods covered thereby,
and such financials have been prepared in accordance to GAAP.
(b) Since June 30, 2010, there has been no Material Adverse Effect.
5.12 Solvency . Both before and after giving effect to the issuance of the
Notes, each Issuer is Solvent.
5.13 Labor Relations . There is (a) no unfair labor practice complaint pending
against any Issuer or, to the best knowledge of the Issuers, threatened, before
the National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against any Issuer or, to the best knowledge of the Issuers, threatened, and
(b) no strike, labor dispute, slowdown, or stoppage pending against any Issuer
or, to the best knowledge of the Issuers, threatened against any Issuer, except,
in each case, to the extent such complaint, strike, labor dispute, slowdown or
stoppage could not be reasonably likely to result in a Material Adverse Effect.
5.14 Intellectual Property; Licenses, Etc . Each Issuer owns, licenses or
otherwise possesses the right to use,

14
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

all material trademarks, service marks, trade names, copyrights, patents, patent
rights, franchises, licenses and other intellectual property rights that are
reasonably necessary for the operation of its businesses, without conflict with
the rights of any other Person, except to the extent such conflict could not be
reasonably likely to result in a Material Adverse Effect. To the knowledge of
the Issuers, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by any Issuer infringes upon any rights held by any other Person in
any material respect. No claim or litigation regarding any of the foregoing is
pending or, to the knowledge of the Issuers, threatened.
5.15 Brokers' Fees . No Issuer has any obligation to any Person in respect of
any finder's, broker's or investment banker's fee in connection with the
transactions contemplated hereby, except for such fees payable to D.A. Davidson
& Co. with respect to advice and analysis performed for the Board of Directors
of Nautilus in connection with the issuance of the Notes to the Purchasers.
5.16 Full Disclosure . No information contained in this Agreement, any of the
other Purchase Documents, any projections, financial statements or collateral
reports or other written reports from time to time delivered hereunder or any
written statement furnished by or on behalf of the Issuers to the Purchasers
pursuant to the terms of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not materially
misleading in light of the circumstances under which they were made.
5.17 Similar Offerings . Nautilus has not and none of its affiliates, as such
term is defined in Rule 501(b) under the Securities Act (other than Sherborne,
as to which no representation or warranty is being made), has, directly or
indirectly, solicited any offer to buy, sold or offered to sell or otherwise
negotiated in respect of, or will solicit any offer to buy, sell or offer to
sell or otherwise negotiate in respect of, in the United States or to any United
States citizen or resident, any security which is or would be integrated with
the sale of the Notes in a manner that would require the offered Notes to be
registered under the Securities Act.
5.18 No General Solicitation . Nautilus has not and no person acting on its
behalf (other than Sherborne, as to which no representation or warranty is being
made) has engaged or will engage, in connection with the offering of the offered
Notes, in any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act.
5.19 Private Offering; Consents and Approvals . No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Issuers is required in connection with the offer, sale or issuance of the
Notes or the consummation of any other transactions contemplated hereby, except
for the compliance with applicable state securities laws, which compliance will
have occurred
within the appropriate time periods therefor. Assuming that the representations
of the Purchasers set forth in Section 6.2 are true and correct, the offer, sale
and issuance of the Notes in conformity with the terms of this Agreement are
exempt from the registration requirements of Section 5 of the Securities Act,
and from the qualification requirements of each applicable state securities
laws, and neither the Issuers, nor any authorized agent acting on their behalf
will take any action hereafter that would cause the loss of such exemptions.
5.20 Absolute Reliance on the Representations and Warranties . All
representations and warranties contained in this Agreement and any financial
statements, instruments, certificates, schedules or other documents delivered in
connection herewith shall survive the execution and delivery of this Agreement,
regardless of any investigation made by Purchasers or on Purchasers' behalf.
ARTICLE 6
TRANSFER OF NOTES
6.1 Restricted Securities . Purchasers acknowledge that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, and that the Issuers are not required to register the
Notes.
6.2 Legends; Purchasers' Representations . Each of the Purchasers hereby
represents and warrants to the Issuers that (a) it is an “accredited investor”
within the meaning of Rule 501(a) under the Securities Act and is acquiring

15
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

the Notes for investment for its own account, with no present intention of
dividing its participation with others or reselling or otherwise distributing
the same in violation of the Securities Act or any applicable state securities
laws and (b) such Purchaser is not purchasing Notes as a result of any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, any
seminar or meeting, or any solicitation by a person not previously known to such
Purchaser in connection with investments in securities generally. The Issuers
may place an appropriate legend on the Notes owned by Purchasers concerning the
restrictions set forth in this Article 6 . Upon the assignment or transfer by
Purchasers or any of its successors or assignees of all or any part of the
Notes, the term “ Purchaser ” as used herein shall thereafter mean, to the
extent thereof, the then holder or holders of such Notes, or portion thereof. In
connection with the issuance of the Notes to the Purchasers, each Purchaser
makes the following representations and warranties to the Issuers as of the date
of such issuance:
(a) Such Purchaser has such knowledge and experience in financial and business
matters as to be capable of making an informed decision regarding an investment
in the Notes and is capable of reviewing, understanding and making an
independent judgment with respect to an investment in the Notes; and
(b) Such Purchaser acknowledges that it has been advised by the Issuers to
consult such Purchaser's own legal, financial and tax advisors concerning this
investment. Such Purchaser acknowledges that it has reviewed the risks and
merits of an investment in the Notes with tax, legal and investment advisors to
the extent deemed advisable by such Purchaser.
(c) Such Purchaser acknowledges that the face of each Note shall be endorsed
with a legend substantially in the form set forth below:
“THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” (WITHIN THE MEANING OF
SECTION 1273 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”)).
UPON WRITTEN REQUEST, THE ISSUER WILL PROMPTLY MAKE AVAILABLE TO ANY HOLDER OF
THIS NOTE THE FOLLOWING INFORMATION: (1) THE ISSUE PRICE AND ISSUE DATE OF THE
NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE NOTE AND (3) THE YIELD TO
MATURITY OF THE NOTE. THE HOLDER OF THIS NOTE CAN OBTAIN THIS INFORMATION BY
CONTACTING NAUTILUS, INC. AT 16400 S.E. NAUTILUS DRIVE, VANCOUVER, WA 98683,
ATTN: ALEC ANDERSON.”
6.3 Transfer of Notes . (a) Subject to Sections 6.1 and 6.2 hereof, a holder of
a Note (x) may transfer such Note or a portion thereof to any other Person, or
(y) may exchange such Note for Notes of different denominations, by surrendering
such Note to the Issuers duly endorsed for transfer or accompanied by a duly
executed instrument of transfer naming the new holder (or the current holder if
submitted for exchange only), together with written instructions for the
issuance of one or more new Notes specifying the respective principal amounts of
each new Note and the name of each new holder and each address therefor. The
Issuers shall simultaneously deliver to such holder or its designee such new
Notes, shall mark the surrendered Notes as canceled and shall provide notice of
such transfer to Purchasers. In lieu of the foregoing procedures, but subject to
Sections 6.1 and 6.2 hereof and to the provisions of Section 6.3(a)(x) above, a
holder may assign a Note (in whole but not in part) to a new holder by sending
written notice to the Issuers and Purchasers of such assignment specifying the
new holder's name and address; in such case, the Issuers shall promptly
acknowledge such assignment in writing to both the old and new holder. The
Issuers shall not be required to recognize any subsequent holder of a Note
unless and until the Issuers have received reasonable assurance that all
applicable transfer taxes have been paid. No assignee or transferee of a Note
shall be entitled to receive any greater payment under Section 3.7 hereof than
the applicable Purchaser that assigned or transferred such Note to such assignee
or transferee would have been entitled to receive under such Section.
(b) Notwithstanding anything to the contrary contained in this Agreement, the
Notes are registered obligations and the right, title and interest of the
Purchasers in and to such Notes, as the case may be, shall be transferable only
in accordance with the terms hereof. This Section 6.3 shall be construed so that
the Notes are at all times maintained in “registered form” within the meaning of
Sections 163(f), 871(h)(2) and 881(c)(2) of the Code.
6.4 Replacement of Lost Notes . Upon receipt of evidence reasonably satisfactory
to the Issuers of the mutilation, destruction, loss or theft of any Notes and
the ownership thereof, the Issuers shall, upon the written request of the holder
of such Notes, execute and deliver in replacement thereof new Notes in the same
form, in the same original principal amount and dated the same date as the Notes
so mutilated, destroyed, lost or stolen; and such Notes so mutilated, destroyed,
lost or stolen shall then be deemed no longer outstanding hereunder. If the
Notes being replaced

16
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

have been mutilated, they shall be surrendered to the Issuers; and if such
replaced Notes have been destroyed, lost or stolen, such holder shall furnish
the Issuers with an indemnity in writing to save it harmless in respect of such
replaced Note.
 
6.5 No Other Representations Affected . Nothing contained in this Article 6
shall limit the full force or effect of any representation, agreement or
warranty made herein or in connection herewith to Purchasers.
ARTICLE 7
COVENANTS
7.1 Affirmative Covenants . Each Issuer covenants and agrees that, so long as
any Note or any other Obligation (other than contingent indemnification
Obligations to the extent no claim giving rise thereto has been asserted) shall
remain unpaid or unsatisfied:
(a)  Financial Statements . Each Issuer shall deliver to each Purchaser in
electronic form and in detail reasonably satisfactory to the Purchasers:
(i) within forty-five (45) days of the end of each calendar quarter, the
unaudited balance sheet and statements of cash flow, income, and retained
earnings of such Issuer for the immediately preceding quarter (and for the
period from the start of such Issuer's then-current fiscal year through the last
day of the immediately preceding quarter) on a consolidated and consolidating
basis (it being agreed that the furnishing of such Issuer's report on Form 10-Q
for such fiscal quarter as filed with the SEC will satisfy such requirement);
(ii) within one hundred twenty (120) days of each fiscal year end of such
Issuer, a copy of an audited statement (on a consolidated and consolidating
basis) of such Issuer's financial condition as of the end of the preceding
fiscal year prepared by a certified public accounting firm reasonably acceptable
to the Requisite Purchasers (it being agreed that the furnishing of such
Issuer's annual report on Form 10-K for such fiscal year as filed with the SEC
will satisfy such requirement); and
(iii) Other Information . All other statements, reports, and information as the
Purchasers reasonably may request concerning the Notes, or the financial
condition and business affairs of the Issuers, their respective Subsidiaries,
and their Affiliates.
(b)  Preservation of Existence, Etc. Except as otherwise permitted in this
Agreement, each Issuer shall preserve and maintain its corporate existence,
rights, franchises, and privileges in the jurisdiction of its organization and
shall qualify and remain qualified as a foreign organization in each
jurisdiction where the failure to do so could be reasonably likely to result in
a Material Adverse Effect.
(c)  Keeping of Books and Records . Each Issuer shall keep adequate records and
books of account in which entries complete in all material respects will be
made, in accordance with GAAP, reflecting all financial transactions of Issuer.
(d)  Maintenance of Property . Each Issuer shall maintain and preserve its
respective properties which are material to its business in good working order
and condition, ordinary wear and tear and casualty (to the extent insured)
excepted, and shall from time to time make all needed repairs, renewals, or
replacements so that the efficiency of such properties shall be fully maintained
and preserved.
(e)  Insurance . Each Issuer shall keep in force upon all of its respective
properties and operations policies of insurance carried with companies in such
amounts and covering all such risks as shall be customary in the industry.
(f)  Payment of Obligations; Notice of Default under Senior Credit Agreement .
Each Issuer shall pay and discharge before the same shall become delinquent all
material Indebtedness, Taxes, and other material obligations for which it is
liable, or to which the income or property of such Issuer is subject, and all
claims for labor, materials, or supplies that, if unpaid, might become by law a
Lien upon assets of such Issuer, except such Indebtedness, Taxes, claims, and
obligations that are being contested in good faith by appropriate proceedings;
provided that a breach of the foregoing with respect to the Senior Loan
Documents shall not be an Event of Default hereunder unless the Senior Lender
has accelerated the obligations under the Senior Loan Documents as a result
thereof. Nautilus agrees that it shall give the Purchasers prompt written notice
of any “default” or “event of default” under or within the

17
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

meaning of any of the Senior Loan Documents, in each case of which such Issuer
has knowledge at the same time such notice is given to the Senior Lender or
received by such Issuer from the Senior Lender.
(g)  Compliance with Laws . Subject to the right to contest any laws,
regulations, rules or orders of any Governmental Authority in good faith by
appropriate legal proceedings, and provided that each Issuer establishes and
maintains adequate reserves to the extent required by GAAP in relation to the
matter being contested, each Issuer shall comply with all laws, regulations,
rules, and orders of any Governmental Authority applicable to them, including,
but not limited to, Environmental Laws, Consumer Protection Laws and ERISA,
except where failure to so comply could not be reasonably likely to result in a
Material Adverse Effect.
(h)  Use of Proceeds . The Issuers shall use the proceeds of the Notes solely
for working capital and other general corporate purposes.
(i)  Further Assurances .
(i) Upon written demand by a Purchaser, the Issuers shall promptly execute and
deliver all such instruments and perform all such other acts as such Purchaser
may reasonably request to carry out the transactions contemplated by this
Agreement or any other Purchase Document.
(ii) With respect to any Domestic Subsidiary created or acquired after the
Closing Date by any Issuer, the Issuers shall promptly, and in any event on or
prior to 20 days after such creation or acquisition (A) cause such Domestic
Subsidiary to execute and deliver a joinder to this Agreement and the other
Purchase Documents, in form and substance reasonably satisfactory to the
Purchasers and (B) if reasonably requested by the Purchasers, deliver to the
Purchasers legal opinions and secretary's certificates relating to the matters
described above, which opinions and certificates shall be in form and substance
substantially similar to those delivered on the Closing Date.
7.2 Negative Covenants . Each Issuer covenants and agrees that, so long as any
Note or other Obligation (other than contingent indemnification Obligations to
the extent no claim giving rise thereto has been asserted) shall remain unpaid
or unsatisfied:
(a)  Limitation on Liens . The Issuers shall not create, incur, assume, or
suffer to exist any Lien of any kind upon or with respect to any of its property
or assets, or assign or otherwise convey any right to receive income, including
the sale or discount of Accounts with or without recourse, except the following
(“ Permitted Liens ”):
(i) Liens in favor of lenders under the Senior Credit Documents;
(ii) Liens existing as of the date of this Agreement and disclosed in Schedule
7.2(a) to this Agreement;
(iii) Liens for Taxes, assessments, or other governmental charges not delinquent
or being contested in good faith and by appropriate proceedings and with respect
to which proper reserves have been taken by Issuer; provided, however, that the
Lien shall have no effect on the value of such assets and, provided further,
that a stay of enforcement of any such Lien (other than such inchoate tax Liens)
shall be in effect;
(iv) Landlords' and lessors' Liens in respect of rent not in default, or Liens
in respect of pledges or deposits under workers' compensation, unemployment
insurance, social security laws, or similar legislation (other than ERISA), or
in connection with appeal and similar bonds incidental to litigation;
mechanics', warehouseman's, laborers', and materialmen's and similar Liens, if
the obligations secured by such Liens are not then delinquent;
(v) Easements, rights of way, restrictions, and other similar charges or Liens
relating to real property and not interfering in a material way with the
ordinary conduct of any Issuer's businesses;
(vi) Liens constituting a renewal, extension, or replacement of any Permitted
Lien;
(vii) Purchase money Liens in connection with Indebtedness permitted under
Section 7.2(c) ;
(viii) Deposits of cash with the owner or lessor of premises leased and operated
by any Issuer in the ordinary course of business to secure the performance by
any Issuer of its obligations under the terms of the lease for such premises;

18
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

(ix) Liens arising from precautionary Uniform Commercial Code filings regarding
“true” operating leases or the consignment of goods to any Issuer;
(x) Liens arising by operation of law under Article 2 of the Uniform Commercial
Code in favor of a reclaiming seller of goods or buyer of goods;
(xi) Normal and customary rights of setoff upon deposits in favor of depository
institutions, and Liens of a collecting bank on payment items in the course of
collection;
(xii) Licenses of intellectual property owned by any Issuer and granted to any
person in the ordinary course of business and any restrictions or conditions on
transfer, assignment or renewal customarily imposed in a license to use
intellectual property;
(xiii) Judgments and other similar Liens arising in connection with court
proceedings that do not constitute a Default or Event of Default;
(xiv) Pledges and deposits of cash of less than $1,000,000 to secure obligations
under appeal bonds or as otherwise required in connection with court proceedings
(including, without limitation, surety bonds, security for costs of litigation
where required by law and letters of credit) or any other instruments serving a
similar purpose;
(xv) Liens in favor of an insurance company to secure Indebtedness permitted in
Section 7.2(c) hereof to finance insurance premiums; and
(xvi) Liens in the nature of rights of set off in favor of contractual
counterparties in the ordinary course of business.
(b)  Liquidation, Merger, or Sale of Assets . No Issuer shall (i) liquidate,
dissolve, or enter into any merger or consolidation in which such Issuer would
not be the surviving entity, or (ii) sell, lease, or dispose of any material
portion of the business or assets of such Issuer (except (A) sales of goods in
the ordinary course of business; (B) sales or other dispositions of surplus or
obsolete equipment in the ordinary course of business; (C) disposition of any
property in connection with discontinuation of Business; (D) dispositions of
Inventory that is obsolete, unmerchantable or otherwise unsalable in the
ordinary course of business; (E) termination of any lease of real or personal
property that is not necessary for the ordinary course of business of such
Issuer, could not reasonably be expected to have a Material Adverse Effect and
does not result from such Issuer's default thereunder; (F) licenses,
sublicenses, leases or subleases granted to others not interfering in any
material respect with the business of such Issuer and which could not reasonably
be expected to have a Material Adverse Effect, (G) sales or dispositions of cash
and cash equivalents in the ordinary course of business which are not reasonably
likely to have a Material Adverse Effect; (H) abandonment of intellectual
property of such Issuer that is immaterial, unnecessary or no longer used in the
ordinary course of business, the abandonment of which could not reasonably be
expected to have a Material Adverse Effect; (I) dispositions of Accounts not
constituting Eligible Consumer Finance Accounts Receivable or Eligible
Commercial Accounts Receivable in the ordinary course of business in connection
with the collection or compromise thereof; and (J) dispositions of equipment
that, in the aggregate during any 12-month period, has a fair market or book
value (whichever is more) of $500,000 or less).
(c)  Indebtedness . No Issuer shall not create, incur, assume, guarantee, or be
or remain liable with respect to any Indebtedness, other than the following:
(i) The Obligations;
(ii) Indebtedness under the Senior Credit Documents not to exceed $20,000,000 in
aggregate principal amount;
(iii) Funded Indebtedness of the Issuers existing as of the date of this
Agreement and secured by the Permitted Liens disclosed on Schedule 7.2(c) to
this Agreement, and all renewals, extensions, refundings, and refinancings of
such Indebtedness in a principal amount that does not exceed the principal
amount outstanding on the Closing Date;
(iv) Indebtedness for Taxes, assessments, or governmental charges to the extent
that payment therefor shall at the time not be required to be made in accordance
with Section 5.10 of this Agreement;

19
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

(v) Liabilities incurred by such Issuer in the ordinary course of business (not
as a result of borrowing);
(vi) The endorsement of checks in the ordinary course of business;
(vii) Indebtedness incurred to refinance any Indebtedness permitted by this
Section 7.2(c) of this Agreement;
(viii) Capital Leases and purchase money Indebtedness in an aggregate amount not
to exceed $1,000,000;
(ix) Intercompany Indebtedness existing as of the Closing Date to such Issuer's
Subsidiaries in an aggregate amount not to exceed $7,000,000 and intercompany
Indebtedness to such Issuer's Subsidiaries involved exclusively in the Business
in an amount not to exceed $2,000,000 after the Closing Date;
(x) Indebtedness to an insurance company, the proceeds which are used by such
Issuer to finance their insurance premiums payable on workers' compensation
insurance policies maintained by such Issuer;
(xi) Indebtedness incurred in respect of the deferred purchase price for any
acquisition of intellectual property or constituting the obligation to make
purchase price adjustments in connection with any such acquisition of
intellectual property;
(xii) Indebtedness that is not included in any of the preceding clauses of this
Section, is not secured by a Lien and does not exceed $5,000,000 in the
aggregate at any time;
(xiii) Contingent obligations (A) arising from endorsements of payment items for
collection or deposit in the ordinary course of business; (B) arising from any
foreign currency hedging agreements not to exceed $1,000,000 in the aggregate
and not prohibited hereunder; (C) existing on the Closing Date and disclosed in
writing to Purchasers, and any extension or renewal thereof that does not
increase the amount of such contingent obligation when extended or renewed;
(D) arising from customary indemnification obligations in favor of purchasers in
connection with dispositions permitted under Section 7.2(b) hereof if such
obligations could not reasonably be expected to have a Material Adverse Effect;
or (E) Guaranties of Subsidiaries' Indebtedness that do not exceed $1,000,000 in
the aggregate and incurred in the ordinary course of business; and
(xiv) Reimbursement obligations to Bank of America, N.A. with respect to the
letters of credit listed on Schedule 7.2(c) .
(d)  Restricted Payments . The Issuers shall not pay, make, declare, or
authorize any Restricted Payment, redeem any Issuers' common stock or redeem,
refinance, or otherwise dispose of or acquire any Issuers' preferred stock other
than: (i) reasonable compensation paid to employees, officers, and directors in
the ordinary course of business and consistent with prudent business practices;
(ii) dividends to shareholders of any Issuer or dispositions to preferred
shareholders of any Issuer declared as of the last day of a calendar quarter and
paid in the immediately following calendar quarter and redemptions of common
stock of any Issuer on a the last day of a calendar quarter, provided that
(A) no revolving loans are outstanding under the Senior Credit Agreement on the
date such dividends and dispositions are declared and made and on the date such
redemptions are made and (B) the aggregate amount of such dividends,
dispositions, or redemptions (together with any other dividends, dispositions,
and redemptions paid to shareholders of any Issuer during the 12 months ending
on the such date) do not exceed (1) 50 percent of the Continuing Business Net
Income for the 12 months ending on such date when the Debt to Tangible Net Worth
Ratio is equal to or greater than 2.50 to 1.00 on such date, and (2) 100 percent
of the Continuing Business Net Income for the 12 months ending on such date when
the Debt to Tangible Net Worth Ratio is less than 2.50 to 1.00 on such date;
(iii) conversion of preferred stock of Issuer to common stock of Issuer and
(iv) any Subsidiary of the Issuer may declare and pay dividends to the Issuer.
(e)  Investments; Purchase of Assets . The Issuers shall not make or maintain
any Investments, or purchase or otherwise acquire any material amount of assets,
other than:
(i) Purchases of Inventory in the ordinary course of business;
(ii) Purchases of intellectual property that do not exceed $5,000,000 in the
aggregate;

20
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

(iii) Normal trade credit extended in the ordinary course of business and
consistent with prudent business practice;
(iv) Capital Expenditures allowed under Section 7.2(l) of this Agreement;
(v) Investments in development of new product lines that are permitted under
Section 7.2(i) of this Agreement;
(vi) Investment in Subsidiaries listed on Schedule 7.2(c) and Investments in
Subsidiaries engaged exclusively in the Continuing Business made after the
Closing Date that do not exceed $5,000,000 in the aggregate;
(vii) Investment in joint ventures engaged exclusively in the Continuing
Business made after the Closing Date that do not exceed $5,000,000;
(viii) Loans and advances to officers and employees for salary, travel expenses,
commissions and similar items in the ordinary course of business in the
aggregate amount at any one time outstanding not to exceed $500,000;
(ix) Payables permitted under Section 7.2(g) of this Agreement;
(x) The endorsement of instruments for collection or deposit in the ordinary
course of business;
(xi) Stock or obligations issued to Issuer by any person (or the representative
of such person) in respect of debt or other trade obligations of such person
owing to Issuer in connection with the insolvency, bankruptcy, receivership or
reorganization of such person or a composition, readjustment or settlement of
the debts of such person or in respect of a settlement of a dispute with such
person;
(xii) Investments in existence on the Closing Date set forth on Schedule 7.2(c)
;
(xiii) Securities, instruments or other Investments that Issuer may acquire in
connection with any disposition permitted hereunder; provided that such
securities, instruments or other Investments shall constitute not more that
25 percent of the purchase price;
(xiv) Contingent obligations to the extent permitted under Section 7.2(c)(xiii)
;
(xv) Foreign currency hedging agreements entered into in the ordinary course of
business for non-speculative purposes in an aggregate amount not to exceed
$1,000,000;
(xvi) Loans to Subsidiaries of Issuer that are to be repaid within five Business
Days of being made in an aggregate amount not to exceed $8,000,000;
(xvii) Investments not otherwise permitted hereunder not to exceed $1,000,000 at
any one time, provided that no Default or Event of Default has occurred at the
time of such Investments or would result therefrom; or
(xviii) Maintenance of deposits with Bank of the West or Investments in cash
equivalents.
(f)  Obligations Relating to Guaranties . The Issuers shall not create, incur,
assume or permit to exist any obligations arising under Guaranties except (i) by
endorsement of instruments or items of payment for deposit to the general
account of the Issuers, and (ii) for obligations arising under Guaranties
incurred for the benefit of the Issuers if the primary obligation is expressly
permitted by this Agreement.
(g)  Transactions with Affiliates . The Issuers shall not directly or indirectly
enter into any purchase, sale, lease, sale-leaseback, or other transaction with
any Affiliate, except transactions in the ordinary course of business on terms
that are no less favorable to the Issuers than those that might be obtained at
the time in a comparable arm's-length transaction with any Person that is not an
Affiliate, provided, however, that the Issuers (i) may in any event enter into
employment and severance arrangements with their respective officers and
employees in the ordinary course of business, (ii) may engage in transactions
with Affiliates expressly permitted in Section 7.2 hereof, (iii) may pay
customary fees and reasonable out-of-pocket costs to, and indemnities provided
on behalf of, directors, officers,

21
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

and employees in the ordinary course of business and (iv) may incur the
Obligations under this Agreement and the other Purchase Documents.
(h)  Fiscal Year and Accounting Changes . The Issuers shall not (i) change its
fiscal year, or (ii) make any significant change (A) in accounting treatment and
reporting practices (except as permitted by GAAP), or (B) in tax reporting
treatment (except as required by law).
(i)  Operations . The Issuers shall not engage in any activity or introduce any
major product that is substantially different from or unrelated to the present
business activities or products of the Issuers (other than any activities or
products that are complimentary or ancillary to the present Business activities
or products of the Issuers), or discontinue any portion of the Issuers' present
business activities (other than the Business) that constitutes a substantial
portion thereof.
(j)  Prohibition on Change in Control . The Issuers shall not undergo a Change
in Control.
(k)  Subsidiaries . The Issuers shall not create or acquire any Subsidiary
unless such Subsidiary is organized under the laws of the United States and
becomes a party to and bound by, as a Co-Issuer, this Agreement.
(l)  Capital Expenditures . The Issuers shall not make Capital Expenditures in
any calendar year in excess of $1,500,000 in the aggregate (the “ Capital
Expenditure Limitation ”); provided, that in the event any Issuer does not
expend the entire Capital Expenditure Limitation in any calendar year, such
Issuer may carry forward 50 percent of such un-expended amount to the
immediately succeeding calendar year. All Capital Expenditures shall first be
applied to reduce the applicable Capital Expenditure Limitation and then to
reduce the carry-forward from the previous calendar year, if any, provided that
notwithstanding anything herein to the contrary, such Issuer shall not be
entitled to carry forward any unutilized Capital Expenditure Limitation for more
than one year.
ARTICLE 8
EVENTS OF DEFAULT
8.1 Event of Default . Any of the following shall constitute an “ Event of
Default ”:
(a)  Non-Payment . The Issuers shall fail to pay any amount of principal (and
such failure is not cured within three days) owed pursuant to the Notes when
due, or the Issuers shall fail to pay any other amount payable by the Issuers
under this Agreement or any other the Purchase Document when due (and such
failure is not cured within 30 days); or
(b)  Representation or Warranty . Any representation or warranty made by the
Issuers under or in connection with this Agreement or any Purchase Document
shall prove to have been incorrect in any material respect when made; or
(c)  Specific Defaults . The Issuers shall fail to perform or observe (i) any
covenant set forth in Section 7.1(a) , Section 7.1(e) or Section 7.2 , or
(ii) any other covenant, obligation or term hereunder or under any of the
Purchase Documents and such failure is not cured within 30 days of the earlier
of the Requisite Purchasers' written notice thereof or the Issuers becoming
aware of such failure; or
(d)  Cross Default . The Issuers shall (i) fail to pay when due (after any
applicable grace period) any amount payable in respect of any Indebtedness
(including undrawn, committed, or available amounts and including amounts owing
to all creditors under any combined or syndicated credit arrangement) exceeding
$1,000,000 in principal amount, unless the amount in question is subject to a
bona fide dispute by such Issuer and has not been determined by a court,
arbitrator, or other finder of fact to be owed by such Issuer, or (ii) fail to
observe or perform (after any applicable notice or grace period) any term,
covenant, or agreement evidencing or securing such Indebtedness, and the effect
of such failure to observe or perform is to cause the acceleration of the
maturity of such Indebtedness; provided, however, that no “Event of Default”
which may occur under the Senior Credit Documents shall serve as a basis for the
occurrence of an Event of Default hereunder unless the Senior Lender thereunder
has accelerated the obligations under such Senior Loan Documents; or
(e)  Insolvency; Voluntary Proceedings . The Issuers shall admit in writing its
inability to pay its debts, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by such Issuer in any
jurisdiction seeking to adjudicate such Issuer bankrupt or insolvent, or seeking
reorganization, arrangement,

22
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

adjustment, or composition of such Issuer or such Issuer's debt under any law
relating to bankruptcy, insolvency, or reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, or other similar official for such
Issuer for such part of such Issuer's property as in the opinion of the
Requisite Purchasers is a substantial part; or any such proceeding shall be
instituted against such Issuer that is not dismissed within 60 days after the
institution thereof, or such Issuer shall take any corporate action to authorize
any of the actions set forth above in this Section 8.1(e) ; or any Governmental
Authority shall declare or take any action that operates as a moratorium on the
payment of debts of such Issuer; or
(f)  Judgments . A judgment or order for the payment of money in excess of
$1,000,000 shall be entered against the Issuers or any of their Subsidiaries by
any court, or a warrant of attachment or execution or similar process shall be
issued or levied against property of Issuer or any of its Subsidiaries that in
the aggregate exceeds $1,000,000 in value, the payment of which is not fully
covered by insurance in excess of any deductibles not exceeding $100,000 in the
aggregate, and such judgment, order, warrant, or process shall continue
undischarged or unstayed or unbonded for 60 days; or
(g)  Material Adverse Effect . Any occurrence or event that has a Material
Adverse Effect; or
(h)  Purchase Documents . Any material provision of any Purchase Document shall
for any reason cease to be valid and binding on or enforceable against any
Issuer party thereto or any Issuer shall so state in writing or bring an action
to limit its obligations or liabilities thereunder.
8.2 Consequences of Event of Default .
(a)  Bankruptcy and Cross-Acceleration . If an Event of Default specified in
Section 8.1(e) hereof shall occur, the Accreted Value of the Notes and all other
liabilities of the Issuers to the holders thereof hereunder and thereunder shall
be immediately due and payable, without presentment, demand, protest or (except
as expressly required hereby) notice of any kind, all of which are hereby
expressly waived.
(b)  Other Defaults . If any other Event of Default shall occur, Requisite
Purchasers may at their option, by written notice to the Issuers, declare the
entire unpaid balance of the Notes, and interest accrued thereon and all other
liabilities of the Issuers hereunder and thereunder to be forthwith due and
payable, and the same shall thereupon become immediately due and payable,
without presentment, demand, protest or (except as expressly required hereby)
notice of any kind, all of which are hereby expressly waived.
(c)  Default Interest . Following the occurrence and during the continuance of
any Event of Default, the holders of the Notes may at their option upon the
election of the Requisite Purchasers, by written notice to the Issuers, declare,
to the extent permitted by applicable law, that interest on the outstanding
principal of, and premium and overdue interest, if any, on, the Notes shall
accrue at a rate per annum equal to the interest rate thereon (determined as
provided in Section 3.1 hereof) plus 200 basis points.
(d)  Rights Not Exclusive . The rights provided for in this Agreement and the
other Purchase Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE 9
MISCELLANEOUS
9.1 Successors and Assigns . This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that (a) the Issuers may not assign or transfer its rights hereunder or
any interest herein or delegate its duties hereunder and (b) Purchasers shall
have the right to assign their rights hereunder and under the Notes in
accordance with Article 6 hereof.
9.2 Modifications and Amendments . This Agreement may be amended, and the
Issuers may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Issuers shall obtain the prior written
consent of the Requisite Purchasers to such amendment, action or omission to
act; provided , however , that without the prior written consent of each
Purchaser affected thereby, no such agreement shall (a) decrease the principal
amount of, or, except as provided in Section 3.2 hereof, extend the maturity
date of any Note, decrease the rate of interest on any Note (provided that a
waiver of default interest shall not be deemed to decrease the rate

23
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

of interest), or decrease the amount payable by the Issuers in respect of the
mandatory or optional redemption of any Note, (b) effect any waiver, amendment
or modification that by its terms changes the amount or allocation of, or
postpone or delay any date fixed for, any payment of principal, interest, fees
or other amounts due to Purchasers pursuant to the Notes or any other Purchase
Document, (c) amend the provisions of this Section 9.2 or the definition of the
term “Requisite Purchasers”, or (d) discharge the Issuers from their respective
obligations under any Purchase Document. Each holder of a Note outstanding at
the time of consent or times thereafter shall be bound by any consent authorized
by this Section, whether or not such Note shall have been marked to indicate
such consent.
9.3 No Implied Waivers; Cumulative Remedies; Writing Required . No delay or
failure in exercising any right, power or remedy hereunder shall affect or
operate as a waiver thereof; nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy. The rights and remedies hereunder are cumulative and not exclusive of
any rights or remedies that Purchasers or any holder of Notes would otherwise
have. Any waiver, permit, consent or approval of any kind or character of any
breach or default under this Agreement or any such waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent in such writing specifically set forth.
9.4 Reimbursement of Expenses . The Issuers upon demand shall pay or reimburse
Purchasers for all reasonable fees and expenses incurred or payable by
Purchasers (including, without limitation, reasonable fees and expenses of
(x) not more than one firm of special counsel for Purchasers or (y) if such
special counsel determines in good faith that such joint representation would
constitute a conflict of interest, then not more than the number of firms of
special counsel required to cure such conflict of interest), from time to time
(a) arising in connection with the negotiation, preparation and execution of
this Agreement, the Notes, the other Purchase Documents and all other
instruments and documents to be delivered hereunder or thereunder or arising in
connection with the transactions contemplated hereunder or thereunder,
(b) relating to any amendments, waivers or consents pursuant to the provisions
hereof or thereof, and (c) arising in connection with the enforcement of this
Agreement or collection of the Notes. The amounts owed by the Issuers pursuant
to this Section shall be paid by the Issuers in the ordinary course of the
Issuers' business after the Purchasers bill the Issuers for such amounts, or on
December 31, 2012, whichever occurs first.
9.5 Holidays . Whenever any payment or action to be made or taken hereunder or
under the Notes shall be stated to be due on a day which is not a Business Day,
such payment or action shall be made or taken on the next following Business
Day, and such extension of time shall be included in computing interest or fees,
if any, in connection with such payment or action.
9.6 Notices . All notices and other communications given to or made upon any
party hereto in connection with this Agreement shall, except as otherwise
expressly herein provided, be in writing (including telecopy, but in such case,
a confirming copy will be sent by another permitted means) and mailed via
certified mail, telecopied or delivered by guaranteed overnight parcel express
service or courier to the respective parties, as follows:
to the Issuers :
Nautilus, Inc.
16400 S.E. Nautilus Drive
Vancouver, WA 98683
Attn: Alec Anderson
Email: aanderson@nautilus.com
with a copy (which shall not constitute notice to the Issuers) to:
Kirkland & Ellis LLP
300 N. LaSalle Street
Chicago, Illinois 60654

24
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

Attn: Jocelyn Hirsch
Email: Jocelyn.Hirsch@kirkland.com
to Purchasers :
As set forth on Annex A
or in accordance with any subsequent written direction from a party to the other
parties. All such notices and other communications shall, except as otherwise
expressly herein provided, be effective: upon delivery if delivered by courier
or overnight parcel express service; in the case of certified mail, three
(3) Business Days after the date sent; or in the case of telecopy, when
received.
9.7 Survival . All representations, warranties, covenants and agreements of the
Issuers contained herein or made in writing in connection herewith shall survive
the execution and delivery of this Agreement and the purchase of the Notes and,
except as otherwise provided herein, shall continue in full force and effect so
long as any Note is outstanding and until payment in full of all of the
Obligations hereunder or thereunder (other than contingent indemnification
Obligations to the extent no claim giving rise thereto has been asserted). All
obligations relating to indemnification or the reimbursement of expenses
hereunder shall survive any termination of this Agreement and shall continue for
the length of any applicable statute of limitations.
9.8 Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT
OF LAWS PRINCIPLES.
9.9 Jurisdiction; Consent to Service of Process .
(a) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT
OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN THE BOROUGH OF
MANHATTAN IN THE STATE OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES
OR ANY OTHER PURCHASE DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREES THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK COURT
OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY
RIGHT THAT PURCHASERS MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER PURCHASE DOCUMENT AGAINST THE
ISSUER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(b) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER PURCHASE
DOCUMENT IN ANY NEW YORK STATE COURT OR FEDERAL COURT LOCATED IN THE STATE OF
NEW YORK. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(c) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN
THE MANNER PROVIDED FOR NOTICES IN SECTION 9.6 HEREOF. NOTHING IN THIS AGREEMENT
WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW.
9.10 Jury Trial Waiver . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVE ANY RIGHT TO

25
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

TRIAL BY JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (II) ARISING FROM ANY DISPUTE OR
CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT AND AGREES THAT ANY
SUCH ACTION OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
9.11 Severability . Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law in any jurisdiction, such provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating any
other provision of this Agreement.
9.12 Headings . Article, section and subsection headings in this Agreement are
included for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
9.13 Indemnity . Each Issuer agrees to indemnify and hold harmless Purchasers,
as well as Purchasers' shareholders, directors, officers, agents, attorneys,
Subsidiaries, and Affiliates, from and against all damages, losses, settlement
payments, obligations, liabilities, claims, suits, penalties, assessments,
citations, directives, demands, judgments, actions, or causes of action, whether
statutorily created or under the common law, all reasonable out-of-pocket costs
and expenses (including, without limitation, attorneys' fees), and all other
liabilities whatsoever that at any time or times shall be incurred, suffered,
sustained, or required to be paid by any such indemnified Person (except any of
the foregoing to the extent that they result from the bad faith, gross
negligence or willful misconduct of any indemnified Person) on account of, in
relation to, or in any way in connection with any of the arrangements or
transactions contemplated by, associated with, or ancillary to this Agreement,
any of the other Purchase Documents, or any other documents executed or
delivered in connection herewith or therewith, all as the same may be amended
from time to time. In any investigation, proceeding, or litigation, or the
preparation therefor, Purchasers shall select their own counsel and, in addition
to the foregoing indemnity, each Issuer agrees to pay promptly the reasonable
out-of-pocket fees and expenses of such counsel. In the event of the
commencement of any such proceeding or litigation, each Issuer shall be entitled
to participate in such proceeding or litigation with counsel of such Issuer's
choice at such Issuer's own expense, provided that such counsel shall be
satisfactory to Purchasers, in Purchasers' reasonable discretion. The provisions
of this Section 9.13 of this Agreement shall survive payment (or satisfaction of
payment) of all amounts owing with respect to the Notes or any other Purchase
Document.
9.14 Counterparts . This Agreement may be executed in any number of counterparts
and by any party hereto on separate counterparts, each of which, when so
executed and delivered, shall be an original, but all such counterparts shall
together constitute one and the same instrument.
9.15 Integration . This Agreement and the other Purchase Documents set forth the
entire understanding of the parties hereto with respect to all matters
contemplated hereby and supersede all previous agreements and understandings
among them concerning such matters. No statements or agreements, oral or
written, made prior to or at the signing hereof, shall vary, waive or modify the
written terms hereof.
9.16 Subordination . THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE, IN THE
MANNER AND TO THE EXTENT SET FORTH IN THE SUBORDINATION AGREEMENT, TO THE
INDEBTEDNESS AND OTHER LIABILITIES OWED BY THE ISSUERS UNDER AND PURSUANT TO THE
SENIOR CREDIT DOCUMENTS, AND EACH PURCHASER HEREUNDER, BY ITS ACCEPTANCE HEREOF,
ACKNOWLEDGES AND AGREES TO BE BOUND BY THE PROVISIONS OF THE SUBORDINATION
AGREEMENT.
9.17 Confidentiality . Each of the Purchasers shall maintain in confidence in
accordance with its customary procedures for handling confidential information
and not disclose to any Person, all written or oral information that the Issuers
or any of their Subsidiaries or any of their authorized representatives,
furnishes to the Purchasers (“ Confidential Information ”), other than any such
Confidential Information that becomes generally available to the public other
than as a result of a breach by any Purchaser of its obligations hereunder or
that is or becomes available to such Purchaser from a source other than the
Issuers or any of their Subsidiaries, or any of their authorized
representatives, and that is not, to the actual knowledge of the recipient
thereof, subject to obligations of confidentiality with respect thereto;
provided , however , that each Purchaser shall in any event have the right to
deliver copies of any such documents, and to disclose any such information, to:
(a) Its Affiliates and to its and its Affiliates' directors, officers, trustees,
partners, employees, agents, attorneys, professional consultants, portfolio
management services (which services may be performed in the ordinary

26
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

course of such Purchaser's business as a financial institution by employees of
such Purchaser's Affiliates on a need-to-know basis, provided such employees
agree to keep such information confidential on the terms set forth in this
Section 9.17 ) and rating agencies;
(b) any other Purchaser;
(c) any Person to which such Purchaser offers to sell any Note or any part
thereof or interest or participation therein (provided such Person agrees to
keep such information confidential on the terms set forth in this Section 9.17
);
(d) any federal or state regulatory authority or examiner, or any insurance
industry association, regulating or having jurisdiction over such Purchaser
(upon prior written notice to the Issuers to the extent reasonably practicable
and not prohibited by law or court order, so that the Issuers may, at their sole
cost and expense, contest such disclosure or seek confidential treatment
thereof; and provided that, with respect to disclosures to insurance industry
agents, commercially reasonable efforts shall have been made to obtain the
agreement of the party to whom such Confidential Information is being disclosed
to be bound by the provisions of this Section 9.17 ); and
(e) any other Person to which such delivery or disclosure may be necessary or
appropriate (i) in compliance with any applicable law, rule, regulation or
order, (ii) in response to any subpoena or other legal process or informal
investigative demand, (iii) in connection with any litigation with respect to
this Agreement or the other Purchase Documents to which such Purchaser is a
party, or (iv) in connection with the enforcement of the rights and remedies of
the Purchasers under this Agreement and the other Purchase Documents at any time
when an Event of Default shall have occurred and be continuing (with respect to
clauses (i), (ii) and (iii) of this Section 9.17(e) ), in each case upon prior
written notice to the Issuers to the extent reasonably practicable and not
prohibited by law or court order, so that the Issuers may, at their sole cost
and expense, contest such disclosure or seek confidential treatment thereof.
In any event, however, the Issuers and each Purchaser may disclose to any and
all Persons, without limitation of any kind, the tax treatment and tax structure
of the transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to any Purchaser relating to
such tax treatment and tax structure; it being understood that this
authorization is retroactively effective to the commencement of the first
discussions between or among any of the parties regarding the transactions
contemplated hereby.
9.18 Waiver of Consequential Damages . To the fullest extent permitted by
applicable law, each Issuer hereby agrees not to assert, and each Issuer hereby
waives, any claim against any indemnitee under Section 9.13 of this Agreement on
any theory of liability for special damages, indirect damages, consequential
damages, or punitive damages (as opposed to direct or actual damages) arising
out of, in connection with, or as a result of, this Agreement, any other
Purchase Document, or any agreement or instrument contemplated hereby, the
transactions contemplated hereby or thereby, any Note, or the use of the
proceeds thereof.
9.19 Payments Set Aside . To the extent any payments in respect of the Notes
(including, but not limited to, any proceeds received by the Purchasers as a
result of any enforcement proceeding or setoff), or any part thereof,
subsequently are invalidated, declared to be fraudulent or preferential, set
aside, or required to be repaid to a trustee, receiver, or any other Person
under any law or equitable cause, then, to the extent of such repayment
(including any such repayment made voluntarily by the Purchasers in their
reasonable discretion), the Notes or part thereof originally intended to be
satisfied, and all rights and remedies therefor, shall be revived and shall
continue in full force and effect, and the Purchasers' rights, powers, and
remedies under this Agreement and the Purchase Documents shall continue in full
force and effect, as if such payment had not been made, or such enforcement
proceeding or setoff had not occurred. In such event, each Purchase Document
automatically shall be reinstated and the Issuers shall take such action as
reasonably may be requested by the Purchasers to effect such reinstatement.
9.20 No Duties Among Purchasers . Notwithstanding anything to the contrary
contained herein or in any other Purchase Document, including, without
limitation, the Subordination Agreement, no Purchaser shall owe any duty,
fiduciary or otherwise, to any other Purchaser.
 
 

27
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

SIGNATURE PAGE TO
NOTE PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
 
ISSUER :
 
NAUTILUS, INC.,
a Washington corporation
 
By:  
/s/ Kenneth Fish  
 
Name:  
Kenneth Fish 
 
Title:  
Chief Financial Officer 

 
 
 
 

S- 1 
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

SIGNATURE PAGE TO
NOTE PURCHASE AGREEMENT
 
 
 
 
 
PURCHASER:
 
Sherborne Strategic Fund A, LLC
 
By:  
/s/ Craig L. McKibben  
 
Name:  
Craig L. McKibben 
 
Title:  
Managing Director,
 
 
Sherborne Investors LP as Managing Member 

 
 
 
 
 
 
 
 
 

S- 2 
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

SIGNATURE PAGE TO
NOTE PURCHASE AGREEMENT
 
PURCHASER:
 
Sherborne Strategic Fund B, LLC
 
By:  
/s/ Craig L. McKibben  
 
Name:  
Craig L. McKibben 
 
Title:  
Managing Director, 
 
  
Sherborne Investors LP as Managing Member 

 
 
 
 
 
 
 
 
 

S- 3 
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

SIGNATURE PAGE TO
NOTE PURCHASE AGREEMENT
 
 
 
 
 
PURCHASER:
 
Nottingham Investors LLC 
 
By:  
/s/ Craig L. McKibben  
 
Name:  
Craig L. McKibben 
 
Title:  
Managing Director, 
 
  
Sherborne Investors LP as Managing Member 

 

S- 4 
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

ANNEX A
TO
NOTE PURCHASE AGREEMENT
Purchaser and Payment Information
INVESTMENT INFORMATION:
 
 
 
 
 
 
 
 
 
Pro Rata
 
 
Pro Rata
 
Portion of
Purchaser
 
Investment
 
the Notes
Sherborne Strategic Fund A, LLC
 
8.51
%
 
$
425,600.00
 
Sherborne Strategic Fund B, LLC
 
12.85
%
 
642,550.00
 
Nottingham Investors LLC
 
78.64
%
 
3,931,850.00
 
 
 
100.00
%
 
$
5,000,000.00
 

Notices for each of the Purchasers should be sent to such Purchaser at the
following address:
c/o Sherborne Investors LP
135 East 57th Street
New York, NY 10022
Annex A to
Note Purchase Agreement
 
 
 
 
 
 
 
Payment and Notice Instructions
 
 
 
 
 
 
 

A- 1
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

Schedule 5.5
Litigation
None.
 
 
 
 
 

A- 2
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

Schedule 7.2(a)
Liens
 
1. 
 
 
FILING TYPE
 
FILE NUMBER & DATE
 
DEBTOR
 
SECURED PARTY
 
COLLATERAL DESCRIPTION
UCC
 
200631958040
11/15/06
 
NAUTILUS, INC.
16400 SE NAUTILUS DR.
Vancouver, WA
 
NMHG Financial Services, Inc.
10 Riverview Drive
Danbury, CT
 
Leased equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200632676363
11/22/06
 
NAUTILUS, INC.
16400 SE NAUTILUS DR.
Vancouver, WA
 
Raymond Leasing Corporation
20 S. Canal Street
Greene, NY
 
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200632676370
11/22/06
 
Nautilus, Inc.
16400 SE NAUTILUS DR
Vancouver, WA
 
Raymond Leasing Corporation
20 S. Canal Street
Greene, NY
 
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200633800866
12/1/06
 
Nautilus, Inc.
16400 SE NAUTILUS DR
Vancouver, WA
 
Raymond Leasing Corporation
20 S. Canal Street
Greene, NY
 
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200719346035
7/12/07
 
NAUTILUS INC
16400 SE NAUTILUS DR.
Vancouver, WA
 
US Bancorp
1310 Madrid Street
Marshall, MN
 
For informational purposes:
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200719346042
7/12/07
 
NAUTILUS INC
16400 SE NAUTILUS DR.
Vancouver, WA
 
US Bancorp
1310 Madrid Street
Marshall, MN
 
For informational purposes:
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200720065482
7/19/07
 
NAUTILUS INC
16400 SE NAUTILUS DR.
Vancouver, WA
 
US Bancorp
1310 Madrid Street
Marshall, MN
 
For informational purposes:
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200724802953
9/5/07
 
NAUTILUS INC
16400 SE NAUTILUS DR.
Vancouver, WA
 
US Bancorp
1310 Madrid Street
Marshall, MN
 
For informational purposes:
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200730683140
11/2/07
 
Nautilus, Inc.
16400 SE NAUTILUS DR
Vancouver, WA
 
Raymond Leasing Corporation
20 S. Canal Street
Greene, NY
 
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200801177264
1/11/08
 
NAUTILUS INC
16400 SE NAUTILUS DR.
Vancouver, WA
 
US Bancorp
1310 Madrid Street
Marshall, MN
 
For informational purposes:
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200804573155
2/14/08
 
NAUTILUS INC
16400 SE NAUTILUS DR.
Vancouver, WA
 
US Bancorp
1310 Madrid Street
Marshall, MN
 
For informational purposes:
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200819299651
7/10/08
 
Nautilus, Inc.
16400 SE Nautilus Dr
Vancouver, WA
 
ABS Finance
PO BOX 609
CEDAR RAPIDS, IA
 
For informational purposes:
Leased equipment.

 
 
 
 
 
 

A- 3
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

 
 
FILING TYPE
 
FILE NUMBER & DATE
 
DEBTOR
 
SECURED PARTY
 
COLLATERAL DESCRIPTION
UCC
 
200820427944
7/22/08
 
Nautilus Inc.
16400 SE Nautilus Dr
Vancouver, WA
 
CIT Technology Financing Services, Inc.
10201 Centurion Parkway
North Suite 100
Jacksonville, FL
 
For informational purposes:
Leased equipment.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional Secured Party:
 
 
 
 
 
 
 
 
ABS Finance
7440 SW Bonita Rd
Portland, OR
 
 
 
 
 
 
 
 
 
 
 
UCC
 
200903519672
2/4/09
 
Nautilus, Inc.
709 Power House Road
Independence, VA
 
Wells Fargo Bank, N.A.
300 Tri State
International Ste 400
Lincolnshire, IL
 
Specific equipment.
 
 
 
 
 
 
 
 
 
UCC
 
200903628251
2/5/09
 
Nautilus, Inc.
709 Powerhouse Rd
Independence, VA
 
Virginia Business Systems Inc.
PO Box 609
Cedar Rapids, IA
 
Leased equipment.
 
 
 
 
 
 
 
 
 
UCC
 
201006776207
03/08/2010
 
Nautilus, Inc
16400 SE Nautilus Drive
Vancouver, WA
 
Bank of the West
222 SW Columbia Street, Suite 1200
Portland, OR
 
All assets of Debtor, whether or not owed or acquired.
 
 
 
 
 
 
 
 
 
UCC
 
201018384704
07/01/2010
 
Nautilus, Inc
16400 SE Nautilus Drive
Vancouver, WA
 
GE Money Bank
170 Election Road, Suite 125
Draper, UT
 
Lien pursuant to the Private Label Consumer Credit Card Program Agreement

 
2.
Letter of Credit in the amount of $1,945,386 issued by Bank of America

 
 
 
 
 

A- 4
 
Note Purchase Agreement

--------------------------------------------------------------------------------

 

Schedule 7.2(c)
Indebtedness
 
1.
Indebtedness evidenced by Senior Credit Documents
 
 
2.
Letter of Credit in the amount of $1,945,386 issued by Bank of America

 
 
 
 
 

A- 5
 
Note Purchase Agreement