<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 2000
REGISTRATION NO. 333-93711
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
ICON HEALTH & FITNESS, INC.
(Primary Registrant)
(Exact names of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3949 87-0531206
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
1500 SOUTH, 1000 WEST, LOGAN, UTAH 84321, (435) 750-5000
(Address, including ZIP code, and telephone number, including area code, of
each Registrant's principal executive offices)
------------------------------
BRAD BEARNSON, ESQ.
1500 SOUTH, 1000 WEST
LOGAN, UTAH 84321
(435) 750-5000
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
MICHAEL A. SCHWARTZ, ESQ.
GREGG B. SHULKLAPPER, ESQ.
WILLKIE FARR & GALLAGHER
787 SEVENTH AVENUE
NEW YORK, NEW YORK 10019
(212) 728-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
<TABLE>
<CAPTION>
PRIMARY STANDARD INDUSTRIAL I.R.S. EMPLOYER
NAME OF ADDITIONAL REGISTRANTS* STATE OF INCORPORATION CLASSIFICATION CODE IDENTIFICATION CODE
- ------------------------------- ---------------------- --------------------------- -------------------
<S> <C> <C> <C>
Jumpking, Inc................................ Utah 3949 87-0481821
510152 N.B. Ltd.............................. Canada 3949 N/A
Universal Technical Services, Inc............ Utah 3949 87-0468754
ICON International Holdings, Inc............. Delaware 3949 84-1425493
</TABLE>
- ------------------------
* Address and telephone number of principal executive offices are the same as
ICON Health & Fitness, Inc.
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL EACH REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, , 2000.
ICON HEALTH & FITNESS, INC.
EXCHANGE OFFER
$44,282,000
12% NOTES DUE 2005
This exchange offer will expire at midnight, New York City Time, on
, 2000, unless extended.
TERMS OF THE EXCHANGE OFFER:
- WE ARE OFFERING A TOTAL OF $44,282,000 OF EXCHANGE NOTES, WHICH ARE
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION, TO ALL HOLDERS OF
OLD NOTES.
- WE WILL EXCHANGE THE EXCHANGE NOTES FOR ALL OLD NOTES THAT ARE VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE EXCHANGE OFFER.
- YOU MAY WITHDRAW TENDERS OF OLD NOTES AT ANY TIME BEFORE THE EXCHANGE
OFFER EXPIRES.
- WE WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER.
- THE TERMS OF THE EXCHANGE NOTES ARE SUBSTANTIALLY IDENTICAL TO THOSE OF
THE OLD NOTES, EXCEPT FOR TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS
RELATING TO THE OLD NOTES.
- THE OLD NOTES ARE, AND THE EXCHANGE NOTES WILL BE, GUARANTEED BY THE
SUBSIDIARY GUARANTORS SET FORTH IN THIS PROSPECTUS.
- THERE IS NO EXISTING MARKET FOR THE EXCHANGE NOTES, AND WE DO NOT INTEND
TO APPLY FOR THEIR LISTING ON ANY SECURITIES EXCHANGE.
See the "Description of Notes" section on page 57 for more information about
the exchange notes.
THIS INVESTMENT INVOLVES RISKS. SEE THE SECTION ENTITLED "RISK FACTORS" THAT
BEGINS ON PAGE 9 FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER PRIOR TO
TENDERING YOUR OLD NOTES FOR EXCHANGE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
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Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Use Of Proceeds............................................. 16
Capitalization.............................................. 16
Unaudited Pro Forma Financial Data.......................... 17
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 29
Management.................................................. 36
Security Ownership of Certain Beneficial Owners and
Management................................................ 41
Transactions Between Our Company and Officers, Directors and
Principal Stockholders.................................... 45
The Exchange Offer.......................................... 49
Description Of The Notes.................................... 57
Book-Entry; Delivery And Form............................... 98
Description Of Material Indebtedness........................ 99
Material United States Federal Income Tax Consequences...... 101
Plan Of Distribution........................................ 105
Legal Matters............................................... 106
Experts..................................................... 106
Where You Can Find More Information......................... 106
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT ICON HEALTH &
FITNESS, INC. AND THE EXCHANGE OF NOTES. IT MAY NOT CONTAIN ALL THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING
THE FINANCIAL DATA AND RELATED NOTES, AND THE DOCUMENTS TO WHICH WE HAVE
REFERRED YOU BEFORE MAKING AN INVESTMENT DECISION. THE TERMS "ICON," "WE," "OUR"
AND "US," AS USED IN THIS PROSPECTUS, REFER TO ICON HEALTH & FITNESS, INC. AND
ITS SUBSIDIARIES AS A CONSOLIDATED ENTITY, EXCEPT WHERE IT IS CLEAR THAT THESE
TERMS MEAN ONLY ICON HEALTH & FITNESS, INC. THE TERM "IHF HOLDINGS" REFERS TO
IHF HOLDINGS, INC., OUR FORMER PARENT COMPANY, AND THE TERM "ICON FITNESS"
REFERS TO ICON FITNESS CORPORATION, IHF HOLDINGS' PARENT COMPANY.
THE COMPANY
We are one of the largest manufacturers and marketers of home fitness
equipment in the United States. Our focus is to address consumers' interest in a
healthy, active lifestyle with a broad range of high quality products at a
variety of price/value relationships specifically targeted to meet different
consumers' health and fitness needs. Our line of home fitness aerobic products
includes treadmills, elliptical cross-trainers, which offer a low-impact,
high-intensity aerobic workout which harnesses the momentum of a natural gliding
motion and eliminates the impact of typical running or walking, exercise bikes,
stair steppers, skiers and upright rowers and our line of anaerobic fitness
products includes home gyms and weight benches. We also offer trampolines,
recreational sports products, sports medicine products and fitness accessories.
We market the majority of our products under the brand names NordicTrack,
ProForm, HealthRider, Image, Weider, and JumpKing. In addition, we manufacture a
complete line of premier home fitness equipment under the Reebok brand name,
under a licensing agreement.
SEPTEMBER RECAPITALIZATION
We originally issued the 12% notes on September 27, 1999 in connection with
a restructuring of our capitalization that included an approximately
$40 million equity investment in our company. The principal equity investors
included affiliates of Bain Capital and its designees, members of our management
and Credit Suisse First Boston and its affiliates. Our September
recapitalization also included a refinancing of our then existing bank credit
facility.
Prior to our September recapitalization, we were a wholly owned subsidiary
of IHF Holdings, which was, in turn, a wholly owned subsidiary of ICON Fitness.
As part of our September recapitalization, we closed a private exchange offer
and consent solicitation in which:
(1) participating holders of our then outstanding 13% Senior Subordinated
Notes due 2002 received the following consideration for each $1,000
principal amount of 13% notes held:
- $395 in cash,
- $444 principal amount of 12% notes,
- an additional cash payment equal to the sum of (i) interest due on the
tendered 13% notes on July 15, 1999 (with additional interest thereon
from July 15, 1999 to the closing of the exchange offers at the rate of
17% per annum) and (ii) interest accrued after July 15, 1999 on the
tendered 13% notes to the closing of the exchange offers at the rate of
17% per annum, and
- warrants to purchase 4.25 shares of common stock of our new parent
company, HF Holdings, Inc. ("HF Holdings").
1
<PAGE>
(2) participating holders of 15% Senior Secured Discount Notes due 2004 of
IHF Holdings received the following consideration for each $1,000
principal amount at maturity held:
- warrants to purchase 5.26 shares of HF Holdings common stock
(3) participating holders of 14% Senior Discount Notes due 2006 of ICON
Fitness received the following consideration for each $1,000 principal
amount at maturity held:
- warrants to purchase 1.24 shares of HF Holdings common stock
Prior to our September recapitalization there were issued and outstanding
$101,250,000 principal amount of our 13% notes, $123,700,000 principal amount at
maturity of 15% notes of IHF Holdings and $162,000,000 principal amount at
maturity of 14% notes of ICON Fitness. All but $1.5 million principal amount of
our 13% notes and $7.0 million principal amount at maturity of 14% notes of ICON
Fitness were tendered and accepted for exchange in the September private
exchange offer and consent solicitation. Those untendered notes remain
outstanding under amended indentures.
In connection with the September recapitalization, we became a wholly owned
Subsidiary of HF Holdings, Inc.
------------------------
We were incorporated in Delaware in August of 1994. Our principal executive
offices are located at 1500 South 1000 West, Logan, Utah 84321, and our
telephone number is (435) 750-5000.
2
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
As of the date of this prospectus, $44,282,000 aggregate principal amount of
unregistered 12% notes are outstanding. Simultaneously with the September
recapitalization, we entered into an exchange and registration rights agreement
with the initial holders of the 12% notes in which we agreed to deliver this
prospectus to you and to complete this exchange offer. You should read the
description under "--Summary of the Exchange Notes" and "Description of the
Notes" for more information about the registered notes.
We believe that the notes to be issued in the exchange offer may be resold
by you without compliance with the registration and prospectus delivery
provisions of the Securities Act, unless you are an affiliate of our company.
You should read the discussion under the heading "The Exchange Offer" for
further information regarding the exchange offer and resale of the notes.
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The Exchange Offer................ We are offering to exchange $1,000 principal amount of our
12% notes due 2005 which have been registered under the
Securities Act for each $1,000 principal amount of our
outstanding 12% notes due 2005 which were issued in
September 1999 in a private offering. In order to be
exchanged, an old note must be properly tendered and
accepted. We will exchange all notes validly tendered and
not validly withdrawn.
Expiration and Exchange Dates..... This offer will expire at midnight, New York City time, on
, 2000, unless we extend it, and we will
consummate the exchange on the next business day.
Exchange and Registration Rights
Agreement....................... You have the right to exchange the old notes that you now
hold for exchange notes with substantially identical terms.
This exchange offer is intended to satisfy these rights.
After the exchange offer is complete, you will no longer be
entitled to any exchange or registration rights with respect
to your notes.
Conditions........................ This offer is conditioned only upon compliance with the
securities laws. The offer applies to any and all old notes
tendered by the deadline.
Withdrawal Rights................. You may withdraw your tender of old notes at any time before
the offer expires.
Federal Income Tax Consequences... The exchange will not be a taxable event for United States
federal income tax purposes. You will not recognize any
taxable gain or loss or any interest income as a result of
the exchange.
Resale Without Further
Registration.................... We believe that the exchange notes may be offered for
resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery
provisions of the Securities Act so long as the following
statements are true:
- you acquire the exchange notes issued in the exchange
offer in the ordinary course of your business;
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
- you are not an "affiliate," as defined under Rule 405 of
the Securities Act, of our company;
- you are not participating, and do not intend to
participate, and have no arrangement or understanding with
any person to participate, in the distribution of the
exchange notes issued to you in the exchange offer.
By tendering your notes as described below, you will be
making representations to this effect.
Transfer Restrictions on Exchange
Notes........................... You may incur liability under the Securities Act if:
(1) any of the representations listed above are not true;
and
(2) you transfer any new note issued to you in the exchange
offer without:
- delivering a prospectus meeting the requirements of
the Securities Act; or
- an exemption from the Securities Act's requirements to
register your exchange notes.
We do not assume or indemnify you against such liability.
Each broker-dealer that is issued exchange notes for its own
account in exchange for old notes that were acquired as a
result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of the exchange notes. A broker-dealer may use this
prospectus for an offer to resell, a resale or other
retransfer of the exchange notes issued to it in the
exchange offer.
Procedures for Tendering Old
Notes........................... Each holder of old notes who wishes to accept the exchange
offer must:
- complete, sign and date the accompanying letter of
transmittal, or a facsimile thereof; or
- arrange for the Depository Trust Company to transmit
required information to the exchange agent in connection
with a book-entry transfer. You must mail or otherwise
deliver such documentation and your old notes to The Bank
of New York, as exchange agent, at the address set forth
under "The Exchange Offer--Exchange Agent."
</TABLE>
4
<PAGE>
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<S> <C>
Failure to Exchange will affect
you adversely................... If you are eligible to participate in the exchange offer and
you do not tender your old notes, you will not have any
further registration or exchange rights and your old notes
will continue to be subject to some restrictions on
transfer. Accordingly, the liquidity of the old notes could
be adversely affected.
Special Procedures for Beneficial
Owners.......................... If you beneficially own old notes registered in the name of
a broker, dealer, commercial bank, trust company or other
nominee and you wish to tender your old notes in the
exchange offer, you should contact such registered holder
promptly and instruct it to tender on your behalf. If you
wish to tender on your own behalf, you must, before
completing and executing the letter of transmittal for the
exchange offer and delivering your old notes, either arrange
to have your old notes registered in your name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time.
Guaranteed Delivery Procedures.... You may comply with the procedures described in this
prospectus under the heading "The Exchange Offer--Guaranteed
Delivery Procedures" if you wish to tender your old notes
and:
- time will not permit your required documents to reach the
exchange agent by the expiration date of the exchange
offer,
- you cannot complete the procedure for book-entry transfer
on time, or
- your old notes are not immediately available.
</TABLE>
5
<PAGE>
SUMMARY OF THE EXCHANGE NOTES
The exchange notes have the same financial terms and covenants as the old
notes, which are as follows:
<TABLE>
<S> <C>
Issuer............................ ICON Health & Fitness, Inc.
Maturity.......................... September 27, 2005.
Interest.......................... Interest accrues from September 27, 1999 at the rate of 12%
per year, payable semi-annually in arrears on each
January 15 and July 15, beginning on January 15, 2000.
Ranking........................... The exchange notes are general unsecured obligations of
ICON, subordinated in right of payment to all of our
existing and future indebtedness outstanding under our
credit facilities. The indenture governing the exchange
notes limits senior indebtedness to indebtedness under the
credit facilities. For a description of the credit
facilities, see "Material Indebtedness--Credit Facilities."
In addition, the exchange notes are effectively subordinated
to all secured obligations to the extent of the assets
securing those obligations, including the credit facilities.
The indenture for the exchange notes permits us and our
subsidiaries to incur additional indebtedness, including
senior indebtedness, subject to limitations. The exchange
notes are also effectively subordinated in right of payment
to all existing and future liabilities of any subsidiaries
of ICON which do not guarantee the exchange notes.
Optional Redemption............... We have the right at any time to redeem all (but not part)
of the exchange notes and old notes at the redemption prices
listed in "Description of the Notes" under the heading
"Redemption--Optional Redemption."
Change of Control................. If an event treated as a change of control of our company
occurs, including for example, a sale of all or
substantially all of our assets or the acquisition by a
third party of a majority of HF Holdings' common stock, we
must make an offer to purchase any and all of the exchange
notes then outstanding from you at a purchase price equal to
101% of their aggregate principal amount, plus accrued and
unpaid interest, if any, to the date of purchase. We cannot
assure you that we will have the financial resources
necessary to purchase the exchange notes upon a change of
control or that the purchase will be permitted under our
credit facilities. For a summary of what constitutes change
of control please see "Description of the
Notes--Covenants--Change of Control."
Covenants......................... The indenture for the exchange notes contains covenants
that, among other things, limit our ability, and the ability
of our subsidiaries, to incur additional indebtedness, pay
dividends or make other distributions, make investments,
dispose of assets, issue capital stock of subsidiaries,
create liens securing indebtedness, enter into transactions
with affiliates, or enter into mergers or consolidations or
sell all or substantially all of our or their assets.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Subsidiary Guarantors............. Each of our domestic subsidiaries is a guarantor of the
exchange notes. Our foreign subsidiaries are not guarantors
of the notes unless they guarantee our indebtedness or
indebtedness of another subsidiary guarantor of the exchange
notes. The subsidiary guarantees are joint and several, full
and unconditional and general unsecured obligations of the
subsidiary guarantors. The subsidiary guarantees are
subordinated in right of payment to all existing and future
senior indebtedness of the subsidiary guarantors, including
guarantees of the credit facilities, and are also
effectively subordinated to all secured obligations of the
subsidiary guarantors to the extent of the assets securing
such obligations, including the credit facilities. The
indenture for the exchange notes permits the subsidiary
guarantors to incur additional indebtedness, including
senior indebtedness, subject to limitations.
</TABLE>
For additional information regarding the notes, see "Description of the
Notes" and "Material United States Federal Income Tax Consequences."
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
risks relating to the exchange notes, all of which apply to the old notes as
well.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, FOR THE SIX MONTHS ENDED
------------------------------------------------------------- ------------------------------
NOVEMBER 28, NOVEMBER 27,
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- ------------ ------------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................... $530.8 $747.6 $836.2 $749.3 $710.2 $ 331.5 $ 334.3
Cost of sales............... 378.4 541.5 597.8 536.0 514.0 239.0 243.7
------ ------ ------ ------ ------ ------- -------
Gross profit................ 152.4 206.1 238.4 213.3 196.2 92.5 90.6
Operating Expenses:
Selling................... 68.7 93.9 132.4 120.7 107.6 46.2 43.1
Research and
development............. 5.2 6.8 7.6 7.8 7.7 3.6 3.8
General and
administrative.......... 31.1 47.8 56.7 60.9 53.4 26.3 30.8
Weider Settlement &
HealthRider
integration............. -- -- 21.5 -- -- -- --
Compensation expense
attributable to
options................. 39.0 2.8 -- -- -- -- --
------ ------ ------ ------ ------ ------- -------
Total operating expenses.... 144.0 151.3 218.2 189.4 168.7 76.1 77.7
------ ------ ------ ------ ------ ------- -------
Income from operations...... 8.4 54.8 20.2 23.9 27.5 16.4 12.9
Interest expense............ (17.3) (27.9) (33.6) (35.0) (33.0) (16.0) (17.0)
Amortization of deferred
financing fees............ (1.2) (2.5) (2.5) (4.3) (7.0) (3.0) (2.0)
------ ------ ------ ------ ------ ------- -------
Income (loss) before income
taxes and extraordinary
item...................... (10.1) 24.4 (15.9) (15.4) (12.5) (2.6) (6.1)
Provision for (benefit from)
income taxes.............. (3.6) 10.8 (4.0) (5.9) 12.1 (0.8) 2.8
------ ------ ------ ------ ------ ------- -------
Income (loss) before
extraordinary item........ (6.5) 13.6 (11.9) (9.5) (24.6) (1.8) (8.9)
Extraordinary loss on
extinguishment of debt.... -- -- -- -- -- -- (1.2)
------ ------ ------ ------ ------ ------- -------
Net income (loss)........... $ (6.5) $ 13.6 $(11.9) $ (9.5) $(24.6) $ (1.8) $ (10.1)
====== ====== ====== ====== ====== ======= =======
OTHER DATA:
Depreciation and
amortization.............. $ 6.9 $ 7.2 $ 13.4 $ 16.7 $ 17.4 $ 8.8 $ 8.2
Capital expenditures........ 8.0 15.4 16.0 11.8 11.6 6.8 6.8
Deficiency to cover fixed
charges(4)(6)............. 10.1 --(5) 15.9 15.4 12.5 2.6 8.1
BALANCE SHEET DATA (AT THE END
OF THE PERIOD):
Cash........................ 4.1 19.3 5.6 3.9 4.3 5.7
Working capital............. 137.7 157.3 220.1 152.9 108.0 210.4
Total assets................ 281.9 306.5 456.9 363.1 331.9 463.9
Total indebtedness.......... 207.8 213.6 327.0 274.5 260.6 332.2
Stockholder's equity
(deficit)................. (14.8) 2.0 (10.7) (20.3) (47.8) (19.2)
</TABLE>
- ------------------------------
(1) In fiscal 1995, a $39.0 million compensation expense was incurred with
respect to management stock options.
(2) In fiscal 1996, a $2.8 million compensation expense was incurred with
respect to management stock options
(3) In fiscal 1997, the Company incurred a $14.0 million step-up in value of
HealthRider inventory purchased. This item was a non-cash expense and was
required for purchase accounting per GAAP. The Company also incurred Weider
settlement expenses of $16.6 million related to the settlement of various
disputes. This cash expense item includes one-time payments to various
Weider affiliates as well as associated legal expenses and professional
fees. The Company also incurred HealthRider integration costs of $4.9
million.
(4) Earnings consist of income (loss) before income taxes and extraordinary item
plus fixed charges. Fixed charges consist of interest expense on debt,
interest portion of rentals and amortization of deferred financing fees.
(5) Ratio of earnings to fixed charges is 1.8.
(6) The Company's deficiency to cover fixed charges was $9.7 million for the pro
forma year ended May 31, 1999 and $5.5 million for the pro forma six months
ended November 27, 1999.
8
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RISK FACTORS
The exchange notes, like the old notes, entail the following risks:
WE HAVE SUBSTANTIAL EXISTING DEBT AND DEBT SERVICE REQUIREMENTS AND WE MAY NOT
GENERATE SUFFICIENT CASH FLOW TO MAKE PAYMENTS ON AND TO REFINANCE SUCH DEBT,
INCLUDING THE EXCHANGE NOTES, WHICH COULD ADVERSELY IMPACT OUR BUSINESS AND YOUR
INVESTMENT.
We have a significant amount of indebtedness. As of November 27, 1999, and
after giving pro forma effect to the September recapitalization, our
consolidated indebtedness was approximately $332.2 million, of which
$44.3 million was senior indebtedness. On a pro forma basis, our earnings were
inadequate to cover fixed charges for the six months ended November 27, 1999 by
an amount equal to $5.5 million. Further, the terms of the indenture for the
exchange notes permit us to incur substantial indebtedness in the future.
Our ability to make payments on and to refinance our indebtedness, including
the exchange notes, will depend on our ability to generate cash in the future.
This, to a certain extent, is subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our
control. Based on our current level of operations and anticipated cost savings
and operating improvements, we believe our cash flow from operations and
available borrowings under our credit facilities will be adequate to meet our
liquidity needs over the next several years.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule, in the amounts projected or at all,
or that future borrowings will be available to us under our credit facilities in
amounts sufficient to enable us to pay our indebtedness, including the exchange
notes, or to fund our other liquidity needs. If we cannot generate sufficient
cash flow from operations to make scheduled payments on the exchange notes in
the future, we may need to refinance all or a portion of our indebtedness,
including the exchange notes, on or before maturity, sell assets, delay capital
expenditures, or seek additional equity. We cannot assure you that we will be
able to refinance any of our indebtedness, including the exchange notes, on
commercially reasonable terms or at all or that any other action can be effected
on satisfactory terms, if at all.
Our substantial indebtedness could have other important consequences to you.
For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow for other purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate, thereby placing us at a
competitive disadvantage compared to our competitors that may have less
debt;
- limit, by the financial and other restrictive covenants in the exchange
notes, together with those in the credit facilities, among other things,
our ability to borrow additional funds; and
- have a material adverse effect on us if we fail to comply with the
covenants in the exchange notes and credit facilities, because such
failure could result in an event of default which, if not cured or waived,
could result in a substantial amount of our indebtedness becoming
immediately due and payable.
9
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THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES, SO YOU MAY BE UNABLE TO SELL
YOUR EXCHANGE NOTES.
The exchange notes are new securities for which there is currently no
market. Consequently, the exchange notes will be relatively illiquid, and you
may be unable to sell your exchange notes. We do not intend to apply for listing
of the exchange notes on any securities exchange or for the inclusion of the
exchange notes in any automated quotation system. Accordingly, we cannot assure
you that a liquid market for the exchange notes will develop.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES IS SUBORDINATED TO OUR
SENIOR DEBT, WHICH DECREASES THE CHANCES THAT YOU WILL RECEIVE DISTRIBUTIONS IN
THE EVENT OF A BANKRUPTCY, LIQUIDATION OR REORGANIZATION OF OUR COMPANY OR THE
SUBSIDIARY GUARANTORS.
The exchange notes and the subsidiary guarantees are subordinated in right
of payment to the payment in full in cash of all indebtedness under the credit
facilities, which will be secured by substantially all of our and our
subsidiaries' domestic assets. As a result, upon any distribution to our
creditors or the creditors of the subsidiary guarantors in a bankruptcy,
liquidation or reorganization or similar proceeding relating to our company or
our subsidiaries or our company's and our subsidiaries' property, the lenders
under the credit facilities will be entitled to be paid in full under the credit
facilities before any payment may be made with respect to the exchange notes or
the subsidiary guarantees, other than payment consisting of securities
subordinated to indebtedness under the credit facilities to the same extent as
the exchange notes. All payments on the exchange notes and the subsidiary
guarantees will be blocked in the event of a payment default under the credit
facilities and may be blocked for up to 179 out of 360 consecutive days in the
event of non-payment defaults under the credit facilities.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the subsidiary guarantors, the holders of the
exchange notes will share with trade creditors and all other holders of our
unsecured debt and of our subsidiary guarantors in the assets remaining after we
and the subsidiary guarantors have paid all indebtedness under the credit
facilities. Because the exchange notes indenture requires that amounts otherwise
payable to holders of the exchange notes in a bankruptcy or similar proceeding
be paid to lenders under the credit facilities, holders of the exchange notes
may, in the event that senior indebtedness is not fully secured, receive less,
ratably, than holders of trade payables in any such proceeding.
Our foreign subsidiaries, other than our Canadian subsidiaries, will not
guarantee the exchange notes. In the event of a bankruptcy, liquidation or
reorganization of any of our non-guarantor subsidiaries, holders of their
indebtedness and their trade creditors will be entitled to payment of their
claims from the assets of those subsidiaries before any assets are made
available for distribution to us. European revenues accounted for approximately
4.9%, 5.4% and 5.3% of revenues in Fiscal 1997, 1998 and 1999, respectively.
The exchange notes are not secured by any of our assets or those of our
subsidiaries. We have granted a security interest to the lenders under the
credit facilities in all of the capital stock of our domestic subsidiaries and
in 65% of the capital stock of our foreign subsidiaries, as well as in all of
our tangible and intangible assets and those of our domestic subsidiaries. If we
become insolvent or are liquidated, or if the lenders under the credit
facilities accelerate payment under any of the credit facilities, they will have
a prior claim with respect to these assets.
A HOLDER OF NOTES MAY NOT BE ABLE TO REQUIRE US TO REPURCHASE ITS NOTES AS A
RESULT OF A SALE OF LESS THAN ALL OF OUR ASSETS.
The indenture governing the notes contains a provision that if a "Change of
Control" occurs, we will be required to make an offer to each holder of notes to
purchase all of the then outstanding notes and then purchase all notes validly
tendered pursuant to such offer. The definition of Change of
10
<PAGE>
Control includes a phrase relating to the sale, lease, transfer, conveyance or
other disposition of "all or substantially all" of our company's and some of our
subsidiaries' assets taken as a whole. Although there is a limited body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, a holder of notes
may not be able to require us to repurchase such notes as a result of a sale of
less than all of our assets.
WE RELY ON A LIMITED NUMBER OF MAJOR CUSTOMERS, THE LOSS OF ANY OF WHICH COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
Our three largest customers together accounted for approximately 39.6%,
42.0% and 54.1% of our revenues in fiscal years 1997, 1998 and 1999,
respectively. Our largest customer, Sears, Roebuck and Co., accounted for 29.0%,
32.5% and 38.4% of our revenues in fiscal years 1997, 1998 and 1999,
respectively. The level of our sales to these customers depends in large part on
consumers' continuing commitment to home fitness equipment products and on the
success of the customers' efforts to market and promote our products, as well as
our competitiveness in terms of price, quality, product innovation, customer
service and other factors. Consistent with industry practice, we do not have
long-term purchase agreements or other commitments as to levels of future sales.
The loss of, or a substantial decrease in the amount of purchases by, or a
write-off of any significant receivables due from any of our major customers
would have a material adverse effect on our business.
WE RELY HEAVILY ON PRODUCT INNOVATION TO MAINTAIN CONTINUED INTEREST IN OUR
PRODUCTS.
Product life cycles can be short in the home fitness industry and innovation
is an important component of competition. While we emphasize new product
innovation and product repositioning (i.e., design changes or revised marketing
strategies), we may be unable to continue to develop competitive products in a
timely manner or to respond adequately to market trends. In addition, we may not
be able to ensure that repositioned products will gain initial market
acceptance, that interest in our products will be sustained, or that significant
start-up costs with respect to new products will be recouped. Moreover, although
our management believes that fitness and health activities have become important
for consumers, we cannot ensure that interest in any particular fitness activity
will be sustained.
We were one of the first companies to introduce motorized treadmills for
home use and believe that we are currently the largest manufacturer of motorized
treadmills, with motorized treadmill sales in fiscal years 1997, 1998 and 1999
of $452.9 million, $474.0 million and $437.0 million, respectively, representing
54.2%, 63.3% and 61.5%, respectively, of our revenues in each of such years. We
could be adversely affected if we experienced a significant decline in the
popularity of our motorized treadmills and were unable to develop and introduce
other successful products in a timely manner.
OUR BUSINESS ENVIRONMENT IS HIGHLY COMPETITIVE.
We operate in a highly competitive environment. We compete in the U.S. with
a number of domestic manufacturers, domestic direct importers and foreign
companies exporting products to the U.S. Some of our competitors, which include
LifeFitness, Precor, Schwinn and Canstar Sports Inc., a subsidiary of Nike Inc.,
are better capitalized than us and may have greater financial and other
resources than those available to us. There are a number of companies who
produce products for the institutional fitness markets (spas and gyms) with
considerable expertise in manufacturing who have become competitors in the home
market. There are also manufacturers of home exercise equipment in Europe and
Asia who may also increase or commence efforts to sell their products in the
U.S. market. In addition, there are no significant technological or
manufacturing barriers to entry into some segments of the home fitness equipment
market, although many companies in the industry, including our company, have
sought and received numerous patents in an effort to protect their competitive
11
<PAGE>
position. We believe that the principal competitive factors affecting our
business include price, quality, brand name recognition, product innovation and
customer service.
OUR SALES ARE HIGHLY PRICE SENSITIVE, WHICH CAN PREVENT US FROM PASSING COST
INCREASES ON TO OUR CUSTOMERS.
Sales to mass merchandisers, which are among our primary customers, are
highly price sensitive. We set many product prices on an annual basis but in
most cases we purchase raw materials and components under purchase orders
providing components for periods less than one year. Accordingly, we set prices
for many products before we have complete knowledge of the costs of raw
materials and components and sometimes before product development is complete
and production costs have been firmly established. After we have established
prices, we may be unable to pass cost increases along to our customers, or to
compete as effectively if we seek to pass such costs along, which could have a
material adverse effect on us.
OUR BUSINESS IS RELIANT ON FOREIGN SUPPLIERS.
Since we purchase components and finished products from foreign suppliers,
we are subject to the general risks of doing business abroad, including delays
in shipment, work stoppages, adverse fluctuations in currency exchange rates,
increases in import duties and tariffs, changes in foreign regulations, changes
in most-favored-nation status and political instability. In addition, although
we seek to maintain dual sources for the material and components required for
our products, we rely on single sources for certain of our component parts,
including electronic consoles and controllers, and finished products. The
occurrence of any such events relating to our foreign suppliers or the loss of
certain of these suppliers could adversely affect our business until alternative
supply arrangements could be secured, particularly if such loss occurred during
our key production periods. We may be unable to ensure that we would be able to
obtain products and supplies on substantially similar terms should any of these
risks materialize.
ECONOMIC CONDITIONS FOR RETAIL BUSINESSES IN GENERAL CAN AFFECT OUR BUSINESS,
AND WE RELY ON CONTINUING CONSUMER INTEREST IN FITNESS ACTIVITIES.
Our customers are primarily retail businesses. Retail businesses may be
adversely affected by unfavorable local, regional or national economic
developments which result in reduced consumer spending. We cannot ensure that an
economic downturn would not have a material adverse effect on our customers and,
therefore, on us. In addition, we cannot ensure that consumer interest in
fitness and health activities will be sustained.
OUR SALES FLUCTUATE BY SEASON.
Historically, we have sold the majority of our products to our customers in
our second and third interim reporting periods (I.E., from September through
February). Increased sales and distribution typically have occurred in the
Christmas retail season and the beginning of a new calendar year because of
increased customer promotions and consumer purchases. We have frequently
incurred operating losses in the first and fourth interim reporting periods of
our fiscal year. If actual sales for a period do not meet or exceed projected
sales for that period, expenditures and inventory levels could be
disproportionately high for such period and our cash flow for that period and
future periods could be adversely affected. The timing of large orders from
customers and the mix of products sold may also contribute to quarterly or other
periodic fluctuations.
12
<PAGE>
WE DEPEND ON KEY MEMBERS OF OUR MANAGEMENT TEAM.
Our success depends to a considerable extent on the performance of our
senior management team. While we believe that our senior management team has
significant depth, the loss of services of our senior executives, particularly
the loss of either Scott Watterson, our Chief Executive Officer, or Gary
Stevenson, our Chief Operating Officer, could have a material adverse effect on
us. Although we entered into three-year employment agreements with
Messrs. Watterson and Stevenson in September 1999, they will be able to
terminate their employment immediately for cause (as defined) or without cause
upon six months' notice or, under certain circumstances, three months' notice.
WE ARE CONTROLLED BY CERTAIN STOCKHOLDERS WHO MAY SUBSTANTIALLY INFLUENCE OUR
BUSINESS.
HF Investment Holdings, LLC ("HF Investment Holdings") owns approximately
79.7% (51.6% on a fully diluted basis) of the outstanding capital stock of HF
Holdings, our parent company. Affiliates of Bain Capital, Inc. own 59.8% of the
membership interests of HF Investment Holdings (49.8% assuming the exercise in
full of a warrant to acquire membership interests by Credit Suisse First
Boston). Through such ownership of HF Investment Holdings and the provisions of
the stockholders agreement and operating agreement for HF Investment Holdings,
these affiliates of Bain Capital have the ability to elect a majority of the
Boards of Directors of HF Holdings and our company and to determine the outcome
of significant corporate transactions or other matters submitted to the
stockholders for approval.
WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND OTHER LITIGATION.
Due to the nature of our products, we are subject to product liability
claims involving personal injuries allegedly related to our products. Our
involvement in the trampoline business through our JumpKing subsidiary has
especially exposed us to such claims. We currently carry an occurrence-based
product liability insurance policy. The current policy provides coverage for the
period from October 1, 1998 to September 30, 2001 of up to $25 million per
occurrence, and $25 million in the aggregate. The policy has a deductible on
each claim of $250,000 for claims related to trampolines and $100,000 for claims
related to all other products. We believe that our insurance is generally
adequate to cover product liability claims. Nevertheless, currently pending
claims and any future claims are subject to the uncertainties related to
litigation and the ultimate outcome of any such proceedings or claims cannot be
predicted. Due to uncertainty with respect to the nature and extent of
manufacturers' and distributors' liability for personal injuries, we cannot
ensure that our product liability insurance is or will be adequate to cover such
claims. In addition, we cannot ensure that our insurers will be solvent when
required to make payments on claims. Furthermore, we cannot ensure that
insurance will remain available, or if available, that it will not be
prohibitively expensive. The loss of insurance coverage could have a material
adverse effect on our results of operations and financial condition.
EXERCISE MACHINE RECALLS. On July 14, 1997, in cooperation with the
Consumer Products Safety Commission, we recalled approximately 78,000 exercise
machines sold under the brand name, ProForm R-930 Spacesaver Riders, Model No.
PFCR6406. The machine was designed to close horizontally for easy storage. In
several reported incidents, when the handle bar was pulled against the seat
during use, the machine unexpectedly closed into the storage position. As such,
consumers were advised to stop using the machine until a free repair kit had
been installed. Any claims filed by a consumer in conjunction with this product
have been and continue to be handled in the normal course of business. To date,
we have not suffered any material adverse effect relative to this product
recall, but we cannot ensure that we will not suffer such material adverse
effect.
On April 15, 1999, in cooperation with the Consumer Products Safety
Commission, we recalled approximately 75,000 exercise machines sold under the
brand names, Weider Shapeglider (Model No. WECR4306), Weider PowerGlide (Model
No. WECR4406), and the Weslo Total Body Trainer (Model
13
<PAGE>
No. WLCR4356). In several reported incidents, the link arm supporting the seat
on these exercise gliders disconnected during use, causing the user to fall
abruptly. As such, consumers were advised to stop using the machine until a free
repair kit had been installed. Any claims filed by a consumer in conjunction
with this product have been and will continue to be handled in the normal course
of business. Some consumers have asserted punitive damages which may not be
covered by insurance. While we do not believe that we will incur any material
adverse effect relative to this product recall, we cannot ensure that we will
not suffer such material adverse effect.
WE MAY BE SUBJECT TO CLAIMS FROM HOLDERS OF OUR 13% NOTES AND THE 14% NOTES OF
ICON FITNESS WHO DID NOT PARTICIPATE IN OUR SEPTEMBER RECAPITALIZATION.
In connection with the September recapitalization, we amended the indentures
governing the 13% and 14% notes to delete substantially all restrictive
covenants contained in those indentures, and holders who still hold 13% or 14%
notes may seek to challenge the validity of those amendments and the September
recapitalization. One entity which claims to be a non-tendering holder of
$1.5 million principal amount of 13% notes has informed us of its intention to
pursue a claim against our company, our directors and investors who participated
in the September recapitalization. Although we intend to vigorously defend any
such claims and while we do not believe that these claims are material to our
company, we cannot assure you that these claims would not have a material
adverse effect on our company. We have agreed to indemnify our directors and
officers, these participants in the September recapitalization and their
respective affiliates with respect to any such claims.
OUR STRATEGY OF OPERATING RETAIL STORES HAS RESULTED IN NET LOSSES AND MAY NEVER
BECOME PROFITABLE.
We currently operate 72 retail store and kiosk locations where we offer
equipment directly to consumers. Our retail store strategy has resulted in net
losses and a negative cash flow to our company since we acquired our stores in
connection with the HealthRider and NordicTrack acquisitions. In addition, our
retail store strategy of selling goods directly to the consumer may be viewed
negatively by our traditional retail customers as a competitive effort against
them, causing them to reduce or cease the purchase of our products.
OUR DIRECT SALES TO CONSUMERS OVER THE INTERNET MAY BE VIEWED AS COMPETITIVE BY
OUR RETAIL CUSTOMERS.
We currently conduct business directly with the consumer through eight Web
sites over the Internet. We expect to continue and expand our sales efforts via
the Internet. Our expansion strategy over the Internet may not, however, be
successful, and our traditional retail customers may view this strategy as a
competitive effort against them causing them to reduce or cease the purchase of
our products.
WE ARE BEING AUDITED BY THE INTERNAL REVENUE SERVICE.
We are under examination by the Internal Revenue Service for our taxable
year ended May 31, 1996. This examination remains in process and has not been
completed. Because we carried forward losses claimed on our 1995 tax return to
our 1996 return and carried back losses claimed on our 1997 return to our 1996
return, the IRS, as part of its examination, is reviewing our tax returns for
our years ended May 31, 1995 and 1997. In connection with this review, the IRS
has given us preliminary written notice of its intention to disallow
approximately $26 million of option-related deductions claimed in our taxable
year ended May 31, 1995. Although our taxable year ended May 31, 1995 is closed
due to the statute of limitations, such disallowances (if successful) would
affect the amount of our net operating loss carryforwards. We intend to
vigorously and aggressively defend our position on this issue and believe that
we will prevail. The IRS has also indicated that it intends to challenge the
timing of other deductions in our taxable year ended May 31, 1997. If the IRS
were to prevail in respect of both these issues, due to the interplay of our net
operating loss carryforwards and carrybacks from other years,
14
<PAGE>
there would be a potential tax liability for the taxable year ended May 31, 1996
in an amount, through February 29, 2000, of approximately $4.2 million,
including interest. In addition, there would be a substantial reduction in our
net operating loss carryforwards. The IRS has also inquired about our treatment
of a substantial amount of banking, professional and other fees incurred in our
taxable year ended May 31, 1995. We are deducting the amount of those fees over
the terms of the debt that we incurred in that year. The IRS has just recently
preliminarily indicated that it intends to disallow the deduction of such fees
and has asked us to respond with our position. We have indicated that we believe
that a substantial majority of such fees are properly amortizable over the terms
of the debt we incurred in 1995 and are in the process of discussing with the
IRS the merits of its preliminary position. We cannot ensure that the IRS will
not raise other issues in the course of its examination.
If the IRS were to prevail in its position that the 1995 option-related and
the 1997 deductions should be disallowed, as noted above, our available net
operating loss carryforwards would be substantially reduced and there would be a
potential liability for the year ended May 1996 of approximately $4.2 million
(including interest calculated through February 29, 2000). Based on information
currently available to us, we do not believe that the reduction in our net
operating losses should materially adversely affect our financial condition.
However, a reduction in our available net operating losses could materially
adversely affect our financial condition if the IRS were successfully to assert
other issues (including the deductibility of our 1995 banking, professional and
other fees) on audit or if it were to be determined that we recognized
additional cancellation of indebtedness income upon the exchange of the 13%
notes for the old notes as a result of the old notes being determined to have
been issued with original issue discount, or OID. As discussed more fully under
"Material United States Federal Income Tax Consequences," it is our belief that
the old notes were not issued with OID and that, therefore, we did not recognize
such additional cancellation of indebtedness income.
WE ARE SUBJECT TO POTENTIALLY COSTLY ENVIRONMENTAL REGULATION.
Our operations are subject to federal, state and local environmental and
health and safety laws and regulations that impose workplace standards and
limitations on the discharge of pollutants into the environment and establish
standards for the handling, generation, emission, release, discharge, treatment,
storage and disposal of materials, substances and wastes. The nature of our
operations exposes us to the risk of claims with respect to environmental
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims. We believe that the cost of
achieving and maintaining compliance with such laws and regulations will not
have a material adverse effect on our business or financial position. However,
future events, such as changes in existing laws and regulations or enforcement
policies or the discovery of contamination on sites operated by us, may give
rise to additional compliance costs or operational interruptions which could
have a material adverse effect on our results of operations or financial
condition.
15
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes as described in this prospectus. We will receive in exchange old notes in
like principal amount. The old notes surrendered in exchange for the exchange
notes will be retired and canceled and cannot be reissued. Accordingly, the
issuance of the exchange notes will not result in any change in our
indebtedness.
We issued the old notes in connection with our September recapitalization in
exchange for our then outstanding 13% notes. We did not receive any cash
proceeds from the issuance of the old notes.
CAPITALIZATION
The following table sets forth, as of November 27, 1999, the consolidated
capitalization of our company:
<TABLE>
<CAPTION>
NOVEMBER 27, 1999
------------------
(IN MILLIONS)
<S> <C>
Long-term debt (including current portion of $7,804):
Revolving credit facility................................. $ 99.5
Term loans................................................ 180.0
12% Subordinated Notes.................................... 44.3
Other..................................................... 8.4
-------
Total long-term debt...................................... 332.2
=======
Stockholder's equity (deficit):
Common stock and additional paid-in capital............... 204.3
Receivable from Parent.................................... (2.2)
Accumulated other comprehensive loss...................... (1.2)
Accumulated deficit....................................... (220.1)
-------
Total stockholder's equity (deficit)...................... (19.2)
-------
Total capitalization.................................... $ 313.0
=======
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data for the year ended May 31,
1999 and the six months ended November 27, 1999 have been derived by the
application of pro forma adjustments to the historical financial data.
The following pro forma financial data show the effect of the following
(dollar amounts in thousands): (1) the exchange of the outstanding 13% Notes for
new 12% Notes, cash and warrants of HF Holdings, (2) the initial borrowings
under the New Credit Facilities, (3) the repayment of the existing Credit
Agreement facility, (4) the issuance of senior management equity and the making
of loans under the senior management non-recourse notes and the junior
management notes, (5) the payment of fees and expenses related to the September
recapitalization and (6) the capital contribution from HF Holdings. These
unaudited pro forma financial statements should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
prospectus.
The pro forma financial data do not purport to represent what our company's
results of operations would have actually been had the September
recapitalization in fact occurred on such dates, or to project results of
operations for any future period. The unaudited pro forma financial data is
based on assumptions that we believe are reasonable and should be read in
conjunction with the interim financial statements and the consolidated financial
statements and notes accompanying them that are included elsewhere in, or
annexed to, this prospectus.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SIX MONTHS SIX MONTHS
ENDED NOVEMBER ENDED NOVEMBER
27, 1999 ADJUSTMENTS 27, 1999
-------------- ----------- --------------
<S> <C> <C> <C>
Net sales........................... $ 334,308 $ 334,308
Cost of goods sold.................. 243,735 243,735
Operating expenses.................. 77,677 $ 54 C 77,731
--------- ------ ---------
Income from operations............ 12,896 (54) 12,842
Interest expense and amortization of
deferred financing fees........... (19,035) 2,668 A (16,367)
--------- ------ ---------
Income (loss) before income taxes
and extraordinary item............ (6,139) 2,614 (3,525)
Provision for (benefit from) income
taxes............................. 2,804 1,019 E 3,823
--------- ------ ---------
Loss before extraordinary item...... (8,943) 1,595 (7,348)
Extraordinary loss on extinguishment
of debt........................... (1,174) -- (1,174)
--------- ------ ---------
Net loss.......................... $ (10,117) $1,595 $ (8,522)
========= ====== =========
</TABLE>
17
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL YEAR PRO FORMA YEAR
ENDED MAY 31, ENDED MAY 31,
1999 ADJUSTMENTS 1999
--------------- ----------- --------------
<S> <C> <C> <C>
Net sales............................. $ 710,249 $ 710,249
Cost of goods sold.................... 514,018 514,018
Operating expenses.................... 168,750 $ 108 C 169,358
500 D
--------- ------ ---------
Loss from operations................ 27,481 (608) 26,873
Interest expense and amortization of
deferred financing fees............. (40,048) 3,506 B (36,542)
Other expense......................... (34) (34)
--------- ------ ---------
Income (loss) before income taxes... (12,601) 2,898 (9,703)
Provision for income taxes............ 12,084 1,130 E 13,214
--------- ------ ---------
Net loss............................ $ (24,685) $1,768 $ (22,917)
========= ====== =========
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
A. Net adjustment for the elimination of historical interest expense and
amortization of deferred financing fees of $18,124 and recognition of
interest expense and amortization of deferred financing fees of $15,456 on
the new debt incurred in connection with the Exchange Offer.
B. Net adjustment for the elimination of historical interest expense and
amortization of deferred financing fees of $40,048 and recognition of
interest expense and amortization of deferred financing fees of $36,542 on
the new debt incurred in connection with the Exchange Offer.
C. Reflects the incremental amount of salaries of senior management under their
new employment agreements as a result of the Exchange Offer.
D. Compensation for the $500 loan to junior management that is to be forgiven in
six months subject to continuing employment.
E. Reflects the estimated income tax provision resulting from the pro forma
adjustments.
18
<PAGE>
SELECTED FINANCIAL DATA
(IN MILLIONS)
The selected financial data set forth below with respect to our statements
of operations for each of the three years in the period ended May 31, 1999 and
balance sheets at May 31, 1998 and 1999, have been derived from our financial
statements included elsewhere in this prospectus that have been audited by
PricewaterhouseCoopers LLP, independent accountants, as indicated in their
report included elsewhere in this prospectus. The statement of operations data
for the years ended May 31, 1995 and 1996, and the balance sheet data as of such
dates, have been derived from the financial statements audited by
PricewaterhouseCoopers LLP but not included in this Prospectus. The financial
data for the six months ended November 28, 1998 and November 27, 1999 have been
derived from unaudited financial statements included elsewhere in this
prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of the financial position and results of operations for
these periods. Operating results for the six months ended November 27, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending May 31, 2000. The data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and the notes related thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, FOR THE SIX MONTHS ENDED
------------------------------------------------------------- --------------------------------
NOVEMBER 28, NOVEMBER 27,
1995 1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- ------------- -------------
(1) (2) (3)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................. $530.8 $747.6 $836.2 $749.3 $710.2 $331.5 $334.3
Cost of sales............. 378.4 541.5 597.8 536.0 514.0 239.0 243.7
------ ------ ------ ------ ------ ------ ------
Gross profit.............. 152.4 206.1 238.4 213.3 196.2 92.5 90.6
Operating Expenses:
Selling................. 68.7 93.9 132.4 120.7 107.6 46.2 43.1
Research and
development........... 5.2 6.8 7.6 7.8 7.7 3.6 3.8
General and
administrative........ 31.1 47.8 56.7 60.9 53.4 26.3 30.8
Weider Settlement &
HealthRider
integration........... -- -- 21.5 -- -- -- --
Compensation expense
attributable to
options............... 39.0 2.8 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total operating
expenses................ 144.0 151.3 218.2 189.4 168.7 76.1 77.7
------ ------ ------ ------ ------ ------ ------
Income from operations.... 8.4 54.8 20.2 23.9 27.5 16.4 12.9
Interest expense.......... (17.3) (27.9) (33.6) (35.0) (33.0) (16.0) (17.0)
Amortization of deferred
financing fees.......... (1.2) (2.5) (2.5) (4.3) (7.0) (3.0) (2.0)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes and
extraordinary item...... (10.1) 24.4 (15.9) (15.4) (12.5) (2.6) (6.1)
Provision for (benefit
from) income taxes...... (3.6) 10.8 (4.0) (5.9) 12.1 (0.8) 2.8
------ ------ ------ ------ ------ ------ ------
Income (loss) before
extraordinary item...... (6.5) 13.6 (11.9) (9.5) (24.6) (1.8) (8.9)
Extraordinary loss on
extinguishment of debt.. -- -- -- -- -- -- (1.2)
------ ------ ------ ------ ------ ------ ------
Net income (loss)......... $ (6.5) $ 13.6 $(11.9) $ (9.5) $(24.6) $ (1.8) $(10.1)
====== ====== ====== ====== ====== ====== ======
OTHER DATA:
Depreciation and
amortization............ $ 6.9 $ 7.2 $ 13.4 $ 16.7 $ 17.4 $ 8.8 $ 8.2
Capital expenditures...... 8.0 15.4 16.0 11.8 11.6 6.8 6.8
BALANCE SHEET DATA (AT THE
END OF THE PERIOD):
Cash...................... 4.1 19.3 5.6 3.9 4.3 5.7
Working capital........... 137.7 157.3 220.1 152.9 108.0 210.4
Total assets.............. 281.9 306.5 456.9 363.1 331.9 463.9
Total indebtedness........ 207.8 213.6 327.0 274.5 260.6 332.2
Stockholder's equity
(deficit)............... (14.8) 2.0 (10.7) (20.3) (47.8) (19.2)
</TABLE>
- ------------------------------
(1) In fiscal 1995, a $39.0 million compensation expense was incurred with
respect to management stock options.
(2) In fiscal 1996, a $2.8 million compensation expense was incurred with
respect to management stock options
(3) In fiscal 1997, the Company incurred a $14.0 million step-up in value of
HealthRider inventory purchased. This item was a non-cash expense and was
required for purchase accounting per GAAP. The Company also incurred Weider
settlement expenses of $16.6 million related to the settlement of various
disputes. This cash expense item includes one-time payments to various
Weider affiliates as well as associated legal expenses and professional
fees. The Company also incurred HealthRider integration costs of $4.9
million.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the historical audited
financial statements and the related notes thereto appearing elsewhere in this
report. Our fiscal year ends on May 31 of the corresponding calendar year. For
example, fiscal 1999 ended on May 31, 1999. "EBITDA" is defined herein as income
before provisions for (benefit from) income taxes, depreciation, amortization
and interest expense. EBITDA as presented may not be comparable to similarly
titled measures by other companies due to differences in the computations.
EBITDA is presented because we believe it is frequently used by security
analysts in the evaluation of companies. However, EBITDA should not be
considered as an alternative to net income as a measure of operating results or
to cash flows as a measure of liquidity in accordance with generally accepted
accounting principles.
RECENT DEVELOPMENTS
During the year ended May 31, 1999 we incurred significant net losses, and
as of May 31, 1999 had significant accumulated deficits. We also experienced a
decline in our revenue base and were unable to service our debt obligations. In
that regard, we were unable to make the interest payment on the 13% notes due on
July 15, 1999 and were in violation of the following financial covenants of our
credit agreement:
- minimum adjusted net worth
- minimum interest coverage ratio
- minimum debt service ratio
- maximum funded debt to adjusted net worth
To provide ongoing funding for our operations and debt repayment
requirements, on September 27, 1999, we consummated a troubled debt
restructuring of our capital structure that included an approximately
$40 million equity investment in our company. The principal equity investors
included affiliates of Bain Capital and its designees, members of our management
and Credit Suisse First Boston and its affiliates. Our September
recapitalization also included a refinancing of our existing bank credit
facility.
Prior to the September recapitalization, we were a wholly owned subsidiary
of IHF Holdings, Inc. ("IHF Holdings"), which was, in turn, a wholly owned
subsidiary of ICON Fitness Corporation ("ICON Fitness"). As part of the
September recapitalization, we closed a private exchange offer and consent
solicitation in which:
(1) participating holders of our then outstanding 13% Senior Subordinated
Notes due 2002 received the following consideration for each $1,000
principal amount of 13% notes held:
- $395 in cash,
- $444 principal amount of 12% notes,
- an additional cash payment equal to the sum of (i) interest due on the
tendered 13% notes on July 15, 1999 (with additional interest thereon
from July 15, 1999 to the closing of the exchange offers at the rate of
17% per annum) and (ii) interest accrued after July 15, 1999 on the
tendered 13% notes to the closing of the exchange offers at the rate of
17% per annum, and
- warrants to purchase 4.25 shares of common stock of our new parent
company, HF Holdings, Inc. ("HF Holdings") at an exercise price of
$.001 per share.
(2) participating holders of 15% Senior Secured Discount Notes due 2004 of
IHF Holdings received the following consideration for each $1,000
principal amount at maturity held:
- warrants to purchase 5.26 shares of HF Holdings common stock at an
exercise price of $.001 per share.
20
<PAGE>
(3) participating holders of 14% Senior Discount Notes due 2006 of ICON
Fitness received the following consideration for each $1,000 principal
amount at maturity held:
- warrants to purchase 1.24 shares of HF Holdings common stock at an
exercise price of $.001 per share.
Prior to the September recapitalization there were issued and outstanding
$101,250,000 principal amount of our 13% notes, $123,700,000 principal amount at
maturity of 15% notes of IHF Holdings and $162,000,000 principal amount at
maturity of 14% notes of ICON Fitness. All but $1.5 million principal amount of
our 13% notes and $7.0 million principal amount at maturity of 14% notes of ICON
Fitness were tendered and accepted for exchange in the September exchange
offers. Those untendered notes remain outstanding under amended indentures.
In connection with the September recapitalization, we became a wholly owned
Subsidiary of HF Holdings, Inc.
RESULTS OF OPERATIONS
OPERATING RESULTS FOR THE SIX MONTHS ENDED NOVEMBER 27, 1999 AND NOVEMBER 28,
1998
During the first six months of fiscal 2000, net sales increased
$2.8 million, or 0.8%, to $334.3 million from $331.5 million in the first six
months of fiscal 1999. Domestic treadmill sales for the first six months of
fiscal 2000 accounted for approximately 57.8% of total net sales, versus 57.9%
in the first six months of fiscal 1999. For the first six months of fiscal 2000,
domestic treadmill sales were $193.1 million compared to $191.9 million for the
same period a year ago, which represents an $1.3 million increase. Other
increases in fiscal 2000 include an increase in the sales of trampolines of
$6.0 million, ellipticals of $1.7 million, benches of $1.7 million, bikes of
$0.2 million and international sales of $1.0 million. Sales of light exercise
equipment decreased $6.9 million, home spas sales decreased $0.9 million, cardio
sales decreased $0.3 million and miscellaneous products decreased $1.4 million
during the first six months of fiscal 2000.
Gross profit for the first six months of fiscal 2000 was $90.6 million, or
27.1% of net sales, compared to $92.5 million, or 27.9% of net sales, for the
first six months of fiscal 1999. The decrease of 1.9 million in gross profit was
attributable to the changes in product mix.
Selling expenses totaled $43.1 million, or 12.9% of net sales, in the first
six months of fiscal 2000, compared to $46.2 million, or 13.9% of net sales, for
the first six months of fiscal 1999. This decrease, both in dollars and as a
percentage of sales, is attributable primarily to a reduction in advertising
expenses that have decreased by approximately $1.1 million for the first six
months of fiscal 2000, versus the first six months of fiscal 1999. Other selling
expense decreases include reductions in salaries and wages of approximately
$0.3 million and trade show and other related expenses of approximately
$1.7 million.
Research and development expenses totaled $3.8 million, or 1.1% of net
sales, for the first six months of fiscal 2000, compared to $3.6 million, or
1.1% of net sales, for the first six months of fiscal 1999. This $0.2 million
increase is attributable to management's efforts to continue to develop both
current and future products.
General and administrative expenses totaled $30.8 million, or 9.2% of net
sales, for the first six months of fiscal 2000, compared to $26.4 million, or
8.0% of net sales, for the first six months of fiscal 1999. This increase of
approximately $4.4 million in general and administrative expenses for the first
six months of fiscal 2000 was attributable to a non-cash equity grant to
management of $3.2 million. Other increases in fiscal 2000 include legal and
accounting fees of $0.9 million and salaries and wages of $0.3 million.
As a result of the foregoing factors, operating income was $12.9 million in
the first six months of fiscal 2000, compared to operating income of
$16.4 million in the first six months of fiscal 1998.
21
<PAGE>
Interest expense was $17.0 million for the first six months of fiscal 2000,
compared to $16.0 million for the first six months of fiscal 1999. The increase
in interest expense is a result of increased borrowings under the Credit
Agreement.
The provision for income taxes was $2.1 million for the first six months of
fiscal 2000, compared with a tax benefit of $0.8 million for the first six
months of fiscal 1999. The provision for income taxes for the first six months
of fiscal 2000, compared to the tax benefit for first six months of fiscal 1999,
was the result of the September recapitalization. Because the September
recapitalization resulted in a change in control for federal income tax
purposes, certain tax attributes carried over from prior years were not allowed
to be carried forward beyond September 27, 1999. In addition, the Company's
operating losses generated prior to the September recapitalization are not
available to offset the Company's pretax income generated subsequent to the
September recapitalization. The Company therefore reduced its deferred tax asset
by $0.8 million to account for these changes.
As a result of the foregoing factors, the net loss was $10.0 million for the
first six months of fiscal 2000, compared to a net loss in the first six months
of fiscal 1999 of $1.8 million.
YEAR ENDED MAY 31, 1999 COMPARED TO THE YEAR ENDED MAY 31, 1998
Net sales decreased by $39.1 million, or 5.2%, from $749.3 million in fiscal
1998 to $710.2 million in fiscal 1999. The decrease in sales was primarily
attributable to airwalker sales, ab shaper sales and cardio sales which
decreased by $10.9 million, $3.4 million and $5.0 million, respectively. Also,
elliptical sales decreased by $3.8 million, stepper sales decreased by
$0.5 million and sales in Europe decreased by approximately $2.5 million. These
decreases were offset by increased bike sales of $10.9 million, increased home
spa sales of $2.5 million and relaxation chair sales of $2.0 million. Trampoline
sales also increased $3.8 million over the last fiscal year. Other product
sales, including soft goods, increased by approximately $11.7 million. Treadmill
sales decreased from $474.0 million in fiscal 1998 to $437.0 million in fiscal
1999. Treadmill sales accounted for approximately 63.3% of net sales in fiscal
1998 and 61.5% of net sales in fiscal 1999. The decrease in sales was primarily
attributable to inventory reduction by a group of key customers which either
changed their inventory policies, suffered severe financial difficulty or ceased
sales of these products.
Gross profit for fiscal 1999 was $196.2 million, or 27.6% of net sales. In
fiscal 1998, gross profit was 28.5% of net sales at $213.6 million, excluding a
non-recurring cost of $0.3 million.
Selling expenses were $107.6 million, or 15.2% of net sales, in fiscal 1999
compared to $120.8 million, or 16.1% of net sales, in fiscal 1998. The dollar
decline was partly offset by the write-off of the Service Merchandise account
receivable for $10.5 million which filed for bankruptcy in fiscal 1999. In
addition, advertising expense in fiscal 1999 decreased by $13.4 million and
salaries and wages decreased by $3.1 million primarily as a result of cost
reduction strategies.
Research and development expense was $7.7 million, or 1.1% of net sales, for
fiscal 1999 compared to $7.8 million, or 1.0% of net sales, for fiscal 1998.
This expense reflects our continued efforts to develop both current and future
products.
General and administrative expense totaled $53.4 million, or 7.5% of net
sales, for fiscal 1999 compared to $60.9 million, or 8.1% of net sales, for
fiscal 1998. The decrease was primarily a result of cost reduction strategies.
Depreciation increased during fiscal 1999 by $1.4 million over the same period
during the prior year due to recent acquisitions. Legal expenses and insurance
expenses decreased approximately $1.6 million and $1.7 million, respectively, in
fiscal 1999 over fiscal 1998. Capital expenditures totaled $11.6 million in
fiscal 1999, down $0.2 million from fiscal 1998.
As a result of the foregoing factors, EBITDA was $45.3 million, or 6.4% of
net sales, in fiscal 1999, compared to $41.1 million, or 5.5% of net sales, in
fiscal 1998. Adjusting for the $10.5 million reserve against receivables due
from Service Merchandise, EBITDA in fiscal 1999 totaled $55.8 million, or 7.9%
of net sales, compared to adjusted EBITDA of $41.4 million, or 5.5% of net
sales, in fiscal 1998.
22
<PAGE>
Interest expense, including amortization of deferred financing fees
increased to $40.3 million for our company in fiscal 1999 compared to $39.9.
million in fiscal 1998. The increase in interest expense and amortization of
deferred financing fees in fiscal 1999 was the result of additional levels of
borrowing under our old credit agreement and accretion of the principal balances
of our then outstanding indentures. This interest expense is not representative
due to our September recapitalization.
Our effective tax rate for fiscal 1999 was an expense of 96% for our
company, compared to a benefit of 38% in fiscal 1998. The higher effective rate
for fiscal 1999 reflects our provision for a valuation allowance for a portion
of our deferred tax assets that will not be realized due to our September
recapitalization. The deferred tax assets that make up the valuation allowance
are primarily related to net operating loss carryforwards ("NOL's"), future
deductible interest and stock compensation expense.
As a result of the foregoing factors, our net loss was $24.7 million for
fiscal 1999, compared to a net loss of $9.5 million for the same period in
fiscal 1998.
YEAR ENDED MAY 31, 1998 COMPARED TO THE YEAR ENDED MAY 31, 1997
Net sales decreased by $86.9 million, or 10.4% from $836.2 million in fiscal
1997 to $749.3 million in fiscal 1998. The decrease in sales was primarily
attributable to decreased consumer preference for upright rower sales and ab
shaper sales which decreased by $77.8 million and by $41.2 million,
respectively. Also, airwalker sales decreased by $16.5 million, rower/skier
sales decreased by $5.2 million and sales in Europe decreased by approximately
$4.9 million. These decreases were partly offset by increased treadmill sales of
$21.1 million, increased bike sales of $13.3 million, a new elliptical product
introduced in fiscal 1998 which accounted for $21.8 million in new sales and
other various product sales including softgoods which increased by approximately
$2.5 million. Treadmill sales increased from $452.9 million in 1997 to
$474.0 million in fiscal 1998. Treadmill sales accounted for approximately 54.2%
of net sales in 1997 and 63.3% of net sales in fiscal 1998.
Gross profit for fiscal 1998 was $213.3 million, or 28.5% of net sales. In
fiscal 1997 gross profit was also 28.5% of net sales at $238.4 million.
Selling expenses were $120.8 million, or 16.1% of net sales, in fiscal 1998
compared to $132.4 million, or 15.8% of net sales, in fiscal 1997. The dollar
decline was attributed to a decrease in direct response and other advertising of
$6.0 million as well as a one time charge of $6.4 million related to the
HealthRider acquisition in fiscal 1997. In addition, commissions expense
decreased by $0.9 million during fiscal 1998. These decreases were offset by an
increase in bad debt expense of $1.4 million primarily due to a company that
filed for bankruptcy in fiscal 1998 and other various increases of approximately
$0.3 million.
Research and development expense was $7.8 million, or 1.0% of net sales, for
fiscal 1998 compared to $7.6 million, or 0.9% of net sales, for fiscal 1997.
This increase was due to continued efforts to develop both current and future
products.
General and administrative expense totaled $60.9 million, or 8.1% of net
sales, for fiscal 1998 compared to $56.7 million, or 6.8% of net sales, for
fiscal 1997. The largest single increase in fiscal 1998 over 1997 was
depreciation expense of $3.1 million, which increased due to the recent
acquisition of assets from HealthRider and CanCo. Product liability insurance
claims increased $1.4 million during fiscal 1998 due to a concerted effort by
the legal department to settle outstanding claims. Also, legal expense and rent
expense increased approximately $1.1 million and $0.9 million, respectively, in
fiscal 1998 over fiscal 1997. These increases were offset by decreases in the
salaries and bonus expenses of $2.3 million in fiscal 1998 compared to fiscal
1997. Capital Expenditures totaled $11.8 million in fiscal 1998, compared to
$11.1 million in fiscal 1997.
In the second quarter of fiscal 1997, our company and Weider Health and
Fitness ("WHF") and its affiliates settled litigation through a number of
agreements. The settlement included the release of claims previously asserted by
WHF and its affiliates, amendments to agreements existing between our
23
<PAGE>
company and WHF and its affiliates and new agreements among our company and WHF
and its affiliates. Expenses related to the WHF settlement amounted to
$16.6 million for fiscal 1997. There were no expenses related to this settlement
in fiscal 1998.
HealthRider integration costs totaled $4.9 million for fiscal 1997. These
charges were incurred to eliminate the duplication in staff and facilities with
those of our company. There were no charges related to HealthRider integration
during fiscal 1998.
As a result of the foregoing factors, EBITDA was 41.1 million, or 5.5% of
net sales, in fiscal 1998, compared to $34.3, or 4.1% of net sales, in fiscal
1997. Adjusted for non-recurring costs of $0.3 million, EBITDA totaled
$41.4 million, or 5.5% of net sales in fiscal 1998, compared to $69.6 million,
or 8.3% of net sales in fiscal 1997.
Interest expense, including amortization of deferred financing fees
increased to $39.9 million for our company, in fiscal 1998 compared to
$36.7 million in fiscal 1997. The increase in interest expense and amortization
of deferred financing fees in fiscal 1998 was the result of additional levels of
borrowing under our credit agreement and accretion of the principal balances of
our outstanding indentures.
The income tax benefit was $5.9 million for our company, for fiscal 1998,
compared with a tax benefit of $4.0 million during fiscal 1997. This is a result
of the loss before income tax for fiscal 1998 and fiscal 1997. At the end of
fiscal 1998, we had a net deferred tax asset of $16.1 million. No valuation
allowance was recorded against this asset because we believe that we will
generate sufficient future taxable income through operations to realize the net
deferred assets prior to expiration of any net operating losses (NOL). NOL's can
be carried forward up to 20 taxable years. There can be no assurance however,
that we will generate any specific level of earnings or that it will be able to
realize any of the deferred tax asset in future periods. If we are unable to
generate sufficient taxable income in the future through operating results, a
valuation allowance against this deferred tax asset would result in a charge to
earnings. See "Risk Factors--We are being audited by the Internal Revenue
Service."
As a result of the foregoing factors, our net loss was $9.5 million, for
fiscal 1998, compared to net loss of $12.0 million for fiscal 1997.
Advertising allowances due to retail customers totaled $2.5 million at
May 31, 1998. Advertising allowances are generally a fixed percentage of sales
to customers. Fluctuations in the balance of this allowance are attributable to
changes in customer sales mix and the timing of when allowances are taken.
SEASONALITY
The following are the net sales and operating income of our company by
quarter for the fiscal years 2000, 1999 and 1998:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net Sales
2000........................................ $ 99.5 $234.8 $ -- $ --
1999........................................ 117.2 214.3 226.7 152.0
1998........................................ 127.5 236.3 252.0 133.5
Operating Income
(Loss)
2000........................................ $ (6.4) $ 19.3 $ -- $ --
1999........................................ (3.4) 19.7 16.0 (4.8)
1998........................................ (7.6) 15.7 21.5 (5.7)
Net Income (Loss)
2000........................................ $(11.7) $ 1.6 $ -- $ --
1999........................................ (13.3) 0.9 (1.6) (10.6)
1998........................................ (10.9) 3.8 6.7 (9.1)
</TABLE>
24
<PAGE>
We sell a majority of our products to customers in our second and third
fiscal quarters (i.e., from September through February). Increased sales and
distribution typically occur in the Christmas retail season and the beginning of
a new calendar year because of increased promotions by customers, increased
consumer purchases and seasonal changes that prompt people to exercise inside.
If actual sales for a quarter do not meet or exceed projected sales for that
quarter, expenditures and inventory levels could be disproportionately high for
such quarter and our cash flow for that quarter and future quarters could be
adversely affected. The timing of large orders from customers and the mix of
products sold may also contribute to periodic fluctuations. While seasonality
has been the trend, it may not be indicative of the results to be expected for
this fiscal year or for any future years.
LIQUIDITY AND CAPITAL RESOURCES
At November 27, 1999, we used $90.7 million of cash in operating activities,
compared to $62.5 million at November 28, 1998. The majority of the cash used in
operating activities is as a result of an increase in accounts receivable and
inventory. We used $9.4 million in investing activities as of November 27, 1999
due primarily to the purchases of upgrades in plant and tooling and purchases of
other equipment. We also had an increase of $101.8 million from financing
activities as of November 27, 1999, as a result of our September
recapitalization. As a result of the foregoing factors, we had a net increase in
cash of $1.5 million as of November 27, 1999. Management anticipates that its
cash balances, operating cash flows and available credit line will be adequate
to fund its anticipated capital commitments and working capital requirements for
the next twelve months.
In 1999, we were provided $38.0 million of cash from operating activities
compared to $47.6 in fiscal 1998. The majority of this cash provided by
operating activities is a result of a decrease in accounts receivable. We used
$20.1 million in investing activities for fiscal 1999 due primarily to the
purchase of NordicTrack for $8.5 million and $11.6 million of cash used for
capital expenditures related to upgrades in plant and tooling and purchases of
additional manufacturing equipment. Also, we used $17.1 million in financing
activities during 1999 as a result of a net reduction in long-term debt long
term debt. As a result of the foregoing factors, we had a net increase in cash
of $0.4 million from May 31, 1998 to May 31, 1999.
In 1998, we were provided $47.6 million of cash from operating activities
compared to usage of cash in the amount of $37.7 million in 1997. The majority
of this cash provided by operating activities is a result of a decrease in
accounts receivable. We received $6.4 million from investing activities for
fiscal 1998 due to the sale of a building for $18.3 million, offset by
$11.8 million of cash used for capital expenditures related to upgrades in plant
and tooling and purchases of additional manufacturing equipment. Also, we used
$55.7 million for financing activities during 1998 to pay down lines of credit
and other long term debt. As a result of the foregoing factors, we had a net
decrease in cash of $1.7 million from May 31, 1997 to May 31, 1998.
25
<PAGE>
In 1997, we used $37.7 million of cash in operating activities primarily as
a result of increases in accounts receivable. We used $16.0 million in cash for
capital expenditures related to upgrades in plant and tooling and purchases of
additional manufacturing equipment and building expansion and $6.3 million for
repayments of long term debt. We used $25.8 million in cash to acquire
HealthRider and $11.1 million to acquire Weider Sports and CanCo. In addition,
the effect of exchange rates decreased our cash balances at May 31, 1997 by
$1.0 million. During 1997, we had a net decrease in cash of $13.8 million.
We made capital expenditures of approximately $11.6 million during fiscal
1999 and expect to make capital expenditures of approximately $13.0 million in
2000. Such expenditures are primarily for expansion of physical plant, purchases
of additional or replacement manufacturing equipment and revisions and upgrades
in plant tooling. We also made research and development expenditures in 1999 of
approximately $7.7 million, and expect to make research and development
expenditures of approximately $8.4 million in 2000.
Our primary short-term liquidity needs consist of financing seasonal
merchandise inventory buildups and paying cash interest expense under our credit
facilities and on the 12% notes. Our principal source of financing for seasonal
merchandise inventory buildup and increased receivables is revolving credit
borrowings under the credit facilities. Our working capital borrowing needs are
typically at their lowest level in April through June, increase somewhat through
the summer and sharply increase from September through November to finance
accounts receivable and purchases of inventory in advance of the Christmas and
post-holiday selling season. Generally, in the period from November through
February, our working capital borrowings remain at their highest level and then
are paid down to their lowest annual levels by April.
The 12% notes issued in our September recapitalization are due
September 27, 2005 and are guaranteed by each of our domestic subsidiaries.
Interest is due each January 15 and July 15 of each year, beginning on
January 15, 2000. The 12% notes are redeemable at any time at a premium, as
described in this prospectus under the caption "Description of
Notes--Redemption". The 12% notes contain restrictive covenants that, among
other things, limit our and our subsidiaries' ability to incur additional debt,
pay dividends or make other distributions, make investments, dispose of assets,
issue capital stock of subsidiaries or enter into mergers or consolidations or
sell all or substantially all of our assets. See "Description of Notes."
In connection with our September recapitalization, we entered into new
credit facilities of $300 million with a syndicate of banks and financial
services companies. See "Description of Material Indebtedness"
Proceeds of the new credit facilities were used to refinance our existing
senior credit facilities and 13% notes and to fund transaction fees and
expenses, and will be used to provide for general working capital.
As of November 27, 1999, the balance outstanding under the new credit
facilities consisted of (in thousands):
<TABLE>
<S> <C>
Revolver.................................................... $ 99,483
Term Loan A................................................. 30,000
Term Loan B................................................. 80,000
Term Loan C................................................. 55,000
IP Loan..................................................... 15,000
--------
$279,483
========
</TABLE>
We have a significant amount of indebtedness. As of November 27, 1999 our
consolidated indebtedness was approximately $332.2 million, of which $44.3
million was senior indebtedness. On a
26
<PAGE>
pro forma basis, our earnings were inadequate to cover fixed charges for the six
months ended November 27, 1999 by an amount equal to $5.5 million.
The 12% notes and new credit facilities contain certain restrictive
covenants that, among other things, limit our ability to incur additional debt,
pay dividends or make other distributions, make investments, dispose of assets,
issue capital stock of subsidiaries or enter into mergers or consolidations or
sell all or substantially all of our assets.
Our ability to make payments on and to refinance our indebtedness will
depend on our ability to generate cash in the future. This, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. We will continue to manage within
our financial resources and attempt to balance our working capital needs with
cash flow generated from operations and available current financing to provide
for our short-term and long-term liquidity needs.
MARKET RISK
Although we cannot accurately predict the precise effect of inflation on our
operations, we do not believe that inflation has had a material effect on sales
or results of operations in recent years. We do import some finished products
and components from Canada and Asia. All purchases from Asia have been fixed in
U.S. dollars and, therefore, we have not been subject to foreign currency
fluctuations on such purchases, although our vendors may respond to foreign
currency fluctuations by seeking to raise their prices. Purchases of inventory
from Canada have been settled in Canadian dollars and therefore we have been
subject to fluctuations in the value of the Canadian dollar which could have an
impact on the our operating results. In connection with the importation of
products and components from Canada, our company from time to time engages in
hedging transactions by entering into forward contracts for the purchase of
Canadian dollars which are designed to protect against such fluctuations. Our
hedging transactions do not subject it to exchange rate risk because gains and
losses on these contracts offset losses and gains on the transaction being
hedged. The unhedged portion of purchases from Canada is not significant.
As of May 31, 1999 and 1998 we had approximately $0 million Canadian and
$32 million Canadian, respectively, of open forward exchange contracts to sell
Canadian dollars throughout fiscal years May 31, 2000 and 1999, respectively.
The fair value of these forward exchange contracts are based on quoted market
prices. At May 31, 1999 the estimated unrealized loss on outstanding forward
exchange contracts was $0 and at May 31, 1998 the estimated unrealized loss was
$459,000. During fiscal 1999 and 1998 we recognized losses of $34 and $449,000,
respectively, and in 1997 we recognized gains of $149,000 upon settlement of
foreign currency translations denominated in Canadian dollars.
YEAR 2000 COMPLIANCE
We utilize and are dependent upon data processing systems and software to
conduct our business. The data processing systems and software include those
developed and maintained by our third-party data processing vendors and software
which is run on in-house computer systems. We have reviewed and assessed all
hardware and software to confirm that it will function properly in the Year
2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet, and measure those instruments
at fair value. Statement of Financial Accounting Standards ("SFAS") No. 133 is
effective for all quarters of fiscal years beginning after June 15, 2000, and
prohibits retroactive application to financial statements of prior periods. We
currently intend to implement the provisions of SFAS No. 133 in the first
quarter of the fiscal 2001. We currently have limited involvement with
derivative instruments, primarily for
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<PAGE>
purposes of hedging against fluctuations in exchange rates. We cannot at this
time reasonably estimate the potential impact of this adoption on its financial
position or results of operations for future periods.
At the beginning of fiscal year 1999, we adopted SFAS No. 130 "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
presentation of comprehensive income and its components. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. In accordance with the
provisions of SFAS No. 130, we have presented the components of other
comprehensive income (loss) in its consolidated statements of operations and
comprehensive loss. The financial statements for all prior periods have been
restated to conform to requirements of SFAS No. 130.
In fiscal year 1999, we adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of our
reportable segments. The adoption of SFAS No. 131 did not affect our results of
operations or financial position.
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<PAGE>
BUSINESS
GENERAL
We are one of the largest manufacturers and marketers of home fitness
equipment in the United States. Our focus is to address consumers' interest in a
healthy, active lifestyle with a broad range of high quality products at a
variety of price/value relationships specifically targeted to meet different
consumers' health and fitness needs. Our line of home fitness aerobic products
includes treadmills, elliptical cross-trainers, exercise bikes, stair steppers,
skiers and upright rowers and our line of anaerobic fitness products including
home gyms and weight benches. We also offer trampolines, recreational sports
products, sports medicine products and fitness accessories. We market the
majority of our products under the brand names NordicTrack, ProForm,
HealthRider, Image, Weider, and JumpKing. In addition, we manufacture a complete
line of premier home fitness equipment under the Reebok brand name, under a
licensing agreement.
MARKETING AND DISTRIBUTION
We market our products under multiple brands through multiple distribution
channels, including specialty dealers, sporting goods chains, department stores,
warehouse clubs, discount merchants, catalogue showrooms and direct marketing
through our own Internet sites, catalogs and retail stores. We believe the
marketing of our products through multiple distribution channels provides us
with several competitive advantages:
- greater growth and increased market access;
- the ability to maximize revenue throughout a product's life cycle by
repositioning products in different channels and under different brand
names as products mature;
- feedback on market trends and changing consumer tastes; and
- reduced dependence on any single channel of distribution.
To enhance our distribution strategy, we target our brands to specific
distribution channels. By marketing specific brands tailored to appeal to
different demographic groups, we are able to market products with varying
designs, features and price ranges and target these products to a wide variety
of consumers with different fitness needs and disposable incomes. We believe our
brand positioning strategy enables us to:
- achieve greater appeal to each market segment;
- promote price stability across our distribution channels; and
- provide high-quality products with the price ranges and features desired
by different demographic groups.
We manufacture and distribute a broad line of treadmill, aerobic exercise
machines and strength training equipment, and offer a range of technological
features, from manual equipment to sophisticated programmable electronic
products, at a variety of price points. We also market recreational sports
products, fitness accessories, spas and massage products. Our strategy of
offering a broad range of products enables us to:
- offer categories of fitness products that appeal to consumers with varying
fitness needs and disposable incomes;
- respond quickly to changes in consumer preferences and fitness trends;
- reduce our dependence on any single product category; and
- participate in growth opportunities across a wide variety of product
categories.
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<PAGE>
AEROBIC PRODUCTS
We offer aerobic products, which are designed to promote cardiovascular
fitness, under the NordicTrack, ProForm, HealthRider, Image, Weslo and Reebok
brand names.
MOTORIZED TREADMILLS. We are the leading producer of motorized treadmills.
Motorized treadmills allow users to run at speeds of up to 12 mph. The features
offered by our motorized treadmills that enhance the home user's experience
include programmable speed and incline, electronic feedback on speed, elapsed
time, distance traveled and calories burned, and cross-training upper body
exercise functions. Other popular features on our treadmill line of products
include: CD Coach technology, which allows the user to listen to his/her
favorite music while a digital personal trainer motivates him/ her through a
programmable workout; cushioned belts for a quieter, more shock-absorbent
workout; the SpaceSaver feature for treadmills (introduced in 1996) which
enables a treadmill to fold vertically for easy storage; and the CrossWalk line
of treadmills, which provides users with upper body exercise for a total body
workout. The retail price points of the motorized treadmills range from $199 to
$2,499.
ELLIPTICALS. In the fall of 1997, we introduced our Elliptical Cross
Trainer. This category of aerobic products has been popular in clubs for the
last few years, and in the fall of 1997 we introduced the HealthRider brand of
Elliptical Cross Trainer. This product offers a low-impact, high-intensity
aerobic workout which harnesses the momentum of a natural striding motion, and
eliminates the impact of typical running or walking. An innovative mechanism
that we developed, which involves a tube within a tube that slides in and out of
a crank attached to a flywheel, links upper-body motion with the lower-body
motion for a synchronized rhythmic total-body workout. A four-window electronic
display provides feedback on speed (steps per minute), time, distance and
calories burned. The name "Elliptical" refers to the oval shape of the user's
footpath. Retail price points of our Ellipticals range from $199 to $999, and
are available in the NordicTrack, ProForm, HealthRider, Image, Reebok and Weslo
brands. Our ProForm brand elliptical was rated the number one elliptical in the
February 1999 Consumer Reports ranking of home exercise equipment.
EXERCISE BIKES. We offer exercise bikes featuring adjustable air resistance
or flywheel resistance (which are constructed to interact with the air to
provide resistance to movement), electronic monitors which display elapsed time,
speed, distance and calories burned, and dual or triple action design which
allows the user to exercise upper body, lower body or both simultaneously. Some
units add motivational electronics and programmable resistance which allow users
to design their own workouts. Some higher end units also contain an
electromagnetic drive mechanism, which creates resistance through the use of
electro-magnetic current, and which creates less noise and offers smoother
action. Retail price points of our exercise bikes range from $99 to $799 and are
available in the NordicTrack, ProForm, HealthRider, Image, Reebok and Welso
brands.
STAIR STEPPERS. Various stair stepper machines sold by our company offer
adjustable resistance, self-leveling pedals, motivational fitness monitors,
accessory stations to hold water bottles, books and towels, magnetic resistance
and total body conditioning, which combines upper and lower body workouts. Other
features offered by our stair steppers include the Speed Link adjustable
resistance system, multi-window electronic monitors and programmable
electronics. The Speed Link adjustable resistance system uses shocks attached to
the pedal leg of the stepper which are placed into one of several positions to
increase or decrease resistance. Retail price points for our stair steppers
range from $99 to $199.
UPRIGHT ROWERS. We introduced our Cardio family of upright rowers under the
Weslo brand in October 1994. The Cardio family of upright rowers exercises both
the arms and legs while providing both an aerobic and anaerobic workout through
variable resistance. Retail price points for the Welso brand range from $99 to
$199. In addition, the HealthRider brand upright rower is available at $299.
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ANAEROBIC PRODUCTS
Under the NordicTrack, HealthRider, Image, ProForm, Weslo, Weider and Reebok
brand names, we offer anaerobic products, which are designed to develop muscle
tone and strength.
HOME GYMS. Our home gyms range from traditional cast iron or vinyl plate
weight stack units to programmable electronic units. New products within this
category include home gyms which integrate aerobic functions and electronic
adjustability allowing simple adjustment in one pound increments with digital
feedback. Selected units are designed to allow multiple users to use the
equipment simultaneously, allowing circuit training. Our home gyms range in
retail price from $299 to $1,299.
WEIGHT BENCHES. We offer a range of weight benches to specialty fitness
dealers through the Image and ProForm brands and market a complete of weights
and benches under the Weider brand name. Retail price points of these products
range from $49 to $299.
FREE WEIGHTS. We offer a broad assortment of cast-iron weight plates, vinyl
and neoprene dipped weights and dumbbells. We are also innovating dumbbell grips
for improved comfort and use and addressing needs of women entering the strength
training category.
OTHER PRODUCTS
RECREATIONAL SPORTS PRODUCTS. Our JumpKing subsidiary manufactures and
markets a trampoline line that includes both mini-trampolines for indoor home
exercise use and full-sized trampolines for outdoor home recreational use. The
mini-trampoline retails at approximately $25; full-sized trampolines have retail
price points ranging from $199 to $399.
EXERCISE ACCESSORIES. We offer a limited line of back support belts and
workout gloves and have introduced a line of exercise accessories, including
ankle and hand weights, grip devices and aerobic exercise step decks. These
products are sold under the Weider, Reebok, HealthRider, ProForm and NordicTrack
brands.
RELAXATION PRODUCTS. Beginning in the spring of 1996, we introduced a line
of relaxation products such as acrylic and soft-sided hydrotherapy spas,
motorized massage chairs and massage pillows. These products are currently
distributed through various channels including department stores, mass
merchandisers, sporting goods, home-shopping, catalogs and our own direct
response efforts.
PRODUCT INNOVATION AND DEVELOPMENT
Product and design innovation has contributed significantly to our growth.
On an ongoing basis, we evaluate new product concepts and seek to respond to the
desires and needs of consumers by frequently introducing new products and
repositioning existing products. We have 222 full-time employees in the research
and development area, hold 178 patents and have 38 patent applications pending.
We also hold 96 trademarks registered in the United States and 404 trademarks
registered in foreign countries. We have pending 25 trademarks in the United
States and 171 in foreign countries. We have research and development expenses
of $7.7 million, $7.8 million, and $7.6 million in fiscal 1999, 1998, and 1997,
respectively, and have budgeted $8.4 million for research and development in
fiscal 2000.
We conduct most of our research and development in 40,000 square feet of
space in our Logan, Utah headquarters. This facility includes plastic,
mechanical and electrical engineering capabilities that are used in creating
proprietary designs and features.
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<PAGE>
CUSTOMERS
Our largest customer for the past several years has been Sears. In fiscal
1999, Sears accounted for approximately 38.4% of our total net sales, a 5.9%
increase over fiscal 1998. While no other single customer accounted for more
than 10% of our total sales in fiscal 1999, other important customers include
Sam's Wholesale Club, K-Mart and Wal-Mart. In fiscal 1999 and 1998, Sam's
accounted for approximately 45% and 50% respectively, of net sales at our
JumpKing subsidiary. Although sales to Sears still account for a substantial
portion of our sales, the percentage of sales has decreased substantially in the
past several years from approximately 68% in fiscal 1989. Nevertheless, the
dollar amount of our net sales to Sears has increased during this time period.
Sears has distinguished us with several vendor awards for our commitment in
providing quality and value to the American consumer.
We have more than 2,500 customers, excluding those consumers we sell to
directly through our retail or Internet distribution channels. Consistent with
industry practice, we generally do not have long-term purchase agreements or
other commitments from our customers as to levels of future sales. The level of
our sales to large customers depends in large part on our continuing commitment
to home fitness products and the success of our efforts to market and promote
our products as well as our competitiveness in terms of price, quality, product
innovation and customer service. We are not the exclusive supplier of home
fitness equipment to any of our major customers. The loss of, or a substantial
decrease in the amount of purchases by, or a write-off of any significant
receivable due from, any of our major customers would have a material adverse
effect on our business.
COMPETITION
The home fitness equipment market is both fragmented and highly competitive.
It is characterized by frequent introduction of new products, often accompanied
by major advertising and promotional programs. We believe that the principal
competitive factors affecting our business include price, quality, brand name
recognition, product innovation and customer service. According to the Sports
Marketing Group, Inc. 1998 Annual Report, we account for nearly half of the
total industry revenue (based on retail dollars) for the home fitness equipment
market.
We compete in the U.S. with recreational and exercise activities offered by
health clubs, as well as a number of domestic manufacturers, domestic direct
importers, foreign companies exporting products to the U.S. and, in our direct
sales efforts, with major retailers and distributors. Competitors in these areas
include Fitness Quest, Life Fitness, Cybex/Trotter, Precor, Inc. and Schwinn. In
Europe, we compete principally with Tunturi, Inc., and Kettle Int'l Inc., a
number of Asian importers and some of our domestic competitors. Our products
also indirectly compete with outdoor fitness, sporting goods and other
recreational products. Competitors in these product areas include Huffy
corporation, Canstar Sports Inc. (a subsidiary of Nike Inc.), Reebok
International Ltd. and Rollerblade, Inc. Certain competitors are better
capitalized than us and may have greater financial and other resources than
those available to us. In addition, there are no significant technological,
manufacturing or marketing barriers to entry into the fitness equipment or other
exercise accessory markets, although many companies in the industry, including
our company, have sought and received numerous patents in an effort to protect
their competitive position.
PURSUING GROWTH OPPORTUNITIES
On December 23, 1998, we bought inventory, trademarks and other assets of
NordicTrack, Inc., a debtor under Chapter 11 of the Bankruptcy Code, for
$10.2 million. In connection with the NordicTrack transaction, our company and
Sears executed a license agreement that allows Sears to be the exclusive
retailer of NordicTrack branded fitness equipment outside of our own retail and
direct marketing channels of distribution. In addition, under the agreement, we
granted Sears a royalty-
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bearing exclusive license to market fitness apparel and sporting goods under the
NordicTrack brand. The agreement will run for a term of 12 years subject to
early termination provisions in 2005.
In August 1996, we purchased substantially all the assets of
HealthRider, Inc. We market HealthRider brand fitness equipment and other
health-related products primarily through our own specialty retail stores and
kiosks, through direct response advertising in print and on television, through
our mail order catalogs and through some retail customers. At the end of fiscal
1999, we operated 77 stores in approximately 42 states.
In the first quarter of 1996, we began to directly market our products in
the U.K., France, Italy and the Benelux countries. Prior to 1996, we had minimal
foreign sales. Net sales from European markets in fiscal 1998 and 1999 were
$40.4 million and $37.9 million, respectively. Net sales from our Canadian
manufacturing facility for fiscal 1998 and 1999 were $22.3 million and $23.7,
respectively.
MANUFACTURING AND PURCHASING
In fiscal 1999, we manufactured or assembled over 80% of our products at our
facilities in Utah, Texas, Canada and Colorado. The balance of our products were
manufactured and assembled by third parties, principally in the Far East. We
have long-standing supply relationships with a number of offshore Asian vendors,
many of which have exclusive relationships in the fitness industry with us. The
combination of internal manufacturing and assembly capacity and our access to
third-party vendors has helped us meet customer demand on a competitive basis.
In addition, the third party vendors provide greater flexibility in
manufacturing capacity to satisfy seasonal demands.
We utilize more than 1.4 million square feet for manufacturing, including a
300,000 square foot facility in Logan where the majority of our treadmills are
manufactured or assembled. In the past, the Logan facility has also manufactured
stair steppers, exercise bikes and home gyms. We constructed our Logan plant in
1990 and equipped the facility with modern manufacturing and assembly features,
including fully integrated metal fabrication, powder coat painting, robotic
welding and injection molding equipment. In 1990, we purchased a trampoline
manufacturing operation in Dallas, Texas. These facilities produce the JumpKing
Trampoline Brand. In 1994, we began operating our Clearfield, Utah manufacturing
facility. In 1996, we expanded our manufacturing capacity by 233,000 square feet
through the acquisition of our Canadian manufacturing facility in St. Jerome,
Canada. The Weidercare facility, formerly located in Denver, Colorado, was
relocated in the spring of 1999 to the Dallas area.
We apply a management system to control and monitor freight, labor, overhead
and material cost components of our finished goods. We emphasize product quality
by monitoring operations according to uniform quality control standards. In
fiscal 1994, we received ISO 9001 certification for our Logan facility. ISO is a
nonprofit association that monitors industrial companies' manufacturing
processes, quality assurance controls, personnel management and customer service
in order to improve plant efficiency, product quality, customer satisfaction and
company profitability.
EMPLOYEES
We currently employ approximately 4,328 people, 142 of whom are represented
by a Canadian labor union. Factory employees are compensated through a targeted
incentive system. Managerial employees receive bonuses tied to the achievement
of performance targets. Approximately 248 employees are engaged in research and
development, 72 in sales and marketing, 2,747 in manufacturing and 768 in other
areas, primarily administrative.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local environmental and
health and safety laws and regulations that impose workplace standards and
limitations on the discharge of pollutants into the
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environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of materials, substances and
wastes. The nature of our manufacturing and assembly operations exposes us to
the risk of claims with respect to environmental matters, and although
compliance with local, state and federal requirements relating to the protection
of the environment has not had a material adverse effect on our financial
condition or results of operations, there can be no assurance that material
costs or liabilities will not be incurred in connection with such environmental
matters. Future events, such as changes in existing laws and regulations or
enforcement policies or the discovery of contamination on sites owned or
operated by us, may give rise to additional compliance costs or operational
interruptions which could have a material adverse effect on our financial
condition.
SEASONALITY
We sell the majority of our products to our customers in our second and
third fiscal quarters (i.e., from September through February). Increased sales
and distribution typically occur in the Christmas retail season and the
beginning of a new calendar year because of increased customer promotions,
increased consumer purchases and seasonal changes that prompt people to exercise
inside. We have in the past, from time to time, incurred net losses in our first
and fourth fiscal quarters of its fiscal year. If actual sales for a quarter do
not meet or exceed projected sales for that quarter, expenditures and inventory
levels could be disproportionately high for such quarter and our cash flow and
earnings for that quarter and future quarters could be adversely affected. The
timing of large orders from customers and the mix of products sold may also
contribute to quarterly or other periodic fluctuations.
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PROPERTIES
The location, square footage, status and primary use of our principal
properties are set forth below:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE STATUS PRIMARY USES
- -------- -------- ----------------------- -------------------------------
<S> <C> <C> <C>
Garland, TX 61,043 Leased (Expires 11/01) Offices, Manufacturing,
Warehousing
80,000 Leased (Expires 1/01) Manufacturing, Storage
83,160 Leased (Expires 1/01) Finished Goods
15,295 Leased (Expires 1/01) Spa Manufacturing
125,000 Leased (Expires 2/04) Office, Manufacturing,
Warehousing
Ogden, UT 391,338 Leased (Month to Month) Warehouse
South Brunswick, NJ 255,600 Leased (Expires 5/00) Warehouse
West Valley City, UT 6,635 Leased (Month to Month) Offices
San Luis Obispo, CA 4,950 Leased (Month to Month) Warehouse
Anzin, France 8,097 Leased (Month to Month) Warehouse, Offices, Apartment
Carrieres Sur Seine, France 2,966 Leased (Month to Month) Warehouse, Offices
Neuilly Sur Seine, France 262 Leased (Month to Month) Apartment
Leeds, UK 6,000 Leased (Month to Month) Offices
Perguia, Italy 3,360 Leased (Expires 6/01) Offices
6,600 Leased (Month to Month) Warehouse
Mirabel, Quebec 213,300 Leased (Expires 6/00) Warehouse
43,515 Leased (Month to Month) Warehouse
St. Jerome, Quebec 65,835 Owned Manufacturing, Offices
105,984 Leased (Expires 7/02) Warehouse
61,852 Owned Manufacturing, Offices
Clearfield, UT 329,075 Leased (Month to Month) Warehouse
161,564 Leased (Expires 12/03) Warehouse
76,000 Leased (Expires 6/00) Warehouse
120,000 Leased (Expires 6/00) Warehouse, Manufacturing
76,800 Leased (Expires 3/02) Office, Manufacturing
Logan, UT 300,000 Owned Manufacturing, Offices, R&D
68,750 Leased (Expires 6/01) Warehouse
17,913 Leased (Month to Month) Warehouse
18,003 Leased (Month to Month) Warehouse
50,000 Leased (Month to Month) Warehouse
Smithfield, UT 88,555 Leased (Expires 10/04) Manufacturing
64,275 Leased (Expires 9/01) Manufacturing
</TABLE>
We believe that our existing facilities are well maintained, in good
operating condition and adequate for our expected level of operations. Although
a number of our facilities are rented on a month to month basis, we do not
anticipate difficulty in maintaining access to facilities required for the
conduct of our business.
LEGAL PROCEEDINGS
Due to the nature of our products, we are subject to legal proceedings,
including product liability claims involving personal injuries allegedly related
to our products. We are also party to a variety of non-product liability
commercial suites involving contract claims and intellectual property claims and
may be subject to claims resulting from our September recapitalization. See
"Risk Factors--We may be subject to claims from holders of our 13% notes and the
14% notes of ICON Fitness who did not participate in our September
recapitalization" for a discussion of potential claims arising out of the
September recapitalization.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of our company, and their ages, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- -----------------------------------------------------
<S> <C> <C>
Scott R. Watterson..................... 44 Chairman of the Board and Chief Executive Officer
Gary E. Stevenson...................... 44 President, Chief Operating Officer and Director
Robert C. Gay.......................... 47 Vice Chairman of the Board
Ronald P. Mika......................... 38 Director
S. Fred Beck........................... 41 Chief Financial and Accounting Officer, Vice
President and Treasurer
David J. Watterson..................... 40 Vice President, Marketing and Research and
Development
Jon M. White........................... 51 Vice President, Manufacturing
William T. Dalebout.................... 51 Vice President, Design
Greg Benson............................ 45 Director
David J. Matlin........................ 38 Director
Chris R. Pechock....................... 35 Director
Stanley C. Tuttleman................... 80 Director
W. McComb Dunwoody..................... 55 Director
</TABLE>
SCOTT R. WATTERSON. Mr. Watterson has served as President and Chief
Executive Officer of Weslo since he co-founded Weslo in 1977 and has served as
President and Chief Executive Officer of ProForm since 1988. In November 1994,
Mr. Watterson became Chairman of the Board and Chief Executive Officer of our
company. In addition, Mr. Watterson is a director of American Pad and Paper
Company and the Utah State University Foundation. He is also on the Board of
Trustees for the Utah Foundation and the Make-A-Wish Foundation of Utah.
GARY E. STEVENSON. Mr. Stevenson has served as Chief Operating Officer of
Weslo since he co-founded Weslo in 1977 and has served as Chief Operating
Officer of ProForm since 1988. In November 1994, Mr. Stevenson became President,
Chief Operating Officer and a Director of our company.
ROBERT C. GAY. Mr. Gay became Vice Chairman of the Board of Directors of
our company in November 1994. Mr. Gay has been a Managing Director of Bain
Capital since April 1993 and has been a General Partner of Bain Venture Capital
since February 1989. In addition, Mr. Gay serves as a director of American Pad
and Paper Company, Nutraceutical, Cambridge Industries, Inc., GS Technologies
Corporation, Anthony Crane, and Alliance Laundry.
RONALD P. MIKA. Mr. Mika became a Director of our company in
November 1994. Mr. Mika joined Bain Capital in 1989, where he has been managing
Director since 1996. In addition, Mr. Mika serves as a director of Cambridge
Industries, Kranson Industries, and PSI.
S. FRED BECK. Mr. Beck has served as the Chief Financial Officer of Weslo
since 1989. Mr. Beck became Chief Financial and Accounting Officer, Vice
President and Treasurer of our company in November 1994.
DAVID J. WATTERSON. Mr. Watterson has served as Vice President of Marketing
and Research and Development of Weslo since 1992 and has continued in that
position with our company since November 1994. Prior to 1992, Mr. Watterson
served as Vice President of Sales of Weslo. He joined our company in 1980. Mr.
Watterson is Scott R. Watterson's brother.
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<PAGE>
JON M. WHITE. Mr. White has served as Vice President of Manufacturing of
Weslo since 1988 and has continued in that position with our company since
November 1994.
WILLIAM T. DALEBOUT. Mr. Dalebout has served as Vice President of Design of
Weslo since 1987 and has continued in that position with our company since
November 1994.
GREG BENSON. Mr. Benson became a Director of our company in
September 1999. Mr. Benson has been an executive vice president of Bain Capital
since 1996. Prior to joining Bain Capital, Mr. Benson was the Chief Financial
Officer of American Pad and Paper Company. In addition, Mr. Benson serves as a
director of American Pad and Paper Company.
DAVID J. MATLIN. Mr. Matlin became a Director of our company in
September 1999. Mr. Matlin is a managing director of Credit Suisse First Boston.
Mr. Matlin joined Credit Suisse First Boston in May 1994. Prior to that,
Mr. Matlin was most recently a partner at Merrion Group LP, a boutique
securities firm that he co-founded in 1991. In addition, Mr. Matlin is a
director of Imagyn Medical Technologies, California Coastal Communities,
Vacocor Inc., and Forstmann Textiles.
CHRIS R. PECHOCK. Mr. Pechock became a director of our company in
September 1999. Mr. Pechock has been a Vice President of Credit Suisse First
Boston since 1999. Prior to joining Credit Suisse First Boston Corporation,
Mr. Pechock was a portfolio manager at Turnberry Capital Management from 1997
until 1999 and at Eos Partners from 1996 until 1997. From 1993 until 1996,
Mr. Pechock was a Vice President of PaineWebber, Incorporated.
STANLEY C. TUTTLEMAN. Mr. Tuttleman became a director of our company in
September 1999. Mr. Tuttleman is the CEO and President of Tuttson Capital Corp.
and the Chairman of the Board and CEO of Telepartners, Inc. In addition,
Mr. Tuttleman is a director of Mothers Work, Inc., and a trustee of the Franklin
Institute, the Philadelphia Orchestra, the Philadelphia Museum of Art, Graduate
Hospital, Gratz College and the Harrison Foundation.
W. MCCOMB DUNWOODY. Mr. Dunwoody became a director of our company in
September 1999. Mr. Dunwoody founded the Inverness Group Incorporated in 1981.
He has served as Managing Director of Inverness Management LLC since 1996 and is
General Partner of its Fund. Mr Dunwoody was a member of the Corporate Finance
Departments of the First Boston Corporation and Donaldson, Lufkin & Jenrette. He
is Chairman of the Executive Committee of the Board of Directors of National-
Oilwell, Inc.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
fiscal 1999, 1998 and 1997 for Mr. Scott Watterson and our other four most
highly compensated executive officers (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------ ALL OTHER
FISCAL SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1)
- --------------------------- -------- --------- --------- ------------
<S> <C> <C> <C> <C>
Scott R. Watterson............................... 1999 472,500 219,000 1,800
Chairman of the Board and Chief 1998 472,500 220,300 1,800
Executive Officer 1997 450,000 1,047,384 2,250
Gary E. Stevenson................................ 1999 420,000 219,000 1,800
President and Chief Operating Officer 1998 420,000 220,300 1,800
1997 400,000 1,047,384 2,250
S. Fred Beck..................................... 1999 210,000 40,000 1,853
Chief Financial and Accounting Officer 1998 188,000 39,300 2,234
Vice President and Treasurer 1997 178,920 144,533 79,506(3)
David J. Watterson............................... 1999 252,000 40,000 925
Vice President, Marketing and 1998 229,000 39,300 1,920
Research and Development 1997 218,325 144,533 78,696(3)
Richard Hebert................................... 1999 297,799 161,473 8,736
General Manager, ICON 1998 318,916 187,097 5,939
Du Canada, Inc. 1997 388,043(2) -- 9,440
</TABLE>
- ------------------------
(1) Includes amounts contributed by our company for the benefit of the Named
Executive Officers under our 401 (k) Plan.
(2) Represents Mr. Hebert's salary from September 6, 1996, the date of the ICON
of Canada acquisition, to May 31, 1997.
(3) Includes forgiveness by our company of a $60,000 loan to Mr. Beck and
Mr. David Watterson.
38
<PAGE>
The following table sets forth information as of May 31, 1999, concerning
options of IHF Capital, Inc., our former indirect parent company exercised by
each of the Named Executive Officers in 1999 and year end option values:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS OPTIONS AT
ACQUIRED VALUE AT MAY 31, 1999(#) MAY 31, 1999($)(1)
ON REALIZED -------------------------- -------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- -------- -------------------------- -------------------------
CLASS A CLASS A CLASS A CLASS L CLASS L CLASS A
COMMON COMMON COMMON COMMON COMMON COMMON
STOCK STOCK STOCK STOCK STOCK STOCK
<S> <C> <C> <C> <C> <C> <C>
Scott Watterson................ -- -- 469,988/0 48,620/0 -/- -/-
Gary Stevenson................. -- -- 375,251/0 37,816/0 -/- -/-
S. Fred Beck................... -- -- 77,383/0 -- -/- -/-
David J. Watterson............. -- -- 62,285/0 -- -/- -/-
Richard Hebert................. -- -- -- -- -/- -/-
</TABLE>
- ------------------------
(1) As of May 31, 1999 there was no market for the common stock of IHF
Capital, Inc. Due to the financial condition of our company at May 31, 1999,
no value was attributed to the equity underlying these options.
1999 JUNIOR MANAGEMENT STOCK OPTION PLAN
In September 1999 HF Holdings, adopted its 1999 Junior Management Stock
Option Plan (the "1999 Stock Option Plan") which provides for the grant to
eligible employees of our company of nonstatutory options. A total of 330,000
shares of common stock were reserved for issuance under the 1999 Stock Option
Plan, which is administered by the Board of Directors or a committee thereof.
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We did not maintain a compensation committee during 1999. Messrs. Scott
Watterson's and Stevenson's 1999 compensation was determined prior to the
September recapitalization pursuant to employment contracts that had been in
place since 1989 and, after the September recapitalization, pursuant to the
newly entered into employment agreements described below under the caption "--
Employment Agreements". Messrs. Watterson and Stevenson participated in the
deliberations concerning the compensation of other officers, and Mr. Beck
participated in the deliberations concerning the compensation of officers other
than himself and Messrs. Watterson and Stevenson. See "Transactions Between Our
Company and Officers, Directors and Principal Stockholders."
COMPENSATION OF DIRECTORS
Our directors do not receive any compensation for serving on our Board of
Directors in 1999, and are not entitled to receive compensation in connection
with their current service. Directors are reimbursed for their out-of-pocket
expenses incurred in connection with their service as directors. The Company
also maintains liability insurance policies for our directors. See "Transactions
Between Our Company and Officers, Directors and Principal
Stockholders--Management Fees" for a more detailed description of these
arrangements.
39
<PAGE>
EMPLOYMENT AGREEMENTS
On September 27, 1999 we entered into new three year employment agreements
with each of Scott Watterson and Gary Stevenson. The employment agreements
provide for the continued employment of Mr. Watterson as Chairman and Chief
Executive Officer with an increase in base salary from $450,000 to $525,000 and
Mr. Stevenson as President and Chief Operating Officer with an increase in base
salary from $400,000 to $475,000. Except as set forth below, in all other
material respects the agreements are substantially identical.
On September 27, 1999, each of Mr. Watterson and Mr. Stevenson received a
bonus of $500,000. Each executive is also entitled to participate in a bonus
program providing for a bonus equal to a percentage of the consolidated EBITDA
(as defined in our credit facility) of our company and our subsidiaries (our
"EBITDA") which percentage shall equal 1.25% for Mr. Watterson and 1.10% for
Mr. Stevenson. The executives will not be entitled to a bonus, however, unless
our Profits exceed 5.5% of net sales.
We may terminate each executive's employment (1) for cause as provided in
each agreement, (2) upon six months' disability, or (3) without cause. Each
executive may similarly terminate his employment immediately for cause as
provided in his employment agreement, upon three months notice to perform
full-time church service or for any reason upon six months' notice. In the event
we terminate either executive's employment for cause, or such employment
terminates as a result of the death of the executive, as the case may be, the
executive will not be entitled to further salary, benefits or bonus. If we
terminate the executive's employment without cause, or the executive terminates
his employment with or without cause, we will be obligated to pay the executive
his salary and bonus for a period of two years from the date of termination,
provided, that if the executive should terminate his employment prior to
September 27, 2000 (other than with cause or to perform full time church
service), such executive shall forego $500,000 of severance compensation
otherwise payable to such executive. If we terminate the executive's employment
upon the executive's disability, we are obligated to pay as severance an amount
equal to one month's base salary then in effect for each calendar year or part
thereof elapsed since January 1, 1988 provided that such severance pay is
reduced by payments under applicable disability insurance.
The employment agreements prohibit the executives from engaging in outside
business activity during the term, subject to exceptions. The employment
agreements provide for customary confidentiality obligations and, in addition, a
non-competition obligation for a period of four years following termination (two
years if the executive quits with cause or without cause or is terminated
without cause, except that we may, at our option, extend such period for up to
two additionally years by paying the executive his salary and bonus during the
extended period).
Under the employment agreements, the executives (and their affiliates) shall
be entitled to indemnification to the fullest extent allowed by Delaware law
with respect to all losses, costs, expenses and other damages in connection with
any lawsuits or other claims brought against them in their capacity as officers
or directors or shareholders (or affiliates thereof) of HF Holdings or any of
its past or present parent or subsidiary or other affiliated companies,
including ICON Fitness and IHF Holdings, the parent companies.
40
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HF Holdings owns all of the outstanding common stock of our company. The
following table and related notes set forth information with respect to the
beneficial ownership of HF Holdings' 7,771,613 outstanding shares of common
stock as of March 28, 2000 by (i) each person known to HF Holdings to
beneficially own more than 5.0% of the outstanding shares of common stock of HF
Holdings, and (ii) each director and executive officer of HF Holdings
individually and (iii) all directors and executive officers of HF Holdings as a
group.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED (1)(2)
-------------------------
PERCENT OF
NUMBER OF OUTSTANDING
NAMES SHARES SHARES
- ----- ----------- -----------
<S> <C> <C>
Scott R. Watterson+ (3)..................................... 376,000 4.86%
c/o ICON Health& Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Gary E. Stevenson+ (4)...................................... 292,700 3.78%
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
The Bain Funds (5).......................................... 5,161,035 66.69%
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Robert C. Gay+ (6).......................................... 5,161,035 66.69%
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Ronald P. Mika+ (6)......................................... 5,161,035 66.69%
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Greg Benson+ (6)............................................ 5,161,035 66.69%
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Credit Suisse First Boston Corp (7)(8)...................... 1,312,933 16.96%
c/o Credit Suisse First Boston Corp.
Eleven Madison Avenue
New York, New York 10010-3629
Christopher Pechock+ (9).................................... 1,312,933 16.96%
c/o Credit Suisse First Boston Corp.
Eleven Madison Avenue
New York, New York 10010-3629
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED (1)(2)
-------------------------
PERCENT OF
NUMBER OF OUTSTANDING
NAMES SHARES SHARES
- ----- ----------- -----------
<S> <C> <C>
David Matlin+ (9)........................................... 1,312,933 16.96%
c/o Credit Suisse First Boston Corp.
Eleven Madison Avenue
New York, New York 10010-3629
HF Investment Holdings, LLC................................. 5,160,035 66.68%
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
W. McComb Dunwoody+ (10).................................... 344,002 3.44%
c/o Inverness/Phoenix Capital LLC
660 Steamboat Road, 2nd Floor
Greenwich, Connecticut 06830
Stanley Tuttleman+ (11)..................................... 172,002 1.72%
Tuttson's Inc.
349 Montgomery Avenue
P.O. Box 22405
Bala Cynwyd, Pennsylvania 19004
David Watterson (12)........................................ 18,173 --
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
S. Fred Beck (12)........................................... 15,149 --
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
All directors and executive officers as a group (9 7,173,990 92.31%
persons)..................................................
</TABLE>
- ------------------------
+ Director of HF Holdings
(1) The common stock of HF Holdings consists of two classes of shares, par value
$0.001 per share common stock and par value $0.001 preferred stock. There
are twelve million authorized shares of common stock and ten thousand
authorized shares of preferred stock. Subject to the Stockholders Agreement
described below, each holder of common stock is entitled to one vote per
share for the election of directors and for all other matters to be voted on
by HF Holdings' stockholders. Subject to preferences that may be applicable
to any outstanding series of preferred stock, the holders of common stock
are entitled to share ratably in such dividends, if any, as may be declared
form time to time by the Board of Directors from funds legally available.
Upon liquidation or dissolution of HF Holdings, subject to preferences that
may be applicable to any outstanding series of preferred stock, the holders
of common stock are entitled to share ratably in all assets available for
distribution to stockholders.
(2) Except as otherwise indicated, (a) each owner has sole voting and investment
power with respect to the shares set forth and (b) the figures in this table
are calculated in accordance with Rule 13d-3, as amended, under the Exchange
Act of 1934. The table includes the HF Holdings
42
<PAGE>
Warrants (which have an exercise price, subject to adjustment, of $.01 per
share) which are presently exercisable. HF Holdings' Certificate of
Incorporation provides that HF Holdings may, by vote of its Board of
Directors, designate the numbers, relative rights, preferences and
limitations of one or more series of preferred stock and issue the
securities so designated. All current stockholders of HF Holdings (other
than IHF Holdings) are parties to a Stockholders Agreement pursuant to which
(a) some holders affiliated with management are entitled to elect two
directors, (b) some holders affiliated with Credit Suisse First Boston are
entitled to elect two directors and (c) Bain Capital Fund IV, L.P., Bain
Capital Fund IV-B, L.P., BCIP Associates and BCIP Trust Associates, L.P.
(collectively, the "Bain Funds") are entitled to elect all remaining
directors. In addition, the Bain Funds are entitled to direct how these
other stockholders will cast their votes with respect to some matters,
including a public offering of HF Holdings or the disposition of its assets.
The Stockholders Agreement also contains other agreements among the
stockholders of HF Holdings and HF Holdings which are described under
"Transactions Between Our Company and Officers, Directors and Principal
Stockholders--The Equity Investment--Stockholders Agreement." The shares
reported in this table as owned by a stockholder do not include the shares
over which such stockholder has the right to direct the vote pursuant to the
Stockholders Agreement.
(3) Includes 1,000 shares owned by IHF Holdings, of which Mr. Watterson is
deemed the beneficial owner by virtue of being a director. Mr. Watterson
disclaims beneficial ownership of any such shares in which he does not have
a pecuniary interest. Excludes shares which may be distributable by HF
Investments Holdings in some events.
(4) Includes 1,000 shares owned by IHF Holdings, of which Mr. Stevenson is
deemed the beneficial owner by virtue of being a director. Mr. Stevenson
disclaims beneficial ownership of any such shares in which he does not have
a pecuniary interest. Excludes shares which may be distributable by HF
Investments Holdings, in some events.
(5) Includes 5,160,035 shares beneficially owned by HF Investment Holdings, of
which the Bain Funds may be deemed the beneficial owners by virtue of their
control of HF Investment Holdings pursuant to its operating agreement. Also
includes 1,000 shares owned by IHF Holdings, of which the Bain Funds may be
deemed the beneficial owners by virtue of the fact that one or more of their
general partners or principals, or one or more general partners or
principals of one of their general partners, is a director of IHF Holdings.
The Bain Funds disclaim beneficial ownership of any shares in which they do
not have a pecuniary interest.
(6) Includes the shares beneficially owned by each of the Bain Funds, of which
each of Mr. Gay, Mr. Mika or Mr. Benson may be deemed the beneficial owner
by virtue of being a general partner or principal, or a general partner or a
principal of the general partner, of such Bain Fund. Also includes 1,000
shares owned by IHF Holdings, of which each of Mr. Gay, Mr. Mika or
Mr. Benson may be deemed the beneficial owner by virtue of each being a
director. Each of Mr. Gay, Mr. Mika or Mr. Benson disclaims beneficial
ownership of any such shares in which it does not have a pecuniary interest.
(7) Excludes (a) 1,931,263 shares receivable upon conversion of convertible
subordinated notes, (b) shares which may be distributable in some events
upon exercise in full of a warrant to purchase Class C Units of HF
Investments Holdings and (c) up to 1,030,000 shares owned by HF Investments
Holdings which are subject to an option exercisable only upon the occurrence
of some events.
(8) Includes 669,179 shares of common stock subject to purchase upon exercise of
warrants that are presently exercisable.
(9) Includes 1,312,933 shares beneficially owned by Credit Suisse First Boston,
of which each of Mr. Pechock or Mr. Matlin may be deemed the beneficial
owner by virtue of each being officers of Credit Suisse First Boston. Each
of Mr. Pechock or Mr. Matlin disclaims beneficial ownership of any such
shares in which it does not have a pecuniary interest.
43
<PAGE>
(10) Excludes shares which may be distributable by HF Investments Holdings in
some events to Inverness/Phoenix Capital LLC ("Inverness") of which Mr.
Dunwoody may be deemed the beneficial owner by virtue of being a general
partner or principal of Inverness. Mr. Dunwoody disclaims beneficial
ownership of any such shares in which he does not have a pecuniary interest.
(11) Excludes shares which may be distributable by HF Investment Holdings in
some events.
(12) Represents shares of HF Holdings issuable upon exercise of the vested
portion of options awarded pursuant to the 1999 HF Holdings Junior
Management Stock Option Plan. Excludes up to 47,264 shares for David
Watterson and up to 39,396 shares for S. Fred Beck owned by HF Investment
Holdings, LLC which are subject to an option exercisable only upon the
occurrence of certain events.
All of the outstanding common stock of our company, owned by HF Holdings,
has been pledged to the lenders under the new credit facilities. If we were to
default under these new credit facilities, the lenders could foreclose on the
pledge and take control of our company.
44
<PAGE>
TRANSACTIONS BETWEEN OUR COMPANY AND OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS
THE EQUITY INVESTMENT
GENERAL. As part of our September recapitalization, affiliates of Bain
Capital and its designees, Scott Watterson and Gary Stevenson, and Credit Suisse
First Boston and its affiliates made an equity investment of $40 million in HF
Holdings which then contributed that money to the equity of our company.
INVESTMENT BY BAIN AFFILIATES AND SENIOR MANAGEMENT. The Bain Affiliates
(and their designees), CSFB and Senior Management purchased membership interests
in HF Investment Holdings, LLC ("HF Investment Holdings") for an aggregate of
$30 million of cash. The Bain Affiliates purchased $14,950,000 worth of
membership interests in the form of Class B Units, each member of Senior
Management purchased $2,500,000 worth of membership interests in the form of
Class A Units, CSFB purchased for $5,000,000 a warrant (the "CSFB Warrant") to
purchase Class C Units and designees of the Bain Affiliates purchased an
aggregate of $5,050,000 worth of Class C Units. See "--The LLC Agreement" for a
description of the limited liability company agreement of HF Investment Holdings
and the Class A Units, Class B Units, Class C Units and the CSFB Warrant issued
thereunder.
HF Investment Holdings in turn purchased for $30.0 million in cash 5,160,035
shares of the common stock of HF Holdings (or approximately 51.6% of the common
stock of HF Holdings outstanding on a fully diluted basis upon consummation of
the September recapitalization).
INVESTMENT BY CSFB. In addition to its investment in HF Investment
Holdings, CSFB purchased for an aggregate purchase price of $10.0 million in
cash convertible notes (which are reflected as common stock on HF Holdings'
balance sheet) and stock aggregating (on an as-converted basis) 2,575,017 shares
of the common stock of HF Holdings (or approximately 25.7% of the common stock
of HF Holdings outstanding on a fully diluted basis upon the consummation of the
September recapitalization). The convertible notes purchased by CSFB will mature
on September 27, 2011, with no interest accruing thereon and no payments of
principal until maturity. The notes (x) are convertible (by the holders thereof
or by HF Holdings), subject to limited exceptions, into shares of common stock
of HF Holdings upon a liquidation, insolvency or Liquidity Event (as defined
below) and (y) automatically convert into shares of common stock of HF Holdings
upon a bankruptcy, in each case at a conversion price of $3.88347 per share
(subject to readjustment upon stock splits, stock dividends and combinations of
shares).
Prior to the September recapitalization, CSFB held 10% of our then
outstanding 13% Senior Subordinated Notes, 76% of the then outstanding 15%
Senior Secured Discount Notes of IHF Holdings and 83% of the then outstanding
14% Senior Discount Notes of ICON Fitness. CSFB received, as a participant in
the private exchange offers, an aggregate of approximately $4.0 million in cash,
$4.5 million principal amount of 12% notes and warrants to purchase 669,179
shares of common stock of HF Holdings.
MANAGEMENT EQUITY GRANT. On September 27, 1999, HF Holdings issued to Scott
Watterson and Gary Stevenson, without cost, an aggregate of 666,700 shares of
the common stock of HF Holdings (or approximately 6.7% of its common stock
outstanding on a fully diluted basis upon the consummation of the September
recapitalization). Mr. Watterson received 375,000 of these shares, while
Mr. Stevenson received 291,700 shares.
STOCKHOLDERS AGREEMENT. On September 27, 1999, we entered into a
stockholders agreement (the "Stockholders Agreement") with HF Holdings,
HF Investment Holdings, the Bain Affiliates and their designees, Senior
Management and CSFB. Holders of our 13% Senior Subordinated Notes, the 15%
Senior Secured Discount Notes of IHF Holdings and the 14% Senior Discount Notes
of ICON Fitness
45
<PAGE>
who tendered their notes in the September recapitalization (other than CSFB) and
received warrants to acquire HF Holdings common stock (the "Non-CSFB
Warrantholders") are entitled to registration rights under the Stockholders
Agreement with respect to the shares of common stock issuable upon exercise of
such warrants. For purposes of the Stockholders Agreement, prior to the
liquidation of the LLC, any reference to the "Bain Holders" shall be to the LLC
and subsequent to such liquidation, any reference to "Bain Holders" shall be to
the Bain Affiliates and any Bain designees who held Class B Units in the LLC.
All other shareholders (other than the Non-CSFB Warrantholders) party to the
Stockholders Agreement shall be referred to as the "Other Holders."
Junior Management Option. Under the Stockholders Agreement, the LLC granted
to some junior managers of our company ("Junior Management") an option to
purchase 216,700 shares of the common stock of HF Holdings (or approximately
2.17% of the common stock of HF Holdings outstanding on a fully diluted basis
after the consummation of the September recapitalization) (the "Junior
Management Option"). The Junior Management Option is exercisable for an exercise
price of $5.83 per share and will expire on September 27, 2011 or, if not
exercised in full, upon consummation of a Liquidity Event. Subject to
acceleration upon the occurrence of a Liquidity Event, 25% of the Junior
Management Option vested on September 27, 1999 and the remaining 75% will vest
in three equal installments over the next three anniversaries of September 27,
1999. The Junior Management Option is exercisable solely upon the occurrence of
a Liquidity Event.
As used herein, a "Liquidity Event" means (i) the consummation of an initial
public offering of the common stock of HF Holdings with gross proceeds greater
than $50.0 million, (ii) a merger or consolidation of HF Holdings or our
company, or sale of stock of HF Holdings or our company, in which the holders of
outstanding voting securities of HF Holdings immediately after giving effect to
the September recapitalization (treating as "holders" for such purpose any
holder of membership interests in the LLC) cease to own, directly or indirectly,
greater than 51% of the outstanding voting securities of the entity surviving
such merger or consolidation or sale or (iii) a sale of all or substantially all
of the assets of HF Holdings or our company.
CSFB Option. Under the Stockholders Agreement, the LLC granted to CSFB an
option (the "CSFB Option") to purchase a percentage of the common stock of HF
Holdings held by the LLC immediately after the consummation of the September
recapitalization. The percentage shall be (i) 12.5% from September 27, 1999
through March 26, 2001, (ii) 15% from March 27, 2001 through October 26, 2001,
(iii) 17.5% from October 27, 2001 through March 26, 2002 and (iv) 20%
thereafter. The CSFB Option is exercisable solely upon the occurrence of a
Liquidity Event at an exercise price of $14.56 per share and will expire on
September 27, 2011 or, if not exercised in full, upon consummation of the
Liquidity Event.
Restrictions on Transfer, Tag Along and Drag Along Provisions. Under the
Stockholders Agreement, the Other Holders are subject to customary restrictions
on transfer, obtained rights to participate in sales of stock by the other
parties to third parties, or "tag along" rights, and may be required to sell
their shares to third parties, or subject to "drag along" provisions. The
transfer restrictions (other than customary lockups in connection with
registered public offerings) expire upon a change of control or at such time
following the initial public offering that the outstanding shares of HF Holdings
have an aggregate market value of $200.0 million or more (a "Significant Public
Float"). The "tag along" and "drag along" rights expire upon the earlier of
(x) a change of control, (y) the date on which there shall exist a Significant
Public Float and (z) the initial public offering, if the managing underwriter
shall so determine. Non-CSFB Warrantholders' shares are freely transferable,
subject to securities law restrictions.
When any Bain Holder sells shares of common stock to third parties (other
than sales pursuant to the Junior Management and CSFB Options and customary
exceptions), the Other Holders have the right to include their shares on a pro
rata basis with the shares being sold by that Bain Holder, and
46
<PAGE>
under some circumstances, that Bain Holder can require the Other Holders to sell
their shares to the third party. The Other Holders also have pre-emptive rights
in the event of issuances of equity by HF Holdings to the Bain Holders. Subject
to customary limitations, the Other Holders have two (2) demand registration
rights (one of which is exercisable by CSFB and the other of which is
exercisable by Senior Management, in each case not earlier than 180 days
following the first registered secondary offering following an initial public
offering) and unlimited piggyback registration rights with respect to their
shares of common stock. Subject to customary limitations, the Bain Holders have
three demand registration rights and unlimited piggy back registration rights.
Subject to customary limitations, the Non-CSFB Warrantholders have two demand
registration rights, not earlier than 180 days following the first registered
secondary offering following an initial public offering, and unlimited piggyback
registration rights with respect to their shares of common stock. The
registration rights described herein will terminate as to any shares of HF
Holdings common stock when (a) they have been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) they have been distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities Act or (c) the
holder of such shares may sell all of its shares under Rule 144 within a three
month period, provided such holder owns less than 1% of the outstanding shares
of common stock.
Management's tag along rights, drag along obligations and registration
rights (and interests in the LLC) are subject to a special rule such that, at
the option of Bain, up to 25% of Senior Management's and up to 15% of Junior
Management's entire position must be retained as equity rather than sold,
provided that, in the case of shares held by any particular manager (or some of
his or her transferees): (i) such manager is at such time employed by us or was
so employed at any time during the preceding 12 months, without any material
diminution of his or her responsibilities; and (ii) the buyer in connection with
such a sale is a financial buyer (as defined in the Stockholders Agreement).
Director Designations. Under the terms of the Stockholders Agreement,
HF Investment Holdings is entitled to appoint seven directors and CSFB is
entitled to appoint two directors. Upon liquidation of HF Investment Holdings,
the Bain Holders will be entitled to appoint five directors, CSFB will be
entitled to appoint two directors and Senior Management shall have the right to
be directors so long as they are employed by the company. So long as the Bain
Holders hold a significant percentage of the common stock of HF Holdings, the
Other Holders shall be required to vote in accordance with the Bain Holders on
significant corporate transactions.
THE LLC AGREEMENT. HF Investment Holdings is governed by a limited
liability company agreement among the Bain Affiliates, Senior Management, CSFB
and Bain designees (the "LLC Agreement"). The membership interests in
HF Investment Holdings consists of three classes: Class A Units, Class B Units
and Class C Units. Senior Management holds Class A Units, the Bain Affiliates
hold Class B Units and the Bain designees hold Class C Units.
The Class C units have no voting rights on any matters and Class A Units and
Class B Units have voting rights on all matters (including actions under the
Stockholders Agreement) subject to the following: (a) amendment of the LLC
Agreement requires approval of holders of a majority of units of each class; and
(b) holders of a majority of Class A Units are entitled to select two directors
and holders of a majority of Class B Units are entitled to select five
directors; in all other events, the Bain Affiliates shall have voting control
(subject to (a) and (b) above). The holders of any class of units may not
transfer their membership interests, except, in the case of management
stockholders, to a member of the holder's immediate family (or a trust for the
benefit of a family member) or charities or, in the case of institutional
holders, to specified affiliates.
The CSFB Warrant, which was issued under the LLC Agreement, is exercisable
for an aggregate of 50,000 Class C Units of the LLC at an exercise price of
$0.01 per Unit. The CSFB Warrant is exercisable solely upon the occurrence of a
Liquidity Event, and shall be deemed, subject to exceptions,
47
<PAGE>
to have been exercised upon the occurrence of an event of insolvency of HF
Holdings or one of its subsidiaries.
EMPLOYMENT AGREEMENTS. On September 27, 1999, we entered into new three
year employment agreements with each of Scott Watterson and Gary Stevenson.
These agreements are described under "Management--Employment Agreements."
MANAGEMENT LOANS. On September 27, 1999, HF Holdings loaned $1,209,340 to
Scott Watterson and $990,660 to Gary Stevenson against non-recourse notes with a
maturity of 10 years. The notes bear interest at a rate equal to that of the
revolver portion of the credit facilities, payable in cash until the earlier of
(i) the first date as of which the cumulative consolidated net taxable income of
HF Holdings and its subsidiaries (computed by disregarding deductions of HF
Holdings and its subsidiaries arising from events and transactions occurring
after the consummation of the September recapitalization) arising on or after
September 27, 1999 exceeds $0 or (ii) May 31, 2000, provided that the
consolidated EBITDA (as defined in the credit facilities) of our company and our
subsidiaries, for our fiscal year then ended, exceeds $64 million. The notes may
be accelerated upon specified defaults and liquidity events, and are secured by
(i) 666,700 shares of HF Holdings common stock and (ii) 5,131.39 Class A Units
of the LLC. HF Holdings has recourse only to such stock and Units. HF Holdings
also loaned $92,000 to S. Fred Beck, our Chief Financial Officer, and $100,000
to David J. Watterson, our Vice President, Marketing and Research and
Development.
MANAGEMENT AGREEMENTS. On September 27, 1999, our company and HF Holdings
also entered into a new management agreement with a Bain Affiliate which
provides, subject to restrictions contained in the credit facilities, for a fee
payable upon closing of the September recapitalization of $2,202,000 and an
annual management fee of $366,500 in exchange for management consulting services
including providing advice on strategic planning, development and acquisitions.
In addition, if we enter into any acquisition transactions involving at least
$10.0 million, the Bain Affiliate will receive (subject in some circumstances to
CSFB's fee described below) a fee in an amount which will approximate 1% of the
gross purchase price of the transaction (including assumed debt). We also paid
all arrearages under the existing Bain management agreement.
Additionally, HF Holdings entered into a management arrangement with CSFB
which provides, subject to restrictions contained in the credit facilities, for
a fee payable upon closing of the September recapitalization of $881,000 and an
annual management fee of $366,500 in exchange for consulting services. In
addition, if we enter into transactions which constitute a Liquidity Event, CSFB
will receive a fee in an amount which will approximate 50% of the fee payable
under the Bain management agreement in connection with such transaction.
On September 27, 1999, our company and HF Holdings also entered into
management agreements with each of Mr. Watterson and Mr. Stevenson which
provide, subject to restrictions contained in the credit facilities, for a
closing fee of $417,000 in the aggregate and, so long as the Bain Affiliate is
receiving a management fee under the Bain management agreement, an annual
management fee of $67,000 in the aggregate.
The respective management agreements include full indemnification and
expense reimbursement provisions in favor of Bain Capital, CFSB and their
affiliates and Senior Management, respectively.
AIRCRAFT LEASE
In June 1996, we entered into an agreement with FG Aviation, Inc. ("FG"), a
company which is jointly owned by our officers, whereby we have committed to
lease a Westwind II jet from FG. Minimum rentals under the lease, which expires
in May 2005, are $56,610 per month. In connection with its lease commitments, we
recorded $864,000, $679,000 and $679,000 of rental expense and $206,000, $34,000
and $0 of maintenance expense in the years ended May 31, 1999, 1998 and 1997. In
addition, we advanced $280,000 to FG as a security deposit on the aircraft
lease.
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THE EXCHANGE OFFER
As of the date of this prospectus, $44,282,000 aggregate principal amount of
unregistered notes are outstanding. Simultaneously with the September
recapitalization, we entered into an exchange and registration rights agreement
with the initial holders of the notes in which we agreed to deliver this
prospectus to you.
RESALE OF THE EXCHANGE NOTES
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, we believe that a holder of old notes, but
not a holder who is an affiliate of our company within the meaning of Rule 405
of the Securities Act, who exchanges old notes for exchange notes in the
exchange offer, generally may offer the exchange notes for resale, sell the
exchange notes and otherwise transfer the exchange notes without further
registration under the Securities Act and without delivery of a prospectus that
satisfies the requirements of Section 10 of the Securities Act. This does not
apply, however, to a holder who is an affiliate of our company within the
meaning of Rule 405 of the Securities Act. We also believe that a holder may
offer, sell or transfer the exchange notes only if the holder acquires the
exchange notes in the ordinary course of its business and is not participating,
does not intend to participate and has no arrangement or understanding with any
person to participate in a distribution of the exchange notes.
Any holder of old notes using the exchange offer to participate in a
distribution of exchange notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired old notes directly from us,
but not as a result of market-making activities or other trading activities.
Consequently, the holder must comply with the registration and prospectus
delivery requirements of the Securities Act in the absence of an exemption from
such requirements.
Each broker-dealer that receives exchange notes for its own account in
exchange for old notes, where such old notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities may be a
statutory underwriter and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with the resale of
exchange notes received in exchange for old notes. The letter of transmittal
which accompanies this prospectus states that by so acknowledging and by
delivering a prospectus, a participating broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the Securities Act. A
participating broker-dealer may use this prospectus, as it may be amended from
time to time, in connection with resales of exchange notes it receives in
exchange for old notes in the exchange offer. We will make this prospectus
available to any participating broker-dealer in connection with any resale of
this kind for a period of 30 days after the expiration date of the exchange
offer. See "Plan of Distribution".
Each holder of the old notes who wishes to exchange old notes for exchange
notes in the exchange offer will be required to represent and acknowledge, for
the holder and for each beneficial owner of such old notes, whether or not the
beneficial owner is the holder, in the letter of transmittal that:
- the exchange notes to be acquired by the holder and each beneficial owner,
if any, are being acquired in the ordinary course of business,
- neither the holder nor any beneficial owner is an affiliate, as defined in
Rule 405 of the Securities Act, of our company or any of our subsidiaries,
- any person participating in the exchange offer with the intention or
purpose of distributing exchange notes received in exchange for old notes,
including a broker-dealer that acquired old notes directly from us, but
not as a result of market-making activities or other trading activities
cannot rely on the no-action letters referenced above and must comply with
the registration and prospectus delivery requirements of the Securities
Act, in connection with a secondary resale of the exchange notes acquired
by such person,
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- if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in any
distribution of the exchange notes received in exchange for old notes, and
- if the holder is a broker-dealer that will receive exchange notes for the
holder's own account in exchange for old notes, the old notes to be so
exchanged were acquired by the holder as a result of market-making or
other trading activities and the holder will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of
such exchange notes received in the exchange offer. However, by so
representing and acknowledging and by delivering a prospectus, the holder
will not be deemed to admit that it is an underwriter within the meaning
of the Securities Act.
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed so
that the exchange notes received by holders who make all of the above
representations in the letter of transmittal are not or would not be, upon
receipt, transferable by each such holder without restriction under the
Securities Act, our company and the subsidiary guarantors will, at their cost:
- file a shelf registration statement covering resales of the old notes,
- use their respective best efforts to cause the shelf registration
statement to be declared effective under the Securities Act at the
earliest possible time, but no later than the later of 120 days after the
filing of the shelf registration statement and March 27, 2000, and
- use their respective best efforts to keep effective the shelf registration
statement until the earlier of September 27, 2001 or the time when all of
the applicable old notes are no longer outstanding.
We will, if and when we file the shelf registration statement, provide to
each holder of the old notes copies of the prospectus which is a part of the
shelf registration statement, notify each holder when the shelf registration
statement has become effective and take other actions as are required to permit
unrestricted resales of the old notes. A holder that sells old notes pursuant to
the shelf registration statement generally must be named as a selling
security-holder in the related prospectus and must deliver a prospectus to
purchasers, will be subject to civil liability provisions under the Securities
Act in connection with these sales and will be bound by the provisions of the
exchange and registration rights agreement which are applicable to the holder,
including indemnification obligations. In addition, each holder of old notes
must deliver information to be used in connection with the shelf registration
statement and provide comments on the shelf registration statement in order to
have its old notes included in the shelf registration statement and benefit from
the provisions regarding any liquidated damages described below.
TERMS OF THE EXCHANGE OFFER
Upon the exchange offer registration statement being declared effective, we
will offer the exchange notes in exchange for surrender of the old notes. We
will keep the exchange offer open for at least 30 days, or longer if required by
applicable law, after the date notice of the exchange offer is mailed to the
holders of the old notes.
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal which accompanies this prospectus, we will
accept any and all old notes validly tendered and not withdrawn before midnight,
New York City time, on the expiration date of the exchange offer. We will issue
an equal principal amount of exchange notes in exchange for the principal amount
of old
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notes accepted in the exchange offer. Holders may tender some or all of their
old notes under the exchange offer. Old notes may be tendered only in integral
multiples of $1,000.
The form and terms of the exchange notes will be the same as the form and
terms of the old notes except that:
(1) the exchange notes will have been registered under the Securities Act
and therefore will not bear legends restricting their transfer, and
(2) the exchange notes will not contain terms providing for an increase in
the interest rate on the old notes under specific circumstances which are
described in the exchange and registration rights agreement.
The exchange notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture governing the old notes.
In connection with the exchange offer, holders of old notes do not have any
appraisal or dissenters' rights under law or the indenture governing the old
notes. We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the Securities and Exchange Commission related to such offers.
We will be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice of acceptance to The Bank of New York,
exchange agent for the exchange offer. The exchange agent will act as agent for
the tendering holders for the purpose of receiving the exchange notes from us.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of other events specified in this prospectus or
if old notes are submitted for a greater principal amount than the holder
desires to exchange, the certificates for the unaccepted old notes will be
returned without expense to the tendering holder. If old notes were tendered by
book-entry transfer in the exchange agent account at The Depository Trust
Company in accordance with the book-entry transfer procedures described below,
these non-exchanged old notes will be credited to an account maintained with The
Depository Trust Company as promptly as practicable after the expiration date of
the exchange offer.
We will pay all charges and expenses, other than transfer taxes in some
circumstances, in connection with the exchange offer. See "--Fees and Expenses."
Holders who tender old notes in the exchange offer will therefore not need to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes in the
exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date of the exchange offer is midnight, New York City time,
on , 2000, unless we, in our sole discretion, extend the exchange offer,
in which case the expiration date shall be the latest date and time to which the
exchange offer is extended.
We reserve the right, in our sole discretion to amend the terms of the
exchange offer in any manner.
We will give oral or written notice of any extension, delay, non-acceptance,
termination or amendment as promptly as practicable by a public announcement,
and in the case of an extension, no later than 9:00 a.m., New York City time, on
the business day after the previously scheduled expiration date.
During an extension, all notes previously tendered will remain subject to
the exchange offer and may be accepted for exchange by us. Any old notes not
accepted for exchange for any reason will be
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returned without cost to the holder that tendered them as promptly as
practicable after the expiration or termination of the exchange offer.
PROCEDURES FOR TENDERING
To tender in the exchange offer, you must do the following:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal,
- have the signatures thereon guaranteed if required by the letter of
transmittal, and
- except as discussed in "--Guaranteed Delivery Procedures," mail or
otherwise deliver the letter of transmittal, or facsimile, together with
the old notes and any other required documents, to the exchange agent
prior to midnight, New York City time, on the expiration date of the
exchange offer.
The exchange agent must receive the old notes, a completed letter of
transmittal and all other required documents at the address listed below under
"--Exchange Agent" before midnight, New York City time, on the expiration date
for the tender to be effective. You may deliver your old notes by using the
book-entry transfer procedures described below, as long as the exchange agent
receives confirmation of the book-entry transfer before the expiration date.
The Depository Trust Company has authorized its participants that hold old
notes on behalf of beneficial owners of old notes through The Depository Trust
Company to tender their old notes as if they were holders. To effect a tender of
old notes, The Depository Trust Company participants should either:
(1) complete and sign the letter of transmittal (or a manually signed
facsimile of the letter), have the signature thereon guaranteed if
required by the instructions to the letter of transmittal, and mail or
deliver the letter of transmittal (or the manually signed facsimile) to
the exchange agent according to the procedure described in "Procedures
for Tendering" or
(2) transmit their acceptance to The Depository Trust Company through its
automated tender offer program for which the transaction will be eligible
and follow the procedure for book-entry transfer its described in
"--Book-Entry Transfer."
By tendering, each holder will make the representations contained in the
fourth paragraph above under the heading "--Resale of the Exchange Notes." Each
participating broker-dealer must acknowledge that it will deliver a prospectus
in connection with any resale of such exchange notes. See "Plan of
Distribution."
The tender by a holder and the acceptance of the tender by us will
constitute the agreement between the holder and our company set forth in this
prospectus and in the letter of transmittal.
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and sole risk
of the holder. As an alternative to delivery by mail, holders may wish to
consider overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. No letter of transmittal or old notes or book-entry confirmation should be
sent to us. Holders may request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect the above transactions on their
behalf.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
beneficial owner's behalf. See "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant from Beneficial Owner" included with
the letter of transmittal. If the beneficial owner wishes to tender on his own
behalf, such owner must, prior to
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completing and executing the letter of transmittal and delivering such
beneficial owner's old notes, either make appropriate arrangements to register
ownership of the old notes in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution (within the meaning of
Rule 17Ad-5 under the Exchange Act of 1934) unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal, or
- for the account of an eligible guarantor institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by a member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an eligible guarantor institution.
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes must
be endorsed or accompanied by a properly completed bond power and signed by the
registered holder as the registered holder's name appears on the old notes.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the old
notes at the book-entry transfer facility, The Depository Trust Company, for the
purpose of facilitating the exchange offer. Subject to the establishment of the
accounts, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of old notes by causing
the book-entry transfer facility to transfer the old notes into the exchange
agent's account with respect to the old notes in accordance with that facility's
procedures. Although delivery of the old notes may be effected through
book-entry transfer into the exchange agent's account at the book-entry transfer
facility, an appropriate letter of transmittal properly completed and duly
executed or an agent's message with any required signature guarantee and all
other required documents the exchange agent at its address listed below on or
before the expiration date of the exchange offer, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures. Delivery of documents to the book-entry transfer facility
does not constitute delivery to the exchange agent.
The term "agent's message" means a message transmitted by The Depository
Trust Company to, and received by, the exchange agent, which states that The
Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the old notes stating:
- the aggregate principal amount of old notes which have been tendered by
such participant,
- that such participant has received and agrees to be bound by the term of
the letter of transmittal and
- that we may enforce such agreement against the participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered old notes and withdrawal of tendered old notes
will be determined by us in our sole discretion, which
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determination will be final and binding. We reserve the absolute right to reject
any and all old notes not properly tendered or any old notes our acceptance of
which would, in the opinion of our counsel, be unlawful. We also reserve the
right to waive any defects, irregularities or conditions of tender as to
particular old notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of old notes must be cured within a period of time
that we shall determine. Neither our company, the exchange agent nor any other
person shall incur any liability for failure to give notice of any defect or
irregularity with respect to any tender of old notes. Tenders of old notes will
not be deemed to have been made until such defects or irregularities mentioned
above have been cured or waived. Any old notes received by the exchange agent
that are not properly tendered and as to which the defects or irregularities
have not been cured or waived will be returned by the exchange agent to the
tendering holders, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date of the exchange offer.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its old notes and:
- whose old notes are not immediately available,
- who cannot deliver the holder's old notes, the letter of transmittal or
any other required documents to the exchange agent prior to the expiration
date, or
- who cannot complete the procedures for book-entry transfer, before the
expiration date,
may effect a tender if:
- the tender is made through an eligible guarantor institution,
- before the expiration date, the exchange agent receives from the eligible
guarantor institution a properly completed and duly executed notice of
guaranteed delivery by facsimile transmission, mail or hand delivery, the
name and address of the holder, the certificate number(s) of the old notes
and the principal amount of old notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the expiration date, the letter of transmittal
(or facsimiles thereof) together with the certificate(s) representing the
old notes (or a confirmation of book-entry transfer of the old notes into
the exchange agent's account at the book-entry transfer facility), and any
other documents required by the letter of transmittal will be deposited by
the eligible guarantor institution with the exchange agent, and
- the exchange agent receives, within three New York Stock Exchange trading
days after the expiration date, a properly completed and executed letter
of transmittal or facsimile, as well as the certificate(s) representing
all tendered old notes in proper form for transfer or a confirmation of
book-entry transfer of such old notes into the exchange agent's account at
the book-entry transfer facility, and all other documents required by the
letter of transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to midnight, New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of old notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the trustee at
its address set forth below prior to midnight, New York City time, on the
expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn,
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- identify the old notes to be withdrawn including the certificate number(s)
and principal amount of such old notes or, in the case of old notes
transferred by book-entry transfer, the name and number of the account at
the book-entry transfer facility to be credited and otherwise comply with
the procedures of the transfer agent,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the old notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee under the indenture governing the
old notes register the transfer of the old notes into the name of the
person withdrawing the tender, and
- specify the name in which any such old notes are to be registered, if
different from that of the person who deposited the notes.
If certificates for old notes have been delivered or otherwise identified to
the exchange agent, then, before the release of the certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible guarantor institution unless the holder is an eligible
guarantor institution.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us, and our determination shall
be final and binding on all parties. Any old notes so withdrawn will be deemed
not to have been validly tendered for purposes of the exchange offer, and no
exchange notes will be issued, unless the old notes so withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to the holder of the notes without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time before the expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance and requests for additional copies
of this prospectus or of the letter of transmittal should be directed to The
Bank of New York addressed as follows:
For Information by Telephone: (212) 815-3687
By Overnight Delivery Service or Registered/Certified Mail:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attn.: Reorganization Unit-7E
By Hand
The Bank of New York
101 Barclay Street
Ground Level Corporate Trust Services Window
New York, New York 10286
Attn.: Reorganization Unit-7E
By Facsimile Transmission:
(212) 815-6339
Telephone Confirmation to Ayikwei Aryeetey:
(212) 815-3687
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The Bank of New York also acts as trustee under the indenture governing the
notes as successor to IBJ Whitehall Bank & Trust Company.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. However, we will pay the exchange agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection with providing the services.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us. Such expenses include fees and expenses of The Bank of New York
as exchange agent and as trustee under the indenture governing the notes,
accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the old
notes as reflected in our accounting records on the date of exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. The
expenses of the exchange offer and the unamortized expenses related to the
issuance of the old notes will be amortized over the term of the notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who are eligible to participate in the exchange offer
but who do not tender their old notes will not have any further registration
rights, and their old notes will continue to be subject to restrictions on
transfer. Accordingly, such old notes may be resold only:
- to us, upon redemption of these notes or otherwise,
- so long as the old notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a person inside the United States whom the
seller reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A in a transaction meeting the requirements of
Rule 144A,
- in accordance with Rule 144 under the Securities Act, or under another
exemption from the registration requirements of the Securities Act, and
based upon an opinion of counsel reasonably acceptable to us,
- outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or
- under an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of old notes
should carefully consider whether to accept the terms and condition of this
offer. Holders of the old notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take with respect to
the exchange offer.
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DESCRIPTION OF THE NOTES
The exchange notes, like the old notes, will be issued under the indenture,
dated September 27, 1999 among ICON, the Subsidiary Guarantors named therein and
The Bank of New York, as successor to IBJ Whitehall Bank & Trust Company, as
trustee. The exchange notes are the same as the old notes except that the
exchange notes
- will not bear legends restricting their transfer and
- will not contain certain terms providing for an increase in the interest
rate under the circumstances described in the registration rights
agreement.
The indenture and its associated documents contain the full legal text of
the matters described in this section. A copy of the indenture has been filed
with the Securities and Exchange Commission as part of our Registration
Statement. See "Where You Can Find More Information" on page 106 for information
on how to obtain a copy.
Because this section is a summary, it does not describe every aspect of the
notes. This summary is subject to and qualified in its entirety by reference to
all the provisions of the indenture, including definitions of some terms used in
the indenture. For example, in this section we use capitalized words to signify
defined terms that have been given special meaning in the indenture. We describe
the meaning for only the more important terms, under "Definitions". We also
include references in parentheses to sections of the indenture. Whenever we
refer to particular sections or defined terms of the indenture in this
prospectus, these sections or defined terms are incorporated by reference into
this prospectus.
For the purpose of this summary, the term "Notes" means the exchange notes
offered by this prospectus and the old notes issued on September 27, 1999 in
connection with the September recapitalization. The term "ICON" refers to ICON
Health & Fitness, Inc. and does not include its subsidiaries except for purposes
of financial data determined on a consolidated basis.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
The Notes:
- will be general unsecured obligations of ICON;
- will be subordinated in right of payment to all existing and future Senior
Indebtedness of ICON (i.e., Indebtedness outstanding under the credit
facilities);
- will be effectively subordinated to all secured obligations to the extent
of the assets securing such obligations, including the credit facilities;
- will be effectively subordinated in the right of payment to all existing
and future liabilities of any ICON subsidiaries which do not guarantee the
Notes, including its foreign subsidiaries; and
- will be guaranteed by each domestic subsidiary of ICON.
The Subsidiary Guarantees of the Notes:
- will be general unsecured obligations of each Subsidiary Guarantor;
- will be subordinated in right of payment to all existing and future Senior
Indebtedness of each Subsidiary Guarantor (i.e., Indebtedness outstanding
under its guarantee if the credit facilities); and
- will be effectively subordinated to all secured obligations of the
Subsidiary Guarantors to the extent of the assets securing such
obligations, including the new credit facility.
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At the date of this exchange offer, all of ICON's subsidiaries will be
Restricted Subsidiaries. However, under circumstances described under the
caption "--Certain Covenants--Limitation on Designation of Unrestricted
Subsidiaries," ICON will be able to designate current or future subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to any
of the restrictive covenants set forth in the indenture. ICON's Unrestricted
Subsidiaries will not guarantee the Notes.
PRINCIPAL, MATURITY AND INTEREST
The indenture provides that ICON may issue Notes with a maximum aggregate
principal amount of $45.0 million, of which $44.282 million is outstanding. ICON
will issue Notes in denominations of $1,000 and integral multiples of $1,000.
The Notes will mature on September 27, 2005. Interest on the Notes will
accrue at the rate of 12% per annum and will be payable semi-annually in arrears
on January 15 and July 15, to Holders of record on the immediately preceding
January 1 and July 1.
Interest on the Notes will accrue from the date of original issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
All payments on Notes will be made at the office or agency of ICON
maintained for such purpose (which may be an office of the Trustee or an
affiliate of the Trustee, registrar or co-registrars) within the Borough of
Manhattan, City and State of New York, unless ICON elects to make interest
payments by (1) check mailed to the Holders or (2) to an account maintained by
the Holders in the United States. (SectionSection3.9, 10.2)
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the indenture.
The Registrar, Trustee and ICON may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and ICON may require a
Holder to pay any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange.
The registered Holder of a note will be treated as the owner of it for all
purposes. (SectionSection3.5, 3.7)
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes will
be subordinated in right of payment, as set forth in the indenture, to the prior
payment in full, in cash or, at the option of holders of Senior Indebtedness,
cash equivalents, of all amounts payable under Senior Indebtedness of ICON,
i.e., indebtedness under the credit facility. (Section13.1)
The indenture provides that ICON may not make any payment upon or in respect
of the Notes if:
(1) a payment default by ICON of the principal of, premium, if any, or
interest on Senior Indebtedness occurs; or
(2) any other default occurs on any Specified Senior Indebtedness that
permits holders of that Specified Senior Indebtedness to accelerate its
maturity. (Section13.2)
The indenture also provides that upon any payment or distribution of assets
or securities of ICON upon any:
(1) distribution to creditors of ICON in a liquidation or dissolution of
ICON, or
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(2) bankruptcy, reorganization, insolvency, receivership or similar
proceeding of ICON (whether voluntary or involuntary), or
(3) assignment for the benefit of creditors or any marshaling of the assets
and liabilities of ICON,
the holders of Senior Indebtedness will be entitled to receive payment in full
of all amounts due in respect of all Senior Indebtedness before the Holders or
the Trustee on their behalf will be entitled to receive any payment by ICON on
or in respect of the Notes or any payment to acquire any of the Notes for cash,
property or securities, or any distribution with respect to the Notes of any
cash, property or securities. However, Holders may receive:
(1) securities that are subordinated to at least the same extent as the
Notes to (a) Senior Indebtedness and (b) any securities issued in
exchange for Senior Indebtedness; and
(2) payments and other distributions made from any defeasance trust created
pursuant to the provisions described under the caption "--Defeasance and
Covenant Defeasance--Conditions to Defeasance or Covenant Defeasance".
(Section13.3)
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of ICON who are holders of Senior Indebtedness. The indenture limits,
subject to financial tests, the amount of additional indebtedness, including
Senior Indebtedness, that ICON and its Restricted Subsidiaries can incur. See
"--Certain Covenants--Limitation on Indebtedness and Issuance of Preferred
Stock."
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors will jointly and severally guarantee the payment
obligations of ICON under the Notes. The Subsidiary Guarantee of each Subsidiary
Guarantor is unsecured and is subordinated to the prior payment in full in cash,
or cash equivalent, of all Senior Indebtedness of such Subsidiary Guarantor,
i.e., its guarantee of the new credit facility. The obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee will be limited as necessary
to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance
under applicable law. (SectionSection14.1, 14.2)
MERGER OF SUBSIDIARY GUARANTORS
A Subsidiary Guarantor may not in a single transaction or a series of
related transactions consolidate with or merge with or into (whether or not such
Subsidiary Guarantor is the surviving Person) or, sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties, to any other Person or group of affiliated Persons, other than in
the case of a Merger with or into ICON or another Subsidiary Guarantor but
subject to the releases described below, unless:
(1) the Person formed by or surviving any such consolidation or merger (if
other than such Subsidiary Guarantor) expressly assumes all the
obligations of such Subsidiary Guarantor under the Notes, the indenture
and the Subsidiary Guarantee pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee; and
(2) immediately after giving effect to such transaction or series of
transactions, no Default or Event of Default has occurred or is
continuing. (Section14.4)
The indenture provides that the Subsidiary Guarantee of a Subsidiary
Guarantor will be released:
(1) in connection with any sale or disposition of all or substantially all
of the assets of that Subsidiary Guarantor, (including by way of merger
or consolidation), if the disposition is to ICON or another Subsidiary
Guarantor or, if ICON applies the Net Proceeds of that sale or other
disposition in accordance with the applicable provisions of the
indenture, including the
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covenant described under the caption "--Repurchase at the Option of
Holders--Asset Sales"; or
(2) in connection with any sale of all of the capital stock of a Subsidiary
Guarantor, if ICON applies the Net Proceeds of that sale in accordance
with the applicable provisions of the indenture, including the covenant
described under the caption "--Repurchase at the Option of Holders--Asset
Sales"; or
(3) if ICON designates any Restricted Subsidiary that is a Subsidiary
Guarantor as an Unrestricted Subsidiary; or
(4) upon the release or discharge of all guarantees of such Subsidiary
Guarantor, and all pledges of property or assets of such Subsidiary
Guarantor securing all other Indebtedness of ICON and the other
Subsidiary Guarantors. (Section14.5)
REDEMPTION
OPTIONAL REDEMPTION
ICON may redeem all but not part of the Notes at any time after issuance
upon not less than 30 nor more than 60 days notice at the following redemption
prices (expressed in percentages of principal amount thereof), plus accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date if
redeemed during the 12 month period ending February 15 of each of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
Issue Date through 2001..................................... 101%
2002........................................................ 102%
2003........................................................ 104%
2004........................................................ 102%
2005........................................................ 101%
Thereafter.................................................. 100%
</TABLE>
Notice of redemption will be given by ICON or, at its request, by the
Trustee in the name of ICON and at its expense, not less than 30 nor more than
60 days prior to the redemption date, to each Holder of Notes to be redeemed.
(SectionSection11.1, 11.5)
MANDATORY REDEMPTION
ICON is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL (Section10.15)
If a Change of Control occurs, ICON will be required to make an offer to
each Holder of Notes to purchase all of the then outstanding Notes and purchase
all of the Outstanding Notes validly tendered pursuant to the offer. The
purchase price will be in cash equal to 101% of the aggregate principal amount
of the Notes plus accrued and unpaid interest and Liquidated Damages, if any, to
the purchase date.
ICON will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth under the
provisions of this covenant and all other provisions of the indenture applicable
to a Change of Control Offer made by ICON and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
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ICON's outstanding Senior Indebtedness prohibits it from purchasing any
Notes, and also provides that change of control events with respect to ICON
constitute a default under the agreements governing the Senior Indebtedness. Any
future credit agreements or other agreements relating to Senior Indebtedness to
which ICON becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when ICON is prohibited from
purchasing Notes, ICON could seek the consent of its senior lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If ICON does not obtain such a consent or repay such borrowings,
ICON will remain prohibited from purchasing Notes. In such case, ICON's failure
to purchase tendered Notes will constitute an Event of Default under the
indenture which will, in turn, constitute a default under such Senior
Indebtedness. In such circumstances, the subordination provisions in the
indenture will likely restrict payments to the Holders of Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of ICON and its Restricted Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially all,"
there is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require ICON to repurchase such
Notes as a result of a sale, lease, transfer, conveyance or other disposition of
less than all of the assets of ICON and its Restricted Subsidiaries taken as a
whole to another Person or groups may be uncertain.
ASSET SALES (Section10.17)
ICON will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, consummate an Asset Sale unless:
(1) at least 75% of the proceeds from such Asset Sale is received in the
form of cash or assumed liabilities; and
(2) ICON, or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair
Market Value of the Capital Stock or assets issued or sold or otherwise
disposed of.
Within one year after the receipt of the proceeds from an Asset Sale, ICON
or any of its Restricted Subsidiaries, may use such Net Cash Proceeds, at its
option:
(1) to repay or prepay permanently any then outstanding Senior Indebtedness
of ICON or any of its Restricted Subsidiaries; or
(2) to invest in properties and assets to replace the properties and assets
subject to the Asset Sale, or in properties and assets to be used in a
Permitted Business. Pending the making of any such investment, ICON may
use such Net Cash Proceeds to temporarily reduce the amount of
outstanding Indebtedness under the Credit Agreement and such reduction
will constitute such a segregation as referred to in the immediately
preceding sentence.
When the aggregate amount of Excess Proceeds exceeds $5.0 million, ICON will
be required to make an offer to purchase ("Excess Proceeds Offer") from all
Holders, on a PRO RATA basis, the maximum principal amount of Notes that may be
purchased with the Excess Proceeds. The offer price as to each Note will be
payable in cash in an amount equal to 100% of the principal amount of such Notes
plus accrued and unpaid interest and Liquidated Damages, if any, to the date
such Excess Proceeds Offer is consummated. To the extent that the aggregate
principal amount of Notes tendered pursuant to an Excess Proceeds Offer is less
than the Excess Proceeds, ICON, or the applicable Restricted Subsidiary, may use
such deficiency for general corporate purposes. If the aggregate principal
amount of Notes validly tendered and not withdrawn by holders thereof exceeds
the Excess Proceeds, the Notes to be purchased will be selected on a PRO RATA
basis. Upon completion of any such offer to purchase, the amount of Excess
Proceeds will be reset to zero.
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Notwithstanding the foregoing, if ICON or any Restricted Subsidiaries incurs
Indebtedness (in compliance with the covenant described under the caption
"--Certain Covenants--Limitation on Indebtedness and Issuance of Preferred
Stock") for the purpose of purchasing assets, and such assets are then sold in a
Sale and Leaseback Transaction, the proceeds of such Sale and Leaseback
Transaction may be used to repay such Indebtedness and, if so applied, will not
constitute "Excess Proceeds."
If ICON becomes obligated to make an Excess Proceeds Offer, ICON will
purchase the Notes on a date that is not earlier than 45 days and not later than
60 days from the date the notice is given to Holders, or such later date as may
be necessary to comply with the requirements under the Exchange Act.
CERTAIN COVENANTS
PROVISION OF FINANCIAL STATEMENTS (Section10.9)
Whether or not ICON is subject to Section 13(a) or 15(d) of the Exchange
Act, ICON will prepare and, unless the SEC does not accept such filing, file
with the SEC the annual reports, quarterly reports and other documents which
ICON would have been required to file with the SEC pursuant to such
Section 13(a) or 15(d) if ICON were so subject. The documents to be filed with
the SEC include a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report by certified independent accountants of ICON, on or prior to the
respective dates (the "Required Filing Dates") by which ICON would have been
required to file such documents if ICON were so subject. ICON will also in any
event:
(1) within 15 days of each Required Filing Date
(a) transmit by mail to all Holders; and
(b) file with the Trustee copies of the annual reports, quarterly reports
and other documents which ICON has filed with the SEC or would have
been required to file with the SEC pursuant to Section 13(a) or 15(d)
of the Exchange Act if ICON were subject to such Section, and
(2) if filing such documents by ICON with the SEC is not permitted under the
Exchange Act, promptly upon written request of any Holder or prospective
Holder, supply copies of such documents to any Holder or prospective
Holder or other Person at the cost of ICON.
If any Guarantor's financial statements would be required to be included in
the financial statements filed or delivered pursuant hereto if ICON were subject
to Section 13(a) or 15(d) of the Exchange Act, ICON will include such financial
statements in any filing or delivery pursuant to this covenant.
For so long as any Notes remain outstanding, ICON and the Subsidiary
Guarantors will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144(d)(4) under the Securities Act.
LIMITATION ON INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK (Section10.10)
ICON will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur"), any Indebtedness (including Acquired Indebtedness),
other than Permitted Indebtedness, and ICON will not issue any Redeemable Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
Preferred Stock. However, ICON and any
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Subsidiary Guarantor may incur Indebtedness (including Acquired Indebtedness) or
issue Redeemable Stock, and any Subsidiary Guarantor may issue Preferred Stock,
if:
(1) ICON's Consolidated Fixed Charge Coverage Ratio for the four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or Preferred Stock is issued taken as one period, and after
giving PRO FORMA effect to:
(a) the incurrence of such Indebtedness or issuance of such Redeemable
Stock or Preferred Stock and (if applicable) the application of the
net proceeds therefrom, including the refinancing of other
Indebtedness or Redeemable Stock or Preferred Stock, as if such
Indebtedness was incurred or Redeemable Stock or Preferred Stock was
issued, and the application of such proceeds occurred, on the first
day of such four-quarter period;
(b) the incurrence, repayment or retirement of any other Indebtedness by
ICON and its Subsidiary Guarantors, or issuance or redemption of
Redeemable Stock or Preferred Stock, since the first day of such
four-quarter period, as if such Indebtedness was incurred, repaid or
retired, Redeemable Stock or Preferred Stock was issued or redeemed,
on the first day of such four-quarter period; and
(c) notwithstanding clause (3) of the definition of "Consolidated
Adjusted Net Income", any acquisition or disposition by ICON or any
of its Restricted Subsidiary of any company, entity or any business,
in each case since the first day of such four-quarter period, as if
such acquisition or disposition had occurred on the first day of such
four-quarter period, would have been at least equal (A) 2.25:1.0 for
the period from the date of the indenture through January 31, 2001
and (B) 2.50:1.0 for all periods thereafter;
(2) such Indebtedness is unsecured and is expressly subordinate in right of
payment to the Notes and
(3) the Weighted Average Life to Maturity of such Indebtedness or Redeemable
Stock is greater than the remaining Weighted Average Life to Maturity of
the Notes.
Notwithstanding the foregoing, ICON will not, and will not permit any
Subsidiary to incur Indebtedness or issue any shares of Preferred Stock of such
Subsidiary, directly or indirectly, in exchange for or upon the conversion of
any Indebtedness of IHF Holdings or ICON Fitness unless such Indebtedness is
unsecured and is expressly subordinate in right of payment to the Notes.
LIMITATION ON RESTRICTED PAYMENTS (Section10.11)
ICON will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of ICON's or any of its Restricted Subsidiaries' Capital Stock
(including any payment in connection with any merger or consolidation
involving ICON or any of its Restricted Subsidiaries) or to the direct or
indirect holders of, any shares of Capital Stock of ICON or any
Restricted Subsidiary (other than dividends or distributions payable
solely in shares of Capital Stock of ICON or in options, warrants or
other rights to purchase such Capital Stock but excluding dividends or
distributions payable in Redeemable Capital Stock or in options, warrants
or other rights to purchase Redeemable Capital Stock and other than to
ICON or one of its Restricted Subsidiaries);
(2) purchase, redeem or otherwise acquire or retire for value, directly or
indirectly, any shares of the Capital Stock of ICON or any direct or
indirect parent of ICON or any of its Restricted Subsidiary or any
Affiliate thereof or any options, warrants or other rights to acquire
such Capital Stock, held by a Person other than ICON or any of its
Restricted Subsidiaries (other
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than such a purchase, redemption or acquisition of Capital Stock of a
Restricted Subsidiary as a result of which such Restricted Subsidiary
becomes a Wholly Owned Restricted Subsidiary);
(3) make any payment on or with respect to, or repurchase, redeem, defease
or otherwise acquire or retire for value, prior to a scheduled principal
payment, interest payment, scheduled sinking fund payment or maturity,
any Subordinated Indebtedness or Indebtedness that ranks pari passu with
the Notes;
(4) make any payment on or with respect to, or purchase or repurchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness
of IHF Holdings or ICON Fitness;
(5) incur any guarantee of Indebtedness of any Affiliates of ICON or any of
its Restricted Subsidiaries (other than with respect to (1) guarantees of
Indebtedness of any Restricted Subsidiary by ICON or (2) guarantees of
Indebtedness of ICON or any Restricted Subsidiary by any Restricted
Subsidiary); or
(6) make any Investment (other than any Permitted Investment) in any Person
(all such payments described in clauses (1) through (6) above and not excepted
therefrom are collectively referred to herein as "Restricted Payments"), unless
at the time of and immediately after giving effect to the proposed Restricted
Payment:
(1) no Default or Event of Default has occurred and is continuing or would
occur as a consequence thereof;
(2) ICON could, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the covenant described under the caption
"--Limitation on Indebtedness and Issuance of Preferred Stock"; and
(3) the aggregate amount of all such Restricted Payments declared or made
after the date of the indenture does not exceed the sum of:
(a) 50% of the aggregate cumulative Consolidated Adjusted Net Income of
ICON accrued on a cumulative basis during the period beginning on the
first day of the month commencing immediately after the date of the
indenture and ending on the last day of its last fiscal quarter
ending prior to the date of such proposed Restricted Payment (or, if
such aggregate cumulative Consolidated Adjusted Net Income shall be a
loss, minus 100% of such loss);
(b) the aggregate net cash proceeds received after the date of the
indenture by ICON from the issuance or sale (other than to any of its
Restricted Subsidiaries) of shares of Capital Stock of ICON (other
than Redeemable Capital Stock) or any options, warrants or rights to
purchase shares of such Capital Stock;
(c) the aggregate net cash proceeds received after the date of the
indenture by ICON from the issuance or sale of debt securities (other
than to any Restricted Subsidiary) that have been converted into or
exchanged for Capital Stock of ICON (other than Redeemable Capital
Stock) to the extent such debt securities were originally sold for
cash, together with the aggregate of any additional net cash proceeds
received by ICON at the time of such conversion or exchange;
(d) the aggregate net cash proceeds received after the date of the
indenture by ICON as capital contributions (other than from any of
its Restricted Subsidiaries);
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(e) to the extent that any Investment (other than a Permitted Investment)
that was made after the date of the indenture is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (x) the cash
return of capital with respect to such Restricted Investment (less
the cost of disposition, if any) and (y) the initial amount of such
Restricted Investment;
(f) to the extent that any Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary after the date of the indenture in accordance
with the covenant described under the caption "--Limitation on
Designations of Unrestricted Subsidiaries", the lesser of (x) the net
book value of ICON's Investment in the Unrestricted Subsidiary at the
time of redesignation and (y) the Fair Market Value of ICON's
Investment in such Unrestricted Subsidiary as of the date of such
redesignation; and
(g) $2.0 million.
So long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at such date of declaration such declaration complied with
the provisions of the preceding paragraph (and such payment shall be
deemed to have been paid on such date of declaration for purposes of the
calculation required by such paragraph);
(2) the purchase, redemption or other acquisition or retirement of any
shares of Capital Stock of ICON in exchange for or out of the net cash
proceeds of, a substantially concurrent issuance and sale (other than to
a Subsidiary of ICON) of shares of Capital Stock (other than Redeemable
Capital Stock) of ICON provided that the amount of any such net proceeds
that are utilized for any such purchase, redemption or other acquisition
or retirement is excluded from clause (3)(b), (3)(c) and (3)(d) of the
preceding paragraph;
(3) any purchase, redemption, defeasance or other acquisition or retirement
for value of any Subordinated Indebtedness (other than Redeemable
Capital Stock) in exchange for, or out of the net cash proceeds of, a
substantially concurrent issuance and sale (other than to any Subsidiary
of ICON) of any Capital Stock (other than Redeemable Capital Stock) of
ICON PROVIDED that the amount of any such net proceeds that are utilized
for any such purchase, redemption or other acquisition or retirement is
excluded from clause (3)(b), (3)(c) and (3)(d) of the preceding
paragraph;
(4) payments to HF Holdings, to the extent actually used by HF Holdings
within 180 days of such payment for the payment of taxes pursuant to the
Tax Sharing Agreement as the same may be amended from time to time in a
manner that is not materially adverse to ICON;
(5) payments to Holdings to pay its reasonable operating and administrative
expenses including, without limitation, directors' fees, legal and audit
expenses, SEC compliance expenses and corporate franchise and other
taxes, in an amount not to exceed in the aggregate $375,000 per year;
(6) the repurchase of Capital Stock of HF Holdings or options, warrants or
rights to acquire Capital Stock of HF Holdings from the full-time
members or former members of management of ICON or any Restricted
Subsidiary upon death, disability, retirement or termination of
employment of such members, in amounts not to exceed $1.5 million in any
fiscal year of ICON; provided that, if such repurchases are less than
$1.5 million in any fiscal year of ICON, the amount by which
$1.5 million exceeds such amount of repurchases actually made in such
fiscal year of ICON will be carried forward for the next fiscal year;
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(7) loans to members of management of ICON or any Restricted Subsidiary in
the ordinary course of business not to exceed $1.2 million at any one
time outstanding in addition to those otherwise specifically referred to
in the Exchange Offer and Consent Solicitation Statement;
(8) the purchase, redemption, defeasance or other acquisition or retirement
for value or payment of principal of any Subordinated Indebtedness
(other than Redeemable Capital Stock) through the issuance of new
Subordinated Indebtedness permitted to be incurred under clause (10) of
the definition of Permitted Indebtedness;
(9) any Restricted Payment made pursuant to agreements (A) in effect on the
Issue Date (B) referred to in the Exchange Offer and Consent
Solicitation Statement and the Annexes thereto and (C) listed on
Schedule I of the indenture, as from time to time amended thereafter;
PROVIDED that, as so amended, such agreements shall provide for terms
that are, in the aggregate, not more disadvantageous to the Holders of
Securities in any material respect than as in effect on the Issue Date;
and
(10) any payments made in settlement of claims arising out of the
transactions contemplated by, or made pursuant to agreements or
undertakings referred to in the Exchange Offer and Consent Solicitation
Statement.
The actions described in clauses (1), (5), (6), (7), (9) and (10) and
described in clause (4) (to the extent not deducted in determining Consolidated
Adjusted Net Income of ICON in clause (3)(a) of the preceding paragraph) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph but will reduce the amount that would otherwise
be available for Restricted Payments under clause (3) of the preceding paragraph
(provided that any dividend paid pursuant to clause (1) of this paragraph will
reduce the amount that would otherwise be available under clause (3) of the
preceding paragraph when declared, but not also when subsequently paid pursuant
to such clause (1) and the actions described in clauses (2) and (3) and (8) of
this paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph and will not reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of the preceding
paragraph.
In computing Consolidated Adjusted Net Income of ICON,
(1) ICON will use audited financial statements for the portions of the
relevant period for which audited financial statements are available on
the date of determination and unaudited financial statements and other
current financial data based on its books and records for the remaining
portion of such period and
(2) ICON will be permitted to rely in good faith on the financial statements
and other financial data derived from the books and records of ICON that
are available on the date of determination.
If ICON or any of its Restricted Subsidiaries makes a Restricted Payment
which, at the time of making such Restricted Payment, would in the good faith
determination be permitted under the requirements of the indenture, such
Restricted Payment will be deemed to have been made in compliance with the
indenture notwithstanding any subsequent adjustments made in good faith to
ICON's financial statements affecting Consolidated Adjusted Net Income of ICON
for any period.
The amount of all Restricted Payments (other than cash) will be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by ICON or such Restricted Subsidiary, as
the case may be, pursuant to the Restricted Payment. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
Fair Market Value exceeds $2.5 million. Not later than the date of making any
Restricted Payment pursuant to the first paragraph of this
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covenant, ICON will deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed, together with a copy of
any fairness opinion or appraisal required by the indenture.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE (Section8.1)
ICON will not, in a single transaction or a series of related transactions,
directly or indirectly, consolidate or merge with or into any other Person or,
sell, assign, convey, transfer or otherwise dispose of all or substantially all
of its properties and assets as an entirety to any other Person or group of
affiliated Persons, or permit any of its Restricted Subsidiaries to enter into
any such transaction or transactions, if such transaction or transactions, in
the aggregate, would effectively result in a sale, assignment, conveyance,
transfer or disposition of all or substantially all of the properties and assets
of ICON and those of its Restricted Subsidiaries on a consolidated basis to any
other Person or group of affiliated Persons, unless:
(1) either ICON is the continuing corporation or the Person (if other than
ICON) formed by such consolidation or into which ICON or such Restricted
Subsidiary is merged or the Person which acquires by sale, assignment,
conveyance, transfer or disposition of all or substantially all of the
properties and assets of ICON and its Restricted Subsidiaries on a
consolidated basis (the "Surviving Entity") will be a corporation duly
organized and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and such Person
assumes by a supplemental indenture in a form reasonably satisfactory to
the Trustee all the obligations of ICON under the Notes and the indenture
and by an agreement in form reasonably satisfactory to the Trustee all
the obligations of ICON under the Exchange and Registration Rights
Agreement, and in each case, the indenture will remain in full force and
effect;
(2) immediately after giving effect to such transaction or transactions, no
Default or Event of Default has occurred and is continuing;
(3) immediately before and immediately after giving effect to such
transaction or transactions ICON (or the Surviving Entity if ICON is not
the continuing obligor under the indenture) (i) will have a Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of ICON immediately preceding the transaction and
(ii) would be permitted to incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant described under the
caption "--Limitation on Indebtedness and Issuance of Preferred Stock" if
the ratio referred to therein were "2.0:1.0"; and
(4) in connection with any consolidation, merger, transfer, sale,
assignment, conveyance or other disposition contemplated hereby, ICON or
the Surviving Entity, as the case may be, will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an Officers Certificate stating that such consolidation,
merger, transfer, sale, assignment, conveyance or other disposition and
the supplemental indenture in respect thereof, if any, comply with the
requirements under the indenture and that all conditions precedent herein
provided for relating to such transaction or series of transactions have
been complied with, and an Opinion of Counsel stating that the above
requirements have been complied with.
In addition, ICON will not and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, lease all or substantially all of its
properties or assets, in one or more related transactions, to any other Person.
Notwithstanding the foregoing, ICON may not, in a single transaction or a
series of related transactions, directly or indirectly, consolidate or merge
with or into IHF Holdings or ICON Fitness, or
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sell, assign, convey, transfer or otherwise dispose of all or substantially all
of its properties and assets as an entirety to IHF Holdings or ICON Fitness, or
permit any of its Restricted Subsidiaries to enter into any such transaction or
transactions with IHF Holdings or ICON Fitness, unless all of the Indebtedness
of IHF Holdings or ICON Fitness is unsecured and is expressly subordinate in
right of payment to the Notes.
Notwithstanding the foregoing, ICON or any Wholly Owned Restricted
Subsidiary may consolidate, combine or amalgamate with or merge with or into any
Wholly Owned Restricted Subsidiary or sell, assign, convey, lease, transfer or
otherwise dispose of all or substantially all of its properties and assets to
any Wholly Owned Restricted Subsidiary.
Upon any consolidation of ICON with or merger of ICON with or into any other
corporation or any sale, assignment, transfer, conveyance or other disposition
of the properties and assets of ICON substantially as an entirety to any Person
as described above, the Surviving Entity formed by such consolidation or into
which ICON is merged or to which such sale, assignment, transfer, conveyance or
other disposition is made will succeed to, and be substituted for (so that from
and after the date of such consolidation, merger, sale, lease, conveyance or
other disposition, the provisions of the indenture referring to "ICON" shall
refer instead to the Surviving Entity and not to ICON), and may exercise every
right and power of ICON under the indenture with the same effect as if such
Surviving Entity had been named as ICON herein, PROVIDED, HOWEVER, that the
predecessor company will not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale, conveyance
or transfer of ICON's assets that meets the requirements described above.
For all purposes of the indenture and the Notes (including this covenant and
the covenants described under the captions "--Limitation on Indebtedness and
Issuance of Preferred Stock", "--Limitations on Restricted Payments" and
"--Limitations on Liens"), Subsidiaries of any Surviving Entity will, upon such
transaction or series of related transactions, become Restricted Subsidiaries or
Unrestricted Subsidiaries and all Indebtedness, and all Liens on property or
assets, of ICON and the Restricted Subsidiaries in existence immediately prior
to such transaction or series of related transactions will be deemed to have
been incurred upon such transaction or series of related transactions.
If, upon any such consolidation of ICON with or merger of ICON into any
other corporation, or upon any sale, assignment, transfer, conveyance or other
transfer of the property or assets of ICON substantially as an entirety to any
other Person, any property or assets of ICON would thereupon become subject to
any Lien, then unless such Lien could be created pursuant to the covenant
described under the caption "--Limitation on Liens" without equally and ratably
securing the Notes, ICON, prior to or simultaneously with such consolidation,
merger, sale, assignment, transfer, conveyance or other transfer, will as to
such property or assets, secure the Outstanding Notes equally and ratably with
(or prior to) the Indebtedness which upon such consolidation, merger, sale,
assignment, transfer, conveyance or other transfer is to become secured as to
such property or assets by such Lien, or will cause such Notes to be so secured.
LIMITATION ON TRANSACTIONS WITH AFFILIATES (Section10.13)
ICON will not, and will not permit any of its Restricted Subsidiaries to,
enter into or suffer to exist any transaction or series of related transactions
(including the sale, purchase, exchange or lease of assets, property or services
or enter into or make any payment, loan, advance or guarantee) with or for the
benefit of any Affiliate of ICON or such Restricted Subsidiary unless such
transaction or series of related transactions is in writing on terms that are no
less favorable to ICON or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction in arm's-length dealings with an
unrelated third party; PROVIDED, HOWEVER, that, ICON will not, and will not
permit any
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of its Restricted Subsidiaries to, enter into or suffer to exist any such
transaction or series of related transactions which, individually or in the
aggregate, involve payments in excess of:
(1) $750,000, unless an Officers' Certificate stating that such transaction
complies with this covenant is delivered to the Trustee,
(2) $1.0 million, unless the prior good faith approval of a majority of
ICON's Disinterested Directors has been obtained and Board Resolution
relating thereto has been passed and set forth in an Officers'
Certificate delivered to the Trustee, or
(3) $5.0 million, unless the prior good faith approval of a majority of
ICON's Disinterested Directors has been obtained and the Board of
Directors has obtained from any nationally recognized investment banking
firm a favorable opinion as to the fairness to it of the transaction
(copies of which shall be filed with the Trustee).
However, the preceding restrictions will not apply to:
(a) reasonable fees and compensation, loans or options to purchase Common
Stock, indemnification and other benefits paid or made available to
directors and full time officers and employees of ICON or any of its
Restricted Subsidiaries for services rendered in such person's capacity
as an officer, director or employee of ICON or the applicable Restricted
Subsidiary, in each case entered into in the ordinary course of business
consistent with past practice,
(b) transactions with or among, or solely for the benefit of ICON, or any of
its Wholly-Owned Restricted Subsidiaries,
(c) transactions with an Unrestricted Subsidiary effected as part of a
Securitization Transaction, and
(d) payments and other transactions pursuant to agreements in effect on the
Issue Date and referred to in the Exchange Offer and Consent Solicitation
Statement as from time to time amended thereafter; PROVIDED that, as so
amended, such agreements shall provide for terms that are, in aggregate,
not more disadvantageous to the Holders of Notes in any material respect
than as in effect on the Issue Date.
LIMITATION ON LIENS (Section10.14)
ICON will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, affirm or suffer to exist any Lien of any
kind on or with respect to any of its property or assets, whether owned at the
date of the indenture or thereafter acquired, or any income, profits or proceeds
therefrom, except if the Notes are directly secured equally and ratably with (or
prior to in the case of Liens with respect to Subordinated Indebtedness) the
obligation or liability secured by such Lien; PROVIDED that Permitted Liens
shall not be subject to the operation of the foregoing.
LIMITATION ON LINE OF BUSINESS (Section10.16)
ICON will not, and will not permit any Restricted Subsidiary to engage in
any business other than Permitted Businesses.
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LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS (Section10.18)
ICON will not permit any Restricted Subsidiary (including Foreign
Subsidiaries) that is not a Subsidiary Guarantor, directly or indirectly, to
Guarantee or pledge any assets to secure the payment of any other Indebtedness
of ICON or any Subsidiary Guarantor unless:
(1) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the indenture providing for the Guarantee of
the payment of the Notes by such Subsidiary, which Guarantee will be
senior to or PARI PASSU with such Restricted Subsidiary's Guarantee of or
pledge to secure such other Indebtedness, unless such other Indebtedness
is Senior Indebtedness, in which case the Guarantee of the Notes may be
subordinated to the Guarantee of such Senior Indebtedness to the same
extent as the Notes are subordinated to such Senior Indebtedness and
(2) such Restricted Subsidiary will simultaneously waive, and agree that it
will not in any manner whatsoever claim or take any benefit from, any
rights of reimbursement, indemnity or subrogation or any other rights
against ICON or any other Subsidiary as a result of any payment by such
Subsidiary under its Guarantee of the Notes.
Notwithstanding the preceding paragraph, if any Restricted Subsidiary
(including Foreign Subsidiaries) that is organized under the laws of Quebec,
Canada would otherwise be required pursuant to the preceding paragraph to
provide a Guarantee of the payment of the Notes by such Subsidiary, such
obligation to provide such a Guarantee will be satisfied so long as such
Restricted Subsidiary delivers to the Trustee a Guarantee of another Subsidiary
Guarantor's Guarantee of the payment of the Notes, which Guarantee will be
substantially in the form of the Guarantee by ICON du Canada, Inc. of the
obligations of 510152 N.B. LTD., as Subsidiary Guarantor under the indenture
delivered to the Trustee on the date of the indenture.
Any Subsidiary Guarantee of the Notes (including any Guarantee provided
pursuant to the immediately preceding paragraph) will provide by its terms that
it will be automatically and unconditionally released and discharged under the
circumstances described under the caption "--Subsidiary Guarantees."
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES (Section10.19)
ICON will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to:
(1) pay dividends, in cash or otherwise, or make any other distribution on
its Capital Stock,
(2) pay any Indebtedness owed to ICON or any Restricted Subsidiary,
(3) make any loans or advances to ICON or any Restricted Subsidiary or
(4) transfer any of its properties or assets to ICON or any Restricted
Subsidiary.
However, the preceding restrictions will not apply to:
(a) any encumbrance or restriction pursuant to an agreement relating to
Indebtedness in effect on the date of the indenture, including pursuant
to the Credit Agreement;
(b) any encumbrance or restriction pursuant to an agreement relating to
Indebtedness with respect to a Restricted Subsidiary that is not a
Restricted Subsidiary on the date of the indenture, in existence at the
time such Person becomes a Restricted Subsidiary and not incurred in
connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary (so long as such encumbrance or restriction does
not extend to any assets of ICON
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or any other Restricted Subsidiary) and provided that, the Indebtedness
was permitted by the terms of the indenture to be incurred;
(c) any encumbrance or restriction pursuant to customary nonassignment
provisions in leases governing leasehold interests only to the extent
such provisions restrict the transfer of the lease or the leased property
entered into in the ordinary course of business consistent with past
practices;
(d) any encumbrance or restriction due to applicable law;
(e) any encumbrance or restriction pursuant to Purchase Money Obligations
permitted under the indenture, but only to the extent such restrictions
restrict the transfer of the property purchased with the proceeds of the
applicable Purchase Money Obligation;
(f) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business consistent with past practices;
(g) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business
consistent with past practices;
(h) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(i) restrictions on the transfer of assets subject to any Permitted Lien by
the holder of such Lien;
(j) any agreement or instrument governing Indebtedness (whether or not
outstanding) of Foreign Subsidiaries that constitutes Permitted
Indebtedness; and
(k) Indebtedness incurred pursuant to clause (10) of the definition of
"Permitted Indebtedness"; PROVIDED, HOWEVER, that, the provisions
contained in such new Indebtedness are no more restrictive in any
material respect than those contained in the agreements governing
Indebtedness being refinanced.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS (Section10.20)
ICON will not, and will not permit its Restricted Subsidiaries to, enter
into, renew or extend any transactions or series of related transactions
pursuant to which ICON or any such Restricted Subsidiary sells or transfers any
property or asset in connection with the leasing, or the resale against
installment payments, or as part of an arrangement involving the leasing or the
resale against installment payments, of such property or asset to the seller or
transferor ("Sale and Leaseback Transaction") unless:
(1) ICON or that Restricted Subsidiary could have:
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to that Sale and Leaseback transaction pursuant to the
Consolidated Fixed Charge Coverage Ratio test in described in the
"Limitation on Indebtedness and Issuance of Preferred Stock" covenant
and
(b) incurred Lien to secure that Indebtedness pursuant to the "Limitation
on Liens" covenant;
(2) the gross cash proceeds of that Sale and Leaseback Transaction are at
least equal to the Fair Market Value of the property that is the subject
of that Sale and Leaseback Transaction, as determined in good faith by
the Board of Directors evidenced by a Board Resolution set forth in an
Officers' Certificate delivered to the Trustee; and
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(3) the Sale and Leaseback Transaction is treated as an Asset Sale and all
of the conditions of the "Asset Sales" covenant (including the provisions
concerning the application of Net Cash Proceeds) are satisfied with
respect to such Sale and Leaseback Transaction, treating all of the
consideration received in such Sale and Leaseback Transaction as Net Cash
Proceeds for purposes of the covenant described under the caption
"--Repurchase at the Option of Holders--Asset Sales."
LIMITATION ON DESIGNATION OF UNRESTRICTED SUBSIDIARIES (Section10.22)
The Board of Directors of ICON may designate any Restricted Subsidiary of
ICON (other than any Restricted Subsidiary which owns Capital Stock of a
Restricted Subsidiary) as an "Unrestricted Subsidiary" under the indenture (a
"Designation") only if:
(1) no Default or Event of Default has occurred and is continuing at the
time of or after giving effect to such Designation; and
(2) except in the case of a newly organized Subsidiary in which ICON and its
Restricted Subsidiaries have made an aggregate Investment of $1,000 or
less or a Subsidiary formed in connection with a Securitization
Transaction with ICON or one or more Restricted Subsidiaries, ICON would
be permitted under the indenture to make an Investment constituting a
Restricted Payment at the time of Designation (assuming the effectiveness
of such Designation) in an amount (the "Designation Amount") equal to the
Fair Market Value of the aggregate amount of its Investments in such
Subsidiary on such date.
ICON may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation"), whereupon such Subsidiary will then constitute a
Restricted Subsidiary, if:
(1) no Default or Event of Default has occurred and is continuing at the
time of and after giving effect to such Revocation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time,
have been permitted to be incurred for all purposes of the indenture.
All Designations and Revocations must be evidenced by Officers' Certificates
of ICON delivered to the Trustee certifying compliance with the foregoing
provisions.
WAIVER OF CERTAIN COVENANTS (Section10.23)
ICON may omit in any particular instance to comply with any term, provision
or condition set forth in the indenture relating to the last paragraph of the
covenant described under the caption "--Consolidation, Merger, Conveyance,
Transfer or Lease" and the covenants relating to the following matters:
- maintenance of insurance,
- statement by officers as to default,
- provision of financial statements,
- indebtedness and issuance of preferred stock,
- restricted payments,
- transactions with affiliates,
- liens,
- change of control,
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- line of business,
- asset sales,
- issuances of guarantees of indebtedness,
- dividends and other payment restrictions affecting subsidiaries,
- sale and leaseback transactions,
- designation of unrestricted subsidiaries,
- other senior indebtedness,
- rating and additional subsidiary guarantees,
if before or after the time for such compliance the Holders of at least a
majority in principal amount of the Outstanding Securities, by act of such
Holders, waive such compliance in such instance with such term, provision or
condition, but no such waiver will extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver
becomes effective, the obligations of ICON and the duties of the Trustee in
respect of any such term, provision or condition will remain in full force and
effect.
LIMITATION ON OTHER SENIOR INDEBTEDNESS (Section10.24)
ICON will not incur, and will not permit any Restricted Subsidiary to,
create, issue, assume, guarantee or otherwise become liable for any Senior
Indebtedness other than Indebtedness under the Credit Agreement.
In addition, ICON will not, and will not permit any Restricted Subsidiary to
incur Indebtedness or issue any shares of Preferred Stock of such Subsidiary,
directly or indirectly, in exchange for or upon the conversion of any
Indebtedness of IHF Holdings or ICON Fitness, unless such Indebtedness is
unsecured and is expressly subordinate in right of payment to the Notes.
PAYMENTS FOR CONSENT (Section10.26)
ICON will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any Holder of Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes that
consent, waive or agree to amend in the time frame set forth in the Exchange
Offer and Consent Solicitation Statement relating to such consent, waiver or
agreement.
ADDITIONAL SUBSIDIARY GUARANTEES (Section10.27)
If ICON or any of its Restricted Subsidiaries acquires or creates another
Domestic Subsidiary after the date of the indenture or if ICON is otherwise
required pursuant to the covenant described under the caption "--Limitation on
Issuances of Guarantees of Indebtedness", then ICON will cause that Domestic
Subsidiary or such other Subsidiary, as the case may be, to become a Subsidiary
Guarantor and execute a supplemental indenture and deliver an Opinion of Counsel
to the Trustee within 10 Business Days of the date on which it was acquired or
created.
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EVENTS OF DEFAULT AND REMEDIES
EVENTS OF DEFAULT (Section5.1)
Each of the following constitutes an Event of Default under the indenture:
(1) default in the payment of the principal of or premium, if any, when due
and payable, on any of the Notes, whether or not prohibited by the
Subordination provisions contained in the indenture; or
(2) default in the payment of an installment of interest or Liquidated
Damages on any of the Notes, when due and payable, and continuance of
such default for a period of 30 days, whether or not prohibited by the
Subordination provisions contained in the indenture; or
(3) default in the performance or breach of the provisions described under
the caption "--Consolidation, Merger, Conveyance, Transfer or Lease" or
"--Repurchase at the Option of Holders--Change of Control" or "--Asset
Sales"; or
(4) ICON or any Restricted Subsidiary fails to perform or observe any other
term, covenant or agreement contained in the Notes or the indenture
(other than a default specified in (1), (2) or (3) above) for a period of
45 days after written notice of such failure requiring ICON to remedy the
same has been given (a) to ICON by the Trustee or (b) to ICON and the
Trustee by the Holders of 25% in aggregate principal amount of the Notes
then Outstanding; or
(5) default or defaults under one or more mortgages, bonds, debentures or
other evidences of Indebtedness under which ICON or any of its Restricted
Subsidiaries then has outstanding Indebtedness in excess of $5,000,000,
individually or in the aggregate, and either (a) such Indebtedness is
already due and payable in full or (b) such default or defaults have
resulted in the acceleration of the maturity of such Indebtedness; or
(6) one or more final judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, individually or in the
aggregate, is entered against ICON or any of its Restricted Subsidiaries
or any of their properties which is not discharged or fully bonded and
there has been a period of 60 consecutive days after the date on which
any period for appeal has expired and during which a stay of enforcement
of such judgment, order or decree, is not in effect; or
(7) (a) any holder of at least $5,000,000 in aggregate principal amount of
secured Indebtedness of ICON or of any of its Restricted Subsidiaries as
to which a default has occurred and is continuing commences judicial
proceedings (which proceedings remain unstayed for 5 Business Days) to
foreclose upon assets of ICON or such Restricted Subsidiary having an
aggregate Fair Market Value, individually or in the aggregate, in excess
of $5,000,000 or exercises any right under applicable law or applicable
security documents to take ownership of any such assets in lieu of
foreclosure or (b) any action described in the foregoing clause (a)
results in any court of competent jurisdiction issuing any order for the
seizure of such assets; or
(8) certain bankruptcy events with respect to ICON and its significant
subsidiary; or
(9) except as otherwise permitted by the indenture, any Subsidiary Guarantee
is held in any judicial proceeding to be unenforceable or invalid or
ceases for any reason to be in full force and effect or any Subsidiary
Guarantor denies or disaffirms its obligations under its Subsidiary
Guarantee.
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ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT (Section5.2)
If an Event of Default (other than an Event of Default specified in clause
(8) under the caption "--Events of Default") occurs and is continuing, then the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes may declare the principal of, premium, if any, and accrued
interest on all the Notes to be due and payable immediately, by a notice in
writing to ICON (and to the Trustee if given by Holders), and upon any such
declaration such principal amount shall become immediately due and payable. If
an Event of Default specified in clause (8) under the caption "--Events of
Default" occurs and is continuing, then the principal of, premium, if any, and
accrued interest on all the Notes will become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter provided, the Holders of a majority in principal amount of the
Outstanding Notes, by written notice to ICON and the Trustee, may rescind and
annul such declaration and its consequences if
(1) ICON has paid or deposited with the Trustee a sum sufficient to pay
(a) all overdue interest on all Outstanding Notes,
(b) all unpaid principal of (and premium, if any, on) any Outstanding
Notes which has become due otherwise than by such declaration of
acceleration, and interest on such unpaid principal at the rate borne
by the Notes,
(c) to the extent that payment of such interest is lawful, interest on
overdue interest at the rate borne by the Notes, and
(d) all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;
(2) such rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and
(3) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Notes which have
become due solely by such declaration of acceleration, have been cured or
waived as provided under the caption "--Waiver of Past Defaults."
No such rescission will affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration of
acceleration in respect of the Notes because of an Event of Default specified in
clauses (5) or (7) under the caption "--Events of Default" has occurred and is
continuing, such declaration of acceleration will be automatically annulled if
the Indebtedness that is the subject of such Event of Default has been
discharged or the holders thereof have rescinded their declaration of
acceleration or notification or action, as applicable, in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, has been given to the Trustee by ICON or such Subsidiary and
countersigned by the holders of such Indebtedness or a trustee, fiduciary or
agent for such holders or the Person or Persons entitled to take the actions
described in clauses (5)(b) or (7) under the caption "--Events of Default,"
within 30 days after such declaration of acceleration in respect of the Notes,
and no other Event of Default has occurred during such 30-day period which has
not been cured or waived during such period.
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LIMITATION ON SUITS (SECTION5.7)
No Holder of any Notes will have any right to institute any proceeding,
judicial or otherwise, with respect to the indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance
with such request;
(4) the Trustee for 30 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 30-day period by the Holders of a majority or
more in aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders have any right in
any manner whatever by virtue of, or by availing of, any provision of the
indenture to affect, disturb or prejudice the rights of any other Holders, or to
obtain or to seek to obtain priority or preference over any other Holders or to
enforce any right under the indenture, except in the manner herein provided and
for the equal and ratable benefit of all the Holders.
WAIVER OF PAST DEFAULTS (SECTION5.13)
The Holders of not less than a majority in aggregate principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default described under the indenture and its consequences, except a default
(1) in respect of the payment of the principal of (or premium, if any, on)
or interest on any Note, or
(2) in respect of a covenant or provision of the indenture which under the
caption "--Supplemental Indentures" cannot be modified or amended without
the consent of the Holder of each outstanding Note affected.
Upon any such waiver, such default will cease to exist, and any Event of
Default arising therefrom will be deemed to have been cured, for every purpose
of the indenture; but no such waiver will extend to any subsequent or other
default or Event of Default or impair any right consequent thereon.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of ICON, as
such, will have any liability for any of ICON's obligations under the Notes, the
indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
SEC that such a waiver is against public policy.
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DEFEASANCE AND COVENANT DEFEASANCE
ICON'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE (SECTION12.1)
ICON may, at its option, by Board Resolution, at any time, with respect to
the Notes, elect to have either the provisions regarding defeasance or those
regarding covenant defeasance apply to all outstanding Notes upon compliance
with the conditions set forth below.
DEFEASANCE AND DISCHARGE (SECTION12.2)
ICON may, at its option, elect to have its obligations and those of its
Subsidiary Guarantors discharged with respect to all Outstanding Notes on the
date the conditions set forth under the caption "--Conditions to Defeasance or
Covenant Defeasance" are satisfied (hereinafter, "Defeasance"), except for the
following which will survive until otherwise terminated or discharged hereunder:
(1) the rights of Holders of Outstanding Notes to receive, solely from the
trust fund described under the caption "--Conditions to Defeasance or
Covenant Defeasance" below and as more fully set forth in such section,
payments in respect of the principal of (and premium, if any, on) and
interest on such Notes when such payments are due,
(2) ICON's obligations with respect to such Notes under the provisions of
the indenture governing temporary securities, registration, registration
of transfer and exchange, mutilated, destroyed, lost and stolen
securities, the maintenance of an office or agency for payment and money
for security payments to be held in trust,
(3) the rights, powers, trusts, duties and immunities of the Trustee under
the indenture and
(4) this provision governing Defeasance and Covenant Defeasance.
Subject to compliance with this provision governing Defeasance and Covenant
Defeasance, ICON may exercise its option under this paragraph, notwithstanding
the prior exercise of its option under covenant defeasance below with respect to
the Notes.
COVENANT DEFEASANCE (SECTION12.3)
ICON may, at its option, elect to have its obligations and those of its
Subsidiary Guarantors released under certain of the covenants described in the
indenture on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed
not to be "Outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "Outstanding"
for all other purposes under the indenture. For this purpose, such Covenant
Defeasance means that, with respect to the Outstanding Notes, ICON and the
Subsidiary Guarantors may omit to comply with and will have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere in the
indenture to any such covenant or by reason of any reference in any such
covenant to any other provision of the indenture or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under clauses (3) or (4) described under the caption "--Events of Default", but,
except as specified above, the remainder of the indenture and such Notes will be
unaffected thereby.
CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE (SECTION12.4)
In order to exercise either defeasance or covenant defeasance:
(1) ICON must have irrevocably deposited or caused to be deposited with the
Trustee (or another trustee satisfying the requirements of the indenture
who will agree to comply with the
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provisions of the Defeasance and Covenant Defeasance provision applicable
to it) as trust funds in trust for the purpose of making the following
payments of principal of (and premium, if any, on) and interest on the
outstanding Notes on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium, if any) or installment of
interest; PROVIDED that the Trustee has been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations to
said payments with respect to the Notes. Before such a deposit, ICON may
give to the Trustee a notice of its election to redeem all of the
Outstanding Notes at a future date in accordance with the terms described
in the indenture which notice will be irrevocable. Such irrevocable
redemption notice, if given, will be given effect in applying the
foregoing.
(2) No Default or Event of Default with respect to the Notes has occurred
and is continuing on the date of such deposit.
(3) Such Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under, the indenture (including the
subordination provisions) or any other material or instrument to which
ICON or any Subsidiary Guarantor is a party or by which it is bound.
(4) Certain other customary conditions precedent are satisfied.
SUPPLEMENTAL INDENTURES
Modifications and amendments of the indenture may be made by ICON, when
authorized by a Board Resolution, and the Trustee with the consent of the
Holders of not less than a majority in principal amount of the Outstanding
Notes; PROVIDED, HOWEVER, that no such modification or amendment may, without
the consent of the Holder of each Outstanding Note affected:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any Note, or reduce the principal amount thereof or the rate
of interest thereon or any premium payable upon the redemption thereof,
or change the coin or currency in which any Note or any premium or the
interest thereon is payable (except with respect to liquidated damages as
provided in the Exchange and Registration Rights Agreement), or impair
the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date); or
(2) reduce the percentage in principal amount of outstanding Notes, the
consent of whose Holders is required for any such supplemental indenture,
or the consent of whose Holders is required for any waiver of compliance
with some provisions of or defaults under the indenture and their
consequences; or
(3) modify any of the provisions in the indenture relating to supplemental
indenture, waiver of past defaults and waiver of some covenants, except
to increase any such percentage or to provide that some other provisions
of the indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby; or
(4) except as otherwise permitted under the caption "--Certain
Covenants--Consolidation, Merger, Conveyance, Transfer or Lease," consent
to the assignment or transfer by ICON of any of its rights and
obligations under the indenture; or
(5) make any change in the subordination provisions of the indenture that
adversely affects the rights of any Holder of the Notes. (Section9.2)
The Holders of at least a majority in principal amount of the Outstanding
Notes may waive compliance with some restrictive covenants and provisions of the
indenture as described under the caption "--Certain Covenants--Waiver of
Covenants."
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ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture
without charge by writing to ICON Health & Fitness, Inc. 1500 South, 1000 West
Logan, Utah 84321, Attention: Corporate Secretary.
DEFINITIONS
Set forth below is a summary of defined terms used in the indenture.
Reference is made to the indenture for the full definition of all such terms, as
well as any other captioned terms used herein for which no definition is
provided.
"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person:
(1) which directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with, such Person,
(2) which directly or indirectly through one or more intermediaries
beneficially owns or holds 10% or more of the combined voting power of
the total Voting Stock of such Person, or
(3) of which 10% or more of the combined voting power of the total Voting
Stock (or in the case of a Person that is not a corporation, 10% or more
of the equity interest), directly or indirectly, through one or more
intermediaries is beneficially owned or held by such Person;
provided that the term "Affiliate" shall not be deemed to apply to any Bank
solely by virtue of its ownership directly or indirectly of up to 20% of the
Voting Stock of ICON. For the purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling", "controlled
by" and "under common control with" have meanings correlative to the foregoing.
For the avoidance of doubt, HF Holdings, Bain Capital and Credit Suisse First
Boston Corporation shall be deemed Affiliates of ICON as of the Issue Date.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of ICON and
its Restricted Subsidiaries taken as a whole shall be governed by the
covenants described under the captions "--Certain
Covenants--Consolidation, Merger, Conveyance, Transfer or Lease" and
"--Repurchase at the Option of Holders--Change of Control" and not
"--Asset Sales" and
(2) the issuance or sale of Capital Stock by any of ICON's Restricted
Subsidiaries.
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Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
(a) involves assets having a Fair Market Value of less than $500,000 or
(b) results in net proceeds to ICON and its Restricted Subsidiaries of
less than $500,000,
(2) a transfer of assets between or among ICON and its Restricted
Subsidiaries,
(3) an issuance of Capital Stock by a Restricted Subsidiary to ICON or to
another Restricted Subsidiary,
(4) a Restricted Payment that is permitted by the covenant "Limitation on
Restricted Payments" and
(5) the sale of accounts receivable transferred to an Unrestricted
Subsidiary or any other Person that is not a Subsidiary of ICON in
connection with a Securitization Transaction for the Fair Market Value
thereof, including cash in an amount at least equal to 75% of the Fair
Market Value thereof.
For purposes of clause (5) of the immediately preceding sentence, Securitization
Notes shall be deemed to be cash.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"Average Life to Stated Maturity" means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment
at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Bankruptcy Law" means Title 11, United States Code, as amended, or any
similar United States Federal or State law relating to bankruptcy, insolvency,
receivership, winding-up, liquidation, reorganization or relief of debtors or
any amendment to, succession to or change in any such law.
"Banks" means General Electric Capital Corporation and Fleet National Bank,
as agents for the lenders, and the banks and other financial institutions from
time to time that are agents or lenders under the Credit Agreement.
"Board of Directors" means either the board of directors of ICON or any duly
authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of ICON to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification,
and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York or in
the city where the Corporate Trust Office
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or the principal office of the Paying Agent is located are authorized or
obligated by law or executive order to close.
"Canadian Subsidiary Borrowing Base" means, as of any date, an amount equal
to the sum of:
(1) 85.0% of the book value of all accounts receivable owned by the ICON's
Canadian Restricted Subsidiaries) (excluding any accounts receivable from
an Affiliate of such Canadian Restricted Subsidiaries or that are more
than 90 days past due, less (without duplication) the allowance for
doubtful accounts attributable to current trade accounts receivable) and
(2) 60.0% of the book value of all inventory owned by such Canadian
Restricted Subsidiaries as of such date (with a seasonal increase of
70.0% of inventory in effect from July 1 through November 30 of each
year), all calculated on a consolidated basis and in accordance with
GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, Canadian Subsidiary Borrowing
Base shall be calculated utilizing the most recent available information.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing person; and in each case, all warrants, options or
other rights to acquire any of the foregoing (but excluding any debt
security that is convertible into, or exchangeable for, any of the
foregoing).
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP and, for the purpose of the indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means:
(1) United States dollars,
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof having
maturities of not more than nine months from the date of acquisition,
(3) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition and overnight bank
deposits, in each case with any United States commercial bank having
capital and surplus in excess of $500 million,
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and
(3) entered into with any financial institution meeting the
qualifications specified in clause (3) above, and
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service or Standard & Poor's Ratings Group and bankers'
acceptances of a financial institution with such
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a commercial paper rating and in each case maturing within 270 days after
the date of acquisition.
"Change of Control" means the occurrence of any of the following events:
(1) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Bain Capital or its Affiliates or
Credit Suisse First Boston or its Affiliates, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that (x) a Person shall be deemed to have beneficial
ownership of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage
of time and (y) "beneficial owner" shall not include any "person" or
"group" solely by reason of such Person being party to the Stockholders
Agreement or a member of the limited liability company referred to in the
Exchange Offer and Consent Solicitation Statement), directly or
indirectly, of more than 50% of the total outstanding Voting Stock of
ICON or HF Holdings, as the case may be, measured by voting power rather
than number of shares;
(2) the sale, transfer, conveyance or other disposition (other than by way
of merger or consolidation), in one or a series of related transactions,
of all or substantially all of the assets of ICON and its Subsidiaries
taken as a whole to any "person" or "group" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) other than Bain Capital or
its Affiliates or Credit Suisse First Boston or its Affiliates;
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of ICON or HF
Holdings, as the case may be (together with any new directors whose
election to such Board or whose nomination for election by the
stockholders of ICON or HF Holdings, as the case may be, was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved, cease for any reason to
constitute a majority of such Board of Directors then in office;
(4) ICON or HF Holdings, as the case may be, consolidates with or merges
with or into another Person, or any Person consolidates with or merges
into or with ICON or New Icon, as the case may be, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of
ICON or New Icon, as the case may be, is converted into or exchanged for
cash, securities or other property, other than any such transaction where
the outstanding Voting Stock of ICON or New Icon, as the case may be, is
not changed or exchanged at all (except only to the extent necessary to
reflect a change in the jurisdiction of incorporation of ICON or New
Icon, as the case may be) or where (A) the outstanding Voting Stock of
ICON or New Icon, as the case may be, outstanding immediately prior to
such transaction is changed into or exchanged for Voting Stock of the
surviving transferee Person (other than Redeemable Capital Stock)
constituting a majority of the outstanding shares of such Voting Stock of
such surviving transferee Person immediately after giving effect to such
issuance and (B) no "person" or "group" other than Bain Capital or its
Affiliates or Credit Suisse First Boston or its Affiliates, owns
immediately after such transaction, directly or indirectly, more than 50%
of the total outstanding Voting Stock of the surviving corporation;
(5) ICON is liquidated or dissolved or adopts a plan of liquidation or
dissolution; or
(6) HF Holdings shall hold less than 100% of the common stock of ICON.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Company Borrowing Base" means, as of any date, an amount equal to the sum
of:
(1) 85.0% of the book value of all accounts receivable owned by ICON and its
Domestic Subsidiaries and Canadian Restricted Subsidiaries (excluding any
accounts receivable from an Affiliate of such Person or that are more
than 90 days past due, less (without duplication) the allowance for
doubtful accounts attributable to current trade accounts receivable) and
(2) 60.0% of the book value of all inventory owned by ICON and its Domestic
Subsidiaries and Canadian Restricted Subsidiaries as of such date (with a
seasonal increase of 70.0% of inventory in effect from July 1 through
November 30 of each year), all calculated on a consolidated basis and in
accordance with GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, Company Borrowing Base shall be
calculated utilizing the most recent available information.
"Company Request" or "Company Order" means a written request or order signed
in the name of ICON by its Chairman, Chief Executive Officer, its President, any
Vice President, its Treasurer, its Chief Financial Officer, Director of Finance
or an Assistant Treasurer, and delivered to the Trustee.
"Consolidated Adjusted Net Income (Loss" means, for any period, the
consolidated net income (or loss) of ICON and its Restricted Subsidiaries for
such period as determined in accordance with GAAP, adjusted, to the extent
included therein, by excluding, without duplication:
(1) any net after-tax extraordinary gains or losses (less all fees and
expenses relating thereto),
(2) the portion of net income (or loss) of ICON and its consolidated
Restricted Subsidiaries allocable to minority interests in unconsolidated
Persons or Persons that are accounted for by equity method of accounting
to the extent that cash dividends or distributions have not actually been
received by ICON or any Restricted Subsidiary,
(3) net income (or loss) of any Person combined with ICON or any Restricted
Subsidiary on a "pooling of interests" basis attributable to any period
prior to the date of combination,
(4) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan,
(5) net after-tax gains or losses (less all fees and expenses relating
thereto) in respect of dispositions of assets other than in the ordinary
course of business,
(6) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulations applicable to that Restricted Subsidiary or its shareholders,
or
(7) the cumulative effect of a change in accounting principles.
"Consolidated Fixed Charge Coverage Ratio" of ICON means, for any period,
the ratio of:
(1) the sum of:
(a) Consolidated Adjusted Net Income (Loss),
(b) Consolidated Interest Expense,
(c) Consolidated Income Tax Expense and
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(d) Consolidated Non-Cash Charges, in the case of (b), (c) and (d) only
to the extent such expense or charge was deducted in computing
Consolidated Adjusted Net Income (Loss), in each case, for such
period, of ICON and its Restricted Subsidiaries on a consolidated
basis, all determined in accordance with GAAP to:
(2) the sum of Consolidated Interest Expense for such period and cash and
non-cash dividends paid on any Preferred Stock of ICON or any Restricted
Subsidiary during such period.
In making such computation, the Consolidated Interest Expense attributable
to:
(1) interest on any Indebtedness computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the
date of computation had been the applicable rate for the entire period,
(2) interest on any Indebtedness under a revolving credit facility computed
on a pro forma basis shall be computed based upon the average daily
balance of such Indebtedness during the applicable period and
(3) notwithstanding clauses (1) and (2), interest on any Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by Interest Rate Protection Agreements, shall be deemed to have accrued
at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Income Tax Expense" means for any period the provision for
federal, state, local and foreign income taxes of ICON and its consolidated
Subsidiaries for such period as determined in accordance with GAAP.
"Consolidated Interest Expense" means, without duplication, for any period:
(x) the sum of:
(1) the interest expense of ICON and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized, as
determined on a consolidated basis in accordance with GAAP including,
without limitation:
(a) amortization of original issue discount and non-cash interest
payments,
(b) the net payment under Interest Rate Protection Agreements
(including amortization of discounts),
(c) the interest portion of any deferred payment obligation,
(d) imputed interest with respect to Attributable Debt,
(e) commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings and
(f) accrued interest, and
(2) (a) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by ICON or any
Restricted Subsidiary during such period and
(b) all capitalized interest of ICON and its consolidated Restricted
Subsidiaries, in each case as determined in accordance with GAAP,
minus
(y) any amortization of financing fees and expenses of ICON and its
consolidated Restricted Subsidiaries for such period.
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"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person and
its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than
Redeemable Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
Preferred Stock.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash charges of ICON and its
consolidated Restricted Subsidiaries for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual or
reserve for cash charges for any future period or amortization of a prepaid cash
expense that was paid in a prior period).
"Consolidation" means, with respect to the ICON, the consolidation of the
accounts of the Restricted Subsidiaries with those of ICON, all in accordance
with GAAP consistently applied; PROVIDED that, "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with the accounts
of ICON. The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, at which at any particular time its corporate trust business shall be
principally administered, which office at the date of the indenture is located
at The Bank of New York, 101 Barclay Street, New York, New York 10286, except
that with respect to presentation of Notes for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the Trustee
at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" includes corporations, associations, companies and business
trusts.
"Credit Agreements" means one or more Credit Agreements among ICON and the
Banks, as in effect as of the date of the indenture, providing for a revolving
credit facility and term loans to ICON, as such agreements may be amended,
renewed, extended, substituted, refinanced, restructured, replaced, supplemented
or otherwise modified from time to time, including, without limitation,
amendments and modifications that provide for loans to Canadian Restricted
Subsidiaries and for sub-facilities (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of any of the foregoing),
together with the security agreements and other agreements in favor of the Banks
entered into from time to time in connection with such credit agreements as such
security agreements and other agreements may be amended, supplemented or
otherwise modified from time to time.
"Currency Agreements" means any spot or forward foreign exchange agreements
and currency swap, currency option or other similar financial agreements or
arrangements entered into by ICON or any of its Restricted Subsidiaries in the
ordinary course of business and designed to protect against or manage exposure
to fluctuations in foreign currency exchange rates.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means, with respect to the Notes issuable or issued in whole or
in part in global form, The Depository Trust Company, and any and all successors
thereto appointed as depository hereunder and having become such pursuant to the
applicable provision of the indenture.
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"Disinterested Directors" means, with respect to any transaction or series
of related transactions, a member of the Board of Directors who does not have
any material direct or indirect financial interest in or with respect to such
transaction or series of related transactions.
"Domestic Subsidiary" means any Restricted Subsidiary that is incorporated
under the laws of the United States or any state thereof or the District of
Columbia.
"Event of Default" has the meaning set forth under "--Events of Default and
Remedies--Events of Default" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer and Consent Solicitation Statement" means the Exchange Offer
and Consent Solicitation Statement dated July 30, 1999 relating to the offer of
the Notes.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement between ICON and the holders of the Notes,
relating to the Notes, as such agreement may be amended, modified or
supplemented from time to time.
"Registered Exchange Offer" means the registered exchange offer for the
Notes which may be effected pursuant to the Exchange and Registration Rights
Agreement.
"Exchange Registration Statement" means the Exchange Registration Statement
as defined in the Exchange and Registration Rights Agreement.
"Exchange Notes" has the meaning stated in the first recital of the
indenture and refers to any Exchange Notes containing terms substantially
identical to Initial Notes (except that such Exchange Notes shall not contain
terms with respect to transfer restrictions) that are issued and exchanged for
the Initial Notes pursuant to the Exchange and Registration Rights Agreement and
the indenture.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
"Foreign Subsidiary" means any Subsidiary that is incorporated in a
jurisdiction outside of the U.S. and territories thereof.
"Foreign Subsidiary Borrowing Base" means, as of any date, an amount equal
to the sum of:
(1) 85.0% of the book value of all accounts receivable owned by the ICON's
Foreign Subsidiaries (other than Canadian Restricted Subsidiaries)
(excluding any accounts receivable from an Affiliate of such Foreign
Subsidiaries or that are more than 90 days past due, less (without
duplication) the allowance for doubtful accounts attributable to current
trade accounts receivable) and
(2) 60.0% of the book value of all inventory owned by such Foreign
Subsidiaries (other than Canadian Restricted Subsidiaries) as of such
date (with a seasonal increase of 70.0% of inventory in effect from
July 1 through November 30 of each year), all calculated on a
consolidated basis and in accordance with GAAP.
To the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, Foreign Subsidiary Borrowing Base
shall be calculated utilizing the most recent available information.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in
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other statements by any other entity as have been approved by a significant
segment of the accounting profession, which are in effect on the Issue Date.
"Guarantee" or "guarantee" means a guarantee other than by endorsement of
negotiable instruments for collection in the ordinary course of business, direct
or indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Holder" means a Person in whose name a Note is registered in the Security
Register.
"Indebtedness" means, with respect to any Person, without duplication:
(1) all liabilities of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and
other current liabilities incurred in the ordinary course of business,
but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letter of credit,
bankers' acceptance or other similar credit transaction and in connection
with any agreement to purchase, redeem, exchange, convert or otherwise
acquire for value any Capital Stock of such Person, or any warrants,
rights or options to acquire such Capital Stock, now or hereafter
outstanding, if, and to the extent, any of the foregoing would appear as
a liability upon a balance sheet of such Person prepared in accordance
with GAAP,
(2) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, if, and to the extent, any of the foregoing
would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP,
(3) all indebtedness of such Person created or arising under any conditional
sale or other title retention agreement with respect to property acquired
by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession
or sale of such property), but excluding accounts payable arising in the
ordinary course of business,
(4) all Capitalized Lease Obligations of such Person,
(5) all indebtedness referred to in the preceding clauses of other Persons
and all dividends of other Persons, the payment of which is secured by
(or for which the holder of such indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness or of such dividend (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured),
(6) all guarantees by such Person of indebtedness referred to in this
definition,
(7) all Redeemable Capital Stock of such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued
dividends and
(8) all obligations of such Person under or in respect of Interest Rate
Protection Agreements and Currency Agreements.
The amount of any Indebtedness outstanding as of any date shall be:
(a) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount and
(b) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other Indebtedness.
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"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Notes.
"Interest Rate Protection Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements (including,
without limitation, interest rate swaps, caps, collars and similar agreements)
designed to minimize exposure to fluctuations in interest rates in respect of
Indebtedness.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan, or other extension of credit (including by means of a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by any other Person, except for purchases of assets in the ordinary course of
business of ICON or any of its Restricted Subsidiaries, and all other items that
would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Issue Date" means the closing date for the original issuance of the Notes
under the indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance of any kind upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired, whether or not filed, recorded or otherwise
perfected under applicable law, including any conditional sale or other title
retention agreement, any lease in the return thereof, any option or other
agreement to sell or give a security interest in and any filing or agreement to
give any financing statement under the Uniform Commercial Code or equivalent
statutes of any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing pursuant to the
Registration Rights Agreement.
"Maturity" when used with respect to any Note means the date on which the
principal of such Note or an installment of principal becomes due and payable as
therein provided or as provided in the indenture, whether at Stated Maturity or
by declaration of acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means with respect to any Asset Sale the proceeds
thereof received by ICON or any of its Restricted Subsidiaries in the form of
cash or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or Cash Equivalents (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration received in any
Asset Sale), net of:
(1) reasonable out-of-pocket fees and expenses (including legal, accounting
and investment banking and sales commissions) related to such Asset Sale,
(2) provisions for all taxes payable as a result of such Asset Sale,
(3) payments made to retire Indebtedness where payment of such Indebtedness
is secured by the assets or properties which are the subject of such
Asset Sale,
(4) amounts required to be paid to any Person (other than ICON or any
Restricted Subsidiary) owning a beneficial interest in the assets subject
to the Asset Sale and
(5) appropriate amounts to be provided by ICON or any Restricted Subsidiary,
as the case may be, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by ICON or any
Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities,
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liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale (provided
that the amount of any such reserves shall be deemed to constitute Net
Cash Proceeds at the time such reserves shall have been released or are
not otherwise required to be retained as a reserve), all as reflected in
an Officers' Certificate delivered to the Trustee.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither ICON nor any of its Restricted Subsidiaries:
(a) provides credit support of any kind (including any undertaking,
guarantee, indemnity, agreement or instrument that would constitute
Indebtedness) or
(b) is directly or indirectly liable (as a guarantor, general partner or
otherwise), or
(c) constitutes a lender; and
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder
of any other Indebtedness (other than the Notes) of ICON or any of its
Restricted Subsidiaries to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of ICON or any of its Restricted
Subsidiaries.
"Officers' Certificate" means a certificate signed by the Chairman, the
Chief Executive Officer, the President or a Vice President, and by the
Treasurer, the Chief Financial Officer, the Director of Finance, an Assistant
Treasurer, the Secretary or an Assistant Secretary of ICON, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for ICON, including an employee of ICON, and who shall be acceptable to the
Trustee.
"Outstanding", when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under the
indenture, except:
(1) Notes theretofore cancelled by the Trustee or delivered to the Trustee
for cancellation;
(2) Notes, or portions thereof, for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than ICON) in trust or set aside and segregated in
trust by ICON (if ICON shall act as its own Paying Agent) for the Holders
of such Notes; provided that, if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to the indenture or
provision therefor satisfactory to the Trustee has been made;
(3) Notes, except to the extent provided under the caption "--Defeasance and
Covenant Defeasance--Defeasance and Discharge--Covenant Defeasance", with
respect to which ICON has effected defeasance and/or covenant defeasance
as provided under the caption "--Defeasance and Covenant Defeasance"; and
(4) Notes which have been paid pursuant to the provision of the indenture
governing mutilated, destroyed, lost and stolen notes or in exchange for
or in lieu of which other Notes have been authenticated and delivered
pursuant to the indenture, other than any such Notes in respect of which
there shall have been presented to the Trustee proof satisfactory to it
that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of ICON;
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PROVIDED, HOWEVER, that, in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
ICON or any other obligor upon the Notes or any Affiliate of ICON or such other
obligor shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in making such calculation or
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Notes which the Trustee knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not ICON or any other obligor upon the Notes or any Affiliate of ICON
or such other obligor.
"Permitted Business" means the lines of business that ICON and its
Restricted Subsidiaries currently conduct on the date of the indenture and any
businesses that derive (or are expected to derive) a majority of their revenues
from products and activities reasonably related thereto.
"Permitted Indebtedness" means any of the following:
(1) Indebtedness of ICON and any Subsidiary Guarantor (including Canadian
Restricted Subsidiaries that are also Subsidiary Guarantors) under the
Credit Agreements; provided that the aggregate principal amount of such
Indebtedness at any one time outstanding shall not exceed the greater of
(a) the Company Borrowing Base plus $120 million and (b) $350 million, in
each case less (A) the aggregate amount of all Net Cash Proceeds of Asset
Sales applied by ICON and any of its Subsidiaries since the date of the
indenture to permanently repay Indebtedness under the Credit Agreement
pursuant to the covenant described under the caption "--Repurchase at the
Option of Holders--Asset Sales" and (B) the amount of outstanding
Indebtedness incurred by Canadian Restricted Subsidiaries pursuant to
clause (13) below; PROVIDED FURTHER that the amount of Indebtedness
permitted to be incurred pursuant to this clause (1) shall be in addition
to any Indebtedness permitted to be incurred under the Credit Agreements
in reliance on, and in accordance with, clauses (8) and (12) of this
definition of "Permitted Indebtedness";
(2) Indebtedness of ICON and any Restricted Subsidiary under the Notes;
(3) Indebtedness of ICON and any Restricted Subsidiary (other than under the
Credit Agreements) outstanding on the date of the indenture until such
amounts are repaid;
(4) obligations of ICON and any Restricted Subsidiary incurred in connection
with Interest Rate Protection Agreements relating to Indebtedness
(including Permitted Indebtedness) permitted pursuant to the covenant
described under the caption "--Certain Covenants--Limitation on
Indebtedness and Issuance of Preferred Stock" that are entered into in
the ordinary course of business;
(5) obligations of ICON and any Restricted Subsidiary incurred in connection
with Currency Agreements that are entered into in the ordinary course of
business of ICON and its Restricted Subsidiaries;
(6) the incurrence by ICON or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among ICON and any of its Restricted
Subsidiaries; PROVIDED, HOWEVER, that:
(a) if ICON or any Subsidiary Guarantor is the obligor on such
Indebtedness and the obligee is not ICON or any Subsidiary Guarantor,
such Indebtedness must be expressly subordinated to the prior payment
in full in cash of all obligations with respect to the Notes, in the
case of ICON, or the Subsidiary Guarantee of such Subsidiary
Guarantor, in the case of a Subsidiary Guarantor; and
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(b) (A) any subsequent issuance or transfer of Capital Stock that results
in any such Indebtedness being held by a Person other than ICON or a
Restricted Subsidiary thereof and (B) any sale or other transfer of
any such Indebtedness to a Person that is not either ICON or a
Restricted Subsidiary thereof; shall be deemed, in each case, to
constitute an incurrence of such Indebtedness by ICON or such
Restricted Subsidiary, as the case may be, that was not permitted by
this clause (6);
(7) Indebtedness arising from customary agreements providing for
indemnification or similar obligations, or from guarantees, letters of
credit, surety bonds or performance bonds securing any obligations of
ICON pursuant to such agreements, in any case entered into in a
commercially reasonable manner in the ordinary course of business
consistent with past practices incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of ICON, in
a principal amount not to exceed the proceeds received by ICON and its
Restricted Subsidiaries in connection with such disposition;
(8) Purchase Money Obligations and Capitalized Lease Obligations of ICON and
one or more Restricted Subsidiaries not to exceed, in the aggregate at
any time outstanding (including the amount of any additional Indebtedness
incurred under clause (1) of this definition of "Permitted Indebtedness"
in reliance on this clause (8)), $10 million;
(9) Indebtedness of Foreign Subsidiaries (other than Canadian Restricted
Subsidiaries) in an aggregate principal amount not to exceed, at any time
outstanding, the lesser of $50 million or the Foreign Subsidiary
Borrowing Base; PROVIDED, HOWEVER, that such amount shall be reduced by
the amount of Indebtedness incurred by such Foreign Subsidiaries pursuant
to clause (1) above;
(10) any renewals, extensions, substitutions, refundings, refinancings or
replacements (each, a "refinancing") of any Indebtedness (other than
intercompany Indebtedness) described in clauses (2) and (3) and
clause (12) of this definition of "Permitted Indebtedness," including any
successive refinancings so long as (a) the aggregate principal amount or
accreted value, if applicable,(or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, then such lesser amount as of the
date of determination) of Indebtedness represented thereby is not
increased by such refinancing other than by an amount equal to the stated
amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus the amount of reasonable expenses of
ICON incurred in connection with such refinancing, (b) such refinancing
does not reduce the Average Life to Stated Maturity or shorten the Stated
Maturity of such Indebtedness, (c) such new Indebtedness is subordinated
to the Notes at least to the same extent as the Indebtedness being
refinanced if the Indebtedness being refinanced is Subordinated
Indebtedness and (d) such Indebtedness is incurred either by ICON or by
the Restricted Subsidiary which is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded;
(11) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Redeemable Capital Stock in the form of additional shares of the same
class of Redeemable Capital Stock; PROVIDED, in each such case, that the
amount thereof is included in Consolidated Interest Expense of ICON as
accrued;
(12) Indebtedness of ICON and one or more Restricted Subsidiaries in
addition to that described in clauses (1) through (11) of this definition
of "Permitted Indebtedness," including Indebtedness incurred pursuant to
clause (10) above to refinance any Indebtedness incurred pursuant to this
clause (12), not to exceed $15 million in the aggregate at any one time
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outstanding (including the amount of any additional Indebtedness incurred
under clause (1) of this definition of "Permitted Indebtedness" in
reliance on this clause (12)); and
(13) Indebtedness of Canadian Restricted Subsidiaries (to the extent they
are not also Subsidiary Guarantors) under the Credit Agreements in an
aggregate principle amount not to exceed, at any time outstanding, the
lesser of $50 million or the Canadian Subsidiary Borrowing Base.
"Permitted Investment" means:
(1) Investments in any Restricted Subsidiary or any Investment in any Person
by ICON or any Restricted Subsidiary as a result of which such Person
becomes a Restricted Subsidiary (PROVIDED, HOWEVER, that in each case
such Restricted Subsidiary is engaged in a Permitted Business) or any
Investment in ICON by a Restricted Subsidiary;
(2) intercompany Indebtedness to the extent permitted under clause (6) of
the definition of "Permitted Indebtedness";
(3) Investments in Cash Equivalents;
(4) Investments in an amount not to exceed $2 million in the aggregate at
any given time outstanding;
(5) Investments in existence on the date of the indenture;
(6) Investments by ICON or any Restricted Subsidiary in any Person
(including any Unrestricted Subsidiary) whose operations consist of, or
has been formed to operate, a Permitted Business in an amount not to
exceed $8 million in the aggregate at any given time outstanding; and
(7) any Investment made by ICON or a Restricted Subsidiary in an
Unrestricted Subsidiary or any other Person that is not a Subsidiary of
ICON in connection with a Securitization Transaction; provided that any
such Investment is in the form of a Securitization Note or an equity
interest.
"Permitted Liens" means any of the following:
(1) any Lien existing as of the date of the indenture (other than Liens
securing Indebtedness under the Credit Agreements);
(2) any Lien arising by reason of (a) any judgment, decree or order of any
court, so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the review of
such judgment, decree or order shall not have been finally terminated or
the period within which such proceedings may be initiated shall not have
expired, the claims secured thereby are being contested in good faith by
appropriate proceedings, adequate reserves have been established with
respect to such claims in accordance with GAAP and no Default or Event of
Default would result thereby; (b) taxes, assessments, governmental
charges or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded, provided that, any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor;
(c) security for payment of workers' compensation or other insurance
incurred in the ordinary course of business; (d) security for the
performance of tenders, contracts (other than contracts for the payment
of money) or leases incurred in the ordinary course of business;
(e) deposits to secure public or statutory obligations incurred in the
ordinary course of business; (f) operation of law in favor of carriers,
warehousemen, mechanics, materialmen, laborers, employees or suppliers
and similar Liens incurred in the ordinary course of business for sums
which are not yet delinquent or are being contested in good faith by
negotiations or by appropriate proceedings which suspend the collection
thereof
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incurred in the ordinary course of business; or (g) security for surety
or appeal bonds incurred in the ordinary course of business;
(3) any Lien existing on the assets of ICON or any Subsidiary Guarantor or
any (including Canadian Restricted Subsidiary that are also Subsidiary
Guarantors) securing the Indebtedness of ICON or any such Subsidiary
Guarantor under the Credit Agreement, provided that the principal amount
of Indebtedness secured by such Lien does not exceed the amount of
Indebtedness permitted to be incurred under clause (1) of the definition
of "Permitted Indebtedness";
(4) any Lien in favor of ICON or a Subsidiary Guarantor;
(5) any Lien securing any Interest Rate Protection Agreements to the extent
such Agreements relate to Indebtedness that is otherwise permitted to be
incurred pursuant to the indenture;
(6) any Lien securing the Notes;
(7) any Liens on assets acquired by ICON or any Restricted Subsidiary after
the ate of the indenture, whether by acquisition of shares, assets or
otherwise, provided that such Lien (a) existed on the date such asset was
acquired, (b) only extends to assets that were subject to such Lien prior
to such acquisition, and (c) was not incurred in anticipation of such
acquisition;
(8) Liens relating to Purchase Money Obligations, provided, however, that
(a) the principal amount of any Indebtedness secured by such Liens shall
not exceed 100% of the applicable purchase price or cost and (b) the Lien
securing such Indebtedness shall be created (A) in the case of any asset
acquisition within 180 days of the closing of such asset acquisition and
(B) in all other cases, in the ordinary course of business, within
90 days of such acquisition and (c) such Lien does not apply to any
assets other than those acquired with such Purchase Money Obligations and
(d) the Indebtedness secured by the Lien was permitted to be incurred
pursuant to clause (8) of the definition of Permitted Indebtedness;
(9) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of custom duties in connection with the importation
of goods not yet delinquent, incurred in the ordinary course of business;
provided that, any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(10) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods incurred in the ordinary course of business;
(11) [Intentionally Omitted];
(12) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of ICON or any Restricted
Subsidiary relating to such property or assets incurred in the ordinary
course of business;
(13) Liens securing an aggregate of $2.5 million of Indebtedness permitted
to be incurred under the indenture by ICON and any Restricted Subsidiary;
(14) easements, rights-of-way and other similar charges or encumbrances
which were not incurred in connection with the incurrence of Indebtedness
and do not interfere in any material respect with the ordinary conduct of
the business of ICON or any of its Restricted Subsidiaries;
(15) Liens on the assets of Foreign Subsidiaries securing (other than
Canadian Restricted Subsidiaries) Indebtedness of Foreign Subsidiaries
(other than Canadian Restricted
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Subsidiaries) permitted to be incurred under clause (9) under the
definition of "Permitted Indebtedness";
(16) any extension, renewal, substitution or replacement (or successive
extensions, renewals, substitutions or replacements), as a whole or in
part, of any of the Liens referred to in clauses (1), (3), (6), (7),
(15) and (17) of this definition or the Indebtedness secured thereby;
provided that (a) such extension, renewal, substitution or replacement
Lien shall be limited to all or any part of the same property or assets,
now owned or hereafter acquired, that secured the Lien extended, renewed,
substituted or replaced (plus improvements on such property or assets)
and (b) the Indebtedness secured by such Lien (assuming all available
amounts were borrowed) at such time is not increased, except to the
extent permitted under clause (10) of the definition of "Permitted
Indebtedness"; and
(17) Liens on the assets of Canadian Restricted Subsidiaries securing
Indebtedness of Canadian Restricted Subsidiaries permitted to be incurred
under clause (13) under the definition of "Permitted Indebtedness".
Notwithstanding the foregoing, under no circumstances shall any Lien securing
Indebtedness of ICON or any of its Subsidiaries, issued, directly or indirectly,
in exchange for or upon the conversion of any Indebtedness of IHF Holdings or
ICON Fitness be deemed to be a "Permitted Lien".
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, joint-stock company, trust, unincorporated
organization, association, government or any agency or political subdivision
thereof or any other entity.
"Predecessor Security" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under the provision of the indenture governing
mutilated, destroyed, lost and stolen Notes in exchange for a mutilated security
or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the
same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred stock whether now outstanding, or issued after the date of
the indenture, and including, without limitation, all classes and series of
preferred or preference stock.
"Purchase Money Obligations" of any Person means any Indebtedness (including
Capitalized Lease Obligations) of such Person incurred in the ordinary course of
business for the purpose of financing all or any part of the acquisition price
or the cost of construction or improvement of equipment or property, but only if
such equipment or property is included in "addition to property, plant or
equipment" in accordance with GAAP and only if such equipment or property is not
being purchased as part of an acquisition of any business.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is or upon the happening of any event or passage of time, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the date that is 91 days after the Stated Maturity of the principal of
the Notes, or is convertible into or exchangeable for debt securities at any
time prior to the date that is 91 days after such Stated Maturity at the option
of the holder thereof; PROVIDED, HOWEVER, that any Capital Stock that would
constitute Redeemable Capital Stock solely because the holders thereof have the
right to require the issuer thereof to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Redeemable Capital Stock if the terms of such Capital Stock provide that such
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issuer may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
"Limitation on Restricted Payments".
"Redemption Date", when used with respect to any Note to be redeemed, in
whole or in part, means the date fixed for such redemption pursuant to the
indenture.
"Redemption Price", when used with respect to any Note to be redeemed, means
the price at which it is to be redeemed pursuant to the indenture.
"Registration Statement" means the Registration Statement as defined in the
Exchange and Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment Date
means the January 1 or July 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Restricted Subsidiary" means any Subsidiary of ICON that has not been
designated as an Unrestricted Subsidiary; provided that on the date the Notes
are originally issued, all Subsidiaries of ICON shall be Restricted Subsidiaries
of ICON.
"S&P" means Standard and Poor's Rating Group and its successors.
"Securities" has the meaning stated in the first recital of the indenture
and more particularly means any Notes authenticated and delivered under the
indenture. For all purposes of the indenture, the term "Notes" shall include any
Exchange Notes issued and exchanged for any Notes pursuant to the Exchange and
Registration Rights Agreement and the indenture and, for purposes of the
indenture, all Notes and Exchange Notes shall vote together as one series of
Notes under the indenture.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations thereunder.
"Securitization Note" means a promissory note of an Unrestricted Subsidiary
or any other Person that is not a Subsidiary of ICON evidencing a line of
credit, which may be irrevocable, from ICON or any Restricted Subsidiary of ICON
in connection with a Securitization Transaction, which note shall be repaid from
cash available to the Unrestricted Subsidiary or such Person other than amounts
required to be established as reserves pursuant to agreements, amounts paid to
investors in respect of interest, principal and other amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"Securitization Transaction" means any transaction or series of transactions
pursuant to which ICON or any of its Restricted Subsidiaries may sell, convey or
otherwise transfer to an Unrestricted Subsidiary or any other Person that is not
a Subsidiary of ICON any accounts receivable (whether now existing or arising or
acquired in the future) of ICON or any of its Restricted Subsidiaries, and any
assets related thereto including, without limitation, all collateral securing
such accounts receivable, all contracts and contract rights and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets (including contract rights) which are
customarily transferred in connection with asset securitization transactions
involving accounts receivable.
"Security Register" has the meaning specified in the indenture under
"Registration, Registration of Transfer and Exchange".
"Senior Indebtedness" means the principal of, premium, if any, and interest,
fees and expenses (including, without limitation, post-petition interest at the
rate provided for in the documentation with respect thereto, whether or not
allowed as a claim in bankruptcy, reorganization, insolvency, receivership or
similar proceeding) with respect to any Permitted Indebtedness of ICON and its
Restricted Subsidiaries under the Credit Agreement, including without limitation
any guarantee thereof.
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"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Exchange and Registration Rights Agreement.
"Significant Subsidiary" means, as of any date, any corporation or
partnership that is a Subsidiary of ICON and that, as of the end of the most
recently completed fiscal year of ICON for which financial statements are
available, was a "significant subsidiary" as defined in Regulation S-X under the
Securities Act and the Exchange Act or that, if acquired after such date, would
have been a "significant subsidiary" as defined therein if it had been acquired
as of such date.
"Specified Senior Indebtedness" means Indebtedness under the Credit
Agreements.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by ICON or any Subsidiary of ICON that
are customary in accounts receivable securitization transactions.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of principal thereof or interest thereon, means the dates specified
in such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of principal or interest is due and payable.
"Stockholders Agreement" means the stockholders agreement substantially in
the form attached as an annex to the Exchange Offer and Consent Solicitation
Statement.
"Subordinated Indebtedness" means Indebtedness of ICON or any Restricted
Subsidiary contractually subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more than
50% of the equity ownership or the Voting Stock of which is at the time
owned, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means the Guarantee by each Subsidiary Guarantor of
ICON's payment obligations under the indenture and the Notes, executed pursuant
to the provisions of the indenture.
"Subsidiary Guarantors" means each of (1) ICON's Domestic Subsidiaries and
(2) any future Subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the Indenture and their respective successors and
assigns.
"Tax Sharing Agreement" means the tax sharing agreement among HF Holdings
and its Subsidiaries, as amended from time to time; PROVIDED that, such
amendments shall not, in aggregate, provide for terms that are materially less
favorable to ICON than those in effect on the Issue Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
the indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of the indenture, and thereafter "Trustee" shall mean such
successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution,
but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt,
(2) is not a party to any agreement, contract, arrangement or understanding
with ICON or any Restricted Subsidiary of ICON unless the terms of any
such agreement, contract arrangement
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or understanding are no less favorable to ICON or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of ICON,
(3) is a Person with respect to which neither ICON nor any of its Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Capital Stock or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results, and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of ICON or any of its Restricted
Subsidiaries.
Notwithstanding the above, ICON and its Restricted Subsidiaries may:
(a) make payments to, provide credit or credit support for or make
Investments in the Unrestricted Subsidiaries to the extent that such
payments or investments in Unrestricted Subsidiaries are in
compliance with the covenant "Limitation on Restricted Payments" and
(b) may make Standard Securitization Undertakings to an Unrestricted
Subsidiary and other Persons, and loans to an Unrestricted Subsidiary
under a Securitization Note, in connection with a Securitization
Transaction with such Unrestricted Subsidiary.
"Vice President", when used with respect to ICON or the Trustee, means any
vice president, whether or not designated by a number or a word or words added
before or after the title "vice president".
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not, at the time, stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly Owned Subsidiary" of any specified Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Subsidiaries of
such Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
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BOOK-ENTRY; DELIVERY AND FORM
The exchange notes initially will be represented by one or more permanent
global certificates in definitive, fully registered form. This global note will
be deposited upon issuance with The Depository Trust Company, New York, New York
and registered in the name of a nominee of the Depository Trust Company.
THE GLOBAL NOTE. We expect that pursuant to procedures established by The
Depository Trust Company
(1) upon the issuance of the global note, The Depository Trust Company or
its custodian will credit, on its internal system, the principal amount
of the individual beneficial interests represented by the global note to
the respective accounts of persons who have accounts with such depository
and
(2) ownership of beneficial interests in the global note will be shown on,
and the transfer of ownership will be effected only through, records
maintained by The Depository Trust Company or its nominee, with respect
to interests of participants, and the records of participants, with
respect to interests of persons other than participants.
Ownership of beneficial interests in the global notes will be limited to
persons who have accounts with The Depository Trust Company or persons who hold
interests through participants.
So long as The Depository Trust Company or its nominee is the registered
owner or holder of the exchange notes, The Depository Trust Company (or the
nominee) will be considered the sole owner or holder of the exchange notes
represented by the global note for all purposes under the indenture. No
beneficial owner of an interest in the global note will be able to transfer that
interest except in accordance with The Depository Trust Company's procedures.
Payments of interest, principal and other amounts due on the global note
will be made to The Depository Trust Company or its nominee as the registered
owner. None of our company, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global note or
for maintaining, supervising or reviewing any records relating to this
beneficial ownership interest.
We expect that The Depository Trust Company or its nominee, upon receipt of
any payment of interest, principal or other amounts due on the global note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the global note as shown on the records of
The Depository Trust Company. We also expect that payments by participants to
owners of beneficial interests in the global note held through such participants
will be governed by standing instructions and customary practice, as is the case
with securities held for the accounts of customers registered in the names of
nominees for those customers. These payments will be the responsibility of the
participants.
Transfers between participants in The Depository Trust Company will be
effected in the ordinary way through The Depository Trust Company's settlement
system in accordance with The Depository Trust Company rules and will be settled
in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of exchange notes, including the presentation
of exchange notes for exchange as described below, only at the direction of a
participant to whose account the Depository Trust Company interests in the
global note are credited. Further, The Depository Trust Company will take action
only as to such portion of the notes as to which the participant has given such
direction. However, if there is an Event of Default under the indenture, the
Depository Trust Company will exchange the global note for certificated notes,
which it will distribute to its participants.
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The Depository Trust Company has advised us as follows: The Depository Trust
Company is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "Clearing Agency"
registered under to the provisions of Section 17A of the Exchange Act. The
Depository Trust Company was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and other organizations. Indirect access to
the Depository Trust Company system is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Although the Depository Trust Company has agreed to the foregoing procedures
in order to facilitate transfers of interests in the global note among
participants of the Depository Trust Company, it is under no obligation to
perform those procedures, and those procedures may be discontinued at any time.
Neither our Company's nor the trustee will have any responsibility of the
performance by the Depository Trust Company or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES. If the Depository Trust Company is at any time
unwilling or unable to continue as a depository for the global note and a
successor depository is not appointed by us within 90 days, certificated notes
will be issued in exchange for the global note.
DESCRIPTION OF MATERIAL INDEBTEDNESS
In connection with our September recapitalization, we entered into new
credit facilities of $300 million with a syndicate of banks and financial
services companies. In addition to this summary, you can refer to the copy of
the credit agreement, which is filed as an exhibit to this registration
statement, of which this prospectus is a part.
The new credit facilities consist of a $120 million revolving credit line
("revolver"), a $30 million term loan ("term loan A"), a $80 million term loan
("term loan B"), a $53 million term loan ("term loan C") and a $15 million term
loan ("IP loan").
All loans are secured by a first priority security interest in all of the
existing and subsequently acquired assets of our company and our domestic and
Canadian subsidiaries, subject to specified exceptions, and a pledge of 65% of
the stock of our first-tier foreign subsidiaries. The IP loan contains special
provisions granting it priority over the other loans on the proceeds of a
liquidation of our patents, trademarks and other intellectual property. All
loans are cross-collateralized and cross-defaulted.
REVOLVER
The revolver consists of a $120 million revolving credit line, which
includes a letter of credit sub-facility of up to $10 million and includes a
swing line sub-facility of up to $10 million. The term of the revolver expires
on August 31, 2004. The terms and conditions include a clean down period to
reduce the outstanding borrowings on the revolver to $25 million or less for a
period of 60 consecutive days or more, during the period from May 1st through
August 31st. In addition, borrowing availability is limited to defined
percentages of qualified assets as specified in the credit agreement.
A letter of credit fee of 2.00% per annum of the maximum amount available to
be drawn under outstanding letters of credit and an unused facility fee of .50%
per annum of the average unused daily balance of the revolver is due monthly. In
addition, a fee of .25% per annum of the average unused
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daily balance for the preceding calendar quarter is due quarterly if such
average unused daily balance exceeded $60 million.
TERM LOAN A
The $30 million term loan A has a 60 month term and amortizes quarterly at
an annual rate of approximately $2.7 million in year one, approximately
$5.5 million in each of years two and three, and approximately $8.2 million in
each of years four and five. The term loan A expires on August 31, 2004.
TERM LOAN B
The $80 million term loan B has a 63 month term and amortizes quarterly at
an annual rate of $1.1 million in each of years one through five and
$74.5 million at maturity. The term loan B expires on November 29, 2004.
TERM LOAN C
The $55 million term loan C has a 66 month term and amortizes quarterly at
an annual rate of $0.4 million in each of years one through five and
$52.9 million at maturity. The term loan C expires on March 1, 2005.
IP LOAN
The $15 million IP loan has a 60 month term and amortizes quarterly at an
annual rate of $3.0 million in each of years one through five. The IP loan
expires on August 31, 2004.
At our option, all loans will bear interest at either (a) a floating rate
equal to the "index rate" plus an applicable margin of between 1.5 and 5.5% or
(b) a fixed rate for periods of one, two, three or six months equal to an
interest rate based on the LIBOR rate plus an applicable margin of between 3 and
7%. The index rate is a floating rate equal to the higher of (i) the rate quoted
by The Wall Street Journal as the "base rate on corporate loans at large U.S.
money center commercial banks" and (ii) the federal funds rate plus 0.5%. In
addition, the term loan C accrues pay-in-kind interest at a rate of 5% per annum
capitalized quarterly.
If the revolver is terminated, term loans A, B, C and the IP loan will
immediately be due and payable in full. In addition, if the revolver is
terminated or if any or all of the term loans are prepaid (with the exception of
term loan C which cannot be prepaid), prepayment premiums of up to 2% will
apply.
Proceeds of the credit facility were used to refinance our existing senior
credit facilities and 13% notes and to fund transaction fees and expenses, and
will be used to provide for general working capital and to fund necessary future
capital expenditures.
The credit agreement contains a number of restrictive covenants that, among
other things, limit or restrict our ability and our subsidiaries' ability to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
prepay other indebtedness, make restricted payments, create liens, make equity
or debt investments, make acquisitions, modify terms of the Indenture, engage in
mergers or consolidations, enter into operating leases or engage in transactions
with affiliates. In addition, we are expected to comply with various financial
ratios and tests, including a maximum capital expenditures test, minimum debt
service coverage ratio, minimum EBITDA, maximum senior leverage ratio and
minimum revenue.
The credit agreement also contains customary events of default including
nonpayment of principal, interest or fees, failure to meet covenants, inaccuracy
of representations and warranties in any material respect, bankruptcy, cross
default to other significant indebtedness, loss of lien perfection, material
judgments and change of ownership or control.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of United States federal income tax consequences
associated with (1) the receipt of exchange notes pursuant to the exchange offer
and (2) the ownership and disposition of the exchange notes. Except where noted,
this summary assumes that you will hold your exchange notes as capital assets.
This summary does not deal with special situations, such as those of dealers in
securities or currencies, traders in securities that elect mark to market
treatment, financial institutions, life insurance companies or tax-exempt
organizations. It also does not deal with U.S. holders whose "functional
currency" is not the U.S. dollar or who hold the notes as a hedge or part of a
straddle or conversion transaction. Furthermore, the discussion below is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), administrative rulings and regulations, and judicial decisions as of
the date of this filing. At any time and without prior notice, these authorities
may be repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below.
IF YOU ARE CONSIDERING THE TENDER OF AN OLD NOTE FOR AN EXCHANGE NOTE, OR
THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE NOTES, YOU SHOULD CONSULT
YOUR OWN TAX ADVISOR CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES AND
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
THE EXCHANGE OFFER
If you exchange an old note for an exchange note under the exchange offer,
this exchange should not constitute a taxable event to you. Therefore:
- you should realize no gain or loss upon the receipt of an exchange note in
exchange for an old note, although you will have ordinary income to the
extent you receive a payment from us as a penalty for the late filing of
this document;
- your holding period in the exchange note should include your holding
period in the old note; and
- your adjusted tax basis of the exchange note should be the same as your
adjusted tax basis of your old note immediately before the exchange.
UNITED STATES HOLDERS
This section will apply to you if you are a U.S. holder. A U.S. holder is,
generally, a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate the income of
which is subject to United States federal income taxation regardless of its
source. A trust is a U.S. holder if a United States court can exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust. A
U.S. holder is also any other person whose worldwide income or gain is otherwise
subject to United States federal income taxation on a net income basis.
INTEREST
QUALIFIED STATED INTEREST. The tax treatment of the semiannual interest
payments made on the exchange notes depends on whether such payments are
"qualified stated interest." The payments of interest on each January 15 and
July 15 will constitute qualified stated interest. If you are a cash method
taxpayer (which includes most individual holders), you must report qualified
stated interest in your income when you receive it. If you are an accrual method
taxpayer, you must report qualified stated interest in your income as it
accrues.
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ORIGINAL ISSUE DISCOUNT. Generally, the exchange notes will be considered
to have been issued with OID if the old notes for which the exchange notes are
exchanged were issued with OID. The old notes will be considered to have been
issued with OID if either the 13% notes or a substantial amount of the old notes
were "traded on an established market", within the meaning of the Code and
applicable Treasury regulations, at any time during the sixty day period that
ended thirty days after the 13% notes were exchanged for the old notes, and the
fair market value of the old notes or of the 13% notes, as the case may be, were
determined to be below the face amount of such notes. The applicable Treasury
regulations are complex and highly detailed in defining "traded on an
established market." For example, the fact that old notes or 13% notes were
purchased and sold during the relevant period would not, by itself, constitute
trading on an established market. Rather, the notes must be listed on an
exchange, appear on a "quotation medium," or satisfy other requirements. It is
our belief, and we intend to take the position that, neither the 13% notes nor a
substantial amount of the old notes were "traded on an established market"
within the meaning of the relevant Code provisions and Treasury regulations
during the relevant time period. We, and our agents, have undertaken a limited
amount of investigation regarding whether the notes were so traded and it is
possible that the IRS may disagree with our conclusion. If the IRS were to take
a contrary position and prevail, special OID rules would apply to holders of
exchange notes or old notes.
DETERMINING AMOUNT OF OID. The amount of OID, if any, on an exchange note
is its "stated redemption price at maturity" minus its "issue price." The stated
redemption price at maturity of an exchange note is equal to its face amount.
The "issue price" of the exchange notes will be the same as the issue price
of the old notes. The issue price of the old notes depends on whether the 13%
notes or a substantial amount of the old notes were "traded on an established
market" at any time during the sixty day period ending thirty days after the
issue date. If a substantial amount of the old notes were so traded on an
established market, the issue price of an old note will be the fair market value
of such note as of the issue date. If a substantial amount of the old notes were
not so traded, but the 13% notes were "traded on a established market" the issue
price of an old note would be the fair market value as of the issue date of the
13% note for which it was exchanged.
If neither the 13% notes nor a substantial amount of the old notes were so
traded, which we believe is the case, the issue price for each old note is its
face amount. If the issue price of an old note is its face amount, it was not
issued with OID.
ACCRUAL OF OID. OID on an exchange note must be included by its holder as
ordinary income over the life of the note. Thus, you must include OID (if there
is any) in income as the OID accrues, even if you are a cash method taxpayer.
Thus, you are required to report OID income, and in some cases pay tax on that
income, before you receive the cash that corresponds to that income.
OID accrues on a note on a "constant yield" method. This method takes into
account the compounding of interest. The accruals of OID on a note will
generally be less in the early years and more in the later years. The amount of
OID that you must accrue will be reduced if you paid an "acquisition premium"
for an exchange note or for an old note that you exchanged for an exchange note.
You will have paid an acquisition premium if you purchased an old note or an
exchange note in a transaction other than our exchange of old notes for 13%
notes or this exchange offer, and the amount you paid for such note exceeded the
adjusted issue price of such note at the time you bought it. If you have
acquisition premium on your exchange note, you should consult your tax advisor.
Your tax basis in an exchange note received pursuant to this exchange offer
is your adjusted issue price in the old note that you exchanged. It increases by
any OID (but not qualified stated interest) that you report as income. It
decreases by any principal payments or payments of OID you receive on the note.
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AHYDO RULES. If the old notes were issued with significant OID, they and
the exchange notes for which they are exchanged would be "applicable high yield
discount obligations" ("AHYDOs"), and thus would be subject to special rules.
Under these AHYDO rules, a portion of the amount of OID that you would have to
accrue may, if you are a corporation, be characterized as a dividend for
purposes of securing a dividend received deduction. If you are a corporation,
you should consult your tax advisor on this point. The AHYDO rules would also
defer our ability to take a deduction for a portion of the OID that accrues on
the exchange notes, and likely deny our ability to take a deduction for another
portion of the OID.
OID AND CANCELLATION OF INDEBTEDNESS INCOME. In the event the old notes
were determined to have been issued with OID, we could be treated as having
recognized additional cancellation of indebtedness income as of the date that
the 13% notes were exchanged for the old notes. As noted above under the
discussion of original issue discount, we do not believe that the old notes were
issued with OID. Additionally, we believe that if additional cancellation of
indebtedness income were realized, substantially all of any such additional
income would be offset by available net operating loss carryforwards unless, as
discussed in "Risk Factors", such net operating loss carryforwards were reduced
as a result of the IRS, in connection with its audit of us, successfully
disallowing deductions previously claimed by us.
If the old notes were determined to have been issued with OID, all or a
portion of the cancellation of indebtedness income that we recognized would be
(prior to being offset by any available net operating loss carryforwards)
excluded from our income to the extent that we were, as of immediately prior to
the issuance of the old notes for the 13% notes, insolvent. If this so-called
"insolvency exception" were to apply to reduce the amount of cancellation of
indebtedness income required to be reported by us, we would be required, under
applicable tax rules, to reduce, as of the beginning of our next taxable year
and to the extent of such excluded cancellation of indebtedness, our remaining
net operating loss carryforwards. If the amount of excluded cancellation of
indebtedness income were greater than the amount of our remaining net operating
loss carryforwards, as of the beginning of our next taxable year, we would have
to reduce our tax basis in our assets by the remaining amount of such excluded
income, but not below the aggregate amount of our liabilities, as determined
immediately after the restructuring. This could materially adversely affect our
financial condition because, if we subsequently sold assets, we would recognize
more taxable gain than we would have absent this required reduction in tax
basis.
MARKET DISCOUNT
Generally, you may be subject to the "market discount" rules if either
(1) you exchanged a 13% note for an old note and the 13% note that you exchanged
had market discount, or (2) you acquired an old note other than in exchange for
a 13% note and the amount you paid for the old note was less than its "revised
issue price." The revised issue price is the sum of the note's issue price and
all OID includible in the income of holders prior to your acquisition of the
note. Under a special rule, if the amount of "market discount" is less than a DE
MINIMIS amount, the market discount rules will not apply.
If you are subject to the market discount rules with respect to an exchange
note, gain that you realize upon the disposition of the note will be
characterized as ordinary income to the extent of the market discount that has
not previously been included in income and that has accrued at the time of
disposition. Also, if you incur or continue indebtedness in order to purchase or
carry the note, you may be required to defer the deduction of the interest
expense payable on such indebtedness.
If you are subject to the market discount rules, you should consult your tax
advisor.
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SALE AND RETIREMENT OF NOTES
Upon the sale or retirement of an exchange note, you will recognize gain or
loss equal to the difference between the amount realized upon the sale or
retirement and your adjusted tax basis in the note. Except with respect to
market discount accrued and unpaid interest, such gain or loss generally will be
capital gain or loss, and will be long-term capital gain or loss if you held
such note for more than one year. The deductibility of capital losses is subject
to limitations.
NON-UNITED STATES HOLDERS
This section applies to you if you are a non-U.S. holder. A non-U.S. holder
is any holder of an exchange note who is a nonresident alien individual or a
foreign corporation, foreign partnership or an estate, trust or any other person
that is not a U.S. Holder as defined in the preceding section.
Subject to the discussion of backup withholding below:
(1) payments of principal, premium, if any, and interest by us or any of our
paying agents to you on an exchange note will not be subject to United
States federal withholding tax if you are the beneficial owner of the note
and, in the case of interest,
(a) you do not actually or constructively own 10% or more of the total
combined voting power of all of our classes of stock entitled to vote,
(b) you are not a controlled foreign corporation that is related to us
through stock ownership,
(c) you are not a bank that holds the note pursuant to a loan agreement
entered into in the ordinary course of your trade or business, and
(d) either:
(A) you certify to us or our agent, under penalties of perjury, that you
are not a U.S. holder and provide your name and address; or
(B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course
of its trade or business and holds the exchange note certifies to us
or our agent under penalties of perjury that this statement has been
received from you by it or by a financial institution between it and
you and furnishes us or our agent with a copy thereof;
(2) you will not be subject to United States federal withholding tax on any gain
realized on the sale or exchange of an exchange note; and
(3) an exchange note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if
(a) the individual did not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to vote,
and
(b) the income on the note would not have been effectively connected with a
United States trade or business of the individual at the individual's
death.
New regulations that are generally effective with respect to payments made
after December 31, 2000, will provide alternative methods for satisfying the
certification requirement described in clause (1)(d) above. We urge you to
consult their tax advisor regarding these regulations.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
You must comply with information reporting rules unless an exemption
applies. The information reporting rules require you to provide us (or, if you
hold your notes through a securities intermediary such as a broker, such
intermediary) with your taxpayer identification number. We (or the intermediary)
will use your taxpayer identification number in reporting information to the
IRS. You must also comply with other IRS information reporting requirements. If
you fail to comply with the IRS's information reporting requirements, the
"backup withholding" rules require us (or the intermediary) to withhold 31% of
all amounts payable to you on the notes (including principal payments). Any
amounts so withheld may be used by you as a credit against your U.S. federal
income tax liability.
All individual U.S. holders are subject to the information reporting
requirements and backup withholding rules. Some U.S. holders, including all
corporations, tax-exempt organizations, and individual retirement accounts, are
exempt.
NON-UNITED STATES HOLDERS
Principal and interest payments received by non-U.S. holders will be
automatically exempt from the usual information reporting and backup withholding
rules if you provide the tax certifications needed to avoid withholding tax on
interest, as described above. This exemption, however, does not apply if the
recipient of the applicable certification knows the certification is false.
Also, interest payments made to you will be reported to the IRS.
Sale proceeds that you receive on the sale of a note through a broker may be
subject to information reporting or backup withholding or both if you are not
eligible for an exemption. In particular, information reporting and backup
withholding may apply if you use the U.S. office of a broker, and information
reporting (but not backup withholding) may apply if you use the foreign office
of a broker that has connections to the U.S. You should consult your tax advisor
concerning information reporting and backup withholding on a sale.
PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required
to represent, among other things, that
(1) it is not an "affiliate" (as defined in Rule 405 of the Securities Act) of
us,
(2) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes, and
(3) it is acquiring the exchange notes in the ordinary course of its business.
A holder unable to make the above representations is referred to as a
restricted holder. A restricted holder will not be able to participate in the
exchange offer, and may only sell its old notes pursuant to a registration
statement containing the selling securityholder information required by Item 507
of Regulation S-K of the Securities Act, or pursuant to an exemption from the
registration requirement of the Securities Act.
Each participating broker-dealer is required to acknowledge in the letter of
transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with the resale of such exchange notes. Based upon interpretations by
the staff of the Securities and Exchange Commission, we believe that exchange
notes issued pursuant to the exchange offer to participating broker-dealers may
be offered for resale, resold, and
105
<PAGE>
otherwise transferred by a participating broker-dealer upon compliance with the
prospectus delivery requirements, but without compliance with the registration
requirements, of the Securities Act. We have agreed that for a period of
30 days following consummation of the exchange offer, we will make this
prospectus available to participating broker-dealers for use in connection with
any such resale. During such period of time, delivery of this prospectus, as it
may be amended or supplemented, will satisfy the prospectus delivery
requirements of a participating broker-dealer engaged in market making or other
trading activities.
Based upon interpretations by the staff of the Securities and Exchange
Commission, we believe that exchange notes issued pursuant to the exchange offer
may be offered for resale, resold and otherwise transferred by their holder,
other than a participating broker-dealer, without compliance with the
registration and prospectus delivery requirements of the Securities Act.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by participating broker-dealers for
their own account pursuant to the exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the exchange notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such participating broker-dealer and /or the purchasers of
any such exchange notes. Any participating broker-dealer that resells exchange
notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of such
exchange notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of exchange notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a participating broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the notes, including any broker-dealers, against liabilities,
including liabilities under the Securities Act, as set forth in the registration
rights agreement.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for ICON by Willkie
Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of ICON as of May 31, 1999 and 1998
and for each of the three years in the period ended May 31, 1999, included in
this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 to register
this exchange offer. This prospectus, which forms part of the registration
statement, does not contain all of the information included in that registration
statement. For further information about ICON and the notes offered in this
prospectus, you should refer to the registration statement and its exhibits.
106
<PAGE>
We are not currently subject to the periodic reporting and other
informational requirements of the Securities and Exchange Act of 1934. Upon the
effectiveness of the registration statement, we will become subject to the
periodic reporting and other information requirements of the Exchange Act, and
in accordance therewith, will be required to file periodic reports and other
information with the SEC.
You may read and copy any document we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the Public
Reference Room. We file our SEC materials electronically with the SEC, so you
can also review our filings by accessing the web site maintained by the SEC at
http://www.sec.gov. This site contains reports, proxy and information statements
and other information regarding issuers that file electronically with the SEC.
Our principal executive offices are located at 1500 South, 1000 West, Logan,
Utah 84321. Our telephone number is (435) 750-5000.
107
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations and Comprehensive
Loss...................................................... F-4
Consolidated Statements of Stockholder's Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
Financial Statement Schedule II............................. F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
ICON Health & Fitness, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive loss, of stockholder's
equity (deficit) and of cash flows present fairly, in all material respects, the
financial position of ICON Health & Fitness, Inc. and its subsidiaries at
May 31, 1999 and 1998, and the results of their operations and their cash flows
for each of the three years in the period ended May 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consoldiated financial statements.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As described in Notes 2, 16, 17 and 18 to the consolidated financial
statements, on September 27, 1999, the Company restructured its capital
structure and entered into a new $300 million credit facility.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Salt Lake City, Utah
September 27, 1999
F-2
<PAGE>
ICON HEALTH & FITNESS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 27, MAY 31,
------------ ---------------------
1999 1999 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 5,749 $ 4,275 $ 3,892
Accounts receivable, net................................ 212,680 116,468 124,301
Inventories, net........................................ 139,748 106,426 121,466
Deferred income taxes................................... 1,299 821 11,177
Other assets............................................ 9,653 6,311 6,202
Income taxes receivable................................. -- 118 781
--------- --------- ---------
Total current assets.................................. 369,129 234,419 267,819
Property and equipment, net............................... 44,687 45,277 48,819
Receivable from parent.................................... -- -- 2,362
Trademarks, net........................................... 24,773 22,859 17,244
Deferred income taxes..................................... 4,512 5,763 4,927
Other assets.............................................. 20,847 23,592 21,958
--------- --------- ---------
$ 463,948 $ 331,910 $ 363,129
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt....................... $ 7,804 $ 7,227 $ 6,051
Accounts payable........................................ 130,270 95,665 83,965
Interest payable........................................ 4,221 5,673 6,596
Accrued expenses........................................ 15,035 16,893 18,090
Income taxes payable.................................... 1,443 939 249
--------- --------- ---------
Total current liabilities............................. 158,773 126,397 114,951
--------- --------- ---------
Long-term debt............................................ 324,388 253,352 268,495
--------- --------- ---------
Commitments and contingencies (Notes 13 and 18)........... -- -- --
Stockholder's equity (deficit):
Common stock and additional paid-in capital............. 204,267 163,819 166,186
Receivables from officers and Parent.................... (2,200) (656) (656)
Accumulated other comprehensive loss.................... (1,178) (1,017) (547)
Accumulated deficit..................................... (220,102) (209,985) (185,300)
--------- --------- ---------
Total stockholder's deficit........................... (19,213) (47,839) (20,317)
--------- --------- ---------
$ 463,948 $ 331,910 $ 363,129
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ICON HEALTH & FITNESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------- YEAR ENDED MAY 31,
NOVEMBER 27, NOVEMBER 28, ------------------------------
1999 1998 1999 1998 1997
------------ ------------ -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $334,308 $331,495 $710,249 $749,313 $836,162
Cost of sales......................... 243,735 238,969 514,018 535,646 583,747
Cost of sales--amortization of step-up
in HealtherRider and ICON of Canada
inventory........................... -- -- -- 330 14,009
-------- -------- -------- -------- --------
Gross profit.......................... 90,573 92,526 196,231 213,337 238,406
-------- -------- -------- -------- --------
Operating expenses:
Selling............................. 43,068 46,204 107,621 120,752 132,392
Research and development............ 3,812 3,569 7,715 7,777 7,620
General and administrative.......... 30,797 26,366 53,414 60,912 56,689
Weider settlement................... -- -- -- -- 16,583
HealthRider integration costs....... -- -- -- -- 4,880
-------- -------- -------- -------- --------
Total operating expenses.............. 77,677 76,139 168,750 189,441 218,164
-------- -------- -------- -------- --------
Income from operations................ 12,896 16,387 27,481 23,896 20,242
Interest expense...................... (16,970) (15,981) (33,056) (35,058) (33,627)
Amortization of deferred financing
fees................................ (2,065) (2,972) (6,992) (4,806) (3,058)
Other income.......................... -- -- -- 1,223 700
Other expense......................... -- -- (34) (686) (193)
-------- -------- -------- -------- --------
Loss before income taxes and
extraordinary item.................. (6,139) (2,566) (12,601) (15,431) (15,936)
Provision for (benefit from) income
taxes............................... 2,804 (753) 12,084 (5,897) (3,988)
-------- -------- -------- -------- --------
Loss before extraordinary item........ (8,943) (1,813) (24,685) (9,534) (11,948)
Extraordinary loss on extinguishment
of debt net of income tax benefit of
$750................................ (1,174) -- -- -- --
-------- -------- -------- -------- --------
Net loss............................ (10,117) (1,813) (24,685) (9,534) (11,948)
Other comprehensive loss comprised of
foreign currency translation
adjustment.......................... (161) (544) (470) (41) (892)
-------- -------- -------- -------- --------
Comprehensive loss.................. $(10,278) $ (2,357) $(25,155) $ (9,575) $(12,840)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ICON HEALTH & FITNESS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE FROM OTHER TOTAL
------------------- PAID-IN OFFICERS AND COMPREHENSIVE ACCUMULATED STOCKHOLDER'S
SHARES VALUE CAPITAL PARENT INCOME (LOSS) DEFICIT DEFICIT
-------- -------- ---------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1996........ 1,000 $ -- $166,176 $ (758) $ 386 $(163,818) $ 1,986
Proceeds from exercise of
common stock options and
contribution of capital by
IHF Holdings, Inc............ -- -- 8 -- -- -- 8
Loan balances forgiven......... -- -- -- 102 -- -- 102
Other comprehensive loss....... -- -- -- -- (892) -- (892)
Net loss....................... -- -- -- -- -- (11,948) (11,948)
------ ------ -------- ------- ------- --------- --------
Balance at May 31, 1997........ 1,000 -- 166,184 (656) (506) (175,766) (10,744)
Proceeds from exercise of
common stock options and
contribution of capital by
IHF Holdings, Inc............ -- -- 2 -- -- -- 2
Other comprehensive loss....... -- -- -- -- (41) -- (41)
Net loss....................... -- -- -- -- -- (9,534) (9,534)
------ ------ -------- ------- ------- --------- --------
Balance at May 31, 1998........ 1,000 -- 166,186 (656) (547) (185,300) (20,317)
Other comprehensive loss....... -- -- -- -- (470) -- (470)
Cancellation of receivable from
parent....................... -- -- (2,367) -- -- -- (2,367)
Net loss....................... -- -- -- -- -- (24,685) (24,685)
------ ------ -------- ------- ------- --------- --------
Balance at May 31, 1999........ 1,000 -- 163,819 (656) (1,017) (209,985) (47,839)
Cash contribution of capital
from Parent (net of financing
fees of $4,263)
(unaudited).................. 35,737 35,737
Warrants of HF Holdings granted
to management (unaudited).... 3,175 3,175
Loan balances forgiven
(unaudited).................. (656) 656 --
Warrants of HF Holdings granted
to holders of 13% Notes
(unaudited).................. 2,192 2,192
Receivable from Parent
(unaudited).................. (2,200) (2,200)
Other comprehensive loss
(unaudited).................. (161) (161)
Net loss (unaudited)........... (10,117) (10,117)
------ ------ -------- ------- ------- --------- --------
Balance November 27, 1999
(unaudited).................. 1,000 $ -- $204,267 $(2,200) $(1,178) $(220,102) $(19,213)
====== ====== ======== ======= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ICON HEALTH & FITNESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------- MAY 31,
NOVEMBER 27, NOVEMBER 28, -------------------------------
1999 1998 1999 1998 1997
------------ ------------ --------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................... $(10,117) $ (1,813) $ (24,685) $ (9,534) $(11,948)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision (benefit) for deferred taxes........... 1,523 (1,986) 9,521 (8,599) 1,635
Depreciation and amortization.................... 8,166 8,791 17,422 16,658 13,351
Amortization of deferred financing fees and debt
discount....................................... 2,173 3,112 7,272 5,045 3,264
Non-cash employee compensation expense........... -- -- -- -- 296
Non-cash equity grant to management.............. 3,175 -- -- -- --
Extraordinary loss in extinguishment of debt..... 1,174 -- -- -- --
Amortization of inventory step-up................ -- -- -- 330 14,009
Loss on disposal of property and equipment....... -- -- -- 333 67
Gain on barter transaction....................... -- -- -- -- (2,095)
Changes in operating assets and liabilities:
Accounts receivable............................ (96,212) (79,972) 7,833 68,524 (46,862)
Inventories.................................... (33,322) (28,996) 15,040 42 (1,465)
Income taxes receivable/payable................ 622 -- 1,353 5,732 510
Other assets................................... 779 (4,798) (5,317) (606) (6,466)
Accounts payable and accrued expenses.......... 31,295 43,206 10,503 (29,932) (2,401)
Interest payable............................... -- -- (923) (376) 405
-------- -------- --------- -------- --------
Net cash provided by (used in) operating
activities....................................... (90,744) (62,456) 38,019 47,617 (37,700)
-------- -------- --------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale of building..................... -- -- -- 18,250 --
Purchase of property and equipment................. (6,805) (6,812) (11,593) (11,825) (16,039)
Purchase of intangibles and trademarks............. (372) -- (8,474) -- --
Purchase of HealthRider............................ -- -- -- -- (25,800)
Purchase of Weider Sports and CanCo................ -- -- -- -- (11,058)
Receivable from Parent............................. (2,200) -- -- -- --
-------- -------- --------- -------- --------
Net cash provided by (used in) investing
activities....................................... (9,377) (6,812) (20,067) 6,425 (52,897)
-------- -------- --------- -------- --------
FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit facility,
net.............................................. (40,623) -- 223,121 (36,302) 89,484
Payments on other long-term debt................... (384) -- (237,369) (16,418) (6,341)
Proceeds from issuance of common stock............. -- -- -- 2 8
Receivable from parent............................. -- -- (5) (55) (2,307)
Proceeds from new term notes....................... 180,000 141,336 -- -- --
Payments on old term notes......................... (19,464) (70,668) -- -- --
Contriubted capital from parent.................... 40,000 -- -- -- --
Payments for financing fees--equity................ (4,263) -- -- -- --
Payments to 13% noteholders........................ (39,408) -- -- -- --
Payments for financing fees--debt.................. (14,102) -- (2,846) (2,896) (3,023)
-------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities....................................... 101,756 70,668 (17,099) (55,669) 77,821
-------- -------- --------- -------- --------
Effect of exchange rate changes on cash.............. (161) (544) (470) (41) (977)
-------- -------- --------- -------- --------
Net increase (decrease) in cash...................... 1,474 856 383 (1,668) (13,753)
Cash, beginning of period............................ 4,275 3,892 3,892 5,560 19,313
-------- -------- --------- -------- --------
Cash, end of period.................................. $ 5,749 $ 4,748 $ 4,275 $ 3,892 $ 5,560
======== ======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of ICON Health & Fitness Inc. and its wholly-owned subsidiaries ("Icon
Health" or "the Company"). Icon Health was formerly known as Weslo, Inc. and its
wholly-owned subsidiary, ProForm Fitness Products, Inc. and its wholly-owned
subsidiaries, and American Physical Therapy, Inc. At May 31, 1999, Icon Health
was a wholly-owned subsidiary of IHF Holdings, Inc. ("IHF Holdings"), a
wholly-owned subsidiary of ICON Fitness Corporation ("ICON Fitness"), a
wholly-owned subsidiary of IHF Capital, Inc. ("IHF Capital").
DESCRIPTION OF BUSINESS--The Company is principally involved in the
development, manufacturing and distribution of home fitness equipment. The
Company's revenues are derived from the sale of various aerobic and anaerobic
fitness product lines in domestic and foreign markets. Because product life
cycles can be short in the fitness industry, the Company emphasizes new product
innovation and product repositioning. The Company primarily sells its products
to retailers and, to a limited extent, to end-users through direct response
advertising efforts and retail outlets.
UNAUDITED FINANCIAL INFORMATION--In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring items) necessary to present fairly the financial
position of the Company as of November 27, 1999 and the results of its
operations and cash flows for the six-month periods ended November 27, 1999 and
November 28, 1998. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC's rules
and regulations. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year.
2. RECENT DEVELOPMENTS
The Company incurred a net loss of $24,685,000 for the year ended May 31,
1999, and as of May 31, 1999 had an accumulated deficit of $209,985,000. The
Company was unable to make the interest payment on the 13% Senior Subordinated
Notes due on July 15, 1999 and was in violation of certain financial covenants
of its Credit Agreement.
To provide ongoing funding for the Company's operations and debt repayment
requirements, on September 27, 1999, the Company consummated a troubled debt
restructuring of its capital structure (the "Restructuring") and to refinance
its existing bank credit facility (Notes 17 and 18). The Company believes that
the new capital structure, the new credit facility and cash provided from
operations will be sufficient to fund its operations and debt repayment
requirements during the next year. There can be no assurance that this plan will
result in a successful reorganization of the Company.
3. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--All significant intercompany accounts and
transactions have been eliminated in the consolidation of the Company.
CASH--At May 31, 1999, substantially all of the Company's cash is held by
two banks located in Utah. The Company does not believe that as a result of this
concentration it is subject to any unusual financial risk beyond the normal risk
associated with commercial banking relationships.
F-7
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES--Inventories consist primarily of raw materials (principally
parts and supplies) and finished goods, and are valued at the lower of cost or
market. Cost is determined using standard costs which approximate the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the respective assets. Expenditures for renewals and improvements are
capitalized, and maintenance and repairs are charged to expense as incurred.
TRADEMARKS--During the fiscal year ended May 31, 1999, the Company acquired
certain assets of NordicTrack, the majority of which was a trademark recorded at
$6,664,000. During the fiscal year ended May 31, 1997 the Company acquired
HealthRider (Note 4), Weider Sports and CanCo (Note 14). In connection with
these acquisitions, the Company recorded trademarks of $12,024,000 and
$6,915,000 respectively.
These assets are being amortized on a straight-line basis over 20 years. At
May 31, 1999 and 1998 trademarks are net of accumulated amortization of
$2,641,950 and $1,695,000 respectively.
LONG-LIVED ASSETS--Long-lived assets are periodically reviewed for
impairment in accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Assets to Be Disposed Of". SFAS 121 requires the assessment of whether there has
been an impairment whenever events or circumstances indicate that the carrying
amount of long-lived assets may not be recoverable. The carrying value of a
long-lived asset is considered impaired when the anticipated cumulative
undiscounted cash flow from that asset is less than its carrying value. In that
event, a loss is recognized based on the amount by which the carrying value
exceeds the fair market value of the long-lived asset, which is generally based
on discounted cash flows. As a result of its review, the Company does not
believe that any impairment currently exists related to its long-lived assets.
DEFERRED FINANCING COSTS--The Company deferred certain debt issuance costs
relating to the establishment of the Credit Agreement (Note 8) and the issuance
of the 13% Senior Subordinated Notes (the "Notes"). These costs are capitalized
in other long-term assets and are being amortized using the straight-line method
for costs associated with the Credit Agreement and the effective interest method
for costs associated with the Notes. These deferred costs will be written off as
part the Restructuring transaction (Note 17). In addition, the Company deferred
certain costs relating to the Company's Restructuring transaction (Note 17).
Amortization will commence in fiscal year 2000.
ADVERTISING COSTS--The Company expenses the costs of advertising as
incurred, except for direct response advertising, which is capitalized and
amortized over its expected period of future benefit, generally twelve months.
Direct response advertising costs consist primarily of costs to produce
infomercials for the Company's products. At May 31, 1999 and 1998, $0 and
$273,000, respectively, were included in other long-term assets. For the fiscal
years ended May 31, 1999, 1998 and 1997, total advertising expense was
approximately $11,249,000, $24,637,000, and $31,810,000, respectively.
REVENUE RECOGNITION--The Company recognizes revenue upon the shipment of
product to the customer. Allowances are recognized for estimated returns,
discounts, advertising programs and warranty costs associated with these sales.
Finance charges under the Company's payment plans are recognized as other
income.
F-8
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME--At the beginning of fiscal year 1999, the Company
adopted SFAS No. 130 "Reporting Comprehensive Income." SFAS 130 establishes
standards for reporting and presentation of comprehensive income and its
components. SFAS 130 requires that all items that are required to be recognized
under accounting standards as comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. In accordance with the provisions of SFAS 130, the Company has
presented the components of other comprehensive income (loss) in its
consolidated statements of operations and comprehensive loss. The financial
statements for all prior periods have been restated to conform to requirements
of SFAS 130.
CONCENTRATION OF CREDIT RISK--Financial instruments which potentially expose
the Company to concentration of credit risk include trade accounts receivable.
To minimize this risk, ongoing credit evaluations of customers' financial
condition are performed and reserves are maintained; however, collateral is not
required. A significant portion of the Company's sales are made to Sears Roebuck
("Sears"). Sears accounted for approximately 37%, 33% and 29% of total sales for
the fiscal years ended May 31, 1999, 1998 and 1997, respectively. Accounts
receivable from Sears accounted for approximately 30% and 32% of gross accounts
receivable at May 31, 1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT COSTS--Research and product development costs are
expensed as incurred. Research and development activities include the design of
new products and product enhancements, and are performed by both internal and
external sources.
INCOME TAXES--The Company accounts for income taxes utilizing the asset and
liability method as prescribed by SFAS No. 109, "Accounting for Income Taxes".
SFAS 109 requires the Company to record in its consolidated balance sheet
deferred tax assets and liabilities for expected future tax consequences of
events that have been recognized in different periods for financial statements
versus tax returns. If appropriate, deferred tax assets are reduced by a
valuation allowance which reflects expectations of the extent to which such
assets will be realized.
Currently, the Company is included as part of the consolidated tax return
filed by IHF Capital. The income tax provision for the Company has been prepared
on a separate company basis.
FOREIGN OPERATIONS--Assets and liabilities of the Company's European and
Canadian subsidiaries are translated into U.S. dollars at the applicable rates
of exchange at each period end. The Company's foreign transactions are primarily
denominated in Canadian dollars, British pounds, German marks, French francs and
Italian lira, and transactions with foreign entities that result in income and
expense for the Company are translated at the average rate of exchange during
the period. Translation gains and losses are reflected as a separate component
of other comprehensive income (loss). Transaction gains and losses are recorded
in the consolidated statements of operations and comprehensive loss and were not
material in the fiscal years ended May 31, 1999, 1998 and 1997. In the fiscal
years ended May 31, 1999, 1998 and 1997, the Company's foreign operations
represented less than 10% of the Company's net sales and effects of exchange
rate changes have not had a material impact on the Company's earnings.
FOREIGN CURRENCY HEDGES--The Company enters into foreign currency forward
exchange contracts to hedge foreign currency transactions on a continuing basis
for periods consistent with its anticipated or committed foreign currency
exposures on purchases in Canadian dollars. The effect of this practice is to
minimize the impact of foreign exchange rate movements on the Company's
operating results. The Company's hedging activities do not subject the Company
to significant exchange rate risk because
F-9
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gains and losses on these contracts offset losses and gains on the assets and
transactions being hedged. Unrealized gains and losses on these contracts are
deferred and accounted for as part of the hedged transactions. Cash flows from
these contracts are classified in the consolidated statement of cash flows in
the same category as the hedged transactions. As of May 31, 1999 and 1998, the
Company had approximately $0 and $32,000,000 Canadian, respectively, of open
forward exchange contracts to sell Canadian dollars throughout fiscal years
May 31, 2000 and 1999, respectively. The fair value of these forward exchange
contracts are based on quoted market prices. At May 31, 1999, the estimated
unrealized loss on outstanding forward exchange contracts was $0 and at May 31,
1998 the estimated unrealized loss was $459,000. During the fiscal years ended
May 31, 1999 and 1998, the Company recognized losses of $0 and $449,000,
respectively, and in the fiscal year ended May 31, 1997 the Company recognized
gains of $149,000 upon settlement of foreign currency translations denominated
in Canadian dollars.
BARTER TRANSACTION--Included in other current and other long-term assets at
May 31, 1999 and 1998 are barter credits of $4,484,000 which were recorded in
connection with a barter agreement the Company entered into during the fiscal
year ended May 31, 1997. The Company recorded the barter credit at the fair
value of the inventory exchanged and recorded a gain of $2,095,000 in connection
with the transaction. The Company intends to use this asset primarily to
purchase advertising through August 31, 2003, the expiration date of the barter
credits.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and assumptions
were used to estimate the fair value disclosures for financial instruments:
Senior Notes--based on quoted market prices and the remaining long-term
debt.
Other long-term debt--fair value approximates carrying value since such
debt is primarily variable rate debt.
The carrying amounts and fair values of long-term debt at May 31, 1999 and
1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
13% Senior Subordinated Notes....................... $100,024 $ 70,875 $ 99,743 $108,084
Other long-term debt................................ 160,555 160,555 174,803 174,803
</TABLE>
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses for the period presented. Actual results could differ from
those estimates.
RECLASSIFICATIONS--Certain balances of the prior year have been reclassified
to conform to the current year's presentation. These reclassifications had no
effect on net income or total assets.
F-10
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. HEALTHRIDER ACQUISITION
On August 16, 1996, the Company: (i) purchased substantially all the assets
of HealthRider, Inc. ("HealthRider"), a distributor of aerobic home fitness
equipment, for approximately $16,800,000 and assumed (or refinanced)
substantially all of the liabilities of HealthRider (including $700,000 of fees
and expenses related to the acquisition); (ii) purchased certain related
manufacturing assets of Parkway Manufacturing, Inc., ("Parkway"), including
Parkway's contract to manufacture and supply upright rowers to HealthRider, for
approximately $10,100,000 (including the payment of $1,000,000 of trade payables
owed to Parkway by HealthRider); and (iii) purchased the minority interest of
HealthRider's European subsidiary for approximately $1,400,000; (of which
$1,300,000 was paid in cash and $100,000 was paid in inventory) (together, the
"HealthRider Acquisition").
The HealthRider Acquisition was accounted for under the purchase method of
accounting. Accordingly, the purchase price plus direct costs of the acquisition
were allocated to the assets acquired and liabilities assumed based on their
relative fair values as of the closing date. The results of operations of
HealthRider were consolidated with the Company's results from August 16, 1996 to
September 3, 1997, when HealthRider was merged into the Company.
The unaudited pro forma summary presents the consolidated results of
operations assuming that the HealthRider Acquisition had occurred on June 1,
1996. The results of HealthRider for the month ended June 30, 1996 have been
utilized in preparing the combined results of the Company and HealthRider for
the fiscal year ended May 31, 1997. No adjustments were required to conform the
accounting policies of HealthRider to those of the Company. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the transaction been effected on
the date indicated above or of results which may occur in the future. In
addition, the pro forma summary excludes certain non-recurring charges related
to the HealthRider Acquisition, including a $13,200,000 non-recurring, non-cash
charge resulting from the fact that the Company's purchase accounting included
writing-up the book value of the HealthRider inventory to fair market value less
estimated sales costs. For the fiscal year ended May 31, 1997, pro forma
unaudited net sales were $852,352,000 and the pro forma unaudited net loss was
$18,143,000.
5. ACCOUNTS RECEIVABLE
Accounts receivable, net, consist of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable..................................... $124,687 $131,188
Less allowance for doubtful accounts, advertising
discounts and credit memos............................ (8,219) (6,887)
-------- --------
$116,468 $124,301
======== ========
</TABLE>
F-11
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVENTORIES
Inventories, net, consist of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
------------------- NOVEMBER 27,
1999 1998 1999
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials, principally parts and
supplies................................. $ 42,126 $ 42,609 $ 73,788
Finished goods............................. 64,300 78,857 65,960
-------- -------- --------
$106,426 $121,466 $139,748
======== ======== ========
</TABLE>
Inventories are net of allowances of $4,815,000 and $3,335,000 at May 31,
1999 and 1998, respectively. These allowances are established based on
management's estimates of inventory held at fiscal year end that is potentially
obsolete or for which its market value is below cost.
7. PROPERTY AND EQUIPMENT
Property and equipment, net, consist of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
ESTIMATED -------------------
USEFUL LIFE 1999 1998
----------- -------- --------
(YEARS)
<S> <C> <C> <C>
Land........................................... -- $ 1,430 $ 1,430
Building and improvements...................... up to 31 16,823 16,675
Equipment...................................... 3-7 69,035 71,293
-------- -------
87,288 89,398
Less accumulated depreciation.................. (42,011) (40,579)
-------- -------
$ 45,277 $48,819
======== =======
</TABLE>
For the fiscal years ended May 31, 1999, 1998 and 1997, the Company recorded
depreciation expense of $15,135,000, $13,698,000 and $11,630,000, respectively.
8. OTHER ASSETS
Other assets consist of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred financing costs, net............................. $ 9,966 $14,112
Deferred advertising costs................................ -- 273
Barter credits............................................ 2,819 2,000
Long-term receivables, net................................ 8,348 3,198
Other..................................................... 2,459 2,375
------- -------
$23,592 $21,958
======= =======
</TABLE>
At May 31, 1999 and 1998, capitalized deferred financing costs are net of
accumulated amortization of $18,598,000 and $11,606,000, respectively.
At May 31, 1999 and 1998, long-term receivables are net of an allowance for
doubtful accounts of $7,981,000 and $3,198,000, respectively.
F-12
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of the following (table in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revolving Credit Facility............................... $140,107 $148,488
Term Loan A Facility.................................... 3,912 9,225
Term Loan B Facility.................................... 15,552 15,802
13% Senior Subordinated Notes, face amount $101,250, net
of unamortized discount of $1,226 at May 31, 1999 and
$1,507 at May 31, 1998................................ 100,024 99,743
Other................................................... 984 1,288
-------- --------
260,579 274,546
Less current portion.................................... (7,227) (6,051)
-------- --------
Total long-term debt.................................... $253,352 $268,495
======== ========
</TABLE>
On September 27, 1999, the Company consummated a plan to restructure its
outstanding debt and to refinance its existing bank credit facility. The Company
entered into a new credit facility and consummated exchange offers for all
outstanding 13% Senior Subordinated Notes (Notes 17 and 18). Below is described
the Credit Agreement that was in effect at May 31, 1999 and through
September 23, 1999.
CREDIT AGREEMENT
In 1994, the Company entered into a Credit Agreement with a syndicate of
banks. Borrowings under the Amended and Restated Credit Agreement consist of the
Revolving Credit Facility, the Term Loan A Facility, and the Term Loan B
Facility, and are collateralized by a perfected first priority security interest
in the assets of the Company. Under the terms of the Credit Agreement, the
Company must comply with certain restrictive covenants, which include the
requirement that the Company maintain minimum amounts of profitability, solvency
and liquidity. In addition, the Credit Agreement restricts the Company from
making certain payments, including dividend payments, to its shareholder. At
May 31, 1999, the Company was not in compliance with certain loan covenants of
its Credit Agreement. However, due to the subsequent refinancing of the entire
Credit Agreement (Note 18), outstanding balances of $152,344,000 under the
Credit Agreement as of May 31, 1999 have been classified as long-term.
REVOLVING CREDIT FACILITY
The Credit Agreement provided for borrowings of up to $160,000,000 based
upon a percentage of eligible accounts receivable and inventories. As of
August 23, 1996, the Credit Agreement was amended to permit total borrowings of
up to $310,000,000, with certain changes to the percentage of eligible
receivables and inventory, in order to fund the HealthRider Acquisition
(Note 4), the settlement of the WHF Litigation (Note 14), the Weider Sports and
CanCo Acquisitions (Note 14) and other working capital needs. This Revolving
Credit Facility was due to expire on November 14, 1999 and was replaced on
September 27, 1999 by New Credit Facilities (Note 18). Advances under the
Revolving Credit Facility bear interest, at the Company's option, at either
(1) a margin of 1.50% to 2.50% over the rate
F-13
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
at which certain Eurodollar deposits are offered in the interbank Eurodollar
market (the "LIBOR Rate") or (2) a margin of up to 1.00% over the higher of
(a) the highest of the most recently published or announced prime corporate
base, reference or similar benchmark rate announced by Bankers Trust Company or
(b) the published rate for ninety-day dealer placed commercial paper (the "Index
Rate") (8.15% rate as of May 31, 1999 under the LIBOR Rate option). The
applicable margin is based on the Company's debt service ratio. The Company is
required to pay a fee of between 0.375% to 0.5% per annum on the average unused
commitment under the Revolving Credit Facility. For the fiscal years ended
May 31, 1999, 1998 and 1997, the Company paid an unused commitment fee of
$664,000, $564,000, and $421,000, respectively.
TERM LOAN A FACILITY
Under the Term Loan A Facility, $17,500,000 was advanced on November 14,
1994. Quarterly payments of $937,500, $1,250,000 and $1,562,500 became due
beginning each March 31, 1997, 1998 and 1999, respectively. Quarterly payments
continue at $1,562,500 until maturity on November 14, 1999. Advances under the
Term Loan A Facility bear interest, at the Company's option, at a rate equal to
either (1) a margin of 1.75% to 2.75% over the LIBOR Rate or (2) a margin of
0.25% to 1.25% over the Index Rate (8.42% as of May 31, 1999 under the LIBOR
Rate option).
TERM LOAN B FACILITY
Under the Term Loan B Facility, $17,500,000 was advanced on November 14,
1994. Quarterly payments of $62,500 were due beginning March 31, 1996. Quarterly
payments increase to $1,562,500 beginning March 31, 2000 through September 30,
2001, and the balance of $3,651,691 is due at maturity on November 14, 2001.
Advances under the Term Loan B Facility bear interest, at the Company's option,
at a rate equal to either (1) a margin of 2.25% to 3.25% over the LIBOR Rate or
(2) a margin of 0.75% to 1.75% over the Index Rate (8.92% as of May 31, 1999
under the LIBOR Rate option).
In addition, the Company is required to use the proceeds of permitted sales
of assets to pay down the Term Loan A and Term Loan B Facilities.
SENIOR SUBORDINATED NOTES
In 1994, the Company issued $101,250,000 face amount (net proceeds of
$100.0 million) of 13% Senior Subordinated Notes (the "Senior Subordinated
Notes") and warrants to purchase 200,000 shares of Class A and 20,000 shares of
Class L Common Stock of IHF Capital. The Senior Subordinated Notes are unsecured
and bear interest at 13%, payable January 15 and July 15 through the maturity
date of July 15, 2002. The warrants have an exercise price of $0.01 per share
and expire on November 14, 1999. As of May 31, 1999, no warrants had been
exercised. In conjunction with the sale, $968,000 of the issuance price was
ascribed to the warrants and is included in the total discount on the notes.
This discount is being amortized using the effective interest method.
Upon certain asset sales, the Company may be obligated to purchase the
Senior Subordinated Notes with the net cash proceeds of the asset sales at a
redemption price of 100% of principal plus accrued and unpaid interest. On or
after November 15, 1998, the Senior Subordinated Notes may be redeemed at the
Company's option, in whole or in part, at redemption prices ranging from 110.00%
of
F-14
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (CONTINUED)
principal amount in the year ended November 14, 1999, plus accrued and unpaid
interest, to 100% of principal amount subsequent to November 14, 2001, plus
accrued and unpaid interest.
The Company did not make the interest payment that was due on July 15, 1999.
However, in connection with the Company's Restructuring (Note 17), the
outstanding accrued interest was settled.
FUTURE PAYMENTS
As of May 31, 1999, due to the Company's noncompliance with certain debt
covenants, all of the Company's debt became currently payable. However, as a
result of the Company's Restructuring (Notes 17 and 18) on September 27, 1999,
the current debt obligations were settled. The table below reflects the
scheduled principal payment term of the new debt (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
- ------------------
<S> <C>
2000........................................................ $ 7,227
2001........................................................ 9,273
2002........................................................ 9,956
2003........................................................ 12,000
2004........................................................ 12,681
Thereafter.................................................. 173,950
</TABLE>
10. STOCKHOLDERS' EQUITY
The Company has 3,000 shares of $.01 par value common stock authorized, and
1,000 shares issued and outstanding.
11. INCOME TAXES
The provision for (benefit from) income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $ -- $ -- $(6,252)
State.......................................... 107 426 (536)
Foreign........................................ 2,457 2,276 1,165
------- ------- -------
Total current................................ 2,564 2,702 (5,623)
------- ------- -------
Deferred:
Federal........................................ 8,224 (7,672) 1,512
State.......................................... 1,286 (1,195) 129
Foreign........................................ 10 268 (6)
------- ------- -------
Total deferred............................... 9,520 (8,599) 1,635
------- ------- -------
$12,084 $(5,897) $(3,988)
======= ======= =======
</TABLE>
F-15
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
The components of the Company's pre-tax income (loss) are as follows:
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Domestic....................................... $(17,150) $(17,948) $(14,000)
Foreign........................................ 4,549 2,517 (1,936)
-------- -------- --------
$(12,601) $(15,431) $(15,936)
======== ======== ========
</TABLE>
The provision for (benefit from) income tax differs from the amount computed
by applying the statutory federal income tax rate to income (loss) before taxes
as follows:
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate.......................... (35)% (35)% (35)%
State tax benefit.......................................... 8 (2) (3)
Foreign losses for which no benefit has been recognized.... 6 6 11
Other...................................................... -- (7) 2
Change in valuation allowance.............................. 117 -- --
--- --- ---
Provision for (benefit from) income taxes.................. 96 % (38)% (25)%
=== === ===
</TABLE>
As of May 31, 1999 and 1998, the Company recorded gross deferred tax assets
and gross deferred tax liabilities as follows (in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Gross deferred tax assets................................ $ 30,713 $26,686
Gross deferred tax liabilities........................... (6,499) (6,092)
-------- -------
24,214 20,594
Valuation allowance...................................... (17,630) (4,490)
-------- -------
$ 6,584 $16,104
======== =======
</TABLE>
During the fiscal year ended May 31, 1999, the valuation allowance for net
deferred tax assets increased by $13,140,000. The Company has provided a
valuation allowance for deferred tax assets to the extent the Company believes
the realization of the future benefits is not sufficiently assured, primarily
related to the following: (1) net operating loss carryforwards ("NOLs"),
(2) future deductible interest and (3) future deductible stock compensation
expense. In addition, management believes that it is more likely than not that
the Company will generate sufficient future taxable income, primarily due to the
subsequent restructuring of its long-term debt (Note 17), to realize the balance
of the net deferred tax asset at May 31, 1999 prior to expiration of any NOLs.
However, there can be no assurance that the Company will generate any specific
level of taxable income or that it will be able to realize any of the remaining
deferred tax assets in future periods. If the Company were unable to generate
sufficient taxable income in the future through operating or restructuring
results, an additional valuation allowance against this deferred tax asset would
result in a charge to earnings.
F-16
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (CONTINUED)
At May 31, 1999 and 1998 net deferred tax assets consist of the following
(in thousands):
<TABLE>
<CAPTION>
MAY 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Foreign net operating loss carryforward.................. $ 4,950 $ 4,490
Domestic net operating loss carryforward................. 16,007 9,154
Stock compensation expense............................... 4,146 4,145
Future deductible interest............................... (249) (137)
Depreciation............................................. (2,448) (4,463)
Reserves and allowances.................................. 1,088 5,622
Uniform capitalization of inventory...................... (95) 830
Other, net............................................... 815 953
-------- -------
24,214 20,594
Less valuation allowance................................. (17,630) (4,490)
-------- -------
Net deferred tax asset................................... $ 6,584 $16,104
======== =======
</TABLE>
In the fiscal years ended May 31, 1999, 1998 and 1997, the Company did not
realize any income tax benefits from federal and state net operating loss
carryforwards from the current and prior years.
At May 31, 1999, the Company had approximately $11.0 million of foreign net
operating loss carryforwards which may be carried forward indefinitely and
$44.8 million of domestic net operating loss carryforwards which expire in 2020.
The utilization of these carryforwards may be subject to limitations.
12. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the period for (in thousands):
Interest paid............................................. $33,979 $32,891 $33,017
Income taxes paid (refunds received), net................. 27 1,505 (685)
</TABLE>
Non-cash investing and financing activities:
During the fiscal year ended May 31, 1999, the Company recorded a non-cash
decrease to additional paid-in capital of $2,367,000 to reflect the settlement
of a receivable from parent through a return of capital to the parent
(Note 14).
13. COMMITMENTS AND CONTINGENCIES
LEASES--The Company has noncancellable operating leases, primarily for
computer and production equipment, that expire over the next five years. These
leases generally contain renewal options for periods ranging from three to five
years and require the Company to pay all executory costs such as
F-17
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
maintenance and insurance. Future minimum payments under noncancellable
operating leases consist of the following at May 31, 1999 (table in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
- ------------------
<S> <C>
2000........................................................ $8,298
2001........................................................ 6,115
2002........................................................ 3,472
2003........................................................ 2,544
2004........................................................ 1,733
Thereafter.................................................. 1,201
</TABLE>
Rental expense under noncancellable operating leases was approximately
$9,550,000, $10,222,000 and $9,373,000 for the fiscal years ended May 31, 1999,
1998, and 1997, respectively.
ENVIRONMENTAL ISSUES--The Company's operations are subject to federal, state
and local environmental and health and safety laws and regulations that impose
workplace standards and limitations on the discharge of pollutants into the
environment and establish standards for the handling, generation, emission,
release discharge, treatment, storage and disposal of certain materials,
substances and wastes. The Company is unaware of any environmental, health or
safety violations.
PRODUCT LIABILITY--Due to the nature of the Company's products, the Company
is subject to product liability claims involving personal injuries allegedly
related to the Company's products. The Company currently carries an
occurrence-based product liability insurance policy. The policy provides
coverage for the period from October 1, 1998 to September 30, 2001 of up to
$25,000,000 per occurrence and $25,000,000 in the aggregate. The current policy
has a deductible on each claim of $250,000 for claims related to trampolines and
$100,000 for claims related to all other products. The Company believes that its
insurance is generally adequate to cover product liability claims. Previously,
the Company maintained similar occurrence based policies with somewhat lower
coverage limits and higher deductibles. Nevertheless, currently pending claims
and any future claims are subject to the uncertainties related to litigation and
the ultimate outcome of any such proceedings or claims cannot be predicted.
On July 14, 1997, in cooperation with the Consumer Products Safety
Commission (the CPSC), the Company recalled approximately 78,000 exercise
machines sold under the brand name, ProForm R-930 SpaceSaver". Riders, Model No.
PFCR6406. The machine was designed to close horizontally for easy storage. In
several reported incidents, when the handle bar was pulled against the seat
during use, the machine unexpectedly closed into the storage position. As such,
consumers were advised to stop using the machine until a free repair kit had
been installed. Any claims filed by a consumer in conjunction with this product
have been and continue to be handled in the normal course of business. While no
assurance can be given, the Company does not believe that it will incur any
material adverse effect relative to this product recall.
On April 15, 1999, in cooperation with the CPSC, the Company recalled
approximately 75,000 exercise machines sold under the brand names, Weider
Shapeglider (Model No. WECR4306), Weider PowerGlide (Model No. WECR4406), and
the Weslo Total Body Trainer (Model No. WLCR4356). In several reported
incidents, the link arm supporting the seat on these exercise gliders
disconnected during use, causing the user to fall abruptly. As such, consumers
were advised to stop using the
F-18
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
machine until a free repair kit had been installed. Any claims filed by a
consumer in conjunction with this product have been and will continue to be
handled in the normal course of business. While no assurance can be given, the
Company does not believe that it will incur any material adverse effect relative
to this product recall.
CLAIMS RELATING TO THE RESTRUCTURING--In connection with the Restructuring,
we amended the indentures governing the 13% notes to delete substantially all
restrictive covenants contained in those indentures. One entity which claims to
be a non-tendering holder of $1.5 million principal amount of 13% notes has
informed us of its intention to pursue a claim against our company, our
directors and others. Although we intend to vigorously defend any such claims
and while we do not believe that these claims are material to our company, there
can be no assurance that these claims would not have material adverse effect on
our company.
OTHER LITIGATION--The Company is party to a variety of non-product liability
commercial suits involving contract claims and intellectual property claims. The
Company believes that adverse resolution of these suits would not have a
material adverse effect on the Company.
The Company is also involved in several patent infringement claims, arising
in the ordinary course of its business. The Company believes that the ultimate
outcome of these matters will not have a material adverse effect on the Company.
WARRANTY--The Company warrants its products against defects in materials and
workmanship for a period of 90 days after sale to the end-user. As of May 31,
1999 and 1998, the Company had an accrual for warranty costs on products sold of
approximately $2,301,000 and $4,784,000, respectively, included in accrued
expenses.
RETIREMENT PLANS--All employees who have met minimum age and service
requirements are eligible to participate in two 401(k) savings plans. Company
contributions to the two plans for the fiscal years ended May 31, 1999, 1998 and
1997 were $368,000, $384,000 and $374,000 reFspectively.
INTERNAL REVENUE SERVICE AUDIT--The Company is under examination by the
Internal Revenue Service for its taxable year ended May 31, 1996. This
examination remains in process and has not been completed. Because the Company
carried forward losses claimed on its 1995 tax return to its 1996 return and
carried back losses claimed on its 1997 return to its 1996 return, the IRS, as
part of its examination, is reviewing the Company's tax returns for its
Company's years ended May 31, 1995 and 1997. In connection with this review, the
IRS has given the Company preliminary written notice of its intention to
disallow approximately $26 million of option-related deductions claimed in the
Company's taxable year ended May 31, 1995. Although the Company's taxable year
ended May 31, 1995 is closed due to the statute of limitations, such
disallowances (if successful) would affect the amount of the Company's net
operating loss carryforwards. The Company intends to vigorously and aggressively
defend its position on this issue and believe that the it will prevail. The IRS
has also indicated that it intends to challenge the timing of other deductions
in the Company's taxable year ended May 31, 1997. If the IRS were to prevail in
respect of both these issues, due to the interplay of the Company's net
operating loss carryforwards and carrybacks from other years, there would be a
potential tax liability for the taxable year ended May 31, 1996 in an amount,
through February 29, 2000, of approximately $4.2 million, including interest. In
addition, there would be a substantial reduction in the Company's net operating
loss carryforwards. The IRS has also inquired about the Company's treatment of a
substantial amount of banking, professional and other fees incurred in its
taxable year ended May 31,
F-19
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
1995. The Company is deducting the amount of those fees over the terms of the
debt that was incurred in that year. The IRS has just recently preliminarily
indicated that it intends to disallow the deduction of such fees and has asked
the Company to respond with its position. The Company believes that a
substantial majority of such fees are properly amortizable over the terms of the
debt we incurred in 1995 and is in the process of discussing with the IRS the
merits of its preliminary position. The Company cannot ensure that the IRS will
not raise other issues in the course of its examination.
If the IRS were to prevail in its position that the 1995 option-related and
the 1997 deductions should be disallowed, as noted above, the Company's
available net operating loss carryforwards would be substantially reduced and
there would be a potential liability for the year ended May 1996 of
approximately $4.2 million (including interest calculated through February 29,
2000). Based on information currently available to the Company, the Company does
not believe that the reduction in its net operating losses should materially
adversely affect our financial condition. However, a reduction in its available
net operating losses could materially adversely affect its financial condition
if the IRS were successfully to assert other issues (including the deductibility
of the 1995 banking, professional and other fees) on audit or if it were to be
determined that the Company recognized additional cancellation of indebtedness
income upon the exchange of the 13% notes for the old notes as a result of the
old notes being determined to have been issued with original issue discount, or
OID. It is the Company's belief that the old notes were not issued with OID and
that, therefore, it did not recognize such additional cancellation of
indebtedness income.
14. RELATED PARTY TRANSACTIONS
SETTLEMENT OF WHF LITIGATION
On September 6, 1996, the Company and WHF and its affiliates settled the
litigation between WHF and certain of its affiliates and the Company and certain
of its officers and directors (the "WHF Litigation") through a number of
agreements (the "WHF Settlement"). The WHF Settlement includes releases of
certain claims previously asserted by WHF and its affiliates, amendments to
certain of the agreements existing between the Company and WHF and its
affiliates and certain new agreements among the Company and WHF and its
affiliates. Other than the releases, the significant terms of the WHF Settlement
are outlined below.
SETTLEMENT EXPENSES AND INTERCOMPANY PAYABLES. The Company: (i) paid
$12,100,000 to terminate the lawsuits; (ii) paid $3,900,000 to WHF and its
affiliates as payment in full under its brand license agreements with them; and
(iii) received $1,200,000 in full payment and settlement of the Company's
payable to WHF and its affiliates ($1,800,000) and amounts due the Company under
the amended Management Agreement ($3,000,000). The Company also received
$500,000 in full payment and settlement of CanCo's Management fee obligations to
the Company under the CanCo Management and Advisory Agreement. As a result of
the above, the Company recorded Weider Settlement expenses of $16,600,000, which
includes the expenses noted in (i) and (ii) and other individually insignificant
settlement expenses totaling $1,100,000, offset by the $500,000 of CanCo
management fees. The Company also recorded the balance reductions noted in
(iii) in its consolidated balance sheet.
PAYMENTS TO MESSRS. WATTERSON AND STEVENSON. In connection with the WHF
Settlement, WHF and its affiliates: (i) paid Messrs. Watterson and Stevenson an
aggregate amount of approximately $4,200,000 in exchange for the surrender of
their options to purchase stock of WHF and its affiliates;
F-20
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
and (ii) paid Messrs. Watterson and Stevenson an aggregate amount of $500,000.
Messrs. Watterson and Stevenson also each received $300,000 in full payment and
settlement of CanCo's management fee obligations under the CanCo Management and
Advisory Agreements.
The WHF Settlement also contained various miscellaneous provisions that the
Company does not believe are material.
MANAGEMENT FEES
The Management Agreement required the Company to the extent applicable, to
source WHF products, or products substantially the same as those sold by WHF,
from WHF prior to seeking sources of those products from outside vendors. During
the fiscal year ended May 1997, the Company purchased approximately $7,000,000
of products from WHF. In connection with the WHF Settlement, this agreement was
terminated.
The Company executed an agreement with a majority shareholder who provides
management and advisory services. Total annual fees due under this agreement are
$800,000, and, for the fiscal years ended May 31, 1999, 1998 and 1997, the
Company recorded management fee expense of $800,000 each year. In addition, if
the Company enters into any acquisition transactions involving at least
$10,000,000, the Company must pay a fee of approximately 1% of the gross
purchase price, including liabilities assumed, of the transaction. In connection
with the HealthRider Acquisition (Note 4), the Company paid this shareholder
$700,000.
LICENSE FEES
The Company obtained certain rights to use the WHF name pursuant to two
separate exclusive license agreements. Under the Weider Sports License, the
Company paid a $5,000,000 license fee on November 14, 1994 for a perpetual
license with respect to Weider Canadian Trademark Rights. Under the Weider
Health and Fitness license, the Company was required to pay a royalty with
respect to Weider U.S. and other trademark rights equal to 2% of sales of
licensed products sold thereunder until such time as the Company had paid an
aggregate royalty equal to $12,000,000 plus an interest factor accruing on the
unpaid portion of the royalty at a per annum rate of 10%. The Company recorded
license fees of $129,000 during the fiscal year ended May 31, 1997 under this
agreement. In connection with the WHF Settlement, the Company paid $3,900,000 in
exchange for a fully paid-up license with respect to the Weider U.S. and other
trademarks.
DISTRIBUTION AGREEMENT
The Company had appointed a Canadian WHF affiliate to be the exclusive
distributor of ICON Healths products worldwide, excluding the United States,
Mexico and certain countries in Europe. Under the terms of this agreement, the
Company sold its products directly to WHF affiliates for resale in the
agreed-upon territory. In conjunction with this agreement, the Company recorded
revenue of $3,200,000 for the fiscal year ended May 31, 1997. In connection with
the WHF Settlement, the Company paid $8,000,000 to terminate this agreement.
F-21
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
WEIDER SPORTS AND CANCO ACQUISITIONS
In connection with the settlement of the WHF Litigation, the Company
acquired certain assets, excluding cash and fixed assets, for $8,900,000 and
assumed certain liabilities of the sports equipment business lines of Weider
Sports (the "Weider Sports Acquisition"). The terms of the Weider Sports
Acquisition and WHF Settlement also require the Company to provide Ben Weider
with a salary, office space and three assistants for a period of five years
after the acquisition. The estimated costs of this commitment of $2,500,000 were
accrued as part of the purchase accounting for the Weider Sports Acquisition. As
a result of the Weider Sports Acquisition, the Company reacquired distribution
rights originally granted to Weider Sports in connection with the
Recapitalization on November 14, 1994, subject to certain rights granted by
Weider Sports to third parties.
In addition, the Company acquired certain assets, excluding cash, cash
equivalents and accounts receivable, for $1,700,000 and assumed certain
liabilities of three Canadian corporations (collectively, CanCo) (the "CanCo
Acquisition"). The Company also acquired two CanCo plants which were leased by
other WHF affiliates in exchange for the assumption of the existing $1,500,000
Canadian mortgage on the properties and the payment of $500,000.
The Weider Sports and CanCo Acquisitions have been accounted for under the
purchase method of accounting. Accordingly, the purchase price plus direct costs
of the acquisitions have been allocated to the assets acquired and liabilities
assumed based on their relative fair values as of the closing date. The Weider
Sports and CanCo Acquisitions did not represent acquisitions of significant
businesses by the Company.
AIRCRAFT LEASE
In June 1996, the Company entered into an agreement with FG Aviation, Inc.
("FG"), a company which is jointly owned by officers of the Company, whereby the
Company has committed to lease an airplane from FG. Minimum rentals under the
lease, which expires in May 2005, are approximately $57,000 per month. In
connection with its lease commitments, the Company recorded $864,000 of rental
expense for the fiscal years ended May 31, 1999, 1998, and 1997. Also, the
Company incurred $206,000 and $34,000 of maintenance expense in the fiscal years
ended May 31, 1998 and 1997, respectively. No maintenance expenses were incurred
by the Company for the fiscal year ended May 31, 1999. In addition, the Company
advanced $280,000 to FG as a security deposit on the aircraft lease.
RECEIVABLE FROM PARENT
Through May 31, 1998, IHF Capital had incurred $2,362,000 in expenses and
fees related to its withdrawn public equity offering. In order to fund the
payment for these expenses, the Company advanced IHF Capital $2,362,000 in the
form of a non-interest bearing loan. During the fiscal year ended May 31, 1999,
$5,000 was added to the loan balance for franchise taxes paid on behalf of IHF
Capital. During the fiscal year ended May 31, 1999, the Company determined that
the loan would not be paid in cash due to the Restructuring of the Company
(Note 18), therefore, the loan of $2,367,000 was canceled and the amount was
treated as a return of capital to IHF Capital.
F-22
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
RECEIVABLES FROM OFFICERS
In connection with the exercise of options prior to 1994, the Company
accepted as partial payment, notes bearing interest at the rate of prime plus
0.5%, in the amount of $102,000 from officers. In connection with the purchase
of stock, the Company accepted as partial payment, notes bearing interest at a
per annum rate of 7.5%, in the amount of $656,000 from officers. In the fiscal
year ended May 31, 1997, the Company forgave a total of $102,000 of principal
and $27,000 of accrued interest on these notes. The notes are shown as a
reduction of stockholder's equity (deficit) at May 31, 1999 and 1998.
15. GEOGRAPHIC SEGMENT INFORMATION
In the fiscal year ended May 31, 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. The adoption of SFAS 131 did
not affect the Company's results of operations or financial position.
Based on the Company's method of internal reporting, the Company operates
and reports as a single industry segment, which is development, manufacturing
and distribution of home fitness equipment.
Revenue and long-lived asset information by geographic area as of and for
the fiscal years ended May 31 is as follows (table in thousands):
<TABLE>
<CAPTION>
LONG-LIVED
REVENUES FOR THE YEARS ENDED MAY 31, ASSETS AS OF MAY 31 (NET),
------------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
United States...................... $648,641 $686,630 $746,007 $70,350 $67,704 $71,500
Foreign............................ 61,608 62,683 90,155 10,674 10,836 7,936
-------- -------- -------- ------- ------- -------
Total........................ $710,249 $749,313 $836,162 $81,024 $78,540 $79,436
======== ======== ======== ======= ======= =======
</TABLE>
Foreign revenue is based on the country in which the sales originate (i.e.
where the legal subsidiary is domiciled). Revenue from no single foreign country
was material to the consolidated revenues of the Company.
16. SUBSEQUENT EVENTS--NEW HOLDING COMPANY
On July 20, 1999, prior to the Restructuring (Note 18), a new holding
company, HF Holdings, Inc. a Delaware corporation ("HF Holdings"), was formed.
Following the Restructuring, a wholly owned subsidiary of HF Holdings merged
with ICON Health, whereupon ICON Health became a wholly owned subsidiary of HF
Holdings.
HF Holdings was formed through equity investments by current shareholders of
IHF Capital, members of Company management and other investors.
F-23
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING
On September 27, 1999, the Company consummated an exchange offer (the
"Exchange Offer") for all of its outstanding 13% Senior Subordinated Notes ("13%
Notes"). Significant components of the Exchange Offer are as follows (in
thousands):
The 13% Note holders received:
i. $39,401,000 in cash,
ii. $45,000,000 in new 12% Subordinated Notes ("12% Notes") of ICON Health
(the "Issuer") issued in connection with the exchange offering,
iii. $10,086,000 payment for accrued interest and
iv. warrants to purchase 423,939 shares of HF Holdings common stock for a
nominal exercise price. In addition, rights to purchase an aggregate of
343,336 shares of HF Holdings common stock at a purchase price of $5.83
per share, or an aggregate purchase price of $2,000,000.
In connection with the Exchange Offer, the indentures governing the 13%
Notes were amended to eliminate most of the related restrictive covenant
provisions of the 13% Notes.
As of September 27, 1999, noteholders not tendering in the Exchange Offers
totaled $1,500,000. The unexchanged 13% Notes will be subordinated in right of
payment to the payment in full in cash of both the new 12% Notes and the New
Credit Facilities (Note 18).
The new 12% Notes are due September 2005 and are guaranteed by each of the
domestic subsidiaries. Interest will be due each January 15 and July 15 of each
year, beginning on January 15, 2000. The notes are redeemable at any time for a
1-4% premium, as outlined in the indenture. The 12% Notes contain certain
restrictive covenants that, among other things, limit the ability of Icon Health
and its subsidiaries to incur additional debt, pay dividends or make other
distributions make investments, dispose of assets, issue capital stock of
subsidiaries or enter into mergers or consolidations or sell all or
substantially all of its assets.
No gain will be realized on the extinguishment of the 13% Notes. Unamortized
deferred financing fees related to the 13% Notes will be reflected as a
component of the adjustment to establish the carrying value of the 12% Notes.
The Company's subsidiaries Jumpking, Inc., 510152 N.B. Ltd., Universal
Technical Services, Inc. and ICON International Holdings, Inc. ("Subsidiary
Guarantors") have fully and unconditionally guaranteed on a joint and several
basis, the obligation to pay principal and interest with respect to the 12%
Notes. A significant portion of the Issuer's operating income and cashflow is
generated by its subsidiaries. As a result, funds necessary to meet the Issuer's
debt service obligations are provided in part by distributions or advances from
its subsidiaries. Under certain circumstances, contractual and legal
restrictions, as well as the financial condition and operating requirements of
the Issuer's subsidiaries, could limit the Issuer's ability to obtain cash from
its subsidiaries for the purpose of meeting its debt service obligations,
including the payment of principal and interest on the 12% Notes. Although
holders of the 12% Notes will be direct creditors of the Issuer's principal
direct subsidiaries by virtue of the guarantees, the Issuer has indirect
subsidiaries located primarily in Europe ("Non-Guarantor Subsidiaries") that are
not included among the Guarantor Subsidiaries, and such subsidiaries will not be
obligated with respect to the Notes. As a result, the claims of creditors of the
F-24
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING (CONTINUED)
Non-Guarantor Subsidiaries will effectively have priority with respect to the
assets and earnings of such companies over the claims of creditors of the
Issuer, including the holders of the Notes.
The following supplemental consolidating condensed financial statements
present:
1. Consolidating condensed balance sheets as of November 27, 1998
(unaudited) and May 31, 1999 and 1998 and consolidating condensed
statements of operations and cash flows for the six months ended
November 27, 1999 (unaudited) and November 28, 1998 (unaudited) and
each of the years in the three year period ended May 31, 1999.
2. The Company ("Issuer"), combined Subsidiary Guarantors and combined
Non-Guarantor Subsidiaries with their investments in subsidiaries
accounted for using the equity method.
3. Elimination entries necessary to consolidate the Parent and all of
its subsidiaries.
F-25
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
NOVEMBER 27, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................... $ 4,529 $ 249 $ 971 $ -- $ 5,749
Accounts receivable, net....... 183,577 31,941 10,176 (13,014) 212,680
Inventories, net............... 103,310 29,935 6,819 (316) 139,748
Deferred income taxes.......... 1,075 224 -- -- 1,299
Other assets................... 6,658 1,806 1,189 -- 9,653
--------- ------- -------- --------- ---------
Total current assets........... 299,149 64,155 19,155 (13,330) 369,129
Property and equipment, net...... 39,500 4,764 423 -- 44,687
Receivable from affiliates....... 56,177 6,672 -- (62,849) --
Trademarks, net.................. 17,392 5,948 1,433 -- 24,773
Deferred income taxes............ 4,303 209 -- -- 4,512
Investments in subsidiaries...... 44,309 -- -- (44,309) --
Other assets..................... 20,821 -- 26 -- 20,847
--------- ------- -------- --------- ---------
Total assets..................... $ 481,651 $81,748 $ 21,037 $(120,488) $ 463,948
========= ======= ======== ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term
debt......................... $ 7,704 $ 100 $ -- $ -- $ 7,804
Accounts payable............... 100,607 29,471 13,206 (13,014) 130,270
Interest payable............... 4,221 -- -- -- 4,221
Accrued expenses............... 12,125 2,181 729 -- 15,035
Income taxes payable........... 784 354 305 -- 1,443
--------- ------- -------- --------- ---------
Total current liabilities.... 125,441 32,106 14,240 (13,014) 158,773
--------- ------- -------- --------- ---------
Long-term debt................... 324,388 -- -- -- 324,388
--------- ------- -------- --------- ---------
Payable to affiliates.......... 35,735 7,881 19,233 (62,849) --
Stockholder's equity (deficit):
Common stock and additional
paid-in capital.............. 232,595 11,100 4,881 (44,309) 204,267
Receivables from officers...... (2,200) -- -- -- (2,200)
Accumulated comprehensive
loss......................... -- (230) (948) -- (1,178)
Retained earnings (accumulated
deficit)..................... (234,308) 30,891 (16,369) (316) (220,102)
--------- ------- -------- --------- ---------
Total stockholder's equity
(deficit).................. (3,913) 41,761 (12,436) (44,625) (19,213)
--------- ------- -------- --------- ---------
Total liabilities and
stockholders' equity
(deficit)...................... $ 481,651 $81,748 $ 21,037 $(120,488) $ 463,948
========= ======= ======== ========= =========
</TABLE>
F-26
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
MAY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................... $ 2,600 $ 100 $ 1,600 $ -- $ 4,300
Accounts receivable, net........... 87,800 26,500 9,700 (7,500) 116,500
Inventories, net................... 82,200 19,600 4,900 (300) 106,400
Deferred income taxes.............. 600 200 -- -- 800
Other assets....................... 4,700 1,100 500 -- 6,300
Income taxes receivable............ 100 -- -- -- 100
--------- ------- -------- --------- ---------
Total current assets............. 178,000 47,500 16,700 (7,800) 234,400
Property and equipment, net.......... 39,900 4,900 500 -- 45,300
Receivable from parent............... 44,300 -- -- (44,300) --
Trademarks, net...................... 15,300 6,100 1,500 -- 22,900
Deferred income taxes................ 5,600 200 -- -- 5,800
Other assets......................... 23,500 -- -- -- 23,500
--------- ------- -------- --------- ---------
$ 306,600 $58,700 $ 18,700 $ (52,100) $ 331,900
========= ======= ======== ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term
debt............................. $ 7,000 $ 200 $ -- $ -- $ 7,200
Accounts payable................... 74,000 20,100 9,000 (7,500) 95,600
Accrued expenses................... 19,400 1,800 1,400 -- 22,600
Income taxes payable............... -- 900 100 -- 1,000
--------- ------- -------- --------- ---------
Total current liabilities........ 100,400 23,000 10,500 (7,500) 126,400
--------- ------- -------- --------- ---------
Long-term debt....................... 404,100 (4,200) 19,400 (166,000) 253,300
--------- ------- -------- --------- ---------
Stockholder's equity (deficit)
Common stock and additional paid in
capital.......................... 26,200 11,100 4,900 121,700 163,900
Receivables from officers.......... (700) -- -- -- (700)
Accumulated other comprehensive
loss............................. -- (300) (700) -- (1,000)
Accumulated deficit................ (223,400) 29,100 (15,400) (300) (210,000)
--------- ------- -------- --------- ---------
Total stockholder's equity
(deficit)...................... (197,900) 39,900 (11,200) 121,400 (47,800)
--------- ------- -------- --------- ---------
$ 306,600 $58,700 $ 18,700 $ (52,100) $ 331,900
========= ======= ======== ========= =========
</TABLE>
F-27
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATED CONDENSED BALANCE SHEET
MAY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash......................... $ 1,500 $ 100 $ 2,300 $ -- $ 3,900
Accounts receivable, net..... 105,200 22,700 7,000 (10,600) 124,300
Inventories, net............. 95,500 21,300 6,400 (1,800) 121,400
Deferred income taxes........ 11,000 200 -- -- 11,200
Other assets................. 4,700 800 700 -- 6,200
Income taxes receivable...... 300 500 -- -- 800
--------- ------- -------- --------- ---------
Total current assets....... 218,200 45,600 16,400 (12,400) 267,800
Property and equipment, net.... 43,200 4,900 700 -- 48,800
Receivable from parent......... 40,100 -- -- (37,700) 2,400
Trademarks, net................ 10,100 6,500 600 -- 17,200
Deferred income taxes.......... 4,700 200 -- -- 4,900
Other assets................... 21,600 400 -- -- 22,000
--------- ------- -------- --------- ---------
$ 337,900 $57,600 $ 17,700 $ (50,100) $ 363,100
========= ======= ======== ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term
debt....................... $ 6,000 $ 100 $ -- $ -- $ 6,100
Accounts payable............. 70,900 14,500 9,200 (10,600) 84,000
Accrued expenses............. 21,300 2,800 600 -- 24,700
Income taxes payable......... -- -- 200 -- 200
--------- ------- -------- --------- ---------
Total current
liabilities.............. 98,200 17,400 10,000 (10,600) 115,000
--------- ------- -------- --------- ---------
Long-term debt................. 410,600 3,400 18,100 (163,600) 268,500
--------- ------- -------- --------- ---------
Stockholder's equity (Deficit)
Common stock and additional
paid in capital............ 28,500 11,100 700 125,900 166,200
Receivable from officer for
purchase of equity......... (700) -- -- -- (700)
Accumulated other
comprehensive loss......... (100) (100) (400) -- (600)
Accumulated deficit.......... (198,600) 25,800 (10,700) (1,800) (185,300)
--------- ------- -------- --------- ---------
Total stockholder's equity
(deficit)................ (170,900) 36,800 (10,400) 124,100 (20,400)
--------- ------- -------- --------- ---------
$ 337,900 $57,600 $ 17,700 $ (50,100) $ 363,100
========= ======= ======== ========= =========
</TABLE>
F-28
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 27, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales...................... $270,612 $48,411 $15,285 $ -- $334,308
Cost of sales.................. 200,101 34,344 9,270 20 243,735
-------- ------- ------- ------- --------
Gross profit................... 70,511 14,067 6,015 (20) 90,573
Total operating expenses....... 60,026 11,483 6,168 -- 77,677
-------- ------- ------- ------- --------
Income from operations......... 10,485 2,584 (153) (20) 12,896
Interest expense............... (15,866) (432) (672) -- (16,970)
Amortization of deferred
financing fees............... (2,065) -- -- -- (2,065)
-------- ------- ------- ------- --------
Income (loss) before income
taxes and extraordinary
item......................... (7,446) 2,152 (825) (20) (6,139)
Provision for (benefit from)
income taxes................. 2,328 353 123 -- 2,804
-------- ------- ------- ------- --------
Income (Loss) before
extraordinary item......... (9,774) 1,799 (948) (20) (8,943)
Extraordinary loss on
extinguishment of debt..... (1,174) -- -- -- (1,174)
-------- ------- ------- ------- --------
Net income (loss)............ $(10,948) $ 1,799 $ (948) $ (20) $(10,117)
======== ======= ======= ======= ========
</TABLE>
F-29
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 28, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales...................... $ 274,633 $ 39,448 $17,414 $ -- $ 331,495
Cost of sales.................. 203,693 26,145 10,178 (1,047) 238,969
--------- -------- ------- ------- ---------
Gross profit................... 70,940 13,303 7,236 1,047 92,526
Total operating expenses....... 58,618 10,785 6,736 -- 76,139
--------- -------- ------- ------- ---------
Income from operations......... 12,322 2,518 500 1,047 16,387
Interest expense............... (14,779) (462) (740) -- (15,981)
Amortization of deferred
financing fees............... (2,972) -- -- -- (2,972)
--------- -------- ------- ------- ---------
Income (loss) before income
taxes........................ (5,429) 2,056 (240) 1,047 (2,566)
Provision for (benefit from)
income taxes................. (1,764) 645 366 -- (753)
--------- -------- ------- ------- ---------
Net income (loss)............ $ (3,665) $ 1,411 $ (606) $ 1,047 $ (1,813)
========= ======== ======= ======= =========
</TABLE>
F-30
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $586,800 $85,500 $37,900 $ -- $710,200
Cost of sales................................. 435,500 58,400 21,600 (1,500) 514,000
-------- ------- ------- ------- --------
Gross profit.................................. 151,300 27,100 16,300 1,500 196,200
Total operating expenses...................... 132,000 21,100 15,700 -- 168,800
-------- ------- ------- ------- --------
Income from operations........................ 19,300 6,000 600 1,500 27,400
Interest expense.............................. (30,500) (1,000) (1,600) -- (33,100)
Amortizaiton of deferred financing fees....... (7,000) -- -- -- (7,000)
-------- ------- ------- ------- --------
Income (loss) before income taxes............. (18,200) 5,000 (1,000) 1,500 (12,700)
Provision for (benefit from) income taxes..... 9,800 1,600 600 -- 12,000
-------- ------- ------- ------- --------
Net income (loss)........................... $(28,000) $ 3,400 $(1,600) $ 1,500 $(24,700)
======== ======= ======= ======= ========
</TABLE>
ICON HEALTH & FITNESS INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $628,100 $80,800 $40,400 $ -- $749,300
Cost of sales................................. 462,300 51,200 24,000 (1,500) 536,000
-------- ------- ------- ------- --------
Gross profit.................................. 165,800 29,600 16,400 1,500 213,300
Total operating expenses...................... 151,000 21,200 17,200 -- 189,400
-------- ------- ------- ------- --------
Income from operations........................ 14,800 8,400 (800) 1,500 23,900
Interest expense.............................. (32,500) (900) (1,700) -- (35,100)
Amortization of deferred financing fees....... (4,800) -- -- -- (4,800)
Other income (expense)........................ 500 -- -- -- 500
-------- ------- ------- ------- --------
Income (loss) before income taxes............. (22,000) 7,500 (2,500) 1,500 (15,500)
Provision for (benefit from) income taxes..... (8,400) 2,300 200 -- (5,900)
-------- ------- ------- ------- --------
Net income (loss)........................... $(13,600) $ 5,200 $(2,700) $ 1,500 $ (9,600)
======== ======= ======= ======= ========
</TABLE>
F-31
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... $761,900 $110,900 $40,700 $(77,300) $836,200
Cost of sales................................. 562,600 87,800 24,700 (77,300) 597,800
-------- -------- ------- -------- --------
Gross profit.................................. 199,300 23,100 16,000 -- 238,400
Total operating expenses...................... 186,200 15,300 16,700 -- 218,200
-------- -------- ------- -------- --------
Income from operations........................ 13,100 7,800 (700) -- 20,200
Interest expense.............................. (31,700) (100) (1,800) -- (33,600)
Amortization of deferred financing fees....... (3,000) -- -- -- (3,000)
Other income (expense)........................ 500 -- -- -- 500
-------- -------- ------- -------- --------
Income (loss) before income taxes............. (21,100) 7,700 (2,500) -- (15,900)
Provision for (benefit from) income taxes..... (6,800) 2,600 200 -- (4,000)
-------- -------- ------- -------- --------
Net income (loss)........................... $(14,300) $ 5,100 $(2,700) $ -- $(11,900)
======== ======== ======= ======== ========
</TABLE>
F-32
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 27, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities:...... $(85,966) $(4,660) $ (118) $ -- $(90,744)
-------- ------- ------ ----- --------
INVESTING ACTIVITIES:
Net cash used in investing activities:...... (8,811) (493) (73) -- (9,377)
-------- ------- ------ ----- --------
FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
facility, net............................. (36,329) (4,294) -- -- (40,623)
Proceeds from new term notes................ 180,000 -- -- -- 180,000
Payments on old term notes.................. (19,464) -- -- -- (19,464)
Contributed capital from parent............. 40,000 -- -- -- 40,000
Payments for financing fees--equity......... (4,263) -- -- -- (4,263)
Payments to 13% noteholders................. (39,408) -- -- -- (39,408)
Payments for financing fees--debt........... (14,102) -- -- -- (14,102)
Other....................................... (9,750) 9,571 (205) -- (384)
-------- ------- ------ ----- --------
Net cash provided by financing
activities:............................... 96,684 5,277 (205) 101,756
-------- ------- ------ ----- --------
Effect of exchange rate changes on cash....... -- 48 (209) -- (161)
-------- ------- ------ ----- --------
Net increase (decrease) in cash............... 1,907 172 (605) -- 1,474
Cash, beginning of period..................... 2,622 77 1,576 -- 4,275
-------- ------- ------ ----- --------
Cash, end of period........................... $ 4,529 $ 249 $ 971 $ -- $ 5,749
======== ======= ====== ===== ========
</TABLE>
F-33
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 28, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities:...... $(48,971) $(10,625) $(2,860) $ -- $(62,456)
-------- -------- ------- ----- --------
INVESTING ACTIVITIES:
Net cash used in investing activities:...... (6,069) (621) (122) -- (6,812)
-------- -------- ------- ----- --------
FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
facility, net............................. 63,053 7,615 -- -- 70,668
Other....................................... (7,144) 4,320 2,824 -- --
-------- -------- ------- ----- --------
Net cash provided by financing
activities:............................... 55,909 11,935 2,824 -- 70,668
-------- -------- ------- ----- --------
Effect of exchange rate changes on cash....... 22 (470) (96) -- (544)
-------- -------- ------- ----- --------
Net increase (decrease) in cash............... 891 219 (254) -- 856
Cash, beginning of period..................... 1,556 67 2,269 -- 3,892
-------- -------- ------- ----- --------
Cash, end of period........................... $ 2,447 $ 286 $ 2,015 $ -- $ 4,748
======== ======== ======= ===== ========
</TABLE>
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities:............................... $ 31,000 $ 8,600 $(1,500) $ -- $ 38,100
-------- ------- ------- ----- --------
INVESTING ACITIVITIES:
Net cash provided by (used in) operating
activities:............................... (18,800) (1,100) (200) -- (20,100)
FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
facility, net............................. (8,200) (7,400) 1,400 (14,200)
Other....................................... (2,900) -- -- -- (2,900)
-------- ------- ------- ----- --------
Net cash provided by (used in) financing
activities:............................... (11,100) (7,400) 1,400 -- (17,100)
-------- ------- ------- ----- --------
Effect of exchange rate changes on cash....... -- (100) (400) -- (500)
-------- ------- ------- ----- --------
Net increase (decrease) in cash............... 1,100 -- (700) -- 400
Cash, beginning of period..................... 1,500 100 2,300 3,900
-------- ------- ------- ----- --------
Cash, end of period........................... $ 2,600 $ 100 $ 1,600 $ -- $ 4,300
======== ======= ======= ===== ========
</TABLE>
F-34
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSQUENT EVENTS--RESTRUCTURING (CONTINUED)
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities:............................... $39,000 $ 5,300 $ 3,300 $ -- $ 47,600
------- ------- ------- ----- --------
INVESTING ACITIVITIES:
Net cash provided by (used in) operating
activities:............................... 6,300 (500) (100) 700 6,400
------- ------- ------- ----- --------
FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
facility, net............................. (43,600) (5,400) (3,000) (700) (52,700)
Other....................................... (3,000) -- -- -- (3,000)
------- ------- ------- ----- --------
Net cash provided by (used in) financing
activities:............................... (46,600) (5,400) (3,000) (700) (55,700)
Effect of exchange rate changes on cash....... -- 100 (100) -- --
------- ------- ------- ----- --------
Net increase (decrease) in cash............... (1,300) (500) 100 -- (1,700)
Cash, beginning of period..................... 2,800 600 2,200 -- 5,600
------- ------- ------- ----- --------
Cash, end of period........................... $ 1,500 $ 100 $ 2,300 $ -- $ 3,900
======= ======= ======= ===== ========
</TABLE>
ICON HEALTH & FITNESS, INC.
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MAY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED COMBINED
ICON HEALTH & GUARANTOR NON-GUARANTOR
FITNESS, INC. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES :
Net cash provided by (used in) operating
activities:............................... $(27,200) $(7,900) $(2,500) $ -- $(37,600)
-------- ------- ------- ----- --------
INVESTING ACITIVITIES:
Purchase of property and equipment.......... (9,600) (800) (700) -- (11,100)
Purchase of Health Rider.................... (25,800) -- -- -- (25,800)
Purchase of Weider Sports and CanCo......... (16,000) -- -- -- (16,000)
-------- ------- ------- ----- --------
Net cash provided by (used in) operating
activities: (51,400) (800) (700) -- (52,900)
FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
facility, net............................. 71,200 8,300 3,600 -- 83,100
Other....................................... (5,300) -- -- -- (5,300)
-------- ------- ------- ----- --------
Net cash provided by (usedin) financing
activities:............................... 65,900 8,300 3,600 -- 77,800
Effect of exchange rate changes on cash....... (100) (200) (700) -- (1,000)
-------- ------- ------- ----- --------
Net increase (decrease) in cash............... (12,800) (600) (300) -- (13,700)
Cash, beginning of period..................... 15,600 1,200 2,500 -- 19,300
-------- ------- ------- ----- --------
Cash, end of period........................... $ 2,800 $ 600 $ 2,200 $ -- $ 5,600
======== ======= ======= ===== ========
</TABLE>
F-35
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUBSEQUENT EVENTS--NEW CREDIT FACILITIES
In connection with the Restructuring, on September 27, 1999, the Company
entered into new credit facilities (the "New Credit Facilities") of $300,000,000
with a bank and a financial services corporation which consist of the following:
REVOLVER
The Revolver consists of a $120,000,000 revolving credit line, which
includes a letter of credit sub-facility of up to $10,000,000 and may include a
swing line sub-facility of up to $10,000,000. The term is five years. The terms
and conditions include a Clean Down Period to reduce the outstanding borrowings
on the Revolver to $25,000,000 or less for a period of sixty days, or more,
through the period of May 1 through August 31 of each year. In addition,
borrowing availability is limited to certain percentages of qualified assets as
specified in the agreement.
A letter of credit margin of 2% and an unused facility fee of .50% per annum
of the average unused daily balance of the Revolver is due monthly.
TERM LOAN A
The $30,000,000 Term Loan A has a 60 month term and amortizes quarterly at
$2,700,000 in year one, $5,500,000 in years two and three, and $8,200,000 in
years four and five.
TERM LOAN B
The $80,000,000 Term Loan B has a 63 month term and amortizes quarterly at a
rate of $1,100,000 in years one through five and $74,500,000 at maturity.
TERM LOAN C
The $55,000,000 Term Loan C has a 66-month term and amortizes quarterly at a
rate of $400,000 in years one through five and $52,900,000 at maturity.
INVESTMENT PROPERTIES LOAN ("IP LOAN")
The $15,000,000 IP Loan has a 57 month term and amortizes annually at a rate
of $3,000,000 in years one through five.
At the ICON Health's option, all loans will bear interest at either (a) a
floating rate equal to the Index Rate plus the applicable margin of 1.5-5.5% or
(b) a fixed rate for periods of one, two, three or six months equal to the LIBOR
rate plus the applicable margin of 3-7%.
If the Revolver is terminated, Term Loans A, B, C and IP Loan will
immediately be due and payable in full. In addition, if the Revolver is
terminated or if any or all of the Term Loans are prepaid, certain prepayment
premiums will apply.
Proceeds of the New Credit Facility were used to refinance the Company's
existing Credit Agreement and 13% Notes, provide for general working capital,
fund necessary future capital expenditures and fund transaction fees and
expenses. All tranches will be collaterized by a first priority security
interest in all of the existing and subsequently acquired assets of the Company
and its domestic subsidiaries, subject to specified exceptions, and a pledge of
65% of the stock of the Company's foreign subsidiaries. All tranches will be
cross-collateralized and cross-defaulted.
F-36
<PAGE>
ICON HEALTH & FITNESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUBSEQUENT EVENTS--NEW CREDIT FACILITIES (CONTINUED)
As of September 27, 1999, the Company's balance outstanding under the New
Credit Facilities consisted of (table in thousands):
<TABLE>
<S> <C>
Revolver.................................................... $ 45,087
Term Loan A................................................. 30,000
Term Loan B................................................. 80,000
Term Loan C................................................. 55,000
IP Loan..................................................... 15,000
--------
$225,087
========
</TABLE>
A loss of approximately $1.9 million will be recorded on the extinguishment
of the existing credit facility due to the write-off of deferred financing fees.
19. EVENTS SUBSEQUENT TO SEPTEMBER 27, 1999 (UNAUDITED)
In connection with the Recapitalization, $656,000 in nonrecourse loans from
management for the purchase of stock were canceled. The stock collateralizing
such loans was delivered back to the Company.
In connection with the recapitalization, HF Holdings advanced two members of
senior management $2,200,000. The non-recourse notes bear interest at a rate
equal to that of the New Credit Facilities, have a maturity of 10 years and are
collateralized by shares of HF Holdings common stock. The Company advanced to HF
Holdings the amount of the notes.
F-37
<PAGE>
ICON HEALTH & FITNESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FINANCIAL STATEMENT SCHEDULE II
(IN THOUSANDS)
<TABLE>
<CAPTION>
VALUATION ACCOUNTS
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
ACCOUNTS RECEIVABLE, ALLOWANCES FOR DOUBTFUL ACCOUNTS,
ADVERTISING DISCOUNTS AND CREDIT MEMOS:
Balance at beginning of year................................ $ 6,887 $ 8,953 $ 7,595
Additions:
Charged to costs and expenses (allowance for doubtful
accounts and credit memos).............................. 13,249 4,566 6,027
Charged to costs and expenses (discounts and
advertising)............................................ 19,263 33,234 33,512
Recoveries on accounts charged off........................ 205 22 --
Deductions:
Accounts charged off (allowance for doubtful accounts and
credit memos)........................................... (12,010) (6,478) (3,241)
Accounts charged off (advertising)........................ (19,375) (33,410) (34,940)
-------- -------- --------
Balance at end of year...................................... $ 8,219 $ 6,887 $ 8,953
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VALUATION ACCOUNTS
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INVENTORY RESERVE:
Balance at beginning of year................................ $ 3,335 $ 2,761 $ 2,122
Additions:
Charged to cost and expenses (inventory reserve).......... -- 574 639
Charged to cost and expenses (NordicTrack purchase
accounting)............................................. 2,216 -- --
Deductions:
Reduction in reserve...................................... (736) -- --
-------- -------- --------
Balance at end of the year.................................. $ 4,815 $ 3,335 $ 2,761
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VALUATION ACCOUNTS
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
LONG-TERM RECEIVABLE, ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance at beginning of year................................ $ 1,602 $ 273 $ 156
Additions:
Charged to costs and expenses............................. 13,136 1,329 117
-------- -------- --------
Balance at end of year...................................... $ 14,738 $ 1,602 $ 273
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
VALUATION ACCOUNTS
MAY 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
WARRANTY RESERVE:
Balance at beginning of year................................ $4,783 $6,553 $2,250
Additions:
Charged to costs and expenses............................. -- -- 4,303
Deductions:
Reduction in reserve...................................... 2,482 1,770 --
------ ------ ------
Balance..................................................... $2,301 $4,783 $6,553
====== ====== ======
</TABLE>
F-38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OR TO MAKE ANY
REPRESENTATION TO YOU THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD NOT UNDER ANY CIRCUMSTANCES ASSUME THAT THE INFORMATION IN
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
---------------------
$44,282,000
OFFER TO EXCHANGE 12% NOTES
DUE 2005
THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
FOR OUTSTANDING 12% NOTES
DUE 2005
P R O S P E C T U S
DATED , 2000
---------------------
ICON
HEALTH & FITNESS,
INC.
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ICON is a Delaware corporation. In its Certificate of Incorporation, ICON
has adopted the provisions of Section 102(b)(7) of the Delaware General
Corporation Law (the "Delaware Law"), which enables a corporation in its
original certificate of incorporation or an amendment thereto to eliminate or
limit the personal liability of a director for monetary damages for breach of
the director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the Delaware law (providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions) or (iv) for any transaction from which a director will
personally receive a benefit in money, property or services to which the
director is not legally entitled.
ICON has also adopted indemnification provisions pursuant to Section 145 of
the Delaware Law, which provides that a corporation may indemnify any persons,
including officers and directors, who are, or are threatened to be made, parties
to any threatened, pending or completed legal action, suit or proceedings,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that such person
was an officer, director, employee or agent of the corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such officer, director, employee or agent acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to criminal proceedings, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify officers or directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against expenses (including attorney's fees) that
such officer or director actually and reasonably incurred.
ICON has entered into indemnification agreements with each of ICON's
officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of September 27, 1999,
among HF Holdings, ICON Health & Fitness and HF Acquisition,
Inc.
3.1 Certificate of Incorporation of ICON Health & Fitness, Inc.
3.2 By-Laws of ICON Health & Fitness, Inc.
4.1 Indenture, dated September 27, 1999 between ICON Health &
Fitness, Inc., the Subsidiary Guarantors named therein and
the Bank of New York, as Trustee and successor to IBJ
Whitehall and Trust Company.
4.2 Notation of Subsidiary Guarantee dated September 27, 1999.
4.3 Quebec Guaranty dated September 27, 1999 by ICON of
Canada, Inc. in favor of The Bank of New York, as Trustee
and successor to IBJ Whitehall and Trust Company.
4.4 Form of Note between ICON Health & Fitness, Inc and The Bank
of New York, as Trustee and successor to IBJ Whitehall and
Trust Company.
5.1*** Opinion of Willkie Farr and Gallagher.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
10.1 Exchange and Registration Rights Agreement dated
September 27, 1999 by and between ICON Health &
Fitness, Inc., the Subsidiary Guarantors named therein and
the Tendering Holders of 13% Senior Subordinated Notes.
10.2 Credit Agreement dated as of September 24, 1999 among ICON
Health & Fitness, each of HF Holdings, JumpKing, Inc., ICON
International Holdings, Inc., Universal Technical Services,
ICON of Canada Inc. and 510152 N.B. Ltd, the Lenders
signatory thereto from time to time, General Electric
Capital Corporation, as agent for itself and the other
Lenders, and Fleet National Bank, as syndication agent for
itself and the other Lenders.
10.3 Omnibus Amendment Agreement dated as of September 27, 1999
by and among HF Holdings, Credit Suisse First Boston
Corporation ("CSFB"), certain affiliates of Bain
Capital, Inc. ("Bain") and HF Investment Holdings, LLC (the
"LLC").
10.4 Amended and Restated Limited Liability Company Agreement of
the LLC, dated as of September 27, 1999, among Bain and its
designees, Scott Watterson and Gary Stevenson, and CSFB.
10.5 Subscription and Stock Purchase Agreement, dated as of
September 27, 1999, between HF Holdings and the LLC.
10.6 Amended and Restated Securities Purchase Agreement, dated as
of September 27, 1999, among HF Holdings and CSFB.
10.7 Amended and Restated Note Agreement, dated as of
September 27, 1999, between HF Holdings and CSFB.
10.8 Joinder and Supplement to Stockholders Agreement, among
HF Holdings, ICON Health & Fitness and the Employee
Stockholders named therein.
10.9 Amended and Restated Warrant to Purchase Class C Units of
the LLC, issued to Credit Suisse First Boston Corporation,
an affiliate of CSFB, on September 27, 1999.
10.10 Stockholders Agreement, dated as of September 27, 1999,
among HF Holdings, ICON Health & Fitness, the LLC, Bain,
certain Bain designees, Scott Watterson and Gary Stevenson
and CSFB.
10.11 Restated Employment Agreement, dated as of September 27,
1999, between HF Holdings, ICON Health & Fitness and Scott
Watterson.
10.12 Restated Employment Agreement, dated as of September 27,
1999, between HF Holdings, ICON Health & Fitness and Gary
Stevenson.
10.13 Non-Recourse Note, dated as of September 27, 1999, issued to
HF Holdings by Scott Watterson in the principal amount of
$1,209,340.
10.14 Non-Recourse Note, dated as of September 27, 1999, issued to
HF Holdings by Gary Stevenson in the principal amount of
$990,660.
10.15 Pledge and Security Agreement, dated as of September 27,
1999, between HF Holdings and Scott Watterson.
10.16 Pledge and Security Agreement, dated as of September 27,
1999, between HF Holdings and Gary Stevenson.
10.17 1999 HF Holdings Junior Management Stock Option Plan (the
"Option Plan").
10.18 1999 ICON Health & Fitness Junior Management Deferred Bonus
Plan.
10.19 Management Agreement, dated as of September 27, 1999, among
HF Holdings, ICON Health & Fitness and a Bain affiliate.
10.20 Management Agreement among ICON Health & Fitness, HF
Holdings and Scott Watterson.
10.21 Management Agreement among ICON Health & Fitness, HF
Holdings and Gary Stevenson.
10.22 Tax Agreement, dated as of September 27, 1999, among HF
Holdings and its subsidiaries.
12.1* Statements re Computation of Ratios
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
21.1 Subsidiaries of Registrant
23.1** Consent of PricewaterhouseCoopers LLP
23.2 Consent of Willkie Farr & Gallagher (included in their
opinion filed as Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of the
registration statement)
25.1 Statement on Form T-1 of Eligibility of Trustee
27.1* Financial Data Schedule (Twelve Months)
27.2* Financial Data Schedule (Three Months)
27.3 Financial Data Schedule (Six Months)
99.1*** Form of Letter of Transmittal
99.2*** Form of Notice of Guaranteed Delivery
99.3*** Form of Letter to Clients
99.4*** Form of Letter to Nominees
</TABLE>
- ------------------------
* Previously filed.
** Supersedes previously filed exhibit.
*** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES (SEE ITEM 8)
Schedule II--Valuation and Qualifying Accounts for the Three Years Ended
May 31, 1999
All other schedules are omitted as the required information is not
applicable or is included in the financial statements or related notes or can be
derived from information contained in the consolidated financial statements and
related notes.
REPORTS ON FORM 8-K
A Form 8-K was filed on May 27, 1999.
ITEM 22. UNDERTAKINGS.
Insofar as indemnifications for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the option of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is
II-3
<PAGE>
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, ICON Health & Fitness,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing a Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Logan, State of Utah, on the 31st day of March, 2000.
<TABLE>
<S> <C> <C>
ICON HEALTH & FITNESS, INC.
By: /s/ S. FRED BECK
-----------------------------------------
Name: S. Fred Beck
Title: Chief Financial and Accounting
Officer, Vice President and Treasurer
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below appoints each of Gary E.
Stevenson, S. Fred Beck and Everett Smith as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his stead, in any capacities to sign any and all amendments,
including post-effective amendments to this Registration Statement and to file
the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute or substitutes may
lawfully do or cause to be done by virture hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and
* Chief Executive Officer
------------------------------------------- (Principal Executive March 31, 2000
Scott R. Watterson Officer)
* President and Chief Operating
------------------------------------------- Officer and Director March 31, 2000
Gary E. Stevenson
Chief Financial and Accounting
/s/ S. FRED BECK Officer, Vice President and
------------------------------------------- Treasurer (Principal March 31, 2000
S. Fred Beck Financial and Accounting
Officer)
* Vice Chairman of the Board
------------------------------------------- March 31, 2000
Robert C. Gay
* Director
------------------------------------------- March 31, 2000
Ronald P. Mika
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director
------------------------------------------- March 31, 2000
Greg Benson
Director
------------------------------------------- March 31, 2000
David J. Matlin
* Director
------------------------------------------- March 31, 2000
Chris R. Pechock
* Director
------------------------------------------- March 31, 2000
Stanley C. Tuttleman
* Director
------------------------------------------- March 31, 2000
W. McComb Dunwoody
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ S. FRED BECK
--------------------------------------
S. Fred Beck March 31, 2000
(ATTORNEY-IN-FACT)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Jumpking, Inc. certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing a Form S-4 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Logan, State of Utah, on the 31st day of March, 2000.
<TABLE>
<S> <C> <C>
JUMPKING, INC.
By: /s/ S. FRED BECK
-----------------------------------------
Name: S. Fred Beck
Title: President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President and Sole Director
/s/ S. FRED BECK (Principal Executive,
------------------------------------------- Financial and Accounting March 31, 2000
S. Fred Beck Officer)
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, 510152 N.B. Ltd.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing a Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Logan, State of Utah, on the 31st day of March, 2000.
<TABLE>
<S> <C> <C>
510152 N.B. LTD.
By: *
-----------------------------------------
Name: M. Joseph Brough
Title: President
</TABLE>
Pursuant to the requirement of the Securities Act of 1933, this Registration
Statement has been signed by the following person in the capacity and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President and Sole Director
* (Principal Executive,
------------------------------------------- Financial and Accounting March 31, 2000
M. Joseph Brough Officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ S. FRED BECK
--------------------------------------
S. Fred Beck March 31, 2000
(ATTORNEY-IN-FACT)
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Universal Technical
Services, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing a Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Logan, State of Utah, on the 31st day of March,
2000.
<TABLE>
<S> <C> <C>
UNIVERSAL TECHNICAL SERVICES, INC.
By: *
-----------------------------------------
Name: Gary E. Stevenson
Title: President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director
------------------------------------------- (Principal Executive March 31, 2000
Gary E. Stevenson Officer)
Assistant Secretary and
/s/ S. FRED BECK Director (Principal
------------------------------------------- Financial and Accounting March 31, 2000
S. Fred Beck Officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ S. FRED BECK
--------------------------------------
S. Fred Beck March 31, 2000
(ATTORNEY-IN-FACT)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, ICON International
Holdings, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing a Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Logan, State of Utah, on the 31st day of March,
2000.
<TABLE>
<S> <C> <C>
ICON INTERNATIONAL HOLDINGS, INC.
By: *
-----------------------------------------
Name: Gary E. Stevenson
Title: President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Director
------------------------------------------- (Principal Executive March 31, 2000
Gary E. Stevenson Officer)
/s/ S. FRED BECK Treasurer and Director
------------------------------------------- (Principal Financial and March 31, 2000
S. Fred Beck Accounting Officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ S. FRED BECK
--------------------------------------
S. Fred Beck March 31, 2000
(ATTORNEY-IN-FACT)
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 27,
1999, among HF Holdings, ICON Health & Fitness and HF
Acquisition, Inc.
3.1 Certificate of Incorporation of ICON Health & Fitness, Inc.
3.2 By-Laws of ICON Health & Fitness, Inc.
4.1 Indenture, dated September 27, 1999 between ICON Health &
Fitness, Inc., the Subsidiary Guarantors named therein and
the Bank of New York, as Trustee and successor to IBJ
Whitehall and Trust Company.
4.2 Notation of Subsidiary Guarantee dated September 27, 1999.
4.3 Quebec Guaranty dated September 27, 1999 by ICON of Canada,
Inc. in favor of The Bank of New York, as Trustee and
successor to IBJ Whitehall and Trust Company.
4.4 Form of Note between ICON Health & Fitness, Inc and The Bank
of New York, as Trustee and successor to IBJ Whitehall and
Trust Company.
5.1*** Opinion of Willkie Farr and Gallagher.
10.1 Exchange and Registration Rights Agreement dated
September 27, 1999 by and between ICON Health &
Fitness, Inc., the Subsidiary Guarantors named therein and
the Tendering Holders of 13% Senior Subordinated Notes.
10.2 Credit Agreement dated as of September 24, 1999 among ICON
Health & Fitness, each of HF Holdings, JumpKing, Inc., ICON
International Holdings, Inc., Universal Technical Services,
ICON of Canada Inc. and 510152 N.B. Ltd, the Lenders
signatory thereto from time to time, General Electric
Capital Corporation, as agent for itself and the other
Lenders, and Fleet National Bank, as syndication agent for
itself and the other Lenders.
10.3 Omnibus Amendment Agreement dated as of September 27, 1999
by and among HF Holdings, Credit Suisse First Boston
Corporation ("CSFB"), certain affiliates of Bain
Capital, Inc. ("Bain") and HF Investment Holdings, LLC (the
"LLC").
10.4 Amended and Restated Limited Liability Company Agreement of
the LLC, dated as of September 27, 1999, among Bain and its
designees, Scott Watterson and Gary Stevenson, and CSFB.
10.5 Subscription and Stock Purchase Agreement, dated as of
September 27, 1999, between HF Holdings and the LLC.
10.6 Amended and Restated Securities Purchase Agreement, dated as
of September 27, 1999, among HF Holdings and CSFB.
10.7 Amended and Restated Note Agreement, dated as of
September 27, 1999, between HF Holdings and CSFB.
10.8 Joinder and Supplement to Stockholders Agreement, among
HF Holdings, ICON Health & Fitness and the Employee
Stockholders named therein.
10.9 Amended and Restated Warrant to Purchase Class C Units of
the LLC, issued to Credit Suisse First Boston Corporation,
an affiliate of CSFB, on September 27, 1999.
10.10 Stockholders Agreement, dated as of September 27, 1999,
among HF Holdings, ICON Health & Fitness, the LLC, Bain,
certain Bain designees, Scott Watterson and Gary Stevenson
and CSFB.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<C> <S>
10.11 Restated Employment Agreement, dated as of September 27,
1999, between HF Holdings, ICON Health & Fitness and Scott
Watterson.
10.12 Restated Employment Agreement, dated as of September 27,
1999, between HF Holdings, ICON Health & Fitness and Gary
Stevenson.
10.13 Non-Recourse Note, dated as of September 27, 1999, issued to
HF Holdings by Scott Watterson in the principal amount of
$1,209,340.
10.14 Non-Recourse Note, dated as of September 27, 1999, issued to
HF Holdings by Gary Stevenson in the principal amount of
$990,660.
10.15 Pledge and Security Agreement, dated as of September 27,
1999, between HF Holdings and Scott Watterson.
10.16 Pledge and Security Agreement, dated as of September 27,
1999, between HF Holdings and Gary Stevenson.
10.17 1999 HF Holdings Junior Management Stock Option Plan (the
"Option Plan").
10.18 1999 ICON Health & Fitness Junior Management Deferred Bonus
Plan.
10.19 Management Agreement, dated as of September 27, 1999, among
HF Holdings, ICON Health & Fitness and a Bain affiliate.
10.20 Management Agreement among ICON Health & Fitness, HF
Holdings and Scott Watterson.
10.21 Management Agreement among ICON Health & Fitness, HF
Holdings and Gary Stevenson.
10.22 Tax Agreement, dated as of September 27, 1999, among HF
Holdings and its subsidiaries.
12.1* Statements re Computation of Ratios
21.1 Subsidiaries of Registrant
23.1** Consent of PricewaterhouseCoopers
23.2 Consent of Willkie Farr & Gallagher (included in their
opinion filed as Exhibit 5.1)
24.1 Power of Attorney (included on the signature page of the
registration statement)
25.1 Statement on Form T-1 of Eligibility of Trustee
27.1* Financial Data Schedule (Twelve Months)
27.2* Financial Data Schedule (Three Months)
27.3 Financial Data Schedule (Six Months)
99.1*** Form of Letter of Transmittal
99.2*** Form of Notice of Guaranteed Delivery
99.3*** Form of Letter to Clients
99.4*** Form of Letter to Nominees
</TABLE>
- ------------------------
* Previously filed.
** Supersedes previously filed exhibit.
*** To be filed by amendment.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of September 27, 1999,
by and between HF Holdings, Inc., a Delaware corporation (the "Parent"), HF
Acquisition, Inc., a Delaware corporation ("MergerSub") and Icon Health &
Fitness, Inc., a Delaware corporation ("ICON").
WHEREAS, the Boards of Directors of the respective parties hereto deem it
advisable and in the best interests of ICON and its stockholders to merge
MergerSub with and into ICON (the "Merger") in accordance with Section 251 of
the Delaware General Corporation Law (the "DGCL") and pursuant to this Agreement
and the Certificate of Merger attached hereto as Annex I and incorporated herein
(the "Certificate");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree that MergerSub shall be merged with
and into ICON, which shall be the corporation surviving the Merger, and that the
terms and conditions of the Merger, the mode of carrying it into effect, and the
manner of converting and exchanging shares shall be as follows:
ARTICLE I
THE MERGER
(a) At the Effective Time (as defined below in Article VI), MergerSub
shall be merged with and into ICON (the "Merger"), the separate existence of
MergerSub shall cease, ICON shall continue as the surviving corporation and the
Merger shall in all respects have the effects provided for by the DGCL. ICON, as
the surviving corporation after the Merger, is hereinafter sometimes referred to
as the "Surviving Corporation."
(b) Prior to and after the Effective Time, Parent, ICON and MergerSub,
respectively, shall take all such actions as may be necessary or appropriate in
order to effectuate the Merger. In the event that at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the officers and directors of each of the Parent,
ICON and MergerSub as of the Effective Time shall take all such further action.
<PAGE>
ARTICLE II
TERMS OF CONVERSION AND EXCHANGE OF SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder thereof:
(a) Each share of common stock, $.001 par value, of Merger Sub issued and
outstanding immediately prior to the Merger ("MergerSub Common Stock") shall be
converted into one share of common stock of the Surviving Corporation.
(b) Each share of common stock, $.01 par value, of ICON issued and
outstanding immediately prior to the Merger ("ICON Common Stock") shall be
converted into, one outstanding share of common stock of Parent, $.001 par
value.
ARTICLE III
CERTIFICATE OF INCORPORATION AND BY-LAWS
From and after the Effective Time, and until thereafter amended as
provided by law, the Certificate of Incorporation of ICON as in effect
immediately prior to the Merger shall be and continue to be the Certificate of
Incorporation of the Surviving Corporation. From and after the Effective Time,
the By-laws of ICON shall be and continue to be the By-laws of the Surviving
Corporation until amended in accordance with law.
ARTICLE IV
DIRECTORS AND OFFICERS
The persons who are directors and officers of ICON immediately prior to
the Merger shall continue as directors and officers, respectively, of the
Surviving Corporation and shall continue to hold office as provided in the
By-laws of the Surviving Corporation. If, at or following the Effective Time, a
vacancy shall exist in the Board of Directors or in the position of any officer
of the Surviving Corporation, such vacancy may be filled in the manner provided
in the By-laws of the Surviving Corporation.
2
<PAGE>
ARTICLE V
AMENDMENT AND TERMINATION
The parties hereto by mutual consent of their respective Boards of
Directors may amend, modify or supplement this Agreement in such manner as may
be agreed upon by them in writing, at any time before or after approval of this
Agreement by the stockholders of Parent, ICON or MergerSub; provided, however,
that no such amendment, modification or supplement shall, in the sole judgment
of the Board of Directors of ICON or MergerSub, as applicable, materially and
adversely affect the rights of the stockholders of ICON or MergerSub, as
applicable.
This Agreement may be terminated and the Merger and other transactions
herein provided for abandoned at any time, whether before or after approval of
this Agreement by the stockholders of ICON or MergerSub, by action of the Board
of Directors of either ICON or MergerSub if the Board of Directors for such
corporation determines for any reason that the consummation of the transactions
provided for herein would for any reason be inadvisable or not in the best
interests of such corporation or its stockholders.
ARTICLE VI
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions set forth in this Agreement, ICON
shall cause the Certificate to be executed and thereafter delivered to the
Secretary of State of Delaware for filing, as provided in Section 251 of the
DGCL. The Merger shall become effective at such time as the Certificate is filed
as required by law with the Secretary of State of Delaware (the "Effective
Time").
ARTICLE VII
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original, and such counterparts shall together
constitute but one and the same instrument.
3
<PAGE>
[Agreement & Plan of Merger]
IN WITNESS WHEREOF, Parent, ICON and MergerSub, pursuant to approval and
authorization duly given by resolutions adopted by their respective Boards of
Directors, have each caused this Agreement and Plan of Merger to be executed by
an authorized officer as of the date first written above by.
HF HOLDINGS, INC.
By: /s/ S. Fred Beck
------------------------------------
ICON HEALTH & FITNESS, INC.
By: /s/ S. Fred Beck
------------------------------------
HF ACQUISITION, INC.
By: /s/ S. Fred Beck
------------------------------------
4
<PAGE>
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/02/1994
944143212 - 2423252
CERTIFICATE OF INCORPORATION
----------------------------
of
--
ICON HEALTH & FITNESS, INC.
---------------------------
1. The name of this corporation is ICON Health & Fitness, Inc.
2. The registered office of this corporation in the State of Delaware is
located at 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
3. The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
4. The total number of shares of stock that this corporation shall have
authority to issue is 3,000 shares of Common Stock, $.01 par value per share.
Each share of Common Stock shall be entitled to one vote.
5. The name and mailing address of the incorporator is: R. Bradford Malt,
One International Place, Boston, Massachusetts 02110.
6. Except as provided to the contrary in the provisions establishing a
class or series of stock, the amount of the authorized stock of this corporation
of any class or classes may be increased or decreased by the affirmative vote of
the holders of a majority of the stock of this corporation entitled to vote.
7. The election of directors need not be by ballot unless the by-laws
shall so require.
8. In furtherance and not in limitation of the power conferred upon the
board of directors by law, the board of directors shall have power to make,
adopt, alter, amend and repeal from time to time by-laws of this corporation,
subject to the right of the stockholders entitled to vote with respect thereto
to alter and repeal by-laws made by the board of directors.
9. A director of this corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent that exculpation from liability is not permitted
under the General
<PAGE>
Corporation Law of the State of Delaware as in effect at the time such liability
is determined. No amendment or repeal of this paragraph 9 shall apply to or have
any effect on the liability or alleged liability of any director of the
corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
10. This corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any claim, whether civil, criminal, administrative or investigative,
by reason of the fact that such person is or was or has agreed to be a director
or officer of this corporation or while a director or officer is or was serving
at the request of this corporation as a director, officer, partner, trustee,
employee or agent of any corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
expenses (including attorney's fees and expenses), judgments, fines, penalties
and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim;
provided, however, that the foregoing shall not require this corporation to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. Such
indemnification shall not be exclusive of other indemnification rights arising
under any by-law, agreement, vote of directors or stockholders or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person. Any person seeking indemnification under this paragraph 10 shall be
deemed to have met the standard of conduct required for such indemnification
unless the contrary shall be established. Any repeal or modification of the
foregoing provisions of this paragraph 10 shall not adversely affect any right
or protection of a director or officer of this corporation with respect to any
acts or omissions of such director or officer occurring prior to such repeal or
modification.
11. The books of this corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
board of directors or in the by-laws of this corporation.
12. If at any time this corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an
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annual or special meeting of stockholders and may not be taken by written
consent.
13. This corporation shall not be governed by Section 203 of the General
Corporation Law of the State of Delaware.
THE UNDERSIGNED, the sole incorporator named above, hereby certifies that
the facts stated above are true as of this 2nd day of August, 1994.
/s/ R. Bradford Malt
----------------------------------------
R. Bradford Malt
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Exhibit 3.2
BY-LAWS
OF
ICON HEALTH & FITNESS, INC.
Section 1. LAW CERTIFICATE OF INCORPORATION
AND BY-LAWS
1.1. These by-laws are subject to the certificate of incorporation of the
corporation. In these by-laws, references to law, the certificate of
incorporation and by-laws mean the law, the provisions of the certificate of
incorporation and the by-laws as from time to time in effect.
Section 2. STOCKHOLDERS
2.1. Annual Meeting. The annual meeting of stockholders shall be held at
10:00 AM on the second Tuesday in October in each year, unless that day be a
legal holiday at the place where the meeting is to be held, in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday, or at such other date and time as shall be designated from time to time
by the board of directors and stated in the notice of the meeting, at which they
shall elect a board of directors and transact such other business as may be
required by law or these by-laws or as may properly come before the meeting.
2.2. Special Meeting. A special meeting of the stockholders may be called
at any time by the chairman or any vice-chairman of the board, if any, the
president or the board of directors. A special meeting of the stockholders shall
be called by the secretary, or in the case of the death, absence, incapacity or
refusal of the secretary, by an assistant secretary or some other officer, upon
application of a majority of the directors or the holders of outstanding capital
stock possessing at least 30% of the power to vote generally of all outstanding
capital stock. Any such application shall state the purpose or purposes of the
proposed meeting. Any such call shall state the place, date, hour, and purposes
of the meeting.
2.3. Place of Meeting. All meetings of the stockholders for the election
of directors or for any other purpose shall be held at such place within or
without the State of Delaware as may be determined from time to time by the
chairman or any vice-chairman of the board, if any, the president or the board
of directors. Any adjourned session of any meeting of the stockholders shall be
held at the place designated in the vote of adjournment.
2.4. Notice of Meetings. Except as otherwise provided by law, a written
notice of each meeting of stockholders stating the place, day and hour thereof
and, in the case of a special meeting, the purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
meeting, to each stockholder entitled to vote thereat, and to each stockholder
who, by law, by the certificate of incorporation or by these by-laws, is
entitled to notice, by leaving such notice with him or at his residence or usual
place of business, or by depositing it in the United States mail, postage
prepaid, and addressed to such stockholder at his address as it appears in the
records of the corporation. Such notice shall be given by the secretary, or by
an officer or person designated by the board of directors, or in the case of a
special meeting by the officer calling the meeting. As to any adjourned session
of any meeting of stockholders, notice of the adjourned meeting need not be
given if the time and place thereof are announced at the meeting at which the
adjournment was taken except that if the adjournment is
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for more than thirty days or if after the adjournment a new record date is set
for the adjourned session, notice of any such adjourned session of the meeting
shall be given in the manner heretofore described. No notice of any meeting of
stockholders or any adjourned session thereof need be given to a stockholder if
a written waiver of notice, executed before or after the meeting or such
adjourned session by such stockholder, is filed with the records of the meeting
or if the stockholder attends such meeting without objecting at the beginning of
the meeting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the stockholders or any adjourned session thereof
need be specified in any written waiver of notice.
2.5. Quorum of Stockholders. At any meeting of the stockholders a quorum
as to any matter shall consist of a majority of the votes entitled to be cast on
the matter, except where a larger quorum is required by law, by the certificate
of incorporation or by these by-laws. Any meeting may be adjourned from time to
time by a majority of the votes properly cast upon the question, whether or not
a quorum is present. If a quorum is present at an original meeting, a quorum
need not be present at an adjourned session of that meeting. Shares of its own
stock belonging to the corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of any corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.6. Action by Vote. When a quorum is present at any meeting, a plurality
of the votes properly cast for election to any office shall elect to such office
and a majority of the votes properly cast upon any question other than an
election to an office shall decide the question, except when a larger vote is
required by law, by the certificate of incorporation or by these by-laws. No
ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
2.7. Action without Meetings. Unless otherwise provided in the certificate
of incorporation, any action required or permitted to be taken by stockholders
for or in connection with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in Delaware by hand or certified or registered
mail, return receipt requested, to its principal place of business or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Each such written consent
shall bear the date of signature of each stockholder who signs the consent. No
written consent shall be effective to take the corporate action referred to
therein unless written consents signed by a number of stockholders sufficient to
take such action are delivered to the corporation in the manner specified in
this paragraph within sixty days of the earliest dated consent so delivered.
If action is taken by consent of stockholders and in accordance with the
foregoing, there shall be filed with the records of the meetings of stockholders
the writing or writings comprising such consent.
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If action is taken by less than unanimous consent of stockholders, prompt
notice of the taking of such action without a meeting shall be given to those
who have not consented in writing and a certificate signed and attested to by
the secretary that such notice was given shall be filed with the records of the
meetings of stockholders.
In the event that the action which is consented to is such as would have
required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
2.8. Proxy Representation. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. The authorization of a proxy may but need
not be limited to specified action, provided, however, that if a proxy limits
its authorization to a meeting or meetings of stockholders, unless otherwise
specifically provided such proxy shall entitle the holder thereof to vote at any
adjourned session but shall not be valid after the final adjournment thereof.
2.9. Inspectors. The directors or the person presiding at the meeting may,
but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof . Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the share of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and votes, ballots or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them.
2.10. List of Shareholders. The secretary shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at such meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares registered
in his name. The stock ledger shall be the only evidence as to who are
stockholders entitled to examine such list or to vote in person or by proxy at
such meeting.
Section 3. BOARD OF DIRECTORS
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3.1. Number. The number of directors which shall constitute the whole
board shall not be less than one nor more than fifteen in number. Thereafter,
within the foregoing limits, the stockholders at the annual meeting shall
determine the number of directors and shall elect the number of directors as
increased at any time or from time to time by the stockholders or by the
directors by vote of a majority of the directors then in office. The number of
directors may be decreased to any number permitted by the foregoing at any time
either by the stockholders or by the directors by vote of a majority of the
directors then in office, but only to eliminate vacancies existing by reason of
the death, resignation or removal of one or more directors. Directors need not
be stockholders.
3.2. Tenure. Except as otherwise provided by law, by the certificate of
incorporation or by these by-laws, each director shall hold office until the
next annual meeting and until his successor is elected and qualified, or until
he sooner dies, resigns, is removed or becomes disqualified.
3.3. Powers. The business and affairs of the corporation shall be managed
by or under the direction of the board of directors who shall have and exercise
all the powers of the corporation and do all such lawful acts and things as are
not by law, the certificate of incorporation or these by-laws directed or
required to be exercised or done by the stockholders.
3.4. Vacancies. Vacancies and any newly created directorships resulting
from any increase in the number of directors may be filled by vote of the
stockholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the certificate of incorporation or of
these by-laws as to the number of directors required for a quorum or for any
vote or other actions.
3.5. Committees. The board of directors may, by vote of a majority of the
whole board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as alternate members of any such
committee who may replace any absent or disqualified member at any meeting of
the committee; and (c) determine the extent to which each such committee shall
have and may exercise the powers of the board of directors in the management of
the business and affairs of the corporation, including the power to authorize
the seal of the corporation to be affixed to all papers which require it and the
power and authority to declare dividends or to authorize the issuance of stock;
excepting, however, such powers which by law, by the certificate of
incorporation or by these by-laws they are prohibited from so delegating. In the
absence or disqualification of any member of such committee and his alternate,
if any, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member. Except as the board of
directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the board or such rules, its
business shall be conducted as nearly as may be in the same manner as is
provided by these by-laws for the conduct of business by the board of directors.
Each committee
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shall keep regular minutes of its meetings and report the same to the board of
directors upon request.
3.6. Regular Meetings. Regular meetings of the board of directors may be
held without call or notice at such places within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of stockholders.
3.7. Special Meetings. Special meetings of the board of directors may be
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the chairman or any
vice-chairman of the board, if any, the president, or by one-third or more in
number of the directors, reasonable notice thereof being given to each director
by the secretary or by the chairman of the board, if any, the president or any
one of the directors calling the meeting.
3.8. Notice. It shall be reasonable and sufficient notice to a director to
send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting addressed to him at his usual or last known
business or residence address or to give notice to him in person or by telephone
at least twenty-four hours before the meeting. Notice of a meeting need not be
given to any director if a written waiver of notice, executed by him before or
after the meeting, is filed with the records of the meeting, or to any director
who attends the meeting without protesting prior thereto or at its commencement
the lack of notice to him. Neither notice of a meeting nor a waiver of a notice
need specify the purposes of the meeting.
3.9. Quorum. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, at any meeting of the
directors a majority of the directors then in office shall constitute a quorum;
a quorum shall not in any case be less than one-third of the total number of
directors constituting the whole board. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
3.10. Action by Vote. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the board of directors.
3.11. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the board of directors or a committee thereof may be
taken without a meeting if all the members of the board or of such committee, as
the case may be, consent thereto in writing, and such writing or writings are
filed with the records of the meetings of the board or of such committee. Such
consent shall be treated for all purposes as the act of the board or of such
committee, as the case may be.
3.12. Participation in Meetings by Conference Telephone. Members of the
board of directors, or any committee designated by such board, may participate
in a meeting of such board or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other or by any other means permitted by law. Such
participation shall constitute presence in person at such meeting.
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3.13. Compensation. In the discretion of the board of directors, each
director may be paid such fees for his services as director and be reimbursed
for his reasonable expenses incurred in the performance of his duties as
director as the board of directors from time to time may determine. Nothing
contained in this section shall be construed to preclude any director from
serving the corporation in any other capacity and receiving reasonable
compensation therefor.
3.14. Interested Directors and Officers.
(a) No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of the
corporation's directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if :
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of directors
or the committee, and the board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
Section 4. OFFICERS AND AGENTS
4.1. Enumeration; Qualification. The officers of the corporation shall be
a chairman of the board, a president, a treasurer, a secretary and such other
officers, if any, as the board of directors from time to time may in its
discretion elect or appoint including without limitation one or more vice
chairmen of the board, one or more vice presidents and a controller. The
corporation may also have such agents, if any, as the board of directors from
time to time may in its discretion choose. Any officer may be but none need be a
director or stockholder. Any two or more offices may be held by the same person.
Any officer may be required by the board of directors to secure the faithful
performance of his duties to the corporation by giving bond in such amount and
with sureties or otherwise as the board of directors may determine.
4.2. Powers. Subject to law, to the certificate of incorporation and to
the other provisions of these by-laws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.
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4.3. Election. The officers may be elected by the board of directors at
their first meeting following the annual meeting of the stockholders or at any
other time. At any time or from time to time the directors may delegate to any
officer their power to elect or appoint any other officer or any agents.
4.4. Tenure. Each officers shall hold office until the first meeting of
the board of directors following the next annual meeting of the stockholders and
until his respective successor is chosen and qualified unless a shorter period
shall have been specified by the terms of his election or appointment, or in
each case until he sooner dies, resigns, is removed or becomes disqualified.
Each agent shall retain his authority at the pleasure of the directors, or the
officers by whom he was appointed or by the officer who then holds agent
appointive power.
4.5. Chairman of the Board of Directors, Vice Chairman, President and Vice
President. The chairman of the board, if any, shall have such duties and powers
as shall be designated from time to time by the board of directors. Unless the
board of directors otherwise specifies, the chairman of the board shall preside
at all meetings of the stockholders and of the board of directors.
Unless the board of directors otherwise specifies, subject to the control
of the directors, the chairman of the board shall be the chief executive officer
and shall have direct charge of all business operations of the corporation and
shall have general charge and supervision of the business of the corporation.
Any Vice Chairman, the President and any vice presidents shall have such
duties and powers as shall be set forth in these by-laws or as shall be
designated from time to time by the board of directors.
4.6. Treasurer and Assistant Treasurers. Unless the board of directors
otherwise specifies, the treasurer shall be the chief financial officer of the
corporation and shall be in charge of its funds and valuable papers, and shall
have such other duties and powers as may be designated from time to time by the
board of directors. If no controller is elected, the treasurer shall, unless the
board of directors otherwise specifies, also have the duties and powers of the
controller.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors or the treasurer.
4.7. Controller and Assistant Controllers. If a controller is elected, he
shall, unless the board of directors otherwise specifies, be the chief
accounting officer of the corporation and be in charge of its books of account
and accounting records, and of its accounting procedures. He shall have such
other duties and powers as may be designated from time to time by the board of
directors.
Any assistant controller shall have such duties and powers as shall be
designated from time to time by the board of directors.
4.8. Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the stockholders, of the board of directors and of committees of
the board of directors in a book or series of books to be kept therefor and
shall file therein all actions by written consent of stockholders or directors.
In the absence of the secretary from any meeting, an assistant secretary, or if
there be none or he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof. Unless a transfer agent
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has been appointed the secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all stockholders and the number of shares registered in the name of
each stockholder. He shall have such other duties and powers as may from time to
time be designated by the board of directors.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors.
Section 5. RESIGNATIONS AND REMOVALS
5.1. Any director or officer may resign at any time by delivering his
resignation in writing to the chairman of the board, if any, the president, or
the secretary or to a meeting of the board of directors. Such resignation shall
be effective upon receipt unless specified to be effective at some other time,
and without in either case the necessity of its being accepted unless the
resignation shall so state. A director (including persons elected by directors
to fill vacancies in the board) may be removed from office without cause by the
vote of the holders of a majority of the shares issued and outstanding and
entitled to vote in the election of directors. The board of directors may at any
time remove any officer either with or without cause. The board of directors may
at any time terminate or modify the authority of any agent. No director or
officer resigning and (except where a right to receive compensation shall be
expressly provided in a duly authorized written agreement with the corporation)
no director or officer removed shall have any right to any compensation as such
director or officer for any period following his resignation or removal, or any
right to damages on account of such removal, whether his compensation be by the
month or by the year or otherwise; unless, in the case of a resignation, the
directors, or, in the case of removal, the body acting on the removal, shall in
their or its discretion provide for compensation.
Section 6. VACANCIES
6.1. If the office of the chairman of the board or the president or the
treasurer or the secretary becomes vacant, the directors may elect a successor
by vote of a majority of the directors then in office. If the office of any
other officer becomes vacant, any person or body empowered to elect or appoint
that officer may choose a successor. Each such successor shall hold office for
the unexpired term, and in the case of the president, the treasurer and the
secretary until his successor is chosen and qualified or in each case until he
sooner dies, resigns, is removed or becomes disqualified. Any vacancy of a
directorship shall be filled as specified in Section 3.4 of these by-laws.
Section 7. CAPITAL STOCK
7.1 Stock Certificates. Each stockholder shall be entitled to a
certificate stating the number and the class and the designation of the series,
if any, of the shares held by him, in such form as shall, in conformity to law,
the certificate of incorporation and the by-laws, be prescribed from time to
time by the board of directors. Such certificate shall be signed by the chairman
or vice chairman of the board, if any, or the president or a vice president and
by the treasurer or an assistant treasurer or by the secretary or an assistant
secretary. Any of or all the signatures on the certificate may be a facsimile.
In case an officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the corporation with
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the same effect as if he were such officer, transfer agent, or registrar at the
time of its issue.
7.2. Loss of Certificates. In the case of the alleged theft, loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms, including receipt of a bond
sufficient to indemnify the corporation against any claim on account thereof, as
the board of directors may prescribe.
Section 8. TRANSFER OF SHARES OF STOCK
8.1. Transfer on Books. Subject to the restrictions, if any, stated or
noted on the stock certificate, shares of stock may be transferred on the books
of the corporation by the surrender to the corporation or its transfer agent of
the certificate therefor properly endorsed or accompanied by a written assistant
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the board of directors
or the transfer agent of the corporation may reasonably require. Except as may
be otherwise required by law, by the certificate of incorporation or by these
by-laws, the corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to receive notice and to vote or to give any
consent with respect thereto and to be held liable for such calls and
assessments, if any, as may lawfully be made thereon, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
8.2. Record Date and Closing Transfer Books. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no such record date is fixed by the board of directors,
the record date for determining the stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
such record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
the General Corporation Law of the State of Delaware, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware by hand or certified or
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registered mail, return receipt requested, to its principal place of business or
to an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. If no record date has been
fixed by the board of directors and prior action by the board of directors is
required by the General Corporation Law of the State of Delaware, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall be at the close of business on the day on which
the board of directors adopts the resolution taking such prior action.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any rights
or to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the board of directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record is adopted, and which record date shall be not more
than sixty days prior to such payment, exercise or other action. If no such
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
Section 9. CORPORATE SEAL
9.1. Subject to alteration by the directors, the seal of the corporation
shall consist of a flat-faced circular die with the word "Delaware" and the name
of the corporation cut or engraved thereon, together with such other words,
dates or images as may be approved from time to time by the directors.
Section 10. EXECUTION OF PAPERS
10.1. Except as the board of directors may generally or in particular
cases authorize the execution thereof in some other manner, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts or other obligations made,
accepted or endorsed by the corporation shall be signed by the chairman of the
board, if any, the president, a vice president or the treasurer.
Section 11. FISCAL YEAR
11.1. The fiscal year of the corporation shall end on the Saturday nearest
the 31st of May.
Section 12. AMENDMENTS
12.1. These by-laws may be adopted, amended or repealed by vote of a
majority of the directors then in office or by vote of a majority of the stock
outstanding and entitled to vote. Any by-law, whether adopted, amended or
repealed by the stockholders or directors, may be amended or reinstated by the
stockholders or the directors.
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Exhibit 4.1
EXECUTION COPY
================================================================================
ICON HEALTH & FITNESS, INC.,
as Issuer
THE SUBSIDIARY GUARANTORS NAMED HEREIN,
and
IBJ WHITEHALL BANK & TRUST COMPANY,
as Trustee
---------------------------------
Indenture
Dated as of September 27, 1999
-------------------------
$45,000,000
12% Notes due 2005, Series A
and
12% Notes due 2005, Series B
================================================================================
<PAGE>
ICON HEALTH & FITNESS, INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of ___________, 1999
Trust Indenture Indenture
Act Section Section
- ----------- -------
[to be revised]
ss.310 (a)(1)..........................................................6.7
(a)(2)..........................................................6.7
(b).............................................................6.8
ss.312 (c).............................................................7.1
ss.314 (a)(4).........................................................10.8(a)
(c)(1)..........................................................1.3
(c)(2)..........................................................1.3
(e).............................................................1.3
ss.315 (b).............................................................6.1
ss.316 (a)(last sentence).................................1.1 ("Outstanding")
(a)(1)(A)..................................................5.2, 5.12
(a).............................................................5.13
(b).............................................................5.8
(c)............................................................ 1.5(d)
ss.317 (a)(1)..........................................................5.3
(a)(2)..........................................................5.4
(b)............................................................10.3
ss.318 (a).............................................................1.12
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.....................................................1
Section 1.2. Incorporation by Reference of Trust Indenture Act..............29
Section 1.3. Compliance Certificates and Opinions..........................30
Section 1.4. Form of Documents Delivered to Trustee.........................30
Section 1.5. Acts of Holders................................................31
Section 1.6. Notices, Etc., to Trustee and the Company......................32
Section 1.7. Notice to Holders; Waiver......................................33
Section 1.8. Effect of Headings and Table of Contents.......................34
Section 1.9. Successors and Assigns.........................................34
Section 1.10. Separability Clause...........................................34
Section 1.11. Benefits of Indenture.........................................34
Section 1.12. Governing Law.................................................34
Section 1.13. Legal Holidays................................................34
ARTICLE II. SECURITY FORMS
Section 2.1. Forms Generally................................................35
Section 2.2. Restrictive Legends............................................36
ARTICLE III. THE SECURITIES
Section 3.1. Title and Terms................................................37
Section 3.2. Denominations..................................................38
Section 3.3. Execution, Authentication, Delivery and Dating.................38
Section 3.4. Temporary Securities...........................................40
Section 3.5. Registration, Registration of Transfer and Exchange...........40
Section 3.6. Book-Entry Provisions for U.S. Global Security................42
Section 3.7. Special Transfer Provisions...................................43
Section 3.8. Mutilated, Destroyed, Lost and Stolen Securities..............45
Section 3.9. Payment of Interest; Interest Rights Preserved................46
Section 3.10. Persons Deemed Owners........................................48
Section 3.11. Cancellation.................................................48
Section 3.12. Computation of Interest......................................48
ARTICLE IV. SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.......................49
Section 4.2. Application of Trust Money....................................50
ARTICLE V. REMEDIES
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Section 5.1. Events of Default.............................................50
Section 5.2. Acceleration of Maturity; Rescission and Annulment............53
Section 5.3. Collection of Indebtedness and Suits for Enforcement
by Trustee ..................................................54
Section 5.4. Trustee May File Proofs of Claim..............................55
Section 5.5. Trustee May Enforce Claims Without Possession of Securities...56
Section 5.6. Application of Money Collected................................56
Section 5.7. Limitation on Suits...........................................57
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest.........................................57
Section 5.9. Restoration of Rights and Remedies............................58
Section 5.10. Rights and Remedies Cumulative...............................58
Section 5.11. Delay or Omission Not Waiver.................................58
Section 5.12. Control by Holders...........................................58
Section 5.13. Waiver of Past Defaults......................................59
Section 5.14. Waiver of Stay or Extension Laws.............................59
ARTICLE VI. THE TRUSTEE
Section 6.1. Notice of Defaults............................................60
Section 6.2. Certain Rights of Trustee.....................................60
Section 6.3. Trustee Not Responsible for Recitals or
Issuance of Securities ......................................61
Section 6.4. May Hold Securities...........................................62
Section 6.5. Money Held in Trust...........................................62
Section 6.6. Compensation and Reimbursement................................62
Section 6.7. Corporate Trustee Required; Eligibility.......................63
Section 6.8. Resignation and Removal; Appointment of Successor.............63
Section 6.9. Acceptance of Appointment by Successor........................65
Section 6.10. Merger, Conversion, Consolidation or Succession to Business..65
ARTICLE VII. HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 7.1. Disclosure of Names and Addresses of Holders..................66
Section 7.2. Reports by Trustee............................................67
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms..........67
Section 8.2. Successor Substituted.........................................69
Section 8.3. Securities to Be Secured in Certain Events.....................69
ARTICLE IX. SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures Without Consent of Holders............70
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Section 9.2. Supplemental Indentures with Consent of Holders...............70
Section 9.3. Execution of Supplemental Indentures..........................71
Section 9.4. Effect of Supplemental Indentures.............................72
Section 9.5. Conformity with Trust Indenture Act...........................72
Section 9.6. Reference in Securities to Supplemental Indentures............72
Section 9.7. Notice of Supplemental Indentures.............................72
ARTICLE X. COVENANTS
Section 10.1. Payment of Principal, Premium, if any, and Interest..........72
Section 10.2. Maintenance of Office or Agency..............................73
Section 10.3. Money for Security Payments to Be Held in Trust..............74
Section 10.4. Corporate Existence...........................................75
Section 10.5. Payment of Taxes and Other Claims.............................76
Section 10.6. Maintenance of Properties.....................................76
Section 10.7. Insurance.....................................................76
Section 10.8. Statement by Officers as to Default...........................76
Section 10.9. Provision of Financial Statements.............................77
Section 10.10. Limitation on Indebtedness and Issuance of Preferred Stock...78
Section 10.11. Limitation on Restricted Payments............................79
Section 10.12. [Intentionally Omitted].....................................84
Section 10.13. Limitation on Transactions with Affiliates..................84
Section 10.14. Limitation on Liens.........................................85
Section 10.15. Change of Control Offer.....................................86
Section 10.16. Limitation on Line of Business..............................88
Section 10.17. Limitation on Sale of Assets................................88
Section 10.18. Limitation on Issuances of Guarantees of Indebtedness......90
Section 10.19. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.....................................91
Section 10.20. Limitation on Sale and Leaseback Transactions...............92
Section 10.21. [Intentionally Omitted].....................................92
Section 10.22. Limitation on Designations of Unrestricted Subsidiaries.....92
Section 10.23. Waiver of Certain Covenants.................................93
Section 10.24. Limitation on Other Senior Indebtedness.....................94
Section 10.25. Rating......................................................94
Section 10.26. Payments for Consent........................................94
Section 10.27. Additional Subsidiary Guarantees............................94
ARTICLE XI. REDEMPTION OF SECURITIES
Section 11.1. Right of Redemption..........................................95
Section 11.2. Applicability of Article.....................................95
Section 11.3. Election to Redeem; Notice to Trustee........................95
Section 11.4. [Intentionally Omitted]......................................95
Section 11.5. Notice of Redemption.........................................95
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Section 11.6. Deposit of Redemption Price..................................96
Section 11.7. Securities Payable on Redemption Date........................96
ARTICLE XII. DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1. Company's Option to Effect Defeasance or
Covenant Defeasance ........................................97
Section 12.2. Defeasance and Discharge.....................................97
Section 12.3. Covenant Defeasance..........................................98
Section 12.4. Conditions to Defeasance or Covenant Defeasance..............98
Section 12.5. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions..............101
Section 12.6. Reinstatement...............................................101
ARTICLE XIII. SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinated to Senior Indebtedness..............102
Section 13.2. No Payment on Securities in Certain Circumstances...........102
Section 13.3. Payment over Proceeds upon Dissolution, Etc.................103
Section 13.4. Subrogation.................................................105
Section 13.5. Obligations of Company Unconditional........................106
Section 13.6. Notice to Trustee...........................................106
Section 13.7. Reliance on Judicial Order or Certificate of
Liquidating Agent .........................................107
Section 13.8. Trustee's Relation to Senior Indebtedness...................108
Section 13.9. Subordination Rights Not Impaired by Acts or Omissions
of the Trustee, the Holders, the Company or Holders
of Senior Indebtedness.................................108
Section 13.10. Holders Authorize Trustee to Effectuate Subordination of
Securities.............................................109
Section 13.11. Not to Prevent Events of Default...........................109
Section 13.12. Trustee's Compensation Not Prejudiced......................109
Section 13.13. No Waiver of Subordination Provisions......................109
Section 13.14. Payments May Be Paid Prior to Dissolution..................110
ARTICLE XIV. SUBSIDIARY GUARANTEES
Section 14.1. Guarantee...................................................110
Section 14.2. Guarantee Limitation On Subsidiary Guarantor Liability......112
Section 14.3. Execution And Delivery Of Subsidiary Guarantee..............112
Section 14.4. Subsidiary Guarantors May Consolidate, Etc., Only on
Certain Terms..............................................113
Section 14.5. Releases of Subsidiary Guarantee............................114
Section 14.6. Subordination of Subsidiary Guarantee.......................115
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SCHEDULES
SCHEDULE I List of Subsidiary Guarantors.
SCHEDULE II Agreements.
EXHIBITS
EXHIBIT A Form of Securities, Trustee's Certificate of Authentication.
EXHIBIT B [Intentionally Omitted]
EXHIBIT C Form of Certificate to be Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors.
EXHIBIT D Form of Notation of Subsidiary Guarantee.
EXHIBIT E Form of Supplemental Indenture to be Delivered by Subsequent
Subsidiary Guarantors.
v
<PAGE>
INDENTURE, dated as of September 27, 1999, between ICON HEALTH &
FITNESS, INC., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company" or "ICON"), as Issuer, having its
principal office at 1500 South 1000 West, Logan, Utah 84321, the Subsidiary
Guarantors listed on Schedule I hereto (collectively, the "Subsidiary
Guarantors") and IBJ Whitehall Bank & Trust Company, a New York banking
association, as trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue which will
consist of up to $45,000,000 principal amount at maturity of 12% Notes due 2005,
Series A (herein called the "Initial Securities"), and 12% Notes due 2005,
Series B (the "Exchange Securities" and, together with the Initial Securities,
the "Securities").
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as set forth
herein.
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
<PAGE>
c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Articles Two, Ten and Twelve, are
defined in those Articles.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, whether or
not such Indebtedness is incurred in connection with, or in contemplation of,
such other Person merging with or into, or becoming a Subsidiary of, such
specified Person and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Act", when used with respect to any Holder, has the meaning
specified in Section 1.5.
"Affiliate" of any specified Person means any other Person (i) which
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, such Person, (ii) which directly
or indirectly through one or more intermediaries beneficially owns or holds 10%
or more of the combined voting power of the total Voting Stock of such Person,
or (iii) of which 10% or more of the combined voting power of the total Voting
Stock (or in the case of a Person that is not a corporation, 10% or more of the
equity interest), directly or indirectly, through one or more intermediaries is
beneficially owned or held by such Person; provided that the term "Affiliate"
shall not be deemed to apply to any Bank solely by virtue of its ownership
directly or indirectly of up to 20% of the Voting Stock of the Company. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling", "controlled by" and "under common
control with" have meanings correlative to the foregoing. For the avoidance of
doubt, Holdings, Bain and Credit Suisse First Boston Corporation ("CSFB") shall
be deemed Affiliates of the Company as of the Issue Date.
"Asset Sale" means: (i) the sale, lease, conveyance or other
disposition of any assets or rights, other than sales of inventory in the
ordinary course of business consistent with past practices; provided that the
sale, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole shall be
governed by Article Eight and Section 10.15 of the Indenture and
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not Section 10.17 of the Indenture and (ii) the issuance or sale of Capital
Stock by any of the Company's Restricted Subsidiaries. Notwithstanding the
preceding, the following items shall not be deemed to be Asset Sales: (i) any
single transaction or series of related transactions that (a) involves assets
having a Fair Market Value of less than $500,000 or (b) results in net
proceeds to the Company and its Restricted Subsidiaries of less than
$500,000, (ii) a transfer of assets between or among the Company and its
Restricted Subsidiaries, (iii) an issuance of Capital Stock by a Restricted
Subsidiary to the Company or to another Restricted Subsidiary, (iv) a
Restricted Payment that is permitted by Section 10.11 and (v) the sale of
accounts receivable transferred to an Unrestricted Subsidiary or any other
Person that is not a Subsidiary of the Company in connection with a
Securitization Transaction for the Fair Market Value thereof, including cash
in an amount at least equal to 75% of the Fair Market Value thereof. For
purposes of clause (v) of the immediately preceding sentence, Securitization
Notes shall be deemed to be cash.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Average Life to Stated Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by (b) the then outstanding principal
amount of such Indebtedness.
"Bain" means Bain Capital, Inc.
"Bankruptcy Law" means Title 11, United States Code, as amended, or
any similar United States Federal or State law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Banks" means General Electric Capital Corporation and Fleet
National Bank, as agents for the lenders, and the banks and other financial
institutions from time to time that are agents or lenders under the Credit
Agreement.
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<PAGE>
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or in the city where the Corporate Trust Office or the principal office of the
Paying Agent is located are authorized or obligated by law or executive order to
close.
"Canadian Subsidiary Borrowing Base" means, as of any date, an
amount equal to the sum of (a) 85.0% of the book value of all accounts
receivable owned by the Company's Canadian Restricted Subsidiaries) (excluding
any accounts receivable from an Affiliate of such Canadian Restricted
Subsidiaries or that are more than 90 days past due, less (without duplication)
the allowance for doubtful accounts attributable to current trade accounts
receivable) and (b) 60.0% of the book value of all inventory owned by such
Canadian Restricted Subsidiaries as of such date (with a seasonal increase of
70.0% of inventory in effect from July 1 through November 30 of each year), all
calculated on a consolidated basis and in accordance with GAAP. To the extent
that information is not available as to the amount of accounts receivable or
inventory as of a specific date, Canadian Subsidiary Borrowing Base shall be
calculated utilizing the most recent available information.
"Capital Stock" means (a) in the case of a corporation, corporate
stock; (b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock; (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and (d) any
other interest or participation that confers on a person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
person; and in each case, all warrants, options or other rights to acquire any
of the foregoing (but excluding any debt security that is convertible into, or
exchangeable for, any of the foregoing).
"Capitalized Lease Obligation" means any obligation under a lease of
(or other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP and, for the purpose of this Indenture, the
amount of such obligation at any date shall be the capitalized amount thereof at
such date, determined in accordance with GAAP.
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"Cash Equivalents" means (a) United States dollars, (b) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than nine months from the date of acquisition, (c) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition and overnight bank deposits, in each case with any United States
commercial bank having capital and surplus in excess of $500 million, (d)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (b) and (c) entered into with any
financial institution meeting the qualifications specified in clause (c) above,
and (e) commercial paper having the highest rating obtainable from Moody's
Investors Service or Standard & Poors Ratings Group and bankers' acceptances of
a financial institution with such a commercial paper rating and in each case
maturing within 270 days after the date of acquisition.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Bain or its Affiliates or CSFB or its
Affiliates, is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that (x) a Person shall be deemed to have
beneficial ownership of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time
and (y) "beneficial owner" shall not include any "person" or "group" solely by
reason of such Person being party to the Stockholders Agreement or a member of
the limited liability company referred to in the Exchange Offer and Consent
Solicitation Statement), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the Company or Holdings, as the case may be measured
by voting power rather than number of shares; (ii) the sale, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as
a whole to any "person" or "group" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) other than Bain or its Affiliates or CSFB or
its Affiliates; (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company or Holdings, as the case may be (together with any new directors
whose election to such Board or whose nomination for election by the
stockholders of the Company or Holdings, as the case may be, was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of such Board of Directors then in office; (iv) the Company or
Holdings, as the case may be, consolidates with or merges with or into
another Person, or any Person consolidates with or merges into or with the
Company or Holdings, as the case may be, in any such event pursuant to a
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<PAGE>
transaction in which any of the outstanding Voting Stock of the Company or
Holdings, as the case may be, is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
outstanding Voting Stock of the Company or Holdings, as the case may be, is
not changed or exchanged at all (except only to the extent necessary to
reflect a change in the jurisdiction of incorporation of the Company or
Holdings, as the case may be) or where (A) the outstanding Voting Stock of
the Company or Holdings, as the case may be, outstanding immediately prior to
such transaction is changed into or exchanged for Voting Stock of the
surviving transferee Person (other than Redeemable Capital Stock)
constituting a majority of the outstanding shares of such Voting Stock of
such surviving transferee Person immediately after giving effect to such
issuance and (B) no "person" or "group" other than Bain or its Affiliates or
CSFB or its Affiliates, owns immediately after such transaction, directly or
indirectly, more than 50% of the total outstanding Voting Stock of the
surviving corporation; (v) the Company is liquidated or dissolved or adopts a
plan of liquidation or dissolution; or (vi) Holdings shall hold less than
100% of the common stock of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it, then the body performing such
duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Borrowing Base" means, as of any date, an amount equal to
the sum of (a) 85.0% of the book value of all accounts receivable owned by the
Company and its Domestic Subsidiaries and Canadian Restricted Subsidiaries
(excluding any accounts receivable from an Affiliate of such Person or that are
more than 90 days past due, less (without duplication) the allowance for
doubtful accounts attributable to current trade accounts receivable) and (b)
60.0% of the book value of all inventory owned by the Company and its Domestic
Subsidiaries and Canadian Restricted Subsidiaries as of such date (with a
seasonal increase of 70.0% of inventory in effect from July 1 through November
30 of each year), all calculated on a consolidated basis and in accordance with
GAAP. To the extent that information is not available as to the amount of
accounts receivable or inventory as of a specific date, Company Borrowing Base
shall be calculated utilizing the most recent available information.
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"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any two of the following: its
Chairman, Chief Executive Officer, its President, any Vice President, its
Treasurer, its Chief Financial Officer, Director of Finance or an Assistant
Treasurer, and delivered to the Trustee.
"Consolidated Adjusted Net Income (Loss)" means, for any period, the
consolidated net income (or loss) of the Company and its Restricted Subsidiaries
for such period as determined in accordance with GAAP, adjusted, to the extent
included therein, by excluding, without duplication, (i) any net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto),
(ii) the portion of net income (or loss) of the Company and its consolidated
Restricted Subsidiaries allocable to minority interests in unconsolidated
Persons or Persons that are accounted for by equity method of accounting to the
extent that cash dividends or distributions have not actually been received by
the Company or any Restricted Subsidiary, (iii) net income (or loss) of any
Person combined with the Company or any Restricted Subsidiary on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) net after-tax gains or losses (less all
fees and expenses relating thereto) in respect of dispositions of assets
other than in the ordinary course of business, (vi) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is not at
the time permitted without any prior governmental approval (that has not been
obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Restricted Subsidiary or its
shareholders, or (vii) the cumulative effect of a change in accounting
principles.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for
any period, the ratio of (a) the sum of (i) Consolidated Adjusted Net Income
(Loss), (ii) Consolidated Interest Expense, (iii) Consolidated Income Tax
Expense and (iv) Consolidated NonCash Charges, in the case of (ii), (iii) and
(iv) only to the extent such expense or charge was deducted in computing
Consolidated Adjusted Net Income (Loss), in each case, for such period, of the
Company and its Restricted Subsidiaries on a consolidated basis, all determined
in accordance with GAAP to (b) the sum of Consolidated Interest Expense for such
period and cash and non-cash dividends paid on any Preferred Stock of the
Company or any Restricted Subsidiary during such period; provided that in making
such computation, the Consolidated Interest Expense attributable to (A) interest
on any Indebtedness computed on a pro forma basis and bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period, (B) interest on
any Indebtedness under a revolving credit
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facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period and
(C) notwithstanding clauses (A) and (B) above, interest on any Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
Interest Rate Protection Agreements, shall be deemed to have accrued at the
rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Income Tax Expense" means for any period the provision
for federal, state, local and foreign income taxes of the Company and its
consolidated Subsidiaries for such period as determined in accordance with GAAP.
"Consolidated Interest Expense" means, without duplication, for any
period, (x) the sum of (a) the interest expense of the Company and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized, as determined on a consolidated basis in accordance with GAAP
including, without limitation, (i) amortization of original issue discount
and non-cash interest payments, (ii) the net payment under Interest Rate
Protection Agreements (including amortization of discounts), (iii) the
interest portion of any deferred payment obligation (iv) imputed interest
with respect to Attributable Debt, (v) commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings and (vi) accrued interest and (b)(i) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company or any Restricted Subsidiary during such period and
(ii) all capitalized interest of the Company and its consolidated Restricted
Subsidiaries, in each case as determined in accordance with GAAP, minus (y)
any amortization of financing fees and expenses of the Company and its
consolidated Restricted Subsidiaries for such period.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of:
(1) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date; plus
(2) the respective amounts reported on such Persons's balance
sheet as of such date with respect to any series of Preferred Stock (other
than Redeemable Stock) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
Preferred Stock.
"Consolidated Non-Cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash charges of the Company and its
consolidated Restricted
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Subsidiaries for such period, as determined in accordance with GAAP
(excluding any non-cash charge which requires an accrual or reserve for cash
charges for any future period or amortization of a prepaid cash expense that
was paid in a prior period).
"Consolidation" means, with respect to the Company, the
consolidation of the accounts of the Restricted Subsidiaries with those of the
Company, all in accordance with GAAP consistently applied; provided that,
"consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary with the accounts of the Company. The term
"Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be principally administered, which office at the date of this Indenture
is located at IBJ Whitehall Bank & Trust Company, One State Street, New York,
New York 10004, Attention: Corporate Trust Administration, except that with
respect to presentation of Securities for payment or for registration of
transfer or exchange, such term shall mean the office or agency of the
Trustee at which, at any particular time, its corporate agency business shall
be conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"Credit Agreement" means one or more Credit Agreements among the
Company and the Banks, as in effect as of the date of this Indenture, providing
for a revolving credit facility and term loans to the Company, as such
agreements may be amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from time to time,
including, without limitation, amendments and modifications that provide for
loans to Canadian Restricted Subsidiaries and for sub-facilities (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplementations or other
modifications of any of the foregoing), together with the security agreements
and other agreements in favor of the Banks entered into from time to time in
connection with such credit agreements as such security agreements and other
agreements may be amended, supplemented or otherwise modified from time to time.
"Currency Agreements" means any spot or forward foreign exchange
agreements and currency swap, currency option or other similar financial
agreements or arrangements entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and designed to protect against
or manage exposure to fluctuations in foreign currency exchange rates.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
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"Defaulted Interest" has the meaning specified in Section 3.9.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, The Depository Trust Company, and any
and all successors thereto appointed as depositary hereunder and having become
such pursuant to the applicable provision of this Indenture.
"Disinterested Directors" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of related transactions.
"Domestic Subsidiary" means any Restricted Subsidiary that is
incorporated under the laws of the United States or any state thereof or the
District of Columbia.
"Event of Default" has the meaning set forth in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer and Consent Solicitation Statement" means that
certain Exchange Offer and Consent Solicitation Statement dated July 30, 1999
relating to the offer of the Securities.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement between the Company and the holders of the Initial
Securities, dated as of September 27, 1999, relating to the Securities, as such
agreement may be amended, modified or supplemented from time to time.
"Exchange Registration Statement" means the Exchange Registration
Statement as defined in the Exchange and Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the first recital of
this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms with respect to transfer restrictions) that
are issued and exchanged for the Initial Securities pursuant to the Exchange and
Registration Rights Agreement and this Indenture.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer.
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"Foreign Subsidiary" means any Subsidiary that is incorporated in a
jurisdiction outside of the U.S. and territories thereof.
"Foreign Subsidiary Borrowing Base" means, as of any date, an amount
equal to the sum of (a) 85.0% of the book value of all accounts receivable owned
by the Company's Foreign Subsidiaries (other than Canadian Restricted
Subsidiaries) (excluding any accounts receivable from an Affiliate of such
Foreign Subsidiaries or that are more than 90 days past due, less (without
duplication) the allowance for doubtful accounts attributable to current
trade accounts receivable) and (b) 60.0% of the book value of all inventory
owned by such Foreign Subsidiaries (other than Canadian Restricted
Subsidiaries) as of such date (with a seasonal increase of 70.0% of inventory
in effect from July 1 through November 30 of each year), all calculated on a
consolidated basis and in accordance with GAAP. To the extent that
information is not available as to the amount of accounts receivable or
inventory as of a specific date, Foreign Subsidiary Borrowing Base shall be
calculated utilizing the most recent available information.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in other
statements by any other entity as have been approved by a significant segment of
the accounting profession, which are in effect on the Issue Date.
"Guarantee" or "guarantee" means a guarantee other than by
endorsement of negotiable instruments for collection in the ordinary course of
business, direct or indirect, in any manner including, without limitation, by
way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
"Holdings" means HF Holdings, Inc. and its successors.
"Indebtedness" means, with respect to any Person, without
duplication, (a) all liabilities of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letter of credit, bankers' acceptance or other
similar credit transaction and in connection with any agreement to purchase,
redeem, exchange, convert or otherwise acquire for value any Capital Stock of
such Person, or any warrants, rights or options to acquire such Capital Stock,
now or hereafter outstanding, if, and
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to the extent, any of the foregoing would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, (b) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, if, and to the extent, any of the foregoing would appear
as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, (c) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or
lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such Person, (e) all indebtedness referred to in the preceding
clauses of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned
by such Person, even though such Person has not assumed or become liable for
the payment of such Indebtedness or of such dividend (the amount of such
obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees by such
Person of indebtedness referred to in this definition, (g) all Redeemable
Capital Stock of such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends and (h) all
obligations of such Person under or in respect of Interest Rate Protection
Agreements and Currency Agreements. The amount of any Indebtedness
outstanding as of any date shall be (i) the accreted value thereof, in the
case of any Indebtedness issued with original issue discount and (ii) the
principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Securities" has the meaning stated in the first recital of
this Indenture.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Securities.
"Interest Rate Protection Agreements" means any interest rate
protection agreements and other types of interest rate hedging agreements
(including, without limitation, interest rate swaps, caps, collars and similar
agreements) designed to minimize exposure to fluctuations in interest rates in
respect of Indebtedness.
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"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan, or other extension of credit (including by means
of a guarantee) or capital contribution to (by means of any transfer of cash
or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities or evidences
of Indebtedness issued by any other Person, except for purchases of assets in
the ordinary course of business of the Company or any of its Restricted
Subsidiaries, and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"Issue Date" means the closing date for the original issuance of the
Initial Securities under this Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance of any kind
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired, whether or not filed, recorded or
otherwise perfected under applicable law, including any conditional sale or
other title retention agreement, any lease in the return thereof, any option or
other agreement to sell or give a security interest in and any filing or
agreement to give any financing statement under the Uniform Commercial Code or
equivalent statutes of any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing
pursuant to the Registration Rights Agreement.
"Maturity" when used with respect to any Security means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein provided or as provided in this Indenture, whether at
Stated Maturity or by declaration of acceleration, call for redemption or
otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means with respect to any Asset Sale the
proceeds thereof received by the Company or any of its Restricted
Subsidiaries in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or Cash Equivalents (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of (i) reasonable
out-of-pocket fees and expenses (including legal, accounting and investment
banking and sales commissions) related to such Asset Sale, (ii) provisions
for all taxes payable as a result of such Asset Sale, (iii) payments made to
retire Indebtedness where payment of such Indebtedness is secured by the
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assets or properties which are the subject of such Asset Sale, (iv) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset
Sale and (v) appropriate amounts to be provided by the Company or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been
released or are not otherwise required to be retained as a reserve), all as
reflected in an Officers' Certificate delivered to the Trustee.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or indirectly
liable (as a guarantor, general partner or otherwise), or (c) constitutes a
lender; and (ii) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness (other than the Securities) of the Company or any of its
Restricted Subsidiaries to declare a default under such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and (iii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Officers' Certificate" means a certificate signed by the Chairman,
the Chief Executive Officer, the President or a Vice President, and by the
Treasurer, the Chief Financial Officer, the Director of Finance, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
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(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(iii) Securities, except to the extent provided in Sections 12.2 and
12.3, with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Twelve; and
(iv) Securities which have been paid pursuant to Section 3.8 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in respect
of which there shall have been presented to the Trustee proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands the
Securities are valid obligations of the Company;
provided, however, that, in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any, on) or interest on any Securities on behalf of the Company.
"Permitted Business" means the lines of business that the Company
and its Restricted Subsidiaries currently conduct on the date of the Indenture
and any businesses that derive (or are
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expected to derive) a majority of their revenues from products and activities
reasonably related thereto.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company and any Subsidiary Guarantor
(including Canadian Restricted Subsidiaries that are also Subsidiary
Guarantors) under the Credit Agreement; provided that the aggregate
principal amount of such Indebtedness at any one time outstanding shall
not exceed the greater of (1) the Company Borrowing Base plus $120 million
and (2) $350 million, in each case less (a) the aggregate amount of all
Net Cash Proceeds of Asset Sales applied by the Company and any of its
Subsidiaries since the date of this Indenture to permanently repay
Indebtedness under the Credit Agreement pursuant to Section 10.17 hereof
and (b) the amount of outstanding Indebtedness incurred by Canadian
Restricted Subsidiaries pursuant to clause (xiii) below; provided further
that the amount of Indebtedness permitted to be incurred pursuant to this
clause (i) shall be in addition to any Indebtedness permitted to be
incurred under the Credit Agreement in reliance on, and in accordance
with, clauses (viii) and (xii) of this definition of "Permitted
Indebtedness";
(ii) Indebtedness of the Company and any Restricted Subsidiary under
the Securities;
(iii) Indebtedness of the Company and any Restricted Subsidiary
(other than under the Credit Agreement) outstanding on the date of this
Indenture until such amounts are repaid;
(iv) obligations of the Company and any Restricted Subsidiary
incurred in connection with Interest Rate Protection Agreements relating
to Indebtedness (including Permitted Indebtedness) permitted pursuant to
Section 10.10 that are entered into in the ordinary course of business;
(v) obligations of the Company and any Restricted Subsidiary
incurred in connection with Currency Agreements that are entered into
in the ordinary course of business of the Company and its Restricted
Subsidiaries;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that:
(A) if the Company or any Subsidiary Guarantor is the obligor
on such Indebtedness and the obligee is not the Company or any
Subsidiary Guarantor, such Indebtedness must be expressly
subordinated to the prior payment in full in cash of all obligations
with
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respect to the Securities, in the case of the Company, or the
Subsidiary Guarantee of such Subsidiary Guarantor, in the case of a
Subsidiary Guarantor; and
(B) (1) any subsequent issuance or transfer of Capital Stock
that results in any such Indebtedness being held by a Person other
than the Company or a Restricted Subsidiary thereof and (2) any sale
or other transfer of any such Indebtedness to a Person that is not
either the Company or a Restricted Subsidiary thereof; shall be
deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (vi);
(vii) Indebtedness arising from customary agreements providing for
indemnification or similar obligations, or from guarantees, letters of
credit, surety bonds or performance bonds securing any obligations of the
Company pursuant to such agreements, in any case entered into in a
commercially reasonable manner in the ordinary course of business
consistent with past practices incurred in connection with the disposition
of any business, assets or Restricted Subsidiary of the Company, in a
principal amount not to exceed the proceeds received by the Company and
its Restricted Subsidiaries in connection with such disposition;
(viii) Purchase Money Obligations and Capitalized Lease Obligations
of the Company and one or more Restricted Subsidiaries not to exceed, in
the aggregate at any time outstanding (including the amount of any
additional Indebtedness incurred under clause (i) of this definition of
"Permitted Indebtedness" in reliance on this clause (viii)), $10 million;
(ix) Indebtedness of Foreign Subsidiaries (other than Canadian
Restricted Subsidiaries) in an aggregate principal amount not to exceed,
at any time outstanding, the lesser of $50 million or the Foreign
Subsidiary Borrowing Base; provided, however, that such amount shall
be reduced by the amount of Indebtedness incurred by such Foreign
Subsidiaries pursuant to clause (i) above;
(x) any renewals, extensions, substitutions, refundings,
refinancings or replacements (each, a "refinancing") of any Indebtedness
(other than intercompany Indebtedness) described in clauses (ii) and (iii)
and clause (xii) of this definition of "Permitted Indebtedness," including
any successive refinancings so long as (A) the aggregate principal amount
or accreted value, if applicable,(or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, then such lesser amount as of the
date of determination) of Indebtedness
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represented thereby is not increased by such refinancing other than by
an amount equal to the stated amount of premium or other payment
actually paid at such time to refinance the Indebtedness, plus the
amount of reasonable expenses of the Company incurred in connection
with such refinancing, (B) such refinancing does not reduce the Average
Life to Stated Maturity or shorten the Stated Maturity of such
Indebtedness, (C) such new Indebtedness is subordinated to the
Securities at least to the same extent as the Indebtedness being
refinanced if the Indebtedness being refinanced is Subordinated
Indebtedness and (D) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary which is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(xi) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Redeemable Capital Stock in the form of additional shares of the same
class of Redeemable Capital Stock; provided, in each such case, that the
amount thereof is included in Consolidated Interest Expense of the Company
as accrued;
(xii) Indebtedness of the Company and one or more Restricted
Subsidiaries in addition to that described in clauses (i) through (xi) of
this definition of "Permitted Indebtedness," including Indebtedness
incurred pursuant to clause (x) above to refinance any Indebtedness
incurred pursuant to this clause (xii), not to exceed $15 million in the
aggregate at any one time outstanding (including the amount of any
additional Indebtedness incurred under clause (i) of this definition
of "Permitted Indebtedness" in reliance on this clause (xii)); and
(xiii) Indebtedness of Canadian Restricted Subsidiaries (to the
extent they are not also Subsidiary Guarantors) under the Credit Agreement
in an aggregate principal amount not to exceed, at any time outstanding,
the lesser of $50 million or the Canadian Subsidiary Borrowing Base.
"Permitted Investment" means:
(i) Investments in any Restricted Subsidiary or any Investment in
any Person by the Company or any Restricted Subsidiary as a result of
which such Person becomes a Restricted Subsidiary (provided, however, that
in each case such Restricted Subsidiary is engaged in a Permitted
Business) or any Investment in the Company by a Restricted Subsidiary;
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(ii) intercompany Indebtedness to the extent permitted under clause
(vi) of the definition of "Permitted Indebtedness";
(iii) Investments in Cash Equivalents;
(iv) Investments in an amount not to exceed $2 million in the
aggregate at any given time outstanding;
(v) Investments in existence on the date of this Indenture;
(vi) Investments by the Company or any Restricted Subsidiary in any
Person (including any Unrestricted Subsidiary) whose operations consist
of, or has been formed to operate, a Permitted Business in an amount not
to exceed $8 million in the aggregate at any given time outstanding; and
(vii) any Investment made by the Company or a Restricted Subsidiary
in an Unrestricted Subsidiary or any other Person that is not a Subsidiary
of the Company in connection with a Securitization Transaction; provided
that any such Investment is in the form of a Securitization Note or an
equity interest.
"Permitted Liens" means any of the following:
(a) any Lien existing as of the date of this Indenture (other than
Liens securing Indebtedness under the Credit Agreement);
(b) any Lien arising by reason of (1) any judgment, decree or order
of any court, so long as such Lien is adequately bonded and any
appropriate legal proceedings which may have been duly initiated for the
review of such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be initiated
shall not have expired, the claims secured thereby are being contested in
good faith by appropriate proceedings, adequate reserves have been
established with respect to such claims in accordance with GAAP and no
Default or Event of Default would result thereby; (2) taxes, assessments,
governmental charges or levies not yet delinquent or which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that, any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been
made therefor; (3) security for payment of workers' compensation or other
insurance incurred in the ordinary course of business; (4) security for
the performance of tenders, contracts (other than contracts for the
payment of money) or leases incurred in the ordinary course of business;
(5) deposits to secure public or
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statutory obligations incurred in the ordinary course of business; (6)
operation of law in favor of carriers, warehousemen, mechanics,
materialmen, laborers, employees or suppliers and similar Liens
incurred in the ordinary course of business for sums which are not yet
delinquent or are being contested in good faith by negotiations or by
appropriate proceedings which suspend the collection thereof incurred
in the ordinary course of business; or (7) security for surety or
appeal bonds incurred in the ordinary course of business;
(c) any Lien existing on the assets of the Company or any Subsidiary
Guarantor (including Canadian Restricted Subsidiaries that are also
Subsidiary Guarantors) securing the Indebtedness of the Company or any
such Subsidiary Guarantor under the Credit Agreement, provided that the
principal amount of Indebtedness secured by such Lien does not exceed the
amount of Indebtedness permitted to be incurred under clause (i) of the
definition of "Permitted Indebtedness";
(d) any Lien in favor of the Company or a Subsidiary Guarantor;
(e) any Lien securing any Interest Rate Protection Agreements to the
extent such Agreements relate to Indebtedness that is otherwise permitted
to be incurred pursuant to this Indenture;
(f) any Lien securing the Securities;
(g) any Liens on assets acquired by the Company or any Restricted
Subsidiary after the date of this Indenture, whether by acquisition of
shares, assets or otherwise, provided that such Lien (i) existed on the
date such asset was acquired, (ii) only extends to assets that were
subject to such Lien prior to such acquisition, and (iii) was not incurred
in anticipation of such acquisition;
(h) Liens relating to Purchase Money Obligations, provided, however,
that (i) the principal amount of any Indebtedness secured by such Liens
shall not exceed 100% of the applicable purchase price or cost and (ii)
the Lien securing such Indebtedness shall be created (A) in the case of
any asset acquisition within 180 days of the closing of such asset
acquisition and (B) in all other cases, in the ordinary course of
business, within 90 days of such acquisition and (iii) such Lien does not
apply to any assets other than those acquired with such Purchase Money
Obligations and (iv) the Indebtedness secured by the Lien was permitted to
be incurred pursuant to clause (viii) of the definition of Permitted
Indebtedness;
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(i) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods not yet delinquent, incurred in the ordinary course
of business; provided that, any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made therefor;
(j) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods incurred in the ordinary course of business;
(k) [Intentionally Omitted];
(1) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or any
Restricted Subsidiary relating to such property or assets incurred in the
ordinary course of business;
(m) Liens securing an aggregate of $2.0 million of Indebtedness
permitted to be incurred under this Indenture by the Company and any
Restricted Subsidiary;
(n) easements, rights-of-way and other similar charges or
encumbrances which were not incurred in connection with the incurrence of
Indebtedness and do not interfere in any material respect with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;
(o) Liens on the assets of Foreign Subsidiaries (other than Canadian
Restricted Subsidiaries) securing Indebtedness of Foreign Subsidiaries
(other than Canadian Restricted Subsidiaries) permitted to be incurred
under clause (ix) under the definition of "Permitted Indebtedness";
(p) any extension, renewal, substitution or replacement (or
successive extensions, renewals, substitutions or replacements), as a
whole or in part, of any of the Liens referred to in clauses (a), (c),
(f), (g), (o) and (q) of this definition or the Indebtedness secured
thereby; provided that (i) such extension, renewal, substitution or
replacement Lien shall be limited to all or any part of the same property
or assets, now owned or hereafter acquired, that secured the Lien
extended, renewed, substituted or replaced (plus improvements on such
property or assets) and (ii) the Indebtedness secured by such Lien
(assuming all available amounts were borrowed) at such time is not
increased, except to the extent permitted under clause (x) of the
definition of "Permitted Indebtedness"; and
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(q) Liens on the assets of Canadian Restricted Subsidiaries securing
Indebtedness of Canadian Restricted Subsidiaries permitted to be incurred
under clause (xiii) under the definition of "Permitted Indebtedness".
Notwithstanding the foregoing, under no circumstances shall any Lien securing
Indebtedness of the Company or any of its Subsidiaries, issued, directly or
indirectly, in exchange for or upon the conversion of any Indebtedness of IHF
Holdings, Inc. or ICON Fitness Corporation be deemed to be a "Permitted Lien".
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, joint-stock company, trust, unincorporated
organization, association, government or any agency or political subdivision
thereof or any other entity.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.8 in exchange for a
mutilated security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred stock whether now outstanding, or issued after the date
of this Indenture, and including, without limitation, all classes and series of
preferred or preference stock.
"Purchase Money Obligations" of any Person means any Indebtedness
(including Capitalized Lease Obligations) of such Person incurred in the
ordinary course of business for the purpose of financing all or any part of the
acquisition price or the cost of construction or improvement of equipment or
property, but only if such equipment or property is included in "addition to
property, plant or equipment" in accordance with GAAP and only if such equipment
or property is not being purchased as part of an acquisition of any business.
"Redeemable Capital Stock" means any Capital Stock that, either by
its terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of any event or passage of
time, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date that is 91 days after the Stated
Maturity of the principal of the Securities, or is convertible into or
exchangeable for debt securities at any time prior to the date that is 91 days
after such Stated Maturity at the option of the holder thereof; provided,
however, that any
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Capital Stock that would constitute Redeemable Capital Stock solely because
the holders thereof have the right to require the issuer thereof to
repurchase such Capital Stock upon the occurrence of a Change of Control or
an Asset Sale shall not constitute Redeemable Capital Stock if the terms of
such Capital Stock provide that such issuer may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with Section 10.11 hereof.
"Redemption Date", when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption pursuant
to Article X of this Indenture.
"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Exchange Offer" means the registered exchange offer for
the Securities which may be effected pursuant to the Exchange and Registration
Rights Agreement.
"Registrar" has the meaning specified in Section 3.5.
"Registration Statement" means the Registration Statement as defined
in the Exchange and Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the January 1 or July 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated as an Unrestricted Subsidiary; provided that on the date the
Initial Securities are
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originally issued, all Subsidiaries of the Company shall be Restricted
Subsidiaries of the Company.
"S&P" means Standard and Poor's Rating Group and its successors.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture. For all purposes of this Indenture, the term "Securities"
shall include any Exchange Securities issued and exchanged for any Securities
pursuant to the Exchange and Registration Rights Agreement and this Indenture
and, for purposes of this Indenture, all Securities and Exchange Securities
shall vote together as one series of Securities under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder.
"Securitization Note" means a promissory note of an Unrestricted
Subsidiary or any other Person that is not a Subsidiary of the Company
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Securitization
Transaction, which note shall be repaid from cash available to the Unrestricted
Subsidiary or such Person other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables.
"Securitization Transaction" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to an Unrestricted Subsidiary or any
other Person that is not a Subsidiary of the Company any accounts receivable
(whether now existing or arising or acquired in the future) of the Company or
any of its Restricted Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and contract rights and all guarantees or other obligations in respect
of such accounts receivable, proceeds of such accounts receivable and other
assets (including contract rights) which are customarily transferred in
connection with asset securitization transactions involving accounts receivable.
"Security Register" has the meaning specified in Section 3.5.
"Senior Indebtedness" means the principal of, premium, if any, and
interest, fees and expenses (including, without limitation, post-petition
interest at the rate provided for in the documentation with respect thereto,
whether or not allowed as
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a claim in bankruptcy, reorganization, insolvency, receivership or similar
proceeding) with respect to any Permitted Indebtedness of the Company and its
Restricted Subsidiaries under the Credit Agreement, including without
limitation any guarantees thereof.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Exchange and Registration Rights Agreement.
"Significant Subsidiary" means, as of any date, any corporation or
partnership that is a Subsidiary of the Company and that, as of the end of the
most recently completed fiscal year of the Company for which financial
statements are available, was a "significant subsidiary" as defined in
Regulation S-X under the Securities Act and the Exchange Act or that, if
acquired after such date, would have been a "significant subsidiary" as defined
therein if it had been acquired as of such date.
"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.9.
"Specified Senior Indebtedness" means Indebtedness under the Credit
Agreement.
"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company that are customary in accounts receivable
securitization transactions.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of principal thereof or interest thereon, means the dates specified
in such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of principal or interest is due and payable.
"Stockholders Agreement" means the stockholders agreement
substantially in the form attached as an annex to the Exchange Offer and Consent
Solicitation Statement.
"Subordinated Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary contractually subordinated in right of payment to the
Securities.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the equity
ownership or the Voting Stock of which is at the time owned, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or of
one or more Subsidiaries of such Person (or any combination thereof).
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"Subsidiary Guarantee" means the Guarantee by each Subsidiary
Guarantor of the Company's payment obligations under this Indenture and the
Securities, executed pursuant to the provisions of this Indenture.
"Subsidiary Guarantors" means each of (i) the Company's Domestic
Subsidiaries, and (ii) any future Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture and their
respective successors and assigns.
"Tax Sharing Agreement" means the tax sharing agreement dated as of
September 27, 1999 among Holdings and its Subsidiaries, as amended from time to
time; provided that, such amendments shall not, in aggregate, provide for terms
that are materially less favorable to the Company than those in effect on the
Issue Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 9.5.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt, (b) is not a party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company, (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Capital Stock or (y) to maintain or
preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results, and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; provided that,
notwithstanding the above, the Company and its Restricted Subsidiaries may (i)
make payments to, provide credit or credit support for or make Investments in
the Unrestricted Subsidiaries to the extent that such payments or investments in
Unrestricted Subsidiaries are in compliance with Section 10.11 and (ii) may make
Standard Securitization Undertakings to an Unrestricted Subsidiary and other
Persons, and loans to an Unrestricted Subsidiary under a Securitization Note,
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in connection with a Securitization Transaction with such Unrestricted
Subsidiary.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees of
a corporation (irrespective of whether or not, at the time, stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency.)
"Wholly Owned Subsidiary" of any specified Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Subsidiaries of
such Person or by such Person and one or more Wholly Owned Subsidiaries of such
Person.
Section 1.2. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms used in this Indenture have
the following meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in the Trust Indenture
Act to another statute or defined by a rule of the Commission and not otherwise
defined herein shall have the meanings assigned to them therein.
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Section 1.3. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee an Officers' Certificate and an opinion of Counsel each
satisfactory in form and substance to the Trustee, which, taken together, state
that all conditions precedent, if any, provided for in this Indenture (including
any covenant compliance with which constitutes a condition precedent) relating
to the proposed action have been complied with, except that in the case of any
such application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 10.8(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.4. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless
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such officer knows, or in the exercise of reasonable care should know, that
the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect
to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.5. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him or her the execution thereof.
Where such execution is by a signer acting in a capacity other than his or her
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by
any Person, and the date of holding the same, shall be proved by the Security
Register.
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(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that, no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
Section 1.6. Notices, Etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or any Guarantor
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Division, or
(2) the Company or the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the
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address of its principal office specified in the first paragraph of this
Indenture, or at any other address previously furnished in writing to the
Trustee by the Company.
Section 1.7. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
Section 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
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Section 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder or the Holders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
Section 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York, without regard to the
principles of conflicts of law. Upon the issuance of the Exchange Securities or
the effectiveness of the Shelf Registration Statement, this Indenture shall be
subject to the provisions of the Trust Indenture Act of 1939, as amended, that
are required to be part of this Indenture and shall, to the extent applicable,
be governed by such provisions.
Section 1.13. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or at the
Stated Maturity or Maturity; provided that, no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
ARTICLE II.
SECURITY FORMS
Section 2.1. Forms Generally.
The definitive Securities and the certificates of authentication
thereon shall be printed, lithographed or engraved on steel-engraved borders or
may be produced in any other manner, all as determined by the officers of the
Company executing such Securities, as evidenced by their execution of such
Securities.
The Initial Securities shall be known as the "12% Senior Notes due
2005, Series A" and the Exchange Securities shall be known as the "12% Senior
Notes due 2005, Series B", in
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each case, of the Company. The Securities and the Trustee's certificate of
authentication shall be in substantially the form annexed hereto as Exhibit
A. The Securities may have such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by the
Indenture and may have letters, notations or other marks of identification
and such notations, legends or endorsements required by law, or by stock
exchange agreements to which the Company is subject or usage. Any portion of
the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security. The Company shall
approve the form of the Securities and any notation, legend or endorsement on
the Securities.
The terms and provisions contained in the form of the Securities
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A
(together with any Securities sold pursuant to other exemptions from the
Securities Act which are permitted to be evidenced by the U.S. Global Security
(as defined below)) shall be issued initially in the form of one or more
permanent global Securities substantially in the form set forth in Exhibit A
(the "U.S. Global Security") deposited with the Trustee, as custodian for the
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the U.S. Global Security
may from time to time be increased or decreased by adjustments made on the
records of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided.
Initial Securities which are not permitted to be evidenced by the
U.S. Global Security shall be issued in the form of permanent certificated
Securities in registered form in substantially the form set forth in Exhibit A
(the "U.S. Physical Securities").
Section 2.2. Restrictive Legends.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Exchange and Registration Rights Agreement, each such U.S.
Global Security and each U.S. Physical Security shall bear the following legend
(the "Private Placement Legend") on the face thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS
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SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO
THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST
DATE ON WHICH THE COMPANY, OR ANY AFFILIATE OF THE COMPANY, WAS THE
OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY
(A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A11), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (1), (2), (3) OR (7) OF PARAGRAPH (A) OF RULE 501 UNDER
THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR", IN EACH CASE FOR INVESTMENT PURPOSES AND NOT WITH A
VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR
(E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH
OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY
THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
Each U.S. Global Security, whether or not an Initial Security, shall
also bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
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OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 3.6 AND 3.7
OF THE INDENTURE.
ARTICLE III.
THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $45,000,000,
except for Securities authenticated and delivered upon registration of
transfer or, or in exchange for, or in lieu of, other Securities pursuant to
Section 3.4, 3.5, 3.6, 3.7, 3.8, 9.6, 10.15, 10.17 or 11.8.
The principal of (and premium, if any, on) and interest on the
Securities shall be payable at the office of the Paying Agent, if any, or at the
office or agency of the Company maintained for such purpose; provided, however,
that, at the option of the Company, interest may be paid by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Security Register.
The Securities shall be redeemable as provided in Article Eleven.
Section 3.2. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman, Chief Financial Officer, its President or a Vice President, under its
corporate seal reproduced thereon and attested by its Secretary or an Assistant
Secretary. The signature of any of these officers on the Securities may be
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manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Initial Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Securities, and the Trustee in
accordance with such Company Order shall authenticate and deliver such Initial
Securities. On Company Order, the Trustee shall authenticate for original issue
Exchange Securities in an aggregate principal amount not to exceed $45,000,000;
provided that such Exchange Securities shall be issuable only upon the valid
surrender for cancellation of Initial Securities of a like aggregate principal
amount in accordance with a Registered Exchange Offer pursuant to the Exchange
and Registration Rights Agreement. In each case, the Trustee shall be entitled
to receive an Officers' Certificate and an Opinion of Counsel of the Company
that it may reasonably request in connection with such authentication of
Securities. Such order shall specify the amount of Securities to be
authenticated and the date on which the original issue of Initial Securities or
Exchange Securities is to be authenticated.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee by manual signature of an authorized officer, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person which shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to
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Article Eight, any of the Securities authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Securities executed in the name of the successor Person with such
changes in phraseology and form as may be appropriate, but otherwise in
substance of like tenor as the Securities surrendered for such exchange and
of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any
time be authenticated and delivered in any new name of a successor Person
pursuant to this Section in exchange or substitution for or upon registration
of transfer of any Securities, such successor Person, at the option of the
Holders but without expense to them, shall provide for the exchange of all
Securities at the time outstanding for Securities authenticated and delivered
in such new name.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 10.2, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
Section 3.5. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 10.2 being herein sometimes
referred to as
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the "Security Register") in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration of
Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register
shall be open to inspection by the Trustee. The Trustee is hereby initially
appointed as security registrar (the "Registrar") for the purpose of
registering Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 10.2, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
Furthermore, any Holder of the U.S. Global Security shall, by
acceptance of such Global Security, agree that transfers of beneficial interest
in such Global Security may be effected only through a book-entry system
maintained by the Holder at such Global Security (or its agent), and that
ownership of a beneficial interest in the Security shall be required to be
reflected in a book entry.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange (including an
exchange of Initial Securities for Exchange Securities), the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive; provided that, no
exchange of Initial Securities for Exchange Securities shall occur until an
Exchange Registration Statement shall have been declared effective by the
Commission and that the Initial Securities exchanged for the Exchange Securities
shall be canceled by the Trustee.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or its attorney duly authorized in writing.
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No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 9.6, 10.15, 10.17 or 11.8 not involving
any transfer.
Section 3.6. Book-Entry Provisions for U.S. Global Security.
(a) The U.S. Global Security initially shall (i) be registered in
the name of the Depositary for such global Security or the nominee of such
Depositary, (ii) be delivered to the Trustee as custodian for such Depositary
and (iii) bear legends as set forth in Section 2.2.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any U.S. Global
Security held on their behalf by the Depositary, or the Trustee as its
custodian, or under the U.S. Global Security, and the Depositary may be treated
by the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such U.S. Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or shall impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a holder of any
Security.
(b) Transfers of the U.S. Global Security shall be limited to
transfers of such U.S. Global Security in whole, but not in part, to the
Depositary, its successors or their respective nominees. Interests of beneficial
owners in the U.S. Global Security may be transferred in accordance with the
rules and procedures of the Depositary and the provisions of Section 3.7.
Beneficial owners may obtain U.S. Physical Securities in exchange for their
beneficial interests in the U.S. Global Security upon request in accordance with
the Depository's and the Registrar's procedures. In addition, U.S. Physical
Securities shall be transferred to all beneficial owners in exchange for their
beneficial interests in the U.S. Global Security if (i) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for the
U.S. Global Security and a successor depositary is not appointed by the Company
within 90 days of such notice or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a request from the Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in the U.S. Global Security to beneficial owners pursuant to subsection
(b) of this Section, the Registrar
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shall reflect on its books and records the date and a decrease in the
principal amount of the U.S. Global Security in an amount equal to the
principal amount of the beneficial interest in the U.S. Global Security to be
transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Securities of like tenor
and amount.
(d) In connection with the transfer of the entire U.S. Global
Security to beneficial owners pursuant to subsection (b) of this Section, the
U.S. Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the U.S. Global Security, an equal aggregate
principal amount of U.S. Physical Securities of authorized denominations.
(e) Any U.S. Physical Security delivered in exchange for an interest
in the U.S. Global Security pursuant to subsection (c) or subsection (d) of this
Section shall, except as otherwise provided by paragraph (a)(i)(x) and paragraph
(c)(ii) of Section 3.7, bear the applicable legend regarding transfer
restrictions applicable to the U.S. Physical Security set forth in Section 2.2.
(f) The registered holder of the U.S. Global Security may grant
proxies and otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which a Holder
is entitled to take under this Indenture or the Securities.
Section 3.7. Special Transfer Provisions.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement, or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Exchange and Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of an Initial Security to any institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) which is not a qualified institutional buyer, as defined in
Rule 144A under the Securities Act (a "QIB"), excluding Non-U.S. Persons:
(i) The Registrar shall register the transfer of any Initial
Security, whether or not such Initial Security bears the Private Placement
Legend, if (x) the requested transfer is at least two years after the
later of the original issue date of the Initial Securities and the last
date on which
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such security was held by the Company or its Affiliates or (y) the
proposed transferee has delivered to the Registrar a certificate
substantially in the form of Exhibit C hereto.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Security, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of the U.S. Global
Security in an amount equal to the principal amount of the beneficial
interest in the U.S. Global Security to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
U.S. Physical Certificates of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of an Initial Security to a
QIB (excluding Non-U.S. Persons):
(i) If the Security to be transferred consists of U.S. Physical
Securities or Temporary Offshore Global Securities, the Registrar shall
register the transfer if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of Initial
Security stating, or has otherwise advised the Company and the Registrar
in writing, that the sale has been made in compliance with the provisions
of Rule 144A to a transferee who has signed the certification provided for
on the form of Initial Security stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Initial
Security for its own account or an account with respect to which it
exercises sole investment discretion and that it, or the person on whose
behalf it is acting with respect to any such account, is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that it is
aware that the transferor is relying upon its foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the Initial
Security to be transferred consists of U.S. Physical Securities or
Temporary Offshore Physical Securities, upon receipt by the Registrar of
instructions given in accordance with the Depositary's and the Registrar's
procedures therefor, the Registrar shall reflect on its books and records
the date and an increase in the principal amount of the U.S. Global
Security in an amount equal to the principal amount of the U.S. Physical
Securities or Temporary Offshore Physical Securities, as the
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case may be, to be transferred, and the Trustee shall cancel the
Physical Security so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless either (i) the circumstances contemplated by
paragraph (a)(i)(x) of this Section 3.7 exist or (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act.
(d) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security as set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 3.6 or this Section 3.7. The
Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
Section 3.8. Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee, or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and
principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
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Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.9. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
10.2; provided, however, that each installment of interest may at the Company's
option be paid by (i) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 3.10, to the
address of such Person as it appears in the Security Register or (ii) transfer
to an account maintained by the payee located in the United States.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the
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proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date,
and in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be given in the manner provided for in Section
1.6, not less than 10 days prior to such Special Record Date. Notice of
the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been so given, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
Section 3.10. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any, on) and (subject to Sections 3.5 and 3.7) interest on such Security and
for all other purposes whatsoever, whether or not such Security be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
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Section 3.11. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Securities held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that canceled Securities be returned
to it.
Section 3.12. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE IV.
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities herein expressly provided for) and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 3.8 and (ii) Securities for whose
payment money has theretofore been deposited in trust with the Trustee or any
Paying Agent or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in Section
10.3) have been delivered to the Trustee for cancellation; or
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(b) all such Securities not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, (ii) will become due and payable
at their Stated Maturity within one year, or (iii) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company or any Subsidiary Guarantor, in the
case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose an amount
sufficient to pay and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for principal (and
premium, if any) and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company and any Guarantor; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each satisfactory in form and
substance to the Trustee, which, taken together, state that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture have been complied with and that such satisfaction and
discharge will not result in a breach or violation of, or constitute a
default under, this Indenture or any other agreement or instrument to
which the Company is a party or by which the Company is bound.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 6.6 and, if money
shall have been deposited with the Trustee pursuant to subclause (b) of clause
(1) of this Section, the obligations of the Trustee under Section 4.2 and the
last paragraph of Section 10.3 shall survive.
Section 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all
money deposited with the Trustee pursuant to Section 4.1 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
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ARTICLE V.
REMEDIES
Section 5.1. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of or premium, if any,
when due and payable, on any of the Securities, whether or not prohibited
by Article Thirteen; or
(2) default in the payment of an installment of interest or
Liquidated Damages on any of the Securities, when due and payable, and
continuance of such default for a period of 30 days, whether or not
prohibited by Article Thirteen; or
(3) default in the performance or breach of the provisions of
Article Eight of this Indenture, the failure to make or consummate a
Change in Control Offer in accordance with the provisions of Section 10.15
or the failure to make or consummate an Excess Proceeds Offer in
accordance with the provisions of Section 10.17; or
(4) the Company or any Restricted Subsidiary shall fail to perform
or observe any other term, covenant or agreement contained in the
Securities or this Indenture (other than a default specified in (1), (2)
or (3) above) for a period of 45 days after written notice of such failure
requiring the Company to remedy the same shall have been given (x) to the
Company by the Trustee or (y) to the Company and the Trustee by the
Holders of 25% in aggregate principal amount of the Securities then
Outstanding; or
(5) default or defaults under one or more mortgages, bonds,
debentures or other evidences of Indebtedness under which the Company or
any of its Restricted Subsidiaries then has outstanding Indebtedness in
excess of $5,000,000, individually or in the aggregate, and either (a)
such Indebtedness is already due and payable in full or (b) such default
or defaults have resulted in the acceleration of the maturity of such
Indebtedness; or
(6) one or more final judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, individually or in the
aggregate, shall be entered against the Company or any of its Restricted
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Subsidiaries or any of their properties and shall not be discharged or
fully bonded and there shall have been a period of 60 consecutive days
after the date on which any period for appeal has expired and during which
a stay of enforcement of such judgment, order or decree, shall not be in
effect; or
(7) (A) any holder of at least $5,000,000 in aggregate principal
amount of secured Indebtedness of the Company or of any of its Restricted
Subsidiaries as to which a default has occurred and is continuing shall
commence judicial proceedings (which proceedings shall remain unstayed for
5 Business Days) to foreclose upon assets of the Company or such
Restricted Subsidiary having an aggregate Fair Market Value, individually
or in the aggregate, in excess of $5,000,000 or shall have exercised any
right under applicable law or applicable security documents to take
ownership of any such assets in lieu of foreclosure or (B) any action
described in the foregoing clause (A) shall result in any court of
competent jurisdiction issuing any order for the seizure of such assets;
or
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustments or
composition of or in respect of the Company, any Significant Subsidiary or
any Subsidiary Guarantor or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary, under applicable
Bankruptcy Law, or appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company, any Significant
Subsidiary, or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(9) the institution by the Company or any Significant Subsidiary or
any group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, of proceedings to be adjudicated bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under applicable
Bankruptcy Law, or the consent by it to the filing of any such petition or
to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Significant
Subsidiary or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary, of any
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substantial part of its property, or the making by it of assignment for
the benefit of creditors, or it is generally not paying its debts as they
become due; or
(10) except as otherwise permitted by this Indenture, any Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or
any Subsidiary Guarantor shall deny or disaffirm its obligations under its
Subsidiary Guarantee.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 5.1(8) or 5.1(9)) occurs and is continuing, then the Trustee or the
Holders of not less than 25% in aggregate principal amount of the Outstanding
Securities may declare the principal of, premium, if any, and accrued interest
on all the Securities to be due and payable immediately, by a notice in writing
to the Company (and to the Trustee if given by Holders), and upon any such
declaration such principal amount shall become immediately due and payable. If
an Event of Default specified in Section 5.1(8) or 5.1(9) occurs and is
continuing, then the principal of, premium, if any, and accrued interest on all
the Securities shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal
at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities,
and
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(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(2) such rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and
(3) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a
declaration of acceleration in respect of the Securities because of an Event of
Default specified in Section 5.1(5) or 5.1(7) shall have occurred and be
continuing, such declaration of acceleration shall be automatically annulled if
the Indebtedness that is the subject of such Event of Default has been
discharged or the holders thereof have rescinded their declaration of
acceleration or notification or action, as applicable, in respect of such
Indebtedness, and written notice of such discharge or rescission, as the case
may be, shall have been given to the Trustee by the Company or such Subsidiary
and countersigned by the holders of such Indebtedness or a trustee, fiduciary or
agent for such holders or the Person or Persons entitled to take the actions
described in Section 5.1(5)(b) or 5.1(7), within 30 days after such declaration
of acceleration in respect of the Securities, and no other Event of Default has
occurred during such 30-day period which has not been cured or waived during
such period.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue
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installment of interest, at the rate borne by the Securities, and, in
addition thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel) and of the Holders
allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 5.5. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name and as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and amounts
due the Trustee under Section 6.6, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
6.6;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any, on) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according
to the amounts due and payable on such Securities for principal (and
premium, if any) and interest, respectively; and
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THIRD: The balance, if any, to the Person or Persons entitled
thereto.
Section 5.7. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a
majority or more in aggregate principal amount of the Outstanding
Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Twelve)
and in such Security of the principal of (and premium, if any, on) and
(subject to Section 3.9) interest on, such Security on the respective Stated
Maturities expressed in such Security (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder.
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Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee the Holders shall be
restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 3.8, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 5.12. Control by Holders.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, provided
that,
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
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(3) the Trustee need not take any action which might subject it to
personal liability or be unjustly prejudicial to the Holders not
consenting.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all the
Securities waive any past default hereunder and its consequences, except a
default
(1) in respect of the payment of the principal of (or premium, if
any, on) or interest on any Security, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
Section 5.14. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force which may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI.
THE TRUSTEE
Section 6.1. Notice of Defaults.
If any Default or Event of Default occurs and is continuing and is
known to the Trustee, the Trustee shall transmit in the manner and to the extent
provided in TIA Section 313(c), notice of such Default within 30 days after the
occurrence thereof or, if later, when known to the Trustee; provided, however,
that, except in the case of a Default or an Event of Default in the payment of
the principal of (or premium, if any) or interest on any Security, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good
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faith determines that the withholding of such notice is in the interest of
the Holders.
Section 6.2. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
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(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Section 6.3. Trustee Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and except, upon the
effectiveness of a Registration Statement, that the statements made by it in
a Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Securities or
the proceeds thereof.
Section 6.4. May Hold Securities.
The Trustee, any Paying Agent, any Registrar or any other agent of
the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Securities and, subject to TIA Sections 310(b)
and 311, may otherwise deal with the Company with the same rights it would have
if it were not Trustee, Paying Agent, Registrar or such other agent.
Section 6.5. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
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Section 6.6. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust):
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel); and
(3) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without gross negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such obligations
of the Company, the Trustee shall have a claim prior to the Securities upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of (and premium, if any, on) or interest
on particular Securities previously called for redemption.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(8) or Section 5.1(9), the
expenses and the compensation for the services are intended to constitute
expenses of administration under any bankruptcy law.
Section 6.7. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of federal, state, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be
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deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
Section 6.8. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.9.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 6.9 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, except when the Trustee's duty to resign is stayed in accordance
with the provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 6.7 and
shall fail to resign after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of itself and
all others similarly situated, petition any court of competent jurisdiction
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for the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided subject to
TIA Section 315(e), any Holder who has been a bona fide Holder of a Security for
at least six months may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Securities in the manner provided for in Section 1.7. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Section 6.9. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder subject to the retiring Trustee's rights
as provided under the last sentence of Section 6.6. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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Section 6.10. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may
adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities; and in case at that time any of the Securities shall not have
been authenticated, any successor Trustee may authenticate such Securities
either in the name of any predecessor hereunder or in the name of the
successor Trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have; provided, however,
that the right to adopt the certificate of authentication of any predecessor
Trustee or to authenticate Securities in the name of any predecessor Trustee
shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE VII.
HOLDERS' LISTS AND REPORTS BY TRUSTEE
Section 7.1. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably
require, of the names and
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addresses of the Holders of Securities as of such Regular
Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished,
excluding from any such list names and addresses received by the Trustee in its
capacity as Registrar.
Section 7.2. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the first
May 15 after the first issuance of Securities, the Trustee shall transmit to the
Holders, in the manner and to the extent provided in TIA Section 313(c), a brief
report dated as of such May 15 if required by TIA Section 313(a).
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not, in a single transaction or a series of
related transactions, directly or indirectly, consolidate or merge with or into
any other Person or, sell, assign, convey, transfer or otherwise dispose of all
or substantially all of its properties and assets as an entirety to any other
Person or group of affiliated Persons, or permit any of its Restricted
Subsidiaries to enter into any such transaction or transactions, if such
transaction or transactions, in the aggregate, would effectively result in a
sale, assignment, conveyance, transfer or disposition of all or substantially
all of the properties and assets of the Company and those of its Restricted
Subsidiaries on a consolidated basis to any other Person or group of affiliated
Persons, unless:
(a) either (i) the Company shall be the continuing corporation or
(ii) the Person (if other than the Company) formed by such consolidation or into
which the Company or such Restricted Subsidiary is merged or the Person which
acquires by sale, assignment, conveyance, transfer or disposition of all or
substantially all of the properties and assets of the Company and its Restricted
Subsidiaries on a consolidated basis (the "Surviving Entity") shall be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and such Person
assumes by a supplemental indenture in a form reasonably satisfactory to the
Trustee all the obligations of the Company under the Securities and this
Indenture and by an agreement in form reasonably satisfactory to the Trustee all
the obligations
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of the Company under the Exchange and Registration Rights Agreement, and in
each case, this Indenture shall remain in full force and effect;
(b) immediately after giving effect to such transaction or
transactions, no Default or Event of Default shall have occurred and be
continuing;
(c) immediately before and immediately after giving effect to such
transaction or transactions the Company (or the Surviving Entity if the Company
is not the continuing obligor under this Indenture) (i) will have a Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(ii) would be permitted to incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under Section 10.10 if the ratio referred to therein
were "2.0:1.0"; and
(d) in connection with any consolidation, merger, transfer, sale,
assignment, conveyance or other disposition contemplated hereby, the Company or
the Surviving Entity, as the case may be, shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers Certificate stating that such consolidation, merger,
transfer, sale, assignment, conveyance or other disposition and the supplemental
indenture and any other agreements in respect thereof, if any, comply with the
requirements under this Indenture and that all conditions precedent herein
provided for relating to such transaction or series of transactions have been
complied with, and an Opinion of Counsel stating that the requirements of this
Section 8.1 have been complied with.
In addition, the Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, lease all or substantially
all of its properties or assets, in one or more related transactions, to any
other Person.
Notwithstanding the foregoing, the Company may not, in a single
transaction or a series of related transactions, directly or indirectly,
consolidate or merge with or into IHF Holdings, Inc. or ICON Fitness
Corporation, or sell, assign, convey, transfer or otherwise dispose of all or
substantially all of its properties and assets as an entirety to IHF Holdings,
Inc. or ICON Fitness Corporation, or permit any of its Restricted Subsidiaries
to enter into any such transaction or transactions with IHF Holdings, Inc. or
ICON Fitness Corporation, unless all of the Indebtedness of IHF Holdings, Inc.
or ICON Fitness Corporation is unsecured and is expressly subordinate in right
of payment to the Securities.
Notwithstanding the foregoing, the Company or any Wholly Owned
Restricted Subsidiary may consolidate, combine or
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amalgamate with or merge with or into any Wholly Owned Restricted Subsidiary
or sell, assign, convey, lease, transfer or otherwise dispose of all or
substantially all of its properties and assets to any Wholly Owned Restricted
Subsidiary.
Section 8.2. Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any sale, assignment, transfer, conveyance
or other disposition of the properties and assets of the Company substantially
as an entirety to any Person in accordance with Section 8.1, the Surviving
Entity formed by such consolidation or into which the Company is merged or to
which such sale, assignment, transfer, conveyance or other disposition is made
shall succeed to, and be substituted for (so that from and after the date of
such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the Surviving Entity and not to the Company), and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
Surviving Entity had been named as the Company herein, provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Securities except in the case of a sale,
conveyance or transfer of the Company's assets that meets the requirements of
Section 8.1 hereof.
For all purposes of this Indenture and the Securities (including the
provision of this Article Eight and Section 10.10, Section 10.11 and Section
10.14), Subsidiaries of any Surviving Entity will, upon such transaction or
series of related transactions, become Restricted Subsidiaries or Unrestricted
Subsidiaries and all Indebtedness, and all Liens on property or assets, of the
Company and the Restricted Subsidiaries in existence immediately prior to such
transaction or series of related transactions will be deemed to have been
incurred upon such transaction or series of related transactions.
Section 8.3. Securities to Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any sale, assignment, transfer,
conveyance or other transfer of the property or assets of the Company
substantially as an entirety to any other Person, any property or assets of the
Company would thereupon become subject to any Lien, then unless such Lien could
be created pursuant to Section 10.14 without equally and ratably securing the
Securities, the Company, prior to or simultaneously with such consolidation,
merger, sale, assignment, transfer, conveyance or other transfer, will as to
such property or assets, secure the Outstanding Securities equally and ratably
with (or prior to) the Indebtedness which upon such consolidation, merger, sale,
assignment, transfer, conveyance or other transfer is to
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become secured as to such property or assets by such Lien, or will cause such
Securities to be so secured.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by
a Board of Resolution, and the Trustee at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders, to make any change that otherwise would provide additional rights
or benefits to the Holders or to surrender any right or power herein
conferred upon the Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
6.9; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that, such action shall not adversely
affect the interests of the Holders in any material respect.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that, no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
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(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which any Security
or any premium or the interest thereon is payable (except with respect to
liquidated damages as provided in the Exchange and Registration Rights
Agreement), or impair the right to institute suit for the enforcement of
any such payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date); or
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture, or
(3) modify any of the provisions of this Section or Sections 5.13
and 10.23, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; or
(4) except as otherwise permitted under Section 8.1, consent to the
assignment or transfer by the Company of any of its rights and obligations
under this Indenture; or
(5) make any change in the provisions of Article Thirteen that
adversely affects the rights of any Holder.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
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Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Each supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as in effect on the date
of such supplemental indenture.
Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
Section 9.7. Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.2, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 1.7, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE X.
COVENANTS
Section 10.1. Payment of Principal, Premium, if any, and Interest.
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any, on) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture. The Company shall pay all Liquidate Damages, if any, in the
same manner on the dates and in the amounts set forth in the Registration
Rights Agreement and shall inform the Trustee of any such payments of
Liquidated Damages pursuant thereto.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue
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principal at the rate equal to 2% per annum in excess of the then applicable
interest rate on the Securities to the extent lawful; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated Damages (without regard to
any applicable grace period) at the same rate to the extent lawful.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind any such designation;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York, for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.3.
Section 10.3. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it
will, on or before each due date of the principal of (and premium, if any, on)
or interest on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due until such sums shall be paid
to such Persons or otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
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Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before each due date of the principal of (and
premium, if any, on) or interest on, any Securities, deposit with a Paying Agent
a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of
(and premium, if any, on) or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company
or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (and premium,
if any, on) or interest on any Security and remaining unclaimed for four years
after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make
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any such repayment, may at the expense of the Company cause to be published
once, in a newspaper published in the English language, customarily published
on each Business Day and of general circulation in the Borough of Manhattan,
The City of New York, and in each Place of Payment, notice that such money
remains unclaimed and that, after a date specified therein, which shall not
be less than 30 days from the date of such publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
Section 10.4. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be done
all things necessary to preserve and keep in full force and effect the
corporate, partnership or other existence, rights (charter and statutory),
licenses and franchises of the Company and each of its Restricted Subsidiaries,
in accordance with the respective organizational documents (as the same may be
amended from time to time) of the Company and each of its Restricted
Subsidiaries; provided, however, that, the Company shall not be required to
preserve any such right, license or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole
and that the loss thereof is not adverse in any material respect to the Holders;
provided, further, that the foregoing will not prohibit a sale, transfer or
conveyance of a Subsidiary of the Company or any of its assets in compliance
with the terms of Section 10.17 of this Indenture.
Section 10.5. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries and (b) all lawful claims for labor, materials and supplies,
which, if unpaid, might by law become a Lien upon the property of the Company or
any Subsidiary; provided, however, that, the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded and shall not have been finally determined or the period within which
such proceedings may be initiated shall not have expired.
Section 10.6. Maintenance of Properties.
The Company will cause all properties owned by the Company or any
Restricted Subsidiary, or used, useful or held for use in the conduct of its
business or the business of any Restricted Subsidiaries to be maintained and
kept in good
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condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
may be necessary so that the business carried on in connection therewith may
be properly and advantageously conducted at all times; provided, however,
that, nothing in this Section shall prevent the Company or any Restricted
Subsidiary from discontinuing the maintenance of any of such properties, if
such discontinuance or disposal is, in the judgment of the Company, desirable
in the conduct of its business or the business of any of its Restricted
Subsidiaries and not disadvantageous in any material respect to the Holders.
Section 10.7. Insurance.
The Company will at all times keep and will keep all of its and all
of its Restricted Subsidiaries' properties which are of an insurable nature
insured with insurers, believed by the Company to be responsible, against loss
or damage to the extent that property of similar character is usually so insured
by corporations similarly situated and owning like properties.
Section 10.8. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days after
the end of each fiscal year and within 45 days after the end of each fiscal
quarter of the Company, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer stating
that a review of the activities of the Company and its Subsidiaries during
the preceding fiscal year or quarter, as the case may be, has been made under
the supervision of the signing officer with a view to determining whether the
Company and its Subsidiaries has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such
officer signing such certificate, that to the best of his or her knowledge
the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of
which he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the
Securities is prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take with respect
thereto. For purposes of this Section 10.8(a), such compliance shall be
determined without regard to any period of grace or requirement of notice
under this Indenture.
(b) Whenever any Default or Event of Default has occurred under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or
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any Restricted Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Indebtedness in the
principal amount of less than $5,000,000), the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers' Certificate specifying such event, notice or other
action forthwith upon any Officer becoming aware of such event, notice or
other action, but in no event later than 10 days of its occurrence.
Section 10.9. Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company will prepare and, unless the Commission will not
accept such filing, file with the Commission the annual reports, quarterly
reports and other documents which the Company would have been required to file
with the Commission pursuant to such Section 13(a) or 15(d) if the Company were
so subject, such documents to be filed with the Commission, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants, on or prior to the
respective dates (the "Required Filing Dates") by which the Company would
have been required to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing
Date (i) transmit by mail to all Holders, as their names and addresses appear
in the Security Register, and to such other Persons as may reasonably
request, without cost to such Holders or other Persons and (ii) file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company has filed with the Commission or would have been required
to file with the Commission pursuant to Section 13(a) or 15(d) of the
Exchange Act if the Company were subject to such Section and (y) if filing
such documents by the Company with the Commission is not permitted under the
Exchange Act, promptly upon written request of any Holder or prospective
Holder, supply copies of such documents to any Holder or prospective Holder
or other Person at the Company's cost. If any Guarantor's financial
statements would be required to be included in the financial statements filed
or delivered pursuant hereto if the Company were subject to Section 13(a) or
15(d) of the Exchange Act, the Company shall include such Person's financial
statements in any filing or delivery pursuant hereto.
For so long as any Securities remain outstanding, the Company and
the Subsidiary Guarantors shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144(d)(4) under the Securities Act.
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Section 10.10. Limitation on Indebtedness and Issuance of Preferred
Stock.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur"), any Indebtedness (including Acquired
Indebtedness), other than Permitted Indebtedness, and the Company will not issue
any Redeemable Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of Preferred Stock; provided, however, that, the Company and
any Subsidiary Guarantor may incur Indebtedness (including Acquired
Indebtedness) or issue Redeemable Stock, and any Subsidiary Guarantor may issue
Preferred Stock, if (I) the Company's Consolidated Fixed Charge Coverage Ratio
for the four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or Preferred Stock is issued taken as one period (and after giving
pro forma effect to (i) the incurrence of such Indebtedness or issuance of such
Redeemable Stock or Preferred Stock and (if applicable) the application of
the net proceeds therefrom, including the refinancing of other Indebtedness
or Redeemable Stock or Preferred Stock, as if such Indebtedness was incurred
or Redeemable Stock or Preferred Stock was issued, and the application of
such proceeds occurred, on the first day of such four-quarter period; (ii)
the incurrence, repayment or retirement of any other Indebtedness by the
Company and of its Subsidiary Guarantors, or issuance or redemption of
Redeemable Stock or Preferred Stock, since the first day of such four-quarter
period, as if such Indebtedness was incurred, repaid or retired, Redeemable
Stock or Preferred Stock was issued or redeemed, on the first day of such
four-quarter period; and (iii) notwithstanding clause (iii) of the definition
of Consolidated Adjusted Net Income, any acquisition or disposition by the
Company or any Restricted Subsidiary of any company, entity or any business,
in each case since the first day of such four-quarter period, as if such
acquisition or disposition had occurred on the first day of such four-quarter
period) would have been at least equal to (A) 2.25:1.0 for the period from
the date of this Indenture through January 31, 2001 and (B) 2.50:1.0 for all
periods thereafter; (II) such Indebtedness is unsecured and is expressly
subordinate in right of payment to the Securities and (III) the Weighted
Average Life to Maturity of such Indebtedness or Redeemable Stock is greater
than the remaining Weighted Average Life to Maturity of the Securities.
Notwithstanding the foregoing, the Company shall not, and shall not
permit any Subsidiary to incur Indebtedness or issue any shares of Preferred
Stock of such Subsidiary, directly or indirectly, in exchange for or upon the
conversion of any Indebtedness of IHF Holdings, Inc. or ICON Fitness
Corporation, unless such Indebtedness is unsecured and is expressly subordinate
in right of payment to the Securities.
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Section 10.11. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Capital Stock (including without limitation, any payment
in connection with any merger or consolidation involving the Company or
any of its Restricted Subsidiaries) or to the direct or indirect
holders of, any shares of Capital Stock of the Company or any
Restricted Subsidiary (other than dividends or distributions payable
solely in shares of Capital Stock of the Company or in options,
warrants or other rights to purchase such Capital Stock but excluding
dividends or distributions payable in Redeemable Capital Stock or in
options, warrants or other rights to purchase Redeemable Capital Stock
and other than to the Company or a Restricted Subsidiary of the
Company);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, any shares of the Capital Stock of the Company or
any direct or indirect parent of the Company or any Restricted Subsidiary
of the Company or any Affiliate thereof or any options, warrants or other
rights to acquire such Capital Stock, held by a Person other than the
Company or any of its Restricted Subsidiaries (other than such a purchase,
redemption or acquisition of Capital Stock of a Restricted Subsidiary as a
result of which such Restricted Subsidiary becomes a Wholly Owned
Restricted Subsidiary);
(iii) make any payment on or with respect to, or repurchase, redeem,
defease or otherwise acquire or retire for value, prior to a scheduled
principal payment, interest payment, scheduled sinking fund payment or
maturity, any Subordinated Indebtedness or Indebtedness that ranks pari
passu with the Securities;
(iv) make any payment on or with respect to, or purchase or
repurchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of IHF Holdings, Inc. or ICON Fitness Corporation;
(v) incur any guarantee of Indebtedness of any Affiliate of the
Company or any Restricted Subsidiary of the Company (other than with
respect to (1) guarantees of Indebtedness of any Restricted Subsidiary by
the Company or (2) guarantees of Indebtedness of the Company or any
Restricted Subsidiary by any Restricted Subsidiary); or
(vi) make any Investment (other than any Permitted Investment) in
any Person
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(all such payments described in clauses (i) through (vi) above and not excepted
therefrom are collectively referred to herein as "Restricted Payments"), unless
at the time of and immediately after giving effect to the proposed Restricted
Payment (the amount of any such Restricted Payment, if other than cash, as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution delivered
to the Trustee), (1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; (2) the Company could, at
the time of such Restricted Payment and after giving pro forma effect
thereto as if such Restricted Payment had been made at the beginning of the
applicable four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under Section 10.10;
and (3) the aggregate amount of all such Restricted Payments declared or made
after the date of this Indenture shall not exceed the sum of: (A) 50% of the
aggregate cumulative Consolidated Adjusted Net Income of the Company accrued on
a cumulative basis during the period beginning on the first day of the month
commencing immediately after the date of this Indenture and ending on the last
day of the Company's last fiscal quarter ending prior to the date of such
proposed Restricted Payment (or, if such aggregate cumulative Consolidated
Adjusted Net Income shall be a loss, minus 100% of such loss); (B) the aggregate
net cash proceeds received after the date of this Indenture by the Company from
the issuance or sale (other than to any of its Restricted Subsidiaries) of
shares of Capital Stock of the Company (other than Redeemable Capital Stock) or
any options, warrants or rights to purchase shares of such Capital Stock; (C)
the aggregate net cash proceeds received after the date of this Indenture by the
Company from the issuance or sale of debt securities (other than to any
Restricted Subsidiary) that have been converted into or exchanged for Capital
Stock of the Company (other than Redeemable Capital Stock) to the extent such
debt securities were originally sold for cash, together with the aggregate of
any additional net cash proceeds received by the Company at the time of such
conversion or exchange; (D) the aggregate net cash proceeds received after the
date of this Indenture by the Company as capital contributions (other than from
any of its Restricted Subsidiaries); (E) to the extent that any Investment
(other than a Permitted Investment) that was made after the date of this
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (x) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (y) the initial amount of
such Restricted Investment; (F) to the extent that any Unrestricted Subsidiary
is redesignated as a Restricted Subsidiary after the date of this Indenture in
accordance with Section 10.22, the lesser of (x) the net book value of the
Company's Investment in the Unrestricted Subsidiary at the time of redesignation
and (y) the Fair Market Value of the Company's Investment in such Unrestricted
Subsidiary as of the date of such redesignation; and (G) $2 million.
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(b) Notwithstanding paragraph (a) above, the Company and its
Restricted Subsidiaries may take the following actions so long as no Default or
Event of Default shall have occurred and be continuing or would be caused
thereby:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such declaration
complied with the provisions of paragraph (a) above (and such payment
shall be deemed to have been paid on such date of declaration for
purposes of the calculation required by said paragraph (a));
(ii) the purchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company in exchange for or out of the
net cash proceeds of, a substantially concurrent issuance and sale (other
than to a Subsidiary of the Company) of shares of Capital Stock (other
than Redeemable Capital Stock) of the Company, provided that the amount of
any such net proceeds that are utilized for any such purchase, redemption
or other acquisition or retirement shall be excluded from clause
(a)(3)(B), (a)(3)(C) and (a)(3)(D) of the preceding paragraph;
(iii) any purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Indebtedness (other than
Redeemable Capital Stock) in exchange for, or out of the net cash proceeds
of, a substantially concurrent issuance and sale (other than to any
Subsidiary of the Company) of any Capital Stock (other than Redeemable
Capital Stock) of the Company, provided that the amount of any such net
proceeds that are utilized for any such purchase, redemption or other
acquisition or retirement shall be excluded from clause (a)(3)(B),
(a)(3)(C) and (a)(3)(D) of the preceding paragraph;
(iv) payments to Holdings, to the extent actually used by Holdings
within 180 days of such payment for the payment of taxes pursuant to the
Tax Sharing Agreement as the same may be amended from time to time in a
manner that is not materially adverse to the Company;
(v) payments to Holdings to pay its reasonable operating and
administrative expenses including, without limitation, directors' fees,
legal and audit expenses, Commission compliance expenses and corporate
franchise and other taxes, in an amount not to exceed in the aggregate
$375,000 per year;
(vi) the repurchase of Capital Stock of Holdings or options,
warrants or rights to acquire Capital Stock of Holdings from the full-time
members or former members of management of the Company or any Restricted
Subsidiary upon death, disability, retirement or termination of employment
of such members, in amounts not to exceed $1.5 million in
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any fiscal year of the Company; provided that, if such repurchases are
less than $1.5 million in any fiscal year of the Company, the amount by
which $1.5 million exceeds such amount of repurchases actually made in
such fiscal year of the Company shall be carried forward for the next
fiscal year of the Company;
(vii) loans to members of management of the Company or any
Restricted Subsidiary in the ordinary course of business not to exceed
$1.2 million at any one time outstanding in addition to those otherwise
specifically referred to in the Exchange Offer and Consent Solicitation
Statement;
(viii) the purchase, redemption, defeasance or other acquisition or
retirement for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) through the issuance of
new Subordinated Indebtedness permitted to be incurred under clause (x) of
the definition of Permitted Indebtedness;
(ix) any Restricted Payment made pursuant to agreements (A) in
effect on the Issue Date (B) referred to in the Exchange Offer and Consent
Solicitation Statement and the Annexes thereto and (C) listed on Schedule
II hereto, as from time to time amended thereafter; provided that, as so
amended, such agreements shall provide for terms that are, in the
aggregate, not more disadvantageous to the Holders of Securities in any
material respect than as in effect on the Issue Date; and
(x) any payments made in settlement of claims arising out of the
transactions contemplated by, or made pursuant to agreements or
undertakings referred to in, the Exchange Offer and Consent Solicitation
Statement.
The actions described in clauses (i), (v), (vi), (vii), (ix) and (x)
and described in clause (iv) (to the extent not deducted in determining
Consolidated Adjusted Net Income of the Company in clause (a)(3)(A) above) of
this paragraph (b) shall be Restricted Payments that shall be permitted to be
taken in accordance with this paragraph (b) but shall reduce the amount that
would otherwise be available for Restricted Payments under clause (3) of
paragraph (a) (provided that any dividend paid pursuant to clause (i) of this
paragraph (b) shall reduce the amount that would otherwise be available under
clause (3) of paragraph (a) when declared, but not also when subsequently paid
pursuant to such clause (i) and the actions described in clauses (ii), (iii) and
(viii) of this paragraph (b) shall be Restricted Payments that shall be
permitted to be taken in accordance with this paragraph and shall not reduce the
amount that would otherwise be available for Restricted Payments under clause
(3) of paragraph (a).
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(c) In computing Consolidated Adjusted Net Income of the Company
under paragraph (a) above, (1) the Company shall use audited financial
statements for the portions of the relevant period for which audited financial
statements are available on the date of determination and unaudited financial
statements and other current financial data based on the books and records of
the Company for the remaining portion of such period and (2) the Company shall
be permitted to rely in good faith on the financial statements and other
financial data derived from the books and records of the Company that are
available on the date of determination. If the Company or any of its Restricted
Subsidiaries makes a Restricted Payment which, at the time of making such
Restricted Payment, would in the good faith determination of the Company be
permitted under the requirements of this Indenture, such Restricted Payment
shall be deemed to have been made in compliance with this Indenture
notwithstanding any subsequent adjustments made in good faith to the Company's
financial statements affecting Consolidated Adjusted Net Income of the Company
for any period.
The amount of all Restricted Payments (other than cash) shall be the
Fair Market Value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The Board of Directors' determination must be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if the Fair Market Value exceeds $2.5 million. Not later than the date
of making any Restricted Payment pursuant to clause (a) of this Section, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this "Restricted Payments" covenant were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Section 10.12. [Intentionally Omitted].
Section 10.13. Limitation on Transactions with Affiliates.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into or suffer to exist any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services or enter into or make any
payment, loan, advance or guarantee) with or for the benefit of any Affiliate of
the Company or such Restricted Subsidiary unless such transaction or series of
related transactions is in writing on terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than would be
available in a comparable transaction in arm's-length dealings with an
unrelated third party; provided, however, that, the Company will not, and
will
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not permit any of its Restricted Subsidiaries to, enter into or suffer to
exist any such transaction or series of related transactions which,
individually or in the aggregate, involve payments in excess of (a) $750,000,
unless an Officers' Certificate stating that such transaction complies with
this covenant shall be delivered to the Trustee, (b) $1.0 million, unless the
prior good faith approval of a majority of the Disinterested Directors of the
Company shall have been obtained and Board Resolution relating thereto shall
have been passed and set forth in an Officers' Certificate delivered to the
Trustee, or (c) $5.0 million, unless the prior good faith approval of a
majority of the Disinterested Directors of the Company shall have been
obtained and the Board of Directors shall have obtained from any nationally
recognized investment banking firm a favorable opinion as to the fairness to
it of the transaction (copies of which shall be filed with the Trustee); and
provided, further that, the terms of this provision shall not apply to (i)
reasonable fees and compensation, loans or options to purchase Common Stock,
indemnification and other benefits paid or made available to directors and
full time officers and employees of the Company or any of its Restricted
Subsidiaries for services rendered in such person's capacity as an officer,
director or employee of the Company or the applicable Restricted Subsidiary,
in each case entered into in the ordinary course of business consistent with
past practice, (ii) transactions with or among, or solely for the benefit of,
the Company or any of its Wholly-Owned Restricted Subsidiaries, (iii)
transactions with an Unrestricted Subsidiary effected as part of a
Securitization Transaction, and (iv) payments and other transactions pursuant
to agreements in effect on the Issue Date and described in the Exchange Offer
and Consent Solicitation Statement, as from time to time amended thereafter;
provided that, as so amended, such agreements shall provide for terms that
are, in aggregate, not more disadvantageous to the Holders of Securities in
any material respect than as in effect on the Issue Date.
Section 10.14. Limitation on Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, affirm or suffer to
exist any Lien of any kind on or with respect to any of its property or assets,
whether owned at the date of this Indenture or thereafter acquired, or any
income, profits or proceeds therefrom, except if the Securities are directly
secured equally and ratably with (or prior to in the case of Liens with respect
to Subordinated Indebtedness) the obligation or liability secured by such
Lien; provided that Permitted Liens shall not be subject to the operation of
the foregoing.
Section 10.15. Change of Control Offer.
(a) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer to purchase all of
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the then outstanding Securities (a "Change of Control Offer"), and shall
purchase, on a Business Day (the "Change of Control Purchase Date") not more
than 60 nor less than 30 days following the Change of Control, all of the
then Outstanding Securities validly tendered pursuant to such Change of
Control Offer, at a purchase price (the "Change of Control Purchase Price")
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if any, to the Change of Control
Purchase Date. The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the Change of
Control Purchase Date.
(b) In order to effect such Change of Control Offer, the Company
shall, not later than the 30th day after the Change of Control, mail to each
Holder notice of the Change of Control Offer in the manner provided in Section
1.7, which notice shall govern the terms of the Change of Control Offer and
shall state:
(1) that a Change of Control has occurred and that such Holder has
the right to require the Company to repurchase such Holder's Securities in
cash at the Change of Control Purchase Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro
forma historical income, cash flow and capitalization after giving effect
to such Change of Control);
(3) the Change of Control Purchase Date; and
(4) the instructions a Holder must follow in order to have its
Securities repurchased in accordance with paragraph (c) of this Section.
(c) Holders electing to have Securities purchased will be required
to surrender such Securities to the Company at the address specified in the
notice at least five Business Days prior to the Change of Control Purchase Date.
Holders will be entitled to withdraw their election if the Company receives, not
later than three Business Days prior to the Change of Control Purchase
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Securities delivered for purchase by
the Holder as to which its election is to be withdrawn and a statement that such
Holder is withdrawing its election to have such Securities purchased. Holders
whose Securities are purchased only in part will be issued new Securities equal
in principal amount of the unpurchased portion of the Securities surrendered.
(d) On the Change of Control Payment Date, the Company will, to the
extent lawful (1) accept payment for all Securities or portions thereof properly
tendered pursuant to the Change of
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Control Offer; (2) deposit with the Paying Agent an amount equal to the
Change of Control Payment in respect of all notes or portions thereof so
tendered; and (3) deliver or cause to be delivered to the Trustee Securities
so accepted together with an Officers' Certificate stating the aggregate
principal amount of Securities or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Securities so
tendered the Change of Control Payment for those Securities, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Security equal in principal amount to any
unpurchased portion of the Securities surrendered, if any; provided that each
new Security will be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control
Payment Date.
(e) Prior to complying with any of the provisions of this Section,
but in any event within 60 days following a Change of Control, the Company will
either repay all outstanding Senior Indebtedness or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Indebtedness
to permit the repurchase of Securities required by this Section.
(f) Notwithstanding anything to the contrary in this Section 10.15,
the Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 10.15 and all other provisions of this Indenture applicable to a
Change of Control Offer made by the Company and purchases all Securities validly
tendered and not withdrawn under such Change of Control Offer.
(g) The Company will comply with Rule l4e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable, in the event that a Change of Control occurs
and the Company is required to purchase Securities as described above.
Section 10.16. Limitation on Line of Business.
The Company will not, and the Company will not permit any of its
Restricted Subsidiaries to, engage in any business other than a Permitted
Business.
Section 10.17. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, consummate an Asset Sale unless: (i) at
least 75% of the proceeds from such Asset Sale are received in cash or Cash
Equivalents; provided that, the amount of any liabilities of the Company or such
Restricted Subsidiary that are assumed (and from which the
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Company or such Restricted Subsidiary is unconditionally released) (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Securities or any Subsidiary Guarantee) in connection
with such Asset Sale by the transferee or purchaser of such assets or on
behalf of such transferee or purchaser by a third party shall be deemed to be
cash for purposes of this clause (i); and (ii) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the Capital Stock or assets issued or sold
or otherwise disposed of (as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive and
evidenced in a Board Resolution delivered to the Trustee in an Officer's
Certificate).
(b) If either the Company or any of its Restricted Subsidiaries
engages in an Asset Sale, it may use the Net Cash Proceeds thereof, within one
year of the receipt of the proceeds of such Asset Sale, at its option, to (i)
repay or prepay permanently any then outstanding Senior Indebtedness of the
Company or of any of its Restricted Subsidiaries or (ii) invest (or enter into a
legally binding agreement to invest within one year and segregate such Net Cash
Proceeds from the general funds of the Company or such Restricted Subsidiary, as
the case may be, for that purpose), in properties and assets to replace the
properties and assets that were the subject of the Asset Sale or in properties
and assets that will be used in a Permitted Business. Pending the making of any
investment contemplated by clause (ii) of the immediately preceding sentence
such Net Cash Proceeds may be used to temporarily reduce the amount of
outstanding Indebtedness under the Credit Agreement and such reduction shall
constitute such a segregation referred to in the immediately preceding sentence.
In addition, if any such legally binding agreement to invest such Net Cash
Proceeds is terminated, then the Company shall, prior to the later of (1) one
year following the receipt of the proceeds of such Asset Sale and (2) 90 days
following the date of such termination, invest such Net Cash Proceeds as
provided in clause (i) or (ii) (without regard to the parenthetical contained
in such clause (ii)) above. The amount of such Net Cash Proceeds not so used
as set forth above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000,
the Company shall within 15 Business Days, be required to make an offer to
purchase (an "Excess Proceeds Offer") from all Holders, on a pro rata basis, in
accordance with the procedures set forth below, the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased with the
Excess Proceeds. The offer price as to each Security shall be payable in cash in
an amount equal to 100% of the principal amount of such Security plus accrued
and unpaid interest and Liquidated Damages, if any, to the date such Excess
Proceeds Offer is consummated. To the extent that the aggregate principal amount
of Securities tendered pursuant to an Excess
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Proceeds Offer is less than the Excess Proceeds, the Company or the
applicable Restricted Subsidiary may use such deficiency for general
corporate purposes. If the aggregate principal amount of Securities validly
tendered and not withdrawn by holders thereof exceeds the Excess Proceeds,
the Securities to be purchased will be selected on a pro rata basis. Upon
completion of any such offer to purchase, the amount of Excess Proceeds shall
be reset to zero. Notwithstanding the provisions of paragraphs (a), (b) and
(c) of this Section 10.17, if the Company or any Restricted Subsidiary shall
incur Indebtedness (in compliance with Section 10.10) for the purpose of
purchasing assets, and such assets are then sold in a Sale and Leaseback
Transaction, the proceeds of such Sale and Leaseback Transaction may be used
to repay such Indebtedness and, if so applied, shall not constitute "Excess
Proceeds."
(d) If the Company becomes obligated to make an Excess Proceeds
Offer pursuant to clause (c) above, the Securities shall be purchased by the
Company, in integral multiples of $1,000, on a date that is not earlier than 45
days and not later than 60 days from the date the notice is given to Holders, or
such later date as may be necessary for the Company to comply with the
requirements under the Exchange Act.
(e) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Excess Proceeds Offer.
Section 10.18. Limitation on Issuances of Guarantees of
Indebtedness.
The Company shall not permit any Restricted Subsidiary (including
Foreign Subsidiaries) that is not a Subsidiary Guarantor, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Company or any Subsidiary Guarantor unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture in the form attached as Exhibit E hereto providing for the Guarantee
of the payment of the Securities by such Subsidiary, which Guarantee shall be
senior to or pari passu with such Restricted Subsidiary's Guarantee of or pledge
to secure such other Indebtedness, unless such other Indebtedness is Senior
Indebtedness, in which case the Guarantee of the Securities may be subordinated
to the Guarantee of such Senior Indebtedness to the same extent as the
Securities are subordinated to such Senior Indebtedness and (ii) such Restricted
Subsidiary shall simultaneously waive, and agree that it will not in any manner
whatsoever claim or take any benefit from, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Subsidiary as a result of any payment by such Subsidiary under its Guarantee of
the Securities.
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Notwithstanding the preceding paragraph, if any Restricted
Subsidiary (including Foreign Subsidiaries) that is organized under the laws of
Quebec, Canada would otherwise be required pursuant to the preceding paragraph
to provide a Guarantee of the payment of the Securities by such Subsidiary, such
obligation to provide such a Guarantee shall be satisfied so long as such
Restricted Subsidiary delivers to the Trustee a Guarantee of another Subsidiary
Guarantor's Guarantee of the payment of the Securities, which Guarantee will be
substantially in the form of the Guarantee by ICON du Canada, Inc. of the
obligations of 510152 N.B. LTD., as Subsidiary Guarantor under this Indenture
delivered to the Trustee on the date of this Indenture.
Notwithstanding the preceding paragraphs, any Subsidiary Guarantee
of the Securities (including any Guarantee provided pursuant to the immediately
preceding paragraph) shall provide by its terms that it shall be automatically
and unconditionally released and discharged under the circumstances described in
Section 14 hereof. The form of the Subsidiary Guarantee is attached as Exhibit D
hereto.
Section 10.19. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction of any kind on the ability of
any Restricted Subsidiary to (i) pay dividends, in cash or otherwise, or make
any other distribution on its Capital Stock, (ii) pay any Indebtedness owed to
the Company or any Restricted Subsidiary, (iii) make any loans or advances to
the Company or any Restricted Subsidiary or (iv) transfer any of its properties
or assets to the Company or any Restricted Subsidiary; provided that, the terms
of this Section 10.19 shall not apply to (a) any encumbrance or restriction
pursuant to an agreement relating to Indebtedness in effect on the date of this
Indenture, including pursuant to the Credit Agreement; (b) any encumbrance or
restriction pursuant to an agreement relating to Indebtedness with respect to a
Restricted Subsidiary that is not a Restricted Subsidiary on the date of this
Indenture, in existence at the time such Person becomes a Restricted Subsidiary
and not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary (so long as such encumbrance or restriction
does not extend to any assets of the Company or any other Restricted Subsidiary)
and provided that, the Indebtedness was permitted by the terms of the Indenture
to be incurred; (c) any encumbrance or restriction pursuant to customary
nonassignment provisions in leases governing leasehold interests only to the
extent such provisions restrict the transfer of the lease or the leased property
entered into in the ordinary course of business consistent with past practices;
(d) any encumbrance or restriction due to applicable law; (e) any encumbrance or
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restriction pursuant to Purchase Money Obligations permitted under this
Indenture, but only to the extent such restrictions restrict the transfer of the
property purchased with the proceeds of the applicable Purchase Money
Obligation; (f) [Intentionally Omitted]; (g) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business
consistent with past practices; (h) restrictions on cash or other deposits or
net worth imposed by customers under contracts entered into in the ordinary
course of business consistent with past practices; (i) any agreement for the
sale or other disposition of a Restricted Subsidiary that restricts
distributions by such Restricted Subsidiary pending its sale or other
disposition; (j) restrictions on the transfer of assets subject to any Permitted
Lien by the holder of such Lien; (k) any agreement or instrument governing
Indebtedness (whether or not outstanding) of Foreign Subsidiaries that
constitutes Permitted Indebtedness; and (l) Indebtedness incurred pursuant to
clause (x) of the definition of "Permitted Indebtedness"; provided, however,
that, the provisions contained in such new Indebtedness are no more
restrictive in any material respect than those contained in the agreements
governing Indebtedness being refinanced.
Section 10.20. Limitation on Sale and Leaseback Transactions.
The Company will not, and will not permit its Restricted
Subsidiaries to, enter into, renew or extend any transactions or series of
related transactions pursuant to which the Company or any such Restricted
Subsidiary sells or transfers any property or asset in connection with the
leasing, or the resale against installment payments, or as part of an
arrangement involving the leasing or the resale against installment payments, of
such property or asset to the seller or transferor ("Sale and Leaseback
Transaction") unless (i) the Company or that Restricted Subsidiary could have
(x) incurred Indebtedness in an amount equal to the Attributable Debt relating
to that Sale and Leaseback transaction pursuant to the Consolidated Fixed Charge
Coverage Ratio test in Section 10.10 and (y) incurred Lien to secure that
Indebtedness pursuant to Section 10.14; (ii) the gross cash proceeds of that
Sale and Leaseback Transaction are at least equal to the Fair Market Value of
the property that is the subject of that Sale and Leaseback Transaction, as
determined in good faith by the Board of Directors evidenced by a Board
Resolution set forth in an Officers' Certificate delivered to the Trustee; and
(iii) the Sale and Leaseback Transaction is treated as an Asset Sale and all of
the conditions of Section 10.17 (including the provisions concerning the
application of Net Cash Proceeds) are satisfied with respect to such Sale and
Leaseback Transaction, treating all of the consideration received in such Sale
and Leaseback Transaction as Net Cash Proceeds for purposes of Section 10.17.
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Section 10.21. [Intentionally Omitted].
Section 10.22. Limitation on Designations of Unrestricted
Subsidiaries.
The Board of Directors of the Company may designate any Restricted
Subsidiary of the Company (other than any Restricted Subsidiary which owns
Capital Stock of a Restricted Subsidiary) as an "Unrestricted Subsidiary" under
this Indenture (a "Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation; and
(ii) except in the case of a newly organized Subsidiary in which the
Company and the Restricted Subsidiaries have made an aggregate Investment
of $1,000 or less or a Subsidiary formed in connection with a
Securitization Transaction with the Company or one or more Restricted
Subsidiaries, the Company would be permitted under this Indenture to make
an Investment constituting a Restricted Payment at the time of Designation
(assuming the effectiveness of such Designation) in an amount (the
"Designation Amount") equal to the Fair Market Value of the aggregate
amount of its Investments in such Subsidiary on such date.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of this Indenture.
All Designations and Revocations must be evidenced by Officers'
Certificates of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
Section 10.23. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 8.3 or Sections 10.7 through
10.22 and Sections 10.24, 10.25 and 10.27 inclusive, if before or after the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Securities, by Act of such Holders, waive such compliance in
such instance with such term, provision or
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condition, but no such waiver shall extend to or affect such term, provision
or condition except to the extent so expressly waived, and, until such waiver
shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in
full force and effect.
Section 10.24. Limitation on Other Senior Indebtedness.
The Company will not, and will not permit any Restricted Subsidiary
to, incur, create, issue, assume, guarantee or otherwise become liable for any
Senior Indebtedness other than Indebtedness under the Credit Agreement. In
addition, the Company shall not, and shall not permit any Restricted Subsidiary
to incur Indebtedness or issue any shares of Preferred Stock of such Subsidiary,
directly or indirectly, in exchange for or upon the conversion of any
Indebtedness of IHF Holdings, Inc. or ICON Fitness Corporation, unless such
Indebtedness is unsecured and is expressly subordinate in right of payment to
the Securities.
Section 10.25. Rating.
The Company shall use its best efforts to have the Securities rated
by an established rating agency (which, for so long as is commercially
reasonable to do so, will be either Standard & Poor's Rating Group, a division
of McGraw-Hill, Inc. and Moody's Investors Service) no later than 120 days after
the date hereof and to maintain a rating through and including the Stated
Maturity for the Securities; provided, however, that the Company shall not be
required to maintain a specified rating.
Section 10.26. Payments for Consent.
The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder of Securities for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Securities unless such consideration is offered to be paid or is paid to all
Holders of the Securities that consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
Section 10.27. Additional Subsidiary Guarantees.
If the Company or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary after the date of this Indenture or if the
Company is otherwise required pursuant to Section 10.18 hereof, then the Company
shall cause that Domestic Subsidiary or such other Subsidiary, as the case may
be, to become a Subsidiary Guarantor and execute a supplemental indenture and
deliver an Opinion of Counsel to the Trustee within 10 Business Days of the date
on which it was acquired or created.
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ARTICLE XI.
REDEMPTION OF SECURITIES
Section 11.1. Right of Redemption.
The Securities will be subject to redemption at any time after the
Issue Date at the option of the Company, in whole but not in part, at the
following redemption prices (expressed in percentages of principal amount
thereof), plus accrued and unpaid interest and Liquidated Damages, if any, to
the Redemption Date if redeemed during the 12 month period ending February 15 of
each of the years set forth below:
Redemption
Year Price
-------- ----------
Issue Date through 2001 101%
2002 102%
2003 104%
2004 102%
2005 101%
Thereafter 100%
Section 11.2. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
Section 11.3. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 11.1 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 11.4. [Intentionally Omitted]
Section 11.5. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 1.7 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
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(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price (together with
accrued interest, if any, to the Redemption Date payable as provided in
Section 11.7) will become due and payable upon each such Security, or the
portion thereof, to be redeemed, and that interest thereon will cease to
accrue on and after said date (unless the Company defaults with respect to
the payment of Securities to be redeemed), and
(4) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 11.6. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.3) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
Section 11.7. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 3.9.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
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ARTICLE XII.
DEFEASANCE AND COVENANT DEFEASANCE
Section 12.1. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either Section 12.2 or Section
12.3 applied to all outstanding Securities upon compliance with the conditions
set forth below in this Article Twelve.
Section 12.2. Defeasance and Discharge.
Upon the Company's exercise under Section 12.1 of the option
applicable to this Section 12.2, the Company and the Subsidiary Guarantors shall
be deemed to have been discharged from their respective obligations with respect
to all Outstanding Securities on the date the conditions set forth in Section
12.4 are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the outstanding Securities, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 12.5
and the other Sections of this Indenture referred to in (A) and (B) below, and
to have satisfied all its other obligations under such Securities and this
Indenture insofar as such Securities are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of Outstanding Securities to
receive, solely from the trust fund described in Section 12.4 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any, on) and interest on such Securities when such payments are due, (B) the
Company's obligations with respect to such Securities under Sections 3.4, 3.5,
3.8, 10.2 and 10.3, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Twelve. Subject to compliance with this
Article Twelve, the Company may exercise its option under this Section 12.2
notwithstanding the prior exercise of its option under Section 12.3 with respect
to the Securities.
Section 12.3. Covenant Defeasance.
Upon the Company's exercise under Section 12.1 of the option
applicable to this Section 12.3, the Company and the Subsidiary Guarantors shall
be released from their respective obligations under any covenant contained in
Section 8.1 and in Sections 10.7 through 10.27 with respect to the Outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Securities shall thereafter be
deemed not to be "Outstanding" for the purposes of any direction, waiver,
consent or declaration or
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Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that,
with respect to the Outstanding Securities, the Company and the Subsidiary
Guarantors may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any
such covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall
not constitute a Default or an Event of Default under Section 5.1(3) or
Section 5.1(4), but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby.
Section 12.4. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 12.2 or Section 12.3 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.7 who shall agree to comply with the provisions of this
Article Twelve applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Securities,
(A) money in an amount, or (B) U.S. Government obligations which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which
shall be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of (and premium, if any, on) and interest on the
outstanding Securities on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium, if any) or installment of
interest; provided that the Trustee shall have been irrevocably instructed
to apply such money or the proceeds of such U.S. Government Obligations to
said payments with respect to the Securities. Before such a deposit, the
Company may give to the Trustee, in accordance with Section 11.3 hereof, a
notice of its election to redeem all of the Outstanding Securities at a
future date in accordance with Article Eleven hereof, which notice shall
be irrevocable. Such irrevocable redemption notice, if given, shall be
given effect in applying the foregoing. For this
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purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the timely
payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the
U.S. Government obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit.
(3) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest with respect to any securities of
the Company or any Subsidiary Guarantor.
(4) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture
(including the provisions of Article Thirteen) or any other material or
instrument to which the Company or any Subsidiary Guarantor is a party
or by which it is bound.
(5) In the case of an election under Section 12.2, the Company shall
have delivered to the Trustee an opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since the date of this Indenture there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
defeasance had not occurred.
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(6) In the case of an election under Section 12.3, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders or any Subsidiary Guarantor over the
other creditors of the Company.
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 123rd day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors, rights generally.
(9) The Company shall have delivered to the Trustee an Officers,
Certificate and an Opinion of Counsel satisfactory to the Trustee, which,
taken together, state that all conditions precedent provided for relating
to either the defeasance under Section 12.2 or the covenant defeasance
under Section 12.3 (as the case may be) have been complied with.
Section 12.5. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.3, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying Trustee, collectively for purposes of this
Section 12.5, the "Trustee") pursuant to Section 12.4 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental obligations
deposited pursuant to Section 12.4 or the principal and interest received in
respect thereof other
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than any such tax, fee or other charge which by law is for the account of the
Holders of the Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 12.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
Section 12.6. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 12.5 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's and the Subsidiary Guarantors' obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 12.2 or 12.3, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 12.5; provided, however, that if the Company or any
Guarantor makes any payment of principal of (or premium, if any, on) or interest
on any Security following the reinstatement of its obligations, the Company
or such Guarantor shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the money held by the Trustee or
Paying Agent.
ARTICLE XIII.
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinated to Senior Indebtedness.
The Company and the Trustee each covenants and agrees, and each
Holder, by its acceptance of a Security, likewise covenants and agrees that all
Securities shall be issued subject to the provisions of this Article Thirteen;
and each Person holding any Security, whether upon original issue or upon
transfer, assignment or exchange thereof, accepts and agrees that payments upon
or in respect of the Securities shall, to the extent and in the manner set forth
in this Article Thirteen, be subordinated in right of payment to the prior
payment in full, in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents, of all amounts payable under Senior Indebtedness
(including, without limitation, any interest accruing subsequent to an event
specified in Sections 5.1(8) and 5.1(9) of this Indenture, without regard to any
cure periods
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specified therein, whether or not such interest is an allowed claim
enforceable against the debtor under Bankruptcy Law).
Section 13.2. No Payment on Securities in Certain Circumstances.
(a) Upon any default by the Company in the payment of the principal
of, premium, if any, or interest on Senior Indebtedness, when the same becomes
due, no payment may be made on or in respect of the Securities until such
default has been cured or waived or the benefits of this sentence waived by or
on behalf of the holders of such Senior Indebtedness.
(b) No payment may be made by the Company upon or in respect of the
Securities for the period specified below (the "Payment Blockage Period") during
the continuance of any non-payment event of default with respect to Specified
Senior Indebtedness pursuant to which the maturity thereof may be accelerated. A
Payment Blockage Period shall commence on the earlier of (i) the commencement of
judicial proceedings relating to a non-payment event of default, (ii) receipt by
the Trustee of notice from the representative of the holder or holders of any
Specified Senior Indebtedness (which notice shall specify the relevant default
and shall specify that it is a notice initiating a Payment Blockage Period) or
(iii) if such non-payment event of default results from the acceleration of
the Securities, the date of such acceleration, and shall end 179 days
thereafter unless such Payment Blockage Period shall have been earlier
terminated or the benefits of this sentence waived by the representative of
the holder or holders of the Specified Senior Indebtedness which declared
such Payment Blockage Period. Not more than one Payment Blockage Period with
respect to the Securities may be commenced during any period of 360
consecutive days. No event of default that existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Specified Senior Indebtedness shall be made the basis for the commencement of
a second Payment Blockage Period by the representative for or the holders of
such Specified Senior Indebtedness whether or not within a period of 360
consecutive days.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of property or assets of the Company for any reason shall be
received by the Trustee or any Holder when such payment is prohibited by
paragraph (a) or (b) of this Section 13.2, the Trustee shall, to the extent it
is aware thereof, promptly notify the holders of Senior Indebtedness of such
prohibited payment and such payment shall be held in trust for the benefit of,
and shall be paid over or delivered to, the holders of Senior Indebtedness or
their respective representatives.
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Section 13.3. Payment over Proceeds upon Dissolution, Etc.
(a) Upon any payment or distribution of assets or securities of
the Company of any kind or character, whether in cash, property or
securities, upon any (i) bankruptcy, reorganization, insolvency, receivership
or similar proceeding of the Company (whether voluntary or involuntary), (ii)
assignment for the benefit of creditors or any marshaling of the assets and
liabilities of the Company or (iii) distribution to creditors of the Company
in a liquidation or dissolution of the Company, all amounts due or to become
due upon all Senior Indebtedness (including any interest accruing subsequent
to an event specified in Sections 5.1(8) and 5.1(9) of this Indenture,
without regard to any cure periods specified therein and whether or not such
interest is an allowed claim enforceable against the debtor under Bankruptcy
Law) shall first be paid in full, in cash or, at the option of holders of
Senior Indebtedness, cash equivalents, before the Holders or the Trustee on
their behalf shall be entitled to receive any payment by the Company on or in
respect of the Securities or any payment to acquire any of the Securities for
cash, property or securities, or any distribution with respect to the
Securities of any cash, property or securities (except that Holders may
receive (i) securities that are subordinated to at least the same extent as
the Securities to (a) Senior Indebtedness and (b) any securities issued in
exchange for Senior Indebtedness and (ii) payments and other distributions
made from any defeasance trust created pursuant to Section 12.4 of this
Indenture). Before any payment may be made by, or on behalf of, the Company
on or in respect of the Securities upon any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of assets or
securities for the Company of any kind or character, whether in cash,
property or securities, to which the Holders or the Trustee on their behalf
would be entitled, but for the provisions of this Article Thirteen, shall be
made by the Company or by any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person making such payment or distribution,
or by the Holders or the Trustee if received by them or it, directly to the
holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders) or their
representatives, as their respective interests appear, to the extent
necessary to pay all such Senior Indebtedness in full, in cash or, at the
option of holders of Senior Indebtedness, cash equivalents after giving
effect to any concurrent payment, distribution or provision therefor to or
for the holders of such Senior Indebtedness (except that Holders may receive
securities that are subordinated to at least the same extent as the
Securities to (i) Senior Indebtedness and (ii) any securities issued in
exchange for Senior Indebtedness).
(b) To the extent any payment of Senior Indebtedness (whether by or
on behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared
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to be fraudulent or preferential, set aside or required to be paid to any
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person under any bankruptcy, insolvency, receivership, fraudulent conveyance
or similar law, then if such payment is recovered by, or paid over to, such
receiver, trustee in bankruptcy, liquidating trustee, agent or other similar
Person, the Senior Indebtedness or part thereof originally intended to be
satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid, or otherwise set aside
under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then the obligations so declared fraudulent, invalid or
otherwise set aside (and all other amounts that would come due with respect
thereto had such obligation not been affected) shall be deemed to be
reinstated and outstanding as Senior Indebtedness for all purposes hereof as
if such declaration, invalidity or setting aside had not occurred.
(c) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company or any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder at a time when
such payment or distribution is prohibited by paragraph (a) of this Section 13.3
and before all obligations in respect of Senior Indebtedness are paid in full,
in cash or, at the option of holders of Senior Indebtedness, cash equivalents,
such payment or distribution shall be received and held in trust for the benefit
of, and shall be paid over or delivered to, the holders of Senior Indebtedness
(pro rata to such holders on the basis of such respective amount of Senior
Indebtedness held by such holders) or their representatives, as their respective
interests appear, for application to the payment of Senior Indebtedness
remaining unpaid until all such Senior Indebtedness has been paid in full, in
cash or, at the option of the holders of Senior Indebtedness, cash equivalents,
after giving effect to any concurrent payment, distribution or provision
therefor to or for the holders of such Senior Indebtedness (except to the extent
that Holders receive securities that are subordinated to at least the same
extent as the Securities to (i) Senior Indebtedness and (ii) any securities
issued in exchange for Senior Indebtedness, in which event such securities shall
neither be held in trusts for nor paid over by the Holders to the holders of
Senior Indebtedness).
Section 13.4. Subrogation.
(a) Upon the payment in full of all Senior Indebtedness in cash or,
at the option of holders of Senior Indebtedness, cash equivalents, the Holders
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the Company
made on such Senior Indebtedness until the principal of, premium, if any, and
interest on the Securities shall be paid in
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full; and, for the purposes of such subrogation, no payments or distributions
to the holders of the Senior Indebtedness of any cash, property or securities
to which the Holders or the Trustee on their behalf would be entitled except
for the provisions of this Article Thirteen, and no payment pursuant to the
provisions of this Article Thirteen to the holders of Senior Indebtedness by
Holders or the Trustee on their behalf shall, as among the Company, its
creditors other than holders of Senior Indebtedness, and the Holders, be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness. It is understood that the provisions of this Article Thirteen
are intended solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of the Senior Indebtedness, on the
other hand.
(b) If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article Thirteen
shall have been applied, pursuant to the provisions of this Article Thirteen, to
the payment of all amounts payable under Senior Indebtedness, then, and in such
case, the Holders shall be entitled to receive from the holders of such Senior
Indebtedness any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount required to make payment in full, in cash
or, at the option of holders of Senior Indebtedness, cash equivalents, of such
Senior Indebtedness of such holders.
Section 13.5. Obligations of Company Unconditional.
(a) Nothing contained in this Article Thirteen or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the principal of, premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Holders or
the Trustee on their behalf from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Thirteen of the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing, nothing
contained in this Article Thirteen will restrict the right of the Trustee or the
Holders to take any action to declare the Securities to be due and payable prior
to their Stated Maturity pursuant to Section 5.1 or to pursue any rights or
remedies hereunder; provided, however, that, all Senior Indebtedness then due
and payable or thereafter declared to be due and payable shall first be paid in
full, in cash, or at the option of holders of Senior Indebtedness, cash
equivalents, before the Holders or the Trustee are entitled to receive any
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direct or indirect payment from the Company on or with respect to the
Securities.
Section 13.6. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company that would prohibit the making of any payment
to or by the Trustee in respect of the Securities pursuant to the provisions
of this Article Thirteen. The Trustee shall not be charged with the knowledge
of the existence of any default or event of default with respect to any
Senior Indebtedness or of any other facts that would prohibit the making of
any payment to or by the Trustee unless and until the Trustee shall have
received notice in writing at its Corporate Trust Office to that effect
signed by an Officer of the Company, or by a holder of Senior Indebtedness or
representative thereof; and prior to the receipt of any such written notice,
the Trustee shall, subject to Article Six, be entitled to assume that no such
facts exist; provided that, if the Trustee shall not have received the notice
provided for in this Section 13.6 at least two Business Days prior to the
date upon which, by the terms of this Indenture, any monies shall become
payable for any purpose (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Security), then,
notwithstanding anything herein to the contrary, the Trustee shall have full
power and authority to receive any monies from the Company and to apply the
same to the purpose for which they were received, and shall not be affected
by any notice to the contrary that may be received by it on or after such
prior date except for an acceleration of the Securities prior to such
application. Nothing contained in this Section 13.6 shall limit the right of
the holders of Senior Indebtedness to recover payments as contemplated by
this Article Thirteen. The Trustee shall be entitled to rely on the delivery
to it of a written notice by a Person representing itself to be a holder of
any Senior Indebtedness (or a representative of such holder) to establish
that such notice has been given by a holder of such Senior Indebtedness or
representative on behalf of any such holder.
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Thirteen, the Trustee may request such Person to furnish evidence
to the reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Thirteen and, if such evidence is not
furnished to the Trustee, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
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Section 13.7. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets or securities referred
to in this Article Thirteen, the Trustee and the Holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding up, liquidation or reorganization
proceedings are pending, or upon a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making such
payment or distribution, delivered to the Trustee or to the Holders for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payment thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article Thirteen.
Section 13.8. Trustee's Relation to Senior Indebtedness.
(a) The Trustee and any Paying Agent shall be entitled to all the
rights set forth in this Article Thirteen with respect to any Senior
Indebtedness that may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Indebtedness and
nothing in this Indenture shall deprive the Trustee or any Paying Agent of any
of its rights as such holder; provided that nothing in this Section 13.8(a)
shall apply to the Company or any Affiliate of the Company that is acting as
Paying Agent.
(b) With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Thirteen, and no implied covenants
or obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
Sections 13.2(c) and 13.3(c) of this Indenture) and shall not be liable to any
such holders if the Trustee shall in good faith (and provided such payment shall
not constitute gross negligence) mistakenly pay over or distribute to Holders or
to the Company or to any other person cash, property or securities to which any
holders of Senior Indebtedness shall be entitled by virtue of this Article
Thirteen or otherwise.
Section 13.9. Subordination Rights Not Impaired by Acts or Omissions
of the Trustee, the Holders, the Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness
to enforce subordination as provided in this Article Thirteen will at any time
in any way be prejudiced or impaired by
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any act or failure to act on the part of the Trustee, Holders or the Company
or by any act or failure to act by any such holder, or by any noncompliance
by the Company with the terms of this Indenture, regardless of any knowledge
thereof that any such holder may have or otherwise be charged with. The
provisions of this Article Thirteen are intended to be for the benefit of,
and shall be enforceable directly by, the holders of Senior Indebtedness.
Section 13.10. Holders Authorize Trustee to Effectuate Subordination
of Securities.
Each Holder by its acceptance of any Securities authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Thirteen, and appoints the Trustee its attorney-in-fact for such
purposes, including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the property and assets
of the Company, the filing of a claim for the unpaid balance of its Securities
in the form required in those proceedings. If the Trustee does not file a proper
claim or proof of indebtedness in the form required in such proceeding at least
30 days before the expiration of the time to file such claim or claims, each
holder of Senior Indebtedness is hereby authorized to file an appropriate claim
for and on behalf of the Holders.
Section 13.11. Not to Prevent Events of Default.
The failure to make a payment on account of principal of, premium,
if any, or interest on the Securities by reason of any provision of this Article
Thirteen will not be construed as preventing the occurrence of an Event of
Default.
Section 13.12. Trustee's Compensation Not Prejudiced.
Nothing in this Article Thirteen will apply to amounts due to the
Trustee pursuant to other sections of this Indenture.
Section 13.13. No Waiver of Subordination Provisions.
Without in any way limiting the generality of Section 13.9, the
holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders, without
incurring responsibility to the Holders and without impairing or releasing
the subordination provided in this Article Thirteen or the obligations
hereunder of the Holders to the holders of Senior Indebtedness may amend,
renew, extend, substitute, refinance, restructure, replace, supplement or
otherwise modify the Credit Agreement, including, without limitation, the
following: (a) change the manner, place
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or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement
under which Senior Indebtedness is outstanding or secured; (b) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; (c) release any Person liable in any
manner for the collection of Senior Indebtedness; and (d) exercise or refrain
from exercising any rights against the Company and any other Person.
Section 13.14. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Thirteen or elsewhere in this
Indenture shall prevent (i) the Company, except under the conditions described
in Section 13.2 or 13.3, from making payments of principal of, premium, if any,
and interest on the Securities, or from depositing with the Trustee any money
for such payments, or (ii) the application by the Trustee of any money deposited
with it for the purpose of making such payments of principal of, premium, if
any, and interest on the Securities to the holders entitled thereto unless, at
least two Business Days prior to the date upon which such payment becomes due
and payable, the Trustee shall have received the written notice provided for in
Section 13.2(b) (or there shall have been an acceleration of the Securities
prior to such application) or in Section 13.6 of this Indenture. The Company
shall give prompt written notice to the Trustee of any dissolution, winding up,
liquidation or reorganization of the Company or other fact known to the Company
which would prohibit the making of payments hereunder.
ARTICLE XIV.
SUBSIDIARY GUARANTEES
Section 14.1. Guarantee.
Subject to this Article XIV, each of the Subsidiary Guarantors
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Securities or the obligations of the Company hereunder
or thereunder, that: (a) the principal of, premium, if any, interest and
Liquidated Damages, if any, on the Securities will be promptly paid in full
when due, whether at maturity, by acceleration, redemption or otherwise, and
interest on the overdue principal, premium, if any, and to the extent
permitted by law, interest on any interest, if any, and Liquidated Damages,
if any, on the Securities, and all other obligations of the Company to the
Holders or the Trustee hereunder or thereunder will be promptly paid in full
or performed, all in accordance with the terms hereof and thereof; and (b) in
case of any extension of time of payment or renewal of any Securities or any
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of such other obligations, that same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration, redemption or otherwise. Failing
payment when due of any amount so guaranteed or any performance so guaranteed
for whatever reason, the Subsidiary Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Subsidiary Guarantor agrees that
this is a guarantee of payment and not a guarantee of collection.
The Subsidiary Guarantors hereby agree that their obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenant that this
Subsidiary Guarantee shall not be discharged except by complete performance of
the obligations contained in the Securities and this Indenture.
If any Holder or the Trustee is required by any court or otherwise
to return to the Company, the Subsidiary Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Subsidiary Guarantors, any amount paid by either to the Trustee or such
Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall
be reinstated in full force and effect.
Each Subsidiary Guarantor agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between
the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee,
on the other hand, (x) the maturity of the obligations guaranteed hereby may
be accelerated as provided in Article V hereof for the purposes of this
Subsidiary Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article V hereof, such obligations (whether
or not due and payable) shall forthwith become due and payable by the
Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. The
Subsidiary Guarantors shall have the right to seek contribution from any
non-paying Subsidiary Guarantor so long as the exercise of such right does
not impair the rights of the Holders under the Guarantee.
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Section 14.2. Guarantee Limitation On Subsidiary Guarantor
Liability.
Each Subsidiary Guarantor, and by its acceptance of Securities, each
Holder, hereby confirms that it is the intention of all such parties that the
Subsidiary Guarantee of such Subsidiary Guarantor not constitute a fraudulent
transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law to the extent applicable to any Subsidiary Guarantee. To effectuate
the foregoing intention, the Trustee, the Holders and the Subsidiary Guarantors
hereby irrevocably agree that the obligations of such Subsidiary Guarantor under
its Subsidiary Guarantee and this Article XIV shall be limited to the maximum
amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Subsidiary Guarantor that are relevant
under such laws, and after giving effect to any collections from, rights to
receive contribution from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under this Article XIV, result in the obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer
or conveyance.
Section 14.3. Execution And Delivery Of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 14.1, each
Subsidiary Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form included in Exhibit D shall be endorsed by an officer
of such Subsidiary Guarantor on each Security authenticated and delivered by the
Trustee and that this Indenture shall be executed on behalf of such Subsidiary
Guarantor by its President or one of its Vice Presidents.
Each Subsidiary Guarantor hereby agrees that its Subsidiary
Guarantee set forth in Section 14.1 shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation of such
Subsidiary Guarantee.
If an officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Security on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the
Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary
Guarantors.
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Section 14.4. Subsidiary Guarantors May Consolidate, Etc., Only on
Certain Terms.
No Subsidiary Guarantor may in a single transaction or a series of
related transactions consolidate or merge with or into (whether or not such
Subsidiary Guarantor is the surviving Person) or, sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties to any other Person or group of affiliated Persons unless:
(a) except in the case of a merger of a Subsidiary Guarantor with or
into the Company or another Subsidiary Guarantor but subject to Section 14.5
hereof, the Person formed by or surviving any such consolidation or merger (if
other than such Subsidiary Guarantor) expressly assumes by a supplemental
indenture in a form reasonably satisfactory to the Trustee, all the obligations
of such Subsidiary Guarantor under the Securities, this Indenture and the
Subsidiary Guarantee on the terms set forth herein or therein; and
(b) immediately after giving effect to such transaction or series of
transactions, no Default or Event of Default shall have occurred or be
continuing.
Upon any consolidation, merger, sale or conveyance and upon the
assumption by the successor Person, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the
Subsidiary Guarantee endorsed upon the Securities and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Subsidiary Guarantor, such successor Person shall succeed to
and be substituted for and may exercise every right and power of, the
Subsidiary Guarantor under this Indenture and the Securities with the same
effect as if such successor Person had been named herein as a Subsidiary
Guarantor. Such successor Person thereupon may cause to be signed any or all
of the Subsidiary Guarantees to be endorsed upon all of the Securities
issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under this
Indenture as the Subsidiary Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Subsidiary
Guarantees had been issued at the date of the execution hereof.
Section 14.5. Releases of Subsidiary Guarantee.
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(a) in connection with any sale or disposition of all or
substantially all of the assets of that Subsidiary Guarantor (including by way
of merger or consolidation), if the disposition is to the Company or another
Subsidiary Guarantor or if the
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Company applies the Net Proceeds of that sale or other disposition in
accordance with the applicable provisions of this Indenture, including
without limitation Section 10.17 hereof; or
(b) in connection with any sale of all of the capital stock of a
Subsidiary Guarantor, if the Company applies the Net Proceeds of that sale in
accordance with the applicable provisions of this Indenture, including without
limitation Section 10.17 hereof; or
(c) if the Company designates any Restricted Subsidiary that is a
Subsidiary Guarantor as an Unrestricted Subsidiary; or
(d) upon the release or discharge of all guarantees of such
Subsidiary Guarantor, and all pledges of property or assets of such Subsidiary
Guarantor securing all other Indebtedness of the Company and the other
Subsidiary Guarantors.
Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the applicable provisions
of this Indenture, including without limitation Section 10.17 hereof, the
Trustee shall execute any documents reasonably required in order to evidence the
release of any Subsidiary Guarantor from its obligations under its Subsidiary
Guarantee.
Any Subsidiary Guarantor not released from its obligations under
its Subsidiary Guarantee shall remain liable for the full amount of principal
of and interest on the Securities and for the other obligations of any
Subsidiary Guarantor under this Indenture as provided in this Article XIV.
Section 14.6. Subordination of Subsidiary Guarantee.
Each Subsidiary Guarantor agrees, and each Holder by accepting a
Security agrees, that the obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee, are subordinated and junior in right of payment to the
prior payment of all Senior Indebtedness of each Subsidiary Guarantor on the
same basis as the obligations on, or relating to the Securities, are
subordinated and junior in right of payment to the prior payment of all Senior
Indebtedness of the Company pursuant to Article Thirteen. In furtherance of the
foregoing, each Subsidiary Guarantor agrees, and the Trustee and each Holder by
accepting a Security agrees, that the subordination and related provisions
applicable to the obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee by virtue of the preceding sentence shall be as set forth in Article
Thirteen as if each reference to "Company" therein were instead a reference to
"a Subsidiary Guarantor", each reference to "Senior Indebtedness of the Company"
therein were instead a reference to "Senior Indebtedness of each Subsidiary
Guarantor" and each
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reference to "Securities" therein were instead a reference to "this
Subsidiary Guarantee", with such appropriate modifications as the context may
require. For the purposes of the foregoing sentence, the Trustee and the
Holders shall have the right to receive and/or retain payments by any of the
Subsidiary Guarantors only at such times as they may receive and/or retain
payments in respect of the Securities pursuant to this Indenture, including
Article Thirteen hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
ICON HEALTH & FITNESS, INC.,
as Issuer
By: _______________________________
Name:
Title
Attest:_________________________
JUMPKING, INC.
as Subsidiary Guarantor
By: _______________________________
Name:
Title
Attest:_________________________
ICON INTERNATIONAL HOLDINGS, INC.
as Subsidiary Guarantor
By: _______________________________
Name:
Title
Attest:_________________________
UNIVERSAL TECHNICAL SERVICES, INC.
as Subsidiary Guarantor
By: _______________________________
Name:
Title
Attest:_________________________
510152 N.B. LTD.
as Subsidiary Guarantor
By: _______________________________
Name:
Title
Attest:_________________________
IBJ WHITEHALL BANK & TRUST COMPANY,
as Trustee
By: _______________________________
Title
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STATE OF UTAH )
) ss.:
COUNTY OF CACHE )
On the ___ day of __________, 1999, before me personally came
____________, to me known who, being by me duly sworn, did depose and say that
he _____________ is of ICON Health & Fitness, Inc. one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
[stamp of notary] __________________
STATE OF )
) ss.:
COUNTY OF )
On the ____ day of _______________, 1999, before me personally came
__________________, to be known who, being by me duly sworn, did depose and say
that he is ___________________ of __________________ one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like authority.
__________________
<PAGE>
SCHEDULE I
Subsidiary Guarantors
- --------------------------------------------------------------------------------
Jumpking, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
510152 N.B. LTD.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Universal Technical Services, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
ICON International Holdings, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
<PAGE>
SCHEDULE II
Agreements
- --------------------------------------------------------------------------------
1. Securities Purchase Agreement, dated as of the Closing Date, among
Holdings and CSFB.
2. Note Agreement, dated as of the Closing Date, between Holdings and CSFB.
3. Stockholders Agreement, dated as of the Closing Date, among Holdings, ICON
Health & Fitness, Inc. ("Borrower"), the LLC, participating old 13%
holders, if any, Scott Watterson and Gary Stevenson, CSFB and other equity
holders.
4. Restated Employment Agreements, dated as of the Closing Date, between New
Holdings, Borrower and each of Scott Watterson and Gary Stevenson.
5. Termination Agreements, dated as of the Closing date, between IHF
Holdings, Inc., Borrower and each of Scott Watterson and Gary Stevenson.
6. Funding to Holdings of $500,000 for payments to junior management.
7. ICON Junior Management Deferred Bonus Plan.
8. Management Agreement, dated as of the Closing Date, among Holdings,
Borrower and Bain.
9. Management Agreements among Borrower, New Holdings and each of Scott
Watterson and Gary Stevenson.
10. Agreement and Plan of Merger, dated as of the Closing Date, among
Holdings, Borrower and Merger Sub.
<PAGE>
Exhibit A
REGISTERED REGISTERED
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (1), (2), (3) OR (7) OF PARAGRAPH A
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN "ACCREDITED INVESTOR", IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $500,000 FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
A-1
<PAGE>
TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 3.6 AND 3.7 OF THE INDENTURE.
ICON HEALTH & FITNESS, INC.
12% Series A Note due 2005
No.1 CUSIP 44929HACZ
ICON HEALTH & FITNESS, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to ____________, or its registered assigns,
the principal sum of __________________________ ($_______________), on September
27, 2005.
Interest Rate: 12% per annum.
Interest Payment Dates: January 15 and July 15 of each year
commencing January 15, 2000.
Regular Record Dates: January 1 and July 1 of each year.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Date: _____________, ___ ICON HEALTH & FITNESS, INC.
Attested by:
By: __________________________
_______________________________ Title: President
Title: Secretary
This is one of the 12% Series A Notes due 2005 described in the within-mentioned
Indenture.
Date of Authentication: IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee
______________,____
By: ______________________
Authorized Signatory
A-3
<PAGE>
[REVERSE SIDE OF SECURITY]
ICON HEALTH & FITNESS, INC.
12% Series A Note due 2005
1. Principal and Interest.
The Company will pay the principal of this Security on September 27,
2005.
The Company promises to pay interest on the principal amount of this
Security on each Interest Payment Date, as set forth below, at the rate of 12%
per annum.
Interest will be payable semiannually (to the owners of record (the
"Holders") of the Securities (or any predecessor Securities) at the close of
business on the January 1 or July 1 immediately preceding the Interest Payment
Date) on each Interest Payment Date, commencing January 15, 2000. In addition,
as provided in the Exchange and Registration Rights Agreement dated September
27, 1999, liquidated damages may be required to be paid by the Company.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Securities on each Interest Payment Date to the persons
who are Holders (as reflected in the Security Register at the close of business
on the Regular Record Dates immediately preceding the Interest Payment Date), in
each case, even if the Security is canceled on registration of transfer or
registration of exchange after such record date; provided that, with respect to
the payment of principal, the Company will make payment to the Holder that
surrenders this Security to any Paying Agent on or after September 27, 2005.
The Company will pay principal, premium, if any, and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding date
that is a Business Day and no interest shall accrue for the intervening period.
A-4
<PAGE>
3. Paying Agent and Registrar.
Initially, IBJ Whitehall Bank & Trust Company (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar upon written notice thereto. The Company, any Restricted Subsidiary or
any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar.
4. Indenture; Limitations.
The Company issued the Securities under an Indenture dated as of
September 27, 1999 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
indicated. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Securities are subject to all such terms, and Holders are referred to the
Indenture and the Trust Indenture Act for a statement of all such terms. To the
extent permitted by applicable law, in the event of any inconsistency between
the terms of this Security and the terms of the Indenture, the terms of the
Indenture shall control.
The Securities are general unsecured obligations of the Company. The
Indenture limits the aggregate principal amount of the Securities to
$45,000,000.
5. Subordination.
The payment of the Securities will to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash or cash equivalents, of all Senior Indebtedness.
6. Subsidiary Guarantee.
The payment of principal of, premium, if any, interest and
Liquidated Damages, if any, on the Securities are unconditionally guaranteed,
jointly and severally, on a senior subordinated basis by the Subsidiary
Guarantors.
7. Redemption.
The Securities will be subject to redemption at any time after
the Issue Date at the option of the Company, in whole but not in part, at the
following redemption prices (expressed in percentages of principal amount
thereof), plus accrued and unpaid interest and Liquidated Damages, if any, to
the Redemption Date if redeemed during the 12 month period ending February 15
of each of the years set forth below:
A-5
<PAGE>
Redemption
Year Price
-------- ---------
Issue Date through 2001 101%
2002 102%
2003 104%
2004 102%
2005 101%
Thereafter 100%
Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Security Register. On and after the
Redemption Date, interest ceases to accrue on Securities, unless the Company
defaults in the payment of the Redemption Price.
7. Repurchase upon a Change in Control and Asset Sales.
Upon the occurrence of (a) a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Securities at a purchase
price of 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase or (b) certain
Asset Sales, the Company may be obligated to make offers to purchase Securities
with a portion of the Net Cash Proceeds of such Asset Sales at a purchase price
of 100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase.
8. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons, in
denominations of $1,000 and multiples of $1,000 in excess thereof. A Holder may
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture.
9. Persons Deemed Owners.
A Holder may be treated as the owner of a Security for all purposes.
10. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the
A-6
<PAGE>
Paying Agent will pay the money back to the Company at its request. After
that, Holders entitled to the money must look to the Company for payment,
unless an abandoned property law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the
Securities (a) to redemption or maturity, the Company will be discharged from
the Indenture and the Securities, except in certain circumstances for certain
sections thereof, and (b) to the Stated Maturity, the Company will be discharged
from certain covenants set forth in the Indenture.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
Securities then outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Securities to,
among other things, cure any ambiguity, defect or inconsistency and make any
change that does not materially adversely affect the rights of any Holder.
13. Restrictive Covenants.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
Indebtedness; (ii) Restricted Payments; (iii) Transactions with Affiliates;
(iv) Liens; (v) Change of Control; (vi) Asset Sales; (vii) Guarantees by
Restricted Subsidiaries; (viii) Dividends and Other Payment Restrictions
Affecting Subsidiaries; (ix) Sale and Leaseback Transactions; (x) Designation
of Unrestricted Subsidiaries; (xi) Incurrence of Other Senior Indebtedness;
and (xii) Additional Subsidiary Guarantees. Within 120 days after the end of
each fiscal year and within 45 days after each fiscal quarter, the Company
must report to the Trustee on compliance with the Indenture.
14. Successor Persons.
When a successor person or other entity assumes all the obligations
of its predecessor under the Securities and the Indenture, the predecessor
person will be released from those obligations.
A-7
<PAGE>
15. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities then outstanding may declare all the
Securities to be immediately due and payable. If a bankruptcy or insolvency
default with respect to the Company or any of its Significant Subsidiaries
occurs and is continuing, the Securities automatically become immediately due
and payable. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of at least a majority in principal amount of the
Securities then outstanding may direct the Trustee in its exercise of any trust
or power.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
17. Authentication.
This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.
18. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Icon Health &
Fitness, Inc., 1500 South 1000 West, Logan, Utah 84321, Attention: President.
A-8
<PAGE>
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably
- --------------------------------------------------------------------------------
constituting and appointing attorney to transfer such Security on the books of
the Company with full power of substitution in the premises.
In connection with any transfer of this Security occurring prior to
the Resale Restriction Termination Date, the undersigned confirms that without
utilizing any general solicitation or general advertising:
Check One
[ ](a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ](b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 3.7 of the Indenture shall have
been satisfied.
A-9
<PAGE>
Date: __________________
--------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within- mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee: ___________________________________________________________
Participant in a Recognized Signature
Guaranty Medallion Program
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ________________________ ________________________________________
NOTICE: To be executed by an
executive officer
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 10.15 or Section 10.17 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 10.15 or Section 10.17 of the Indenture, state the
amount (in principal amount at maturity) below:
$___________________.
Date: ________________
Your Signature: _________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: ______________________________________
Participant in a Recognized Signature
Guaranty Medallion Program
A-11
<PAGE>
Exhibit C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
________________ , ______
Icon Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Re: Icon Health & Fitness, Inc.
(the "Company") 12% Notes due 2005 (the "Securities")
Ladies and Gentlemen:
In connection with our proposed purchase of $__________ aggregate
principal amount of the Securities:
1. We understand that the Securities have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and may
not be sold except as permitted in the following sentence. We agree on our
own behalf and on behalf of any investor account for which we are purchasing
the Securities to offer, sell or otherwise transfer such Securities prior to
the date which is two years after the later of the date of original issue of
the Securities and the last date on which the Company or any affiliate of the
Company was the owner of such Securities, or any predecessor thereto (the
"Resale Restriction Termination Date") only (a) to the Company, (b) pursuant
to a registration statement which has been declared effective under the
Securities Act, (c) for so long as the Securities are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person we reasonably
believe is a qualified institutional buyer under Rule 144A (a "QIB") that
purchases for its own account or for the account of a QIB to whom notice is
given that the transfer is being made in reliance on Rule 144A, (d) to an
institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is
acquiring the Securities for its own account or for the account of such an
institutional "accredited investor" for investment purposes and not with a
view to, or for offer or sale in connection with, any distribution thereof in
violation of the Securities Act or (e) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject
in each of the foregoing cases to any requirement of law that the
C-1
<PAGE>
disposition of our property and the property of such investor account or
accounts be at all times within our or their control and to compliance with
any applicable state securities laws. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction Termination Date. If any
resale or other transfer of the Securities is proposed to be made pursuant to
clause (d) above prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee substantially in the
form of this letter to the Trustee or the Registrar, as the case may be,
which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) or Rule 501 under the Securities Act and that it is
acquiring such Securities for investment purposes and not for distribution in
violation of the Securities Act. We acknowledge that the Company and the
Trustee or the Registrar, as the case may be, reserve the right prior to any
offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Securities pursuant to clauses (d) and (e) above to require the
delivery of an opinion of counsel, certifications and/or other information
satisfactory to the Company and the Trustee or the Registrar, as the case may
be. We further understand that the securities purchased by us will bear a
legend to the foregoing effect.
2. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2) (3) or (7) of Regulation D under the Securities Act) purchasing
for our own account or for the account of such an institutional "accredited
investor," and we are acquiring the Securities for investment purposes and not
with a view to, or for offer or sale in connection with, any distribution in
violation of the Securities Act and we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of our investment in the Securities, and we and any accounts for which we
are acting are each able to bear the economic risk of our or its investment.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
C-2
<PAGE>
4. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By: __________________
(NAME OF PURCHASER)
Date: ___________________
Upon transfer, the Securities should be registered in the name of
the new beneficial owner as follows:
Name: __________________________________________________________________________
Address: _______________________________________________________________________
Taxpayer ID Number: ____________________________________________________________
C-3
<PAGE>
Exhibit D
FORM OF NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Subsidiary Guarantor (which term includes
any successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture, dated as of September 27, 1999 (the
"Indenture"), among ICON Health & Fitness, Inc., the Subsidiary Guarantors party
thereto and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), (a)
the due and punctual payment of the principal of, premium, if any, and interest
on the Securities (as defined in the Indenture), whether at maturity, by
acceleration, redemption or otherwise, the due and punctual payment of interest
on overdue principal and premium, and, to the extent permitted by law, interest,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms of the Indenture and
(b) in case of any extension of time of payment or renewal of any Securities or
any of such other obligations, that the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. The obligations of the
Subsidiary Guarantors to the Holders of Securities and to the Trustee pursuant
to the Subsidiary Guarantee and the Indenture are expressly set forth in Article
14 of the Indenture and reference is hereby made to the Indenture for the
precise terms of the Subsidiary Guarantee. The obligations of the Subsidiary
Guarantors will be released only in accordance with the provisions of Article 14
of the Indenture. Each Holder of a Security, by accepting the same, (a) agrees
to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose; provided,
however, that the Indebtedness evidenced by this Subsidiary Guarantee shall
cease to be so subordinated and subject in right of payment upon any defeasance
of this Security in accordance with the provisions of the Indenture.
[Name of Subsidiary Guarantor(s)]
By:______________________________
Name:
Title:
D-1
<PAGE>
Exhibit E
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT SUBSIDIARY GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
______________, among _______________ (the "Guaranteeing Subsidiary"), a
subsidiary of ICON Health & Fitness, Inc. (or its permitted successor), a
Delaware corporation (the "Company"), the Company, the other Subsidiary
Guarantors (as defined in the Indenture referred to herein) and IBJ Whitehall
Bank & Trust Company, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of ____________, providing for
the issuance of an aggregate principal amount of up to $45,000,000 of 12% Notes
due 2005 (the "Securities");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's obligations under the Securities and the
Indenture on the terms and conditions set forth herein (the "Subsidiary
Guarantee"); and
WHEREAS, pursuant to Section 9.3 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Securities as follows:
1. Capitalized Terms.
Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. Agreement To Guarantee.
The Guaranteeing Subsidiary hereby agrees as follows:
(a) Along with all Subsidiary Guarantors named in the Indenture,
to jointly and severally Guarantee to each Holder of a
Security authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns,irrespective
of the
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<PAGE>
validity and enforceability of the Indenture, the Securities
or the obligations of the Company hereunder or thereunder,
that:
(i) the principal of and interest on the Securities will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on
the overdue principal of and interest on the Securities,
if any, if lawful, and all other obligations of the
Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed,
all in accordance with the terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal
of any Securities or any of such other obligations, that
same will be promptly paid in full when due or performed
in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so
guaranteed or any performance so guaranteed for whatever
reason, the Subsidiary Guarantors shall be jointly and
severally obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective
of the validity, regularity or enforceability of the
Securities or the Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof,
the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense
of a guarantor.
(c) The following is hereby waived: diligence presentment, demand
of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require
a proceeding first against the Company, protest, notice and
all demands whatsoever.
(d) This Subsidiary Guarantee shall not be discharged except by
complete performance of the obligations contained in the
Securities and the Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the
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<PAGE>
Subsidiary Guarantors, or any Custodian, trustee,
liquidator or other similar official acting in relation to
either the Company or the Subsidiary Guarantors, any amount
paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right
of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all
obligations guaranteed hereby.
(g) As between the Subsidiary Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the maturity
of the obligations guaranteed hereby may be accelerated as
provided in Article 5 of the Indenture for the purposes of
this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration
in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such
obligations as provided in Article 5 of the Indenture, such
obligations (whether or not due and payable) shall forthwith
become due and payable by the Subsidiary Guarantors for the
purpose of this Subsidiary Guarantee.
(h) The Subsidiary Guarantors shall have the right to seek
contribution from any non-paying Subsidiary Guarantor so long
as the exercise of such right does not impair the rights of
the Holders under the Subsidiary Guarantee.
(i) Pursuant to Section 14.2 of the Indenture, after giving
effect to any maximum amount and any other contingent and
fixed liabilities that are relevant under any applicable
Bankruptcy or fraudulent conveyance laws, and after giving
effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any
other Subsidiary Guarantor in respect of the obligations of
such other Subsidiary Guarantor under Article 14 of the
Indenture shall result in the obligations of such
Subsidiary Guarantor under its Subsidiary Guarantee not
constituting a fraudulent transfer or conveyance.
3. Execution And Delivery.
Each Guaranteeing Subsidiary agrees that the Subsidiary Guarantees
shall remain in full force and effect notwithstanding
E-3
<PAGE>
any failure to endorse on each Security a notation of such Subsidiary Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.
(a) A Guaranteeing Subsidiary may not sell or otherwise dispose of all
or substantially all of properties, or consolidate with or merge
with or into (whether or not such Guaranteeing Subsidiary is the
surviving Person) another Person or group of affiliated Persons
unless:
(i) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred or be
continuing; and
(ii) except in the case of a merger of a Subsidiary Guarantor with
or into the Company or another Subsidiary Guarantor but
subject to Section 14.5 hereof, the Person formed by or
surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) expressly assumes by a supplemental
indenture in a form reasonably satisfactory to the Trustee,
all the obligations of such Subsidiary Guarantor under the
Securities, the Indenture and the Subsidiary Guarantee on the
terms set forth therein.
(b) In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental
indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Subsidiary Guarantee endorsed upon
the Securities and the due and punctual performance of all of the
covenants and conditions of the Indenture to be performed by the
Subsidiary Guarantor, such successor Person shall succeed to and
be substituted for and may exercise every right and power of, the
Subsidiary Guarantor under the Indenture and the Securities with
the same effect as if it had been named herein as a Subsidiary
Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all
of the Securities issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All
Subsidiary Guarantees so issued shall in all respects have the
same legal rank and benefit under the Indenture as the Subsidiary
Guarantees theretofore and thereafter issued in accordance with
the terms of the Indenture as though all of such Subsidiary
Guarantees had been issued at the date of the execution hereof.
E-4
<PAGE>
5. Releases.
(a) The Subsidiary Guarantee of a Subsidiary Guarantor will be released
(i) in connection with any sale or other disposition of all or
substantially all of the assets of that Subsidiary Guarantor
(including by way of merger or consolidation), if the disposition is
to the Company or another Subsidiary Guarantor or if the Company
applies the Net Proceeds of that sale or other disposition in
accordance with the applicable provisions of the Indenture,
including without limitation Section 10.17 thereof; (ii) in
connection with any sale of all of the capital stock of a Subsidiary
Guarantor, if the Company applies the Net Proceeds of that sale in
accordance with the applicable provisions of the Indenture,
including without limitation Section 10.17 thereof; (iii) if the
Company designates any Restricted Subsidiary that is a Subsidiary
Guarantor as an Unrestricted Subsidiary; or (iv) upon the release or
discharge of all guarantees of such Subsidiary Guarantor, and all
pledges of property or assets of such Subsidiary Guarantor securing
all other Indebtedness of the Company and other Subsidiary
Guarantors. Upon delivery by the Company to the Trustee of an
Officers' Certificate and an Opinion of Counsel to the effect that
such sale or other disposition was made by the Company in accordance
with the provisions of the Indenture, including without limitation
Section 10.17 of the Indenture, the Trustee shall execute any
documents reasonably required in order to evidence the release of
any Subsidiary Guarantor from its obligations under its Subsidiary
Guarantee.
(b) Any Subsidiary Guarantor not released from its obligations under
its Subsidiary Guarantee shall remain liable for the full amount
of principal of and interest on the Securities and for the other
obligations of any Subsidiary Guarantor under the Indenture as
provided in Article 14 of the Indenture.
6. No Recourse Against Others.
No past, present or future director, officer, employee,
incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such,
shall have any liability for any obligations of the Company or any Guaranteeing
Subsidiary under the Securities, any Subsidiary Guarantees, the Indenture or
this Supplemental Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of the Securities by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Securities. Such
waiver may not be effective to waive liabilities under the federal
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<PAGE>
securities laws and it is the view of the Commission that such a waiver is
against public policy.
7. New York Law To Govern.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. Counterparts.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
9. Effect of Headings.
The Section headings herein are for convenience only and shall not
affect the construction hereof.
10. The Trustee.
The Trustee shall not be responsible in any manner whatsoever for or
in respect of the validity or sufficiency of this Supplemental Indenture or for
or in respect of the recitals contained herein, all of which recitals are made
solely by the Guaranteeing Subsidiary and the Company.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _________, _____
[GUARANTEEING SUBSIDIARY]
By:______________________
Name:
Title:
IBJ WHITEHALL BANK & TRUST COMPANY,
as Trustee
By:______________________
Name:
Title:
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<PAGE>
Exhibit 4.2
NOTATION OF SUBSIDIARY GUARANTEE
For value received, each Subsidiary Guarantor (which term includes
any successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture, dated as of September 27, 1999 (the
"Indenture"), among ICON Health & Fitness, Inc., the Subsidiary Guarantors party
thereto and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"), (a)
the due and punctual payment of the principal of, premium, if any, and interest
on the Securities (as defined in the Indenture), whether at maturity, by
acceleration, redemption or otherwise, the due and punctual payment of interest
on overdue principal and premium, and, to the extent permitted by law, interest,
and the due and punctual performance of all other obligations of the Company to
the Holders or the Trustee all in accordance with the terms of the Indenture and
(b) in case of any extension of time of payment or renewal of any Securities or
any of such other obligations, that the same will be promptly paid in full when
due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. The obligations of the
Subsidiary Guarantors to the Holders of Securities and to the Trustee pursuant
to the Subsidiary Guarantee and the Indenture are expressly set forth in Article
14 of the Indenture and reference is hereby made to the Indenture for the
precise terms of the Subsidiary Guarantee. The obligations of the Subsidiary
Guarantors will be released only in accordance with the provisions of Article 14
of the Indenture. Each Holder of a Security, by accepting the same, (a) agrees
to and shall be bound by such provisions, (b) authorizes and directs the
Trustee, on behalf of such Holder, to take such action as may be necessary or
appropriate to effectuate the subordination as provided in the Indenture and (c)
appoints the Trustee attorney-in-fact of such Holder for such purpose; provided,
however, that the Indebtedness evidenced by this Subsidiary Guarantee shall
cease to be so subordinated and subject in right of payment upon any defeasance
of this Security in accordance with the provisions of the Indenture.
<PAGE>
Closing Doc Sub Guarantees (Exh. 4.2)
JUMPKING, INC.
By:________________________________
Name:
Title:
ICON INTERNATIONAL HOLDINGS, INC.
By:________________________________
Name:
Title:
UNIVERSAL TECHNICAL SERVICES, INC.
By:________________________________
Name:
Title:
510152 N.B. LTD.
By:________________________________
Name:
Title:
Closing Doc Sub Guarantees (Exh. 4.2)
-2-
<PAGE>
Exhibit 4.3
QUEBEC GUARANTY
This GUARANTY (this "Guaranty"), dated as of September 27, 1999, by
ICON OF CANADA INC., a Quebec company ("Guarantor"), in favor of IBJ WHITEHALL
BANK & TRUST COMPANY, as Trustee (the "Trustee") under that certain Indenture
(the "Indenture") dated September 27, 1999 between Icon Health & Fitness, Inc.
(the "Company") and the Trustee.
W I T N E S S E T H:
WHEREAS, pursuant to Article XIV of the Indenture, 510152 N.B. LTD.
("New Brunswick") has guaranteed to each Holder of a Security (as each term is
defined in the Indenture) the obligations of the Company under the Indenture and
the Securities (the "New Brunswick Guaranty");
WHEREAS, Guarantor is required pursuant to Section 10.18 of the
Indenture to provide this Guaranty; and
WHEREAS, 100% of the outstanding stock of Guarantor and New
Brunswick is owned directly by ICON International Holdings, Inc.;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
1. DEFINITIONS.
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture, unless otherwise defined herein.
References to this "Guaranty" shall mean this Guaranty, including
all amendments, modifications and supplements and any annexes, exhibits and
schedules to any of the foregoing, and shall refer to this Guaranty as the same
may be in effect at the time such reference becomes operative.
2. THE GUARANTY.
Subject to the terms hereof, Guarantor hereby, jointly and
severally, unconditionally guarantees to each Holder of a Security authenticated
and delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of the Indenture, the
Securities, the New Brunswick Guaranty or the obligations of the Company or New
Brunswick thereunder that the obligations of New Brunswick under the New
Brunswick Guaranty will be promptly paid in full or performed, all in accordance
with the terms thereof.
Guarantor hereby agrees that its obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
New Brunswick Guaranty, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Securities with respect to any provisions
thereof, the recovery of any judgment against New Brunswick, any
<PAGE>
GBS canadian guaranty (Exh. 4.3)
action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Guarantor
hereby waives diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of New Brunswick, any right to
require a proceeding first against New Brunswick, protest, notice and all
demands whatsoever and covenant that this Guaranty shall not be discharged
except by complete performance of the obligations contained in the New Brunswick
Guaranty.
If any Holder or the Trustee is required by any court or otherwise
to return to the Company, the Subsidiary Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Subsidiary Guarantors, any amount paid by either to the Trustee or such
Holder, this Guaranty, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby.
3. Guaranty Limitation On Guarantor Liability.
Guarantor, and by its acceptance of Securities, each Holder, hereby
confirms that it is the intention of all such parties that the Guaranty of
Guarantor not constitute a fraudulent transfer or conveyance for purposes of
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to
this Guaranty. To effectuate the foregoing intention, the Trustee, the Holders
and Guarantor hereby irrevocably agree that the obligations of Guarantor under
its this Guaranty shall be limited to the maximum amount as will, after giving
effect to such maximum amount and all other contingent and fixed liabilities of
Guarantor that are relevant under such laws, and after giving effect to any
collections from, rights to receive contribution from or payments made by or on
behalf of any other Subsidiary Guarantor in respect of the obligations of such
other Subsidiary Guarantor under Article XIV of the Indenture, result in the
obligations of Guarantor under this Guaranty not constituting a fraudulent
transfer or conveyance.
4. Releases of Guaranty.
The Guaranty of Guarantor will be released upon the terms set forth
in Section 14.5 of the Indenture as if it were a Subsidiary Gurantor thereunder,
with such appropriate modifications as the context may require.
5. Subordination of Guaranty.
Guarantor agrees, and each Holder by accepting a Security agrees,
that the obligations of Guarantor under this Guaranty, are subordinated and
junior in right of payment to the prior payment of all Senior Indebtedness of
each Subsidiary Guarantor on the same basis as the obligations on, or relating
to the Securities, are subordinated and junior in right of payment to the prior
payment of all Senior Indebtedness of the Company pursuant to Article Thirteen
of the Indenture, including, without limitation, the obligations of Guarantor
under that certain guaranty,
2
<PAGE>
GBS canadian guaranty (Exh. 4.3)
dated the date hereof, in favor of the Banks pursuant to the Credit Agreement.
In furtherance of the foregoing, Guarantor agrees, and the Trustee and each
Holder by accepting a Security agrees, that the subordination and related
provisions applicable to the obligations of Guarantor under this Guaranty by
virtue of the preceding sentence shall be as set forth in Article Thirteen of
the Indenture as if each reference to "Company" therein were instead a reference
to "New Brunswick", each reference to "Senior Indebtedness of the Company"
therein were instead a reference to "Senior Indebtedness of Guarantor" and each
reference to "Securities" therein were instead a reference to "this Guaranty",
with such appropriate modifications as the context may require. For the purposes
of the foregoing sentence, the Trustee and the Holders shall have the right to
receive and/or retain payments by Guarantor only at such times as they may
receive and/or retain payments in respect of the New Brunswick Guaranty pursuant
to the Indenture, including Article Thirteen thereof.
3
<PAGE>
GBS canadian guaranty (Exh. 4.3)
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first above written.
ICON OF CANADA INC./ ICON DU CANADA INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
GBS canadian guaranty (Exh. 4.3)
4
<PAGE>
Exhibit 4.4
REGISTERED REGISTERED
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF
THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (1), (2), (3) OR (7) OF PARAGRAPH A
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN "ACCREDITED INVESTOR", IN EACH CASE IN A
MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $500,000 FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN
THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED
BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
<PAGE>
12% Note (Exh. 4.4)
TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL
BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 3.6 AND 3.7 OF THE INDENTURE.
ICON HEALTH & FITNESS, INC.
12% Series A Note due 2005
No. 1 CUSIP No: 44929HAC2
ICON HEALTH & FITNESS, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to Cede & Co., or its registered assigns,
the principal sum of Forty Four Million Two Hundred Eighty Two Thousand and
00/100 ($44,282,000), on September 27, 2005.
Interest Rate: 12% per annum.
Interest Payment January 15 and July 15 of each year
Dates: commencing January 15, 2000.
Regular Record Dates: January 1 and July 1 of each year.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
2
<PAGE>
12% Note (Exh. 4.4)
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Date: September 27, 1999 ICON HEALTH & FITNESS, INC.
Attested by:
By: __________________________
_______________________________ Title: President
Title: Secretary
This is one of the 12% Series A Notes due 2005 described in the within-mentioned
Indenture.
Date of Authentication: IBJ WHITEHALL BANK & TRUST COMPANY,
as Trustee
September 27, 1999
By: ______________________
Authorized Signatory
3
<PAGE>
12% Note (Exh. 4.4)
[REVERSE SIDE OF SECURITY]
ICON HEALTH & FITNESS, INC.
12% Series A Note due 2005
1. Principal and Interest.
The Company will pay the principal of this Security on September 27,
2005.
The Company promises to pay interest on the principal amount of this
Security on each Interest Payment Date, as set forth below, at the rate of 12%
per annum.
Interest will be payable semiannually (to the owners of record (the
"Holders") of the Securities (or any predecessor Securities) at the close of
business on the January 1 or July 1 immediately preceding the Interest Payment
Date) on each Interest Payment Date, commencing January 15, 2000. In addition,
as provided in the Exchange and Registration Rights Agreement dated September
27, 1999, liquidated damages may be required to be paid by the Company.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Securities on each Interest Payment Date to the persons
who are Holders (as reflected in the Security Register at the close of business
on the Regular Record Dates immediately preceding the Interest Payment Date), in
each case, even if the Security is canceled on registration of transfer or
registration of exchange after such record date; provided that, with respect to
the payment of principal, the Company will make payment to the Holder that
surrenders this Security to any Paying Agent on or after September 27, 2005.
The Company will pay principal, premium, if any, and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by its check payable in such money. The Company
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding date
that is a Business Day and no interest shall accrue for the intervening period.
4
<PAGE>
12% Note (Exh. 4.4)
3. Paying Agent and Registrar.
Initially, IBJ Whitehall Bank & Trust Company (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar upon written notice thereto. The Company, any Restricted Subsidiary or
any Affiliate of any of them may act as Paying Agent, Registrar or co-registrar.
4. Indenture; Limitations.
The Company issued the Securities under an Indenture dated as of
September 27, 1999 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
indicated. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act. The
Securities are subject to all such terms, and Holders are referred to the
Indenture and the Trust Indenture Act for a statement of all such terms. To the
extent permitted by applicable law, in the event of any inconsistency between
the terms of this Security and the terms of the Indenture, the terms of the
Indenture shall control.
The Securities are general unsecured obligations of the Company. The
Indenture limits the aggregate principal amount of the Securities to
$44,282,000.
5. Subordination.
The payment of the Securities will to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash or cash equivalents, of all Senior Indebtedness.
6. Subsidiary Guarantee.
The payment of principal of, premium, if any, interest and
Liquidated Damages, if any, on the Securities are unconditionally guaranteed,
jointly and severally, on a senior subordinated basis by the Subsidiary
Guarantors.
7. Redemption.
The Securities will be subject to redemption at any time after
the Issue Date at the option of the Company, in whole but not in part, at the
following redemption prices (expressed in percentages of principal amount
thereof), plus accrued and unpaid interest and Liquidated Damages, if any, to
the Redemption Date if redeemed during the 12 month period ending February 15
of each of the years set forth below:
5
<PAGE>
12% Note (Exh. 4.4)
Redemption
Year Price
-------- ---------
Issue Date through 2001 101%
2002 102%
2003 104%
2004 102%
2005 101%
Thereafter 100%
Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder to be redeemed at such
Holder's last address as it appears in the Security Register. On and after the
Redemption Date, interest ceases to accrue on Securities, unless the Company
defaults in the payment of the Redemption Price.
7. Repurchase upon a Change in Control and Asset Sales.
Upon the occurrence of (a) a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Securities at a purchase
price of 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase or (b) certain
Asset Sales, the Company may be obligated to make offers to purchase Securities
with a portion of the Net Cash Proceeds of such Asset Sales at a purchase price
of 100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase.
8. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons, in
denominations of $1,000 and multiples of $1,000 in excess thereof. A Holder may
register the transfer or exchange of Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by the Indenture.
9. Persons Deemed Owners.
A Holder may be treated as the owner of a Security for all purposes.
10. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the
6
<PAGE>
12% Note (Exh. 4.4)
Paying Agent will pay the money back to the Company at its request. After
that, Holders entitled to the money must look to the Company for payment,
unless an abandoned property law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest on the
Securities (a) to redemption or maturity, the Company will be discharged from
the Indenture and the Securities, except in certain circumstances for certain
sections thereof, and (b) to the Stated Maturity, the Company will be discharged
from certain covenants set forth in the Indenture.
12. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may
be amended or supplemented with the consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing default or compliance with any provision may be waived with the
consent of the Holders of a majority in aggregate principal amount of the
Securities then outstanding. Without notice to or the consent of any Holder, the
parties thereto may amend or supplement the Indenture or the Securities to,
among other things, cure any ambiguity, defect or inconsistency and make any
change that does not materially adversely affect the rights of any Holder.
13. Restrictive Covenants.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i)
Indebtedness; (ii) Restricted Payments; (iii) Transactions with Affiliates;
(iv) Liens; (v) Change of Control; (vi) Asset Sales; (vii) Guarantees by
Restricted Subsidiaries; (viii) Dividends and Other Payment Restrictions
Affecting Subsidiaries; (ix) Sale and Leaseback Transactions; (x) Designation
of Unrestricted Subsidiaries; (xi) Incurrence of Other Senior Indebtedness;
and (xii) Additional Subsidiary Guarantees. Within 120 days after the end of
each fiscal year and within 45 days after each fiscal quarter, the Company
must report to the Trustee on compliance with the Indenture.
14. Successor Persons.
When a successor person or other entity assumes all the obligations
of its predecessor under the Securities and the Indenture, the predecessor
person will be released from those obligations.
7
<PAGE>
12% Note (Exh. 4.4)
15. Remedies for Events of Default.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities then outstanding may declare all the
Securities to be immediately due and payable. If a bankruptcy or insolvency
default with respect to the Company or any of its Significant Subsidiaries
occurs and is continuing, the Securities automatically become immediately due
and payable. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of at least a majority in principal amount of the
Securities then outstanding may direct the Trustee in its exercise of any trust
or power.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
17. Authentication.
This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.
18. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to Icon Health &
Fitness, Inc., 1500 South 1000 West, Logan, Utah 84321, Attention: President.
8
<PAGE>
12% Note (Exh. 4.4)
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ---------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably
- --------------------------------------------------------------------------------
constituting and appointing attorney to transfer such Security on the books of
the Company with full power of substitution in the premises.
In connection with any transfer of this Security occurring prior to
the Resale Restriction Termination Date, the undersigned confirms that without
utilizing any general solicitation or general advertising:
Check One
[ ](a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
[ ](b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 3.7 of the Indenture shall have
been satisfied.
9
<PAGE>
12% Note (Exh. 4.4)
Date: __________________
-------------------------------------
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or any
change whatsoever.
Signature Guarantee: ____________________________________________
Participant in a Recognized Signature
Guaranty Medallion Program
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ________________ _________________________________
NOTICE: To be executed by an
executive officer
10
<PAGE>
12% Note (Exh. 4.4)
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 10.15 or Section 10.17 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 10.15 or Section 10.17 of the Indenture, state the
amount (in principal amount at maturity) below:
$____________________.
Date: ________________
Your Signature: _________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: _____________________________
Participant in a Recognized Signature
Guaranty Medallion Program
12% Note (Exh. 4.4)
11
<PAGE>
Exhibit 10.1
EXECUTION COPY
-------------------------------------------------------
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Dated as of September 27 , 1999
by and between
ICON HEALTH & FITNESS, INC.,
The Subsidiary Guarantors Named Herein
and
The Tendering Holders of 13% Senior Subordinated Notes
$45,000,000
12% NOTES DUE 2005
-------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. Definitions..............................................................1
2. Exchange Offer...........................................................4
3. Shelf Registration.......................................................6
4. Liquidated Damages.......................................................7
5. Registration Procedures..................................................8
6. Registration Expenses...................................................15
7. Indemnification.........................................................16
8. Rules 144 and 144A......................................................19
9. Miscellaneous...........................................................19
(a) No Inconsistent Agreements.......................................19
(b) Amendments and Waivers...........................................19
(c) Notices..........................................................19
(d) Successors and Assigns...........................................20
(e) Counterparts.....................................................20
(f) Headings.........................................................20
(g) Governing Law....................................................20
(h) Severability.....................................................21
(i) Third Party Beneficiaries........................................21
(j) Approval of Holders..............................................21
(k) Attorney's Fees..................................................21
(l) Further Assurances...............................................21
(i)
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
This Exchange and Registration Rights Agreement (the "Agreement") is
dated as of September 27, 1999, by and between ICON Health & Fitness, Inc., a
Delaware corporation (the "Company"), the Subsidiary Guarantors listed on
Schedule I hereto (collectively, the "Subsidiary Guarantors"), and the holders
of 13% Senior Subordinated Notes of the Company which have tendered such notes
to the Company in connection with the exchange offer referred to below (such
holders, the "Holders").
This Agreement is entered into in connection with the issuance by
the Company to the Holders of up to $45,000,000 aggregate principal amount of
12% Notes due 2005 of the Company (the "Notes") in connection with an exchange
offer described in that certain Exchange Offer and Consent Solicitation
Statement dated July 30, 1999. In order to induce the Holders to participate in
the exchange offer contemplated by the Exchange Offer and Consent Solicitation
Statement, the Company and each Subsidiary Guarantor has agreed to provide the
registration rights set forth in this Agreement for the benefit of the Holders
and their direct and indirect transferees.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
Advice: Has the meaning provided in the last paragraph of Section 5
hereof.
Agreement: Has the meaning provided in the first introductory paragraph
hereto.
Applicable Period: Has the meaning provided in Section 2(b) hereof.
Company: Has the meaning provided in the first introductory paragraph
hereto.
Completion Date: The date on which the Notes are originally issued.
Effectiveness Date: The 150th day after the Completion Date.
Effectiveness Period: Has the meaning provided in Section 3(a) hereof.
Event Date: Has the meaning provided in Section 4(b) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Exchange Notes: Has the meaning provided in Section 2(a) hereof.
Exchange Offer: Has the meaning provided in Section 2(a) hereof.
Exchange Registration Statement: Has the meaning provided in Section 2(a)
hereof.
<PAGE>
Filing Date: The 75th day after the Completion Date.
Holder: Any holder of a Registrable Note or Registrable Notes.
Indemnified Person: Has the meaning provided in Section 7(c) hereof.
Indemnifying Person: Has the meaning provided in Section 7(c) hereof.
Indenture: The Indenture, dated as of September 27, 1999 between the
Company, the Subsidiary Guarantors and IBJ Whitehall Bank 7 Trust Company, as
trustee, pursuant to which the Notes are to be issued, as amended or
supplemented from time to time in accordance with the terms thereof.
Inspectors: Has the meaning provided in Section 5(m) hereof.
Liquidated Damages: Has the meaning provided in Section 4(a) hereof.
NASD: Has the meaning provided in Section 5(r) hereof.
Notes: Has the meaning provided in the second introductory paragraph
hereto.
Participant: Has the meaning provided in Section 7(a) hereof.
Participating Broker-Dealer: Has the meaning provided in Section 2(b)
hereof.
Persons: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, with respect to the terms of the offering of any portion of the
Registrable Notes covered by such Registration Statement including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
Records: Has the meaning provided in Section 5(m) hereof.
Registrable Notes: Each Note upon original issuance of the Notes and at
all times subsequent thereto and each Exchange Note as to which Section 2d
hereof is applicable upon original issuance and at all times subsequent thereto,
until in the case of any such Note or Exchange Note, as the case may be, the
earliest to occur of (i) a Registration Statement (other than, with respect to
any Exchange Note as to which Section 2(d) hereof is applicable, the Exchange
Registration Statement) covering such Note or Exchange Note, as the case may be,
has been declared effective by the SEC and such Note (unless such Note was not
tendered for
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<PAGE>
exchange by the Holder thereof pursuant to the Exchange Offer contemplated
hereby) or Exchange Note, as the case may be, has been disposed of in accordance
with such effective Registration Statement, (ii) such Note or Exchange Note, as
the case may be, is, or may be, sold in compliance with Rule 144, or (iii) such
Note or Exchange Note, as the case may be, ceases to be outstanding for purposes
of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
Shelf Notice: Has the meaning provided in Section 2(c) hereof.
Shelf Registration: Has the meaning provided in Section 3(a) hereof.
Shelf Registration Statement: shall mean a "shelf" registration statement
of the Company which covers all of the Registrable Notes required to be included
therein pursuant to Section 2(c) on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee(s): The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes.
-3-
<PAGE>
2. Exchange Offer
(a) The Company and each Subsidiary Guarantor agree to file with the
SEC no later than the Filing Date an offer to exchange (the "Exchange Offer")
any and all of the Registrable Notes for a like aggregate principal amount of
debt securities of the Company which are identical in all respects to the Notes
(the "Exchange Notes") (which are entitled to the benefits of the Indenture or a
trust indenture which is identical in all respects to the Indenture (other than
such changes to the Indenture or any such identical trust indenture as are
necessary to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA) and which, in either case, has been
qualified under the TIA), except that the Exchange Notes shall have been
registered pursuant to an effective Registration Statement under the Securities
Act and shall contain no restrictive legend thereon. The Exchange Offer shall be
registered under the Securities Act on the appropriate form (the "Exchange
Registration Statement") and shall comply with all applicable tender offer rules
and regulations under the Exchange Act. The Company and each Subsidiary
Guarantor agree to use its best efforts to (x) cause the Exchange Registration
Statement to be declared effective under the Securities Act no later than the
150th day after the Completion Date; (y) keep the Exchange Offer open for at
least 30 days (or longer if required by applicable law) after the date that
notice of the Exchange Offer is mailed to the Holders; and (z) consummate the
Exchange Offer on or prior to the 180th day following the Completion Date. If
after such Exchange Registration Statement is declared effective by the SEC, the
Exchange Offer or the issuance of the Exchange Notes thereunder is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Exchange Registration Statement
shall be deemed not to have become effective for purposes of this Agreement
until such stop order, injunction or other order or requirement is no longer in
effect. Each Holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes in violation of
the provisions of the Securities Act, and that such Holder in not an "affiliate"
of the Company within the meaning of the Securities Act.
(b) Upon consummation of the Exchange Offer in accordance with this
Section 2, the Company shall have no further obligation to register Registrable
Notes (other than in respect of any Exchange Notes as to which clause 2(c)(iii)
hereof applies) pursuant to Section 3 hereof.
(c) The Company, in its sole discretion, shall include within the
Prospectus contained in the Exchange Registration Statement a section entitled
"Plan of Distribution", which shall contain a summary statement of the positions
taken or policies made by the Staff of the SEC with respect to the potential
"underwriter" status of any broker-dealer that is the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such
broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether
such positions or policies have been publicly disseminated by the Staff of the
SEC or such positions or policies represent the prevailing views of the Staff of
the SEC. Such "Plan of Distribution" section shall also expressly permit the use
of the Prospectus by all Persons subject to the prospectus delivery requirements
of
-4-
<PAGE>
the Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may
resell the Exchange Notes.
The Company and each Subsidiary Guarantor shall use its best efforts
to keep the Exchange Registration Statement effective and to amend and
supplement the Prospectus contained therein, in order to permit such Prospectus
to be lawfully delivered by any Participating Broker-Dealer subject to the
prospectus delivery requirements of the Securities Act for such period of time
as is necessary to comply with applicable law in connection with any resale of
the Exchange Notes; provided, however, that such period shall not exceed 90 days
after the effectiveness of the Exchange Registration Statement (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"Applicable Period").
Interest on the Exchange Notes will accrue from the last interest
payment date on which interest was paid on the Notes surrendered in exchange
therefor or, if no interest has been paid on the Notes, from the Completion
Date.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered Notes at any time prior to
the close of business, New York time, on the last business day on which the
Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer, the
Company shall:
(1) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer;
(2) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder Exchange Notes, equal in principal amount to the Notes of such Holder so
accepted for exchange.
The Exchange Notes are to be issued under (i) the Indenture or
(ii) an indenture identical in all respects to the Indenture, which in either
event shall provide that the Exchange Notes shall not be subject to the
transfer restrictions set forth in the Indenture. The Indenture or such
indenture shall provide that the Exchange Notes and the Notes shall vote and
consent together on all matters as to which they have the right to vote or
consent as one class and that
-5-
<PAGE>
none of the Exchange Notes or the Notes will have the right to vote or
consent as a separate class on any matter.
(d) If, (i) because of applicable law or interpretations of the
Staff of the SEC, the Company is not permitted to effect an Exchange Offer, (ii)
the Exchange Offer is not consummated within 180 days after the Completion Date
or (iii) any Holder is not, upon the advice of counsel reasonably acceptable to
the Company, eligible to participate in the Exchange Offer and such Holder
notifies the Company in writing of such ineligibility, then the Company shall
promptly deliver written notice thereof (the "Shelf Notice") to the Trustee and,
in the case of clauses (i) and (ii) above, all Holders, and in the case of
clause (iii) above, the affected Holder, shall file a Shelf Registration
pursuant to Section 3 hereof.
3. Shelf Registration If a Shelf Notice is delivered as contemplated by
Section 2(c) hereof, then:
(a) Shelf Registration. The Company and each Subsidiary Guarantor
shall as promptly as reasonably practicable file with the SEC a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering all of the Registrable Notes required to be included therein in
accordance with Section 2(c) hereof (the "Shelf Registration"). If the Company
shall not have yet filed an Exchange Registration Statement, the Company and
each Subsidiary Guarantor shall use its respective best efforts to file with the
SEC the Shelf Registration on or prior to the Filing Date. The Shelf
Registration shall be on Form S-1 or S-3 or another appropriate form permitting
registration of such Registrable Notes for resale by Holders in the manner or
manners designated by them. The Company shall not permit any securities other
than the Registrable Notes to be included in the Shelf Registration.
The Company and each Subsidiary Guarantor shall use its respective
best efforts to cause the Shelf Registration to be declared effective under the
Securities Act by the later of the 120th day after the Shelf Request or the
180th day after the Completion Date and to keep the Shelf Registration
continuously effective under the Securities Act until the date which is two
years from the Completion Date, subject to extension pursuant to the last
paragraph of Section 5 hereof, or such shorter period ending when all
Registrable Notes covered by the Shelf Registration have been sold in the manner
set forth and as contemplated in the Shelf Registration or when the Notes become
eligible for resale without volume restrictions, pursuant to Rule 144 under the
Securities Act (the "Effectiveness Period").
(b) Withdrawal of Stop Orders. If the Shelf Registration ceases to
be effective for any reason at any time during the Effectiveness Period (other
than because of the sale of all of the securities registered thereunder), the
Company and each Subsidiary Guarantor shall use its respective best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof.
(c) Supplements and Amendments. The Company and each Subsidiary
Guarantor shall promptly supplement and amend the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used for such Shelf Registration, if required by the
Securities Act, or if reasonably requested for such purpose by the Holders of
a
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<PAGE>
majority in aggregate principal amount of the Registrable Notes covered by
such Registration Statement and to use its best efforts to cause any such
amendment or supplement to become effective and such Shelf Registration
Statement to become usable as soon as thereafter reasonably practicable. The
Company and each Subsidiary Guarantor agree to furnish to the Holders copies
of any such amendment or supplement promptly after its being used or filed
with the SEC.
4. Liquidated Damages
(a) The Company and each Subsidiary Guarantor agree that the Holders
of Registrable Notes will suffer damages if the Company and each Subsidiary
Guarantor fail to fulfill its obligations under Section 2 or Section 3 hereof
and that it would not be feasible to ascertain the extent of such damages with
precision. Accordingly, the Company and each Subsidiary Guarantor agree to pay,
as liquidated damages and as the sole and exclusive remedy therefor, additional
interest on the Notes ("Liquidated Damages") under the circumstances and to the
extent set forth below:
(i) if the Exchange Registration Statement is not filed with the SEC
within 75 days following the Completion Date, Liquidated Damages shall
accrue on the Notes over and above the stated interest at a rate of 0.50%
per annum for the first 90 days commencing on the 76th day after the
Completion Date, such Liquidated Damages rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period;
(ii) except in the case of an event described in Section 2(c)(i)
hereof, if the Exchange Registration Statement is not declared effective
within 150 days following the Completion Date, Liquidated Damages shall
accrue on the Notes over and above the stated interest at a rate of 0.50%
per annum for the first 90 days commencing on the 151st day after the
Completion Date, such Liquidated Damages rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Company has not exchanged all Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to
180 days after the Completion Date or (B) the Exchange Registration
Statement ceases to be effective at any time prior to the time that the
Exchange Offer is consummated or (C) a Shelf Registration has not been
declared effective on or prior to 180 days after the Completion Date, then
Liquidated Damages shall accrue on the Notes over and above the stated
interest at a rate of 0.50% per annum for the first 90 days commencing on
(x) the 181st day after the Completion Date with respect to the Notes
validly tendered and not exchanged by the Company, in the case of (A)
above, or (y) the day the Exchange Registration Statement ceases to be
effective or usable for its intended purpose in the case of (B) above, or
(z) the 181st day after the Completion Date, in the case of (C) above,
such Liquidated Damages rate increasing by an additional 0.50% per annum
at the beginning of each subsequent 90-day period;
provided, however, that the Liquidated Damages rate on the Notes under clauses
(i), (ii) or (iii) above, may not exceed in the aggregate 1.5% per annum; and
provided further, that (1) upon the
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<PAGE>
filing of the Exchange Registration Statement (in the case of clause (i)
above), (2) upon the effectiveness of the Exchange Registration Statement (in
the case of (ii) above), or (3) upon the exchange of Exchange Notes for all
Notes tendered (in the case of clause (iii)(A) above), (4) upon the
effectiveness of the Exchange Registration Statement which had ceased to
remain effective (in the case of clause (iii)(B) above) or (5) the
effectiveness of the Shelf Registration (in the case of clause (iii)(C)
above), Liquidated Damages on the Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Liquidated Damages is required to be paid (an "Event Date"). The Company and
each Subsidiary Guarantor shall pay the Liquidated Damages due on the transfer
restricted Notes by depositing immediately available funds with the paying agent
(which shall not be the Company for these purposes) for the transfer restricted
Notes, in trust, for the benefit of the holders thereof, prior to 11:00 A.M. on
the business day immediately preceding the next interest payment date specified
by the Indenture (or such other indenture), sums sufficient to pay the
Liquidated Damages accrued or accruing since the preceding interest payment date
through such interest payment date. Any amounts of Liquidated Damages due
pursuant to clauses (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable to the Holders of affected Notes in cash semi-annually on each interest
payment date specified by the Indenture (or such other indenture) to the record
holders entitled to receive the interest payment to be made on such date,
commencing with the first such date occurring after any such Liquidated Damages
commences to accrue. The amount of Liquidated Damages will be determined by
multiplying the applicable Liquidated Damages rate by the principal amount of
the affected Registrable Notes of such Holders, multiplied by a fraction, the
numerator of which is the number of days such Liquidated Damages rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360. The Trustee
under the Indenture or any indenture for the Exchange Notes shall be entitled,
on behalf of the Holders of the Notes or Exchange Notes, to seek payment of
Liquidated Damages.
All of the Company's and Subsidiary Guarantors' obligations set
forth in this Section 4(b) which are outstanding with respect to any Registrable
Note at the time such note ceases to be a Registrable Note shall survive until
such time as all such obligations with respect to such security have been
satisfied in full (notwithstanding termination of the Agreement).
The parties hereto agree that the Liquidated Damages provided for in
this Section 2(d) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Notes by reason of the failure of the
Exchange Registration Statement or the Shelf Registration Statement to be filed
or declared effective, as the case may be, in accordance with the provisions
hereof.
5. Registration Procedures In connection with the filing of any
Registration Statement pursuant to Sections 2 or 3 hereof, the Company and
each Subsidiary Guarantor shall effect such registration(s) to permit the
sale of the securities covered thereby in accordance with the intended method
or methods of disposition thereof, and pursuant thereto, and within the
applicable time periods specified in Sections 2 and 3 thereof, and in
connection with any
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Registration Statement filed by the Company and each Subsidiary Guarantor
hereunder, the Company and each Subsidiary Guarantor shall:
(a) Prepare and file with the SEC prior to the Filing Date a
Registration Statement or Registration Statements or Prospectus, or any
amendments or supplements thereto as prescribed by Sections 2 or 3 hereof, and
use their best efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; provided, however, that, if
(1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained
in an Exchange Registration Statement filed pursuant to Section 2 hereof is
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period,
before filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Company and each Subsidiary Guarantor shall, if
requested in writing, furnish to and afford the Holders of the Registrable Notes
covered by such Registration Statement or each such Participating Broker-Dealer,
as the case may be, their counsel, a reasonable opportunity to review copies of
all such documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed (in each case
at least three business days prior to such filing). The Company and each
Subsidiary Guarantor shall not file any Registration Statement or Prospectus or
any amendments or supplements thereto in respect of which the Holders must be
afforded an opportunity to review prior to the filing of such document under the
immediately preceding sentence, if the Holders of a majority in aggregate
principal amount of the Registrable Notes covered by such Registration
Statement, or any such Participating Broker-Dealer, as the case may be, their
counsel, shall object thereto in writing, which writing shall set forth a
reasonable basis for such objection.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period or
until consummation of the Exchange Offer, as the case may be; cause the related
Prospectus to be supplemented by any Prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act applicable
to it with respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as so supplemented
and with respect to the subsequent resale of any securities being sold by a
Participating Broker-Dealer covered by any such Prospectus; the Company and each
Subsidiary Guarantor shall be deemed not to have used its respective best
efforts to keep a Registration Statement effective during the Applicable Period
if it voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law or unless the Company complies with this Agreement, including without
limitation, the provisions of paragraph 5(k) hereof and the last paragraph of
this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to
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<PAGE>
sell Exchange Notes during the Applicable Period, notify the selling Holders
of Registrable Notes, or each such Participating Broker-Dealer, as the case
may be, and their counsel, promptly (but in any event within two business
days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective under the Securities Act (including in such notice
a written statement that any Holder may, upon request, obtain, at the sole
expense of the Company, one conformed copy of such Registration Statement or
post-effective amendment including financial statements and schedules,
documents incorporated or deemed to be incorporated by reference and
exhibits), (ii) of any request by the SEC or any other federal or state
governmental authority for amendments or supplements to such Registration
Statement or related Prospectus or for additional information, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus or the initiation of any proceedings for that
purpose, (iv) if at any time when a Prospectus is required by the Securities
Act to be delivered in connection with sales of the Registrable Notes or
resales of Exchange Notes by Participating Broker-Dealers the representations
and warranties of the Company contained in any agreement, contemplated by
Section 5(n) hereof cease to be true and correct, (v) of the receipt by the
Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or
any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (vi) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration Statement
or related Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in or amendments or supplements to such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that
in the case of the Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (vii) of the
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate.
(d) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Notes or the
Exchange Notes for sale in any jurisdiction, and, if any such order is issued,
to use its best efforts to obtain the withdrawal of any such order at the
earliest possible moment and provide prompt notice to each Holder and their
counsel of the withdrawal of any such order or suspension.
(e) If reasonably requested by the Holders of a majority of the
aggregate principal amount of the Registrable Notes being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment to the Shelf
Registration Statement, if required to be filed, such information in connection
with any offering (other than an underwritten offering, which shall not be
permitted) of Registrable Notes requested by any of them to be included therein
and
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<PAGE>
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such filing.
(f) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, furnish to each selling Holder of
Registrable Notes and to each such Participating Broker-Dealer who so requests
and to counsel at the sole expense of the Company and each Subsidiary Guarantor,
one conformed copy of the Registration Statement or Registration Statements and
each post-effective amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, deliver to each selling Holder of
Registrable Notes, or each such Participating Broker-Dealer, as the case may be,
their respective counsel, at the sole expense of the Company and each Subsidiary
Guarantor, as many copies of the Prospectus or Prospectuses (including each form
of preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company and
each Subsidiary Guarantor hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of Registrable
Notes or each such Participating Broker-Dealer, as the case-may be and dealers
(if any), in connection with the offering and sale of the Registrable Notes
covered by, or the sale by Participating Broker-Dealers of the Exchange Notes
pursuant to, such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Registration Statement by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its best efforts to register or qualify such
Registrable Notes (and to cooperate with selling Holders of Registrable Notes
or each such Participating Broker-Dealer, as the case may be, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable Notes)
for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any selling Holder or Participating
Broker-Dealer reasonably request in writing; provided, however, that where
Exchange Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Company and each
Subsidiary Guarantor agree to cause its counsel to perform Blue Sky
investigations and file registrations and qualifications required to be filed
pursuant to this Section 5(g); keep each such registration or qualification
(or exemption therefrom) effective during the period such Registration
Statement is required to be kept effective and do any and all other acts or
things reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to
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<PAGE>
(A) qualify generally to do business in any jurisdiction where it is not then
so qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in excess of a nominal dollar amount in any such
jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the Holders
to dispose of such Registrable Notes, except as may be required solely as a
consequence of the nature of a selling Holder's business, in which case the
Company and each Subsidiary Guarantor will cooperate in all reasonable respects
with the filing of such Registration Statement and the granting of such
approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(ii), 5(c)(v) or 5(c)(vi) hereof, as promptly as
practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at
the sole expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement or amendment to the related Prospectus or
any document incorporated or deemed to be incorporated therein by reference, or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes being sold thereunder or to the purchasers
of the Exchange Notes to whom such Prospectus will be delivered by a
Participating Broker-Dealer, any such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and to notify the
Holders to suspend use of such Registration Statement or Prospectus as promptly
as practicable after such event; provided, that this Section 5(k) shall not be
deemed to require the Company to disclose any information that, in the good
faith opinion of the management of the Company, is not yet required to be
disclosed and would not be in the best interests of the Company to disclose, so
long as the Company complies with all applicable laws and government regulations
and the last paragraph of this Section 5.
(l) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes or Exchange Notes, as the case may be, in a form eligible
for deposit with The Depository Trust Company and (ii) provide a CUSIP number
for the Registrable Notes or Exchange Notes, as the case may be.
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<PAGE>
(m) If (1) a Shelf Registration is filed pursuant to Section 3
hereof, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 hereof is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, make available for inspection by any selling
Holder of such Registrable Notes being sold, or each such Participating
Broker-Dealer, as the case may be, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating Broker-Dealer, as
the case may be (collectively, the "Inspectors"), at the offices where normally
kept, during reasonable business hours, all financial and other records,
pertinent corporate documents and instruments of the Company and its direct and
indirect subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and its direct and indirect subsidiaries to make available for inspection all
information reasonably requested by any such Inspector in connection with such
Registration Statement. Records which the Company determines, in good faith, to
be confidential and any Records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement, (ii) the release of such Records is required by law
or a subpoena or other order from a court of competent jurisdiction or
administrative order, (iii) disclosure of such information is, in the opinion of
counsel (a copy of which shall be delivered to the Company) for any Inspector,
necessary or advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector and
arising out of, based upon, relating to, or involving this Agreement, or any
transactions contemplated hereby or arising hereunder, (iv) such information
becomes available to any such person from a source other than the Company or any
Subsidiary Guarantor and such source is not bound by a confidentiality
agreement, or (v) the information in such Records has been made generally
available to the public. Each such selling Holder of such Registrable Notes and
each such Participating Broker-Dealer will be required to agree that information
obtained by it as a result of such inspections shall be deemed confidential and
shall not be used by it as the basis for any market transactions in the
securities of the Company or any of its affiliates unless and until such
information is generally available to the public. Each such selling Holder of
such Registrable Notes and each such Participating Broker-Dealer will be
required to further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction or administrative order,
give notice to the Company and allow the Company to undertake appropriate action
to prevent disclosure of the Records deemed confidential at the Company' sole
expense.
(n) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange
Offer or the first Registration Statement relating to the Registrable Notes;
and in connection therewith, cooperate with the trustee under any such
indenture and the Holders of the Registrable Notes, to effect such changes to
such indenture as may be required for such indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best efforts
to cause such trustee to execute, all documents as may be required to effect
such changes, and all
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<PAGE>
other forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(o) In the case of a Shelf Registration, cooperate with the selling
Holders to facilitate the timely preparation and delivery of certificates
representing Registrable Notes to be sold which shall bear no restrictive
legends and enable such Registrable Notes to be in such denominations
(consistent with the provisions of the Indenture) and registered in such names
as such Holders may reasonably request at least two business days prior to the
closing of any sale of Registrable Notes.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(q) If an Exchange Offer is to be consummated, upon delivery of the
Registrable Notes by Holders to the Company (or to such other Person as directed
by the Company) in exchange for the Exchange Notes, the Company shall mark, or
cause to be marked, on such Registrable Notes that such Registrable Notes are
being canceled in exchange for the Exchange Notes; in no event shall such
Registrable Notes be marked as paid or otherwise satisfied.
(r) Cooperate with each seller of Registrable Notes covered by any
Registration Statement participating in the disposition of such Registrable
Notes and their respective counsel in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. (the "NASD").
(s) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Registrable Notes covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
any Registration Statement is being effected to furnish to the Company such
information regarding such seller and the distribution of such Registrable Notes
as the Company may, from time to time, reasonably request. The Company may
exclude from such Registration Statement the Registrable Notes of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request. Each seller as to which any Shelf Registration is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-
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Dealer, as the case may be, that, upon actual receipt of any notice from the
Company of the happening of any event of the kind described in Section
5(c)(iii), 5(c)(v), 5(c)(vi), or 5(c)(vii) hereof, such Holder will forthwith
discontinue disposition of such Registrable Notes or Exchange Notes, as the
case may be, covered by such Registration Statement or Prospectus to be sold
by such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(j) hereof, or
until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Company shall give any
such notice, each of the Effectiveness Period and the Applicable Period shall
be extended by the number of days during such periods from and including the
date of the giving of such notice to and including the date when each seller
of Registrable Notes covered by such Registration Statement or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(j) hereof or (y) the Advice. In the event the
Company does not give any such notice within five business days, each Holder
shall return such Registration Statement or Prospectus to the Company or
destroy all copies of such Registration Statement or Prospectus; and if so
requested by the Company, shall certify that all copies of the Registration
Statement or Prospectus were destroyed.
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company or any Subsidiary Guarantor
shall be borne by the Company and each Subsidiary Guarantor whether or not
the Exchange Offer or a Shelf Registration is filed or becomes effective,
including, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses of compliance with SEC,
state securities or Blue Sky laws (including, without limitation, reasonable
fees and disbursements of the Company's counsel in connection with Blue Sky
qualifications of the Registrable Notes or Exchange Notes and determination
of the eligibility of the Registrable Notes or Exchange Notes for investment
under the laws of such jurisdictions where the holders of Registrable Notes
reasonably request), (ii) printing expenses, including, without limitation,
expenses of printing certificates for Registrable Notes or Exchange Notes in
a form eligible for deposit with The Depository Trust Company and of printing
prospectuses, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company, (v) rating agency fees, if any, and
any fees associated with making the Registrable Notes or Exchange Notes
eligible for trading through The Depository Trust Company, (vi) Securities
Act liability insurance, if the Company desires such insurance, (vii) fees
and expenses of all other Persons retained by the Company, (viii) internal
expenses of the Company (including, without limitation, all salaries and
expenses of officers and employees of the Company performing legal or
accounting duties), (ix) the expense of any annual audit, (x) the expenses
relating to printing, word processing and distributing all Registration
Statements, indentures and any other documents necessary in order to comply
with this Agreement and, (xi) fees related to qualification of any indenture
required hereunder under the TIA and the reasonable fees and disbursements of
any trustee under such indenture and its counsel.
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<PAGE>
7. Indemnification.
(a) The Company and each Subsidiary Guarantor agree to jointly
indemnify and hold harmless each Holder of Registrable Notes offered pursuant to
this agreement, the affiliates, directors, officers, agents, representatives and
employees of each such Person or its affiliates, and each other Person, if any,
who controls any such Person or its affiliates within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a
"Participant") from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement pursuant to which the offering of such Registrable Notes or Exchange
Notes, as the case may be, is registered (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related preliminary
prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company and
the Subsidiary Guarantors will not be required to indemnify a Participant if (i)
such losses, claims, damages or liabilities are caused by any untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished to the Company in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Registrable Notes or Exchange Notes which
are the subject of such claim and such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary prospectus
and corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and such Participant failed to deliver or provide a copy
of the Prospectus (as amended or supplemented) to such Person with or prior to
the confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person if required by applicable laws, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Company and the Subsidiary Guarantors, their
respective directors and officers and each Person who controls the Company
and the Subsidiary Guarantors within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company and the Subsidiary Guarantors to each
Participant, but only (i) with reference to information furnished to the
Company in writing by or on behalf of such Participant expressly for use in
any Registration Statement or Prospectus, any amendment or supplement
thereto, or any preliminary prospectus or (ii) with respect to any untrue
statement or representation made by such Participant in writing to the
Company. In no event shall the liability of any Holder hereunder be greater
in amount than the dollar amount of the proceeds received by such Holder upon
the sale of Registrable Notes giving rise to such indemnifiable obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of
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which indemnity may be sought pursuant to either of the two preceding
paragraphs, such Person (the "Indemnified Person") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Person")
in writing, and the Indemnifying Person, shall have the right to retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided,
however, that the failure to so notify the Indemnifying Person shall not
relieve it of any obligation or liability which it may have hereunder or
otherwise (unless and only to the extent that such failure results in the
loss or compromise of any material rights or defenses by the Indemnifying
Person). In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Person unless (i) the Indemnifying Person
and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person shall have failed within a reasonable
period of time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It
is understood that, unless there exists a conflict among Indemnified Persons,
the Indemnifying Person shall not, in connection with any one such proceeding
or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such reasonable fees and
expenses shall be reimbursed promptly as they are incurred. Any such separate
firm for the Participants and such control Persons of Participants shall be
designated in writing by Participants who sold a majority in interest of
Registrable Notes and Exchange Notes sold by all such Participants and any
such separate firm for the Company, their directors, their officers and such
control Persons of the Company shall be designated in writing by the Company.
The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its prior written consent, but if settled with
such consent or if there be a final non-appealable judgment for the plaintiff
for which the Indemnified Person is entitled to indemnification pursuant to
this Agreement, the Indemnifying Person agrees to indemnify and hold harmless
each Indemnified Person from and against any loss or liability by reason of
such settlement or judgment. No Indemnifying Person shall, without the prior
written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have
been sought hereunder by such Indemnified Person, unless such settlement (A)
includes an unconditional written release of such Indemnified Person, in form
and substance reasonably satisfactory to such Indemnified Person, from all
liability on claims that are the subject matter of such proceeding, (B) does
not include any statement as to an admission of fault, culpability or failure
to act by or on behalf of any Indemnified Person and (C) does not impose any
non-monetary relief applicable to the Indemnified Person.
(d) If the indemnification provided for in Sections 7(a) and 7(b)
hereof is for any reason unavailable to, or insufficient to hold harmless, an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
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<PAGE>
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect (i) the relative
benefits received by the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other from the offering of the Notes or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the Indemnifying Person or Persons on the one hand and the Indemnified Person or
Persons on the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault of the parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or any
Subsidiary Guarantor on the one hand or such Participant or such other
Indemnified Person, as the case may be, on the other, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances. The Holders respective obligations to contribute pursuant
to this paragraph are several in proportion to the respective number of
Registrable Notes than have sold pursuant to a Registration Statement and not
joint.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purposes) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above. The
provisions of this Section 7 shall survive so long as Registrable Notes
remain outstanding, notwithstanding any transfer of the Registrable Notes by
any Holder or any termination of this Agreement.
(g) The indemnity and contribution provisions contained in this
Section 7 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Holder or any person controlling any Holder, or by or on behalf of the
Company, any Subsidiary Guarantor, any of their officers or directors or any
person controlling the Company or the Subsidiary Guarantors, (iii) acceptance of
any of the
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<PAGE>
Exchange Notes and (iv) the sale of any Registrable Notes pursuant to a Shelf
Registration Statement.
8. Rules 144 and 144A. The Company and each Subsidiary Guarantor
covenants that it will file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder in a timely manner in accordance with the requirements of the
Securities Act and the Exchange Act and, if at any time the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Notes, make publicly available annual reports and such information,
documents and other reports of the type specified in Sections 13 and 15(d) of
the Exchange Act within the time periods specified therein if it were requested
to file such reports and information. The Company further covenants for so long
as any Registrable Notes remain outstanding, to make available to any Holder or
beneficial owner of Registrable Notes in connection with any sale thereof and
any prospective purchaser of such Registrable Notes from such Holder or
beneficial owner and to securities analysts the information required by Rule
144(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144 and Rule 144A.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company and each Subsidiary
Guarantor has not entered, as of the date hereof, and the Company and each
Subsidiary Guarantor shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent with the
rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with
the prior written consent of the Holders of not less than a majority in
aggregate principal amount of the then outstanding Registrable Notes;
provided, however, that no amendment, modification, supplement, waiver or
consents to any departure from the provisions of Section 7 hereof shall be
effective as against any Holder of Registrable Notes unless consented to in
writing by such Holder. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders of Registrable Notes whose securities
are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of
other Holders of Registrable Notes may be given by Holders of at least a
majority in aggregate principal amount of the Registrable Notes being sold by
such Holders pursuant to such Registration Statement; provided, however, that
the provisions of this sentence may not be amended, modified or supplemented
except in accordance with the provisions of the immediately preceding
sentence.
(c) Notices. All notices and other communications (including,
without limitation, any notices or other communications to the Trustee) provided
for or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
-19-
<PAGE>
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture.
2. if to the Company, as follows:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Attention: Gary E. Stevenson, President
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Michael J. Kelly, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto; provided, however, that this Agreement shall not inure to the benefit of
or be binding upon a successor or assign of a Holder unless and to the extent
such successor or assign holds Registrable Notes.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
-20-
<PAGE>
(h) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(i) Third Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(j) Approval of Holders. Whenever the consent or approval of Holders
of a specified percentage of Registrable Notes is required hereunder,
Registrable Notes held by the Company or its affiliates (as such term is defined
in Rule 405 under the Securities Act) (other than Holders that are deemed to be
such affiliates solely by reason of their holdings of such Registrable Notes)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
(k) Attorney's Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(l) Further Assurances. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed the Agreement as of
the date first written above.
Issuer:
ICON HEALTH & FITNESS, INC.
By:____________________________________
Name:
Title:
Subsidiary Guarantors:
JUMPKING, INC.
By:____________________________________
Name:
Title:
ICON INTERNATIONAL HOLDINGS, INC.
By:____________________________________
Name:
Title:
UNIVERSAL TECHNICAL SERVICES, INC.
By:____________________________________
Name:
Title:
510152 N.B. LTD.
By:____________________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Subsidiary Guarantors
- -------------------------------------------------------------------------------
Jumpking, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
510152 N.B. LTD.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Universal Technical Services, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
ICON International Holdings, Inc.
c/o ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
<PAGE>
Exhibit 10.2
================================================================================
CREDIT AGREEMENT
Dated as of September 24, 1999
among
ICON HEALTH & FITNESS, INC.,
as Borrower,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders,
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender,
and
FLEET NATIONAL BANK,
as Syndication Agent and Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. AMOUNT AND TERMS OF CREDIT................................................2
1.1. Credit Facilities.................................................2
1.2. Letters of Credit.................................................8
1.3. Prepayments.......................................................8
1.4. Use of Proceeds..................................................12
1.5. Interest and Applicable Margins..................................12
1.6. Eligible Accounts................................................16
1.7. Eligible Inventory...............................................19
1.8. Cash Management Systems..........................................20
1.9. Fees.............................................................21
1.10. Receipt of Payments.............................................21
1.11. Application and Allocation of Payments..........................22
1.12. Loan Account and Accounting.....................................23
1.13. Indemnity.......................................................24
1.14. Access..........................................................25
1.15. Taxes...........................................................26
1.16. Capital Adequacy; Increased Costs; Illegality...................26
1.17. Single Loan.....................................................28
2. CONDITIONS PRECEDENT.....................................................28
2.1. Conditions to the Initial Loans..................................28
2.2. Further Conditions to Each Loan..................................30
3. REPRESENTATIONS AND WARRANTIES...........................................31
3.1. Corporate Existence; Compliance with Law.........................31
3.2. Executive Offices, Collateral Locations, FEIN....................31
3.3. Corporate Power, Authorization, Enforceable Obligations..........32
3.4. Financial Statements and Projections.............................32
3.5. Material Adverse Effect..........................................33
3.6. Ownership of Property; Liens.....................................33
3.7. Labor Matters....................................................34
3.8. Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness.....................................................35
3.9. Government Regulation............................................35
3.10. Margin Regulations..............................................35
3.11. Taxes...........................................................35
3.12. ERISA and Canadian Pension and Benefit Plans....................36
3.13. No Litigation...................................................37
3.14. Brokers.........................................................37
3.15. Intellectual Property...........................................38
3.16. Full Disclosure.................................................38
3.17. Environmental Matters...........................................38
3.18. Insurance.......................................................39
i
<PAGE>
3.19. Deposit and Disbursement Accounts...............................39
3.20. Government Contracts............................................39
3.21. Customer and Trade Relations....................................39
3.22. Agreements and Other Documents..................................40
3.23. Solvency........................................................40
3.24. Year 2000 Representations.......................................40
3.25. Recapitalization................................................40
3.26. Status of New Holdings..........................................41
3.27. Subordinated Debt...............................................41
4. FINANCIAL STATEMENTS AND INFORMATION.....................................41
4.1. Reports and Notices..............................................41
4.2. Communication with Accountants...................................41
5. AFFIRMATIVE COVENANTS....................................................42
5.1. Maintenance of Existence and Conduct of Business.................42
5.2. Payment of Charges...............................................42
5.3. Books and Records................................................43
5.4. Insurance; Damage to or Destruction of Collateral................43
5.5. Compliance with Laws.............................................44
5.6. Canadian Pension and Benefit Plans...............................45
5.7. Supplemental Disclosure..........................................45
5.8. Intellectual Property............................................46
5.9. Environmental Matters............................................46
5.10. Landlords' Agreements, Mortgagee Agreements and Bailee Letters..46
5.11. Interest Rate...................................................47
5.12. Further Assurances..............................................47
5.13. Term Loan C Tax Accrual Periods.................................47
5.14. Year 2000.......................................................48
6. NEGATIVE COVENANTS.......................................................48
6.1. Mergers, Subsidiaries, Etc.......................................48
6.2. Investments; Loans and Advances..................................48
6.3. Indebtedness.....................................................49
6.4. Employee Loans and Affiliate Transactions........................50
6.5. Capital Structure and Business...................................50
6.6. Guaranteed Indebtedness..........................................51
6.7. Liens............................................................51
6.8. Sale of Stock and Assets.........................................51
6.9. ERISA............................................................52
6.10. Financial Covenants.............................................52
6.11. Hazardous Materials.............................................52
6.12. Sale-Leasebacks.................................................52
6.13. Cancellation of Indebtedness....................................52
6.14. Restricted Payments.............................................52
6.15. Change of Corporate Name or Location; Change of Fiscal Year.....53
ii
<PAGE>
6.16. No Impairment of Intercompany Transfers.........................54
6.17. No Speculative Transactions.....................................54
6.18. Leases; Real Estate Purchases...................................54
6.19. Changes Relating to Subordinated Debt and Other Agreements......54
6.20. Holdcos.........................................................54
7. TERM.....................................................................55
7.1. Termination......................................................55
7.2. Survival of Obligations Upon Termination of Financing
Arrangements.....................................................55
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES...................................55
8.1. Events of Default................................................55
8.2. Remedies.........................................................57
8.3. Priority of Payment..............................................58
8.4. Waivers by Credit Parties........................................59
8.5. Receivership.....................................................59
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT......................60
9.1. Assignment and Participations....................................60
9.2. Appointment of Agent.............................................62
9.3. Agents' Reliance, Etc............................................63
9.4. Agents and Affiliates............................................63
9.5. Lender Credit Decision...........................................64
9.6. Indemnification..................................................64
9.7. Successor Agent..................................................64
9.8. Setoff and Sharing of Payments...................................65
9.9. Advances; Payments; Non-Funding Lenders; Information;
Actions in Concert...............................................66
10. SUCCESSORS AND ASSIGNS..................................................68
10.1. Successors and Assigns..........................................68
11. MISCELLANEOUS...........................................................69
11.1. Complete Agreement; Modification of Agreement...................69
11.2. Amendments and Waivers..........................................69
11.3. Fees and Expenses...............................................71
11.4. No Waiver.......................................................73
11.5. Remedies........................................................73
11.6. Severability....................................................73
11.7. Conflict of Terms...............................................73
11.8. Confidentiality.................................................74
11.9. GOVERNING LAW...................................................74
11.10. Notices........................................................75
11.11. Section Titles.................................................75
11.12. Counterparts...................................................76
11.13. WAIVER OF JURY TRIAL...........................................76
iii
<PAGE>
11.14. Press Releases; Etc............................................76
11.15. Reinstatement..................................................76
11.16. Advice of Counsel..............................................77
11.17. No Drafting Presumptions.......................................77
11.18. License........................................................77
iv
<PAGE>
INDEX OF APPENDICES
Annex A (Recitals) - Definitions
Annex B (Section 1.2) - Letters of Credit
Annex C (Section 1.8) - Cash Management System
Annex D (Section 2.1(a)) - Closing Checklist
Annex E (Section 4.1(a)) - Financial Statements and Projections
-- Reporting
Annex F (Section 4.1(b)) - Collateral Reports
Annex G (Section 6.10) - Financial Covenants
Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information
Annex I (Section 11.10) - Notice AddressesAnnex J (from Annex A-
Commitments definition) - Commitments as of Closing Date
Annex K (from Annex A -
Recapitalization Documents
definition) - Recapitalization Documents
Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii) - Form of Revolving Note
Exhibit 1.1(b) - Form of Term Note
Exhibit 1.1(c)(ii) - Form of Swing Line Note
Exhibit 1.1(d) - Form of IP Note
Exhibit 1.5(e) - Form of Notice of Conversion/Continuation
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Exhibit 9.1(a) - Form of Assignment Agreement
Disclosure Schedule 1.1 - Agent's Representatives
Disclosure Schedule 1.4 - Sources and Uses; Funds Flow Memorandum
Disclosure Schedule 3.2 - Executive Offices, Collateral Locations,
FEIN
Disclosure Schedule 3.4(A) - Financial Statements
Disclosure Schedule 3.4(B) - Pro Forma
Disclosure Schedule 3.4(C) - Projections
Disclosure Schedule 3.6 - Real Estate and Leases
Disclosure Schedule 3.7 - Labor Matters
Disclosure Schedule 3.8 - Ventures, Subsidiaries and Affiliates;
Outstanding
Stock
Disclosure Schedule 3.11 - Tax Matters
Disclosure Schedule 3.12 - ERISA Plans
Disclosure Schedule 3.13 - Litigation
Disclosure Schedule 3.15 - Intellectual Property
Disclosure Schedule 3.17 - Hazardous Materials
Disclosure Schedule 3.18 - Insurance
Disclosure Schedule 3.19 - Deposit and Disbursement Accounts
Disclosure Schedule 3.20 - Government Contracts
Disclosure Schedule 3.21 - Relationships with Suppliers
Disclosure Schedule 3.22 - Material Agreements
Disclosure Schedule 5.1 - Trade Names
v
<PAGE>
Disclosure Schedule 6.3 - Indebtedness
Disclosure Schedule 6.4 - Transactions with Affiliates
Disclosure Schedule 6.7 - Existing Liens
vi
<PAGE>
This CREDIT AGREEMENT (this "Agreement"), dated as of September 24,
1999 among ICON HEALTH & FITNESS, INC., a Delaware corporation ("Borrower"); the
other Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a
New York corporation (in its individual capacity, "GE Capital"), for itself, as
Lender, and as Agent for Lenders, FLEET NATIONAL BANK, for itself, as Lender,
and as Syndication Agent for Lenders, and the other Lenders signatory hereto
from time to time.
RECITALS
WHEREAS, Borrower has requested that Lenders extend revolving and
term credit facilities to Borrower of up to Three Hundred Million Dollars
($300,000,000) in the aggregate for the purpose of funding a portion of the
costs of the Recapitalization and to provide (a) working capital financing for
Borrower, (b) funds for other general corporate purposes of Borrower and (c)
funds for certain fees and expenses in connection with the transactions
contemplated hereby; and for these purposes, Lenders are willing to make certain
loans and other extensions of credit to Borrower of up to such amount upon the
terms and conditions set forth herein; and
WHEREAS, Borrower has agreed to secure all of its obligations under
the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a
security interest in and lien upon all of its existing and after-acquired
personal and real property; and
WHEREAS, HF Holdings, Inc., a Delaware corporation ("New Holdings")
is willing to guarantee all of the obligations of Borrower to Agent and Lenders
under the Loan Documents and to pledge to Agent, for the benefit of Agent and
Lenders, all of the Stock of Borrower to secure such guaranty; and
WHEREAS, the Stock and assets of each direct and indirect domestic
and Canadian Subsidiary of Borrower will be pledged as Collateral for the Loans
and each such Subsidiary will guarantee payment thereof; and
WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A and, for purposes of this Agreement and the
other Loan Documents, the rules of construction set forth in Annex A shall
govern. All Annexes, Disclosure Schedules, Exhibits and other attachments
(collectively, "Appendices") hereto, or expressly identified to this Agreement,
are incorporated herein by reference, and taken together with this Agreement,
shall constitute but a single agreement. These Recitals shall be construed as
part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:
<PAGE>
1. AMOUNT AND TERMS OF CREDIT
1.1. Credit Facilities.
(a) Revolving Credit Facility.
(i) Subject to the terms and conditions hereof, each Revolving
Lender agrees to make available to Borrower from time to time until the
Commitment Termination Date its Pro Rata Share of advances (each, a
"Revolving Credit Advance"). The Pro Rata Share of the Revolving Loan of
any Revolving Lender shall not at any time exceed its separate Revolving
Loan Commitment. The obligations of each Revolving Lender hereunder shall
be several and not joint. The aggregate amount of Revolving Credit
Advances outstanding shall not exceed at any time the lesser of (A) the
Maximum Amount and (B) the Borrowing Base, in each case less the sum of
the Letter of Credit Obligations and the Swing Line Loan outstanding at
such time ("Borrowing Availability"). Borrowing Availability may be
further reduced by Reserves imposed by Agent in its reasonable credit
judgment. Until the Commitment Termination Date, Borrower may from time to
time borrow, repay and reborrow under this Section 1.1(a). Each Revolving
Credit Advance shall be made on notice by Borrower to one of the
representatives of Agent identified in Schedule 1.1 at the address
specified therein. Those notices must be given no later than (1) noon (New
York time) on the Business Day of the proposed Revolving Credit Advance,
in the case of an Index Rate Loan, or (2) noon (New York time) on the date
which is three (3) Business Days prior to the proposed Revolving Credit
Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of
Revolving Credit Advance") must be given in writing (by telecopy or
overnight courier) substantially in the form of Exhibit 1.1(a)(i), and
shall include the information required in such Exhibit and such other
information as may be required by Agent. If Borrower desires to have the
Revolving Credit Advances bear interest by reference to a LIBOR Rate, it
must comply with Section 1.5(e).
(ii) Except as provided in Section 1.12, Borrower shall
execute and deliver to each Revolving Lender a note to evidence the
Revolving Loan Commitment of that Revolving Lender. Each note shall be in
the principal amount of the Revolving Loan Commitment of the applicable
Revolving Lender, dated the Closing Date and substantially in the form of
Exhibit 1.1(a)(ii) (each a "Revolving Note" and, collectively, the
"Revolving Notes"). Each Revolving Note shall represent the obligation of
Borrower to pay the amount of Revolving Lender's Revolving Loan Commitment
or, if less, such Revolving Lender's Pro Rata Share of the aggregate
unpaid principal amount of all Revolving Credit Advances to Borrower
together with interest thereon as prescribed in Section 1.5. The entire
unpaid balance of the Revolving Loan and all other non-contingent
Obligations shall be immediately due and payable in full in immediately
available funds on the Commitment Termination Date.
(iii) Clean Down. Borrower shall cause the outstanding
principal balance of the Swing Line Loan and Revolving Loan to be reduced
to $25,000,000 or less
2
<PAGE>
for a period of sixty (60) consecutive days or more, during the period of
May 1st through August 31st of each year.
(b) Term Loans.
(i) Subject to the terms and conditions hereof, each Term
Lender agrees to make term loans (individually, "Term Loan A," "Term Loan
B" and "Term Loan C," and collectively, the "Term Loans") on the Closing
Date to Borrower in the original principal amount of its Term Loan A
Commitment, Term Loan B Commitment and/or Term Loan C Commitment, as
applicable. The obligations of each Term Lender hereunder shall be several
and not joint with respect to each Term Loan. The Term Loans shall be
evidenced by promissory notes substantially in the form of Exhibit 1.1(b)
(each a "Term Note" and collectively the "Term Notes"), and, except as
provided in Section 1.12, Borrower shall execute and deliver each Term
Note to the applicable Term Lender. Each Term Note shall represent the
obligation of Borrower to pay the amount of the applicable Term Lender's
Term Loan A Commitment, Term Loan B Commitment or Term Loan C Commitment,
as applicable, together with interest thereon as prescribed in Section
1.5.
(ii) Borrower shall repay the principal amount of Term Loan A
in twenty (20) consecutive quarterly installments on the last day of
February, May, August and November of each year, commencing November 30,
1999, as follows:
Payment Installment
Dates Amounts
------- -----------
November 30, 1999 $681,818
February 29, 2000 $681,818
May 31, 2000 $681,818
August 31, 2000 $681,818
November 30, 2000 $1,363,636
February 28, 2001 $1,363,636
May 31, 2001 $1,363,636
August 31, 2001 $1,363,636
November 30, 2001 $1,363,636
February 28, 2002 $1,363,636
May 31, 2002 $1,363,636
August 31, 2002 $1,363,636
November 30, 2002 $2,045,455
February 28, 2003 $2,045,455
May 31, 2003 $2,045,455
3
<PAGE>
August 31, 2003 $2,045,455
November 30, 2003 $2,045,455
February 28, 2004 $2,045,455
May 31, 2004 $2,045,455
The final installment due on August 31, 2004 shall be in the
amount of $2,045,455 or, if different, the remaining principal balance of
Term Loan A.
(iii) Borrower shall repay the principal amount of Term Loan B
in twenty-one (21) consecutive quarterly installments on the last day of
February, May, August and November of each year, commencing November 30,
1999, as follows:
Payment Installment
Dates Amounts
------- -----------
November 30, 1999 $275,000
February 29, 2000 $275,000
May 31, 2000 $275,000
August 31, 2000 $275,000
November 30, 2000 $275,000
February 28, 2001 $275,000
May 31, 2001 $275,000
August 31, 2001 $275,000
November 30, 2001 $275,000
February 28, 2002 $275,000
May 31, 2002 $275,000
August 31, 2002 $275,000
November 30, 2002 $275,000
February 28, 2003 $275,000
May 31, 2003 $275,000
August 31, 2003 $275,000
November 30, 2003 $275,000
February 28, 2004 $275,000
May 31, 2004 $275,000
August 31, 2004 $275,000
4
<PAGE>
The final installment due on November 29, 2004 shall be in the
amount of $74,500,000 or, if different, the remaining principal balance of
Term Loan B.
(iv) Borrower shall repay the principal amount of Term Loan C
in twenty-two (22) consecutive quarterly installments on the first day of
March, June, September and December of each year, commencing December 1,
1999, as follows:
Payment Installment
Dates Amounts
------- -----------
December 1, 1999 $100,000
March 1, 2000 $100,000
June 1, 2000 $100,000
September 1, 2000 $100,000
December 1, 2000 $100,000
March 1, 2001 $100,000
June 1, 2001 $100,000
September 1, 2001 $100,000
December 1, 2001 $100,000
March 1, 2002 $100,000
June 1, 2002 $100,000
September 1, 2002 $100,000
December 1, 2002 $100,000
March 1, 2003 $100,000
June 1, 2003 $100,000
September 1, 2003 $100,000
December 1, 2003 $100,000
March 1, 2004 $100,000
June 1, 2004 $100,000
September 1, 2004 $100,000
December 1, 2004 $100,000
The final installment due on March 1, 2005 shall be in the
amount of $52,900,000 or, if different, the remaining principal balance of
Term Loan C.
5
<PAGE>
(v) Notwithstanding Section 1.1(b)(ii), (iii) and (iv), the
aggregate outstanding principal balance of the Term Loans shall be due and
payable in full in immediately available funds on the Commitment
Termination Date, if not sooner paid in full.
(vi) Each payment of principal with respect to the Term Loans
shall be paid to Agent for the ratable benefit of each Term Lender,
ratably in proportion to each such Term Lender's respective Term Loan A
Commitment, Term Loan B Commitment or Term Loan C Commitment, as
applicable. Amounts repaid with respect to any Term Loan may not be
reborrowed.
(c) Swing Line Facility.
(i) Agent shall notify the Swing Line Lender upon Agent's
receipt of any Notice of Revolving Credit Advance. Subject to the terms
and conditions hereof, the Swing Line Lender may, in its discretion, make
available from time to time until the Commitment Termination Date advances
(each, a "Swing Line Advance") in accordance with any such notice. The
aggregate amount of Swing Line Advances outstanding shall not exceed at
any time the lesser of (A) the Swing Line Commitment and (B) the lesser of
the Maximum Amount and the Borrowing Base, in each case, less the
outstanding balance of the Revolving Loan at such time ("Swing Line
Availability"). Until the Commitment Termination Date, Borrower may from
time to time borrow, repay and reborrow under this Section 1.1(c). Each
Swing Line Advance shall be made pursuant to a Notice of Revolving Credit
advance delivered by Borrower to Agent in accordance with Section 1.1(a).
Notwithstanding any other provision of this Agreement or the other Loan
Documents, the Swing Line Loan shall constitute an Index Rate Loan. Unless
the Swing Line Lender has received at least one Business Day's prior
written notice from Requisite Revolving Lenders instructing it not to make
a Swing Line Advance, the Swing Line Lender shall, notwithstanding the
failure of any condition precedent set forth in Sections 2.2(a)-(c), be
entitled to fund that Swing Line Advance, and to have each Revolving
Lender make Revolving Credit Advances in accordance with Section
1.1(c)(iii) or purchase participating interests in accordance with Section
1.1(c)(iv). Those notices from Requisite Revolving Lenders must be given
no later than noon (New York time) on the Business Day preceding the
proposed Swing Line Advance.
(ii) Borrower shall execute and deliver to the Swing Line
Lender a promissory note to evidence the Swing Line Commitment. Such note
shall be in the principal amount of the Swing Line Commitment of the Swing
Line Lender, dated the Closing Date and substantially in the form of
Exhibit 1.1(c)(ii) (the "Swing Line Note"). The Swing Line Note shall
represent the obligation of Borrower to pay the amount of the Swing Line
Commitment or, if less, the aggregate unpaid principal amount of all Swing
Line Advances made to Borrower together with interest thereon as
prescribed in Section 1.5. The entire unpaid balance of the Swing Line
Loan and all other noncontingent Obligations shall be immediately due and
payable in full in immediately available funds on the Commitment
Termination Date if not sooner paid in full.
6
<PAGE>
(iii) The Swing Line Lender, at any time and from time to time
in its sole and absolute discretion but no less frequently than once
weekly shall on behalf of Borrower (and Borrower hereby irrevocably
authorizes the Swing Line Lender to so act on its behalf) request each
Revolving Lender (including the Swing Line Lender) to make a Revolving
Credit Advance to Borrower (which shall be an Index Rate Loan) in an
amount equal to that Revolving Lender's Pro Rata Share of the principal
amount of the Swing Line Loan (the "Refunded Swing Line Loan") outstanding
on the date such notice is given. Unless any of the events described in
Sections 8.1(h) or 8.1(i) has occurred (in which event the procedures of
Section 1.1(c)(iv) shall apply) and regardless of whether the conditions
precedent set forth in this Agreement to the making of a Revolving Credit
Advance are then satisfied, each Revolving Lender shall disburse directly
to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of
the Swing Line Lender, prior to 2:00 p.m. (New York time), in immediately
available funds on the Business Day next succeeding the date that notice
is given. The proceeds of those Revolving Credit Advances shall be
immediately paid to the Swing Line Lender and applied to repay the
Refunded Swing Line Loan.
(iv) If, prior to refunding a Swing Line Loan with a Revolving
Credit Advance pursuant to Section 1.1(c)(iii), one of the events
described in Sections 8.1(h) or 8.1(i) has occurred, then, subject to the
provisions of Section 1.1(c)(v) below, each Revolving Lender shall, on the
date such Revolving Credit Advance was to have been made for the benefit
of Borrower, purchase from the Swing Line Lender an undivided
participation interest in the Swing Line Loan in an amount equal to its
Pro Rata Share of such Swing Line Loan. Upon request, each Revolving
Lender shall promptly transfer to the Swing Line Lender, in immediately
available funds, the amount of its participation interest.
(v) Each Revolving Lender's obligation to make Revolving
Credit Advances in accordance with Section 1.1(c)(iii) and to purchase
participation interests in accordance with Section 1.1(c)(iv) shall be
absolute and unconditional and shall not be affected by any circumstance,
including (A) any setoff, counterclaim, recoupment, defense or other right
that such Revolving Lender may have against the Swing Line Lender,
Borrower or any other Person for any reason whatsoever; (B) the occurrence
or continuance of any Default or Event of Default; (C) any inability of
Borrower to satisfy the conditions precedent to borrowing set forth in
this Agreement on the date upon which such participation interest is to be
purchased or (D) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing. If any Revolving Lender
does not make available to Agent or the Swing Line Lender, as applicable,
the amount required pursuant to Sections 1.1(c)(iii) or 1.1(c)(iv), as the
case may be, the Swing Line Lender shall be entitled to recover such
amount on demand from such Revolving Lender, together with interest
thereon for each day from the date of non-payment until such amount is
paid in full at the Federal Funds Rate for the first two Business Days and
at the Index Rate thereafter.
(d) IP Loan.
7
<PAGE>
(i) Subject to the terms and conditions hereof, each IP Lender
agrees to make a loan (the "IP Loan") on the Closing Date to Borrower in
the amount of its IP Loan Commitment. The obligations of each IP Lender
thereunder shall be several and not joint. The IP Loan shall be evidenced
by promissory notes in the form of Exhibit 1.1(d) (each an "IP Note" and,
collectively, the "IP Notes") and Borrower shall deliver an IP Note to
each IP Lender. The IP Note shall represent the obligation of Borrower to
pay the amount of the applicable IP Loan Commitment, together with
interest thereon as prescribed in Section 1.5.
(ii) Borrower shall repay the principal amount of the IP Loan
in nineteen (19) consecutive quarterly installments of $750,000 each on
the last day of February, May, August and November of each year,
commencing November 30, 1999 with a final installment of $750,000 or, if
different, the remaining principal balance of the IP Loan, due on August
31, 2004.
(iii) Notwithstanding Section 1.1(d)(ii), the aggregate
outstanding principal balance of the IP Loan shall be due and payable in
full in immediately available funds on the Commitment Termination Date, if
not sooner paid in full.
(iv) Each payment of principal with respect to the IP Loan
shall be paid to Agent for the ratable benefit of each IP Lender, in
proportion to such IP Lender's Pro Rata Share of the IP Commitment.
Amounts repaid with respect to the IP Loan may not be reborrowed.
(e) Reliance on Notices. Agent shall be entitled to rely upon, and
shall be fully protected in relying upon, any Notice of Revolving Credit
Advance, Notice of Conversion/Continuation or similar notice believed by Agent
to be genuine. Agent may assume that each Person executing and delivering any
notice in accordance herewith was duly authorized, unless the responsible
individual acting thereon for Agent has actual knowledge to the contrary.
1.2. Letters of Credit. Subject to and in accordance with the terms
and conditions contained herein and in Annex B, Borrower shall have the right to
request, and Revolving Lenders agree to incur, or purchase participations in,
Letter of Credit Obligations in respect of Borrower.
1.3. Prepayments.
(a) Voluntary Prepayments.
(i) Borrower may at any time on at least five (5) days' prior
written notice to Agent (a) voluntarily prepay all or part of Term Loan A,
Term Loan B and the IP Loan and/or (b) voluntarily prepay all or part of
the Revolving Loan and terminate (but not reduce) the Revolving Loan
Commitment; provided that any such prepayments shall be in a minimum
amount of $5,000,000 and integral multiples of $250,000 in excess of such
amount. Upon such termination of the Revolving Loan Commitment, all Loans
and
8
<PAGE>
other Obligations shall be immediately due and payable in full and all
Letter of Credit Obligations shall be cash collateralized or otherwise
satisfied in accordance with Annex B hereto. Any voluntary prepayment must
be accompanied by payment of the Fee required by Section 1.9(c), if any,
plus the payment of any LIBOR funding breakage costs in accordance with
Section 1.13(b). Upon any such prepayment and termination of the Revolving
Loan Commitment, Borrower's right to request Revolving Credit Advances, or
request that Letter of Credit Obligations be incurred on its behalf, or
request Swing Line Advances, shall simultaneously be terminated.
(ii) Voluntary prepayments pursuant to clause (a)(i) shall be
applied to payment of the Obligations in accordance with Section 1.3(c).
(b) Mandatory Prepayments.
(i) If at any time the outstanding balance of the Revolving
Loan exceeds the lesser of (A) the Maximum Amount and (B) the Borrowing
Base, in each case, less the outstanding Swing Line Loan at such time,
Borrower shall immediately repay the aggregate outstanding Revolving
Credit Advances to the extent required to eliminate such excess. If any
such excess remains after repayment in full of the aggregate outstanding
Revolving Credit Advances, Borrower shall provide cash collateral for the
Letter of Credit Obligations in the manner set forth in Annex B to the
extent required to eliminate such excess.
(ii) Immediately upon receipt by any Credit Party of proceeds
of any asset disposition, which, together with other asset dispositions in
any Fiscal Year result in proceeds in excess of $200,000 in the aggregate
during such Fiscal Year (including condemnation proceeds, but excluding
proceeds of asset dispositions permitted by Sections 6.8(a), 6.8(c) and
6.8(d)) or any sale of Stock of any Subsidiary of any Credit Party,
Borrower shall prepay the Loans in an amount equal to such proceeds in
excess of $200,000 during such Fiscal Year, net of (A) commissions and
other reasonable and customary transaction costs, fees and expenses
properly attributable to such transaction and payable by Borrower in
connection therewith (in each case, paid to non-Affiliates), (B) transfer
taxes payable by such Credit Party in connection therewith, (C) amounts
payable to holders of senior Liens (to the extent such Liens constitute
Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve
for income taxes in accordance with GAAP in connection therewith. Any such
prepayment shall be applied in accordance with Section 1.3(c).
(iii) If New Holdings or Borrower or any other Credit Party
issues Stock (other than an issuance of additional Stock of New Holdings
to employees of Borrower upon the exercise of stock options or otherwise),
no later than the Business Day following the date of receipt of the
proceeds thereof, Borrower shall prepay the Loans in an amount equal to
all such proceeds, net of underwriting discounts and commissions and other
reasonable costs paid to non-Affiliates in connection therewith. Any such
prepayment shall be applied in accordance with Section 1.3(c).
9
<PAGE>
(iv) Until the Termination Date, Borrower shall prepay the
Obligations on the date that is ten (10) days after the earlier of (A) the
date on which Borrower's annual audited Financial Statements for the
immediately preceding Fiscal Year are delivered pursuant to Annex E or (B)
the date on which such annual audited Financial Statements were required
to be delivered pursuant to Annex E, in an amount equal to fifty percent
(50%) of Excess Cash Flow for the immediately preceding Fiscal Year. Any
prepayments from Excess Cash Flow paid pursuant to this clause (iv) shall
be applied in accordance with Section 1.3(c). Each such prepayment shall
be accompanied by a certificate signed by Borrower's chief financial
officer certifying the manner in which Excess Cash Flow and the resulting
prepayment were calculated, which certificate shall be in form and
substance satisfactory to Agent.
(c) Application of Certain Prepayments.
(i) Any prepayments made by Borrower pursuant to clauses
(a)(i), (b)(iii), and (b)(iv) above shall be applied as follows: first, to
Fees and reimbursable expenses of Agents then due and payable pursuant to
any of the Loan Documents; second, to interest then due and payable on
Term Loan A, Term Loan B and the IP Loan, pro rata; third, to prepay the
scheduled principal installments of Term Loan A, Term Loan B and the IP
Loan, pro rata, in inverse order of maturity, until Term Loan A, Term Loan
B and the IP Loan shall have been prepaid in full; fourth, to interest
then due and payable on the Swing Line Loan; fifth, to the principal
balance of the Swing Line Loan until the same has been repaid in full;
sixth, to interest then due and payable on the Revolving Credit Advances;
seventh, to the outstanding principal balance of Revolving Credit Advances
until the same has been paid in full; eighth, to any Letter of Credit
Obligations, to provide cash collateral therefor in the manner set forth
in Annex B, until all such Letter of Credit Obligations have been fully
cash collateralized in the manner set forth in Annex B; ninth, to interest
then due and payable on Term Loan C; and tenth to prepay the scheduled
principal installments of Term Loan C in inverse order of maturity.
Neither the Revolving Loan Commitment nor the Swing Line Commitment shall
be permanently reduced by the amount of any such prepayments. If any
holder of a Term Loan A Commitment declines receipt of its Pro Rata Share
of any mandatory prepayment, that portion of the prepayment shall be
reallocated, pro rata, to the other Term Loan A Commitments. Similarly, if
any holder of a Term Loan B Commitment declines receipt of its Pro Rata
Share of any mandatory prepayment, that portion of the prepayment shall be
reallocated, pro rata, to the other Term Loan B Commitments, and if any
holder of an IP Loan Commitment declines receipt of its Pro Rata Share of
any mandatory prepayment, that portion of the prepayment shall be
reallocated pro rata to the other IP Loan Commitments. If all of the
holders of Term Loan A Commitments, Term Loan B Commitments and the IP
Loan Commitments decline receipt of their Pro Rata Shares of any mandatory
prepayment, that mandatory prepayment shall be applied in payment of the
Obligations in a manner acceptable to all Lenders.
(ii) Any prepayments made by Borrower pursuant to clause
(b)(ii) above shall be applied as follows: first, to Fees and reimbursable
expenses of Agents then due and payable pursuant to any of the Loan
Documents; second, to interest then due and
10
<PAGE>
payable on Term Loans A and B, pro rata; third, to prepay the scheduled
principal installments of Term Loan A and Term Loan B, pro rata, in
inverse order of maturity, until Term Loan A and Term Loan B shall have
been prepaid in full; fourth, to interest then due and payable on the
Swing Line Loan; fifth, to the principal balance of the Swing Line Loan
until the same has been repaid in full; sixth, to interest then due and
payable on the Revolving Credit Advances; seventh, to the outstanding
principal balance of Revolving Credit Advances until the same has been
paid in full; eighth, to any Letter of Credit Obligations, to provide cash
collateral therefor in the manner set forth in Annex B, until all such
Letter of Credit Obligations have been fully cash collateralized in the
manner set forth in Annex B; ninth, to interest then due and payable on
the IP Loan; tenth, to prepay scheduled installments on the IP Loan in
inverse order of maturity; eleventh, to interest then due and payable on
Term Loan C; and twelfth to prepay the scheduled principal installments of
Term Loan C in inverse order of maturity. Neither the Revolving Loan
Commitment nor the Swing Line Commitment shall be permanently reduced by
the amount of any such prepayments. If any holder of a Term Loan A
Commitment declines receipt of its Pro Rata Share of any mandatory
prepayment, that portion of the prepayment shall be reallocated, pro rata,
to the other Term Loan A Commitments. Similarly, if any holder of a Term
Loan B Commitment declines receipt of its Pro Rata Share of any mandatory
prepayment, that portion of the prepayment shall be reallocated, pro rata,
to the other Term Loan B Commitments. If all of the holders of Term Loan A
Commitments and Term Loan B Commitments decline receipt of their Pro Rata
Shares of any mandatory prepayment, that mandatory prepayment shall be
applied in payment of the Obligations in a manner acceptable to all
Lenders.
(d) Application of Prepayments from Insurance Proceeds. Prepayments
from insurance proceeds received by Agent in accordance with Section 5.4(c)
shall be applied as follows: insurance proceeds from casualties or losses to
cash or Inventory shall be applied first, to the Swing Line Loans and, second,
to the Revolving Credit Advances; insurance proceeds from casualties or losses
to Equipment, Fixtures and Real Estate shall be applied to scheduled principal
installments of Term Loan A and Term Loan B, pro rata, in inverse order of
maturity. Neither the Revolving Loan Commitment nor the Swing Line Loan
Commitment shall be permanently reduced by the amount of any such prepayments.
If the precise amount of insurance proceeds allocable to Inventory as compared
to Equipment, Fixtures and Real Estate are not otherwise determined, the
allocation and application of those proceeds shall be determined by Agent,
subject to the approval of Requisite Lenders.
(e) Sales of Accounts and Inventory. Proceeds of sales of assets
permitted under Sections 6.8(a), 6.8(c) and 6.8(d) shall be applied to the
Revolving Loan without reduction of the Revolving Loan Commitment.
(f) Voluntary Prepayments of Term Loan C. Term Loan C may be prepaid
in whole or in part but only with proceeds of Permitted Subordinated Debt.
(g) No Implied Consent. Nothing in this Section 1.3 shall be
construed to constitute Agent's or any Lender's consent to any transaction that
is not permitted by other provisions of this Agreement or the other Loan
Documents.
11
<PAGE>
1.4. Use of Proceeds. Borrower shall utilize the proceeds of the
Term Loans, the IP Loan, the Revolving Loan and the Swing Line Loan solely for
the Recapitalization (and to pay any related transaction expenses), and for the
financing of Borrower's ordinary working capital and general corporate needs.
Disclosure Schedule (1.4) contains a description of Borrower's sources and uses
of funds received and disbursed on the Closing Date, including Loans and Letter
of Credit Obligations to be made or incurred on that date, and a funds flow
memorandum detailing how funds from each source are to be transferred to
particular uses.
1.5. Interest and Applicable Margins.
(a) (i) Borrower shall pay interest in cash to Agent, for the
ratable benefit of Lenders in accordance with the various Loans being made
by each Lender, in arrears on each applicable Interest Payment Date, at
the following rates: (A) with respect to the Revolving Credit Advances,
the Index Rate plus the Applicable Revolver Index Margin per annum or, at
the election of Borrower, the applicable LIBOR Rate plus the Applicable
Revolver LIBOR Margin per annum, based on the aggregate Revolving Credit
Advances outstanding from time to time; (B) with respect to the Term
Loans, the Index Rate plus the Applicable Term Loan A Index Margin,
Applicable Term Loan B Index Margin or Applicable Term Loan C Index
Margin, as applicable, or, at the election of Borrower, the applicable
LIBOR Rate plus the Applicable Term Loan A LIBOR Margin, Applicable Term
Loan B LIBOR Margin or Applicable Term Loan C LIBOR Margin, as applicable,
per annum; (C) with respect to the Swing Line Loan, the Index Rate plus
the Applicable Revolver Index Margin per annum and (D) with respect to the
IP Loan, the Index Rate plus the Applicable IP Loan Index Margin.
As of the Closing Date, the Applicable Margins are as follows:
Applicable Revolver Index Margin 1.50%
Applicable Revolver LIBOR Margin 3.00%
Applicable Term Loan A Index Margin 1.50%
Applicable Term Loan A LIBOR Margin 3.00%
Applicable Term Loan B Index Margin 2.00%
Applicable Term Loan B LIBOR Margin 3.50%
Applicable Term Loan C Index Margin 5.50%
Applicable Term Loan C LIBOR Margin 7.00%
Applicable IP Loan Index Margin 3.00%
Applicable L/C Margin 2.00%
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<PAGE>
Applicable Unused Line Fee Margin 0.50%
(ii) The Applicable Margins will be adjusted (up or down)
prospectively on a quarterly basis as determined by Borrower's
consolidated financial performance, commencing with the first day of the
first calendar month that occurs more than five (5) days after delivery of
Borrower's quarterly Financial Statements to Lenders for each Fiscal
Quarter commencing with the Fiscal Quarter ending February 29, 2000;
provided however, that the Applicable Term Loan C Index Margin, Applicable
Term Loan C LIBOR Margin and Applicable IP Loan Index Margin set forth
above shall remain in effect for so long as Term Loan C and the IP Loan,
respectively, are outstanding. Adjustments in Applicable Margins will be
determined by reference to the following grids:
-----------------------------------------------------
Level of
If Leverage Ratio is: Applicable Margins:
--------------------- -------------------
-----------------------------------------------------
< 3.25 Level I
-----------------------------------------------------
< 3.75, but >= 3.25 Level II
-----------------------------------------------------
< 4.25, but >= 3.75 Level III
-----------------------------------------------------
< 4.75, but >= 4.25 Level IV
-----------------------------------------------------
< 5.50, but >= 4.75 Level V
-----------------------------------------------------
>= 5.50 Level VI
-----------------------------------------------------
- -------------------------------------------------------------------------------
Applicable Margins
------------------
Level I Level II Level III Level IV Level V Level VI
- -------------------------------------------------------------------------------
Applicable Revolver
Index Margin 0.50% 0.75% 1.00% 1.25% 1.50% 1.75%
- -------------------------------------------------------------------------------
Applicable Revolver
LIBOR Margin 2.00% 2.25% 2.50% 2.75% 3.00% 3.25%
- -------------------------------------------------------------------------------
Applicable Term
Loan A Index Margin 1.00% 1.00% 1.00% 1.25% 1.50% 1.75%
- -------------------------------------------------------------------------------
Applicable Term
Loan A LIBOR Margin 2.50% 2.50% 2.50% 2.75% 3.00% 3.25%
- -------------------------------------------------------------------------------
Applicable Term
Loan B Index Margin 1.75% 1.75% 1.75% 1.75% 2.00% 2.25%
- -------------------------------------------------------------------------------
Applicable Term
Loan B LIBOR Margin 3.25% 3.25% 3.25% 3.25% 3.50% 3.75%
- -------------------------------------------------------------------------------
Applicable L/C Margin 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%
- -------------------------------------------------------------------------------
Applicable Unused
Line Fee Margin 0.375% 0.375% 0.50% 0.50% 0.50% 0.50%
- -------------------------------------------------------------------------------
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All adjustments in the Applicable Margins after February 29, 2000
shall be implemented quarterly on a prospective basis, for each calendar month
commencing at least five (5) days after the date of delivery to Lenders of the
quarterly unaudited or annual audited (as applicable) Financial Statements
evidencing the need for an adjustment. Concurrently with the delivery of those
Financial Statements, Borrower shall deliver to Agent and Lenders a certificate,
signed by its chief financial officer, setting forth in reasonable detail the
basis for the continuance of, or any change in, the Applicable Margins. Failure
to timely deliver such Financial Statements shall, in addition to any other
remedy provided for in this Agreement, result in an increase in the Applicable
Margins to the highest level set forth in the foregoing grid, until the first
day of the first calendar month following the delivery of those Financial
Statements demonstrating that such an increase is not required. If a Default or
an Event of Default has occurred and is continuing at the time any reduction in
the Applicable Margins is to be implemented, that reduction shall be deferred
until the first day of the first calendar month following the date on which such
Default or Event of Default is waived or cured.
(iii) In addition to the interest payable in cash on Term Loan
C pursuant to Section 1.5(a)(i) above, interest shall accrue on the
outstanding principal balance of Term Loan C ("PIK Interest"), for the
ratable benefit of Term Lenders with Term Loan C Commitments, at a rate of
five percent (5%) per annum capitalized quarterly on the first day of
March, June, September and December of each year, beginning on December 1,
1999. PIK Interest accruing pursuant to this Section 1.5(a)(iii) shall not
be paid in cash, but shall be capitalized and added to the aggregate
outstanding principal amount of Term Loan C, effective as of each
applicable quarterly PIK Interest capitalization date. Subject to Sections
1.11 and 8.3, PIK Interest shall be due and payable in cash upon the
earlier to occur of (A) March 1, 2005 and (B) the refinancing of Term Loan
C. In addition, if on a PIK Interest Catch-Up Date, there exists any
Excess PIK Interest, such Excess PIK Interest, if any, shall then be due
and payable in cash.
(b) If any payment on any Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis and
interest shall be made by Agent on the basis of a 360-day year, in each case for
the actual number of days occurring in the period for which such interest and
Fees are payable. The Index Rate shall be determined each day based upon the
Index Rate as in effect each day. Each determination by Agent of an interest
rate and Fees hereunder shall be conclusive, absent manifest error.
(d) So long as an Event of Default has occurred and is continuing
under Section 8.1(a), (h) or (i), or so long as any other Event of Default has
occurred and is continuing and at the election of Agent (or upon the written
request of Requisite Lenders) confirmed by written notice from Agent to
Borrower, the interest rates applicable to the Loans and the Letter of Credit
Fees shall be increased by two percent (2%) per annum above the rates of
interest or the rate of such Fees otherwise applicable hereunder ("Default
Rate"), and all outstanding Obligations shall bear interest at the Default Rate
applicable to such Obligations. Interest and
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Letter of Credit Fees at the Default Rate shall accrue from the initial date of
such Event of Default until that Event of Default is cured or waived and shall
be payable upon demand.
(e) Subject to the conditions precedent set forth in Section 2.2,
Borrower shall have the option to (i) request that any Revolving Credit Advance
be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding
Loans (other than the Swing Line Loan and the IP Loan) from Index Rate Loans to
LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to
payment of LIBOR breakage costs in accordance with Section 1.13(b) if such
conversion is made prior to the expiration of the LIBOR Period applicable
thereto, or (iv) continue all or any portion of any Loan (other than the Swing
Line Loan) as a LIBOR Loan upon the expiration of the applicable LIBOR Period
and the succeeding LIBOR Period of that continued Loan shall commence on the
last day of the LIBOR Period of the Loan to be continued. Any Loan or group of
Loans having the same proposed LIBOR Period to be made or continued as, or
converted into, a LIBOR Loan must be in a minimum amount of $5,000,000 and
integral multiples of $500,000 in excess of such amount. Any such election must
be made by noon (New York time) on the third (3rd) Business Day prior to (1) the
date of any proposed Advance which is to bear interest at the LIBOR Rate, (2)
the end of each LIBOR Period with respect to any LIBOR Loans to be continued as
such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to
a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no
election is received with respect to a LIBOR Loan by noon (New York time) on the
third (3rd) Business Day prior to the end of the LIBOR Period with respect
thereto (or if a Default or an Event of Default has occurred and is continuing
or the additional conditions precedent set forth in Section 2.2 shall not have
been satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the
end of its LIBOR Period. Borrower must make such election by notice to Agent in
writing, by telecopy or overnight courier. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a "Notice
of Conversion/Continuation") in the form of Exhibit 1.5(e). No Loan may be made
as or converted into a LIBOR Loan until the earlier of (i) 45 days after the
Closing Date or (ii) completion of primary syndication as determined by Agents
and no portion of Term Loan C may be converted to a LIBOR Loan after February
28, 2004.
(f) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Agent, on behalf
of Lenders, is equal to the total interest that would have been received had the
interest rate payable hereunder been (but for the operation of this paragraph)
the interest rate payable since the Closing Date as otherwise provided in this
Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of
interest and in the manner provided in Sections 1.5(a) through (e), unless and
until the rate of interest again exceeds the Maximum Lawful Rate, and at that
time this paragraph shall again apply. In no event shall the total interest
received by any Lender pursuant to the terms hereof exceed the amount that such
Lender could lawfully have received had the interest due hereunder been
calculated for the full
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term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated
pursuant to this paragraph, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made. If, notwithstanding the provisions of this
Section 1.5(f), a court of competent jurisdiction shall finally determine that a
Lender has received interest hereunder in excess of the Maximum Lawful Rate,
Agent shall, to the extent permitted by applicable law, promptly apply such
excess in the order specified in Section 1.11 and thereafter shall refund any
excess to Borrower or as a court of competent jurisdiction may otherwise order.
1.6. Eligible Accounts. All of the Accounts owned by Borrower or its
domestic or Canadian Subsidiaries and reflected in the most recent Borrowing
Base Certificate delivered by Borrower to Agent shall be "Eligible Accounts" for
purposes of this Agreement, except any Account to which any of the exclusionary
criteria set forth below applies. Agent shall have the right to establish,
modify or eliminate Reserves against Eligible Accounts from time to time in its
reasonable credit judgment. In addition, Agent reserves the right, at any time
and from time to time after the Closing Date, to adjust any of the criteria set
forth below, to establish new criteria and to adjust advance rates with respect
to Eligible Accounts, in its reasonable credit judgment, subject to the approval
of Requisite Revolving Lenders in the case of adjustments or new criteria or
changes in advance rates which have the effect of making more credit available.
Eligible Accounts shall not include any Account of Borrower or its domestic or
Canadian Subsidiaries:
(a) that does not arise from the sale of goods or the performance of
services in the ordinary course of its business;
(b) (i) upon which the right to receive payment is not absolute or
is contingent upon the fulfillment of any condition whatsoever or (ii) as to
which Borrower or one of its domestic or Canadian Subsidiaries is not able to
bring suit or otherwise enforce their remedies against the Account Debtor
through judicial process, or (iii) if the Account represents a progress billing
consisting of an invoice for goods sold or used or services rendered pursuant to
a contract under which the Account Debtor's obligation to pay that invoice is
subject to Borrower's or one of its domestic or Canadian Subsidiary's completion
of further performance under such contract or is subject to the equitable lien
of a surety bond issuer;
(c) any Account against which any defense, counterclaim, setoff or
dispute is asserted, but such Account shall only be ineligible to the extent of
any such defense, counterclaim, setoff or dispute;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;
(e) with respect to which an invoice, acceptable to Agent in form
and substance, has not been sent to the applicable Account Debtor;
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(f) that (i) is not owned by Borrower or one of its domestic or
Canadian Subsidiaries or (ii) is subject to any right, claim, security interest
or other interest of any other Person, other than first priority Liens in favor
of Agent, on behalf of itself and Lenders or in favor of Agent and Lenders, as
applicable, and Prior Claims that are unregistered and that secure amounts that
are not yet due and payable;
(g) that arises from a sale to any director, officer, other employee
or Affiliate of any Credit Party, or to any entity that has any common officer
or director with any Credit Party (other than a portfolio company of one of the
Bain Entities or Credit Suisse First Boston or its Affiliates);
(h) that is the obligation of an Account Debtor that is the United
States government or a political subdivision thereof, or department, agency or
instrumentality thereof, or that is the Canadian government (Her Majesty in
Right of Canada) or a political subdivision thereof, or department, agency or
instrumentality thereof, unless Agent, in its sole discretion, has agreed to the
contrary in writing, the Account is assignable by way of security and Borrower,
if necessary or desirable, has complied with the Federal Assignment of Claims
Act of 1940, with respect to such obligation, or, the applicable Canadian
Subsidiary of Borrower, if necessary or desirable, has complied with the
Financial Administration Act (Canada) or any applicable provincial or
territorial statute or municipal ordinance of similar purpose and effect, with
respect to such obligation, as applicable;
(i) that is the obligation of an Account Debtor located in a foreign
country other than Canada (excluding the province of Newfoundland, the Northwest
Territories and the territory of Nunavut) and in Agent's discretion, Accounts
owing to Regency in New Zealand and Forza in the United Kingdom, in an aggregate
amount not to exceed $1,200,000 in the aggregate, if notice and other perfection
requirements are met, unless payment thereof is assured by a letter of credit
assigned and delivered to Agent, satisfactory to Agent as to form, amount and
issuer;
(j) to the extent Borrower or any Subsidiary thereof is liable for
goods sold or services rendered by the applicable Account Debtor to Borrower or
any Subsidiary thereof but only to the extent of the potential offset;
(k) that arises with respect to goods that are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Account Debtor is or may be
conditional;
(l) that is in default; provided, that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the
occurrence of any of the following:
(i) the Account is not paid within the earlier of: 60 days
following its due date or 120 days following its original invoice date
(provided that Agent may extend such 120 day limitation to 150 days as to
Accounts owing by certain creditworthy Account Debtors as determined by
Agent in its reasonable credit judgment);
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(ii) the Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or fails
to pay its debts generally as they come due; or
(iii) a petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other federal,
state or foreign (including any provincial), receivership, insolvency
relief or other law or laws for the relief of debtors, except for Eligible
Service Merchandise Accounts;
(m) that is the obligation of an Account Debtor if fifty percent
(50%) or more of the dollar amount of all Accounts owing by that Account Debtor
are ineligible under the other criteria set forth in this Section 1.6;
(n) as to which Agent's Lien thereon, on behalf of itself and
Lenders, or Agent's and Lenders' Liens thereon, as applicable, is not a first
priority perfected Lien;
(o) to the extent such Account is evidenced by a judgment,
Instrument or Chattel Paper;
(p) to the extent such Account exceeds any credit limit established
by Agent, in its reasonable credit judgment, following prior notice of such
limit by Agent to Borrower;
(q) that is payable in any currency other than Canadian Dollars or
Dollars or, if permitted, British pounds or New Zealand dollars;
(r) that is otherwise unacceptable to Agent in its reasonable credit
judgment;
(s) Accounts owing to Universal Technical Services; or
(t) Accounts owing by consumers, if two or more payments with
respect thereto remain unpaid for more than thirty (30) days or to the extent
that the aggregate of those consumer Accounts exceed $10,000,000.
Borrower agrees that Accounts as to which payments have been
received by Borrower are no longer Eligible Accounts regardless of whether such
payments have been applied to the Revolving Loan. Borrower agrees that the
following Reserves constitute an appropriate exercise of Agent's credit judgment
(i) a co-op advertising Reserve, (ii) a direct response Accounts Reserve, (iii)
an unearned financing charge Reserve; and (iv) a credit memo accrual Reserve.
1.7. Eligible Inventory. All of the Inventory owned by Borrower and
its domestic or Canadian Subsidiaries and reflected in the most recent Borrowing
Base Certificate delivered by Borrower to Agent shall be "Eligible Inventory"
for purposes of this Agreement, except any Inventory to which any of the
exclusionary criteria set forth below applies. Agent shall have the right to
establish, modify, or eliminate Reserves against Eligible Inventory from time to
time in its reasonable credit judgment. In addition, Agent reserves the right,
at any time and from time to time after the Closing Date, to adjust any of the
criteria set forth below, to
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establish new criteria and to adjust advance rates with respect to Eligible
Inventory in its reasonable credit judgment, subject to the approval of
Requisite Revolving Lenders in the case of adjustments or new criteria or
changes in advance rates which have the effect of making more credit available.
Eligible Inventory shall not include any Inventory of Borrower or its domestic
or Canadian Subsidiaries that:
(a) is not owned by Borrower or one of its domestic or Canadian
Subsidiaries free and clear of all Liens and rights of any other Person
(including the rights of a purchaser that has made progress payments and the
rights of a surety that has issued a bond to assure Borrower's or one of its
domestic or Canadian Subsidiary's performance with respect to that Inventory and
the rights of unpaid suppliers (other than another Credit Party) under Section
81.1 of the Bankruptcy and Insolvency Act (Canada)), except the Liens in favor
of Agent, on behalf of itself and Lenders, or, in favor of Agent and Lenders, as
applicable, and Prior Claims (excluding the rights of unpaid suppliers (other
than another Credit Party) under Section 81.1 of the Bankruptcy and Insolvency
Act (Canada)), subject to Permitted Encumbrances described in clauses (a) and
(e) of the definition thereof;
(b) is (i) not located on premises owned, leased or rented by such
Borrower and set forth in Disclosure Schedule 3.2 or is (ii) stored at a leased
location or with a bailee, warehouseman or similar Person, unless Agent has
given its prior consent thereto and unless (x) a satisfactory bailee letter or
landlord waiver has been delivered to Agent, or (y) Reserves satisfactory to
Agent have been established with respect thereto, or is (iii) located at any
site if the aggregate book value of Inventory at any such location is less than
$50,000 or a lesser minimum amount determined by Agent in its reasonable credit
judgment;
(c) is placed on consignment or (unless Agent is fully perfected in
its sole and absolute discretion) is in transit;
(d) is covered by a negotiable document of title, unless such
document has been delivered to Agent with all necessary endorsements, free and
clear of all Liens except those in favor of Agent and Lenders;
(e) in Agent's reasonable determination, is discontinued Inventory,
excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;
(f) consists of display or other promotional items or packing or
shipping materials, manufacturing supplies, work-in-process Inventory or
replacement parts for Equipment;
(g) consists of goods which have been returned by the buyer unless
the same have been inspected by Borrower with satisfactory results and returned
to finished goods;
(h) is not of a type held for sale in the ordinary course of
Borrower's business;
(i) is not subject to a first priority Lien in favor of Agent on
behalf of itself and Lenders or in favor of Agent and Lenders, as applicable,
subject to Permitted Encumbrances in accordance with clauses (a) and (e) of the
definition thereof;
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(j) consists of any costs associated with "freight-in" charges;
(k) consists of Hazardous Materials or goods that can be transported
or sold only with licenses that are not readily available;
(l) is not covered by casualty insurance acceptable to Agent;
(m) does not meet all standards imposed by Governmental Authorities;
(n) is subject to any agreement which restricts Agent's ability to
sell or dispose of such Inventory;
(o) bears a Reebok trademark unless Agent determines that such
Inventory can be quickly and cost-effectively converted to "Pro Form" or other
Borrower branded Inventory and sold by Agent without restrictions; or
(p) is otherwise unacceptable to Agent in its reasonable credit
judgment.
Borrower agrees that a reserve against Borrowing Availability attributable to
Eligible Inventory equal to sales taxes payable upon the sale of such Inventory
and a Reserve in the amount of intercompany profit attributable to sales of
Inventory among Borrower and its Subsidiaries are reasonable exercises of
Agent's credit judgment.
1.8. Cash Management Systems. On or prior to the date that is ninety
(90) days following the Closing Date, as to Borrower and its domestic
subsidiaries, Borrower will establish and will maintain until the Termination
Date, the cash management systems described in Annex C (the "Cash Management
Systems"). Prior to the date that is ninety (90) days following the Closing
Date, as to Borrower and its domestic subsidiaries, Borrower will maintain its
existing cash management systems with Bank One, NA (formerly The First National
Bank of Chicago). As to Borrower's Canadian Subsidiaries, on or prior to the
Closing Date, Borrower will establish and will maintain until the Termination
Date, the Cash Management Systems.
1.9. Fees. (a) Borrower shall pay to GE Capital and Fleet,
individually, the Fees specified in that certain fee letter dated as of June 11,
1999 among Borrower, GE Capital and Fleet (the "Fee Letter"), at the times
specified for payment therein.
(b) As additional compensation for the Revolving Lenders, Borrower
shall pay to Agent, for the ratable benefit of such Lenders, in arrears, on the
first Business Day of each month prior to the Commitment Termination Date and on
the Commitment Termination Date, a fee for Borrower's non-use of available funds
in an amount equal to the Applicable Unused Line Fee Margin per annum
(calculated on the basis of a 360 day year for actual days elapsed) multiplied
by the "Average Unused Daily Balance," consisting of the difference between (x)
the Maximum Amount and (y) the average for the period of the daily closing
balances of the Revolving Loan and the Swing Line Loan outstanding during the
period for which the such Fee is due. In addition, on the first Business Day of
each calendar quarter prior to the Commitment Termination Date and on the
Commitment Termination Date, Borrower shall pay to Agent for
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the ratable benefit of the Revolving Lenders an additional fee equal to
one-quarter percent (0.25%) per annum multiplied by the Average Unused Daily
Balance for the immediately preceding calendar quarter if the Average Unused
Daily Balance for such quarter exceeded Sixty Million Dollars ($60,000,000).
(c) If Borrower prepays all or any portion of the Term Loans or the
IP Loan or prepays the Revolving Loan and terminates the Revolving Loan
Commitment, whether voluntarily or involuntarily and whether before or after
acceleration of the Obligations, Borrower shall pay to Agent, for the benefit of
Lenders as liquidated damages and compensation for the costs of being prepared
to make funds available hereunder (i) an amount equal to the Revolving Loan
Commitment (in case of a prepayment in full) and the principal amount being
prepaid on Term Loan A multiplied by one percent (1%) upon a prepayment during
the first eighteen (18) months following the Closing Date, (ii) an amount equal
to the principal amount being prepaid on Term Loan B, Term Loan C and the IP
Loan multiplied by two percent (2%) for a prepayment during the first twelve
(12) months following the Closing Date and (iii) an amount equal to the
principal amount being prepaid on Term Loan B, Term Loan C and the IP Loan
multiplied by one percent (1%) for a prepayment during the second twelve months
following the Closing Date. Notwithstanding the foregoing, no prepayment fee
shall be payable by Borrower upon a mandatory prepayment made pursuant to
Sections 1.3(b), 1.3(d) or 1.16(c); provided that in the case of prepayments
made pursuant to Sections 1.3(b)(ii) or (b)(iii), the transaction giving rise to
the applicable prepayment is expressly permitted under Section 6.
(d) Borrower shall pay to Agent, for the ratable benefit of
Revolving Lenders, the Letter of Credit Fee as provided in Annex B.
1.10. Receipt of Payments. Borrower shall make each payment under
this Agreement not later than 1:00 p.m. (New York time) on the day when due in
immediately available funds in Dollars to the Collection Account. For purposes
of computing interest and Fees and determining Borrowing Availability or Net
Borrowing Availability as of any date, all payments shall be deemed received on
the Business Day of receipt of immediately available funds therefor in the
Collection Account prior to 1:00 p.m. New York time. Payments received after
1:00 p.m. New York time on any Business Day shall be deemed to have been
received on the following Business Day. If Agent receives any payment from or on
behalf of any Credit Party in a currency other than the currency in which an
Obligation payable is denominated, Agent may convert the payment (including the
monetary proceeds of realization upon any Collateral and any funds then held in
a cash collateral account) into the Equivalent Amount of the currency of the
relevant Obligation as determined on the Business Day immediately preceding the
date of actual payment. The Obligations shall be satisfied only to the extent of
the amount actually received by Agent upon such conversion.
1.11. Application and Allocation of Payments.
(a) So long as no Event of Default under Section 8.1(a) has occurred
and is continuing, (i) payments consisting of proceeds of Accounts received in
the ordinary course of business shall be applied, first, to the Swing Line Loan
and, second, to the Revolving Loan; (ii) payments matching specific scheduled
payments then due shall be applied to those scheduled
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payments; (iii) voluntary prepayments shall be applied as determined by
Borrower, subject to the provisions of Section 1.3(a) and 1.3(f); and (iv)
mandatory prepayments shall be applied as set forth in Sections 1.3(c) and
1.3(d). All payments and prepayments applied to a particular Loan shall be
applied ratably to the portion thereof held by each Lender as determined by its
Pro Rata Share, except as provided in Section 1.3(c). As to all payments
received at a time when an Event of Default under Section 8.1(a) has occurred
and is continuing or following the Commitment Termination Date, Borrower hereby
irrevocably waives the right to direct the application of any and all payments
received from or on behalf of Borrower, and Borrower hereby irrevocably agrees
that all such payments shall be applied against the Obligations as set forth
below notwithstanding any previous entry by Agent in the Loan Account or any
other books and records. In the absence of a specific determination to the
contrary by all Lenders, such payments shall be applied to amounts then due and
payable in the following order: (1) to Fees and Agents' expenses reimbursable
hereunder; (2) to interest on the Swing Line Loan; (3) to principal payments on
the Swing Line Loan; (4) to interest on the Revolving Loan, Term Loan A, Term
Loan B and the IP Loan, ratably in proportion to the interest accrued as to each
such Loan; (5) to principal payments on the Revolving Loan, Term Loan A, Term
Loan B and the IP Loan and to provide cash collateral for Letter of Credit
Obligations in the manner described in Annex B, ratably to the aggregate,
combined principal balance of such Loans and outstanding Letter of Credit
Obligations; (6) to all other Obligations (other than principal and interest on
Term Loan C), including expenses of Lenders to the extent reimbursable under
Section 11.3; (7) to interest on Term Loan C; and (8) to the principal of Term
Loan C. Notwithstanding the preceding sentence, if such payments constitute
proceeds of Collateral received following acceleration of the Obligations or the
Commitment Termination Date, proceeds of Collateral (other than IP Collateral)
shall be applied in the following order: (1) to Fees and Agents' expenses
reimbursable hereunder; (2) to interest on the Swing Line Loan; (3) to principal
payments on the Swing Line Loan; (4) to interest on the Revolving Loan, Term
Loan A and Term Loan B, ratably in proportion to the interest accrued as to each
such Loan; (5) to principal payments on the Revolving Loan, Term Loan A and Term
Loan B and to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex B, ratably to the aggregate, combined principal
balance of such Loans and outstanding Letter of Credit Obligations; (6) to
interest on the IP Loan; (7) to principal of the IP Loan; (8) to all other
Obligations (other than principal and interest on Term Loan C), including
expenses of Lenders to the extent reimbursable under Section 11.3; (9) to
interest on Term Loan C; and (10) to principal of Term Loan C.
Further, notwithstanding the preceding two sentences, if such
payments constitute proceeds of IP Collateral received following acceleration of
the Obligations or the Commitment Termination Date, such proceeds of IP
Collateral shall be applied in the following order: (1) to Agents' expenses
reimbursable hereunder; (2) to interest on the IP Loan; (3) to principal of the
IP Loan; (4) to interest on the Swing Line Loan; (5) to principal payments on
the Swing Line Loan; (6) to Fees and to interest on the Revolving Loan, Term
Loan A and Term Loan B, ratably in proportion to the interest accrued as to each
such Loan; (7) to principal payments on the Revolving Loan, Term Loan A and Term
Loan B and to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex B, ratably to the aggregate, combined principal
balance of such Loans and outstanding Letter of Credit Obligations; (8) to all
other Obligations (other than principal and interest on Term Loan C), including
expenses of Lenders to
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the extent reimbursable under Section 11.3; (9) to interest on Term Loan C; and
(10) to principal of Term Loan C.
(b) Subject to Section 8.3, Agent is authorized to, and may in its
discretion, charge to the Revolving Loan balance on behalf of Borrower and cause
to be paid all Fees, expenses, Charges, costs (including insurance premiums in
accordance with Section 5.4(a)) and interest and principal, other than principal
of the Revolving Loan, owing by Borrower under this Agreement or any of the
other Loan Documents if and to the extent Borrower fails to pay promptly any
such amounts as and when due, even if such charges would cause the aggregate
balance of the Revolving Loan and the Swing Line Loan to exceed Borrowing
Availability. At Agent's option and to the extent permitted by law, any charges
so made shall constitute part of the Revolving Loan hereunder.
1.12. Loan Account and Accounting. Agent shall maintain a loan
account (the "Loan Account") on its books to record: all Advances, the IP Loan
and the Term Loans, all payments made by Borrower, and all other debits and
credits as provided in this Agreement with respect to the Loans or any other
Obligations. All entries in the Loan Account shall be made in accordance with
Agent's customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded on Agent's most recent printout or
other written statement, shall, absent manifest error, be presumptive evidence
of the amounts due and owing to Agent and Lenders by Borrower; provided that any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower's duty to pay the Obligations. Agent shall render to Borrower a
monthly accounting of transactions with respect to the Loans setting forth the
balance of the Loan Account. Unless Borrower notifies Agent in writing of any
objection to any such accounting (specifically describing the basis for such
objection), within thirty (30) days after Borrower's receipt thereof, each and
every such accounting shall, absent manifest error, be deemed final, binding and
conclusive on Borrower in all respects as to all matters reflected therein. Only
those items expressly objected to in such notice shall be deemed to be disputed
by Borrower. Notwithstanding any provision herein contained to the contrary, any
Lender may elect (which election may be revoked) to dispense with the issuance
of Notes to that Lender and may rely on the Loan Account as evidence of the
amount of Obligations from time to time owing to it.
1.13. Indemnity.
(a) Each Credit Party that is a signatory hereto shall jointly and
severally indemnify and hold harmless (except ICON of Canada which shall only
severally indemnify and hold harmless to the extent permitted by the corporate
statute under which it is incorporated) each of Agent, Lenders and their
respective Affiliates, and each such Person's respective officers, directors,
employees, attorneys, agents and representatives (each, an "Indemnified
Person"), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including reasonable attorneys' fees
and disbursements and other costs of investigation or defense, including those
incurred upon any appeal) that may be instituted or asserted against or incurred
by any such Indemnified Person as the result of credit having been extended,
suspended or terminated under this Agreement and the other Loan Documents and
the administration of such credit, and in connection with or arising out of the
transactions contemplated hereunder and thereunder and any actions or failures
to act in connection therewith, including any and all
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Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such
Credit Party shall be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from that Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) To induce Lenders to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or occurs
as a result of acceleration, by operation of law or otherwise); (ii) Borrower
shall default in making any borrowing of, conversion into or continuation of
LIBOR Loans after Borrower has given notice requesting the same in accordance
herewith; or (iii) Borrower shall fail to make any prepayment of a LIBOR Loan
after Borrower has given a notice thereof in accordance herewith, then Borrower
shall indemnify and hold harmless each Lender from and against all losses, costs
and expenses resulting from or arising from any of the foregoing. Such
indemnification shall include any loss (including loss of margin) or expense
arising from the reemployment of funds obtained by it or from fees payable to
terminate deposits from which such funds were obtained. For the purpose of
calculating amounts payable to a Lender under this subsection, each Lender shall
be deemed to have actually funded its relevant LIBOR Loan through the purchase
of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount
of that LIBOR Loan and having a maturity comparable to the relevant LIBOR
Period; provided, that each Lender may fund each of its LIBOR Loans in any
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, each Lender shall provide Borrower with its written calculation
of all amounts payable pursuant to this Section 1.13(b), and such calculation
shall be binding on the parties hereto unless Borrower shall object in writing
within ten (10) Business Days of receipt thereof, specifying the basis for such
objection in detail.
1.14. Access. Each Credit Party that is a party hereto shall, during
normal business hours, from time to time upon three (3) Business Days' prior
notice as frequently as either Agent reasonably determines to be appropriate:
(a) provide Agents and any of their officers, employees and agents access to its
properties, facilities, advisors and employees (including officers) of each
Credit Party and to the Collateral, (b) permit Agents, and any of their
officers, employees and agents, to inspect, audit and make extracts from any
Credit Party's books and records, and (c) permit Agents, and their officers,
employees and agents, to inspect, review, evaluate and make test verifications
and counts of the Accounts, Inventory and other Collateral
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of any Credit Party. If a Default or Event of Default has occurred and is
continuing or if access is necessary to preserve or protect the Collateral as
determined by either Agent, each such Credit Party shall provide such access to
each Agent and to each Lender at all times and without advance notice.
Furthermore, so long as any Event of Default has occurred and is continuing,
each Credit Party shall provide each Agent and each Lender with access to its
suppliers and customers. Each Credit Party shall make available to each Agent
and its counsel, as promptly as is possible under the circumstances, originals
or copies of all books and records that Agent may request. Each Credit Party
shall deliver any document or instrument necessary for each Agent, as it may
from time to time request, to obtain records from any service bureau or other
Person that maintains records for such Credit Party, and shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by such Credit Party. Agents will give Lenders at least ten (10)
days' prior written notice of regularly scheduled audits. Representatives of
other Lenders may accompany Agents' representatives on regularly scheduled
audits at no charge to Borrower. Without limiting the generality of the
foregoing, Agents will conduct field audits of Borrower and its domestic and
Canadian Subsidiaries within 180 days following the Closing Date and within one
year following the Closing Date.
1.15. Taxes.
(a) Any and all payments by Borrower hereunder or under the Notes
shall be made, in accordance with this Section 1.15, free and clear of and
without deduction for any and all present or future Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the Notes, (i) the sum payable shall be increased as much as
shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.15) Agent
or Lenders, as applicable, receive an amount equal to the sum they would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, Borrower shall furnish
to Agent the original or a certified copy of a receipt evidencing payment
thereof; provided that should any Lender actually receive a tax credit or refund
in the future with respect to (and as a result of) any Taxes paid by Borrower as
required by this Section 1.15, and Lender reasonably determines that such credit
or refund relates to Borrower, then such Lender shall return the amount of such
credit or refund (net of any taxes thereon) to Borrower.
(b) Each Credit Party that is a signatory hereto shall indemnify
and, within ten (10) days of demand therefor, pay Agent and each Lender for the
full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts
payable under this Section 1.15) paid by Agent or such Lender, as appropriate,
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes were correctly or legally
asserted; provided that should any Lender actually receive a tax credit or
refund in the future with respect to (and as a result of) any Taxes paid by
Borrower as required by this Section 1.15, and Lender reasonably determines that
such credit or refund relates to Borrower, then such Lender shall return the
amount of such credit or refund (net of any taxes thereon) to Borrower.
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(c) Each Lender organized under the laws of a jurisdiction outside
the United States (a "Foreign Lender") as to which payments to be made under
this Agreement or under the Notes are exempt from United States withholding tax
under an applicable statute or tax treaty shall provide to Borrower and Agent a
properly completed and executed IRS Form W-8ECI or Form W-8BEN or other
applicable form, certificate or document prescribed by the IRS or the United
States certifying as to such Foreign Lender's entitlement to such exemption (a
"Certificate of Exemption"). Any foreign Person that seeks to become a Lender
under this Agreement shall provide a Certificate of Exemption to Borrower and
Agent prior to becoming a Lender hereunder. No foreign Person may become a
Lender hereunder if such Person fails to deliver a Certificate of Exemption.
1.16. Capital Adequacy; Increased Costs; Illegality.
(a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the Closing Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction; provided, however, that
Borrower shall have no obligation to make any such payment if such Lender fails
to demand payment thereof within 180 days after such Lender becomes aware of an
event giving rise to such a payment. A certificate as to the amount of that
reduction and showing the basis of the computation thereof submitted by such
Lender to Borrower and to Agent shall, absent manifest error, be final,
conclusive and binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the Closing Date, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost; provided,
however, that Borrower shall have no obligation to make any such payment if such
Lender fails to demand payment thereof within 180 days after such Lender becomes
aware of an event giving rise to such payment. A certificate as to the amount of
such increased cost, submitted to Borrower and to Agent by such Lender, shall be
conclusive and binding on Borrower for all purposes, absent manifest error. Each
Lender agrees that, as promptly as practicable after it becomes aware of any
circumstances referred to above which would result in any such increased cost,
the affected Lender shall, to the extent not inconsistent with such Lender's
internal policies of general application, use reasonable
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commercial efforts to minimize costs and expenses incurred by it and payable to
it by Borrower pursuant to this Section 1.16(b).
(c) Notwithstanding anything to the contrary contained herein, if
the introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to continue to
fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing to such Lender, together with
interest accrued thereon, unless Borrower, within five (5) Business Days after
the delivery of such notice and demand, converts all LIBOR Loans into Index Rate
Loans.
(d) Replacement of Lender in Respect of Increased Costs. Within
fifteen (15) days after receipt by Borrower of written notice and demand from
any Lender (an "Affected Lender") for payment of additional amounts or increased
costs as provided in Sections 1.15(a), 1.16(a) or 1.16(b), Borrower may, at its
option, notify Agent and such Affected Lender of its intention to replace the
Affected Lender. So long as no Default or Event of Default has occurred and is
continuing, Borrower, with the consent of Agent, may obtain, at Borrower's
expense, a replacement Lender ("Replacement Lender") for the Affected Lender,
which Replacement Lender must be satisfactory to Agent. If Borrower obtains a
Replacement Lender within ninety (90) days following notice of its intention to
do so, the Affected Lender must sell and assign its Loans and Commitments to
such Replacement Lender for an amount equal to the principal balance of all
Loans held by the Affected Lender and all accrued interest and Fees with respect
thereto through the date of such sale, provided that Borrower shall have
reimbursed such Affected Lender for the additional amounts or increased costs
that it is entitled to receive under this Agreement through the date of such
sale and assignment.
Notwithstanding the foregoing, Borrower shall not have the right to obtain a
Replacement Lender if the Affected Lender rescinds its demand for increased
costs or additional amounts within fifteen (15) days following its receipt of
Borrower's notice of intention to replace such Affected Lender. Furthermore, if
Borrower gives a notice of intention to replace and does not so replace such
Affected Lender within ninety (90) days thereafter, Borrower's rights under this
Section 1.16(d) shall terminate and Borrower shall promptly pay all increased
costs or additional amounts demanded by such Affected Lender pursuant to
Sections 1.15(a), 1.16(a) and 1.16(b).
1.17. Single Loan. Subject to Sections 1.11 and 8.3 hereof, all
Loans to Borrower and all of the other Obligations of Borrower arising under
this Agreement and the other Loan Documents shall constitute one general
obligation of Borrower secured, until the Termination Date, by all of the
Collateral.
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2. CONDITIONS PRECEDENT
2.1. Conditions to the Initial Loans.
No Lender shall be obligated to make any Loan or incur any Letter of
Credit Obligations on the Closing Date, or to take, fulfill, or perform any
other action hereunder, until the following conditions have been satisfied or
provided for in a manner satisfactory to Agent, or waived in writing by Agents
and Requisite Lenders:
(a) Credit Agreement; Loan Documents. This Agreement or counterparts
hereof shall have been duly executed by, and delivered to, Borrower, each other
Credit Party, Agents and Lenders; and Agent shall have received such documents,
instruments, agreements and legal opinions as Agent shall reasonably request in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, including all those listed in the Closing Checklist attached
hereto as Annex D, each in form and substance satisfactory to Agent.
(b) Repayment of Prior Lenders' Obligations; Satisfaction of
Outstanding L/Cs. (i) Agents shall have received a fully executed original of a
pay-off letter satisfactory to Agent confirming that all of the Prior Lenders'
Obligations will be repaid in full from the proceeds of the Term Loans, the IP
Loan and the initial Revolving Credit Advance and all Liens upon any of the
property of Borrower or any of its Subsidiaries in favor of Prior Lenders shall
be terminated by Prior Lenders immediately upon such payment; and (ii) all
letters of credit issued or guaranteed by Prior Lenders shall have been cash
collateralized, supported by a guaranty of Agent or supported by a Letter of
Credit issued pursuant to Annex B, as mutually agreed upon by Agent, Borrower
and Prior Lenders.
(c) Approvals. Agents shall have received (i) satisfactory evidence
that the Credit Parties have obtained all required consents and approvals of all
Persons including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents and the
consummation of the Related Transactions or (ii) an officer's certificate in
form and substance satisfactory to Agent affirming that no such consents or
approvals are required.
(d) Opening Availability/Indebtedness. The Borrowing Base supporting
the initial Revolving Credit Advance and the initial Letter of Credit
Obligations incurred and the amount of the Reserves to be established on the
Closing Date shall be sufficient in value, as determined by Agent, to provide
Borrower with Net Borrowing Availability, after giving effect to the initial
Revolving Credit Advance, the incurrence of any initial Letter of Credit
Obligations and the consummation of the Related Transactions (on a pro forma
basis, with trade payables, expenses and liabilities being paid in the ordinary
course of business and without acceleration of sales) of at least Twenty-Five
Million Dollars ($25,000,000). Total Indebtedness of the Borrower on a
consolidated basis on the Closing Date, after giving effect to the Related
Transactions, shall not exceed Two Hundred Seventy Million Dollars
($270,000,000).
(e) Payment of Fees. Borrower shall have paid the Fees required to
be paid on the Closing Date in the respective amounts specified in Section 1.9
(including the Fees specified
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in the Fee Letter), and shall have reimbursed Agents for all fees, costs and
expenses of closing presented as of the Closing Date.
(f) Capital Structure; Other Indebtedness. The capital structure of
each Credit Party and the tax consequences of the Recapitalization shall be
acceptable to Agents in their sole discretion. New Holdings will not have any
Indebtedness or Guaranteed Indebtedness after giving effect to the
Recapitalization and the other Related Transactions, except that New Holdings
shall have entered into the New Holdings Guaranty and the CS First Boston Debt.
(g) Consummation of Related Transactions. Agents shall have received
fully executed copies of the Recapitalization Documents and each of the other
Related Transactions Documents, each of which shall be in form and substance
satisfactory to Agents and their counsel. The Recapitalization and the other
Related Transactions shall have been consummated in accordance with the terms of
the Recapitalization Documents and the other Related Transactions Documents.
Borrower shall not have waived or amended any provision of any Recapitalization
Document delivered to Agents without the consent of Agents and Requisite
Lenders.
(h) Rating Agency. Term Loan A and Term Loan B shall have been rated
by Moody's Investor Services, Inc.; such rating shall be satisfactory to Agents
and shall be in full force and effect as of the Closing Date.
(i) Fees Closing Costs. The aggregate fees and closing costs
(excluding compensation to management) incurred in connection with the Loans
advanced hereunder and the Recapitalization shall not have exceeded $17,500,000.
(j) Tenders. All of the 15% Senior Second Discount Notes due 2004 of
Holdings, at least 95% of the 14% Senior Discount Notes due 2006 of Intermediate
Holdings and at least 98.5% in principal amount of the 13% Senior Subordinated
Notes due 2002 of Borrower shall have consented to the Exchange Offer and
exchanged their respective notes as provided therein.
(k) No Filing. No petition shall have been filed by or proceeding
commenced against any of the Old Holdcos or Borrower under the Bankruptcy Code.
2.2. Further Conditions to Each Loan. Except as otherwise expressly
provided herein, no Lender shall be obligated to fund any Advance, convert or
continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if,
as of the date thereof:
(a) any representation or warranty by any Credit Party contained
herein or in any of the other Loan Document is untrue or incorrect as of such
date, except to the extent that such representation or warranty expressly
relates to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement, and Agent or Requisite Revolving
Lenders have determined not to make such Advance, convert or continue any Loan
as LIBOR Loan or incur such Letter of Credit Obligation as a result of the fact
that such warranty or representation is untrue or incorrect;
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(b) any event or circumstance having a Material Adverse Effect has
occurred since the date hereof as determined by the Requisite Revolving Lenders,
and Agent or Requisite Revolving Lenders have determined not to make such
Advance, convert or continue any Loan as a LIBOR Loan or incur such Letter of
Credit Obligation as a result of the fact that such event or circumstance has
occurred;
(c) any Default or Event of Default has occurred and is continuing
or would result after giving effect to any Advance or the incurrence of any
Letter of Credit Obligation, and Agent or Requisite Revolving Lenders shall have
determined not to make any Advance, convert or continue any Loan as a LIBOR Loan
or incur any Letter of Credit Obligation as a result of that Default or Event of
Default; or
(d) after giving effect to any Advance (or the incurrence of any
Letter of Credit Obligations), the outstanding principal amount of the Revolving
Loan would exceed the lesser of the Borrowing Base and the Maximum Amount, in
each case, less the then outstanding principal amount of the Swing Line Loan.
The request and acceptance by Borrower of the proceeds of any Loan, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to
constitute, as of the date of such request, acceptance or incurrence, (i) a
representation and warranty by Borrower that the conditions in this Section 2.2
have been satisfied and (ii) a reaffirmation by Borrower of the granting and
continuance of Agent's Liens, on behalf of itself and Lenders, pursuant to the
Collateral Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans and to incur Letter of Credit
Obligations, the Credit Parties executing this Agreement, jointly and severally,
make the following representations and warranties to Agents and each Lender,
effective as of the Closing Date, with respect to all Credit Parties, each and
all of which shall survive the execution and delivery of this Agreement:
3.1. Corporate Existence; Compliance with Law. Each Credit Party (a)
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; (b) is duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification,
except where effects of the failure to be so qualified would be immaterial; (c)
has the requisite corporate power and authority and the legal right to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease and to conduct its business as now, heretofore
and proposed to be conducted; (d) subject to specific representations regarding
Environmental Laws, has all material licenses, permits, consents or approvals
from or by, and has made all filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (e) is in compliance with its charter and
bylaws; and (f) subject to specific representations set forth herein regarding
ERISA, Environmental Laws, tax and other laws, is in compliance with all
applicable provisions of law, except where the failure to comply,
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individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
3.2. Executive Offices, Collateral Locations, FEIN. As of the
Closing Date, the current location of each Credit Party's chief executive
office, domicile (within the meaning of the Quebec Civil Code) and the
warehouses and premises at which any Collateral is located are set forth in
Disclosure Schedule (3.2). In addition, Disclosure Schedule (3.2) lists the
federal employer identification number of each Credit Party.
3.3. Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) do not contravene any
provision of such Person's charter or bylaws; (d) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority; (e)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate or permit the acceleration of any performance
required by, any indenture, mortgage or deed of trust, or material lease,
agreement or other instrument to which such Person is a party or by which such
Person or any of its property is bound; (f) do not result in the creation or
imposition of any Lien upon any of the property of such Person other than those
in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan
Documents; and (g) do not require the consent or approval of any Governmental
Authority or any other Person, except those referred to in Section 2.1(c), all
of which will have been duly obtained, made or complied with prior to the
Closing Date. On or prior to the Closing Date, each of the Loan Documents shall
have been duly executed and delivered by each Credit Party that is a party
thereto and each such Loan Document shall then constitute a legal, valid and
binding obligation of such Credit Party enforceable against it in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the rights and remedies of creditors
generally.
3.4. Financial Statements and Projections. Except for the
Projections, all Financial Statements concerning Borrower and its Subsidiaries
that are referred to below have been prepared in accordance with GAAP
consistently applied throughout the periods covered (except as disclosed therein
and except, with respect to unaudited Financial Statements, for the absence of
footnotes and normal year-end audit adjustments) and present fairly in all
material respects the financial position of the Persons covered thereby as at
the dates thereof and the results of their operations and cash flows for the
periods then ended.
(a) The following Financial Statements attached hereto as Disclosure
Schedule (3.4(a)) will have been delivered as of the Closing Date:
(i) The audited consolidated and consolidating balance sheets
at May 31, 1999 and the related statements of income and cash flows of
Borrower and its Subsidiaries for the Fiscal Year then ended, certified by
PriceWaterhouseCoopers, LLP.
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(ii) The unaudited balance sheet(s) and the related
statement(s) of income and cash flows of Borrower and its Subsidiaries for
all interim monthly periods ending at least thirty (30) days prior to the
Closing Date.
(iii) an analysis by PriceWaterhouseCoopers confirming that
Borrower had EBITDA of at least $55,000,000 for Fiscal Year 1999
(excluding losses associated with Accounts due from Service Merchandise,
Inc.).
(b) Pro Forma. The Pro Forma attached hereto as Disclosure Schedule
(3.4(b)) was prepared by Borrower giving pro forma effect to the Related
Transactions, was based on the unaudited consolidated and consolidating balance
sheets of Borrower and its Subsidiaries dated May 31, 1999, and was prepared in
accordance with GAAP, with only such adjustments thereto as would be required in
accordance with GAAP.
(c) Projections. The Projections attached hereto as Disclosure
Schedule (3.4(c)) have been prepared by Borrower in light of the past operations
of its businesses, and reflect projections for the five year period beginning on
June 1, 1999 on a month-by-month basis for the first year and on a year-by-year
basis thereafter. The Projections are based upon estimates and assumptions
stated therein, all of which Borrower believes to be reasonable and fair in
light of current conditions and current facts known to Borrower and, as of the
Closing Date, reflect Borrower's good faith and reasonable estimates of the
future financial performance of Borrower and of the other information projected
therein for the period set forth therein (it being understood that such
Projections are not warranties of future performance).
3.5. Material Adverse Effect. Between February 28, 1999 and the
Closing Date, excluding the effect of the write-off of Accounts owing by Service
Merchandise, Inc. and excluding defaults under credit arrangements refinanced
pursuant to the Related Transactions, (a) no Credit Party has incurred any
obligations, contingent or noncontingent liabilities, liabilities for Charges,
long-term leases or unusual forward or long-term commitments that are not
reflected in the Pro Forma and that, alone or in the aggregate, could reasonably
be expected to have a Material Adverse Effect, (b) no contract, lease or other
agreement or instrument has been entered into by any Credit Party or has become
binding upon any Credit Party's assets and no law or regulation applicable to
any Credit Party has been adopted that has had or could reasonably be expected
to have a Material Adverse Effect, and (c) no Credit Party is in default and to
the best of Borrower's knowledge no third party is in default under any material
contract, lease or other agreement or instrument, that alone or in the aggregate
could reasonably be expected to have a Material Adverse Effect. Excluding the
effect of the write-off of Accounts owing by Service Merchandise, Inc., between
February 28, 1999 and the Closing Date no event has occurred, that alone or
together with other events, could reasonably be expected to have a Material
Adverse Effect.
3.6. Ownership of Property; Liens. As of the Closing Date, the real
estate ("Real Estate") listed in Disclosure Schedule (3.6) constitutes all of
the real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title to all of its owned Real
Estate, and valid and marketable leasehold interests in all of its leased Real
Estate, all as described on Disclosure Schedule (3.6), and copies
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of all such leases or a summary of terms thereof satisfactory to Agent have been
delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate
with respect to which any Credit Party is a lessor, sublessor or assignor as of
the Closing Date. Each Credit Party also has good and marketable title to, or
valid leasehold interests in, all of its personal property and assets. As of the
Closing Date, none of the properties and assets of any Credit Party are subject
to any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Credit Party that may result in any
Liens (including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Each Credit Party has received all deeds, assignments, waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party's right, title and
interest in and to all such Real Estate and other properties and assets.
Disclosure Schedule (3.6) also describes as of the Closing Date any purchase
options, rights of first refusal or other similar contractual rights pertaining
to any Real Estate. As of the Closing Date, no portion of any Credit Party's
Real Estate has suffered any material damage by fire or other casualty loss that
has not heretofore been repaired and restored in all material respects to its
original condition or otherwise remedied. As of the Closing Date, all material
permits required to have been issued or appropriate to enable the Real Estate to
be lawfully occupied and used for all of the purposes for which it is currently
occupied and used have been lawfully issued and are in full force and effect.
3.7. Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Credit Party are pending or, to any Credit
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit Party comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matters; (c) all
payments due from any Credit Party for employee health and welfare insurance
have been paid or accrued as a liability on the books of such Credit Party; (d)
except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to
or bound by any collective bargaining agreement, management agreement,
consulting agreement, employment agreement, bonus, stock option, or stock
appreciation plan or agreement (and true and complete copies of any agreements
described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there
is no organizing activity involving any Credit Party pending or, to any Credit
Party's knowledge, threatened by any labor union or group of employees; (f)
there are no representation proceedings pending or, to any Credit Party's
knowledge, threatened with the National Labor Relations Board or any other labor
relations board, and no labor organization or group of employees of any Credit
Party has made a pending demand for recognition; and (g) except as set forth in
Disclosure Schedule (3.7), there are no complaints or charges against any Credit
Party pending or, to the knowledge of any Credit Party, threatened to be filed
with any Governmental Authority or arbitrator based on, arising out of, in
connection with, or otherwise relating to the employment or termination of
employment by any Credit Party of any individual.
3.8. Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Credit Party
has any Subsidiaries, is engaged in any joint venture or partnership with any
other Person, or is an Affiliate of any other Person. All of the issued and
outstanding Stock of each Credit Party is owned by each of the Stockholders and
in the amounts set forth in Disclosure Schedule (3.8). There are no outstanding
rights to purchase, options, warrants or similar rights or agreements
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pursuant to which any Credit Party may be required to repurchase or redeem any
of its Stock or other equity securities or any Stock or other equity securities
of its Subsidiaries. No Subsidiary of New Holdings is subject to any agreement
or arrangement obligating it to issue or sell any of its Stock. All outstanding
Indebtedness of each Credit Party as of the Closing Date is described in Section
6.3 (including Disclosure Schedule (6.3)). New Holdings has no assets (except
Stock of Borrower) and no Indebtedness or Guaranteed Indebtedness (except the
Obligations and the CS First Boston Debt).
3.9. Government Regulation. No Credit Party is an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940. No Credit Party is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, or any other
domestic or foreign federal, state or provincial statute that restricts or
limits its ability to incur Indebtedness or to perform its obligations
hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the
Letter of Credit Obligations on behalf of Borrower, the application of the
proceeds thereof and repayment thereof and the consummation of the Related
Transactions will not violate any provision of any such statute or any rule,
regulation or order issued by the Securities and Exchange Commission.
3.10. Margin Regulations. No Credit Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "purchasing" or "carrying" any "margin
stock" as such terms are defined in Regulation U of the Federal Reserve Board as
now and from time to time hereafter in effect (such securities being referred to
herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other extensions of credit under this Agreement
will be used, directly or indirectly, for the purpose of purchasing or carrying
any Margin Stock, for the purpose of reducing or retiring any Indebtedness that
was originally incurred to purchase or carry any Margin Stock or for any other
purpose that might cause any of the Loans or other extensions of credit under
this Agreement to be considered a "purpose credit" within the meaning of
Regulations T, U or X of the Federal Reserve Board. No Credit Party will take or
permit to be taken any action that might cause any Loan Document to violate any
regulation of the Federal Reserve Board.
3.11. Taxes. All tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by any
Credit Party have been filed with the appropriate Governmental Authority and all
Charges have been paid prior to the date on which any fine or penalty may be
added thereto for nonpayment thereof (or any such fine, penalty, interest, late
charge or loss has been paid), excluding Charges or other amounts being
contested in accordance with Section 5.2(b). Proper and accurate amounts have
been withheld by each Credit Party from its respective employees for all periods
in full and complete compliance with all applicable federal, state, local and
foreign laws and such withholdings have been timely paid to the respective
Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the
Closing Date those taxable years for which any Credit Party's tax returns are
currently being audited by the IRS or any other applicable Governmental
Authority and any assessments or threatened assessments in connection with such
audit, or otherwise currently outstanding. Except as described in Disclosure
Schedule (3.11), no Credit Party has executed or
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filed with the IRS or any other Governmental Authority any agreement or other
document extending, or having the effect of extending, the period for assessment
or collection of any Charges. None of the Credit Parties and their respective
predecessors are liable for any Charges: (a) under any agreement (including any
tax sharing agreements) or (b) to each Credit Party's knowledge, as a
transferee. As of the Closing Date, no Credit Party has agreed or been requested
to make any adjustment under IRC Section 481(a), by reason of a change in
accounting method or otherwise, which would have a Material Adverse Effect.
3.12. ERISA and Canadian Pension and Benefit Plans.
(a) Disclosure Schedule (3.12) lists as of the Closing Date all
Plans and separately identifies all Pension Plans, including Title IV Plans,
Multiemployer Plans, ESOPs and Welfare Plans, including all Retiree Welfare
Plans. Copies of all such listed Plans, together with a copy of the latest form
5500 for each such Plan, have been delivered to Agent. Except with respect to
Multiemployer Plans, each Qualified Plan has been determined by the IRS to
qualify under Section 401 of the IRC, and the trusts created thereunder have
been determined to be exempt from tax under the provisions of Section 501 of the
IRC, and nothing has occurred that would cause the loss of such qualification or
tax-exempt status. Each Plan is in compliance in all material respects with the
applicable provisions of ERISA and the IRC, including the timely filing of
IRS/DOL 5500-series form reports required under the IRC or ERISA. No Credit
Party or ERISA Affiliate has failed to make any contribution or pay any amount
due as required by either Section 412 of the IRC or Section 302 of ERISA or the
terms of any such Plan. No Credit Party or ERISA Affiliate has engaged in a
"prohibited transaction," as defined in Section 4975 of the IRC, in connection
with any Plan, that would subject any Credit Party to a material tax on
prohibited transactions imposed by Section 4975 of the IRC.
(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title
IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062(e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur; (iii) there are no pending, or to
the knowledge of any Credit Party, threatened claims (other than claims for
benefits in the normal course), sanctions, actions or lawsuits, asserted or
instituted against any Plan or any Person as fiduciary or sponsor of any Plan;
(iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to
incur any liability as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years no Title IV Plan of any
Credit Party or ERISA Affiliate has been terminated nor has any such Plan with
Unfunded Pension Liabilities been transferred outside of the "controlled group"
(within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or
ERISA Affiliate; (vi) except in the case of any ESOP, Stock of all Credit
Parties and their ERISA Affiliates makes up, in the aggregate, no more than 10%
of fair market value of the assets of any Plan; and (vii) no liability under any
Title IV Plan has been satisfied with the purchase of a contract from an
insurance company that is not rated AAA by the Standard & Poor's Corporation or
the equivalent by another nationally recognized rating agency.
(c) Disclosure Schedule (3.12) lists all Canadian Benefit Plans
(other than, for greater certainty, universal plans created by and to which any
Credit Party is obligated to contribute by statute) and Canadian Pension Plans
adopted by each Credit Party. The Canadian
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Pension Plans are duly registered under the ITA and all other applicable laws
which require registration and no event has occurred which is reasonably likely
to cause the loss of such registered status. All material obligations of each
Credit Party (including fiduciary, funding, investment and administration
obligations) required to be performed in connection with the Canadian Pension
Plans and the funding agreements therefor have been performed in a timely
fashion. There have been no improper withdrawals or applications of the assets
of the Canadian Pension Plans or the Canadian Benefit Plans. There are no
outstanding disputes concerning the assets of the Canadian Pension Plans or the
Canadian Benefit Plans. Each of the Canadian Pension Plans is fully funded on a
solvency basis (using actuarial methods and assumptions which are consistent
with the valuations last filed with the applicable Governmental Authorities and
which are consistent with generally accepted actuarial principles).
3.13. No Litigation. No action, claim, lawsuit, demand,
investigation or proceeding is now pending or, to the knowledge of any Credit
Party, threatened against any Credit Party, before any Governmental Authority or
before any arbitrator or panel of arbitrators (collectively, "Litigation"), (a)
that challenges any Credit Party's right or power to enter into or perform any
of its obligations under the Loan Documents to which it is a party, or the
validity or enforceability of any Loan Document or any action taken thereunder,
or (b) that has a reasonable risk of being determined adversely to any Credit
Party and that, if so determined, could have a Material Adverse Effect. Except
as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no
Litigation pending or threatened that seeks damages in excess of $100,000 or
injunctive relief against, or alleges criminal misconduct of any Credit Party.
3.14. Brokers. No broker or finder acting on behalf of any Credit
Party or Affiliate thereof brought about the obtaining, making or closing of the
Loans or the Related Transactions, and no Credit Party or Affiliate thereof has
any obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
3.15. Intellectual Property. As of the Closing Date, each Credit
Party owns or has rights to use all Intellectual Property necessary to continue
to conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, and each Patent, Design, Trademark, Copyright and License is
listed, together with application or registration numbers, as applicable, in
Disclosure Schedule (3.15). To the best of its knowledge, each Credit Party
conducts its business and affairs without infringement of or interference with
any Intellectual Property of any other Person. Except as set forth in Disclosure
Schedule (3.15), no Credit Party is aware of any infringement claim by any other
Person with respect to any Intellectual Property.
3.16. Full Disclosure. None of the information contained in this
Agreement, any of the other Loan Documents, any Projections, Financial
Statements or Collateral Reports or other reports from time to time delivered
hereunder or any written statement furnished by or on behalf of any Credit Party
to Agent or any Lender pursuant to the terms of this Agreement, when taken as a
whole, 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 misleading in light of the circumstances under which they
were made. The Liens granted to Agent, on behalf of itself and Lenders, pursuant
to the Collateral Documents will at all times be fully perfected first priority
Liens in and to the Collateral
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described therein, subject, as to priority, only to Permitted Encumbrances with
respect to the Collateral other than Accounts.
3.17. Environmental Matters.
(a) Except as set forth in Disclosure Schedule (3.17), as of the
Closing Date: (i) the Real Estate is free of contamination from any Hazardous
Material except for such contamination that would not adversely impact the value
or marketability of such Real Estate and that would not result in Environmental
Liabilities that could reasonably be expected to exceed $50,000; (ii) no Credit
Party has caused or suffered to occur any Release of Hazardous Materials on, at,
in, under, above, to, from or about any of its Real Estate; (iii) the Credit
Parties are and have been in compliance with all Environmental Laws, except for
such noncompliance that would not result in Environmental Liabilities which
could reasonably be expected to exceed $50,000; (iv) the Credit Parties have
obtained, and are in compliance with, all Environmental Permits required by
Environmental Laws for the operations of their respective businesses as
presently conducted or as proposed to be conducted, except where the failure to
so obtain or comply with such Environmental Permits would not result in
Environmental Liabilities that could reasonably be expected to exceed $50,000,
and all such Environmental Permits are valid, uncontested and in good standing;
(v) no Credit Party is involved in operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to result in any Environmental Liabilities of such Credit Party which
could reasonably be expected to exceed $50,000, and no Credit Party has
permitted any current or former tenant or occupant of the Real Estate to engage
in any such operations; (vi) there is no Litigation arising under or related to
any Environmental Laws, Environmental Permits or Hazardous Material that seeks
damages, penalties, fines, costs or expenses in excess of $50,000 or injunctive
relief, or that alleges criminal misconduct by any Credit Party; (vii) no notice
has been received by any Credit Party identifying it as a "potentially
responsible party" or requesting information under CERCLA or analogous state
statutes, and to the knowledge of the Credit Parties, there are no facts,
circumstances or conditions that may result in any Credit Party being identified
as a "potentially responsible party" under CERCLA or analogous state statutes;
and (viii) the Credit Parties have provided to Agent copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities, in each case relating to any
Credit Party.
(b) Each Credit Party hereby acknowledges and agrees that Agent (i)
is not now, and has not ever been, in control of any of the Real Estate or any
Credit Party's affairs, and (ii) does not have the capacity through the
provisions of the Loan Documents or otherwise to influence any Credit Party's
conduct with respect to the ownership, operation or management of any of its
Real Estate or compliance with Environmental Laws or Environmental Permits.
3.18. Insurance. Disclosure Schedule (3.18) lists all insurance
policies of any nature maintained, as of the Closing Date, for current
occurrences by each Credit Party, as well as a summary of the terms of each such
policy.
3.19. Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
lists all banks and other financial institutions at which any Credit Party
maintains deposit or other
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accounts as of the Closing Date, including any Disbursement Accounts, and such
Schedule correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number therefor.
3.20. Government Contracts. Except as set forth in Disclosure
Schedule (3.20), as of the Closing Date, no Credit Party is a party to any
contract or agreement with any Governmental Authority and no Credit Party's
Accounts are subject to the Federal Assignment of Claims Act (31 U.S.C. Section
3727), the Financial Administration Act (Canada) or any similar state,
provincial or local law.
3.21. Customer and Trade Relations. As of the Closing Date, except
as set forth on Disclosure Schedule 3.21 attached hereto, there exists no actual
or, to the knowledge of any Credit Party, threatened termination or cancellation
of, or any material adverse modification or change in, the business relationship
of any Credit Party with any customer or group of customers whose purchases
during the preceding twelve (12) months caused them to be ranked among the ten
largest customers of such Credit Party; or the business relationship of any
Credit Party with any supplier material to its operations.
3.22. Agreements and Other Documents. As of the Closing Date, each
Credit Party has provided to Agent or its counsel, on behalf of Lenders,
accurate and complete copies (or summaries) of all of the following agreements
or documents to which it is subject and each of which is listed in Disclosure
Schedule (3.22): supply agreements and purchase agreements not terminable by
such Credit Party within sixty (60) days following written notice issued by such
Credit Party and involving transactions in excess of $1,000,000 per annum;
leases of Equipment having a remaining term of one year or longer and requiring
aggregate rental and other payments in excess of $500,000 per annum; licenses
and permits held by the Credit Parties, the absence of which could be reasonably
likely to have a Material Adverse Effect; instruments and documents evidencing
Indebtedness of such Credit Party and any Lien granted by such Credit Party with
respect thereto; and instruments and agreements evidencing the issuance of any
equity securities, warrants, rights or options to purchase equity securities of
such Credit Party.
3.23. Solvency. Both before and after giving effect to (a) the Loans
and Letter of Credit Obligations to be made or incurred on the Closing Date or
such other date as Loans and Letter of Credit Obligations requested hereunder
are made or incurred, (b) the disbursement of the proceeds of such Loans
pursuant to the instructions of Borrower, (c) the Recapitalization and the
consummation of the other Related Transactions and (d) the payment and accrual
of all transaction costs in connection with the foregoing, each Credit Party is
and will be Solvent.
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3.24. Year 2000 Representations. Each Credit Party has completed a
Year 2000 Assessment and a Year 2000 Corrective Plan, copies of which have been
delivered to Agent; each Credit Party has completed all Year 2000 Corrective
Actions and completed Year 2000 Implementation Testing, except for Year 2000
Corrective Actions and Year 2000 Implementation Testing with respect to
Healthrider retail stores.
3.25. Recapitalization. As of the Closing Date, Borrower has
delivered to Agent a complete and correct copy of the Recapitalization Documents
(including all schedules, exhibits, amendments, supplements, modifications,
assignments and all other documents delivered pursuant thereto or in connection
therewith). No Credit Party and no other Person party thereto is in default in
the performance or compliance with any provisions thereof. The Recapitalization
Documents comply with, and the Recapitalization has been consummated in
accordance with, all applicable laws. The Recapitalization Documents are in full
force and effect as of the Closing Date and have not been terminated, rescinded
or withdrawn. All requisite approvals by Governmental Authorities having
jurisdiction over any Credit Party and other Persons referenced therein, with
respect to the transactions contemplated by the Recapitalization Documents, have
been obtained, and no such approvals impose any conditions to the consummation
of the transactions contemplated by the Recapitalization Documents or to the
conduct by any Credit Party of its business thereafter.
3.26. Status of New Holdings. Prior to the Closing Date, New
Holdings will not have engaged in any business or incurred any Indebtedness or
any other liabilities (except in connection with its corporate formation, the
Related Transactions Documents and this Agreement).
3.27. Subordinated Debt. As of the Closing Date, Borrower has
delivered to Agent a complete and correct copy of the Subordinated Notes
Documents (including all schedules, exhibits, amendments, supplements,
modifications, assignments and all other documents delivered pursuant thereto or
in connection therewith). Borrower has the corporate power and authority to
incur the Indebtedness evidenced by the Subordinated Notes. The subordination
provisions of the Subordinated Notes Documents are enforceable against the
holders of the Subordinated Notes by Agent and Lenders. All Obligations,
including the Letter of Credit Obligations, constitute senior Indebtedness
entitled to the benefits of the subordination provisions contained in the
Subordinated Notes Documents. The principal of and interest on the Notes, all
Letter of Credit Obligations and all other Obligations will constitute "senior
debt" as that or any similar term is or may be used in any other instrument
evidencing or applicable to any other Subordinated Debt. The Subordinated Notes
mature at least six (6) months after the final maturity date of Term Loan C.
Borrower acknowledges that Agent and each Lender are entering into this
Agreement and are extending the Commitments in reliance upon the subordination
provisions of the Subordinated Notes Documents and this Section 3.27.
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4. FINANCIAL STATEMENTS AND INFORMATION
4.1. Reports and Notices.
(a) Each Credit Party executing this Agreement hereby agrees that
from and after the Closing Date and until the Termination Date, it shall deliver
to Agents or to Agents and Lenders, as required, the Financial Statements,
notices, Projections and other information at the times, to the Persons and in
the manner set forth in Annex E.
(b) Each Credit Party executing this Agreement hereby agrees that
from and after the Closing Date and until the Termination Date, it shall deliver
to Agents or to Agents and Lenders, as required, the various Collateral Reports
(including Borrowing Base Certificates in the form of Exhibit 4.1(b)) at the
times, to the Persons and in the manner set forth in Annex F.
4.2. Communication with Accountants. Each Credit Party executing
this Agreement authorizes Agents and, so long as a Default or Event of Default
has occurred and is continuing, each Lender, to communicate directly with its
independent certified public accountants, including PriceWaterhouseCoopers, LLP
and authorizes and at Agents' request shall instruct those accountants and
advisors to disclose and make available to Agents and each Lender any and all
Financial Statements and other supporting financial documents, schedules and
information relating to any Credit Party (including copies of any issued
management letters) with respect to the business, financial condition and other
affairs of any Credit Party.
5. AFFIRMATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties, except ICON of Canada, which severally agrees
only as to itself, that from and after the date hereof and until the Termination
Date:
5.1. Maintenance of Existence and Conduct of Business. Each Credit
Party shall: do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and its rights and franchises;
continue to conduct its business substantially as now conducted or as otherwise
permitted hereunder; at all times maintain, preserve and protect all of its
assets and properties used or useful in the conduct of its business, and keep
the same in good repair, working order and condition in all material respects
(taking into consideration ordinary wear and tear) and from time to time make,
or cause to be made, all necessary or appropriate repairs, replacements and
improvements thereto consistent with industry practices; and transact business
only in such corporate and trade names as are set forth in Disclosure Schedule
(5.1).
5.2. Payment of Charges.
(a) Subject to Section 5.2(b), each Credit Party shall pay and
discharge or cause to be paid and discharged promptly all Charges payable by it,
including (i) Charges imposed upon it, its income and profits, or any of its
property (real, personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, and (ii)
lawful claims for labor, materials, supplies and services or otherwise, and
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(iii) all storage or rental charges payable to warehousemen and bailees, in each
case, before any thereof shall become past due.
(b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges or claims described in
Section 5.2(a); provided, that (i) adequate reserves with respect to such
Charges are maintained on the books of such Credit Party, in accordance with
GAAP; (ii) no Lien shall arise to secure payment of such Charges (other than
payments to bailees) that is superior to any of the Liens securing payment of
the Obligations and such contest is maintained and prosecuted with diligence and
operates to suspend collection or enforcement of such Charges, (iii) none of the
Collateral becomes subject to forfeiture or loss as a result of such contest,
(iv) such Credit Party shall promptly pay or discharge such contested Charges or
claims and all additional charges, interest, penalties and expenses, if any, and
shall deliver to Agent evidence acceptable to Agent of such compliance, payment
or discharge, if such contest is terminated or discontinued adversely to such
Credit Party or the conditions set forth in this Section 5.2(b) are no longer
met, and (v) Agent has not advised Borrower in writing that Agent reasonably
believes that nonpayment or nondischarge thereof could have or result in a
Material Adverse Effect.
5.3. Books and Records. Each Credit Party shall keep adequate books
and records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
(3.4(a)).
5.4. Insurance; Damage to or Destruction of Collateral.
(a) The Credit Parties shall, at their sole cost and expense,
maintain the policies of insurance described on Disclosure Schedule (3.18) as in
effect on the date hereof or otherwise in form and amounts and with insurers
acceptable to Agent, including property insurance at replacement values and
flood insurance for all properties located in a flood plain (to the extent of
available coverage from the National Flood Insurance Program). If any Credit
Party at any time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required above or to pay all premiums relating thereto,
Agent may at any time or times thereafter obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
that Agent deems advisable. Agent shall have no obligation to obtain insurance
for any Credit Party or pay any premiums therefor. By doing so, Agent shall not
be deemed to have waived any Default or Event of Default arising from any Credit
Party's failure to maintain such insurance or pay any premiums therefor. All
sums so disbursed, including attorneys' fees, court costs and other charges
related thereto, shall be payable on demand by Borrower to Agent and shall be
additional Obligations hereunder secured by the Collateral.
(b) Agent reserves the right at any time upon any change in any
Credit Party's risk profile (including any change in the product mix maintained
by any Credit Party or any laws affecting the potential liability of such Credit
Party) to require additional forms and limits of insurance to, in Agent's
opinion, adequately protect both Agent's and Lenders' interests in all or any
portion of the Collateral and to ensure that each Credit Party is protected by
insurance in amounts and with coverage customary for its industry. If requested
by Agent, each Credit Party
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shall deliver to Agent from time to time a report of a reputable insurance
broker, satisfactory to Agent, with respect to its insurance policies.
(c) Borrower shall deliver to Agent, in form and substance
satisfactory to Agent, endorsements to (i) all "All Risk" and business
interruption insurance naming Agent, on behalf of itself and Lenders, as loss
payee, or, in the case of insurance covering assets located in the Province of
Quebec, naming Agent and Lenders as loss payees, and, in the case of "All Risk"
insurance covering Canada, containing the Canadian standard mortgage clause, and
(ii) all general liability and other liability policies naming Agent, on behalf
of itself and Lenders, as additional insured, or, in the case of insurance
covering assets located in the Province of Quebec, naming Agent and Lenders as
additional insureds. Borrower irrevocably makes, constitutes and appoints Agent
(and all officers, employees or agents designated by Agent), so long as any
Default or Event of Default has occurred and is continuing or the anticipated
insurance proceeds exceed $10,000,000, as Borrower's true and lawful agent and
attorney-in-fact for the purpose of making, settling and adjusting claims under
such "All Risk" policies of insurance, endorsing the name of Borrower on any
check or other item of payment for the proceeds of such "All Risk" policies of
insurance and for making all determinations and decisions with respect to such
"All Risk" policies of insurance. Agent shall have no duty to exercise any
rights or powers granted to it pursuant to the foregoing power-of-attorney.
Borrower shall promptly notify Agent of any loss, damage, or destruction to the
Collateral in the amount of $250,000 or more, whether or not covered by
insurance. After deducting from such proceeds the expenses, if any, incurred by
Agent in the collection or handling thereof, Agent shall apply such proceeds to
the reduction of the Obligations in accordance with Section 1.3(d), or permit or
require Borrower to use such money, or any part thereof, to replace, repair,
restore or rebuild the Collateral in a diligent and expeditious manner with
materials and workmanship of substantially the same quality as existed before
the loss, damage or destruction. Notwithstanding the foregoing, if the casualty
giving rise to such insurance proceeds could not reasonably be expected to have
a Material Adverse Effect and such insurance proceeds do not exceed $10,000,000
in the aggregate, Agent shall permit Borrower to replace, restore, repair or
rebuild the property; provided that if Borrower has not completed or entered
into binding agreements to complete such replacement, restoration, repair or
rebuilding within 180 days of such casualty, Agent shall apply such insurance
proceeds to prepay the Obligations in accordance with Section 1.3(d). All
insurance proceeds that are to be made available to Borrower to replace, repair,
restore or rebuild the Collateral shall be applied by Agent to reduce the
outstanding principal balance of the Revolving Loan (which application shall not
result in a permanent reduction of the Revolving Loan Commitment) and upon such
application, Agent shall establish a Reserve against the Borrowing Base in an
amount equal to the amount of such proceeds so applied. All insurance proceeds
made available to any Credit Party that is not a Borrower to replace, repair,
restore or rebuild Collateral shall be deposited in a cash collateral account.
Thereafter, such funds shall be made available to Borrower to provide funds to
replace, repair, restore or rebuild the Collateral as follows: (i) Borrower
shall request that a Revolving Credit Advance or release from the cash
collateral account be made to Borrower in the amount requested to be released;
(ii) so long as the conditions set forth in Section 2.2 have been met, Revolving
Lenders shall make such Revolving Credit Advance or Agent shall release funds
from the cash collateral account; and (iii) in the case of insurance proceeds
applied against the Revolving Loan, the Reserve established with respect to such
insurance proceeds shall be
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reduced by the amount of such Revolving Credit Advance. To the extent not used
to replace, repair, restore or rebuild the Collateral, such insurance proceeds
shall be applied in accordance with Section 1.3(d).
5.5. Compliance with Laws. Each Credit Party shall comply with all
federal, state, local and foreign laws and regulations applicable to it,
including those relating to ERISA and labor matters and Environmental Laws and
Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
5.6. Canadian Pension and Benefit Plans.
(a) For each existing Canadian Pension Plan, each Credit Party shall
ensure that such plan retains its registered status under and is administered in
a timely manner in all material respects in accordance with the applicable
pension plan text, funding agreement, the ITA and all other applicable laws.
(b) For each Canadian Pension Plan hereafter adopted by any Credit
Party which is required to be registered under the ITA or any other applicable
laws, that Credit Party shall use its best efforts to seek and receive
confirmation in writing from the applicable Governmental Authorities to the
effect that such plan is unconditionally registered under the ITA and such other
applicable laws.
(c) For each existing and hereafter adopted Canadian Pension Plan
and Canadian Benefit Plan, each Credit Party shall in a timely fashion perform
in all material respects all obligations (including fiduciary, funding,
investment and administration obligations) required to be performed in
connection with such plan and the funding media therefor.
(d) Each Credit Party shall deliver to Agent if requested by Agent,
promptly after the filing thereof by any Credit Party with any applicable
Governmental Authority, copies of each annual and other return, report or
valuation with respect to each Canadian Pension Plan; promptly after receipt
thereof, a copy of any direction, order, notice, ruling or opinion that any
Credit Party may receive from any applicable Governmental Authority with respect
to any Canadian Pension Plan; and notification within 30 days of any increases
having a cost to such Credit Party in excess of C$100,000 per annum, in the
benefits of any existing Canadian Pension Plan or Canadian Benefit Plan, or the
establishment of any new Canadian Pension Plan or Canadian Benefit Plan, or the
commencement of contributions to any such plan to which any Credit Party was not
previously contributing.
5.7. Supplemental Disclosure. From time to time as may be requested
by Agent (which request will not be made more frequently than once each year
absent the occurrence and continuance of a Default or an Event of Default), the
Credit Parties shall supplement each Disclosure Schedule hereto, or any
representation herein or in any other Loan Document, with respect to any matter
hereafter arising that, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in such Disclosure
Schedule or as an exception to such representation or that is necessary to
correct any information
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in such Disclosure Schedule or representation which has been rendered inaccurate
thereby (and, in the case of any supplements to any Disclosure Schedule, such
Disclosure Schedule shall be appropriately marked to show the changes made
therein); provided that (a) no such supplement to any such Disclosure Schedule
or representation shall be or be deemed a waiver of any Default or Event of
Default resulting from the matters disclosed therein, except as consented to by
Agent and Requisite Lenders in writing; and (b) no supplement shall be required
or permitted as to representations and warranties that relate solely to the
Closing Date.
5.8. Intellectual Property. Each Credit Party will conduct its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person in any material respect.
5.9. Environmental Matters. Each Credit Party shall and shall cause
each Person within its control to: (a) conduct its operations and keep and
maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance that could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions that are appropriate or
necessary to maintain the value and marketability of the Real Estate in all
material respects or to otherwise comply with Environmental Laws and
Environmental Permits pertaining to the presence, generation, treatment,
storage, use, disposal, transportation or Release of any Hazardous Material on,
at, in, under, above, to, from or about any of its Real Estate; (c) notify Agent
promptly after such Credit Party becomes aware of any violation of Environmental
Laws or Environmental Permits or any Release on, at, in, under, above, to, from
or about any Real Estate that is reasonably likely to result in Environmental
Liabilities in excess of $50,000; and (d) promptly forward to Agent a copy of
any order, notice, request for information or any communication or report
received by such Credit Party in connection with any such violation or Release
or any other matter relating to any Environmental Laws or Environmental Permits
that could reasonably be expected to result in Environmental Liabilities in
excess of $50,000, in each case whether or not the Environmental Protection
Agency or any Governmental Authority has taken or threatened any action in
connection with any such violation, Release or other matter. If Agent at any
time has a reasonable basis to believe that there may be a violation of any
Environmental Laws or Environmental Permits by any Credit Party or any
Environmental Liability arising thereunder, or a Release of Hazardous Materials
on, at, in, under, above, to, from or about any of its Real Estate, that, in
each case, could reasonably be expected to have a Material Adverse Effect, then
each Credit Party shall, upon Agent's written request (i) cause the performance
of such environmental audits including subsurface sampling of soil and
groundwater, and preparation of such environmental reports, at Borrower's
expense, as Agent may from time to time reasonably request, which shall be
conducted by reputable environmental consulting firms reasonably acceptable to
Agent and shall be in form and substance acceptable to Agent, and (ii) permit
Agent or its representatives to have access to all Real Estate for the purpose
of conducting such environmental audits and testing as Agent deems appropriate,
including subsurface sampling of soil and groundwater. Borrower shall reimburse
Agent for the costs of such audits and tests and the same will constitute a part
of the Obligations secured hereunder.
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5.10. Landlords' Agreements, Mortgagee Agreements and Bailee
Letters. Each Credit Party shall use reasonable commercial efforts to obtain a
landlord's agreement, mortgagee agreement or bailee letter, as applicable, from
the lessor of each leased property, mortgagee of owned property or bailee with
respect to any warehouse, processor or converter facility or other location
where Collateral is stored or located, which agreement or letter shall contain a
waiver or subordination of all Liens or claims that the landlord, mortgagee or
bailee may assert against the Collateral at that location, and shall otherwise
be satisfactory in form and substance to Agent. With respect to such locations
or warehouse space leased or owned as of the Closing Date and thereafter, if
Agent has not received a landlord or mortgagee agreement or bailee letter within
thirty (30) days following the Closing Date (or, if later, as of the date such
location is acquired or leased), Borrower's Eligible Inventory at that location
shall, in Agent's discretion, be excluded from the Borrowing Base or be subject
to such Reserves as may be established by Agent in its reasonable credit
judgment. After the Closing Date, no real property or warehouse space shall be
leased by any Credit Party and no Inventory shall be shipped to a processor,
converter or consignee under arrangements established after the Closing Date
without the prior written consent of Agent (which consent, in Agent's
discretion, may be conditioned upon the exclusion from the Borrowing Base of
Eligible Inventory at that location or the establishment of Reserves acceptable
to Agent) or, unless and until a satisfactory landlord agreement or bailee
letter, as appropriate, shall first have been obtained with respect to such
location. Each Credit Party shall timely and fully pay and perform its
obligations under all leases and other agreements with respect to each leased
location or public warehouse where any Collateral is or may be located. If any
Credit Party proposes to acquire a fee ownership interest in Real Estate after
the Closing Date, it shall first provide to Agent a mortgage or deed of trust,
environmental audits, mortgage title insurance commitment, survey, and if
required by Agent supplemental casualty insurance and flood insurance all in
form and substance, satisfactory to Agent.
5.11. Interest Rate. Within thirty (30) days after the Closing Date,
Borrower shall enter into and maintain interest rate cap, swap or collar
agreements, or other agreements or arrangements designed to provide protection
against fluctuations in interest rates, which shall be on terms and with counter
parties acceptable to Agent, and pursuant to which Borrower is protected against
increases in interest rates from and after the date of such contracts as to a
notional amount of not less than Ninety Million Dollars ($90,000,000) for a
period of at least three (3) years.
5.12. Further Assurances. Each Credit Party executing this Agreement
agrees that it shall and shall cause each other Credit Party to, at such Credit
Party's expense and upon request of Agent, duly execute and deliver, or cause to
be duly executed and delivered, to Agent such further instruments and do and
cause to be done such further acts as may be necessary or proper in the
reasonable opinion of Agent to carry out more effectively the provisions and
purposes of this Agreement or any other Loan Document.
5.13. Term Loan C Tax Accrual Periods. Borrower and New Holdings
agree that, for federal income tax purposes, they will select "accrual periods"
(as defined in section 1272(a)(5) of the IRC and Treasury Regulation section
1.1272-1(b)(1)(ii)) with respect to
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Term Loan C such that the last day of each accrual period will coincide with an
Interest Payment Date or a date on which principal is paid with respect to Term
Loan C.
5.14. Year 2000. On or prior to November 15, 1999, (i) Borrower
shall install hardware and software and complete Year 2000 Corrective Actions
and Year 2000 Implementation Testing with respect to Healthrider retail stores
and (ii) Credit Parties shall eliminate all Year 2000 Problems, except where the
failure to eliminate the same could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate.
6. NEGATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties, except ICON of Canada, which severally agrees
only as to itself, that, without the prior written consent of Agent and the
Requisite Lenders, from and after the date hereof until the Termination Date:
6.1. Mergers, Subsidiaries, Etc.
No Credit Party shall directly or indirectly, by operation of law or
otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate
with, acquire all or substantially all of the assets or Stock of, or otherwise
combine with or acquire, any Person.
6.2. Investments; Loans and Advances. No Credit Party shall make or
permit to exist any investment in, or make, accrue or permit to exist loans or
advances of money to, any Person, through the direct or indirect lending of
money, holding of securities or otherwise, except that: (a) Borrower may hold
investments comprised of notes payable, or stock or other securities issued by
Account Debtors to Borrower pursuant to negotiated agreements with respect to
settlement of such Account Debtor's Accounts in the ordinary course of business;
(b) each Credit Party may maintain its existing investments in its Subsidiaries
as of the Closing Date; (c) Borrower may make intercompany loans to JumpKing and
ICON New Brunswick (which may only be reloaned to ICON of Canada) or ICON of
Canada in accordance with Section 6.3; (d) Borrower may invest not more than
$15,000,000 in the equity of ICON of Canada on the Closing Date; (e) Borrower
may invest up to $25,000 per year in International Holdings; and (f) so long as
no Default or Event of Default has occurred and is continuing and there is no
outstanding Revolving Loan balance, Borrower may make investments, subject to
Control Letters in favor of Agent for the benefit of Lenders, in (i) marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency thereof maturing within one year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one year from
the date of creation thereof and currently having the highest rating obtainable
from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.,
(iii) certificates of deposit maturing no more than one year from the date of
creation thereof issued by commercial banks incorporated under the laws of the
United States of America, each having combined capital, surplus and undivided
profits of not less than $300,000,000 and having a senior unsecured rating of
"A" or better by a nationally recognized rating agency (an "A Rated Bank"), (iv)
time deposits maturing no more than 30 days from the date of creation thereof
with A Rated Banks and (v) mutual funds that invest solely in one or more of the
investments
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described in clauses (i) through (iv) above; (g) investments in European
Subsidiaries not to exceed $100,000 in the aggregate; (h) Borrower may make
loans expressly permitted in this Section 6; and (i) other investments not
exceeding $100,000 in the aggregate at any time outstanding.
6.3. Indebtedness.
(a) No Credit Party shall create, incur, assume or permit to exist
any Indebtedness, except (without duplication) (i) Indebtedness secured by
purchase money security interests and Capital Leases permitted in Section
6.7(c), (ii) the Loans and the other Obligations, (iii) existing Indebtedness as
of the Closing Date described in Disclosure Schedule (6.3) and refinancings
thereof or amendments or modifications thereof that do not have the effect of
increasing the principal amount thereof or changing the amortization thereof
(other than to extend the same) and that are otherwise on terms and conditions
no less favorable to any Credit Party, Agent or any Lender, as determined by
Agent in its reasonable discretion, than the terms of the Indebtedness being
refinanced, amended or modified, (iv) Indebtedness specifically permitted under
Section 6.17, (v) other unsecured Indebtedness not to exceed $100,000 in the
aggregate; (vi) Indebtedness consisting of intercompany loans and advances made
by Borrower to JumpKing, ICON New Brunswick (for the sole purpose of reloaning
the proceeds thereof to ICON of Canada) and ICON of Canada; provided, that: (A)
JumpKing, ICON New Brunswick or ICON of Canada shall have executed and delivered
to Borrower, on the Closing Date, demand notes (the "Intercompany Notes") to
evidence any such intercompany Indebtedness owing by JumpKing, ICON New
Brunswick or ICON of Canada to Borrower, which Intercompany Notes shall be in
form and substance satisfactory to Agent and shall be pledged and delivered to
Agent pursuant to the applicable Pledge Agreement or Security Agreement as
additional collateral security for the Obligations; (B) Borrower shall record
all intercompany transactions on its books and records in a manner reasonably
satisfactory to Agent; (C) the obligations of JumpKing, ICON New Brunswick and
ICON of Canada under such Intercompany Notes shall be subordinated to the
Obligations of JumpKing, ICON New Brunswick and ICON of Canada as a Guarantor in
a manner satisfactory to Agents; and (D) Borrower shall have Net Borrowing
Availability of not less than $15,000,000 after giving effect to any such
intercompany loan; (vii) so long as no Event of Default has occurred and is
continuing, Permitted Subordinated Debt; (viii) Subordinated Debt issued to
terminated employees in accordance with Section 6.14(g); and (ix) the CS First
Boston Debt incurred by New Holdings.
(b) No Credit Party shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any, interest
or other amount payable in respect of any Indebtedness prior to its due date or
maturity, other than (i) the Obligations (other than Term Loan C), (ii)
Indebtedness secured by a Permitted Encumbrance if the asset securing such
Indebtedness has been sold or otherwise disposed of in accordance with Section
6.8(b) and (iii) so long as no Event of Default has occurred and is continuing,
the Subordinated Notes and Term Loan C with the proceeds of Permitted
Subordinated Debt; and provided that the CS First Boston Debt may be converted
into equity of New Holdings.
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6.4. Employee Loans and Affiliate Transactions.
(a) Except as otherwise expressly permitted in this Section 6 with
respect to Affiliates and equity investments in New Holdings pursuant to the
Recapitalization Documents, no Credit Party shall enter into or be a party to
any transaction with any other Credit Party or any Affiliate thereof except in
the ordinary course of and pursuant to the reasonable requirements of such
Credit Party's business and upon fair and reasonable terms that are no less
favorable to such Credit Party than would be obtained in a comparable arm's
length transaction with a Person not an Affiliate of such Credit Party and in
compliance with the restrictions on granting financial assistance under
applicable laws. In addition, if any such transaction or series of related
transactions involves payments by a Credit Party in excess of $250,000 in the
aggregate, the terms of these transactions must be disclosed in advance to Agent
and Lenders. All such transactions existing as of the Closing Date are described
in Disclosure Schedule 6.4, excluding potential indemnification obligations to
Affiliates of Borrower pursuant to the Recapitalization Documents.
(b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except (i) loans to its
respective employees on an arm's-length basis in the ordinary course of business
consistent with past practices for travel expenses, relocation costs and similar
purposes up to a maximum of $1,200,000 in the aggregate at any one time
outstanding and loans to management employees described in Disclosure Schedule
6.4.
(c) Except for bonus payments on the Closing Date, as described on
Disclosure Schedule 6.4, the Credit Parties shall not pay compensation as
salaries or otherwise in excess of $1,000,000 in the aggregate per year to Scott
Watterson and Gary Stevenson, subject to annual increases approved by a
disinterested majority of Borrower's Board of Directors, plus bonuses in
accordance with the formula set forth in Section 4 of the Employment Agreements
as in effect on the Closing Date, plus, subject to Section 6.14, management fees
to Scott Watterson and Gary Stevenson of $67,000 in the aggregate per year.
6.5. Capital Structure and Business. No Credit Party shall (a) make
any changes in any of its business objectives, purposes or operations that could
in any way adversely affect the repayment of the Loans or any of the other
Obligations or could reasonably be expected to have or result in a Material
Adverse Effect, (b) make any change in its capital structure as described in
Disclosure Schedule (3.8), including the issuance of any shares of Stock,
warrants or other securities convertible into Stock or any revision of the terms
of its outstanding Stock; provided that New Holdings may make a Public Offering
of its common Stock so long as (i) the proceeds thereof are applied in
prepayment of the Obligations as required by Section 1.3(b)(iii), and (ii) no
Change of Control occurs after giving effect thereto, or (c) amend its charter
or bylaws in a manner that would adversely affect Agent or Lenders or such
Credit Party's duty or ability to repay the Obligations. No Credit Party shall
engage in any business other than the businesses currently engaged in by it.
6.6. Guaranteed Indebtedness. No Credit Party shall create, incur,
assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement
of instruments
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or items of payment for deposit to the general account of any Credit Party, and
(b) for Guaranteed Indebtedness incurred for the benefit of any other Credit
Party if the primary obligation is expressly permitted by this Agreement and (c)
a guaranty by Borrower of the obligations of F.G. Aviation, Inc. in an amount
not to exceed $2,100,000.
6.7. Liens. No Credit Party shall create, incur, assume or permit to
exist any Lien on or with respect to its Accounts or any of its other properties
or assets (whether now owned or hereafter acquired) except for (a) Permitted
Encumbrances; (b) Liens in existence on the date hereof and listed on Disclosure
Schedule (6.7); (c) Liens created after the date hereof by conditional sale or
other title retention agreements (including Capital Leases) or in connection
with purchase money Indebtedness with respect to Equipment and Fixtures acquired
by any Credit Party in the ordinary course of business, involving the incurrence
of an aggregate amount of purchase money Indebtedness and Capital Lease
Obligations of not more than $6,000,000 outstanding at any one time for all such
Liens (provided that such Liens attach only to the assets subject to such
purchase money debt and such Indebtedness is incurred within twenty (20) days
following such purchase and does not exceed 100% of the purchase price of the
subject assets); and (d) other Liens securing, other Indebtedness not exceeding
$100,000 in the aggregate at any time outstanding, so long as such Liens do not
attach to any Accounts or Inventory. In addition, no Credit Party shall become a
party to any agreement, note, indenture or instrument, or take any other action,
that would prohibit the creation of a Lien on any of its properties or other
assets in favor of Agent, on behalf of itself and Lenders, as additional
collateral for the Obligations, except operating leases, purchase money
installment contracts, Capital Leases or Licenses which prohibit Liens upon the
assets that are subject thereto.
6.8. Sale of Stock and Assets. No Credit Party shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including the Stock of any of its Subsidiaries (whether in a public or a private
offering or otherwise) or any of its Accounts, other than (a) the sale of
Inventory in the ordinary course of business, (b) the sale, transfer, conveyance
or other disposition for cash by a Credit Party of (i) Equipment or Fixtures
that are obsolete or no longer used or useful in such Credit Party's business
and having a value not exceeding $500,000 in the aggregate in any Fiscal Year
and (ii) other Equipment and Fixtures having a value not exceeding $1,000,000 in
the aggregate in any Fiscal Year, (c) non-recourse sales of consumer Accounts on
terms approved in advance in writing by Agents and (d) non-recourse sales of
Accounts owing by Account Debtors that are in bankruptcy, or whose Accounts are
excluded from Eligible Accounts for reasons related to the Account Debtor's
creditworthiness, on terms approved in advance in writing by Agents. Without
limiting the generality of the foregoing, no Credit Party will sell any of its
Patents or Trademarks or license any of its Patents or Trademarks to third
parties under licenses that (i) restrict the ability of the Credit Party (or
Agent) to sell the subject Patent or Trademark or (ii) diminish or impair the
value of the subject Patent or Trademark as a salable asset of the applicable
Credit Party. With respect to any disposition of assets or other properties
permitted pursuant to clause (b) above, Agent agrees on reasonable prior written
notice to release its Lien on such assets or other properties in order to permit
the applicable Credit Party to effect such disposition and shall execute and
deliver to Borrower, at Borrower's expense, appropriate UCC-3 termination
statements and other releases as reasonably requested by Borrower.
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6.9. ERISA. No Credit Party shall, or shall cause or permit any
ERISA Affiliate to, cause or permit to occur an event that could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA or cause or permit to occur an ERISA Event to the extent such ERISA Event
could reasonably be expected to have a Material Adverse Effect.
6.10. Financial Covenants. Borrower shall not breach or fail to
comply with any of the Financial Covenants.
6.11. Hazardous Materials. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Estate where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than
such violations or Environmental Liabilities that could not reasonably be
expected to have a Material Adverse Effect.
6.12. Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets.
6.13. Cancellation of Indebtedness. No Credit Party shall cancel any
claim or debt owing to it, except for reasonable consideration negotiated on an
arm's-length basis and in the ordinary course of its business consistent with
past practices.
6.14. Restricted Payments. No Credit Party shall make any Restricted
Payment, except (a) intercompany loans and advances between Borrower and
JumpKing or between Borrower and ICON New Brunswick or ICON of Canada, as the
case may be, to the extent permitted by Section 6.3, (b) dividends and
distributions by Subsidiaries of Borrower paid directly or indirectly to
Borrower, (c) employee loans permitted under Section 6.4(b) above, (d) payments
of principal and interest of Intercompany Notes issued in accordance with
Section 6.3; (e) scheduled payments of interest with respect to Subordinated
Notes and scheduled payments of interest and principal with respect to the
Residual 13% Subordinated Notes, provided, that (i) no Event of Default under
Section 8.1(a) has occurred and is continuing and no Payment Blockage Period (as
defined in the Subordinated Notes Documents) is in effect at the time any
payment otherwise permitted under clause (e) is to be made, (ii) the timing of
the payments referred to in clause (e) shall be set at dates that are
satisfactory to Agents; (f) payments of management fees pursuant to the
Management Agreements, not to exceed $800,000 in the aggregate in any Fiscal
Year to all of Bain Capital, Inc., Credit Suisse First Boston, Scott Watterson,
Gary Stevenson and the Affiliates of any of the foregoing and arrearages under
the management agreement between Bain Capital, Inc. and Borrower dated November
17, 1994 (the "Old Management Agreement"); provided, however, that (1) no such
management fees shall be paid so long as any Event of Default has occurred and
is continuing (payments accrued during such period may be paid when the subject
Events of Default have been cured or waived) and (2) the management fees payable
with respect to Fiscal Year 2000 and arrearages under the Old Management
Agreement shall be payable in one installment of $600,000 in the aggregate plus
$585,000 in arrearages payable to Bain Capital, Inc. under the Old Management
Agreement on
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April 30, 2000 and one installment of $200,000 in the aggregate on July 31, 2000
and management fees payable with respect to subsequent Fiscal Years shall be
payable in four equal quarterly installments sixty (60) days after the end of
each Fiscal Quarter, (g) payments to New Holdings necessary to enable New
Holdings: (1) to satisfy its federal, state and local income tax obligations
that are the result of net consolidated income of Borrower and its Subsidiaries
being attributed to New Holdings; (2) to pay the fees and expenses necessary to
maintain New Holdings' corporate existence and good standing; (3) to pay
accounting fees attributable to Borrower and its Subsidiaries; and (4) payments
to buy back the New Holdings' stock of any employee who has died or whose
employment with Borrower or its Subsidiaries has otherwise terminated, such
repurchase payments not to exceed $500,000 in the aggregate in any Fiscal Year
in cash payments or otherwise by the issuance of Subordinated Debt, (h) bonuses
and other payments (including the forgiveness of Indebtedness) to Affiliates of
Borrower as set forth on Disclosure Schedule (6.4) hereto, and (i) conversion of
the CS First Boston Debt into equity of New Holdings..
6.15. Change of Corporate Name or Location; Change of Fiscal Year.
No Credit Party shall (a) change its corporate name, or (b) change its chief
executive office, domicile (within the meaning of the Quebec Civil Code),
principal place of business, corporate offices or warehouses or locations at
which Collateral is held or stored, or the location of its records concerning
the Collateral, in each case without at least thirty (30) days prior written
notice to Agent and after Agent's written acknowledgment that any reasonable
action requested by Agent in connection therewith, including to continue the
perfection of any Liens in favor of Agent, on behalf of Agent and Lenders, or,
in favor of Agent and Lenders, as applicable, in any Collateral, has been
completed or taken, and provided that any such new location shall be in the
continental United States of America or Canada. Without limiting the generality
of the foregoing, no Credit Party shall change its name, identity or corporate
structure in any manner that might make any financing or continuation statement
filed in connection herewith seriously misleading within the meaning of Section
9-402(7) of the Code or any other then applicable provision of the Code, or
materially misleading within the meaning of any other applicable law, except
upon prior written notice to Agent and Lenders and after Agent's written
acknowledgment that any reasonable action requested by Agent in connection
therewith, including to continue the perfection of any Liens in favor of Agent,
on behalf of Agent and Lenders, in any Collateral, has been completed or taken.
No Credit Party shall change its Fiscal Year.
6.16. No Impairment of Intercompany Transfers. No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents) that could directly or indirectly restrict, prohibit or require the
consent of any Person with respect to the payment of dividends or distributions
or the making or repayment of intercompany loans by a Subsidiary of Borrower to
Borrower.
6.17. No Speculative Transactions. No Credit Party shall engage in
any transaction involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.
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6.18. Leases; Real Estate Purchases. No Credit Party shall enter
into any operating lease for Equipment, if the aggregate of all such operating
lease payments payable in any year for all Credit Parties on a consolidated
basis would exceed $5,000,000. No Credit Party shall purchase fee simple
ownership interest in Real Estate.
6.19. Changes Relating to Subordinated Debt and Other Agreements. No
Credit Party shall change or amend the terms of the Subordinated Notes Documents
or any other Subordinated Debt (or any indenture or agreement in connection
therewith), the Recapitalization Documents, documents governing or evidencing
the CS First Boston Debt, the Management Agreements, the Employment Agreements,
or the Stockholders Agreement, except changes or amendments that do not
adversely affect the rights or interests of Lenders, as determined by Agents in
advance in writing.
6.20. Holdcos. New Holdings shall not engage in any trade or
business, or own any assets (other than Stock of Borrower) or incur any
Indebtedness or Guaranteed Indebtedness (other than the Obligations and the CS
First Boston Debt). ICON New Brunswick shall not engage in any trade or
business, or own any assets (other than a Borrower Account) or incur any
Indebtedness or Guaranteed Indebtedness (other than a guaranty of the
Obligations). International Holdings shall not engage in any trade or business
or incur any Indebtedness or Guaranteed Indebtedness (other than a guaranty of
the Obligations) or own any assets (other than the Stock of ICON Health &
Fitness, Ltd., ICON OS, Inc., ICON of Canada and ICON New Brunswick. The Old
Holdcos shall not engage in any trade or business or incur any Indebtedness or
Guaranteed Indebtedness, except that Intermediate Holdings may remain obligated
for up to $7,000,000 of its 14% Senior Discount Notes due 2006. The Old Holdcos
will not own any assets, except that Ultimate Holdings may own all of the Stock
of Intermediate Holdings; Intermediate Holdings may own all of the Stock of
Holdings and Holdings may own .01% of the Stock of New Holdings.
7. TERM
7.1. Termination. The financing arrangements contemplated hereby
shall be in effect until the Commitment Termination Date, and the Loans and all
other Obligations shall be automatically due and payable in full on such date.
7.2. Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of the Credit Parties or the rights of Agent
and Lenders relating to any unpaid portion of the Loans or any other
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon the Credit Parties, and all rights of Agent
and each Lender, all as contained in the Loan Documents, shall not terminate or
expire, but rather shall survive any such termination or cancellation and shall
continue in full force and effect until
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the Termination Date; provided, that the provisions of Section 11, the payment
obligations under Sections 1.15 and 1.16, and the indemnities contained in the
Loan Documents shall survive the Termination Date.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1. Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an "Event
of Default" hereunder:
(a) Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, or (ii) fails to pay or reimburse Agents or
Lenders for any expense reimbursable hereunder or under any other Loan Document
within ten (10) days following Agent's demand for such reimbursement or payment
of expenses.
(b) Any Credit Party fails or neglects to perform, keep or observe
any of the provisions of Sections 1.4, 1.8, 1.14, 5.4(a) and 5.4(c), 5.6 or 6,
or any of the provisions set forth in Annexes C or G, respectively.
(c) Borrower fails or neglects to perform, keep or observe any of
the provisions of Section 4 or any provisions set forth in Annexes E or F,
respectively, and the same shall remain unremedied for three (3) Business Days
or more.
(d) Any Credit Party fails or neglects to perform, keep or observe
any other provision of this Agreement or of any of the other Loan Documents
(other than any provision embodied in or covered by any other clause of this
Section 8.1) and the same shall remain unremedied for thirty (30) days or more.
(e) A default or breach occurs under any other agreement, document
or instrument to which any Credit Party is a party that is not cured within any
applicable grace period therefor, and such default or breach (i) involves the
failure to make any payment when due in respect of any Indebtedness (other than
the Obligations) of any Credit Party in excess of $500,000 in the aggregate, or
(ii) causes, or permits any holder of such Indebtedness or a trustee to cause,
Indebtedness or a portion thereof in excess of $500,000 in the aggregate to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, regardless of whether such default is waived, or such right is
exercised, by such holder or trustee.
(f) Any information contained in any Borrowing Base Certificate is
untrue or incorrect in any respect (other than inadvertent, immaterial errors
not exceeding $100,000 in the aggregate in any Borrowing Base Certificate), or
any representation or warranty herein or in any Loan Document or in any written
statement, report, financial statement or certificate (other than a Borrowing
Base Certificate) made or delivered to Agent or any Lender by any Credit Party
is untrue or incorrect in any material respect as of the date when made or
deemed made.
(g) Assets of any Credit Party with a fair market value of $100,000
or more are attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the
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possession of any receiver, trustee, custodian or assignee for the benefit of
creditors of any Credit Party and such condition continues for thirty (30) days
or more.
(h) A case or proceeding is commenced against any Credit Party
seeking a decree or order in respect of such Credit Party (i) under the
Insolvency Laws, as now constituted or hereafter amended or any other applicable
federal, state or foreign bankruptcy or other similar law, (ii) appointing a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) for such Credit Party or for any substantial part of any such Credit
Party's assets, or (iii) ordering the winding-up or liquidation of the affairs
of such Credit Party, and such case or proceeding shall remain undismissed or
unstayed for sixty (60) days or more or a decree or order granting the relief
sought in such case or proceeding by a court of competent jurisdiction.
(i) Any Credit Party (i) files a petition seeking relief under the
Insolvency Laws, as now constituted or hereafter amended, or any other
applicable federal, state or foreign bankruptcy or other similar law, (ii)
consents or fails to contest in a timely and appropriate manner to the
institution of proceedings thereunder or to the filing of any such petition or
to the appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for such Credit Party or
for any substantial part of any such Credit Party's assets, (iii) makes an
assignment for the benefit of creditors, (iv) files a proposal or notice of
intention to file a proposal under any Insolvency Laws, (v) takes any corporate
action in furtherance of any of the foregoing, (vi) admits in writing its
inability to, or is generally unable to, pay its debts as such debts become due,
or (vii) is not Solvent.
(j) A final judgment or judgments for the payment of money in excess
of $1,000,000 in the aggregate at any time are outstanding against one or more
of the Credit Parties and the same are not, within thirty (30) days after the
entry thereof, discharged or execution thereof stayed or bonded pending appeal,
or such judgments are not discharged prior to the expiration of any such stay.
(k) Any material provision of any Loan Document for any reason
ceases to be valid, binding and enforceable in accordance with its terms (or any
Credit Party shall challenge the enforceability of any Loan Document or shall
assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or
otherwise is not valid, binding and enforceable in accordance with its terms),
or any Lien created under any Loan Document shall cease to be a valid and
perfected first priority Lien (except as otherwise permitted herein or therein)
in any of the Collateral purported to be covered thereby.
(l) Any Change of Control occurs.
8.2. Remedies. (a) If any Default or Event of Default has occurred
and is continuing, Agent may (and at the written request of the Requisite
Revolving Lenders shall), without notice, suspend the Revolving Loan facility
with respect to additional Advances and/or the incurrence of additional Letter
of Credit Obligations, whereupon any additional Advances and the incurrence of
additional Letter of Credit Obligations shall be made or extended in Agent's
sole discretion (or in the sole discretion of the Requisite Revolving Lenders,
if such
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suspension occurred at their direction) so long as such Default or Event of
Default is continuing. If any Event of Default has occurred and is continuing,
Agent may (and at the written request of Requisite Lenders shall), without
notice except as otherwise expressly provided herein, increase the rate of
interest applicable to the Loans and the Letter of Credit Fees to the Default
Rate.
(b) If any Event of Default has occurred and is continuing, Agent
may (and at the written request of the Requisite Lenders shall), without notice,
(i) terminate the Revolving Loan facility with respect to further Advances or
the incurrence of further Letter of Credit Obligations; (ii) declare all or any
portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be
cash collateralized as provided in Annex B, all without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by
Borrower and each other Credit Party; or (iii) exercise any rights and remedies
provided to Agent under the Loan Documents or at law or equity, including all
remedies provided under the Code; provided, that upon the occurrence of an Event
of Default specified in Sections 8.1(h) or (i), the Revolving Loan facility
shall be immediately terminated and all of the Obligations, including the
Revolving Loan, shall become immediately due and payable without declaration,
notice or demand by any Person.
8.3. Priority of Payment. Notwithstanding any provision of this
Agreement to the contrary, following acceleration of the Loans (including an
automatic acceleration upon the occurrence of an Event of Default under Sections
8.1(h) or (i)), all payments received in payment of the Loans will be applied:
(A) to the extent that such payments arise from a refinancing of the Obligations
or the sale of the Credit Parties as a going concern: (1) to Fees and Agents'
expenses reimbursable hereunder; (2) to interest on the Swing Line Loan; (3) to
principal payments on the Swing Line Loan; (4) to interest on the Revolving
Loan, Term Loan A, Term Loan B and the IP Loan, ratably in proportion to the
interest accrued as to each such Loan; (5) to principal payments on the
Revolving Loan, Term Loan A, Term Loan B and the IP Loan and to provide cash
collateral for Letter of Credit Obligations in the manner described in Annex B,
ratably to the aggregate, combined principal balance of such Loans and
outstanding Letter of Credit Obligations; (6) to all other Obligations (other
than principal and interest on Term Loan C), including expenses of Lenders to
the extent reimbursable under Section 11.3; (7) to interest on Term Loan C; and
(8) to the principal of Term Loan C; (B) to the extent that such payments
constitute proceeds from the sale or other disposition of Collateral (other than
IP Collateral) or the exercise of offset rights against a Credit Party's bank
account(s): (1) to Fees and Agents' expenses reimbursable hereunder; (2) to
interest on the Swing Line Loan; (3) to principal payments on the Swing Line
Loan; (4) to interest on the Revolving Loan, Term Loan A and Term Loan B,
ratably in proportion to the interest accrued as to each such Loan; (5) to
principal payments on the Revolving Loan, Term Loan A and Term Loan B and to
provide cash collateral for Letter of Credit Obligations in the manner described
in Annex B, ratably to the aggregate, combined principal balance of such Loans
and outstanding Letter of Credit Obligations; (6) to interest on the IP Loan;
(7) to principal of the IP Loan; (8) to all other Obligations (other than
principal and interest on Term Loan C), including expenses of Lenders to the
extent reimbursable under Section 11.3; (9) to interest on Term Loan C; and (10)
to principal of Term Loan C; (C) to the extent that such payments constitute
proceeds from the sale or other disposition of IP Collateral: (1) to Agents'
expenses reimbursable hereunder; (2) to interest on the IP Loan; (3) to
principal of the IP Loan; (4) to interest on the Swing Line Loan; (5) to
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principal payments on the Swing Line Loan; (6) to Fees and to interest on the
Revolving Loan, Term Loan A and Term Loan B, ratably in proportion to the
interest accrued as to each such Loan; (7) to principal payments on the
Revolving Loan, Term Loan A and Term Loan B and to provide cash collateral for
Letter of Credit Obligations in the manner described in Annex B, ratably to the
aggregate, combined principal balance of such Loans and outstanding Letter of
Credit Obligations; (8) to all other Obligations (other than principal and
interest on Term Loan C), including expenses of Lenders to the extent
reimbursable under Section 11.3; (9) to interest on Term Loan C; and (10) to
principal of Term Loan C.
8.4. Waivers by Credit Parties. Except as otherwise provided for in
this Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Agent on which any Credit Party may in any way be
liable, and hereby ratifies and confirms whatever Agent may do in this regard,
(b) all rights to notice and a hearing prior to Agent's taking possession or
control of, or to Agent's replevy, attachment or levy upon, the Collateral or
any bond or security that might be required by any court prior to allowing Agent
to exercise any of its remedies, and (c) the benefit of all valuation,
appraisal, marshaling and exemption laws.
8.5. Receivership. Without limiting the generality of the foregoing
or limiting in any way the rights of Agent or the Lenders under the Collateral
Documents or otherwise under applicable law, at any time after (i) the entire
principal balance of any Loan shall have become due and payable (whether at
maturity, by acceleration or otherwise) and (ii) the Agent shall have provided
to the Credit Parties not less than ten (10) days' prior written notice of its
intention to apply for a receiver, the Agent shall be entitled to apply for and
have a receiver appointed under state or federal law by a court of competent
jurisdiction in any action taken by the Agent to enforce the Lenders' and
Agent's rights and remedies hereunder and under the Collateral Documents in
order to manage, protect, preserve, sell and otherwise dispose of all or any
portion of the Collateral and continue the operation of the business of the
Credit Parties, and to collect all revenues and profits thereof and apply the
same to the payment of all expenses and other charges of such receivership,
including the compensation of the receiver, and to the payment of the Loans and
other fees and expenses due hereunder and under the Collateral Documents as
aforesaid until a sale or other disposition of such Collateral shall be finally
made and consummated. THE CREDIT PARTIES HEREBY IRREVOCABLY CONSENT TO AND WAIVE
ANY RIGHT TO OBJECT TO OR OTHERWISE CONTEST THE APPOINTMENT OF A RECEIVER AS
PROVIDED ABOVE. THE CREDIT PARTIES (I) GRANT SUCH WAIVER AND CONSENT KNOWINGLY
AFTER HAVING DISCUSSED THE IMPLICATIONS THEREOF WITH COUNSEL, (II) ACKNOWLEDGE
THAT (A) THE UNCONTESTED RIGHT TO HAVE A RECEIVER APPOINTED FOR THE FOREGOING
PURPOSES IS CONSIDERED ESSENTIAL BY THE LENDERS IN CONNECTION WITH THE
ENFORCEMENT OF THE LENDERS' AND AGENT'S RIGHTS AND REMEDIES HEREUNDER AND UNDER
THE COLLATERAL DOCUMENTS, AND (B) THE AVAILABILITY OF SUCH APPOINTMENT AS A
REMEDY UNDER THE FOREGOING CIRCUMSTANCES WAS A MATERIAL FACTOR IN INDUCING THE
LENDERS TO
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MAKE THE LOANS TO THE BORROWER; AND (III) AGREE TO ENTER INTO ANY AND ALL
STIPULATIONS IN ANY LEGAL ACTIONS, OR AGREEMENTS OR OTHER INSTRUMENTS IN
CONNECTION WITH THE FOREGOING AND TO COOPERATE FULLY WITH THE AGENT AND THE
LENDERS IN CONNECTION WITH THE ASSUMPTION AND EXERCISE OF CONTROL BY THE
RECEIVER OVER ALL OR ANY PORTION OF THE COLLATERAL. THE LENDERS AND THE AGENT
ACKNOWLEDGE AND AGREE THAT NOTHING IN THIS SECTION SHALL BE DEEMED TO CONSTITUTE
A WAIVER OF THE CREDIT PARTIES' RIGHT TO FILE FOR PROTECTION UNDER TITLE 11 OF
THE UNITED STATES CODE AT ANY TIME PRIOR TO THE APPOINTMENT OF A RECEIVER.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1. Assignment and Participations.
(a) The Credit Parties signatory hereto consent to the sale of
participations in, at any time or times, the Loan Documents, Loans, Letter of
Credit Obligations and any Commitment or of any portion thereof or interest
therein, including any Lender's rights, title, interests, remedies, powers or
duties thereunder. Any assignment by a Lender shall: (i) require the consent of
Agent (which consent shall not be unreasonably withheld or delayed with respect
to a Qualified Assignee) and the execution of an assignment agreement (an
"Assignment Agreement") substantially in the form attached hereto as Exhibit
9.1(a) and otherwise in form and substance satisfactory to, and acknowledged by,
Agent; (ii) be conditioned on such assignee Lender representing to the assigning
Lender and Agent that it is purchasing the applicable Loans to be assigned to it
for its own account, for investment purposes and not with a view to the
distribution thereof; (iii) if a partial assignment, be in an amount at least
equal to $5,000,000 and, after giving effect to any such partial assignment, the
assigning Lender shall have retained Commitments in an amount at least equal to
$5,000,000; and (iv) include a payment to Agent of an assignment fee of $3,500.
In the case of an assignment by a Lender under this Section 9.1, the assignee
shall have, to the extent of such assignment, the same rights, benefits and
obligations as all other Lenders hereunder. Notwithstanding the foregoing, an
assignment by a Lender to a Qualified Assignee under common ownership and
control with such Lender does not require Agent's consent and is not subject to
the $3,500 assignment fee. The assigning Lender shall be relieved of its
obligations hereunder with respect to its Commitments or assigned portion
thereof from and after the date of such assignment. Borrower hereby acknowledges
and agrees that any assignment shall give rise to a direct obligation of
Borrower to the assignee and that the assignee shall be considered to be a
"Lender." In all instances, each Lender's liability to make Loans hereunder
shall be several and not joint and shall be limited to such Lender's Pro Rata
Share of the applicable Commitment. In the event Agent or any Lender assigns or
otherwise transfers all or any part of the Obligations, Agent or any such Lender
shall so notify Borrower and Borrower shall, upon the request of Agent or such
Lender, execute new Notes in exchange for the Notes, if any, being assigned.
Notwithstanding the foregoing provisions of this Section 9.1(a), any Lender may
at any time pledge the Obligations held by it and such Lender's rights under
this Agreement and the other Loan Documents to a Federal Reserve Bank, and any
lender that is an investment fund may assign the Obligations held by it and such
Lender's rights under this Agreement and the other Loan Documents to another
investment fund managed by the same investment advisor;
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provided, that no such pledge to a Federal Reserve Bank shall release such
Lender from such Lender's obligations hereunder or under any other Loan
Document. Upon any transfer of an interest in Term Loan C, the substitute notes
evidencing such transfer shall bear the legend required by IRC Section
1275(c)(1) and Treasury Regulation 1.275-3(b). Credit Parties' consent to an
assignment of Commitments is not required (i) if the assignee is a Qualified
Assignee or (ii) if the assignee is not a Qualified Assignee, but an Event of
Default has occurred and is continuing. Agent's consent to an assignment of
Commitments is not required if the assignment is made by a Lender to one or more
Qualified Assignees and such sale is made in connection with a sale of all or
substantially all of that Lender's loan portfolio.
(b) Any participation by a Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrower hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation (other than a
participant that is a majority-owned Subsidiary of the parent of such Lender)
shall not be entitled to require such Lender to take or omit to take any action
hereunder except actions directly affecting (i) any reduction in the principal
amount of, or interest rate or Fees payable with respect to, any Loan in which
such holder participates, (ii) any extension of the scheduled amortization of
the principal amount of any Loan in which such holder participates or the final
maturity date thereof, and (iii) any release of all or substantially all of the
Collateral (other than in accordance with the terms of this Agreement, the
Collateral Documents or the other Loan Documents). Solely for purposes of
Sections 1.13, 1.15, 1.16(a) and (b) and 9.8, Borrower acknowledges and agrees
that a participation shall give rise to a direct obligation of Borrower to the
participant and the participant shall be considered to be a "Lender." Except as
set forth in the preceding sentence neither Borrower nor any other Credit Party
shall have any obligation or duty to any participant. Neither Agent nor any
Lender (other than the Lender selling a participation) shall have any duty to
any participant and may continue to deal solely with the Lender selling a
participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 9.1, no Lender
shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.
(d) Each Credit Party executing this Agreement shall assist any
Lender permitted to sell assignments or participations under this Section 9.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Credit Parties and their respective affairs
contained in any selling materials provided by it and all other information
provided by it and included in such materials, except that any Projections
delivered by Borrower shall only be certified by Borrower as having been
prepared by Borrower in compliance with the representations contained in Section
3.4(c).
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(e) A Lender may furnish any information concerning Credit Parties
in the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants). Each Lender shall obtain
from assignees or participants confidentiality covenants substantially
equivalent to those contained in Section 11.8.
(f) So long as no Event of Default has occurred and is continuing,
no Lender shall assign or sell participations in any portion of its Loans or
Commitments to a potential Lender or participant, if, as of the date of the
proposed assignment or sale, the assignee Lender or participant would be subject
to capital adequacy or similar requirements under Section 1.16(a), increased
costs under Section 1.16(b), an inability to fund LIBOR Loans under Section
1.16(c), or withholding taxes in accordance with Section 1.15(a).
9.2. Appointment of Agent. GE Capital is hereby appointed to act on
behalf of all Lenders as Agent and Fleet is appointed as Syndication Agent under
this Agreement and the other Loan Documents. The provisions of this Section 9.2
are solely for the benefit of Agents and Lenders and no Credit Party nor any
other Person shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and the other Loan Documents, each Agent shall act solely as an agent of Lenders
and does not assume and shall not be deemed to have assumed any obligation
toward or relationship of agency or trust with or for any Credit Party or any
other Person. Agents shall have no duties or responsibilities except for those
expressly set forth in this Agreement and the other Loan Documents. The duties
of Agents shall be mechanical and administrative in nature and Agents shall not
have, or be deemed to have, by reason of this Agreement, any other Loan Document
or otherwise a fiduciary relationship in respect of any Lender. No Agent nor any
of their Affiliates nor any of their respective officers, directors, employees,
agents or representatives shall be liable to any Lender for any action taken or
omitted to be taken by it hereunder or under any other Loan Document, or in
connection herewith or therewith, except for damages caused by its or their own
gross negligence or willful misconduct. Except as expressly set forth herein and
in the other Loan Documents, neither Agent shall have any duty to disclose, or
shall be liable for the failure to disclose, any information relating to any
Credit Party or any of their respective Subsidiaries that is communicated to or
obtained by such Agent or any of its Affiliates in any capacity. Neither Agent
shall be deemed to have knowledge of any Default or Event of Default unless and
until written notice thereof is given to such Agent by the Borrower or a Lender,
and neither Agent shall be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in, or in
connection with, this Agreement or the other Loan Documents, (ii) the contents
of any certificate, report or other document delivered hereunder or under any of
the other Loan Documents or in connection herewith of therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or in any other Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, the other Loan
Documents or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Section 2 or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to Agents.
If Agent requests instructions from Requisite Lenders, Requisite
Revolving Lenders or all affected Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Loan
Document, then Agent shall be entitled to
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refrain from such act or taking such action unless and until Agent shall have
received instructions from Requisite Lenders, Requisite Revolving Lenders or all
affected Lenders, as the case may be, and Agent shall not incur liability to any
Person by reason of so refraining. Each Agent shall be fully justified in
failing or refusing to take any action hereunder or under any other Loan
Document (a) if such action would, in the opinion of such Agent, be contrary to
law or the terms of this Agreement or any other Loan Document, (b) if such
action would, in the opinion of such Agent, expose such Agent to Environmental
Liabilities or (c) if such Agent shall not first be indemnified to its
satisfaction against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against
either Agent as a result of such Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders, Requisite Revolving Lenders or all affected Lenders, as
applicable.
9.3. Agents' Reliance, Etc. No Agent nor any of their Affiliates nor
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except for damages caused by
its or their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, each Agent: (a) may treat the payee of any Note as
the holder thereof until Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to Agent; (b) may
consult with legal counsel, independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
9.4. Agents and Affiliates. With respect to its Commitments
hereunder, each Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any other Lender and may exercise the same as
though it were not Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include GE Capital and Fleet in their individual
capacities. Each Agent and its Affiliates may lend money to, invest in, and
generally engage in any kind of business with, any Credit Party, any of their
Affiliates and any Person who may do business with or own securities of any
Credit Party or any such Affiliate, all as if GE Capital and Fleet were not
Agents and without any duty to account therefor to Lenders. Each Agent and its
Affiliates may accept fees and other consideration from any Credit Party for
services in connection with this Agreement or otherwise without having to
account for
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the same to Lenders. Each Lender acknowledges the potential conflict of interest
between GE Capital and Fleet as Lenders holding disproportionate interests in
the Loans and having differing priorities in the various pools of Collateral
upon acceleration of the Obligations and GE Capital and Fleet as Agents, and
expressly consents to and waives any claim based upon, such conflict of
interest.
9.5. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender and based on
the Financial Statements referred to in Section 3.4(a) and such other documents
and information as it has deemed appropriate, made its own credit and financial
analysis of the Credit Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon either Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.
9.6. Indemnification. Lenders agree to indemnify each Agent (to the
extent not reimbursed by Credit Parties and without limiting the obligations of
Borrower hereunder), ratably according to their respective Pro Rata Shares, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against
either Agent in any way relating to or arising out of this Agreement or any
other Loan Document or any action taken or omitted to be taken by such Agent in
connection therewith; provided, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from either Agent's
gross negligence or willful misconduct. Without limiting the foregoing, each
Lender agrees to reimburse each Agent promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by such Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement and each other Loan Document, to the
extent that such Agent is not reimbursed for such expenses by Credit Parties.
9.7. Successor Agent. Either Agent may resign at any time by giving
not less than thirty (30) days' prior written notice thereof to Lenders and
Borrower. Upon any such resignation, the Requisite Lenders shall have the right
to appoint a successor Agent. If no successor Agent shall have been so appointed
by the Requisite Lenders and shall have accepted such appointment within 30 days
after the resigning Agent's giving notice of resignation, then the resigning
Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a
Lender, if a Lender is willing to accept such appointment, or otherwise shall be
a commercial bank or financial institution or a subsidiary of a commercial bank
or financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, within 30 days after the
date
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such notice of resignation was given by the resigning Agent, such resignation
shall become effective and the Requisite Lenders shall thereafter perform all
the duties of the resigning Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower, such approval not to be unreasonably withheld or delayed; provided
that such approval shall not be required if a Default or an Event of Default has
occurred and is continuing. Upon the acceptance of any appointment as an Agent
hereunder by a successor Agent, such successor Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the resigning
Agent. Upon the earlier of the acceptance of any appointment as an Agent
hereunder by a successor Agent or the effective date of the resigning Agent's
resignation, the resigning Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents, except that any
indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was acting as an Agent under this Agreement and the
other Loan Documents.
9.8. Setoff and Sharing of Payments. In addition to any rights now
or hereafter granted under applicable law and not by way of limitation of any
such rights, upon the occurrence and during the continuance of any Event of
Default and subject to Section 9.9(f), each Lender is hereby authorized at any
time or from time to time, without notice to any Credit Party or to any other
Person, any such notice being hereby expressly waived, to offset and to
appropriate and to apply any and all balances held by it at any of its offices
for the account of Borrower or any Guarantor (regardless of whether such
balances are then due to Borrower or any Guarantor) and any other properties or
assets at any time held or owing by that Lender or that holder to or for the
credit or for the account of Borrower or any Guarantor against and on account of
any of the Obligations that are not paid when due. Any Lender exercising a right
of setoff or otherwise receiving any payment on account of the Obligations in
excess of its Pro Rata Share thereof shall purchase for cash (and the other
Lenders or holders shall sell) such participations in each such other Lender's
or holder's Pro Rata Share of the Obligations as would be necessary to cause
such Lender to share the amount so offset or otherwise received with each other
Lender or holder in accordance with their respective Pro Rata Shares, (other
than offset rights exercised by any Lender with respect to Sections 1.13, 1.15
or 1.16). Each Lender's obligation under this Section 9.8 shall be in addition
to and not in limitation of its obligations to purchase a participation in an
amount equal to its Pro Rata Share of the Swing Line Loans under Section 1.1.
Borrower and each Guarantor agree, to the fullest extent permitted by law, that
(a) any Lender may exercise its right to offset with respect to amounts in
excess of its Pro Rata Share of the Obligations and may sell participations in
such amounts so offset to other Lenders and holders and (b) any Lender so
purchasing a participation in the Loans made or other Obligations held by other
Lenders or holders may exercise all rights of offset, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as if
such Lender or holder were a direct holder of the Loans and the other
Obligations in the amount of such participation. Notwithstanding the foregoing,
if all or any portion of the offset amount or payment otherwise received is
thereafter recovered from the Lender that has exercised the right of offset, the
purchase of participations by that Lender shall be rescinded and the purchase
price restored without interest.
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9.9. Advances; Payments; Non-Funding Lenders; Information; Actions
in Concert.
(a) Advances; Payments. (i) Revolving Lenders shall refund or
participate in the Swing Line Loan in accordance with clauses (iii) and
(iv) of Section 1.1(c). If the Swing Line Lender declines to make a Swing
Line Loan or if Swing Line Availability is zero, Agent shall notify
Revolving Lenders, promptly after receipt of a Notice of Revolving Advance
and in any event prior to 1:00 p.m. (New York time) on the date such
Notice of Revolving Advance is received, by telecopy, telephone or other
similar form of transmission. Each Revolving Lender shall make the amount
of such Lender's Pro Rata Share of such Revolving Credit Advance available
to Agent in same day funds by wire transfer to Agent's account as set
forth in Annex H not later than 3:00 p.m. (New York time) on the requested
funding date, in the case of an Index Rate Loan and not later than 11:00
a.m. (New York time) on the requested funding date in the case of a LIBOR
Loan. After receipt of such wire transfers (or, in the Agent's sole
discretion, before receipt of such wire transfers), subject to the terms
hereof, Agent shall make the requested Revolving Credit Advance to
Borrower. All payments by each Revolving Lender shall be made without
setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar week or
more frequently as aggregate cumulative payments in excess of $2,000,000
are received with respect to the Loans (other than the Swing Line Loan)
(each, a "Settlement Date"), Agent shall advise each Lender by telephone,
or telecopy of the amount of such Lender's Pro Rata Share of principal,
interest and Fees paid for the benefit of Lenders with respect to each
applicable Loan. Provided that each Lender has funded all payments and
Advances required to be made by it and purchased all participations
required to be purchased by it under this Agreement and the other Loan
Documents as of such Settlement Date, Agent shall pay to each Lender such
Lender's Pro Rata Share of principal, interest and Fees paid by Borrower
since the previous Settlement Date for the benefit of such Lender on the
Loans held by it. To the extent that any Lender (a "Non-Funding Lender")
has failed to fund all such payments and Advances or failed to fund the
purchase of all such participations, Agent shall be entitled to set off
the funding short-fall against that Non-Funding Lender's Pro Rata Share of
all payments received from Borrower. Such payments shall be made by wire
transfer to such Lender's account (as specified by such Lender in Annex H
or the applicable Assignment Agreement) not later than 2:00 p.m. (Chicago
time) on the next Business Day following each Settlement Date.
(b) Availability of Lender's Pro Rata Share. Agent may assume that
each Revolving Lender will make its Pro Rata Share of each Revolving Credit
Advance available to Agent on each funding date. If such Pro Rata Share is not,
in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled
to recover such amount on demand from such Revolving Lender without setoff,
counterclaim or deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Revolving Lender or to relieve any
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Revolving Lender from its obligation to fulfill its Commitments hereunder or to
prejudice any rights that Borrower may have against any Revolving Lender as a
result of any default by such Revolving Lender hereunder. To the extent that
Agent advances funds to Borrower on behalf of any Revolving Lender and is not
reimbursed therefor on the same Business Day as such Advance is made, Agent
shall be entitled to retain for its account all interest accrued on such Advance
until reimbursed by the applicable Revolving Lender.
(c) Return of Payments.
(i) If Agent pays an amount to a Lender under this Agreement
in the belief or expectation that a related payment has been or will be
received by Agent from Borrower and such related payment is not received
by Agent, then Agent will be entitled to recover such amount from such
Lender on demand without setoff, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any
other Person pursuant to any Insolvency Law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other
Loan Document, Agent will not be required to distribute any portion
thereof to any Lender. In addition, each Lender will repay to Agent on
demand any portion of such amount that Agent has distributed to such
Lender, together with interest at such rate, if any, as Agent is required
to pay to Borrower or such other Person, without setoff, counterclaim or
deduction of any kind.
(d) Non-Funding Lenders. The failure of any Non-Funding Lender to
make any Revolving Credit Advance or any payment required by it hereunder, or to
purchase any participation in any Swing Line Loan to be made or purchased by it
on the date specified therefor shall not relieve any other Lender (each such
other Revolving Lender, an "Other Lender") of its obligations to make such
Advance or purchase such participation on such date, but neither any Other
Lender nor Agent shall be responsible for the failure of any Non-Funding Lender
to make an Advance, purchase a participation or make any other payment required
hereunder. Notwithstanding anything set forth herein to the contrary, a
Non-Funding Lender shall not have any voting or consent rights under or with
respect to any Loan Document or constitute a "Lender" or a "Revolving Lender"
(or be included in the calculation of "Requisite Lenders," or "Requisite
Revolving Lenders" hereunder) for any voting or consent rights under or with
respect to any Loan Document. At Borrower's request, Agent or a Person
acceptable to Agent shall have the right with Agent's consent and in Agent's
sole discretion (but shall have no obligation) to purchase from any Non-Funding
Lender, and each Non-Funding Lender agrees that it shall, at Agent's request,
sell and assign to Agent or such Person, all of the Commitments of that
Non-Funding Lender for an amount equal to the principal balance of all Loans
held by such Non-Funding Lender and all accrued interest and fees with respect
thereto through the date of sale, such purchase and sale to be consummated
pursuant to an executed Assignment Agreement.
(e) Dissemination of Information. Agent shall use reasonable efforts
to provide Lenders with any notice of Default or Event of Default received by
Agent from, or delivered by Agent to, any Credit Party, with notice of any Event
of Default of which Agent has
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actually become aware and with notice of any action taken by Agent following any
Event of Default; provided, that Agent shall not be liable to any Lender for any
failure to do so, except to the extent that such failure is attributable to
Agent's gross negligence or willful misconduct. Lenders acknowledge that
Borrower is required to provide Financial Statements and Collateral Reports to
Lenders in accordance with Annexes E and F hereto and agree that Agent shall
have no duty to provide the same to Lenders.
(f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of setoff) without first
obtaining the prior written consent of Agent and Requisite Lenders, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Notes shall be taken in concert and at the direction or with
the consent of Agent.
10. SUCCESSORS AND ASSIGNS
10.1. Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Agent, Lenders and their respective successors and assigns (including, in
the case of any Credit Party, a debtor-in-possession on behalf of such Credit
Party), except as otherwise provided herein or therein. No Credit Party may
assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior express written consent of Agent and Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by any Credit Party
without the prior express written consent of Agent and Lenders shall be void.
The terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of each Credit Party, Agent and Lenders with
respect to the transactions contemplated hereby and no Person shall be a third
party beneficiary of any of the terms and provisions of this Agreement or any of
the other Loan Documents.
11. MISCELLANEOUS
11.1. Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof and may not be modified, altered or amended except as
set forth in Section 11.2. Any letter of interest, commitment letter, or fee
letter (other than the Fee Letter) between any Credit Party and Agent or any
Lender or any of their respective Affiliates, predating this Agreement and
relating to a financing of substantially similar form, purpose or effect shall
be superseded by this Agreement.
11.2. Amendments and Waivers.
(a) Except for actions expressly permitted to be taken by Agent, no
amendment, modification, termination or waiver of any provision of this
Agreement or any other Loan Document, or any consent to any departure by any
Credit Party therefrom, shall in any event be effective unless the same shall be
in writing and signed by Agent and Borrower, and by
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Requisite Lenders, Requisite Revolving Lenders or all affected Lenders, as
applicable. Except as set forth in clauses (b) and (c) below, all such
amendments, modifications, terminations or waivers requiring the consent of any
Lenders shall require the written consent of Requisite Lenders.
(b) No amendment, modification, termination or waiver of or consent
with respect to any provision of this Agreement that increases the percentage
advance rates set forth in the definition of the Borrowing Base, or that makes
less restrictive the nondiscretionary criteria for exclusion from Eligible
Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, or Eligible
Equipment or Eligible Real Estate shall be effective unless the same shall be in
writing and signed by Agent, Requisite Revolving Lenders and Borrower. No
amendment, modification, termination or waiver of or consent with respect to any
provision of this Agreement that waives compliance with the conditions precedent
set forth in Section 2.2 to the making of any Loan or the incurrence of any
Letter of Credit Obligations shall be effective unless the same shall be in
writing and signed by Agent, Requisite Revolving Lenders and Borrower.
Notwithstanding anything contained in this Agreement to the contrary, no waiver
or consent with respect to any Default or any Event of Default shall be
effective for purposes of the conditions precedent to the making of Loans or the
incurrence of Letter of Credit Obligations set forth in Section 2.2 unless the
same shall be in writing and signed by Agent, Requisite Revolving Lenders and
Borrower.
(c) (i) No amendment, modification, termination or waiver shall,
unless in writing and signed by Agent and each Lender directly affected
thereby: (a) increase the aggregate principal amount of the Commitments or
increase the principal amount of any Lender's Term Loan A Commitment, Term
Loan B Commitment, Term Loan C Commitment, Revolving Loan Commitment or IP
Loan Commitment (which action shall be deemed to directly affect all
Lenders); (b) reduce the principal of, rate of interest on or Fees payable
with respect to any Loan or Letter of Credit Obligations of any affected
Lender; (c) extend or waive any payment date or final maturity date of the
principal amount of any Loan of any affected Lender; (d) waive, forgive,
defer, extend or postpone any payment of interest or Fees as to any
affected Lender; (e) release any Guaranty or, except as otherwise
permitted herein or in the other Loan Documents, release, or subordinate
Agent's Liens in, or permit any Credit Party to sell or otherwise dispose
of, any Collateral with a value exceeding $5,000,000 in the aggregate so
long as the Obligations remain outstanding (which action shall be deemed
to directly affect all Lenders); (f) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans that
shall be required for Lenders or any of them to take any action hereunder;
(g) amend or waive this Section 11.2 or the definitions of the terms
"Requisite Lenders" or "Requisite Revolving Lenders" insofar as such
definitions affect the substance of this Section 11.2; and (h) amend or
waive Sections 1.3(a)(ii), 1.3(c), 1.3(f), 1.5(a)(iii), 1.11 or 8.3.
Furthermore, no amendment, modification, termination or waiver affecting
the rights or duties of Agents under this Agreement or any other Loan
Document shall be effective unless in writing and signed by Agents, in
addition to Lenders required hereinabove to take such action. Each
amendment, modification, termination or waiver shall be effective only in
the specific instance and for the specific purpose for which it was given.
No amendment, modification, termination or waiver shall be required for
Agent to take additional Collateral pursuant to any Loan Document.
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No amendment, modification, termination or waiver of any provision of any
Note shall be effective without the written concurrence of the holder of
that Note. No notice to or demand on any Credit Party in any case shall
entitle such Credit Party or any other Credit Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with
this Section 11.2 shall be binding upon each holder of the Notes at the
time outstanding and each future holder of the Notes. All Lenders and
Credit Parties acknowledge that if all Revolving Lenders elect to extend
the maturity date of the Revolving Loan beyond August 31, 2004, the
definition of the Commitment Termination Date will be deemed to be amended
accordingly.
(ii) No voluntary prepayment shall be applied to the
outstanding principal balance of Term Loan C without the prior written
consent of all of the holders of the Revolving Loan Commitments, the Term
Loan A Commitments, the IP Loan Commitments and the Term Loan B
Commitments, except for prepayments of Term Loan C with the proceeds of
Permitted Subordinated Debt.
(d) If, in connection with any proposed amendment, modification,
waiver or termination (a "Proposed Change"):
(i) requiring the consent of all affected Lenders, the consent
of Requisite Lenders is obtained, but the consent of other Lenders
whose consent is required is not obtained (any such Lender whose
consent is not obtained as described in this clause (i) and in
clauses (ii) and (iii) below being referred to as a "Non-Consenting
Lender"),
(ii) requiring the consent of Requisite Revolving Lenders, the
consent of Revolving Lenders holding 51% or more of the aggregate
Revolving Loan Commitments is obtained, but the consent of Requisite
Revolving Lenders is not obtained, or
(iii) requiring the consent of Requisite Lenders, the consent
of Lenders holding 51% or more of the aggregate Commitments is
obtained, but the consent of Requisite Lenders is not obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower's request
Agent, or a Person acceptable to Agent, shall have the right with Agent's
consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree
that they shall, upon Agent's request, sell and assign to Agent or such Person,
all of the Commitments of such Non-Consenting Lenders for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lenders and all
accrued interest and Fees with respect thereto through the date of sale, such
purchase and sale to be consummated pursuant to an executed Assignment
Agreement.
(e) Upon payment in full in cash and performance of all of the
Obligations (other than indemnification Obligations), termination of the
Commitments and a release of all
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claims against Agent and Lenders, and so long as no suits, actions proceedings,
or claims are pending or threatened against any Indemnified Person asserting any
damages, losses or liabilities that are Indemnified Liabilities, Agent shall
deliver to Borrower termination statements, mortgage releases and other
documents necessary or appropriate to evidence the termination of the Liens
securing payment of the Obligations.
(f) In order to complete syndication of the Loans, Agents
specifically reserve their rights as to amendments related to syndication as
provided in the Fee Letter.
(g) Notwithstanding any provision herein contained to the contrary,
Credit Parties shall not be permitted to sell or dispose of IP Collateral with a
value in excess of $500,000 in the aggregate so long as the IP Loan is
outstanding without the prior written consent of at least sixty-six and
two-thirds percent (66 2/3%) of the IP Loan Commitment.
(h) Notwithstanding any provision herein contained to the contrary,
the percentage advance rates for Eligible Accounts and Eligible Inventory set
forth in the definition of Borrowing Base may not be increased without the prior
written consent of the holders of at least eighty percent (80%) of the Revolving
Loan Commitment.
11.3. Fees and Expenses. Borrower shall reimburse (i) Agents for all
fees, costs and expenses (including the reasonable fees and expenses of all of
its special counsel, advisors, consultants and auditors) and (ii) Agents (and,
with respect to clauses (c) and (d) below, all Lenders) for all fees, costs and
expenses, including the reasonable fees, costs and expenses of counsel or other
advisors (including environmental and management consultants and appraisers)
incurred in connection with the negotiation and preparation of the Loan
Documents and for advice, assistance, or other representation in connection
with:
(a) the forwarding to Borrower or any other Person on behalf of
Borrower by Agents of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or consent with
respect to, or termination of, any of the Loan Documents or Related Transactions
Documents or advice in connection with the administration of the Loans made
pursuant hereto or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, Borrower or any other Person and
whether as a party, witness or otherwise) in any way relating to the Collateral,
any of the Loan Documents or any other agreement to be executed or delivered in
connection herewith or therewith, including any litigation, contest, dispute,
suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person that
may be obligated to Agent by virtue of the Loan Documents, including any such
litigation, contest, dispute, suit, proceeding or action arising in connection
with any work-out or restructuring of the Loans during the pendency of one or
more Events of Default; provided, that in the case of reimbursement of counsel
for Lenders other than Agent, such reimbursement shall be limited to one counsel
for all such Lenders;
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(d) any attempt to enforce any remedies of Agent or any Lender
against any or all of the Credit Parties or any other Person that may be
obligated to Agent or any Lender by virtue of any of the Loan Documents,
including any such attempt to enforce any such remedies in the course of any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default; provided, that in the case of reimbursement of counsel for Lenders
other than Agent, such reimbursement shall be limited to one counsel for all
such Lenders;
(e) any workout or restructuring of the Loans during the pendency of
one or more Events of Default; and
(f) efforts to (i) monitor the Loans or any of the other
Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their
respective affairs, and (iii) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of any of the Collateral;
including, as to each of clauses (a) through (f) above, all attorneys' and other
professional and service providers' fees arising from such services, including
those in connection with any appellate proceedings, and all expenses, costs,
charges and other fees incurred by such counsel and others in connection with or
relating to any of the events or actions described in this Section 11.3, all of
which shall be payable, on demand, by Borrower to Agents. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees may include:
fees, costs and expenses of accountants, environmental advisors, appraisers,
investment bankers, management and other consultants and paralegals; court costs
and expenses; photocopying and duplication expenses; court reporter fees, costs
and expenses; long distance telephone charges; air express charges; telegram or
telecopy charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal or
other advisory services.
11.4. No Waiver. Agents' or any Lender's failure, at any time or
times, to require strict performance by the Credit Parties of any provision of
this Agreement or any other Loan Document shall not waive, affect or diminish
any right of Agents or such Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.
11.5. Remedies. Agent's and Lenders' rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
that Agent or any Lender may have under any other agreement, including the other
Loan Documents, by operation of law or otherwise. Recourse to the Collateral
shall not be required.
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11.6. Severability. Wherever possible, each provision of this
Agreement and the other Loan Documents shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement or any other Loan Document shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.7. Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement conflicts with any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
11.8. Confidentiality. Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintain the confidentiality of its own confidential information) to
maintain as confidential all confidential information provided to them by the
Credit Parties for a period of one (1) year following the Termination Date,
except that Agent and each Lender may disclose such information (a) to Persons
employed or engaged by Agent or such Lender in evaluating, approving,
structuring or administering the Loans and the Commitments; (b) to any bona fide
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 11.8 (and any such bona fide
assignee or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (a)
above); (c) as required or requested by any Governmental Authority (including
the Securities Valuation Office of the National Association of Insurance
Commissioners) or reasonably believed by Agent or such Lender to be compelled by
any court decree, subpoena or legal or administrative order or process; (d) as,
on the advise of Agent's or such Lender's counsel, is required by law; (e) in
connection with the exercise of any right or remedy under the Loan Documents or
in connection with any Litigation to which Agent or such Lender is a party; or
(f) that ceases to be confidential through no fault of Agent or any Lender.
11.9. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK
COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS;
PROVIDED, THAT AGENT, LENDERS AND THE CREDIT
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PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS AND; PROVIDED,
FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE
AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY
OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN
ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS
AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID.
11.10. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by any other parties, or whenever any of the parties desires to give or
serve upon any other parties any communication with respect to this Agreement,
each such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and shall be deemed to have been validly
served, given or delivered (a) upon the earlier of actual receipt and three (3)
Business Days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (b) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
11.10); (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated in Annex I or to such other address
(or facsimile number) as may be substituted by notice given as herein provided.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Agent) designated in Annex I
to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
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11.11. Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
11.12. Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.13. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
11.14. Press Releases; Etc. Each Credit Party executing this
Agreement agrees that neither it nor its Affiliates will in the future issue any
press releases or other public disclosure using the name of GE Capital or its
affiliates or referring to this Agreement, the other Loan Documents or the
Related Transactions Documents without at least two (2) Business Days' prior
notice to GE Capital and without the prior written consent of GE Capital unless
(and only to the extent that) such Credit Party or Affiliate is required to do
so under law and then, in any event, such Credit Party or Affiliate will consult
with GE Capital before issuing such press release or other public disclosure.
Each Credit Party consents to the publication by Agent or any Lender of a
tombstone or similar advertising material relating to the financing transactions
contemplated by this Agreement. Agent or such Lender shall provide a draft of
any such tombstone or similar advertising material to each Credit Party for
review and comment prior to the publication thereof. Agent and Lenders reserve
the right to provide to industry trade organizations information necessary and
customary for inclusion in league table measurements with Borrower's consent
which shall not be unreasonably withheld or delayed.
11.15. Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Borrower for liquidation or reorganization, should Borrower become insolvent or
make an assignment for the benefit of any creditor or creditors or should a
receiver or trustee be appointed for all or any significant part of Borrower's
assets, and shall continue to be effective or to be reinstated, as the case may
be, if at any time payment and performance of the Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent
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conveyance," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is rescinded,
reduced, restored or returned, the Obligations shall be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored or
returned.
11.16. Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.
11.17. No Drafting Presumptions. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
11.18. License. Each Credit Party hereby grants to Agent for the
benefit of all of the Lenders a world-wide, royalty-free license to use all of
its Patents and Trademarks after the occurrence of an Event of Default to
complete, the manufacture of, and to sell or otherwise dispose of, all of each
Credit Party's Inventory. Such royalty-free license shall extend to any person
or persons purchasing Inventory from the Lenders.
The IP Lenders acknowledge that any sale or disposition of the
Patents and Trademarks is expressly made subject to the foregoing license and
that the existence thereof may delay the sale or disposition of the Patents and
Trademarks and may affect the prices obtained upon the sale or disposition of
the Patents and Trademarks.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
BORROWER
ICON HEALTH & FITNESS, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By:________________________________________
Duly Authorized Signatory
FLEET NATIONAL BANK,
as Syndication Agent and Lender
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-1
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JACKSON NATIONAL LIFE INSURANCE COMPANY
By: PPM Financial Inc., as attorney-in-fact
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-2
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ZIONS FIRST NATIONAL BANK
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-3
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LASALLE BUSINESS CREDIT, INC.
By:________________________________________
Name: William A. Stapel
Title: First Vice President
S-4
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PNC BANK, NATIONAL ASSOCIATION
By:________________________________________
Name: Scott Carpenter
Title: Vice President
S-5
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FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc., its
Agent/Manager
By:________________________________________
Name: John P. Thacker
Title: Senior Vice President
S-6
<PAGE>
COMERICA BANK
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-7
<PAGE>
BANK POLSKA KASA OPIEKA S.A.
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-8
<PAGE>
INTENTIONALLY OMITTED
S-9
<PAGE>
THE CHASE MANHATTAN BANK
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-10
<PAGE>
HELLER FINANCIAL, INC.
By:________________________________________
Name: Albert J. Forzano
Title: Vice President
S-11
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The following Persons are signatories to this Agreement in their
capacity as Credit Parties and not as Borrowers.
HF HOLDINGS, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
JUMPKING, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
ICON INTERNATIONAL HOLDINGS, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
UNIVERSAL TECHNICAL SERVICES
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-12
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ICON DU CANADA INC./ICON OF CANADA INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
510152 N.B. LTD.
By:________________________________________
Name:______________________________________
Title:_____________________________________
S-13
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ANNEX A (Recitals)
to
CREDIT AGREEMENT
DEFINITIONS
Capitalized terms used in the Loan Documents shall have (unless
otherwise provided elsewhere in the Loan Documents) the following respective
meanings and all references to Sections, Exhibits, Schedules or Annexes in the
following definitions shall refer to Sections, Exhibits, Schedules or Annexes of
or to the Agreement:
"Account Debtor" means any Person who may become obligated to any
Credit Party under, with respect to, or on account of, an Account.
"Accounting Changes" has the meaning ascribed thereto in Annex G.
"Accounts" means all "accounts," as such term is defined in the
Code, and all "claims," as such term is defined in the Quebec Civil Code, now
owned or hereafter acquired by any Credit Party and, in any event, including (a)
all accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments), whether arising out of goods sold or services
rendered by it or from any other transaction (including any such obligations
that may be characterized as an account or contract right under the Code), (b)
all of each Credit Party's rights in, to and under all purchase orders or
receipts for goods or services, (c) all of each Credit Party's rights to any
goods represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all monies due or to become due
to any Credit Party, under all purchase orders and contracts for the sale of
goods or the performance of services or both by such Credit Party or in
connection with any other transaction (whether or not yet earned by performance
on the part of such Credit Party), including the right to receive the proceeds
of said purchase orders and contracts, and (e) all collateral security and
guaranties of any kind, now or hereafter in existence, given by any Person with
respect to any of the foregoing.
"Advance" means any Revolving Credit Advance or Swing Line Advance,
as the context may require.
"Affiliate" means, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Person, (b) each
Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners and (d) in the case of Borrower, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of Borrower. For the
purposes of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or
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otherwise; provided, however, that the term "Affiliate" shall specifically
exclude Agent and each Lender.
"Agent" means GE Capital in its capacity as Administrative Agent for
Lenders or its successor appointed pursuant to Section 9.7.
"Agents" means GE Capital and Fleet as Syndication Agent hereunder,
or their respective successors and assigns.
"Agreement" means the Credit Agreement by and among Borrower, the
other Credit Parties party thereto, GE Capital, as Agent and Lender, Fleet, as
Syndication Agent and Lender and the other Lenders from time to time party
thereto, as the same may be amended, supplemented, restated or otherwise
modified from time to time.
"Appendices" has the meaning ascribed to it in the recitals to the
Agreement.
Applicable IP Loan Index Margin" means the per annum interest rate
from time to time in effect and payable in addition to the Index Rate applicable
to the IP Loan, as set forth in Section 1.5(a).
"Applicable L/C Margin" means the per annum fee, from time to time
in effect, payable with respect to outstanding Letter of Credit Obligations as
determined by reference to Section 1.5(a).
"Applicable Margins" means collectively the Applicable L/C Margin,
the Applicable Unused Line Fee Margin, the Applicable Revolver Index Margin, the
Applicable Term Loan A Index Margin, the Applicable Term Loan B Index Margin,
the Applicable Term Loan C Index Margin, the Applicable Revolver LIBOR Margin,
the Applicable Term Loan A LIBOR Margin, the Applicable Term Loan B LIBOR
Margin, the Applicable Term Loan C LIBOR Margin and the Applicable IP Loan Index
Margin.
"Applicable Revolver Index Margin" means the per annum interest rate
margin from time to time in effect and payable in addition to the Index Rate
applicable to the Revolving Loan, as determined by reference to Section 1.5(a).
"Applicable Revolver LIBOR Margin" means the per annum interest rate
from time to time in effect and payable in addition to the LIBOR Rate applicable
to the Revolving Loan, as determined by reference to Section 1.5(a).
"Applicable Term Loan A Index Margin" means the per annum interest
rate from time to time in effect and payable in addition to the Index Rate
applicable to Term Loan A, as determined by reference to Section 1.5(a).
"Applicable Term Loan A LIBOR Margin" means the per annum interest
rate from time to time in effect and payable in addition to the LIBOR Rate
applicable to Term Loan A, as determined by reference to Section 1.5(a).
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"Applicable Term Loan B Index Margin" means the per annum interest
rate from time to time in effect and payable in addition to the Index Rate
applicable to Term Loan B, as set forth in Section 1.5(a).
"Applicable Term Loan B LIBOR Margin" means the per annum interest
rate from time to time in effect and payable in addition to the LIBOR Rate
applicable to Term Loan B, as set forth in Section 1.5(a).
"Applicable Term Loan C Index Margin" means the per annum interest
rate from time to time in effect and payable in addition to the Index Rate
applicable to Term Loan C, as set forth in Section 1.5(a).
"Applicable Term Loan C LIBOR Margin" means the per annum interest
rate from time to time in effect and payable in addition to the LIBOR Rate
applicable to Term Loan C, as determined by reference to Section 1.5(a).
"Applicable Unused Line Fee Margin" means the per annum fee, from
time to time in effect, payable in respect of Borrower's non-use of committed
funds pursuant to Section 1.9(b), which fee is determined by reference to
Section 1.5(a).
"Assignment Agreement" has the meaning ascribed to it in Section
9.1(a).
"Bain Entities" shall mean, collectively, Bain Capital Fund IV,
L.P., Bain Capital Fund IV-B, L.P., Bain Associates and BCIP Trust Associates,
L.P. and funds or trusts managed or controlled by Bain Capital, Inc.
"Bankruptcy Code" means the provisions of Title 11 of the United
States Code, 11 U.S.C.ss.ss. 101 et seq.
"Borrower" has the meaning ascribed thereto in the recitals to the
Agreement.
"Borrower Accounts" has the meaning ascribed to it in Annex C.
"Borrower Pledge Agreement" means the Pledge Agreement of even date
herewith executed by Borrower in favor of Agent, on behalf of itself and
Lenders, pledging all Stock of its domestic and Canadian Subsidiaries and all
Intercompany Notes owing to or held by it.
"Borrowing Availability" has the meaning ascribed to it in Section
1.1(a)(i).
"Borrowing Base" means, as of any date of determination by Agent,
from time to time, an amount equal to the sum at such time of:
(a) eighty-five percent (85%) of the book value of Borrower's and
its domestic and Canadian Subsidiaries' Eligible Accounts, less any
Reserves established by Agent at such time;
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(b) up to sixty percent (60%) (seventy percent (70%) during the
period of July 1 to November 30 of each year) of the book value of
Borrower's and its domestic and Canadian Subsidiaries' Eligible Inventory
valued on a first-in, first-out basis (at the lower of cost or market),
less any Reserves established by Agent at such time;
(c) eighty percent (80%) of the orderly liquidation value of
Borrower's and its domestic and Canadian Subsidiaries' owned Eligible
Equipment (excluding taxes, shipping, imbedded software, installation
charges, training fees and other soft costs);
(d) seventy-five percent (75%) of the fair market value of
Borrower's and its domestic Subsidiaries' owned Eligible Real Estate; less
(e) the principal balances of Term Loan A and Term Loan B from time
to time outstanding;
provided that the aggregate amount of Revolving Credit Advances against the
Collateral described in clauses (c) and (d) above shall not exceed Fifteen
Million Dollars ($15,000,000) (the "sublimit"); provided, further, that the
sublimit will be reduced by $3,000,000 on each anniversary of the Closing Date
and reduced to zero on the fifth anniversary of the Closing Date; and provided,
further, that Advances against assets of Borrower's Canadian Subsidiaries shall
not exceed Twenty Million Dollars ($20,000,000) in the aggregate at any one time
outstanding.
For the purpose of valuing the Collateral of each of Borrower's
Canadian Subsidiaries that is denominated in Canadian Dollars, such Collateral
shall be converted into the Equivalent Amount thereof in Dollars, in each case,
as determined as of the last day of each Fiscal Month unless Agent has notified
Borrower that, in light of recent or expected currency fluctuations, the
conversion shall be made on a more current basis.
"Borrowing Base Certificate" means a certificate to be executed and
delivered from time to time by Borrower in the form attached to the Agreement as
Exhibit 4.1(b).
"Business Day" means any day that is not a Saturday, a Sunday or a
day on which banks are required or permitted to be closed in the States of
Illinois or New York and in reference to LIBOR Loans shall mean any such day
that is also a LIBOR Business Day.
"Canadian Benefit Plans" means all material employee benefit plans
of any nature or kind whatsoever that are not Canadian Pension Plans and are
maintained or contributed to by any Credit Party having employees in Canada.
"Canadian Dollars" and "C$" each mean lawful money of Canada.
"Canadian Pension Plans" means each plan which is considered to be a
pension plan for the purposes of any applicable pension benefits standards
statute and/or regulation in Canada established, maintained or contributed to by
any Credit Party for its employees or former employees.
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"Canadian Security Agreements" means each of the Security Agreements
entered into by and between Agent, on behalf of itself and Lenders, and ICON of
Canada and ICON New Brunswick.
"Capital Expenditures" means, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.
"Capital Lease" means, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"Capital Lease Obligation" means, with respect to any Capital Lease
of any Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.
"Cash Collateral Account" has the meaning ascribed to it in Annex B.
"Cash Equivalents" has the meaning ascribed to it in Annex B.
"Cash Management Systems" has the meaning ascribed to it in Section
1.8.
"Change of Control" means any event, transaction or occurrence as a
result of which (a) the Bain Entities shall cease to constitute a Voting
Majority of HF Investment so long as the Bain Entities hold their investment in
New Holdings through HF Investment, (b) the Bain Entities shall cease to have or
exercise the right, directly or indirectly, to designate at least 5 of the 9
members of the Board of Directors of New Holdings, (c) the Bain Entities and
Credit Suisse First Boston Corporation and their Affiliates cease to own
(directly or indirectly) and control all of the economic and voting rights
associated with ownership of at least fifty-one percent (51%) of all classes of
the outstanding capital Stock of all classes of New Holdings on a fully diluted
basis, (d) New Holdings ceases to own and control all of the economic and voting
rights associated with all of the outstanding capital Stock of Borrower, (e)
Borrower ceases to own and control all of the economic and voting rights
associated with all of the outstanding capital Stock of each of its Subsidiaries
or (f) any "Change of Control" (as such term is defined in the Subordinated
Notes Documents) shall occur.
"Charges" means all federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes owed to the PBGC at the
time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (d) any
Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.
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"Chattel Paper" means any "chattel paper," as such term is defined
in the Code, now owned or hereafter acquired by any Credit Party, wherever
located.
"Closing Date" means September 27, 1999.
"Closing Checklist" means the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the Agreement, the other Loan Documents and the
transactions contemplated thereunder, substantially in the form attached hereto
as Annex D.
"Code" means the Uniform Commercial Code as the same may, from time
to time, be enacted and in effect in the State of Illinois; provided, that in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to, Agent's or
any Lender's Lien on any Collateral is governed by the Uniform Commercial Code
as enacted and in effect in a jurisdiction other than the State of Illinois or
by foreign personal property security laws as enacted and in effect in a foreign
jurisdiction, the term "Code" shall mean the Uniform Commercial Code or such
foreign personal property security laws as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority or remedies and for purposes of definitions
related to such provisions.
"Collateral" means the property covered by the Security Agreement,
the Mortgages and the other Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a Lien granted by a Credit Party in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.
"Collateral Documents" means the Security Agreement, the Pledge
Agreements, the New Holdings Guarantee, the Mortgages, the Patent Security
Agreement, the Trademark Security Agreement, the Copyright Security Agreement,
the Canadian Security Agreements, the ICON of Canada Hypothec, the ICON of
Canada Debenture, the ICON of Canada Pledge Agreement, and all similar
agreements entered into guaranteeing payment of, or granting a Lien upon
property as security for payment of, the Obligations.
"Collateral Reports" means the reports with respect to the
Collateral referred to in Annex F.
"Collection Account" means that certain account of Agent, account
number 502-328-54 in the name of Agent at Bankers Trust Company in New York, New
York ABA No. 021 001 033, or such other account as may be specified in writing
by Agent as the "Collection Account."
"Commitment Termination Date" means the earliest of (a) August 31,
2004, (b) the date of termination of Lenders' obligations to make Advances and
to incur Letter of Credit Obligations or permit existing Loans to remain
outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible
prepayment in full by Borrower of the Loans and the cancellation and
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return (or stand-by guarantee) of all Letters of Credit or the cash
collateralization of all Letter of Credit Obligations pursuant to Annex B, and
the permanent reduction of the Revolving Loan Commitment and the Swing Line
Commitment to zero dollars ($0).
"Commitments" means (a) as to any Lender, the aggregate of such
Lender's Revolving Loan Commitment (including without duplication the Swing Line
Lender's Swing Line Commitment as a subset of its Revolving Loan Commitment), IP
Loan Commitment and Term Loan Commitment as set forth on Annex J to the
Agreement or in the most recent Assignment Agreement executed by such Lender and
(b) as to all Lenders, the aggregate of all Lenders' Revolving Loan Commitments
(including without duplication the Swing Line Lender's Swing Line Commitment as
a subset of its Revolving Loan Commitment), IP Loan Commitments and Term Loan
Commitments, which aggregate commitment shall be Three Hundred Million Dollars
($300,000,000) on the Closing Date, as to each of clauses (a) and (b), as such
Commitments may be reduced, amortized or adjusted from time to time in
accordance with the Agreement.
"Compliance Certificate" has the meaning ascribed to it in Annex E.
"Concentration Account" has the meaning ascribed to it in Annex C.
"Contracts" means all "contracts," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title or interest, including
any agreement relating to the terms of payment or the terms of performance of
any Account.
"Control Letter" means a letter agreement between Agent and (i) the
issuer of uncertificated securities with respect to uncertificated securities in
the name of any Credit Party, (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of any Credit
Party, (iii) a futures commission merchant, as applicable, or clearing house
with respect to commodity accounts and commodity contracts held by any Credit
Party, whereby, among other things, the issuer, securities intermediary or
futures commission merchant disclaims any security interest in the applicable
financial assets, acknowledges the Lien of Agent, on behalf of itself and
Lenders, on such financial assets, and agrees to follow the instructions or
entitlement orders of Agent without further consent by the affected Credit
Party.
"Copyright License" means any and all rights now owned or hereafter
acquired by any Credit Party under any written agreement granting any right to
use any Copyright or Copyright registration.
"Copyright Security Agreements" means the Copyright Security
Agreements made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party.
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"Copyrights" means all of the following now owned or hereafter
adopted or acquired by any Credit Party: (a) all copyrights and General
Intangibles of like nature (whether registered or unregistered), all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any similar office or agency of the United
States, any state or territory thereof, or any other country or any political
subdivision thereof, and (b) all reissues, extensions or renewals thereof.
"Credit Parties" means New Holdings, Borrower and each of their
respective Subsidiaries.
"CS First Boston Debt" means Indebtedness of New Holdings issued to
Credit Suisse First Boston Corporation in the amount of $5,000,000 pursuant to a
Note Agreement dated as of the Closing Date.
"Current Assets" means, with respect to any Person, all current
assets of such Person as of any date of determination calculated in accordance
with GAAP, but excluding cash, cash equivalents and debts due from Affiliates.
"Current Liabilities" means, with respect to any Person, all
liabilities that should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Indebtedness payable on demand,
all accruals for federal or other taxes based on or measured by income and
payable within such year, but excluding, in the case of Borrower, the aggregate
outstanding principal balances of the Loans.
"Debt Service" means, with respect to any Person for any fiscal
period, an amount equal to the sum of (a) Interest Expense for such period
(excluding any original issue discount, interest paid in kind or amortized debt
discount, to the extent included in determining Interest Expense) and (b) the
scheduled amortization of the IP Loan and Term Loans during such period.
"Debt Service Coverage Ratio" means, with respect to any Person for
any period, the ratio of EBITDA to Debt Service.
"Default" means any event that, with the passage of time or notice
or both, would, unless cured or waived, become an Event of Default.
"Default Rate" has the meaning ascribed to it in Section 1.5(d).
"Design" means the following now owned or hereafter acquired by any
Credit Party: (a) all industrial designs, design patents and other designs now
owned or existing or hereafter adopted or acquired, all registrations and
recordings thereof and all applications in connection therewith, including all
registrations, recordings and applications in the Canadian Industrial Designs
Office or any similar office in any country and all records thereof and (b) all
reissues, extensions or renewals thereof.
"Design License" means rights under any written agreement now owned
or hereafter acquired by any Credit Party granting any right to use any Design.
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"Disbursement Accounts" has the meaning ascribed to it in Annex C.
"Disclosure Schedules" means the Schedules prepared by Borrower and
denominated as Disclosure Schedules (1.4) through (6.7) in the Index to the
Agreement.
"Documents" means any "documents," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located.
"Dollars" or "$" means lawful currency of the United States of
America.
"EBITDA" means, with respect to any Person for any fiscal period,
without duplication, an amount equal to (a) consolidated net income of such
Person for such period, minus (b) the sum of (i) income tax credits, (ii)
interest income, (iii) gain from extraordinary items for such period, (iv) any
aggregate net gain (but not any aggregate net loss) during such period arising
from the sale, exchange or other disposition of capital assets by such Person
(including any fixed assets, whether tangible or intangible, all inventory sold
in conjunction with the disposition of fixed assets and all securities), and (v)
any other non-cash gains that have been added in determining consolidated net
income, in each case to the extent included in the calculation of consolidated
net income of such Person for such period in accordance with GAAP, but without
duplication, plus (c) the sum of (i) any provision for income taxes, (ii)
Interest Expense, (iii) loss from extraordinary items for such period, (iv) the
amount of non-cash charges (including depreciation and amortization) for such
period, (v) amortized debt discount for such period, and (vi) the amount of any
deduction to consolidated net income as the result of any grant to any members
of the management of such Person of any Stock, in each case to the extent
included in the calculation of consolidated net income of such Person for such
period in accordance with GAAP, but without duplication. For purposes of this
definition, the following items shall be excluded in determining consolidated
net income of a Person: (1) the income (or deficit) of any other Person accrued
prior to the date it became a Subsidiary of, or was merged or consolidated into,
such Person or any of such Person's Subsidiaries; (2) the income (or deficit) of
any other Person (other than a Subsidiary) in which such Person has an ownership
interest, except to the extent any such income has actually been received by
such Person in the form of cash dividends or distributions; (3) the
undistributed earnings of any Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any contractual obligation or
requirement of law applicable to such Subsidiary; (4) any restoration to income
of any extraordinary or contingency reserve, except to the extent that such
restoration is deemed to have occurred in the same Fiscal Quarter during which
the subject reserve was established; (5) any write-up of any asset; (6) any net
gain from the collection of the proceeds of life insurance policies; (7) any net
gain (but not any aggregate loss) arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any Indebtedness, of such
Person; (8) in the case of a successor to such Person by consolidation or merger
or as a transferee of its assets, any earnings of such successor prior to such
consolidation, merger or transfer of assets; (9) any deferred credit
representing the excess of equity in any Subsidiary of such Person at the date
of acquisition of such Subsidiary over the cost to such Person of the investment
in such Subsidiary; (10) the impact of write-offs of Accounts owing by Service
Merchandise, Inc. during Fiscal Year 1999 to the extent deducted in the
determination of Borrower's consolidated net income for that period; and (11)
bonuses paid to
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management employees of Borrower of up to $1,500,000 paid in cash or by
forgiveness of Indebtedness on or after the Closing Date, to the extent deducted
in the determination of Borrower's consolidated net income for Fiscal Year 2000.
"Eligible Accounts" has the meaning ascribed to it in Section 1.6 of
the Agreement.
"Eligible Equipment" means machinery, equipment (excluding software)
and rolling stock owned by Borrower or its domestic or Canadian Subsidiaries and
located in the United States or Canada, which machinery, equipment or rolling
stock shall satisfy each of the following requirements:
(i) Borrower or one of its domestic or Canadian Subsidiaries
holds good and marketable title to the machinery, equipment or rolling
stock;
(ii) the full purchase price for the machinery, equipment or
rolling stock has been paid by Borrower or one of its domestic or Canadian
Subsidiaries;
(iii) the Agent has a first priority Lien in such machinery,
equipment or rolling stock securing the obligations of the Credit Parties
under this Agreement, subject to Permitted Encumbrances and, without
duplication, Prior Claims (other than claims of unpaid suppliers (other
than another Credit Party)) under Section 81.1 of the Bankruptcy and
Insolvency Act (Canada);
(iv) the machinery, equipment or rolling stock is not subject
to any mortgage, lien, pledge, attachment, assignment, deposit
arrangement, charge, lease or other security interest or encumbrance of
any kind, except for the Lien of the Agent securing the obligations of the
Credit Parties under this Agreement and except for Permitted Encumbrances;
(v) the Agent has received an appraisal report with respect to
the machinery, equipment or rolling stock from an independent appraiser
reasonably satisfactory to the Agent setting forth the orderly liquidation
value of the machinery, equipment or rolling stock;
(vi) the machinery, equipment or rolling stock is located on
or stored at premises owned or leased by Borrower or one of its domestic
or Canadian Subsidiaries; provided that if such premises are leased by
Borrower or one of its domestic or Canadian Subsidiaries, the Agent has
received a landlord's agreement (satisfying the requirements of Section
5.10) duly executed by the owner of such premises;
(vii) the machinery, equipment or rolling stock is not subject
to any agreement which would restrict the Agent's ability to sell or
otherwise dispose of such machinery, equipment or rolling stock;
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(viii) the machinery, equipment or rolling stock is in good
repair and working order and is used by Borrower or one of its domestic or
Canadian Subsidiaries in the ordinary course of its business; and
(ix) the machinery or equipment does not constitute "fixtures"
under the applicable laws of the jurisdiction in which the machinery,
equipment or rolling stock is located;
provided, however, that, notwithstanding anything herein to the contrary,
the Agent may from time to time in its reasonable credit discretion (a)
exclude particular machinery, equipment or rolling stock from the
definition of Eligible Equipment and (b) establish, modify or eliminate
Reserves against Eligible Equipment; provided, further, that the orderly
liquidation value of Eligible Equipment shall be based upon appraisals as
of a date not more than forty-five (45) days prior to the Closing Date,
which shall be updated as frequently as once each year if requested by
Agent.
"Eligible Inventory" has the meaning ascribed to it in Section 1.7
of the Agreement.
"Eligible Real Estate" means the real property owned by any one or
more of Borrower and its domestic Subsidiaries that satisfies each of the
following requirements:
(i) one or more of Borrower and its domestic Subsidiaries is
the record owner of the fee title to such real property;
(ii) the Agent has a first priority mortgage Lien on such real
property securing the obligations of the Credit Parties under this
Agreement, subject to Permitted Encumbrances (other than Permitted
Encumbrances in clause (j) of the definition thereof);
(iii) such real property is not subject to any mortgage, lien,
pledge, attachment, assignment, deposit arrangement, charge, lease or
other security interest or encumbrance of any kind, except for the
mortgage Lien of the Agent securing obligations under this Agreement and
Permitted Encumbrances;
(iv) such real property is not subject to any agreement which
would restrict the Agent's ability to sell or otherwise dispose of such
real property;
(v) the Agent has received environmental reports reasonably
satisfactory to it with respect to such real property, which reports shall
be prepared by environmental engineering firms satisfactory to the Agent;
(vi) the Agent has received an appraisal report with respect
to such real property from an independent appraiser reasonably
satisfactory to the Agent setting forth the fair market value of such real
property;
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(vii) the Agent has received ALTA mortgagee's title insurance
policies with all endorsements reasonably requested by the Agent (or
commitments for the issuance of same) with respect to such real property
from insurers acceptable to the Agent;
(viii) the Agent has received evidence satisfactory to it that
such real property is not located in a flood plain (or if any such real
property is located in a flood plain, an acceptable flood hazard insurance
policy);
(ix) the Agent has received evidence satisfactory to it that
there are no outstanding real estate taxes which have been due and payable
for more than thirty (30) days; and
(x) the Agent has received opinions of local counsel to the
Credit Parties in each jurisdiction in which such real property is located
with respect to the validity and enforceability of the Agent's Lien on
such real property securing the obligations of the Credit Parties under
this Agreement, all in form and substance satisfactory to the Agent;
provided, however, that the Agent may from time to time in its reasonable
credit judgment (a) exclude particular parcels of real property from the
definition of Eligible Real Estate and (b) establish, modify or eliminate
Reserves against Eligible Real Estate; provided, further, that the orderly
liquidation value of Eligible Real Estate shall be based upon appraisals
as of a date not more than forty-five (45) days prior to the Closing Date,
which shall be updated as frequently as once each year if requested by
Agent.
"Eligible Service Merchandise Accounts" means post-petition Accounts
owing by Service Merchandise, Inc., as debtor-in-possession, with an aggregate
book value not to exceed $3,000,000 in the aggregate; provided that (i) no such
Account shall remain unpaid more than thirty (30) days after its original
invoice date, (ii) the debtor-in-possession credit facility provided to Service
Merchandise, Inc. shall not have been terminated or suspended or credit
availability thereunder restricted and (iii) the Chapter 11 proceeding in which
Service Merchandise, Inc. is the debtor shall not have been converted to a
liquidating Chapter 11 case or a Chapter 7 bankruptcy proceeding.
"Employment Agreements" means the Employment Agreement dated as of
the Closing Date among New Holdings, Borrower and Scott Watterson and the
Employment Agreement dated as of the Closing Date among New Holdings, Borrower
and Gary Stevenson.
"Environmental Laws" means all applicable federal, state, local and
foreign laws, statutes, ordinances, codes, rules, standards, orders-in-council
and regulations, now or hereafter in effect, and any applicable judicial or
administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or
standards of conduct for or relating to the regulation and protection of human
health, safety, the environment and natural resources (including ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation).
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Environmental Laws include the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C.ss.ss.9601 et seq.)
("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49
U.S.C.ss.ss.5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C.ss.ss.136 et seq.); the Solid Waste Disposal Act (42 U.S.C.ss.ss.
6901 et seq.); the Toxic Substance Control Act (15 U.S.C.ss.ss.2601 et seq.);
the Clean Air Act (42 U.S.C.ss.ss. 7401 et seq.); the Federal Water Pollution
Control Act (33 U.S.C.ss.ss.1251 et seq.); the Occupational Safety and Health
Act (29 U.S.C.ss.ss.651 et seq.); and the Safe Drinking Water Act (42
U.S.C.ss.ss. 300(f) et seq.), and any and all regulations promulgated
thereunder, and all analogous state, local and foreign counterparts or
equivalents and any transfer of ownership notification or approval statutes.
"Environmental Liabilities" means, with respect to any Person, all
liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.
"Environmental Permits" means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.
"Equipment" means all "equipment," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located and,
in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment with software and peripheral equipment and all engineering,
processing and manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, attachments, accessories, automotive equipment,
trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock
and other equipment of every kind and nature, trade fixtures and fixtures not
forming a part of real property, together with all additions and accessions
thereto, replacements therefor, all parts therefor, all substitutes for any of
the foregoing, fuel therefor, and all manuals, drawings, instructions,
warranties and rights with respect thereto, and all products and proceeds
thereof and condemnation awards and insurance proceeds with respect thereto.
"Equivalent Amount" means, on any date of determination, with
respect to obligations or valuations denominated in one currency (the "first
currency"), the amount of another currency (the "second currency") which would
result from the conversion of the relevant amount of the first currency into the
second currency at the 12:00 noon rate quoted on the Reuters Monitor Screen
(Page BOFC or such other Page as may replace such Page for the purpose of
displaying such exchange rates) on such date or, if such date is not a Business
Day, on
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the Business Day immediately preceding such date of determination, or at such
other rate as may have been agreed in writing between Borrower and Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any Credit Party, any trade
or business (whether or not incorporated) that, together with such Credit Party,
are treated as a single employer within the meaning of Sections 414(b), (c), (m)
or (o) of the IRC.
"ERISA Event" means, with respect to any Credit Party or any ERISA
Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a
Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title
IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party
or ERISA Affiliate to make when due required contributions to a Multiemployer
Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other
event or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 of ERISA; (i) the loss of
a Qualified Plan's qualification or tax exempt status; or (j) the termination of
a Plan described in Section 4064 of ERISA.
"ESOP" means a Plan that is intended to satisfy the requirements of
Section 4975(e)(7) of the IRC.
"European Subsidiaries" means ICON Health & Fitness Ltd., ICON
Health & Fitness Italia SRL, ICON Fitness Lifestyle Limited, ICON Health &
Fitness France SARL, HealthRider International Limited, Weider Health & Fitness
France SA and HealthRider GmbH.
"Event of Default" has the meaning ascribed to it in Section 8.1.
"Exchange Offer" means the HF Holdings Inc. and ICON Health and
Fitness, Inc. Exchange Offer and Consent Solicitation Statement dated July 30,
1999, including all supplements, amendments, or modifications thereto, in each
case in form and substance satisfactory to the Agents.
"Excess Cash Flow" means, without duplication, with respect to any
Fiscal Year of Borrower and its Subsidiaries, consolidated net income plus (a)
depreciation, amortization and Interest Expense to the extent deducted in
determining consolidated net income, plus decreases or minus increases (as the
case may be) (b) in Working Capital, minus (c) Capital Expenditures
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during such Fiscal Year (excluding the financed portion thereof and excluding
any Capital Expenditures in such Fiscal Year to the extent in excess of the
amount permitted to be made in such Fiscal Year pursuant to clause (a) of Annex
G), minus (d) Interest Expense paid or accrued (excluding any original issue
discount, interest paid in kind or amortized debt discount, to the extent
included in determining Interest Expense) and scheduled principal payments paid
or payable in respect of Funded Debt, plus or minus (as the case may be), (e)
extraordinary gains or losses which are cash items not included in the
calculation of net income, minus (f) mandatory prepayments paid in cash pursuant
to Section 1.3 other than mandatory prepayments made pursuant to Sections
1.3(b)(i), 1.3(b)(iv) or 1.3(d), minus (g) voluntary prepayments made pursuant
to Section 1.3(a)(i), plus (h) taxes deducted in determining consolidated net
income to the extent not paid for in cash minus (i) taxes paid in cash during
such period and not deducted in determining consolidated net income for that
period. For purposes of this definition, "Working Capital" means Current Assets
minus Current Liabilities.
"Excess PIK Interest" means an amount equal to the excess, if any,
on a PIK Interest Catch-Up Date of (a) the amount of accrued and unpaid PIK
Interest (including capitalized interest) and all other accrued and unpaid
original issue discount outstanding on such PIK Interest Catch-Up Date with
respect to Term Loan C over (b) the product of (x) the issue price (as defined
in section 1273(b) of the IRC) of Term Loan C times (y) the yield to maturity
(interpreted in accordance with section 163(i) of the IRC) of Term Loan C.
"Fair Labor Standards Act" means the Fair Labor Standards Act, 29
U.S.C.ss.201 et seq.
"Federal Funds Rate" means, for any day, a floating rate equal to
the weighted average of the rates on overnight federal funds transactions among
members of the Federal Reserve System, as determined by Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System.
"Fee Letter" means that certain letter, dated as of June 11, 1999
among GE Capital, Fleet and Borrower with respect to certain Fees to be paid
from time to time by Borrower to GE Capital and Fleet.
"Fees" means any and all fees payable to Agent or any Lender
pursuant to the Agreement or any of the other Loan Documents.
"Financial Covenants" means the financial covenants set forth in
Annex G.
"Financial Statements" means the consolidated and consolidating
income statements, statements of cash flows and balance sheets of Borrower
delivered in accordance with Section 3.4 and Annex E.
"Fiscal Month" means any of the monthly accounting periods of
Borrower.
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"Fiscal Quarter" means any of the quarterly accounting periods of
Borrower, ending on August 31, November 30, February 28 and May 31 of each year;
provided, however, that the first three Fiscal Quarters of each Fiscal Year end
on the Saturday nearest the dates set forth in this definition.
"Fiscal Year" means any of the annual accounting periods of Borrower
ending on May 31 of each year.
"Fixtures" means all "fixtures" as such term is defined in the Code,
now owned or hereafter acquired by any Credit Party.
"Fleet" means Fleet National Bank.
"Funded Debt" means, with respect to any Person, without
duplication, all Indebtedness for borrowed money evidenced by notes, bonds,
debentures, or similar evidences of Indebtedness and that by its terms matures
more than one year from, or is directly or indirectly renewable or extendible at
such Person's option under a revolving credit or similar agreement obligating
the lender or lenders to extend credit over a period of more than one year from
the date of creation thereof, and specifically including Capital Lease
Obligations, current maturities of long-term debt, revolving credit and
short-term debt extendible beyond one year at the option of the debtor, and also
including, in the case of Borrower, the Obligations and, without duplication,
Guaranteed Indebtedness consisting of guaranties of Funded Debt of other
Persons.
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied, as such term is further defined in
Annex G to the Agreement.
"GE Capital" means General Electric Capital Corporation, a New York
corporation.
"General Intangibles" means "general intangibles," as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party, and,
in any event, including all right, title and interest that such Credit Party may
now or hereafter have in or under any Contract, all customer lists, Licenses,
Copyrights, Trademarks, Patents, and all applications therefor and reissues,
extensions or renewals thereof, rights in Intellectual Property, interests in
partnerships, joint ventures and other business associations, licenses, permits,
copyrights, trade secrets, proprietary or confidential information, inventions
(whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, software, data bases, data, skill, expertise,
experience, processes, models, drawings, materials and records, goodwill
(including the goodwill associated with any Trademark or Trademark License), all
rights and claims in or under insurance policies (including insurance for fire,
damage, loss and casualty, whether covering personal property, real property,
tangible rights or intangible rights, all liability, life, key man and business
interruption insurance, and all unearned premiums), uncertificated securities,
choses in action, deposit, checking and other bank accounts, rights to receive
tax refunds and other payments, rights of indemnification, all books and
records, correspondence, credit files, invoices and other papers, including
without limitation all tapes, cards, computer
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runs and other papers and documents in the possession or under the control of
such Credit Party or any computer bureau or service company from time to time
acting for such Credit Party.
"Goods" means any "goods" as defined in the Code, now owned or
hereafter acquired by any Person.
"Governmental Authority" means any nation or government, any state,
province or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any indebtedness, lease, dividend, or
other obligation ("primary obligation") of any other Person (the "primary
obligor") in any manner, including any obligation or arrangement of such Person
to (a) purchase or repurchase any such primary obligation, (b) advance or supply
funds (i) for the purchase or payment of any such primary obligation or (ii) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) indemnify
the owner of such primary obligation against loss in respect thereof. The amount
of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal
to the lesser at such time of (x) the stated or determinable amount of the
primary obligation in respect of which such Guaranteed Indebtedness is incurred
and (y) the maximum amount for which such Person may be liable pursuant to the
terms of the instrument embodying such Guaranteed Indebtedness, or, if not
stated or determinable, the maximum reasonably anticipated liability (assuming
full performance) in respect thereof.
"Guaranties" means, collectively, the New Holdings Guaranty and any
other guaranty executed by any Guarantor in favor of Agent and Lenders in
respect of the Obligations.
"Guarantors" means New Holdings, ICON of Canada, ICON New Brunswick,
ICON International Holdings, Inc., Universal Technical Services and JumpKing and
each other Person, if any, that executes a guaranty or other similar agreement
in favor of Agent in connection with the transactions contemplated by the
Agreement and the other Loan Documents.
"Hazardous Material" means any substance, material or waste that is
regulated by, or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance that is (a) defined as a
"hazardous waste," "hazardous material," "hazardous substance," "dangerous
good," "extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's),
or any radioactive substance.
"HF Investment" means HF Investment Holdings, LLC, a Delaware
limited liability company.
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"HF Investment LLC Agreement" means the Limited Liability Company
Agreement of HF Investment as in effect on the Closing Date.
"Holdings" means IHF Holdings, Inc., a Delaware corporation.
"ICON New Brunswick" means 510152 N.B. Ltd., a New Brunswick
corporation.
"ICON of Canada" means ICON of Canada Inc./ICON du Canada Inc., a
Quebec company.
"ICON of Canada Debenture" means the Debenture in the principal
amount of C $600,000,000 issued by ICON of Canada to Agent pursuant to the ICON
of Canada Hypothec.
"ICON of Canada Hypothec" means the Deed of Hypothec entered into by
and among Agent, Lenders and ICON of Canada.
"ICON of Canada Pledge Agreement" means the Pledge Agreement between
ICON of Canada and Agent pursuant to which ICON of Canada pledges the ICON of
Canada Debenture to Agent and Lenders.
"Indebtedness" means, with respect to any Person, without
duplication (a) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property payment for which is deferred six (6) months
or more, but excluding obligations to trade creditors incurred in the ordinary
course of business that are not overdue by more than six (6) months unless being
contested in good faith, (b) all reimbursement and other obligations with
respect to letters of credit, bankers' acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all net
obligations of such Person under any foreign exchange contract, currency swap
agreement, interest rate swap, cap or collar agreement or other similar
agreement or arrangement designed to alter the risks of that Person arising from
fluctuations in currency values or interest rates, in each case whether
contingent or matured, (h) all Indebtedness referred to above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property or other assets
(including accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness,
and (i) the Obligations.
"Indemnified Liabilities" has the meaning ascribed to it in Section
1.13.
"Indemnified Person" has the meaning ascribed to it in Section 1.13.
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"Index Rate" means, for any day, a floating rate equal to the higher
of (i) the rate publicly quoted from time to time by The Wall Street Journal as
the "base rate on corporate loans at large U.S. money center commercial banks"
(or, if The Wall Street Journal ceases quoting a base rate of the type
described, the highest per annum rate of interest published by the Federal
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change
in any interest rate provided for in the Agreement based upon the Index Rate
shall take effect at the time of such change in the Index Rate.
"Index Rate Loan" means a Loan or portion thereof bearing interest
by reference to the Index Rate.
"Insolvency Laws" means any of the Bankruptcy Code, the Bankruptcy
and Insolvency Act (Canada) and the Companies' Creditors Arrangement Act
(Canada), each as now and hereafter in effect, any successors to such statutes
and any other applicable insolvency or other similar law of any jurisdiction
including, without limitation, any law of any jurisdiction permitting a debtor
to obtain a stay or a compromise of the claims of its creditors against it.
"Instruments" means any "instrument," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located,
and, in any event, including all certificated securities, all certificates of
deposit, and all notes and other, without limitation, evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" means any and all Licenses, Patents,
Designs, Copyrights, Trademarks, and the goodwill associated with such
Trademarks.
"Intercompany Note" has the meaning ascribed to it in Section 6.3.
"International Holdings" means ICON International Holdings, Inc., a
Delaware corporation.
"International Holdings Pledge Agreement" means a Pledge Agreement
dated as of the Closing Date, pledging to the Agent for the benefit of the
Lenders 100% of the stock of ICON of Canada and ICON New Brunswick and 65% of
the stock of all other Subsidiaries of International Holdings.
"Interest Expense" means, with respect to any Person for any fiscal
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including
interest expense with respect to any Funded Debt of such Person and interest
expense for the relevant period that has been capitalized on the balance sheet
of such Person.
"Interest Payment Date" means (a) as to any Index Rate Loan (other
than Term Loan C) the first Business Day of each month to occur while such Loan
is outstanding, (b) as to that portion of Term Loan C that is an Index Rate
Loan, the first day of March, June, September
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and December of each year, commencing December 1, 1999, and (c) as to any LIBOR
Loan, the last day of the applicable LIBOR Period; provided, that in the case of
any LIBOR Period greater than three months in duration, interest shall be
payable at three month intervals and on the last day of such LIBOR Period; and
provided further that, in addition to the foregoing, each of (x) the date upon
which all of the Commitments have been terminated and the Loans have been paid
in full and (y) the Commitment Termination Date shall be deemed to be an
"Interest Payment Date" with respect to any interest that has then accrued under
the Agreement.
"Intermediate Holdings" means ICON Fitness Corporation, a Delaware
corporation.
"Inventory" means any "inventory," as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located, and
in any event including inventory, merchandise, goods and other personal property
that are held by or on behalf of any Credit Party for sale or lease or are
furnished or are to be furnished under a contract of service, or that constitute
raw materials, work in process or materials used or consumed or to be used or
consumed in such Credit Party's business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including other
supplies.
"Investment Property" means all "investment property" as such term
is defined in Section 9-115 of the Code in those jurisdictions in which such
definition has been adopted now owned or hereafter acquired by any Credit Party,
wherever located, including (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Credit Party,
including the rights of such Credit Party to any securities account and the
financial assets held by a securities intermediary in such securities account
and any free credit balance or other money owing by any securities intermediary
with respect to that account; (iii) all securities accounts of any Credit Party;
(iv) all commodity contracts of any Credit Party; and (v) all commodity accounts
held by any Credit Party.
"IP Collateral" means all Patents, all Trademarks and all Proceeds
of the foregoing.
"IP Lender" means those Lenders having IP Loan Commitments.
"IP Loan" has the meaning ascribed to it in Section 1.1(d).
"IP Loan Commitment" means (a) as to any Lender with an IP Loan
Commitment, the commitment of such Lender to make its Pro Rata Share of the IP
Loan as set forth on Annex J to the Agreement or the most recent Assignment
Agreement executed by such Lender, and (b) as to all Lenders with an IP Loan
Commitment, the aggregate commitment of all Lenders to make the IP Loan, which
commitment shall be Fifteen Million Dollars ($15,000,000) on the Closing Date.
After advancing the IP Loan, each reference to a Lender's IP Loan Commitment
shall refer to that Lender's Pro Rata Share of the outstanding IP Loan.
"IP Note" has the meaning ascribed to it in Section 1.1(d).
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"IRC" means the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"ITA" means the Income Tax Act (Canada) as the same may, from time
to time, be in effect.
"JumpKing" means JumpKing, Inc., a Utah corporation.
"L/C Issuer" has the meaning ascribed to it in Annex B.
"L/C Sublimit" has the meaning ascribed to in it Annex B.
"Lenders" means GE Capital, Fleet, the other Lenders named on the
signature pages of the Agreement, and, if any such Lender shall decide to assign
all or any portion of the Obligations, such term shall include any assignee of
such Lender.
"Letter of Credit Fee" has the meaning ascribed to it in Annex B.
"Letter of Credit Obligations" means all outstanding obligations
incurred by Agent and Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance of a reimbursement agreement or guaranty by Agent or purchase of a
participation as set forth in Annex B with respect to any Letter of Credit. The
amount of such Letter of Credit Obligations shall equal the maximum amount that
may be payable by Agent or Lenders thereupon or pursuant thereto.
"Letters of Credit" means commercial or standby letters of credit
issued for the account of Borrower by any L/C Issuer, and bankers' acceptances
issued by Borrower, for which Agent and Lenders have incurred Letter of Credit
Obligations.
"Leverage Ratio" means, with respect to Borrower, on a consolidated
basis, the ratio of (a) Funded Debt as of any date of determination (including
the average outstanding principal balance of the Revolving Loan for the three
(3) months preceding that determination date) to (b) the sum of EBITDA less
Capital Expenditures for the twelve months ending on that date of determination.
"LIBOR Business Day" means a Business Day on which banks in the City
of London are generally open for interbank or foreign exchange transactions.
"LIBOR Loan" means a Loan or any portion thereof bearing interest by
reference to the LIBOR Rate.
"LIBOR Period" means, with respect to any LIBOR Loan, each period
commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two, three or six months thereafter, as selected by
Borrower's irrevocable notice to
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Agent as set forth in Section 1.5(e); provided, that the foregoing provision
relating to LIBOR Periods is subject to the following:
(a) if any LIBOR Period would otherwise end on a day that is not a
LIBOR Business Day, such LIBOR Period shall be extended to the next
succeeding LIBOR Business Day unless the result of such extension would be
to carry such LIBOR Period into another calendar month in which event such
LIBOR Period shall end on the immediately preceding LIBOR Business Day;
(b) any LIBOR Period that would otherwise extend beyond the
Commitment Termination Date shall end two (2) LIBOR Business Days prior to
such date;
(c) any LIBOR Period that begins on the last LIBOR Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR Period)
shall end on the last LIBOR Business Day of a calendar month;
(d) Borrower shall select LIBOR Periods so as not to require a
payment or prepayment of any LIBOR Loan during a LIBOR Period for such
Loan; and
(e) Borrower shall select LIBOR Periods so that there shall be no
more than five (5) separate LIBOR Loans in existence at any one time.
"LIBOR Rate" means for each LIBOR Period, a rate of interest
determined by Agent equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period that appears on Telerate Page 3750 as of 11:00
a.m. (London time), on the second full LIBOR Business Day next preceding
the first day of such LIBOR Period (unless such date is not a Business
Day, in which event the next succeeding Business Day will be used);
divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day that is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the
Federal Reserve Board or other Governmental Authority having jurisdiction
with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board which are required to be maintained by a
member bank of the Federal Reserve System.
If such interest rates shall cease to be available from Telerate
News Service, the LIBOR Rate shall be determined from such financial
reporting service or other information as shall be mutually acceptable to
Agent and Borrower.
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"License" means any Copyright License, Patent License, Trademark
License, Design License or other license of rights or interests now held or
hereafter acquired by any Credit Party.
"Lien" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Litigation" has the meaning ascribed to it in Section 3.13.
"Loan Account" has the meaning ascribed to it in Section 1.12.
"Loan Documents" means the Agreement, the Notes, the Collateral
Documents and all other agreements, instruments, documents and certificates
identified in the Closing Checklist executed and delivered to, or in favor of,
Agent or any Lenders and including all other pledges, powers of attorney,
consents, assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of any Credit Party, or
any employee of any Credit Party, and delivered to Agent or any Lender in
connection with the Agreement or the transactions contemplated thereby. Any
reference in the Agreement or any other Loan Document to a Loan Document shall
include all appendices, exhibits or schedules thereto, and all amendments,
restatements, supplements or other modifications thereto, and shall refer to the
Agreement or such Loan Document as the same may be in effect at any and all
times such reference becomes operative.
"Loans" means the Revolving Loan, the Swing Line Loan, the IP Loan
and the Term Loans.
"Lock Boxes" has the meaning ascribed to it in Annex C.
"Management Agreements" means each of the Management Agreements
dated as of the Closing Date among Borrower, New Holdings, and each of Scott
Watterson and Gary Stevenson, the Management Agreement dated as of the Closing
Date among Borrower, New Holdings and Bain Capital, Inc. and Section 7.1(b) of
Securities Purchase Agreement dated as of the Closing Date between New Holdings
and Credit Suisse First Boston.
"Margin Stock" has the meaning ascribed to it in Section 3.10.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations or financial or other condition of the Credit
Parties considered as a whole, (b) Borrower's ability to pay any of the Loans or
any of the other Obligations in accordance with the terms of the Agreement, (c)
the Collateral or Agent's Liens, on behalf of itself and Lenders, on the
Collateral or the priority of such Liens, or (d) Agent's or any Lender's rights
and remedies
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under the Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, any event or occurrence adverse to one or more
Credit Parties which results or could reasonably be expected to result in costs
and/or liabilities in excess of $5,000,000 shall constitute a Material Adverse
Effect.
"Maximum Amount" means, as of any date of determination, an amount
equal to the Revolving Loan Commitment of all Lenders as of that date.
"Mortgaged Properties" has the meaning assigned to it in Annex D.
"Mortgages" means each of the mortgages, deeds of trust, leasehold
mortgages, leasehold deeds of trust, collateral assignments of leases or other
real estate security documents delivered by any Credit Party to Agent on behalf
of itself and Lenders with respect to the Mortgaged Properties, all in form and
substance satisfactory to Agent.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, is obligated to make or has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Net Borrowing Availability" means as of any date of determination,
the lesser of (i) the Maximum Amount and (ii) the Borrowing Base, in each case
less the sum of the Revolving Loan and Swing Line Loan then outstanding.
"Net Worth" means, with respect to any Person as of any date of
determination, the book value of the assets of such Person, minus the sum of (a)
reserves applicable thereto, and (b) all of such Person's liabilities on a
consolidated basis (including accrued and deferred income taxes), all as
determined in accordance with GAAP.
"New Holdings" has the meaning ascribed to it in the recitals to the
Agreement.
"New Holdings Guaranty" means the guaranty of even date herewith
executed by New Holdings in favor of Agent and Lenders.
"New Holdings Pledge Agreement" means the Pledge Agreement of even
date herewith executed by New Holdings in favor of Agent, on behalf of itself
and Lenders, pledging all of the Stock of Borrower.
"Non-Funding Lender" has the meaning ascribed to it in Section
9.9(a)(ii).
"Notes" means the Revolving Notes, the Swing Line Note, the IP Notes
and the Term Notes.
"Notice of Conversion/Continuation" has the meaning ascribed to it
in Section 1.5(e).
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<PAGE>
"Notice of Revolving Credit Advance" has the meaning ascribed to it
in Section 1.1(a).
"Obligations" means all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under the Agreement or any of
the other Loan Documents. This term includes all principal, interest (including
all interest that accrues after the commencement of any case or proceeding by or
against any Credit Party in bankruptcy, whether or not allowed in such case of
proceeding), Fees, Charges, expenses, attorneys' fees and any other sum
chargeable to any Credit Party under the Agreement or any of the other Loan
Documents.
"Old Holdcos" shall mean collectively IHF Capital, Inc., IHF
Holdings, Inc., and ICON Fitness Corporation, each a Delaware corporation.
"Old Management Agreement" has the meaning ascribed to it in Section
6.14.
"Patent Security Agreements" means the Patent Security Agreements
made in favor of Agent, on behalf of itself and Lenders, by each applicable
Credit Party.
"Patent License" means rights under any written agreement now owned
or hereafter acquired by any Credit Party granting any right with respect to any
invention on which a Patent is in existence.
"Patents" means all of the following in which any Credit Party now
holds or hereafter acquires any interest: (a) all letters patent of the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or any other country, and (b) all reissues, continuations,
continuations-in-part or extensions thereof.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" means a Plan described in Section 3(2) of ERISA.
"Permitted Encumbrances" means the following encumbrances: (a) Liens
for taxes or assessments or other governmental Charges not yet due and payable
or which are being contested in accordance with Section 5.2(b); (b) pledges or
deposits of money securing statutory obligations under workmen's compensation,
unemployment insurance, social security or public liability laws or similar
legislation (excluding Liens under ERISA); (c) pledges or deposits of money
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) inchoate and unperfected workers', mechanics'
or similar liens arising in the ordinary course
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of business, so long as such Liens attach only to Equipment, Fixtures and/or
Real Estate; (e) carriers', warehousemen's or other similar possessory liens
arising in the ordinary course of business and securing liabilities in an
outstanding aggregate amount not in excess of $1,000,000 at any time, so long as
such Liens attach only to Inventory; (f) deposits securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which any Credit Party is a
party; (g) any attachment or judgment lien not constituting an Event of Default
under Section 8.1(j); (h) zoning restrictions, easements, licenses, or other
restrictions on the use of any Real Estate or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such Real Estate; (i) presently
existing or hereafter created Liens in favor of Agent, on behalf of Agent and
Lenders or in favor of Agent and Lenders, as applicable; (j) Liens expressly
permitted under clauses (b), (c) and (d) of Section 6.7 of the Agreement; and
(k) to the extent not included in clauses (a), (d) or (e) of this definition,
Prior Claims that are unregistered and that secure amounts that are not yet due
and payable.
"Permitted Subordinated Debt" means Subordinated Debt that (i) is
unsecured, (ii) is subordinated in right of payment to the Obligations on terms
satisfactory to the Agents, (iii) is in a principal amount not to exceed the sum
of (A) the principal balance of Term Loan C plus accrued interest thereon and
prepayment fees with respect thereto to the extent the proceeds of such
Permitted Subordinated Debt are used to pay the principal, interest and fees on
Term Loan C, plus (B) the amount necessary to repurchase or prepay the
Subordinated Notes in accordance with the Subordinated Notes Documents, but only
to the extent the proceeds of such Permitted Subordinated Debt are used to make
such repurchase or prepayment, (iv) amortizes in one or more installments
commencing on or after the sixth anniversary of the Closing Date, (v) bears
interest payable in cash at a rate less than the effective combined cash
interest rate applicable to Term Loan C and the Subordinated Notes, and (vi) if
applicable, bears PIK interest at a rate less than or equal to the PIK interest
applicable to Term Loan C, and (vii) is otherwise incurred on terms and
conditions reasonably satisfactory to Agents.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity
or government (whether federal, state, county, city, municipal, local, foreign,
or otherwise, including any instrumentality, division, agency, body or
department thereof).
"PIK Interest" has the meaning ascribed to it in Section 1.5(a).
"PIK Interest Catch-Up Date" means each Interest Payment Date and
any other date (if any) on which principal is paid with respect to Term Loan C,
in each case, occurring after the fifth anniversary of the Closing Date.
"Plan" means, at any time, an "employee benefit plan," as defined in
Section 3(3) of ERISA, that any Credit Party or ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any Credit Party.
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"Pledge Agreements" means the Borrower Pledge Agreement, the New
Holdings Pledge Agreement, and any other pledge agreement entered into after the
Closing Date by any Credit Party (as required by the Agreement or any other Loan
Document).
"Prior Claims" means all Liens created by applicable law (in
contrast with Liens voluntarily granted) which rank or are capable of ranking
prior or pari passu with Agent's security interests or Agent's and Lenders'
hypothecs (or the applicable equivalent of such Liens), as applicable, against
all or part of the Collateral, including for amounts owing for wages, employee
deductions, goods and services taxes, sales taxes, income taxes, employer health
taxes, municipal taxes, workers' compensation, pension fund obligations and
overdue rents.
"Prior Lenders" means collectively GE Capital and the lenders under
that Amended and Restated Credit Agreement dated as of November 14, 1994, as
amended, and General Electric Capital Canada Inc. under that Credit Agreement
dated as of November 18, 1997, as amended.
"Prior Lenders' Obligations" means, collectively, all Obligations as
such term is defined in each of the Amended and Restated Credit Agreement dated
as of November 14, 1994, as amended, among Agent, Borrower and the other parties
thereto and the Credit Agreement between General Electric Capital Canada, Inc.
and ICON of Canada dated as of November 18, 1997, as amended.
"Proceeds" means "proceeds," as such term is defined in the Code
and, in any event, shall include (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Credit Party from time to time
with respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to any Credit Party from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of governmental authority), (c) any claim of
any Credit Party against third parties (i) for past, present or future
infringement of any Patent or Patent License, or (ii) for past, present or
future infringement or dilution of any Copyright, Copyright License, Trademark
or Trademark License, or for injury to the goodwill associated with any
Trademark or Trademark License, (d) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the
Collateral, (e) dividends, interest and distributions with respect to Investment
Property, and (f) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Pro Forma" means the unaudited consolidated and consolidating
balance sheet of Borrower and its Subsidiaries as of May 31, 1999 after giving
pro forma effect to the Related Transactions.
"Pro Rata Share" means with respect to all matters relating to any
Lender (a) with respect to the Revolving Loan (including the Swing Line Loan as
a subset of the Swing Line Lender's Revolving Loan), the percentage obtained by
dividing (i) the Revolving Loan Commitment (including the Swing Line Commitment
as a subset of the Swing Line Lender's Revolving Loan Commitment) of that Lender
by (ii) the aggregate Revolving Loan
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Commitments of all Lenders, (b) with respect to each Term Loan, the percentage
obtained by dividing (i) the Term Loan Commitment of that Lender for Term Loans
of that type by (ii) the aggregate Term Loan Commitments of all Lenders for Term
Loans of that type, as any such percentages may be adjusted by assignments
permitted pursuant to Section 9.1, (c) with respect to the IP Loan, the
percentage obtained by dividing (i) the IP Loan Commitment of that Lender by the
aggregate IP Loan Commitments of all Lenders, (d) with respect to all Loans, the
percentage obtained by dividing (i) the aggregate Commitments of that Lender by
(ii) the aggregate Commitments of all Lenders, and (d) with respect to all Loans
on and after the Commitment Termination Date, the percentage obtained by
dividing (i) the aggregate outstanding principal balance of the Loans held by
that Lender, by (ii) the outstanding principal balance of the Loans held by all
Lenders.
"Projections" means Borrower's forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; and (c) cash
flow statements, all prepared on a Subsidiary by Subsidiary or
division-by-division basis, if applicable, and otherwise consistent with the
historical Financial Statements of Borrower, together with appropriate
supporting details and a statement of underlying assumptions.
"Public Offering" means a firm underwritten public offering of
common stock registered on form S-1, S-2 or S-3 under the Securities Act of
1933, as amended, by a nationally recognized investment banking firm and after
giving effect to which the issuer shall be qualified for listing on the NASDAQ
National Market, the American Stock Exchange or the New York Stock Exchange.
"Qualified Assignee" means (i) (a) any Lender, any Affiliate of any
Lender and, with respect to any Lender that is an investment fund that invests
in commercial loans, any other investment fund that invests in commercial loans
and that is managed or advised by the same investment advisor as such Lender or
by an Affiliate of such investment advisor, and (b) any commercial bank, savings
and loan association or savings bank or any other entity which is an "accredited
investor" (as defined in Regulation D under the Securities Act) which extends
credit or buys loans as one of its businesses, including insurance companies,
mutual funds, lease financing companies and commercial finance companies; and
(ii) in addition to the criteria set forth in the foregoing clause (i), any such
Assignee shall be a Person which has and maintains a rating of BBB or higher
from S&P and a rating of Baa2 or higher from Moody's and which, through its
applicable lending office, is capable of lending to Borrower without the
imposition of any withholding or similar taxes; provided that (a) no Affiliate
of any Credit Party, (b) no Person determined by Agent to be acting in the
capacity of a vulture fund and (c) no Person who holds Subordinated Debt or is
an Affiliate of a holder of Subordinated Debt shall be a Qualified Assignee.
"Qualified Plan" means a Pension Plan that is intended to be
tax-qualified under Section 401(a) of the IRC.
"Ratable Share" has the meaning ascribed to it in Section 1.1(b).
"Real Estate" has the meaning ascribed to it in Section 3.6.
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"Recapitalization" means, collectively, the transactions described
in the Exchange Offer and all other transactions related thereto, including,
without limitation, (i) an exchange offer whereby the 14% senior discount notes
issued by Holdings will be exchanged for a portion of equity in New Holdings,
(ii) an exchange offer whereby the 15% senior discount notes issued by
Intermediate Holdings will be exchanged for a portion of equity in New Holdings,
(iii) a cash equity contribution of not less than $40,000,000 to Borrower by
Bain Capital, Inc., CS First Boston and others, (iv) an exchange offer whereby
the 13% senior subordinated notes issued by Borrower will be exchanged for
$40,000,000 of cash, $45,000,000 of Subordinated Notes and a portion of equity
in New Holdings, (v) the repayment in full of the Prior Lenders' Obligations and
(vi) the merger of HF Acquisition, Inc., a wholly-owned Subsidiary of New
Holdings with and into Borrower with Borrower as the surviving entity in that
merger.
"Recapitalization Documents" means the Exchange Offer, the
Subordinated Notes Documents and the documents listed on Annex K hereto.
"Refunded Swing Line Loan" has the meaning ascribed to it in Section
1.1(c)(iii).
"Related Transactions" means the initial borrowing under the
Revolving Loan, the IP Loan and the Term Loans on the Closing Date, the
Recapitalization, the payment of all fees, costs and expenses associated with
all of the foregoing and the execution and delivery of all of the Related
Transactions Documents.
"Related Transactions Documents" means the Loan Documents and the
Recapitalization Documents.
"Release" means any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Material in the indoor or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property.
"Requisite Lenders" means Lenders having (a) more than sixty-six and
two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if the
Commitments have been terminated, more than sixty-six and two-thirds percent (66
2/3%) of the aggregate outstanding amount of the Loans.
"Requisite Revolving Lenders" means Lenders having (a) more than
sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan Commitments of
all Lenders, or (b) if the Revolving Loan Commitments have been terminated, more
than sixty-six and two-thirds percent (66 2/3%) of the aggregate outstanding
amount of the Revolving Loan.
"Reserves" means, with respect to the Borrowing Base (a) reserves
established by Agent from time to time against Eligible Inventory pursuant to
Section 5.10, (b) reserves established pursuant to Section 5.4(c), and (c) such
other reserves (including in respect of Prior Claims) against Eligible Accounts,
Eligible Inventory or Borrowing Availability that Agent may, in its reasonable
credit judgment, establish from time to time. Without limiting the generality of
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the foregoing, Reserves established to ensure the payment of accrued Interest
Expenses, Indebtedness or Prior Claims shall be deemed to be a reasonable
exercise of Agent's credit judgment.
"Residual 13% Subordinated Notes" means subordinated notes due 2002
in aggregate principal amount not to exceed $1,500,000 issued pursuant to an
Indenture between Borrower and Fleet Bank of Massachusetts, N.A. as trustee
dated as of November 14, 1994 as amended as of the Closing Date.
"Restricted Payment" means, with respect to any Credit Party (a) the
declaration or payment of any dividend or the incurrence of any liability to
make any other payment or distribution of cash or other property or assets in
respect of Stock; (b) any payment on account of the purchase, redemption,
defeasance, sinking fund or other retirement of such Credit Party's Stock or any
other payment or distribution made in respect thereof, either directly or
indirectly; (c) any payment or prepayment of principal of, premium, if any, or
interest, fees or other charges on or with respect to, and any redemption,
purchase, retirement, defeasance, sinking fund or similar payment and any claim
for rescission with respect to, any Subordinated Debt; (d) any payment made to
redeem, purchase, repurchase or retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire Stock of such Credit
Party now or hereafter outstanding; (e) any payment of a claim for the
rescission of the purchase or sale of, or for material damages arising from the
purchase or sale of, any shares of such Credit Party's Stock or of a claim for
reimbursement, indemnification or contribution arising out of or related to any
such claim for damages or rescission; (f) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder of such Credit
Party other than payment of compensation in the ordinary course to stockholders
who are employees of such Credit Party; and (g) any payment of management fees
(or other fees of a similar nature) by such Credit Party to any Stockholder of
such Credit Party or its Affiliates.
"Retiree Welfare Plan" means, at any time, a Welfare Plan that
provides for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.
"Revolving Credit Advance" has the meaning ascribed to it in Section
1.1(a)(i).
"Revolving Lenders" means, as of any date of determination, Lenders
having a Revolving Loan Commitment.
"Revolving Loan" means, at any time, the sum of (i) the aggregate
amount of Revolving Credit Advances outstanding to Borrower plus (ii) the
aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless
the context otherwise requires, references to the outstanding principal balance
of the Revolving Loan shall include the outstanding balance of Letter of Credit
Obligations.
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"Revolving Loan Commitment" means (a) as to any Revolving Lender,
the aggregate commitment of such Revolving Lender to make Revolving Credit
Advances (including without duplication Swing Line Advances as a subset of the
Swing Line Lender's Revolving Loan Commitment) or incur Letter of Credit
Obligations as set forth on Annex J to the Agreement or in the most recent
Assignment Agreement executed by such Revolving Lender and (b) as to all
Revolving Lenders, the aggregate commitment of all Revolving Lenders to make
Revolving Credit Advances (including without duplication Swing Line Advances as
a subset of the Swing Line Lender's Revolving Loan Commitment) or incur Letter
of Credit Obligations, which aggregate commitment shall be One Hundred Twenty
Million Dollars ($120,000,000) on the Closing Date, as such amount may be
adjusted, if at all, from time to time in accordance with the Agreement.
"Revolving Note" has the meaning ascribed to it in Section
1.1(a)(ii).
"Security Agreement" means the Security Agreement of even date
herewith entered into by and among Agent, on behalf of itself and Lenders, and
each Credit Party that is a signatory thereto.
"Senior Leverage Ratio" means, with respect to Borrower, on a
consolidated basis, the ratio of (a) the outstanding principal balance of the
Loans hereunder as of as of any date of determination (including the average
outstanding principal balance of the Revolving Loan for the most recent Fiscal
Quarter ending prior to that determination date), to (b) EBITDA for the twelve
months ending on that date of determination.
"Solvent" means (i) with respect to any Person on a particular date
that is subject to Insolvency Laws of the United States of America, that on such
date (a) the fair value of the property of such Person 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 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 and (ii) with respect to any Person on a
particular date that is subject to Insolvency Laws of Canada, that on such date
(a) the property of such Person is sufficient, if disposed of at a fairly
conducted sale under legal process, to enable payment of all its obligations,
due and accruing due, (b) the property of such Person is, at a fair valuation,
greater than the total amount of liabilities, including contingent liabilities,
of such Person; (c) such Person has not ceased paying its current obligations in
the ordinary course of business as they generally become due. 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
the facts and circumstances existing at the time, represents the amount that can
be reasonably be expected to become an actual or matured liability.
"Stock" means all shares, options, warrants, general or limited
partnership interests, membership interests or other equivalents (regardless of
how designated) of or in a
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corporation, partnership, limited liability company or equivalent entity whether
voting or nonvoting, including common stock, preferred stock or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934).
"Stockholder" means, with respect to any Person, each holder of
Stock of such Person.
"Stockholders Agreement" means that certain Stockholders Agreement
among the stockholders of HF Holdings, Inc. dated as of the Closing Date.
"Subordinated Debt" means the Indebtedness of Borrower evidenced by
the Subordinated Notes and any other Indebtedness of any Credit Party
subordinated to the Obligations in a manner and form satisfactory to Agent and
Lenders in their sole discretion, as to right and time of payment and as to any
other rights and remedies thereunder.
"Subordinated Notes" means those certain 12% Subordinated Notes due
2005 issued by Borrower in an aggregate original principal amount of
$44,334,000.
"Subordinated Notes Documents" means the Subordinated Notes and the
Indenture between Borrower and IBJ Whitehall Bank & Trust Company dated as of
September 22, 1999, as from time to time amended.
"Subsidiary" means, with respect to any Person, (a) any corporation
of which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or
limited liability company in which such Person and/or one or more Subsidiaries
of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%) or of which any such Person is a general partner or may exercise the
powers of a general partner. Unless the context otherwise requires, each
reference to a Subsidiary shall be a reference to a Subsidiary of the Borrower.
"Swing Line Advance" has the meaning ascribed to it in Section
1.1(c)(i).
"Swing Line Availability" has the meaning ascribed to it in Section
1.1(c)(i).
"Swing Line Commitment" means, as to the Swing Line Lender, the
commitment of the Swing Line Lender to make Swing Line Advances as set forth on
Annex J to the Agreement, which commitment constitutes a subfacility of the
Revolving Loan Commitment of the Swing Line Lender.
"Swing Line Lender" means GE Capital.
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"Swing Line Loan" means at any time, the aggregate amount of Swing
Line Advances outstanding to Borrower.
"Swing Line Note" has the meaning ascribed to it in Section
1.1(c)(ii).
"Taxes" means taxes, levies, imposts, deductions, Charges and
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which Agent and Lenders are organized or any political subdivision
thereof.
"Termination Date" means the date on which (a) the Loans have been
indefeasibly repaid in full, (b) all other Obligations under the Agreement and
the other Loan Documents have been completely discharged, (c) all Letter of
Credit Obligations have been cash collateralized, cancelled or backed by
stand-by letters of credit in accordance with Annex B, and (d) Borrower shall
not have any further right to borrow any monies under the Agreement.
"Term Lenders" means those Lenders having Term Loan A Commitments,
Term Loan B Commitments and/or Term Loan C Commitments, as applicable.
"Term Loans" shall have the meaning assigned to it in Section
1.1(b)(i).
"Term Loan A Commitment" means (a) as to any Lender with a Term Loan
A Commitment, the commitment of such Lender to make its Pro Rata Share of Term
Loan A as set forth on Annex J to the Agreement or in the most recent Assignment
Agreement executed by such Lender, and (b) as to all Lenders with a Term Loan A
Commitment, the aggregate commitment of all Lenders to make Term Loan A, which
aggregate commitment shall be Thirty Million Dollars ($30,000,000) on the
Closing Date. After advancing Term Loan A, each reference to a Lender's Term
Loan A Commitment shall refer to that Lender's Pro Rata Share of the outstanding
Term Loan A.
"Term Loan B Commitment" means (a) as to any Lender with a Term Loan
B Commitment, the commitment of such Lender to make its Pro Rata Share of Term
Loan B as set forth on Annex J to the Agreement or in the most recent Assignment
Agreement executed by such Lender, and (b) as to all Lenders with a Term Loan B
Commitment, the aggregate commitment of all Lenders to make Term Loan B, which
aggregate commitment shall be Eighty Million Dollars ($80,000,000) on the
Closing Date. After advancing Term Loan B, each reference to a Lender's Term
Loan B Commitment shall refer to that Lender's Pro Rata Share of the outstanding
Term Loan B.
"Term Loan C Commitment" means (a) as to any Lender with a Term Loan
C Commitment, the commitment of such Lender to make its Pro Rata Share of Term
Loan C as set forth on Annex J to the Agreement or in the most recent Assignment
Agreement executed by such Lender, and (b) as to all Lenders with a Term Loan C
Commitment, the aggregate commitment of all Lenders to make Term Loan C, which
aggregate commitment shall be Fifty-Five Million Dollars ($55,000,000) on the
Closing Date. After advancing Term Loan C, each
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reference to a Lender's Term Loan C Commitment shall refer to that Lender's Pro
Rata Share of the outstanding Term Loan C.
"Term Loan Commitments" means the aggregate of the Term Loan A
Commitment, Term Loan B and Term Loan C Commitment.
"Term Note" has the meaning assigned to it in Section 1.1(b)(i).
"Third Party Interactives" means all Persons with whom any Credit
Party exchanges data electronically in the ordinary course of business,
including, without limitation, customers, suppliers, third-party vendors,
subcontractors, processors-converters, shippers and warehousemen.
"Title IV Plan" means a Pension Plan (other than a Multiemployer
Plan), that is covered by Title IV of ERISA, and that any Credit Party or ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
"Trademark Security Agreements" means the Trademark Security
Agreements made in favor of Agent, on behalf of Lenders, by each applicable
Credit Party.
"Trademark License" means rights under any written agreement now
owned or hereafter acquired by any Credit Party granting any right to use any
Trademark.
"Trademarks" means all of the following now owned or hereafter
adopted or acquired by any Credit Party: (a) all trademarks, trade names,
corporate names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.
"Unfunded Pension Liability" means, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.
"Ultimate Holdings" means IHF Capital, Inc., a Delaware corporation.
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"Voting Majority" has the meaning ascribed to such term in the HF
Investment LLC Agreement.
"Welfare Plan" means a Plan described in Section 3(i) of ERISA.
"Year 2000 Assessment" means a comprehensive written assessment of
the nature and extent of each Credit Party's Year 2000 Problems and Year 2000
Date-Sensitive Systems/Components, including, without limitation, Year 2000
Problems regarding data exchanges with Third Party Interactives.
"Year 2000 Corrective Actions" means, as to each Credit Party, all
actions necessary to eliminate such Person's Year 2000 Problems, including,
without limitation, computer code enhancements and revisions, upgrades and
replacements of Year 2000 Date-Sensitive Systems/Components, and coordination of
such enhancements, revisions, upgrades and replacements with Third Party
Interactives.
"Year 2000 Corrective Plan" means, with respect to each Credit
Party, a comprehensive plan to eliminate all of its Year 2000 Problems on or
before October 31, 1999, including without limitation (i) computer code
enhancements or revisions, (ii) upgrades or replacements of Year 2000
Date-Sensitive Systems/Components, (iii) test and validation procedures, (iv) an
implementation time line and budget and (v) designation of specific employees
who will be responsible for planning, coordinating and implementing each phase
or subpart of the Year 2000 Corrective Plan.
"Year 2000 Date-Sensitive System/Component" means, as to any Person,
any system software, network software, applications software, data base,
computer file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or outputs calendar-related
data accurately; such systems and components shall include, without limitation,
mainframe computers, file server/client systems, computer workstations, routers,
hubs, other network-related hardware, and other computer-related software,
firmware or hardware and information processing and delivery systems of any kind
and telecommunications systems and other communications processors, security
systems, alarms, elevators and HVAC systems.
"Year 2000 Implementation Testing" means, as to each Credit Party,
(i) the performance of test and validation procedures regarding Year 2000
Corrective Actions on an applications basis; (ii) the performance of test and
validation procedures regarding data exchanges among the Credit Parties' Year
2000 Date-Sensitive Systems/Components and data exchanges with Third Party
Interactives, and (iii) the design and implementation of additional Corrective
Actions, the need for which has been demonstrated by test and validation
procedures.
"Year 2000 Problems" means, with respect to each Credit Party,
limitations on the capacity or readiness of any such Credit Party's Year 2000
Date-Sensitive Systems/Components to accurately accept, create, manipulate,
sort, sequence, calculate, compare or output calendar date information with
respect to calendar year 1999 or any subsequent calendar year beginning on or
after January 1, 2000 (including leap year computations), including, without
limitation,
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exchanges of information among Year 2000 Date-Sensitive Systems/Components of
the Credit Parties and exchanges of information among the Credit Parties and
Year 2000 Date-Sensitive Systems/Components of Third Party Interactives and
functionality of peripheral interfaces, firmware and embedded microchips.
Rules of construction with respect to accounting terms used in the
Agreement or the other Loan Documents shall be as set forth in Annex G. All
other undefined terms contained in any of the Loan Documents shall, unless the
context indicates otherwise, have the meanings provided for by the Code as in
effect in the State of Illinois to the extent the same are used or defined
therein. Unless otherwise specified, references in the Agreement or any of the
Appendices to a Section, subsection or clause refer to such Section, subsection
or clause as contained in the Agreement. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole,
including all Annexes, Exhibits and Schedules, as the same may from time to time
be amended, restated, modified or supplemented, and not to any particular
section, subsection or clause contained in the Agreement or any such Annex,
Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including," "includes" and
"include" shall be deemed to be followed by the words "without limitation"; the
word "or" is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the
Loan Documents) or, in the case of governmental Persons, Persons succeeding to
the relevant functions of such Persons; and all references to statutes and
related regulations shall include any amendments of the same and any successor
statutes and regulations. Whenever any provision in any Loan Document refers to
the knowledge (or an analogous phrase) of any Credit Party, such words are
intended to signify that such Credit Party has actual knowledge or awareness of
a particular fact or circumstance or that such Credit Party, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.
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<PAGE>
ANNEX B (Section 1.2)
to
CREDIT AGREEMENT
LETTERS OF CREDIT
(a) Issuance. Subject to the terms and conditions of the Agreement,
Agent and Revolving Lenders agree to incur, from time to time prior to the
Commitment Termination Date, upon the request of Borrower and for Borrower's
account, Letter of Credit Obligations by causing Letters of Credit to be issued
(by a bank or other legally authorized Person selected by or acceptable to Agent
in its sole discretion (each, an "L/C Issuer")) for Borrower's account and
guaranteed by Agent; provided, that if the L/C Issuer is a Revolving Lender,
then such Letters of Credit shall not be guaranteed by Agent but rather each
Revolving Lender shall, subject to the terms and conditions hereinafter set
forth, purchase (or be deemed to have purchased) risk participations in all such
Letters of Credit issued with the written consent of Agent, as more fully
described in paragraph (b)(ii) below. The aggregate amount of all such Letter of
Credit Obligations shall not at any time exceed the least of (i) Ten Million
Dollars ($10,000,000) (the "L/C Sublimit"), (ii) the Maximum Amount less the
aggregate outstanding principal balance of the Revolving Credit Advances and the
Swing Line Loan, and (iii) the Borrowing Base less the aggregate outstanding
principal balance of the Revolving Credit Advances and the Swing Line Loan. No
such Letter of Credit shall have an expiry date that is more than one year
following the date of issuance thereof, and neither Agent nor Revolving Lenders
shall be under any obligation to incur Letter of Credit Obligations in respect
of, or purchase risk participations in, any Letter of Credit having an expiry
date that is later than the Commitment Termination Date.
(b) (i) Advances Automatic; Participations. In the event that Agent
or any Revolving Lender shall make any payment on or pursuant to any Letter of
Credit Obligation, such payment shall then be deemed automatically to constitute
a Revolving Credit Advance under Section 1.1(a) of the Agreement regardless of
whether a Default or Event of Default has occurred and is continuing and
notwithstanding Borrower's failure to satisfy the conditions precedent set forth
in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata
Share thereof in accordance with the Agreement. The failure of any Revolving
Lender to make available to Agent for Agent's own account its Pro Rata Share of
any such Revolving Credit Advance or payment by Agent under or in respect of a
Letter of Credit shall not relieve any other Revolving Lender of its obligation
hereunder to make available to Agent its Pro Rata Share thereof, but no
Revolving Lender shall be responsible for the failure of any other Revolving
Lender to make available such other Revolving Lender's Pro Rata Share of any
such payment.
(ii) If it shall be illegal or unlawful for Borrower to incur
Revolving Credit Advances as contemplated by paragraph (b)(i) above because of
an Event of Default described in Sections 8.1(h) or (i) or otherwise or if it
shall be illegal or unlawful for any Revolving Lender to be deemed to have
assumed a ratable share of the reimbursement obligations owed to an L/C Issuer,
or if the L/C Issuer is a Revolving Lender, then (i) immediately and without
further action whatsoever, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may
B-1
<PAGE>
be) an undivided interest and participation equal to such Revolving Lender's Pro
Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit
Obligations in respect of all Letters of Credit then outstanding and (ii)
thereafter, immediately upon issuance of any Letter of Credit, each Revolving
Lender shall be deemed to have irrevocably and unconditionally purchased from
Agent (or such L/C Issuer, as the case may be) an undivided interest and
participation in such Revolving Lender's Pro Rata Share (based on the Revolving
Loan Commitments) of the Letter of Credit Obligations with respect to such
Letter of Credit on the date of such issuance. Each Revolving Lender shall fund
its participation in all payments or disbursements made under the Letters of
Credit in the same manner as provided in the Agreement with respect to Revolving
Credit Advances.
(c) Cash Collateral. (i) If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Commitment Termination Date, Borrower will pay to Agent for the ratable
benefit of itself and Revolving Lenders cash or cash equivalents acceptable to
Agent ("Cash Equivalents") in an amount equal to 105% of the maximum amount then
available to be drawn under each applicable Letter of Credit outstanding. Such
funds or Cash Equivalents shall be held by Agent in a cash collateral account
(the "Cash Collateral Account") maintained at a bank or financial institution
acceptable to Agent. The Cash Collateral Account shall be in the name of
Borrower and shall be pledged to, and subject to the control of, Agent, for the
benefit of Agent and Lenders, in a manner satisfactory to Agent. Borrower hereby
pledges and grants to Agent, on behalf of itself and Lenders, a security
interest in all such funds and Cash Equivalents held in the Cash Collateral
Account from time to time and all proceeds thereof, as security for the payment
of all amounts due in respect of the Letter of Credit Obligations and other
Obligations, whether or not then due. The Agreement, including this Annex B,
shall constitute a security agreement under applicable law.
(ii) If any Letter of Credit Obligations, whether or not then due
and payable, shall for any reason be outstanding on the Commitment Termination
Date, Borrower shall either (A) provide cash collateral therefor in the manner
described above, or (B) cause all such Letters of Credit and guaranties thereof
to be canceled and returned, or (C) deliver a stand-by letter (or letters) of
credit in guarantee of such Letter of Credit Obligations, which stand-by letter
(or letters) of credit shall be of like tenor and duration (plus thirty (30)
additional days) as, and in an amount equal to 105% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as are satisfactory to Agent
in its sole discretion.
(iii) From time to time after funds are deposited in the Cash
Collateral Account by Borrower, whether before or after the Commitment
Termination Date, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, and in such order as
Agent may elect, as shall be or shall become due and payable by Borrower to
Agent and Lenders with respect to such Letter of Credit Obligations of Borrower
and, upon the satisfaction in full of all Letter of Credit Obligations of
Borrower, to any other Obligations then due and payable.
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<PAGE>
Neither Borrower nor any Person claiming on behalf of or through
Borrower shall have any right to withdraw any of the funds or Cash Equivalents
held in the Cash Collateral Account, except that upon the termination of all
Letter of Credit Obligations and the payment of all amounts payable by Borrower
to Agent and Lenders in respect thereof, any funds remaining in the Cash
Collateral Account shall be applied to other Obligations then due and owing and
upon payment in full of such Obligations, any remaining amount shall be paid to
Borrower or as otherwise required by law.
(d) Fees and Expenses. Borrower agrees to pay to Agent for the
benefit of Revolving Lenders, as compensation to such Lenders for Letter of
Credit Obligations incurred hereunder, (x) all costs and expenses incurred by
Agent or any Lender on account of such Letter of Credit Obligations, and (y) for
each month during which any Letter of Credit Obligation shall remain
outstanding, a fee (the "Letter of Credit Fee") in an amount equal to the
Applicable L/C Margin from time to time in effect multiplied by the maximum
amount available from time to time to be drawn under the applicable Letter of
Credit. Such fee shall be paid to Agent for the benefit of the Revolving Lenders
in arrears, on the first day of each month and on the Commitment Termination
Date. In addition, Borrower shall pay to any L/C Issuer, on demand, such fees
(including all per annum fees), charges and expenses of such L/C Issuer in
respect of the issuance, negotiation, acceptance, amendment, transfer and
payment of such Letter of Credit or otherwise payable pursuant to the
application and related documentation under which such Letter of Credit is
issued.
(e) Request for Incurrence of Letter of Credit Obligations. Borrower
shall give Agent at least two (2) Business Days' prior written notice requesting
the incurrence of any Letter of Credit Obligation, specifying the date such
Letter of Credit Obligation is to be incurred, identifying the beneficiary to
which such Letter of Credit Obligation relates and describing the nature of the
transactions proposed to be supported thereby. The notice shall be accompanied
by the form of the Letter of Credit (which shall be acceptable to the L/C
Issuer) to be guaranteed and, to the extent not previously delivered to Agent,
copies of all agreements between Borrower and the L/C Issuer pertaining to the
issuance of Letters of Credit. Notwithstanding anything contained herein to the
contrary, Letter of Credit applications by Borrower and approvals by Agent and
the L/C Issuer may be made and transmitted pursuant to electronic codes and
security measures mutually agreed upon and established by and among Borrower,
Agent and the L/C Issuer.
(f) Obligation Absolute. The obligation of Borrower to reimburse
Agent and Revolving Lenders for payments made with respect to any Letter of
Credit Obligation shall be absolute, unconditional and irrevocable, without
necessity of presentment, demand, protest or other formalities, and the
obligations of each Revolving Lender to make payments to Agent with respect to
Letters of Credit shall be unconditional and irrevocable. Such obligations of
Borrower and Revolving Lenders shall be paid strictly in accordance with the
terms hereof under all circumstances including the following:
(i) any lack of validity or enforceability of any Letter of Credit
or the Agreement or the other Loan Documents or any other agreement;
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(ii) the existence of any claim, setoff, defense or other right that
Borrower or any of its Affiliates or any Lender may at any time have
against a beneficiary or any transferee of any Letter of Credit (or any
Persons or entities for whom any such transferee may be acting), Agent,
any Lender, or any other Person, whether in connection with the Agreement,
the Letter of Credit, the transactions contemplated herein or therein or
any unrelated transaction (including any underlying transaction between
Borrower or any of its Affiliates and the beneficiary for which the Letter
of Credit was procured);
(iii) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by Agent (except as otherwise expressly provided in
paragraph (g)(ii)(C) below) or any L/C Issuer under any Letter of Credit
or guaranty thereof against presentation of a demand, draft or certificate
or other document that does not comply with the terms of such Letter of
Credit or such guaranty;
(v) any other circumstance or event whatsoever, that is similar to
any of the foregoing; or
(vi) the fact that a Default or an Event of Default has occurred and
is continuing.
(g) Indemnification; Nature of Lenders' Duties. (i) In addition to
amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees
to pay and to protect, indemnify, and save harmless Agent and each Lender from
and against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including attorneys' fees and allocated costs of internal
counsel) that Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (A) the issuance of any Letter of Credit or guaranty
thereof, or (B) the failure of Agent or any Lender seeking indemnification or of
any L/C Issuer to honor a demand for payment under any Letter of Credit or
guaranty thereof as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a result
of the gross negligence or willful misconduct of Agent or such Lender (as
finally determined by a court of competent jurisdiction).
(ii) As between Agent and any Lender and Borrower, Borrower assumes
all risks of the acts and omissions of, or misuse of any Letter of Credit by
beneficiaries of any Letter of Credit. In furtherance and not in limitation of
the foregoing, to the fullest extent permitted by law neither Agent nor any
Lender shall be responsible for: (A) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, that may prove to be invalid or ineffective for any reason; (C) failure of
the beneficiary of any Letter of Credit to
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comply fully with conditions required in order to demand payment under such
Letter of Credit; provided, that in the case of any payment by L/C Issuer under
any Letter of Credit or guaranty thereof, L/C Issuer shall be liable to the
extent such payment was made primarily as a result of its gross negligence or
willful misconduct in determining that the demand for payment under such Letter
of Credit or guaranty thereof complies on its face with any applicable
requirements for a demand for payment under such Letter of Credit or guaranty
thereof; (D) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they may be in cipher; (E) errors in interpretation of technical terms;
(F) any loss or delay in the transmission or otherwise of any document required
in order to make a payment under any Letter of Credit or guaranty thereof or of
the proceeds thereof; (G) the credit of the proceeds of any drawing under any
Letter of Credit or guaranty thereof; and (H) any consequences arising from
causes beyond the control of Agent or any Lender. None of the above shall
affect, impair, or prevent the vesting of any of Agent's or any Lender's rights
or powers hereunder or under the Agreement.
(iii) Nothing contained herein shall be deemed to limit or to expand
any waivers, covenants or indemnities made by Borrower in favor of any L/C
Issuer in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between Borrower and such L/C Issuer.
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ANNEX C (Section 1.8)
to
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEM
Borrower shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:
(a) On or before the date that is ninety (90) days following the
Closing Date and until the Termination Date, Borrower shall (i) establish lock
boxes ("Lock Boxes") at one or more of the banks set forth in Disclosure
Schedule (3.19), and shall request in writing and otherwise take such reasonable
steps to ensure that all Account Debtors forward payment directly to such Lock
Boxes, and (ii) deposit and cause its Subsidiaries to deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after
the date of receipt thereof, all cash, checks, drafts or other similar items of
payment relating to or constituting payments made in respect of any and all
Collateral (whether or not otherwise delivered to a Lock Box) into one or more
bank accounts in Borrower's name or any such Subsidiary's name (each a "Borrower
Account" and collectively, the "Borrower Accounts") at a bank identified in
Disclosure Schedule (3.19) (each, a "Relationship Bank"). On or before the date
that is ninety (90) days following the Closing Date, Borrower shall have
established a concentration account in its name (the "Concentration Account") at
the bank that shall be designated as the Concentration Account bank for Borrower
in Disclosure Schedule (3.19) (the "Concentration Account Bank") which bank
shall be satisfactory to Agent.
(b) Borrower may maintain, in its name, an account (each a
"Disbursement Account" and collectively, the "Disbursement Accounts") at a bank
acceptable to Agent into which Agent shall, from time to time, deposit proceeds
of Revolving Credit Advances and Swing Line Advances made to Borrower pursuant
to Section 1.1 for use by Borrower solely in accordance with the provisions of
Section 1.4.
(c) On or before the date that is ninety (90) days following the
Closing Date (or such later date as Agent shall consent to in writing), the
Concentration Account Bank, each bank where a Disbursement Account is maintained
and all other Relationship Banks, shall have entered into tri-party blocked
account agreements with Agent, for the benefit of itself and Lenders, and
Borrower and Subsidiaries thereof, as applicable, in form and substance
acceptable to Agent, which shall become operative on or prior to the date that
is ninety (90) days following the Closing Date. Each such blocked account
agreement shall provide, among other things, that (i) all items of payment
deposited in such account and proceeds thereof deposited in the Concentration
Account are held by such bank as agent or bailee-in-possession for Agent, on
behalf of itself and Lenders, (ii) the bank executing such agreement has no
rights of setoff or recoupment or any other claim against such account, as the
case may be, other than for payment of its service fees and other charges
directly related to the administration of such account, for returned checks or
other items of payment and for any required adjustments due to clerical errors
or calculation errors relating to such account and in accordance with any court
order, notice of
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garnishment binding on such bank or any other applicable law binding on such
bank, and (iii) from and after the date that is ninety (90) days following the
Closing Date (A) with respect to banks at which a Borrower Account is
maintained, such bank agrees to forward immediately all amounts in each Borrower
Account to the Concentration Account Bank and to commence the process of daily
sweeps from such Borrower Account into the Concentration Account and (B) with
respect to the Concentration Account Bank, such bank agrees to immediately
forward all amounts received in the Concentration Account to the Collection
Account through daily sweeps from such Concentration Account into the Collection
Account. Borrower shall not, and shall not cause or permit any Subsidiary
thereof to, accumulate or maintain cash in Disbursement Accounts or payroll
accounts as of any date of determination in excess of checks outstanding against
such accounts as of that date and amounts necessary to meet minimum balance
requirements.
(d) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a
Relationship Bank, Lock Box or Borrower Account or to replace any Concentration
Account or any Disbursement Account; provided, that (i) Agent shall have
consented in writing in advance to the opening of such account or Lock Box with
the relevant bank and (ii) prior to the time of the opening of such account or
Lock Box, Borrower or its Subsidiaries, as applicable, and such bank shall have
executed and delivered to Agent a tri-party blocked account agreement, in form
and substance satisfactory to Agent. Borrower shall close any of its accounts
(and establish replacement accounts in accordance with the foregoing sentence)
promptly and in any event within thirty (30) days following notice from Agent
that the creditworthiness of any bank holding an account is no longer acceptable
in Agent's reasonable judgment, or as promptly as practicable and in any event
within sixty (60) days following notice from Agent that the operating
performance, funds transfer or availability procedures or performance with
respect to accounts or Lock Boxes of the bank holding such accounts or Agent's
liability under any tri-party blocked account agreement with such bank is no
longer acceptable in Agent's reasonable judgment.
(e) The Lock Boxes, Borrower Accounts, Disbursement Accounts and the
Concentration Account shall be cash collateral accounts, with all cash, checks
and other similar items of payment in such accounts securing payment of the
Loans and all other Obligations, and in which Borrower and each Subsidiary
thereof shall have granted a Lien to Agent, on behalf of itself and Lenders,
pursuant to the Security Agreement.
(f) All amounts deposited in the Collection Account shall be deemed
received by Agent in accordance with Section 1.10 and shall be applied (and
allocated) by Agent in accordance with Section 1.11 or 8.3 as applicable. In no
event shall any amount be so applied unless and until such amount shall have
been credited in immediately available funds to the Collection Account.
(g) Borrower shall and shall cause its Affiliates, officers,
employees, agents, directors or other Persons acting for or in concert with
Borrower (each a "Related Person") to (i) hold in trust for Agent, for the
benefit of itself and Lenders, all checks, cash and other items of payment
received by Borrower or any such Related Person, and (ii) within one (1)
Business Day after receipt by Borrower or any such Related Person of any checks,
cash or other items of
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payment, deposit the same into a Borrower Account. Borrower and each Related
Person thereof acknowledges and agrees that all cash, checks or other items of
payment constituting proceeds of Collateral are the property of Agent and
Lenders. All proceeds of the sale or other disposition of any Collateral, shall
be deposited directly into Borrower Accounts.
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ANNEX D (Section 2.1(a))
to
CREDIT AGREEMENT
CLOSING CHECKLIST
In addition to, and not in limitation of, the conditions described
in Section 2.1 of the Agreement, pursuant to Section 2.1(a), the following items
must be received by Agent in form and substance satisfactory to Agent on or
prior to the Closing Date (each capitalized term used but not otherwise defined
herein shall have the meaning ascribed thereto in Annex A to the Agreement):
A. Appendices. All Appendices to the Agreement, in form and
substance satisfactory to Agent.
B. Revolving Notes, Swing Line Note and Term Notes. Duly executed
originals of the Revolving Notes, Swing Line Note, IP Notes and Term Notes for
each applicable Lender, dated the Closing Date.
C. Security Agreements. Duly executed originals of the Security
Agreement, dated as of the date hereof, and all instruments, documents and
agreements executed pursuant thereto.
D. Insurance. Satisfactory evidence that the insurance policies
required by Section 5.4 are in full force and effect, together with appropriate
evidence showing loss payable and/or additional insured clauses or endorsements,
as requested by Agent, in favor of Agent, on behalf of Lenders.
E. Security Interests, Hypothecs and Code Filings. (a) Evidence
satisfactory to Agents that Agent (for the benefit of itself and Lenders) has a
valid and perfected first priority security interest in the Collateral and that
Agent and Lenders have valid and registered first ranking hypothecs on the
Collateral, including (i) such documents duly executed by each Credit Party
(including financing statements under the Code and other applicable documents
under the laws of any jurisdiction with respect to the perfection of Liens) as
Agents may request in order to perfect the Agent's security interests in and
Agent's and Lenders' hypothecs on the Collateral and (ii) copies of Code search
reports listing all effective financing statements (or other applicable
equivalent) that name any Credit Party as debtor, together with copies of such
financing statements (or other applicable equivalent), none of which shall cover
the Collateral, except for those relating to the Prior Lenders' Obligations (all
of which shall be terminated on the Closing Date).
(b) Evidence satisfactory to Agents, including copies, of all
UCC-1 and other financing statements (or other applicable equivalent) filed in
favor of any Credit Party with respect to each location, if any, at which
Inventory may be consigned.
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(c) Control Letters from (i) all issuers of uncertificated
securities and financial assets held by Borrower, (ii) all securities
intermediaries with respect to all securities accounts and securities
entitlements of Borrower, and (iii) all futures commission agents and clearing
houses with respect to all commodities contracts and commodities accounts held
by Borrower.
F. Payoff Letter; Termination Statements. Copies of a duly executed
payoff letter, in form and substance satisfactory to Agents, by and between all
parties to the Prior Lenders loan documents evidencing repayment in full of all
Prior Lenders' Obligations, together with (a) UCC-3 or other appropriate
termination statements, in form and substance satisfactory to Agents, manually
signed by the Prior Lenders releasing all liens of Prior Lenders upon any of the
personal property and real property of each Credit Party, and (b) termination of
all blocked account agreements, bank agency agreements or other similar
agreements or arrangements or arrangements in favor of Prior Lenders or relating
to the Prior Lenders' Obligations.
G. Intellectual Property Security Agreements. Duly executed
originals of Trademark Security Agreements, Copyright Security Agreements and
Patent Security Agreements, each dated as of the date hereof and signed by each
Credit Party which owns Trademarks, Copyrights and/or Patents, as applicable,
all in form and substance satisfactory to Agent, together with all instruments,
documents and agreements executed pursuant thereto.
H. New Holdings Guaranty. Duly executed originals of the New
Holdings Guaranty, dated as of the date hereof, and all documents, instruments
and agreements executed pursuant thereto.
I. Initial Borrowing Base Certificate. Duly executed originals of an
initial Borrowing Base Certificate from Borrower, dated as of the date hereof,
reflecting information concerning Eligible Accounts and Eligible Inventory of
Borrower as of a date not more than seven (7) days prior to the date hereof.
J. Initial Notice of Revolving Credit Advance. Duly executed
originals of a Notice of Revolving Credit Advance, dated September 24, 1999,
with respect to the initial Revolving Credit Advance to be requested by Borrower
on the Closing Date.
K. Letter of Direction. Duly executed originals of a letter of
direction from Borrower addressed to Agent, on behalf of itself and Lenders,
with respect to the disbursement on the Closing Date of the proceeds of the Term
Loan and the initial Revolving Credit Advance.
L. Charter and Good Standing. For each Credit Party, such Person's
(a) charter and all amendments thereto, (b) good standing certificates
(including verification of tax status) (or applicable equivalent) in its state
(or province) of incorporation and (c) good standing certificates (including
verification of tax status) and certificates of qualification (or applicable
equivalents) to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification,
each dated a recent date prior to the date hereof and certified by the
applicable Secretary of State or other authorized Governmental Authority.
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M. Bylaws and Resolutions. For each Credit Party, (a) such Person's
bylaws, together with all amendments thereto and (b) resolutions of such
Person's Board of Directors and stockholders, approving and authorizing the
execution, delivery and performance of the Loan Documents to which such Person
is a party and the transactions to be consummated in connection therewith, each
certified as of the date hereof by such Person's corporate secretary or an
assistant secretary as being in full force and effect without any modification
or amendment.
N. Incumbency Certificates. For each Credit Party, signature and
incumbency certificates of the officers of each such Person executing any of the
Loan Documents, certified as of the date hereof by such Person's corporate
secretary or an assistant secretary as being true, accurate, correct and
complete.
O. Opinions of Counsel. Duly executed originals of opinions of Ropes
& Gray, counsel for the Credit Parties, together with any local counsel opinions
requested by Agent from counsel in Utah, Quebec, Ontario and New Brunswick, each
in form and substance satisfactory to Agent and its counsel, dated as of the
date hereof.
P. Pledge Agreements. Duly executed originals of each of the Pledge
Agreements accompanied by (as applicable) (a) (i) share certificates
representing all of the outstanding Stock of Borrower and each domestic and
Canadian Subsidiary of Borrower (registered in Agent's name in the case of each
such Canadian Subsidiary in order to better perfect Agent's security therein)
and 65% of the outstanding Stock of each other Subsidiary of Borrower and stock
powers for such share certificates executed in blank (except when such Stock
certificates are registered in Agent's name) and (ii) a photocopy of the share
register of each Canadian Subsidiary showing Agent as the registered owner of
all of the outstanding Stock of each Canadian Subsidiary certified to be true
and complete by the Secretary or Assistant Secretary of each such Canadian
Subsidiary and (b) the original Intercompany Note and other instruments
evidencing Indebtedness being pledged pursuant to such Pledge Agreement, duly
endorsed in blank.
Q. Accountants' Letters. A letter from the Credit Parties to their
independent auditors authorizing the independent certified public accountants of
the Credit Parties to communicate with Agent and Lenders in accordance with
Section 4.2, and a letter from such auditors acknowledging Lenders' reliance on
the auditor's certification of past and future Financial Statements.
R. Appointment of Agent for Service. An appointment of CT
Corporation as each Credit Party's agent for service of process.
S. Solvency Certificate. The Credit Parties shall deliver to Agent
for the benefit of Lenders a solvency certificate signed by the Chief Financial
Officer of Borrower in form and substance satisfactory to Agent.
T. Fee Letter. Duly executed originals of the Fee Letter.
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U. Officer's Certificate. Agent shall have received duly executed
originals of a certificate of the Chief Operating Officer of Borrower, dated as
of the date hereof, stating that, except as set forth in the Credit Agreement,
since February 28, 1999 (a) no event or condition has occurred or is existing
which could reasonably be expected to have a Material Adverse Effect; (b) there
has been no material adverse change in the industry in which Borrower operates;
(c) no Litigation has been commenced which, if successful, would have a Material
Adverse Effect or could challenge any of the transactions contemplated by the
Agreement and the other Loan Documents; (d) there have been no Restricted
Payments made by any Credit Party; and (e) there has been no material increase
in liabilities, liquidated or contingent, and no material decrease in assets of
Borrower or any of its Subsidiaries.
V. Waivers. Agent, on behalf of Lenders, shall have received
landlord waivers and consents, bailee letters and mortgagee agreements in form
and substance satisfactory to Agent, in each case as required pursuant to
Section 5.9.
W. Mortgages. Mortgages or, in the case of Real Estate located in
the Province of Quebec, the ICON of Canada Hypothec, covering all of the Real
Estate (the "Mortgaged Properties") together with: (a) title insurance policies,
flood insurance policies (if applicable), current as-built surveys, zoning
letters, certificates of location, and certificates of occupancy, in each case
satisfactory in form and substance to Agent, in its sole discretion; (b)
evidence that counterparts of the Mortgages have been recorded in all places to
the extent necessary or desirable, in the judgment of Agent, to create a valid
and enforceable first priority lien (subject to Permitted Encumbrances) on each
Mortgaged Property in favor of Agent for the benefit of itself and Lenders (or
in favor of such other trustee as may be required or desired under local law);
and (c) an opinion of counsel in each state in which any Mortgaged Property is
located in form and substance and from counsel satisfactory to Agents.
X. Subordination and Intercreditor Agreements. Agent and Lenders
shall have received any and all subordination and/or intercreditor agreements,
all in form and substance reasonably satisfactory to Agent, in its sole
discretion, as Agent shall have deemed necessary or appropriate with respect to
any Indebtedness of any Credit Party.
Y. Environmental Reports. Agent shall have received Phase I
Environmental Site Assessment Reports, consistent with American Society of
Testing and Materials (ASTM) Standard E 1527-94, and applicable state
requirements, on all of the Real Estate, dated no more than 6 months prior to
the Closing Date, prepared by environmental engineers satisfactory to Agent, all
in form and substance satisfactory to Agent, in its sole discretion; and Agent
shall have further received such environmental review and audit reports,
including Phase II reports, with respect to the Real Estate of any Credit Party
as Agent shall have requested, and Agent shall be satisfied, in its sole
discretion, with the contents of all such environmental reports. Agent shall
have received letters executed by the environmental firms preparing such
environmental reports, in form and substance satisfactory to Agent, authorizing
Agent and Lenders to rely on such reports.
Z. Appraisals. Agents shall have received appraisals from MEI, Inc.
as to all Inventory, Fixtures, Equipment and as to each of the Mortgaged
Properties, each of which shall
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<PAGE>
be in form and substance satisfactory to Agents. Agents shall have received an
appraisal of Borrower's Trademarks and Patents in form and substance
satisfactory to Agents.
AA. Audited Financials; Financial Condition. Agent shall have
received Borrower's final Financial Statements for its Fiscal Year ended May 31,
1999, audited by PriceWaterhouseCoopers. Borrower shall have provided Agent with
its current operating statements, a consolidated and consolidating balance sheet
and statement of cash flows, the Pro Forma, Projections and a Borrowing Base
Certificate with respect to Borrower certified by its Chief Financial Officer,
in each case in form and substance satisfactory to Agent, and Agent shall be
satisfied, in its sole discretion, with all of the foregoing. Agent shall have
further received a certificate of the Chief Executive Officer and/or the Chief
Financial Officer of Borrower, based on such Pro Forma and Projections, to the
effect that (a) Borrower will be Solvent upon the consummation of the
transactions contemplated herein; (b) the Pro Forma fairly presents the
financial condition of Borrower as of the date thereof after giving effect to
the transactions contemplated by the Loan Documents; (c) the Projections are
based upon estimates and assumptions stated therein, all of which Borrower
believes to be reasonable and fair in light of current conditions and current
facts known to Borrower and, as of the date hereof, reflect Borrower's good
faith and reasonable estimates of its future financial performance and of the
other information projected therein for the period set forth therein; and (d)
containing such other statements with respect to the solvency of Borrower and
matters related thereto as Agent shall request.
BB. Licensing Arrangements. All documents governing Borrower's
licensing arrangement with Sears, Roebuck and Co. regarding Nordic Track
products and trademarks.
CC. Subsidiary Guaranties. Guaranties executed by the domestic and
Canadian Subsidiaries of Borrower.
DD. Management and Employment Agreements. Copies of all Management
Agreements and employment agreements to which Borrower is a party.
EE. Canadian Security Documents.
(a) ICON of Canada Hypothec. Duly executed original of the
ICON of Canada Hypothec, dated prior to the Closing Date, and all instruments,
documents and agreements executed pursuant thereto, including the ICON of Canada
Debenture and the ICON of Canada Pledge Agreement.
(b) Canadian Security Agreements. Duly executed originals of
the Canadian Security Agreements, dated as of the date hereof, and all
instruments, documents and agreements executed pursuant thereto.
FF. Recapitalization. Certificate from Borrower certifying as of the
Closing Date that the Recapitalization has been completed and that Borrower has
received not less than $40,000,000 in cash as an equity contribution from Bain
Capital, Inc., Credit Suisse First Boston and management.
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GG. Recapitalization Documents. All other documents executed and
delivered with respect to the Recapitalization.
HH. Other Documents. Such other certificates, documents and
agreements respecting any Credit Party as Agent may, in its sole discretion,
request.
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<PAGE>
ANNEX E (Section 4.1(a))
to
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
Borrower shall deliver or cause to be delivered to Agents or to
Agents and Lenders, as indicated, the following:
(a) Monthly Financials. To Agents and Lenders, within forty-five
(45) days after the end of each Fiscal Month, financial information regarding
Borrower and its Subsidiaries, certified by the Chief Financial Officer of
Borrower, consisting of consolidated and consolidating (i) unaudited balance
sheets as of the close of such Fiscal Month and the related statements of income
and cash flows for that portion of the Fiscal Year ending as of the close of
such Fiscal Month; (ii) unaudited statements of income and cash flows for such
Fiscal Month, setting forth in comparative form the figures for the
corresponding period in the prior year and the figures contained in the
Projections for such Fiscal Year, all prepared in accordance with GAAP (subject
to normal year-end adjustments); and (iii) a summary of the outstanding balance
of all Intercompany Note as of the last day of that Fiscal Month. Such financial
information shall be accompanied by the certification of the Chief Financial
Officer of Borrower that (i) such financial information presents fairly in
accordance with GAAP (subject to normal year-end adjustments) the financial
position and results of operations of Borrower and its Subsidiaries, on a
consolidated and consolidating basis, in each case as at the end of such Fiscal
Month and for that portion of the Fiscal Year then ended and (ii) any other
information presented is true, correct and complete in all material respects and
that there was no Default or Event of Default in existence as of such time or,
if a Default or Event of Default shall have occurred and be continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default.
(b) Quarterly Financials. To Agents and Lenders, within forty-five
(45) days after the end of each Fiscal Quarter, consolidated and consolidating
financial information regarding Borrower and its Subsidiaries, certified by the
Chief Financial Officer of Borrower, including (i) unaudited balance sheets as
of the close of such Fiscal Quarter and the related statements of income and
cash flow for that portion of the Fiscal Year ending as of the close of such
Fiscal Quarter and (ii) unaudited statements of income and cash flows for such
Fiscal Quarter, in each case setting forth in comparative form the figures for
the corresponding period in the prior year and the figures contained in the
Projections for such Fiscal Year, all prepared in accordance with GAAP (subject
to normal year-end adjustments). Such financial information shall be accompanied
by (A) a statement in reasonable detail (each, a "Compliance Certificate")
showing the calculations used in determining compliance with each of the
Financial Covenants that is tested on a quarterly basis and (B) the
certification of the Chief Financial Officer of Borrower that (i) such financial
information presents fairly in accordance with GAAP (subject to normal year-end
adjustments) the financial position, results of operations and statements of
cash flows of Borrower and its Subsidiaries, on both a consolidated and
consolidating basis, as at the end of such Fiscal Quarter and for that portion
of the Fiscal Year then ended, (ii) any other
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information presented is true, correct and complete in all material respects and
that there was no Default or Event of Default in existence as of such time or,
if a Default or Event of Default has occurred and is continuing, describing the
nature thereof and all efforts undertaken to cure such Default or Event of
Default. In addition, Borrower shall deliver to Agents and Lenders, within
forty-five (45) days after the end of each Fiscal Quarter, a management
discussion and analysis that includes a comparison to budget for that Fiscal
Quarter and a comparison of performance for that Fiscal Quarter to the
corresponding period in the prior year.
(c) Operating Plan. To Agents and Lenders, as soon as available, but
not later than thirty (30) days after the end of each Fiscal Year, an annual
operating plan for Borrower, approved by the Board of Directors of Borrower, for
the following Fiscal Year, which will (i)include a statement of all of the
material assumptions on which such plan is based, (ii) include monthly balance
sheets and a monthly budget for the following year and (iii) integrate sales,
gross profits, operating expenses, operating profit, cash flow projections and
Borrowing Availability projections, all prepared on the same basis and in
similar detail as that on which operating results are reported (and in the case
of cash flow projections, representing management's good faith estimates of
future financial performance based on historical performance), and including
plans for personnel, Capital Expenditures and facilities.
(d) Annual Audited Financials. To Agents and Lenders, within ninety
(90) days after the end of each Fiscal Year, audited Financial Statements for
Borrower and its Subsidiaries on a consolidated and (unaudited) consolidating
basis, consisting of balance sheets and statements of income and retained
earnings and cash flows, setting forth in comparative form in each case the
figures for the previous Fiscal Year, which Financial Statements shall be
prepared in accordance with GAAP and certified without qualification, by an
independent certified public accounting firm of national standing or otherwise
acceptable to Agent. Such Financial Statements shall be accompanied by (i) a
statement prepared in reasonable detail showing the calculations used in
determining compliance with each of the Financial Covenants, (ii) a report from
such accounting firm to the effect that, in connection with their audit
examination, nothing has come to their attention to cause them to believe that a
Default or Event of Default has occurred (or specifying those Defaults and
Events of Default that they became aware of), it being understood that such
audit examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, (iii) a letter addressed to Agent, on behalf of itself and Lenders, in
form and substance reasonably satisfactory to Agent and subject to standard
qualifications required by nationally recognized accounting firms, signed by
such accounting firm acknowledging that Agent and Lenders are entitled to rely
upon such accounting firm's certification of such audited Financial Statements,
(iv) the annual letters to such accountants in connection with their audit
examination detailing contingent liabilities and material litigation matters,
and (v) the certification of the Chief Executive Officer or Chief Financial
Officer of Borrower that all such Financial Statements present fairly in
accordance with GAAP the financial position, results of operations and
statements of cash flows of Borrower and its Subsidiaries on a consolidated and
consolidating basis, as at the end of such Fiscal Year and for the period then
ended, and that there was no Default or Event of Default in existence as of such
time or, if a Default or Event of
E-2
<PAGE>
Default has occurred and is continuing, describing the nature thereof and all
efforts undertaken to cure such Default or Event of Default.
(e) Management Letters. To Agent and Lenders, within five (5)
Business Days after receipt thereof by any Credit Party, copies of all
management letters, exception reports or similar letters or reports received by
such Credit Party from its independent certified public accountants.
(f) Default Notices. To Agent and Lenders, as soon as practicable,
and in any event within five (5) Business Days after an executive officer of
Borrower has actual knowledge of the existence of any Default, Event of Default
or other event that has had a Material Adverse Effect, telephonic or telecopied
notice specifying the nature of such Default or Event of Default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day.
(g) SEC Filings and Press Releases. To Agent and Lenders, promptly
upon their becoming available, copies of: (i) all Financial Statements, reports,
notices and proxy statements made publicly available by any Credit Party to its
security holders; (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any Credit Party with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person.
(h) Subordinated Debt and Equity Notices. To Agent, as soon as
practicable, copies of all material written notices given or received by any
Credit Party with respect to any Subordinated Debt or Stock of such Person, and,
within two (2) Business Days after any Credit Party obtains knowledge of any
matured or unmatured event of default with respect to any Subordinated Debt,
notice of such event of default.
(i) Supplemental Schedules. To Agent, supplemental disclosures, if
any, required by Section 5.6.
(j) Litigation. To Agent in writing, promptly upon learning thereof,
notice of any Litigation commenced or threatened against any Credit Party that
(i) seeks damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any Plan, (iv)
alleges criminal misconduct by any Credit Party, (v) alleges the violation of
any law regarding, or seeks remedies in connection with, any Environmental
Liabilities; or (vi) involves any product recall;
(k) Insurance Notices. To Agent, disclosure of losses or casualties
required by Section 5.4.
(l) Lease Default Notices. To Agent, copies of (i) any and all
default notices received under or with respect to any leased location or public
warehouse where Collateral is
E-3
<PAGE>
located, and (ii) such other notices or documents as Agent may request in its
reasonable discretion.
(m) Lease Amendments. To Agent, prompt written notice of any product
recall whether voluntary or otherwise.
(n) Other Documents. To Agent and Lenders, such other financial and
other information respecting any Credit Party's business or financial condition
as Agent or any Lender shall, from time to time, request.
E-4
<PAGE>
ANNEX F (Section 4.1(b))
to
CREDIT AGREEMENT
COLLATERAL REPORTS
Borrower shall deliver or cause to be delivered the following:
(a) To Agents, upon Agent's request, and in any event no less
frequently than five (5) Business Days after the end of each Fiscal Month
(together with a copy of all or any part of the following reports requested by
any Lender in writing after the Closing Date), each of the following reports,
each of which shall be prepared by the Borrower as of the last day of the
immediately preceding Fiscal Month:
(i) a summary of Inventory by location and type with a supporting
perpetual Inventory report, in each case accompanied by such supporting
detail and documentation as shall be requested by Agent in its reasonable
discretion; and
(ii) a monthly trial balance showing Accounts outstanding aged from
invoice due date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days
and 91 days or more, accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion.
(b) To Lenders, upon Agent's request, and in any event no less
frequently than two (2) Business Days after the end of each bi-weekly period (as
of the last Business Day of each of those two week periods), a Borrowing Base
Certificate, accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion; provided that, so long as
Borrowing Availability is less than $15,000,000, the Borrowing Base and
accompanying information will be provided no less frequently than two (2)
Business Days after the end of each week; provided, further, that if Borrower
has remained in compliance at all times with the Financial Covenants through the
measuring period ending May 31, 2000, such Borrowing Base Certificates and
accompanying information will be delivered monthly concurrently with the
information set forth in clause (a) above.
(c) To Agents, on a weekly basis or at such more frequent intervals
as Agent may request from time to time (together with a copy of all or any part
of such delivery requested by any Lender in writing after the Closing Date),
collateral reports with respect to Borrower, including all additions and
reductions (cash and non-cash) with respect to Accounts of Borrower, in each
case accompanied by such supporting detail and documentation as shall be
requested by Agents in their reasonable discretion each of which shall be
prepared by Borrower as of the last day of the immediately preceding week;
(d) To Agents, at the time of delivery of each of the monthly
Financial Statements delivered pursuant to Annex E, a reconciliation of the
Accounts trial balance and month-end Inventory reports of Borrower to Borrower's
general ledger and monthly Financial
F-1
<PAGE>
Statements delivered pursuant to such Annex E, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;
(e) To Agent, at the time of delivery of each of the annual
Financial Statements delivered pursuant to Annex E, (i) a listing of government
contracts of Borrower subject to the Federal Assignment of Claims Act of 1940,
the Financial Administrators Act (Canada) or any applicable state, provincial or
territorial statute or municipal ordinance of similar purpose and effect; and
(ii) a list of any applications for the registration of any Patent, Trademark or
Copyright filed by any Credit Party with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency
(including in any foreign jurisdiction) in the prior Fiscal Quarter;
(f) Borrower, at its own expense, shall deliver to Agents the
results of each physical verification, if any, that Borrower or any of its
Subsidiaries may in their discretion have made, or caused any other Person to
have made on their behalf, of all or any portion of their Inventory (and, if a
Default or an Event of Default has occurred and be continuing, Borrower shall,
upon the request of Agent, conduct, and deliver the results of, such physical
verifications as Agent may require);
(g) Borrower, at its own expense, shall deliver to Agents (i) annual
appraisals of its Inventory and (ii) such appraisals of its inventory and other
assets as Agent may request at any time after the occurrence and during the
continuance of a Default or an Event of Default, such appraisals to be conducted
by an appraiser, and in form and substance, satisfactory to Agent; and
(h) Such other reports, statements and reconciliations with respect
to the Borrowing Base or Collateral of any or all Credit Parties as Agent shall
from time to time request in its reasonable discretion.
F-2
<PAGE>
ANNEX G (Section 6.10)
to
CREDIT AGREEMENT
FINANCIAL COVENANTS
Borrower shall not breach or fail to comply with any of the
following financial covenants, each of which shall be calculated in accordance
with GAAP consistently applied:
(a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures in excess of $13,000,000
in the aggregate during any Fiscal Year; provided, however, that the amount of
permitted Capital Expenditures for each Fiscal Year after Fiscal Year 2000 may
be increased by an amount equal to the lesser of (x) $1,500,000 and (y)
$13,000,000 minus the actual amount of Capital Expenditures for the preceding
Fiscal Year (the "Carry Over Amount"). For purposes of determining compliance
with this covenant, the Carry Over Amount shall be deemed to be the last amount
spent on Capital Expenditures in the succeeding Fiscal Year.
(b) Minimum Debt Service Coverage Ratio. Borrower and its Subsidiaries
shall have on a consolidated basis at the end of each Fiscal Quarter set forth
below, a Debt Service Coverage Ratio for the 12-month period then ended (or with
respect to the Fiscal Quarters ending on or before May 31, 2000, the period
commencing on June 1, 1999, and ending on the last day of such Fiscal Quarter)
of not less than the following:
1.2 to 1.0 for the Fiscal Quarter ending November 30, 1999;
1.7 to 1.0 for the Fiscal Quarter ending February 29, 2000;
1.5 to 1.0 for the Fiscal Quarters ending May 31, 2000 through
August 31, 2004;
and
1.0 to 1.0 for the Fiscal Quarter ending November 30, 2004 and
each Fiscal Quarter ending thereafter.
(c) Minimum EBITDA. Borrower and its Subsidiaries on a consolidated basis
shall have, at the end of each Fiscal Quarter set forth below, EBITDA for the
12-month period then ended of not less than the following:
$48,000,000 for the Fiscal Quarter ending November 30, 1999;
$52,500,000 for the Fiscal Quarter ending February 29, 2000;
$55,000,000 for the Fiscal Quarter ending May 31, 2000;
$55,000,000 for the Fiscal Quarter ending August 31, 2000;
$55,000,000 for the Fiscal Quarter ending November 30, 2000;
G-1
<PAGE>
$55,000,000 for the Fiscal Quarter ending February 28, 2001;
$55,500,000 for each of the Fiscal Quarters ending May 31, 2001;
August 31, 2001; November 30, 2001; and February 28,
2002;
$56,500,000 for each of the Fiscal Quarters ending May 31, 2002;
August 31, 2002; November 30, 2002; and February 28,
2003;
$57,500,000 for each of the Fiscal Quarters ending May 31, 2003;
August 31, 2003; November 30, 2003; and February 29,
2004;
$58,500,000 for the Fiscal Quarter ending May 31, 2004, and each
Fiscal Quarter ending thereafter.
(d) Maximum Senior Leverage Ratio. Borrower and its Subsidiaries on a
consolidated basis shall have, at the end of each Fiscal Quarter set forth
below, a Senior Leverage Ratio as of the last day of such Fiscal Quarter and for
the 12-month period then ended of not more than the following:
6.0 to 1.0 for the Fiscal Quarter ending November 30, 1999;
4.7 to 1.0 for the Fiscal Quarter ending February 29, 2000;
3.7 to 1.0 for the Fiscal Quarter ending May 31, 2000;
3.5 to 1.0 for the Fiscal Quarter ending August 31, 2000.
5.0 to 1.0 for the Fiscal Quarter ending November 30, 2000;
4.4 to 1.0 for the Fiscal Quarter ending February 28, 2001;
3.4 to 1.0 for the Fiscal Quarter ending May 31, 2001;
3.2 to 1.0 for the Fiscal Quarter ending August 31, 2001;
4.9 to 1.0 for the Fiscal Quarter ending November 30, 2001;
4.2 to 1.0 for the Fiscal Quarter ending February 28, 2002;
3.2 to 1.0 for the Fiscal Quarter ending May 31, 2002;
3.0 to 1.0 for the Fiscal Quarter ending August 31, 2002;
4.7 to 1.0 for the Fiscal Quarter ending November 30, 2002;
3.9 to 1.0 for the Fiscal Quarter ending February 28, 2003;
2.9 to 1.0 for the Fiscal Quarter ending May 31, 2003;
2.7 to 1.0 for the Fiscal Quarter ending August 31, 2003;
4.4 to 1.0 for the Fiscal Quarter ending November 30, 2003;
3.7 to 1.0 for the Fiscal Quarter ending February 29, 2004;
2.7 to 1.0 for the Fiscal Quarter ending May 31, 2004;
2.4 to 1.0 for the Fiscal Quarter ending August 31, 2004;
4.1 to 1.0 for the Fiscal Quarter ending November 30, 2004;
3.3 to 1.0 for the Fiscal Quarter ending February 28, 2005;
2.4 to 1.0 for the Fiscal Quarter ending May 31, 2005 and each
Fiscal Quarter thereafter.
(e) Revenue. Borrower and its Subsidiaries on a consolidated basis
shall have at the end of each Fiscal Quarter set forth below for the period
commencing on June 1, 1999 and ending on the last day of such Fiscal Quarter,
net revenue of not less than the following:
$288,000,000 for the Fiscal Quarter ending November 30, 1999;
G-2
<PAGE>
$500,000,000 for the Fiscal Quarter ending February 29, 2000;
$600,000,000 for the Fiscal Quarter ending May 31, 2000.
References to the Fiscal Quarters ending August 31, November 30, and
February 28/29 shall be deemed to refer to the Fiscal Quarters ending on the
Saturday closest to those dates. Unless otherwise specifically provided herein,
any accounting term used in the Agreement shall have the meaning customarily
given such term in accordance with GAAP, and all financial computations
hereunder shall be computed in accordance with GAAP consistently applied. That
certain items or computations are explicitly modified by the phrase "in
accordance with GAAP" shall in no way be construed to limit the foregoing. If
any "Accounting Changes" (as defined below) occur and such changes result in a
change in the calculation of the financial covenants, standards or terms used in
the Agreement or any other Loan Document, then Borrower, Agent and Lenders agree
to enter into negotiations in order to amend such provisions of the Agreement so
as to equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Borrower's and its Subsidiaries' financial condition
shall be the same after such Accounting Changes as if such Accounting Changes
had not been made; provided, however, that the agreement of Requisite Lenders to
any required amendments of such provisions shall be sufficient to bind all
Lenders. "Accounting Changes" means (i) changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion
by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants (or successor thereto or any agency with similar
functions), (ii) changes in accounting principles concurred in by Borrower's
certified public accountants; (iii) purchase accounting adjustments under A.P.B.
16 or 17 and EITF 88-16, and the application of the accounting principles set
forth in FASB 109, including the establishment of reserves pursuant thereto and
any subsequent reversal (in whole or in part) of such reserves; and (iv) the
reversal of any reserves established as a result of purchase accounting
adjustments. All such adjustments resulting from expenditures made subsequent to
the Closing Date (including capitalization of costs and expenses or payment of
pre-Closing Date liabilities) shall be treated as expenses in the period the
expenditures are made and deducted as part of the calculation of EBITDA in such
period. If Agent, Borrower and Requisite Lenders agree upon the required
amendments, then after appropriate amendments have been executed and the
underlying Accounting Change with respect thereto has been implemented, any
reference to GAAP contained in the Agreement or in any other Loan Document
shall, only to the extent of such Accounting Change, refer to GAAP, consistently
applied after giving effect to the implementation of such Accounting Change. If
Agent, Borrower and Requisite Lenders cannot agree upon the required amendments
within thirty (30) days following the date of implementation of any Accounting
Change, then all Financial Statements delivered and all calculations of
financial covenants and other standards and terms in accordance with the
Agreement and the other Loan Documents shall be prepared, delivered and made
without regard to the underlying Accounting Change. For purposes of Section 8.1,
a breach of a Financial Covenant contained in this Annex G shall be deemed to
have occurred as of any date of determination by Agent or as of the last day of
any specified measurement period, regardless of when the Financial Statements
reflecting such breach are delivered to Agent.
G-3
<PAGE>
ANNEX H (Section 9.9(a))
to
CREDIT AGREEMENT
LENDERS' WIRE TRANSFER INFORMATION
General Electric Capital Corporation: Bankers Trust
New York, New York
ABA #021001033
Account #50232854
Account Name: GECC/CAF Depository
Reference: CFC4201 ICON
Fleet National Bank: Fleet National Bank
Boston, Massachusetts 02110
ABA # 011-000-138
Account #151-0351-03156
Reference: Commercial Loan Services
Incoming Wire Suspense
Account
R/E ICON Health & Fitness
Jackson National Life Insurance Company: Bank of America
Chicago, Illinois
ABA #071-000-039
Account #8188-9-03526
Reference: Jackson National Life
Insurance Company
By: PPM Finance, Inc., as
Attorney-In-Fact
Zions First National Bank: Zions First National Bank
1 South Main Street, Salt Lake City,
Utah 84111
ABA #124000054
Account #696600100187
Attention: Pat Youngren
LaSalle Business Credit, Inc.: LaSalle Bank
Chicago, Illinois
ABA #071000505
Account #2321122
Reference: LaSalle Business Credit,
Inc. for Benefit of ICON
H-1
<PAGE>
PNC Bank, National Association: PNC Business Credit
East Brunswick, New Jersey
ABA #031207607
Account #196039957830
Reference: ICON Health & Fitness
First Source Financial LLP: LaSalle Bank National Association
Chicago, Illinois
ABA #071-000-505
Account #2358874
Reference: First Source Financial LLP
ICON Health & Fitness, Inc.
Comerica Bank: Comerica Bank
Detroit, Michigan
ABA #072 000 096
Account #new
Reference: ICON Health & Fitness, Inc.
Bank Polska Kasa Opieka S.A.: The Bank of New York
New York, New York
ABA #021000018
Account #8900051434
Reference: ICON
GMAC Business Credit, LLC: Bank One Michigan
Detroit, Michigan
ABA #072000326
Account #3613249-84
Reference: ICON Health & Fitness, Inc.
The Chase Manhattan Bank: The Chase Manhattan Bank
ABA #021000021
Account #801-005477 (first funding)
#801-903211 (thereafter)
Reference: ICON Health & Fitness, Inc.
Heller Financial, Inc.: Bank One, N.A.
Chicago, Illinois 60670
ABA #071000013
Account #5298695
Reference: Heller Financial
H-2
<PAGE>
Pilgrim Prime Rate Trust: State Street Bank & Trust Co.
Boston, Massachusetts
ABA #011-00-0028
Account #5454-337-6
Reference: Pilgrim Prime Rate Trust
ICON Health & Fitness
H-3
<PAGE>
ANNEX I (Section 11.10)
to
CREDIT AGREEMENT
NOTICE ADDRESSES
(A) If to Agent or GE Capital, at
General Electric Capital Corporation
10 South LaSalle Street, Suite 2700
Chicago, Illinois 60603
Attention: ICON Health & Fitness, Account Manager
Telecopier No.: (312) 419-5992
Telephone No.: (312) 419-0985
with copies to:
Latham & Watkins
Sears Tower, Suite 5800
Chicago, Illinois 60606
Attention: David G. Crumbaugh
Telecopier No.: (312) 993-9767
Telephone No.: (312) 876-7700
and
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel-Commercial Finance
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
(B) If to Borrower, at
ICON Health & Fitness, Inc.
1500 South, 1000 West
Logan, Utah 84321
Attention: S. Fred Beck
Telecopier No.: (435) 750-3665
Telephone No.: (435) 750-4000
I-1
<PAGE>
with copies to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: David McKay
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
(C) If to Lenders, at
Fleet National Bank
MA OF DO3L
1 Federal Street
Boston, Massachusetts 02110
Attention: Thomas Mahoney
Telecopier No.: (617) 346-4806
Jackson National Life Insurance Company
By: PPM Finance, Inc., as attorney-in-fact
225 W. Wacker Drive
Chicago, Illinois 60606
Attention: Michael J. Williams
Telecopier No.: (312) 634-1283
Zions First National Bank
1 South Main Street, Suite 200
Salt Lake City, Utah 84111
Attention: David J. Mathis
Telecopier No.: (801) 534-2136
LaSalle Business Credit, Inc.
Suite 400
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Credit Manager
Telecopier No.: (312) 904-0291
PNC Business Credit
Two Tower Center Blvd.
East Brunswick, New Jersey 08816
Attention: Wing C. Louie
Telecopier No.: (732) 220-4393
I-2
<PAGE>
First Source Financial LLP
2850 W. Golf Road, 5th Floor
Rolling Meadows, Illinois 60008
Attention: Kelli Marti (Credit)
Telecopier No.: (847) 734-7911
Attention: Lauren Rolsing (Administration)
Telecopier No.: (847) 734-7912
Attention: Ed Szarkowicz (Legal)
Telecopier No.: (847) 723-7910
Comerica
999 18th Street
Denver, Colorado 80202
Attention: Kerry McGuire
Telecopier No.: (303) 298-8239
Bank Polska Kasa Opieka S.A.
470 Park Avenue South, 15th Floor
New York, New York 10016
Attention: Harvey Winter
Telecopier No.: (212) 251-1222
GMAC Business Credit, LLC
500 West Madison, Suite 3130
Chicago, Illinois 60661
Attention: Mary Bookman
Telecopier No.: (312) 775-6006
The Chase Manhattan Bank
Chase Business Credit Corp. (4th Floor)
600 Fifth Avenue
New York, New York 10020
Attention: Credit Deputy
Telecopier No.: (212) 332-4297
Heller Financial, Inc.
150 East 42nd Street
New York, New York 10017
Attention: Albert J. Forzano
Telecopier No.: (212) 880-7002
I-3
<PAGE>
Pilgrim Prime Rate Trust
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
Attention: Jeffrey S. Schultz
Telecopier No.: (602) 417-8321
with a copy to:
State Street Bank and Trust Company
Alternative Structures Unit
Boston, Massachusetts
Attention: Rolando Albuja
Telecopier No.: (617) 664-5366/5367/5368
Reference: Pilgrim Prime Rate Trust
I-4
<PAGE>
ANNEX J (from Annex A - Commitments definition)
to
CREDIT AGREEMENT
Lenders:
General Electric Capital Corporation
Revolving Loan Commitment
(including a Swing Line Commitment
of $10,000,000): $9,042,662.08
[After giving effect to post-closing transfer to GMAC]
Term Loan A Commitment: $2,260,665.71
[After giving effect to post-closing transfer to GMAC]
Term Loan B Commitment: $6,168,747.79
[After giving effect to post-closing transfer to GMAC
and Pilgrim]
Term Loan C Commitment: $25,000,000
[After giving effect to post-closing transfer to GMAC
and Pilgrim]
IP Loan Commitment: $4,979,591.76
Fleet National Bank
Revolving Loan Commitment: $9,228,855.08
[After giving effect to post-closing transfer to GMAC]
Term Loan A Commitment: $2,307,213.71
[After giving effect to post-closing transfer to GMAC]
Term Loan B Commitment: $9,012,264.55
[After giving effect to post-closing transfer to GMAC]
Term Loan C Commitment: $25,000,000
J-1
<PAGE>
Jackson National Life Insurance Company
Revolving Loan Commitment: $26,086,956.52
Term Loan A Commitment: $6,521,739.13
Term Loan B Commitment: $17,391,304.35
Zions First National Bank
Revolving Loan Commitment: $8,000,000
Term Loan A Commitment: $2,000,000
Pilgrim America Prime Rate Trust
Term Loan B Commitment: $5,000,000
IP Loan Commitment: $5,000,000
Term Loan C Commitment: $5,000,000
[To be purchased post-closing]
LaSalle Business Credit, Inc.
Revolving Loan Commitment: $12,244,897.96
Term Loan A Commitment: $3,061,224.49
Term Loan B Commitment: $8,163,265.31
IP Loan Commitment: $1,530,612.24
PNC Business Credit, Inc.
Revolving Loan Commitment: $7,826,086.96
Term Loan A Commitment: $1,956,521.74
Term Loan B Commitment: $5,217,391.30
J-2
<PAGE>
First Source Financial LLP
Revolving Loan Commitment: $5,877,551
Term Loan A Commitment: $1,469,388
Term Loan B Commitment: $3,918,367
IP Loan Commitment: $734,694
Comerica Bank
Revolving Loan Commitment: $7,826,087
Term Loan A Commitment: $1,956,522
Term Loan B Commitment: $5,217,391.30
Bank Polska Kasa OPIEKA S.A. - PEKAO S.A. Group, New York Branch
Revolving Loan Commitment: $4,000,000
Term Loan A Commitment: $1,000,000
Heller Financial, Inc.
Revolving Loan Commitment: $9,795,918
Term Loan A Commitment: $2,448,980
Term Loan B Commitment: $6,530,612.24
IP Loan Commitment: $1,224,489.80
J-3
<PAGE>
GMAC Business Credit, LLC
Revolving Loan Commitment: $12,244,900
Term Loan A Commitment: $3,061,224
Term Loan B Commitment: $8,163,264
IP Loan Commitment: $1,530,612
[To be purchased post-closing]
The Chase Manhattan Bank
Revolving Loan Commitment: $7,826,086.96
Term Loan A Commitment: $1,956,521.74
Term Loan B Commitment: $5,217,391.30
J-4
<PAGE>
ANNEX K (from Annex A - Recapitalization Documents definition)
to
CREDIT AGREEMENT
A. Equity Restructuring
1. Limited Liability Company Agreement of HF Investment Holdings, LLC
(the "LLC"), dated as of the Closing Date, among certain affiliates
of Bain Capital, Inc. ("Bain"), Scott Watterson and Gary Stevenson,
and [others] (collectively, the "Non-CSFB Investors").
2. Subscription and Stock Purchase Agreement, dated as of the Closing
Date, between HF Holdings, Inc. ("New Holdings") and the LLC.
3. Securities Purchase Agreement, dated as of the Closing Date, among
New Holdings and Credit Suisse First Boston ("CSFB").
4. Note Agreement, dated as of the Closing Date, between New Holdings
and CSFB.
5. Subordinated Note issued to CSFB in the aggregate principal amount
of $5,000,000.
6. Stockholders Agreement, dated as of the Closing Date, among New
Holdings, ICON Health & Fitness, Inc. ("Borrower"), the LLC,
participating old 13% holders, if any, Scott Watterson and Gary
Stevenson, other management stockholders and CSFB.
7. Restated Employment Agreements, dated as of the Closing Date,
between New Holdings, Borrower and each of Scott Watterson and Gary
Stevenson.
8. Termination Agreements, dated as of the Closing date, between IHF
Holdings, Inc., Borrower and each of Scott Watterson and Gary
Stevenson.
9. `Non-recourse notes ($2.2 million aggregate), dated as of the
Closing Date, issued to New Holdings by each of Scott Watterson and
Gary Stevenson.
10. Pledge and Security Agreements, dated as of the Closing Date,
between New Holdings and each of Scott Watterson and Gary Stevenson.
11. 1999 Junior Management Stock Option Plan.
12. Promissory Notes ($500,000 aggregate) of members of junior
management.
K-1
<PAGE>
13. Option Certificates issued by New Holdings to members of junior
management on the Closing Date.
14. ICON Junior Management Deferred Bonus Plan.
15. Management Agreement, dated as of the Closing Date, among New
Holdings, Borrower and Bain.
16. Management Agreements among Borrower, New Holdings and each of Scott
Watterson and Gary Stevenson.
17. Agreements and Plan of Merger, dated as of the Closing Date, among
New Holdings, Borrower and Merger Sub.
B. Exchange Offer/Consent Solicitation
1. New 12% Notes
a. Indenture with IBJ Whitehall, as trustee
b. Global 12% Note (for deposit with DTC)
c. Subsidiary Guarantees (from each Domestic Subsidiary)
d. Exchange and Registration Rights Agreement
2. New Holdings Warrants
a. Warrant Agreement
b. Global Warrant
3. Supplemental Indenture to 13% Notes
a. Supplemental Indenture No. 1 and No. 2
b. Consents of majority to proposed amendments
4. Supplemental Indenture to 15% Notes
a. Supplemental Indenture
b. Consents of majority to proposed amendments
5. Supplemental Indenture to 14% Notes
a. Supplemental Indenture
b. Consents of majority to proposed amendments
K-2
<PAGE>
6. Miscellaneous
a. Exchange and Tabulation Agent Agreement
b. Information Agent Agreement
K-3
<PAGE>
SCHEDULE 1.1
AGENT'S REPRESENTATIVES
General Electric Capital Corporation
10 South LaSalle Street, Suite 2700
Chicago, Illinois 60603
Attention: ICON Health & Fitness, Account Manager
Telecopier No.: (312) 419-5992
Telephone No.: (312) 419-0985
Contact Persons: Scott Daum, Fran Krause
1.1 - 1
<PAGE>
Exhibit 10.3
OMNIBUS AMENDMENT AGREEMENT
OMNIBUS AMENDMENT AGREEMENT (together with the Exhibits hereto, this
"AGREEMENT"), dated as of September 27, 1999, by and among HF HOLDINGS, INC., a
Delaware corporation (together with its successors and assigns, the "COMPANY"),
CREDIT SUISSE FIRST BOSTON CORPORATION, a Massachusetts corporation (together
with its successors and assigns, "CSFB"), CREDIT SUISSE FIRST BOSTON MANAGEMENT
CORPORATION, a Delaware corporation (together with its successors and assigns,
"CSFBM"), BAIN CAPITAL FUND IV, L.P., a Delaware limited partnership (together
with its successors and assigns, "BAIN"), and HF INVESTMENT HOLDINGS, LLC, a
Delaware limited liability company (together with its successors and assigns,
the "LLC").
RECITALS:
A. The Company has entered into that certain Securities Purchase
Agreement, dated as of September 27, 1999, with CSFB (as in effect prior to the
effectiveness of this Agreement, the "EXISTING SECURITIES PURCHASE AGREEMENT"
and, as amended by this Agreement, the "AMENDED SECURITIES PURCHASE AGREEMENT").
B. The Company has entered into that certain Note Agreement, dated as
of September 27, 1999 (as in effect prior to the effectiveness of this
Agreement, the "EXISTING NOTE AGREEMENT" and, as amended by this Agreement, the
"AMENDED NOTE AGREEMENT"), with CSFB, pursuant to which the Company originally
issued and sold to CSFB a 0% Convertible Subordinated Note Due September 27,
2011 having an aggregate principal amount of Five Million Dollars ($5,000,000)
(the "EXISTING NOTE", and, as amended by this Agreement, the "AMENDED NOTE").
C. The LLC has issued that certain HF Class C Units Purchase Warrant,
dated as of September 27, 1999 (the "EXISTING WARRANT", and, as amended by this
Agreement, the "AMENDED WARRANT") to CSFBM.
D. Bain has entered into that certain Limited Liability Company
Agreement, dated as of September 27, 1999 (as in effect prior to the
effectiveness of this Agreement, the "EXISTING LLC AGREEMENT" and, as amended by
this Agreement, the "AMENDED LLC AGREEMENT"), with Bain Capital Fund IV-B, L.P.,
BCIP Associates and BCIP Trust Associates, L.P., Gary Stevenson, Scott Watterson
and such other persons as may from time to time be admitted as Members under the
Existing LLC Agreement.
<PAGE>
E. CSFB has entered into that certain letter agreement, dated as of
September 27, 1999 (as amended from time to time prior to the date hereof, the
"LETTER AGREEMENT") with Bain and Bain Capital Fund IV-B, L.P., pursuant to
which the parties thereto have agreed, under certain circumstances, to enter
into certain amendments to the Existing Securities Purchase Agreement, the
Existing Note Agreement, the Existing Note, the Existing Warrant and the
Existing LLC Agreement.
F. The Company, CSFB, CSFBM, Bain and the LLC are desirous of entering
into this Agreement to effectuate the amendments contemplated by the Letter
Agreement.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AMENDMENTS TO EXISTING SECURITIES PURCHASE AGREEMENT.
The Company and CSFB hereby consent and agree to replace the Existing
Securities Purchase Agreement with the Amended Securities Purchase Agreement as
set forth in EXHIBIT A to this Agreement.
2. AMENDMENTS TO EXISTING NOTE AGREEMENT; EXISTING NOTES.
The Company and CSFB hereby consent and agree to replace the Existing
Note Agreement and the Existing Note with the Amended Note Agreement and the
Amended Note as set forth in EXHIBIT B to this Agreement. Upon issuance of the
Amended Note, the indebtedness evidenced by the Existing Notes shall thereafter
be evidenced by the Amended Note, and the Existing Note shall thereupon be of no
further force or effect.
3. AMENDMENTS TO EXISTING WARRANT.
The LLC and CSFBM hereby consent and agree to replace the Existing
Warrant with the Amended Warrant as set forth in EXHIBIT C to this Agreement.
Upon issuance of the Amended Warrant, the obligations evidenced by the Existing
Warrant shall thereafter be evidenced by the Amended Warrant, and the Existing
Warrant shall thereupon be of no further force or effect.
4. AMENDMENTS TO EXISTING LLC AGREEMENT.
Bain and CSFBM hereby consent and agree to replace the Existing LLC
Agreement with the Amended LLC Agreement as set forth in EXHIBIT D to this
Agreement.
2
<PAGE>
5. CONDITIONS PRECEDENT.
The amendments of the Existing Securities Purchase Agreement, the
Existing Note Agreement, the Existing Note, the Existing Warrant and the
Existing LLC Agreement shall become effective on the date (the "EFFECTIVE Date")
upon which all of the following conditions precedent have been satisfied:
5.1 EXECUTION AND DELIVERY OF THIS AGREEMENT.
The Company, CSFB, CSFBM, Bain and the LLC shall have executed and
delivered a counterpart of this Agreement.
5.2 DELIVERY OF AMENDED NOTE, AMENDED WARRANT AND STOCK CERTIFICATE.
The Company shall have delivered to CSFB or its counsel an originally
executed Amended Note, an originally executed Amended Warrant and the shares of
common stock of the Company to be issued pursuant to the Amended Securities
Purchase Agreement, each in form and substance satisfactory to CSFB and its
counsel.
5.3 DELIVERY OF EXISTING NOTE, EXISTING WARRANT AND ORIGINAL STOCK
CERTIFICATE.
CSFB shall have delivered to the Company or its counsel the Existing
Note and the stock certificate representing 1,290,017 shares of common stock of
the Company issued pursuant to the Existing Securities Purchase Agreement. CSFBM
shall have delivered to the LLC or its counsel the Existing Warrant.
5.4 PROCEEDINGS SATISFACTORY.
All proceedings taken in connection with this Agreement and all
documents and papers relating hereto shall be satisfactory to CSFB, CSFBM, the
Company, Bain and their respective counsel. CSFB, CSFBM, the Company, Bain and
their respective counsel shall have received copies of such documents and papers
as they may reasonably request in connection therewith, in form and substance
satisfactory to them.
6. MISCELLANEOUS.
6.1 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
3
<PAGE>
6.2 WAIVERS AND AMENDMENTS.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, or by any action or inaction, but only by an
instrument in writing signed by each of the parties signatory hereto.
6.3 DUPLICATE ORIGINALS, EXECUTION IN COUNTERPART.
Two or more originals of this Agreement may be signed by the parties,
each of which shall be an original but all of which together shall constitute
one and the same instrument. This Agreement may be executed in one or more
counterparts and shall be effective when at least one counterpart shall have
been executed by each party hereto, and each set of counterparts which,
collectively, show execution by each party hereto shall constitute one duplicate
original.
6.4 ENTIRE AGREEMENT.
This Agreement constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms.
[Remainder of Page Intentionally Blank. Next Page is Signature Page.]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by a duly authorized officer or agent thereof, as the
case may be, as of the date first above written.
HF HOLDINGS, INC.
By: /s/ SCOTT R. WATTERSON
----------------------------
Name: Scott R. Watterson
Title: Chairman & CEO
CREDIT SUISSE FIRST
BOSTON CORPORATION
By: /s/ DAVID J. MATLIN
----------------------------
Name: David J. Matlin
Title: Managing Director
CREDIT SUISSE FIRST
BOSTON MANAGEMENT
CORPORATION
By: /s/ DAVID J. MATLIN
----------------------------
Name: David J. Matlin
Title: Managing Director
BAIN CAPITAL FUND IV,
L.P.
By: /s/ ROBERT C. GAY
----------------------------
Name: Robert C. Gay
Title: General Partner
5
<PAGE>
HF INVESTMENT
HOLDINGS, LLC
By: /s/ SCOTT R. WATTERSON
----------------------------
Name: Scott R. Watterson
Title: Administrative Member
6
<PAGE>
Exhibit 10.4
HF INVESTMENT HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of September 27, 1999
<PAGE>
HF INVESTMENT HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE 1 - DEFINITIONS........................................................1
ARTICLE 2 - FORMATION AND PURPOSE..............................................1
2.1 Formation....................................................1
2.2 Name.........................................................1
2.3 Registered Office/Agent......................................2
2.4 Term.........................................................2
2.5 Purpose......................................................2
2.6 Specific Powers..............................................2
2.7 Certificate..................................................3
ARTICLE 3 - MEMBERSHIP AND CAPITAL.............................................4
3.1 Members; Units...............................................4
3.2 Capital Contributions........................................4
3.3 Capital Accounts.............................................5
3.4 Revaluations of Assets and Capital Account Adjustments.......5
3.5 Additional Capital Account Adjustments.......................5
3.6 Additional Capital Account Provisions........................6
3.7 Options, Warrants, Etc.......................................6
ARTICLE 4 - STATUS AND RIGHTS OF MEMBERS.......................................7
4.1 Limited Liability............................................7
4.2 Return of Distributions of Capital...........................7
ARTICLE 5 - DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS...................7
5.1 Distributions................................................7
5.2 No Violation................................................12
5.3 Withholdings................................................12
5.4 Property Distributions and Installment Sales................13
5.5 Net Profit or Net Loss......................................13
5.6 Limitation on Allocation of Losses; Qualified Income
Offset; Curative Allocations................................15
5.7 Tax Allocations: Code Section 704(c) and Unrealized
Appreciation or Depreciation................................16
-i-
<PAGE>
5.8 Additional Investments......................................16
ARTICLE 6 - TAX MATTERS MEMBER................................................17
6.1 Tax Matters Member..........................................17
6.2 Certain Authorizations......................................17
6.3 Indemnity of Tax Matters Member.............................18
6.4 Information Furnished.......................................18
6.5 Notice of Proceedings, etc..................................18
6.6 Notices to Tax Matters Member...............................18
ARTICLE 7 - FEES AND EXPENSES.................................................18
7.1 Compensation to the Administrative Member and Affiliates....18
7.2 Company Expenses............................................19
ARTICLE 8 - DESIGNATION, RIGHTS, AND DUTIES OF THE ADMINISTRATIVE
MEMBERS.......................................................................19
8.1 Designation.................................................19
8.2 Authority; Duties...........................................19
8.3 Business Decisions; Voting Shares of HF Holdings'
Capital Stock...............................................20
ARTICLE 9 - TRANSFER OF INTERESTS.............................................21
9.1 Restrictions on Transfer....................................21
9.2 Transfers under this Agreement, etc.........................21
9.3 Transfers of Class B Units to Permitted Transferees.........21
9.4 Transfers of Class A Units or Class C Units to Immediate
Family......................................................21
9.5 Transfers of Class A Units or Class C Units Upon Death......22
9.6 Transfers of Class A Units or Class C Units to Charities....22
9.7 Transfers of Units to Entities Under Common Control.........22
9.8 Bain Sell Down..............................................22
ARTICLE 10 - BOOKS, RECORDS, ACCOUNTING, AND REPORTS..........................23
10.1 Books and Records...........................................23
10.2 Information to Member.......................................24
10.3 Financial Statements........................................24
10.4 Filings.....................................................25
10.5 Non-Disclosure..............................................25
ARTICLE 11 - AMENDMENTS TO AGREEMENT..........................................25
11.1 Amendments..................................................25
11.2 Filings.....................................................26
ARTICLE 12 - DISSOLUTION OF COMPANY...........................................26
12.1 Events of Dissolution or Liquidation........................26
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<PAGE>
12.2 Liquidation.................................................26
12.3 No Further Claim............................................27
12.4 No Action for Dissolution...................................27
ARTICLE 13 - INDEMNIFICATION..................................................27
13.1 General.....................................................27
13.2 Indemnification.............................................27
ARTICLE 14 - REPRESENTATIONS BY THE MEMBERS...................................28
14.1 Investment Intent...........................................28
14.2 Securities Regulation.......................................28
14.3 Knowledge and Experience....................................28
14.4 Independent Investment Decision.............................29
14.5 Economic Risk...............................................29
14.6 Binding Agreement...........................................29
14.7 Tax Position................................................30
14.8 Information.................................................30
ARTICLE 15 - COMPANY REPRESENTATIONS..........................................30
15.1 Legal Existence.............................................30
15.2 Valid Issuance..............................................30
15.3 Options, Etc................................................30
ARTICLE 16 - MISCELLANEOUS....................................................30
16.1 Additional Documents........................................30
16.2 General.....................................................31
16.3 Notices, Etc................................................31
16.4 Applicable Law..............................................31
16.5 Consent to Jurisdiction.....................................31
16.6 WAIVER OF JURY TRIAL........................................32
16.7 Gender and Number...........................................32
16.8 Severability................................................32
16.9 Headings....................................................33
16.10 Tax Status..................................................33
16.11 No Third Party Rights.......................................33
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<PAGE>
HF INVESTMENT HOLDINGS, LLC
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT of HF
Investment Holdings, LLC is dated as of September 27, 1999 by and among Bain
Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and BCIP
Trust Associates, L.P., each a Delaware limited partnership, Gary Stevenson, an
individual residing in Riverheight, UT, Scott Watterson, an individual residing
in Providence, UT, and such other persons as may from time to time be admitted
as Members.
WHEREAS, the Original Members wish to form a limited liability company
pursuant to and in accordance with the Delaware Limited Liability Company Act in
order to conduct the business described herein; and
WHEREAS, the Members wish to enter into this Agreement to provide for,
among other things, the management of the business and affairs of the Company,
the allocation of profits and losses among the Members, the respective rights
and obligations of the Members to each other and to the Company, and certain
other matters.
NOW, THEREFORE, the Members agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement certain capitalized terms have
specifically defined meanings which are either set forth or referred to in
Exhibit 1 which is attached hereto and incorporated herein by reference.
ARTICLE 2
FORMATION AND PURPOSE
2.1 FORMATION. The Members hereby form a limited liability company
pursuant to the Act effective retroactively to the filing of the Certificate
with the Secretary of State of the State of Delaware. The rights, duties and
liabilities of the Members shall be determined pursuant to the Act and this
Agreement. To the extent that such rights, duties or obligations are different
by reason of any provision of this Agreement than they would be in the absence
of such provision, this Agreement shall, to the extent permitted by the Act,
control.
2.2 NAME. The name of the Company is HF Investment Holdings, LLC. The
business of the Company may be conducted under that name or, upon compliance
with
<PAGE>
applicable laws, any other name that the Administrative Members deem appropriate
or advisable. The Administrative Members shall file any fictitious name
certificates and similar filings, and any amendments thereto, that the
Administrative Members consider appropriate or advisable.
2.3 REGISTERED OFFICE/AGENT. The registered office required to be
maintained by the Company in the State of Delaware pursuant to the Act shall
initially be c/o Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805. The name and address of the registered agent of the Company
pursuant to the Act shall initially be Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware 19805. The Company may, upon compliance with the
applicable provisions of the Act, change its registered office or registered
agent from time to time in the discretion of the Administrative Members.
2.4 TERM. The term of the Company shall continue until December 31,
2024 unless sooner terminated as hereinafter provided. The holders of a majority
of each of the Class A Units and Class B Units may extend the term (unless
terminated pursuant to Section 12.1(b) or (c)) for up to two periods of two
years each if they determine that extension is necessary or desirable.
2.5 PURPOSE. The purpose of the Company is to make investments in the
capital stock of HF Holdings and such other investments as may from time to time
be approved by a Voting Majority, and to engage in any and all activities
necessary, advisable, convenient or incidental to the making, management or
disposition of such investments. In addition, all cash of the Company, including
without limitation all Capital Contributions pending their investment as
contemplated by this Section 2.5, all interest, dividends and other
distributions received with respect to all investments of the Company, all
amounts realized on the sale, exchange or other disposition of securities and
other assets of the Company (including without limitation through mandatory or
voluntary redemptions and repurchases of capital stock), and all miscellaneous
income received from investment of idle funds, shall be segregated and invested
in Short-Term Investments by the Administrative Members to the extent they are
not then required to provide for Distributions, expenses or investments.
2.6 SPECIFIC POWERS. Without limiting the generality of Section 2.5,
the Company shall have the power and authority to take any and all actions
necessary, appropriate, proper, advisable, incidental or convenient to or for
the furtherance of the purpose set forth in Section 2.5, including, but not
limited to, the power:
2.6.1 to conduct its business, carry on its operations and
have and exercise the powers granted to a limited liability company by
the Act or under any other applicable law in any jurisdiction, whether
domestic or foreign, that may be necessary, convenient or incidental to
the accomplishment of the purposes of the Company;
-2-
<PAGE>
2.6.2 to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, perform and carry out contracts of any
kind, including without limitation contracts with any Member or any
Affiliate thereof, in connection with, convenient to, or incidental to
the accomplishment of the purposes of the Company;
2.6.3 to purchase, take, receive, subscribe for or otherwise
acquire, own, hold, vote, use, employ, sell, lend, or otherwise dispose
of, and otherwise use and deal in and with, shares or other interests
in or obligations of corporations, associations, general or limited
partnerships, trusts, limited liability companies, or individuals or
direct or indirect obligations of the United States or of any
government, state, territory, governmental district or municipality or
of any instrumentality of any of them;
2.6.4 to sue and be sued, complain and defend, and participate
in administrative or other proceedings, in its name;
2.6.5 to elect and designate one or more managers of the
Company and to appoint officers, employees, agents and representatives
of the Company, and define their duties and fix their compensation;
2.6.6 to indemnify any Person in accordance with this
Agreement;
2.6.7 to cease its activities and cancel its Certificate;
2.6.8 to pay, collect, compromise, litigate, arbitrate or
otherwise adjust or settle any and all other claims or demands of or
against the Company or to hold such proceeds against the payment of
contingent liabilities; and
2.6.9 to make, execute, acknowledge and file any and all
documents or instruments necessary, convenient or incidental to the
accomplishment of the purpose of the Company.
Notwithstanding the foregoing provisions of this Section 2.6, in no event shall
the Company have the authority to borrow or otherwise incur or take property
subject to indebtedness without the written consent of a Voting Majority.
2.7 CERTIFICATE. The filing by Taline Festekjian of the Certificate as
an "authorized person" within the meaning of the Act is hereby authorized and
ratified in all respects, and the Administrative Members, as well as R. Newcomb
Stillwell and Ryan D. Darrah, are designated as "authorized persons" within the
meaning of the Act to execute, deliver and file any amendments, restatements or
cancellation of the Certificate, and any other certificates necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business. In addition, Ryan D. Darrah is authorized to sign the
CSFB Warrant (as defined below) on the date hereof on behalf of the Company.
-3-
<PAGE>
ARTICLE 3
MEMBERSHIP AND CAPITAL
3.1 MEMBERS; UNITS. The Members of the Company shall be listed on
SCHEDULE I hereto, as from time to time amended and supplemented in accordance
with the provisions of this Agreement. The Members' Interests in the Company
shall be represented by up to three separate classes (each a "CLASS") of units
("UNITS"). The Interest of each of Scott Watterson and Gary Stevenson shall be
represented by "Class A Units." The Interest of each Bain Member and of each
other Member (other than Scott Watterson or Gary Stevenson) as the Bain Members
shall designate shall be represented by "Class B Units." The Interest of any
other Member shall be represented by "Class C Units." Each Unit issued as of the
Closing Date shall represent a Capital Contribution of one hundred dollars
($100). The holders of Class A Units and Class B Units shall have the voting
rights specified in this Agreement. The holders of Class C Units shall not have
any voting rights, except the right to vote in respect of certain proposed
amendments, as more fully specified in Section 11.1. From and after the making
by the Members of Capital Contributions to fund an investment other than the
investment in HF Holdings to be made as of the Closing Date, the Units of the
Company shall be segregated not only by Class, but also by investment so that
the Units issued in respect of an investment shall represent only an interest in
that investment (and the Short-Term Investments, if any, related thereto). The
holders of Class A Units, Class B Units and Class C Units issued in respect of a
particular investment shall be entitled to receive the Distributions and
allocations of Net Profit and Net Loss (and other items treated as Net Profit
and Net Loss pursuant to Sections 3.4 and 3.5) in respect of such investment as
are specified in Article 5. For the sake of clarity, the Units issued in respect
of the investment in HF Holdings on the Closing Date shall be designated the "HF
Class A Units", the "HF Class B Units" and the "HF Class C Units."
3.2 CAPITAL CONTRIBUTIONS. Each Member shall contribute to the Company
on the Closing Date the amount set forth opposite such Member's name on SCHEDULE
I, as in effect as of the Closing Date, under the heading "CAPITAL
CONTRIBUTIONS" and shall receive the number of HF Class A Units, HF Class B
Units and/or HF Class C Units, as the case may be, set forth on SCHEDULE I. (For
the treatment of the CSFB Warrant (defined below), see Section 3.7.) Following
the Closing Date, the Administrative Members, with the approval of a Voting
Majority, may issue Class A, B and/or C Units to such persons in exchange for
such additional Capital Contributions as they determine to be appropriate.
Promptly following the issuance of additional Units, the Administrative Members
shall amend SCHEDULE I so that it sets forth, effective as of the date of the
amendment, opposite each Member's name, under the heading "CAPITAL
CONTRIBUTIONS", the total amount of Capital Contributions made by such Member to
the Company on and after the Closing Date, and under the headings "CLASS A
UNITS," "CLASS B UNITS" and "CLASS C UNITS," the number of Class A Units, Class
B or Class C Units, respectively, held by such Member and the investments in
respect of which such Units were issued.
-4-
<PAGE>
3.3 CAPITAL ACCOUNTS. A separate account (each a "CAPITAL ACCOUNT")
shall be established and maintained for each Member which shall be increased by
(a) the amount of cash and the fair market value (as agreed upon by such Member
and the Administrative Members, with the consent of a Voting Majority, at the
time of contribution) of any other property contributed by such Member to the
Company as a Capital Contribution (net of liabilities secured by such property
or that the Company assumes or takes the property subject to), (b) such Member's
share of the Net Profit of the Company and (c) amounts required to be credited
to the Members' Capital Accounts in the same manner as Net Profit pursuant to
Section 3.4 or 3.5, and shall be reduced by (d) the amount of cash and the fair
market value (as agreed upon by such Member and the Administrative Members, with
the consent of a Voting Majority, at the time of distribution) of any other
property distributed to such Member (net of liabilities secured by such property
or that the Member assumes or takes the property subject to), (e) such Member's
share of the Net Loss of the Company and (f) amounts required to be credited to
the Members' Capital Accounts in the same manner as Net Loss pursuant to Section
3.4 or Section 3.5. From and after the making by the Members (which term, for
purposes of this sentence, shall not include the holder of any CSFB Warrant
(defined below)) of Capital Contributions to fund an investment other than the
investment in HF Holdings to be made as of the Closing Date, each Member's
Capital Account shall be divided into two or more "Sub-Capital Accounts", and a
separate Sub-Capital Account shall be maintained in the manner provided in the
immediately preceding sentence for each investment (and the Short-Term
Investments, if any, related thereto) in which the Member has an interest.
3.4 REVALUATIONS OF ASSETS AND CAPITAL ACCOUNT ADJUSTMENTS. Immediately
preceding the issuance of additional Class A Units, Class B Units or Class C
Units to a new or existing Member in exchange for cash or other contributions
(other than in connection with the exercise of any CSFB Warrant (as defined
below)), or upon the redemption of the Interest of a Member, the then prevailing
Asset Values of the Company shall be adjusted to equal their respective gross
fair market values, as determined in good faith by the Administrative Members,
with the consent of a Voting Majority, and any increase in the net equity value
of the Company (Asset Values less liabilities) shall be credited to the Capital
Accounts (and the appropriate Sub-Capital Accounts) of the Members in the same
manner as Net Profits are credited under Section 5.5.2 hereof (or any decrease
in the net equity value of the Company shall be charged in the same manner as
Net Losses are charged under Section 5.5.3). Accordingly, as of the date of
issuance of additional Units or the redemption of all or a portion of a Member's
Interest in the Company, the Capital Accounts (and the Sub-Capital Accounts) of
Members will reflect both realized and unrealized gains and losses through such
date and the net fair market value of the equity of the Company as of such date.
3.5 ADDITIONAL CAPITAL ACCOUNT ADJUSTMENTS. Any income of the Company
that is exempt from federal income tax shall be credited to the Capital Accounts
(and the appropriate Sub-Capital Accounts) of the Members in the same manner as
Net Profits are credited under Section 5.5.2 when such income is realized. Any
expenses or expenditures of the Company
-5-
<PAGE>
which may neither be deducted or capitalized for tax purposes (or are so treated
for tax purposes) shall be charged to the Capital Accounts (and the appropriate
Sub-Capital Accounts) of the Members, in the same manner as Net Losses are
charged under Section 5.5.3. If the Company makes an election under Section 754
of the Code to provide a special basis adjustment upon the transfer of an
Interest in the Company or the distribution of property by the Company, Capital
Accounts (and the appropriate Sub-Capital Accounts) shall be adjusted to the
limited extent required by the Treasury Regulations under Section 704 following
such transfer or distribution.
3.6 ADDITIONAL CAPITAL ACCOUNT PROVISIONS.
3.6.1 No Member shall have the right to demand a return of all
or any part of its Capital Contributions. Any return of the Capital
Contributions of any Member shall be made solely from the assets of the
Company and only in accordance with the terms of this Agreement. No
interest shall be paid to any Member with respect to its Capital
Contributions or Capital Account (or any Sub-Capital Account).
3.6.2 In the event that all or a portion of the Units of a
Member are transferred in accordance with the terms of this Agreement,
the transferee of such Units shall also succeed to all or the relevant
portion of the Capital Account (and the appropriate Sub-Capital
Accounts) of the transferor. Units held by a Member may not be
transferred independently of the interest in the capital of the Company
to which the Units relate.
3.6.3 No Member shall have any obligation to repay any deficit
balance in its Capital Account (or in any Sub-Capital Account).
3.7 OPTIONS, WARRANTS, ETC. The Administrative Members, with the
approval of a Voting Majority, may issue options, warrants and other rights or
interests in respect of the equity of the Company (each a "Right") to such
persons, in exchange for such amounts of cash or other property, and having such
terms, as the Administrative Members determine to be appropriate. By its
signature to this Agreement, Bain, constituting a Voting Majority as of the date
hereof, hereby approves the issuance as of the date hereof to Credit Suisse
First Boston Management Corporation, a Delaware Corporation ("CSFB"), of a
warrant for the purchase of fifty thousand (50,000) Class C Units having terms
substantially identical to those set forth in the HF Class C Units Purchase
Warrant attached hereto as EXHIBIT 2 (such warrant and any warrant issued to
reflect a partial exercise or a transfer of a portion of such warrant, a "CSFB
Warrant"). Upon the issuance of any Right, the Administrative Members shall set
forth on SCHEDULE I the name of the holder of such Right and the terms of such
Right. Upon the exercise of any CSFB Warrant, the holder thereof shall be deemed
to have made a Capital Contribution equal to the sum of (i) the exercise price
paid in connection with such exercise and (ii) the product of (A) five million
dollars ($5,000,000) and (B) a fraction, the numerator of which is the number of
HF Units received upon such exercise and the denominator of which is the sum of
(I) the aggregate
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number of HF Units for which all unexercised CSFB Warrants are exercisable and
(II) the aggregate number of outstanding HF Units issued in connection with the
exercise of any CSFB Warrants (for purposes of this clause II, adjusted to
reflect any post-exercise distributions of additional HF Units in respect of HF
Units, reclassifications by subdivision of outstanding HF Units, or
reclassifications by combination of outstanding HF Units into a smaller number
of HF Units). Such Capital Contribution shall be set forth on Schedule I.
3.8 LIMITATIONS ON ISSUANCES. The Company shall not issue any
additional Units (or rights to acquire Units) to any Bain Member unless the
Company shall have provided each other Member with the opportunity to purchase
its pro rata share of such Units or rights on the same terms as such Bain
Member.
ARTICLE 4
STATUS AND RIGHTS OF MEMBERS
4.1 LIMITED LIABILITY. Except as otherwise provided by the Act, the
debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the
Company, and no Member nor any other Indemnified Person shall be obligated
personally for any such debt, obligation or liability of the Company. All
Persons dealing with the Company shall look solely to the assets of the Company
for the payment of the debts, obligations or liabilities of the Company.
4.2 RETURN OF DISTRIBUTIONS OF CAPITAL. Except as otherwise expressly
required by law, a Member, in its capacity as such, shall have no liability
either to the Company or any of the Company's creditors. Except as required by
law or a court of competent jurisdiction, no Member or investor in or partner of
a Member shall be obligated by this Agreement to return any Distribution to the
Company or pay the amount of any Distribution for the account of the Company or
to any creditor of the Company. However, if any court of competent jurisdiction
holds that, notwithstanding the provisions of this Agreement, any Member is
obligated to return or pay any part of any Distribution, the obligation shall be
that of such Member alone, and not of any other Member unless the court so
provides. The amount of any Distribution returned to the Company by or on behalf
of a Member or paid by or on behalf of a Member for the account of the Company
or to a creditor of the Company shall be added to the account or accounts from
which it was subtracted when it was distributed to the Member.
ARTICLE 5
DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS
5.1 DISTRIBUTIONS. The Administrative Members shall cause the Company
to make Distributions to the Members and the holder(s) of the CSFB Warrant(s) in
accordance with this Section 5.1.
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5.1.1 DEFINITIONS.
"AVAILABLE CASH" shall mean (a) cash received in respect of
the Company's investment in HF Holdings and (b) cash received in
respect of all Short-Term Investments (i) made with funds pending their
investment in HF Holdings or (ii) made with funds received from HF
Holdings pending the allocation of such funds pursuant to Section
5.1.2, in each case net of expenses of the Company authorized by this
Agreement.
"RELEASED SHARES" shall mean shares of HF Holdings common
stock that were subject to a Junior Management Option which has lapsed
or failed to vest or that were subject to the CSFB Option, prior to its
lapse.
"OPTION SHARES" shall mean shares of HF Holdings common stock
that are subject to a Junior Management Option or to the CSFB Option.
"FREE SHARES" shall mean shares of HF Holdings common stock
that have never been subject to a Junior Management Option or the CSFB
Option.
5.1.2 ALLOCATIONS OF AVAILABLE CASH. Available Cash shall be
allocated among the Members and the holder(s) of the CSFB Warrant(s) as
follows:
(a) ALLOCATIONS OF AVAILABLE CASH ATTRIBUTABLE TO OPTION
SHARES OR RELEASED SHARES. Available Cash received by
the Company (i) as a result of the exercise, in whole
or in part, of any Junior Management Option or the
CSFB Option, (ii) as a result of the sale or other
disposition of Released Shares or (iii) otherwise in
respect of Option Shares or Released Shares (or
Short-Term Investments related thereto), shall be
allocated among all Members and holder(s) of the CSFB
Warrant(s) in proportion to the relative number of HF
Units (regardless of Class) held by the Members and
the holder(s) of the CSFB Warrant(s) (treating,
solely for this purpose, each holder of a CSFB
Warrant as holding at the time of any allocation
pursuant to this Section 5.1.2(a) a number of HF
Units equal to the aggregate number of HF Units for
which all CSFB Warrants then held by such holder may
be exercised).
PRESUMPTION 1 -- IDENTIFYING SHARES
SUBJECT TO DISPOSITION. In the event that a
Junior Management Option or the CSFB Option
lapses or that a Junior Management Option
fails to vest, any sale or other disposition
of HF Holdings common stock by the Company
thereafter (other than pursuant to the
exercise of a Junior Management Option or
the CSFB Option) shall be treated in part as
a sale of Released Shares and in part as
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a sale of Free Shares, (i) with the
percentage of shares sold that are deemed to
be Released Shares equal to THE PRODUCT OF
(A) a fraction, (I) the numerator of which
is equal to the number of Released Shares
held by the Company immediately prior to
such sale or disposition and (II) the
denominator of which is equal to the total
number of shares of HF Holdings common stock
held by the Company immediately prior to
such sale or disposition that are either
Free Shares or Released Shares, and (B) 100;
and (ii) with the percentage of shares sold
that are deemed to be Free Shares equal to
(C) 100 MINUS (D) the percentage of shares
sold that are deemed to be Released Shares,
as calculated in the immediately preceding
clause (i).
PRESUMPTION 2 -- IDENTIFYING SHARES
IN RESPECT OF WHICH DIVIDEND IS PAID. In the
event that the Company receives a dividend
or other distribution (other than a
distribution treated as proceeds from an
exchange of HF Holdings Common Stock
pursuant to Section 302(a) of the Code) in
respect of shares of HF Holdings common
stock, such distribution shall be treated in
part as a distribution in respect of Option
Shares and Released Shares and in part as a
distribution in respect of Free Shares, (i)
with the percentage of such distribution
that is deemed attributable to Free Shares
equal to THE PRODUCT OF (A) a fraction, (I)
the numerator of which is equal to the
number of Free Shares then held by the
Company and (II) the denominator of which is
equal to the total number of shares of HF
Holdings common stock then held by the
Company, and (B) 100, and (ii) the
percentage of such distribution that is
deemed attributable to Option Shares and
Released Shares equal to (C) 100 minus (D)
the percentage of such distribution that is
deemed attributable to Free Shares, as
calculated in the immediately preceding
clause (i).
(b) ALLOCATIONS OF AVAILABLE CASH ATTRIBUTABLE TO FREE
SHARES. All Available Cash received by the Company in
respect of Free Shares (or Short-Term Investments
related thereto) shall be allocated as follows:
(i) First, Available Cash in respect of Free
Shares (or Short-Term Investments related
thereto) shall be allocated among all
Members and holder(s) of the CSFB
Warrant(s), in proportion to the relative
number of HF Units (regardless of Class)
held by the Members and the holder(s) of the
CSFB Warrant(s) (treating, solely for this
purpose, each holder of a CSFB Warrant as
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holding at the time of any allocation
pursuant to this Section 5.1.2(b) a number
of HF Units equal to the aggregate number of
HF Units for which all CSFB Warrants then
held by such holder may be exercised), until
each Original Member has been allocated an
amount of Available Cash equal to its
Unreturned Investment;
(ii) Thereafter, (A) an amount of Available Cash
in respect of Free Shares (or Short-Term
Investments related thereto) equal to (I)
the Available Cash in respect of Free Shares
(or Short-Term Investments related thereto)
remaining after making the allocation
pursuant to Section 5.1.2(b)(i) MULTIPLIED
BY (II) the Class A Percentage shall be
allocated to the holders of HF Class A
Units, in proportion to the relative number
of HF Class A Units held by the holders of
such Units, and (B) an amount of Available
Cash in respect of Free Shares (or
Short-Term Investments related thereto)
equal to (I) the Available Cash in respect
of Free Shares (or Short-Term Investments
related thereto) remaining after making the
allocation pursuant to Section 5.1.2(b)(i)
MULTIPLIED BY (II) the Residual Percentage
shall be allocated to all Members and
holder(s) of the CSFB Warrant(s), in
proportion to the relative number of HF
Units (regardless of Class) held by the
Members and the holder(s) of the CSFB
Warrant(s) (treating, solely for this
purpose, each holder of a CSFB Warrant as
holding at the time of any allocation
pursuant to this Section 5.1.2(b) a number
of HF Units equal to the aggregate number of
HF Units for which all CSFB Warrants then
held by such holder may be exercised).
5.1.3 ALLOCATIONS OF NON-CASH ASSETS.
(a) IN GENERAL. Subject to Section 5.1.3(b), the Company
shall allocate among all Members and holder(s) of the
CSFB Warrant(s) all equity and other interests that
it holds in HF Holdings or any successor thereto, and
all of the non-cash proceeds received in exchange for
any of its interests in HF Holdings, upon the
earliest of the following times: (a) immediately
following a Liquidity Event (other than an initial
public offering); (b) immediately prior to the first
secondary public offering of shares in HF Holdings to
follow an initial public offering of shares in HF
Holdings that is a Liquidity Event; or (c) upon the
vote of the holders of a majority of each of the
Class A Units and Class B Units to make such an
allocation. An allocation pursuant to this Section
5.1.3 shall be made in the same proportions as an
allocation of Available Cash
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pursuant to Section 5.1.2 would have been made to the
Members and the holder(s) of the CSFB Warrant(s) had
the assets being allocated first been sold for an
amount of cash equal to the fair market value of such
assets, as determined (except as provided in the next
sentence) in good faith by the Administrative
Members, with the consent of a Voting Majority, and
the proceeds from such sale been allocated pursuant
to Section 5.1.2. For purposes of this Section, the
"fair market value" of any share of HF Holdings or
any successor thereto allocated hereunder shall be
(i) in the case of a Liquidity Event (other than an
initial public offering), the amount of consideration
per share paid in connection with the Liquidity
Event, (ii) in the case of a secondary public
offering, the price at which shares are offered to
the public in such offering or (iii) in all other
cases, as determined in good faith by the
Administrative Members, with the consent of a Voting
Majority.
(b) ALLOCATION TO CSFB WARRANT ACCOUNT. Notwithstanding
the provisions of Section 5.1.3(a), in the event that
any holder of a CSFB Warrant is at the time of an
allocation pursuant to this Section 5.1.3(a) not
permitted under the IBA or the BHCA to hold all or a
portion (the "Impermissible Portion") of any non-cash
asset that would otherwise be allocated to it
(pursuant to Section 5.13(a)), then the Impermissible
Portion of the non-cash asset that would otherwise be
allocated pursuant to Section 5.1.3(a) to such holder
shall instead be allocated to a CSFB Warrant Account
established in respect of the CSFB Warrant held by
such holder.
5.1.4 TREATMENT OF ALLOCATED ASSETS.
(a) CURRENT DISTRIBUTION. All Available Cash allocated
under Section 5.1.2 to any Member or any holder of a
CSFB Warrant shall be distributed to such Member or
such holder within two (2) Business Days of the
receipt by the Company of such cash. All assets other
than Available Cash allocated under Section 5.1.3(a)
to any Member or any holder of a CSFB Warrant shall
be distributed to such Member or such holder as soon
as reasonably practicable.
(b) SET ASIDE IN CSFB WARRANT ACCOUNT. The portion of
each non-cash asset allocated pursuant to Section
5.1.3(b) to a CSFB Warrant Account shall be held in
such account, and no portion of such non-cash asset
shall be distributed to the holder of the CSFB
Warrant in respect of which such account was
established other than in accordance with Section
5.1.4(c). Notwithstanding the foregoing sentence, an
amount equal to all cash earnings received by the
Company in respect of any non-cash
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asset held in the CSFB Warrant Account shall be
distributed, to the extent of Available Cash, to the
holder of the CSFB Warrant in respect of which such
account was established as soon as reasonably
practicable following the receipt by the Company of
such cash. All non-cash earnings in respect of an
asset in the CSFB Warrant Account shall remain in the
account and be distributed in accordance with Section
5.1.4(c).
(c) DISTRIBUTION OF NON-CASH ASSETS FROM CSFB WARRANT
ACCOUNT. No non-cash asset held in a CSFB Warrant
Account shall be distributed until such time as: (i)
the holder of the CSFB Warrant in respect of which
such account was established notifies the Company
that it has become permissible under the IBA and/or
the BHCA for such holder to hold all or a portion of
one or more of the non-cash assets in such account,
in which case, that portion of each non-cash asset in
such CSFB Warrant Account which such holder may then
hold shall be distributed to such holder within two
(2) Business Days of such notification; or (ii) the
CSFB Warrant in respect of which the CSFB Warrant
Account was established is exercised in whole or in
part. In the event of an exercise described in clause
(ii) of the immediately preceding sentence, the CSFB
Account Distribution Fraction of each remaining asset
in the CSFB Warrant Account shall be distributed to
the holder exercising the CSFB Warrant in respect of
which the account was established, within two (2)
Business Days after the date as of which exercise of
the warrant shall be deemed to have been effected
pursuant to Section 1.3 of such CSFB Warrant. In the
event that a CSFB Warrant lapses, distributions that
would have been made to the holder of such warrant
pursuant to the foregoing provisions of this Section
5.1.4(c) shall be made to, or to the designee of,
such holder within five (5) Business Days of such
lapse.
5.2 NO VIOLATION. Notwithstanding any provision to the contrary
contained in this Agreement, the Company shall not make a Distribution to any
Member on account of its Interest in the Company if such Distribution would
violate Section 18-607 of the Act or other applicable law.
5.3 WITHHOLDINGS. All amounts withheld pursuant to the Code or any
provision of any state, local or foreign tax law with respect to any payment,
Distribution, or allocation to the Company shall be treated as amounts paid to
the Company. The Administrative Members are authorized to withhold from
Distributions, or with respect to allocations, to the Members and to pay over to
the appropriate federal, state, local or foreign government any amounts required
to be so withheld. The Administrative Members shall allocate any such amounts to
the Members in respect of whose Distribution or allocation the tax was withheld
and shall treat such amounts as actually distributed to such Members.
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5.4 PROPERTY DISTRIBUTIONS AND INSTALLMENT SALES. The amount by which
the fair market value of any property to be distributed in kind pursuant to
Sections 5.1.3 and 5.1.4 exceeds or is less than the then prevailing Asset Value
of such property shall, to the extent not otherwise recognized by the Company,
be taken into account in determining Net Profit and Net Loss and determining the
Capital Accounts (and the appropriate Sub-Capital Accounts) of the Members as if
such property had been sold at its fair market value immediately prior to the
distribution. If any assets are sold in transactions in which, by reason of the
provisions of Section 453 of the Code or any successor thereto, gain is realized
but not recognized, such gain shall be taken into account when realized in
computing gain or loss of the Company for purposes of allocation of Net Profit
or Net Loss under this Article 5.
5.5 NET PROFIT OR NET LOSS.
5.5.1 DEFINITIONS. The "NET PROFIT" or "NET LOSS" of the
Company for each Fiscal Year or relevant part thereof shall mean the
Company's taxable income or loss for federal income tax purposes for
such period (including therein all items of income, gain, loss or
deduction required to be stated separately pursuant to Section
703(a)(1) of the Code) with the following adjustments:
(a) Gain or loss attributable to the disposition of
property of the Company with an Asset Value different
than the adjusted basis of such property for federal
income tax purposes shall be computed with respect to
the Asset Value of such property and any tax gain or
loss not included in Net Profit or Loss shall be
taken into account and allocated among the Members
pursuant to Section 5.7 hereof.
(b) Depreciation, amortization or cost recovery
deductions with respect to any property with an Asset
Value that differs from its adjusted basis for
federal income tax purposes shall be computed in
accordance with Asset Value and any depreciation
allowable for federal income tax purposes shall be
allocated in accordance with Section 5.7.
5.5.2 ALLOCATIONS OF NET PROFIT. The Net Profit of the Company
attributable to the Company's investment in HF Holdings (or any
Short-Term Investments related thereto) for any relevant fiscal period
shall be allocated and credited to the Capital Accounts (or the
appropriate Sub-Capital Accounts) of the Members as follows:
(a) All income and gain recognized by the Company (and
amounts so treated pursuant to Section 3.4 or 3.5)
(i) as a result of the exercise, in whole or in part,
of any Junior Management Option or the CSFB Option,
(ii) as a result of the sale or other disposition of
Released Shares or (iii) otherwise in respect of
Option Shares or Released Shares (or Short-
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Term Investments related thereto), shall be allocated
to the Members' Capital Accounts (and, if
appropriate, Sub-Capital Accounts for the HF Holdings
investment) pro rata in proportion to their HF Units.
(In determining the extent to which shares of HF
Holdings that are sold are Released Shares, the
presumptions set forth above in Section 5.1.2(a)
shall apply.)
(b) All income and gain recognized by the Company (or
treated as recognized pursuant to Section 3.4 or 3.5)
in respect of Free Shares (or Short-Term Investments
related thereto) shall be allocated to the Members'
Capital Accounts (and, if appropriate, Sub-Capital
Accounts for the HF Holdings investment) as follows:
(i) first, if losses and deductions have previously
been allocated to the Members pursuant to Section
5.5.3(b)(ii), to the Members in proportion to the
relative number of HF Units (regardless of Class)
held by the Members, until the aggregate amount
allocated pursuant to this clause (i) equals the
aggregate amount of losses and deductions previously
allocated pursuant to Section 5.5.3(b)(ii); and
(ii) thereafter, (A) the balance of such income and
gain multiplied by the Class A Percentage shall be
allocated to the holders of HF Class A Units, in
proportion to the relative number of HF Class A Units
held by the holders of such Units, and (B) the
balance of such income and gain multiplied by the
Residual Percentage to all Members, in proportion to
the relative number of HF Units (regardless of Class)
held by the Members.
5.5.3 ALLOCATIONS OF NET LOSS. The Net Loss of the Company
attributable to the Company's investment in HF Holdings (or any
Short-Term Investments related thereto) for any relevant fiscal period
shall be allocated and charged to the Capital Accounts (or the
appropriate Sub-Capital Accounts) of the Members as follows:
(a) All losses and deductions recognized by the Company
(and amounts so treated pursuant to Section 3.4 or
3.5) (i) as a result of the exercise, in whole or in
part, of any Junior Management Option or the CSFB
Option, (ii) as a result of the sale or other
disposition of Released Shares, or (iii) otherwise in
respect of Option Shares or Released Shares (or
Short-Term Investments related thereto), shall be
allocated to the Members' Capital Accounts (and, if
appropriate, Sub-Capital Accounts for the HF Holdings
investment) pro rata in proportion to their HF Units.
(In determining the extent to which shares of HF
Holdings that
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are sold are Released Shares, the presumptions set
forth above in Section 5.1.2(a) shall apply.)
(b) All losses and deductions recognized by the Company
(or treated as recognized pursuant to Section 3.4 or
3.5) in respect of Free Shares (or Short-Term
Investments related thereto) shall be allocated to
the Members' Capital Accounts (and, if appropriate,
Sub-Capital Accounts for the HF Holdings investment)
as follows:
(i) first, if income and gain have
previously been allocated to the Members
pursuant to Section 5.5.2(b)(ii), (A) the
Class A Percentage multiplied by such losses
and deductions in respect of Free Shares
shall be allocated to the holders of HF
Class A Units, in proportion to the relative
number of HF Class A Units held by the
holders of such Units, and (B) the Residual
Percentage multiplied by such losses and
deductions in respect of Free Shares shall
be allocated to all Members, in proportion
to the relative number of HF Units
(regardless of Class ) held by the Members,
until the aggregate amount allocated
pursuant to this clause (i) equals (x) the
aggregate amount of income and gain
previously allocated pursuant to Section
5.5.2(b)(ii) LESS (y) the aggregate amount
previously allocated for Distribution
pursuant to Section 5.1.2(b)(ii) (or Section
5.1.3, to the extent allocated in accordance
with Section 5.1.2(b)(ii)); and
(ii) thereafter, to the Members in
proportion to the relative number of HF
Units (regardless of Class) held by the
Members.
5.5.4. SPECIAL ALLOCATION. Notwithstanding the provisions of
Sections 5.5.2 and 5.5.3, all income earned in
respect of any non-cash assets allocated to a CSFB
Warrant Account shall be specially allocated to the
holder of the CSFB Warrant in respect of which such
account was established.
5.6 LIMITATION ON ALLOCATION OF LOSSES; QUALIFIED INCOME OFFSET;
CURATIVE ALLOCATIONS. Notwithstanding the provisions of Sections 5.5.2 and
5.5.3, in no event shall an item of loss, expense or deduction be allocated to a
Member's Capital Account if it would cause or increase a deficit balance in such
Member's Capital Account, within the meaning of Treasury Regulation
ss.1.704-1(b)(2)(ii)(d). In addition, this Agreement shall for all purposes be
deemed to contain a qualified income offset provision, within the meaning of
such regulation. It is the intention of the Members that any allocations
required by the first two sentences of this Section 5.6 not affect the amount or
timing of Distributions to be made under this Agreement. In furtherance of this
objective, in the event any allocation is made pursuant to either of the first
two sentences of this Section 5.6, the Administrative Members are hereby
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directed to make (with the advice of the Company's independent tax advisors and
the consent of a Voting Majority) such curative allocations as they determine to
be appropriate to offset the effects of such allocation. Any item of Net Profit
or Net Loss allocated pursuant to this Section 5.6 shall not again be allocated
pursuant to Section 5.5.
5.7 TAX ALLOCATIONS: CODE SECTION 704(C) AND UNREALIZED APPRECIATION OR
DEPRECIATION.
5.7.1 CONTRIBUTED ASSETS. In accordance with Section 704(c) of
the Code, income, gain, loss and deduction with respect to any property
contributed to the Company with an adjusted basis for federal income
tax purposes different from the initial Asset Value at which such
property was accepted by the Company shall, solely for tax purposes, be
allocated among the Members so as to take into account such difference
in the manner required by Section 704(c) and the applicable Treasury
Regulations.
5.7.2 REVALUED ASSETS. If upon the acquisition of additional
Units in the Company by a new or existing Member the Asset Value of any
the assets of the Company is adjusted pursuant to Section 3.4,
subsequent allocations of income, gain, loss and deduction with respect
to such assets shall, solely for tax purposes, be allocated among the
Members so as to take into account such adjustment in the same manner
as under Section 704(c) of the Code and the applicable Treasury
Regulations.
5.7.3 ELECTIONS AND LIMITATIONS. The allocations required by
this Section 5.7 are solely for purposes of federal, state and local
income taxes and shall not affect the allocation of Net Profits or Net
Losses as between Members or any Members' Capital Accounts (or
Sub-Capital Accounts). All tax allocations required by this Section 5.7
shall be made using the so-called "traditional method" described in the
Treasury Regulations 1.704-3(b); except that the Administrative
Members, with the advice of the Company's auditors or tax counsel and
the consent of a Voting Majority, may elect to use the so-called
"traditional method with curative allocations" described in Treasury
Regulations 1.704-3(c).
5.7.4 TAX ALLOCATIONS. Except as noted above, all items of
income, deduction and loss shall be allocated for Federal, state and
local income tax purposes in the same manner such items are allocated
for purposes of calculating Net Profits and Net Losses.
5.8 ADDITIONAL INVESTMENTS. The Members acknowledge and agree that upon
the making by the Company of an investment other than the investment in HF
Holdings as of the Closing Date, Sections 5.1 and 5.5 shall be amended to
include the necessary distribution and allocation provisions for such new
investment.
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ARTICLE 6
TAX MATTERS MEMBER
6.1 TAX MATTERS MEMBER. Unless and until another Member is designated
as the tax matters partner by a Voting Majority, Bain shall be the tax matters
partner of the Company as provided in the Regulations under Code Section 6231
and any analogous provisions of state law, and in such capacity is referred to
as the "Tax Matters Member".
6.2 CERTAIN AUTHORIZATIONS. The Tax Matters Member shall represent the
Company, at the Company's expense, in connection with all examinations of the
Company's affairs by tax authorities including any resulting administrative or
judicial proceedings. Without limiting the generality of the foregoing, the Tax
Matters Member is hereby authorized, but not required:
6.2.1 to enter into any settlement with the Internal Revenue
Service or the Secretary of the Treasury or his delegate (the
"SECRETARY") with respect to any tax audit or judicial review, in which
agreement the Tax Matters Member may expressly state that such
agreement shall bind the other Members, except that such settlement
agreement shall not bind any Member that (within the time prescribed
pursuant to the Code and Regulations) files a statement with the
Secretary providing that the Tax Matters Member shall not have the
authority to enter into a settlement agreement on behalf of such
Member;
6.2.2 if a notice of a final administrative adjustment at the
Company level of any item required to be taken into account by a Member
for tax purposes is mailed to the Tax Matters Member, to seek judicial
review of such final adjustment, including the filing of a petition for
readjustment with the Tax Court, the District Court of the United
States for the district in which the Company's principal place of
business is located, or elsewhere as allowed by law, or the United
States Claims Court;
6.2.3 to intervene in any action brought by any other Member
for judicial review of a final adjustment;
6.2.4 to file a request for an administrative adjustment with
the Secretary at any time and, if any part of such request is not
allowed by the Secretary, to file a petition for judicial review with
respect to such request;
6.2.5 to enter into an agreement with the Internal Revenue
Service to extend the period for assessing any tax that is attributable
to any item required to be taken into account by a Member for tax
purposes, or an item affected by such item; and
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6.2.6 to take any other action on behalf of the Company in
connection with any administrative or judicial tax proceeding to the
extent permitted by applicable law or the Regulations.
6.3 INDEMNITY OF TAX MATTERS MEMBER. The Company shall indemnify and
reimburse the Tax Matters Member for all reasonable expenses (including
reasonable legal and accounting fees) incurred as Tax Matters Member pursuant to
this Article 6 in connection with any administrative or judicial proceeding with
respect to the tax liability of the Members as long as the Tax Matters Member
has determined in good faith that its course of conduct was in, or not opposed
to, the best interest of the Company. The payment of all such expenses shall be
made before any Distributions are made to the Members. The taking of any action
and the incurring of any expense by the Tax Matters Member in connection with
any such proceeding, except to the extent provided herein or required by law, is
a matter in the sole discretion of the Tax Matters Member and the provisions on
limitations of liability of the Tax Matters Member and indemnification set forth
in Article 13 shall be fully applicable to the Tax Matters Member in its
capacity as such.
6.4 INFORMATION FURNISHED. To the extent and in the manner provided by
applicable law and Regulations, the Tax Matters Member shall furnish the name,
address, profits interest, and taxpayer identification number of each Member to
the Secretary.
6.5 NOTICE OF PROCEEDINGS, ETC. The Tax Matters Member shall use its
best efforts to keep each Member informed of any administrative and judicial
proceedings for the adjustment at the Company level of any item required to be
taken into account by a Member for income tax purposes or any extension of the
period of limitations for making assessments of any tax against a Member with
respect to any Company item, or of any agreement with the Internal Revenue
Service that would result in any material change either in income or loss as
previously reported.
6.6 NOTICES TO TAX MATTERS MEMBER. Any Member that receives a notice of
an administrative proceeding under Code Section 6233 relating to the Company
shall promptly notify the Tax Matters Member of the treatment of any Company
item on such Member's federal income tax return that is or may be inconsistent
with the treatment of that item on the Company's return. Any Member that enters
into a settlement agreement with the Secretary with respect to any Company item
shall notify the Tax Matters Member of such agreement and its terms within sixty
days after its date.
ARTICLE 7
FEES AND EXPENSES
7.1 COMPENSATION TO THE ADMINISTRATIVE MEMBER AND AFFILIATES. Neither
the Administrative Members nor any Affiliate of the Administrative Members shall
receive any
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compensation directly or indirectly in connection with the formation, operation
and dissolution of the Company except as expressly provided in this Agreement.
7.2 COMPANY EXPENSES. The Company shall pay or, if paid by the
Administrative Members, reimburse the Administrative Members for, all
expenditures that are made on behalf of the Company or by the Administrative
Members in connection with their duties pursuant to this Agreement (if and to
the extent such expenditures are approved by a Voting Majority, except that such
approval shall not be required for payments made to PricewaterhouseCoopers, LLP
in connection with such firm's preparation of the Company's financial statements
and any of its audits thereof), including without limitation: (i) all expenses
of legal, accounting, investment banking, consulting, research and other
professional services to the Company, travel and other out-of-pocket expenses
and filing and similar fees; (ii) all custody, transfer, registration and
similar expenses; (iii) all brokerage and finders' fees and commissions and
discounts incurred in connection with the purchase or sale of securities; (iv)
all extraordinary expenses, such as litigation expenses; and (v) all taxes (if
any). If any expenses of the Company are paid to an Affiliate of an
Administrative Member, such expenses shall be paid on a basis not less favorable
to the Company than such Affiliate would obtain in an arms' length transaction.
ARTICLE 8
DESIGNATION, RIGHTS, AND DUTIES
OF THE ADMINISTRATIVE MEMBERS
8.1 DESIGNATION. Each of Scott Watterson and Gary Stevenson is hereby
designated as an administrative member (each an "Administrative Member" and,
together, the "Administrative Members") of the Company with the powers set forth
in this Agreement. The Administrative Members, to the extent of their powers set
forth in this Agreement, are agents of the Company for the purpose of the
Company's business, and the actions of the Administrative Members taken in
accordance with such powers shall bind the Company. Except as otherwise
expressly provided in this Agreement, the Administrative Members, acting on
behalf of the Company, shall be the only Persons authorized to execute documents
which shall be binding on the Company.
8.2 AUTHORITY; DUTIES. The power and authority granted to, and the
duties undertaken by, the Administrative Members hereunder shall include only
(a) the power and duty to perform administrative functions necessary or
convenient for the furtherance of the purpose of the Company, including without
limitation the maintenance of complete and accurate books and records reflecting
all activities of the Company, the preparation and filing of necessary or
appropriate certificates, reports or other documents with regulatory or
administrative bodies, the preparation of reports for the Members, the
determination and (with the consent of a Voting Majority) payment of expenses of
the Company, the making of Short-Term Investments, and the execution of such
documents in connection with the making of the investment in HF Holdings as are
approved by a Voting Majority, including the Subscription
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Agreement and the Stockholders Agreement, (b) the power and duty to seek out and
provide advice to the Company concerning investments, including without
limitation advice regarding investment opportunities potentially available to
the Company, advice in connection with the structuring of any new or follow-on
investment or the complete or partial disposition of any investment, and advice
regarding the general management of the Company's investments, (c) the power to
execute such documents in connection with any new investment as are approved by
a Voting Majority, (d) the powers and/or duties specifically set forth in
Sections 2.2, 2.3, 2.7, 3.2, 3.4, 5.1, 5.3, 5.6, 5.7.3, 8.3, 10.2, 10.3 and 11.2
and (e) such other powers and/or duties as are approved by the holders of a
majority of each of the Class A Units and the Class B Units.
8.3 BUSINESS DECISIONS; VOTING SHARES OF HF HOLDINGS' CAPITAL STOCK.
(a) All business decisions of the Company, including without
limitation decisions with regard to the management, financing and capitalization
of the Company; approving any amendment or waiver to any of the Stockholders
Agreement or the Subscription Agreement; and the making and dispositions of
investments, including without limitation all capital stock of HF Holdings owned
by the Company (other than Short-Term Investments expressly permitted
hereunder); shall be made by a Voting Majority. The Administrative Members shall
notify the other Members when a business decision to be made arises, and the
Administrative Members shall have the power and the obligation to implement such
decision upon being so directed by a Voting Majority. If the Administrative
Members fail to implement a decision of a Voting Majority, a Member designated
by the Voting Majority may act on behalf of the Company for purposes of
implementing such decision.
(b) The Administrative Members shall notify each of the Voting
Members whenever any Person has requested that the Company vote the shares of HF
Holdings' common stock owned by the Company. A Voting Majority shall be entitled
to direct the Company on how to vote such shares (except as provided in Section
8.3(c) below). Notwithstanding anything contained herein to the contrary, in no
event shall the Administrative Members, acting in their capacity as such, have
any right to determine how the Company should vote any of the shares of HF
Holdings' capital stock owned by the Company.
(c) Holders of a majority of the Class A Units shall be
entitled to select two (2) of the seven (7) directors of HF Holdings to be
selected by the Company pursuant to the Stockholders Agreement. The remaining
five directors to be selected by the Company shall be selected by the holders of
a majority of the Class B Units (subject to Section 9.8.2).
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ARTICLE 9
TRANSFER OF INTERESTS
9.1 RESTRICTIONS ON TRANSFER. No Member shall have the right to
withdraw from the Company except as set forth in this Article 9. No Member shall
sell, assign, pledge, encumber, hypothecate, mortgage, exchange, give away,
dispose of or otherwise transfer, voluntarily or involuntarily by operation of
law, pursuant to judicial process or otherwise (herein, whether used as a noun
or a verb, collectively called a "Transfer"), all or any part of the economic or
other rights that comprise its Interest, except as permitted by this Article 9.
Any Transfer in contravention of any of the provisions of this Article 9 shall
be void and of no effect, and shall not bind or be recognized by the Company;
PROVIDED, HOWEVER, that nothing herein shall prevent or prohibit the transfer of
a CSFB Warrant in accordance with the terms thereof.
9.2 TRANSFERS UNDER THIS AGREEMENT, ETC. Any Member may Transfer any or
all of such Member's Units: (i) to the Company in one or more transactions
approved by a Voting Majority, (ii) to any holder of Class B Units in a
transaction approved by a Voting Majority or (iii) to HF Holdings pursuant to
any pledge agreement securing a debt obligation to HF Holdings.
9.3 TRANSFERS OF CLASS B UNITS TO PERMITTED TRANSFEREES. Any Member
holding Class B Units may Transfer any or all of such Class B Units to: (i) a
Bain Member or an Affiliated Fund, (ii) any trust established for the benefit of
partners of a Member holding Class B Units or an Affiliated Fund or pro rata to
the partners of a Member holding Class B Units or an Affiliated Fund; PROVIDED,
HOWEVER, that no such Transfer shall be effective until the recipient has
delivered to the Company a written acknowledgment and agreement in form and
substance reasonably satisfactory to the Company that any shares of stock of HF
Holdings to be distributed by the Company to such recipient shall be subject to
all the provisions of the Stockholders Agreement and that such recipient is
bound thereby and a party thereto to the same extent as the Member from whom the
Transfer was made.
9.4 TRANSFERS OF CLASS A UNITS OR CLASS C UNITS TO IMMEDIATE FAMILY.
Any individual Member holding Class A Units or Class C Units may Transfer any or
all of such Class A Units or Class C Units to a Member of the Immediate Family
of such Member; PROVIDED, HOWEVER, that no such Transfer shall be effective
until such Member of the Immediate Family has delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory to
the Company that any shares of stock of HF Holdings to be distributed by the
Company to such Member of the Immediate Family shall be subject to all the
provisions of the Stockholders Agreement and that such Member of the Immediate
Family is bound thereby and a party thereto to the same extent as the Member
from whom the Transfer was made.
9.5 TRANSFERS OF CLASS A UNITS OR CLASS C UNITS UPON DEATH. Upon the
death of any individual Member holding Class A Units or Class C Units, the Units
held by such Member may be distributed by will or other instrument taking effect
at death or by applicable laws of descent and distribution to such Member's
estate, executors, administrators and
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personal representatives, and then to such Member's heirs, legatees or
distributees, whether or not such recipients are Members of the Immediate Family
of such Member; PROVIDED, HOWEVER, that no such Transfer shall be effective
until the recipient has delivered to the Company a written acknowledgment and
agreement in form and substance reasonably satisfactory to the Company that any
shares of stock of HF Holdings to be distributed by the Company to such
recipient shall subject to all the provisions of the Stockholders Agreement and
that such recipient is bound thereby and a party thereto to the same extent as
the Member from whom the Transfer was made.
9.6 TRANSFERS OF CLASS A UNITS OR CLASS C UNITS TO CHARITIES. Any
Member holding Class A Units or Class C Units may Transfer as a charitable gift
any or all of such Units to any Person which is described in Section 501(c)(3)
of the Internal Revenue Code of 1986, as from time to time in effect; PROVIDED,
HOWEVER, that no such Transfer shall be effective until such transferee has
delivered to the Company a written acknowledgment and agreement in form and
substance reasonably satisfactory to the Company that any shares of stock of HF
Holdings to be distributed by the Company to such transferee shall be subject to
all the provisions of the Stockholders Agreement and that such transferee is
bound thereby and a party thereto to the same extent as the Member from whom the
Transfer was made.
9.7 TRANSFERS OF UNITS TO ENTITIES UNDER COMMON CONTROL. Any Member
which is an institutional investor may Transfer any or all of its Units to a
Person under common control with such Member in a bona fide transfer not part of
a transaction or series of transactions that results in the direct or indirect
transfer of such Units to a Person not under common control with such holder;
PROVIDED, HOWEVER, that no such Transfer shall be effective until such
transferee under common control has delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory to
the Company that any shares of stock of HF Holdings to be distributed by the
Company to such transferee shall be subject to all the provisions of the
Stockholders Agreement and that such transferee is bound thereby and a party
thereto to the same extent as the Member from whom the Transfer was made.
9.8 BAIN SELL DOWN. Until the sixtieth (60th) day following the date of
this Agreement, the Bain Members may Transfer some or all of their Units to
their designees. The Units received by such designees shall be deemed Class B
Units or Class C Units, as designated by Bain.
9.8.1 DIRECTORS. The Bain Members may assign, by voting
agreement or other means, to assignees the right to designate up to two
(2) directors otherwise designable by them pursuant Section 8.3(c) by
virtue of their ownership of Class B Units.
9.8.2 PROFIT. The Bain Members may assign at a price different
than the price paid by the Bain Members.
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9.9 EFFECTIVENESS OF TRANSFERS. No Transfer under this Article 9 shall
be effective until the transferee shall have executed and delivered to the
Company a written acknowledgment and agreement in form and substance reasonably
satisfactory to the Company that such transferee is bound by this Agreement and
a party hereto to the same extent as the Member from whom the Transfer was made.
9.10 MANAGEMENT ROLL-OVER. The Members agree to take whatever actions
may be reasonably necessary or appropriate in order to effectuate the
"Management Roll-Over" provisions contained in Sections 6.3 and 7.3 of the
Stockholders Agreement and the "Special Management Cut-Back" provisions
contained in Section 8.3.1.3 of the Stockholders Agreement, provided that such
provisions shall first affect shares of HF Holdings owned by the Company, other
than shares subject to the CSFB Option or a Junior Management Option.
9.11 LIMITATIONS ON REDEMPTION. No Member may redeem all or a portion
of its HF Units prior to a Liquidity Event without the prior consent of the
holders of a majority of Class A Units and the holders of a majority of the
Class B Units.
ARTICLE 10
BOOKS, RECORDS, ACCOUNTING, AND REPORTS
10.1 BOOKS AND RECORDS. The Company shall maintain at its principal
office all of the following:
10.1.1 A current list of the full name and last known
business, residential or mailing address of each Member, together with
true and full information regarding the amount of cash and a
description and statement of the fair market value (as agreed upon by
the contributing Member and the Administrative Members, with the
consent of a Voting Majority, at the time of contribution) of any other
contribution to the Company by each Member and which each Member has
agreed to contribute to the Company in the future, and the date on
which each Member became a Member of the Company;
10.1.2 A copy of the Certificate, this Agreement, including
any and all amendments to either thereof, together with executed copies
of any powers of attorney pursuant to which the Certificate, this
Agreement or any amendment has been executed;
10.1.3 Copies of the Company's federal, state, and local
income tax or information returns and reports, if any, for the six (6)
most recent Fiscal Years;
10.1.4 The financial statements of the Company for the six (6)
most recent Fiscal Years; and
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10.1.5 The Company's books and records for at least the
current and past five (5) Fiscal Years.
10.2 INFORMATION TO MEMBER. Upon the request of any Member for any
purpose reasonably related to such Member's Interest in the Company:
10.2.1 The Administrative Members shall promptly deliver to
the requesting Member, at the expense of the Company, a copy of the
information required to be maintained by Sections 10.1.1 through
10.1.4.
10.2.2 The Company will permit the Members to review, at the
Company's office during normal business hours, the Company's books and
records referred to in Section 10.1.5.
10.2.3 The Administrative Members will discuss with any Member
such questions as the Member may wish to raise regarding the
administrative affairs of the Company.
10.2.4 The Company will provide any Member, at such Member's
expense if the expense of obtaining or producing such information is
material, such other information regarding the business affairs of the
Company as is reasonable under the circumstances.
10.3 FINANCIAL STATEMENTS.
10.3.1 The Administrative Members shall maintain or cause to
be maintained books of account reflecting the operations of the
Company. After the end of each Fiscal Year, the Administrative Members
shall prepare or cause to be prepared financial statements of the
Company for such year and shall cause an audit of the Company's
financial statements for such year to be made by
PricewaterhouseCoopers, LLP or another firm of independent public
accountants of recognized national standing approved by a Voting
Majority. Such financial statements shall be prepared in accordance
with generally accepted accounting principles. The Administrative
Members shall use their best efforts to cause a copy of the audited
financial statements to be delivered to each of the Members within
ninety (90) days of the end of such fiscal year.
10.3.2 The Administrative Members shall promptly furnish to
each Member copies of any financial statements and any other material
information it receives with respect to HF Holdings and its
subsidiaries.
10.4 FILINGS. At the Company's expense the Tax Matters Member shall
cause to be prepared and timely filed, with appropriate federal, state, local
and foreign regulatory and
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administrative bodies, all income tax returns and any other reports required to
be filed by the Company with those entities under then current applicable laws,
rules, and regulations. The reports shall be prepared on the accounting or
reporting basis required by the regulatory bodies. In particular, the Tax
Matters Member shall have prepared by PricewaterhouseCoopers, LLP, or another
firm of independent public accountants of recognized national standing approved
by a Voting Majority, the appropriate federal, state and local income tax
returns of the Company and shall furnish the appropriate informational tax
returns to each Member as soon as practicable after March 15 of each year.
10.5 NON-DISCLOSURE. Each Member agrees that, except as otherwise
consented to by a Voting Majority, all non-public information furnished to it
pursuant to this Agreement will be kept confidential and will not be disclosed
by such Member, or by any of its agents, representatives, or employees, in any
manner whatsoever, in whole or in part, except that (a) each Member shall be
permitted to disclose such information to those of its agents, attorneys,
accountants, financial and business consultants, other representatives, and
employees who need to be familiar with such information in connection with such
Member's investment in the Company and who are charged with an obligation of
confidentiality, (b) the Bain Members shall be permitted to disclose such
information to financial institutions, investment bankers and prospective
purchasers and capital investors when such Persons are charged with an
obligation of confidentiality, (c) each Member shall be permitted to disclose
such information to its members, partners and stockholders and their members,
partners and stockholders so long as they agree to keep such information
confidential on the terms set forth herein, (d) each Member shall be permitted
to disclose information to the extent required by law, so long as such Member
shall have first afforded the Company with a reasonable opportunity to contest
the necessity of disclosing such information, and (e) each Member shall be
permitted to disclose information to the extent necessary for the enforcement of
any right of such Member arising under this Agreement. No Member shall disclose
the terms of this Agreement to any Person except (i) to the extent required by
law or (ii) for legitimate business purposes.
ARTICLE 11
AMENDMENTS TO AGREEMENT
11.1 AMENDMENTS. This Agreement may be amended or modified only with
the prior written consent of (i) holders of a majority of the Class A Units,
(ii) holders of a majority of the Class B Units (which majority must include
Bain) and (iii) holders of a majority of the Class C Units (treating, solely for
this purpose, the CSFB Warrant as representing the Class C Units associated
therewith only to the extent that the proposed amendment or modification could
significantly and adversely affect the rights or preferences of the CSFB Warrant
or the Class C Units), which consent shall not be unreasonably withheld or
delayed by any Member; PROVIDED, that the prior written consent of all of the
Members shall be required for any amendment or modification of Section 5.1, 5.5,
or 11.1 hereof; PROVIDED, FURTHER, that the prior written consent of
Inverness/Phoenix Capital LLC shall be required for any amendment or
modification of the restrictions on transfer of Class B Units contained in
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Article 9. Notwithstanding the foregoing provisions of this Section 11.1, this
Agreement may be amended or modified with the prior written consent of Bain and
CSFB, and without the consent of any other Member, to the extent reasonably
necessary or desirable to cause this Agreement adequately to embody the "Intent
of the Parties," as defined in that certain letter agreement dated September 27,
1999 between Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P. and CSFB,
provided, that, no such amendment shall adversely affect the rights of any Class
of HF Units without the consent of the holders of a majority thereof. Any
amendment or modification of this Agreement pursuant to this Section 11.1 shall
be binding on all Members.
11.2 FILINGS. The Administrative Members shall cause to be prepared and
filed any amendment to the Certificate that may be required to be filed under
the Act as a consequence of any amendment to this Agreement.
ARTICLE 12
DISSOLUTION OF COMPANY
12.1 EVENTS OF DISSOLUTION OR LIQUIDATION. The Company shall be
dissolved upon the first to occur of the following events, but not upon any
other event: (a) December 31, 2024 unless such date is extended pursuant to
Section 2.4, (b) the written determination of the holders of a majority of each
of the Class A Units and Class B Units, (c) the entry of a decree of judicial
dissolution under Section 18-802 of the Act or (d) the disposition of all of the
Company's assets.
12.2 LIQUIDATION. Upon dissolution of the Company for any reason, the
Company shall immediately commence to wind up its affairs. A reasonable period
of time shall be allowed for the orderly termination of the Company's business,
discharge of its liabilities, and distribution or liquidation of the remaining
assets so as to enable the Company to minimize the normal losses attendant to
the liquidation process. The Company's property and assets or the proceeds from
the liquidation thereof shall be distributed so as not to contravene the Act but
otherwise in compliance with Section 5.1; PROVIDED, HOWEVER, that Distributions
to Members shall be made after their Capital Accounts (and Sub-Capital Accounts)
have been adjusted to reflect all Net Profits and Net Losses (and amounts
treated as Net Profits and Losses pursuant to Sections 3.4 and 3.5) of the
Company through the date of distribution. A full accounting of the assets and
liabilities of the Company shall be taken and a statement thereof shall be
furnished to each Member within thirty (30) days after the distribution of all
of the assets of the Company. Such accounting and statements shall be prepared
under the direction of the Administrative Members with the consent of a Voting
Majority. Upon such final accounting, the Company shall terminate and an
authorized person, appointed pursuant to Section 2.7, shall cancel the
Certificate in accordance with the Act.
12.3 NO FURTHER CLAIM. Upon dissolution, each Member shall look solely
to the assets of the Company for the return of its Capital Contributions, and if
the Company's
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property remaining after payment or discharge of the debts and liabilities of
the Company, including debts and liabilities owed to one or more of the Members,
is insufficient to return the aggregate Capital Contributions of each Member,
such Members shall have no recourse against the Company or any other Member
except to the extent that Member has received Distributions in excess of those
to which such Member was entitled to under the terms of this Agreement.
12.4 NO ACTION FOR DISSOLUTION. The Members acknowledge that
irreparable damage would be done to the Company if any Member should bring an
action in court to dissolve the Company under circumstances where dissolution is
not required by Section 12.1. This Agreement has been drawn carefully to provide
fair treatment of all parties and equitable payment in liquidation of the
Interests of all Members. Accordingly, except where the Company has not been
liquidated as required by Section 12.1 and except as specifically provided in
Section 18-802 of the Act, each Member hereby waives and renounces its right to
initiate legal action to seek dissolution or to seek the appointment of a
receiver or trustee to liquidate the Company.
ARTICLE 13
INDEMNIFICATION
13.1 GENERAL. Neither the Administrative Members nor any holder of
Class B Units nor any director, officer, partner, stockholder, affiliate,
fiduciary, agent, advisor, attorney, controlling person or employee of the
Administrative Members or any holder of Class B Units, nor any person serving at
the request of the Company as a director, officer, employee, partner, trustee or
independent contractor of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise (all of the foregoing persons
and entities being referred to collectively as "Indemnified Parties" and
individually as an "Indemnified Party") shall be liable to the Company or any
Member for any act or omission suffered or taken by it that is not in material
violation of this Agreement and does not constitute fraud, gross negligence or
willful misconduct, and with respect to any criminal action or proceeding,
without reasonable cause to believe that its conduct was unlawful.
13.2 INDEMNIFICATION. To the maximum extent permitted by applicable
law, each Indemnified Party shall be fully protected and indemnified by the
Company out of Company assets against all liabilities and losses (including
amounts paid in respect of judgments, fines, penalties or settlement of
litigation, and legal fees and expenses reasonably incurred in connection with
any pending or threatened litigation or proceeding) suffered by virtue of its
serving as an Indemnified Party with respect to any action or omission suffered
or taken that is not in material violation of this Agreement and does not
constitute fraud, gross negligence or willful misconduct, and with respect to
any criminal action or proceeding, without reasonable cause to believe its
conduct was unlawful. The Company may, with the consent of a Voting Majority,
advance expenses, including legal fees, for which any Indemnified Party would be
entitled by this Agreement to be indemnified upon receipt of an unsecured
undertaking by such
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Indemnified Party to repay such advances if it is ultimately determined by a
court of proper jurisdiction that indemnification for such expenses is not
permitted by law or authorized by this Agreement. Each Indemnified Party may
consult with recognized, outside legal counsel selected by the Company, and any
action or omission taken or suffered in good faith in reliance and accordance
with the opinion or advice of such counsel shall be conclusive evidence that
such action or omission did not materially violate this Agreement, did not
constitute fraud, gross negligence or willful misconduct, and with respect to
any criminal action or proceeding, was suffered or taken without reasonable
cause to believe its conduct was unlawful. Unless there is a specific finding of
fraud, gross negligence, willful misconduct or reasonable cause to believe that
its conduct was unlawful (or where such a finding is an essential element of a
judgment or order), the termination of any action, suit or proceeding by
judgment, order or settlement, or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption for the purposes of this
Section 13.2 that the person or entity in question acted fraudulently, was
grossly negligent or engaged in willful misconduct, or with respect to any
criminal action or proceeding, had reasonable cause to believe that its conduct
was unlawful.
ARTICLE 14
REPRESENTATIONS BY THE MEMBERS
Each Member hereby represents and warrants to, and agrees with, the
other Member or Members and the Company as set forth below.
14.1 INVESTMENT INTENT. It is acquiring its Interest with the intent of
holding the same for investment for its own account and without the intent or a
view of participating directly or indirectly in any distribution of such
Interests within the meaning of the Securities Act or any applicable state
securities laws.
14.2 SECURITIES REGULATION. It is an accredited investor as such term
is defined in Regulation D promulgated pursuant to Section 4(2) of the
Securities Act. It acknowledges and agrees that its Interest is being issued and
sold in reliance on the exemption from registration contained in Section 4(2) of
the Securities Act and exemptions contained in applicable state securities laws,
and that its Interest cannot and will not be sold or transferred except in a
transaction that is exempt under the Securities Act and those state acts or
pursuant to an effective registration statement under the Securities Act and
those state acts or in a transaction that is otherwise in compliance with the
Securities Act and those state acts. It understands that it has no contractual
right for the registration under the Securities Act of its Interest for public
sale and that, unless its Interest is registered or an exemption from
registration is available, its Interests may be required to held indefinitely.
14.3 KNOWLEDGE AND EXPERIENCE. It has such knowledge and experience in
financial, tax, and business matters as to enable it to evaluate the merits and
risks of its investment in the Company and, through its Interest in the Company,
in HF Holdings, and to make informed
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investment decisions with respect thereto. It has, based on its own
investigation of HF Holdings, made its own independent analysis of the
likelihood of success of the Company's investments in HF Holdings.
14.4 INDEPENDENT INVESTMENT DECISION. It acknowledges that it has
independently and without reliance upon the Administrative Members, made its own
analysis and decision to enter into this Agreement and to make the investments
provided for hereunder. It acknowledges that the Administrative Members have not
acted as investment advisers with respect to it in connection with its
investment in the Company or the investments contemplated by the Company and
that the Administrative Members have provided no advice or information with
respect to the value of an investment in the Company or in the investments
contemplated by the Company or with respect to the advisability of investing in,
purchasing or selling an Interest in the Company or in the investments
contemplated by the Company. Each Member represents to the Administrative
Members that such Member will continue to make its own independent analysis and
other decisions in taking or not taking action under this Agreement, including
without limitation decisions relating to the disposition of the Company's
investments in HF Holdings. Each Member expressly acknowledges that neither the
Administrative Members nor any of their officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Member in connection with its investment in the Company or the investments
contemplated by the Company, and no act by the Administrative Members taken
under this Agreement or any other document, shall be deemed to constitute any
representation or warranty by the Administrative Members to such Member in
connection with its investment in the Company or the investments contemplated by
the Company. Except for notices, reports and other documents expressly required
to be furnished to each Member by the Administrative Members under this
Agreement, the Administrative Members shall not have any duty or responsibility
to provide any Member with any information concerning the business, operations,
property, condition, financial or otherwise, of HF Holdings which may come into
the possession of the Administrative Members or any of their officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
14.5 ECONOMIC RISK. It is able to bear the economic risk of its
investment in the Company, confirms that it has no current need for cash from
its investment in the Company in order to service any of its other obligations
whether such other obligations were used to finance its investment in the
Company or for other purposes and recognizes that there is a reasonable
possibility of the loss of all or a substantial portion of its investment in the
Company.
14.6 BINDING AGREEMENT. It has all requisite power and authority to
enter into and perform this Agreement and that this Agreement is and will remain
its valid and binding agreement, enforceable in accordance with its terms
(subject, as to the enforcement of remedies, to any applicable bankruptcy,
insolvency, or other laws affecting the enforcement of creditors' rights).
-29-
<PAGE>
14.7 TAX POSITION. Unless it provides prior written notice to the
Company, it will not take a position on its federal or state income tax return,
in any claim for refund, or in any administrative or legal proceedings that is
inconsistent with the characterization of the Company as a partnership for
federal and state income tax purposes, any information return filed by the
Company or the provisions of this Agreement.
14.8 INFORMATION. It has received all documents, books, and records
pertaining to an investment in the Company requested by it. It has had a
reasonable opportunity to ask questions of and receive answers concerning the
Company, and all such questions have been answered to its satisfaction.
ARTICLE 15
COMPANY REPRESENTATIONS
In order to induce the Members to enter into this Agreement and to make
the Capital Contributions contemplated hereby, the Company hereby represents and
warrants to each Member as follows:
15.1 LEGAL EXISTENCE. The Company is a duly formed and validly existing
limited liability company under the Act and the Certificate has been duly filed
as required by the Act. The Company has all necessary power and authority under
the Act to issue the Interests to be issued to the Members hereunder.
15.2 VALID ISSUANCE. When an Interest is issued to the Member as
contemplated by this Agreement and the Capital Contributions required to be made
by such Member are made, the Interest issued to the Member will be duly and
validly issued and except as specifically provided in the Agreement, no
liability for any additional capital contributions or for any obligations of the
Company will attach thereto.
15.3 OPTIONS, ETC. Except as set forth in this Agreement, the Company
does not have outstanding (a) any rights or options to subscribe for or purchase
any Interests in the Company, (b) any warrants or other agreements providing for
or requiring the issuance of Interests in the Company to any Person, or (c) any
obligation to purchase or otherwise acquire any Interests in the Company.
ARTICLE 16
MISCELLANEOUS
16.1 ADDITIONAL DOCUMENTS. At any time and from time to time after the
date of this Agreement, upon the request of the Administrative Members with the
consent of a Voting Majority, each Member shall do and perform, or cause to be
done and performed, all such additional acts and deeds, and shall execute,
acknowledge, and deliver, or cause to be
-30-
<PAGE>
executed, acknowledged, and delivered, all such additional instruments and
documents, as may be required to effectuate the purposes and intent of this
Agreement.
16.2 GENERAL. This Agreement: (a) shall be binding upon the executors,
administrators, estates, heirs, and legal successors and assigns of the Members;
(b) shall be governed by and construed in accordance with the domestic
substantive laws of the State of Delaware without giving effect to any choice or
conflict of laws provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction; (c) may be executed in more
than one counterpart as of the day and year first above written; and (d)
contains the entire contract among the Members as to the subject matter hereof.
The waiver of any of the provisions, terms, or conditions contained in this
Agreement shall not be considered as a waiver of any of the other provisions,
terms, or conditions hereof.
16.3 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or receipt (which may be evidenced by a return receipt if
sent by registered mail or by signature if delivered by courier or delivery
service), addressed as set forth below, or at such other address as such Person
shall have furnished to the Company in writing as the address to which notices
are to be sent hereunder: (a) if to any Member (other than the Administrative
Members) to such Member at the address of such Member in the records of the
Company, and (b) if to an Administrative Member, to such Administrative Member
at ICON Health & Fitness, Inc., 875 South Main Street, Logan, Utah 84321.
16.4 APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to the
conflict of laws principles thereof.
16.5 CONSENT TO JURISDICTION. Each party to this Agreement, by its
execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction
of the state courts of the State of New York sitting in the County of New York
or the United States District Court for the Southern District of New York for
the purpose of any action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof, (b) hereby waives to
the extent not prohibited by applicable law, and agrees not to assert, and
agrees not to allow any of its subsidiaries to assert, by way of motion, as a
defense or otherwise, in any such action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Agreement or the
subject matter hereof or thereof may not be enforced in or by such court and (c)
hereby agrees not to commence or maintain any action, claim, cause of action or
suit (in contract, tort or otherwise), inquiry, proceeding or investigation
arising out of or based upon this Agreement or relating to the subject matter
hereof or thereof other than before one of the above-named courts nor to make
any motion or take any other action seeking or intending to cause the
-31-
<PAGE>
transfer or removal of any such action, claim, cause of action or suit (in
contract, tort or otherwise), inquiry, proceeding or investigation to any court
other than one of the above-named courts whether on the grounds of inconvenient
forum or otherwise. Notwithstanding the foregoing, to the extent that any party
hereto is or becomes a party in any litigation in connection with which it may
assert indemnification rights set forth in this agreement, the court in which
such litigation is being heard shall be deemed to be included in clause (a)
above. Each party hereto hereby consents to service of process in any such
proceeding in any manner permitted by New York law, and agrees that service of
process by registered or certified mail, return receipt requested, at its
address specified pursuant to Section 16.3 hereof is reasonably calculated to
give actual notice. The provisions of this Section 16.5 shall not restrict the
ability of any party to enforce in any court any judgment obtained in the
federal or state courts of the State of New York.
16.6 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE
LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT
IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF
ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR
INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING.
EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES
HERETO THAT THIS SECTION 16.6 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY
ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 16.6 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.
16.7 GENDER AND NUMBER. Whenever required by the context, as used in
this Agreement the singular number shall include the plural, the plural shall
include the singular, and all words herein in any gender shall be deemed to
include the masculine, feminine and neuter genders.
16.8 SEVERABILITY. If any provision of this Agreement is determined by
a court to be invalid or unenforceable, that determination shall not affect the
other provisions hereof, each of which shall be construed and enforced as if the
invalid or unenforceable portion were not contained herein. That invalidity or
unenforceability shall not affect any valid and enforceable application thereof,
and each said provision shall be deemed to be effective, operative, made,
entered into or taken in the manner and to the full extent permitted by law.
-32-
<PAGE>
16.9 HEADINGS. The headings used in this Agreement are used for
administrative convenience only and do not constitute substantive matter to be
considered in construing the terms of this Agreement.
16.10 TAX STATUS. The Members intend that the Company be treated as a
partnership for federal and state income tax purposes and the Company shall file
all tax returns on the basis consistent therewith.
16.11 NO THIRD PARTY RIGHTS. The provisions of this Agreement are for
the benefit of the Company, the Members and permitted transferees described in
Article 9, and no other Person, including creditors of the Company shall have
any right or claim against the Company or any Member by reason of this Agreement
or any provision hereof or be entitled to enforce any provision of this
Agreement.
[The remainder of this page has intentionally been left blank.]
-33-
<PAGE>
[HF Investment Holdings, LLC Agreement]
IN WITNESS WHEREOF, the parties have executed this Limited Liability
Company Agreement as of the day and year first set forth above.
BAIN CAPITAL FUND IV, L.P.
By Bain Capital Partners IV, L.P., a
Delaware Limited Partnership,
its general partner
By Bain Capital Investors, Inc.,
its general partner
By_____________________________________
Title:
BAIN CAPITAL FUND IV-B, L.P.
By Bain Capital Partners IV, L.P., a
Delaware Limited Partnership,
its general partner
By Bain Capital Investors, Inc.,
its general partner
By______________________________________
Title:
BCIP ASSOCIATES
By_______________________________________
Title: a general partner
BCIP TRUST ASSOCIATES, L.P.
By_______________________________________
Title: a general partner
<PAGE>
[HF Investment Holdings, LLC Agreement]
____________________________________
Gary Stevenson
____________________________________
Scott Watterson
<PAGE>
[HF Investment Holdings, LLC Agreement]
INVERNESS/PHOENIX CAPITAL LLC
By_____________________________________
Title: Managing Director
<PAGE>
[HF Investment Holdings, LLC Agreement]
____________________________________
Stanley C. Tuttleman
<PAGE>
[HF Investment Holdings, LLC Agreement]
____________________________________
Lee Ming Tsung
<PAGE>
[HF Investment Holdings, LLC Agreement]
____________________________________
Wen-Chung Ko
<PAGE>
EXHIBIT 1
DEFINED TERMS
"ACT" shall mean the Delaware Limited Liability Company Act (6 DEL. C.
ss. 18-101, ET SEQ.) as amended and in effect from time to time.
"ADMINISTRATIVE MEMBER" is defined in Section 8.1.
"AFFILIATE" shall mean, with respect to any specified Person, any
Person that directly or through one or more intermediaries controls or is
controlled by or is under common control with the specified Person. As used in
this definition, 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 ownership of voting securities, by
contract or otherwise.
"AFFILIATED FUND" shall mean any limited partnership or other Person
formed for the purpose of investing in other companies or businesses and for
which Bain Capital Investors, Inc., a Delaware corporation, or any of its
Affiliates, acts as a general partner or otherwise has the right to direct the
voting of shares of corporations in which such limited partnership or other
Person invests.
"AGREEMENT" shall mean the Amended and Restated Limited Liability
Company Agreement of the Company dated as of September 27, 1999, as amended from
time to time.
"ASSET VALUE" of any property of the Company shall mean its adjusted
basis for federal income tax purposes unless:
(1) the property was accepted by the Company as a contribution to
capital at a value different than its adjusted basis in which
event the initial Asset Value for such property shall mean the
gross fair market value of the property agreed to at the time
of contribution by the Administrative Members, with the
consent of a Voting Majority, and the contributing Member;
(2) as a consequence of the issuance of additional Units or the
redemption of all or part of the Interest of a Member, the
property of the Company is revalued in accordance with Section
3.4.
As of any date references to the "then prevailing Asset Value" of any
property shall mean the Asset Value last determined for such property less the
depreciation, amortization and cost recovery deductions taken into account in
computing Net Profit or Net Loss in fiscal periods subsequent to such prior
determination date.
<PAGE>
"AVAILABLE CASH" is defined in Section 5.1.1.
"BAIN" shall mean Bain Capital Fund IV, L.P.
"BAIN MEMBERS" shall mean Bain, Bain Capital Fund IV-B, L.P., BCIP
Associates and BCIP Trust Associates, L.P.
"BHCA" shall have the meaning specified in the CSFB Warrant(s).
"BUSINESS DAY" shall mean a day when national banks are open for
business in Boston and New York City.
"CAPITAL ACCOUNT" is defined in Section 3.3.
"CAPITAL CONTRIBUTION" shall mean with respect to any Member, the
amount of cash and the fair market value (as agreed upon by the contributing
Member and the Administrative Members, with the consent of a Voting Majority, at
the time of contribution) of any other property contributed to the Company with
respect to the Interest held by such Member.
"CERTIFICATE" shall mean the Certificate of Formation of the Company
filed on September 1, 1999 and any and all amendments thereto and restatements
thereof filed on behalf of the Company as permitted hereunder with the office of
the Secretary of State of the State of Delaware.
"CLASS" is defined in Section 3.1.
"CLASS A PERCENTAGE" shall mean that percentage equal to the PRODUCT OF
(a) a fraction, (I) the numerator of which is 4.4823% ((4.3333%/96.6667%)
multiplied by (10,000,000/10,002,854)) and (II) the denominator of which is the
percentage of outstanding shares of HF Holdings common stock immediately after
the Closing Date represented by shares held by the Company that are not subject
to either the Junior Management Option or the CSFB Option (treating as
outstanding shares of HF Holdings common stock for purposes of this definition
(i) all shares that would be received upon exercise of the warrants issued on
the Closing Date in exchange for (A) 13% Senior Subordinated Notes due 2002 of
Icon Health & Fitness, Inc., (B) 15% Senior Secured Discount Notes due 2004 of
IHF Holdings, Inc. and (C) 14% Senior Discount Notes due 2006 of ICON Fitness
Corporation and (ii) the shares that would be received upon conversion of that
certain note issued on the Closing Date by HF Holdings to CSFB and having a
maturity date of September 27, 2011) AND (b) 100.
"CLASS A UNIT", "CLASS B UNIT" and "CLASS C UNIT" are each defined in
Section 3.1.
"CLOSING DATE" shall mean September 27, 1999.
-2-
<PAGE>
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the corresponding provisions of any future federal tax law.
"COMPANY" shall mean the limited liability company formed pursuant to
the Act and this Agreement and by filing the Certificate in accordance with the
Act.
"CSFB" is defined in Section 3.7.
"CSFB ACCOUNT DISTRIBUTION FRACTION" means, in respect of a CSFB
Warrant Account, a fraction, the numerator of which is the number of HF Units
received upon the exercise of all or a portion of the CSFB Warrant in respect of
which such account was established, and the denominator of which is the
aggregate number of HF Units for which the CSFB Warrant in respect of which such
Account was established was exercisable as of immediately prior to such
exercise.
"CSFB OPTION" shall mean that certain option granted by the Company as
of the Closing Date to CSFB pursuant to Section 5.2 of the Stockholders
Agreement.
"CSFB WARRANT" is defined in Section 3.7.
"CSFB WARRANT ACCOUNT" shall mean an account of the Company established
and maintained for the purpose of holding all non-cash assets allocated to such
account pursuant to Section 5.1.3(b), and all earnings in respect thereof, until
such time as distributions from such account are required to be made pursuant to
Section 5.1.4(b) and Section 5.1.4(c). No holder of a CSFB Warrant in respect of
which a CSFB Warrant Account has been established shall have any right to
receive distributions from the CSFB Warrant Account except as contemplated by
Section 5.1.4(b) and Section 5.1.4(c) and, until distributed in accordance with
Section 5.1.4(b) or Section 5.1.4(c), all assets of such account shall
constitute assets of the Company and remain fully subject to the claims of the
Company's creditors. All earnings in respect of the assets of the account shall
be credited to the account.
"DISTRIBUTION" shall mean the amount of cash and the fair market value
(as agreed upon by the Member to whom the Distribution is made and the
Administrative Members, with the consent of a Voting Majority, at the time of
distribution) of any other property distributed to a Member in respect of the
Member's Interest in the Company.
"FISCAL YEAR" shall mean the fiscal year of the Company which shall end
on December 31 in each year or on such other date in each year as is required by
Code Section 706 and the regulations thereunder.
"FREE SHARES" is defined in Section 5.1.1.
-3-
<PAGE>
"HF CLASS A UNIT", "HF CLASS B UNIT" and "HF CLASS C UNIT" are each
defined in Section 3.1.
"HF HOLDINGS" shall mean HF Holdings, Inc., a Delaware corporation.
"HF UNITS" shall mean HF Class A Units, HF Class B Units and HF Class C
Units.
"HOLDER TRANSFEREE" shall have the meaning specified in the CSFB
Warrant(s).
"IBA" shall have the meaning specified in the CSFB Warrant(s).
"IMPERMISSIBLE PORTION" is defined in Section 5.1.3(b).
"INDEMNIFIED PERSONS" is defined in Section 13.2.
"INTEREST" shall mean the entire interest of a Member in the capital
and profits of the Company, including the right of such Member to any and all
benefits to which a Member may be entitled as provided in this Agreement,
together with the obligations of such Member to comply with all the terms and
provisions of this Agreement. Each Member's Interest shall be represented by
Class A, Class B and/or Class C Units.
"JUNIOR MANAGEMENT OPTION" shall mean each option granted by the
Company as of the Closing Date to a management-level employee (other than Scott
Watterson or Gary Stevenson) of ICON Health and Fitness, Inc. pursuant to
Section 5.1 of the Stockholders Agreement.
"LIQUIDITY EVENT" shall have the meaning set forth in the Stockholders
Agreement.
"MEMBERS OF THE IMMEDIATE FAMILY" shall mean, with respect to any
individual, each spouse, parent, brother, sister or child of such individual,
each spouse of any such Person, each child of any of the aforementioned Persons,
each trust created solely for the benefit of one or more of the aforementioned
Persons and each custodian or guardian of any property of one or more of the
aforementioned Persons in his capacity as such custodian or guardian.
"MEMBERS" (i) shall mean the Persons listed as members on the signature
page to the Agreement and any other Person that both acquires an Interest in the
Company and is admitted to the Company as a Member pursuant to the Agreement and
(ii) for purposes of Sections 3.3, 3.4, 3.5, 3.6, 5.3, 5.4, 5.5, 5.6, 5.7, 6.2,
6.4, 6.5, 10.3, 10.4 and 11.1, shall also mean any permitted holder of a CSFB
Warrant, which holder shall be treated, for purposes of these sections, as
holding a number of HF Units equal to the number of HF Units for which the CSFB
Warrant held by it is then exercisable and shall be treated for purposes of
these Sections as having made a Capital Contribution equal to the purchase price
for the CSFB Warrant held by it.
-4-
<PAGE>
"NET PROFIT" and "NET LOSS" are defined in Section 5.5.
"OPTION SHARES" is defined in Section 5.1.1.
"ORIGINAL MEMBERS" shall mean Gary Stevenson, Scott Watterson, the Bain
Members, each other Member becoming a party to this Agreement on the date hereof
and, for purposes of Article 5 hereof, each transferee thereof.
"PERSON" shall mean an individual, partnership, joint venture,
association, corporation, trust, estate, limited liability company, limited
liability partnership, or any other legal entity.
"RELEASED SHARES" is defined in Section 5.1.1.
"RESIDUAL PERCENTAGE" shall mean one hundred percent (100%) minus the
Class A Percentage.
"RIGHTS" is defined in Section 3.7.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHORT-TERM INVESTMENTS" shall mean (i) repurchase agreements arranged
by Brown Brothers Harriman & Co. on behalf of the Company and secured by direct
obligations of, or obligations which are guaranteed by, the United States of
America, or (ii) such other investments determined by a Voting Majority. The
Administrative Members shall not have discretion with respect to the terms of,
or counterparties to, any repurchase agreements entered into by the Company
referred to in the foregoing clause (i). Notwithstanding anything contained
herein to the contrary, in no event shall any investment in HF Holdings be
deemed to be a "Short-Term Investment" for purposes of this Agreement.
"STOCKHOLDERS AGREEMENT" shall mean the Stockholders Agreement dated
the Closing Date among HF Holdings, ICON Health & Fitness, Inc., the Company and
certain other equityholders of HF Holdings.
"SUB-CAPITAL ACCOUNT" is defined in Section 3.3.
"SUBSCRIPTION AGREEMENT" shall mean the Subscription Agreement dated
the Closing Date to which the Company is party relating to the purchase of stock
of HF Holdings.
"TAX MATTERS MEMBER" is defined in Section 6.1.
"TRANSFER" is defined in Section 9.1.
"UNITS" is defined in Section 3.1.
-5-
<PAGE>
"UNRETURNED INVESTMENT" shall mean, as to each Member as of any date,
the EXCESS OF (a) (I) the aggregate amount of Capital Contributions made by such
Member (or such Member's predecessor in interest) on or before such date
MULTIPLIED BY (II) the percentage of outstanding shares of HF Holdings common
stock held by the Company immediately after the Closing Date that is not subject
to a Junior Management Option or the CSFB Option OVER (b) the amount allocated
(or deemed to be allocated pursuant to Section 5.1.3) to such Member on or
before such date pursuant to Section 5.1.2(b)(i).
"VOTING MAJORITY" shall mean Members who, in the aggregate, hold more
than 50% of the aggregate number of Class A Units and Class B Units; PROVIDED,
HOWEVER, that if on the 60th day following the date of this Agreement, the Bain
Members hold Units representing more than $10 million (at cost), "Voting
Majority" shall mean Bain.
"VOTING MEMBERS" shall mean Members holding Class A Units or Class B
Units.
-6-
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
UNITS
- -------------------------------------------------------------------------------------------------------
HF HF HF
Capital Class A Class B Class C
Name of Member Contributions Units Units Units
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bain Capital Fund IV, $6,259,929.58 -- 62,599.2958 --
L.P.
- -------------------------------------------------------------------------------------------------------
Bain Capital Fund IV-B, $7,163,890.42 -- 71,638.9042 --
L.P.
- -------------------------------------------------------------------------------------------------------
BCIP Associates $1,055,475.00 -- 10,554.7500 --
- -------------------------------------------------------------------------------------------------------
BCIP Trust Associates, $520,705.00 -- 5,207.0500 --
L.P.
- -------------------------------------------------------------------------------------------------------
Scott Watterson $2,500,000 25,000 -- --
- -------------------------------------------------------------------------------------------------------
Gary Stevenson $2,500,000 25,000 -- --
- -------------------------------------------------------------------------------------------------------
Inverness/Phoenix $2,000,000 -- -- 20,000
- -------------------------------------------------------------------------------------------------------
Capital LLC
- -------------------------------------------------------------------------------------------------------
Lee Ming Tsung $1,000,000 -- -- 10,000
- -------------------------------------------------------------------------------------------------------
Wen-Chung Ko $1,000,000 -- -- 10,000
- -------------------------------------------------------------------------------------------------------
Stanley C. Tuttleman $1,000,000 -- -- 10,000
- -------------------------------------------------------------------------------------------------------
Total $25,000,000 50,000 150,000 50,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RIGHTS
- -----------------------------------------------------------------------------------------------
Exercise Other
Option Price(if Terms
Premium/Purch any)
Name of Holder ase Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Credit Suisse First $5,000,000 $500 Warrant for purchase of 50,000
Boston Management Class C Units having the terms
Corporation more fully set forth in the CSFB
Warrant attached to
the Agreement as
Exhibit 2.
- -----------------------------------------------------------------------------------------------
</TABLE>
Effective as of: September 27, 1999
<PAGE>
THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE ISSUER, THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
IN ADDITION, THIS NOTE IS SUBJECT TO RESTRICTIONS ON VOTING AND
TRANSFER AND REQUIREMENTS OF SALE AND OTHER PROVISIONS AS SET FORTH IN THE
STOCKHOLDERS AGREEMENT DATED AS OF SEPTEMBER 27, 1999, AS AMENDED AND IN
EFFECT FROM TIME TO TIME, AND CONSTITUTES A CSFB SECURITY AS DEFINED IN
SUCH STOCKHOLDERS AGREEMENT. THE COMPANY WILL FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER OF THIS NOTE WITHOUT CHARGE
UPON WRITTEN REQUEST.
HF HOLDINGS, INC.
0% CONVERTIBLE SUBORDINATED NOTE DUE SEPTEMBER 27, 2011
No. R-2
$7,500,000 September 27, 1999
HF HOLDINGS, INC. (together with its successors, the "Company"), a
Delaware corporation, for value received, hereby promises to pay to CREDIT
SUISSE FIRST BOSTON CORPORATION or registered assigns the principal sum of SEVEN
MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000) on September 27, 2011.
Payment of principal shall be made in such coin or currency of the
United States of America as at the time of payment is legal tender for the
payment of public and private debts to the registered holder hereof at the
address shown in the register maintained by the Company for such purpose, in the
manner provided in the Note Agreement (defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Seven Million Five Hundred Thousand
Dollars ($7,500,000) pursuant to the Amended and Restated Note Agreement (as may
be amended, restated or otherwise modified from time to time, the "Note
Agreement"), dated as of September 27, 1999, between the Company and the
purchaser listed on Annex 1 thereto. The holder of this Note is entitled to the
benefits of the Note Agreement. This Note is subject to the terms of the Note
Agreement, and such terms are incorporated herein by reference. Capitalized
terms used herein and not defined herein have the meanings specified in the Note
Agreement.
All of the principal of this Note may, under certain circumstances, be
declared due and payable in the manner and with the effect provided in the Note
Agreement.
This Note is a registered Note and is transferable only by surrender at
the principal office of the Company as specified in the Note Agreement, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
The obligations evidenced by this Note are subordinated to the Senior
Debt on the terms provided in the Note Agreement.
<PAGE>
THIS NOTE AND THE NOTE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HF HOLDINGS, INC.
By: /s/ SCOTT R. WATTERSON
----------------------------
Name: Scott R. Watterson
Title: Chairman & CEO
<PAGE>
[FORM OF NOTICE OF CONVERSION]
To HF HOLDINGS, INC.
The undersigned elects to convert $______________________ in principal
amount of the accompanying Note into the number of shares of Common Stock of HF
Holdings, Inc. issuable upon the conversion of such principal amount of such
Note, and requests that the certificates for such shares be issued in the name
of:
- ------------------------------------------------------------------------
(Please print or type name, address and zip code.)
- ------------------------------------------------------------------------
(Please insert social security number or tax ID number
If such principal amount of the accompanying Note shall not be the entire
principal amount of the accompanying Note, a new Note or Notes for the balance
remaining of such Note shall be registered in the name of and delivered to:
- ------------------------------------------------------------------------
(Please print or type name, address and zip code.)
- ------------------------------------------------------------------------
(Please insert social security number or tax ID number
The undersigned elects that the conversion of the accompanying Note shall be
deemed to have been effected upon:
|_| the date of, and at the time immediately preceding, the occurrence
of the "Triggering Event" giving rise to such conversion right; or
|_| the Business day on which the accompanying Note shall have been
surrendered to the Company.
Dated: ____________________, _________
[HOLDER]
By:_________________________
NOTICE
The signature to the foregoing Notice of Conversion must correspond to
the name as written upon the face of the accompanying Note or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
Exhibit 10.5
SUBSCRIPTION AND STOCK PURCHASE AGREEMENT
This Subscription and Stock Purchase Agreement (the "Agreement") is
entered into as of the 27th day of September, 1999, by and between HF Holdings,
Inc., a Delaware corporation (the "Company"), and HF Investment Holdings, LLC, a
Delaware limited liability company ("HF LLC").
WHEREAS, the Company and ICON Health & Fitness, Inc. ("Health & Fitness")
have made an exchange offer, pursuant to the Exchange Offer and Consent
Solicitation, dated July 30, 1999, as supplemented (the "Exchange Offer"), for
all outstanding 13% Senior Subordinated Notes due 2002 of Health & Fitness ("13%
Notes"), 15% Senior Secured Discount Notes due 2004 of IHF Holdings, Inc. ("15%
Notes"), and 14% Senior Discount Notes due 2006 of ICON Fitness Corporation
("14% Notes");
WHEREAS, HF LLC, as the "Non-CSFB Investors LLC" under the term sheet,
dated July 8, 1999, as amended and attached to the Exchange Offer as Annex H
(the "Term Sheet"), wishes to purchase from the Company, and the Company wishes
to sell and issue to HF LLC, shares of the Company's common stock, par value
$.001 per share ("Common Stock"), upon the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties to this Agreement, intending to be legally bound,
mutually agree as follows:
ARTICLE I
Purchase and Sale of Shares
1.1 Sale and Issuance of Shares. Subject to the terms and conditions of
this Agreement, HF LLC does hereby subscribe for and agrees to purchase at the
Closing (as defined below), and the Company does hereby agree to sell to HF LLC
at the Closing, five million one hundred sixty thousand thirty-five (5,160,035)
shares (the "Shares") of Common Stock.
1.2 Purchase Price. In consideration for the sale of the Shares by the
Company to HF LLC hereunder, HF LLC shall pay to the Company an amount (the
"Purchase Price") equal to thirty million dollars ($30,000,000).
1.3 Closing. The purchase, sale and issuance of the Shares hereunder shall
occur at a closing (the "Closing") to be held immediately prior to, and
conditioned upon, the closing of
<PAGE>
the transactions contemplated by the Term Sheet (the "ICON Restructuring"). At
the Closing, and upon payment of the Purchase Price, the Company shall issue and
deliver to HF LLC, or its nominee, a certificate representing the Shares.
Payment of the Purchase Price shall be made at the Closing by delivery of a wire
transfer of same day funds denominated in U.S. dollars, unless otherwise
mutually agreed in writing with the Company.
ARTICLE II
Representations and Warranties of the Company
2.1 Organization and Standing. The Company represents and warrants that it
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
2.2 Authorization. The Company represents and warrants that all corporate
action on the part of the Company necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, and for the
authorization, issuance and delivery of the Shares being sold under this
Agreement, has been taken. This Agreement, when executed and delivered by all
parties hereto, shall constitute the valid and legally binding obligation of the
Company, except to the extent the enforceability thereof may be limited by
bankruptcy laws, insolvency laws, reorganization laws, moratorium laws or other
laws affecting creditors' rights generally or by general equitable principles.
2.3 Validity of Shares. The Company represents and warrants that the
Shares, when sold, issued and delivered in accordance with the terms of this
Agreement, shall be duly and validly issued, fully paid and nonassessable, and
free and clear of all liens, encumbrances and restrictions of any kind, except
as contemplated hereunder and under the Stockholders Agreement (the
"Stockholders Agreement"), attached as Annex C to the Exchange Offer.
ARTICLE III
Representations, Warranties and Agreements of HF LLC
3.1 Organization and Standing. HF LLC represents and warrants that it is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and
authority to carry on its business as now conducted and as proposed to be
conducted.
3.2 Authorization. HF LLC represents and warrants that all action on the
part of HF LLC necessary for the authorization, execution, delivery and
performance of this Agreement by HF LLC has been taken, and that this Agreement,
when executed and delivered by all parties hereto, shall constitute the valid
and legally binding obligation of HF LLC,
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<PAGE>
except to the extent the enforceability thereof may be limited by bankruptcy
laws, insolvency laws, reorganization laws, moratorium laws or other laws
affecting creditors' rights generally or by general equitable principles.
3.3 Investment Representations and Undertakings.
(a) HF LLC hereby represents that (i) the Shares will be acquired by
it for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof in violation
of applicable federal and state securities laws, and (ii) it has no
current intention of selling or otherwise distributing the same in
violation of applicable federal and state securities laws. By executing
this Agreement, HF LLC further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell or
otherwise transfer to such person, or to any other person, any of the
Shares in violation of applicable federal and state securities laws;
(b) HF LLC understands that the Shares have not been registered
under the Securities Act of 1933, as amended (the "1933 Act") on the basis
that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the 1933 Act
pursuant to Section 4(2) thereof and regulations issued thereunder, and
that the Company's reliance on such exemption is in part predicated on
representations of HF LLC set forth in this Agreement;
(c) HF LLC represents that it has such knowledge in financial and
business matters as to be capable of evaluating the merits and risks of
its investment and that it is an "accredited investor" as such term is
defined in Regulation D promulgated pursuant to Section 4(2) of the 1933
Act. HF LLC further represents that it has had access, during the course
of the transactions contemplated hereby and prior to its purchase of
Shares, to the same kind of information that is specified in Part I of a
registration statement under the 1933 Act and that it has had, during the
course of the transactions contemplated hereby and prior to its purchase
of the Shares, the opportunity to ask questions of, and receive answers
from, the Company (and Health & Fitness) concerning the terms and
conditions of the Exchange Offer and to obtain additional information (to
the extent the Company (and Health & Fitness) possessed such information
or could acquire it without unreasonable effort or expense) necessary to
verify the accuracy of any information furnished to it or to which it had
access. HF LLC understands that no federal or state agency has passed upon
this investment or upon the Company, nor has any such agency made any
finding or determination as to the fairness of this investment;
(d) HF LLC understands that the Shares may not be sold, transferred
or otherwise disposed of without registration under the 1933 Act or an
exemption therefrom and, in the absence of an effective registration
statement covering the Shares
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<PAGE>
or an available exemption from registration under the 1933 Act, that the
Shares may have to be held indefinitely and, as a consequence, that HF LLC
must be prepared to bear the economic risk of this investment for an
indefinite period of time. In that regard, HF LLC understands and
acknowledges that, except as may be provided in the Stockholders
Agreement, the Company is under no duty or obligation, contractual or
otherwise, to register the Shares under the 1933 Act or to comply with the
terms of any exemption thereunder. In particular, HF LLC acknowledges that
it is aware that the Shares may not be sold pursuant to Rule 144
promulgated under the 1933 Act unless all of the conditions of that Rule
are met. Among the current conditions for use of Rule 144 by certain
holders is the availability to the public of current information about the
Company. Such information is not now available, and the Company has no
current plans to make such information available. HF LLC represents that,
in the absence of an effective registration statement covering the Shares,
it will sell, transfer or otherwise dispose of the Shares only in a manner
consistent with its representations set forth herein and then only in
accordance with the Stockholders Agreement; and
(e) HF LLC also understands and acknowledges that the Stockholders
Agreement imposes certain obligations with respect to and additional
restrictions on transferability of the Shares and, that as a party to the
Stockholders Agreement, that the certificates issued to it evidencing the
Shares will bear certain legends, restricting transferability of the
Shares, all as required by the Stockholders Agreement.
ARTICLE IV
Conditions to Obligations of HF LLC at Closing
The obligations of HF LLC under Article I of this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions:
4.1 Representations and Warranties. The representations and warranties of
the Company contained in Article II hereof shall be true and correct on and as
of the Closing with the same force and effect as if they had been made at the
Closing.
4.2 Performance. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
4.3 Restructuring Conditions. All conditions to the obligation of HF LLC
to consummate the ICON Restructuring under the Term Sheet shall have been
satisfied or waived.
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<PAGE>
ARTICLE V
Conditions to the Obligations of the Company at Closing
The obligations of the Company under Article I of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1 Representations and Warranties. The representations and warranties of
HF LLC contained in Article III hereof shall be true and correct on and as of
the Closing Date with the same force and effect as if they had been made at the
Closing.
5.2 Performance. HF LLC shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
5.3 Restructuring Conditions. HF LLC shall have executed and delivered a
counterpart copy of the Stockholders Agreement, and all other conditions to the
obligation of the Company to consummate the ICON Restructuring under the Term
Sheet shall have been satisfied or waived.
ARTICLE VI
Mutual Conditions Precedent
The obligations of the Company and HF LLC under Article I of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions:
6.1 Qualifications. All authorizations, approvals or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall have been duly obtained and shall be
effective.
ARTICLE VII
Miscellaneous
7.1 No Waiver; Modifications in Writing. This Agreement sets forth the
entire understanding of the parties, and supersedes all prior agreements,
arrangements and communications, whether oral or written, with respect to the
subject matter hereof. No waiver of or consent to any departure from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof. Except as otherwise provided herein, no
amendment, modification or termination of any provision of this Agreement shall
be effective unless signed in writing by or on behalf of the Company and HF LLC.
-5-
<PAGE>
7.2 Taxes. The Company shall pay any and all stamp, transfer and other
similar taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement and the original issuance of the
Shares, but excluding all federal, state and local income or similar taxes, and
shall save and hold HF LLC harmless from and against any and all liabilities
with respect to or resulting from any delay in paying, or omission to pay, such
taxes.
7.3 Counterparts. This Agreement may be executed in multiple counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
but all of which taken together shall constitute one and the same Agreement.
7.4 Binding Effect; Assignment. The rights and obligations of HF LLC under
this Agreement may not be assigned to any other person. Except as expressly
provided in this Agreement, this Agreement shall not be construed so as to
confer any right or benefit upon any person other than the parties to this
Agreement, and their respective successors and permitted assigns. This Agreement
shall be binding upon the Company and HF LLC, and their respective successors
and permitted assigns.
7.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Delaware as to all
matters, including but not limited to matters of validity, construction, effect,
performance and remedies, but without giving effect to any choice or conflict of
laws provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
7.6 Severability of Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
7.7 Headings. The Article and Section headings used or contained in this
Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
7.8 Injunctive Relief. Each of the parties to this Agreement hereby
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that, in the event of a
breach of any material provision of this Agreement, the aggrieved party may
elect to institute and prosecute proceedings to enforce specific performance or
to enjoin the continuing breach of such provision, as well as to obtain damages
for breach of this Agreement. By seeking or obtaining any such relief, the
aggrieved party will not be precluded from seeking or obtaining any other relief
to which it may be entitled.
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<PAGE>
7.9 Survival of Agreements, Representations and Warranties. All
agreements, representations and warranties contained herein or made in writing
by or on behalf of the Company or HF LLC, as the case may be, in connection with
the transactions contemplated by this Agreement shall survive the execution and
delivery of this Agreement and the sale and purchase of the Shares and payment
therefor.
[Remainder of page intentionally left blank]
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<PAGE>
WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an instrument under seal, as of the date first above written.
HF HOLDINGS, INC.
By: /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: Chief Financial Officer, Vice
President & Treasurer
HF INVESTMENT HOLDINGS, LLC
By: /s/ Gary E. Stevenson
------------------------------------
Name: Gary E. Stevenson
Title: Administrative Member
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<PAGE>
Exhibit 10.6
AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT
AGREEMENT entered into as of the 27th day of September, 1999, by and
between HF Holdings, Inc., a Delaware corporation (the "COMPANY"), and Credit
Suisse First Boston Corporation, a Massachusetts corporation ("CSFB").
WHEREAS, the Company and ICON Healthy & Fitness, Inc. ("HEALTH &
FITNESS") have made an exchange offer, pursuant to the Exchange Offer and
Consent Solicitation, dated July 30, 1999, as supplemented (the "EXCHANGE
Offer"), for all outstanding 13% Senior Subordinated Notes due 2002 of Health &
Fitness ("13% NOTES"), 15% Senior Secured Discount Notes due 2004 of IHF
Holdings, Inc. ("15% NOTES"), and 14% Senior Discount Notes due 2006 of ICON
Fitness Corporation ("14% NOTES");
WHEREAS, pursuant to that certain term sheet, dated July 8, 1999, as
amended and attached to the Exchange Offer as Annex C (the "TERM SHEET"), CSFB
wishes to purchase from the Company, and the Company wishes to sell and issue to
CSFB, (i) shares of the Company's common stock, par value $.001 per share
("COMMON STOCK"), and (ii) convertible promissory notes of the Company, in each
case upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement,
intending to be legally bound, mutually agree as follows:
ARTICLE I.
PURCHASE AND SALE OF SECURITIES
1.1. SALE AND ISSUANCE OF SHARES. Subject to the terms and conditions
of this Agreement, CSFB does hereby subscribe for and agrees to purchase at the
Closing (as defined below), and the Company does hereby agree to sell to CSFB at
the Closing, 643,754 shares (the "SHARES") of Common Stock.
1.2. PURCHASE OF CONVERTIBLE NOTES. Subject to the terms and conditions
of this Agreement, CSFB does hereby agree to purchase at the Closing (as defined
below), and the Company does hereby agree to sell to CSFB at the Closing,
$7,500,000 principal amount of the Company's 0% Convertible Subordinated Notes
Due September 27, 2011 (the "NOTES"). The Notes shall have the terms and
provisions prescribed by the Amended and Restated Note Agreement ("NOTE
AGREEMENT"), the form of which is attached to this Agreement as Exhibit A.
1.3. PURCHASE PRICE. In consideration for the sale of the Shares and
the Notes by the Company to CSFB hereunder, CSFB shall pay to the Company an
amount (the "PURCHASE PRICE") equal to ten million dollars ($10,000,000).
<PAGE>
1.4. CLOSING. The purchase, sale and issuance of the Shares and the
Notes shall occur at a closing (the "CLOSING") to be held simultaneously with
the closing of the transactions contemplated by the Term Sheet (the "ICON
RESTRUCTURING"). At the Closing, and upon payment of the Purchase Price, the
Company shall issue and deliver to CSFB, or its nominee, one or more
certificates representing the Shares and one or more Notes in the form
prescribed by the Note Agreement. Payment of the Purchase Price shall be made at
the Closing by wire transfer of same day funds denominated in U.S. dollars,
unless otherwise mutually agreed in writing with the Company.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1. ORGANIZATION AND STANDING. The Company represents and warrants
that it is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted.
2.2. AUTHORIZATION. The Company represents and warrants that all
corporate action on the part of the Company necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, and for
the authorization, issuance and delivery of the Shares and Notes being sold
under this Agreement, has been taken. This Agreement, when executed and
delivered by all parties hereto, shall constitute the valid and legally binding
obligation of the Company, except to the extent the enforceability thereof may
be limited by bankruptcy laws, insolvency laws, reorganization laws, moratorium
laws or other laws affecting creditors' rights generally or by general equitable
principles.
2.3. VALIDITY OF SHARES. The Company represents and warrants that the
Shares, when sold, issued and delivered in accordance with the terms of this
Agreement, shall be duly and validly issued, fully paid and nonassessable, and
free and clear of all liens, encumbrances and restrictions of any kind, except
as contemplated hereunder and under the Stockholders Agreement ("STOCKHOLDERS
AGREEMENT"), attached as Annex C to the Exchange Offer.
2.4. ENFORCEABILITY OF NOTES. The Note Agreement and the Notes, when
executed and delivered by the parties thereto, shall constitute the valid and
legally binding obligations of the Company, except to the extent the
enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws, moratorium laws or other laws affecting creditors' rights
generally or by general equitable principles.
ARTICLE III.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CSFB
3.1. ORGANIZATION AND STANDING. CSFB represents and warrants that it is
a corporation duly organized, validly existing and in good standing under the
laws of
2
<PAGE>
the Commonwealth of Massachusetts and has all requisite power and authority to
carry on its business as now conducted and as proposed to be conducted.
3.2. AUTHORIZATION. CSFB represents and warrants that all action on the
part of CSFB necessary for the authorization, execution, delivery and
performance of this Agreement by CSFB has been taken, and that this Agreement,
when executed and delivered by all parties hereto, shall constitute the valid
and legally binding obligation of CSFB, except to the extent the enforceability
thereof may be limited by bankruptcy laws, insolvency laws, reorganization laws,
moratorium laws or other laws affecting creditors' rights generally or by
general equitable principles.
3.3. INVESTMENT REPRESENTATIONS AND UNDERTAKINGS.
(a) CSFB hereby represents that (i) the Shares and the Notes
will be acquired by it for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of
any part thereof in violation of applicable federal and state
securities laws, and (ii) it has no current intention of selling or
otherwise distributing the same in violation of applicable federal and
state securities laws. By executing this Agreement, CSFB further
represents that it does not have any contract, undertaking, agreement
or arrangement with any person to sell or otherwise transfer to such
person, or to any other person, any of the Shares or the Notes in
violation of applicable federal and state securities laws;
(b) CSFB understands that the Shares and the Notes have not
been registered under the Securities Act of 1933, as amended (the "1933
ACT") on the basis that the sale provided for in this Agreement and the
issuance of securities hereunder is exempt from registration under the
1933 Act pursuant to Section 4(2) thereof and regulations issued
thereunder, and that the Company's reliance on such exemption is in
part predicated on representations of CSFB set forth in this Agreement;
(c) CSFB represents that it has such knowledge in financial
and business matters as to be capable of evaluating the merits and
risks of its investment and that it is an "ACCREDITED INVESTOR" as such
term is defined in Regulation D promulgated pursuant to Section 4(2) of
the 1933 Act. CSFB further represents that it has had access, during
the course of the transactions contemplated hereby and prior to its
purchase of Shares and the Notes, to the same kind of information that
is specified in Part I of a registration statement under the 1933 Act
and that it has had, during the course of the transactions contemplated
hereby and prior to its purchase of the Shares and the Notes, the
opportunity to ask questions of, and receive answers from, the Company
(and Health & Fitness) concerning the terms and conditions of the
Exchange Offer and to obtain additional information (to the extent the
Company (and Health & Fitness) possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify
the accuracy of any information furnished to it or to
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<PAGE>
which it had access. CSFB understands that no federal or state agency
has passed upon this investment or upon the Company, no has any such
agency made any finding or determination as to the fairness of this
investment;
(d) CSFB understands that the Shares and the Notes may not be
sold, transferred or otherwise disposed of without registration under
the 1933 Act or an exemption therefrom and, in the absence of an
effective registration statement covering the Shares and the Notes or
an available exemption from registration under the 1933 Act, that the
Shares and the Notes may have to be held indefinitely and, as a
consequence, that CSFB must be prepared to bear the economic risk of
this investment for an indefinite period of time. In that regard, CSFB
understands and acknowledges that, except as may be provided in the
Stockholders Agreement, the Company is under no duty or obligation,
contractual or otherwise, to register the Shares or the Notes under the
1933 Act or to comply with the terms of any exemption thereunder. In
particular, CSFB acknowledges that it is aware that the Shares and the
Notes may not be sold pursuant to Rule 144 promulgated under the 1933
Act unless all of the conditions of that Rule are met. Among the
current conditions for use of Rule 144 by certain holders is the
availability to the public of current information about the Company.
Such information is not now available, and the Company has no current
plans to make such information available. CSFB represents that, in the
absence of an effective registration statement covering the Shares, it
will sell, transfer or otherwise dispose of the Shares and the Notes
only in a manner consistent with its representations set forth herein
and then only in accordance with the Stockholders Agreement; and
(e) CSFB also understands and acknowledges that the
Stockholders Agreement imposes certain obligations with respect to, and
additional restrictions on transferability of, the Shares and that as a
party to the Stockholders Agreement the certificates issued to it
evidencing the Shares will bear certain legends restricting
transferability of the Shares, all as required by the Stockholders'
Agreement.
ARTICLE IV.
CONDITIONS TO OBLIGATIONS OF CSFB AT CLOSING
The obligations of the CSFB under Article I of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Article II hereof shall be true and correct on and
as of the Closing with the same force and effect as if they had been made at the
Closing.
4
<PAGE>
4.2. PERFORMANCE. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by it on or before the Closing.
4.3. RESTRUCTURING CONDITIONS. All conditions to the obligation of CSFB
to consummate the ICON Restructuring under the Term Sheet shall have been
satisfied or waived.
ARTICLE V.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AT CLOSING
The obligations of the Company under Article I of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
5.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties
of CSFB contained in Article III hereof shall be true and correct on and as of
the Closing Date with the same force and effect as if they had been made at the
Closing.
5.2. PERFORMANCE. CSFB shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
5.3. RESTRUCTURING CONDITIONS. CSFB shall have executed and delivered a
counterpart copy of the Stockholders Agreement, and all other conditions to the
obligation of the Company to consummate the Icon Restructuring under the Term
Sheet shall have been satisfied or waived.
ARTICLE VI.
MUTUAL CONDITIONS PRECEDENT
The obligations of the Company and CSFB under Article I of this
Agreement are subject to the fulfillment on or before the closing of each of the
following conditions:
6.1. QUALIFICATIONS. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares and the Notes pursuant to this Agreement shall have been duly obtained
and shall be effective.
5
<PAGE>
ARTICLE VII.
MISCELLANEOUS
7.1. PAYMENT OF FEES. The Company hereby agrees to:
(a) pay to CSFB (or an affiliate of CSFB designated by it) a
fee in the amount of $881,000 in connection with the structuring of the
ICON Restructuring, such fee being payable by the Company at the
Closing of the ICON Restructuring or, if the ICON Restructuring is not
consummated, promptly after the time the Company has abandoned the ICON
Restructuring;
(b) subject to the terms of the Senior Credit Facility (as
defined in the Note Agreement) from time to time in effect, during the
Term (as defined in the Management Agreement (the "MANAGEMENT
AGREEMENT"), dated as of September 27, 1999, entered into among Health
& Fitness, the Company, Bain Capital Partners IV, L.P., IHF Holdings,
Inc. and IHF Capital, Inc.), pay to CSFB (or an affiliate of CSFB
designated by it) a management fee in an amount not to exceed $366,500
per annum in exchange for strategic advisory services to be provided to
the Company by CSFB, such fee being payable by the Company quarterly in
arrears, with each payment being made sixty (60) days after the end of
each fiscal quarter of the Company; provided, however, that the
management fees payable with respect to fiscal year 2000 of the Company
shall be payable in one installment of $274,875 on April 30, 2000 and
one installment of $91,625 on July 31, 2000; and
(c) during the Term, allow CSFB to participate in the
negotiation and consummation of any Liquidity Event (as defined in the
Stockholders Agreement) by the Company, and pay (or cause to be paid)
to CSFB (or an affiliate of CSFB designated by it) a fee in connection
therewith equal to one half of one percent (0.5%) of the gross purchase
price of the transaction (including all liabilities assumed or
otherwise included in the transaction), such fee to be due and payable
for the foregoing services at the closing of such transaction. This fee
is the same fee contemplated to be paid to CSFB pursuant to Section
2(c) of the Management Agreement, and is not intended to be in addition
thereto.
7.2. INDEMNITY AND LIABILITY. In consideration of the execution and
delivery of this Agreement by CSFB, the Company hereby agrees to indemnify,
exonerate and hold each of CSFB, and each of its affiliates, directors,
officers, fiduciaries, employees and agents and each of the partners,
shareholders, affiliates, directors, officers, fiduciaries, employees and
agents, advisors and attorneys of each of the foregoing (collectively, the
"INDEMNITEES") free and harmless from and against any and all actions, causes of
action, suits, liabilities and damages, and expenses in connection therewith,
including without limitation attorneys' fees and disbursements (collectively,
"LIABILITIES"), incurred by the Indemnitees or any of
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<PAGE>
them as a result of, or arising out of, or relating to the ICON Restructuring,
the execution, delivery, performance, enforcement or existence of this Agreement
or the transactions contemplated hereby (including but not limited to any
indemnification obligations assumed or incurred by any Indemnitee)
(collectively, the "INDEMNIFIED LIABILITIES"), except for any such Indemnified
Liabilities arising on account of such Indemnitee's willful misconduct, and if
and to the extent that the foregoing undertaking may be unenforceable for any
reason, the Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
7.3. NO WAIVER; MODIFICATIONS IN WRITING. This Agreement sets forth the
entire understanding of the parties, and supersedes all prior agreements,
arrangements and communications, whether oral or written, with respect to the
subject matter hereof. No waiver of or consent to any departure from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof. Except as otherwise provided herein, no
amendment, modification or termination of any provision of this Agreement shall
be effective unless signed in writing by or on behalf of the Company and CSFB.
7.4. TAXES. The Company shall pay any and all stamp, transfer and other
similar taxes payable or determined to be payable in connection with the
execution and delivery of this Agreement and the original issuance of the Shares
and the Notes, but excluding all federal, state and local income or similar
taxes, and shall save and hold CSFB harmless from and against any and all
liabilities with respect to or resulting from any delay in paying, or omission
to pay, such taxes.
7.5. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, but all of which taken together shall constitute one and the same
Agreement.
7.6. BINDING EFFECT; ASSIGNMENT. The rights and obligations of CSFB
under this Agreement may not be assigned to any other person. Except as
expressly provided in this Agreement, this Agreement shall not be construed so
as to confer any right or benefit upon any person other than the parties to this
Agreement, and their respective successor and permitted assigns. This Agreement
shall be binding upon the Company and CSFB, and their respective successors and
permitted assigns.
7.7. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of the State of Delaware as to
all matters including but not limited to matters of validity, construction,
effect, performance and remedies, but without giving effect to any choice or
conflict of laws provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction.
7.8. SEVERABILITY OF PROVISIONS. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be
7
<PAGE>
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
7.9. HEADINGS. The Article and Section headings used or contained in
this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
7.10. INJUNCTIVE RELIEF. Each of the parties to this Agreement hereby
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that, in the event of a
breach of any material provision of this Agreement, the aggrieved party may
elect to institute and prosecute proceedings to enforce specific performance or
to enjoin the continuing breach of such provision, as well as to obtain damages
for breach of this Agreement. By seeking or obtaining any such relief, the
aggrieved party will not be precluded from seeking or obtaining any other relief
to which it may be entitled.
7.11. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties contained herein or made in writing
by or on behalf of the Company or CSFB, as the case may be, in connection with
the transactions contemplated by this Agreement shall survive the execution and
delivery of this Agreement and the sale and purchase of the Shares and payment
therefor.
[Remainder of page left intentionally blank; Next page is the signature page.]
8
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
HF HOLDINGS, INC.
By:________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:________________________________
Name:
Title:
[Signature page to the Securities Purchase Agreement]
<PAGE>
Exhibit 10.7
- --------------------------------------------------------------------------------
HF HOLDINGS, INC.
----------------------------------
AMENDED AND RESTATED
NOTE AGREEMENT
----------------------------------
DATED AS OF SEPTEMBER 27, 1999
$7,500,000
0% CONVERTIBLE SUBORDINATED NOTES DUE SEPTEMBER 27, 2011
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(NOT PART OF AGREEMENT)
PAGE
1.
PAYMENTS............................................................1
1.1 INTEREST PAYMENT............................................1
1.2 REQUIRED PRINCIPAL PAYMENTS.................................1
1.3 MANNER OF PAYMENTS..........................................1
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.......................2
2.1 REGISTRATION OF NOTES.......................................2
2.2 EXCHANGE OF NOTES...........................................2
2.3 REPLACEMENT OF NOTES........................................3
2.4 ISSUANCE TAXES..............................................3
3. GENERAL COVENANTS...................................................3
3.1 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE..................4
3.2 MERGERS AND CONSOLIDATIONS..................................4
3.3 FINANCIAL AND BUSINESS INFORMATION..........................4
4. EVENTS OF DEFAULT...................................................5
4.1 EVENTS OF DEFAULT...........................................5
4.2 DEFAULT REMEDIES............................................6
4.3 ANNULMENT OF ACCELERATION OF NOTES..........................7
5. SUBORDINATION.......................................................7
5.1 GENERAL.....................................................7
5.2 INSOLVENCY..................................................7
5.3 PROOFS OF CLAIM.............................................8
5.4 DEFAULT IN RESPECT OF SENIOR DEBT...........................8
5.5 TURNOVER OF PAYMENTS........................................10
5.6 SUBORDINATION UNAFFECTED BY CERTAIN EVENTS.... ............10
5.7 WAIVER AND CONSENT..........................................11
5.8 REINSTATEMENT OF SUBORDINATION..............................11
5.9 OBLIGATIONS NOT IMPAIRED....................................12
5.10 PAYMENT OF SENIOR DEBT; SUBROGATION.........................12
5.11 RELIANCE OF HOLDERS OF SENIOR DEBT..........................12
5.12 IDENTITY OF HOLDERS OF SENIOR DEBT..........................13
6. INTERPRETATION OF THIS AGREEMENT....................................13
6.1 TERMS DEFINED...............................................13
6.2 ACCOUNTING PRINCIPLES.......................................24
6.3 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.....25
6.4 GOVERNING LAW...............................................26
<PAGE>
7. CONVERSION AND EXCHANGE OF NOTES FOR COMMON STOCK...................26
7.1 NOTICE OF OCCURRENCE OF A TRIGGERING EVENT..................26
7.2 CONVERSION OF NOTES AT OPTION OF HOLDER.....................26
7.3 EXCHANGE OF NOTES FOR COMMON STOCK BY THE COMPANY...........28
7.4 RESERVATION OF SHARES.......................................29
7.5 ADJUSTMENT OF CONVERSION PRICE IN RESPECT OF STOCK
DIVIDENDS, STOCK SPLITS, ETC................................30
7.6 DE MINIMIS CHANGES IN CONVERSION PRICE......................30
7.7 NOTICE OF CHANGE IN CONVERSION PRICE........................31
7.8 EFFECT OF CONSOLIDATION, MERGER, SALE OR RECLASSIFICATION...31
7.9 COMMON STOCK SUBJECT TO STOCKHOLDERS AGREEMENT..............32
7.10 INTEREST IN EXCESS OF 24.9%.................................32
7.11 AUTOMATIC CONVERSION UPON INSOLVENCY.... ...................33
8. MISCELLANEOUS.......................................................34
8.1 COMMUNICATIONS..............................................34
8.2 REPRODUCTION OF DOCUMENTS...................................35
8.3 ENTIRE AGREEMENT............................................35
8.4 SUCCESSORS AND ASSIGNS......................................35
8.5 AMENDMENT AND WAIVER........................................36
8.6 EXPENSES....................................................37
8.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; ETC..........37
8.8 EXECUTION IN COUNTERPART....................................39
Annex 1 -- Address of Purchaser; Payment Instructions
Annex 2 -- Addresses for Notices
Attachment A -- Form of Note
<PAGE>
AMENDED AND RESTATED NOTE AGREEMENT
AMENDED AND RESTATED NOTE AGREEMENT, dated as of September 27, 1999,
among HF HOLDINGS, INC., a Delaware corporation (together with its successors
and assigns, the "COMPANY"), and CREDIT SUISSE FIRST BOSTON CORPORATION, a
Massachusetts corporation (together with its affiliates and their respective
successors and assigns, the "PURCHASER").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement, the Purchaser has
agreed to purchase from the Company, and the Company has agreed to sell to the
Purchasers, Seven Million Five Hundred Thousand Dollars ($7,500,000) in
aggregate principal amount of the Notes; and
WHEREAS, the Company and the Purchaser wish to enter into this Agreement
to govern the terms of the Notes;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
1. PAYMENTS
1.1 NO INTEREST PAYMENTS.
No interest shall accrue or be payable on the Notes.
1.2 PAYMENT UPON MATURITY.
The entire principal of the Notes outstanding on September 27, 2011
shall become due and payable on such date.
1.3 MANNER OF PAYMENTS.
(a) MANNER OF PAYMENT. The Company shall pay all amounts
payable with respect to each Note (without any presentment of such
Notes and without any notation of such payment being made thereon) by
crediting, by federal funds bank wire transfer, the account of the
holder thereof in any bank in the United States of America as may be
designated in writing by such holder, or in such other manner as may be
reasonably directed or to such other address in the United States of
America as may be reasonably designated in writing by such holder.
Annex 1 shall be deemed to constitute notice, direction or designation
(as appropriate) by the Purchaser to the Company with respect
<PAGE>
to payments to be made to the Purchaser as aforesaid. In the absence of
such written direction, all amounts payable with respect to each Note
shall be paid by check mailed and addressed to the registered holder of
such Note at the address shown in the register maintained by the
Company pursuant to Section 2.1.
(b) PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with
respect to, any Note shall fall due on a day other than a Business Day,
then such payment shall be made on the first Business Day following the
day on which such payment shall have so fallen due.
(c) PAYMENTS, WHEN RECEIVED. Any payment to be made to the
holders of Notes hereunder or under the Notes shall be deemed to have
been made on the Business Day such payment actually becomes available
at such holder's bank prior to the close of business of such bank.
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
With respect to any transfer of Notes under this Agreement, the
respective rights and obligations of the holders of the Notes and the Company
under this Section 2 are, notwithstanding the provisions of this Section 2,
subject to, and shall be construed consistent with, the terms of the
Stockholders Agreement.
2.1 REGISTRATION OF NOTES.
The Company will keep at its office, maintained pursuant to Section
3.1, a register for the registration and transfer of Notes. The name and address
of each holder of one or more Notes, each transfer thereof made in accordance
with Section 2.2 and the name and address of each transferee of one or more
Notes shall be registered in such register. The Person in whose name any Note
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary, other than in accordance with Section 2.2.
2.2 EXCHANGE OF NOTES.
(a) EXCHANGE OF NOTES. Upon surrender of any Note at the
office of the Company maintained pursuant to Section 3.1, duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or such holder's attorney duly
authorized in writing, the Company will execute and deliver, at the
Company's expense (except as provided in Section 2.2(b)), a new Note or
Notes in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note
shall be registered in the name of such Person as such holder may
request and shall be substantially in the form of Attachment A. Each
such new Note shall be dated the date of
2
<PAGE>
the surrendered Note. Each such new Note shall carry the same rights
that were carried by the Note so exchanged or transferred. Notes shall
not be transferred in denominations of less than One Hundred Thousand
Dollars ($100,000), PROVIDED that a holder of Notes may transfer its
entire holding of Notes regardless of the principal amount of such
holder's Notes.
(b) COSTS. The Company will pay the cost of delivering to or
from such holder's home office or custodian bank from or to the
Company, insured to the reasonable satisfaction of such holder, the
surrendered Note and any Note issued in substitution or replacement for
the surrendered Note. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in
respect of any such transfer of Notes.
2.3 REPLACEMENT OF NOTES.
Upon receipt by the Company from the registered holder of a Note of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Note (which evidence shall be, in the case of an
institutional investor, notice from such institutional investor of such loss,
theft, destruction or mutilation), and:
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company; PROVIDED, HOWEVER, that if the
holder of such Note is a Purchaser, an institutional investor or a
nominee of either, the unsecured agreement of indemnity of such
Purchaser or such institutional investor (but not of any nominee
therefor) shall be deemed to be satisfactory; or
(b) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a
replacement Note, dated the date of such lost, stolen, destroyed or mutilated
Note.
2.4 ISSUANCE TAXES.
The Company will pay all taxes (if any) due in connection with and as
the result of the initial issuance and sale of the Notes.
3. COVENANTS
The Company covenants that on and after the Closing Date and so long as
any of the Notes shall be outstanding:
3
<PAGE>
3.1 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
the Notes, as and when the same shall become due according to the terms hereof
and of the Notes, and will maintain an office at the address of the Company as
provided in Section 8.1 where notices, presentations and demands in respect
hereof or the Notes may be made upon it. Such office will be maintained at such
address until such time as the Company notifies the holders of the Notes of any
change of location of such office, which will in any event be located within the
United States of America.
3.2 MERGERS AND CONSOLIDATIONS.
The Company will not merge into, consolidate with, or Transfer all or
substantially all of its Property to, any other Person or permit any other
Person to consolidate with or merge into it; PROVIDED, HOWEVER, that the
foregoing restriction does not apply to the merger or consolidation of the
Company with, or the Transfer by the Company of all or substantially all of its
Property to, another corporation, so long as:
(a) the Person (the "SUCCESSOR CORPORATION") that results from
such merger or consolidation or that purchases, leases, or acquires all
or substantially all of such Property is a corporation duly
incorporated under the laws of the United States of America or a
jurisdiction thereof; and
(b) if the Company is not the Successor Corporation, the
Successor Corporation shall expressly assume in writing, pursuant to
such agreements and instruments as shall be reasonably satisfactory to
the Required Holders, the due and punctual payment of the principal of
the Notes, according to their tenor, and the due and punctual
performance and observance of all the covenants in the Notes, this
Agreement and the other Financing Documents to be performed or observed
by the Company.
3.3 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes:
(a) SEC AND OTHER REPORTS -- promptly upon their becoming
available:
(i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to
stockholders generally;
(ii) each regular or periodic report (including,
without limitation, each Form 10-K, Form 10-Q and Form 8-K),
any registration statement which shall have become effective,
and each final prospectus
4
<PAGE>
and all amendments thereto filed by the Company or any
Subsidiary with the SEC; and
(iii) all press releases and other statements made
available by the Company or any Subsidiary to the public
concerning material developments in the business of the
Company or the Subsidiaries;
(b) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- within five (5)
Business Days of becoming aware:
(i) of the existence of any condition or event which
constitutes a Default or an Event of Default; or
(ii) that the holder of any Note, or of any Debt,
shall have given notice or taken any other action with respect
to a claimed Default, Event of Default or default or event of
default;
a notice specifying the nature of the claimed Default, Event of Default
or default or event of default and the notice given or action taken (if
any) by such holder and what action the Company is taking or proposes
to take with respect thereto;
(c) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information as from time to time may be reasonably
requested by any holder of Notes.
4. EVENTS OF DEFAULT
4.1 EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" exists at any time if any of the following both
occurs and is continuing thereafter for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
(a) PAYMENTS ON NOTES -- the Company fails to make the
required payment of principal on any Note on or before the date such
payment is due; or
(b) INSOLVENCY --
(i) INVOLUNTARY BANKRUPTCY PROCEEDINGS --
(a) a receiver, liquidator, custodian or
trustee of the Company or any Subsidiary, or of all
or any substantial part of the Property of any of
them, is appointed by court order; or an order for
relief is entered with respect the Company or any
5
<PAGE>
Subsidiary, or the Company or any Subsidiary is
adjudicated a bankrupt or insolvent;
(b) all or any substantial part of the
Property of the Company or any Subsidiary is
sequestered by court order; or
(C) a petition is filed against the Company
or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and
is not dismissed within sixty (60) days after such
filing;
(ii) VOLUNTARY PETITIONS - the Company or any
Subsidiary files a petition in voluntary bankruptcy or seeks
relief under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter
in effect, or consents to the filing of any petition against
it under any such law; or
(iii) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. -
the Company or any Subsidiary makes an assignment for the
benefit of its creditors, or consents to the appointment of a
receiver, liquidator or trustee of an Obligor or Subsidiary or
of all or a substantial part of its Property; or
4.2 DEFAULT REMEDIES.
(a) ACCELERATION OF MATURITY OF NOTES.
(i) AUTOMATIC. If any Event of Default specified in
Section 4.1(b) shall exist, all of the Notes at the time
outstanding shall automatically become immediately due and
payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
(ii) BY ACTION OF HOLDERS. Subject to the next
succeeding sentence, if any Event of Default (other than an
Event of Default specified in Section 4.1(b)) shall exist, the
holder or holders of twenty-five percent (25%) or more in
principal amount of the Notes at the time outstanding may
exercise any right, power or remedy permitted to such holder
or holders by law, and shall have, in particular, without
limiting the generality of the foregoing, the right to
declare, the entire principal of all the Notes then
outstanding to be due and payable, and such Notes shall
thereupon become forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, and the Company shall
forthwith pay to
6
<PAGE>
the holder or holders of all the Notes then outstanding the
entire principal of the Notes.
(b) NONWAIVER; REMEDIES CUMULATIVE. No course of dealing on
the part of any holder of Notes nor any delay or failure on the part of
any holder of Notes to exercise any right shall operate as a waiver of
such right or otherwise prejudice such holder's rights, powers and
remedies. All rights and remedies of each holder of Notes hereunder and
under applicable law are cumulative to, and not exclusive of, any other
rights or remedies any such holder of Notes would otherwise have.
4.3 ANNULMENT OF ACCELERATION OF NOTES.
If a declaration is made pursuant to Section 4.2(a)(ii), then and in
every such case, the Required Holders may, in their sole discretion, by written
instrument filed with the Company, rescind and annul such declaration, and the
consequences thereof; PROVIDED, HOWEVER, that at the time such declaration is
annulled and rescinded:
(a) no judgment or decree shall have been entered for the
payment of any moneys due on or pursuant hereto or the Notes;
(b) all sums payable hereunder and under the Notes (except any
principal of the Notes which shall have become due and payable by
reason of such declaration under Section 4.2(a)(ii)) shall have been
duly paid; and
(C) each and every other Default and Event of Default shall
have been waived pursuant to Section 8.5 or otherwise made good or
cured;
and PROVIDED FURTHER that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
5. SUBORDINATION
5.1 GENERAL.
The Subordinated Debt is subordinate and junior in right of payment to
all Senior Debt to the extent provided in this Section 5.
5.2 INSOLVENCY.
In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its Property;
7
<PAGE>
(b) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(C) any assignment by the Company for the benefit of
creditors; or
(D) any other marshalling of the assets of the Company;
all Senior Debt shall first be paid in full, in cash or cash equivalents, before
any payment or distribution, whether in cash, Securities or other Property
(other than Reorganization Securities), shall be made to any holder of any
Subordinated Debt on account of any Subordinated Debt. Any payment or
distribution, whether in cash, Securities or other Property (other than
Reorganization Securities), which would otherwise (but for this Section 5) be
payable or deliverable in respect of Subordinated Debt shall be paid or
delivered directly to the holders of Senior Debt in accordance with the
priorities then existing among such holders until all Senior Debt shall have
been paid in full, in cash or cash equivalents.
5.3 PROOFS OF CLAIM.
If any holder of Subordinated Debt does not file a proper claim or
proof of debt therefor prior to twenty (20) days before the expiration of the
time to file such claim or proof, then each Senior Agent is hereby authorized
and empowered (but not obligated) as the agent and attorney-in-fact for such
holder for the specific and limited purpose set forth in this paragraph, to file
such claim or proof for or on behalf of such holder; PROVIDED, HOWEVER, that
such Senior Agent shall have, prior to taking any such action, given fifteen
(15) days prior written notice (which notice may be given up to sixty (60) days
prior to the expiration of the time to file such claim) to such holder of
Subordinated Debt and each other Senior Agent that they intend to file such
claim or proof of debt. In no event may any Senior Agent or any holder of the
Senior Debt vote any claim on behalf of any holder of the Subordinated Debt, and
such agency and appointment of attorney-in-fact shall not extend to any such
right to vote any such claim.
5.4 DEFAULT IN RESPECT OF SENIOR DEBT; STANDSTILL.
In the event that a Senior Debt Default shall occur, then, unless and
until such Senior Debt Default shall have been cured or waived or shall have
ceased to exist, no direct or indirect payment (in cash, Property or Securities
or by set-off or otherwise) shall be made or agreed to be made on account of any
Subordinated Debt, or as a sinking fund for any Subordinated Debt, or in respect
of any redemption, retirement, purchase, prepayment or other acquisition or
payment of any Subordinated Debt.
Notwithstanding anything contained in this Agreement or any other
Financing Document to the contrary, for so long as any Senior Debt is
outstanding, no holder of any Subordinated Debt may take any action (other than
giving the notice of
8
<PAGE>
acceleration referred to herein) to accelerate all or any portion of the
Subordinated Debt (and no acceleration or purported acceleration pursuant to
Section 4.2(a)(ii) shall become effective) or exercise any other remedies in
respect thereof during any period (a "STANDSTILL PERIOD") commencing on the
occurrence of an Event of Default and ending upon the earliest of:
(a) the date such Event of Default shall have been cured or
waived or shall have ceased to exist;
(b) the date three hundred sixty-five (365) days after the
commencement of such Standstill Period;
(c) the date upon which any holder or holders of any Debt of
the Company (other than Subordinated Debt) in an aggregate amount
exceeding One Million Dollars ($1,000,000), or any holder or holders of
any Senior Debt, accelerate or declare such Debt to be due and payable
prior to its stated maturity or prior to the regularly scheduled date
or dates of payment, commence any action or proceeding to collect any
such Debt or otherwise commence the exercise of any remedies against
the Company;
(d) the first date upon which any Event of Default described
in Section 4.1(b) shall have occurred and be continuing beyond any
period of grace specified therein; and, in such event, the automatic
acceleration of the Notes contemplated in respect of such Event of
Default pursuant to Section 4.2(a)(i) shall occur immediately upon the
termination of the Standstill Period; or
(e) the commencement of any foreclosure of any Lien upon
Property of the Company the proceeds of which are applied, or may be
applied, to the payment of any Debt of the Company in an aggregate
amount exceeding One Million Dollars ($1,000,000).
Notwithstanding the foregoing, any holder or holders of Subordinated Debt
seeking to accelerate all or a portion of the Subordinated Debt or exercise any
remedies in respect thereof shall give the Senior Agent at least ten (10) days
advance written notice of its intent to take such action and such action may not
in any event be taken by such holder or holders until the later of the
expiration of the applicable Standstill Period and the expiration of such ten
(10) day period.
The Company shall, and each Senior Agent may, give prompt written
notice to each holder of Subordinated Debt of its knowledge of facts which would
give rise to any Senior Debt Default.
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<PAGE>
5.5 TURNOVER OF PAYMENTS.
If:
(a) any payment or distribution shall be paid to or collected
or received by any holders of Subordinated Debt in contravention of any
of the terms of this Section 5; and
(b) any Senior Agent shall have notified the holders of
Subordinated Debt, within thirty (30) days of any such payment or
distribution, of the facts by reason of which such payment or
collection or receipt so contravenes this Section 5;
then such holders of Subordinated Debt will deliver such payment or
distribution, to the extent necessary to pay all such Senior Debt in full, in
cash or cash equivalents, to such Senior Agent, on behalf of the holders of the
Senior Debt, and, until so delivered, the same shall be held in trust by such
holders of Subordinated Debt as the property of the holders of such Senior Debt.
If any amount is delivered to such Senior Agent pursuant to this Section 5.5,
whether or not such amounts have been applied to the payment of Senior Debt, and
the outstanding Senior Debt shall thereafter be paid in full, in cash or cash
equivalents, by the Company or otherwise other than pursuant to this Section
5.5, the holders of Senior Debt shall return to such holders of Subordinated
Debt an amount equal to the amount delivered to such holders of Senior Debt
pursuant to this Section 5.5, so long as after the return of such amounts the
Senior Debt shall remain paid in full, in cash or cash equivalents.
Notwithstanding the foregoing, in the event that the holders of the
Subordinated Debt reasonably believe that there is more than one holder of
Senior Debt and the holders of the Subordinated Debt shall not have received
reasonably satisfactory evidence that such Senior Agent is both entitled to
accept such payment on behalf of all holders of Senior Debt and required to
deliver payment to the other holders of the Senior Debt in the respective
amounts, if any, due such holders of Senior Debt, then the holders of the
Subordinated Debt may turn over such payment or distribution, rather than to the
Senior Agent, to a court of competent jurisdiction in an appropriate
interpleader proceeding pending determination by such court of the holders of
Senior Debt entitled to receive all or any portion of such payment or
distribution, and, from and after the date of such payment into court, the
holders of the Subordinated Debt shall have no further liability therefor.
5.6 SUBORDINATION UNAFFECTED BY CERTAIN EVENTS.
The rights set forth in this Section 5 of the holders of the Senior
Debt as against each holder of Subordinated Debt shall remain in full force and
effect without regard to, and shall not be impaired by:
(a) any act or failure to act on the part of the Company;
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<PAGE>
(b) any extension or indulgence in respect of any payment or
prepayment of the Senior Debt or any part therefor in respect of any
other amount payable to any holder of Senior Debt;
(c) any amendment, modification, restatement, refinancing or
waiver of, or addition or supplement to, or deletion from, or
compromise, release, consent or other action in respect of, any of the
terms of any Senior Debt or any other agreement which may be relating
to any Senior Debt, other than such as would cause all or any portion
of such Debt to fail to meet the definition of "Senior Debt;"
(d) any exercise or non-exercise by any holder of Senior Debt
of any right, power, privilege or remedy under or in respect of any
Senior Debt or Subordinated Debt or any waiver of any such right,
power, privilege or remedy or any default in respect of any Senior Debt
or the Subordinated Debt, any dealing with or action against any
collateral security therefor or any receipt by any holder of Senior
Debt of any security, or any failure by any holder of Senior Debt to
perfect a security interest in, or any release by any such of Senior
Debt of, any security for the payment of any Senior Debt;
(e) any merger or consolidation of the Company or any of its
Subsidiaries into or with any of its Subsidiaries or into or with any
Person, or any Transfer of any or all of the Property of the Company or
any of its Subsidiaries to any other Person; or
(f) the absence of any notice to, or knowledge by, any holder
of Subordinated Debt of the existence or occurrence of any of the
matters or events set forth in the foregoing clauses (a) through (e).
5.7 WAIVER AND CONSENT.
Each holder of Subordinated Debt waives any and all notices of the
acceptance of the provisions of this Section 5 or of the creation, renewal,
extension or accrual, now or at any time in the future, of any Senior Debt.
5.8 REINSTATEMENT OF SUBORDINATION.
The obligations of each holder of Subordinated Debt under the
provisions set forth in this Section 5 shall continue to be effective, or be
reinstated, as the case may be, as to any payment in respect of any Senior Debt
that is rescinded or must otherwise be returned by the holder of such Senior
Debt upon the occurrence or as a result of any bankruptcy or judicial
proceeding, all as though such payment had not been made.
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5.9 OBLIGATIONS NOT IMPAIRED.
Nothing contained in this Section 5 shall impair, as between the
Company and any holder of Subordinated Debt, the obligation of the Company to
pay to such holder the principal thereof as and when the same shall become due
and payable in accordance with the terms thereof and to comply with each and
every provision of the Notes and this Agreement or prevent any holder of any
Subordinated Debt from exercising all rights, powers and remedies otherwise
permitted by applicable law or under this Agreement, all subject to the rights
of the holders of the Senior Debt to receive cash, Securities or other Property
otherwise payable or deliverable to the holders of Subordinated Debt.
5.10 PAYMENT OF SENIOR DEBT; SUBROGATION.
Upon the payment in full of all Senior Debt, the holders of
Subordinated Debt shall be subrogated to all rights of any holder of Senior Debt
to receive any further payments or distributions applicable to the Senior Debt
until the Subordinated Debt shall have been paid in full, and such payments or
distributions received by the holders of Subordinated Debt by reason of such
subrogation, of cash, Securities or other Property which otherwise would be paid
or distributed to the holders of Senior Debt, shall, as between the Company and
its creditors other than the holders of Senior Debt, on the one hand, and the
holders of Subordinated Debt, on the other hand, be deemed to be a payment by
the Company on account of Senior Debt and not on account of Subordinated Debt.
5.11 RELIANCE OF HOLDERS OF SENIOR DEBT.
Each holder of Subordinated Debt by its acceptance thereof shall be
deemed to acknowledge and agree that the foregoing subordination provisions are,
and are intended to be, an inducement to and a consideration of each holder of
any Senior Debt, whether such Senior Debt was created or acquired before or
after the creation of Subordinated Debt, to acquire and hold, or to continue to
hold, such Senior Debt, and such holder of Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Debt. Each such holder of Senior
Debt is intended to be, and is, a third party beneficiary of this Section 5.
Each holder of Subordinated Debt acknowledges and agrees that the provisions set
forth in this Section 5 shall be enforceable against such Persons by the holders
of the Senior Debt. Notwithstanding anything contained in this Agreement or any
other Financing Document to the contrary, no amendment, modification or
supplement of the provisions of this Section 5 (including, without limitation,
this Section 5.11) shall be effective as to any holder of Senior Debt without
the consent of such holder.
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5.12 IDENTITY OF HOLDERS OF SENIOR DEBT.
Upon the request of any holder of Subordinated Debt, the Company shall
deliver to such holder a list of all holders of Senior Debt outstanding at such
time, providing the name and address of each such holder of Senior Debt and the
principal amount of Senior Debt held by each such holder; PROVIDED, HOWEVER,
that, if any holder of Senior Debt shall have appointed an agent or other
representative with respect to the Senior Debt held by it, the Company may
provide the name and address of such agent or representative in lieu of the name
and address of such holder of Senior Debt.
6. INTERPRETATION OF THIS AGREEMENT
6.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
AFFILIATE -- means and includes, at any time, each Person (other than a
Subsidiary):
(a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Company;
(b) that beneficially owns or holds five percent (5%) or more
of any class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the
case of a Person that is not a corporation, five percent (5%) or more
of the equity interest) of which is beneficially owned or held by the
Company; or
(d) that is an officer or director of the Company;
at such time; PROVIDED, HOWEVER, that none of the Purchasers nor any affiliate
of any Purchaser shall be deemed to be an "Affiliate," and no Person holding any
one or more of the Notes shall be deemed to be an "Affiliate" solely by virtue
of the ownership of such securities. As used in this definition:
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, by contract or
otherwise.
AGREEMENT, THIS -- and references thereto shall mean this Amended and
Restated Note Agreement as it may from time to time be amended or supplemented.
BANKING LAWS - means and includes the BHCA and the IBA.
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BANKRUPTCY CODE -- means Title 11, United States Code, sections 1 ET
SEQ., as amended from time to time, and all rules promulgated thereunder.
BHCA - the Bank Holding Company Act of 1956, as amended, and the rules,
regulations and official or staff interpretations promulgated thereunder, all as
from time to time in effect.
BUSINESS DAY -- means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CAPITAL LEASE -- means, at any time, a lease with respect to which the
lessee is required to recognize the acquisition of an asset and the incurrence
of a liability in accordance with GAAP.
CAPITAL STOCK -- means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
CLOSING DATE -- means the date any Notes are first sold.
COMMON STOCK -- means the Common Stock, par value $0.001 per share, of
the Company.
COMPANY -- the introductory paragraph.
CONVERSION PRICE - means, per share of Common Stock, Three and
Eighty-Eight Thousand Three Hundred Forty Seven Hundred-Thousandths Dollars
($3.88347), as adjusted and readjusted from time to time in accordance with
Section 7.
CONVERTIBLE NOTE SHARES - Section 6.1 (in the definition of Tentative
Purchaser Ownership Level.
DEBT -- with respect to any Person, means, without duplication, the
liabilities of such Person with respect to:
(a) BORROWED MONEY -- borrowed money;
(b) DEFERRED PURCHASE PRICE OF PROPERTY -- the deferred
purchase price of Property acquired by such Person (excluding accounts
payable arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such Property);
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(c) SECURED LIABILITIES -- borrowed money secured by any Lien
existing on Property owned by such Person (whether or not such
liabilities have been assumed);
(d) CAPITAL LEASES -- Capital Leases of such Person;
(e) LETTERS OF CREDIT -- letters of credit, bankers'
acceptances or instruments serving a similar function issued or
accepted by banks and other financial institutions for the account of
such Person, other than undrawn trade letters of credit in the ordinary
course of business;
(e) SWAPS -- Swaps of such Person; and
(g) GUARANTEES -- any Guaranty of such Person of any
obligation or liability of another Person of obligations of the type
listed in clause (a) through clause (f) of this definition of Debt.
As used in this definition,
SWAPS -- means, with respect to any Person, obligations with
respect to interest rate swaps and currency swaps and similar
obligations obligating such Person to make payments, whether
periodically or upon the happening of a contingency, except that if any
agreement relating to such obligation provides for the netting of
amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to
such Person, then in each such case, the amount of such obligations
shall be the net amount thereof. The aggregate net obligation of Swaps
at any time shall be the aggregate amount of the obligations of such
Person under all Swaps assuming all such Swaps had been terminated by
such Person as of the end of the then most recently ended fiscal
quarter of such Person. If such net aggregate obligation shall be an
amount owing to such Person, then the amount shall be deemed to be Zero
Dollars ($0).
Unless the context otherwise requires, "Debt" means Debt of the Company or of a
Subsidiary.
DEFAULT -- means any event which, with the giving of notice or the
passage of time, or both, would become an Event of Default.
EVENT OF DEFAULT -- Section 4.1.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
EXCESS SHARES - means, at any time:
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(a) for purposes of Section 7.10(a)(i), a number of LLC Shares
equal to the lesser of (a) all LLC Shares and (b) the minimum number of
LLC Shares, Convertible Note Shares and Option Shares that, when
subtracted from both the numerator and denominator of the Tentative
Purchaser Ownership Level, will cause the Tentative Purchaser Ownership
Level not to exceed the Permissible Purchaser Ownership Level;
(b) for purposes of Section 7.10(a)(ii) and Section 7.10(b), a
number of Convertible Note Shares equal to the lesser of (a) all
Convertible Note Shares and (b) the minimum number of LLC Shares,
Convertible Note Shares and Option Shares that, when subtracted from
both the numerator and denominator of the Tentative Purchaser Ownership
Level, will cause the Tentative Purchaser Ownership Level not to exceed
the Permissible Purchaser Ownership Level; and
(c) for purposes of Section 7.10(a)(iii), a number of Option
Shares equal to the lesser of (a) all Option Shares and (b) the minimum
number of LLC Shares, Convertible Note Shares and Option Shares that,
when subtracted from both the numerator and denominator of the
Tentative Purchaser Ownership Level, will cause the Tentative Purchaser
Ownership Level not to exceed the Permissible Purchaser Ownership
Level.
EXCHANGE DATE -- Section 7.3(b).
EXEMPT TRANSFEREE - Section 6.1 (in the definition of "Purchaser
Transferee").
FINANCING DOCUMENTS -- means and includes this Agreement, the
Securities Purchase Agreement, the Notes, the Stockholders Agreement and the
other agreements, certificates and instruments to be executed pursuant to the
terms of each of the foregoing, as each may be amended, restated or otherwise
modified from time to time.
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States of
America.
GUARANTY -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "Primary Obligor") in any manner,
whether directly or
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indirectly, including, without limitation, obligations incurred through an
agreement, contingent or otherwise, by the Guarantor:
(a) to purchase such indebtedness or obligation or any
Property constituting security therefor;
(b) to advance or supply funds
(i) for the purchase or payment of such indebtedness,
dividend or obligation; or
(ii) to maintain working capital or other balance
sheet condition or any income statement condition of the
Primary Obligor or otherwise to advance or make available
funds for the purchase or payment of such indebtedness,
dividend or obligation;
(c) to lease Property or to purchase securities or other
Property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the Primary Obligor
to make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or
obligation of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with any
computation of indebtedness or other liability:
(i) in each case where the obligation that is the subject of
such Guaranty is in the nature of indebtedness for money borrowed it
shall be assumed that the amount of the Guaranty is the amount of the
direct obligation then outstanding; and
(ii) in each case where the obligation that is the subject of
such Guaranty is not in the nature of indebtedness for money borrowed
it shall be assumed that the amount of the Guaranty is the amount (if
any) of the direct obligation that is then due.
IBA - the International Banking Act of 1978, as amended, and the rules,
regulations and official or staff interpretations promulgated thereunder, all as
from time to time in effect.
ICON -- means ICON Health & Fitness, Inc., a Delaware corporation and
Subsidiary of the Company, together with its successors and assigns.
ICON RESTRUCTURING -- means the closing of the issuance and sale of the
Notes and the other transactions contemplated by the Term Sheet.
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INITIAL PUBLIC OFFERING - means "Initial Public Offering" as defined in
the Stockholders Agreement.
LENDER -- means "Lender" as defined in the Senior Credit Agreement.
LIEN -- means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property (for purposes of
this definition, the "Owner"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the security interest lien arising from a mortgage,
encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes, and the filing of any
financing statement under the Uniform Commercial Code of any
jurisdiction, or an agreement to give any of the foregoing;
(b) reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting real Property;
(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced
by a conditional sale agreement, Capital Lease or other arrangement
pursuant to which title to such Property has been retained by or vested
in some other Person for security purposes.
The term "Lien" does not include negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.
LIQUIDITY EVENT - means "Liquidity Event" as defined in the
Stockholders Agreement.
LLC - means HF Investment Holdings, LLC, a Delaware limited liability
company.
LLC AGREEMENT - means the Amended and Restated Limited Liability
Company Agreement of the LLC, dated as of September 27, 1999, by and among Bain
Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., BCIP Associates and BCIP
Trust Associates, L.P., each a Delaware limited partnership, Gary Stevenson, an
individual residing in Riverheight, Utah, Scott Watterson, an individual
residing in Providence, Utah, and such other Persons as may from time to time be
admitted as Members (as defined therein), as amended, restated or otherwise
modified from time to time.
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LLC SHARES - Section 6.1 (in the definition of Tentative Purchaser
Ownership Level).
NOTE -- means and includes each 0% Convertible Subordinated Note due
September 27, 2011 issued pursuant to this Agreement.
OPTION SHARES - Section 6.1 (in the definition of Tentative Purchaser
Ownership Level).
OWNERSHIP BASE - Section 6.1 (in the definition of Tentative Purchaser
Ownership Level).
PERMISSIBLE PURCHASER OWNERSHIP LEVEL - means at any time the greater
of (a) twenty-four and nine-tenths percent (24.9%) of the Shares, and (b) the
amount of Shares in a portfolio company that the Purchaser is allowed to own or
control under the Banking Laws and other applicable law.
PERSON -- means an individual, partnership, corporation, limited
liability company, joint venture, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
PURCHASER -- the introductory paragraph.
PURCHASER TRANSFEREE - means any direct or indirect purchaser from, or
transferee or assignee of, the Purchaser OTHER THAN: (a) a purchaser, transferee
or assignee to which Shares or any portion of this Note representing the right
to receive Shares is sold, transferred or assigned from the Purchaser either (i)
in a widely dispersed public distribution, or (ii) in one or more private
transactions that do not result in one purchaser, transferee or assignee
obtaining more than four and nine-tenths percent (4.9%) of the Shares, or that
portion of this NOTE representing the right to receive more than four and
nine-tenths percent (4.9%) of the Shares, which purchaser, transferee or
assignee purchases such Shares or such portion of this NOTE in the normal course
of its business for investment purposes only, and with no intention of
influencing control over the Company; and (b) any other purchaser, transferee or
assignee to which the Company (in the case of this clause (b) only) consents, in
the Company's sole discretion. A purchaser, transferee or assignee referred to
in either clause (a) or clause (b) above is referred to herein as an "EXEMPT
TRANSFEREE".
REORGANIZATION SECURITIES -- means Securities of the Company or any
other Person provided for by a plan of reorganization or readjustment the
payment of which is subordinated, at least to the extent provided in Section 5
with respect to Subordinated Debt, to the payment of all Senior Debt at the time
outstanding and to
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any Securities issued in respect thereof under any such plan of reorganization
or readjustment.
REQUIRED HOLDERS -- means, at any time, the holders of fifty-one
percent (51%) in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by any one or more of the Company, any Subsidiary
or any Affiliate).
SEC -- means, at any time, the Securities and Exchange Commission or
any other federal agency at such time administering the Securities Act.
SECURITIES ACT -- means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
SECURITIES PURCHASE AGREEMENT -- means the Amended and Restated
Securities Purchase Agreement, dated as of the date hereof, between the Company
and the Purchaser, relating to the offering and sale of the Notes and shares of
the Common Stock.
SECURITY -- means "security" as defined by section 2(1) of the
Securities Act.
SENIOR AGENT -- means and includes:
(d) for so long as the Senior Credit Agreement remains
outstanding, General Electric Capital Corporation, as agent under the
Senior Credit Agreement; and
(e) thereafter, any one agent or lender in respect of a
successor revolving credit or similar agreement which is designated as
a Senior Credit Facility, or representative of either, designated in
writing to each holder of Notes by both the predecessor Senior Agent
and the Company as being a "Senior Agent."
SENIOR CREDIT AGREEMENT -- means the Credit Agreement, dated as of
September 24, 1999, among ICON, the other "Credit Parties" signatory thereto,
General Electric Capital Corporation, a New York corporation, for itself, as
"Lender," and as Agent for "Lenders," Fleet National Bank, as "Lender" and as
Syndication Agent, and the other "Lenders" signatory thereto from time to time,
as such agreement is from time to time amended, restated or otherwise modified.
SENIOR CREDIT FACILITY -- means and includes:
(a) the Senior Credit Agreement; or
(b) any one revolving credit agreement or similar agreement
permitting the Company, subject to the conditions therein, to obtain
loans or advances of cash, trade credits (including without limitation,
letters of credit or
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bankers acceptances) or both, which agreement has refinanced, renewed,
replaced or extended the Senior Debt governed by the terms of a Senior
Credit Facility which both the Company and the Senior Agent under the
predecessor Senior Credit Facility (or, if no such other agreement is
then in effect, by the Company) have designated in writing to each
holder of Notes as being a "Senior Credit Facility;" PROVIDED, HOWEVER,
that, by making such designation, the predecessor Senior Credit
Facility shall cease to be the Senior Credit Facility (but any Debt
outstanding or incurred thereunder shall continue to be Senior Debt for
so long as such Debt meets the definition thereof).
SENIOR DEBT -- means and includes all obligations, liabilities and
indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal, interest (including interest accruing
after the filing of a petition under the Bankruptcy Code, whether or not
allowed), fees, expenses, indemnification or otherwise, in respect of Debt for
borrowed money of the Company or any Subsidiary, whether currently existing or
hereinafter incurred; PROVIDED, HOWEVER, that "Senior Debt" shall not include
any Debt that, by its terms or the terms of any ancillary agreement with the
holders of such Debt, is expressed to be subordinated in right of payment to, or
PARI PASSU with, the Subordinated Debt. For the avoidance of doubt, trade
indebtedness, the deferred purchase price of Property (including accounts
payable arising in the ordinary course of business and all liabilities created
or arising under any conditional sale or other title retention agreement with
respect to any such Property) and all other Debt other than Debt for borrowed
money of the Company or any Subsidiary (whether or not secured by any Lien or
Guarantied by the Company) shall not be "Senior Debt" hereunder.
SENIOR DEBT DEFAULT -- means any default by the Company in the payment
of the principal of or any sinking fund installments, if any, due with respect
to, fees in respect of or interest on, any Senior Debt, or any default, or any
event which, with notice or lapse of time or both, would constitute a default,
in any other agreement, term or condition contained in any agreement under which
any Senior Debt is issued or secured, which, in any such case, would cause, or
would permit the holder thereof to cause, the acceleration of such Senior Debt .
SENIOR OFFICER -- means any one or more of the chairman of the board of
directors, the chief executive officer, the chief operating officer, the chief
financial officer, and the president, of the Company.
SHARES - means shares of the Common Stock.
STANDSTILL PERIOD - Section 5.4.
STOCKHOLDERS AGREEMENT -- means the Stockholders Agreement, dated as of
the Closing Date, among the Company, ICON, HF Investment Holdings, LLC, each
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Person listed on the signature pages thereto as a "Junior Management Initial
Investor," Scott Watterson, Gary Stevenson and the Purchaser.
SUBSIDIARY -- means, at any time, each corporation, association,
limited liability company or other business entity which qualifies as a
subsidiary of the Company that is properly included in a consolidated financial
statement of the Company and its subsidiaries in accordance with GAAP at such
time.
SUBORDINATED DEBT -- means and includes all obligations, liabilities
and indebtedness of the Company now or hereafter existing, whether fixed or
contingent, and whether for principal, interest (including interest accruing
after the filing of a petition under the Bankruptcy Code, to the extent
allowed), fees, expenses, indemnification or otherwise, in respect of this
Agreement and the Notes.
SUCCESSOR CORPORATION -- Section 4.1.
SUCCESSOR PROPERTY --means, in the case of any consolidation, merger,
sale, conveyance or reclassification described in Section 7.8, the shares of
Capital Stock, other securities, cash, Property or rights, warrants or options
receivable upon such consolidation, merger, sale, conveyance or reclassification
in respect of the shares of Common Stock held by a holder thereof.
TENTATIVE PURCHASER OWNERSHIP LEVEL - means, at any time, a fraction
(expressed as a percentage):
(i) the NUMERATOR of which shall be the sum of: (a)
the aggregate amount of Shares then held by the Purchaser and
any Purchaser Transferees (which, for purposes of this
definition, shall be deemed to include all Shares then
outstanding and held by or for the benefit of the Purchaser or
any Purchaser Transferees PLUS, those Shares that are not then
outstanding, which are subject to options, warrants or other
conversion privileges that are held by or for the benefit of
the Purchaser or any Purchaser Transferee and that are then
exercisable (but shall be deemed not to include any Shares
that are not outstanding, which are subject to options,
warrants or other conversion privileges that are held by or
for the benefit of any other Person)), (b) the aggregate
number of Shares to which the Purchaser and any Purchaser
Transferee would otherwise then be entitled or required to own
pursuant to Section 7.2(a) or Section 7.3(a) (the "CONVERTIBLE
NOTE SHARES"), (c) the aggregate number of Shares to which the
Purchaser and any Purchaser Transferee would otherwise then be
entitled or required to own pursuant to the LLC Agreement and
the Warrant (the "LLC SHARES"), and (d) any Shares to which
the Purchaser and any Purchaser Transferee would otherwise
then be entitled or required to own upon exercise of the CSFB
Option (as such
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term is defined in Section 5.2 of the Stockholders Agreement)
(the "OPTION SHARES"); and
(ii) the DENOMINATOR of which shall be the sum of:
(a) the aggregate number of Shares then outstanding (which,
for purposes of this definition, shall be deemed to include
all Shares then outstanding PLUS, those Shares that are not
then outstanding, which are subject to options, warrants or
other conversion privileges that are held by or for the
benefit of the Purchaser or any Purchaser Transferee and that
are then exercisable (but shall be deemed not to include any
Shares that are not outstanding, which are subject to options,
warrants or other conversion privileges that are held by or
for the benefit of any other Person)), (b) the Convertible
Note Shares, (c) the LLC Shares, and (d) the Option Shares
(such sum, the "OWNERSHIP BASE");
PROVIDED, that no specific Shares (including the LLC Shares, the Convertible
Note Shares and the Option Shares) shall be counted more than once in
calculating either the numerator or the denominator set forth in clause (i) or
clause (ii) above.
TERM SHEET --means the term sheet, dated July 8, 1999, as amended and
attached to the Exchange Offer and Consent Solicitation, dated July 30, 1999, as
supplemented, for all outstanding 13% Senior Subordinated Notes due 2002 of
ICON, 15% Senior Secured Discount Notes due 2004 of IHF Holdings, Inc., and 14%
Senior Discount Notes due 2006 of ICON Fitness Corporation.
TRANSFERS -- means and includes, with respect to any Property, any
sales, leases, transfers or other dispositions of such Property; the term
"TRANSFER," when used as a verb with respect to any Property, means to sell,
lease as lessor, transfer or otherwise dispose of such Property; and the term
"TRANSFERRED" has a correlative meaning.
TRIGGERING EVENT -- means and includes:
(a) the occurrence of an event which would constitute a
"Liquidity Event" under the definition of "Liquidity Event" set forth
in the Stockholders Agreement;
(b) the liquidation, dissolution or winding-up of the Company
or ICON; the commencement by the Company, ICON or any Subsidiary of any
proceedings therefor; the commencement of any proceedings therefor by
any other Person which the Company or ICON does not oppose; or the
commencement of any proceedings therefor by any other Person which the
Company and ICON oppose in which either any order for relief is granted
to such other Person or which remains unstayed for a period of sixty
(60) days; and
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(c) the occurrence of an Event of Default referred to in
Section 4.1(b).
TRIGGERING EVENT NOTICE DATE -- Section 7.1(b).
TRIGGERING EVENT NOTICE EVENT -- means any event which, with the giving
of notice or the passage of time, or both, would become, or result in, a
Triggering Event, including, without limitation, the execution of any written
agreement which, when fully performed by the parties thereto, would result in a
Triggering Event.
VALUATION AGENT -- means a firm of independent certified public
accountants, an investment banking firm or appraisal firm (which firm shall own
no Securities of, and shall not be an Affiliate, Subsidiary or a related Person
of, the Company) of recognized national standing retained by the Company and
reasonably acceptable to the Required Holders.
VOTING STOCK -- means, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time any stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency), and, in the case of the Company, shall include the Common Stock.
WARRANT - means the HF Class C Units Purchase Warrant, dated September
27, 1999, issued by HF Investment Holdings, LLC, a Delaware limited liability
company, to the Purchaser, as amended, restated or otherwise modified from time
to time.
6.2 ACCOUNTING PRINCIPLES.
(a) GENERALLY. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in
accordance with GAAP. Where the character or amount of any asset or
liability or item of income or expense, or any consolidation or other
accounting computation is required to be made for any purpose
hereunder, it shall be done in accordance with GAAP; PROVIDED, HOWEVER,
that if any term defined herein includes or excludes amounts, items or
concepts that would not be included in or excluded from such term if
such term were defined with reference solely to GAAP, such term will be
deemed to include or exclude such amounts, items or concepts as set
forth herein.
(b) CONSOLIDATION. Whenever accounting amounts of a group of
Persons are to be determined "on a consolidated basis" it shall mean
that, as to balance sheet amounts to be determined as of a specific
time, the amount that would appear on a consolidated balance sheet of
such Persons prepared as of such time, and as to income statement
amounts to be determined for a specific
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period, the amount that would appear on a consolidated income statement
of such Persons prepared in respect of such period, in each case with
all transactions among such Persons eliminated, and prepared in
accordance with GAAP except as otherwise required hereby.
(c) CURRENCY. With respect to any determination, consolidation
or accounting computation required hereby, any amounts not denominated
in the currency in which this Agreement specifies shall be converted to
such currency in accordance with the requirements of GAAP (as such
requirements relate to such determination, consolidation or
computation) and, if no such requirements shall exist, converted to
such currency in accordance with normal banking procedures, at the
closing rate as reported in THE WALL STREET JOURNAL published most
recently as of the date of such determination, consolidation or
computation or, if no such quotation shall then be available, as quoted
on such date by any bank or trust company reasonably acceptable to the
Required Holders.
6.3 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of
the Sections of this Agreement and the Table of Contents of this
Agreement appear as a matter of convenience only, do not constitute a
part hereof and shall not affect the construction hereof. The words
"herein," "hereof," "hereunder" and "hereto" refer to this Agreement as
a whole and not to any particular Section or other subdivision.
References to Sections are, unless otherwise specified, references to
Sections of this Agreement. References to Annexes and Exhibits are,
unless otherwise specified, references to Annexes and Exhibits attached
to this Agreement.
(b) CONSTRUCTION. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance
with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with one or more other
covenants.
6.4 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
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7. CONVERSION AND EXCHANGE OF NOTES FOR COMMON STOCK
7.1 NOTICE OF OCCURRENCE OF A TRIGGERING EVENT.
(a) NOTICE OF TRIGGERING EVENT NOTICE EVENT. In the event of
the obtaining of knowledge of a Triggering Event Notice Event by any
Senior Officer, the Company will, within five (5) Business Days after
the occurrence of such event, give notice of such Triggering Event
Notice Event to each holder of Notes. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer;
(iii) refer to this Section 7.1(a); and
(iv) specify, in reasonable detail, the nature and
date of the Triggering Event Notice Event and the Triggering
Event which would result therefrom.
(b) TRIGGERING EVENT NOTICE. In the event of a Triggering
Event, the Company will, within five (5) Business Days after the
occurrence of such event, or in the case of any Triggering Event the
consummation or finalization of which would involve any action of the
Company, at least ten (10) Business Days prior to such Triggering Event
(the "TRIGGERING EVENT NOTICE DATE"), give notice of such Triggering
Event to each holder of Notes. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer;
(iii) refer to this Section 7.1(b);
(iv) specify, in reasonable detail, the nature and
date (or anticipated date) of the Triggering Event; and (V)
describe in detail the right of the holder of Notes described
in Section 7.2 hereof and the right of such holder pursuant to
Section 7.2(c) to specify the date that any conversion of the
Notes elected by such holder shall be deemed to be effected.
7.2 CONVERSION OF NOTES AT OPTION OF HOLDER.
(a) CONVERSION RIGHT. Subject to Section 7.10 and Section
7.11, each holder of a Note may, not later than fifteen (15) days
following the occurrence of a Triggering Event, at its option and
election, convert the
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unpaid principal amount of such Note or any portion thereof, at the
Conversion Price, into that number of fully paid and nonassessable
shares of Common Stock which equals the quotient of:
(i) the principal amount to be so converted; DIVIDED
BY
(ii) the Conversion Price in effect at the time of
such conversion.
At the time of such conversion, the holder shall elect the time at
which such conversion shall become effective in accordance with Section
7.2(c) and, if no such election is made, such holder shall be deemed to
have elected the earliest date upon which such conversion could have
become effective in accordance with Section 7.2(c).
(b) MANNER OF CONVERSION; PARTIAL CONVERSION, ETC. Any Note
may be converted in full or in part by the holder thereof by surrender
of such Note, with a notice of conversion (a form of which is attached
to each Note) attached thereto duly executed by such holder (specifying
the portion of the principal amount thereof to be converted in the case
of a partial conversion), to the Company on any Business Day following
the Triggering Event Notice Date (but not later than fifteen (15) days
following the occurrence of the related Triggering Event) at its
principal office maintained in accordance with Section 3.1 of this
Agreement; PROVIDED, HOWEVER, that in no case shall any conversion of
Notes become effective unless the Triggering Event giving rise thereto
shall have occurred. Upon any partial conversion of a Note, the Company
at its expense will forthwith issue and deliver to or upon the order of
the holder thereof a new Note or Notes in an aggregate principal amount
equal to the unpaid and unconverted principal amount of such
surrendered Note.
(c) WHEN CONVERSION EFFECTIVE. Each conversion shall be deemed
to have been effected, at the option of the holder of Notes making such
election, upon either:
(i) the date of, and at the time immediately
preceding, the occurrence of the Triggering Event giving rise
to such conversion right; and
(ii) if such Business Day follows the date of such
Triggering Event, the Business Day on which such Note shall
have been surrendered to the Company as provided in Section
7.2(b) of this Agreement;
PROVIDED, HOWEVER, that in no case shall any conversion of Notes become
effective unless the Triggering Event giving rise thereto shall have
occurred.
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In either the case of clause (i) or clause (ii) above, at such time the
Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock (or Successor Property) shall
be issuable upon such conversion shall be deemed to have become the
holder or holders of record thereof.
(d) DELIVERY OF STOCK CERTIFICATES, ETC. As soon as
practicable after the conversion of any Note, in whole or in part, and
in any event within five (5) days thereafter, the Company at its
expense (including the payment by it of any applicable issue taxes)
will cause to be issued in the name of and delivered to the holder of
such Note or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of
duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (or Successor Property) to which such
holder shall be entitled upon such conversion, rounded up to
the nearest whole share; and
(ii) in case such conversion is in part only, a new
Note or Notes in an aggregate principal amount equal to the
unpaid and unconverted principal amount of such converted
Note.
7.3 EXCHANGE OF NOTES FOR COMMON STOCK BY THE COMPANY.
(a) EXCHANGE RIGHT. Subject to Section 7.10 and Section 7.11,
the Company may, not later than fifteen (15) days following the
occurrence of a Triggering Event, at its option and election, convert
all, but not less than all, the unpaid principal amount of all Notes,
at the Conversion Price, into that number of fully paid and
nonassessable shares of Common Stock which equals the quotient of:
(i) the principal amount to be so converted; DIVIDED
BY
(ii) the Conversion Price in effect at the time of
such conversion.
(b) NOTICE OF EXCHANGE. In order to exercise its option
pursuant to Section 7.3(a), the Company shall furnish, not later than
fifteen (15) days after the occurrence of any Triggering Event, written
notice to each holder of Notes. Such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer;
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(iii) refer to the right of the Company pursuant to
this Section 7.3;
(iv) state that the Company has exercised such right;
(v) state the date (the "EXCHANGE DATE") on which
such exchange shall become effective (which date shall be not
earlier than the date of, and immediately preceding, the
occurrence of the Triggering Event and not later than fifteen
(15) days following the date of the occurrence of the
Triggering Event; PROVIDED, HOWEVER, that in no case shall any
exchange of Notes pursuant to this Section 7.3 become
effective unless the Triggering Event giving rise thereto
shall have occurred);
(vi) state that, on the Exchange Date and after
giving effect to the occurrence of the relevant Triggering
Event and the effectiveness of the exchange, all rights of the
holders of the Notes (other than the right to receive shares
of Common Stock in accordance with this Section 7.3),
including the right to receive the principal amount of the
Notes at maturity, shall cease; and
(vii) state that the holder may receive certificates
for the shares of Common Stock into which the Notes held by
such holder were exchanged pursuant to Section 7.3(c) by
surrender of such Note to the Company on any Business Day
following the effective date of such exchange at its principal
office maintained in accordance with Section 3.1 of this
Agreement.
(c) DELIVERY OF SHARE CERTIFICATES. As soon as practicable
after the surrender of any Note following the exchange thereof pursuant
to this Section 7.3, and in any event within five (5) days thereafter,
the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and
delivered to the holder of such Note or as such holder (upon payment by
such holder of any applicable transfer taxes) may direct, a certificate
or certificates for the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock (or Successor
Property) to which such holder shall be entitled upon such conversion,
rounded up to the nearest whole share.
(d) In the case of exercises under both Section 7.2 and
Section 7.3, Section 7.3 shall control.
7.4 RESERVATION OF SHARES.
The Company shall at all times reserve and keep available out of its
authorized but unissued Common Stock, solely for the purpose of effecting the
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conversion or exchange of the Notes, such number of its duly authorized shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Notes. The Company covenants that all shares of
Common Stock which may be issued upon conversion or exchange of the Notes will
upon issue be fully paid and non-assessable by the Company and free from all
taxes, liens, and charges with respect to the issue thereof, and free of
preemptive rights in favor of other Persons. At and after the effective time of
any conversion or exchange, the Notes subject thereto shall evidence only the
shares of Common Stock issuable in respect thereof.
7.5 ADJUSTMENT OF CONVERSION PRICE IN RESPECT OF STOCK DIVIDENDS,
STOCK SPLITS, ETC.
In the event that the Company shall, on or after the date hereof:
(a) PAY a dividend in shares of additional Common Stock or
make a distribution in shares of additional Common Stock in respect of
shares of Common Stock;
(a) reclassify by subdivision its outstanding shares of Common
Stock into a greater number of shares; or
(b) reclassify by combination its outstanding shares of Common
Stock into a smaller number of shares;
then, and in each such case, the Conversion Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision or
combination shall be adjusted to that price determined by multiplying the
Conversion Price in effect immediately prior to such event by the quotient of:
(i) the total number of outstanding shares of Common
Stock immediately prior to such event; DIVIDED BY
(ii) the total number of outstanding shares of Common
Stock immediately after such event.
7.6 DE MINIMIS CHANGES IN CONVERSION PRICE.
No adjustment in the Conversion Price shall be required pursuant to
Section 7.5 unless such adjustment would require an increase or decrease of at
least one cent (1(cent)); PROVIDED that any adjustments that, at the time of the
calculation thereof, are less than one cent (1(cent)) at such time and by reason
of this Section 7.6 are not required to be made at such time shall be carried
forward and added to any subsequent adjustment or adjustments for purposes of
determining whether such subsequent adjustment or adjustments, as so
supplemented, exceed one cent (1(cent)) and, if any such subsequent adjustment,
as so supplemented or otherwise, should
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exceed one cent (1(cent)), all adjustments deferred prior thereto and not
previously made shall then be made. In any case, all such adjustments being
carried forward pursuant to this Section 7.6 shall be given effect upon the
conversion or exchange of the Notes for purposes of determining the Conversion
Price applicable thereto. All calculations shall be made to the nearest cent.
7.7 NOTICE OF CHANGE IN CONVERSION PRICE.
The Company shall give prompt written notice of any change in the
Conversion Price to each holder of Notes. Each such notice shall set forth:
(a) the Conversion Price both before and after the event;
(b) a brief statement of the facts requiring such adjustments;
and
(c) the computation by which such adjustments were made.
7.8 EFFECT OF CONSOLIDATION, MERGER, SALE OR RECLASSIFICATION.
In the event that there shall be:
(a) any consolidation of the Company with, or merger of the
Company with or into, another Person (other than a merger in which the
Company is the surviving corporation and that does not result in any
reclassification or change of shares of Common Stock outstanding
immediately prior to such merger);
(b) any sale or conveyance to another Person of the Property
of the Company or ICON substantially as an entirety; or
(c) any reclassification of the Common Stock that results in
the issuance of Successor Property to the holders thereof;
then, in each such case, lawful provision shall be made as a part of the terms
of such transaction so that the holders of the Notes shall thereafter have the
right to purchase the amount and kind of Successor Property receivable upon such
consolidation, merger, sale, conveyance or reclassification by a holder of such
number of shares of Common Stock as the holder of such Notes would have had the
right to acquire upon the conversion or exchange thereof immediately prior to
such consolidation, merger, sale, conveyance or reclassification, at the
Conversion Price then in effect; and, without further action on the part of any
Person, each Note will thereafter represent the right to receive, upon
conversion or exchange thereof, such Successor Property as is so receivable. At
the time of each such consolidation, merger or sale, the Person surviving such
merger or consolidation or the Person to whom such sale or conveyance is made,
as the case may be, shall expressly assume the due and punctual observance and
performance of each and every provision of
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this Section 7 and all obligations and liabilities of the Company hereunder
(subject to the foregoing sentence).
7.9 COMMON STOCK SUBJECT TO STOCKHOLDERS AGREEMENT.
Subject to Section 7.10, the Notes, and all Common Stock issued upon
conversion or exchange of the Notes pursuant to this Section 7, and the rights
and obligations of the Company and the holders of the Notes and the Common Stock
issued upon conversion or exchange of the Notes pursuant to this Section 7,
shall be subject to the provisions of the Stockholders Agreement and the holders
of the Notes and such Common Stock shall be entitled to all of the benefits
thereof.
7.10 INTEREST IN EXCESS OF 24.9%.
Notwithstanding any other provision of this Agreement (other than
Section 7.11), any other Financing Document, the LLC Agreement or the Warrant,
in the event and to the extent that the Tentative Purchaser Ownership Level
would at any time at or after the occurrence of a Triggering Event that this
Note is owned by or for the benefit of the Purchaser or any Purchaser Transferee
thereof, exceed the Permissible Purchaser Ownership Level, the following
provisions shall apply:
(a) GENERAL.
(i) FIRST, that portion of the Warrant which would
otherwise represent Excess Shares will not be exercisable, in
which event the number of Excess Shares will be recomputed
such that the LLC Shares which are not issuable as a result of
this Section 7.10(a)(i) are subtracted from both the numerator
and the denominator of the Tentative Purchaser Ownership Level
definition;
(ii) SECOND, that portion of the conversion right and
the exchange right in Section 7.2(a) and Section 7.3(a) of
this Agreement, which would otherwise result in the issuance
of Excess Shares, will not be exercisable and, accordingly,
shall not permit or require (as applicable) the Purchaser or
any Purchaser Transferee to acquire any Excess Shares, in
which event the number of Excess Shares will be recomputed by
subtracting the Convertible Note Shares which are not issuable
as a result of this Section 7.10(a)(ii) from both the
numerator and denominator of the Tentative Purchaser Ownership
Level definition (as previously recalculated pursuant to
Section 7.10(a)(i)); and
(iii) THIRD, that portion of the Option Shares which
would otherwise represent Excess Shares will not be
exercisable, in which event the number of Excess Shares will
be recomputed such that the Option Shares which are not
issuable as a result of this Section
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7.10(a)(iii) are subtracted from both the numerator and the
denominator of the Tentative Purchaser Ownership Level
definition (as previously recalculated pursuant to Sections
7.10(a)(i) and 7.10(a)(ii)).
EXCESS SHARE TRANSFER RIGHTS. At the request of the Purchaser,
to the extent there has been a change in law or enforcement of the
Banking Laws, the Company shall (i) use its best efforts to assist the
Purchaser in locating one or more Exempt Transferees for that portion
of the Note representing the right to receive Excess Shares
(determined, solely, for this purpose, (x) immediately after giving
effect to any transfer of the LLC Shares to an Exempt Transferee (as
defined in Section 11 of the Warrant) pursuant to and in accordance
with Section 1.5(b) of the Warrant, to the extent such transfer occurs
prior to or simultaneously with any transfer pursuant to this Section
7.10(b), and (y) without giving effect to the recomputation of the
number of Excess Shares as contemplated by Section 7.10(a)(i), Section
7.10(a)(ii) and Section 7.10(a)(iii) of this Agreement), and (ii)
consent to the Purchaser effecting such transfer(s); PROVIDED, HOWEVER,
that no such transfer shall be effective until the transferee has
delivered to the Company a written acknowledgement and agreement in
form and substance reasonably satisfactory to the Company that any
shares of stock of the Company to be distributed by the Company to such
transferee, following exercise by such transferee of the Note, shall be
subject to all the provisions of the Stockholders Agreement and that
such transferee is bound thereby and a party thereto to the same extent
as the holder from whom the transfer was made.
(b) In the event that any portion of the Warrant, of the
conversion and exchange rights under Section 7.2(a) or 7.3(a) of this
Agreement, or of the CSFB Option becomes not exercisable by virtue of
clause (a) above (or in the case of the Warrant, by virtue of Section
1.5(a) thereof), the right to exercise (or in the case of the Company,
the right to cause the exercise of) such unexercisable portion shall be
suspended until, and become effective upon, the earliest time and to
the maximum extent consistent with the Tentative Purchaser Ownership
Level not exceeding, at the time of the effectiveness of any right to
exercise (or to cause an exercise), the Permissible Ownership Level,
such effectiveness to be allocated among the Option Shares, the Note
and the Warrant in the reverse order of clauses (iii), (ii) and (i) of
clause (a) of this Section 7.10.
7.11 AUTOMATIC CONVERSION UPON INSOLVENCY.
Notwithstanding any other provision of this Agreement, any other
Financing Document, the LLC Agreement or the Warrant, upon the occurrence of an
Event of Default referred to in Section 4.1(b), the entire unpaid principal
amount of the
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Notes shall automatically convert, at the Conversion Price, into that number of
fully paid and nonassessable shares of Common Stock which equals the quotient
of:
(i) the principal amount so converted; DIVIDED BY
(ii) the Conversion Price in effect at the time of
such conversion.
As soon as practicable after the surrender of any Note following the occurrence
of such conversion pursuant to this Section 7.11, and in any event within five
(5) days thereafter, the Company at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and delivered
to the holder of such Note or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, a certificate or certificates for the
number of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (or Successor Property) to which such holder shall be entitled
upon such conversion, rounded up to the nearest whole share.
8. MISCELLANEOUS
8.1 COMMUNICATIONS.
(a) METHOD; ADDRESS. All communications hereunder or under the
Notes shall be in writing and shall be delivered either by nationwide
overnight courier or by facsimile transmission (confirmed by delivery
by nationwide overnight courier sent on the day of the sending of such
facsimile transmission). Communications to the Company shall be
addressed as set forth on Annex 2, or at such other address of which
the Company shall have notified each holder of Notes. Communications to
the Senior Agent shall be addressed as set forth on Annex 2, or at such
other one address of which the Senior Agent and the Company both shall
have notified each holder of Notes. Communications to the holders of
the Notes shall be addressed as set forth on Annex 1 by such holder, or
at such other address of which such holder shall have notified the
Company (and the Company shall record such address in the register for
the registration and transfer of Notes maintained pursuant to Section
3.1.
(b) WHEN GIVEN. Any communication addressed and delivered as
herein provided shall be deemed to be received when actually delivered
to the address of the addressee (whether or not delivery is accepted)
or received by the telecopy machine of the recipient. Any communication
not so addressed and delivered shall be ineffective.
(c) SERVICE OF PROCESS. Notwithstanding the foregoing
provisions of this Section 8.1, service of process in any suit, action
or proceeding arising out of or relating to this agreement or any
document, agreement or transaction
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contemplated hereby, or any action or proceeding to execute or
otherwise enforce any judgment in respect of any breach hereunder or
under any document or agreement contemplated hereby, shall be delivered
in the manner provided in Section 8.7(c).
8.2 REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by you at the closing of your purchase of the Notes (except
the Notes themselves), and financial statements, certificates and other
information previously or hereafter furnished to any holder of Notes, may be
reproduced by the Company or any holder of Notes by any photographic,
photostatic, microfilm, micro-card, miniature photographic, digital or other
similar process and each holder of Notes may destroy any original document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by the
Company or such holder of Notes in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. Nothing in this Section 8.2 shall prohibit
the Company or any holder of Notes from contesting the accuracy or validity of
any such reproduction.
8.3 ENTIRE AGREEMENT.
This Agreement, the Notes and the other Financing Documents embody the
entire agreement and understanding among the Company and the Purchasers, and
supersede all prior agreements and understandings, relating to the subject
matter hereof.
8.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Notes, and
shall be enforceable by any such holder whether or not an express assignment to
such holder of rights hereunder shall have been made by you or your successor or
assign. Anything contained in this Section 8.4 notwithstanding, the Company may
not assign any of its respective rights, duties or obligations hereunder or
under any of the other Financing Documents without the prior written consent of
all holders of Notes. For purposes of the avoidance of doubt, any holder of a
Note shall be permitted to pledge or otherwise grant a Lien in and to such Note
(including, without limitation, pledging such Note to a trustee for the benefit
of certain secured noteholders pursuant to documents relating to the financing
of such holder or to one or more banks or other institutions providing financing
in connection with the purchase by such holder of
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such Note); PROVIDED, HOWEVER, that any such pledgee or holder of a Lien shall
not be considered a holder hereunder until it shall have foreclosed upon such
Note in accordance with applicable law and informed the Company, in writing, of
the same. Notwithstanding the foregoing, if any conflict exists between the
terms of this Section 8.4 and the terms of the Stockholders Agreement, the terms
of the Stockholders Agreement shall control.
8.5 AMENDMENT AND WAIVER.
(a) REQUIREMENTS. This Agreement may be amended, and the
observance of any term hereof may be waived, with (and only with) the
written consent of the Company and the Required Holders; PROVIDED,
HOWEVER, that no such amendment or waiver shall, without the written
consent of the holders of all Notes (exclusive of Notes held by the
Company, any Subsidiary or any Affiliate) at the time outstanding;
(i) change the amount or time of the required payment
of principal;
(ii) amend or waive the provisions of Section 5, or
amend or waive any defined term to the extent used therein;
(iii) amend or waive the definition of "Required
Holders;" or
(iv) amend or waive this Section 8.5 or amend or
waive any defined term to the extent used herein.
The holder of any Note may specify that any such written consent
executed by it shall be effective only with respect to a portion of the
Notes held by it (in which case it shall specify, by dollar amount, the
aggregate principal amount of Notes with respect to which such consent
shall be effective) and in the event of any such specification such
holder shall be deemed to have executed such written consent only with
respect to the portion of the Notes so specified.
No amendment, supplement or modification of the provisions of
Section 5, or any defined term to the extent used therein, shall be
effective as to any holder of Senior Debt who has not consented to such
amendment, supplement or modification.
(b) BINDING EFFECT. Any amendment or waiver consented to as
provided in this Section 8.5 shall apply equally to all holders of
Notes and shall be binding upon them and upon each future holder of any
Note and upon the Company whether or not such Note shall have been
marked to indicate such amendment or waiver. No such amendment or
waiver shall extend to or affect any obligation, covenant, agreement,
Default or Event of Default not expressly amended or waived or impair
any right consequent thereon.
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8.6 EXPENSES.
(a) AMENDMENTS AND WAIVERS. The Company shall pay when billed
the reasonable costs and expenses (including reasonable attorneys'
fees) incurred by the holders of the Notes in connection with the
consideration, negotiation, preparation or execution of any amendments,
waivers, consents, standstill agreements and other similar agreements
with respect to this Agreement or any other Financing Document (whether
or not any such amendments, waivers, consents, standstill agreements or
other similar agreements are executed).
(b) RESTRUCTURING AND WORKOUT, INSPECTIONS. At any time when
the Company and the holders of Notes are conducting restructuring or
workout negotiations in respect hereof, or a Default or Event of
Default exists, the Company shall pay when billed the reasonable costs
and expenses (including reasonable attorneys' fees and the fees of
professional advisors) incurred by the holders of the Notes in
connection with the assessment, analysis or enforcement of any rights
or remedies that are or may be available to the holders of Notes,
including, without limitation, in connection with inspections of any of
the Properties, books of account, records, reports and other papers of
the Company or any of the Subsidiaries; PROVIDED, HOWEVER, that at all
times during which no restructuring or workout negotiations are
continuing and no Default or Event of Default exists, inspections will
be at the expense of the inspecting holder of Notes.
(c) COLLECTION. If the Company shall fail to pay when due the
principal of any Note, the Company shall pay to each holder of Notes,
to the extent permitted by law, such amounts as shall be sufficient to
cover the costs and expenses, including but not limited to reasonable
attorneys' fees, incurred by such holder in collecting any sums due on
such Note.
8.7 WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; ETC.
(a) WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY
ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR
OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR
BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING. EACH
37
<PAGE>
PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER
PARTIES HERETO THAT THIS SECTION 8.7(A) CONSTITUTES A MATERIAL
INDUCEMENT UPON WHICH THEY ARE RELYING AND WILL RELY IN ENTERING INTO
THIS AGREEMENT. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION 8.7(A) WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
(b) CONSENT TO JURISDICTION. Each party to this Agreement, by
its execution hereof, (a) hereby irrevocably submits to the exclusive
jurisdiction of the state courts of the State of New York sitting in
the County of New York or the United States District Court for the
Southern District of New York for the purpose of any action, claim,
cause of action or suit (in contract, tort or otherwise), inquiry,
proceeding or investigation arising out of or based upon this Agreement
or relating to the subject matter hereof, (b) hereby waives to the
extent not prohibited by applicable law, and agrees not to assert, and
agrees not to allow any of its subsidiaries to assert, by way of
motion, as a defense or otherwise, in any such action, any claim that
it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or
execution, that any such proceeding brought in one of the above-named
courts is improper, or that this Agreement or the subject matter hereof
or thereof may not be enforced in or by such court and (c) hereby
agrees not to commence or maintain any action, claim, cause of action
or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation arising out of or based upon this Agreement or relating
to the subject matter hereof or thereof other than before one of the
above-named courts nor to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such
action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation to any court other
than one of the above-named courts whether on the grounds of
inconvenient forum or otherwise. Notwithstanding the foregoing, to the
extent that any party hereto is or becomes a party in any litigation in
connection with which it may assert indemnification rights, the court
in which such litigation is being heard shall be deemed to be included
in clause (a) above.
(c) SERVICE OF PROCESS. Each party hereto hereby consents to
service of process in any such proceeding in any manner permitted by
New York law, and agrees that service of process by registered or
certified mail, return receipt requested, at its address specified
pursuant to Section 8.1 is reasonably calculated to give actual notice.
The provisions of this Section 8.7(c) shall not restrict the ability of
any party to enforce in any court any judgment obtained in the federal
or state courts of the State of New York.
38
<PAGE>
8.8 EXECUTION IN COUNTERPART.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts that, collectively, show execution by each
party hereto shall constitute one duplicate original.
[Remainder of page left intentionally blank; Next page is the signature page.]
39
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered by one of its duly authorized
officers or representatives.
HF HOLDINGS, INC.
By:_________________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON CORPORATION
By:_________________________________
Name:
Title:
[Signature page to the Note Agreement]
<PAGE>
ANNEX 1
ADDRESS OF PURCHASER; PAYMENT INSTRUCTIONS
<TABLE>
<CAPTION>
================================================================================
PURCHASER NAME CREDIT SUISSE FIRST BOSTON CORPORATION
- --------------------------------------------------------------------------------
<S> <C>
Name in which Note is Registered CREDIT SUISSE FIRST BOSTON CORPORATION
================================================================================
Note Registration Number; Principal R-1; $7,500,000
Amount of Note
- --------------------------------------------------------------------------------
Payments on Account of Note
Method
Federal Funds Wire Transfer
Account Information
Citibank
New York, NY
ABA No.: 021-000-089
Acct. Name: Credit Suisse First
Boston-Distressed
Acct. No.: 4080-4716
Re: HF Holdings, Inc.
Attn.: Demetri Catis
- --------------------------------------------------------------------------------
Accompanying Information Name of Company: HF HOLDINGS, INC.
Description of
Security: 0% Convertible Subordinated
Notes due September 27, 2011
Due Date and Application (as among
principal) of the payment being made:
================================================================================
<PAGE>
================================================================================
Address for Notices Related Credit Suisse First Boston Corporation
to Payments Eleven Madison Avenue
New York, NY 10010-3629
Attn: Christopher Pechock
Fax: 212.325.8290
- --------------------------------------------------------------------------------
Address for All Other Notices Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010-3629
Attn: Christopher Pechock
Fax: 212.325.8290
WITH A COPY TO:
Bingham Dana LLP
One State Street
Hartford, CT 06103-3178
Attn: Evan D. Flaschen
Fax : 860.240.2800
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
CREDIT SUISSE FIRST BOSTON CORPORATION
By___________________________
Name:
Title:
- --------------------------------------------------------------------------------
Tax Identification Number 13-5659485
================================================================================
</TABLE>
Annex 1-2
<PAGE>
ANNEX 2
ADDRESSES FOR NOTICES
ADDRESS OF COMPANY FOR NOTICES:
HF Holdings, Inc.
c/o ICON Health & Fitness, Inc.
875 South Main Street
Logan, Utah 84321
Telephone: 435 750-4000
Facsimile: 435 753-3665
Attn: President
ADDRESS OF SENIOR AGENT FOR NOTICES:
General Electric Capital Corporation
10 South LaSalle Street, Suite 2700
Chicago, Illinois 60603
Attention: ICON Health & Fitness, Account Manager
Telephone: 312 419-0985
Facsimile: 312 419-5992
Annex 2-1
<PAGE>
ATTACHMENT A
[FORM OF NOTE]
THIS NOTE WAS ISSUED IN A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT COVERING THE TRANSFER OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE ISSUER, THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
IN ADDITION, THIS NOTE IS SUBJECT TO RESTRICTIONS ON VOTING AND
TRANSFER AND REQUIREMENTS OF SALE AND OTHER PROVISIONS AS SET FORTH IN THE
STOCKHOLDERS AGREEMENT DATED AS OF SEPTEMBER 27, 1999, AS AMENDED AND IN
EFFECT FROM TIME TO TIME, AND CONSTITUTES A CSFB SECURITY AS DEFINED IN
SUCH STOCKHOLDERS AGREEMENT. THE COMPANY WILL FURNISH A COPY OF SUCH
AGREEMENT TO THE HOLDER OF THIS NOTE WITHOUT
CHARGE UPON WRITTEN REQUEST.
HF HOLDINGS, INC.
0% CONVERTIBLE SUBORDINATED NOTE DUE SEPTEMBER 27, 2011
No. R-__
$_______ __________ __, ____
HF HOLDINGS, INC. (together with its successors, the "Company"), a
Delaware corporation, for value received, hereby promises to pay to ______ or
registered assigns the principal sum of ______ DOLLARS ($______) on September
27, 2011.
Payment of principal shall be made in such coin or currency of the
United States of America as at the time of payment is legal tender for the
payment of public and private debts to the registered holder hereof at the
address shown in the register maintained by the Company for such purpose, in the
manner provided in the Note Agreement (defined below).
This Note is one of an issue of Notes of the Company issued in an
aggregate principal amount limited to Seven Million Five Hundred Thousand
Dollars ($7,500,000) pursuant to the Amended and Restated Note Agreement (as may
be amended, restated or otherwise modified from time to time, the "Note
Agreement"), dated as of September 27, 1999, between the Company and the
purchaser listed on Annex 1 thereto. The holder of this Note is entitled to the
benefits of the Note Agreement. This Note is subject to the terms of the Note
Agreement, and such terms are incorporated herein by reference. Capitalized
terms used herein and not defined herein have the meanings specified in the Note
Agreement.
All of the principal of this Note may, under certain circumstances, be
declared due and payable in the manner and with the effect provided in the Note
Agreement.
-1-
<PAGE>
This Note is a registered Note and is transferable only by surrender at
the principal office of the Company as specified in the Note Agreement, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
The obligations evidenced by this Note are subordinated to the Senior
Debt on the terms provided in the Note Agreement.
THIS NOTE AND THE NOTE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
HF HOLDINGS, INC.
By:_________________________
Name:
Title:
-2-
<PAGE>
[FORM OF NOTICE OF CONVERSION]
To HF HOLDINGS, INC.
The undersigned elects to convert $______________________ in principal
amount of the accompanying Note into the number of shares of Common Stock of HF
Holdings, Inc. issuable upon the conversion of such principal amount of such
Note, and requests that the certificates for such shares be issued in the name
of:
- ------------------------------------------------------------------------
(Please print or type name, address and zip code.)
- ------------------------------------------------------------------------
(Please insert social security number or tax ID number
If such principal amount of the accompanying Note shall not be the entire
principal amount of the accompanying Note, a new Note or Notes for the balance
remaining of such Note shall be registered in the name of and delivered to:
- ------------------------------------------------------------------------
(Please print or type name, address and zip code.)
- ------------------------------------------------------------------------
(Please insert social security number or tax ID number
The undersigned elects that the conversion of the accompanying Note shall be
deemed to have been effected upon:
|_| the date of, and at the time immediately preceding, the occurrence
of the "Triggering Event" giving rise to such conversion right; or
|_| the Business day on which the accompanying Note shall have been
surrendered to the Company.
Dated: ____________________, _________
[HOLDER]
By:_________________________
NOTICE
The signature to the foregoing Notice of Conversion must correspond to
the name as written upon the face of the accompanying Note or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
-3-
<PAGE>
Exhibit 10.8
JOINDER AND SUPPLEMENT TO STOCKHOLDERS AGREEMENT
This JOINDER AND SUPPLEMENT TO STOCKHOLDERS AGREEMENT is made as of
________, 1999, among HF Holdings, Inc., a Delaware corporation (the "Company"),
ICON Health & Fitness, Inc., a Delaware corporation ("ICON"), and each of the
persons designated as an Employee Stockholder on the signature pages of this
Agreement (each an "Employee Stockholder" and, collectively, the "Employee
Stockholders").
RECITALS
1. The Company, ICON and certain other parties thereto have entered
into a Stockholders Agreement dated as of September 27, 1999 ("Stockholders
Agreement");
2. The Company granted options to each Employee Stockholder, and each
Employee Stockholder received from the Company, Options to purchase Common
Stock, par value $0.001, of the Company ("Common Stock"); and
3. The parties believe that it is in the best interests of the Company
and the Stockholders (i) to provide that shares of Common Stock purchased upon
the exercise of Plan Options, as hereinafter defined, shall be transferable only
upon compliance with the terms hereof; (ii) to provide the Company with certain
rights with respect to the purchase of shares of Common Stock from time to time
held or to be held by the Employee Stockholders or any subsequent holder of
Employee Shares, as hereinafter defined, under certain circumstances; and (iii)
to set forth their agreements on certain other matters.
AGREEMENT
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized Terms defined in the Stockholders Agreement and not
otherwise defined herein are used herein as so defined, and the following terms
shall have the following respective meanings:
1.1. "Call Note" shall mean a promissory note of the Company (a) which shall
bear interest at the rate of interest at which United States Treasury debt
obligations having a two-year maturity (or as close thereto as reasonably
possible) bear interest on the date of issuance of such note; (b) the principal
of, and all accrued and unpaid interest on, which shall be payable, subject to
clauses (c), (d), and (e) of this Section 1.1, in equal installments, the first
of which shall be due upon issuance of the note, and the second and third of
which shall be due on each of the first and second anniversaries of such
issuance, respectively; (c) payment of which shall not be due unless and until
each of the Company and any of its subsidiaries, including without limitation
ICON, shall be entitled to pay funds for the repurchase of shares of the Company
<PAGE>
under the terms of any substantial debt obligation, to which the Company and
each subsidiary is, respectively, a party; (d) which shall be subordinated to
all other indebtedness of the Company, and shall otherwise contain terms and
conditions satisfactory to the lenders of the Company; and (e) all or any part
of which the Company may, at its option, prepay.
1.2. "Call Option Price" shall mean the fair market value of such Employee
Shares as of the date of the Call Notice, as determined by the Board of
Directors of the Company (the "Board") in its discretion. The fair market value
determined by the Board shall be binding upon the Company, each Employee
Stockholder, and their respective successors and assigns.
1.3. "Employee Shares" shall mean all shares of Common Stock acquired upon the
exercise of Plan Options held at any time by any Employee Stockholder or any
subsequent holder thereof.
1.4. "Employee Stockholders" shall mean all persons designated as such on the
signature pages of this Agreement and each other Person who hereafter agrees to
become subject to this Agreement as an Employee Stockholder.
1.5. "Estate" shall mean, as to each Employee Stockholder, the estate thereof.
1.6. "Lien" shall mean any mortgage, pledge, lien, security interest, charge,
claim, equity, encumbrance, restriction on transfer or voting, conditional sale
or other title retention device, transfer for the purpose of subjection to the
payment of any obligation, or restriction on the creation of any of the
foregoing; provided, however, that the term "Lien" shall not include
restrictions on transfer of securities imposed by applicable state and federal
securities laws.
1.7. "Plan Options" shall mean all options to purchase Common Stock of the
Company at any time granted to an Employee Stockholder.
1.8. "Significant Public Float" shall be deemed to exist on and after (i) the
date of closing of the Initial Public Offering of Common Stock of the Company if
as of such date there shall be outstanding shares having an aggregate market
value (calculated on the basis of the offering price to the public in such
Public Offering) of $200,000,000 or more and (ii) if a Significant Public Float
(as defined in clause (i) above) shall not have existed as of the date of
closing of the Initial Public Offering, the first date thereafter on which there
shall be outstanding shares having an aggregate market value (calculated on the
basis of the average of the published best bid and ask or published closing
price, through NASDAQ or on a registered exchange, on the five immediately
preceding trading days) of $200,000,000 or more.
1.9. "Termination Event" shall mean, with respect to any Employee Stockholder,
(i) the termination of the employment of such Person with the Company and each
of its Subsidiaries, whether by reason of death, disability, retirement,
resignation, discharge with or without cause or for any other reason whatsoever,
voluntary or involuntary, or (ii) the failure of any Employee Stockholder to
sell his Employee Shares on the terms and pursuant to the provisions of Section
6 of the Stockholders Agreement, or, after having executed a written commitment,
on the terms and pursuant to the provisions of Section 7 thereof.
-2-
<PAGE>
2. JOINDER TO STOCKHOLDERS AGREEMENT. On the terms and subject to the conditions
hereof, the parties hereto agree for themselves and for the benefit of all
persons now or hereafter parties to the Stockholders Agreement, that all of the
Employee Stockholders shall be deemed Junior Management Investors for purposes
of the Stockholders Agreement and that Plan Options and all Shares of Company
Common Stock now or hereafter held by the Employee Stockholders shall be subject
to the Stockholders Agreement, as amended and in effect from time to time, and
shall be subject to all the obligations and entitled to all the rights
applicable to Junior Management Securities thereunder; provided, however, that
if and to the extent that provisions applicable to Junior Management Securities
conflict with provisions applicable hereunder to Employee Shares, such conflict
will be resolved by applying to Employee Shares the provisions applicable
hereunder.
3. OPTIONS TO PURCHASE COMMON STOCK.
3.1. Call Option. Each holder of Employee Shares hereby grants the Company an
option (the "Call Option") to purchase all or any part of the Employee Shares
held by such holder at a price per share equal to the Call Option Price,
exercisable by the Company within 455 days after the occurrence of a Termination
Event other than death of the Employee Stockholder, or within 575 days in the
event of death of the Employee Stockholder, with respect to the Employee
Stockholder to whom or to whose Estate the Employee Shares held by such holder
were originally issued.
3.2. Manner of Exercise of Call Option. The Call Option may be exercised by
sending of written notice thereof (the "Call Notice") to all holders of Employee
Shares originally issued to the Employee Stockholder or such Employee
Stockholder's Estate or Legal Representative with respect to which Employee
Stockholder the Termination Event has occurred (the "Call Employee Stockholder
Group"). The Call Notice shall state that the Company has elected to exercise
the Call Option and the number of Employee Shares with respect to which the Call
Option is being exercised.
3.3. Closing. The closing of the purchase of the Employee Shares pursuant to the
exercise of the Call Option shall take place 20 business days from the date the
Call Notice was sent, at the principal office of the Company, or at such other
time and location as the parties to such purchase may mutually determine. At the
closing the Company shall pay to the Call Employee Stockholder Group the
aggregate Call Option Price for the Employee Shares to be purchased pursuant to
the Call Option (i) by delivery of a Call Note or (ii) at the Company's option,
in cash by wire transfer or check. At such time, the Call Employee Stockholder
Group shall deliver to the Company the certificate or certificates representing
the Employee Shares so purchased, each duly endorsed for transfer and with
signature guaranteed, free and clear of any Liens, with any necessary stock
transfer tax stamps affixed.
3.4. Termination. No Call Notice may be sent from and after the existence of a
Significant Public Float.
-3-
<PAGE>
4. LEGENDS.
4.1. Employee Shares. Each certificate representing Employee Shares shall, in
addition to any other legends prescribed by law or by the Stockholders
Agreement, have the following legend endorsed conspicuously thereupon:
The shares of stock represented by this certificate are also
subject to certain call rights as provided in the Joinder and
Supplement to Stockholders Agreement dated as of September 27, 1999, as
amended and in effect from time to time, and were originally issued to,
or were issued in respect of shares originally issued to, the following
Junior Management Investor: ____________.
4.2. Removal. Any person who acquires Common Stock which is not subject to all
or part of the terms of this Agreement shall have the right to have such legends
(or the inapplicable portion thereof) removed from certificates representing
such Common Stock.
5. EFFECT ON EMPLOYMENT. As an inducement to the Company to issue the Employee
Shares to the Employee Stockholders, and as a condition thereto, each Employee
Stockholder acknowledges and agrees that:
(i) neither the issuance of the Employee Shares to any Employee
Stockholder nor anything contained herein shall give any
Employee Stockholder any right to be retained in the employ of
the Company, affect the right of the Company to discharge or
discipline such Employee Stockholder at any time or affect any
right of such Employee Stockholder to terminate his or her
employment at any time; and
(ii) neither the Company nor any Affiliate of the Company shall
have any duty or obligation to affirmatively disclose to any
Employee Stockholder, and no Employee Stockholder shall have
any right to be advised of, any material information regarding
the Company or otherwise at any time prior to, upon or in
connection with the purchase of Employee Shares from such
Employee Stockholder in accordance with the provisions hereof.
6. MISCELLANEOUS.
6.1. Notices. Notices and other communications provided for in this Agreement
shall be in writing and shall be sent by certified mail, return receipt
requested, addressed to the party or parties sought to be charged with notice of
the same at the respective addresses set forth below, subject to written notice
of change of address given by any party to the other parties.
If to the Company, to the address set forth in the Stockholders
Agreement, as in effect from time to time.
-4-
<PAGE>
If to any holder of Plan Options, to such holder at his, her, or its
address in the Company's personnel records (which address the Company agrees to
furnish to any holder of shares of Common Stock for use in connection with this
Agreement upon written request). Notice to the holder of record of any Plan
Options shall be deemed to be notice to the holder of such options for all
purposes hereunder.
If to any holder of Common Stock, to such holder at his, her, or its
address in the stock register maintained by the Company (which address the
Company agrees to furnish to any holder of shares of Common Stock for use in
connection with this Agreement upon written request). Notice to the holder of
record of any shares of Common Stock shall be deemed to be notice to the holder
of such shares for all purposes hereunder.
6.2. Change and Modifications; Termination; Actions under this Agreement. This
Agreement may not be orally changed, modified, extended or terminated, nor shall
any oral waiver of any of its terms be effective. This Agreement may be
terminated, changed, modified or extended (i) insofar as it makes the provisions
of the Stockholders Agreement binding upon and inuring to the benefit of the
parties hereto, by amendment or termination of the Stockholders Agreement in
accordance with the provisions thereof; or (ii) insofar as it provides for
different rights and obligations for Employee Shares from those applicable to
Junior Management Securities, by an agreement in writing signed by the Company
and by the holders of at least a majority of the Employee Shares, but not
otherwise. Copies of any such termination, change, extension or modification
shall be sent by the Company to, and be binding upon, each party hereto and each
holder of Employee Shares.
6.3. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, legal representatives,
successors and assigns, and shall inure to the benefit of persons now or
hereafter parties to the Stockholders Agreement.
6.4. Gender and Number. With respect to words used in this Agreement, the
singular form shall include the plural form, the neuter gender shall include the
feminine or masculine gender, and vice versa, as the context requires.
6.5. Descriptive Headings. The descriptive headings of this Agreement are for
convenience of reference only, are not to be considered a part hereof and shall
not be construed to define or limit any of the terms or provisions hereof.
6.6. Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an executed original enforceable as against each party
signing such counterpart, but all of which taken together shall constitute one
instrument.
6.7. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable, such provision shall, to the extent
permitted under applicable law, be construed by modifying or limiting it so as
to be valid and enforceable to the maximum extent possible under applicable law.
The provisions of this Agreement are severable, and in the
-5-
<PAGE>
event that any provisions hereof should be held invalid or unenforceable in any
respect, it shall not invalidate, render unenforceable or otherwise affect any
other provision hereof.
6.8. Governing Law, Arbitration. This Agreement shall be construed, its validity
determined and disputes arising under it resolved as provided in Section 15 of
the Stockholders Agreement.
6.9. Remedies. The parties hereto shall have all remedies for breach of this
Agreement available to them provided by law or equity. Without limiting the
generality of the foregoing, the parties agree that in addition to all other
rights and remedies available at law or in equity, the parties shall be entitled
to obtain specific performance of the obligations of each party to this
Agreement and immediate injunctive relief, and that in the event any action or
proceeding is brought in equity to enforce the same, no holder of Shares will
urge, as a defense, that there is an adequate remedy at law.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
[Jr. Management Stock Option Plan]
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
under seal, as of the date first above written.
HF HOLDINGS, INC.
By_______________________
Title:
ICON HEALTH & FITNESS, INC.
By_______________________
Title:
<PAGE>
[Jr. Management Stock Option Plan]
EMPLOYEE STOCKHOLDERS
_____________________________
_____________________________
_____________________________
_____________________________
_____________________________
<PAGE>
Exhibit 10.9
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REQUIREMENT UNDER SUCH ACT.
AMENDED AND RESTATED
HF INVESTMENT HOLDINGS, LLC
HF CLASS C UNITS PURCHASE WARRANT
as of September 27, 1999
THIS CERTIFIES that, for value received, Credit Suisse First Boston
Management Corporation, a Delaware corporation ("CSFB"), is the owner of this
Warrant to purchase from HF INVESTMENT HOLDINGS, LLC, a Delaware limited
liability company (the "Company"), fifty thousand (50,000) of the Company's HF
Class C Units (the "Units"). This warrant (the "Warrant") has been issued to
CSFB in exchange for five million dollars ($5,000,000). Except as otherwise
provided in Section 2.1 hereof, the aggregate exercise price of this Warrant is
equal to five hundred dollars ($500) (the "Full Exercise Price"). In the event
that this Warrant is exercised in part, and not in full, and except as otherwise
provided in Section 2.1 hereof, the aggregate exercise price in respect of such
partial exercise shall be (a) one cent ($0.01) MULTIPLIED BY (b) the number of
Units as to which this Warrant is being exercised (the "Partial Exercise
Price"). Each of the Full Exercise Price and the Partial Exercise Price is
sometimes referred to herein as an "Exercise Price."
1. EXERCISE OF WARRANT.
1.1 NOTICE OF OCCURRENCE OF A LIQUIDITY EVENT.
(a) NOTICE OF LIQUIDITY EVENT NOTICE EVENT. In the event of
the obtaining of knowledge of a Liquidity Event Notice Event by any
Administrative Member, the Company will, within five (5) Business Days
after the occurrence of such event, give notice of such Liquidity Event
Notice Event to the holder of this Warrant. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by an Administrative Member;
(iii) refer to this Section 1.1(a); and
<PAGE>
(iv) specify, in reasonable detail, the nature and date of
the Liquidity Event Notice Event and the Liquidity
Event which would result therefrom.
(b) LIQUIDITY EVENT NOTICE. In the event of a Liquidity Event,
the Company will, within five (5) Business Days after the occurrence of
such event, or in the case of any Liquidity Event the consummation or
finalization of which would involve any action of the Company, at least
thirty (30) days prior to such Liquidity Event (the "Liquidity Event
Notice Date"), give notice of such Liquidity Event to the holder of
this Warrant. Each such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by an Administrative Member;
(iii) refer to this Section 1.1(b);
(iv) specify, in reasonable detail, the nature and date
(or anticipated date) of the Liquidity Event; and
(v) describe in detail the right of the holder of this
Warrant to exercise as described in Section 1.2
hereof and the right of such holder pursuant to
Section 1.3 to specify the date that any exercise of
the Warrant elected by such holder shall be deemed to
be effected.
1.2 EXERCISE. Subject to the provisions of Section 1.5 hereof, this
Warrant may be exercised by the registered holder hereof at any time within
thirty (30) days following the occurrence of a Liquidity Event, but in no event
after September 26, 2024 (the "Expiration Date"), in whole or in part, by the
surrender on any Business Day following the Liquidity Event Notice Date of this
Warrant, duly endorsed (unless endorsement is waived by the Company), at the
principal office of the Company (or at such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at such holder's last address appearing on the books of the Company) and payment
of the Exercise Price. At the time of any such exercise, the holder shall elect
the time at which such exercise shall be effective in accordance with Section
1.3 hereof, and if no such election is made, such holder shall be deemed to have
elected the earliest date upon which such exercise could have become effective
in accordance with Section 1.3. Upon the partial exercise of this Warrant, the
Company at its expense will forthwith issue and deliver to the holder of this
Warrant a new Warrant exercisable for a number of Units equal to (x) the maximum
number of Units for which, immediately prior to such partial exercise, this
Warrant could be exercised MINUS (y) the number of Units issued by the Company
to the holder as a result of such partial exercise.
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1.3 WHEN EXERCISE EFFECTIVE. Exercise of this Warrant shall be deemed
to have been effected, at the option of the holder of the Warrant, upon either:
(a) the date of, and at the time immediately preceding, the
occurrence of the Liquidity Event giving rise to such exercise right;
or
(b) if such Business Day follows the date of such Liquidity
Event, the Business Day on which the Warrant shall have been
surrendered to the Company as provided in Section 1.2 of this Warrant;
PROVIDED, HOWEVER, that in no case shall any exercise of the Warrant become
effective unless the Liquidity Event giving rise to the right to exercise the
Warrant shall have occurred. At such time as exercise of this Warrant shall be
deemed to have been effected, the holder hereof shall be deemed to be owner of
the Units issuable upon such exercise.
1.4 DEEMED EXERCISE UPON INSOLVENCY EVENT. This Warrant shall
automatically be deemed to have been exercised in full by the registered holder
hereof upon the occurrence of an Insolvency Event, without any action on the
part of the registered holder (including, without limitation, the surrender at
such time of this Warrant or the payment at such time of any Exercise Price),
and following such deemed exercise, this Warrant shall cease to be of any
further force or effect.
1.5 INTEREST IN EXCESS OF PERMISSIBLE PURCHASER OWNERSHIP LEVEL.
Notwithstanding any other provision of this Warrant (other than Section 1.4) or
the Company Agreement, in the event and to the extent that the Tentative
Purchaser Ownership Level would, at any time at or after a Liquidity Event that
this Warrant is owned by or for the benefit of CSFB, any Affiliate of CSFB or
any Holder Transferee thereof, exceed the Permissible Purchaser Ownership Level,
the following provisions shall apply:
(a) GENERAL. That the portion of this Warrant which would
otherwise represent Excess Shares will not be exercisable, in which
event the number of Excess Shares will be recomputed such that the
Excess Shares which are not issuable as a result of this Section 1.5(a)
are subtracted from both the numerator and the denominator of the
Tentative Purchaser Ownership Level definition;
(b) EXCESS SHARE TRANSFER RIGHTS. At the request of the holder
of this Warrant, to the extent there has been a change in law or
enforcement of the BHCA or the IBA, the Company shall (i) use its best
efforts to assist such holder in locating one or more Exempt
Transferees for that portion of this Warrant representing the right to
receive Excess Shares (determined, solely for this purpose, (x)
immediately after giving effect to any transfer of the Convertible Note
Shares to an Exempt Transferee (as defined in Section 6.1 of the Note
Agreement) pursuant to and in accordance with Section 7.10(b) of the
Note Agreement, to the exent such transfer occurs prior to or
simultaneously with any
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transfer pursuant to this Section 1.5(b), and (y) without giving effect
to the recomputation of the number of Excess Shares as contemplated by
Section 1.5(a) of this Warrant), and (ii) consent to such holder
effecting such transfer(s); PROVIDED, HOWEVER, that no such transfer
shall be effective until the transferee has delivered to the Company a
written acknowledgement and agreement in form and substance reasonably
satisfactory to the Company that any shares of stock of HF Holdings to
be distributed by the Company to such transferee, following exercise by
such transferee of the Warrant, shall be subject to all the provisions
of the Stockholders Agreement and that such transferee is bound thereby
and a party thereto to the same extent as the holder from whom the
transfer was made.
(c) In the event that any portion of the Warrant becomes not
exercisable by virtue of clause (a) above, the right to exercise such
unexercisable portion shall be suspended until, and become effective
upon, the earliest time and to the maximum extent consistent with the
Tentative Purchaser Ownership Level not exceeding, at the time of the
effectiveness of any right to exercise, the Permissible Ownership
Level.
1.6 DELIVERY OF CERTIFICATES. If the Units are represented by
certificates, as soon as practicable after exercise of this Warrant, and in any
event within five (5) Business Days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof, a certificate or
certificates for the number of duly authorized and validly issued Units to which
such holder shall be entitled upon such exercise.
2. ADJUSTMENT OF UNIT EXERCISE PRICE AND NUMBER OF UNITS.
2.1 IN GENERAL. In the event that the Company shall, on or after the
date hereof:
(a) make a distribution of additional HF Units in respect of
HF Units;
(b) reclassify by subdivision its outstanding HF Units into a
greater number of HF Units; or
(c) reclassify by combination its outstanding HF Units into a
smaller number of HF Units;
then, and in each such case, the Unit Exercise Price in effect at the time of
the record date for such distribution or of the effective date of such
subdivision or combination shall be adjusted to that price determined by
multiplying the Unit Exercise Price in effect immediately prior to such event by
the quotient of:
(i) the total number of outstanding HF Units immediately
prior to such event; DIVIDED BY
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(ii) the total number of outstanding HF Units immediately
after such event.
Upon each adjustment of the Unit Exercise Price, the holder of this Warrant
shall thereafter be entitled to purchase, at a price per Unit equal to the Unit
Exercise Price resulting from such adjustment, the number of HF Units obtained
by dividing the product of the number of HF Units purchasable pursuant hereto
immediately prior to such adjustment and the Unit Exercise Price immediately
preceding such adjustment by the Unit Exercise Price resulting from such
adjustment.
2.2 NOTICE OF CHANGE IN UNIT EXERCISE PRICE. The Company shall give
prompt written notice of any change in the Unit Exercise Price to the holder of
this Warrant. Each such notice shall set forth:
(a) the Unit Exercise Price both before and after the event;
(b) a brief statement of the facts requiring such adjustments;
and
(c) the computation by which such adjustments were made.
2.3 EFFECT OF CONSOLIDATION, MERGER, SALE OR RECLASSIFICATION. In the
event that there shall be:
(a) any consolidation of the Company with, or merger of the
Company with or into, another Person (other than a merger in which the
Company is the surviving entity and that does not result in any
reclassification or change of HF Units outstanding immediately prior to
such merger);
(b) any sale or conveyance to another Person of the Property
of the Company substantially as an entirety; or
(c) any reclassification of the HF Units that results in the
issuance of Successor Property to the holder thereof;
then, in each such case, lawful provision shall be made as a part of the terms
of such transaction so that the holder of the Warrant shall thereafter have the
right to purchase the amount and kind of Successor Property receivable upon such
consolidation, merger, sale, conveyance or reclassification by a holder of such
number of HF Units as the holder of such Warrant would have had the right to
acquire upon the conversion or exchange thereof immediately prior to such
consolidation, merger, sale conveyance or reclassification, at the Exercise
Price then in effect; and, without further action on the part of any Person, the
Warrant will thereafter represent the right to receive, upon exercise thereof,
such Successor Property as is so receivable. At the time of each such
consolidation, merger or sale, the Person surviving such merger or consolidation
or
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the Person to whom such sale or conveyance is made, as the case may be, shall
expressly assume the due and punctual observance and performance of each and
every provision of Section 1.5 and this Section 2 and all obligations and
liabilities of the Company hereunder and thereunder (subject to the foregoing
sentence).
3. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
limited liability company agreement or through any merger, reorganization,
transfer of assets, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and the taking of all such action.
4. COMPANY TO PROVIDE UNITS. The Company covenants and agrees that all
the Units which may be issued upon the exercise of this Warrant will be duly
authorized, validly issued, and free from all taxes, liens, and charges with
respect to the issue thereof to the registered holder hereof, other than those
which the Company shall promptly pay or discharge. The Company further covenants
and agrees that during the period within which this Warrant may be exercised,
the Company will at all times reserve such number of Units as may be sufficient
to permit the exercise in full of the Warrant.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and in the case of any such loss, theft or destruction of this
Warrant, on delivery of the affidavit of the holder, or its duly authorized
representative, setting forth the circumstances with respect to such loss,
theft, or destruction, together with the holder's written agreement to indemnify
the Company with respect thereto unless the Company has received notice that any
such Warrant has been acquired by a bona fide purchaser, or, in the case of any
such mutilation, on surrender and cancellation of this Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
6. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the holder hereof as follows:
6.1 DUE ORGANIZATION. The Company is a limited liability company duly
organized and validly existing and in good standing under the laws of Delaware.
6.2 DUE AUTHORIZATION. The Company has the power to execute and deliver
this Warrant, and any other document or agreement contemplated by or in
furtherance of the purposes of this Warrant, and to perform its obligations
under each thereof, and has taken all necessary action to authorize such
execution, delivery and performance. The issuance, sale, or delivery of this
Warrant is not subject to any preemptive right of holders of membership
interests of the Company or to any right of first refusal or other right in
favor of any person.
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6.3 NONCONTRAVENTION. Such execution, delivery, and performance do not
violate or conflict in any material respect with any law applicable to the
Company, any provision of its constitutional documents, any order or judgment of
any court or other agency of government applicable to it or any of its assets,
or any contractual restriction binding on or affecting it or any of its assets.
6.4 CONSENTS. All governmental and other consents that are required to
have been obtained by the Company with respect to the Warrant and the
performance thereof have been obtained and are in full force and effect and all
conditions of any such consents have been complied with.
6.5 ENFORCEABILITY. This Warrant constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, subject to
the laws of general application relating to bankruptcy, insolvency and relief of
debtors and other laws of general application, the enforcement of creditors'
rights generally, rules of law governing specific performance, injunctive relief
and equitable remedies. The Units issued upon exercise of this Warrant will be
duly authorized and validly issued.
7. REGISTERED HOLDER. The registered holder of this Warrant shall be
deemed the owner hereof for all purposes. The registered holder of this Warrant
shall not be entitled by virtue of ownership of this Warrant to any rights
whatsoever as a member of the Company.
8. AMENDMENTS AND WAIVERS. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by each of the Company and the registered holder of this Warrant.
9. TRANSFER.
(a) This Warrant may not be sold, assigned, pledged,
encumbered, hypothecated, mortgaged, exchanged, given away, disposed of
or otherwise transferred, voluntarily or involuntarily, pursuant to
judicial process or otherwise (whether used as a verb or noun, each a
"Transfer"), except that this Warrant may be Transferred in whole or in
part:
(i) to the Company in one or more transactions approved
by a Voting Majority;
(ii) to any holder of Class B Units of the Company in a
transaction approved by a Voting Majority;
(iii) pursuant to the terms of Section 1.5(b); and
(iv) in the case of a holder that is an institutional
investor, to any Person under common control with
such holder in a bona fide Transfer not part of a
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transaction or series of transactions that results in
the direct or indirect Transfer of the Warrant to a
Person not under common control with such holder;
PROVIDED, HOWEVER, that no such Transfer shall be
effective until such transferee under common control
has delivered to the Company a written
acknowledgement and agreement in form and substance
reasonably satisfactory to the Company that any
shares of stock of HF Holdings to be distributed by
the Company to such transferee, following exercise by
such transferee of the Warrant, shall be subject to
all the provisions of the Stockholders Agreement and
that such transferee is bound thereby and a party
thereto to the same extent as the holder from whom
the Transfer was made.
(b) Notwithstanding the foregoing Section 9(a) or Section
1.5(b), this Warrant may not be Transferred unless and until:
(i) the transferor shall have notified the Company of the
proposed Transfer and shall have furnished the
Company with a statement of the circumstances
surrounding the proposed Transfer;
(ii) if reasonably requested by the Company, such
transferor shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the
Company, that such Transfer will not require
registration of such Warrant under the Securities Act
of 1933, as amended, and that all requisite action
has been or will, on a timely basis, be taken under
any applicable state securities laws in connection
with such Transfer; and
(iii) the proposed transferee shall have agreed in writing
to be bound by the terms and provisions of this
Section 9.
(c) Upon a permitted Transfer of a portion of this Warrant
(that is, the Transfer of the right to receive, upon payment of the
Exercise Price to the Company, a number of Units less than the maximum
number of Units for which, immediately prior to such Transfer, this
Warrant could be exercised), the Company at its expense will forthwith
issue and deliver to each of the transferor and transferee a new
Warrant exercisable for the number of Units specified by the
transferor; PROVIDED, HOWEVER, THAT, the aggregate number of Units for
which the Warrant issued to the transferor and the Warrant issued to
the transferee will be exercisable will not exceed the maximum number
of Units for which, immediately prior to the Transfer, this Warrant
could be exercised.
10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the laws (other than the choice of law rules) of
the State of New York.
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11. DEFINITIONS. As used herein, the following terms have the
respective meanings indicated below.
"ADMINISTRATIVE MEMBER" shall have the meaning specified in the Company
Agreement.
"AFFILIATE" shall have the meaning specified in the Company Agreement.
"BHCA" means the Bank Holding Company Act of 1956, as amended, and the
rules, regulations and official or staff interpretations promulgated thereunder,
all as from time to time in effect.
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on
which banks in the Sate of New York are required or permitted by law (other than
a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
"CAPITAL STOCK" means any class of preferred common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
"COMPANY" is defined in the preamble hereto.
"COMPANY AGREEMENT" means the amended and restated limited liability
company agreement of the Company dated as of the date hereof.
"COMPANY SHARES" is defined in this Section 11 (in the definition of
"Tentative Purchaser Ownership Level").
"CONVERTIBLE NOTE SHARES" is defined in this Section 11 (in the
definition of "Tentative Purchaser Ownership Level").
"CSFB" is defined in the preamble hereto.
"EXCESS SHARES" means, at any time, a number of Company Shares equal to
the lesser of (a) all Company Shares and (b) the minimum number of Company
Shares that, when subtracted from both the numerator and denominator of the
Tentative Purchaser Ownership Level, will cause the Tentative Purchaser
Ownership Level not to exceed the Permissible Purchaser Ownership Level.
"EXERCISE PRICE" is defined in the preamble hereto.
"EXEMPT TRANSFEREE" is defined in this Section 11 (in the definition of
"Holder Transferee").
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"FULL EXERCISE PRICE" is defined in the preamble hereto.
"HF CLASS C UNITS" shall have the meaning specified in the Company
Agreement.
"HF HOLDINGS" means HF Holdings, Inc., a Delaware corporation.
"HF HOLDINGS SHARES" means shares of the common stock of HF Holdings,
par value $0.001 per share.
"HF UNITS" shall have the meaning specified in the Company Agreement.
"HOLDER TRANSFEREE" means any direct or indirect purchaser from, or
transferee or assignee of, the holder of this Warrant, or any Affiliate of such
purchaser, transferee or assignee, OTHER THAN: (a) a purchaser, transferee or
assignee to which HF Holdings Shares or any portion of this Warrant representing
the right to receive HF Holdings Shares is sold, transferred or assigned from
the holder of this Warrant either (i) in a widely dispersed public distribution,
or (ii) in one or more private transactions that do not result in one purchaser,
transferee or assignee obtaining more than four and nine-tenths percent (4.9%)
of the HF Holdings Shares, or that portion of this Warrant representing the
right to receive more than four and nine-tenths percent (4.9%) of the HF
Holdings Shares, which purchaser, transferee or assignee purchases such HF
Holdings Shares or such portion of the Warrant in the normal course of its
business for investment purposes only, and with no intention of influencing
control over HF Holdings; and (b) any other purchaser, transferee or assignee to
which HF Holdings (in the case of this clause (b) only) consents, in HF
Holdings' sole discretion. A purchaser, transferee or assignee referred to in
either clause (a) or clause (b) above is referred to herein as an "Exempt
Transferee."
"IBA" means the International Banking Act of 1978, as amended, and the
rules, regulations and official or staff interpretations promulgated thereunder,
all as from time to time in effect.
"ICON" means ICON Health & Fitness, Inc., a Delaware corporation.
"ICON RESTRUCTURING" means the completion by HF Holdings and ICON of
the exchanges of 13% Senior Subordinated Notes due 2002 of ICON, 15% Senior
Secured Discount Notes due 2004 of IHF Holdings, Inc. and 14% Senior Discount
Notes due 2006 of ICON Fitness Corporation for the consideration specified in
the Exchange Offer and Consent Solicitation of HF Holdings and ICON, dated July
30, 1999, as supplemented.
"INSOLVENCY EVENT" means an Event of Default described in Section
4.1(b) of the Note Agreement.
"LIQUIDITY EVENT" shall have the meaning specified in the Stockholders
Agreement.
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"LIQUIDITY EVENT NOTICE EVENT" means any event which, with the giving
of notice or the passage of time, or both, would become, or result in, a
Liquidity Event, including, without limitation, the execution of any written
agreement which, when fully performed by the parties thereto, would result in a
Liquidity Event.
"NOTE" shall have the meaning specified in the Note Agreement.
"NOTE AGREEMENT" shall mean the Amended and Restated Note Agreement
dated as of the date hereof between HF Holdings and Credit Suisse First Boston
Corporation, a Massachusetts corporation.
"OPTION SHARES" is defined in this Section 11 (in the definition of
"Tentative Purchaser Ownership Level").
"OWNERSHIP BASE" is defined in this Section 11 (in the definition of
"Tentative Purchaser Ownership Level").
"PARTIAL EXERCISE PRICE" is defined in the preamble hereto.
"PERMISSIBLE PURCHASER OWNERSHIP LEVEL" means at any time the greater
of (a) twenty-four and nine-tenths percent (24.9%) of the HF Holdings Shares,
and (b) the amount of shares in a portfolio company that the holder of this
Warrant, together with its Affiliates, is allowed to own or control under the
BHCA, the IBA and other applicable law.
"PERSON" means an individual, partnership, corporation, limited
liability company, joint venture, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
"STOCKHOLDERS AGREEMENT" shall mean the Stockholders Agreement dated as
of the date hereof among HF Holdings, ICON, the Company and certain other
equityholders of HF Holdings.
"SUCCESSOR PROPERTY" means, in the case of any consolidation, merger,
sale, conveyance or reclassification described in Section 2.3, the shares of
Capital Stock, other securities, cash, Property or rights, warrants or options
receivable upon such consolidation, merger, sale, conveyance or reclassification
in respect of the HF Units held by a holder thereof.
"TENTATIVE PURCHASER OWNERSHIP LEVEL" means, at any time, a fraction
(expressed as a percentage):
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(i) the NUMERATOR of which shall be the sum of: (a) the
aggregate amount of HF Holdings Shares then held by the holder of this
Warrant and its Affiliates and any Holder Transferees (which, for
purposes of this definition, shall be deemed to include all HF Holdings
Shares then outstanding and held by or for the benefit of the holder of
this Warrant or its Affiliates or any Holder Transferees PLUS, those HF
Holdings Shares that are not then outstanding, which are subject to
options, warrants or other conversion privileges that are held by or
for the benefit of the holder of this Warrant and its Affiliates and
any Holder Transferee and that are then exercisable (but shall be
deemed not to include any HF Holdings Shares that are not outstanding,
which are subject to options, warrants or other conversion privileges
that are held by or for the benefit of any other Person)), (b) the
aggregate number of HF Holdings Shares to which the holder of this
Warrant and its Affiliates and any Holder Transferee would otherwise
then be entitled or required to own pursuant to Section 7.2(a) or
Section 7.3(a) of the Note Agreement (the "Convertible Note Shares"),
(c) the aggregate number of HF Holdings Shares to which such holder and
its Affiliates and any Holder Transferee would otherwise then be
entitled or required to own pursuant to the Company Agreement and this
Warrant (the "Company Shares"), and (d) any HF Holdings Shares to which
such holder and its Affiliates and any Holder Transferee would
otherwise then be entitled or required to own upon exercise of the CSFB
Option (as such term is defined in Section 5.2 of the Stockholders
Agreement (the "Option Shares");
(ii) the DENOMINATOR of which shall be the sum of: (a) the
aggregate number of HF Holdings Shares then outstanding (which, for
purposes of this definition, shall be deemed to include all HF Holdings
Shares then outstanding PLUS, those HF Holdings Shares that are not
then outstanding, which are subject to options, warrants or other
conversion privileges that are held by or for the benefit of the holder
of this Warrant or its Affiliates or any Holder Transferee and that are
then exercisable (but shall be deemed not to include any HF Holdings
Shares that are not outstanding, which are subject to options, warrants
or other conversion privileges that are held by or for the benefit of
any other Person)), (b) the Convertible Note Shares, (c) the Company
Shares, and (d) the Option Shares (such sum, the "Ownership Base");
PROVIDED, THAT, no specific HF Holdings Shares (including the Company Shares,
the Convertible Note Shares and the Option Shares) shall be counted more than
once in calculating either the numerator or the denominator set forth in clause
(i) or clause (ii) above.
"TRANSFER" has the meaning specified in Section 9.
"UNITS" is defined in the preamble hereto.
"UNIT EXERCISE PRICE" means one cent ($0.01) as adjusted pursuant to
the terms of Section 2.1.
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"VOTING MAJORITY" has the meaning specified in the Company Agreement.
"WARRANT" is defined in the preamble hereto.
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IN WITNESS WHEREOF, HF INVESTMENT HOLDINGS, LLC has caused this Warrant
to be signed by a duly authorized Administrative Member as of the date first
above written.
HF INVESTMENT HOLDINGS, LLC
By: /s/ SCOTT R. WATTERSON
-----------------------------------
Name: Scott R. Watterson
Title: Administrative Member
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Exhibit 10.10
- --------------------------------------------------------------------------------
HF HOLDINGS, INC.
------------------------
STOCKHOLDERS AGREEMENT
------------------------
Dated as of September 27, 1999
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<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS..............................................................2
1.1. Certain Definitions..............................................2
1.2. Certain Matters of Construction..................................9
1.3. Cross Reference Table...........................................10
2. [RESERVED]..............................................................11
3. VOTING AGREEMENT........................................................12
3.1. Election of Directors...........................................12
3.2. Removal of Directors............................................12
3.3. Successors......................................................12
3.4. Certain Transactions............................................13
3.5. Committees......................................................13
3.6. Special Rule for Fund Designated Directors......................13
3.7. Proxy; the Company..............................................14
3.8. Period..........................................................15
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS................................16
4.1. Securities......................................................16
4.2. Period..........................................................17
4.3. Status in Hands of Certain Transferees..........................18
4.4. Lock-Up.........................................................18
5. CSFB AND JUNIOR MANAGEMENT OPTIONS......................................18
5.1. Junior Management...............................................18
5.2. CSFB............................................................21
6. "TAKE ALONG" RIGHTS.....................................................23
6.1. Procedure.......................................................23
6.2. Certain Legal Requirements......................................24
6.3. Further Assurances; Management Roll-over........................25
6.4. Closing.........................................................26
6.5. Fairness Opinions in Certain Circumstances......................26
6.6. Special Approval Right..........................................27
6.7. Period..........................................................27
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7. CO-SALE RIGHTS..........................................................28
7.1. Tag Along.......................................................28
7.2. Certain Legal Requirements......................................30
7.3. Further Assurances; Management Roll-Over........................31
7.4. Closing.........................................................32
7.5. Excluded Transactions...........................................32
7.6. Period..........................................................33
8. REGISTRATION RIGHTS.....................................................33
8.1. Piggyback Registration Rights...................................33
8.2. Demand Registration Rights......................................35
8.3. Certain Other Provisions........................................38
8.4. Indemnification and Contribution................................40
8.5. Lock-up. ......................................................43
9. CERTAIN FUTURE EQUITY FINANCINGS OF THE COMPANY.........................43
9.1. Right of Participation..........................................44
9.2. Termination.....................................................47
10. DETERMINATION OF FAIR MARKET VALUE.....................................47
11. REMEDIES...............................................................48
11.1. Generally......................................................48
11.2. Deposit........................................................48
12. LEGENDS................................................................48
12.1. Securities Act Legend..........................................49
12.2. Stockholders Agreement Legend..................................49
12.3. Option-Eligible Shares Legend..................................49
13. AMENDMENT, TERMINATION, ETC............................................50
13.1. No Oral Modifications..........................................50
13.2. Written Modifications..........................................50
14. MISCELLANEOUS..........................................................51
14.1. Authority; Effect..............................................51
14.2. Notices........................................................51
14.3. Binding Effect, etc............................................53
14.4. Descriptive Headings...........................................53
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14.5. Counterparts...................................................53
14.6. Severability...................................................54
14.7. Joint and Several Liability of the Company and ICON............54
14.8. Third Party Beneficiaries......................................54
14.9. Termination of Equity Commitment Letter........................54
14.10. Limitation on CSFB Acquisitions................................54
15. GOVERNING LAW..........................................................55
15.1. Governing Law..................................................55
15.2. Consent to Jurisdiction........................................55
15.3. WAIVER OF JURY TRIAL...........................................55
15.4. Reliance.......................................................56
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STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") is made as of September 27,
1999 by and among:
(i) HF Holdings, Inc., a Delaware corporation (the "Company"),
(ii) ICON Health & Fitness, Inc. a Delaware corporation ("ICON"),
(iii) each of Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P.,
BCIP Associates and BCIP Trust Associates, L.P. (collectively, the
"Bain Initial Investors," and each a "Bain Initial Investor"),
(iv) HF Investment Holdings, LLC, a Delaware limited liability company
(the "LLC"),
(v) Credit Suisse First Boston Corporation, a Massachusetts corporation
(together with its affiliates, "CSFB"),
(vi) each of Gary Stevenson and Scott Watterson (together, the "Senior
Management Initial Investors," and each a "Senior Management Initial
Investor"), and
(vii) each of Inverness/Phoenix Capital LLC, a Delaware limited liability
company, Stanley C. Tuttleman and any other parties signing a
counterpart signature page hereto as of the date hereof
(collectively, the "Other Initial Investors," and each an "Other
Initial Investor").
Recitals
1. Pursuant to a Subscription and Stock Purchase Agreement dated as of the
date hereof, as listed on Schedule I hereto (the "LLC Purchase Agreement"), the
LLC has agreed to purchase shares of Common Stock, par value $.001 per share
(the "Common Stock") of the Company. Simultaneously therewith, the Bain Initial
Investors, CSFB, the Senior Management Initial Investors and the Other Initial
Investors have agreed to purchase membership units in the LLC.
2. Pursuant to a Securities Purchase Agreement dated as of the date
hereof, as listed on Schedule I hereto (the "CSFB Purchase Agreement"), CSFB has
agreed to purchase shares of Common Stock and notes convertible into shares of
Common Stock. In addition, pursuant to the Exchange Offers (as defined herein),
CSFB is acquiring warrants to purchase shares of Common
<PAGE>
Stock. For the avoidance of doubt, such warrants shall not constitute Non-CSFB
Warrants (as defined below) and shall constitute CSFB Securities (as defined
below) for all purposes of this Agreement.
3. Pursuant to the Exchange Offers, the former bondholders of ICON, IHF
Holdings, Inc. and ICON Fitness Corporation who participate in the Exchange
Offers (the "Non-CSFB Initial Warrantholders") are acquiring warrants to
purchase shares of Common Stock (the "Non-CSFB Warrants").
4. Concurrent with the closings under the LLC Purchase Agreement and CSFB
Purchase Agreement, the Senior Management Initial Investors are receiving shares
of Common Stock. In addition, subsequent to the closings under the LLC Purchase
Agreement and CSFB Purchase Agreement, certain members of the junior management
of ICON who execute a Joinder and Supplement to this Stockholders Agreement (the
"Junior Management Initial Investors") will be granted options to purchase
shares of Common Stock under the Company's 1999 Junior Management Stock Option
Plan.
5. The parties believe that it is in the best interests of the Company and
the Investors to: (i) provide that certain shares of Common Stock shall be
transferable only upon compliance with the terms hereof; (ii) provide the
Company with certain rights and obligations with respect to the purchase of
shares of Common Stock under certain circumstances; (iii) provide for certain
rights and obligations of the Bain Investors and the Other Investors with
respect to the election of directors of the Company; and (iv) set forth their
agreements on certain other matters.
Agreement
Now therefore, in consideration of the foregoing and the mutual agreements
set forth below, the parties hereto, each intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
1.1. Certain Definitions. The following terms shall have the following
meanings:
1.1.1. "Affiliate" shall mean, with respect to any specified Person,
any Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control
with, the Person specified.
1.1.2. "Affiliated Buyer" shall mean any Proposed Buyer which is (i)
any Bain Investor or Affiliated Fund or (ii) any Person in which any Bain
Investor or Affiliated
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Fund holds any shares of stock (or in the case of a Person which is not a
corporation, equivalent class of beneficial interest), other than shares
of stock (or equivalent beneficial interest) to be received in exchange
for Securities pursuant to the Sale.
1.1.3. "Affiliated Fund" shall mean any limited partnership or other
Person formed for the purpose of investing in other companies or
businesses and for which Bain Capital Investors, Inc., a Delaware
corporation, or any of its Affiliates, acts as a general partner or
otherwise has the right to direct the voting of shares of corporations in
which such limited partnership or other Person invests.
1.1.4. "Bain Investor" shall mean (i) after the LLC Liquidation, any
Bain Initial Investor and any Affiliated Fund, any transferee pursuant to
Section 7.5(a) or (b) or any holder of Class B Units of the LLC which,
from time to time, acquires Shares or Options and becomes party to this
Agreement by executing and delivering to the Company an instrument in form
satisfactory to the Company pursuant to which such stockholder agrees to
be bound by the terms of this Agreement to the same extent as a Bain
Initial Investor and (ii) prior to the LLC Liquidation, the LLC.
1.1.5. "Bain Majority Holders" shall mean, as of any date, the
holders of a majority of the Bain Securities outstanding on such date.
1.1.6. "Bain Securities" shall mean (a) all shares of Common Stock
originally issued to, or issued with respect to shares originally issued
to, or held by, the Bain Investors, whenever issued, including, without
limitation, all shares of Common Stock issued pursuant to the exercise or
conversion of any Options and (b) all Options originally granted or issued
to a Bain Investor (treating such Options as a number of Shares equal to
the number of Equivalent Shares represented by such Options for all
purposes of this Agreement except as otherwise specifically set forth
herein).
1.1.7. "Board" shall mean the Board of Directors of the Company.
1.1.8. "CSFB Investors" shall mean CSFB and any transferee pursuant
to Section 4.1.5 which, from time to time, acquires Shares or Options and
becomes party to this Agreement by executing and delivering to the Company
an instrument in form satisfactory to the Company pursuant to which such
person agrees to be bound by the terms of this Agreement to the same
extent as CSFB.
1.1.9. "CSFB Majority Holders" shall mean, as of any date, the
holders of a majority of the CSFB Securities outstanding on such date.
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1.1.10. "CSFB Securities" shall mean (a) all shares of Common Stock
originally issued to, or issued with respect to shares originally issued
to, or held by, CSFB, whenever issued, including, without limitation, all
shares of Common Stock issued pursuant to the exercise or conversion of
any Options and (b) all Options originally granted or issued to CSFB
(treating such Options as a number of Shares equal to the number of
Equivalent Shares represented by such Options for all purposes of this
Agreement except as otherwise specifically set forth herein).
1.1.11. "Equivalent Shares" shall mean as to any outstanding shares
of Common Stock, such number of shares of Common Stock, and as to any
outstanding Options, the maximum number of shares of Common Stock for
which or into which such Options may at the time be exercised or
converted.
1.1.12. "Exchange Act" shall mean Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as from time to time in effect.
1.1.13."Exchange Offers" shall mean the exchange offers effected
with respect to ICON's 13% Senior Subordinated Notes due 2002, IHF
Holdings, Inc.'s 15% Senior Secured Discount Notes due 2004 and ICON
Fitness Corporation's 14% Senior Discount Notes due 2006 as described in
the Company's and ICON's Exchange Offer and Consent Solicitation
Statement, dated July 30, 1999, as amended and supplemented from time to
time.
1.1.14. "Fair Market Value" shall mean, as of any date, the fair
value of any Security or other securities as of the applicable date, as
determined pursuant to Section 10.
1.1.15. "Financial Buyer" shall mean an entity controlled directly
or indirectly by one or more institutional investors.
1.1.16. "Independent Investment Banking Firm" means any nationally
recognized investment banking firm listed on Schedule 1.1.18 hereto which
is not the Beneficial Owner of any equity interest in (i) the Company,
(ii) any shareholder of the Company, (iii) any Bain Investor or Affiliated
Fund or (iv) any Affiliate of any Bain Investor or Affiliated Fund.
1.1.17. "Initial Public Offering" shall mean the first public
offering of shares of Common Stock registered on form S-1, S-2 or S-3 (or
any successor form) under the Securities Act.
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1.1.18. "Investor" shall mean any Bain Investor or Other Investor.
1.1.19. "Junior Management Investor" shall mean any Junior
Management Initial Investor and any other officer or employee of the
Company or any of its subsidiaries designated by the Board to be a Junior
Management Investor hereunder and any transferee pursuant to Section
4.1.2, 4.1.3 or 4.1.4 who, from time to time, acquires Shares or Options
and becomes party to this Agreement by executing and delivering to the
Company an instrument in form satisfactory to the Company pursuant to
which such person agrees to be bound by the terms of this Agreement to the
same extent as a Junior Management Investor.
1.1.20. "Junior Management Securities" shall mean (a) all shares of
Common Stock originally issued to, or issued with respect to shares
originally issued to, or held by, the Junior Management Investors,
whenever issued, including, without limitation, all shares of Common Stock
issued pursuant to the exercise or conversion of any Options and (b) all
Options originally granted or issued to a Junior Management Investor
(treating such Options as a number of Shares equal to the number of
Equivalent Shares represented by such Options for all purposes of this
Agreement except as otherwise specifically set forth herein).
1.1.21. "Liquidity Event" shall mean the occurrence of (i) the
consummation by the Company of an Initial Public Offering with gross
proceeds greater than $50 million, (ii) the merger or consolidation of the
Company or ICON with or into another entity, or sale of stock of the
Company or ICON, in which the holders of outstanding voting securities of
the Company as of the date hereof (including for such purpose the holders
of membership interests in the LLC) cease to own, directly or indirectly,
greater than 51% of the outstanding voting securities of the entity
surviving such merger or consolidation or sale or (iii) the sale of all or
substantially all of the assets of the Company or ICON.
1.1.22. "LLC Liquidation" shall mean the distribution of
substantially all of the assets of the LLC to its members.
1.1.23. "Management Initial Investor" shall mean any Senior
Management Initial Investor or Junior Management Initial Investor.
1.1.24. "Management Investor" shall mean any Senior Management
Investor or Junior Management Investor.
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<PAGE>
1.1.25. "Management Majority Holders" shall mean, as of any date,
the holders of a majority of the Management Securities outstanding on such
date.
1.1.26. "Management Securities" shall mean the Senior Management
Securities and the Junior Management Securities.
1.1.27. "Members of the Immediate Family" shall mean, with respect
to any individual, each spouse, parent, brother, sister or child of such
individual, each spouse of any such Person, each child of any of the
aforementioned Persons, each trust created solely for the benefit of one
or more of the aforementioned Persons and each custodian or guardian of
any property of one or more of the aforementioned Persons in his capacity
as such custodian or guardian.
1.1.28. "Non-CSFB Warrantholder" shall mean the Non-CSFB Initial
Warrantholders, and any other Person which, from time to time, acquires
Non-CSFB Warrant Securities and thereby becomes entitled to the benefits
of certain provisions of this Agreement.
1.1.29. "Non-CSFB Majority Warrantholders" shall mean, as of any
date, the holders of a majority of the Non-CSFB Warrant Securities
outstanding on such date.
1.1.30. "Non-CSFB Warrant Securities" shall mean all Non-CSFB
Warrants originally issued to the Non-CSFB Warrantholders (treating such
Non-CSFB Warrants as a number of Shares equal to the number of Equivalent
Shares represented by such Non-CSFB Warrants for all purposes of this
Agreement except as otherwise specifically set forth herein) and all
Shares issued upon exercise or conversion of Non-CSFB Warrants (or issued
upon conversion of or otherwise with respect to Shares issued upon
exercise or conversion of Non-CSFB Warrants), whenever issued.
1.1.31. "Option-Eligible Shares" shall mean the Shares originally
issued to (or issued upon conversion of or otherwise with respect to the
Shares originally issued to) the LLC on the date hereof, which Shares
shall remain Option-Eligible Shares in the hands of any transferee until
termination of the Junior Management Options and the CSFB Option set forth
in Section 5.
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<PAGE>
1.1.32. "Options" shall mean (i) any options or warrants or other
rights to subscribe for, purchase or otherwise acquire Common Stock, other
than rights to acquire Shares pursuant to this Agreement, and (ii) any
evidence of indebtedness, shares of stock (other than Common Stock) or
other securities which are directly or indirectly convertible or
exchangeable for shares of Common Stock, but shall exclude the Non-CSFB
Warrants, the Junior Management Options, the CSFB Option and any call
rights in respect of shares issued to employees of the Company or its
subsidiaries.
1.1.33. "Other Investor" shall mean any Other Initial Investor, CSFB
Investor, Management Investor, or any other holder of Class C Units of the
LLC who receives Shares from the LLC upon the LLC Liquidation and any
other Person which, from time to time, acquires Shares and becomes party
to this Agreement by executing and delivering to the Company an instrument
in form satisfactory to the Company pursuant to which such Person agrees
to be bound by the terms of this Agreement to the same extent as an Other
Investor.
1.1.34. "Other Majority Holders" shall mean, as of any date, the
holders of a majority of the Other Securities outstanding on such date.
1.1.35. "Other Securities" shall mean (a) all shares of Common Stock
originally issued to, or issued with respect to shares originally issued
to, or held by, the Other Investors, whenever issued, including, without
limitation, all shares of Common Stock issued pursuant to the exercise or
conversion of any Options and (b) all Options originally granted or issued
to an Other Investor (treating such Options as a number of Shares equal to
the number of Equivalent Shares represented by such Options for all
purposes of this Agreement except as otherwise specifically set forth
herein). For avoidance of doubt, the Other Securities shall not include
the Non-CSFB Warrant Securities.
1.1.36. "Permitted Management Transferee" shall mean, as to each
Management Security, a transferee of such Management Security in
compliance with Section 4.1.2, 4.1.3 or 4.1.4.
1.1.37. "Person" shall mean any individual, partnership,
corporation, company, association, trust, joint venture, unincorporated
organization or entity, or any government, governmental department or
agency or political subdivision thereof.
1.1.38. "Registrable Securities" shall mean (i) all shares of Common
Stock, (ii) all shares of Common Stock issuable upon exercise or
conversion of any Option or of any Non-CSFB Warrant, and (iii) all shares
of Common Stock directly or indirectly issued or
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<PAGE>
issuable with respect to the securities referred to in clauses (i) or (ii)
above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization, in each case included in the Securities or the Non-CSFB
Warrant Securities. As to any particular Registrable Securities, such
shares shall cease to be Registrable Securities when (a) they have been
effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) they have
been distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 or (c) the holder thereof may sell all of its Shares
under Rule 144 within a three month period, provided such holder owns less
than 1% of the outstanding shares of Common Stock, in each case in
compliance with any applicable provisions of this Agreement.
1.1.39. "Rule 144" shall mean Rule 144, as from time to time in
effect, promulgated by the Securities and Exchange Commission under the
Securities Act (including without limitation clause (k) thereof).
1.1.40. "Securities" shall mean all Shares and all Options included
in the Bain Securities or the Other Securities, but shall not include the
Non-CSFB Warrant Securities.
1.1.41. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as from time to time in effect.
1.1.42. "Senior Management Investor" shall mean any Senior
Management Initial Investor, any transferee pursuant to Section 4.1.2,
4.1.3 or 4.1.4 or any holder of Class A Units of the LLC who, from time to
time, acquires Shares or Options and becomes party to this Agreement by
executing and delivering to the Company an instrument in form satisfactory
to the Company pursuant to which such person agrees to be bound by the
terms of this Agreement to the same extent as a Senior Management Initial
Investor.
1.1.43. "Senior Management Majority Holders" shall mean, as of any
date, the holders of a majority of the Senior Management Securities
outstanding on such date.
1.1.44. "Senior Management Securities" shall mean (a) all shares of
Common Stock originally issued to, or issued with respect to shares
originally issued to, or held by, the Senior Management Investors,
whenever issued, including, without limitation, all shares of Common Stock
issued pursuant to the exercise or conversion of any Options and (b) all
Options originally granted or issued to a Senior Management Investor
(treating such Options as a number of Shares equal to the number of
Equivalent Shares represented by
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<PAGE>
such Options for all purposes of this Agreement except as otherwise
specifically set forth herein).
1.1.45. "Shares" shall mean all shares of Common Stock.
1.1.46. "Significant Public Float" shall be deemed to exist on and
after (i) the date of closing of the Initial Public Offering of Common
Stock of the Company if as of such date there shall be outstanding shares
having an aggregate market value (calculated on the basis of the offering
price to the public in such Public Offering) of $200,000,000 or more and
(ii) if a Significant Public Float (as defined in clause (i) above) shall
not have existed as of the date of closing of the Initial Public Offering,
the first date thereafter on which there shall be outstanding shares
having an aggregate market value (calculated on the basis of the average
of the published best bid and ask or published closing price, through
NASDAQ or on a registered exchange, on the five immediately preceding
trading days) of $200,000,000 or more.
1.1.47. "Transfer" shall mean any sale, pledge, assignment,
encumbrance or other transfer or disposition of any Securities to any
other Person, whether directly, indirectly, voluntarily, involuntarily, by
operation of law, pursuant to judicial process or otherwise.
1.1.48. "Voting Shares" shall mean, with respect to any matter to be
voted upon, all Shares included in the Securities entitled to vote with
respect to such matter.
1.2. Certain Matters of Construction. In addition to the definitions
referred to as set forth in the Section 1.1:
(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof;
(b) References to a Section, Schedule or Exhibit are to a Section
of, or Schedule or Exhibit to, this Agreement;
(c) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined;
(d) The masculine, feminine and neuter genders shall each include
the other;
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(e) Except as otherwise provided herein, any Person who holds
Options or Non-CSFB Warrants shall be deemed to be the holder of the
Registrable Securities obtainable upon exercise or conversion of the
Options or Non-CSFB Warrants in connection with the transfer thereof or
otherwise regardless of any restriction or limitation on the exercise or
conversion of the Options or Non-CSFB Warrants; and
(f) Whenever a percentage of one or more types of Securities is
specified, such percentage shall be calculated on the basis on the number
of Registrable Securities represented by such one or more types.
1.3. Cross Reference Table. The following terms defined elsewhere
in this Agreement in the Sections set forth below shall have the respective
meanings therein defined:
Term Definition
"Agreement" Preamble
"Bain Designated Director" Section 3.1
"Bain Initial Investor" Preamble
"Come Along Notice" Section 6.1
"Common Stock" Recitals
"Company" Preamble
"Covered Person" 8.4.1
"CSFB" Preamble
"CSFB Closing" Section 5.2.3
"CSFB Designated Directors" Section 3.1
"CSFB Option" Section 5.2
"CSFB Option-Eligible Shares" Section 5.2
"CSFB Purchase Agreement" Recitals
"Exercising Purchaser" Section 5.1.3
"Fair Market Value" Section 10
"General Representations" Section 6.3
"ICON" Preamble
"Individual Representations" Section 6.3
"Individual Underwriting Agreement Representations" Section 8.1.1
"Initiating Holders" Section 8.2.
"Investor" Preamble
"Issuance" Section 9
"Junior Management Closing" Section 5.1.5
"Junior Management Initial Investor" Preamble
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"Junior Management Option" Section 5.1
"Junior Management Option-Eligible Shares" Section 5.1
"Liquidity Event Notice" Section 5.1.1; 5.2.1
"LLC" Preamble
"LLC Designated Directors" Section 3.1
"LLC Purchase Agreement" Recitals
"Majority Initiating Holders" Section 8.2.3
"Management Designated Directors" Section 3.1
"Non-Complying Investor" Section 11.2
"Non-CSFB Warrant" Recitals
"Non-CSFB Initial Warrantholders" Recitals
"Option-Eligible Share Sellers" Section 5.1.3; 5.2.2
"Other Offered Securities" Section 9.1.4
"Participating Buyer" Section 9.1.2
"Participating Seller" Section 6.1; 7.1.2
"Preemption Notice" Section 9.1
"Preemptive Portion" Section 9.1
"Preemptive Purchaser Offerees" Section 9.1
"Proposed Bain Seller" Section 6; 7.1
"Proposed Buyer" Section 6; 7.1; 9.1
"Public Offering" Section 8.1.1
"Purchase Price" Section 5.1; 5.2
"Sale" Section 6; 7.1
"Sale Percentage" Section 6; 7.1
"Section 382" Section 2
"Section 6.5 Opinion" Section 6.5.1
"Section 6.5 Request Date" Section 6.5.1
"Senior Management Initial Investor" Preamble
"Subject Securities" Section 9
"Tag Along Notice" Section 7.1
"Tag Along Offerees" Section 7.1
"Transfer" Section 4.1
2. [RESERVED].
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3. VOTING AGREEMENT.
3.1. Election of Directors. Each holder of Voting Shares hereby agrees to
cast all votes to which such holder is entitled in respect of the Voting Shares
now or hereafter owned by such holder, whether at any annual or special meeting
of stockholders, by written consent or otherwise, to:
(i) fix the number of directors constituting the Board at nine (9);
(ii) elect as a director of the Company each of two individuals (the
"CSFB Designated Directors") that may be designated by the CSFB
Majority Holders for election;
(iii) if an LLC Liquidation has not occurred, elect as the other members
of the Board such other individuals as may be designated by the LLC
for election (the "LLC Designated Directors");
(iv) if an LLC Liquidation has occurred, (A) and so long as they are
employed as the Chief Executive Officer and the President and Chief
Operating Officer of the Company, respectively, elect as a director
of the Company each of Scott Watterson and Gary Stevenson (the
"Management Designated Directors"), notwithstanding anything to the
contrary contained in Section 3.8, and (B) elect as the other
members of the Board such other individuals as may be designated by
the Bain Majority Holders for election (the "Bain Designated
Directors").
3.2. Removal of Directors. Any director may be removed with or without
cause by decision of two-thirds (2/3) of the other directors; provided, however,
that no director shall be removed without cause except with the consent of the
holders of a majority of the Shares held by the class of Investors entitled to
designate such director pursuant to Section 3.1.
3.3. Successors. In the event a director shall cease to serve for any
reason, then, (i) in the case of a CSFB Designated Director, the CSFB Majority
Holders shall have the right to nominate a successor CSFB Designated Director,
(ii) in the case of an LLC Designated Director, the LLC shall have the right to
nominate a successor LLC Designated Director, (iii) in the case of a Management
Designated Director, the Senior Management Majority Holders shall have the right
to nominate a successor Management Designated Director, and (iv) in the case of
any Bain Designated Director, the Bain Majority Holders shall have the right to
nominate a successor Bain Designated Director; provided, however, that no
director removed for cause shall be renominated or reelected. Each holder of
Voting Shares shall, upon receipt of notice identifying such nominee, promptly
take all action necessary to cause the appointment of such nominee to the Board
pursuant
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to the Company's By-laws and Certificate of Incorporation, each as amended and
in effect from time to time.
3.4. Certain Transactions. Each holder of Other Securities agrees to vote,
or consent with respect to, the Shares included in such Other Securities, and,
subject to fiduciary obligations imposed by applicable law, to cause any
directors designated by such Investor pursuant to Section 3.1 or 3.3 to vote, or
consent with respect to, in the manner specified by the Bain Majority Holders
with respect to: (i) any offering of securities of the Company; (ii) any sale of
a substantial portion of the assets of the Company or any of its subsidiaries to
a Person which is not an Affiliate of any Bain Investor; (iii) any merger or
consolidation involving the Company or any of its subsidiaries with a Person
which is not an Affiliate of any Bain Investor; (iv) any transaction
constituting a change in control of the Company to a Person not an Affiliate of
any Bain Investor; any merger or consolidation of the Company with any one or
more of its direct and indirect subsidiaries and no other Person; and (v) any
transaction to which Section 6 (subject to Section 6.6) or Section 7 applies.
3.5. Committees. Each committee of the Board shall be composed so that the
representation thereon of CSFB Designated Directors, LLC Designated Directors,
Management Designated Directors and Bain Designated Directors shall be in the
same proportion, as nearly as may be, as the representation of such directors on
the whole Board, except as consented to by the Majority Holders entitled to
designate the directors to be excluded; provided, however, that no Management
Designated Director shall sit on the audit committee or any committee charged
with the consideration of matters related to compensation, employee stock
options, or the like; and provided, further, that the Bain Designated Directors
(or the LLC Designated Directors, if an LLC Liquidation has not occurred) shall
at all time constitute a majority of all of the directors on each such
committee.
3.6. Special Rule for Fund Designated Directors. In the case of Bain
Designated Directors, the holders of a majority of the shares specified below
shall be entitled to designate the portion specified below of the number of Bain
Designated Directors then to be designated:
Shares Number
Shares Originally Issued One half of the number to be
To Bain Capital Fund IV, L.P. designated plus one half, rounded
up to the nearest whole number.
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Shares Originally Issued One half of the number to be
to Bain Capital Fund IV-B, L.P. designated minus one half, rounded
down to the nearest whole number.
3.7. Proxy; the Company.
3.7.1. Proxy. In order to assist in the implementation of the
foregoing provisions of this Section 3, each holder of Voting Shares
hereby constitutes and appoints:
(i) Robert Gay and Ron Mika, and each of them, as attorneys and
proxies, with full power of substitution, to receive all
notices, and to represent, vote and consent, with respect to
all Voting Shares held by such holder, without any notice to
such holder (such notice being expressly waived by such
holder), whether or not said representation, vote or consent
benefits the interests of any of said proxies, but only with
respect to any and all of the matters specified in, and only
in the manner contemplated by, clauses (i) and (iii) of
Section 3.1, clause (ii) of Section 3.3 and Section 3.4;
(ii) Robert Gay and Ron Mika, and each of them, as attorneys and
proxies, with full power of substitution, to receive all
notices, and to represent, vote and consent, with respect to
all Voting Shares held by such holder, without any notice to
such holder (such notice being expressly waived by such
holder), whether or not said representation, vote or consent
benefits the interests of any of said proxies, but only with
respect to any and all of the matters specified in, and only
in the manner contemplated by, clauses (i) and (iv)(B) of
Section 3.1, clause (iv) of Section 3.3 and Section 3.4;
(iii) [insert names of initial CSFB directors], and each of them, as
attorneys and proxies, with full power of substitution, to
receive all notices, and to represent, vote and consent, with
respect to all Voting Shares held by such holder, without any
notice to such holder (such notice being expressly waived by
such holder), whether or not said representation, vote or
consent benefits the interests of any of said proxies, but
only with respect to any and all of the matters specified in,
and only in the manner contemplated by, clause (ii) of Section
3.1 and clause (i) of Section 3.3; and
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(iv) Scott Watterson and Gary Stevenson, and each of them, as
attorneys and proxies, with full power of substitution, to
receive all notices, and to represent, vote and consent, with
respect to all Voting Shares held by such holder, without any
notice to such holder (such notice being expressly waived by
such holder), whether or not said representation, vote or
consent benefits the interests of any of said proxies, but
only with respect to any and all of the matters specified in,
and only in the manner contemplated by, clause (iv)(A) of
Section 3.1 and clause (iii) of Section 3.3.
The foregoing proxy is irrevocable, is coupled with an interest in the
Company generally and shall remain in full force and effect
notwithstanding the passage of time (including without limitation the
three-year period specified in Section 212(b) of the Delaware Corporation
Law) until terminated in accordance with the provisions of Section 3.8.
3.7.2. Company to Allow no Inconsistent Action. The Company agrees
not to give effect to any action by any holder of Shares which is in
contravention of this Section 3.
3.8. Period. The foregoing provisions of this Section 3 shall expire on
the earliest of: (i) the date of termination of this Agreement; (ii) prior to
the LLC Liquidation, the first date on which the LLC owns less than fifty
percent (50%) of all Securities owned by it immediately after the closing under
the LLC Purchase Agreement; (iii) after the LLC Liquidation, the first date on
which the Bain Investors own less than fifty percent (50%) of all Securities
owned by them immediately following the LLC Liquidation; (iv) upon the closing
of the Initial Public Offering if, in the written opinion of the managing
underwriter for the Initial Public Offering, the continued effectiveness of this
Section 3 would be detrimental to the sale of securities in the Initial Public
Offering or the price to be received for such securities; (v) one year after the
date, if any, after the Initial Public Offering on which the Bain Investors
shall distribute all Bain Securities pursuant to Section 7.5(b) or (vi) the date
on which there shall exist a Significant Public Float; provided, however, that
(a) the provisions of clause (ii) of Section 3.1, clause (i) of the first
sentence of Section 3.3 and clause (iii) of the first sentence of Section 3.7.1
shall expire on any earlier date that the CSFB Investors own less than fifty
percent (50%) of all Securities owned by them immediately after the closing
under the CSFB Purchase Agreement, (b) the provisions of clause (iv)(A) of
Section 3.1, clause (iii) of the first sentence of Section 3.3, and clause (iv)
of the first sentence of Section 3.7.1. shall expire on any earlier date that
the Senior Management Investors own less than fifty percent (50%) of all
Securities owned by them immediately after the LLC Liquidation and (c) the
provisions of Section 3.4 (other than clause (v) thereof) shall expire upon
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the LLC Liquidation if on the sixtieth (60th) day following the date of this
Agreement the Bain Initial Investors own membership interests in the LLC
representing less than $10 million (at cost).
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS.
4.1. Securities. No holder of any Other Security shall sell, pledge,
assign, grant a participation interest in, encumber or otherwise transfer or
dispose of any of such Other Securities to any other Person, whether directly,
indirectly, voluntarily, involuntarily, by operation of law, pursuant to
judicial process (including, without limitation, divorce decree) or otherwise (a
"Transfer"), except as permitted by this Section 4.1 but not otherwise
prohibited by Section 8.5. Any attempted Transfer of Other Securities not
permitted by this Section 4.1 shall be null and void, and the Company shall not
in any way give effect to any such impermissible Transfer.
4.1.1. Transfers under this Agreement, etc. Any Investor may
Transfer any or all Other Securities held by such Investor: (i) to the
Company or any subsidiary of the Company in one or more transactions
approved by the Board, (ii) to any Bain Investor in a transaction approved
by the Board, (iii) on the terms and subject to the conditions of Sections
5, 6, 7 or 8, or (iv) to the public through a broker, dealer or market
maker pursuant to Rule 144 after the Initial Public Offering.
4.1.2. Transfers of Management Securities to Immediate Family. Any
individual holder of Management Securities may Transfer any or all of such
Securities to a Member of the Immediate Family of such holder; provided,
however, that no such Transfer shall be effective until such Member of the
Immediate Family has delivered to the Company a written acknowledgment and
agreement in form and substance reasonably satisfactory to the Company
that the Securities to be received by such Member of the Immediate Family
are subject to all the provisions of this Agreement and that such Member
of the Immediate Family is bound hereby and a party hereto to the same
extent as a Senior Management Initial Investor or Junior Management
Initial Investor, as the case may be; and provided, further, that any
transfer of an Option shall be subject to all of the terms and conditions
of such Option, or the plan under which such Option was issued, in
addition to the terms and conditions hereof.
4.1.3. Transfers of Management Securities Upon Death. Upon the death
of any individual holder of Management Securities, the Securities held by
such holder may be distributed by will or other instrument taking effect
at death or by applicable laws of descent and distribution to such
holder's estate, executors, administrators and personal representatives,
and then to such holder's heirs, legatees or distributees, whether or not
such recipients are Members of the Immediate Family of such holder;
provided, however,
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that no such Transfer shall be effective until the recipient has delivered
to the Company a written acknowledgment and agreement in form and
substance reasonably satisfactory to the Company that the Securities to be
received by such recipient are subject to all the provisions of this
Agreement and that such recipient is bound hereby and a party hereto to
the same extent as a Senior Management Initial Investor or Junior
Management Initial Investor, as the case may be; and provided, further,
that any transfer of an Option shall be subject to all of the terms and
conditions of such Option, or the plan under which such Option was issued,
in addition to the terms and conditions hereof.
4.1.4. Transfers of Management Securities to Charities. Any holder
of Management Securities may Transfer as a charitable gift any or all of
such Securities to any Person which is described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as from time to time in effect;
provided, however, that no such Transfer shall be effective until such
transferee has delivered to the Company a written acknowledgment and
agreement in form and substance reasonably satisfactory to the Company
that the Securities to be received by such transferee are subject to all
the provisions of this Agreement and that such transferee is bound hereby
and a party hereto to the same extent as a Senior Management Initial
Investor or Junior Management Initial Investor, as the case may be; and
provided, further, that any transfer of an Option shall be subject to all
of the terms and conditions of such Option, or the plan under which such
Option was issued, in addition to the terms and conditions hereof.
4.1.5. Transfers of Other Securities to Entities Under Common
Control. Any holder of Other Securities which is an institutional investor
may Transfer any or all of such Securities to a Person under common
control with such holder in a bona fide transfer not part of a transaction
or series of transactions that results in the direct or indirect transfer
of such Securities to a Person not under common control with such holder;
provided, however, that (i) no such Transfer shall be effective until such
transferee under common control has delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory
to the Company that the Securities to be received by such transferee are
subject to all the provisions of this Agreement and that such transferee
is bound hereby and a party hereto to the same extent as the transferor of
such Securities and (ii) any transfer of an Option shall be subject to all
of the terms and conditions of such Option, or the plan under which such
Option was issued, in addition to the terms and conditions hereof.
4.2. Period. The foregoing provisions of this Section 4 shall expire on
the first date on which the earlier of the following shall have occurred: (i)
there shall exist a Significant Public Float or (ii) (A) prior to the LLC
Liquidation, the LLC owns less than fifty percent (50%) of all
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Securities owned by it immediately after the closing under the LLC Purchase
Agreement or (B) after the LLC Liquidation, the Bain Investors own less than
fifty percent (50%) of all Securities owned by them immediately after the LLC
Liquidation.
4.3. Status in Hands of Certain Transferees. Notwithstanding any other
provision of this Agreement, (a) Securities Transferred pursuant to and in
compliance with Sections 6 or 7 hereof shall in the hands of the Proposed Buyer
not constitute Securities for any purpose of this Agreement; (b) Securities or
Non-CSFB Warrant Securities Transferred (i) pursuant to and in compliance with
Section 8 hereof or (ii) in compliance with this Agreement in any public
offering or under Rule 144 shall in the hands of the recipient not constitute
Securities or Non-CSFB Warrant Securities for any purpose of this Agreement; (c)
Securities acquired in accordance with the provisions of this Agreement by any
Investor from another Investor shall upon such acquisition be deemed for all
purposes hereof to be Bain Securities, CSFB Securities, Senior Management
Securities, Junior Management Securities or Other Securities hereunder, as the
case may be, of like kind with the other Securities held by such acquiring
Investor; and (d) Securities Transferred as described in Section 7.5(d) shall
upon acquisition be deemed for all purposes hereof to be Junior Management
Securities.
4.4. Lock-Up. Notwithstanding any provision to the contrary contained in
this Section 4, no Transfer may be made pursuant to this Section 4 except in
compliance with the provisions of Section 8.5 hereof.
5. CSFB AND JUNIOR MANAGEMENT OPTIONS. CSFB and the Junior Management
Investors shall have the option to purchase certain of the Option-Eligible
Shares on the terms and conditions set forth in this Section 5.
5.1. Junior Management. Subject to the provisions of this Section 5.1 and
effective upon their execution of a Joinder and Supplement to this Stockholders
Agreement, the LLC hereby grants to each Junior Management Initial Investor an
irrevocable option (the "Junior Management Options") to purchase up to the
aggregate number of Option-Eligible Shares set forth on Schedule 5.1 hereto (the
"Junior Management Option-Eligible Shares") at a per share purchase price (the
"Purchase Price") of $5.83, upon the occurrence of the initial Liquidity Event.
Upon execution of the Joinder and Supplement by each Junior Management Initial
Investor, Schedule 5.1 shall be amended to set forth the number of
Option-Eligible Shares subject to the Junior Management Option of such Junior
Management Initial Investor.
5.1.1. Notice. Not fewer than ten (10) business days prior to the
consummation of the Liquidity Event, a notice (the "Liquidity Event
Notice") shall be furnished by the Company to each holder of
Option-Eligible Shares and to each Junior Management Initial
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Investor. The Liquidity Event Notice shall include (i) the proposed date
of consummation of the Liquidity Event and (ii) the number of vested
Junior Management Option-Eligible Shares that each Junior Management
Initial Investor is entitled to purchase.
5.1.2. Vesting. The Junior Management Options shall be subject to
vesting according to the following schedule:
Percentage of Shares Vested Date
--------------------------- ----
25% Immediately
50% September 27, 2000
75% September 27, 2001
100% September 27, 2002
Upon the occurrence of the Liquidity Event, the foregoing schedule shall
be accelerated in respect of any Junior Management Initial Investor who
remains employed by the Company or one of its Affiliates such that 100% of
the Option-Eligible Shares subject to his or her Junior Management Option
shall become immediately vested. No Junior Management Initial Investor who
is not employed by the Company or one of its Affiliates at the time of
consummation of the Liquidity Event may exercise his or her Junior
Management Option with respect to any unvested Junior Management
Option-Eligible Shares.
5.1.3. Exercise. Each Junior Management Initial Investor desiring to
exercise its Junior Management Option shall send a written commitment
within three (3) business days after the furnishing of the Liquidity Event
Notice to the Company and to each holder of Option-Eligible Shares (the
"Option-Eligible Share Sellers") specifying the number of Junior
Management Option-Eligible Shares which such Junior Management Initial
Investor desires to purchase (each Junior Management Initial Investor who
so elects to exercise the Junior Management Option being referred to
herein as an "Exercising Purchaser"). Each Junior Management Initial
Investor who has not so elected to exercise his or her Junior Management
Option shall be deemed to have waived all of his or her rights with
respect to such Junior Management Option, and his or her Junior Management
Option shall terminate upon consummation of the Liquidity Event. In the
event that an Exercising Purchaser elects to purchase less than the total
number of Junior Management Option- Eligible Shares which are subject to
his or her Junior Management Option, such Junior Management Investor shall
be deemed to have waived all of his or her rights with respect to the
remaining Junior Management Option-Eligible Shares, and his or her Junior
Management Option shall terminate as to the remaining Junior Management
Option- Eligible Shares upon consummation of the Liquidity Event.
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The exercise by each Exercising Purchaser shall be irrevocable
except as hereinafter provided, and each such Exercising Purchaser shall
be bound and obligated to acquire such amount of Junior Management
Option-Eligible Shares as such Exercising Purchaser shall have specified
in such Exercising Purchaser's written commitment. If at the end of the
one hundred twentieth (120th) day following the date on which the
Liquidity Event Notice was given the Liquidity Event has not been
consummated, each Exercising Purchaser shall be released from his or her
obligations under the written commitment, the Liquidity Event Notice shall
be null and void, the Junior Management Options shall remain in full force
and effect and it shall be necessary for a separate Liquidity Event Notice
to have been furnished, and the terms and provisions of this Section 5.1
separately complied with, in order to consummate a Liquidity Event, unless
the failure to consummate the Liquidity Event resulted from any failure by
any Junior Management Investor to comply in any material respect with the
terms of this Section 5.1.
5.1.4. Certain Legal Requirements. In the event the participation by
any Junior Management Investor as an Exercising Purchaser would require
under applicable law (i) the registration or qualification of any
securities or of any person as a broker or dealer or agent with respect to
such securities or (ii) the provision to any participant in the
transaction of any information other than such information as would be
required under Regulation D of the Securities and Exchange Commission or
similar rule then in effect in an offering made pursuant to said
Regulation D solely to "accredited investors" as defined in said
Regulation D, the Option-Eligible Share Sellers shall be obligated only to
use their reasonable best efforts to cause such requirements to have been
complied with to the extent necessary to permit such Exercising Purchaser
to receive such securities. Notwithstanding any provisions of this Section
5.1.4, if use of reasonable best efforts shall not have resulted in such
requirements being complied with to the extent necessary to permit such
Exercising Purchaser to receive such securities, the Option-Eligible Share
Sellers may exclude such Exercising Purchaser from participation in the
transaction. The obligation of the Option- Eligible Share Sellers to use
reasonable best efforts to cause such requirements to have been complied
with to the extent necessary to permit an Exercising Purchaser to receive
such securities shall be conditioned on such Exercising Purchaser
executing such documents and instruments, and taking such other actions
(including without limitation, if required by the Option-Eligible Share
Sellers on advice of their counsel, agreeing to be represented during the
course of such transaction by a "purchaser representative" (as defined in
Regulation D) in connection with evaluating the merits and risks of the
prospective investment and acknowledging that he was so represented), as
the Option- Eligible Share Sellers shall reasonably request in order to
permit such requirements to have been complied with. Each Exercising
Purchaser agrees to take such actions as the Option-
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Eligible Share Sellers shall reasonably request in order to permit
such requirements to have been complied with.
5.1.5. Payment and Delivery of Certificates. The closing of the
purchase pursuant to the Junior Management Option (the "Junior Management
Closing") shall occur contemporaneously with and subject to the
consummation of the Liquidity Event. At the Junior Management Closing, (a)
each Option-Eligible Share Seller shall deliver the certificates
evidencing the Junior Management Option-Eligible Shares to be sold by such
Option-Eligible Share Seller, duly endorsed, or with stock powers or other
appropriate instruments duly endorsed, for transfer with signature
guaranteed, free and clear of any liens, encumbrances or adverse claims,
with any stock transfer tax stamps affixed; and (b) each Exercising
Purchaser shall deliver an amount equal to the Purchase Price multiplied
by the number of Junior Management Option-Eligible Shares to be purchased
by such Exercising Purchaser through a wire transfer to the credit of an
account designated by each Option-Eligible Share Seller to the Exercising
Purchasers in writing not less than two (2) business days prior to the
date of the Junior Management Closing.
5.1.6. Certain Adjustments. In the event of any change in the number
of issued and outstanding shares of Common Stock by reason of any stock
dividend, split-up or combination of shares, the number and kind of shares
subject to the Junior Management Options, and the Purchase Price, shall be
appropriately adjusted.
5.1.7. Notice of Transfer. Upon any transfer of Option-Eligible
Shares other than upon exercise of a Junior Management Option, the
transferring holder shall provide to the Junior Management Initial
Investors and the Company a statement setting forth the number of
Option-Eligible Shares transferred and the name and address of the
transferee and a statement signed by the transferee acknowledging that the
transferred Option-Eligible Shares shall continue to be subject to the
Junior Management Options hereunder.
5.1.8. Termination. The Junior Management Options shall terminate on
the earlier of (i) the twelfth anniversary of the date hereof and (ii)
immediately following the consummation of the initial Liquidity Event.
5.2. CSFB. Subject to the provisions of this Section 5.2, the LLC hereby
grants to CSFB an irrevocable option (the "CSFB Option") to purchase up to the
aggregate number of Option-Eligible Shares set forth on Schedule 5.2 hereto
(the "CSFB Option-Eligible Shares") at a per share purchase price (the "Purchase
Price") of $14.56, upon the occurrence of the initial Liquidity Event.
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5.2.1. Notice. Not fewer than ten (10) business days prior to the
consummation of the Liquidity Event, a notice (the "Liquidity Event
Notice") shall be furnished by the Company to each holder of
Option-Eligible Shares and to CSFB. The Liquidity Event Notice shall
include (i) the proposed date of consummation of the Liquidity Event and
(ii) the number of CSFB Option-Eligible Shares that CSFB is entitled to
purchase.
5.2.2. Exercise. If CSFB desires to exercise the CSFB Option, it
shall send a written commitment no more than five (5) business days after
the furnishing of the Liquidity Event Notice to the Company and to each
holder of Option-Eligible Shares (the "Option-Eligible Share Sellers")
specifying the amount of CSFB Option-Eligible Shares which CSFB desires to
purchase. If CSFB does not elect to exercise its CSFB Option, CSFB shall
be deemed to have waived all of its rights with respect to the CSFB
Option, and the CSFB Option shall terminate upon consummation of the
Liquidity Event. If CSFB elects to purchase less than the total number of
CSFB Option-Eligible Shares which are subject to the CSFB Option, CSFB
shall be deemed to have waived all of its rights with respect to the
remaining CSFB Option-Eligible Shares, and the CSFB Option shall terminate
as to the remaining CSFB Option-Eligible Shares upon consummation of the
Liquidity Event.
The exercise by CSFB shall be irrevocable except as hereinafter
provided, and CSFB shall be bound and obligated to acquire such amount of
CSFB Option-Eligible Shares as it shall have specified in its written
commitment. If at the end of the one hundred twentieth (120th) day
following the date on which the Liquidity Event Notice was given the
Liquidity Event has not been consummated, CSFB shall be released from its
obligations under the written commitment, the Liquidity Event Notice shall
be null and void, the CSFB Option shall remain in full force and effect
and it shall be necessary for a separate Liquidity Event Notice to have
been furnished, and the terms and provisions of this Section 5.2
separately complied with, in order to consummate a Liquidity Event, unless
the failure to consummate the Liquidity Event resulted from any failure by
CSFB to comply in any material respect with the terms of this Section 5.2.
CSFB shall purchase the CSFB Option-Eligible Shares from the
Option-Eligible Share Sellers pro rata, on the basis of the number of
Option-Eligible Shares beneficially owned by each Option-Eligible Share
Seller.
5.2.3. Payment and Delivery of Certificates. The closing of the
purchase pursuant to the CSFB Option (the "CSFB Closing") shall occur
contemporaneously with and subject to the consummation of the Liquidity
Event. At the CSFB Closing, (a) each Option-Eligible Share Seller shall
deliver the certificates evidencing the CSFB Option-Eligible
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Shares to be sold by such Option-Eligible Share Seller, duly endorsed, or
with stock powers or other appropriate instruments duly endorsed, for
transfer with signature guaranteed, free and clear of any liens,
encumbrances or adverse claims, with any stock transfer tax stamps
affixed; and (b) CSFB shall deliver an amount equal to the Purchase Price
multiplied by the number of CSFB Option-Eligible Shares to be purchased by
CSFB through a wire transfer to the credit of an account designated by
each Option-Eligible Share Seller to CSFB in writing not less than two (2)
business days prior to the date of the CSFB Closing.
5.2.4. Certain Adjustments. In the event of any change in the number
of issued and outstanding shares of Common Stock by reason of any stock
dividend, split-up or combination of shares, the number and kind of shares
subject to the CSFB Option, and the Purchase Price, shall be appropriately
adjusted.
5.2.5. Termination. The CSFB Option shall terminate on the earlier
of (i) the twelfth anniversary of the date hereof and (ii) immediately
following the consummation of the Liquidity Event.
5.2.6. Notice of Transfer. Upon any transfer of Option-Eligible
Shares other than upon exercise of the CSFB Option, the transferring
holder shall provide to CSFB and the Company a statement setting forth the
number of Option-Eligible Shares transferred and the name and address of
the transferee and a statement signed by the transferee acknowledging that
the transferred Option-Eligible Shares shall continue to be subject to the
CSFB Option hereunder.
6. "TAKE ALONG" RIGHTS. Each holder of Securities hereby agrees, if
requested by the Bain Majority Holders, to Transfer for value (for purposes of
this Section 6, a "Sale") a specified percentage (for purposes of this Section
6, the "Sale Percentage") of the Securities then owned by such holder to any
Person (for purposes of this Section 6, the "Proposed Buyer") in the manner and
on the terms set forth in this Section 6 in connection with the Sale by one or
more holders of Bain Securities (collectively, the "Proposed Bain Seller") of
the Sale Percentage of the total number of Bain Securities held by all holders
of Bain Securities on a fully diluted basis to the Proposed Buyer; provided,
however, that no holder of Securities shall have any obligations under this
Section 6 with respect to a particular Transfer if the Sale Percentage with
respect to such Transfer is less than 10%.
6.1. Procedure. If the Bain Majority Holders elect to exercise their
rights under this Section 6, a notice (the "Come Along Notice") shall be
furnished by the Proposed Bain Seller to each holder of Securities. The Come
Along Notice shall set forth the principal terms of the
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proposed Sale insofar as it relates to the Securities, including the number of
Securities to be purchased from the Proposed Bain Seller, the Sale Percentage,
the maximum and minimum purchase price, the name and address of the Proposed
Buyer and (if the Proposed Buyer is not subject to the periodic reporting
requirements of the Exchange Act) the name of each director of the Proposed
Buyer and of each Person which is the beneficial owner of more than twenty
percent (20%) of the common stock of the Proposed Buyer. If the Bain Majority
Holders consummate the Sale referred to in the Come Along Notice, each other
holder of Securities (each a "Participating Seller") shall be bound and
obligated to Sell the Sale Percentage of the Securities in the Sale on the same
terms and conditions (subject to all of the provisions of this Agreement and it
being understood that, without limiting the foregoing, for such purposes the
terms applicable to Shares of Common Stock shall be identical in all respects),
with respect to each Security Sold, as the Proposed Bain Seller shall Sell each
Bain Security in the Sale, and, in the case of Options, have the opportunity to
either (i) exercise or convert such Options (if then exercisable or convertible)
and participate in such sale as holders of Common Stock issuable upon such
exercise or conversion or (ii) upon the consummation of the Sale, receive in
exchange for such Options (to the extent exercisable or convertible at the time
of such Sale) consideration equal to the amount determined by multiplying (1)
the same amount of consideration per Share received by the holders of the Common
Stock of the same class of Common Stock for which the Option is exercisable or
into which the Option is convertible in connection with the Sale less the
exercise or conversion price per share of such Option by (2) the number of
shares of Common Stock of such class represented by such Option. If at the end
of the ninetieth (90th) day following the date of the effectiveness of the Come
Along Notice the Proposed Bain Seller has not completed the Sale, each
Participating Seller shall be released from his obligation under the Come Along
Notice, the Come Along Notice shall be null and void, and it shall be necessary
for a separate Come Along Notice to have been furnished and the terms and
provisions of this Section 6 separately complied with, in order to consummate
such Sale pursuant to this Section 6, unless the failure to complete such Sale
resulted from any failure by any Participating Seller to comply in any material
respect with the terms of this Section 6.
6.2. Certain Legal Requirements. In the event the consideration to be paid
in exchange for Securities in the proposed Sale pursuant to Section 6.1 includes
any securities and the receipt thereof by any Investor as a Participating Seller
would require under applicable law (i) the registration or qualification of such
securities or of any person as a broker or dealer or agent with respect to such
securities or (ii) the provision to any participant in the Sale of any
information other than such information as would be required under Regulation D
of the Securities and Exchange Commission or similar rule then in effect in an
offering made pursuant to said Regulation D solely to "accredited investors" as
defined in said Regulation D, the Proposed Bain Seller shall be obligated only
to use its reasonable best efforts to cause such requirements to have been
complied with to the extent necessary to permit such Participating Seller to
receive such
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securities. Notwithstanding any provisions of this Section 6, if use of
reasonable best efforts shall not have resulted in such requirements being
complied with to the extent necessary to permit such Participating Seller to
receive such securities, the Proposed Bain Seller shall cause to be paid to such
Participating Seller in lieu thereof, against surrender of the Securities (in
accordance with Section 6.4 hereof) which would have otherwise been Sold by such
Participating Seller to the Proposed Buyer in the Sale, an amount in cash equal
to the Fair Market Value of the securities which such Participating Seller would
otherwise receive. The obligation of the Proposed Bain Seller to use reasonable
best efforts to cause such requirements to have been complied with to the extent
necessary to permit a Participating Seller to receive such securities shall be
conditioned on such Participating Seller executing such documents and
instruments, and taking such other actions (including without limitation, if
required by the Proposed Bain Seller on advice of its counsel, agreeing to be
represented during the course of such transaction by a "purchaser
representative" (as defined in Regulation D) in connection with evaluating the
merits and risks of the prospective investment and acknowledging that he was so
represented), as the Proposed Bain Seller shall reasonably request in order to
permit such requirements to have been complied with. Each Participating Seller
agrees to take such actions as the Proposed Bain Seller shall reasonably request
in order to permit such requirements to have been complied with, and no
Participating Seller shall have the right to require that such Participating
Seller receive cash in lieu of securities on grounds that such requirements have
not been complied with.
6.3. Further Assurances; Management Roll-over. Each Participating Seller,
and each Investor to whom the Securities held by such Participating Seller were
originally issued, shall, whether in his capacity as a Participating Seller,
stockholder, officer or director of the Company, or otherwise, take or cause to
be taken all such actions (subject as to entering into agreements to the
provisions of the next sentence hereof) as may be reasonably requested in order
expeditiously to consummate each Sale pursuant to Section 6.1; provided,
however, that no Management Initial Investor party to an employment agreement
with the Company or any of its subsidiaries shall be required hereunder to
extend the term thereof. In addition, notwithstanding any contrary provision
contained in this Agreement, in the event that the proposed Sale is a Liquidity
Event, at the option of the Bain Majority Investors and on no more than one
occasion under this Agreement, if (A) a Management Investor is currently
employed by the Company or was so employed at any time during the 12 preceding
months without any material diminution of his or her responsibilities and (B)
the Proposed Buyer is a Financial Buyer, such Management Investor and each other
holder of Securities previously held by, or distributed or issued in respect of
Securities or membership interests of the LLC previously held by, such
Management Investor (other than any Person which is described in Section
501(c)(3) of the Internal Revenue Code of 1986, as from time to time in effect)
may be required to retain, or exchange for equity in the Proposed Buyer or one
of its Affiliates or the surviving entity, up to 25%, in the case of Senior
Management Investors, or 15%, in the case of Junior Management Investors, of
their Securities. Each Participating Seller or
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Investor agrees to execute and deliver such agreements as may be necessary
for the Participating Seller to be subject to the same terms and conditions
with respect to the Sale as apply to the Proposed Bain Seller, including,
without limitation, an agreement by such Participating Seller (i) to be
subject to such purchase price escrow, indemnity or adjustment provisions as
may apply to Investors generally, (ii) to be liable in respect of any
individual representations or warranties to be given by selling Investors in
the Sale regarding such matters as legal capacity or due organization of such
Participating Seller, authority to participate in the Sale, compliance by
such selling Investor with laws and agreements applicable to it, and
ownership (free and clear of liens, charges, encumbrances and adverse claims)
of Securities to be sold by such Participating Seller ("Individual
Representations") (insofar as such Individual Representations relate to such
Participating Seller) and (iii) to be liable in respect of any general
representations or warranties to be given by selling Investors in the Sale
regarding such matters as the liabilities (contingent and otherwise), assets,
agreements and business of the Company and its subsidiaries, the compliance
of the Sale with laws and contracts, and the adequacy of disclosure ("General
Representations"); provided, however, that (a) the Management Initial
Investors shall make no representations or warranties pursuant to such
agreement other than Individual Representations but shall be liable as
indemnitors with respect to the General Representations made by other selling
Investors in the Sale, and (b) except with respect to Individual
Representations the aggregate amount of the liability of each Participating
Seller in the Sale shall not exceed the lesser of (i) such Participating
Seller's pro rata portion of any such liability, in accordance with such
Participating Seller's portion of the total number of Securities included in
the Sale and (ii) the net proceeds received by such Participating Seller from
the Sale.
6.4. Closing. The closing of a Sale pursuant to Section 6.1 shall take
place at such time and place as the Bain Majority Holders shall specify by
notice to each Participating Seller. At the closing of any Sale under this
Section 6, each Participating Seller shall deliver the certificates evidencing
the Securities to be sold by such Participating Seller, duly endorsed, or with
stock powers or other appropriate instruments duly endorsed, for transfer with
signature guaranteed, free and clear of any liens, encumbrances or adverse
claims, with any stock transfer tax stamps affixed, against delivery of the
applicable consideration.
6.5. Fairness Opinions in Certain Circumstances.
6.5.1. Opinion. In the case of a proposed Sale pursuant to Section
6.1 to a Proposed Buyer which is an Affiliated Buyer, in the event that
the CSFB Majority Holders or the Management Majority Holders give notice
(the date of such notice being the "Section 6.5 Request Date") to the
Proposed Bain Seller of a request for a fairness opinion under this
Section 6.5 within ten (10) days after the earlier of the effectiveness of
the Come Along Notice with respect thereto or such date as the Proposed
Bain Seller may provide
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a separate written notice of such Sale, then such Sale shall not
be effected pursuant to the provisions of Section 6.1 unless the Company
or the Proposed Bain Seller shall furnish the holders so requesting (with
a copy thereof to any holder of Other Securities that may so request) a
notice which includes a written opinion of an Independent Investment
Banking Firm to the effect that the Sale is fair to the holders of the
requesting type of Securities from a financial point of view (a "Section
6.5 Opinion"). In rendering such Section 6.5 Opinion, such Independent
Investment Banking Firm shall consider (i) the form and amount of
consideration to be received pursuant to such Sale in respect of Shares by
holders of Shares other than holders of the requesting type of Securities,
(ii) the form and amount of consideration to be received pursuant to such
Sale in respect of Shares by the holders of the requesting type of
Securities, and (iii) other factors it may deem relevant.
6.5.2. Selection of Investment Banking Firm. The Independent
Investment Banking Firm to provide the Section 6.5 Opinion shall be
selected by agreement of the CSFB Majority Holders and the Management
Majority Holders. Absent such agreement by the Section 6.5 Request Date,
the CSFB Majority Holders shall, within two (2) business days of the
Section 6.5 Request Date, furnish the Management Majority Holders with a
list of three (3) independent investment banking firms, and within ten
(10) calendar days of the Section 6.5 Request Date the Management Majority
Holders shall select one of such firms to render the Section 6.5 Opinion.
In the event such firm shall decline to serve, the Management Majority
Holders shall, within three (3) business days of notice to that effect,
select another firm from such three. All fees and costs of such
Independent Investment Banking Firm shall be paid by the Company.
6.6. Special Approval Right. If on the sixtieth (60th) day following the
date of this Agreement the Bain Initial Investors own membership interests in
the LLC representing less than $10 million (at cost), the right of the Bain
Majority Holders to require the Sale shall be subject to the approval of the
holders of a majority of the Securities issued in the LLC Liquidation to holders
of voting units of the LLC.
6.7. Period. The foregoing provisions of this Section 6 shall expire on
the earliest of: (i) prior to the LLC Liquidation, the first date on which the
LLC owns less than fifty percent (50%) of all Securities owned by it immediately
after the closing under the LLC Purchase Agreement; (ii) after the LLC
Liquidation, the first date on which the Bain Investors own less than fifty
percent (50%) of all Securities owned by them immediately following the LLC
Liquidation; (iii) upon the closing of the Initial Public Offering if, in the
written opinion of the managing underwriter for the Initial Public Offering, the
continued effectiveness of this Section 6 would be detrimental to the sale of
securities in the Initial Public Offering or the price to be received for such
securities; or (iv) the date on which there exists a Significant Public Float;
provided,
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however, that with respect to clause (iv) hereof, in the event a Come Along
Notice shall have become effective within ninety (90) days prior to such date,
the foregoing provisions of this Section 6 shall expire upon the earlier of (i)
the consummation of the closing of the Sale to which the Come Along Notice
relates and (ii) the ninetieth (90th) day following the effectiveness of the
Come Along Notice.
7. CO-SALE RIGHTS.
7.1. Tag Along. No holder or holders of Bain Securities (for purposes of
this Section 7, collectively, the "Proposed Bain Seller") shall Transfer (for
purposes of this Section 7, a "Sale") any Bain Securities to any other Person
(the "Proposed Buyer") except in the manner and on the terms set forth in this
Section 7, and attempted Transfers in violation of this Section 7 shall be null
and void.
7.1.1. Offer. A written notice (the "Tag Along Notice") shall be
furnished by the Proposed Bain Seller to each holder of Other Securities
(the "Tag Along Offerees") at least ten (10) business days prior to a
Transfer. The Tag Along Notice shall include:
(a) The principal terms of the proposed Sale insofar as it
relates to the Securities, including the number of Securities to be
purchased from the Proposed Bain Seller, the percentage on a
fully-diluted basis of the total number of Bain Securities held by
all holders of Bain Securities which such number of Securities
constitutes (for purposes of this Section 7, the "Sale Percentage"),
the maximum and minimum purchase price, the name and address of the
Proposed Buyer, and (if the Proposed Buyer is not subject to the
periodic reporting requirements of the Exchange Act) the name of
each director of the Proposed Buyer and of each Person which is the
beneficial owner of more than twenty percent (20%) of the Common
Stock of the Proposed Buyer; and
(b) An offer by the Proposed Bain Seller to include, at the
option of each Tag Along Offeree, in the Sale to the Proposed Buyer
such number of Securities (not in any event to exceed the Sale
Percentage of the total number of Securities held by such Tag Along
Offeree) owned by each Tag Along Offeree determined in accordance
with Section 7.1.2 hereof, on the same terms and conditions (subject
to all of the provisions of this Agreement), with respect to each
Security Sold, as the Proposed Bain Seller shall Sell each of its
Securities.
7.1.2. Exercise. Each Tag Along Offeree desiring to accept the offer
contained in the Tag Along Notice shall send a written commitment to the
Proposed Bain Seller
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specifying the number of Securities (not in any event to exceed the Sale
Percentage of the total number of Securities held by such Tag Along
Offeree) which such Tag Along Offeree desires to have included in the Sale
within ten (10) business days after the effectiveness of the Tag Along
Notice (each a "Participating Seller"). Each Tag Along Offeree who has not
so accepted such offer shall be deemed to have waived all of his or her
rights with respect to the Sale, and the Proposed Bain Seller and the
Participating Sellers shall thereafter be free to Sell to the Proposed
Buyer, at a price no greater than the maximum price set forth in the Tag
Along Notice and otherwise on terms not more favorable in any material
respect to them than those set forth in the Tag Along Notice, without any
further obligation to such non-accepting Tag Along Offerees. If, prior to
consummation, the terms of such proposed Sale shall change with the result
that the price shall be greater than 105% of the maximum price set forth
in the Tag Along Notice or the other terms shall be more favorable in any
material respect than as set forth in the Tag Along Notice, it shall be
necessary for a separate Tag Along Notice to have been furnished, and the
terms and provisions of this Section 7 separately complied with, in order
to consummate such proposed Sale pursuant to this Section 7; provided,
however, that in the case of such a separate Take Along Notice, the
applicable period referred to in Section 7.1.1 and this Section 7.1.2
shall be five (5) business days.
The acceptance of each Participating Seller shall be irrevocable
except as hereinafter provided, and each such Participating Seller shall
be bound and obligated to Sell in the Sale, on the same terms and
conditions specified in the Tag Along Notice with respect to each Share of
Common Stock Sold, as the Proposed Bain Seller (subject to all of the
provisions of this Agreement), such number of Securities as such
Participating Seller shall have specified in such Participating Seller's
written commitment, and, in the case of Options, have the opportunity to
either (i) exercise or convert such Options (if then exercisable or
convertible) and participate in such sale as holders of Common Stock
issuable upon such exercise or conversion or (ii) upon the consummation of
the Sale, receive in exchange for such Options (to the extent exercisable
or convertible at the time of such Sale) consideration equal to the amount
determined by multiplying (1) the same amount of consideration per Share
received by the holders of the Common Stock of the same class of Common
Stock for which the Option is exercisable or into which the Option is
convertible in connection with the Sale less the exercise or conversion
price per share of such Option by (2) the number of shares of Common Stock
of such class represented by such Option. In the event the Proposed Bain
Seller shall be unable (otherwise than by reason of the circumstances
described in Section 7.2) to obtain the inclusion in the Sale of all
Securities which the Proposed Bain Seller and each Participating Seller
desires to have included in the Sale (as evidenced in the case of the
Proposed Bain Seller by the Tag Along Notice and in the case of each
Participating Seller by such Participating Seller's
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written commitment), the number of Securities to be sold in the Sale by
the Proposed Bain Seller and each Participating Seller shall be reduced on
a pro rata basis according to the proportion which the number of
Securities which each such Seller desires to have included in the Sale
bears to the total number of Securities desired by all such Sellers to
have included in the Sale.
If at the end of the one hundred eightieth (180th) day following the
date of the effectiveness of the Tag Along Notice the Proposed Bain Seller
has not completed the Sale as provided in the foregoing provisions of this
Section 7.1, each Participating Seller shall be released from his
obligations under his written commitment, the Tag Along Notice shall be
null and void, and it shall be necessary for a separate Tag Along Notice
to have been furnished, and the terms and provisions of this Section 7
separately complied with, in order to consummate such Sale pursuant to
this Section 7, unless the failure to complete such Sale resulted from any
failure by any Tag Along Offeree to comply in any material respect with
the terms of this Section 7.
7.2. Certain Legal Requirements. In the event the consideration to be paid
in exchange for Securities in the proposed Sale pursuant to Section 7.1 includes
any securities and the receipt thereof by any Investor as a Participating Seller
would require under applicable law (i) the registration or qualification of such
securities or of any person as a broker or dealer or agent with respect to such
securities or (ii) the provision to any participant in the Sale of any
information other than such information as would be required under Regulation D
of the Securities and Exchange Commission or similar rule then in effect in an
offering made pursuant to said Regulation D solely to "accredited investors" as
defined in said Regulation D, the Proposed Bain Seller shall be obligated only
to use its reasonable best efforts to cause such requirements to have been
complied with to the extent necessary to permit such Participating Seller to
receive such securities. Notwithstanding any provisions of this Section 7, if
use of reasonable best efforts shall not have resulted in such requirements
being complied with to the extent necessary to permit such Participating Seller
to receive such securities, the Proposed Bain Seller shall cause to be paid to
such Participating Seller in lieu thereof, against surrender of the Securities
(in accordance with Section 7.4 hereof) which would have otherwise been Sold by
such Participating Seller to the Proposed Buyer in the Sale, an amount in cash
equal to the Fair Market Value of the securities which such Participating Seller
would otherwise receive. The obligation of the Proposed Bain Seller to use
reasonable best efforts to cause such requirements to have been complied with to
the extent necessary to permit a Participating Seller to receive such securities
shall be conditioned on such Participating Seller executing such documents and
instruments, and taking such other actions (including without limitation, if
required by the Proposed Bain Seller on advice of its counsel, agreeing to be
represented during the course of such transaction by a "purchaser
representative" (as defined in Regulation D) in connection with evaluating the
merits and risks of the prospective
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investment and acknowledging that he was so represented), as the Proposed Bain
Seller shall reasonably request in order to permit such requirements to have
been complied with. Each Participating Seller agrees to take such actions as the
Proposed Bain Seller shall reasonably request in order to permit such
requirements to have been complied with, and no Participating Seller shall have
the right to require that such Participating Seller receive cash in lieu of
securities on grounds that such requirements have not been complied with.
7.3. Further Assurances; Management Roll-Over. Each Participating Seller,
and each Investor to whom the Securities held by such Participating Seller were
originally issued, shall, whether in his capacity as a Participating Seller,
stockholder, officer or director of the Company, or otherwise, take or cause to
be taken all such actions (subject as to entering into agreements to the
provisions of the next sentence hereof) as may be reasonably requested in order
expeditiously to consummate each Sale pursuant to Section 7.1; provided,
however, that no Management Initial Investor party to an employment agreement
with the Company or any of its subsidiaries shall be required hereunder to
extend the term thereof. In addition, notwithstanding any contrary provision
contained in this Agreement, in the event that the proposed Sale is a Liquidity
Event, at the option of the Bain Majority Investors and on no more than one
occasion under this Agreement, if (A) a Management Investor is currently
employed by the Company or was so employed at any time during the 12 preceding
months without any material diminution of his or her responsibilities and (B)
the Proposed Buyer is a Financial Buyer, such Management Investor and each other
holder of Securities previously held by, or distributed or issued in respect of
Securities or membership interests of the LLC previously held by, such
Management Investor (other than any Person which is described in Section
501(c)(3) of the Internal Revenue Code of 1986, as from time to time in effect)
may be required to retain, or exchange for equity in the Proposed Buyer or one
of its Affiliates or the surviving entity, up to 25%, in the case of Senior
Management Investors, or 15%, in the case of Junior Management Investors, of
their Securities. Each Participating Seller or Investor agrees to execute and
deliver such agreements as may be necessary for the Participating Seller to be
subject to the same terms and conditions with respect to the Sale as apply to
the Proposed Bain Seller, including, without limitation, an agreement by such
Participating Seller (i) to be subject to such purchase price escrow, indemnity
or adjustment provisions as may apply to Investors generally, (ii) to be liable
in respect of any Individual Representations to be given by selling Investors in
the Sale (insofar as such Individual Representations relate to such
Participating Seller) and (iii) to be liable in respect of any General
Representations to be given by selling Investors in the Sale; provided, however,
that (a) the Management Initial Investors shall make no representations or
warranties pursuant to such agreement other than Individual Representations but
shall be liable as indemnitors with respect to the General Representations made
by other selling Investors in the Sale, and (b) except with respect to
Individual Representations, the aggregate amount of the liability of each
Participating Seller shall not exceed the lesser of (i) such Participating
Seller's pro rata portion of any such
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liability, in accordance with such Participating Seller's portion of the total
number of Securities included in the Sale and (ii) the net proceeds received by
such Participating Seller from the Sale.
7.4. Closing. The closing of a Sale pursuant to Section 7.1 shall take
place at such time and place as the Bain Majority Holders shall specify by
notice to each Participating Seller. At the closing of any Sale under this
Section 7, each Participating Seller shall deliver the certificates evidencing
the Securities to be sold by such Participating Seller, duly endorsed, or with
stock powers or other appropriate instruments duly endorsed, for transfer with
signature guaranteed, free and clear of any liens, encumbrances or adverse
claims, with any stock transfer tax stamps affixed, against delivery of the
applicable consideration.
7.5. Excluded Transactions. Notwithstanding any provisions of this Section
7 to the contrary and subject to the provisions of Section 8 below, the
preceding provisions of this Section 7 shall not restrict any Transfer pursuant
to the provisions of Section 6 or 8 of this Agreement; and no holder of Other
Securities shall have pursuant to the provisions of this Section 7 any right of
participation or otherwise with respect to any Transfer of Bain Securities:
(a) to a Bain Investor or an Affiliated Fund; or
(b) to any trust established for the benefit of partners of a
Bain Investor or an Affiliated Fund or pro rata to the partners of a
Bain Investor or an Affiliated Fund; or
(c) in a public offering or under Rule 144; or
(d) to any director, officer or employee of the Company or its
subsidiaries; provided, however, that the aggregate number of shares
of Common Stock transferred under this clause (d) shall not exceed
an aggregate of ten percent (10%) of the outstanding number of
shares of Common Stock (calculated on a fully diluted basis as of
immediately after giving effect to the transfer in question).
Notwithstanding the provisions of the immediately preceding sentence, no
Transfer of Bain Securities pursuant clause (a), (b) or (d) of such sentence
shall be effective until the recipient has delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory to
the Company that all Bain Securities to be received by such recipient are
subject to all of the provisions of this Agreement and that such recipient is
bound hereby and a party hereto to the same extent as a Bain Initial Investor or
Junior Management Initial Investor, as the case may be.
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7.6. Period. The foregoing provisions of this Section 7 shall expire on
the earliest of: (i) prior to the LLC Liquidation, the first date on which the
LLC owns less than fifty percent (50%) of all Securities owned by it immediately
after the closing under the LLC Purchase Agreement; (ii) after the LLC
Liquidation, the first date on which the Bain Investors own less than fifty
percent (50%) of all Securities owned by them immediately following the LLC
Liquidation; (iii) upon the closing of the Initial Public Offering if, in the
written opinion of the managing underwriter for the Initial Public Offering, the
continued effectiveness of this Section 7 would be detrimental to the sale of
securities in the Initial Public Offering or the price to be received for such
securities; or (iv) the date on which there exists a Significant Public Float;
provided, however, that with respect to clause (iv) hereof, in the event a Take
Along Notice shall have become effective within one hundred twenty (120) days
prior to such date, the foregoing provisions of this Section 7 shall expire on
the earlier of (i) the consummation of the closing of the Sale to which the Take
Along Notice relates and (ii) the one hundred twentieth (120th) day following
the effectiveness of the Take Along Notice.
8. REGISTRATION RIGHTS. The Company will perform and comply, and cause
each of its subsidiaries to perform and comply, with such of following
provisions as are applicable to it. Each holder of Securities or Non-CSFB
Warrant Securities will perform and comply with such of the following provisions
as are applicable to such holder.
8.1. Piggyback Registration Rights.
8.1.1. Election. Whenever the Company proposes to register (other
than a registration pursuant to Section 8.3.3) on form S-1, S-2 or S-3 (or
any successor form) any shares of Common Stock for its own or others'
account under the Securities Act for a public offering (each a "Public
Offering"), the Company shall furnish each holder of Registrable
Securities prompt notice of its intent to do so. Upon the request of any
such holder given by notice to the Company within twenty (20) days after
the effectiveness of such notice from the Company, the Company will use
its reasonable best efforts to cause to be included in such registration
all of the Registrable Securities which such holder requests.
8.1.2. Further Assurances. Holders of Registrable Securities
participating in any Public Offering shall take all such actions and
execute all such documents and instruments that are reasonably requested
by the Company to effect the sale of their Registrable Securities in such
Public Offering, including without limitation being parties to the
underwriting agreement entered into by the Company and any other selling
shareholders in connection therewith and being liable in respect of any
representations and warranties being made by each selling shareholder and
any indemnification agreements and "lock-up"
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agreements made by each selling shareholder for the benefit of the
underwriters in such underwriting agreement; provided, however, that (i)
no Management Initial Investor party to an employment agreement with the
Company or any of its subsidiaries shall be required hereunder to extend
the term thereof; and (ii) except with respect to individual
representations and warranties regarding such matters as legal capacity or
due organization of such participating holder, authority to participate in
the Public Offering, compliance by such selling shareholder with laws and
agreements applicable to it, ownership (free and clear of liens, charges,
encumbrances and adverse claims) of Registrable Securities to be sold by
such selling shareholder and accuracy of information with respect to such
selling shareholder furnished for inclusion in any disclosure document
relating to each Public Offering ("Individual Underwriting Agreement
Representations"), the aggregate amount of the liabilities of such
participating holder of Registrable Securities pursuant to such
underwriting agreement shall not exceed the lesser of (a) such
participating holder's pro rata portion of any such liability, in
accordance with such participating holder's portion of the total number of
Registrable Securities included in the Public Offering or (b) the net
proceeds received by such participating holder from the Public Offering.
In the case any Management Initial Investor holding Registrable Securities
shall request participation in any Public Offering pursuant to this
Section 8.1, the Company shall use its reasonable best efforts to induce
the managing underwriter of the securities being offered to permit such
Management Initial Investor to make no representations or warranties in
the underwriting agreement other than Individual Underwriting Agreement
Representations, but to be liable as indemnitors with respect to any other
representations or warranties made by other selling holders in such
underwriting agreement, but in the event the managing underwriter shall
not accede to such request, such Management Initial Investor shall, within
five (5) days of notice to that effect from the managing underwriter or
its counsel, either elect to make such other representations and
warranties in the underwriting agreement as shall be made by other
participating holders or to withdraw from participation.
8.1.3. Expenses. The Company shall pay all expenses of the holders
of Registrable Securities participating in any Public Offering pursuant to
this Section 8.1, other than (i) underwriting discounts and commissions,
if any, attributable to the Registrable Securities being sold by such
holder, (ii) applicable transfer taxes, if any, and (iii) fees and charges
of any attorneys or other advisors (other than attorneys and advisors
retained by the Company to advise it in connection with such Public
Offering and one counsel retained to advise all holders of Registrable
Securities in connection with such Public Offering) retained by any such
holders.
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8.1.4. Excluded Transactions. Notwithstanding the preceding
provisions of this Section 8.1, no holder of Registrable Shares shall have
any right of participation or otherwise with respect to the following
Public Offerings:
(a) Any Public Offering relating solely to employee benefit
plans, or
(b) Any Public Offering the proceeds of which are used
principally to finance the acquisition after the date hereof by the
Company or any of its subsidiaries of any acquired businesses or any
Public Offering constituting an exchange of securities for
securities of any such acquired businesses.
8.2. Demand Registration Rights.
8.2.1. Registration on Request of Holders of Bain Securities. One or
more holders of Bain Securities that wish to register securities
representing at least twenty-five percent (25%) of the total amount of
Bain Securities then outstanding (as to such registration, the "Initiating
Holders") may, by notice to the Company specifying the intended method or
methods of disposition, request that the Company effect the registration
under the Securities Act of all or a specified part of the Registrable
Securities held by such Initiating Holders. Promptly after receipt of such
notice, the Company will give notice of such requested registration to all
other holders of Registrable Securities. The Company will then use its
reasonable best efforts to effect the registration under the Securities
Act of the Registrable Securities which the Company has been requested to
register by such Initiating Holders, and, subject to all of the provisions
of this Section 8, all other Registrable Securities which the Company has
been requested to register pursuant to Section 8.1.1 by notice delivered
to the Company within twenty (20) days after the giving of such notice by
the Company (which request shall specify the intended method of
disposition of such Registrable Securities), all to the extent requisite
to permit the disposition (in accordance with the intended methods thereof
as aforesaid) of the Registrable Securities which the Company has been so
requested to register. No holder of Bain Securities shall present any
request for registration pursuant to this Section 8.2.1 (i) at any time
within one hundred eighty (180) days after either the furnishing by the
Company of any notice of proposed registration under Section 8.1 or 8.2
hereof (unless abandoned by notice from the Company or the Majority
Initiating Holders, as applicable) or the consummation of any other Public
Offering, without the prior consent of the Company or (ii) if the Company
has previously effected three registrations of Registrable Securities
under this Section 8.2.1.
8.2.2. Registration on Request of Holders of CSFB and Senior
Management Securities and Non-CSFB Warrant Securities.
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8.2.2.1. Senior Management Investors. At any time not earlier
than one hundred eighty (180) days after the closing of the first
registered secondary offering following the Initial Public Offering,
the Senior Management Majority Holders (as to such registration, the
"Initiating Holders") may, by notice to the Company specifying the
intended method or methods of disposition, request that the Company
effect the registration under the Securities Act of all or a
specified part of the Registrable Securities held by such Initiating
Holders. The demand registration rights granted pursuant to this
Section 8.2.2.1 may not be exercised if the Company has previously
effected a registration of Registrable Securities under this Section
8.2.2.1.
8.2.2.2. CSFB. At any time not earlier than one hundred eighty
(180) days after the closing of the first registered secondary
offering following the Initial Public Offering, the CSFB Majority
Holders (as to such registration, the "Initiating Holders") may, by
notice to the Company specifying the intended method or methods of
disposition, request that the Company effect the registration under
the Securities Act of all or a specified part of the Registrable
Securities held by such Initiating Holders. The demand registration
rights granted pursuant to this Section 8.2.2.2 may not be exercised
if the Company has previously effected a registration of Registrable
Securities under this Section 8.2.2.2.
8.2.2.3. Non-CSFB Warrantholders. At any time not earlier than
one hundred eighty (180) days after the closing of the first
registered secondary offering following the Initial Public Offering,
the holders of Non-CSFB Warrant Securities (other than the Company,
the Bain Investors or the Other Investors) representing an aggregate
of at least 25% of the Non-CSFB Warrant Securities then outstanding
(as to such registration, the "Initiating Holders") may, by notice
to the Company specifying the intended method or methods of
disposition, request that the Company effect the registration under
the Securities Act of all or a specified part of the Registrable
Securities held by such Initiating Holders. The demand registration
rights granted pursuant to this Section 8.2.2.3 may not be exercised
if the Company has previously effected two registrations of
Registrable Securities under this Section 8.2.2.3.
8.2.2.4. Certain Provisions. No holder of Other Securities or
Non-CSFB Warrant Securities shall present any request for
registration pursuant to this Section 8.2.2 at any time within one
hundred eighty (180) days after either the furnishing by the
Company of any notice of proposed registration under Section 8.1
or 8.2
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hereof (unless abandoned by notice from the Company or the
Majority Initiating Holders, as applicable) or the consummation
of any other Public Offering, without the prior consent
of the Company. Promptly after receipt of any notice requesting
registration of Registrable Securities pursuant to this Section
8.2.2, the Company will give notice of such requested registration
to all other holders of Registrable Securities. The Company will
then use its reasonable best efforts to effect the registration
under the Securities Act of the Registrable Securities which the
Company has been requested to register by the holders requesting
pursuant to this Section 8.2.2, and, subject to all of the
provisions of this Section 8, all other Registrable Securities which
the Company has been requested to register pursuant to Section 8.1.1
by notice delivered to the Company within 20 days after the giving
of such notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities), all
to the extent requisite to permit the disposition (in accordance
with the intended methods thereof as aforesaid) of the Registrable
Securities which the Company has been so requested to register.
8.2.3. Form. Each registration requested pursuant to this Section
8.2 shall be effected by the filing of a registration statement on Form
S-1 (or any other form which includes substantially the same information
as would be required to be included in a registration statement on such
form as currently constituted), unless the use of a different form has
been agreed to in writing by holders of at least a majority of the
Registrable Securities held by the Initiating Holders (the "Majority
Initiating Holders").
8.2.4. Registrations Pursuant to Section 8.2. In the case of a
registration pursuant to Section 8.2, whenever the Majority Initiating
Holders shall request that such registration shall be effected pursuant to
an underwritten offering, such registration shall be so effected, and all
Registrable Securities to be included in such registration shall be
included in such underwritten offering, subject to the cutback provisions
of Section 8.3.1. If requested by such underwriters, the Company will
enter into an underwriting agreement with such underwriters for such
offering containing such representations and warranties by the Company and
such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions,
including, without limitation, customary indemnity and contribution
provisions.
8.2.5. Expenses. The Company shall pay all expenses of the holders
of Registrable Securities participating in any Public Offering pursuant to
this Section 8.2, other than (i) underwriting discounts and commissions,
if any, (ii) applicable transfer taxes, if any, and (iii) fees and charges
of any attorneys or other advisors (other than attorneys and advisors
retained by the Company to advise it in connection with such Public
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Offering and one counsel retained to advise all holders of Registrable
Securities in connection with such Public Offering) retained by any
such holders.
8.3. Certain Other Provisions.
8.3.1. Cutbacks. Notwithstanding the foregoing provisions of this
Section 8, if the Company is advised in good faith by any managing
underwriter of securities being offered pursuant to any Public Offering
under this Section 8 that the number of shares requested to be sold in
such Public Offering is greater than the number of such shares which can
be included in such Public Offering without materially adversely affecting
such Public Offering, the shares to be included in such offering shall be
reduced to the extent requested by such managing underwriter as provided
in this Section 8.3.1:
8.3.1.1. Company Registration or IPO. Upon registration by the
Company of securities for its own account as contemplated by Section
8.1.1 or in the case of an Initial Public Offering, shares to be
included in such offering shall be reduced in the following order
and fashion:
(i) first, Registrable Securities requested to be included in
the Public Offering by Persons other than the Company, if any, with
respect to such Public Offering shall be reduced pro rata (based on
the number of shares requested to be included by such Persons); and
(ii) second, securities proposed to be included by the Company
shall be reduced.
8.3.1.2. Demand Registration Rights. Upon the exercise of
demand registration rights by the Initiating Holders pursuant to
Section 8.2 (except in the case of an Initial Public Offering, which
shall be governed by Section 8.3.1.1), the shares to be included in
such offering shall be reduced in the following order and fashion:
(i) first, securities other than Registrable Securities
proposed to be included shall be reduced pro rata (based on the
number of such securities proposed to be included); and
(ii) second, Registrable Securities requested to be included
by Persons other than the Company, if any, with respect to such
Public Offering shall be
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reduced pro rata (based on the number of shares requested to be
included by such Persons).
8.3.1.3. Special Management Cut-Back. Notwithstanding any
contrary provision contained in this Agreement, in the event that
the Public Offering is a Liquidity Event or a subsequent secondary
Public Offering, at the option of the Bain Majority Investors and on
no more than one occasion under this Agreement, if a Management
Investor is currently employed by the Company or was so employed at
any time during the 12 preceding months without any material
diminution of his or her responsibilities, such Management Investor
and each other holder of Securities previously held by, or
distributed or issued in respect of Securities or membership
interests of the LLC previously held by, such Management Investor
(other than any Person which is described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as from time to time in effect)
may be required to retain, rather than sell, up to 25%, the case of
Senior Management Investors, or 15%, in the case of Junior
Management Investors, of their Securities.
8.3.2. Number of Requests, Minimum IPO Size, etc. In the event the
number of shares requested to be included in a Public Offering by the
Initiating Holders with respect thereto is reduced by operation of the
provisions of Section 8.3.1, such demand shall be excluded in determining
the number of demands exercisable by such Initiating Holders. No demand
may be made unless the Initiating Holders with respect thereto hold
Registrable Securities constituting at least five percent (5%) of the
aggregate outstanding number of shares of Common Stock (or, in the case of
Section 8.2.2.3, at least the lesser of (x) five percent (5%) of the
aggregate outstanding number of shares of Common Stock and (y)
thirty-three percent (33%) of the then outstanding Registrable Securities
subject to Section 8.2.2.3). In the event a proposed demand would result
in the Initial Public Offering, the Company shall not be obligated to
effect such registration unless the proceeds (net of underwriters'
discount and commission) therefrom exceed $50 million, and any such demand
which does not result in an effective registration by operation of this
sentence shall not count for purposes of determining the number of demands
exercisable by the Initiating Holders in question.
8.3.3. Resale Shelf Registration for Non-CSFB Warrant Securities. In
addition to the registration rights granted pursuant to Section 8.1 and
8.2 above, upon the request of the Non-CSFB Majority Warrantholders, the
Company will at its own expense, not later than three hundred and
ninety five (395) days after the effectiveness of the first underwritten
Public Offering, file, and use its reasonable best efforts to cause to
become and remain effective, a shelf registration statement under the
Securities Act covering the
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Registrable Securities included in the Non-CSFB Warrant Securities
until such time as may be consented to by the Non-CSFB Majority
Warrantholders; provided, however, that (i) the rights provided by this
Section 8.3.3 shall expire on such date, if any, as all Non-CSFB Warrant
Securities are freely tradeable under clause (k) of Rule 144 and no
holder of Non- CSFB Warrant Securities holds more than one percent (1%)
of all outstanding shares of Common Stock and (ii) the Company shall
not be required to file any registration statement pursuant to this
Section 8.3.3 at any time within one hundred eighty (180) days after
either the furnishing by the Company of any notice of proposed
registration under Section 8.1 or 8.2 hereof (unless abandoned
by notice from the Company or the Majority Initiating Holders, as
applicable) or the consummation of any other Public Offering.
8.3.4. Selection of Managing Underwriters. In the case of any
registration proposed by the Company for the Public Offering of securities
for its own account, the managing underwriters, if any, with respect
thereto shall be selected by the Company. In the case of any registration
pursuant to Section 8.2 hereof, the holders of a majority of the
Registrable Securities requested to be included therein hereunder shall
select the managing underwriters, if any, with respect thereto.
Notwithstanding the foregoing provisions of this Section 8.3.4, in the
case of the Initial Public Offering, the managing underwriter with respect
thereto shall be selected by the Bain Majority Holders.
8.3.5. Selection of Counsel. Counsel to the Company in connection
with any Public Offering shall be selected by the Company, and counsel to
the selling holders of Registrable Securities shall be selected by the
holders of a majority of the Registrable Securities requested pursuant to
the provisions hereof to be included therein.
8.4. Indemnification and Contribution.
8.4.1. Indemnities of the Company. In the event of any registration
of any Registrable Securities or other debt or equity securities under the
Securities Act, and in connection with any registration statement or any
other disclosure document produced by or on behalf of the Company and any
of its subsidiaries pursuant to which securities of the Company and any of
its subsidiaries are sold (whether or not for the account of the Company)
or any other disclosure document produced by or on behalf of the Company
and any of its subsidiaries, including without limitation reports required
or other documents filed under the Exchange Act, the Company will, and
hereby does, and will cause its subsidiaries, jointly and severally to,
indemnify and hold harmless each seller of Registrable Securities,
any other holder of Securities or Non-CSFB Warrant Securities who is
or might be deemed to be a controlling Person of the Company and any of
its subsidiaries within the meaning of Section 15 of the Securities
Act or Section 20 of the
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Exchange Act, their respective direct and indirect partners, advisory
board members, directors, officers and shareholders, and each other
Person, if any, who controls any such seller or any such holder within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act (each such person being referred to herein as a "Covered
Person"), against any losses, claims, damages or liabilities, joint
or several, to which such Covered Person may be or become subject under
the Securities Act, the Exchange Act, any other securities or other
law of any jurisdiction, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in any registration statement under
the Securities Act, any preliminary prospectus or final prospectus
included therein, or any related summary prospectus, or any amendment or
supplement thereto, or any document incorporated by reference therein, or
any other such disclosure document or other document or report, (ii) any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading or (iii) any violation by the Company and any of its
subsidiaries of any federal, state or common law rule or regulation
applicable to the Company and to any of its subsidiaries and relating to
action or inaction in connection with any such registration, disclosure
document or other document or report, and will reimburse such Covered
Person for any legal or any other expenses incurred by it in connection
with investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that neither the Company nor any
of its subsidiaries shall be liable to any Covered Person in any such case
to the extent that any such loss, claim, damage, liability, action or
proceeding arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, incorporated document or other such
disclosure document or other document or report, in reliance upon and in
conformity with written information furnished to the Company or to any of
its subsidiaries through an instrument duly executed by such Covered
Person specifically stating that it is for use in the preparation thereof.
The indemnities of the Company and of its subsidiaries contained in this
Section 8.4.1 shall remain in full force and effect regardless of any
investigation made by or on behalf of such Covered Person and shall
survive any transfer of securities.
8.4.2. Indemnities to the Company. The Company and any of its
subsidiaries may require, as a condition to including any securities in
any registration statement filed pursuant to this Section 8, that the
Company and any of its subsidiaries shall have received an undertaking
satisfactory to it from the prospective seller of such securities, to
indemnify and hold harmless the Company and any of its subsidiaries,
each director of the Company
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or any of its subsidiaries, each officer of the Company or any of its
subsidiaries who shall sign such registration statement and each other
Person (other than such seller), if any, who controls the Company and
any of its subsidiaries within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, with respect to any
statement in or omission from such registration statement, any
preliminary prospectus or final prospectus included therein, or any
amendment or supplement thereto, or any document incorporated
therein, if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company
or to any of its subsidiaries through an instrument executed by such
seller specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, or incorporated document. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company, any of its
subsidiaries, or any such director, officer or controlling Person and
shall survive any transfer of securities.
8.4.3. Contribution. If the indemnification provided for in Sections
8.4.1 or 8.4.2 hereof is unavailable to a party that would have been an
indemnified party under any such Section in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each party that would have been an indemnifying
party thereunder shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to
reflect the relative fault of such indemnifying party on the one hand and
such indemnified party on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof). The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by such
indemnifying party or such indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be
just or equitable if contribution pursuant to this Section 8.4.3 were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
the preceding sentence. The amount paid or payable by a contributing party
as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8.4.3
shall include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending
any such action or claim. No Person guilty of fraudulent misrepresentation
(within the meaning of Section
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11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
8.4.4. Limitation on Liability of Holders of Registrable Securities.
The liability of each holder of Registrable Securities in respect of all
indemnification and contribution obligations of such holder arising under
this Section 8.4 shall not in any event exceed an amount equal to the net
proceeds to such holder (after deduction of all underwriters' discounts
and commissions and all other expenses paid by such holder in connection
with the registration in question) from the disposition of the Registrable
Securities disposed of by such holder pursuant to such registration.
8.5. Lock-up. Without the prior written consent of the Company, for a
period beginning seven days immediately preceding and ending on the 180th day
following the effective date of the registration statement used in connection
with such offering, no holder of Bain Securities or Other Securities (whether or
not a selling shareholder pursuant to such registration statement) shall (a)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise Transfer, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for such Common Stock or (b) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Common Stock, whether any such transaction described in clause (a)
or (b) above is to be settled by delivery of such Common Stock or such other
securities, in cash or otherwise; provided, however, that the foregoing
restrictions shall not apply to (i) transactions relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the Initial Public Offering, (ii) Transfers among any Affiliates,
provided that the transferee Affiliate agrees to be bound by the terms of this
Agreement, including this Section 8.5, (iii) Transfers to the Company or any
subsidiary of the Company in one or more transactions approved by the Board or
(iv) Transfers constituting the exercise of the Junior Management Options or the
CSFB Option in accordance with the provisions of Section 5.
9. CERTAIN FUTURE EQUITY FINANCINGS OF THE COMPANY. The Company shall
not issue or sell any shares of any of its capital stock or any securities
convertible into or exchangeable for any shares of its capital stock, issue
or grant any rights (either preemptive or other) to subscribe for or to
purchase, or any options or warrants for the purchase of, or enter into any
agreements providing for the issuance (contingent or otherwise) of, any of
its capital stock or any stock or securities convertible into or exchangeable
for any shares of its capital stock, or grant stock appreciation or other
equity equivalent rights, in each case to any Bain Initial Investor or to any
Person in which any Bain Initial Investor beneficially owns, directly or
indirectly, 5% or more of any class of outstanding capital stock of such
Person (each an "Issuance" of "Subject
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Securities"), except in compliance with the following provisions of this
Section 9; provided, however, that the provisions of this Section 9 shall not
apply to any such issuance or sale pursuant to options, warrants or rights
for, or securities convertible into, other securities, in each case if such
options, warrants, rights or convertible securities either (i) were
outstanding as of the date hereof, (ii) were issued after the date hereof and
the provisions of this Section 9 were complied with in connection with the
issuance of such securities, or (iii) were issued after the date hereof and
the provisions of this Section 9 did not apply to the issuance of such
securities.
9.1. Right of Participation.
9.1.1. Offer. Not fewer than twenty (20) days prior to the
consummation of the Issuance, a notice (the "Preemption Notice") shall be
furnished by the Company to each holder of Other Securities (collectively,
the "Preemptive Purchaser Offerees"). The Preemption Notice shall include:
(i) The principal terms of the proposed Issuance, including
without limitation the amount and kind of Subject Securities to be
included in the Issuance, the percentage of the total number of
shares of Common Stock outstanding as of immediately prior to giving
effect to such Issuance (calculated on a fully diluted basis) which
the number of shares of Common Stock held by such Preemptive
Purchaser Offeree constitutes (the "Preemptive Portion"), the
maximum price per unit of the Subject Securities, the name and
address of the Persons to whom the Subject Securities will be Issued
(the "Proposed Buyers") and the other principal terms of the
proposed Issuance; and
(ii) An offer by the Company to Issue, at the option of each
Preemptive Purchaser Offeree, to such Preemptive Purchaser Offeree
such portion of the Subject Securities to be included in the
Issuance as may be requested by such Preemptive Purchaser Offeree
(not to exceed the Preemptive Portion of the total amount of Subject
Securities to be included in the Issuance) determined as provided in
Section 9.1.2, on the same terms and conditions, with respect to
each unit of Subject Securities issued to the Preemptive Purchaser
Offerees, as each of the Proposed Buyers shall be Issued each of
his, her or its units of Subject Securities.
9.1.2. Time and Manner of Exercise by Offerees. Each Preemptive
Purchaser Offeree desiring to accept the offer contained in the Preemption
Notice shall send a written commitment to the Company specifying the
amount of Subject Securities (not in any event to exceed the Preemptive
Portion of the total amount of Subject Securities to be included in
the Issuance) which such Preemptive Purchaser Offeree desires to be
issued within
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twenty (20) days after effectiveness of the Preemption Notice (each
Preemptive Purchaser Offeree who so accepts theoffer contained in
the Preemption Notice being referred to herein as a"Participating Buyer").
Each Preemptive Purchaser Offeree who has not so accepted such offer
shall be deemed to have waived all of his rights with respect to
the Issuance, and the Company shall thereafter be free to Issue
in the Issuance to the Proposed Buyers, at a price no less than 95% of the
maximum price set forth in the Preemption Notice and on otherwise
substantially no more favorable terms than as set forth in the Preemption
Notice, without any further obligation to include such non-accepting
Preemptive Purchaser Offerees in the Issuance. If, prior to consummation,
the terms of such proposed Issuance shall change with the result that the
price shall be less than 95% of the maximum price set forth in the
Preemption Notice or the other principal terms shall be substantially more
favorable than as set forth in the Preemption Notice, it shall be
necessary for a separate Preemption Notice to have been furnished, and the
terms and provisions of this Section 9.1 separately complied with, in
order to consummate such proposed Issuance pursuant to this Section 9.1;
provided, however, that in the case of such a separate Preemption Notice,
the applicable period referred to in Sections 9.1.1 shall be seven (7)
days and the applicable period referred to in Section 9.1.2 shall be three
(3) business days.
The acceptance of each Participating Buyer shall be irrevocable
except as hereinafter provided, and each such Participating Buyer shall be
bound and obligated to acquire in the Issuance on the same terms and
conditions, with respect to each unit of Subject Securities Issued, as the
Proposed Buyers, such amount of Subject Securities as such Participating
Buyer shall have specified in such Participating Buyer's written
commitment.
If at the end of the one hundred twentieth (120th) day following the
date on which the Preemption Notice was given the Company has not
completed the Issuance as provided in the foregoing provisions of this
Section 9, each Participating Buyer shall be released from his obligations
under the written commitment, the Preemption Notice shall be null and
void, and it shall be necessary for a separate Preemption Notice to have
been furnished, and the terms and provisions of this Section 9.1
separately complied with, in order to consummate an Issuance pursuant to
this Section 9.1, unless the failure to complete the Issuance resulted
from any failure by any Preemptive Purchaser Offeree to comply in any
material respect with the terms of this Section 9.
9.1.3. Certain Legal Requirements. In the event the participation by
any Preemptive Purchaser Offeree as a Participating Buyer would require
under applicable law (i) the registration or qualification of any
securities or of any person as a broker or dealer
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or agent with respect to such securities or (ii) the provision to any
participant in the Issuance of any information other than such
information as would be required under Regulation D of the Securities
and Exchange Commission or similar rule then in effect in an offering
made pursuant to said Regulation D solely to "accredited investors"
as defined in said Regulation D, the Company shall be obligated only
to use its reasonable best efforts to cause such requirements to have
been complied with to the extent necessary to permit such Participating
Buyer to receive such securities. Notwithstanding any provisions of
this Section 9, if use of reasonable best efforts shall not have
resulted in such requirements being complied with to the extent
necessary to permit such Participating Buyer to receive such securities,
the Company may exclude such Participating Buyer from participation in the
Issuance. The obligation of the Company to use reasonable best efforts to
cause such requirements to have been complied with to the extent necessary
to permit a Participating Buyer to receive such securities shall be
conditioned on such Participating Buyer executing such documents and
instruments, and taking such other actions (including without limitation,
if required by the Company on advice of its counsel, agreeing to be
represented during the course of such transaction by a "purchaser
representative" (as defined in Regulation D) in connection with evaluating
the merits and risks of the prospective investment and acknowledging that
he was so represented), as the Company shall reasonably request in order
to permit such requirements to have been complied with. Each Participating
Buyer agrees to take such actions as the Company shall reasonably request
in order to permit such requirements to have been complied with.
9.1.4. Special Rule in Certain Circumstances. In the event that the
participation of each Proposed Buyer in an Issuance is conditioned upon
the purchase by such Proposed Buyer of any securities (including without
limitation debt securities) other than Subject Securities ("Other Offered
Securities"), the Company may require as a condition to the participation
in the Issuance by the Preemptive Purchaser Offerees that such Preemptive
Purchaser Offerees acquire in the Issuance, together with the Subject
Securities to be acquired by them, Other Offered Securities in the same
proportion to the Subject Securities to be acquired by them as Other
Offered Securities are acquired by each Proposed Buyer in proportion to
the Subject Securities acquired in the Issuance by such Proposed Buyer, on
the same terms and conditions (except as specifically otherwise provided
in this Section 9.1) as to each unit of Subject Securities and Other
Offered Securities issued to the Preemptive Purchaser Offerees, as each of
the Proposed Buyers shall be issued each of his, her or its units of
Subject Securities and Other Offered Securities.
9.1.5. Closing. Each Participating Buyer shall take such actions and
execute such documents and instruments as shall be reasonably necessary or
desirable in order to consummate the Issuance expeditiously and on the
same terms as the Proposed Buyers;
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provided, however, that in the event the consideration payable
-------- -------
by the Proposed Buyers in the Issuance for Subject Securities (or, if
applicable, Other Offered Securities) includes any securities or other
property other than cash, at the option of each Participating Buyer,
such Participating Buyer may deliver, in lieu of such securities or
other property other than cash, cash in the amount equal to
the then Fair Market Value of such consideration constituting securities
or other property other than cash. For purposes of this Section 9.1.5,
Fair Market Value shall be determined in good faith by the Board as of the
date of the Issuance in question.
At the closing of any Issuance under this Section 9.1, each of the
Participating Buyers shall be delivered the notes, certificates or other
instruments evidencing the Subject Securities (and, if applicable, Other
Offered Securities) to be Issued to such Participating Buyer, registered
in the name of such Participating Buyer or his or its designated nominee,
free and clear of any Liens, with any transfer tax stamps affixed, against
delivery by such Participating Buyer of the applicable consideration.
9.2. Termination. The foregoing provisions of this Section 9
shall terminate immediately following the closing of the Issuance of Common
Stock by the Company pursuant to the Initial Public Offering.
10. DETERMINATION OF FAIR MARKET VALUE. The term "Fair Market Value"
shall mean, the fair value of the applicable Security or other securities as
of the applicable date on the basis of a sale of such Security or securities
in an arms length private sale between a willing buyer and a willing seller,
neither acting under compulsion (or, in the case of an Option, the fair value
of the Shares that may then be purchased or received by the holder of such
Option upon exercise or conversion thereof, determined as described in this
Section 10, minus the exercise or conversion price applicable thereto). In
determining such Fair Market Value, no discount shall be taken for
constituting a minority interest and no upward adjustment or discount shall
be taken relating to the fact that the Securities in question are subject to
the restrictions and entitled to the rights provided hereunder. For purposes
of Sections 6 or 7 of this Agreement, such Fair Market Value shall be
determined: (i) in the case of any Securities or other securities to be
valued representing less than 10% of the then outstanding Registrable
Securities, in good faith by the Board and (ii) in the case of any Securities
or other securities to be valued representing more than 10% of the then
outstanding Registrable Securities, absent any agreement between the Company
and the holders of a majority of the Securities in question regarding such
valuation, by an Independent Investment Banking Firm retained by the Company
(the fees and expenses of which shall be shared in one-half shares by the
Company, on the one hand, and the holders of Securities subject to such Fair
Market Value determination, on the other hand) selected as follows. The Board
shall select three Independent Investment Banking Firms none of whom shall be
an Affiliate
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of any Investor, and the Independent Investment Banking Firm to perform the
calculation shall be selected from such list of three by the holders of a
majority of the Securities subject to such Fair Market Value determination.
11. REMEDIES.
11.1. Generally. The Company and all holders of Securities and Non-CSFB
Warrant Securities shall have all remedies available at law, in equity or
otherwise in the event of any breach or violation of this Agreement or any
default hereunder by the Company, any holder of Securities or any holder of
Non-CSFB Warrant Securities. The parties acknowledge and agree that in the event
of any breach of this Agreement, in addition to any other remedies which may be
available, each of the parties hereto shall be entitled to specific performance
of the obligations of the other parties hereto and, in addition, to such other
equitable remedies (including, without limitation, preliminary or temporary
relief) as may be appropriate in the circumstances.
11.2. Deposit. Without limiting the generality of Section 11.1, if any
Investor (a "Non-Complying Investor") fails to deliver any certificate or
certificates evidencing Securities that may be required to be sold pursuant to
any provision of this Agreement in accordance with the terms hereof, the Company
or other Person entitled to purchase or require the sale of such securities may,
at its option, in addition to all other remedies it may have, deposit the
purchase price for such Securities with any national bank or trust company
having combined capital, surplus and undivided profits in excess of one hundred
million dollars ($100,000,000) and which has agreed to act as escrow agent in
the manner contemplated by this Section 11.2 and shall furnish or make available
to all interested Persons satisfactory evidence of such deposit and thereupon
the Company shall cancel on its books the certificate or certificates
representing such Securities and, in the case of any such purchase of Securities
by a Person other than the Company issue, in lieu thereof and in the name of
such Person, a new certificate or certificates representing such Securities and
thereupon all of the Non-Complying Investor's rights in and to such Securities
shall terminate. Thereafter, upon delivery to the Company by such Non-Complying
Investor of the certificate or certificates evidencing such Securities (duly
endorsed, or with stock powers or other appropriate instruments of transfer duly
endorsed, for transfer, with signature guaranteed, free and clear of any liens
or encumbrances, and with any stock transfer tax stamps affixed), the Company
shall instruct the escrow agent referred to above to deliver the purchase price
(without any interest from the date of the closing to the date of such delivery,
any such interest to accrue to the Person who deposited the purchase price for
such Securities) to such Non-Complying Investor.
12. LEGENDS.
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12.1. Securities Act Legend. Each certificate representing Securities or
Non-CSFB Warrant Securities shall have the following legend endorsed
conspicuously thereupon:
"The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of 1933,
as amended (the "Act"), and may not be sold, assigned, pledged or
otherwise transferred in the absence of an effective registration under
the Act covering the transfer or an opinion of counsel, satisfactory to
the issuer, that registration under the Act is not required."
The legend required by this Section 12.1 shall cease to be required as to
any particular Securities (i) when, in the opinion of Ropes & Gray, Hutchins
Wheeler & Dittmar, Bingham Dana LLP, Weil Gotshal & Manges, Willkie Farr &
Gallagher or other counsel reasonably acceptable to the Company, such
restrictions are no longer required in order to assure compliance with the
Securities Act or (ii) when such Securities shall have been registered under the
Securities Act or transferred pursuant to Rule 144 thereunder. Whenever (x) such
requirement shall cease and terminate as to any Securities or (y) such
Securities shall be transferable under paragraph (k) of Rule 144, the holder
thereof shall be entitled to receive from the Company, without expense, new
certificates not bearing the legend set forth in this Section 12.1.
12.2. Stockholders Agreement Legend. Each certificate representing
Securities shall have the following legend endorsed conspicuously thereupon:
"The securities represented by this certificate are subject to
restrictions on voting and transfer and requirements of sale and the
provisions as set forth in the Stockholders Agreement dated as of
September 27, 1999, as amended and in effect from time to time, and
constitute ______________ Securities as defined in such Stockholders
Agreement. The Company will furnish a copy of such agreement to the holder
of this certificate without charge upon written request."
Any person who acquires Securities which are not subject to all or part of
the terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such
Securities.
12.3. Option-Eligible Shares Legend. Each certificate representing
Option-Eligible Shares shall have the following legend endorsed conspicuously
thereupon:
"The securities represented by this certificate are Option-Eligible
Shares (as defined in the Stockholders Agreement) and are subject to
purchase by the holders
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of the Junior Management Options and the CSFB Option (as defined in
the Stockholders Agreement) under the terms and conditions described
in Section 5 of the Stockholders Agreement, and any transfer of these
Option-Eligible Shares is subject to certain conditions specified in
and must be in compliance with the terms of such Section 5 of the
Stockholders Agreement."
The legend required by this Section 12.3 shall cease to be required (a) as
to any particular Option-Eligible Shares, upon the exercise of a Junior
Management Option or the CSFB Option with respect to such shares or (ii) with
respect to all Option-Eligible Shares, after all Junior Management Options and
the CSFB Option have terminated pursuant to the terms of Section 5, and in any
such event the holder thereof shall be entitled to receive from the Company,
without expense, replacement certificates not bearing the legend set forth in
this Section 12.3.
12.4. Stop Transfer Instruction. The Company will instruct any transfer
agent not to register the Transfer of any Securities until the conditions
specified in the foregoing legends are satisfied.
13. AMENDMENT, TERMINATION, ETC.
13.1. No Oral Modifications. This Agreement may not be orally amended,
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
13.2. Written Modifications. This Agreement may be amended, modified,
extended or terminated, and the provisions hereof may be waived, by an
agreement in writing signed by the Bain Majority Holders and the holders of a
majority of all Securities then outstanding and each such amendment,
modification, extension, termination and waiver shall be binding upon each
party hereto and each holder of Securities and Non-CSFB Warrant Securities
subject hereto; provided, however, (a) the consent of the CSFB Majority
Holders shall be required for any amendment, modification, extension,
termination or waiver which has a material adverse effect on the rights of
the holders of CSFB Securities as such under this Agreement, (b) the consent
of the Management Majority Holders shall be required for any amendment,
modification, extension, termination or waiver which has a material adverse
effect on the rights of the holders of Management Securities as such under
this Agreement, (c) the consent of the Non-CSFB Majority Warrantholders shall
be required for any amendment, modification, extension, termination or waiver
which has a material adverse effect on the rights of the holders of Non-CSFB
Warrant Securities as such under this Agreement. In addition, each party
hereto and each holder of Securities or Non-CSFB Warrant Securities subject
hereto may waive any of its rights hereunder by an instrument in writing
signed by such party or holder.
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14. MISCELLANEOUS.
14.1. Authority; Effect. Each party hereto represents and warrants to and
agrees with each other party that the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized on behalf of such party and do not violate any agreement or other
instrument applicable to such party or by which its assets are bound. This
Agreement does not, and shall not be construed to, give rise to the creation of
a partnership among any of the parties hereto, or to constitute any of such
parties members of a joint venture or other association.
14.2. Notices. Notices and other communications provided for in this
Agreement shall be in writing and shall be effective (i) when one day shall have
elapsed (exclusive of Saturdays, Sundays and banking holidays in the City of
Boston) from their deposit for overnight delivery with Federal Express or other
bonded courier (charges prepaid), addressed to the party or parties sought to be
charged with notice of the same at the respective addresses set forth or
referred to below, subject to written notice of change of address given by any
party to each other party, (ii) when three (3) days shall have elapsed
(exclusive of Saturdays, Sundays and banking holidays in the City of Boston)
from their deposit in the U.S. mail, postage prepaid and registered or
certified, addressed to the party or parties sought to be charged with notice of
the same at the respective addresses set forth or referred to below, subject to
written notice of change of address given by any party to each other party, or
(iii) if earlier, upon receipt.
If to the Company, to it at:
c/o ICON Health & Fitness, Inc.
875 South Main Street
Logan, Utah 84321
Attention: President
with a copy to:
Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
Ron Mika
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<PAGE>
If to the Bain Investors, to them at:
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Robert C. Gay
Ron Mika
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Newcomb Stillwell
If to CSFB, to it at:
Credit Suisse First Boston Corp.
Eleven Madison Avenue
New York, NY 10010-3629
Attention: Christopher Pechock
with a copy to:
Bingham Dana LLP
One State Street
Hartford, Connecticut 06103-3178
Attention: Evan D. Flaschen
If to Scott Watterson or Gary Stevenson, to him at:
c/o ICON Health & Fitness, Inc.
875 South Main Street
Logan, Utah 84321
with a copy to:
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<PAGE>
Hutchins, Wheeler & Dittmar, a Professional Corporation
101 Federal Street
Boston, MA 02110
Attention: Charles W. Robins
If to the Non-CSFB Warrantholders, to them at:
c/o IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
with a copy to:
Weil Gotshal & Manges
767 Fifth Avenue
New York, New York 10028
Attention: Matthew D. Bloch
If to any other Investor, to such Investor at the address set forth
in the stock record book of the Company.
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
14.3. Binding Effect, etc. This Agreement constitutes the entire agreement
of the parties with respect to its subject matter, supersedes all prior or
contemporaneous oral or written agreements or discussions with respect to such
subject matter, and shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, representatives, successors and
assigns. No provision of this Agreement providing for the expiration of any
provision by lapse of time or upon the occurrence of specified events or
otherwise shall relieve any Person of liability for breach or violation prior to
such expiration.
14.4. Descriptive Headings. The descriptive headings of this Agreement are
for convenience of reference only, are not to be considered a part hereof and
shall not be construed to define or limit any of the terms or provisions hereof.
14.5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
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<PAGE>
14.6. Severability. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then such
unenforceable provision shall be deemed eliminated from this Agreement for the
purpose of such proceedings to the extent necessary to permit the remaining
provisions to be enforced. To the full extent, however, that the provisions of
any applicable law may be waived, they are hereby waived to the end that this
Agreement be deemed to be valid and binding agreement enforceable in accordance
with its terms, and in the event that any provision hereof shall be found to be
invalid or unenforceable, such provision shall be construed by limiting it so as
to be valid and enforceable to the maximum extent consistent with and possible
under applicable law.
14.7. Joint and Several Liability of the Company and ICON. ICON shall be
jointly and severally liable in respect of all payment obligations of the
Company under this Agreement.
14.8. Third Party Beneficiaries. Solely for purposes of Sections 8 (other
than Section 8.5), 11.1, 12.1, 13, 14 and 15 hereof, the Non-CSFB Warrantholders
shall be deemed to be intended third-party beneficiaries of this Agreement and
shall be bound hereby.
14.9. Termination of Equity Commitment Letter. ICON, the Bain Initial
Investors, CSFB and the Senior Management Initial Investors hereby agree on
behalf of themselves and their affiliates that the letter agreement dated July
8, 1999 between ICON, Bain Capital, Inc., Credit Suisse First Boston Corp. and
the Senior Management Initial Investors, as amended (the "Equity Commitment
Letter"), is hereby terminated without further liability to any party thereunder
and shall be of no further force and effect.
14.10. Limitation on CSFB Acquisitions. CSFB agrees that neither it nor
any of its Affiliates shall acquire any shares of Common Stock or Options from
any third party if, after giving effect to such acquisition, CSFB and its
Affiliates would own (or be deemed to own) in the aggregate Equivalent Shares
representing more than 49.5% of the outstanding shares of Common Stock of the
Company on a fully diluted basis. Solely for purposes of this Section 14.10, in
calculating the number of Equivalent Shares owned by CSFB and its Affiliates,
CSFB shall be deemed to have exercised the CSFB Option in full.
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<PAGE>
15. GOVERNING LAW.
15.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Delaware without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
15.2. Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction
of the state courts of the State of New York sitting in the County of New York
or the United States District Court for the Southern District of New York for
the purpose of any action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation arising out of or based upon
this Agreement or relating to the subject matter hereof, (b) hereby waives to
the extent not prohibited by applicable law, and agrees not to assert, and
agrees not to allow any of its subsidiaries to assert, by way of motion, as a
defense or otherwise, in any such action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Agreement or the
subject matter hereof or thereof may not be enforced in or by such court and (c)
hereby agrees not to commence or maintain any action, claim, cause of action or
suit (in contract, tort or otherwise), inquiry, proceeding or investigation
arising out of or based upon this Agreement or relating to the subject matter
hereof or thereof other than before one of the above-named courts nor to make
any motion or take any other action seeking or intending to cause the transfer
or removal of any such action, claim, cause of action or suit (in contract, tort
or otherwise), inquiry, proceeding or investigation to any court other than one
of the above-named courts whether on the grounds of inconvenient forum or
otherwise. Notwithstanding the foregoing, to the extent that any party hereto is
or becomes a party in any litigation in connection with which it may assert
indemnification rights set forth in this agreement, the court in which such
litigation is being heard shall be deemed to be included in clause (a) above.
Each party hereto hereby consents to service of process in any such proceeding
in any manner permitted by New York law, and agrees that service of process by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 14.2 hereof is reasonably calculated to give actual notice.
The provisions of this Section 15.2 shall not restrict the ability of any party
to enforce in any court any judgment obtained in the federal or state courts of
the State of New York.
15.3. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF,
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<PAGE>
DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR
OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON
THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH PARTY HERETO ACKNOWLEDGES THAT
IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THIS SECTION 15.3
CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING AND WILL RELY IN
ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS SECTION 15.3 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT
OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
15.4. Reliance. Each of the parties hereto acknowledges that he or it has
been informed by each other party that the provisions of Section 15 constitute a
material inducement upon which such party is relying and will rely in entering
into this Agreement and the transactions contemplated hereby.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
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<PAGE>
[Stockholders Agreement]
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: HF HOLDINGS, INC.
By /s/ S. Fred Beck
-------------------------------------
Title: CFO, Vice President &
Treasurer
ICON: ICON HEALTH & FITNESS, INC.
By /s/ S. Fred Beck
-------------------------------------
Title: CFO, Vice President &
Treasurer
THE BAIN INITIAL INVESTORS: BAIN CAPITAL FUND IV, L.P.
By Bain Capital Partners IV, L.P., a
Delaware Limited Partnership,
its general partner
By Bain Capital Investors, Inc.,
its general partner
By /s/ Robert Gay
------------------------------------
Title: Managing Director
<PAGE>
[Stockholders Agreement]
BAIN CAPITAL FUND IV-B, L.P.
By Bain Capital Partners IV, L.P., a
Delaware Limited Partnership,
its general partner
By Bain Capital Investors, Inc.,
its general partner
By /s/ Robert Gay
-------------------------------------
Title: Managing Director
BCIP ASSOCIATES
By /s/ Robert Gay
-------------------------------------
Title: a general partner
BCIP TRUST ASSOCIATES, L.P.
By /s/ Robert Gay
-------------------------------------
Title: a general partner
<PAGE>
[Stockholders Agreement]
THE LLC: HF INVESTMENT HOLDINGS, LLC
By /s/ Gary E. Stevenson
-------------------------------------
Title: Administrative Member
<PAGE>
[Stockholders Agreement]
THE SENIOR MANAGEMENT
INITIAL INVESTORS: /s/ Gary E. Stevenson
---------------------------------------
Gary Stevenson, individually
/s/ Scott Watterson
---------------------------------------
Scott Watterson, individually
<PAGE>
[Stockholders Agreement]
CSFB: CREDIT SUISSE FIRST BOSTON
CORPORATION
By /s/ David J. Matlin
-------------------------------------
Title: Managing Director
<PAGE>
[Stockholders Agreement]
By /s/ Stanley C. Tuttleman
-------------------------------------
Stanley C. Tuttleman
<PAGE>
[Stockholders Agreement]
INVERNESS/PHOENIX CAPITAL LLC
By W. McComb Dunwoody
-------------------------------------
Title: Managing Director
<PAGE>
[Stockholders Agreement]
By /s/ Lee Ming Tsung
-------------------------------------
Lee Ming Tsung
<PAGE>
[Stockholders Agreement]
By /s/ Wen-Chung Ko
-------------------------------------
Wen-Chung Ko
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT entered on the 27th day of September, 1999.
AMONG: HF HOLDINGS, INC., a Delaware corporation.
("COMPANY")
ICON HEALTH & FITNESS, INC., a Delaware
corporation.
("SUBSIDIARY")
SCOTT R. WATTERSON, acting in his personal
capacity, of the City of LOGAN, State of UTAH.
("EMPLOYEE")
THE PARTIES AGREE AS FOLLOWS:
1. PREAMBLE
1.1. The COMPANY and the SUBSIDIARY have made an exchange offer for all
outstanding 13% Senior Subordinated Notes due 2002 of the
SUBSIDIARY, 15% Senior Secured Discount Notes due 2004 of IHF
Holdings, Inc. and 14% Senior Discount Notes due 2006 of ICON
Fitness Corporation, pursuant to an Exchange Offer and Consent
Solicitation, dated July 30, 1999, as supplemented (the "Exchange
Offer").
1.2. It is recorded that the COMPANY, in connection with the
Restructuring (as defined in the Equity Letter Agreement (the
"Equity Letter"), dated July 8, 1999, attached, as amended, to the
Exchange Offer as Annex H) desires to conclude an agreement for the
employment of the EMPLOYEE as Chairman and Chief Executive Officer
of the COMPANY, according to the terms and conditions to be set
forth in this Agreement.
1.3. This Agreement is to record the terms and conditions which govern
the mutual relations of the parties hereto with respect to its
subject matter.
1.4. In this Agreement, "BUSINESS" means the manufacture, sale and
distribution of SPORTING GOODS as carried on by the COMPANY, the
SUBSIDIARY, and their respective various divisions and subsidiaries,
from time to time. "SPORTING GOODS" means fitness equipment and
accessories, which presently involve treadmills, home gyms, aerobic
exercises, trampolines, weights and benches and exercise
accessories, but the content of such product lines may vary from
time to time.
1.5. In this Agreement, AFFILIATES means any entity in which the COMPANY
or the SUBSIDIARY holds more than a 20% voting interest direct or
indirect.
<PAGE>
2. EMPLOYMENT AND ONE-TIME BONUS
2.1. This Agreement shall come into effect on the date hereof ("EFFECTIVE
DATE").
2.2. The COMPANY hereby employs the EMPLOYEE and the EMPLOYEE agrees to
serve the COMPANY in the positions of Chairman and Chief Executive
Officer for a term of three (3) years from the EFFECTIVE DATE,
subject to earlier termination as hereinafter provided (the "TERM").
2.3. Although this agreement is concluded between the COMPANY and the
EMPLOYEE, it is agreed that the duties and obligations of the
EMPLOYEE hereunder extend to the SUBSIDIARY and to all of the
COMPANY's other subsidiaries, present and future, although the
EMPLOYEE will not necessarily be an employee of such entities. The
EMPLOYEE agrees to serve, if requested by the COMPANY, as an officer
or director of the SUBSIDIARY and any other subsidiaries, in each
case without additional consideration.
2.4. Upon the execution and delivery hereof, the COMPANY shall pay the
EMPLOYEE a one-time bonus of FIVE HUNDRED THOUSAND DOLLARS
($500,000).
3. BASE SALARY, EXPENSES AND BENEFITS
3.1. In consideration for the faithful performance of services by the
EMPLOYEE to be rendered to the COMPANY as herein provided, the
COMPANY shall pay to the EMPLOYEE during the TERM an annual base
salary of FIVE HUNDRED TWENTY-FIVE THOUSAND DOLLARS ($525,000)
payable in semi-monthly installments or in accordance with the
general policy of the COMPANY which may change from time to time but
in no event less frequently than monthly.
3.2. The annual base salary mentioned in Section 3.1 above shall be
reviewed by the Board of Directors of the COMPANY and may be
adjusted upwards in the Board's discretion, annually for each year
of the TERM, taking into account, among other things:
a) the performance by the EMPLOYEE of his duties and functions
pursuant to this Agreement,
b) the general economic situation,
c) the development and performance of the BUSINESS, and
d) other matters deemed relevant by the Board of Directors such
as an increase in shareholder equity and the rate on return on
investment.
3.3. The COMPANY shall reimburse the EMPLOYEE for all reasonable expenses
which are incurred by the EMPLOYEE in the performance of his duties
hereunder
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<PAGE>
and (i) subject to the COMPANY's annual budget or (ii) as authorized
by the Board of Directors of the COMPANY or (iii) in accordance with
the policies and procedures established from time to time by the
Board of Directors of the COMPANY or a committee delegated for such
purpose.
3.4. During the Term, the COMPANY shall provide the EMPLOYEE with the use
of a new automobile of his choice, acting reasonably (and
consistently with his past practice) every 3 years for the purposes
of his employment commensurate with the position of the EMPLOYEE and
having regard to COMPANY policy in force from time to time.
The COMPANY shall assume all costs and expenses of said automobile
and its operation, including, without limitation, insurance,
maintenance, gas and use of such automobile. Upon the expiry of the
TERM, the EMPLOYEE shall deliver such automobile to the COMPANY.
3.5. During the Term, the EMPLOYEE shall be entitled to participate in
the COMPANY's life, welfare, and health insurance plans for senior
executives on the same terms as those of other senior executives.
3.6. During the Term, the EMPLOYEE shall be entitled to participate in
fringe benefit programs which are not less favorable than those
extended by the COMPANY to its senior executives, including without
limitation an as yet to be defined deferred compensation plan to be
established by the Board of Directors, but excluding for this
purpose any such plan or program adopted exclusively for the benefit
of junior management.
4. ANNUAL BONUS
4.1. The EMPLOYEE shall receive with respect to (i) each fiscal year
ending during the Term, and (ii) that portion of any fiscal year
ending after Term during which he is employed hereunder, a bonus
equal to one and one-quarter percent (1.25% ) of the consolidated
EBITDA (as that term is defined in the Credit Agreement of even date
herewith among the SUBSIDIARY, General Electric Capital Corporation
and the other lenders thereunder, without regard to any amendments
thereto) of the SUBSIDIARY and its subsidiaries (but not including
the COMPANY), provided that such bonus shall not be payable with
respect to any such fiscal year unless such EBITDA for such fiscal
year threeexceeds five and one-half percent (5.5%) of the
consolidated net sales of the SUBSIDIARY and its subsidiaries (but
not including the COMPANY) determined in accordance with generally
accepted accounting principles and provided, further, that for
purposes of this Agreement, EBITDA shall be calculated without
regard to any bonuses payable hereunder.
4.2. The sole basis for the bonus calculation shall be the audited
financial statements of the SUBSIDIARY and its subsidiaries for the
fiscal year in question.
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<PAGE>
4.3. Any bonus to which EMPLOYEE is entitled under the provisions of this
Agreement for any fiscal year shall be paid to him (regardless of
whether the TERM has terminated) in accordance with the COMPANY'S
previous practice, with a first installment equal to forty percent
(40%) of a good faith estimate of the bonus for such year, to be
paid during the month of December of such year and a final
installment to be paid as promptly as reasonably practicable after
the end of, but not later than the 75th day after the end of each
such fiscal year.
5. DUTIES
5.1. The EMPLOYEE shall perform those functions which are normally the
functions of the Chairman and Chief Executive Officer of the COMPANY
and such other offices as he may hold pursuant to Section 2.3, and
shall further perform those functions which shall be reasonably
determined from time to time by the Board of Directors of the
COMPANY, such functions not to be inconsistent with those herein set
forth. The EMPLOYEE shall report to, and be subject to the authority
of, the Board of Directors of the COMPANY.
5.2. The COMPANY shall give the EMPLOYEE a notice of six (6) months prior
to any relocation of the EMPLOYEE.
5.3. It is the specific responsibility of the EMPLOYEE, between regular
meetings of the Board, to apprise Board Members of significant
business matters.
5.4. The EMPLOYEE shall, during the TERM, devote his entire working time,
attention and energies to the business of the COMPANY, the
SUBSIDIARY, and their respective AFFILIATES.
5.5. The EMPLOYEE shall not, during the TERM, except under Section 5.6,
be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary
advantage. Notwithstanding the prohibition contained in the present
clause, the EMPLOYEE shall be entitled to continue to sit on the
boards of directors of the companies listed on Schedule I hereto,
and on the boards of directors of other companies if such activity
is approved in writing by the Board of Directors of the COMPANY. In
the case of non-profit corporations or charities, such approval
shall not be unreasonably withheld, but in all other cases, the
Board shall have sole discretion to grant, delay or withhold
approval, with or without conditions.
5.6. The EMPLOYEE shall not invest his personal assets in any business
other than NON-COMPETING BUSINESSES, and even in the case of such
investments:
a) No services are required or furnished on the part of the
EMPLOYEE in the operations of the companies in which such
investments are made and in which his participation is
solely that of an investor provided that this subsection is
not infringed by the EMPLOYEE's providing counseling (and
not acting in a "line" capacity) on a non-remunerative
basis to all
4
<PAGE>
such companies for a maximum of 5 hours per week and 200 hours
per year; and
b) If the EMPLOYEE purchases securities in any corporation whose
securities are regularly traded in a recognized securities
market, such purchases shall not result in his collectively
owning beneficially at any time five percent (5%) or more of
the equity securities of any corporation engaged in a business
other than a NON-COMPETING BUSINESS.
The foregoing restrictions shall not apply to any investment of
whatever extent the EMPLOYEE may take in the shares of the COMPANY
or of any successor company.
For the purposes of this subsection, NON-COMPETING BUSINESSES are
all businesses other than those which compete with:
a) the BUSINESS; or
b) any other business carried on in the future by the COMPANY,
the SUBSIDIARY or any AFFILIATES, provided that the EMPLOYEE
has access to confidential information concerning such
business.
Moreover, the EMPLOYEE shall not knowingly assist any RELATIVE to
make any investment which the EMPLOYEE is not permitted to make by
this section.
5.7. The EMPLOYEE is a member of the Board of Directors and acknowledges
that he has a significant interest in this Agreement and undertakes
the following:
5.7.1. To seek independent legal counsel at the EMPLOYEECOMPANY's
expense to negotiate and review this Agreement on the
EMPLOYEE's behalf;
5.7.2. To disclose his interest in this Agreement to the other
members of the Board of Directors; and
5.7.3. To retire from and abstain from the discussion and vote at
any meeting of the Board of Directors at which this
Agreement or any default by EMPLOYEE or matter arising
therefrom is the subject of a discussion or a vote.
5.8. The EMPLOYEE also undertakes the following:
5.8.1. To use every best effort (including the establishment of
written procedures known to operation personnel) to
promptly bring to the attention of the Board of Directors
of the COMPANY any matter requiring the COMPANY's decision
or action where his own interests or those of a RELATIVE
are involved and to abstain from taking such decision or
action until the Board of Directors decides.
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<PAGE>
5.8.2. If requested, to be absent from and abstain from the
discussion and vote at any meeting of the aforementioned
Board of Directors where the subject matter being
discussed and voted upon is any matter covered by section
5.8.l.
5.8.3. For the purposes of this Agreement RELATIVE means the
EMPLOYEE's spouse, parent, sibling, child or sibling's
children, the spouses of the foregoing and any other
person who could be claimed as a dependent on the
EMPLOYEE's or RELATIVE's federal income tax return, any
corporation or partnership in which a RELATIVE or the
EMPLOYEE holds a five percent (5%) interest or of which a
RELATIVE or the EMPLOYEE is an officer or director, and
any trust of which any of the foregoing is a beneficiary.
6. EQUITY GRANT
6.1. Contemporaneously herewith, the COMPANY will issue to the EMPLOYEE
375,000 shares of Common Stock of the COMPANY, at no cost to
EMPLOYEE, which the COMPANY represents and warrants is equal to
3.74893% of the COMPANY's Common Stock outstanding on a fully
diluted basis upon closing of the Restructuring.
7. CONFIDENTIALITY, ETC.
7.1. The EMPLOYEE recognizes and acknowledges that the confidential
information, trade secrets and proprietary processes of the COMPANY,
its AFFILIATES and subsidiaries as they may exist from time to time
are valuable, special and unique assets of the BUSINESS of the
COMPANY, its AFFILIATES and subsidiaries, access to and knowledge of
which are essential to the performance of the EMPLOYEE's duties
hereunder. The EMPLOYEE will not, during the TERM of his employment
or at any time within five (5) years following its termination, for
any reason whatsoever, in whole or in part, disclose such
confidential information, secrets or processes to any person, firm,
corporation, association or other entity for any reason or purpose
whatsoever, nor shall the EMPLOYEE make use of such property for his
own purposes or for the benefit of any person, firm, corporation or
other entity (except the COMPANY, its AFFILIATES and subsidiaries)
under any circumstances whatsoever, except as may be required in the
fulfillment of his function with the COMPANY within the terms of
this Agreement or except as provided by law; provided these
restrictions shall not apply to such information, secrets and
processes which are then in the public domain (provided that the
EMPLOYEE was not responsible, directly or indirectly, for permitting
such secrets or process to enter the public domain without the
COMPANY's consent).
7.2. The EMPLOYEE furthermore agrees that upon termination of the TERM he
will remit to the COMPANY all writings and materials, in his
possession or under his control, which either belong to the COMPANY
and AFFILIATES or which may
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contain confidential information concerning the COMPANY and
AFFILIATES. The EMPLOYEE may, however, retain his personal
diary/agenda after removing or destroying all confidential COMPANY
or AFFILIATES material therein.
7.3. Any and all inventions, discoveries, developments, methods,
processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable) conceived, made, developed, created or
reduced to practice by the EMPLOYEE (whether at the request or
suggestion of the COMPANY or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or
otherwise) during the period of his employment by the COMPANY or any
of its subsidiaries which may relate to the business, ventures or
other activities of or products manufactured or sold by the COMPANY
or any of its subsidiaries (collectively, "Proprietary Rights"),
shall be promptly and fully disclosed by the EMPLOYEE to an
appropriate executive officer of the COMPANY and shall be the
COMPANY's exclusive property as against the EMPLOYEE and his heirs
and personal representatives, and the EMPLOYEE hereby assigns to the
COMPANY his entire right, title and interest therein and shall
promptly deliver to an appropriate executive officer of the COMPANY
all papers, drawings models, data and other material relating to any
of the foregoing Proprietary Rights, conceived, made, developed,
created or reduced to practice by him as aforesaid. All
copyrightable Proprietary Rights shall be considered "works made for
hire."
The EMPLOYEE shall, upon the COMPANY's request and without any
payment therefor, execute any documents reasonably necessary or
advisable in the opinion of the COMPANY's counsel to assign, and
confirm the COMPANY's title in, his entire right, title and interest
in the foregoing Proprietary Rights and to direct issuance of
patents or copyrights to the COMPANY with respect to such
Proprietary Rights as are the COMPANY's exclusive property as
against the EMPLOYEE and his heirs and personal representatives
under this Section 7.3 or to vest in the COMPANY title to such
Proprietary Rights as against the EMPLOYEE and his heirs and
personal representatives, the expense of securing any such patent or
copyright, however, to be borne by the COMPANY. In addition, the
Company shall reimburse the EMPLOYEE for any reasonable expenses
incurred in having such documents reviewed by EMPLOYEE's counsel.
8. VACATION
8.1. The EMPLOYEE shall have the right to an annual paid vacation of no
less duration than four (4) weeks.
9. TERMINATION OF EMPLOYMENT
9.1. Notwithstanding any other provision contained herein, the COMPANY
may on or after the EFFECTIVE DATE send to the EMPLOYEE notice of
one of the following events and should the EMPLOYEE fail to cure the
matter giving rise to the notice within thirty (30) days after
receipt of such notice, the TERM shall
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terminate without any delay stipulated therein or any indemnity
payable in lieu thereof:
a) EMPLOYEE's willful misconduct or gross negligence;
b) The commission of a criminal act by the EMPLOYEE against the
COMPANY involving material harm (whether nor not charges are
filed);
c) The commission by the EMPLOYEE of a criminal act of moral
turpitude bringing the COMPANY into disrepute (whether or not
charges are filed);
d) Willful insubordination to any directive of the Board of
Directors provided reasonable prior notice of such directive
is given; or
e) Actions contrary to Sections 5.4, 5.5, 5.6, 5.8, 7 or 10
causing COMPANY or AFFILIATES material harm.
9.2. Notwithstanding any other provision contained herein, the TERM shall
terminate automatically, without notice or indemnity in lieu
thereof, upon the occurrence of one of the following events:
a) The bankruptcy or voluntary state insolvency filing of the
EMPLOYEE; or
b) The death of the EMPLOYEE.
9.3. The EMPLOYEE may terminate the TERM by sending his resignation in
writing to Board of Directors not less than six (6) months prior to
the effective date of such resignation or, if such resignation is
submitted in good faith so that the EMPLOYEE can perform full time
church service, not less than three (3) months prior to the
effective date of such resignation, failing which notice the
EMPLOYEE may be subject to any and all damages incurred as a result
of such failure. In the event the EMPLOYEE has given such a notice
to the COMPANY, the COMPANY may, at its option, earlier terminate
EMPLOYEE's employment.
9.4. Except under the circumstances described in Section 9.6, the COMPANY
may terminate the TERM by sending a notice in writing to the
EMPLOYEE.
9.5. The EMPLOYEE may immediately terminate the TERM by sending a notice
of termination to the Board of Directors with immediate effect
following any material diminution of the EMPLOYEE's responsibilities
or in the event that the EMPLOYEE is asked by the Board of Directors
to perform any act which a reasonable person would consider illegal
or unethical and the COMPANY has not withdrawn its request to the
EMPLOYEE to perform such act within five (5) days of receiving a
written notice from the EMPLOYEE to withdraw such a request.
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9.6. The COMPANY may immediately terminate the TERM by sending a notice
in writing to the EMPLOYEE with immediate effect:
9.6.1. after a period of six (6) consecutive months (or
aggregating six (6) months in any twelve (12) month
period) of absence by the EMPLOYEE from his employment as
a result of sickness or disability, or
9.6.2. after sixty (60) days of absence by the EMPLOYEE from his
employment as a result of sickness or disability and a
certification by three (3) physicians that the EMPLOYEE is
likely to be disabled for a period of at least six (6)
months from the initial date of sickness or disability.
One (1) such physician shall be chosen by the EMPLOYEE,
one (1) shall be chosen by the COMPANY and the third shall
be chosen by the other two (2) selected physicians. The
EMPLOYEE agrees that in the event of his sickness, he
shall submit himself for examination by such physicians if
reasonably requested to do so by the COMPANY. For the
purposes of this section, "disabled" or "disability" shall
mean a temporary or permanent substantial inability
because of a physical or mental illness to continue to
discharge the EMPLOYEE's duties hereunder.
Notwithstanding any other provision hereof, the EMPLOYEE's
compensation during any period of the EMPLOYEE'S disability shall be
reduced to the extent of any payments to the EMPLOYEE for such
period under any disability plan or program maintained for the
EMPLOYEE by the COMPANY for his benefit.
9.7. In the event of the termination of the TERM by virtue of section 9.6
in addition to the payments described therein, the COMPANY shall pay
to the EMPLOYEE a severance pay equal to one (1) month base salary
in effect at termination for each calendar year, or part thereof, of
the EMPLOYEE's employment with the COMPANY, the SUBSIDIARY, IHF
Capital, Inc. or IHF Holdings, Inc. (or any predecessor companies of
the COMPANY, the SUBSIDIARY, IHF Capital, Inc., or IHF Holdings,
Inc.) after January 1, 1988.
9.8. In the event of the termination of the TERM by virtue of Section
9.3, 9.4 or 9.5, the COMPANY shall pay to the EMPLOYEE a severance
pay equal to the EMPLOYEE's base salary then in effect and the bonus
referred to in Section 4 hereof, pro-rated for the period of the
payment, for two (2) years following the termination of the TERM,
provided, however, that if, due to the EMPLOYEE's resignation, there
is a termination of the TERM, without any action by the COMPANY,
during the one (1) year period following the EFFECTIVE DATE, the
EMPLOYEE shall forego FIVE HUNDRED THOUSAND DOLLARS ($500,000) of
any severance pay to which he would otherwise be entitled under this
Section 9.8, unless the resignation resulting in such termination is
submitted (i) in good faith by EMPLOYEE pursuant to Section 9.3 so
that the EMPLOYEE can perform full time church service, or (ii)
pursuant to Section 9.5. The bonuses shall be paid to the EMPLOYEE
within ninety (90) days from the end of the COMPANY's applicable
fiscal year, and the base salary shall be paid to the
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EMPLOYEE on the same payment schedule as was applicable to the
EMPLOYEE during his employment.
10. RESTRICTIVE COVENANT
10.1. EMPLOYEE shall not, during the TERM of his employment hereunder and
for a period of four (4) years from its termination, either directly
or indirectly, individually or in partnership, carry on or be
engaged in, or concerned with or interested in, in any capacity
whatsoever (including that of principal, agent, shareholder (subject
to section 5.6(b)), consultant, employee, lender or surety), any
person, firm, association, syndicate or company engaged in or
concerned with or interested in the conception, development,
fabrication, transformation, marketing, distribution, advertising,
franchising or sale in Canada, the United States or the European
Economic Community, or any of them, of any products or services
similar or identical to any of those manufactured, distributed, or
sold by the COMPANY or any of its subsidiaries in the course of his
employment with the COMPANY, its AFFILIATES and subsidiaries.
10.2. (a) EMPLOYEE shall not, during the TERM of his employment
hereunder and for a period of twelve (12) months from its
termination, directly or indirectly, hire any Designated
Employee.
(b) EMPLOYEE shall not, during the TERM of his employment
hereunder and for a period of eighteen (18) months from its
termination, directly or indirectly, solicit, interfere with
or endeavor to entice away, any Designated Employee.
(c) For purposes of this Section 10.2., the term "Designated
Employee" shall mean any person if that person is or was a
Senior Employee of the COMPANY or any of its AFFILIATES or
subsidiaries during the period beginning six (6) months prior
to the termination of the TERM and ending (i) in the case of
clause (a), twelve (12) months thereafter and (ii) in the case
of clause (b), eighteen (18) months thereafter, but shall
exclude Gary E. Stevenson or any RELATIVE. For purposes of
this Section 10.2 "Senior Employee" shall mean each of the two
hundred (200) most highly compensated employees of the COMPANY
or any of its subsidiaries or AFFILIATES.
10.3. Notwithstanding the foregoing, if termination of employment occurs
under Section 9.3, 9.4 or 9.5, the period stipulated by Section 10.1
is reduced to two (2) years; provided, however, that such period
shall be extended by written notice to the EMPLOYEE within thirty
(30) days of such termination up to two (2) years (i.e., up to a
total of four (4) years from the termination of EMPLOYEE's
employment) to the extent that the COMPANY, at its option, pays to
the EMPLOYEE a severance pay equal to the EMPLOYEE's base salary
then in effect and the bonus referred to in Section 4 hereof,
pro-rated for the period of the payment, for a period of up to an
additional two (2) years beyond that required to
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<PAGE>
be paid by the COMPANY to the EMPLOYEE under Section 9.8. If paid at
the COMPANY's option, such bonuses are to be paid within ninety (90)
days from the end of the COMPANY's applicable fiscal year, and the
base salary shall be paid to the EMPLOYEE on the same payment
schedule as was applicable to the EMPLOYEE during his employment.
11. REASONABLENESS AND REMEDIES
11.1. The EMPLOYEE agrees that all the conditions and restrictions
established in this Agreement are reasonable taking into account the
circumstances surrounding this Agreement.
11.2. The EMPLOYEE recognizes that in the view of the serious and
irreparable harm which a violation hereof would have on the COMPANY,
and without prejudice to the COMPANY's other remedies, injunctive
relief would constitute an available and appropriate remedy and, to
the extent permitted by law, the COMPANY shall not be required to
furnish any security or bond in respect thereof.
12. [INTENTIONALLY DELETED]
13. GENERAL LIMIT ON EMPLOYEE'S LIABILITY
13.1. As a general and overall limitation of the EMPLOYEE's liability to
the COMPANY and AFFILIATES, the COMPANY agrees that the EMPLOYEE
shall not be liable, for any reason except as set forth below, to
the COMPANY or any of its AFFILIATES for an amount in excess of the
amount provided in the next sentence hereof. Accordingly, as and for
their sole remedy against the EMPLOYEE, the COMPANY agrees that for
any claim or cause of action that the COMPANY or any of its
AFFILIATES may have against the EMPLOYEE, whether past or future,
their sole remedy shall be the forfeiture of the EMPLOYEE's salary,
bonus and other compensation (but not the equity grant under Section
6.1 hereof, which shall not be subject to forfeiture) received by
the EMPLOYEE during the COMPANY's fiscal year in which the
EMPLOYEE's termination occurred plus subsequently accruing
compensation. In this regard, the COMPANY agrees, to the extent
permitted by applicable law, to indemnify the EMPLOYEE from and
against any liability the EMPLOYEE may have in excess of that
provided in the immediately preceding sentence (i) hereunder or (ii)
for any other claim the COMPANY or any of its AFFILIATES may have
against the EMPLOYEE. However, nothing in this Section 13 shall
limit the EMPLOYEE's liability to the COMPANY or any of its
AFFILIATES or provide the EMPLOYEE any indemnity (i) for any act by
the EMPLOYEE involving theft, fraud or embezzlement against the
COMPANY or any of its AFFILIATES, (ii) in respect of any equitable
remedy against the EMPLOYEE, (iii) in respect of any agreement
listed on Schedule I of the Old Employment Agreement (as defined in
that separate Termination Agreement among IHF Capital, Inc., IHF
Holdings, Inc., SUBSIDIARY and EMPLOYEE, dated an even date hereof
(the "Termination Agreement")) or any agreement heretofore or
hereafter entered into
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by the EMPLOYEE after the date of the Old Employment Agreement, (iv)
in respect of any claim or cause of action asserted by the COMPANY
or any of its AFFILIATES as a counterclaim (to the extent of any
liability the COMPANY or any of its AFFILIATES may have by reason of
the EMPLOYEE claim in question) or as a set off, or (v) under
Section 7, 9.3 or 10 of this Agreement or under the Non-Competition
Agreement (as defined in the First Amended and Restated Master
Transaction Agreement dated as of October 12, 1994 among ICON Health
& Fitness, Inc. and the other parties thereto (the "Master
Transaction Agreement")); provided, however, that the aggregate of
the liability of the EMPLOYEE to the COMPANY or any of its
AFFILIATES under Section 7, 9.3 or 10 of this Agreement or to the
COMPANY, any of its AFFILIATES, IHF Capital, Inc. or any of its
AFFILIATES (as defined in the Old Employment Agreement) under the
Non-Competition Agreement and of the liability of the EMPLOYEE to
IHF Capital, Inc. or any of its AFFILIATES (as so defined) in
respect of claims subject to the $18,000,000 limits set forth in the
third to last sentence of Section 10.3.1.1 of the Master
Transaction, shall not exceed $1,240,000.
14. AMENDMENTS
14.1. This Agreement may be amended only by written instrument duly
executed by all the parties hereby and approved by the Board of
Directors of the COMPANY.
15. NO ASSIGNMENT
15.1. No party hereto shall assign, in whole or in part, this agreement or
any of its or his respective rights and obligations hereunder
without the express prior written consent of the other parties
hereto; for this purpose the merger or reorganization of the COMPANY
or the SUBSIDIARY or any AFFILIATE shall not be considered an
assignment.
16. NO WAIVER
16.1 No waiver by any party of any breach of the obligations of any other
party hereunder shall be a waiver of any subsequent breach or of any
other obligation, nor shall any forbearance to seek a remedy for any
breach be a waiver of any rights and remedies with respect to any
subsequent breach.
17. SEVERABILITY
17.1. The invalidity of one of the provisions of this Agreement shall not
invalidate or otherwise affect any of the other provisions of this
Agreement, which shall remain in full force and effect, and each
such invalid provision shall be construed by limiting it so as to be
valid for the maximum extent permitted by law.
18. CURRENCY, ETC.
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18.1. All references in this Agreement to dollar of $ mean lawful currency
of the United States of America.
18.2. The COMPANY shall have the right to withhold, from or in respect of
any payment, benefit or other item of compensation due to the
EMPLOYEE hereunder, any federal, state or local taxes of any kind
required by law to be withheld with respect thereto. In the event
that at the time any withholding is required hereunder, the amount
of cash payments from which the applicable withholding taxes may be
deducted is less than the withholding taxes due, the EMPLOYEE shall
pay to the COMPANY, in immediately available funds, an amount equal
to such shortfall.
19. GOVERNING LAW; ARBITRATION
19.1. This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the State of Utah, without giving
effect to any choice or conflict of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction; provided, however, that any dispute relating to the
provisions of Section 19.2 shall be governed by the United States
Arbitration Act as then in force.
19.2. Except solely as set forth in Section 19.4, each dispute,
difference, controversy or claim arising in connection with or
related or incidental to, or question occurring under, this
Agreement or the subject matter hereof shall be finally settled
under the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA") by an arbitral tribunal composed of three
(3) arbitrators, at least one (1) of whom shall be an attorney
experienced in corporate transactions, appointed by agreement of the
parties in accordance with said Rules. In the event the parties fail
to agree upon a panel of arbitrators from the first list of
potential arbitrators proposed by the AAA, the AAA will submit a
second list in accordance with said Rules. In the event the parties
shall have failed to agree upon a full panel of arbitrators from
said second list, any remaining arbitrators to be selected shall be
appointed by the AAA in accordance with said Rules. If, at the time
of the arbitration, the parties agree in writing to submit the
dispute to a single arbitrator, said single arbitrator shall be
appointed by agreement of the parties in accordance with the
foregoing procedure, or, failing such agreement, by the AAA in
accordance with said Rules. The foregoing arbitration proceedings
may be commenced by any party by notice to all other parties.
19.3. The place of arbitration shall be Salt Lake City, Utah.
19.4. The parties hereto exclude any right of appeal to any court on the
merits of the dispute. The provisions of this Section 19 may be
enforced in any court having jurisdiction over the award of any of
the parties or any of their respective assets and judgment on the
award (including without limitation equitable remedies) granted in
any arbitration hereunder may be entered in any such court. Nothing
contained in this Section 19 shall prevent any party from seeking
interim
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measures of protection in the form of pre-award attachment of assets
or preliminary or temporary equitable relief.
19.5. To the extent not prohibited by applicable law which cannot be
waived, each of the parties hereto hereby waives, and covenants that
he or it will not assert (whether as plaintiff, defendant, or
otherwise), any right to trial by jury in any forum in respect of
any issue, claim, demand, cause of action, action, suit or
proceeding arising out of or based upon this Agreement or the
subject matter hereof, in each case whether now existing or
hereafter arising and whether in contract or tort or otherwise. Any
of the parties hereto may file an original counterpart or a copy of
this Section 19.5 with any court as written evidence of the consent
of each of the parties hereto to the waiver of his or its right to
trial by jury.
19.6. Each of the parties hereto acknowledges that he or it has been
informed by each other party that the provisions of Section 19
constitute a material inducement upon which such party is relying
and will rely in entering into this Agreement and the transactions
contemplated hereby.
20. BINDING ON HEIRS
20.1. This Agreement binds and inures to the benefit of the parties, their
heirs, executors, administrators, successors and permitted assigns
(subject to Section 9.2(b)).
21. ENTIRE AGREEMENT
21.1 This Agreement embodies the entire Agreement between the parties
hereto concerning the subject matters mentioned herein and
supersedes all previous discussions, correspondence, understandings
or agreements, whether written or oral, with respect to such
matters, except as provided in the Termination Agreement. This
agreement shall constitute an agreement between employer and
employee of the type referred to in Section 1, Chapter 28, Title 34
of the Utah Code, Annotated.
22. ATTORNEY'S FEES
22.1. In the event that any party hereto shall be found in default or in
breach of this Agreement pursuant to arbitral or judicial
proceedings, such party shall be liable to pay all reasonable
attorney's fees, court costs and other related collection costs and
expenses incurred by the non-defaulting or non-breaching party in
pursuing its rights hereunder.
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23. NOTICES
23.1. All notices and other communications necessary or contemplated under
this Agreement shall be in writing and shall be delivered in the
manner specified herein or, in the absence of such specification,
shall be deemed to have been duly given three (3) business days
after mailing by certified mail, when delivered by hand, or when
delivered by facsimile upon confirmation of receipt, or one (1) day
after sending by overnight delivery service, to the respective
addresses of the parties set forth below:
a) for notices and communications to the COMPANY or the
SUBSIDIARY:
HF HOLDINGS, INC.
ICON HEALTH & FITNESS, INC.
1500 South 1000 East
Logan, Utah 84321
Fax: 435-750-5238
Attn: Board of Directors
b) For notices and communications to the EMPLOYEE:
Scott R. Watterson
560 South 1000 East
Logan, Utah 84321
c) With a copy in each case to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Fax: 617-951-1295
Attn: Charles W. Robins, Esq.
and
Ropes & Gray
One International Place
Boston, MA 02110
Fax: 617-951-7050
Attn: R. Newcomb Stillwell, Esq.
24. JOINT AND SEVERAL LIABILITY
24.1. The COMPANY and the SUBSIDIARY shall be jointly and severally liable
in respect of all payment obligations of the COMPANY hereunder.
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IN WITNESS WHEREOF the parties have hereto signed this 27th day of
September, 1999.
HF HOLDINGS, INC.
By: /s/ S. Fred Beck
- ----------------------------------- -------------------------------------
Witness Title: Vice President
ICON HEALTH & FITNESS, INC.
By: /s/ S. Fred Beck
- ----------------------------------- -------------------------------------
Witness Title: Vice President
/s/ Scott R. Watterson
- ----------------------------------- ---------------------------------------
Witness SCOTT R. WATTERSON
<PAGE>
SCHEDULE I
To
EMPLOYMENT AGREEMENT
Among
HF HOLDINGS, INC.
ICON HEALTH & FITNESS, INC.
And
SCOTT R. WATTERSON
------------
Board Seats
------------
Ampad
Make-a-Wish Foundation of Utah
Utah Foundation
Utah State Foundation Board
Patient Link.com
Cornerstone Capital
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Exhibit 10.12
EMPLOYMENT AGREEMENT entered on the 27th day of September, 1999.
AMONG: HF HOLDINGS, INC., a Delaware corporation.
("COMPANY")
ICON HEALTH & FITNESS, INC., a Delaware
corporation.
("SUBSIDIARY")
GARY E. STEVENSON, acting in his personal capacity,
of the City of PROVIDENCE, State of UTAH.
("EMPLOYEE")
THE PARTIES AGREE AS FOLLOWS:
1. PREAMBLE
1.1. The COMPANY and the SUBSIDIARY have made an exchange offer for all
outstanding 13% Senior Subordinated Notes due 2002 of the
SUBSIDIARY, 15% Senior Secured Discount Notes due 2004 of IHF
Holdings, Inc. and 14% Senior Discount Notes due 2006 of ICON
Fitness Corporation, pursuant to an Exchange Offer and Consent
Solicitation, dated July 30, 1999, as supplemented (the "Exchange
Offer").
1.2. It is recorded that the COMPANY, in connection with the
Restructuring (as defined in the Equity Letter Agreement (the
"Equity Letter"), dated July 8, 1999, attached, as amended, to the
Exchange Offer as Annex H) desires to conclude an agreement for the
employment of the EMPLOYEE as President and Chief Operating Officer
of the COMPANY, according to the terms and conditions to be set
forth in this Agreement.
1.3. This Agreement is to record the terms and conditions which govern
the mutual relations of the parties hereto with respect to its
subject matter.
1.4. In this Agreement, "BUSINESS" means the manufacture, sale and
distribution of SPORTING GOODS as carried on by the COMPANY, the
SUBSIDIARY, and their respective various divisions and subsidiaries,
from time to time. "SPORTING GOODS" means fitness equipment and
accessories, which presently involve treadmills, home gyms, aerobic
exercises, trampolines, weights and benches and exercise
accessories, but the content of such product lines may vary from
time to time.
1.5. In this Agreement, AFFILIATES means any entity in which the COMPANY
or the SUBSIDIARY holds more than a 20% voting interest direct or
indirect.
<PAGE>
2. EMPLOYMENT AND ONE-TIME BONUS
2.1. This Agreement shall come into effect on the date hereof ("EFFECTIVE
DATE").
2.2. The COMPANY hereby employs the EMPLOYEE and the EMPLOYEE agrees to
serve the COMPANY in the positions of President and Chief Operating
Officer for a term of three (3) years from the EFFECTIVE DATE,
subject to earlier termination as hereinafter provided (the "TERM").
2.3. Although this agreement is concluded between the COMPANY and the
EMPLOYEE, it is agreed that the duties and obligations of the
EMPLOYEE hereunder extend to the SUBSIDIARY and to all of the
COMPANY's other subsidiaries, present and future, although the
EMPLOYEE will not necessarily be an employee of such entities. The
EMPLOYEE agrees to serve, if requested by the COMPANY, as an officer
or director of the SUBSIDIARY and any other subsidiaries, in each
case without additional consideration.
2.4. Upon the execution and delivery hereof, the COMPANY shall pay the
EMPLOYEE a one-time bonus of FIVE HUNDRED THOUSAND DOLLARS
($500,000).
3. BASE SALARY, EXPENSES AND BENEFITS
3.1. In consideration for the faithful performance of services by the
EMPLOYEE to be rendered to the COMPANY as herein provided, the
COMPANY shall pay to the EMPLOYEE during the TERM an annual base
salary of FOUR HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($475,000)
payable in semi-monthly installments or in accordance with the
general policy of the COMPANY which may change from time to time but
in no event less frequently than monthly.
3.2. The annual base salary mentioned in Section 3.1 above shall be
reviewed by the Board of Directors of the COMPANY and may be
adjusted upwards in the Board's discretion, annually for each year
of the TERM, taking into account, among other things:
a) the performance by the EMPLOYEE of his duties and functions
pursuant to this Agreement,
b) the general economic situation,
c) the development and performance of the BUSINESS, and
d) other matters deemed relevant by the Board of Directors such
as an increase in shareholder equity and the rate on return on
investment.
3.3. The COMPANY shall reimburse the EMPLOYEE for all reasonable expenses
which are incurred by the EMPLOYEE in the performance of his duties
hereunder
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and (i) subject to the COMPANY's annual budget or (ii) as authorized
by the Board of Directors of the COMPANY or (iii) in accordance with
the policies and procedures established from time to time by the
Board of Directors of the COMPANY or a committee delegated for such
purpose.
3.4. During the Term, the COMPANY shall provide the EMPLOYEE with the use
of a new automobile of his choice, acting reasonably (and
consistently with his past practice) every 3 years for the purposes
of his employment commensurate with the position of the EMPLOYEE and
having regard to COMPANY policy in force from time to time.
The COMPANY shall assume all costs and expenses of said automobile
and its operation, including, without limitation, insurance,
maintenance, gas and use of such automobile. Upon the expiry of the
TERM, the EMPLOYEE shall deliver such automobile to the COMPANY.
3.5. During the Term, the EMPLOYEE shall be entitled to participate in
the COMPANY's life, welfare, and health insurance plans for senior
executives on the same terms as those of other senior executives.
3.6. During the Term, the EMPLOYEE shall be entitled to participate in
fringe benefit programs which are not less favorable than those
extended by the COMPANY to its senior executives, including without
limitation an as yet to be defined deferred compensation plan to be
established by the Board of Directors, but excluding for this
purpose any such plan or program adopted exclusively for the benefit
of junior management.
4. ANNUAL BONUS
4.1. The EMPLOYEE shall receive with respect to (i) each fiscal year
ending during the Term, and (ii) that portion of any fiscal year
ending after Term during which he is employed hereunder, a bonus
equal to one and one-tenth percent (1.10%) of the consolidated
EBITDA (as that term is defined in the Credit Agreement of even date
herewith among the SUBSIDIARY, General Electric Capital Corporation
and the other lenders thereunder, without regard to any amendments
thereto) of the SUBSIDIARY and its subsidiaries (but not including
the COMPANY), provided that such bonus shall not be payable with
respect to any such fiscal year unless such EBITDA for such fiscal
year exceeds five and one-half percent (5.5%) of the consolidated
net sales of the SUBSIDIARY and its subsidiaries (but not including
the COMPANY) determined in accordance with generally accepted
accounting principles and provided, further, that for purposes of
this Agreement, EBITDA shall be calculated without regard to any
bonuses payable hereunder.
4.2. The sole basis for the bonus calculation shall be the auditied
financial statements of the SUBSIDIARY and its subsidiairies for the
fiscal year in question.
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4.3. Any bonus to which EMPLOYEE is entitled under the provisions of this
Agreement for any fiscal year shall be paid to him (regardless of
whether the TERM has terminated) in accordance with the COMPANY'S
previous practice, with a first installment equal to forty percent
(40%) of a good faith estimate of the bonus for such year, to be
paid during the month of December of such year and a final
installment to be paid as promptly as reasonably practicable after
the end of, but not later than the 75th day after the end of each
such fiscal year.
5. DUTIES
5.1. The EMPLOYEE shall perform those functions which are normally the
functions of the President and Chief Operating Officer of the
COMPANY and such other offices as he may hold pursuant to Section
2.3, and shall further perform those functions which shall be
reasonably determined from time to time by the Board of Directors of
the COMPANY, such functions not to be inconsistent with those herein
set forth. The EMPLOYEE shall report to, and be subject to the
authority of, the Board of Directors of the COMPANY.
5.2. The COMPANY shall give the EMPLOYEE a notice of six (6) months prior
to any relocation of the EMPLOYEE.
5.3. It is the specific responsibility of the EMPLOYEE, between regular
meetings of the Board, to apprise Board Members of significant
business matters.
5.4. The EMPLOYEE shall, during the TERM, devote his entire working time,
attention and energies to the business of the COMPANY, the
SUBSIDIARY, and their respective AFFILIATES.
5.5. The EMPLOYEE shall not, during the TERM, except under Section 5.6,
be engaged in any other business activity, whether or not such
business activity is pursued for gain, profit or other pecuniary
advantage. Notwithstanding the prohibition contained in the present
clause, the EMPLOYEE shall be entitled to continue to sit on the
boards of directors of the companies listed on Schedule I hereto,
and on the boards of directors of other companies if such activity
is approved in writing by the Board of Directors of the COMPANY. In
the case of non-profit corporations or charities, such approval
shall not be unreasonably withheld, but in all other cases, the
Board shall have sole discretion to grant, delay or withhold
approval, with or without conditions.
5.6. The EMPLOYEE shall not invest his personal assets in any business
other than NON-COMPETING BUSINESSES, and even in the case of such
investments:
a) No services are required or furnished on the part of the
EMPLOYEE in the operations of the companies in which such
investments are made and in which his participation is solely
that of an investor provided that this subsection is not
infringed by the EMPLOYEE's providing counseling (and not
acting in a "line" capacity) on a non-remunerative basis to
all
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such companies for a maximum of 5 hours per week and 200 hours
per year; and
b) If the EMPLOYEE purchases securities in any corporation whose
securities are regularly traded in a recognized securities
market, such purchases shall not result in his collectively
owning beneficially at any time five percent (5%) or more of
the equity securities of any corporation engaged in a business
other than a NON-COMPETING BUSINESS.
The foregoing restrictions shall not apply to any investment of
whatever extent the EMPLOYEE may take in the shares of the COMPANY
or of any successor company.
For the purposes of this subsection, NON-COMPETING BUSINESSES are
all businesses other than those which compete with:
a) the BUSINESS; or
b) any other business carried on in the future by the COMPANY,
the SUBSIDIARY or any AFFILIATES, provided that the EMPLOYEE
has access to confidential information concerning such
business.
Moreover, the EMPLOYEE shall not knowingly assist any RELATIVE to
make any investment which the EMPLOYEE is not permitted to make by
this section.
5.7. The EMPLOYEE is a member of the Board of Directors and acknowledges
that he has a significant interest in this Agreement and undertakes
the following:
5.7.1. To seek independent legal counsel at the COMPANY's expense
to negotiate and review this Agreement on the EMPLOYEE's
behalf;
5.7.2. To disclose his interest in this Agreement to the other
members of the Board of Directors; and
5.7.3. To retire from and abstain from the discussion and vote at
any meeting of the Board of Directors at which this
Agreement or any default by EMPLOYEE or matter arising
therefrom is the subject of a discussion or a vote.
5.8. The EMPLOYEE also undertakes the following:
5.8.1. To use every best effort (including the establishment of
written procedures known to operation personnel) to
promptly bring to the attention of the Board of Directors
of the COMPANY any matter requiring the COMPANY's decision
or action where his own interests or those of a RELATIVE
are involved and to abstain from taking such decision or
action until the Board of Directors decides.
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5.8.2. If requested, to be absent from and abstain from the
discussion and vote at any meeting of the aforementioned
Board of Directors where the subject matter being
discussed and voted upon is any matter covered by section
5.8.l.
5.8.3. For the purposes of this Agreement RELATIVE means the
EMPLOYEE's spouse, parent, sibling, child or sibling's
children, the spouses of the foregoing and any other
person who could be claimed as a dependent on the
EMPLOYEE's or RELATIVE's federal income tax return, any
corporation or partnership in which a RELATIVE or the
EMPLOYEE holds a five percent (5%) interest or of which a
RELATIVE or the EMPLOYEE is an officer or director, and
any trust of which any of the foregoing is a beneficiary.
6. EQUITY GRANT
6.1. Contemporaneously herewith, the COMPANY will issue to the EMPLOYEE
291,700 shares of Common Stock of the COMPANY, at no cost to
EMPLOYEE, which the COMPANY represents and warrants is equal to
2.91617% of the COMPANY's Common Stock outstanding on a fully
diluted basis upon closing of the Restructuring.
7. CONFIDENTIALITY, ETC.
7.1. The EMPLOYEE recognizes and acknowledges that the confidential
information, trade secrets and proprietary processes of the COMPANY,
its AFFILIATES and subsidiaries as they may exist from time to time
are valuable, special and unique assets of the BUSINESS of the
COMPANY, its AFFILIATES and subsidiaries, access to and knowledge of
which are essential to the performance of the EMPLOYEE's duties
hereunder. The EMPLOYEE will not, during the TERM of his employment
or at any time within five (5) years following its termination, for
any reason whatsoever, in whole or in part, disclose such
confidential information, secrets or processes to any person, firm,
corporation, association or other entity for any reason or purpose
whatsoever, nor shall the EMPLOYEE make use of such property for his
own purposes or for the benefit of any person, firm, corporation or
other entity (except the COMPANY, its AFFILIATES and subsidiaries)
under any circumstances whatsoever, except as may be required in the
fulfillment of his function with the COMPANY within the terms of
this Agreement or except as provided by law; provided these
restrictions shall not apply to such information, secrets and
processes which are then in the public domain (provided that the
EMPLOYEE was not responsible, directly or indirectly, for permitting
such secrets or process to enter the public domain without the
COMPANY's consent).
7.2. The EMPLOYEE furthermore agrees that upon termination of the TERM he
will remit to the COMPANY all writings and materials, in his
possession or under his control, which either belong to the COMPANY
and AFFILIATES or which may
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contain confidential information concerning the COMPANY and
AFFILIATES. The EMPLOYEE may, however, retain his personal
diary/agenda after removing or destroying all confidential COMPANY
or AFFILIATES material therein.
7.3. Any and all inventions, discoveries, developments, methods,
processes, compositions, works, concepts and ideas (whether or not
patentable or copyrightable) conceived, made, developed, created or
reduced to practice by the EMPLOYEE (whether at the request or
suggestion of the COMPANY or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or
otherwise) during the period of his employment by the COMPANY or any
of its subsidiaries which may relate to the business, ventures or
other activities of or products manufactured or sold by the COMPANY
or any of its subsidiaries (collectively, "Proprietary Rights"),
shall be promptly and fully disclosed by the EMPLOYEE to an
appropriate executive officer of the COMPANY and shall be the
COMPANY's exclusive property as against the EMPLOYEE and his heirs
and personal representatives, and the EMPLOYEE hereby assigns to the
COMPANY his entire right, title and interest therein and shall
promptly deliver to an appropriate executive officer of the COMPANY
all papers, drawings models, data and other material relating to any
of the foregoing Proprietary Rights, conceived, made, developed,
created or reduced to practice by him as aforesaid. All
copyrightable Proprietary Rights shall be considered "works made for
hire."
The EMPLOYEE shall, upon the COMPANY's request and without any
payment therefor, execute any documents reasonably necessary or
advisable in the opinion of the COMPANY's counsel to assign, and
confirm the COMPANY's title in, his entire right, title and interest
in the foregoing Proprietary Rights and to direct issuance of
patents or copyrights to the COMPANY with respect to such
Proprietary Rights as are the COMPANY's exclusive property as
against the EMPLOYEE and his heirs and personal representatives
under this Section 7.3 or to vest in the COMPANY title to such
Proprietary Rights as against the EMPLOYEE and his heirs and
personal representatives, the expense of securing any such patent or
copyright, however, to be borne by the COMPANY. In addition, the
Company shall reimburse the EMPLOYEE for any reasonable expenses
incurred in having such documents reviewed by EMPLOYEE's counsel.
8. VACATION
8.1. The EMPLOYEE shall have the right to an annual paid vacation of no
less duration than four (4) weeks.
9. TERMINATION OF EMPLOYMENT
9.1. Notwithstanding any other provision contained herein, the COMPANY
may on or after the EFFECTIVE DATE send to the EMPLOYEE notice of
one of the following events and should the EMPLOYEE fail to cure the
matter giving rise to the notice within thirty (30) days after
receipt of such notice, the TERM shall
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terminate without any delay stipulated therein or any indemnity
payable in lieu thereof:
a) EMPLOYEE's willful misconduct or gross negligence;
b) The commission of a criminal act by the EMPLOYEE against the
COMPANY involving material harm (whether nor not charges are
filed);
c) The commission by the EMPLOYEE of a criminal act of moral
turpitude bringing the COMPANY into disrepute (whether or not
charges are filed);
d) Willful insubordination to any directive of the Board of
Directors provided reasonable prior notice of such directive
is given; or
e) Actions contrary to Sections 5.4, 5.5, 5.6, 5.8, 7 or 10
causing COMPANY or AFFILIATES material harm.
9.2. Notwithstanding any other provision contained herein, the TERM shall
terminate automatically, without notice or indemnity in lieu
thereof, upon the occurrence of one of the following events:
a) The bankruptcy or voluntary state insolvency filing of the
EMPLOYEE; or
b) The death of the EMPLOYEE.
9.3. The EMPLOYEE may terminate the TERM by sending his resignation in
writing to Board of Directors not less than six (6) months prior to
the effective date of such resignation or, if such resignation is
submitted in good faith so that the EMPLOYEE can perform full time
church service, not less than three (3) months prior to the
effective date of such resignation, failing which notice the
EMPLOYEE may be subject to any and all damages incurred as a result
of such failure. In the event the EMPLOYEE has given such a notice
to the COMPANY, the COMPANY may, at its option, earlier terminate
EMPLOYEE's employment.
9.4. Except under the circumstances described in Section 9.6, the COMPANY
may terminate the TERM by sending a notice in writing to the
EMPLOYEE.
9.5. The EMPLOYEE may immediately terminate the TERM by sending a notice
of termination to the Board of Directors with immediate effect
following any material diminution of the EMPLOYEE's responsibilities
or in the event that the EMPLOYEE is asked by the Board of Directors
to perform any act which a reasonable person would consider illegal
or unethical and the COMPANY has not withdrawn its request to the
EMPLOYEE to perform such act within five (5) days of receiving a
written notice from the EMPLOYEE to withdraw such a request.
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9.6. The COMPANY may immediately terminate the TERM by sending a notice
in writing to the EMPLOYEE with immediate effect:
9.6.1. after a period of six (6) consecutive months (or
aggregating six (6) months in any twelve (12) month
period) of absence by the EMPLOYEE from his employment as
a result of sickness or disability, or
9.6.2. after sixty (60) days of absence by the EMPLOYEE from his
employment as a result of sickness or disability and a
certification by three (3) physicians that the EMPLOYEE is
likely to be disabled for a period of at least six (6)
months from the initial date of sickness or disability.
One (1) such physician shall be chosen by the EMPLOYEE,
one (1) shall be chosen by the COMPANY and the third shall
be chosen by the other two (2) selected physicians. The
EMPLOYEE agrees that in the event of his sickness, he
shall submit himself for examination by such physicians if
reasonably requested to do so by the COMPANY. For the
purposes of this section, "disabled" or "disability" shall
mean a temporary or permanent substantial inability
because of a physical or mental illness to continue to
discharge the EMPLOYEE's duties hereunder.
Notwithstanding any other provision hereof, the EMPLOYEE's
compensation during any period of the EMPLOYEE'S disability shall be
reduced to the extent of any payments to the EMPLOYEE for such
period under any disability plan or program maintained for the
EMPLOYEE by the COMPANY for his benefit.
9.7. In the event of the termination of the TERM by virtue of section 9.6
in addition to the payments described therein, the COMPANY shall pay
to the EMPLOYEE a severance pay equal to one (1) month base salary
in effect at termination for each calendar year, or part thereof, of
the EMPLOYEE's employment with the COMPANY, the SUBSIDIARY, IHF
Capital, Inc. or IHF Holdings, Inc. (or any predecessor companies of
the COMPANY, the SUBSIDIARY, IHF Capital, Inc., or IHF Holdings,
Inc.) after January 1, 1988.
9.8. In the event of the termination of the TERM by virtue of Section
9.3, 9.4 or 9.5, the COMPANY shall pay to the EMPLOYEE a severance
pay equal to the EMPLOYEE's base salary then in effect and the bonus
referred to in Section 4 hereof, pro-rated for the period of the
payment, for two (2) years following the termination of the TERM,
provided, however, that if, due to the EMPLOYEE's resignation, there
is a termination of the TERM, without any action by the COMPANY,
during the one (1) year period following the EFFECTIVE DATE, the
EMPLOYEE shall forego FIVE HUNDRED THOUSAND DOLLARS ($500,000) of
any severance pay to which he would otherwise be entitled under this
Section 9.8, unless the resignation resulting in such termination is
submitted (i) in good faith by EMPLOYEE pursuant to Section 9.3 so
that the EMPLOYEE can perform full time church service, or (ii)
pursuant to Section 9.5. The bonuses shall be paid to the EMPLOYEE
within ninety (90) days from the end of the COMPANY's applicable
fiscal year, and the base salary shall be paid to the
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EMPLOYEE on the same payment schedule as was applicable to the
EMPLOYEE during his employment.
10. RESTRICTIVE COVENANT
10.1. EMPLOYEE shall not, during the TERM of his employment hereunder and
for a period of four (4) years from its termination, either directly
or indirectly, individually or in partnership, carry on or be
engaged in, or concerned with or interested in, in any capacity
whatsoever (including that of principal, agent, shareholder (subject
to section 5.6(b)), consultant, employee, lender or surety), any
person, firm, association, syndicate or company engaged in or
concerned with or interested in the conception, development,
fabrication, transformation, marketing, distribution, advertising,
franchising or sale in Canada, the United States or the European
Economic Community, or any of them, of any products or services
similar or identical to any of those manufactured, distributed, or
sold by the COMPANY or any of its subsidiaries in the course of his
employment with the COMPANY, its AFFILIATES and subsidiaries.
10.2. (a) EMPLOYEE shall not, during the TERM of his employment
hereunder and for a period of twelve (12) months from its
termination, directly or indirectly, hire any Designated
Employee.
(b) EMPLOYEE shall not, during the TERM of his employment
hereunder and for a period of eighteen (18) months from its
termination, directly or indirectly, solicit, interfere with
or endeavor to entice away, any Designated Employee.
(c) For purposes of this Section 10.2., the term "Designated
Employee" shall mean any person if that person is or was a
Senior Employee of the COMPANY or any of its AFFILIATES or
subsidiaries during the period beginning six (6) months prior
to the termination of the TERM and ending (i) in the case of
clause (a), twelve (12) months thereafter and (ii) in the case
of clause (b), eighteen (18) months thereafter, but shall
exclude Scott R. Watterson or any RELATIVE. For purposes of
this Section 10.2 "Senior Employee" shall mean each of the two
hundred (200) most highly compensated employees of the COMPANY
or any of its subsidiaries or AFFILIATES.
10.3. Notwithstanding the foregoing, if termination of employment occurs
under Section 9.3, 9.4 or 9.5, the period stipulated by Section 10.1
is reduced to two (2) years; provided, however, that such period
shall be extended by written notice to the EMPLOYEE within thirty
(30) days of such termination up to two (2) years (i.e., up to a
total of four (4) years from the termination of EMPLOYEE's
employment) to the extent that the COMPANY, at its option, pays to
the EMPLOYEE a severance pay equal to the EMPLOYEE's base salary
then in effect and the bonus referred to in Section 4 hereof,
pro-rated for the period of the payment, for a period of up to an
additional two (2) years beyond that required to
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be paid by the COMPANY to the EMPLOYEE under Section 9.8. If paid at
the COMPANY's option, such bonuses are to be paid within ninety (90)
days from the end of the COMPANY's applicable fiscal year, and the
base salary shall be paid to the EMPLOYEE on the same payment
schedule as was applicable to the EMPLOYEE during his employment.
11. REASONABLENESS AND REMEDIES
11.1. The EMPLOYEE agrees that all the conditions and restrictions
established in this Agreement are reasonable taking into account the
circumstances surrounding this Agreement.
11.2. The EMPLOYEE recognizes that in the view of the serious and
irreparable harm which a violation hereof would have on the COMPANY,
and without prejudice to the COMPANY's other remedies, injunctive
relief would constitute an available and appropriate remedy and, to
the extent permitted by law, the COMPANY shall not be required to
furnish any security or bond in respect thereof.
12. [INTENTIONALLY DELETED]
13. GENERAL LIMIT ON EMPLOYEE'S LIABILITY
13.1. As a general and overall limitation of the EMPLOYEE's liability to
the COMPANY and AFFILIATES, the COMPANY agrees that the EMPLOYEE
shall not be liable, for any reason except as set forth below, to
the COMPANY or any of its AFFILIATES for an amount in excess of the
amount provided in the next sentence hereof. Accordingly, as and for
their sole remedy against the EMPLOYEE, the COMPANY agrees that for
any claim or cause of action that the COMPANY or any of its
AFFILIATES may have against the EMPLOYEE, whether past or future,
their sole remedy shall be the forfeiture of the EMPLOYEE's salary,
bonus and other compensation (but not the equity grant under Section
6.1 hereof, which shall not be subject to forfeiture) received by
the EMPLOYEE during the COMPANY's fiscal year in which the
EMPLOYEE's termination occurred plus subsequently accruing
compensation. In this regard, the COMPANY agrees, to the extent
permitted by applicable law, to indemnify the EMPLOYEE from and
against any liability the EMPLOYEE may have in excess of that
provided in the immediately preceding sentence (i) hereunder or (ii)
for any other claim the COMPANY or any of its AFFILIATES may have
against the EMPLOYEE. However, nothing in this Section 13 shall
limit the EMPLOYEE's liability to the COMPANY or any of its
AFFILIATES or provide the EMPLOYEE any indemnity (i) for any act by
the EMPLOYEE involving theft, fraud or embezzlement against the
COMPANY or any of its AFFILIATES, (ii) in respect of any equitable
remedy against the EMPLOYEE, (iii) in respect of any agreement
listed on Schedule I of the Old Employment Agreement (as defined in
that separate Termination Agreement among IHF Capital, Inc., IHF
Holdings, Inc., SUBSIDIARY and EMPLOYEE, dated an even date hereof
(the "Termination Agreement")) or any agreement heretofore or
hereafter entered into
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by the EMPLOYEE after the date of the Old Employment Agreement, (iv)
in respect of any claim or cause of action asserted by the COMPANY
or any of its AFFILIATES as a counterclaim (to the extent of any
liability the COMPANY or any of its AFFILIATES may have by reason of
the EMPLOYEE claim in question) or as a set off, or (v) under
Section 7, 9.3 or 10 of this Agreement or under the Non-Competition
Agreement (as defined in the First Amended and Restated Master
Transaction Agreement dated as of October 12, 1994 among ICON Health
& Fitness, Inc. and the other parties thereto (the "Master
Transaction Agreement")); provided, however, that the aggregate of
the liability of the EMPLOYEE to the COMPANY or any of its
AFFILIATES under Section 7, 9.3 or 10 of this Agreement or to the
COMPANY, any of its AFFILIATES, IHF Capital, Inc. or any of its
AFFILIATES (as defined in the Old Employment Agreement) under the
Non-Competition Agreement and of the liability of the EMPLOYEE to
IHF Capital, Inc. or any of its AFFILIATES (as so defined) in
respect of claims subject to the $18,000,000 limits set forth in the
third to last sentence of Section 10.3.1.1 of the Master
Transaction, shall not exceed $1,240,000.
14. AMENDMENTS
14.1. This Agreement may be amended only by written instrument duly
executed by all the parties hereby and approved by the Board of
Directors of the COMPANY.
15. NO ASSIGNMENT
15.1. No party hereto shall assign, in whole or in part, this agreement or
any of its or his respective rights and obligations hereunder
without the express prior written consent of the other parties
hereto; for this purpose the merger or reorganization of the COMPANY
or the SUBSIDIARY or any AFFILIATE shall not be considered an
assignment.
16. NO WAIVER
16.1 No waiver by any party of any breach of the obligations of any other
party hereunder shall be a waiver of any subsequent breach or of any
other obligation, nor shall any forbearance to seek a remedy for any
breach be a waiver of any rights and remedies with respect to any
subsequent breach.
17. SEVERABILITY
17.1. The invalidity of one of the provisions of this Agreement shall not
invalidate or otherwise affect any of the other provisions of this
Agreement, which shall remain in full force and effect, and each
such invalid provision shall be construed by limiting it so as to be
valid for the maximum extent permitted by law.
18. CURRENCY, ETC.
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18.1. All references in this Agreement to dollar of $ mean lawful currency
of the United States of America.
18.2. The COMPANY shall have the right to withhold, from or in respect of
any payment, benefit or other item of compensation due to the
EMPLOYEE hereunder, any federal, state or local taxes of any kind
required by law to be withheld with respect thereto. In the event
that at the time any withholding is required hereunder, the amount
of cash payments from which the applicable withholding taxes may be
deducted is less than the withholding taxes due, the EMPLOYEE shall
pay to the COMPANY, in immediately available funds, an amount equal
to such shortfall.
19. GOVERNING LAW; ARBITRATION
19.1. This Agreement shall be governed by and construed in accordance with
the domestic substantive laws of the State of Utah, without giving
effect to any choice or conflict of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction; provided, however, that any dispute relating to the
provisions of Section 19.2 shall be governed by the United States
Arbitration Act as then in force.
19.2. Except solely as set forth in Section 19.4, each dispute,
difference, controversy or claim arising in connection with or
related or incidental to, or question occurring under, this
Agreement or the subject matter hereof shall be finally settled
under the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA") by an arbitral tribunal composed of three
(3) arbitrators, at least one (1) of whom shall be an attorney
experienced in corporate transactions, appointed by agreement of the
parties in accordance with said Rules. In the event the parties fail
to agree upon a panel of arbitrators from the first list of
potential arbitrators proposed by the AAA, the AAA will submit a
second list in accordance with said Rules. In the event the parties
shall have failed to agree upon a full panel of arbitrators from
said second list, any remaining arbitrators to be selected shall be
appointed by the AAA in accordance with said Rules. If, at the time
of the arbitration, the parties agree in writing to submit the
dispute to a single arbitrator, said single arbitrator shall be
appointed by agreement of the parties in accordance with the
foregoing procedure, or, failing such agreement, by the AAA in
accordance with said Rules. The foregoing arbitration proceedings
may be commenced by any party by notice to all other parties.
19.3. The place of arbitration shall be Salt Lake City, Utah.
19.4. The parties hereto exclude any right of appeal to any court on the
merits of the dispute. The provisions of this Section 19 may be
enforced in any court having jurisdiction over the award of any of
the parties or any of their respective assets and judgment on the
award (including without limitation equitable remedies) granted in
any arbitration hereunder may be entered in any such court. Nothing
contained in this Section 19 shall prevent any party from seeking
interim
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measures of protection in the form of pre-award attachment of assets
or preliminary or temporary equitable relief.
19.5. To the extent not prohibited by applicable law which cannot be
waived, each of the parties hereto hereby waives, and covenants that
he or it will not assert (whether as plaintiff, defendant, or
otherwise), any right to trial by jury in any forum in respect of
any issue, claim, demand, cause of action, action, suit or
proceeding arising out of or based upon this Agreement or the
subject matter hereof, in each case whether now existing or
hereafter arising and whether in contract or tort or otherwise. Any
of the parties hereto may file an original counterpart or a copy of
this Section 19.5 with any court as written evidence of the consent
of each of the parties hereto to the waiver of his or its right to
trial by jury.
19.6. Each of the parties hereto acknowledges that he or it has been
informed by each other party that the provisions of Section 19
constitute a material inducement upon which such party is relying
and will rely in entering into this Agreement and the transactions
contemplated hereby.
20. BINDING ON HEIRS
20.1. This Agreement binds and inures to the benefit of the parties, their
heirs, executors, administrators, successors and permitted assigns
(subject to Section 9.2(b)).
21. ENTIRE AGREEMENT
21.1 This Agreement embodies the entire Agreement between the parties
hereto concerning the subject matters mentioned herein and
supersedes all previous discussions, correspondence, understandings
or agreements, whether written or oral, with respect to such
matters, except as provided in the Termination Agreement. This
agreement shall constitute an agreement between employer and
employee of the type referred to in Section 1, Chapter 28, Title 34
of the Utah Code, Annotated.
22. ATTORNEY'S FEES
22.1. In the event that any party hereto shall be found in default or in
breach of this Agreement pursuant to arbitral or judicial
proceedings, such party shall be liable to pay all reasonable
attorney's fees, court costs and other related collection costs and
expenses incurred by the non-defaulting or non-breaching party in
pursuing its rights hereunder.
14
<PAGE>
23. NOTICES
23.1. All notices and other communications necessary or contemplated under
this Agreement shall be in writing and shall be delivered in the
manner specified herein or, in the absence of such specification,
shall be deemed to have been duly given three (3) business days
after mailing by certified mail, when delivered by hand, or when
delivered by facsimile upon confirmation of receipt, or one (1) day
after sending by overnight delivery service, to the respective
addresses of the parties set forth below:
a) for notices and communications to the COMPANY or the
SUBSIDIARY:
HF HOLDINGS, INC.
ICON HEALTH & FITNESS, INC.
1500 South 1000 East
Logan, Utah 84321
Fax: 435-750-5238
Attn: Board of Directors
b) For notices and communications to the EMPLOYEE:
Gary E. Stevenson
370 Abbey Lane
Providence, Utah 84332
c) With a copy in each case to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Fax: 617-951-1295
Attn: Charles W. Robins, Esq.
and
Ropes & Gray
One International Place
Boston, MA 02110
Fax: 617-951-7050
Attn: R. Newcomb Stillwell, Esq.
24. JOINT AND SEVERAL LIABILITY
24.1. The COMPANY and the SUBSIDIARY shall be jointly and severally liable
in respect of all payment obligations of the COMPANY hereunder.
15
<PAGE>
IN WITNESS WHEREOF the parties have hereto signed this 27th day of
September, 1999.
HF HOLDINGS, INC.
By: /s/ S. Fred Beck
- ----------------------------------- -------------------------------------
Witness Title: Vice President
ICON HEALTH & FITNESS, INC.
By: /s/ S. Fred Beck
- ----------------------------------- -------------------------------------
Witness Title: Vice President
/s/ Gary E. Stevenson
- ----------------------------------- ----------------------------------------
Witness GARY E. STEVENSON
16
<PAGE>
SCHEDULE I
To
EMPLOYMENT AGREEMENT
Among
HF HOLDINGS, INC.
ICON HEALTH & FITNESS, INC.
And
GARY E. STEVENSON
------------
Board Seats
------------
Boy Scots of America, Local Council
Utah State Business College
17
<PAGE>
Exhibit 10.13
NON-RECOURSE NOTE
U.S. $1,209,340 September 27, 1999
New York, New York
FOR VALUE RECEIVED, the undersigned, Scott R. Watterson (the "Borrower"),
hereby promises to pay to HF Holdings, Inc., a Delaware corporation (the
"Company"), at the office of the Company located at 1500 South 1000 West, Logan,
UT 84321, or such other place as the holder hereof may designate, in immediately
available funds, the principal amount of ONE MILLION TWO HUNDRED AND NINE
THOUSAND THREE HUNDRED FORTY DOLLARS ($1,209,340) on September 26, 2009 (the
"Maturity Date"), together with interest on the principal balance hereof from
the date of issuance hereof through and including the Maturity Date, at the
times and at the rates provided herein. The repayment of the loan evidenced by
this Non-Recourse Note (the "Note") shall be subject to the terms and conditions
set forth hereinbelow.
1. Interest. Interest shall accrue on the unpaid principal balance of this
Note at a rate identical to the rate of interest payable from time to time by
ICON Health and Fitness, Inc. ("ICON") under the Revolving Loan portion of the
Credit Agreement, dated on even date herewith, among ICON, General Electric
Capital Corporation and other lenders, calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest shall be payable quarterly in
cash on the first day of each December, March, June and September. All interest
hereunder shall cease to accrue upon the earlier of (i) the last day of the
calendar month immediately preceding the date as of which the cumulative
consolidated net taxable income of the Company and its subsidiaries (computed by
disregarding deductions of the Company and its subsidiaries arising from events
and transactions occurring after the closing of the ICON Restructuring (as that
term is referred to in the Exchange Offer and Consent Solicitation Statement,
dated July 30, 1999, of the Company and ICON, as supplemented), including
without limitation any extraordinary transactions, including any acquisitions,
effected after the ICON Restructuring) arising on or after the date of the ICON
Restructuring exceeds zero dollars ($0), and (ii) May 31, 2000, provided that
the consolidated EBITDA (as that term is defined in the Credit Agreement of even
date herewith among ICON, General Electric Capital Corporation and the other
lenders thereunder, without regard to any amendments thereto) of ICON and its
subsidiaries, for ICON's fiscal year then ended, exceeds $64 million.
The Borrower and every endorser and guarantor hereof hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, and consents to any extension or postponement of the time of payment
or any other indulgence, to any substitution, exchange or release of collateral
and to the additional release of any other party or person primarily or
secondarily liable. No delay or omission on the part of the holder hereof in
exercising any right hereunder shall operate as a waiver of any such right or of
any other rights hereunder,
<PAGE>
nor shall any delay, omission or waiver on any one occasion be construed as a
bar to or waiver of the same or any other rights on any future occasion.
The Borrower and every endorser and guarantor hereof agree to pay on
demand all costs and expenses (including reasonable attorneys' fees and
disbursements) which may be incurred or paid by the holder in the collection of
this Note or the enforcement of the holder's rights and remedies hereunder.
2. Optional Prepayment. This Note may be prepaid at the option of the
Borrower in whole or in part at any time and from time to time without premium
or penalty. Any such prepayment on account of principal hereunder shall be
recorded by the Company and endorsed on the schedule which is attached to and is
part of this Note. The entries on the records of the Company (including any
appearing on this Note) shall be prima facie evidence of all principal amounts
outstanding hereunder.
3. Mandatory Prepayment. The Borrower shall prepay 100% of the unpaid
principal of this Note, together with any accrued and unpaid interest thereon as
provided in Section 1 of this Note, upon the occurrence of a Liquidity Event, as
such term is defined in the Company Stockholders Agreement, also dated as of an
even date herewith.
4. Event of Default. An "Event of Default" shall exist if any of the
following conditions or events shall occur and be continuing:
(a) the Borrower fails to pay any principal or interest under this
Note when the same becomes due and payable; or
(b) the Borrower fails to perform or comply with any material term
or condition contained in this Note (other than nonpayment as described in
clause (a) above), and such default continues for more than twenty (20) days
after the Borrower has received written notice thereof from the Company; or
(c) the Borrower makes an assignment for the benefit of creditors,
or admits in writing its inability to pay its debts as they mature or become
due, or petitions or applies for the appointment of a trustee or other
custodian, liquidator or receiver of the Borrower of any substantial part of its
assets, or commences any case or other proceeding relating to the Borrower or
any bankruptcy, reorganization, insolvency or similar law of any jurisdiction;
or any such involuntary case or proceeding shall be filed or commenced against
the Borrower by any third party, and the Borrower shall indicate its approval
thereof or consent thereto or such case or proceeding shall not have been
dismissed within sixty (60) days following the filing or commencement thereof;
or
(d) a decree or order is entered appointing any trustee, custodian,
liquidator or receiver for the Borrower or its assets, or adjudicating the
Borrower a bankrupt or
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<PAGE>
insolvent, or approving a petition in any such case or proceeding, or a decree
or order of relief is entered in respect of the Borrower in an involuntary case
under federal or state bankruptcy laws as now or hereafter constituted.
5. Remedies on Event of Default.
(a) Automatic Acceleration. If an Event of Default described in
paragraph (c) or (d) of Section 4 of this Note has occurred, this Note shall
thereupon automatically become immediately due and payable.
(b) Acceleration by Declaration. If an Event of Default described in
paragraph (a) or (b) of Section 4 of this Note has occurred and is continuing,
the Company may at any time declare this Note to be immediately due and payable.
(c) Effect of Acceleration. Upon this Note becoming due and payable
under this Section 5, whether automatically or by declaration, this Note will
forthwith mature and the entire unpaid principal amount of this Note, plus all
accrued and unpaid interest thereon (to the full extent permitted by applicable
law), shall be immediately due and payable.
6. Nonrecourse. All loans made under this Note, and all interest thereon
and all costs related thereto, shall be nonrecourse to the Borrower or to any
other person, and the holder hereof shall have recourse only to the assets of
the Borrower referred to in Section 7 hereof which are being pledged to secure
the Borrower's obligations hereunder.
7. Pledge of Collateral. As collateral security for the prompt payment of
the indebtedness evidenced hereby and the performance of all obligations
hereunder and all amendments and replacements hereof, the Borrower hereby agrees
to pledge, assign, deliver and grant a security interest in the Collateral (as
defined below) at the time of the making of the initial loan hereunder. The
value of such collateral security shall be equal to at least $2,418,680 (the
"Minimum Collateral Value Amount"), and shall consist of (i) common stock of the
Company held by the Borrower, representing 375,000 of the Company's common stock
outstanding immediately after the ICON Restructuring (the "Stock Collateral"),
plus (ii) sufficient membership interests held by the Borrower in HF Investment
Holdings, LLC, a Delaware limited liability company (the "Membership Interest
Collateral"), such that the aggregate value of the Stock Collateral plus the
Membership Interest Collateral (collectively, the "Collateral") is not less than
the Minimum Collateral Value Amount. For purposes of this Note, the value of the
Collateral shall be equal to such value as established at the time of the ICON
Restructuring closing. The pledging of the Collateral shall be governed by a
Pledge and Security Agreement, substantially in the form attached hereto as
Appendix A, which shall be executed and delivered by the Borrower, together with
all necessary stock certificates, executed stock powers and executed UCC-1
financing statements, as a condition to the making of the initial loan
hereunder.
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<PAGE>
This Non-Recourse Note shall take effect as a sealed instrument, shall be
governed by the laws of the State of Utah and shall be binding upon the Borrower
and its successors and assigns.
BORROWER
/s/ Scott R. Watterson
-----------------------
Scott R. Watterson
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<PAGE>
SCHEDULE TO NON-RECOURSE NOTE
OF SCOTT R. WATTERSON
TO HF HOLDINGS, INC.
DATED SEPTEMBER 27, 1999
Remaining
Principal Unpaid
Date of Amount Principal Notation
Entry Paid Balance Made by
- ------- --------- ---------- --------
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<PAGE>
Appendix A to
Non-Recourse Note
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement"), dated as of
September 27, 1999 is made by Scott R. Watterson, an individual (the "Grantor"),
and HF Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the Grantor is the legal and beneficial owner of certain capital
stock of the Company;
WHEREAS, the Grantor is also the legal and beneficial owner of certain
membership interests in HF Investment Holdings, LLC, a Delaware limited
liability company ("Holdings LLC");
WHEREAS, it is a condition precedent to the making by the Company of a
loan to the Grantor under that certain $1,209,340 Non-Recourse Note, dated
September 27, 1999 (the "Note"), made by the Grantor to the Company, that the
Grantor execute and deliver a pledge and security agreement in substantially the
form hereof; and
WHEREAS, the Grantor wishes to grant pledges and security interests in the
"Collateral" more particularly described hereinbelow in favor of the Company,
all as herein provided.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definition of Terms. All capitalized terms not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Note.
SECTION 2. Grant of Security Interest. The Grantor hereby pledges and
assigns to the Company and grants to the Company a first priority security
interest in the following (the "Collateral"):
(i) the membership interest held by such Grantor in Holdings LLC
(the "LLC Interests"), as set forth in Schedule A attached hereto and
incorporated herein, all rights and powers accruing to such LLC Interests,
whether by contract, statute or operation of law or otherwise, all
certificates (if any) representing such LLC Interests and, subject to the
provisions of Section 7 hereof, all dividends, cash, instruments and other
property (including, without limitation, all distributions of capital or
alternative securities pursuant to any recapitalization, restructuring or
dissolution of the Company) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
LLC Interests; and
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<PAGE>
(ii) the shares of capital stock held by such Grantor in the Company
(collectively, the "Grantor Stock"), also as set forth in Schedule A
attached hereto and incorporated herein, all rights and powers accruing to
such Grantor Stock, whether by contract, statute or operation of law or
otherwise, all securities issued in exchange or substitution for such
Grantor Stock, all certificates (if any) representing such Grantor Stock
and, subject to the provisions of Section 7 hereof, all dividends, cash,
instruments and other property (including without limitation all
distributions of capital or alternative securities pursuant to any
recapitalization, restructuring or dissolution of the Company) from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Grantor Stock.
SECTION 3. Security for Obligations. This Agreement and the security
interest granted hereby are made in order to secure the payment and performance
in full of all payment obligations of the Grantor for principal, interest and
expenses arising under the Note (the "Obligations").
SECTION 4. Delivery of Collateral. The Grantor has herewith delivered all
certificates or instruments representing or evidencing the Collateral to the
Company, accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance reasonably satisfactory to the Company. All
additional securities or interests which may hereafter be acquired by the
Grantor and become part of the Collateral shall, if certificated, also be
delivered to the Company in suitable form for transfer and shall be accompanied
by similar executed instruments of transfer or assignments in blank.
SECTION 5. Representations and Warranties. The Grantor represents and
warrants as follows with respect to the Collateral pledged by such Grantor
pursuant to Section 2 hereof:
(a) The Grantor has good and marketable title to, and is the legal
and beneficial owner of the Collateral attributable to it as shown on Schedule A
attached hereto, free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the restrictions imposed by the Holdings
LLC Limited Liability Company Agreement (the "LLC Agreement"), dated as of the
ICON Restructuring closing, (ii) the Company Stockholders Agreement (the
"Stockholders Agreement"), also dated as of the ICON Restructuring closing, and
(iii) the security interests created by this Agreement.
(b) The pledge and assignment of the Collateral to the Company
pursuant to this Agreement creates a valid security interest in the Collateral,
securing the payment of the Obligations. Upon the filing of appropriate
financing statements describing the LLC Interests, such security interest will
be a perfected first priority security interest as to the LLC Interests. Upon
the delivery of the share certificates representing the Grantor Stock,
accompanied by stock powers or other appropriate instruments of assignment
thereof duly executed in blank by the Grantor, such security interest will be
a perfected first priority security interest as to the Grantor Stock.
-7-
<PAGE>
(c) No authorization, consent, approval, or other action by, and no
notice to or filing with any person, including, without limitation, any
governmental authority or regulatory body, is required for (i) the execution and
delivery of, and performance of its obligations under, this Agreement by the
Grantor (except such authorizations, consents, approvals, actions, notices or
filings which have already been obtained).
(d) The Grantor has full power, authority and legal right to
execute, deliver and perform its obligations under this Agreement and to pledge
and grant a security interest in the Collateral pursuant to this Agreement, and
the execution, delivery and performance hereof and the pledge and assignment of
a security interest in the Collateral hereunder do not contravene any law, rule
or regulation applicable to Grantor, or constitute a violation or breach of any
judgment, decree, contract, agreement or instrument to which the Grantor is a
party or by which it or any of its properties is bound.
(e) This Agreement is the legal, valid and binding obligation of the
Grantor enforceable against the Grantor in accordance with its terms, subject to
bankruptcy, insolvency and similar laws of general application affecting the
rights and remedies of creditors, equitable principles, and, with respect to the
availability of remedy of specific enforcement, subject to the discretion of the
court before which proceedings therefor may be brought.
(f) The principal residence of the Grantor is set forth on the
signature page hereto. Grantor will not change the address of its principal
place of residence, unless Grantor has given written notice of any such
alteration or change to the Company no less than ten (10) business days prior
thereto.
SECTION 6. Further Assurances. The Grantor agrees that at any time and
from time to time it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be reasonably necessary, or
that the Company may reasonably request, in order to defend the right, title and
security interest of the Company against the claims and demands of others, to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Company to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
SECTION 7. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default under the Note shall have
occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and other consensual rights (including without limitation all powers of
consent, approval, designation and removal) pertaining to the Collateral
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Note.
(ii) The Company shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may
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<PAGE>
reasonably request for the purpose of enabling it to exercise the
voting and other rights which the Grantor is entitled to exercise
pursuant to paragraph (i) above.
(iii) The Grantor shall be entitled to receive, retain and
distribute all regularly scheduled periodic cash dividends on the Grantor
Stock (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder) and all regularly scheduled
periodic cash distributions on the LLC Interests, and, with respect to all
other cash dividends or other cash distributions upon the Collateral at
any time (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder), Grantor shall be entitled to
receive, retain and distribute only such amount thereof as is necessary to
pay any federal, state or local taxes of any kind required by law to be
paid by the Grantor thereon and the remainder thereof, together with all
other dividends or other distributions, shall remain as part of the
Collateral pursuant to Section 2 hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Grantor to exercise the voting and other consensual
rights (including without limitation all powers of consent, approval,
designation and removal) and to receive dividends or distributions which such
Grantor would otherwise be entitled to exercise or receive pursuant to paragraph
(a) above shall cease upon written notice from the Company, and all such rights
shall thereupon become vested in the Company who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive
dividends or distributions.
SECTION 8. Transfers and Other Liens. The Grantor agrees that it will not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
suffer to exist any lien, security interest, or other charge or encumbrance upon
or with respect to any of the Collateral to secure indebtedness of any Person,
except as provided in the LLC Agreement and Stockholders Agreement and except
for the security interests created under this Agreement.
SECTION 9. Company Appointed Attorney-in-Fact. The Grantor hereby appoints
the Company as its attorney-in-fact, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Company's discretion, to take any action and to execute any instrument which
the Company may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to the Grantor representing any
dividend, interest payment or other distribution in respect of the Collateral or
any part thereof and to give full discharge for the same; provided, however,
that the Company shall not have the right to exercise its power under this
Section 9 until the occurrence and continuance of an Event of Default.
SECTION 10. Company May Perform. If a Grantor fails to perform any
agreement contained herein within the time provided, the Company may itself
perform, or cause performance of, such agreement, and the reasonable expenses
of the Company incurred in connection therewith shall be payable by the Grantor
under Section 13.
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<PAGE>
SECTION 11. Reasonable Care. The Company shall exercise reasonable care in
the custody and preservation of the Collateral in its possession or control, it
being understood that the Company shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Company has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral. It is agreed that, subject to the foregoing, the Company shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if the Company exercises the same care that it exercises with respect
to its own property.
SECTION 12. Remedies upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Company may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code as adopted and in effect in Utah (the "Code"), and, to the
extent permitted by law, the Company may also, without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of the
Company's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as are commercially reasonable. The Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Company shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. At any such sale, the Company may, to the
extent permitted by the Code or other applicable law, itself purchase all or any
of the Collateral. The Company may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Company in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Company, be held by the Company as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Company pursuant to Section 13) in whole or in part by the
Company against, all or any part of the Obligations in such order as the Company
shall elect, to the extent permitted by law. Any surplus of such cash or cash
proceeds held by the Company and remaining after payment in full of all the
Obligations shall be paid over to the Grantor or to such other persons as may be
lawfully entitled to receive such surplus.
SECTION 13. Expenses. The Grantor will upon demand pay to the Company the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Company's counsel and of any experts and agents, which the
Company may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Company hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
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<PAGE>
SECTION 14. Security Interest Absolute. All rights of the Company and
security interests hereunder, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or any other
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations under the Note, or any other
amendment or waiver of or any consent to any departure from the Note;
(iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party guarantor.
SECTION 15. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Grantor herefrom, shall be
effective unless the same shall be in writing and signed by the Company, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 16. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including communication by
telecopier) and shall be mailed, telecopied or delivered, at the respective
addresses set forth on the signature page hereto, or in any case at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this section. All such notices
and other communications shall be effective (i) three (3) days after being
deposited in the mails, (ii) when delivered by telecopier (upon electronic
confirmation of receipt thereof) or by hand, or (iii) one (1) business day after
sending by overnight delivery service, addressed as aforesaid.
SECTION 17. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until indefeasible cash payment in full of the all obligations,
(ii) be binding upon the Grantor and its successors and assigns, and (iii) inure
to the benefit of the Company and its respective successors, transferees and
assigns. Upon the cash payment in full of the Obligations, the Grantor shall be
entitled to the return, upon its request, of such of the Collateral pledged by
the Grantor as shall not have been sold or otherwise applied pursuant to the
terms hereof.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Utah, without
giving effect to the conflicts of laws principles thereof. EACH PARTY HERETO FOR
ITSELF AND ITS PROPERTIES, HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
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ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF UTAH FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR WITH
RESPECT TO THIS AGREEMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS IT MAY HAVE AS TO
VENUE IN SUCH COURTS. THE GRANTOR ALSO HEREBY INTENTIONALLY AND KNOWINGLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED ARISING OUT OF THIS AGREEMENT. Unless otherwise
defined herein or in the Loan Agreement, terms defined in Articles 8 and 9 of
the Code are used herein as therein defined.
* * * * * * *
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<PAGE>
PLEDGE AND SECURITY AGREEMENT
Signature Page
IN WITNESS WHEREOF, the Grantor and the Company have each executed and
delivered this Agreement as an instrument under seal as of the date first above
written.
Address: GRANTOR:
560 South 1000 East
Logan, UT 84321 /s/ Scott R. Watterson
------------------------------
Name: Scott R. Watterson
Address: HF HOLDINGS, INC.
1500 South 1000 West
Logan, UT 84321
By: /s/ S. Fred Beck
---------------------------
Name/Title: S. Fred Beck
CFO, Vice President & Treasurer
S-1
<PAGE>
SCHEDULE A
TO
PLEDGE AND SECURITY AGREEMENT
Description of membership interest in Holdings LLC pledged hereunder:
2,324.3 Units
Description of capital stock of the Company pledged hereunder:
375,000 shares of Common Stock
<PAGE>
Exhibit 10.14
NON-RECOURSE NOTE
U.S. $990,660 September 27, 1999
New York, New York
FOR VALUE RECEIVED, the undersigned, Gary E. Stevenson (the "Borrower"),
hereby promises to pay to HF Holdings, Inc., a Delaware corporation (the
"Company"), at the office of the Company located at 1500 South 1000 West, Logan,
UT 84321, or such other place as the holder hereof may designate, in immediately
available funds, the principal amount of NINE HUNDRED NINETY THOUSAND SIX
HUNDRED AND SIXTY DOLLARS ($990,660) on September 26, 2009 (the "Maturity
Date"), together with interest on the principal balance hereof from the date of
issuance hereof through and including the Maturity Date, at the times and at the
rates provided herein. The repayment of the loan evidenced by this Non-Recourse
Note (the "Note") shall be subject to the terms and conditions set forth
hereinbelow.
1. Interest. Interest shall accrue on the unpaid principal balance of this
Note at a rate identical to the rate of interest payable from time to time by
ICON Health and Fitness, Inc. ("ICON") under the Revolving Loan portion of the
Credit Agreement, dated on even date herewith, among ICON, General Electric
Capital Corporation and other lenders, calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest shall be payable quarterly in
cash on the first day of each December, March, June and September. All interest
hereunder shall cease to accrue upon the earlier of (i) the last day of the
calendar month immediately preceding the date as of which the cumulative
consolidated net taxable income of the Company and its subsidiaries (computed by
disregarding deductions of the Company and its subsidiaries arising from events
and transactions occurring after the closing of the ICON Restructuring (as that
term is referred to in the Exchange Offer and Consent Solicitation Statement,
dated July 30, 1999, of the Company and ICON, as supplemented), including
without limitation any extraordinary transactions, including any acquisitions,
effected after the ICON Restructuring) arising on or after the date of the ICON
Restructuring exceeds zero dollars ($0), and (ii) May 31, 2000, provided that
the consolidated EBITDA (as that term is defined in the Credit Agreement of even
date herewith among ICON, General Electric Capital Corporation and the other
lenders thereunder, without regard to any amendments thereto) of ICON and its
subsidiaries, for ICON's fiscal year then ended, exceeds $64 million.
The Borrower and every endorser and guarantor hereof hereby waives
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, and consents to any extension or postponement of the time of payment
or any other indulgence, to any substitution, exchange or release of collateral
and to the additional release of any other party or person primarily or
secondarily liable. No delay or omission on the part of the holder hereof in
exercising any right hereunder shall operate as a waiver of any such right or of
any other rights hereunder, nor shall any delay, omission or waiver on any one
occasion be construed as a bar to or waiver of the same or any other rights on
any future occasion.
<PAGE>
The Borrower and every endorser and guarantor hereof agree to pay on
demand all costs and expenses (including reasonable attorneys' fees and
disbursements) which may be incurred or paid by the holder in the collection of
this Note or the enforcement of the holder's rights and remedies hereunder.
2. Optional Prepayment. This Note may be prepaid at the option of the
Borrower in whole or in part at any time and from time to time without premium
or penalty. Any such prepayment on account of principal hereunder shall be
recorded by the Company and endorsed on the schedule which is attached to and is
part of this Note. The entries on the records of the Company (including any
appearing on this Note) shall be prima facie evidence of all principal amounts
outstanding hereunder.
3. Mandatory Prepayment. The Borrower shall prepay 100% of the unpaid
principal of this Note, together with any accrued and unpaid interest thereon as
provided in Section 1 of this Note, upon the occurrence of a Liquidity Event, as
such term is defined in the Company Stockholders Agreement, also dated as of an
even date herewith.
4. Event of Default. An "Event of Default" shall exist if any of the
following conditions or events shall occur and be continuing:
(a) the Borrower fails to pay any principal or interest under this
Note when the same becomes due and payable; or
(b) the Borrower fails to perform or comply with any material term
or condition contained in this Note (other than nonpayment as described in
clause (a) above), and such default continues for more than twenty (20) days
after the Borrower has received written notice thereof from the Company; or
(c) the Borrower makes an assignment for the benefit of creditors,
or admits in writing its inability to pay its debts as they mature or become
due, or petitions or applies for the appointment of a trustee or other
custodian, liquidator or receiver of the Borrower of any substantial part of its
assets, or commences any case or other proceeding relating to the Borrower or
any bankruptcy, reorganization, insolvency or similar law of any jurisdiction;
or any such involuntary case or proceeding shall be filed or commenced against
the Borrower by any third party, and the Borrower shall indicate its approval
thereof or consent thereto or such case or proceeding shall not have been
dismissed within sixty (60) days following the filing or commencement thereof;
or
(d) a decree or order is entered appointing any trustee, custodian,
liquidator or receiver for the Borrower or its assets, or adjudicating the
Borrower a bankrupt or insolvent, or approving a petition in any such case or
proceeding, or a decree or order of relief
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<PAGE>
is entered in respect of the Borrower in an involuntary case under federal or
state bankruptcy laws as now or hereafter constituted.
5. Remedies on Event of Default.
(a) Automatic Acceleration. If an Event of Default described in
paragraph (c) or (d) of Section 4 of this Note has occurred, this Note shall
thereupon automatically become immediately due and payable.
(b) Acceleration by Declaration. If an Event of Default described in
paragraph (a) or (b) of Section 4 of this Note has occurred and is continuing,
the Company may at any time declare this Note to be immediately due and payable.
(c) Effect of Acceleration. Upon this Note becoming due and payable
under this Section 5, whether automatically or by declaration, this Note will
forthwith mature and the entire unpaid principal amount of this Note, plus all
accrued and unpaid interest thereon (to the full extent permitted by applicable
law), shall be immediately due and payable.
6. Nonrecourse. All loans made under this Note, and all interest thereon
and all costs related thereto, shall be nonrecourse to the Borrower or to any
other person, and the holder hereof shall have recourse only to the assets of
the Borrower referred to in Section 7 hereof which are being pledged to secure
the Borrower's obligations hereunder.
7. Pledge of Collateral. As collateral security for the prompt payment of
the indebtedness evidenced hereby and the performance of all obligations
hereunder and all amendments and replacements hereof, the Borrower hereby agrees
to pledge, assign, deliver and grant a security interest in the Collateral (as
defined below) at the time of the making of the initial loan hereunder. The
value of such collateral security shall be equal to at least $1,981,320 (the
"Minimum Collateral Value Amount"), and shall consist of (i) common stock of the
Company held by the Borrower, representing 291,700 of the Company's common stock
outstanding immediately after the ICON Restructuring (the "Stock Collateral"),
plus (ii) sufficient membership interests held by the Borrower in HF Investment
Holdings, LLC, a Delaware limited liability company (the "Membership Interest
Collateral"), such that the aggregate value of the Stock Collateral plus the
Membership Interest Collateral (collectively, the "Collateral") is not less than
the Minimum Collateral Value Amount. For purposes of this Note, the value of the
Collateral shall be equal to such value as established at the time of the ICON
Restructuring closing. The pledging of the Collateral shall be governed by a
Pledge and Security Agreement, substantially in the form attached hereto as
Appendix A, which shall be executed and delivered by the Borrower, together with
all necessary stock certificates, executed stock powers and executed UCC-1
financing statements, as a condition to the making of the initial loan
hereunder.
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<PAGE>
This Non-Recourse Note shall take effect as a sealed instrument, shall be
governed by the laws of the State of Utah and shall be binding upon the Borrower
and its successors and assigns.
BORROWER
/s/ Gary E. Stevenson
-----------------------
Gary E. Stevenson
4
<PAGE>
SCHEDULE TO NON-RECOURSE NOTE
OF GARY E. STEVENSON
TO HF HOLDINGS, INC.
DATED SEPTEMBER 27, 1999
Remaining
Principal Unpaid
Date of Amount Principal Notation
Entry Paid Balance Made by
- ------- --------- ---------- --------
-5-
<PAGE>
Appendix A to
Non-Recourse Note
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement"), dated as of
September 27, 1999, is made by Gary E. Stevenson, an individual (the "Grantor"),
and HF Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the Grantor is the legal and beneficial owner of certain capital
stock of the Company;
WHEREAS, the Grantor is also the legal and beneficial owner of certain
membership interests in HF Investment Holdings, LLC, a Delaware limited
liability company ("Holdings LLC");
WHEREAS, it is a condition precedent to the making by the Company of a
loan to the Grantor under that certain $990,660 Non-Recourse Note, dated
September 27, 1999 (the "Note"), made by the Grantor to the Company, that the
Grantor execute and deliver a pledge and security agreement in substantially the
form hereof; and
WHEREAS, the Grantor wishes to grant pledges and security interests in the
"Collateral" more particularly described hereinbelow in favor of the Company,
all as herein provided.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definition of Terms. All capitalized terms not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Note.
SECTION 2. Grant of Security Interest. The Grantor hereby pledges and
assigns to the Company and grants to the Company a first priority security
interest in the following (the "Collateral"):
(i) the membership interest held by such Grantor in Holdings LLC
(the "LLC Interests"), as set forth in Schedule A attached hereto and
incorporated herein, all rights and powers accruing to such LLC Interests,
whether by contract, statute or operation of law or otherwise, all
certificates (if any) representing such LLC Interests and, subject to the
provisions of Section 7 hereof, all dividends, cash, instruments and other
property (including, without limitation, all distributions of capital or
alternative securities pursuant to any recapitalization, restructuring or
dissolution of the Company) from time
6
<PAGE>
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such LLC Interests; and
(ii) the shares of capital stock held by such Grantor in the Company
(collectively, the "Grantor Stock"), also as set forth in Schedule A
attached hereto and incorporated herein, all rights and powers accruing to
such Grantor Stock, whether by contract, statute or operation of law or
otherwise, all securities issued in exchange or substitution for such
Grantor Stock, all certificates (if any) representing such Grantor Stock
and, subject to the provisions of Section 7 hereof, all dividends, cash,
instruments and other property (including without limitation all
distributions of capital or alternative securities pursuant to any
recapitalization, restructuring or dissolution of the Company) from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Grantor Stock.
SECTION 3. Security for Obligations. This Agreement and the security
interest granted hereby are made in order to secure the payment and performance
in full of all payment obligations of the Grantor for principal, interest and
expenses arising under the Note (the "Obligations").
SECTION 4. Delivery of Collateral. The Grantor has herewith delivered all
certificates or instruments representing or evidencing the Collateral to the
Company, accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance reasonably satisfactory to the Company. All
additional securities or interests which may hereafter be acquired by the
Grantor and become part of the Collateral shall, if certificated, also be
delivered to the Company in suitable form for transfer and shall be accompanied
by similar executed instruments of transfer or assignments in blank.
SECTION 5. Representations and Warranties. The Grantor represents and
warrants as follows with respect to the Collateral pledged by such Grantor
pursuant to Section 2 hereof:
(a) The Grantor has good and marketable title to, and is the legal
and beneficial owner of the Collateral attributable to it as shown on Schedule A
attached hereto, free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the restrictions imposed by the Holdings
LLC Limited Liability Company Agreement (the "LLC Agreement"), dated as of the
ICON Restructuring closing, (ii) the Company Stockholders Agreement (the
"Stockholders Agreement"), also dated as of the ICON Restructuring closing, and
(iii) the security interests created by this Agreement.
(b) The pledge and assignment of the Collateral to the Company
pursuant to this Agreement creates a valid security interest in the Collateral,
securing the payment of the Obligations. Upon the filing of appropriate
financing statements describing the LLC Interests, such security interest will
be a perfected first priority security interest as to the LLC Interests. Upon
the delivery of the share certificates representing the Grantor Stock,
accompanied by stock powers or other appropriate instruments of assignment
thereof duly executed in blank by the
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<PAGE>
Grantor, such security interest will be a perfected first priority security
interest as to the Grantor Stock.
(c) No authorization, consent, approval, or other action by, and no
notice to or filing with any person, including, without limitation, any
governmental authority or regulatory body, is required for (i) the execution and
delivery of, and performance of its obligations under, this Agreement by the
Grantor (except such authorizations, consents, approvals, actions, notices or
filings which have already been obtained).
(d) The Grantor has full power, authority and legal right to
execute, deliver and perform its obligations under this Agreement and to pledge
and grant a security interest in the Collateral pursuant to this Agreement, and
the execution, delivery and performance hereof and the pledge and assignment of
a security interest in the Collateral hereunder do not contravene any law, rule
or regulation applicable to Grantor, or constitute a violation or breach of any
judgment, decree, contract, agreement or instrument to which the Grantor is a
party or by which it or any of its properties is bound.
(e) This Agreement is the legal, valid and binding obligation of the
Grantor enforceable against the Grantor in accordance with its terms, subject to
bankruptcy, insolvency and similar laws of general application affecting the
rights and remedies of creditors, equitable principles, and, with respect to the
availability of remedy of specific enforcement, subject to the discretion of the
court before which proceedings therefor may be brought.
(f) The principal residence of the Grantor is set forth on the
signature page hereto. Grantor will not change the address of its principal
place of residence, unless Grantor has given written notice of any such
alteration or change to the Company no less than ten (10) business days prior
thereto.
SECTION 6. Further Assurances. The Grantor agrees that at any time and
from time to time it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be reasonably necessary, or
that the Company may reasonably request, in order to defend the right, title and
security interest of the Company against the claims and demands of others, to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Company to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
SECTION 7. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default under the Note shall have
occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and other consensual rights (including without limitation all powers of
consent, approval, designation and removal) pertaining to the Collateral
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Note.
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<PAGE>
(ii) The Company shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling it to exercise the voting and other rights which the Grantor is
entitled to exercise pursuant to paragraph (i) above.
(iii) The Grantor shall be entitled to receive, retain and
distribute all regularly scheduled periodic cash dividends on the Grantor
Stock (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder) and all regularly scheduled
periodic cash distributions on the LLC Interests, and, with respect to
all other cash dividends or other cash distributions upon the Collateral
at any time (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder), Grantor shall be entitled to
receive, retain and distribute only such amount thereof as is necessary
to pay any federal, state or local taxes of any kind required by law to
be paid by the Grantor thereon and the remainder thereof, together with
all other dividends or other distributions, shall remain as part of the
Collateral pursuant to Section 2 hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Grantor to exercise the voting and other consensual
rights (including without limitation all powers of consent, approval,
designation and removal) and to receive dividends or distributions which such
Grantor would otherwise be entitled to exercise or receive pursuant to paragraph
(a) above shall cease upon written notice from the Company, and all such rights
shall thereupon become vested in the Company who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive
dividends or distributions.
SECTION 8. Transfers and Other Liens. The Grantor agrees that it will not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
suffer to exist any lien, security interest, or other charge or encumbrance upon
or with respect to any of the Collateral to secure indebtedness of any Person,
except as provided in the LLC Agreement and Stockholders Agreement and except
for the security interests created under this Agreement.
SECTION 9. Company Appointed Attorney-in-Fact. The Grantor hereby appoints
the Company as its attorney-in-fact, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Company's discretion, to take any action and to execute any instrument which
the Company may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to the Grantor representing any
dividend, interest payment or other distribution in respect of the Collateral or
any part thereof and to give full discharge for the same; provided, however,
that the Company shall not have the right to exercise its power under this
Section 9 until the occurrence and continuance of an Event of Default.
SECTION 10. Company May Perform. If a Grantor fails to perform any
agreement contained herein within the time provided, the Company may itself
perform, or cause
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<PAGE>
performance of, such agreement, and the reasonable expenses of the Company
incurred in connection therewith shall be payable by the Grantor under Section
13.
SECTION 11. Reasonable Care. The Company shall exercise reasonable care in
the custody and preservation of the Collateral in its possession or control, it
being understood that the Company shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Company has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral. It is agreed that, subject to the foregoing, the Company shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if the Company exercises the same care that it exercises with respect
to its own property.
SECTION 12. Remedies upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Company may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code as adopted and in effect in Utah (the "Code"), and, to the
extent permitted by law, the Company may also, without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of the
Company's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as are commercially reasonable. The Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Company shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. At any such sale, the Company may, to the
extent permitted by the Code or other applicable law, itself purchase all or any
of the Collateral. The Company may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Company in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Company, be held by the Company as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Company pursuant to Section 13) in whole or in part by the
Company against, all or any part of the Obligations in such order as the Company
shall elect, to the extent permitted by law. Any surplus of such cash or cash
proceeds held by the Company and remaining after payment in full of all the
Obligations shall be paid over to the Grantor or to such other persons as may be
lawfully entitled to receive such surplus.
SECTION 13. Expenses. The Grantor will upon demand pay to the Company the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Company's counsel and of any experts and agents, which the
Company may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of,
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<PAGE>
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Company hereunder, or (iv)
the failure by the Grantor to perform or observe any of the provisions hereof.
SECTION 14. Security Interest Absolute. All rights of the Company and
security interests hereunder, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or any other
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations under the Note, or any
other amendment or waiver of or any consent to any departure from the
Note;
(iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party
guarantor.
SECTION 15. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Grantor herefrom, shall be
effective unless the same shall be in writing and signed by the Company, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 16. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including communication by
telecopier) and shall be mailed, telecopied or delivered, at the respective
addresses set forth on the signature page hereto, or in any case at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this section. All such notices
and other communications shall be effective (i) three (3) days after being
deposited in the mails, (ii) when delivered by telecopier (upon electronic
confirmation of receipt thereof) or by hand, or (iii) one (1) business day after
sending by overnight delivery service, addressed as aforesaid.
SECTION 17. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until indefeasible cash payment in full of the all obligations,
(ii) be binding upon the Grantor and its successors and assigns, and (iii) inure
to the benefit of the Company and its respective successors, transferees and
assigns. Upon the cash payment in full of the Obligations, the Grantor shall be
entitled to the return, upon its request, of such of the Collateral pledged by
the Grantor as shall not have been sold or otherwise applied pursuant to the
terms hereof.
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<PAGE>
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Utah, without
giving effect to the conflicts of laws principles thereof. EACH PARTY HERETO FOR
ITSELF AND ITS PROPERTIES, HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF UTAH FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR WITH
RESPECT TO THIS AGREEMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS IT MAY HAVE AS TO
VENUE IN SUCH COURTS. THE GRANTOR ALSO HEREBY INTENTIONALLY AND KNOWINGLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED ARISING OUT OF THIS AGREEMENT. Unless otherwise defined
herein or in the Loan Agreement, terms defined in Articles 8 and 9 of the Code
are used herein as therein defined.
* * * * * * *
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<PAGE>
PLEDGE AND SECURITY AGREEMENT
Signature Page
IN WITNESS WHEREOF, the Grantor and the Company have each executed and
delivered this Agreement as an instrument under seal as of the date first above
written.
Address: GRANTOR:
370 Abbey Lane
Providence, UT 84332
/s/ Gary E. Stevenson
----------------------------
Name: Gary E. Stevenson
Address: HF HOLDINGS, INC.
1500 South 1000 West
Logan, UT 84321
By: /s/ S. Fred Beck
------------------------
Name/Title: S. Fred Beck
CFO, Vice President & Treasurer
S-1
<PAGE>
SCHEDULE A
TO
PLEDGE AND SECURITY AGREEMENT
Description of membership interest in Holdings LLC pledged hereunder:
2,807.09 Units
Description of capital stock of the Company pledged hereunder:
291,700 shares of Common Stock
S-2
<PAGE>
Exhibit 10.15
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement"), dated as of
September 27, 1999 is made by Scott R. Watterson, an individual (the "Grantor"),
and HF Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the Grantor is the legal and beneficial owner of certain capital
stock of the Company;
WHEREAS, the Grantor is also the legal and beneficial owner of certain
membership interests in HF Investment Holdings, LLC, a Delaware limited
liability company ("Holdings LLC");
WHEREAS, it is a condition precedent to the making by the Company of a
loan to the Grantor under that certain $1,209,340 Non-Recourse Note, dated
September 27, 1999 (the "Note"), made by the Grantor to the Company, that the
Grantor execute and deliver a pledge and security agreement in substantially the
form hereof; and
WHEREAS, the Grantor wishes to grant pledges and security interests in
the "Collateral" more particularly described hereinbelow in favor of the
Company, all as herein provided.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definition of Terms. All capitalized terms not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Note.
SECTION 2. Grant of Security Interest. The Grantor hereby pledges and
assigns to the Company and grants to the Company a first priority security
interest in the following (the "Collateral"):
(i) the membership interest held by such Grantor in Holdings LLC
(the "LLC Interests"), as set forth in Schedule A attached hereto and
incorporated herein, all rights and powers accruing to such LLC Interests,
whether by contract, statute or operation of law or otherwise, all
certificates (if any) representing such LLC Interests and, subject to the
provisions of Section 7 hereof, all dividends, cash, instruments and other
property (including, without limitation, all distributions of capital or
alternative securities pursuant to any recapitalization, restructuring or
dissolution of the Company) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
LLC Interests; and
<PAGE>
(ii) the shares of capital stock held by such Grantor in the Company
(collectively, the "Grantor Stock"), also as set forth in Schedule A
attached hereto and incorporated herein, all rights and powers accruing to
such Grantor Stock, whether by contract, statute or operation of law or
otherwise, all securities issued in exchange or substitution for such
Grantor Stock, all certificates (if any) representing such Grantor Stock
and, subject to the provisions of Section 7 hereof, all dividends, cash,
instruments and other property (including without limitation all
distributions of capital or alternative securities pursuant to any
recapitalization, restructuring or dissolution of the Company) from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Grantor Stock.
SECTION 3. Security for Obligations. This Agreement and the security
interest granted hereby are made in order to secure the payment and performance
in full of all payment obligations of the Grantor for principal, interest and
expenses arising under the Note (the "Obligations").
SECTION 4. Delivery of Collateral. The Grantor has herewith delivered all
certificates or instruments representing or evidencing the Collateral to the
Company, accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance reasonably satisfactory to the Company. All
additional securities or interests which may hereafter be acquired by the
Grantor and become part of the Collateral shall, if certificated, also be
delivered to the Company in suitable form for transfer and shall be accompanied
by similar executed instruments of transfer or assignments in blank.
SECTION 5. Representations and Warranties. The Grantor represents and
warrants as follows with respect to the Collateral pledged by such Grantor
pursuant to Section 2 hereof:
(a) The Grantor has good and marketable title to, and is the legal
and beneficial owner of the Collateral attributable to it as shown on Schedule A
attached hereto, free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the restrictions imposed by the Holdings
LLC Limited Liability Company Agreement (the "LLC Agreement"), dated as of the
ICON Restructuring closing, (ii) the Company Stockholders Agreement (the
"Stockholders Agreement"), also dated as of the ICON Restructuring closing, and
(iii) the security interests created by this Agreement.
(b) The pledge and assignment of the Collateral to the Company
pursuant to this Agreement creates a valid security interest in the Collateral,
securing the payment of the Obligations. Upon the filing of appropriate
financing statements describing the LLC Interests, such security interest will
be a perfected first priority security interest as to the LLC Interests. Upon
the delivery of the share certificates representing the Grantor Stock,
accompanied by stock powers or other appropriate instruments of assignment
thereof duly executed in blank by the Grantor, such security interest will be a
perfected first priority security interest as to the Grantor Stock.
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<PAGE>
(c) No authorization, consent, approval, or other action by, and no
notice to or filing with any person, including, without limitation, any
governmental authority or regulatory body, is required for (i) the execution and
delivery of, and performance of its obligations under, this Agreement by the
Grantor (except such authorizations, consents, approvals, actions, notices or
filings which have already been obtained).
(d) The Grantor has full power, authority and legal right to
execute, deliver and perform its obligations under this Agreement and to pledge
and grant a security interest in the Collateral pursuant to this Agreement, and
the execution, delivery and performance hereof and the pledge and assignment of
a security interest in the Collateral hereunder do not contravene any law, rule
or regulation applicable to Grantor, or constitute a violation or breach of any
judgment, decree, contract, agreement or instrument to which the Grantor is a
party or by which it or any of its properties is bound.
(e) This Agreement is the legal, valid and binding obligation of the
Grantor enforceable against the Grantor in accordance with its terms, subject to
bankruptcy, insolvency and similar laws of general application affecting the
rights and remedies of creditors, equitable principles, and, with respect to the
availability of remedy of specific enforcement, subject to the discretion of the
court before which proceedings therefor may be brought.
(f) The principal residence of the Grantor is set forth on the
signature page hereto. Grantor will not change the address of its principal
place of residence, unless Grantor has given written notice of any such
alteration or change to the Company no less than ten (10) business days prior
thereto.
SECTION 6. Further Assurances. The Grantor agrees that at any time and
from time to time it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be reasonably necessary, or
that the Company may reasonably request, in order to defend the right, title and
security interest of the Company against the claims and demands of others, to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Company to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
SECTION 7. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default under the Note shall have
occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and other consensual rights (including without limitation all powers of
consent, approval, designation and removal) pertaining to the Collateral
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Note.
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<PAGE>
(ii) The Company shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling it to exercise the voting and other rights which the Grantor is
entitled to exercise pursuant to paragraph (i) above.
(iii) The Grantor shall be entitled to receive, retain and
distribute all regularly scheduled periodic cash dividends on the Grantor
Stock (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder) and all regularly scheduled
periodic cash distributions on the LLC Interests, and, with respect to all
other cash dividends or other cash distributions upon the Collateral at
any time (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder), Grantor shall be entitled to
receive, retain and distribute only such amount thereof as is necessary to
pay any federal, state or local taxes of any kind required by law to be
paid by the Grantor thereon and the remainder thereof, together with all
other dividends or other distributions, shall remain as part of the
Collateral pursuant to Section 2 hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Grantor to exercise the voting and other consensual
rights (including without limitation all powers of consent, approval,
designation and removal) and to receive dividends or distributions which such
Grantor would otherwise be entitled to exercise or receive pursuant to paragraph
(a) above shall cease upon written notice from the Company, and all such rights
shall thereupon become vested in the Company who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive
dividends or distributions.
SECTION 8. Transfers and Other Liens. The Grantor agrees that it will not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
suffer to exist any lien, security interest, or other charge or encumbrance upon
or with respect to any of the Collateral to secure indebtedness of any Person,
except as provided in the LLC Agreement and Stockholders Agreement and except
for the security interests created under this Agreement.
SECTION 9. Company Appointed Attorney-in-Fact. The Grantor hereby appoints
the Company as its attorney-in-fact, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Company's discretion, to take any action and to execute any instrument which
the Company may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to the Grantor representing any
dividend, interest payment or other distribution in respect of the Collateral or
any part thereof and to give full discharge for the same; provided, however,
that the Company shall not have the right to exercise its power under this
Section 9 until the occurrence and continuance of an Event of Default.
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<PAGE>
SECTION 10. Company May Perform. If a Grantor fails to perform any
agreement contained herein within the time provided, the Company may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Company incurred in connection therewith shall be payable by the Grantor
under Section 13.
SECTION 11. Reasonable Care. The Company shall exercise reasonable care in
the custody and preservation of the Collateral in its possession or control, it
being understood that the Company shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Company has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral. It is agreed that, subject to the foregoing, the Company shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if the Company exercises the same care that it exercises with respect
to its own property.
SECTION 12. Remedies upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Company may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code as adopted and in effect in Utah (the "Code"), and, to the
extent permitted by law, the Company may also, without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of the
Company's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as are commercially reasonable. The Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Company shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. At any such sale, the Company may, to the
extent permitted by the Code or other applicable law, itself purchase all or any
of the Collateral. The Company may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Company in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Company, be held by the Company as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Company pursuant to Section 13) in whole or in part by the
Company against, all or any part of the Obligations in such order as the Company
shall elect, to the extent permitted by law. Any surplus of such cash or cash
proceeds held by the Company and remaining after payment in full of all the
Obligations shall be paid over to the Grantor or to such other persons as may be
lawfully entitled to receive such surplus.
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<PAGE>
SECTION 13. Expenses. The Grantor will upon demand pay to the Company the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Company's counsel and of any experts and agents, which the
Company may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Company hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
SECTION 14. Security Interest Absolute. All rights of the Company and
security interests hereunder, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or any other
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations under the Note, or any
other amendment or waiver of or any consent to any departure from the
Note;
(iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party
guarantor.
SECTION 15. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Grantor herefrom, shall be
effective unless the same shall be in writing and signed by the Company, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 16. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including communication by
telecopier) and shall be mailed, telecopied or delivered, at the respective
addresses set forth on the signature page hereto, or in any case at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this section. All such notices
and other communications shall be effective (i) three (3) days after being
deposited in the mails, (ii) when delivered by telecopier (upon electronic
confirmation of receipt thereof) or by hand, or (iii) one (1) business day after
sending by overnight delivery service, addressed as aforesaid.
SECTION 17. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until indefeasible cash payment in full of the all obligations,
(ii) be binding upon the Grantor and its successors and
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<PAGE>
assigns, and (iii) inure to the benefit of the Company and its respective
successors, transferees and assigns. Upon the cash payment in full of the
Obligations, the Grantor shall be entitled to the return, upon its request, of
such of the Collateral pledged by the Grantor as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Utah, without
giving effect to the conflicts of laws principles thereof. EACH PARTY HERETO FOR
ITSELF AND ITS PROPERTIES, HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF UTAH FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR WITH
RESPECT TO THIS AGREEMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS IT MAY HAVE AS TO
VENUE IN SUCH COURTS. THE GRANTOR ALSO HEREBY INTENTIONALLY AND KNOWINGLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED ARISING OUT OF THIS AGREEMENT. Unless otherwise defined
herein or in the Loan Agreement, terms defined in Articles 8 and 9 of the Code
are used herein as therein defined.
* * * * * * *
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<PAGE>
PLEDGE AND SECURITY AGREEMENT
Signature Page
IN WITNESS WHEREOF, the Grantor and the Company have each executed and
delivered this Agreement as an instrument under seal as of the date first above
written.
Address: GRANTOR:
560 South 1000 East
Logan, UT 84321
/s/ Scott R. Watterson
-----------------------------------
Name: Scott R. Watterson
Address: HF HOLDINGS, INC.
1500 South 1000 West
Logan, UT 84321
By: /s/ S. Fred Beck
-------------------------------
Name/Title: S. Fred Beck
CFO, Vice President & Treasurer
<PAGE>
SCHEDULE A
TO
PLEDGE AND SECURITY AGREEMENT
Description of membership interest in Holdings LLC pledged hereunder:
2,324.3 Units
Description of capital stock of the Company pledged hereunder:
375,000 shares of Common Stock
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<PAGE>
Exhibit 10.16
PLEDGE AND SECURITY AGREEMENT
This Pledge and Security Agreement (the "Agreement"), dated as of
September 27, 1999, is made by Gary E. Stevenson, an individual (the "Grantor"),
and HF Holdings, Inc., a Delaware corporation (the "Company").
WHEREAS, the Grantor is the legal and beneficial owner of certain capital
stock of the Company;
WHEREAS, the Grantor is also the legal and beneficial owner of certain
membership interests in HF Investment Holdings, LLC, a Delaware limited
liability company ("Holdings LLC");
WHEREAS, it is a condition precedent to the making by the Company of a
loan to the Grantor under that certain $990,660 Non-Recourse Note, dated
September 27, 1999 (the "Note"), made by the Grantor to the Company, that the
Grantor execute and deliver a pledge and security agreement in substantially the
form hereof; and
WHEREAS, the Grantor wishes to grant pledges and security interests in the
"Collateral" more particularly described hereinbelow in favor of the Company,
all as herein provided.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definition of Terms. All capitalized terms not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Note.
SECTION 2. Grant of Security Interest. The Grantor hereby pledges and
assigns to the Company and grants to the Company a first priority security
interest in the following (the "Collateral"):
(i) the membership interest held by such Grantor in Holdings LLC
(the "LLC Interests"), as set forth in Schedule A attached hereto and
incorporated herein, all rights and powers accruing to such LLC Interests,
whether by contract, statute or operation of law or otherwise, all
certificates (if any) representing such LLC Interests and, subject to the
provisions of Section 7 hereof, all dividends, cash, instruments and other
property (including, without limitation, all distributions of capital or
alternative securities pursuant to any recapitalization, restructuring or
dissolution of the Company) from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
LLC Interests; and
<PAGE>
(ii) the shares of capital stock held by such Grantor in the Company
(collectively, the "Grantor Stock"), also as set forth in Schedule A
attached hereto and incorporated herein, all rights and powers accruing to
such Grantor Stock, whether by contract, statute or operation of law or
otherwise, all securities issued in exchange or substitution for such
Grantor Stock, all certificates (if any) representing such Grantor Stock
and, subject to the provisions of Section 7 hereof, all dividends, cash,
instruments and other property (including without limitation all
distributions of capital or alternative securities pursuant to any
recapitalization, restructuring or dissolution of the Company) from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Grantor Stock.
SECTION 3. Security for Obligations. This Agreement and the security
interest granted hereby are made in order to secure the payment and performance
in full of all payment obligations of the Grantor for principal, interest and
expenses arising under the Note (the "Obligations").
SECTION 4. Delivery of Collateral. The Grantor has herewith delivered all
certificates or instruments representing or evidencing the Collateral to the
Company, accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance reasonably satisfactory to the Company. All
additional securities or interests which may hereafter be acquired by the
Grantor and become part of the Collateral shall, if certificated, also be
delivered to the Company in suitable form for transfer and shall be accompanied
by similar executed instruments of transfer or assignments in blank.
SECTION 5. Representations and Warranties. The Grantor represents and
warrants as follows with respect to the Collateral pledged by such Grantor
pursuant to Section 2 hereof:
(a) The Grantor has good and marketable title to, and is the legal
and beneficial owner of the Collateral attributable to it as shown on Schedule A
attached hereto, free and clear of any lien, security interest, option or other
charge or encumbrance, except for (i) the restrictions imposed by the Holdings
LLC Limited Liability Company Agreement (the "LLC Agreement"), dated as of the
ICON Restructuring closing, (ii) the Company Stockholders Agreement (the
"Stockholders Agreement"), also dated as of the ICON Restructuring closing, and
(iii) the security interests created by this Agreement.
(b) The pledge and assignment of the Collateral to the Company
pursuant to this Agreement creates a valid security interest in the Collateral,
securing the payment of the Obligations. Upon the filing of appropriate
financing statements describing the LLC Interests, such security interest will
be a perfected first priority security interest as to the LLC Interests. Upon
the delivery of the share certificates representing the Grantor Stock,
accompanied by stock powers or other appropriate instruments of assignment
thereof duly executed in blank by the Grantor, such security interest will be a
perfected first priority security interest as to the Grantor Stock.
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<PAGE>
(c) No authorization, consent, approval, or other action by, and no
notice to or filing with any person, including, without limitation, any
governmental authority or regulatory body, is required for (i) the execution and
delivery of, and performance of its obligations under, this Agreement by the
Grantor (except such authorizations, consents, approvals, actions, notices or
filings which have already been obtained).
(d) The Grantor has full power, authority and legal right to
execute, deliver and perform its obligations under this Agreement and to pledge
and grant a security interest in the Collateral pursuant to this Agreement, and
the execution, delivery and performance hereof and the pledge and assignment of
a security interest in the Collateral hereunder do not contravene any law, rule
or regulation applicable to Grantor, or constitute a violation or breach of any
judgment, decree, contract, agreement or instrument to which the Grantor is a
party or by which it or any of its properties is bound.
(e) This Agreement is the legal, valid and binding obligation of the
Grantor enforceable against the Grantor in accordance with its terms, subject to
bankruptcy, insolvency and similar laws of general application affecting the
rights and remedies of creditors, equitable principles, and, with respect to the
availability of remedy of specific enforcement, subject to the discretion of the
court before which proceedings therefor may be brought.
(f) The principal residence of the Grantor is set forth on the
signature page hereto. Grantor will not change the address of its principal
place of residence, unless Grantor has given written notice of any such
alteration or change to the Company no less than ten (10) business days prior
thereto.
SECTION 6. Further Assurances. The Grantor agrees that at any time and
from time to time it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be reasonably necessary, or
that the Company may reasonably request, in order to defend the right, title and
security interest of the Company against the claims and demands of others, to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Company to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
SECTION 7. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default under the Note shall have
occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and other consensual rights (including without limitation all powers of
consent, approval, designation and removal) pertaining to the Collateral
or any part thereof for any purpose not inconsistent with the terms of
this Agreement or the Note.
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<PAGE>
(ii) The Company shall execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling it to exercise the voting and other rights which the Grantor is
entitled to exercise pursuant to paragraph (i) above.
(iii) The Grantor shall be entitled to receive, retain and
distribute all regularly scheduled periodic cash dividends on the Grantor
Stock (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder) and all regularly scheduled
periodic cash distributions on the LLC Interests, and, with respect to all
other cash dividends or other cash distributions upon the Collateral at
any time (including without limitation any portion thereof received by
Holdings LLC and distributed thereunder), Grantor shall be entitled to
receive, retain and distribute only such amount thereof as is necessary to
pay any federal, state or local taxes of any kind required by law to be
paid by the Grantor thereon and the remainder thereof, together with all
other dividends or other distributions, shall remain as part of the
Collateral pursuant to Section 2 hereof.
(b) Upon the occurrence and during the continuance of an Event of
Default, all rights of the Grantor to exercise the voting and other consensual
rights (including without limitation all powers of consent, approval,
designation and removal) and to receive dividends or distributions which such
Grantor would otherwise be entitled to exercise or receive pursuant to paragraph
(a) above shall cease upon written notice from the Company, and all such rights
shall thereupon become vested in the Company who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive
dividends or distributions.
SECTION 8. Transfers and Other Liens. The Grantor agrees that it will not
(i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral, or (ii) create or
suffer to exist any lien, security interest, or other charge or encumbrance upon
or with respect to any of the Collateral to secure indebtedness of any Person,
except as provided in the LLC Agreement and Stockholders Agreement and except
for the security interests created under this Agreement.
SECTION 9. Company Appointed Attorney-in-Fact. The Grantor hereby appoints
the Company as its attorney-in-fact, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Company's discretion, to take any action and to execute any instrument which
the Company may deem reasonably necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to the Grantor representing any
dividend, interest payment or other distribution in respect of the Collateral or
any part thereof and to give full discharge for the same; provided, however,
that the Company shall not have the right to exercise its power under this
Section 9 until the occurrence and continuance of an Event of Default.
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<PAGE>
SECTION 10. Company May Perform. If a Grantor fails to perform any
agreement contained herein within the time provided, the Company may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
the Company incurred in connection therewith shall be payable by the Grantor
under Section 13.
SECTION 11. Reasonable Care. The Company shall exercise reasonable care in
the custody and preservation of the Collateral in its possession or control, it
being understood that the Company shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Company has or is deemed to have knowledge of such matters, or (ii) taking
any necessary steps to preserve rights against any parties with respect to any
Collateral. It is agreed that, subject to the foregoing, the Company shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral if the Company exercises the same care that it exercises with respect
to its own property.
SECTION 12. Remedies upon Event of Default. If any Event of Default shall
have occurred and be continuing:
(a) The Company may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party under the Uniform
Commercial Code as adopted and in effect in Utah (the "Code"), and, to the
extent permitted by law, the Company may also, without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of the
Company's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as are commercially reasonable. The Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten (10) days'
notice to the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Company shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. At any such sale, the Company may, to the
extent permitted by the Code or other applicable law, itself purchase all or any
of the Collateral. The Company may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) All cash proceeds received by the Company in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Company, be held by the Company as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Company pursuant to Section 13) in whole or in part by the
Company against, all or any part of the Obligations in such order as the Company
shall elect, to the extent permitted by law. Any surplus of such cash or cash
proceeds held by the Company and remaining after payment in full of all the
Obligations shall be paid over to the Grantor or to such other persons as may be
lawfully entitled to receive such surplus.
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<PAGE>
SECTION 13. Expenses. The Grantor will upon demand pay to the Company the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Company's counsel and of any experts and agents, which the
Company may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Company hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
SECTION 14. Security Interest Absolute. All rights of the Company and
security interests hereunder, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Note or any other
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations under the Note, or any
other amendment or waiver of or any consent to any departure from the
Note;
(iii) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party
guarantor.
SECTION 15. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, nor consent to any departure by the Grantor herefrom, shall be
effective unless the same shall be in writing and signed by the Company, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
SECTION 16. Addresses for Notices. All notices and other communications
provided for hereunder shall be in writing (including communication by
telecopier) and shall be mailed, telecopied or delivered, at the respective
addresses set forth on the signature page hereto, or in any case at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this section. All such notices
and other communications shall be effective (i) three (3) days after being
deposited in the mails, (ii) when delivered by telecopier (upon electronic
confirmation of receipt thereof) or by hand, or (iii) one (1) business day after
sending by overnight delivery service, addressed as aforesaid.
SECTION 17. Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (i) remain in full
force and effect until indefeasible cash payment in full of the all obligations,
(ii) be binding upon the Grantor and its successors and
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<PAGE>
assigns, and (iii) inure to the benefit of the Company and its respective
successors, transferees and assigns. Upon the cash payment in full of the
Obligations, the Grantor shall be entitled to the return, upon its request, of
such of the Collateral pledged by the Grantor as shall not have been sold or
otherwise applied pursuant to the terms hereof.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Utah, without
giving effect to the conflicts of laws principles thereof. EACH PARTY HERETO FOR
ITSELF AND ITS PROPERTIES, HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF UTAH FOR
THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF, OR WITH
RESPECT TO THIS AGREEMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS IT MAY HAVE AS TO
VENUE IN SUCH COURTS. THE GRANTOR ALSO HEREBY INTENTIONALLY AND KNOWINGLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN
ACTION MAY BE COMMENCED ARISING OUT OF THIS AGREEMENT. Unless otherwise defined
herein or in the Loan Agreement, terms defined in Articles 8 and 9 of the Code
are used herein as therein defined.
* * * * * * *
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<PAGE>
PLEDGE AND SECURITY AGREEMENT
Signature Page
IN WITNESS WHEREOF, the Grantor and the Company have each executed and
delivered this Agreement as an instrument under seal as of the date first above
written.
Address: GRANTOR:
370 Abbey Lane
Providence, UT 84332
/s/ Gary E. Stevenson
---------------------------------------
Name: Gary E. Stevenson
Address: HF HOLDINGS, INC.
1500 South 1000 West
Logan, UT 84321
By: /s/ S. Fred Beck
------------------------------------
Name/Title: S. Fred Beck
CFO, Vice President & Treasurer
<PAGE>
S-1
SCHEDULE A
TO
PLEDGE AND SECURITY AGREEMENT
Description of membership interest in Holdings LLC pledged hereunder:
2,807.09 Units
Description of capital stock of the Company pledged hereunder:
291,700 shares of Common Stock
<PAGE>
Exhibit 10.17
HF HOLDINGS, INC.
1999 JUNIOR MANAGEMENT
STOCK OPTION PLAN
1. PURPOSE
The purpose of this Stock Option Plan (the "Plan") is to advance the
interests of HF Holdings, Inc., a Delaware corporation (the "Company"), by
enhancing the ability of the Company and its subsidiaries (if any) to attract
and retain able employees of the Company; to reward such individuals for their
contributions; and to encourage such individuals to take into account the
long-term interests of the Company through interests in shares of the Company's
Common Stock, $.001 par value per share (the "Stock"). Any employee selected to
receive an award under the Plan is referred to as a "participant".
No option granted pursuant to the Plan shall be an incentive stock
option, as defined in section 422 of the Internal Revenue Code of 1986, as
amended.
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors (the "Board")
of the Company. The Board shall have discretionary authority, not inconsistent
with the express provisions of the Plan, (a) to grant option awards to such
eligible persons as the Board may select; (b) to determine the time or times
when awards shall be granted and the number of shares of Stock subject to each
award; (c) to determine the terms and conditions of each award; (d) to prescribe
the form or forms of any instruments evidencing awards and any other instruments
required under the Plan and to change such forms from time to time; (e) to
adopt, amend, and rescind rules and regulations for the administration of the
Plan; and (f) to interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations of the Board shall be conclusive and shall bind all parties.
Subject to Section 9 the Board shall also have the authority, both generally and
in particular instances, to waive compliance by a participant with any
obligation to be performed by him or her under an award, to waive any condition
or provision of an award, and to amend or cancel any award (and if an award is
cancelled, to grant a new award on such terms as the Board shall specify),
except that the Board may not take any action with respect to an outstanding
award that would adversely affect the rights of the participant under such award
without such participant's consent. Nothing in the preceding sentence shall be
construed as limiting the power of the Board to make adjustments required by
Section 4(c) and Section 6(g).
<PAGE>
The Board may, in its discretion, delegate some or all of its powers
with respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. On and after registration of the Stock under the Securities
Exchange Act of 1934 (the "1934 Act"), the Board shall delegate the power to
select directors and officers to receive awards under the Plan and the timing,
pricing, and amount of such awards to a Committee, all members of which shall be
disinterested persons within the meaning of Rule 16b-3 under the 1934 Act and
"outside directors" within the meaning of section 162(m)(4)(c)(i) of the Code.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on September 27, 1999.
No awards shall be granted under the Plan after the completion of ten
years from the date on which the Plan was adopted by the Board, but awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
(a) NUMBER OF SHARES. Subject to adjustment as provided in Section
4(c), the aggregate number of shares of Stock that may be the subject of awards
granted under the Plan shall be 333,000. If any award granted under the Plan
terminates without having been exercised in full, or upon exercise is satisfied
other than by delivery of Stock, the number of shares of Stock as to which such
award was not exercised shall not be available for future grants. No employee
shall be entitled to grants of options in excess of 330,000 shares, subject to
adjustment in accordance with Section 4(c).
(b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be
authorized but unissued Stock, or if the Board so decides in its sole
discretion, previously issued Stock acquired by the Company and held in its
treasury. No fractional shares of Stock shall be delivered under the Plan.
(c) CHANGES IN STOCK. In the event of a stock dividend, stock split or
combination of shares, recapitalization, or other change in the Company's
capital stock, the number and kind of shares of stock or securities of the
Company subject to awards then outstanding or subsequently granted under the
Plan, the exercise price of such awards, the maximum number of shares or
securities that may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Board, whose determination shall be
binding on all persons.
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<PAGE>
The Board may also adjust the number of shares subject to outstanding
awards, the exercise price of outstanding awards, and the terms of outstanding
awards, to take into consideration material changes in accounting practices or
principles, extraordinary dividends, consolidations or mergers (except those
described in Section 6(g)), acquisitions or dispositions of stock or property,
or any other event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan.
5. AWARDS; ETC.
Persons eligible to receive awards under the Plan shall be those
employees who, in the opinion of the Board, are in a position to make a
significant contribution to the success of the Company and its subsidiaries. A
subsidiary for purposes of the Plan shall be a corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
6. TERMS AND CONDITIONS OF OPTIONS
(a) EXERCISE PRICE OF OPTIONS. The exercise price of each option shall
be determined by the Board, but the exercise price shall not be less, in the
case of an original issue of authorized stock, than par value.
(b) DURATION OF OPTIONS. An option shall be exercisable during such
period or periods as the Board may specify. The latest date on which an option
may be exercised (the "Expiration Date") shall be the date which is ten years
from the date the option was granted or such earlier date as may be specified by
the Board at the time the option is granted.
(c) EXERCISE OF OPTIONS.
(1) An option shall become exercisable at such time or times and
upon such conditions as the Board shall specify. In the case
of an option not immediately exercisable in full, the Board
may at any time accelerate the time at which all or any part
of the option may be exercised.
(2) Any exercise of an option shall be in writing, signed by the
proper person and furnished to the Company, accompanied by (i)
such documents as may be required by the Board and (ii)
payment in full as specified below in Section 6(d) for the
number of shares for which the option is exercised.
(3) The Board shall have the right to require that the participant
exercising the option remit to the Company an amount
sufficient to satisfy any federal, state, or local withholding
tax requirements (or make other arrangements satisfactory to
the Company with regard to such taxes) prior to the delivery
of any Stock pursuant to the exercise of the option. If
permitted by the Board, either at the time of the
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<PAGE>
grant of the option or in connection with exercise, the
participant may elect, at such time and in such manner as the
Board may prescribe, to satisfy such withholding obligation by
(i) delivering to the Company Stock owned by such individual
having a fair market value equal to such withholding
obligation, or (ii) requesting that the Company withhold from
the shares of Stock to be delivered upon the exercise a number
of shares of Stock having a fair market value equal to such
withholding obligation.
In addition, if at the time the option is exercised the Board
determines that under applicable law and regulations the
Company could be liable for the withholding of any federal or
state tax with respect to a disposition of the Stock received
upon exercise, the Board may require as a condition of
exercise that the participant exercising the option agree to
give such security as the Board deems adequate to meet the
potential liability of the Company for the withholding of tax,
and to augment such security from time to time in any amount
reasonably deemed necessary by the Board to preserve the
adequacy of such security.
(4) If an option is exercised by the executor or administrator of
a deceased participant, or by the person or persons to whom
the option has been transferred by the participant's will or
the applicable laws of descent and distribution, the Company
shall be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of
the person or persons exercising the option.
(d) PAYMENT FOR AND DELIVERY OF STOCK. Stock purchased upon exercise of
an option under the Plan shall be paid for as follows: (i) in cash, check
acceptable to the Company (determined in accordance with such guidelines as the
Board may prescribe), or money order payable to the order of the Company, or
(ii) if so permitted by the Board, (A) through the delivery of shares of Stock
(which, in the case of Stock acquired from the Company, shall have been held for
at least six months unless the Board specifies a shorter period) having a fair
market value on the last business day preceding the date of exercise equal to
the purchase price, or (B) by delivery of a promissory note of the participant
to the Company, such note to be payable on such terms as are specified by the
Board, or (C) by delivery of an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the exercise
price, or (D) by any combination of the permissible forms of payment; provided,
that if the Stock delivered upon exercise of the option is an original issue of
authorized Stock, at least so much of the exercise price as represents the par
value of such Stock shall be paid other than with a personal check or promissory
note of the person exercising the option.
(e) DELIVERY OF STOCK. A participant shall not have the rights of a
stockholder with regard to awards under the Plan except as to Stock actually
received by him under the Plan.
-4-
<PAGE>
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (ii) if the outstanding Stock is
at the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
issuance, and (iii) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
award, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
(f) NONTRANSFERABILITY OF AWARDS. No award may be transferred other
than by will or by the laws of descent and distribution, and during a
participant's lifetime an award may be exercised only by him or her.
(g) MERGERS, ETC. In the event of any merger, consolidation,
dissolution, or liquidation of the Company, the Board in its sole discretion
may, as to any outstanding awards, make such substitution or adjustment in the
aggregate number of shares reserved for issuance under the Plan and in the
number and purchase price (if any) of shares subject to such awards as it may
determine, or accelerate, amend, or terminate such awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any award, shall require payment or other consideration which
the Board deems equitable in the circumstances).
7. TERMINATION OF EMPLOYMENT
If a participant's employment or other service relationship with the
Company terminates prior to the Expiration Date the following shall apply:
(a) Options that are not exercisable immediately prior to the
termination shall terminate, except that the Board may in its
sole discretion provide that the participant or beneficiary
receive in cash, with respect to each share of Stock to which
an option relates, the excess of (i) the share's fair market
value on the date of the participant's termination, over (ii)
the option exercise price.
(b) To the extent exercisable immediately prior to termination of
employment or other service, the option shall continue to be
exercisable thereafter during the period prior to the
Expiration Date and within 60 days following the termination
(180 days in the event that a participant's service terminates
by reason of death), unless the participant's employment or
other service is terminated "for cause" as defined in (c)
below, in which case all awards shall terminate immediately.
Except as otherwise provided in an award, after completion of
the 60-day (or 180-day) period, such awards shall terminate to
the extent not previously exercised, expired, or terminated.
-5-
<PAGE>
(c) The following, as determined by the Board in its reasonable
judgment, shall constitute "cause" termination: (i) a
participant's failure to perform, or negligence in the
performance of, his or her duties and responsibilities to the
Company; (ii) a participant's fraud, embezzlement or other
material dishonesty with respect to the Company; or (iii)
other conduct by a participant that is harmful to the
business, interest, or reputation of the Company; PROVIDED,
HOWEVER, that, if the participant and the Company are parties
to an employment agreement relating to the employment of such
participant by the Company and such employment agreement
contains a definition of "Cause" (or other similar term)
similar in intent to the immediately preceding definition and
relating to the termination by the Company of such employment,
such definition in such employment agreement shall be
substituted for such immediately foregoing definition for
purposes of this Plan, but only with respect to such
participant.
No option shall be exercised or surrendered in exchange for a cash payment after
the Expiration Date.
In the case of any award, the Board may provide in the case of any
award for post-termination exercise provisions different from those expressly
set forth in this Section 7, including without limitation terms allowing a later
exercise by a former employee (or, in the case of a former employee who is
deceased, the person or persons to whom the award is transferred by will or the
laws of descent and distribution) as to all or any portion of the award not
exercisable immediately prior to termination of employment or other service, but
in no case may an award be exercised after the Expiration Date.
8. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the grant of awards shall confer
upon any participant any right to continue as an employee of, or consultant or
adviser to, the Company, its parent, or any subsidiary or affect in any way the
right of the Company, its parent, or a subsidiary to terminate the participant's
relationship at any time. Except as specifically provided by the Board in any
particular case, the loss of existing or potential profit in awards granted
under this Plan shall not constitute an element of damages in the event of
termination of the relationship of a participant even if the termination is in
violation of an obligation of the Company to the participant by contract or
otherwise.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, AND TERMINATION
Neither adoption of the Plan nor the grant of awards to a participant
shall affect the Company's right to make awards to such participant that are not
subject to the Plan, to issue to such participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued.
-6-
<PAGE>
The Board may at any time or times amend the Plan or any outstanding
award for the purpose of satisfying the requirements of section 422 of the Code
or of any changes in applicable laws or regulations or for any other purpose
that may at the time be permitted by law, or may at any time terminate the Plan
as to any further grants of awards; provided that, except to the extent
expressly required by the Plan, no such amendment shall adversely affect the
rights of any participant (without his or her consent) under any award
previously granted, nor shall such amendment, without the approval of the
stockholders of the Company, effectuate a change for which stockholder approval
is required in order for the Plan to continue to qualify under Rule 16b-3
promulgated under Section 16 of the 1934 Act.
-7-
<PAGE>
HF HOLDINGS, INC.
1999 JUNIOR MANAGEMENT STOCK OPTION PLAN
THE SHARES RECEIVED UPON EXERCISE OF THIS OPTION SHALL BE SUBJECT TO THE RIGHTS,
RESTRICTIONS AND OBLIGATIONS APPLICABLE TO SUCH SHARES, ALL AS PROVIDED IN THE
STOCKHOLDERS AGREEMENT DATED AS OF SEPTEMBER 27, 1999 AMONG THE COMPANY AND
CERTAIN OTHER PARTIES THERETO AS AMENDED AND IN EFFECT FROM TIME TO TIME, AND IN
THE JOINDER AND SUPPLEMENT TO STOCKHOLDERS AGREEMENT, A COPY OF WHICH IS
ATTACHED HERETO.
THIS OPTION IS NOT TRANSFERABLE BY THE OPTIONEE OTHER THAN BY WILL OR THE LAWS
OF DESCENT AND DISTRIBUTION, AND IS EXERCISABLE DURING THE OPTIONEE'S LIFETIME
ONLY BY THE OPTIONEE.
[FORM OF]
Non-Incentive Option Certificate
--------------------------------
Stock option granted by HF Holdings, Inc., a Delaware corporation (the
"Company"), to ___________ (the "Optionee"), pursuant to the Company's 1999
Junior Management Stock Option Plan (the "Plan"). All initially capitalized
terms not otherwise defined herein shall have the meaning provided in the Plan.
1. Grant of Option
This certificate evidences the grant by the Company on September 27,
1999 to the Optionee of an option to purchase, in whole or in part, on the terms
provided herein and in the Plan, a total of __________ shares of Common Stock of
the Company (the "Shares") at $5.83 per Share.
The latest date on which this option may be exercised (the "Final
Exercise Date") is the earlier of September 27, 2009 or a Termination Event as
defined in clause (ii) of Section 1.9 of the Joinder and Supplement to
Stockholders Agreement attached hereto as Exhibit A. The option evidenced by
this certificate is not an incentive stock option.
This option is subject to the vesting schedule set forth on Schedule 1
hereto and shall become exercisable as set forth thereon.
2. Exercise of Option.
Each election to exercise this option shall be in writing, signed by
the Optionee or by his or her executor or administrator or by the person or
persons to whom this option is
<PAGE>
transferred by will or the applicable laws of descent and distribution (the
"Legal Representative"), and received by the Company at its principal office,
accompanied by payment in full and by such additional documentation evidencing
the right to exercise (or, in the case of a Legal Representative, of the
authority of such person) as the Company may require. Such notice of election to
exercise will include a commitment by the Optionee or Legal Representative to
provide the Company with notice as required by Section 8 hereof. The purchase
price may be paid (i) in cash or by personal check, bank check or money order
payable to the order of the Company, (ii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver to the Company promptly upon the
sale of the shares of Stock to be issued sufficient funds to pay the exercise
price, or (iii) by any combination of the permissible forms of payment;
provided, that so much of the purchase price as equals the par value of the
Shares being purchased shall be paid other than by personal check.
3. Stockholders Agreement
The stock option evidenced by this certificate and any Shares
transferred pursuant to the exercise of this option shall be subject to the
Stockholders Agreement dated as of September 27, 1999 among the Company and
certain other parties thereto as amended and in effect from time to time (the
"Stockholders Agreement"), and no grant of options shall become effective unless
and until the Optionee shall have executed a Joinder and Supplement to
Stockholders Agreement substantially in the form of Exhibit A hereto. The
option, and shares received upon exercise of the option, shall be subject to the
rights, restrictions and obligations applicable to such options and shares all
as provided from time to time in such Stockholders Agreement and the Joinder and
Supplement to the Stockholders Agreement.
4. Restrictions on Transfer
In addition to the provisions of Section 3 above, if at the time this
option is exercised the Company is a party to any agreement restricting the
transfer of any outstanding shares of its Common Stock, this option may be
exercised only if the Shares so acquired are made subject to the transfer
restrictions set forth in that agreement (or if more than one such agreement is
then in effect, the agreement specified by the Board).
Certificates evidencing any shares purchased by an Optionee upon
exercise of options granted hereby may bear the following legends, in addition
to any legends which may be required by any agreement referred to in the
immediately preceding paragraph:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
transferred, except pursuant to an effective registration, or exemption
from registration under said Act."
"The shares of stock represented by this certificate are subject to
restrictions on voting and transfer set forth in the Stockholders
Agreement dated as of September 27, 1999,
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<PAGE>
as amended and in effect from time to time. The Company will furnish a
copy of such agreement to the holder of this certificate without charge
upon written request."
"The shares of stock represented by this certificate are also subject
to certain call rights as provided in the Joinder and Supplement to
Stockholders Agreement, dated as of __________, 1999, as amended and in
effect from time to time, and were originally issued to, or were issued
in respect of shares originally issued to, the following Junior
Management Investor: ____________.
5. Withholding
No Shares will be transferred pursuant to the exercise of this option
unless and until the person exercising this option shall have remitted to the
Company an amount sufficient to satisfy any federal, state or local withholding
tax requirements, or shall have made other arrangements satisfactory to the
Company with respect to such taxes.
6. Status Change
Upon the termination of the Optionee's employment, this option shall
terminate as to any Shares for which it was not exercisable immediately prior to
termination; provided, that the Board in its sole discretion may provide (either
prior to or following termination) that any or all of such portion of this
option not otherwise exercisable prior to termination shall be treated as having
become exercisable immediately prior to termination. As to that number of Shares
for which the option was exercisable, or deemed exercisable by action of the
Board, immediately prior to termination, it shall remain exercisable as follows:
(i) if termination occurs for any reason other than death, for a
period of 60 days following the date of termination, except as
provided in clause (ii) below, but in no event beyond the
Final Exercise Date, or
(ii) following death, for a period of 180 days thereafter, but not
beyond the Final Exercise Date.
Notwithstanding the foregoing, if the Optionee is terminated for cause (as
provided in the Plan) the option shall immediately terminate as to all Shares
subject to the option.
7. Nontransferability of Option.
Except as set forth in Sections 6 and 7 of the Stockholders Agreement,
this option is not transferable by the Optionee other than by will or the
applicable laws of descent and distribution, and is exercisable during the
Optionee's lifetime only by the Optionee.
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<PAGE>
8. Effect on Employment.
Neither the grant of Options hereunder, nor the issuance of the Shares
upon exercise of such Options, shall give the Optionee any right to be retained
in the employ of the Company, affect the right of the Company to discharge or
discipline such Optionee at any time, or affect any right of such Optionee to
terminate his or her employment at any time.
9. Provisions of the Plan.
This option is subject in its entirety to the provisions of the Plan, a
copy of which is furnished to the Optionee with this option.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE>
[Jr. Management Stock Option Plan]
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
HF HOLDINGS, INC.
By:___________________________
Title:
Dated: _______________
<PAGE>
Schedule 1 to
Option Agreement
under
1999 Junior Management Stock Option Plan
The following vesting schedule will apply:
25% of the total number of Shares first indicated above shall become
immediately exercisable on the date hereof.
25% of the total number of Shares first indicated above shall become
exercisable on each of September 27, 2000, September 27, 2001 and
September 27, 2002.
100% of the total number of Shares from time to time outstanding but
not yet exercisable shall become exercisable upon a Liquidity Event (as
defined in the Stockholders Agreement).
<PAGE>
Exhibit 10.18
ICON HEALTH & FITNESS, INC.
JUNIOR MANAGEMENT DEFERRED BONUS PLAN
(EFFECTIVE SEPTEMBER 27, 1999)
1. PURPOSE AND EFFECTIVE DATE
The purpose of this Plan is to set forth the terms and conditions under
which certain members of management will become entitled to an amount of
deferred bonus (the "Deferred Bonus Amount") in consideration for their past
service to the Company. This Plan is effective September 27, 1999. The Plan is
intended to be "a plan which is unfunded and is maintained by an employer
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees" within the meaning of sections
201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and shall be administered in a
manner consistent with that intent.
2. DEFINITIONS
(a) "Beneficiary" means the person (which may include trusts and is not
limited to one person) designated by the Participant, in such manner as
prescribed by the Plan Administrator, who shall be entitled to receive payment
of the Participant's Deferred Bonus Account in the event of the Participant's
death. If no such designation is made, or if the designated person predeceases
the Participant, payment shall be made to the Participant's estate.
(b) "Code" means the Internal Revenue Code of 1986 as amended from time
to time.
(c) "Committee" means the Compensation Committee of the Board of
Directors of the Company or if no such committee has been designated, the Board.
(d) "Company" means ICON Health & Fitness, Inc.
(e) "Deferred Bonus Account" means the account described in Section 3.
(f) "Effective Date" means September 27, 1999.
(g) "Liquidity Event" has the meaning set forth in the Stockholders
Agreement.
(h) "Participant" means each of the members of management of the
Company listed on the schedules hereto.
<PAGE>
(i) "Plan" means the ICON Health & Fitness, Inc. 1999 Junior Management
Deferred Bonus Plan as set forth herein and as from time to time amended.
(j) "Plan Administrator" means the Committee.
(k) "Option Agreements" means the Non-Incentive Option Certificates
dated as of September 27, 1999 between HF Holdings, Inc. and each of the
Participants.
(l) "Stockholders Agreement" means the Stockholders Agreement dated as
of September 27, 1999 among the Company, HF Holdings, Inc. and the stockholders
of HF Holdings, Inc.
Other terms are defined as provided throughout this Plan.
3. DEFERRED BONUS ACCOUNT
The Company shall establish on its books a Deferred Bonus Account for
each Participant as of the Effective Date. The amount credited to each such
Account shall be the amount set forth on Schedule A hereto, and shall not be
adjusted for interest or otherwise, except to reflect distributions made to a
Participant or his or her Beneficiary. 25% of the amount credited to such
Account shall be fully vested as of the Effective Date, and 25% of such amount
shall become vested on the each of the first, second and third anniversaries of
the Effective Date, provided the Participant remains employed by HF Holdings,
Inc., the Company or any of their subsidiaries on each such date, and provided
further that upon the termination of the Plan, or the termination of any
Participant's participation pursuant to Section 12, prior to the third
anniversary of the Effective Date, 100% of the amount credited to such Account
shall become fully vested if the Participant is then so employed. The entire
amount credited to a Participant's Deferred Bonus Account shall become vested
upon the occurrence of a Liquidity Event, provided the Participant remains
employed by HF Holdings, Inc., the Company or any of their subsidiaries on such
date.
4. DISTRIBUTIONS.
The vested amount credited to a Participant's Deferred Bonus Account
shall become payable to the Participant (or the Participant's Beneficiary, in
the event of death) upon the earliest to occur after the date hereof (each, a
"Payment Date") of (i) a Liquidity Event in which the consideration received by
holders of the common stock of HF Holdings, Inc. in respect of each share of
such common stock is greater than the exercise price at that time in effect
under the Option Agreement between HF Holdings, Inc. and such Participant,
provided the Participant is at such time employed by HF Holdings, Inc., the
Company or any of their subsidiaries, (ii) ten years and one hundred and eighty
(180) days after the date hereof, provided the Participant is at such time
employed by HF Holdings, Inc., the Company or any of their subsidiaries, or
(iii) an exercise by the Company of a call option pursuant to Section 3
<PAGE>
of the Joinder and Supplement to Stockholders Agreement among the Company, HF
Holdings, Inc. and such Participant.
5. FORM OF PAYMENT; TIMING
The Company shall pay, or cause one or more of its affiliates to pay,
the amount due to a Participant or Beneficiary hereunder in cash in a single
lump sum payment as soon as administratably practicable following a Payment Date
with respect to the Participant, which in no case shall be more than 30 days
following the Payment Date. The Participant's Deferred Bonus Account will be
reduced by the amount of the payment (including any amount under Section 9
below).
6. ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Committee, which shall have full
discretion to administer and interpret the Plan in accordance with its terms in
all respects.
7. NATURE OF CLAIM FOR PAYMENTS
Except as herein provided, the Company shall not be required to set
aside or segregate any assets of any kind to meet any of its obligations
hereunder, and all obligations of the Company hereunder shall be reflected by
book entries only. The Participant shall have no rights on account of this Plan
in or to any specific assets of the Company. Any rights that the Participant may
have on account of this Plan shall be those of a general, unsecured creditor of
the Company.
8. RIGHTS ARE NON-ASSIGNABLE
Other than by will or the laws of descent and distribution, neither the
Participant nor any Beneficiary nor any other person shall have any right to
assign or otherwise alienate the right to receive payments hereunder, in whole
or in part, which payments are expressly agreed to be non-assignable and
non-transferable, whether voluntarily or involuntarily.
9. TAXES
If the Company is required to withhold taxes from payments under the
Plan pursuant to federal, state or local law, the amounts payable to
Participants shall be reduced by the tax so withheld.
10. TERMINATION; AMENDMENTS
The Plan shall continue in effect until terminated by action of the
Company's Board of Directors. Upon termination of the Plan, no individual not a
Participant as of the date of
<PAGE>
termination shall become a Participant thereafter. If, at the time of
termination, there is any Participant or Beneficiary of a Participant who is or
will be entitled to a payment hereunder, the Plan Administrator shall elect
either (a) to make payments to such Participants or beneficiaries in the normal
course as if the Plan had continued in effect, or (b) to pay to such
Participants or beneficiaries the balance in the Participant's Deferred Bonus
Account in a single lump-sum payment.
The Committee and Participants entitled to a majority of the aggregate
Deferred Bonus Accounts may at any time and from time to time amend the Plan in
any manner; provided that, subject to Section 12, without the consent of a
Participant, no such action shall materially and adversely affect the rights of
such Participant with respect to any rights to payment of amounts credited to
such Participant's Deferred Account, including by reducing the amounts
previously credited to the Deferred Bonus Account of such Participant or
otherwise.
11. EMPLOYMENT RIGHTS
Nothing in this Plan shall give any Participant any right to be
employed or to continue employment by HF Holdings, Inc., the Company or any of
their subsidiaries.
12. CHANGE IN OR INTERPRETATION OF LAW
In the event of any change in or interpretation of law which, in the
opinion of counsel acceptable to the Plan Administrator, would cause the Plan to
be other than an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees (such an unfunded plan being hereinafter referred to as an "exempt
plan") and to be subject to the funding requirements of Title I of ERISA, the
Plan Administrator may terminate the participation of such Participants as may
be necessary to preserve or restore the Plan's status as an exempt plan and may
accelerate payment of their Deferred Bonus Accounts or take such other action as
may be necessary to preserve or restore such status, provided that in any such
case the Company shall use its reasonable best efforts to provide any affected
Participant with benefits reasonably equivalent to those to which he or she
would have been entitled pursuant to the Plan.
13. GOVERNING LAW
The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws
of the State of Delaware.
14. SUCCESSORS
This Plan shall inure to the benefit of and be binding upon the
Participant and the Company and their respective personal or legal
representatives, executors, administrators, and
<PAGE>
successors and assigns, including successors to all or substantially all of the
stock, business and/or assets, of the Company.
15. CONSENT TO JURISDICTION
Each party to this Agreement, by its execution hereof, (x) hereby
irrevocably submits to the non-exclusive jurisdiction of the state courts of the
State of Utah sitting in the County of Salt Lake or the United States District
Court of Utah for the purpose of any action, claim, cause of action or suit (in
contract, tort or otherwise), inquiry, proceeding or investigation arising out
of or based upon this Agreement or relating to the subject matter hereof, (y)
hereby waives to the extent not prohibited by applicable law, and agrees not to
assert, and agrees not to allow any of its subsidiaries to assert, by way of
motion, as a defense or otherwise, in any such action, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution, that any such
proceeding brought in one of the above-named courts is improper, or that this
Agreement or the subject matter hereof or thereof may not be enforced in or by
such court and (z) hereby agrees not to make any motion or take any other action
seeking or intending to cause the transfer or removal of any such action, claim,
cause of action or suit (in contract, tort or otherwise), inquiry, proceeding or
investigation to any court other than one of the above-named courts whether on
the grounds of inconvenient forum or otherwise. Each party hereto hereby
consents to service of process in any such proceeding in any manner permitted by
Utah law, and agrees that service of process by registered or certified mail,
return receipt requested, at its address specified pursuant to the Stockholders
Agreement is reasonably calculated to give actual notice.
16. WAIVER OF JURY TRIAL
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED,
EACH PARTICIPANT HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY
FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN
CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT
OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. THE COMPANY AND EACH
PARTICIPANT ACKNOWLEDGES THAT IT HAS BEEN INFORMED THAT THIS SECTION 16
CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING AND WILL RELY IN
ENTERING INTO THIS AGREEMENT. THE COMPANY AND EACH PARTICIPANT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 16 WITH ANY COURT AS WRITTEN
EVIDENCE OF CONSENT TO THE WAIVER OF THE RIGHT TO TRIAL BY JURY.
<PAGE>
17. ATTORNEYS FEES
In the event of a dispute by the Company, the Participant or others as
to the validity or enforceability of, or liability under, any provision of this
Plan, the Company shall reimburse the Participant for all legal fees and
expenses incurred by him or her in connection with such dispute to the extent
the Participant shall prevail in such dispute.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK]
<PAGE>
[Jr. Management Deferred Bonus Plan]
ICON HEALTH & FITNESS, INC.
By: /s/ S. FRED BECK
-------------------------------
Name: S. Fred Beck
Title: Treasurer and CFO
Date: September 27, 1999
<PAGE>
Exhibit 10.19
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of the
27th day of September, 1999, by and between Icon Health & Fitness, Inc., a
Delaware corporation ("ICON"), HF Holdings, Inc., a Delaware corporation
("Holdings" and, together with ICON and each of its other direct and indirect
subsidiaries signatory hereto or hereafter becoming party hereto by executing a
counterpart signature page hereof, the "Company") and Bain Capital Partners IV,
L.P., a Delaware limited partnership ("Bain").
Whereas, Holdings was formed for the purpose of effecting an overall
plan to restructure the capitalization of ICON (the "Restructuring") and
becoming a direct parent of ICON, all on terms and subject to the
conditions of (a) the Exchange Offer and Consent Solicitation Statement,
dated July 30, 1999, for all outstanding 13% Senior Subordinated Notes due
2002 of ICON, 15% Senior Secured Discount Notes due 2004 of IHF Holdings,
Inc., a Delaware corporation ("IHF"), and 14% Senior Discount Notes due
2006 of ICON Fitness Corporation, a Delaware corporation, and (b) the
Agreement and Plan of Merger, dated as of September 24, 1999, among
Holdings, HF Acquisition, Inc., a Delaware corporation, and ICON.
Whereas, Bain is providing advisory and other services in connection
with the senior secured financing (the "Senior Financing") being provided
for the Restructuring pursuant to a Credit Agreement dated on or about the
date hereof by General Electric Capital Corporation and Fleet National
Bank, as agents, and the lending institutions from time to time party
thereto (the "Credit Agreement");
Whereas, certain funds (the "Bain Funds") affiliated with Bain are
providing equity financing (the "Equity Investments") in connection with
the Restructuring; and
Whereas, subject to the terms and conditions of this Agreement, the
Company desires to retain Bain to provide certain management and advisory
services to the Company, and Bain desires to provide such services;
Now, therefore, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Services. Bain hereby agrees that, during the term of this Agreement (the
"Term"), it will:
(a) provide the Company with advice in connection with the negotiation
and consummation of agreements, contracts, documents and instruments
necessary to provide the Company with financing from banks or other
financial institutions or other entities on terms and conditions
satisfactory to the Company; and
<PAGE>
(b) provide ICON with financial, managerial and operational advice in
connection with its day-to-day operations, including, without
limitation:
(i) advice with respect to the investment of funds; and
(ii) advice with respect to the development and implementation of
strategies for improving the operating, marketing and
financial performance of ICON.
2. Payment of Fees. The Company hereby agrees to:
(a) pay to Bain (or an affiliate of Bain designated by it) a fee in the
amount of $2,202,000 in connection with the structuring of the
Senior Financing for the Restructuring, together with reimbursement
of Bain's expenses incurred on behalf of the Company through the
Closing Date (as defined in the Merger Agreement) in connection with
the Restructuring, such fees and expenses being payable by ICON at
the closing of the Restructuring or, if the Restructuring is not
consummated, promptly after the time the Company has abandoned the
Restructuring;
(b) subject to the terms of the credit agreement from time to time in
effect providing for working capital financing to ICON, during the
Term, pay to Bain (or an affiliate of Bain designated by it) a
management fee in an amount not to exceed $366,500 per annum in
exchange for the services provided to the Company by Bain, as more
fully described in Section 1, such fee being payable by ICON
quarterly in arrears, with each payment being made sixty (60) days
after the end of each fiscal quarter of the Company; and
(c) during the Term, allow Bain to participate in the negotiation and
consummation of senior financing for any recapitalization or
acquisition or other similar transactions by the Company, and pay to
Bain (or an affiliate of Bain designated by it) a fee in connection
therewith equal to one percent (1%) of the gross purchase price of
the transaction (including all liabilities assumed or otherwise
included in the transaction), such fee to be due and payable for the
foregoing services at the closing of such transaction, whether or
not any such senior financing is actually committed or drawn upon;
provided, however, that (i) Bain shall not be entitled to such fee
with respect to any acquisition by the Company in which such gross
purchase price is less than $10,000,000 and (ii) in the case of a
Liquidity Event (as defined in the Stockholders Agreement) Bain
shall provide Credit Suisse First Boston an opportunity to provide
services in connection with such transaction and to receive in
respect thereof a fee of up to one half (1/2) the fee otherwise
payable to Bain pursuant to this Section, such
-2-
<PAGE>
fee of Credit Suisse First Boston to
reduce such fee otherwise payable to Bain under this section but not
by more than one-half (1/2) of such fee otherwise payable to Bain.
Each payment made pursuant to this Section 2 shall be paid by wire
transfer of immediately available federal funds to the account specified
on Schedule 1 hereto, or to such other account(s) as Bain may specify to
the Company in writing prior to such payment.
3. Term. This Agreement shall commence on the Closing Date and continue in
full force and effect, unless and until terminated by mutual consent of
the parties, for so long as Bain (or any successor or permitted assign, as
the case may be) continues to carry on the business of providing services
of the type described in Section 1; provided, however, that (a) either
party may terminate this Agreement following a material breach of the
terms of this Agreement by the other party hereto and a failure to cure
such breach within 30 days following written notice thereof and (b) Bain
may terminate this Agreement upon not less than 60 days written notice to
the Company; and provided further that each of (x) the obligations of the
Company under Section 4, (y) any and all accrued and unpaid obligations of
the Company owed under Section 2 and (z) the provisions of Section 7 shall
survive any termination of this Agreement to the maximum extent permitted
under applicable law.
4. Expenses; Indemnification.
(a) Expenses. The Company agrees to pay on demand all expenses incurred
by Bain, the Bain Funds and Bain Capital, Inc. (or any of them) in
connection with this Agreement, the Restructuring and such other
transactions and all operations hereunder or in respect of the
Equity Investments or otherwise incurred in connection with the
Restructuring or the Company, including but not limited to (i) the
fees and disbursements of: (A) Ropes & Gray, special counsel to Bain
Capital, Inc. and the Bain Funds, (B) PricewaterhouseCoopers LLP,
accountant to Bain Capital, Inc. and the Bain Funds and (C) any
other consultants or advisors retained by Bain, Bain Capital, Inc.,
the Bain Funds or either of the parties identified in clauses (A)
and (B) arising in connection therewith (including but not limited
to the preparation, negotiation and execution of this Agreement and
any other agreement executed in connection herewith or in connection
with the Restructuring, the Senior Financing or the consummation of
the other transactions contemplated hereby (and any and all
amendments, modifications, restructurings and waivers, and exercises
and preservations of rights and remedies hereunder or thereunder)
and the operations of the Company) and (ii) any out-of-pocket
expenses incurred by Bain, the Bain Funds and Bain Capital, Inc.
(or any of them) in connection with the provision of
-3-
<PAGE>
services hereunder or the attendance at any meeting of the board
of directors (or any committee thereof) of the Company or
any of its affiliates.
(b) Indemnity and Liability. In consideration of the execution and
delivery of this Agreement by Bain and the provision of the Equity
Investments by the Bain Funds, the Company hereby agrees to
indemnify, exonerate and hold each of Bain, Bain Capital, Inc. and
each Bain Fund, and each of their respective partners, shareholders,
affiliates, directors, officers, fiduciaries, employees and agents
and each of the partners, shareholders, affiliates, directors,
officers, fiduciaries, employees, agents, advisors and attorneys of
each of the foregoing (collectively, the "Indemnitees") free and
harmless from and against any and all actions, causes of action,
suits, losses, liabilities and damages, and expenses in connection
therewith, including without limitation attorneys' fees and
disbursements (collectively, "Liabilities"), incurred by the
Indemnitees or any of them as a result of, or arising out of, or
relating to the Restructuring, the execution, delivery, performance,
enforcement or existence of this Agreement or the transactions
contemplated hereby (including but not limited to any
indemnification obligations assumed or incurred by any Indemnitee)
or the role or status of any of the foregoing as an officer,
director or shareholder of ICON, Holdings, IHF Capital, Inc., ICON
Fitness Corporation, IHF Holdings, Inc., ICON of Canada, Inc., ICON
International Holdings, Inc., Universal Technical Services, or
JumpKing, Inc. (collectively, the "Indemnified Liabilities") except
for any such Indemnified Liabilities arising on account of such
Indemnitee's willful misconduct, and if and to the extent that the
foregoing undertaking may be unenforceable for any reason, the
Company hereby agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities
which is permissible under applicable law; provided, however, that
the Indemnified Liabilities shall not include any losses solely
attributable to a decrease in value of any equity investment by the
Bain Funds in Holdings.
5. Assignment, etc. Except as provided below, neither party shall have the
right to assign this Agreement. Bain acknowledges that its services under
this Agreement are unique. Accordingly, any purported assignment by Bain
(other than as provided below) shall be void. Notwithstanding the
foregoing, (a) Bain may assign all or part of its rights and obligations
hereunder to any affiliate of Bain which provides services similar to
those called for by this Agreement, in which event Bain shall be released
of all of its rights and obligations hereunder and (b) the provisions
hereof for the benefit of the Bain Funds shall inure to the benefit of
their successors and assigns.
6. Amendments and Waivers. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and
executed by each of Bain and the Company. No waiver on any one occasion
shall extend to or effect or
-4-
<PAGE>
be construed as a waiver of any right or remedy on any future
occasion. No course of dealing of any person nor any delay or omission in
exercising any right or remedy shall constitute an amendment of this
Agreement or a waiver of any right or remedy of any party hereto.
7. Miscellaneous.
(a) Choice of Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of The Commonwealth of
Massachusetts without giving effect to any choice or conflict of law
provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
(b) Consent to Jurisdiction. Each of the parties agrees that all
actions, suits or proceedings arising out of or based upon this
Agreement or the subject matter hereof shall be brought and
maintained exclusively in the federal and state courts of The
Commonwealth of Massachusetts. Each of the parties hereto by
execution hereof (i) hereby irrevocably submits to the jurisdiction
of the federal and state courts in The Commonwealth of Massachusetts
for the purpose of any action, suit or proceeding arising out of or
based upon this Agreement or the subject matter hereof and (ii)
hereby waives to the extent not prohibited by applicable law, and
agrees not to assert, by way of motion, as a defense or otherwise,
in any such action, suit or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts,
that it is immune from extraterritorial injunctive relief or other
injunctive relief, that its property is exempt or immune from
attachment or execution, that any such action, suit or proceeding
may not be brought or maintained in one of the above-named courts,
that any such action, suit or proceeding brought or maintained in
one of the above-named courts should be dismissed on grounds of
forum non conveniens, should be transferred to any court other than
one of the above-named courts, should be stayed by virtue of the
pendency of any other action, suit or proceeding in any court other
than one of the above-named courts, or that this Agreement or the
subject matter hereof may not be enforced in or by any of the
above-named courts. Each of the parties hereto hereby consents to
service of process in any such suit, action or proceeding in any
manner permitted by the laws of The Commonwealth of Massachusetts,
agrees that service of process by registered or certified mail,
return receipt requested, at the address specified in or pursuant to
Section 9 is reasonably calculated to give actual notice and waives
and agrees not to assert by way of motion, as a defense or
otherwise, in any such action, suit or proceeding any claim that
service of process made in accordance with Section 9 does not
constitute good and sufficient service of process. The provisions of
this Section 7(b) shall not restrict the ability of any
-5-
<PAGE>
party to enforce in any court any judgment obtained in a federal or
state court of The Commonwealth of Massachusetts.
(c) Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT, OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT
OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. Each
of the parties hereto acknowledges that it has been informed by each
other party that the provisions of this Section 7(c) constitute a
material inducement upon which such party is relying and will rely
in entering into this Agreement and the transactions contemplated
hereby. Any of the parties hereto may file an original counterpart
or a copy of this Agreement with any court as written evidence of
the consent of each of the parties hereto to the waiver of its right
to trial by jury.
8. Merger/Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and supersedes
any prior communication or agreement with respect thereto, including
without limitation the Management and Advisory Agreement dated as of
November 14, 1994 between ICON, IHF, IHF Capital, Inc., a Delaware
corporation, and Bain (the "1994 Management Agreement"); provided,
however, that the provisions of Section 3.2 of the 1994 Management
Agreement shall continue in full force and effect and shall survive any
termination of this Agreement.
9. Notice. All notices, demands, and communications of any kind which any
party may require or desire to serve upon any other party under this
Agreement shall be in writing and shall be served upon such other party
and such other party's copied persons as specified below by personal
delivery to the address set forth for it below or to such other address as
such party shall have specified by notice to each other party or by
mailing a copy thereof by certified or registered mail, or by Federal
Express or any other reputable overnight courier service, postage prepaid,
with return receipt requested, addressed to such party and copied persons
at such addresses. In the case of service by personal delivery, it shall
be deemed complete on the first business day after the date of actual
delivery to such address. In case of service by mail or by overnight
courier, it shall be deemed complete, whether or not received, on the
third day after the date of mailing as shown by the registered or
certified mail receipt or courier service receipt. Notwithstanding the
foregoing, notice to any party or copied person of change of address shall
be deemed complete only upon actual receipt by an officer or agent of such
party or copied person.
-6-
<PAGE>
If to the Company, to it at:
ICON Health & Fitness, Inc.
1500 South 1000 West
Logan, Utah 84321
Attention: Chief Executive Officer
with a copy to:
Bain Capital Partners IV, L.P.
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: Robert C. Gay
Ronald P. Mika
If to Bain, to it at:
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: Robert C. Gay
Ronald P. Mika
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: R. Newcomb Stillwell
10. Severability. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then
such unenforceable provision shall be deemed eliminated from this
Agreement for the purpose of such proceedings to the extent necessary to
permit the remaining provisions to be enforced. To the full extent,
however, that the provisions of any applicable law may be waived, they are
hereby waived to the end that this Agreement be deemed to be valid and
binding agreement enforceable in accordance with its terms, and in the
event that any provision hereof shall be found to be invalid or
unenforceable, such provision shall be construed by limiting it so as to
be valid and enforceable to the maximum extent consistent with and
possible under applicable law.
-7-
<PAGE>
11. Disclaimer and Limitation of Liability.
(a) Disclaimer. Bain makes no representations or warranties, express or
implied, in respect of the services to be provided by it hereunder.
(b) Standard of Care. Neither Bain nor any other Indemnitee shall be
liable to the Company or any of its affiliates for any act, alleged
act, omission or alleged omission suffered or taken by Bain or any
other Indemnitee that does not constitute willful misconduct.
(c) Freedom to Pursue Opportunities, Etc. In anticipation that the
Company and Bain (or one or more affiliates, associated investment
funds or portfolio companies, or clients of Bain) may engage in the
same or similar activities or lines of business and have an interest
in the same areas of corporate opportunities, and in recognition of
the benefits to be derived by the Company from the services to be
provided under this Agreement and in recognition of the difficulties
which may confront any advisor who desires and endeavors fully to
satisfy such advisor's duties in determining the full scope of such
duties in any particular situation, the provisions of this clause
(c) are set forth to regulate, define and guide the conduct of
certain affairs of the Company as they may involve Bain. Except as
Bain may otherwise agree in writing after the date hereof:
(i) Bain shall have the right to, and shall have no duty
(contractual or otherwise) not to, directly or indirectly: (A)
engage in the same or similar business activities or lines of
business as the Company, including those competing with the
Company and (B) do business with any client or customer of the
Company;
(ii) Neither Bain nor any officer, director, employee, partner,
affiliate or associated entity thereof shall be liable to the
Company or its affiliates for breach of any duty (contractual
or otherwise) by reason of any such activities of or of such
person's participation therein; and
(iii) In the event that Bain acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for
both the Company and Bain or any other person, Bain shall have
no duty (contractual or otherwise) to communicate or present
such corporate opportunity to the Company and, notwithstanding
any provision of this Agreement to the contrary, shall not be
liable to the Company or its affiliates for breach of any duty
(contractual or otherwise) by reason of the fact that Bain
directly or indirectly pursues or acquires such opportunity
for itself,
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<PAGE>
directs such opportunity to another person, or does not
present such opportunity to the Company.
(d) Limitation of Liability. In no event will either party hereto be
liable to the other for any indirect, special, incidental or
consequential damages, including lost profits or savings, whether or
not such damages are foreseeable, or in respect of any Liabilities
relating to any third party claims (whether based in contract, tort
or otherwise) other than the Indemnified Liabilities, relating to
the services to be provided by Bain hereunder.
12. Counterparts. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which
together shall constitute one and the same agreement.
-9-
<PAGE>
[Management Agreement]
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
THE COMPANY: ICON HEALTH & FITNESS, INC.
By /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: CFO, V.P. and Treasurer
HF HOLDINGS, INC.
By /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: CFO, V.P. and Treasurer
BAIN: BAIN CAPITAL PARTNERS IV, L.P.
By Bain Capital Investors, Inc.,
its general partner
By /s/ Robert Gay
----------------------------------
Name: Robert Gay
Title: Managing Director
Accepted and agreed:
IHF HOLDINGS, INC.
By /s/ S. Fred Beck
-------------------------------
Name: S. Fred Beck
Title: CFO
IHF CAPITAL, INC.
By /s/ S. Fred Beck
-------------------------------
Name: S. Fred Beck
Title: CFO
-10-
<PAGE>
Exhibit 10.20
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of the
27th day of September, 1999, by and between ICON Health & Fitness, Inc., a
Delaware corporation ("ICON"), HF Holdings, Inc., a Delaware corporation
("Holdings" and, together with ICON and each of its other direct and indirect
subsidiaries signatory hereto or hereafter becoming party hereto by executing a
counterpart signature page hereof, the "Company") and Scott R. Watterson
("Watterson").
WHEREAS, Holdings was formed for the purpose of effecting an overall plan
to restructure the capitalization of ICON (the "Restructuring"), and becoming a
direct parent of ICON on terms and subject to the conditions of (a) the Exchange
Offer and Consent Solicitation Statement, dated July 30, 1999, as supplemented,
for all outstanding 13% Senior Subordinated Notes due 2002 of ICON, 15% Senior
Secured Discount Notes due 2004 of IHF Holdings, Inc., a Delaware corporation,
and 14% Senior Discount Notes due 2006 of ICON Fitness Corporation, a Delaware
corporation, and (b) the Agreement and Plan of Merger, dated as of September 27,
1999, among Holdings, HF Acquisition, Inc., a Delaware corporation, and ICON.
WHEREAS, Watterson has provided advisory and other services, and is
providing equity financing (the "Equity Investment"), in connection with the
Restructuring; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Company desires to retain Watterson to be available to provide certain
management and advisory services to the Company as requested, and Watterson
desires to provide such services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the making of the Equity Investment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Services. Watterson agrees that, during the term of this Agreement (the
"Term"), and separate and apart from any employment arrangement with the Company
or any continuation of such employment, he will:
(a) provide the Company, at its request, with advice in connection with
the negotiation and consummation of agreements, contracts, documents
and instruments necessary to provide the Company with financing from
banks or other financial institutions or other entities on terms and
conditions satisfactory to the Company; and
(b) provide ICON, at its request, with financial, managerial and
operational advice in connection with its day-to-day operations,
including, without limitation, advice with respect to the
development and implementation of strategies for improving the
operating, marketing and financial performance of ICON.
2. Payment of Fees. The Company hereby agrees to:
<PAGE>
(a) pay to Watterson a fee in the amount of $208,500 in connection with
the Restructuring, together with reimbursement of the fees and
disbursements of Hutchins, Wheeler & Dittmar, P.C., counsel to
Watterson incurred by Watterson in connection with the Restructuring
through the Closing Date (as defined in the Merger Agreement) in
connection with the Restructuring, such fees and expenses being
payable by ICON at the closing of the Restructuring or, if the
Restructuring is not consummated, promptly after the time the
Company has abandoned the Restructuring; and
(b) subject to the terms of the credit agreement from time to time in
effect providing for working capital financing to ICON, during the
Term, pay to Watterson a management fee in an amount not to exceed
$33,500 per annum, such fee being payable by ICON quarterly in
arrears, with each payment being made sixty (60) days after the end
of each fiscal quarter of the Company.
Each payment made pursuant to this Section 2 shall, at the request of
Watterson, be paid by wire transfer of immediately available federal funds
to such account(s) as Watterson may specify to the Company in writing
prior to such payment.
3. Term. This Agreement shall commence on the Closing Date and continue in full
force and effect, unless and until terminated by mutual consent of the parties,
for so long as Watterson remains available and willing to carry on the business
of providing services of the type described in Section 1, regardless of his
continued employment by the Company or any affiliate thereof; provided, however,
that (a) either party may terminate this Agreement following a material breach
of the terms of this Agreement by the other party hereto and a failure to cure
such breach within 30 days following written notice thereof, (b) Watterson may
terminate this Agreement upon not less than 60 days written notice to the
Company and (c) the Company may terminate this Agreement upon the termination
(as opposed to any assignment) of the Management Agreement entered into between
Bain Capital Partners IV, L.P. and the Company, dated an even date herewith; and
provided further that each of (x) the obligations of the Company under Section
4, (y) any and all accrued and unpaid obligations of the Company owed under
Section 2 and (z) the provisions of Section 7 shall survive any termination of
this Agreement to the maximum extent permitted under applicable law.
4. Expenses; Indemnification.
(a) Expenses. The Company agrees to pay on demand all legal expenses
incurred by Watterson in connection with this Agreement (including all
legal expenses incurred in the collection of fees hereunder) and in
connection with such transactions as are approved by the Board of
Directors of the Company, ICON or Holdings; provided, however, that
Watterson's right to receive payment of any such legal expenses is limited
to (i) such expenses being incurred at such time as Watterson is not
employed by the Company, and (ii) a total payment to Watterson for such
expenses incurred in any one year of no more than $10,000.
2
<PAGE>
(b) Indemnity and Liability. In consideration of the execution and
delivery of this Agreement and the provision of the Equity Investment by
Watterson, the companies constituting the "Company" hereby jointly and
severally agree to indemnify, exonerate and hold Watterson and his agents,
advisors and attorneys (collectively, the "Indemnitees") free and harmless
from and against any and all actions, causes of action, suits, losses,
liabilities and damages, and expenses in connection therewith, including
without limitation attorneys' fees and disbursements (collectively,
"Liabilities"), incurred by the Indemnitees or any of them solely as a
result of Watterson's role or status as an officer, director or
shareholder of ICON, Holdings, IHF Capital, Inc., ICON Fitness
Corporation, IHF Holdings, Inc., ICON of Canada, Inc., ICON International
Holdings, Inc., Universal Technical Services, and Jumpking, Inc.
(collectively, the "Indemnified Liabilities"), except for any such
Indemnified Liabilities arising on account of such Indemnitee's willful
misconduct or by reason of any agreement to which Watterson at any time is
or was or becomes a party in his own individual capacity, and if and to
the extent that the foregoing undertaking may be unenforceable for any
reason, the companies constituting the "Company" hereby jointly and
severally agree to make the maximum contribution to the payment and
satisfaction of such otherwise payable Indemnified Liabilities which is
permissible under applicable law.
5. Assignment, etc. Except as provided below, neither party shall have the right
to assign this Agreement. Watterson acknowledges that his services under this
Agreement are unique. Accordingly, any purported assignment by Watterson (other
than as provided below) shall be void. Notwithstanding the foregoing, (a)
Watterson may assign all or part of his rights and obligations hereunder to any
affiliate of Watterson which provides services similar to those called for by
this Agreement, in which event Watterson shall be released of all of his rights
and obligations hereunder and (b) the provisions hereof for the benefit of
Watterson shall inure to the benefit of his successors and assigns.
6. Amendments and Waivers. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and executed
by each of Watterson and the Company. No waiver on any one occasion shall extend
to or effect or be construed as a waiver of any right or remedy on any future
occasion. No course of dealing of any person nor any delay or omission in
exercising any right or remedy shall constitute an amendment of this Agreement
or a waiver of any right or remedy of any party hereto.
7. Miscellaneous.
(a) Choice of Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of
Delaware without giving effect to any choice or conflict of law
provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
(b) Consent to Jurisdiction. Each of the parties agrees that all
actions, suits or proceedings arising out of or based upon this
Agreement or the subject matter hereof shall be brought and
maintained exclusively in the federal and state courts of the State
of Utah. Each of the parties hereto by execution hereof (i) hereby
irrevocably submits to the jurisdiction of the federal and state
courts in the State
3
<PAGE>
of Utah for the purpose of any action, suit or proceeding arising
out of or based upon this Agreement or the subject matter hereof and
(ii) hereby waives to the extent not prohibited by applicable law,
and agrees not to assert, by way of motion, as a defense or
otherwise, in any such action, suit or proceeding, any claim that
such party is not subject personally to the jurisdiction of the
above-named courts, that it or he is immune from extraterritorial
injunctive relief or other injunctive relief, that its or his
property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in
one of the above-named courts, that any such action, suit or
proceeding brought or maintained in one of the above-named courts
should be dismissed on grounds of forum non conveniens, should be
transferred to any court other than one of the above-named courts,
should be stayed by virtue of the pendency of any other action, suit
or proceeding in any court other than one of the above-named courts,
or that this Agreement or the subject matter hereof may not be
enforced in or by any of the above-named courts. Each of the parties
hereto hereby consents to service of process in any such suit,
action or proceeding in any manner permitted by the laws of the
State of Utah, agrees that service of process by registered or
certified mail, return receipt requested, at the address specified
in or pursuant to Section 9 is reasonably calculated to give actual
notice and waives and agrees not to assert by way of motion, as a
defense or otherwise, in any such action, suit or proceeding any
claim that service of process made in accordance with Section 9 does
not constitute good and sufficient service of process. The
provisions of this Section 7(b) shall not restrict the ability of
any party to enforce in any court any judgment obtained in a federal
or state court of the State of Utah.
(c) Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES,
AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT, OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT
OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. Each
of the parties hereto acknowledges that such party has been informed
by each other party that the provisions of this Section 7(c)
constitute a material inducement upon which such party is relying
and will rely in entering into this Agreement and the transactions
contemplated hereby. Any of the parties hereto may file an original
counterpart or a copy of this Agreement with any court as written
evidence of the consent of each of the parties hereto to the waiver
of such party's right to trial by jury.
(d) Withholding. The Company shall have the right to withhold, from or
in respect of any payment due to Watterson hereunder, any federal,
state or local taxes of any kind required by law to be withheld with
respect thereto.
4
<PAGE>
8. Merger/Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes any prior
communication or agreement with respect thereto.
9. Notice. All notices, demands, and communications of any kind which any party
may require or desire to serve upon any other party under this Agreement shall
be in writing and shall be served upon such other party and such other party's
copied persons as specified below by personal delivery to the address set forth
for such party below or to such other address as such party shall have specified
by notice to each other party or by mailing a copy thereof by certified or
registered mail, or by Federal Express or any other reputable overnight courier
service, postage prepaid, with return receipt requested, addressed to such party
and copied persons at such addresses. In the case of service by personal
delivery, it shall be deemed complete on the first business day after the date
of actual delivery to such address. In case of service by mail or by overnight
courier, it shall be deemed complete, whether or not received, on the third day
after the date of mailing as shown by the registered or certified mail receipt
or courier service receipt. Notwithstanding the foregoing, notice to any party
or copied person of change of address shall be deemed complete only upon actual
receipt by an officer or agent of such party or copied person.
If to the Company, to it at:
HF Holdings, Inc.
1500 South 1000 West
Logan, Utah 84321
Attention: Chief Executive Officer
with a copy, if he is then employed by the Company, to:
Each member of the Board of Directors
(at such addresses to which notices are sent for meetings of the Board
of Directors)
If to Watterson, to him at:
Scott R. Watterson
560 South 1000 East
Logan, Utah 84321
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attention: Charles W. Robins
10. Severability. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then such
unenforceable provision shall be deemed eliminated from this Agreement for the
purpose of such proceedings to the extent necessary to
5
<PAGE>
permit the remaining provisions to be enforced. To the full extent, however,
that the provisions of any applicable law may be waived, they are hereby waived
to the end that this Agreement be deemed to be a valid and binding agreement
enforceable in accordance with its terms, and in the event that any provision
hereof shall be found to be invalid or unenforceable, such provision shall be
construed by limiting it so as to be valid and enforceable to the maximum extent
consistent with and possible under applicable law.
11. Disclaimer and Limitation of Liability.
(a) Disclaimer. Watterson makes no representations or warranties,
express or implied, in respect of the services to be provided by him
hereunder.
(b) Standard of Care. Neither Watterson nor any other Indemnitee shall
be liable to the Company or any of its affiliates for any act,
alleged act, omission or alleged omission suffered or taken by
Watterson hereunder or any other Indemnitee hereunder that does not
constitute willful misconduct.
(c) Limitation of Liability. In no event will either party hereto be
liable to the other for any indirect, special, incidental or
consequential damages, including lost profits or savings, whether or
not such damages are foreseeable, or in respect of any liabilities
relating to any third party claims (whether based in contract, tort
or otherwise) other than the Indemnified Liabilities to the extent
provided in Section 4(b), relating to the services to be provided by
Watterson hereunder.
(d) Employment Agreements. Neither (i) this Agreement, as the same may
be amended from time to time, or the performance by Watterson of any
services hereunder, nor (ii) any investment by Watterson in HF
Investment Holdings, LLC ("HF LLC"), a Delaware limited liability
company, or the performance by Watterson of any services under the
HF LLC Limited Liability Company Agreement, as the same may be
amended from time to time, shall constitute a violation of any
employment agreement between Watterson and Holdings, ICON or the
Company, or any of their affiliates, including, but not limited to,
the Employment Agreement between Watterson and the Company, dated an
even date herewith, as the same may be amended from time to time.
12. Counterparts. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
THE COMPANY: HF Holdings, Inc.
By /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: CFO, V.P. and Treasurer
ICON HEALTH & FITNESS, INC.
By /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: CFO, V.P. and Treasurer
WATTERSON:
/s/ Scott R. Watterson
-------------------------------------
Scott R. Watterson
7
<PAGE>
Exhibit 10.21
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is entered into as of the
27th day of September, 1999, by and between ICON Health & Fitness, Inc., a
Delaware corporation ("ICON"), HF Holdings, Inc., a Delaware corporation
("Holdings" and, together with ICON and each of its other direct and indirect
subsidiaries signatory hereto or hereafter becoming party hereto by executing a
counterpart signature page hereof, the "Company") and Gary E. Stevenson
("Stevenson").
WHEREAS, Holdings was formed for the purpose of effecting an overall plan
to restructure the capitalization of ICON (the "Restructuring"), and becoming a
direct parent of ICON on terms and subject to the conditions of (a) the Exchange
Offer and Consent Solicitation Statement, dated July 30, 1999, as supplemented,
for all outstanding 13% Senior Subordinated Notes due 2002 of ICON, 15% Senior
Secured Discount Notes due 2004 of IHF Holdings, Inc., a Delaware corporation,
and 14% Senior Discount Notes due 2006 of ICON Fitness Corporation, a Delaware
corporation, and (b) the Agreement and Plan of Merger, dated as of September 27,
1999, among Holdings, HF Acquisition, Inc., a Delaware corporation, and ICON.
WHEREAS, Stevenson has provided advisory and other services, and is
providing equity financing (the "Equity Investment"), in connection with the
Restructuring; and
WHEREAS, subject to the terms and conditions of this Agreement, the
Company desires to retain Stevenson to be available to provide certain
management and advisory services to the Company as requested, and Stevenson
desires to provide such services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the making of the Equity Investment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Services. Stevenson agrees that, during the term of this Agreement (the
"Term"), and separate and apart from any employment arrangement with the Company
or any continuation of such employment, he will:
(a) provide the Company, at its request, with advice in connection with
the negotiation and consummation of agreements, contracts, documents
and instruments necessary to provide the Company with financing from
banks or other financial institutions or other entities on terms and
conditions satisfactory to the Company; and
(b) provide ICON, at its request, with financial, managerial and
operational advice in connection with its day-to-day operations,
including, without limitation, advice with respect to the
development and implementation of strategies for improving the
operating, marketing and financial performance of ICON.
2. Payment of Fees. The Company hereby agrees to:
<PAGE>
(a) pay to Stevenson a fee in the amount of $208,500 in connection with
the Restructuring, together with reimbursement of the fees and
disbursements of Hutchins, Wheeler & Dittmar, P.C., counsel to
Stevenson incurred by Stevenson in connection with the Restructuring
through the Closing Date (as defined in the Merger Agreement) in
connection with the Restructuring, such fees and expenses being
payable by ICON at the closing of the Restructuring or, if the
Restructuring is not consummated, promptly after the time the
Company has abandoned the Restructuring; and
(b) subject to the terms of the credit agreement from time to time in
effect providing for working capital financing to ICON, during the
Term, pay to Stevenson a management fee in an amount not to exceed
$33,500 per annum, such fee being payable by ICON quarterly in
arrears, with each payment being made sixty (60) days after the end
of each fiscal quarter of the Company.
Each payment made pursuant to this Section 2 shall, at the request of
Stevenson, be paid by wire transfer of immediately available federal funds
to such account(s) as Stevenson may specify to the Company in writing
prior to such payment.
3. Term. This Agreement shall commence on the Closing Date and continue in full
force and effect, unless and until terminated by mutual consent of the parties,
for so long as Stevenson remains available and willing to carry on the business
of providing services of the type described in Section 1, regardless of his
continued employment by the Company or any affiliate thereof; provided, however,
that (a) either party may terminate this Agreement following a material breach
of the terms of this Agreement by the other party hereto and a failure to cure
such breach within 30 days following written notice thereof, (b) Stevenson may
terminate this Agreement upon not less than 60 days written notice to the
Company and (c) the Company may terminate this Agreement upon the termination
(as opposed to any assignment) of the Management Agreement entered into between
Bain Capital Partners IV, L.P. and the Company, dated an even date herewith; and
provided further that each of (x) the obligations of the Company under Section
4, (y) any and all accrued and unpaid obligations of the Company owed under
Section 2 and (z) the provisions of Section 7 shall survive any termination of
this Agreement to the maximum extent permitted under applicable law.
4. Expenses; Indemnification.
(a) Expenses. The Company agrees to pay on demand all legal expenses
incurred by Stevenson in connection with this Agreement (including all
legal expenses incurred in the collection of fees hereunder) and in
connection with such transactions as are approved by the Board of
Directors of the Company, ICON or Holdings ; provided, however, that
Stevenson's right to receive payment of any such legal expenses is limited
to (i) such expenses being incurred at such time as Stevenson is not
employed by the Company, and (ii) a total payment to Stevenson for such
expenses incurred in any one year of no more than $10,000.
2
<PAGE>
(b) Indemnity and Liability. In consideration of the execution and
delivery of this Agreement and the provision of the Equity Investment by
Stevenson, the companies constituting the "Company" hereby jointly and
severally agree to indemnify, exonerate and hold Stevenson and his agents,
advisors and attorneys (collectively, the "Indemnitees") free and harmless
from and against any and all actions, causes of action, suits, losses,
liabilities and damages, and expenses in connection therewith, including
without limitation attorneys' fees and disbursements (collectively,
"Liabilities"), incurred by the Indemnitees or any of them solely as a
result of Stevenson's role or status as an officer, director or
shareholder of ICON, Holdings, IHF Capital, Inc., ICON Fitness
Corporation, IHF Holdings, Inc., ICON of Canada, Inc., ICON International
Holdings, Inc., Universal Technical Services, and Jumpking, Inc.
(collectively, the "Indemnified Liabilities"), except for any such
Indemnified Liabilities arising on account of such Indemnitee's willful
misconduct or by reason of any agreement to which Stevenson at any time is
or was or becomes a party in his own individual capacity, and if and to
the extent that the foregoing undertaking may be unenforceable for any
reason, the companies constituting the "Company" hereby jointly and
severally agree to make the maximum contribution to the payment and
satisfaction of such otherwise payable Indemnified Liabilities which is
permissible under applicable law.
5. Assignment, etc. Except as provided below, neither party shall have the right
to assign this Agreement. Stevenson acknowledges that his services under this
Agreement are unique. Accordingly, any purported assignment by Stevenson (other
than as provided below) shall be void. Notwithstanding the foregoing, (a)
Stevenson may assign all or part of his rights and obligations hereunder to any
affiliate of Stevenson which provides services similar to those called for by
this Agreement, in which event Stevenson shall be released of all of his rights
and obligations hereunder and (b) the provisions hereof for the benefit of
Stevenson shall inure to the benefit of his successors and assigns.
6. Amendments and Waivers. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and executed
by each of Stevenson and the Company. No waiver on any one occasion shall extend
to or effect or be construed as a waiver of any right or remedy on any future
occasion. No course of dealing of any person nor any delay or omission in
exercising any right or remedy shall constitute an amendment of this Agreement
or a waiver of any right or remedy of any party hereto.
7. Miscellaneous.
(a) Choice of Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of
Delaware without giving effect to any choice or conflict of law
provision or rule that would cause the application of the domestic
substantive laws of any other jurisdiction.
(b) Consent to Jurisdiction. Each of the parties agrees that all
actions, suits or proceedings arising out of or based upon this
Agreement or the subject matter hereof shall be brought and
maintained exclusively in the federal and state courts of the State
of Utah. Each of the parties hereto by execution hereof (i) hereby
irrevocably submits to the jurisdiction of the federal and state
courts in the State
3
<PAGE>
of Utah for the purpose of any action, suit or proceeding arising
out of or based upon this Agreement or the subject matter hereof and
(ii) hereby waives to the extent not prohibited by applicable law,
and agrees not to assert, by way of motion, as a defense or
otherwise, in any such action, suit or proceeding, any claim that
such party is not subject personally to the jurisdiction of the
above-named courts, that it or he is immune from extraterritorial
injunctive relief or other injunctive relief, that its or his
property is exempt or immune from attachment or execution, that any
such action, suit or proceeding may not be brought or maintained in
one of the above-named courts, that any such action, suit or
proceeding brought or maintained in one of the above-named courts
should be dismissed on grounds of forum non conveniens, should be
transferred to any court other than one of the above-named courts,
should be stayed by virtue of the pendency of any other action, suit
or proceeding in any court other than one of the above-named courts,
or that this Agreement or the subject matter hereof may not be
enforced in or by any of the above-named courts. Each of the parties
hereto hereby consents to service of process in any such suit,
action or proceeding in any manner permitted by the laws of the
State of Utah, agrees that service of process by registered or
certified mail, return receipt requested, at the address specified
in or pursuant to Section 9 is reasonably calculated to give actual
notice and waives and agrees not to assert by way of motion, as a
defense or otherwise, in any such action, suit or proceeding any
claim that service of process made in accordance with Section 9 does
not constitute good and sufficient service of process. The
provisions of this Section 7(b) shall not restrict the ability of
any party to enforce in any court any judgment obtained in a federal
or state court of the State of Utah.
(c) Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES,
AND COVENANTS THAT SUCH PARTY WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT, OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN
RESPECT OF ANY ISSUE, CLAIM, DEMAND, CAUSE OF ACTION, ACTION, SUIT
OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. Each
of the parties hereto acknowledges that such party has been informed
by each other party that the provisions of this Section 7(c)
constitute a material inducement upon which such party is relying
and will rely in entering into this Agreement and the transactions
contemplated hereby. Any of the parties hereto may file an original
counterpart or a copy of this Agreement with any court as written
evidence of the consent of each of the parties hereto to the waiver
of such party's right to trial by jury.
(d) Withholding. The Company shall have the right to withhold, from or
in respect of any payment due to Stevenson hereunder, any federal,
state or local taxes of any kind required by law to be withheld with
respect thereto.
4
<PAGE>
8. Merger/Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof and supersedes any prior
communication or agreement with respect thereto.
9. Notice. All notices, demands, and communications of any kind which any party
may require or desire to serve upon any other party under this Agreement shall
be in writing and shall be served upon such other party and such other party's
copied persons as specified below by personal delivery to the address set forth
for such party below or to such other address as such party shall have specified
by notice to each other party or by mailing a copy thereof by certified or
registered mail, or by Federal Express or any other reputable overnight courier
service, postage prepaid, with return receipt requested, addressed to such party
and copied persons at such addresses. In the case of service by personal
delivery, it shall be deemed complete on the first business day after the date
of actual delivery to such address. In case of service by mail or by overnight
courier, it shall be deemed complete, whether or not received, on the third day
after the date of mailing as shown by the registered or certified mail receipt
or courier service receipt. Notwithstanding the foregoing, notice to any party
or copied person of change of address shall be deemed complete only upon actual
receipt by an officer or agent of such party or copied person.
If to the Company, to it at:
HF Holdings, Inc.
1500 South 1000 West
Logan, Utah 84321
Attention: Chief Executive Officer
with a copy, if he is then employed by the Company, to:
Each member of the Board of Directors
(at such addresses to which notices are sent for meetings of the Board
of Directors)
If to Stevenson, to him at:
Gary E. Stevenson
370 Abbey Lane
Providence, Utah 84332
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attention: Charles W. Robins
10. Severability. If in any judicial or arbitral proceedings a court or
arbitrator shall refuse to enforce any provision of this Agreement, then such
unenforceable provision shall be deemed eliminated from this Agreement for the
purpose of such proceedings to the extent necessary to
5
<PAGE>
permit the remaining provisions to be enforced. To the full extent, however,
that the provisions of any applicable law may be waived, they are hereby waived
to the end that this Agreement be deemed to be a valid and binding agreement
enforceable in accordance with its terms, and in the event that any provision
hereof shall be found to be invalid or unenforceable, such provision shall be
construed by limiting it so as to be valid and enforceable to the maximum extent
consistent with and possible under applicable law.
11. Disclaimer and Limitation of Liability.
(a) Disclaimer. Stevenson makes no representations or warranties,
express or implied, in respect of the services to be provided by him
hereunder.
(b) Standard of Care. Neither Stevenson nor any other Indemnitee shall
be liable to the Company or any of its affiliates for any act,
alleged act, omission or alleged omission suffered or taken by
Stevenson hereunder or any other Indemnitee hereunder that does not
constitute willful misconduct.
(c) Limitation of Liability. In no event will either party hereto be
liable to the other for any indirect, special, incidental or
consequential damages, including lost profits or savings, whether or
not such damages are foreseeable, or in respect of any liabilities
relating to any third party claims (whether based in contract, tort
or otherwise) other than the Indemnified Liabilities to the extent
provided in Section 4(b), relating to the services to be provided by
Stevenson hereunder.
(d) Employment Agreements. Neither (i) this Agreement, as the same may
be amended from time to time, or the performance by Stevenson of any
services hereunder, nor (ii) any investment by Stevenson in HF
Investment Holdings, LLC ("HF LLC"), a Delaware limited liability
company, or the performance by Stevenson of any services under the
HF LLC Limited Liability Company Agreement, as the same may be
amended from time to time, shall constitute a violation of any
employment agreement between Stevenson and Holdings, ICON or the
Company, or any of their affiliates, including, but not limited to,
the Employment Agreement between Stevenson and the Company, dated an
even date herewith, as the same may be amended from time to time.
12. Counterparts. This Agreement may be executed in any number of counterparts
and by each of the parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which together shall
constitute one and the same agreement.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
THE COMPANY: HF Holdings, Inc.
By /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: CFO, V.P. and Treasurer
ICON HEALTH & FITNESS, INC.
By /s/ S. Fred Beck
-------------------------------------
Name: S. Fred Beck
Title: CFO, V.P. and Treasurer
STEVENSON:
/s/ Gary E. Stevenson
---------------------------------------
Gary E. Stevenson
7
<PAGE>
Exhibit 10.22
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of September 27, 1999,
by and between HF Holdings, Inc., a Delaware corporation (the "Parent"), HF
Acquisition, Inc., a Delaware corporation ("MergerSub") and Icon Health &
Fitness, Inc., a Delaware corporation ("ICON").
WHEREAS, the Boards of Directors of the respective parties hereto deem it
advisable and in the best interests of ICON and its stockholders to merge
MergerSub with and into ICON (the "Merger") in accordance with Section 251 of
the Delaware General Corporation Law (the "DGCL") and pursuant to this Agreement
and the Certificate of Merger attached hereto as Annex I and incorporated herein
(the "Certificate");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree that MergerSub shall be merged with
and into ICON, which shall be the corporation surviving the Merger, and that the
terms and conditions of the Merger, the mode of carrying it into effect, and the
manner of converting and exchanging shares shall be as follows:
ARTICLE I
THE MERGER
(a) At the Effective Time (as defined below in Article VI), MergerSub
shall be merged with and into ICON (the "Merger"), the separate existence of
MergerSub shall cease, ICON shall continue as the surviving corporation and the
Merger shall in all respects have the effects provided for by the DGCL. ICON, as
the surviving corporation after the Merger, is hereinafter sometimes referred to
as the "Surviving Corporation."
(b) Prior to and after the Effective Time, Parent, ICON and MergerSub,
respectively, shall take all such actions as may be necessary or appropriate in
order to effectuate the Merger. In the event that at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the officers and directors of each of the Parent,
ICON and MergerSub as of the Effective Time shall take all such further action.
<PAGE>
ARTICLE II
TERMS OF CONVERSION AND EXCHANGE OF SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder thereof:
(a) Each share of common stock, $.001 par value, of Merger Sub issued and
outstanding immediately prior to the Merger ("MergerSub Common Stock") shall be
converted into one share of common stock of the Surviving Corporation.
(b) Each share of common stock, $.01 par value, of ICON issued and
outstanding immediately prior to the Merger ("ICON Common Stock") shall be
converted into, one outstanding share of common stock of Parent, $.001 par
value.
ARTICLE III
CERTIFICATE OF INCORPORATION AND BY-LAWS
From and after the Effective Time, and until thereafter amended as
provided by law, the Certificate of Incorporation of ICON as in effect
immediately prior to the Merger shall be and continue to be the Certificate of
Incorporation of the Surviving Corporation. From and after the Effective Time,
the By-laws of ICON shall be and continue to be the By-laws of the Surviving
Corporation until amended in accordance with law.
ARTICLE IV
DIRECTORS AND OFFICERS
The persons who are directors and officers of ICON immediately prior to
the Merger shall continue as directors and officers, respectively, of the
Surviving Corporation and shall continue to hold office as provided in the
By-laws of the Surviving Corporation. If, at or following the Effective Time, a
vacancy shall exist in the Board of Directors or in the position of any officer
of the Surviving Corporation, such vacancy may be filled in the manner provided
in the By-laws of the Surviving Corporation.
2
<PAGE>
ARTICLE V
AMENDMENT AND TERMINATION
The parties hereto by mutual consent of their respective Boards of
Directors may amend, modify or supplement this Agreement in such manner as may
be agreed upon by them in writing, at any time before or after approval of this
Agreement by the stockholders of Parent, ICON or MergerSub; provided, however,
that no such amendment, modification or supplement shall, in the sole judgment
of the Board of Directors of ICON or MergerSub, as applicable, materially and
adversely affect the rights of the stockholders of ICON or MergerSub, as
applicable.
This Agreement may be terminated and the Merger and other transactions
herein provided for abandoned at any time, whether before or after approval of
this Agreement by the stockholders of ICON or MergerSub, by action of the Board
of Directors of either ICON or MergerSub if the Board of Directors for such
corporation determines for any reason that the consummation of the transactions
provided for herein would for any reason be inadvisable or not in the best
interests of such corporation or its stockholders.
ARTICLE VI
EFFECTIVE TIME OF THE MERGER
Subject to the terms and conditions set forth in this Agreement, ICON
shall cause the Certificate to be executed and thereafter delivered to the
Secretary of State of Delaware for filing, as provided in Section 251 of the
DGCL. The Merger shall become effective at such time as the Certificate is filed
as required by law with the Secretary of State of Delaware (the "Effective
Time").
ARTICLE VII
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which when so
executed shall be deemed to be an original, and such counterparts shall together
constitute but one and the same instrument.
3
<PAGE>
[Agreement & Plan of Merger]
IN WITNESS WHEREOF, Parent, ICON and MergerSub, pursuant to approval and
authorization duly given by resolutions adopted by their respective Boards of
Directors, have each caused this Agreement and Plan of Merger to be executed by
an authorized officer as of the date first written above by.
HF HOLDINGS, INC.
By: /s/ S. Fred Beck
------------------------------------
ICON HEALTH & FITNESS, INC.
By: /s/ S. Fred Beck
------------------------------------
HF ACQUISITION, INC.
By: /s/ S. Fred Beck
------------------------------------
4
<PAGE>
Exhibit 10.23
TAX AGREEMENT
TAX AGREEMENT, made and entered into and effective as of the 27th day of
September, 1999 (the "Tax Agreement") by and among HF Holdings, Inc., a Delaware
corporation ("Parent"), and its subsidiaries, including ICON Health & Fitness,
Inc., a Delaware corporation, Jumpking, Inc., a Utah corporation, Universal
Technical Services, Inc., a Utah corporation, ICON International Holdings, Inc.,
a Delaware corporation, and ICON IP, Inc., a Delaware corporation (hereinafter
each referred to individually as "Subsidiary" and collectively as
"Subsidiaries").
WHEREAS, Parent and Subsidiaries are part of an Affiliated Group (as
hereafter defined) that will elect to file consolidated Federal income tax
returns and certain consolidated, combined, or unitary state or local income tax
returns; and
WHEREAS, Parent and Subsidiaries desire to set forth their agreement with
respect to the allocation and payment of Federal, state, and local income taxes
attributable to each of them, and the allocation of all responsibilities,
liabilities and benefits relating thereto, for the taxable years in which Parent
and Subsidiaries are jointly included in a single consolidated, combined, or
unitary Federal, state, or local income tax return;
WHEREAS, Parent, Parent and Subsidiaries desire to set forth their
agreement with respect to the allocation and payment of Federal, state, and
local income taxes attributable to each of them, and the allocation of all
responsibilities, liabilities and benefits relating thereto, for the taxable
years in which Parent and Subsidiaries are jointly included in a single
consolidated, combined, or unitary Federal, state, or local income tax return;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereby agree as
follows:
1. Definitions.
(a) As used in this Tax Agreement:
"Affiliated Companies" shall mean, for each taxable year, all Members of
the Affiliated Group, other than the common parent corporation.
"Affiliated Group" shall mean an affiliated group of corporations within
the meaning of Code section 1504(a) for the taxable year in question.
"Alternative Minimum Tax" shall mean the tax imposed by Section 55 of the
Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended and in
effect for the taxable year in question.
<PAGE>
"Federal Separate Return Tax Liability" shall have the meaning set forth
in Section 3 below.
"Final Determination" with respect to any tax liability for a taxable
period shall mean the final resolution of such tax liability (including all
related interest and penalties) for such taxable period, by (A) a binding
agreement without reservation on Internal Revenue Service Form 870-AD (or any
successor form thereto), or by a comparable agreement form under the laws of
other jurisdictions; (B) a decision, judgment, decree, or other order by a court
of competent jurisdiction, which has become final and unappealable; (C) a
closing agreement or offer in compromise under Sections 7121 or 7122 of the
Code, or comparable agreements under the laws of other jurisdictions; (D) any
allowance of a refund or credit for such taxable period, but only after the
expiration of all periods during which such refund may be recovered (including
by way of offset) by the tax imposing jurisdiction; or (E) any other final
disposition of the tax liability for such period by reason of the expiration of
the applicable statute of limitations.
"IRS" means the United States Internal Revenue Service or any successor
thereto, including, but not limited to, its agents, representatives and
attorneys.
"Members" shall mean, for each taxable year, each includible member of the
Parent Affiliated Group.
"Separate Return Year" shall mean any taxable year for which a Member is
not included in the Parent Affiliated Group consolidated Federal income tax
return.
"Tax Attributes" shall mean income, gain, loss, deduction and credit, and
all items entering into the computation thereof, for Federal income tax
purposes.
"Treasury Regulations" shall mean the income tax regulations promulgated
under the Code applicable to the taxable year in question.
(b) Any term used in this Tax Agreement that is not defined in this Tax
Agreement shall, unless the context otherwise requires, have the meaning
assigned in the Code or in the Treasury Regulations thereunder.
2. Filing of Consolidated Federal Income Tax Returns.
Parent and its Affiliated Companies will elect to be included in a single
consolidated Federal income tax return for such taxable years for which they are
eligible or required to do so under the Code and Treasury Regulations, unless
Parent shall request otherwise. Such returns shall include all of the income,
gain, loss, deductions and credits and similar items of Parent and its
Affiliated Companies for the period during which such companies are Members of
the Parent Affiliated Group. Parent shall prepare the return and shall have the
right to
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<PAGE>
exercise all the powers and shall have all the duties of a common parent as are
conferred upon it by the Code and Treasury Regulations. Parent and its
Affiliated Companies shall execute and file such consents, elections and other
documents that may be required or appropriate for the proper filing and defense
of such returns.
3. Federal Separate Return Tax Liability.
The Federal Separate Return Tax Liability of each Member of the Parent
Affiliated Group shall be computed as if each Member had filed a separate
Federal income tax return for the taxable year with the following modifications:
(a) Any dividends received by one Member from another Member will be
assumed to qualify for the 100 percent dividends received deduction of Section
243 of the Code, or shall be eliminated from such calculation in accordance with
Section 1.1502-14(a)(1) of the Treasury Regulations.
(b) Gain or loss on intercompany transactions, whether deferred or not,
shall be treated by each Member in the manner required by Section 1.1502-13 of
the Treasury Regulations. Excess losses shall be included in income as provided
in Section 1.1502-19 of the Treasury Regulations as if a consolidated Federal
line tax return had been filed for the year.
(c) Limitations on utilization of Tax Attributes, such as the calculation
of a deduction or the utilization of tax credits or the calculation of a tax
liability, shall be made on a consolidated basis. Accordingly, for example, the
limitations provided in Section 38(c) (relating to general business credit);
Section 53 (relating to minimum tax credit) 170(b)(2) (relating to charitable
contribution deduction), Section 172(b)(2) (relating to net operating loss
deduction) and Section 904 (relating to foreign tax credit) of the Code and
similar limitations shall be applied on a consolidated basis. Under the
principles of Revenue Ruling 66-374, 1966-2 C.B. 427, the "net operating loss"
of a Member is the deduction which such Member would have had available if it
actually filed a separate return for the year, but not including any portion of
a net operating loss sustained in a prior or subsequent year. The rules stated
above in this paragraph (c) regarding carryover net operating losses will also
apply in the computation of other Tax Attribute carryover items such as general
business credits, foreign tax credits, alternative minimum tax credits and
charitable contribution deductions. However, no benefit shall be granted a
Member for a Tax Attribute unless the Tax Attribute is availed of in reducing
the consolidated Federal income tax liability.
(d) Elections as to tax credits and tax computations which may have been
different from the consolidated treatment if separate returns had been filed
shall be made on an annual basis by Parent. Certain items of Tax Attributes
shall be apportioned among the Members, as set forth on an apportionment
schedule prepared by Parent and delivered to each Affiliated Company. For
purposes of calculating estimated tax payments, Parent will deliver to each
Affiliated Company by April 1 of each year a preliminary allocation schedule for
use by such
-3-
<PAGE>
Affiliated Company in the current tax year. If such schedule has not
been received by April 1 in any tax year, the items shall be apportioned on the
basis of the most recent schedule delivered by Parent to such Members.
(e) In calculating any benefit from a carryback or carryover of net
operating losses, adjustments shall be made to such prior or subsequent year's
Federal Separate Return Tax Liability as required under Section 172(b)(2) and
172(d) of the Code.
4. Payments.
(a) Each Affiliated Company shall pay Parent its Federal Separate Return
Tax Liability (if greater than zero) determined under Section 3 of this Tax
Agreement. Parent shall pay each Affiliated Company with Tax Attributes used by
the Parent Affiliated Group during the taxable year for such Member's allocable
share of the tax benefit to the Parent Affiliated Group of the utilization of
such Tax Attributes. Such tax benefit shall be determined on a marginal tax
basis (calculating consolidated tax liability with and without use of such Tax
Attributes), and allocated to each Affiliated Company whose Tax Attributes are
used by the Parent Affiliated Group during the taxable year pursuant to a
consistent method which reasonably reflects the utilization of such Tax
Attributes (such consistency and allocation to be determined by Parent). Any
payments required by this Section 4(a) shall be made on or before such payment
is required to be made to the IRS (or in the case of a refund (or credit)
shortly after such refund (or credit) is received from the IRS), except as may
otherwise be agreed to by Parent and the appropriate Member and shall include
interest and penalties equal to the amount that is actually paid to (or received
from) the IRS attributable to such Member.
(b) Each Affiliated Company shall also pay Parent its share of estimated
tax payments to be made on its share of projected consolidated Federal income
tax liability for each year determined based on the principles of Paragraph (a)
of this Section 4. Payment to Parent shall be made on or before the estimated
tax payment is required to be paid to the IRS, except as may otherwise be agreed
to by Parent and the appropriate Member. Such Member will receive credit for
such estimated taxes in the year-end computation under Paragraph (a) of this
Section 4 of the Tax Agreement.
(c) If part or all of an unused consolidated Tax Attribute is allocated to
a Member of the Parent Affiliated Group pursuant to Section 1.1502-79 of the
Treasury Regulations or otherwise, and it is carried back or forward to a year
in which such Member filed or files a separate income tax return or a
consolidated Federal income tax return with another Affiliated Group, any refund
or reduction in tax liability arising from the carryback or carryover shall be
retained by such Member. Notwithstanding the above, Parent shall determine
whether an election shall be made not to carry back any consolidated net
operating loss or other Tax Attribute arising in a consolidated return year
(including any portion allocated to a Member under Section 1.1502-79 of the
Treasury Regulations) in accordance with Section 172(b)(3)(C) of the Code or
other applicable provision.
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<PAGE>
(d) Any payments by one party to the other which are not made when due
shall bear interest, compounded daily, at a rate equal to the rate established
by the Secretary of the Treasury pursuant to Section 6621(a)(1) of the Code.
(e) All amounts paid pursuant to this Tax Agreement by one party to
another shall be treated by such parties for all tax and book purposes as
intercompany settlements of liabilities. It is acknowledged that any allocation
of tax liability in excess of that under Section 1552 of the Code will be
regarded solely for federal income tax purposes as distributions with respect to
stock, contributions to capital, or combinations thereof, as appropriate.
5. Tax Indemnity.
Except as otherwise agreed, Parent shall be liable for, and shall
indemnify and hold each Affiliated Company harmless (subject to setoff for any
unpaid amount under Sections 4 and 6 of this Tax Agreement) against any and all
Federal income tax, interest and penalties for periods in which it is included
in the Parent Affiliated Group consolidated Federal income tax return. Each
Affiliated Company shall be liable for, and shall indemnify and hold each other
Member harmless against, any and all Federal income tax for periods in which it
is not included in the Parent Affiliated Group consolidated Federal income tax
return.
6. Adjustment to Federal Income Tax Liability.
(a) Parent shall control all decisions as to tax audits and proceedings as
exclusive agent of each of the Affiliated Companies.
(b) Except as otherwise provided in this Tax Agreement, if the
consolidated Federal income tax liability of the Parent Affiliated Group is
adjusted for any taxable year, whether by means of a an amended return, claim
for refund, or after tax audit by the IRS, upon a Final Determination thereof,
the Federal Separate Return Liability of each such Member shall be recomputed
under this Tax Agreement to give effect to such adjustments. In the case of a
refund, Parent shall make payment to each such Member for its share of the
refund, determined in the same manner as in Section 4 of this Tax Agreement,
shortly after the refund is received by Parent, and in the case of an increase
in tax liability, each such Member shall pay to Parent its allocable share of
such increased tax liability within on or before such liability is due. If any
interest is to be paid or received as a result of a consolidated Federal income
tax deficiency or refund, such interest shall be allocated to the Members in the
ratio each such Member's change in consolidated Federal income tax liability
bears to the total change in tax liability. Any penalty shall be allocated upon
such basis as Parent deems just and proper in view of all applicable
circumstances.
-5-
<PAGE>
7. Certain State and Local Income Tax Liabilities.
(a) Each Member shall file its own separate company state, local or
foreign income and other tax returns and shall pay all such separate company
taxes required to be paid to the relevant taxing authorities (and shall retain
the rights to all refunds with respect thereto).
(b) Parent shall include certain Affiliated Companies in certain
consolidated, combined, or unitary state or local income tax returns to the
extent required or elected by Parent. To the extent appropriate and subject to
the provisions of Section 7(c) hereof, rules similar to the provisions of
Sections 2, 3, 4, 5 and 6 of this Tax Agreement (to the extent the law is the
same) shall be applied to the filing of returns, contests and claims for refund
and reimbursements with respect to state and local franchise or income tax
liabilities to which any Member of the Parent Affiliated Group are subject and
which are required to be determined on a unitary, combined or consolidated
basis.
(c) If the parties are, after negotiation in good faith, unable to agree
upon the appropriate application of such rules with respect to such franchise or
income tax liabilities, the controversy shall be settled by Parent's regular
independent outside accounting firm.
8. Election under Section 1552 of the Code.
This Agreement is not intended to establish the method by which the
earnings and profits of each member of the Group will be determined. Parent
reserves the right to elect the method for allocating tax liability for the
purposes of determining earnings and profits as set forth in Sections
1.1552-1(a) and 1.1502-33(d) of the Treasury Regulations.
9. Mutual Cooperation.
Parent and the Affiliated Companies shall provide each other with such
assistance as may be reasonably requested by either of them in connection with
the preparation and execution of any tax return, any audit or other examination
by any taxing authority, or any judicial or administrative proceedings relating
to any tax liability, and each will retain and, upon the request of the other,
provide the other with any records or information which may be relevant to such
return, audit or examination proceedings. Parent and the Affiliated Companies
agree to take whatever reasonable action is necessary to minimize the aggregate
tax liabilities of each of the Members, including filing tax returns on a
consolidated, combined or unitary basis, or not filing on such basis.
10. Miscellaneous.
(a) Injunctions. The parties acknowledge that irreparable damage would
occur in the event that any of the provisions of this Tax Agreement were not
performed in accordance with its specific terms or were otherwise breached. The
parties hereto shall be entitled to an
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<PAGE>
injunction or injunctions to prevent breaches of the provisions of this Tax
Agreement and to enforce specifically the terms and provisions hereof in any
court having jurisdiction, such remedy being in addition to any other remedy to
which they may be entitled at law or equity.
(b) Assignment. Except by operation of law or in connection with the sale
of all or substantially all the assets of a party hereto, this Tax Agreement
shall not be assignable, in whole or in part, directly or indirectly, by any
party hereto without the written consent of the other parties; and any attempt
to assign any rights or obligations arising under this Tax Agreement without
such consent shall be void; provided, however, that the provisions of this Tax
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and permitted assigns, but no
assignment shall relieve any party's obligations hereunder without the written
consent of the other parties.
(c) Further Assurances. Subject to the provisions hereof, the parties
hereto shall make, execute, acknowledge and deliver such other instruments and
documents, and take all such other actions, as may be reasonably required in
order to effectuate the purposes of this Tax Agreement and to consummate the
transactions contemplated hereby. Subject to the provisions hereof, each of the
parties shall, in connection with entering into this Tax Agreement, performing
its obligations hereunder and taking any and all actions relating hereto, comply
with all applicable laws, regulations, orders and decrees, obtain all required
consents and approvals and make all required filings with any governmental
agency, other regulatory or administrative agency, commission or similar
authority and promptly provide the other parties with all such information as
they may reasonably request in order to be able to comply with the provisions of
this paragraph.
(d) Parties in Interest. Except as herein otherwise specifically provided,
nothing in this Tax Agreement expressed or implied is intended to confer any
right or benefit upon any person, firm or corporation other than the parties and
their respective successors and permitted assigns.
(e) Waivers, Etc.. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No modification or waiver of any provision of this Tax Agreement
nor consent to any departure by the parties therefrom shall in any event be
effective unless the same shall be in writing, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.
(f) Setoff. All payments to be made by any party under this Tax Agreement
shall, except to the extent otherwise specifically provided herein, be made
without setoff, counterclaim or withholding, all of which are expressly waived.
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<PAGE>
(g) Change of Law. Any alteration, modification, addition, deletion, or
other change in the consolidated income tax return provisions of the Code or the
Treasury Regulations shall automatically be applicable to this Tax Agreement
mutatis mutandis. If, due to any change in applicable law or regulations
interpretation thereof by any court of law or other governing body having
jurisdiction subsequent to the date of this Tax Agreement, performance of any
provision of this Tax Agreement or any transaction contemplated thereby shall
become impracticable or impossible, the parties hereto shall use their best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such provision.
(h) Departing Members. Any Member corporation which leaves the Parent
Affiliated Group shall be bound by this Tax Agreement. Failure of one or more
parties hereto to qualify by meeting the definition of Member of the Parent
Affiliated Group shall not operate to terminate this Tax Agreement with respect
to the other parties as long as two or more parties hereto continue so to
qualify.
(i) New Members. The Members hereto specifically recognize that from time
to time other companies may become Members of the Parent Affiliated Group and
hereby agree that such new Members must become parties to this Tax Agreement by
executing the master copy of the Tax Agreement which shall be maintained at
Parent's headquarters. It will not be necessary for all the other Members to
resign the Tax Agreement, but the new Member may simply sign the existing Tax
Agreement and it will be effective as if the old Members had resigned.
(j) Amendment of this Tax Agreement. This Tax Agreement constitutes the
entire agreement between the parties and shall, except as provided in Section 8
of this Tax Agreement, supersede any other tax-sharing or tax-allocation
agreement or arrangement (whether written or oral) in effect between the parties
hereto prior to the effective date hereof with respect to the matters expressly
dealt with herein. This Tax Agreement may not be altered, changed, modified, or
terminated orally; any modification or revision of this Tax Agreement shall be
accomplished only through a writing clearly denominated as an amendment to this
Tax Agreement signed by the parties hereto.
(k) Confidentiality. Subject to any contrary requirement of law or
regulation and the right of each party to enforce its rights hereunder in any
legal action, each party agrees that it shall keep strictly confidential, and
shall cause its employees and agents to keep strictly confidential, any
information which it or any of its agents or employees may acquire pursuant to,
or in the course of performing its obligations under, any provision of this Tax
Agreement; provided, however, that such obligation to maintain confidentiality
shall not apply to information which (1) at the time of disclosure was in the
public domain not as a result of acts by the Receiving Party or (2) was in the
possession of the Receiving Party at the time of disclosure.
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<PAGE>
(l) Headings. Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provision of this Tax
Agreement.
(m) Counterparts. For the convenience of the parties, any number of
counterparts of this Tax Agreement may be executed by the parties hereto, and
each such executed counterpart shall be, and shall be deemed to be, an original
instrument.
(n) Governing Law. This Tax Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein.
(o) Records and Workpapers. Each party will retain all returns, schedules
and workpapers, and all material records and other documents relating thereto,
until (i) Parent notifies such party that such returns and other documents may
be destroyed after such returns and other documents are offered to Parent, (ii)
the expiration of the statute of limitations (including extensions) of the
taxable years to which such returns and other documents relate or there has been
a Final Determination of all tax for such years, and (iii) there has been a
final settlement of all payments which may be required under this Tax Agreement
for such years.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Tax Agreement to
be duly executed by their respective officers, each of whom is duly authorized,
all as of the day and year first above written.
HF Holdings, Inc.
By: /s/ S. Fred Beck
-------------------------------------
Title: CFO, V.P. and Treasurer
ICON Health & Fitness, Inc.
By: /s/ S. Fred Beck
-------------------------------------
Title: CFO, V.P. and Treasurer
Jumpking, Inc.
By: /s/ S. Fred Beck
-------------------------------------
Title: President
Universal Technical Services, Inc.
By: /s/ S. Fred Beck
-------------------------------------
Title: Vice President
ICON International Holdings, Inc.
By: /s/ S. Fred Beck
-------------------------------------
Title: V.P. and Treasurer
ICON IP, Inc.
By: /s/ S. Fred Beck
-------------------------------------
Title:
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF HF HOLDINGS, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Trade Names
- ---- ---------------- -----------
<S> <C> <C>
ICON Health & Fitness, Inc Delaware Proform Fitness Products
Proform
Fitness
Proform
PROFORM
PFP
Proform/Weslo
Legend
American Physical Therapy
APT
WEIDERCARE
Legend Sporting Goods
Legend Sporting Goods, Inc.
Workout Warehouse
Image Image ICON, Inc.
IMAGE
Weslo
WESLO
Legend
Silicone Products
SPI
HealthRider
HEALTHRIDER
Bodyhealth
NordicTrack
NORDICTRACK
</TABLE>
SUBSIDIARIES OF ICON HEALTH & FITNESS, INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Trade Names
- ---- ---------------- -----------
<S> <C> <C>
Jumpking, Inc. Utah Jumpking
Universal Products, Inc. Utah Universal
UTS
ICON International Holdings, Inc. Delaware
ICON OS, Inc. Virgin Islands
IHF (Holdings) Ltd. United Kingdom
ICON Fitness Lifestyle Ltd. United Kingdom
ICON Health & Fitness France Sarl France
ICON Health & Fitness France SA France
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ICON Health & Fitness Italia Srl Italy
ICON du Canada Quebec, Canada
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
ICON Health & Fitness, Inc. of our report dated September 27, 1999 relating to
the financial statements and financial statement schedule of ICON Health &
Fitness, Inc., which appears in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 31, 2000
<PAGE>
Exhibit 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------
ICON HEALTH & FITNESS, INC.
(Exact name of obligor as specified in its charter)
Delaware 87-0531206
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Jumpking, Inc.
(Exact name of obligor as specified in its charter)
Utah 87-0481821
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
510152 N.B. Ltd.
(Exact name of obligor as specified in its charter)
Canada N/A
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
<PAGE>
Universal Technical Services, Inc.
(Exact name of obligor as specified in its charter)
Utah 87-0468754
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
ICON International Holdings, Inc.
(Exact name of obligor as specified in its charter)
Delaware 84-1425493
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1500 South, 1000 West
Logan, Utah 84321
(Address of principal executive offices) (Zip code)
----------
12% Notes due 2005
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 28th day of March, 2000.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
In Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin. $ 3,247,576
Interest-bearing balances.......................... 6,207,543
Securities:
Held-to-maturity securities........................ 827,248
Available-for-sale securities...................... 5,092,464
Federal funds sold and Securities purchased under
agreements to resell............................... 5,306,926
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............37,734,000
LESS: Allowance for loan and
lease losses............575,224
LESS: Allocated transfer risk
reserve........................13,278
Loans and leases, net of unearned income,
allowance, and reserve........................... 37,145,498
Trading Assets........................................ 8,573,870
Premises and fixed assets (including capitalized
leases)............................................ 723,214
Other real estate owned............................... 10,962
Investments in unconsolidated subsidiaries and
associated companies............................... 215,006
Customers' liability to this bank on acceptances
outstanding........................................ 682,590
Intangible assets..................................... 1,219,736
Other assets.......................................... 2,542,157
-----------
Total assets.......................................... $71,794,790
===========
<PAGE>
LIABILITIES
Deposits:
In domestic offices................................ $27,551,017
Noninterest-bearing......................11,354,172
Interest-bearing.........................16,196,845
In foreign offices, Edge and Agreement
subsidiaries, and IBFs........................... 27,950,004
Noninterest-bearing.........................639,410
Interest-bearing.........................27,310,594
Federal funds purchased and Securities sold under
agreements to repurchase........................... 1,349,708
Demand notes issued to the U.S.Treasury............... 300,000
Trading liabilities................................... 2,339,554
Other borrowed money:
With remaining maturity of one year or less........ 638,106
With remaining maturity of more than one year
through three years.............................. 449
With remaining maturity of more than three years... 31,080
Bank's liability on acceptances executed and
outstanding........................................ 684,185
Subordinated notes and debentures..................... 1,552,000
Other liabilities..................................... 3,704,252
Total liabilities..................................... 66,100,355
EQUITY CAPITAL
Common stock.......................................... 1,135,284
Surplus............................................... 866,947
Undivided profits and capital reserves................ 3,765,900
Net unrealized holding gains (losses) on
available-for-sale securities...................... (44,599)
Cumulative foreign currency translation adjustments... (29,097)
-----------
Total equity capital.................................. 5,694,435
-----------
Total liabilities and equity capital.................. $71,794,790
===========
</TABLE>
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi )
Alan R. Griffith ) Directors
Gerald L. Hassell )
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the November
27, 1999 Financial Statements included in the Company's Form S-4 and is
qualified in its entirety by reference to such Form S-4.
</LEGEND>
<CIK> 0000934798
<NAME> ICON HEALTH & FITNESS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-27-1999
<CASH> 5,749
<SECURITIES> 0
<RECEIVABLES> 224,898
<ALLOWANCES> 12,218
<INVENTORY> 139,748
<CURRENT-ASSETS> 369,129
<PP&E> 83,312
<DEPRECIATION> 38,625
<TOTAL-ASSETS> 463,948
<CURRENT-LIABILITIES> 158,773
<BONDS> 324,388
0
0
<COMMON> 204,267
<OTHER-SE> (223,480)
<TOTAL-LIABILITY-AND-EQUITY> 463,948
<SALES> 334,308
<TOTAL-REVENUES> 334,308
<CGS> 243,735
<TOTAL-COSTS> 77,677
<OTHER-EXPENSES> 2,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,970
<INCOME-PRETAX> (6,139)
<INCOME-TAX> 2,804
<INCOME-CONTINUING> (8,943)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,174)
<CHANGES> 0
<NET-INCOME> (10,117)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
