<PAGE>
Exhibit 10.27
Execution Copy
THE OBLIGATIONS OF PAYMENT AND PERFORMANCE
EVIDENCED HEREBY AND BY THE OTHER
PURCHASE DOCUMENTS AND THE RIGHTS OF THE
PURCHASERS AND SERVICER HEREUNDER AND
THEREUNDER (INCLUDING RIGHTS OF PAYMENT AND
ENFORCEMENT) ARE SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN THAT
CERTAIN SUBORDINATION AGREEMENT DATED
AS OF DECEMBER 11, 2003 (THE "SUBORDINATION
AGREEMENT"), AMONG THE LOAN PARTIES,
FLEET, AS THE SENIOR LENDER, THE SERVICER
AND THE PURCHASER, TO THE INDEBTEDNESS
AND OTHER LIABILITIES OWED BY, AND ALL
OTHER OBLIGATIONS OF, THE LOAN PARTIES
UNDER AND PURSUANT TO THE SENIOR CREDIT
AGREEMENT AND EACH RELATED "LOAN
DOCUMENT" (AS DEFINED THEREIN). THE
SERVICER AND EACH HOLDER HEREOF, BY ITS
ACCEPTANCE HEREOF, ACKNOWLEDGES AND AGREES
TO BE BOUND BY THE PROVISIONS OF THE
SUBORDINATION AGREEMENT.
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT
BY AND AMONG
DOVER SADDLERY, INC.,
A DELAWARE CORPORATION,
AS PARENT,
DOVER SADDLERY, INC.,
A MASSACHUSETTS CORPORATION,
AS OPERATING COMPANY #1,
SMITH BROTHERS, INC.,
A TEXAS CORPORATION,
AS
OPERATING COMPANY #2,
AND
PATRIOT CAPITAL FUNDING, INC.,
A DELAWARE CORPORATION,
AS SERVICER
AND
THE PURCHASERS IDENTIFIED ON
ANNEX A HERETO
DECEMBER 11, 2003
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S>
<C>
ARTICLE 1
DEFINITIONS....................................................
1
1.1 CERTAIN
DEFINITIONS........................................... 1
1.2 ACCOUNTING
PRINCIPLES......................................... 11
1.3 OTHER
DEFINITIONAL PROVISIONS; CONSTRUCTION...................
11
ARTICLE 2 ISSUE AND SALE OF
SECURITIES................................... 11
2.1 AUTHORIZATION
AND ISSUANCE OF THE NOTES....................... 11
2.2 SALE AND
PURCHASE............................................. 11
2.3 THE
CLOSING...................................................
12
ARTICLE 3 REPAYMENT OF THE
NOTES......................................... 12
3.1 INTEREST RATES
AND INTEREST PAYMENTS.......................... 12
3.2 REPAYMENT OF THE
NOTES........................................ 12
3.3 OPTIONAL
PREPAYMENT OF NOTES.................................. 12
3.4 NOTICE OF
OPTIONAL PREPAYMENT................................. 13
3.5 MANDATORY
PREPAYMENT.......................................... 13
3.6 HOME OFFICE
PAYMENT........................................... 13
3.7
TAXES.........................................................
13
3.8 MAXIMUM LAWFUL
RATE........................................... 14
3.9 CAPITAL
ADEQUACY.............................................. 14
3.10 CERTAIN
WAIVERS............................................... 15
ARTICLE 4
CONDITIONS.....................................................
15
4.1 CONDITIONS TO
PURCHASE OF SECURITIES.......................... 15
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
THE LOAN PARTIES............. 18
5.1 REPRESENTATIONS
AND WARRANTIES OF THE LOAN PARTIES............ 18
5.2 ABSOLUTE
RELIANCE ON THE REPRESENTATIONS AND WARRANTIES....... 25
ARTICLE 6 TRANSFER OF
NOTES.............................................. 25
6.1 RESTRICTED
SECURITIES......................................... 25
6.2 LEGENDS;
PURCHASER'S REPRESENTATIONS.......................... 25
6.3 TRANSFER OF
NOTES............................................. 25
6.4 REPLACEMENT OF
LOST SECURITIES................................ 26
6.5 NO OTHER
REPRESENTATIONS AFFECTED............................. 26
6.6
REGISTER......................................................
26
ARTICLE 7
COVENANTS......................................................
26
7.1 AFFIRMATIVE
COVENANTS......................................... 26
7.2 NEGATIVE
COVENANTS............................................ 32
</TABLE>
-i-
<PAGE>
<TABLE>
<S>
<C>
7.3 FINANCIAL
COVENANTS........................................... 36
ARTICLE 8 EVENTS OF
DEFAULT.............................................. 38
8.1 EVENTS OF
DEFAULT............................................. 38
8.2 CONSEQUENCES OF
EVENT OF DEFAULT.............................. 40
8.3
SECURITY......................................................
40
ARTICLE 9 THE
SERVICER...................................................
40
9.1 AUTHORIZATION
AND ACTION...................................... 40
9.2 DELEGATION OF
DUTIES.......................................... 41
9.3 EXCULPATORY
PROVISIONS........................................ 41
9.4
RELIANCE......................................................
41
9.5 NON-RELIANCE ON
SERVICER AND OTHER PURCHASERS................. 41
9.6 SERVICER IN ITS
INDIVIDUAL CAPACITY........................... 42
9.7 SUCCESSOR
SERVICER............................................ 42
9.8 COLLECTIONS AND
DISBURSEMENTS................................. 42
9.9
REPORTING.....................................................
43
9.10 CONSENT OF
PURCHASERS......................................... 43
9.11 THIS ARTICLE NOT
APPLICABLE TO LOAN PARTIES................... 44
9.12 NO LIABILITY OF
PURCHASERS.................................... 44
ARTICLE 10
MISCELLANEOUS.................................................
44
10.1 SUCCESSORS AND
ASSIGNS........................................ 44
10.2 MODIFICATIONS AND
AMENDMENTS.................................. 44
10.3 NO IMPLIED WAIVERS;
CUMULATIVE REMEDIES; WRITING REQUIRED..... 44
10.4 REIMBURSEMENT OF
EXPENSES..................................... 45
10.5
HOLIDAYS......................................................
45
10.6
NOTICES.......................................................
45
10.7
SURVIVAL......................................................
46
10.8 GOVERNING
LAW................................................. 46
10.9 JURISDICTION, CONSENT
TO SERVICE OF PROCESS................... 46
10.10 JURY TRIAL
WAIVER............................................. 47
10.11
SEVERABILITY..................................................
47
10.12
HEADINGS......................................................
48
10.13
INDEMNITY.....................................................
48
10.14 ENVIRONMENTAL
INDEMNITY....................................... 48
10.15
COUNTERPARTS..................................................
49
10.16
INTEGRATION...................................................
49
10.17
SUBORDINATION.................................................
49
</TABLE>
ANNEX
SCHEDULES
-ii-
<PAGE>
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT
$3,500,000 AGGREGATE PRINCIPAL AMOUNT OF
SENIOR SECURED SUBORDINATED NOTES OF THE LOAN PARTIES
DUE MARCH 11, 2007
THIS SENIOR
SUBORDINATED NOTE PURCHASE AGREEMENT (this "Agreement"), dated
as of December 11, 2003, is by and among
DOVER SADDLERY, INC., a Delaware
corporation ("Parent"), DOVER SADDLERY,
INC., a Massachusetts corporation and
wholly-owned subsidiary of Parent
("Operating Company #1"), SMITH BROTHERS,
INC., a Texas corporation and wholly-owned
subsidiary of Parent ("Operating
Company #2 and, together with Parent and
Operating Company #1, the "Loan
Parties"), the securities purchasers that
are now and hereafter at any time
parties hereto and are listed in Annex B
(or any amendment or supplement
thereto) attached hereto (individually, a
"Purchaser" and collectively,
"Purchasers"), and PATRIOT CAPITAL FUNDING,
INC., a Delaware corporation
("Patriot"), as administrative agent for
Purchasers (in such capacity,
"Servicer"). Capitalized terms used and not
defined elsewhere in this Agreement
are defined in Article 1 hereof.
RECITALS
WHEREAS, the
Loan Parties have proposed selling $3,500,000 of Notes (as
defined below) for the purpose of: (i)
repaying the Existing Subordinated
Financing; (ii) paying fees and expenses in
connection with the transactions
contemplated under the Transaction
Documents; and (iii) financing ongoing
working capital and capital expenditure
requirements and other general corporate
purposes in the ordinary course of
business.
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 shall 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):
"Affiliate"
means with respect to any Person, (i) any director, officer or
employee of that Person, (ii) any other
Person that is directly or indirectly
controlling, controlled by or under common
control with such Person or entity or
any of its Subsidiaries, (iii) any other
Person directly or indirectly holding
ten percent (10%) or more of any class of
the capital stock or other equity
interests (including options, warrants,
convertible securities and similar
rights) of that Person and (iv) any other
Person ten percent (10%) or more of
any class of whose capital stock or other
equity interests (including options,
warrants, convertible securities and
similar rights) is
<PAGE>
held directly or indirectly by that Person.
Notwithstanding the foregoing,
neither Wilton Funding, Servicer nor any
Affiliate of Wilton Funding or Servicer
shall be deemed an Affiliate of any of the
Loan Parties.
"Agreement"
means this Senior Subordinated Note Purchase Agreement, as the
same may be amended, restated, supplemented
or otherwise modified from time to
time and including all exhibits,
attachments and appendices hereto.
"Arrangement Fee"
means a fee in an amount equal to $75,000 payable by the
Loan Parties to Servicer in consideration
of the structuring of the financing
contemplated hereby.
"Boards" means,
collectively, the board of directors of each of the Loan
Parties.
"Business" means
the principal business of the Loan Parties as set forth in
Section 5.1(b) herein and as such shall
continue to be conducted following the
purchase and sale of the Securities.
"Business Day"
means any day other than a Saturday, Sunday or other day on
which banking institutions in New York are
authorized or required by law to
close.
"By-laws" means
the by-laws, partnership agreement, operating agreement or
analogous instrument governing the
operations of each of the Loan Parties,
including all amendments and supplements
thereto.
"Capital
Expenditures" means, with respect to any Person, the amount of
any
expenditures for fixed assets, computer
software, leasehold improvements,
capital leases under GAAP, installment
purchases of machinery and equipment,
acquisitions of real estate, expenditures
in any construction in progress
account of such Person and other similar
expenditures which are required to be
capitalized on a balance sheet pursuant to
GAAP.
"Capitalized
Leases" means, with respect to any Person, leases of (or other
agreements conveying the right to use) any
property (whether real, personal or
mixed) by such Person as lessee that, in
accordance with GAAP (as defined in
Section 1.2 hereof), either would be
required to be classified and accounted for
as capital leases on a balance sheet of
such Person or otherwise be disclosed as
such in a note to such balance sheet.
"CERCLA" means
the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601, et
seq.), as amended, and rules,
regulations, standards and guidelines
issued thereunder.
"Change of
Control" means the occurrence of any of the following:
(a) any transaction or series of related transactions resulting in
the
sale or issuance
of securities or any rights to securities of Parent by
Parent, or any
transaction or series of related transactions resulting in
the sale,
transfer, assignment or other conveyance or disposition of any
securities or any
rights to securities of Parent by any holder or holders
thereof and, as
a result thereof in either case, Stephen L. Day holds less
-2-
<PAGE>
than 15% of the
voting securities of Parent or less than 15% of the total
equity
securities of Parent, each computed on a fully diluted basis;
(b) a merger, consolidation, reorganization, recapitalization or
share
exchange in
which the equity holders of Parent immediately prior to such
transaction
receive, in exchange for securities of Parent owned by them,
cash, property,
securities or securities of the resulting or surviving
entity and as a
result thereof Persons who were holders of voting
securities of
Parent and hold less than 50% of the capital stock,
calculated on a
Fully Diluted Basis, of the resulting corporation entitled
to vote in the
election of directors;
(c) the Parent owns beneficially and of record and controls less
than
100% of the capital
stock of Operating Company #1 or Operating Company #2;
(d) a sale, transfer or other disposition of all or substantially
all
of the assets of
Operating Company #1 or Operating Company #2;
(e) the initial public offer of securities by Parent other than
an
offering of
securities for an employee benefit plan on SEC Form S-8 or a
successor form;
or
(f) Stephen L. Day shall cease to be an Executive Officer, or
shall
not devote
substantially all of his business time and efforts to the
business and
affairs of the Parent, Operating Company #1 and Operating
Company #2 for
any reason other than his death or Disability.
"Charter
Documents" means the Articles of Incorporation, Certificate of
Incorporation, certificate of limited
partnership, certificate of limited
liability company, charter or analogous
organic instrument filed with the
appropriate Governmental Authorities of
each of the Loan Parties, as applicable,
including all amendments and supplements
thereto.
"Closing" means
the closing of the purchase and sale of the Securities
pursuant to this Agreement.
"Closing Date"
means the date and time for delivery and payment of the
Notes as finally determined pursuant to
Section 2.4 hereof.
"Code" means the
Internal Revenue Code of 1986, as amended.
"Common Stock"
means the common stock, par value $0.0001 per share, of
Parent.
"Competitor"
means a Person actively engaged the Business.
"Condition"
means any condition that results in or otherwise relates to any
Environmental Liabilities.
"Controlled
Group" means the "controlled group of corporations" as that
term is defined in Section 1563 of the
Code, of which the Loan Parties are a
part from time to time.
-3-
<PAGE>
"Default" means
any event or condition that, but for the giving of notice
or the lapse of time, or both, would
constitute an Event of Default.
"Disability"
means the physical or mental inability of a natural Person to
render employment services for an aggregate
of ninety (90) days during any
twelve-month period.
"EBITDA" means,
during any period of determination, without duplication,
the Net Income of the Loan Parties for such
period plus the following, to the
extent deducted in computing such Net
Income: (i) depreciation, (ii)
amortization, (iii) other non-cash charges,
(iv) Interest Charges, (v) Taxes on
income imposed by any Governmental
Authority, and (vi) all extraordinary items.
"Environmental
Laws" means any Laws that address, are related to or are
otherwise concerned with environmental,
health or safety issues, including any
Laws or regulations promulgated by the EPA
or other Governmental Authorities
relating to any emissions, releases or
discharges of Pollutants into ambient
air, surface water, ground water or land,
or otherwise relating to the
manufacture, processing, distribution, use,
treatment, storage, disposal,
transport, handling, clean-up or control of
Pollutants or any exposure or impact
on worker health and safety.
"Environmental
Liabilities" means any obligations or liabilities (including
any claims, suits or other assertions of
obligations or liabilities) that are:
(a) related to environmental, health or safety issues
(including
on-site or
off-site contamination by Pollutants of surface or subsurface
soil or water,
and occupational safety and health); and
(b) based upon or related to (i) any provision of past, present
or
future United
States or foreign Environmental Law (including CERCLA and
RCRA) or common
law, or (ii) any judgment, order, writ, decree, permit or
injunction
imposed by any court, administrative agency, tribunal or
otherwise.
The term "Environmental
Liabilities" includes: (i) fines, penalties,
judgments, awards, settlements, losses,
damages (including foreseeable and
unforeseeable consequential damages),
costs, fees (including attorneys' and
consultants' fees), expenses and
disbursements; (ii) defense and other responses
to any administrative or judicial action
(including claims, notice letters,
complaints, and other assertions of
liability); and (iii) financial
responsibility for (1) cleanup costs and
injunctive relief, including any
Removal, Remedial or other Response
actions, and natural resource damages, and
(2) any other compliance or remedial
measures.
"EPA" means the
United States Environmental Protection Agency and any
governmental body or agency succeeding to
the functions thereof.
"ERISA" means
the Employee Retirement Income Security Act of 1974, as the
same may from time to time be amended, and
the rules and regulations of any
governmental agency or authority, as from
time to time in effect, promulgated
thereunder.
"Event of
Default" means any of the events of default described in
Section
8.1 hereof.
-4-
<PAGE>
"Executive
Officers" means the chief executive officer, chief operating
officer and chief financial officer of the
applicable Loan Party.
"Existing
Subordinated Debt Documents" means, collectively (i) the
Securities Purchase Agreement dated as of
September 17, 1998, as amended,
between the Existing Subordinated Lender
and the Loan Parties, (ii) the 22%
Senior Subordinated Notes dated as of
September 17, 1998 issued by the Loan
Parties in favor of the Existing
Subordinated Lender and (iii) all other
agreements, instruments, documents or
contracts delivered in connection
therewith or contemplated thereby, as
amended, modified and supplemented from
time to time.
"Existing
Subordinated Financing" means the Indebtedness to the Existing
Subordinated Lender evidenced by the
Existing Subordinated Debt Documents.
"Existing
Subordinated Lender" means, collectively, Citizens Capital,
Inc.
and Citizens Ventures, Inc., and their
respective permitted successors and
assigns.
"Financing
Statements" has the meaning assigned to such term in Section
4.1(c) hereof.
"Fiscal Year" or
"fiscal year" means each twelve month period ending on
December 31st of each year.
"Fleet" means
Fleet National Bank, a national banking association having
its head office at 100 Federal Street,
Boston, MA 02110.
"Fully Diluted
Basis" means the total number of shares of Common Stock that
are issued and outstanding on a particular
date, plus the total number of shares
of Common Stock which would be issued and
outstanding assuming the exercise of
all outstanding options, warrants or rights
to purchase Common Stock and the
conversion of all outstanding
securities.
"Funded Debt"
means, as at any date of determination, the sum of (i)
aggregate obligations outstanding under the
Senior Credit Agreement on such
date, plus (ii) the stated amount of
letters of credit outstanding under the
Senior Credit Agreement on such date, plus
(iii) all principal obligations
arising under Capitalized Leases in effect
on such date, plus (iv) all other
Guaranties and Indebtedness for borrowed
money outstanding on such date
(including, without limitation, all amounts
outstanding under this Agreement and
the Notes).
"Funded Debt
Ratio" means, as at the end of any fiscal quarter of the Loan
Parties, the ratio of the Loan Parties':
(a) Funded Debt as at the end of such
fiscal quarter to (b) EBITDA for the four
consecutive fiscal quarters ending on
the last day of such fiscal quarter.
"Funded Senior
Debt" means, as at any date of determination, the sum of (i)
aggregate obligations outstanding under the
Senior Credit Agreement on such
date, plus (ii) the stated amount of
letters of credit outstanding under the
Senior Credit Agreement on such date, plus
(iii) all principal obligations
arising under Capitalized Leases in effect
on such date, plus (iv) all other
Guaranties and Indebtedness for borrowed
money outstanding on such date (other
than amounts outstanding under this
Agreement and the Notes).
-5-
<PAGE>
"Funded Senior
Debt Ratio" means, as at the end of any fiscal quarter of
the Loan Parties, the ratio of (i) Funded
Senior Debt as at the end of such
fiscal quarter to (ii) EBITDA for the four
consecutive fiscal quarters ending on
the last day of such fiscal quarter.
"GAAP" has the
meaning assigned to such term in Section 1.2 hereof.
"Governmental
Authorities" means any federal, state or municipal court or
other governmental department, commission,
board, bureau, agency,
instrumentality or entity, governmental or
quasi-governmental, domestic or
foreign, including, without limitation, the
EPA and the IRS.
"Guaranty" means
any guaranty of the payment or performance of any
Indebtedness or other obligation and any
other arrangement whereby credit is
extended to one obligor on the basis of any
promise of another Person, whether
that promise is expressed in terms of an
obligation to pay the Indebtedness of
such obligor, or to purchase an obligation
owed by such obligor, or to purchase
goods and services from such obligor
pursuant to a take-or-pay contract, or to
maintain the capital, working capital,
solvency or general financial condition
of such obligor, whether or not any such
arrangement is reflected on the balance
sheet of such other Person, firm or
corporation, or referred to in a footnote
thereto, but shall not include endorsements
of items for collection in the
ordinary course of business. For the
purpose of all computations made under this
Agreement, the amount of a Guaranty in
respect of any obligation shall be deemed
to be equal to the maximum aggregate amount
of such obligation or, if the
Guaranty is limited to less than the full
amount of such obligation, the maximum
aggregate potential liability under the
terms of the Guaranty.
"Indebtedness"
with respect to any Person means and includes, without
duplication, (i) all items which, in
accordance with GAAP, would be included as
a liability on the balance sheet of such
Person, (ii) the face amount of all
banker's acceptances and of all letters of
credit issued by any bank for the
account of such Person and all drafts drawn
thereunder, (iii) the total amount
of all indebtedness secured by any Lien to
which any property or asset of such
Person is subject, whether or not the
indebtedness secured thereby shall have
been assumed, and (iv) the total amount of
all indebtedness and obligations of
others which such Person has directly or
indirectly guaranteed, endorsed
(otherwise than for collection or deposit
in the ordinary course of business),
discounted with recourse or agreed
(contingently or otherwise) to purchase or
repurchase or otherwise acquire, including,
without limitation, any agreement
(a) to advance or supply funds to such
other Person to maintain working capital,
equity capital, net worth or solvency, or
(b) otherwise to assure or hold
harmless such other Person against loss in
respect of its obligations.
"Interest
Charges" means, for any period, without duplication, all
interest
and all amortization of debt discount and
expense on any particular Indebtedness
for which such calculations are being made,
all as determined in accordance with
GAAP. Computations of Interest Charges on a
pro forma basis for Indebtedness
having a variable interest rate shall be
calculated at the rate in effect on the
date of any determination.
"Interest
Payment Date" has the meaning assigned to such term in Section
3.1(a) hereof.
-6-
<PAGE>
"Interest Rate
Protection Agreement" shall mean any interest rate swap,
interest rate cap, interest rate collar or
other interest rate hedging agreement
or arrangement.
"Investment" as
applied to any Person means the amount paid or agreed to be
paid or loaned, advanced or contributed to
other Persons, and in any event shall
include, without limitation, (i) any direct
or indirect purchase or other
acquisition of any notes, obligations,
instruments, stock, securities or
ownership interest (including partnership
interests, limited liability company
membership interests and joint venture
interests) and (ii) any capital
contribution to any other Person.
"IRS" means the
Internal Revenue Service and any governmental body or
agency succeeding to the functions
thereof.
"Laws" means all
U.S. and foreign federal, state or local statutes, laws,
rules, regulations, ordinances, codes,
policies, rules of common law, and the
like, now or hereafter in effect, including
any judicial or administrative
interpretations thereof, and any judicial
or administrative orders, consents,
decrees or judgments.
"Lien" means any
security interest, pledge, bailment, mortgage,
hypothecation, deed of trust, conditional
sales and title retention agreement
(including any lease in the nature
thereof), charge, encumbrance or other
similar arrangement or interest in real or
personal property, now owned or
hereafter acquired, whether such interest
is based on common law, statute or
contract.
"Life Insurance"
has the meaning assigned to such term in Section 4.1(i)
hereof.
"Manage" and
"Management" means generation, production, handling,
distribution, processing, use, storage,
treatment, operation, transportation,
recycling, reuse and/or disposal, as those
terms are defined in CERCLA, RCRA and
other Environmental Laws (including as
those terms are further defined,
construed, or otherwise used in rules,
regulations, standards and guidelines
issued pursuant to, or otherwise in
implementation of, such Environmental Laws).
"Material
Adverse Effect" means a material adverse effect on the
business,
properties, assets, liabilities or
condition (financial or otherwise) of the
Loan Parties, taken as a whole.
"Multiemployer
Plan" means a multiemployer plan (within the meaning of
Section 3(37) of ERISA) that is maintained
for the benefit of the employees of
the Loan Parties or any member of the
Controlled Group.
"Most Recent
Statements" has the meaning assigned to such term in Section
5.1(c)(i).
"Net Income"
means the gross revenues of the Loan Parties for the period in
question, less all expenses and other
proper charges (including Taxes on
income), all determined in accordance with
GAAP but in any event, excluding from
Net Income (without duplication): (i) any
gain or loss, amortization or
deduction arising from any write-up of
assets, except to the extent inclusion
thereof shall be approved in writing by the
Servicer; (ii) earnings of any
Subsidiary accrued prior to the date it
became a Subsidiary; (iii) the net
earnings of any business entity (other than
a Subsidiary) in which a Loan Party
has an ownership interest, except to the
extent such net earnings shall have
actually been received by the Loan Party in
the form of cash
-7-
<PAGE>
distributions; (iv) any gains or losses on
the sale or other disposition of
investments or fixed or capital assets; (v)
the proceeds of any life insurance
policy; (vi) any deferred 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; and (vii) any reversal of
any contingency reserve, except to
the extent that provision for such
contingency reserve shall be made from income
arising during such period.
"Notes" has the
meaning assigned to such term in Section 2.1.
"Operating Cash
Flow" means for any period, an amount equal to: (i) EBITDA
for such period, minus (ii) Taxes actually
paid by the Loan Parties during such
period, and minus (iii) Capital
Expenditures made by the Loan Parties during
such period, but only to the extent that
such Capital Expenditures were not
financed by the incurrence of any
Indebtedness (excluding for this purpose
Indebtedness incurred under this
Agreement).
"Operating
Company #1" has the meaning assigned to such term in the
preamble hereto.
"Operating
Company #2" has the meaning assigned to such term in the
preamble hereto.
"Parent" has the
meaning assigned to such term in the preamble hereto.
"Patriot" has
the meaning assigned to such term in the preamble hereto.
"PBGC" means the
Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA, or any
other governmental agency, department
or instrumentality succeeding to the
functions thereof.
"Permitted
Liens" has the meaning assigned to such term in Section 7.2(b)
hereof.
"Person" means any
individual, partnership, limited partnership,
corporation, limited liability company,
association, joint stock company, trust,
joint venture, unincorporated organization
(whether or not legally formed) or
Governmental Authority.
"PIK Interest"
has the meaning assigned to such term in Section 3.1(b)
hereof.
"Plan" means any
employee benefit plan (within the meaning of Section 3(3)
of ERISA), other than a Multiemployer Plan,
established or maintained by any of
the Loan Parties or any member of the
Controlled Group.
"Pollutant"
includes any "hazardous substance" and any "pollutant or
contaminant" as those terms are defined in
CERCLA; any "hazardous waste" as that
term is defined in RCRA; and any "hazardous
material" as that term is defined in
the Hazardous Materials Transportation Act
(49 U.S.C. Section 1801 et seq.), as
amended (including as those terms are
further defined, construed, or otherwise
used in rules, regulations, standards,
guidelines and publications issued
pursuant to, or otherwise in implementation
of, said Environmental Laws); and
including without limitation any petroleum
product or byproduct, solvent,
flammable or explosive material,
radioactive material, asbestos, polychlorinated
biphenyls (PCBs), dioxins, dibenzofurans,
heavy
-8-
<PAGE>
metals, and radon gas; and including any
other substance or material that is
reasonably determined to present a threat,
hazard or risk to human health or the
environment.
"Preferred
Stock" means the preferred stock, par value $0.0001 per share,
of Parent.
"Properties and
Facilities" has the meaning assigned to such term in
Section 5.1(q).
"Proprietary
Rights" means all patents, trademarks, trade names, service
marks, copyrights, inventions, production
methods, licenses, formulas, know-how
and trade secrets, regardless of whether
such are registered with any
Governmental Authorities, including
applications therefor.
"Purchase
Documents" means this Agreement, the Notes, and the Security
Documents and all other agreements,
instruments and documents delivered in
connection therewith as any or all of the
foregoing may be supplemented or
amended from time to time.
"Purchaser" has
the meaning assigned to such term in the preamble hereto
and in Section 6.2 hereof.
"RCRA" means the
Resource Conservation and Recovery Act (42 U.S.C. Section
6901 et seq.), as amended, and all rules,
regulations, standards, guidelines and
publications issued thereunder.
"Removal,"
"Remedial" and "Response" actions includes the types of
activities covered by CERCLA, RCRA, and
other comparable Environmental Laws, and
whether the activities are those that might
be taken by a government entity or
those that a government entity or any other
person might seek to require of
waste generators, handlers, distributors,
processors, users, storers, treaters,
owners, operators, transporters, recyclers,
reusers, disposers, or other persons
under "removal," "remedial," or other
"response" actions.
"Reportable
Event" means any of the events that are reportable under
Section 4043 of ERISA and the regulations
promulgated thereunder, other than an
occurrence for which the thirty (30) day
notice contained in 29 C.F.R. Section
2615.3(a) is waived.
"Required
Purchasers" means, at any time, Purchasers holding a pro rata
percentage of the outstanding principal
amount of the Notes aggregating at least
66-2/3% at such time.
"Revolving
Financing" means a secured revolving line of credit facility
under the Senior Credit Agreement providing
for advances in an aggregate amount
outstanding initially not to exceed
$14,000,000.
"SEC" means the
Securities and Exchange Commission and any governmental
body or agency succeeding to the functions
thereof.
"Securities" has
the meaning assigned to such term in Section 2.3 hereof.
"Securities Act"
means the Securities Act of 1933, as amended.
"Security
Agreement" has the meaning assigned to such term in Section
4.1(c) hereof.
-9-
<PAGE>
"Security
Documents" means the Security Agreement, the Financing
Statements, and all other documents,
instruments and other materials necessary
to create, maintain or perfect the security
interests created pursuant to the
Security Agreement.
"Senior Credit
Agreement" means that certain Loan and Security Agreement by
and among the Loan Parties and Senior
Lender as lender, dated as of the date
hereof, as such may be amended or modified
from time to time.
"Senior
Financing" means the Revolving Financing.
"Senior Lender"
means Fleet and each other lender party to the Senior
Credit Agreement.
"Servicer" has
the meaning assigned to such term in the preamble hereto and
any successor Servicer provided for
hereunder.
"Subsidiary"
means any corporation, association, joint stock company,
business trust or other similar
organization of which 50% 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 a
Loan Party or a Subsidiary of a Loan Party;
or any other such organization the
management of which is directly or
indirectly controlled by a Loan Party or a
Subsidiary of a Loan Party through the
exercise of voting power or otherwise; or
any joint venture, whether incorporated or
not, in which a Loan Party has a 50%
ownership interest or any other entity
which would be consolidated with the Loan
Parties in presenting its financial
statements in accordance with GAAP.
"Subordination
Agreement" means that certain Subordination Agreement by and
among the Senior Lender, the Loan Parties,
the Servicer and the Purchaser, dated
as of December 11, 2003, as such may be
amended or modified from time to time as
permitted thereby.
"Taxes" means,
any and all taxes (including, without limitation, income,
receipts, franchise, ad valorem or excise
taxes, transfer or gains taxes or
fees, use taxes, withholding, payroll or
minimum taxes) imposed on, or otherwise
payable by, or for which responsibility for
payment, withholding or collection
lies with, any Loan Party by any
Governmental Authority, including any taxes
imposed on any of the Subsidiaries or other
Affiliates of any Loan Party for
which a Loan Party may be liable under
applicable Laws or by agreement to which
a Loan Party is a party of by which it is
bound or subject to, and including,
but not limited to, any interest, penalties
or additions to tax with respect
thereto.
"Total Debt
Service" means, for any period, the sum of, for all Loan
Parties taken as a whole, (i) Interest
Charges on all Indebtedness for such
period, plus (ii) the aggregate amount of
all regularly scheduled principal
payments made or coming due during such
period in respect of the Senior
Financing or any other Indebtedness for
borrowed money or capital lease (to the
extent the Servicer from time to time
permits such Indebtedness to be incurred).
"Transaction
Documents" has the meaning assigned to such term in Section
5.1(f) hereof.
-10-
<PAGE>
"Transactions"
means the incurrence of debt and the issuance and sale of
Securities in connection therewith, as
contemplated by this Agreement and the
Senior Credit Purchase Agreement, the Notes
and all other agreements
contemplated hereby and thereby.
"UST" means an
underground storage tank, including as that term is defined,
construed and otherwise used in RCRA and in
rules, regulations, standards,
guidelines and publications issued pursuant
to RCRA and comparable state and
local laws.
"Wilton Funding"
means Wilton Funding, LLC, a Delaware limited liability
company.
1.2 ACCOUNTING
PRINCIPLES. The character or amount of any asset, liability,
capital account or reserve and of any item
of income or expense to be
determined, and any consolidation or other
accounting computation to be made,
and the construction of any definition
containing a financial term, pursuant to
this Agreement shall be determined or made
in accordance with generally accepted
accounting principles in the United States
of America consistently applied
("GAAP"), unless such principles are
inconsistent with the express requirements
of this Agreement.
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 "continue" or be "continuing"
until such Default or Event of
Default has been cured or waived by
Servicer and Purchasers. References in this
Agreement to any Persons shall include such
Persons, successors and permitted
assigns. Other terms contained in this
Agreement (which are not otherwise
specifically defined herein) shall have
meanings provided in Article 9 of the
New York Uniform Commercial Code on the
date hereof to the extent the same are
used or defined therein.
ARTICLE 2
ISSUE AND SALE OF SECURITIES
2.1
AUTHORIZATION AND ISSUANCE OF THE NOTES. The Loan Parties have
duly
authorized the issuance and sale to
Purchasers of $3,500,000 in aggregate
principal amount of the Loan Parties'
Senior Secured Subordinated Notes Due
March 11, 2007 (including any Notes issued
in substitution therefor pursuant to
Sections 6.3 and 6.4 hereof, the "Notes"),
to be substantially in the forms
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, the Loan
Parties shall sell to Purchasers, and
Purchasers shall purchase from the Loan
Parties, in an amount equal to the pro rata
portion of the Notes as set forth on
Annex B, the Notes in the aggregate
principal amount set forth in Section 2.1
hereof. The Notes are sometimes referred to
herein as the "Securities." The
aggregate purchase price for the Securities
shall be $3,500,000.
-11-
<PAGE>
2.3 THE CLOSING.
Delivery of and payment for the Securities (the "Closing")
shall be made at the offices of Edwards
& Angell, LLP, Three Stamford Plaza, 301
Tresser Boulevard, Stamford, Connecticut,
commencing at 10:00 a.m., local time,
on December 11, 2003 or at such place or on
such other date on or before
December 31, 2003 as may be mutually
agreeable to the Loan Parties 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
Securities shall be made to Purchasers
against payment of the purchase price
therefor, less the Arrangement Fee and any
other amounts payable pursuant to
Section 4.1(j) hereof, by wire transfer of
immediately available funds in the
manner agreed to by the Loan Parties and
Purchasers. The Notes shall be issued
in such name or names and in such permitted
denomination or denominations as set
forth in Annex B or as Purchasers may
request in writing not less than two (2)
Business Days before the Closing Date. The
Closing shall occur simultaneously
with the closing of the transactions
contemplated by the Senior Credit
Agreement.
ARTICLE 3
REPAYMENT OF THE NOTES
3.1 INTEREST
RATES AND INTEREST PAYMENTS.
(a) INTEREST RATES; CASH PAYMENTS. The Notes will bear interest on
the
outstanding principal amount thereof at a
rate equal to 17.25% per annum.
Interest on the Notes will be computed on
the basis of a year of 360 days,
composed of twelve 30-day months, and the
actual number of days elapsed. The
Loan Parties, jointly and severally,
covenant and agree to make payments to
Servicer for the ratable benefit of
Purchasers, of accrued interest on the Notes
on the fifth (5th) Business Day of each
month (each an "Interest Payment Date")
commencing on January 1, 2004. Not less
than 50/69th of accrued interest on the
Notes shall be due and payable in cash on
each Interest Payment Date.
(b) PIK INTEREST. On each Interest Payment Date and as further
provided in the Notes, the Loan Parties
shall, in lieu of paying cash, pay
19/69th of the amount of accrued interest
on the Notes that is due on such
Interest Payment Date in kind ("PIK
Interest"). On every sixth (6th) Interest
Payment Date other than the maturity date
of the Notes including any maturity
date as a result of acceleration of the
Notes, all accrued PIK Interest shall be
capitalized and added proportionately to
the principal amount of all of the
Notes then outstanding.
3.2 REPAYMENT OF
THE NOTES. The Loan Parties, jointly and severally,
covenant and agree to repay to Servicer,
for the ratable benefit of Purchasers,
the unpaid principal balance of the Notes
in full, together with all accrued and
unpaid interest, fees and other amounts due
hereunder, on March 11, 2007.
3.3 OPTIONAL
PREPAYMENT OF NOTES. Subject to the terms of this Section 3.3,
the Loan Parties may prepay to Servicer,
for the ratable benefit of 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 (i) the accrued interest, if
any, to the date set for prepayment,
plus (ii) a prepayment fee representing the
amortization of certain of
Purchasers'
-12-
<PAGE>
costs incurred in connection with the
purchase of the Notes equal to the
principal amount prepaid multiplied by the
following percentage:
<TABLE>
<CAPTION>
If Prepaid During
the 12-Month Period
Ending on December 11
of the Following Years: Percentage
----------------------- ----------
<S>
<C>
2004
5%
2005
4%
2006 and thereafter
0%
</TABLE>
Servicer shall apply all such prepayments
to the outstanding principal of the
Notes in the inverse order of maturity
after application of such prepayment to
any accrued interest and prepayment premium
payable in connection therewith.
3.4 NOTICE OF
OPTIONAL PREPAYMENT. If the Loan Parties shall elect to
prepay any Notes pursuant to Section 3.3
hereof, the Loan Parties shall give
notice of such prepayment to Servicer and
each holder of the Notes to be prepaid
not less than thirty (30) days or more than
ninety (90) days prior to the date
fixed for prepayment, specifying (i) the
date on which such prepayment is to be
made, (ii) the principal amount of such
Notes to be prepaid on such date, and
(iii) the premium, if any, and accrued
interest applicable to the prepayment.
Such notice shall be accompanied by a
certificate of the chief executive officer
or chief financial officer of Parent that
such prepayment is being made in
compliance with Section 3.3. Notice of
prepayment having been so given, the
aggregate principal amount of the Notes
specified in such notice, together with
accrued interest thereon and the premium,
if any, shall become due and payable
on the prepayment date set forth in such
notice.
3.5 MANDATORY
PREPAYMENT. The Notes shall be prepaid in full, together with
all interest, fees and expenses plus a
prepayment premium computed in accordance
with Section 3.3, as if such prepayment
were a voluntary prepayment, in the
event of a Change of Control.
3.6 HOME OFFICE
PAYMENT. The Loan Parties will pay all sums becoming due on
each Note for principal, premium, if any,
and interest to Servicer 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 Loan Parties in writing
for such purpose, without the
presentation or surrender of such Note or
the making of any notation thereon,
except that upon written request of the
Loan Parties made concurrently with or
reasonably promptly after payment or
prepayment in full of any Note, each holder
of a Note shall surrender such Note for
cancellation, reasonably promptly after
such request, to the Loan Parties at their
principal executive office.
3.7 TAXES. Any
and all payments by the Loan Parties hereunder or under the
Notes or other Purchase Documents that are
made to or for the benefit of
Purchasers shall be made free and clear of
and without deduction for any and all
present or future Taxes, excluding taxes
imposed on Servicer's or Purchasers'
net income or capital and franchise taxes
imposed on any of them by the
jurisdiction under the laws of which any of
them is organized or any political
-13-
<PAGE>
subdivision thereof (all such nonexcluded
Taxes being hereinafter referred to as
"Covered Taxes"). If any of the Loan
Parties shall be required by law to deduct
any Covered Taxes from or in respect of any
sum payable hereunder or under any
Notes or other Purchase Documents to
Servicer for the benefit of Purchasers, or
to Purchasers, the sum payable shall be
increased as may be necessary so that
after making all required deductions of
Covered Taxes (including deductions of
Covered Taxes applicable to additional sums
payable under this paragraph), each
Purchaser receives an amount equal to the
sum it would have received had no such
deductions been made. The Loan Parties
shall make such deductions and the Loan
Parties shall pay the full amount so
deducted to the relevant taxation authority
or other authority in accordance with
applicable law. In addition, the Loan
Parties agree to pay any present or future
stamp, documentary, excise,
privilege, intangible or similar levies
that arise at any time or from time to
time from any payment made under any and
all Purchase Documents or from the
execution or delivery by the Loan Parties
or from the filing or recording or
maintenance of, or otherwise with respect
to the exercise by Servicer or
Purchasers of their respective rights under
any and all Purchase Documents
(collectively, "Other Taxes"). The Loan
Parties will indemnify Servicer and
Purchasers for the full amount of Covered
Taxes imposed on or with respect to
amounts payable hereunder and Other Taxes,
and any liability (including
penalties, interest and expenses) arising
therefrom or with respect thereto.
Payment of this indemnification shall be
made within thirty (30) days from the
date Servicer or Purchasers provide the
Loan Parties with a certificate
certifying and setting forth in reasonable
detail the calculation thereof as to
the amount and type of such Taxes. Any such
certificates submitted by Servicer
or Purchasers in good faith to the Loan
Parties shall, absent manifest error, be
final, conclusive and binding on all
parties. The obligation of the Loan Parties
under this Section 3.7 shall survive the
payment of the Notes and the
termination of this Agreement. Within
thirty (30) days after the Loan Parties
having received a receipt for payment of
Covered Taxes and/or Other Taxes, the
Loan Parties shall furnish to Servicer, the
original or certified copy of a
receipt evidencing payment thereof.
3.8 MAXIMUM
LAWFUL RATE. This Agreement, the Notes and the other Purchase
Documents are hereby limited by this
Section 3.8. 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 Servicer or Purchasers in excess
of the maximum amount permissible
under applicable law, the interest and fees
shall be reduced to the maximum
amount permitted under applicable law. If
from any circumstance, Servicer or
Purchasers shall have received anything of
value deemed interest by applicable
law in excess of the 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 Loan
Parties.
3.9 CAPITAL
ADEQUACY. If, after the date hereof, either the introduction of
or any change of the interpretation of any
law or the compliance by Purchasers
with any guideline or request from any
Governmental Authority (whether or not
having the force of law) has or would have
the effect of reducing the rate of
return on the capital or assets of
Purchasers as a consequence of, as determined
by Servicer or Purchasers in their sole
discretion, the existence of any
Purchaser's obligations under this
Agreement or any other Purchase Documents,
then, upon
-14-
<PAGE>
demand by Purchasers, the Loan Parties
immediately shall pay to Purchasers, from
the time as specified by Purchasers,
additional amounts sufficient to compensate
Purchaser in light of such circumstances.
The obligations of the Loan Parties
under this Section 3.9 shall survive the
payments of the Notes and the
termination of this Agreement.
3.10 CERTAIN
WAIVERS. The Loan Parties unconditionally waive (i) any rights
to presentment, demand, protest or (except
as expressly required hereby) notice
of any kind, and (ii) any rights of
rescission, setoff, counterclaim or defense
to payment under the Notes or otherwise
that the Loan Parties may have or claim
against any Purchaser, the Servicer or any
prior Purchaser or Servicer.
ARTICLE 4
CONDITIONS
4.1 CONDITIONS
TO PURCHASE OF SECURITIES. The obligation of Purchasers to
purchase and pay for the Securities is
subject to the satisfaction, prior to or
at the Closing, of the following
conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; NO DEFAULTS. 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 to the extent of changes
caused by the transactions expressly
contemplated herein and there shall exist
no Default or Event of Default.
(B) MATERIAL ADVERSE EFFECT. There shall be no event or
occurrence
constituting a Material Adverse Effect.
(C) SECURITY AGREEMENT. The Loan Parties and Servicer, for the
benefit
of the Purchasers, shall have entered into
a security agreement or security
agreements, with Servicer subordinated in
lien priority only to the Liens in
favor of the Senior Lender as contemplated
therein, in form and substance as set
forth in Exhibit B attached hereto (as the
same may be amended, modified or
supplemented from time to time in
accordance with the terms thereof, the
"Security Agreement"). The Loan Parties
shall have executed and delivered to
Servicer, for the benefit of the
Purchasers, such financing statements and other
instruments (collectively, "Financing
Statements") as Servicer shall require in
order to perfect and maintain the continued
perfection of the security interest
created by the Security Agreement. Servicer
shall have received reports of
filings with appropriate Government
Authority showing that there are no Liens on
the assets of the Loan Parties other than
Permitted Liens.
(D) ENVIRONMENTAL REPORTS. Servicer shall have received reports,
if
any, covering the Loan Parties' properties
in form and substance satisfactory to
Servicer regarding the Loan Parties'
compliance with Environmental Laws.
(E) INTERCREDITOR AGREEMENTS. The Loan Parties, Purchaser,
Servicer
and the Senior Lender shall have executed
and delivered the Subordination
Agreement.
-15-
<PAGE>
(F) LIFE INSURANCE. The Loan Parties shall have delivered to
Servicer
a paid life insurance policy issued by a
carrier reasonably acceptable to
Servicer insuring the life of Stephen L.
Day in the amount of $2,000,000 and
naming Servicer as the beneficiary (the
"Life Insurance").
(G) CLOSING DOCUMENTS. The Loan Parties will have delivered or
caused
to be delivered to Servicer all of the
following documents in form and substance
satisfactory to Servicer:
(i) one or more Notes in the form of Exhibit A hereto (as
designated by Servicer and Purchasers
pursuant to Section 2.1 and Annex B
hereof) in aggregate original principal
amounts as set forth herein, duly
completed and executed by the Loan
Parties;
(ii) certificates of good standing dated not more than ten (10)
days prior to the Closing Date for each of
the Loan Parties issued by their
respective jurisdictions of organization
and each jurisdiction where they are
qualified to operate as a foreign
corporation or limited liability company, as
applicable, or its equivalent;
(iii) a copy of the Charter Documents of each of the Loan
Parties, certified by the appropriate
governmental official of the jurisdiction
of its organization as of a date not more
than ten (10) days prior to the
Closing Date;
(iv) a copy of the By-laws of each of the Loan Parties,
certified
as of the Closing Date by the secretary,
assistant secretary, manager or general
partner, as applicable, of each respective
Loan Party;
(v) a certificate of the secretary, assistant secretary,
manager
or general partner, as applicable, of each
of the Loan Parties, certifying as to
the names and true signatures of the
officers or other authorized person of the
respective Loan Party authorized to sign
this Agreement and the other documents
to be delivered by the respective Loan
Party hereunder;
(vi) copies of the resolutions duly adopted by the each of the
Loan Party's board of directors, general
partners, board of managers or other
governing body, authorizing the execution,
delivery and performance by the
respective Loan Party of this Agreement and
each of the other agreements,
instruments and documents contemplated
hereby to which the respective Loan Party
is a party, and the consummation of all of
the other Transactions, certified as
of the Closing Date by the secretary,
assistant secretary, manager or general
partner, as applicable, of the respective
Loan Party;
(vii) a certificate dated as of the Closing Date from an
officer,
general partner or manager, as applicable,
of each of the Loan Parties stating
that the conditions specified in this
Section 4.1 have been fully satisfied or
waived by Servicer;
(viii) certificates of insurance evidencing the existence of
all
insurance required to be maintained by the
Loan Parties pursuant to Section
7.1(c), and Servicer shall be satisfied
with the type and extent of such
coverage;
-16-
<PAGE>
(ix) an opinion of PretiFlaherty PLLC, counsel to the Loan
Parties in form the form of Exhibit C;
(x) copies of all material leases to which any of the Loan
Parties is a party;
(xi) copies of the Senior Credit Agreement and any supplements
or
amendments or waivers thereto, certified by
the Loan Parties as of the Closing
Date as being true, complete and
correct;
(xii) copies of all documents related to the termination and
cancellation of the Existing Subordinated
Financing, including, without
limitation, all issued and outstanding
Existing Subordinated Notes and UCC-3
termination statements and documents
necessary for the release of the security
interest of the Existing Subordinated
Lenders.
(xiii) the financial statements and projections described in
Section 5.1(c) and a pro-forma opening
balance sheet of each of the Loan Parties
as of the Closing Date, giving effect to
the Senior Financing and the sale and
issuance of the Notes, which balance sheet
shall be satisfactory to Servicer;
and
(xiv) such other documents relating to the Transactions
contemplated by this Agreement as Servicer
or its special counsel may reasonably
request.
(J) PURCHASERS' FEES AND EXPENSES.
(I) ARRANGEMENT FEE. On the Closing Date, the Loan Parties
shall
pay the Arrangement Fee to Servicer less
any amount thereof paid prior to the
Closing Date, and the Loan Parties hereby
authorize Servicer to deduct from the
aggregate proceeds from the sales of the
Notes by the Loan Parties, the unpaid
amount of such Arrangement Fee; and
(II) OTHER FEES AND EXPENSES. On the Closing Date, the Loan
Parties shall have paid the fees and
expenses of Servicer and Purchasers,
payable by the Loan Parties pursuant to
Section 10.4 hereof (and the Loan
Parties hereby authorize Servicer to deduct
from the aggregate proceeds of the
sale of the Notes by the Loan Parties, all
such amounts).
(K) LEGAL INVESTMENT. On the Closing Date, Purchasers' purchases
of
the Securities shall not be prohibited by
any applicable Law of any Governmental
Authority (including, without limitation,
Regulations T, U or X of the Board of
Governors of the Federal Reserve System) as
a result of the promulgation or
enactment thereof or any changes therein,
or change in the interpretation
thereof by any Governmental Authority,
subsequent to the date of this Agreement.
(L) PROCEEDINGS. All proceedings taken or required to be taken
in
connection with the transactions
contemplated hereby to be consummated at or
prior to the Closing and all documents
incident thereto will be satisfactory in
form and substance to Servicer and its
special counsel and to Purchasers and
their special counsel.
-17-
<PAGE>
(M) BACKGROUND INVESTIGATIONS; EMPLOYMENT AGREEMENTS. Servicer
shall
be satisfied with the results of background
investigations of each of Stephen L.
Day and Michael Bruns.
(N) CONSUMMATION OF SENIOR FINANCING. The Senior Financing shall
have
closed concurrently with the Closing.
(O) WAIVER. Servicer on behalf of the Purchasers may waive any
condition specified in this Section 4.1;
provided that no such waiver will be
effective against Servicer unless it is set
forth in a writing executed by
Servicer.
(P) MINIMUM EBITDA; FUNDED DEBT RATIO; FUNDED SENIOR DEBT RATIO.
On
the Closing Date, the Loan Parties shall
have provided evidence to the
reasonable satisfaction of the Servicer of
(i) pro forma EBITDA for the twelve
month period preceding the Closing of not
less than $3,750,000; (ii) a Funded
Debt Ratio at Closing of more than 3.75 to
1.0; and (iii) a Funded Senior Debt
Ratio at Closing of more than 3.00 to
1.0.
(Q) INTEREST RATE PROTECTION AGREEMENT. Not later than ninety
(90)
days following the Closing Date, the Loan
Parties shall have entered into an
Interest Rate Protection Agreement covering
a minimum of $5,000,000 of Funded
Debt under the Senior Financing,
satisfactory in form and substance to Servicer
and its special counsel and to Purchasers
and their special counsel.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES
5.1
REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES. As a
material
inducement to Servicer and Purchasers to
enter into this Agreement and purchase
the Notes, the Loan Parties, jointly and
severally, hereby represent and warrant
to Servicer and Purchasers as follows:
(A) ORGANIZATION AND POWER. Each of the Loan Parties is a
corporation
or limited liability company duly
organized, validly existing and in good
standing under the Laws of its state of
formation. Each of the Loan Parties has
all requisite corporate or other
organizational power and authority and all
material licenses, permits, approvals and
authorizations necessary to own and
operate its properties, to carry on its
businesses as now conducted and
presently proposed to be conducted and to
carry out the Transactions, and is
qualified to do business in the
jurisdictions listed on the "Organization
Schedule" attached hereto as Schedule
5.1(a), which includes every jurisdiction
where the failure to so qualify might
reasonably be expected to have a Material
Adverse Effect. Each of the Loan Parties
has its principal place of business as
set forth on the "Organization Schedule".
The copies of the Charter Documents
and By-Laws of the Loan Parties that have
been furnished to Servicer reflect all
amendments made thereto at any time prior
to the date of this Agreement and are
correct and complete.
(B) PRINCIPAL BUSINESS. Each of Operating Company #1 and
Operating
Company #2 is engaged in the business of
the offer and sale of tack and equine
products for mail
-18-
<PAGE>
order, retail and online purchase, and
Parent's only activity is ownership of
Operating Company #1 and Operating Company
#2 (collectively, the "Business").
Purchasers' investment in the Securities
will not be characterized as a "United
States real property interest" within the
meaning of Section 897(c) of the Code.
(C) FINANCIAL STATEMENTS AND FINANCIAL PROJECTIONS.
(I) FINANCIAL STATEMENTS; HISTORICAL STATEMENTS. The Loan
Parties
have delivered to Servicer copies of their
audited consolidated year-end
financial statements (including a balance
sheet and statement of operations,
stockholders' equity and cash flows of each
of the Loan Parties) for and as of
the end of the three fiscal years ended
December 31, 2002 for each of December
31, 2000 and December 31, 2001 (the "Annual
Statements") and the nine (9) months
ended September 30, 2003) for each of the
Parent, Operating Company #1 and
Operating Company #2 (the "Most Recent
Statements"). The Annual Statements and
the Most Recent Statements were compiled
from the books and records maintained
by the management of the companies referred
to above, are correct and complete
and fairly represent the consolidated
financial condition of such companies as
of their dates and the results of
operations for the fiscal periods then ended
and have been prepared in accordance with
GAAP consistently applied (except,
with respect to the Most Recent Statements,
for the absence of notes thereto and
the making of certain normal year-end
accruals and adjustments, none of which
will be individually or in the aggregate
material).
(II) FINANCIAL PROJECTIONS. The Loan Parties have delivered to
Servicer financial projections of the Loan
Parties for the period from October
1, 2003 through December 31, 2004 derived
from various assumptions of the Loan
Parties' management (the "Financial
Projections"). The Financial Projections
represent a reasonable range of possible
results in light of the history of the
Business and the Loan Parties and the
present and foreseeable conditions and the
intentions of the Loan Parties' management.
The Financial Projections accurately
reflect the liabilities of the Loan Parties
upon consummation of the
transactions contemplated hereby as of the
Closing Date.
(III) ACCURACY OF FINANCIAL STATEMENTS. The Loan Parties do not
have any liabilities, contingent or
otherwise, or forward or long-term
commitments that are not disclosed in the
Annual Statements or in the notes
thereto, and except as disclosed therein
there are no unrealized or anticipated
losses from any commitments of the Loan
Parties that may cause a Material
Adverse Effect.
(D) CAPITALIZATION AND RELATED MATTERS. (i) As of the Closing Date
and
immediately thereafter, the authorized
capital stock of Parent will consist of:
(A) 5,400,000 shares of Common Stock, of
which (x) 4,300,000 shares are
designated as "Class A Common", of which
2,370,782 shares are issued and
outstanding and (y) 1,100,000 are
designated "Class B Common", of which no
shares are issued and outstanding and of
which 1,015,000 shares of "Class B
Common Stock" have been reserved for
issuance upon conversion of the Preferred
Stock; and (B) 1,100,000 shares of
Preferred Stock, of which 1,0
